NOTE AND WARRANT PURCHASE AGREEMENT
THIS
NOTE
AND WARRANT PURCHASE AGREEMENT (this "Agreement"),
is
executed as of August 24, 2007, by and among Xxxxxx Science, Inc, a Delaware
corporation (the "Company"),
and
the purchasers set forth on the signature page attached hereto (each, a
“Purchaser”
and
collectively, the "Purchasers").
WHEREAS,
the Company wishes to sell and issue, and the Purchasers wish to purchase,
the
Company’s 10% senior secured notes with an aggregate principal amount of
$1,250,000, and in the respective principal amounts set forth on the signature
page hereto, and warrants to purchase the respective number of shares of Common
Stock (as defined below) set forth on the signature page hereto, which warrants
shall be exercisable for three years at a purchase price of $0.25 per share;
and
WHEREAS,
the Purchasers are willing to provide such financing on the terms and subject
to
the conditions set forth herein.
NOW,
THEREFORE, in consideration of the mutual covenants and agreements set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Purchasers,
intending to be legally bound, agree as follows:
ARTICLE
1
DEFINITIONS
1.1 Defined
terms.
Certain
capitalized terms used in this Agreement shall have the specific meanings
defined below:
“Business
Day”
shall
mean a day other than a Saturday, Sunday, or other day on which commercial
banks
are authorized or required by law to close.
“Closing
Date”
shall
mean August 24, 2007 or any other date mutually agreed to by the Company and
the
Purchasers.
“Indebtedness”
shall
mean (a) all indebtedness for borrowed money or other obligations, extensions
of
credit, commitments or liabilities, whether current or long term, contingent
or
matured, secured or unsecured, (b) all indebtedness of the deferred purchase
price of property or services whether represented by a note, promise to pay
or
security agreement, (c) all indebtedness created or arising under any
conditional sale or other title retention agreement (even though the rights
and
remedies of the seller or lender under such agreement in the event of default
may be limited to repossession or sale of such property), (d) all indebtedness
secured by a purchase money mortgage or other lien to secure all or part to
the
purchase price of property subject to such mortgage or lien regardless of
whether the indebtedness secured thereby shall have been assumed by the Company
or is non recourse to the credit of the Company, (e) all obligations under
leases that have been or must be, in accordance with United States Generally
Accepted Accounting Principles (“GAAP”),
recorded as capital leases in respect of which the Company is liable as lessee,
(f) any liability in respect of banker’s acceptances or letters of credit, and
(g) without duplication all indebtedness that is guaranteed by the Company
or
that the Company has agreed (contingently or otherwise) to purchase or otherwise
acquire or in respect of which the Company has otherwise assured a creditor
against loss.
“SEC
Documents”
shall
mean complete and accurate copies of the Company’s (i) Annual Report on Form
10-KSB for the fiscal year ended December 31, 2006, together with all
amendments, supplements and exhibits thereto (the “Form
10-KSB”),
as
filed with the Securities and Exchange Commission (the “Commission”),
(ii)
Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2007,
together with all amendments, supplements and exhibits thereto, as filed with
the Commission, and (iii) other reports filed by the Company with the Commission
since December 31, 2006, together with all amendments, supplements and exhibits
thereto, each as made available through the Commission’s website,
xxx.xxx.xxx.
ARTICLE
2
THE
CLOSING
2.1 Closing.
According to the terms and subject to the conditions of this Agreement, the
Company shall deliver to the Purchasers on the Closing Date: (a) 10% senior
secured notes in the form attached hereto as Exhibit
A
with an
aggregate principal amount of $1,250,000, and in the respective principal
amounts set forth on the signature page hereto (each, a “Note”
and
collectively, the “Notes”),
and
(b) warrants to purchase a number of shares of the Company’s common
stock, $0.001 par value per share (“Common
Stock”), equal
to
the quotient obtained by dividing (i) an amount equal to 40% of the principal
amount of each Note by (ii) an exercise price of $0.25, in the form set forth
in
Exhibit
B
(each, a
“Warrant”
and
collectively, the “Warrants”).
For
example, if the principal amount of a Note is $500,000, then the Company shall
issue to the Purchaser holding such Note a Warrant to purchase 800,000 shares
of
Common
Stock (($500,000*0.40)/$0.25). The Purchasers shall deliver to the Company
on
the Closing Date, via wire transfer to the account set forth in Exhibit
C,
the
respective principal amounts set forth on the signature page
hereto.
2.2 Interest.
The
Notes shall bear interest ("Interest")
from
the Closing Date until the Maturity Date at the rate of 10% per annum
(calculated on the basis of the actual number of days elapsed over a year of
360
days).
2.3 Prepayment
of the Note.
The
Company may from time to time prepay all or any portion of the Notes and all
accrued but unpaid interest thereon without premium or penalty of any type.
The
Company shall give the Purchasers at least three Business Days prior written
notice of its intention to prepay the Notes, specifying the date of payment
and
the total amount of the Notes and the accrued but unpaid interest to be paid
on
such date. In the event that the Company elects to partially prepay the Notes,
such prepayment will be made pro rata based on the principal balance of the
Notes held by the Purchasers.
2.4 Maturity
Date.
Unless
the Notes are earlier accelerated or prepaid pursuant to the terms hereof,
the
Notes and all accrued interest thereon shall be due and payable in full on
February 24, 2008, the six month anniversary of the Closing Date (the
“Maturity
Date”);
provided,
however,
that
the Maturity Date of the Notes may be extended as set forth in Section 2.5
below.
2.5 Payment
Extension Options.
(a) First
Extension.
In the
event that the Company does not pay the Notes in full by February 24, 2008,
the
Maturity Date shall be extended to March 24, 2008, so long as the interest
due
as of February 24, 2008 is paid in full by the Company and the Company issues
to
each Purchaser a Warrant to purchase a number of shares of
Common
Stock equal to the quotient obtained by dividing (i) an amount equal to 6.25%
of
the outstanding principal amount of such Purchaser’s Note, less any amount of
such Note prepaid by the Company prior to February 24, 2008, by (ii) an exercise
price of $0.25. For example, if the principal amount of a Note is $500,000,
then
the Company shall issue to the Purchaser holding such Note an additional Warrant
to purchase 250,000 shares of
Common
Stock (($500,000*0.0625)/$0.25).
2
(b) Second
Extension.
In the
event that the Company does not pay the Notes in full by March 24, 2008, the
Maturity Date shall be extended to April 24, 2008, so long as the interest
due
as of March 24, 2008 is paid in full by the Company and the Company issues
to
each Purchaser a Warrant to purchase a number of shares of Common
Stock equal to the quotient obtained by dividing (i) an amount equal to 6.25%
of
the outstanding principal amount of such Purchaser’s Note, less any amount of
such Note prepaid by the Company prior to March 24, 2008, by (ii) an exercise
price of $0.25. For example, if the principal amount of a Note is $500,000,
then
the Company shall issue to the Purchaser holding such Note an additional Warrant
to purchase 250,000 shares of Common Stock
(($500,000*0.0625)/$0.25).
(c) Third
Extension.
In the
event that the Company does not pay the Notes in full by April 24, 2008, the
Maturity Date shall be extended to May 24, 2008, so long as the interest due
as
of April 24, 2008 is paid in full by the Company and the Company issues to
each
Purchaser a Warrant to purchase a number of shares of Common
Stock equal to the quotient obtained by dividing (i) an amount equal to 6.25%
of
the outstanding principal amount of such Purchaser’s Note, less any amount of
such Note prepaid by the Company prior to April 24, 2008, by (ii) an exercise
price of $0.25. For example, if the principal amount of a Note is $500,000,
then
the Company shall issue to the Purchaser holding such Note an additional Warrant
to purchase 250,000 shares of Common Stock
(($500,000*0.0625)/$0.25).
2.6 Additional
Warrants upon Default.
For
each month beyond the three extensions of the Maturity Date set forth in Section
2.5 that the Company defaults on payment of the Notes, on the first day of
the
month of such default, the Company shall issue to each Purchaser an additional
Warrant to purchase a number of shares of Common
Stock equal to the quotient obtained by dividing (a) an amount equal to 50%
of
the outstanding principal amount of such Purchaser’s Note, less any amount of
such Note prepaid by the Company, by (b) an exercise price of $0.25. For
example, if the principal amount of a Note is $500,000, then the Company shall
issue to the Purchaser holding such Note an additional Warrant to purchase
1,000,000 shares of
Common
Stock (($500,000*0.50)/$0.25). The Purchasers’ acceptance of such Warrants shall
not preclude their exercise of any rights whether at law or equity under the
Notes. The right to receive additional Warrants pursuant to this Section 2.6
shall not in any way limit the rights and remedies available to a Purchaser
in
the event all amounts due and payable under such Purchaser’s Note are not paid
in full by the Maturity Date, or any extension thereof.
ARTICLE
3
CONDITIONS
PRECEDENT TO THE LOAN
(a) Conditions
on the Closing Date.
The
obligation of the Purchasers to purchase the Notes pursuant to Section 2.1
shall
be subject to the condition that: (i) the Company shall have duly executed
and
delivered to the Purchasers the Notes and Warrants; (ii) the representations
and
warranties made by the Company in Article 5 hereof shall be true and correct
at
the Closing Date, with the same force and effect as if they had been made on
and
as of such date, the business and assets of the Company shall not have been
adversely affected in any material way prior to the Closing Date, and the
Company shall have performed and complied with all obligations and conditions
herein required to be performed or complied with by it on or prior to the
Closing Date; (iii)
all
corporate and other proceedings in connection with the transactions contemplated
at the Closing Date, and all documents and instruments incident to such
transactions, shall be reasonably satisfactory in substance and form to the
Purchasers, which shall have received all such counterpart originals or
certified or other copies of such documents as they may reasonably request;
(iv)
the Company shall have reserved for issuance shares of Common Stock issuable
upon exercise of the Warrants; (v) all authorizations, approvals, or permits,
if
any, of any governmental authority or regulatory body of the United States
or of
any state or foreign government that are required in connection with and prior
to the lawful sale and issuance of the Notes and Warrants pursuant to this
Agreement shall have been duly obtained and shall be effective on and as of
the
Closing Date; (vi) no order enjoining the sale of the Notes and Warrants shall
have been issued and no proceedings for such purpose shall be pending or, to
the
Company’s knowledge, threatened by any governmental authority having
jurisdiction over this transaction and at the Closing Date the sale and issuance
of the Notes and Warrants shall be legally permitted by all laws and regulations
to which the Purchaser and the Company are subject;
and
(vii) immediately following the execution of the Notes, the Company would
not be in default thereunder and no event of condition shall then exist which
shall but for the passage of time result in an event of default.
3
ARTICLE
4
CREATION
OF SECURITY INTEREST
4.1 Grant
of Security Interest.
The
Company’s obligations under the Notes shall be secured by (i) a security
interest of first priority in all right, title and interest of the Company
in
and to the property described in Attachment
1
to, and
granted in accordance with the terms and form of, the Security Agreement
attached hereto as Exhibit
D
(the
“Security
Agreement”);
and
(ii) a pledge of 1,250,000 shares of capital stock in Composite
Technology Corp.
made by
Xxxxxx X. Xxxxxx, for which the Company represents and warrants that he received
fair and valid consideration, pursuant to the terms of that certain Pledge
Agreement attached hereto as Exhibit
E
(the
“Pledge
Agreement”).
The
Company shall not grant a security interest in, or otherwise pledge, any of
its
assets to any third party, other than the Purchasers, without the prior written
consent of the Purchasers.
If this
Agreement is terminated, the Purchasers’ interests in the Collateral (as defined
in the Security Agreement) shall continue until the Company’s obligations under
the Notes and hereunder are paid in full. Upon payment in full of the Company’s
obligations hereunder, the Purchasers shall release their interests in the
Collateral and all rights therein shall revert to the Company.
4.2 Authorization
to File Financing Statements.
The
Company hereby authorizes the Purchasers, and grants the Purchasers a power
of
attorney, to file financing statements and such other documents, upon prior
notice to the Company, with all appropriate jurisdictions to perfect or protect
the Purchasers’ interests or rights under the Security Agreement and
hereunder.
Upon
termination of the Purchasers’ interests in the Collateral in accordance with
Section 4.1, the Purchasers will promptly file a termination statement
terminating any financing statement filed hereunder, and if the Purchasers
do
not file such termination statement as and when required, the Purchasers hereby
authorize the Company to file such termination statement.
ARTICLE
5
COMPANY’S
REPRESENTATIONS AND WARRANTIES
5.1 Incorporation;
Due Authorization.
The
Company has full right, power and authority to enter into this Agreement, the
Notes, the Warrants, the Security Agreement and all other documents related
to
the purchase of the Notes (collectively, the “Transaction
Documents”),
to
make the borrowings hereunder and execute and deliver the Transaction Documents
as provided herein and to perform all of its duties and obligations under all
of
the Transaction Documents. The execution and delivery of the Transaction
Documents will not, nor will the observance or performance of any of the matters
and things herein or therein set forth, violate or contravene any provision
of
law or the Company's bylaws or certificate of incorporation. All necessary
and
appropriate corporate action on the part of the Company has been taken to
authorize the execution and delivery of the Transaction Documents.
4
5.2 Enforceability.
The
Transaction Documents have each been validly executed and delivered by the
Company and constitute legal, valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms,
subject to applicable bankruptcy, insolvency, reorganization or similar laws
relating to or affecting the enforcement of creditors’ right and to the
availability of the remedy of specific performance.
5.3 Compliance
with Laws.
The
nature and transaction of the Company's business and operations and the use
of
its properties and assets do not, and during the term of the Transaction
Documents shall not, violate or conflict with in any material respect any
applicable law, statute, ordinance, rule, regulation or order of any kind or
nature.
5.4 Absence
of Conflicts.
The
execution, delivery and performance by the Company of the Transaction Documents,
and the transactions contemplated hereby, do not constitute a breach or default,
or require consents under, any agreement, permit, contract or other instrument
to which the Company is a party, or by which the Company is bound or to which
any of the assets of the Company is subject, or any judgment, order, writ,
decree, authorization, license, rule, regulation, or statute to which the
Company is subject, and except as set forth herein, will not result in the
creation of any lien upon any of the assets of the Company.
5.5 Indebtedness.
Except
for Indebtedness reflected in the SEC Documents or Indebtedness incurred by
the
Company in the ordinary course of its business since the filing of the SEC
Documents in an amount not to exceed $75,000.00, the Company has no material
Indebtedness outstanding at the date hereof and will incur no material
Indebtedness prior to the Closing Date.
5.6 Litigation.
Except
as
set forth in the SEC Documents, there is no action, suit, proceeding or
investigation pending or, to the Company’s knowledge, currently threatened
against the Company or any of its subsidiaries that question the validity of
any
of the Transaction Documents or the right of the company to enter into any
of
the Transaction Documents, or to consummate the transactions contemplated
hereby, or that could reasonably be expected to result, either individually
or
in the aggregate, in a material adverse effect on the company.
5.7 Authorized
Capital Stock.
The
authorized capital stock of the Company consists of 480,000,000 shares of Common
Stock and 20,000,000 shares of preferred stock, $0.001 par value per share
(“Preferred
Stock”).
As of
May 18, 2007, 40,315,705 shares of Common Stock and no shares of Preferred
Stock
were validly issued and outstanding, fully paid and nonassessable and no shares
of Common Stock or Preferred Stock have been issued since May 18, 2007. Except
as disclosed in the SEC Documents, there are no outstanding options, warrants
and convertible securities of the Company, or any other rights to acquire
securities of the Company. The principal stockholders of the Company are as
set
forth in the Form 10-KSB.
5.8 Material
Contracts.
Except
as set forth in the SEC Documents, the Company is not a party to or otherwise
bound by any contract that is material to its financial condition, operations,
business or assets, and the Company is not a party to or otherwise bound by
any
contract that may materially and adversely affect its ability to consummate
the
transactions contemplated hereby.
5.9 Validity
of Securities.
The
sale of the Notes and Warrants, and the issuance of shares of Common Stock
upon
exercise of the Warrants and/or conversion of the Notes (“Warrant
Shares”)
(the
Notes, Warrants and Warrant Shares shall be referred to herein as the
“Securities”),
are
not subject to any preemptive rights or rights of first refusal and, when
issued, sold and delivered in compliance with the provisions of this Agreement,
will be duly and validly issued, fully paid and nonassessable, and will be
free
of any liens, encumbrances or restrictions on transfer; provided,
however,
that
the Securities may be subject to restrictions on transfer under state
and/or federal securities laws as set forth herein or as otherwise required
by
such laws at the time a transfer is proposed.
5
5.10
Compliance
with Other Instruments.
The
Company is not in violation of any term of (i) its Certificate of
Incorporation, Bylaws or any stockholder agreement, (ii) any mortgage,
indenture, contract, agreement or instrument, or (iii) any judgment, decree
or order, or any statute, rule or regulation applicable to it or its properties,
the violation of which, in the case of clause (ii), could have a material
adverse effect on the business, operations, affairs, financial condition or
prospects of the Company, or any of its properties or assets, or in any material
impairment of the right or ability of the Company to carry on its business
as
now conducted or as proposed to be conducted, or in any material liability
on
the part of the Company or impact the validity or enforceability of any of
the
Transaction Documents (a “Material
Adverse Effect”).
The
execution, delivery, and performance of and compliance with this Agreement
and
the issuance and sale of the Securities pursuant hereto will not result in
any
violation of any term of (i) the Certificate of Incorporation, Bylaws or
any stockholder agreement of the Company, as each is then in effect,
(ii) any mortgage, indenture, contract, agreement, instrument, or
(iii) any judgment, decree, order, statute, rule or regulation, or be in
conflict with or constitute a default under any such term, or result in the
creation of any mortgage, pledge, lien, encumbrance, or charge upon any of
the
properties or assets of the Company; and there is no term of the Certificate
of
Incorporation or Bylaws, or any mortgage, indenture, contract, agreement,
instrument, or any judgment, decree, order, statute, rule or regulation, which
could reasonably be expected to have a Material Adverse Effect.
5.11
Title
to Properties and Assets; Liens, etc.
The
Company has good and marketable title to its properties and assets, in each
case
subject to no mortgage, pledge, lien, encumbrance, or charge, other than
(a) liens resulting from taxes which have not yet become delinquent, or
(b) minor liens, encumbrances, or defects of title which do not,
individually or in the aggregate, materially detract from the value of the
property subject thereto or could reasonably be expected to have a Material
Adverse Effect. With respect to the properties and assets it leases, the Company
is in compliance with such leases and it holds a valid leasehold free of any
liens, claims or encumbrances that impair its present use of such leased
properties and assets.
5.12
Affiliates.
Except
as set forth in the SEC Documents, the Company (i) has no subsidiaries,
(ii) does not presently own or control, directly or indirectly, any equity
interest in any corporation, association, partnership, limited liability company
or other business entity and (iii) is not, directly or indirectly, a
participant in any joint venture, partnership or similar
arrangement.
5.13
Registration
Rights.
Except
as set forth in the SEC Documents, the Company is not under any obligation
to
register any of its presently outstanding securities or any of its securities
which may hereafter be issued.
5.14
Full
Disclosure.
The
Company has provided the Purchasers with all the information that the Purchasers
have reasonably requested for deciding whether to purchase the Securities.
Neither this Agreement, the Transaction Documents, the representations and
warranties by the Company contained in the Transaction Documents, the Exhibits
hereto, nor any other written statement or certificate delivered or to be
furnished to the Purchasers in connection herewith, when read together, contain
any untrue statement of a material fact or knowingly omits to state a material
fact necessary in order to make the statements contained herein or therein
not
misleading.
5.15
Changes.
Since
the date of the last SEC Document, there has not been:
6
(a) any
change in the assets, liabilities, financial condition, or operating results
of
the Company from that reflected in the Company’s balance sheets and statements
of income and retained earnings as at December 31, 2006 and March 31, 2007,
each
as set forth in the SEC Documents, except changes in the ordinary course of
business that have not been, in the aggregate, materially adverse;
or
(b) any
other
event or condition of any character that might materially and adversely affect
the business, properties, prospects, or financial condition of the Company
(as
such business is presently conducted and as it is proposed to be
conducted).
5.16
Proprietary
Information.
The
Company has taken all reasonable security measures to protect the secrecy,
confidentiality, and value of all trade secrets, know-how, inventions, designs,
processes, and technical data required to conduct its business.
5.17
Patents,
Trademarks, etc.
Except
as set forth in the SEC Documents, the Company has sufficient title and
ownership of all material patents, patent applications, licenses, trademarks,
service marks, trade names, inventions, processes, formulae, trade secrets,
franchises, copyrights and other proprietary rights necessary for the operation
of its business as now conducted and as proposed to be conducted (“Intellectual
Property”)
with
no known infringement of or conflict with the rights of others. Such ownership
and title are exclusive and not subject to termination without the Company’s
consent. Except for commercial software and applications generally available
to
the public, there are no outstanding options, licenses, or agreements of any
kind relating to the foregoing proprietary rights, nor is the Company bound
by
or a party to any options, licenses or agreements of any kind with respect
to
the material patents, trademarks, service marks, trade names, copyrights, trade
secrets, licenses, information, proprietary rights or processes of any other
person or entity. The Company is not aware of any third party that is infringing
or violating any of its patents, licenses, trademarks, service marks, trade
names, inventions, processes, formulae, trade secrets, franchises, copyrights
or
other proprietary rights. The Company has not received any communications
alleging that the Company has violated or, by conducting its business as
proposed, would violate any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets or other proprietary rights of any other
person or entity. If any Intellectual Property not owned by the Company has
not
been fully assigned to the Company, including, but not limited to, U.S. Patent
Application No. 200401522153 and U.S. Patent Application No. 20040137555, prior
to the Closing Date, the Company hereby agrees to obtain any and all necessary
assignments of such Intellectual Property within five Business Days following
the Closing Date.
5.18
Offering.
Assuming the accuracy of the representations and warranties of the Purchasers
contained in Article 6 hereof, the offer, issue, and sale of the Securities:
(a) are and will be exempt from the registration and prospectus delivery
requirements of the Securities Act of 1933, as amended (the “1933
Act”),
and
neither the Company nor any authorized agent acting on its behalf will take
any
action hereafter that would cause the loss of such exemption; and (b) have
been registered or qualified (or are exempt from registration and qualification)
under the registration, permit, or qualification requirements of all applicable
state securities laws.
ARTICLE
6
PURCHASERS’
REPRESENTATIONS AND WARRANTIES
Each
Purchaser, severally and not jointly, as to itself only and not as to any other
Purchaser makes the following representations and warranties to the
Company:
6.1 Due
Authorization.
Each
Purchaser has full power and authority and has taken all action necessary to
authorize the Purchaser to execute, deliver and perform the Purchaser’s
obligations under this Agreement. This Agreement is the legal, valid and binding
obligation of the Purchaser in accordance with its terms.
7
6.2 Accredited
Investor.
Each
Purchaser is an “accredited investor” as that term is defined in Regulation D
promulgated under the 0000 Xxx.
6.3 Investment
Experience.
Each
Purchaser has not authorized any person to act as such Purchaser’s Purchaser
Representative (as that term is defined in Regulation D of the General Rules
and
Regulations under the 0000 Xxx) in connection with this transaction. Each
Purchaser has such knowledge and experience in financial, investment and
business matters that such Purchaser is capable of evaluating the merits and
risks of the prospective investment in the securities of the Company. Each
Purchaser has consulted with such independent legal counsel or other advisers
as
the Purchaser has deemed appropriate to assist such Purchaser in evaluating
the
proposed investment in the Company. If other than an individual, such Purchaser
also represents that it has not been organized for the purpose of acquiring
the
Securities.
6.4 Adequate
Means.
Each
Purchaser (i) has adequate means of providing for such Purchaser’s current
financial needs and possible contingencies; and (ii) can afford (a) to hold
unregistered securities for an indefinite period of time as required; and (b)
sustain a complete loss of the entire amount of the subscription.
6.5 Access
to Information.
Each
Purchaser has been afforded the opportunity to ask questions of, and receive
answers from the officers and/or directors of the Company acting on its behalf
concerning the terms and conditions of this transaction and to obtain any
additional information, to the extent that the Company possesses such
information or can acquire it without unreasonable effort or expense, necessary
to verify the accuracy of the information furnished; and has had such
opportunity to the extent such Purchaser considers it appropriate in order
to
permit such Purchaser to evaluate the merits and risks of an investment in
the
Company. It is understood that all documents, records and books pertaining
to
this investment have been made available for inspection, and that the books
and
records of the Company will be available upon reasonable notice for inspection
by investors during reasonable business hours at its principal place of
business. The foregoing shall in no way be deemed to limit the ability of the
Purchasers to rely on the representations and warranties set forth herein or
incorporated herein by reference.
6.6 No
Resale.
The
Securities being purchased hereunder are being acquired solely for the account
of a Purchaser, for such Purchaser’s investment and not with a view to, or for
resale in connection with, any distribution in any jurisdiction where such
sale
or distribution would be precluded.
6.7 Restricted
Securities.
Each
Purchaser understands that the Securities are characterized as “restricted
securities” under the federal securities laws inasmuch as they are being
acquired from the Company in a transaction not involving a public offering
and
that under such laws and applicable regulations such securities may be resold
without registration under the 1933 Act only in certain limited circumstances.
In this connection, each Purchaser represents that it is familiar with Rule
144
under the 1933 Act, and understands the resale limitations imposed thereby
and
by the 1933 Act.
6.8 Further
Limitations on Disposition.
Without
in any way limiting the representations set forth above, the Purchaser further
agrees not to make any disposition of all or any portion of the Securities
other
than the Notes unless and until the transferee has agreed in writing for the
benefit of the Company to the representations contained in this Section 6.8;
provided,
that
this Section 6.8 shall not apply to the disposition of all or any portion of
the
Securities if:
8
(a) there
is
then in effect a registration statement under the 1933 Act covering such
proposed disposition and such disposition is made in accordance with such
registration statement; and
(b) (i)
Purchaser shall have notified the Company of the proposed disposition and shall
have furnished the Company with a reasonably detailed statement of the
circumstances surrounding the proposed disposition and shall furnish transferor
representations as may reasonably be requested by the Company, and (ii) if
reasonably requested by the Company, the Purchaser shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company,
that
such disposition will not require registration of such shares under the 1933
Act.
Notwithstanding
the provisions of paragraphs (a) and (b) above, no such registration statement
or opinion of counsel shall be necessary for a transfer if a Purchaser is a
partnership, limited liability company or corporation to a partner, member
or
shareholder of such partnership, limited liability company or corporation as
the
case may be or a retired partner or member of such partnership or limited
liability company who retires after the date hereof, or to the estate of any
such partner or member or retired partner or member or the transfer by gift,
will or intestate succession of any partner to his spouse or to the siblings,
lineal descendants or ancestors of such partner or his spouse, if the transferee
agrees in writing to be subject to the terms hereof to the same extent as if
he,
she or it were an original Purchaser hereunder.
6.9 Legend.
Each
Purchaser hereby acknowledges and agrees that the Company may insert the
following or similar legend on the face of the certificates evidencing the
Warrants or Warrant Shares purchased by the Purchasers if required in compliance
with the 1933 Act or state securities laws:
“These
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 or
otherwise transferred or disposed of except pursuant to an effective
registration statement under the Securities Act and any applicable state
securities laws, or an opinion of counsel satisfactory to counsel to the issuer
that an exemption from registration under the Securities Act and any applicable
state securities laws is available.”
6.10
General
Solicitation.
No
Purchaser is purchasing the Securities as a result of any advertisement,
article, notice or other communication regarding the Securities published in
any
newspaper, magazine or similar media or broadcast over television or radio
or
presented at any seminar or any other general solicitation or general
advertisement.
ARTICLE
7
COVENANTS
7.1 Registration
Rights.
(a) If
the
Company prepares and files a Registration Statement under the 1933 Act or
otherwise registers securities under the 1933 Act as to any of its securities
(other than under a Registration Statement pursuant to Form S-8 or Form S-4)
(each such filing, a "Registration
Statement"),
it
will give written notice by registered mail, at least 20 days prior to the
filing of such Registration Statement to the Purchasers of its intention to
do
so. The Company shall include all Warrant Shares as well as any shares in which
the Notes may be converted (the “Registrable
Securities”)
in
such Registration Statement with respect to which the Company has received
written requests for inclusion therein within 15 days of actual receipt of
the
Company's notice.
9
(b) In
the
event of an underwritten registered offering, if the managing underwriter(s)
advise the Company in writing that in their opinion the number of Registrable
Securities exceeds the number of Registrable Securities which can be sold
therein without adversely affecting the marketability of the offering, the
Company will include in such registration the number of Registrable Securities
requested to be included which in the opinion of such underwriter(s) can be
sold
without adversely affecting the marketability of the offering, pro rata among
the respective holders thereof on the basis of the amount of Registrable
Securities owned by each such holder.
7.2 Additional
Affirmative Covenants of the Company.
On and
after the date hereof and until the payment in full of the Purchasers’ Notes and
the performance of all other obligations of the Company hereunder, the Company
agrees that, unless the Purchasers shall otherwise consent in writing:
(a) Financial
Reporting.
The
Company shall deliver to the Purchasers as soon as available but in any event
no
earlier than the date upon which it makes such disclosures to the SEC (if such
disclosures are in fact filed): (i) after the end of each fiscal quarter of
the
Company, an unaudited/internal balance sheet and statements of income and
retained earnings of the Company as at the end of and for such quarter and
for
the year to date period then ended, prepared in reasonable detail and stating
in
comparative form the figures for the corresponding date and periods in the
previous year, all prepared in accordance with GAAP, subject to year-end audit
adjustments, along with certificates and other reports as the Purchasers may
from time to time reasonably request; (ii) promptly upon knowledge thereof,
notice of any loss of or material damage to any Collateral or other collateral
covered by the Transaction Documents or of any substantial adverse change in
any
Collateral or such other collateral or the prospect of payment thereof; (iii)
promptly upon their distribution, copies of all financial statements, reports
and proxy statements which the Company shall have sent to its stockholders;
(iv)
promptly after the sending or filing thereof, copies of all regular and periodic
reports which the Company shall file with the Securities and Exchange Commission
or any national securities exchange; and (v) within fifteen (15) days of the
filing thereof, copies of the state and federal tax returns and all schedules
thereto of the Company.
(b) Compliance
with Laws.
The
Company will (i) comply with the requirements of applicable laws and
regulations, the non-compliance with which would have a Material Adverse Effect
and (ii) use and keep the Collateral, and require that others use and keep
the Collateral, only for lawful purposes, without violation of any federal,
state or local law, statute or ordinance.
(c) Taxes
and Claims.
The
Company shall pay and discharge all taxes, assessments and governmental charges
or levies imposed upon it or upon any of its assets or properties, prior to
the
date on which penalties attach thereto, and all lawful claims which, if unpaid,
might become a lien or charge upon any assets of the Company.
(d) Maintenance
of Properties.
The
Company will defend the Collateral, the other collateral covered by the
Transaction Documents and all of its other properties necessary or useful in
its
business including, without limitation, the Intellectual Property, against
all
claims or demands of all persons (other than the Purchasers) claiming the
Collateral or any interest therein.
(e) Insurance.
The
Company will obtain and at all times maintain insurance with insurers reasonably
believed by the Company to be responsible and reputable, in such amounts and
against such risks as may from time to time be required by the Purchasers,
but
in all events in such amounts and against such risks as is usually carried
by
companies engaged in similar business and owning similar properties in the
same
general areas in which the Company operates.
10
(f) Preservation
of Existence.
The
Company will preserve and maintain its existence and all of its rights,
privileges and franchises necessary or desirable in the normal conduct of its
business and shall conduct its business in an orderly,
efficient and regular manner.
(g) Litigation.
The
Company shall promptly give to the Purchasers notice in writing of all
litigation and of all proceedings by or before any court or governmental or
regulatory agency affecting the Company.
7.3 Negative
Covenants of the Company.
On and
after the date hereof and until the payment in full of the Purchasers’ Notes and
the performance of all other obligations of the Company hereunder, the Company
agrees that, without the Purchasers’ prior written consent:
(a) Liens.
The
Company will not create, incur or suffer to exist any deed of trust, pledge,
lien, security interest, assignment or transfer upon or of any Collateral,
the
other collateral covered by the Transaction Documents and all of its other
properties necessary or useful in its business, including, without limitation,
the Intellectual Property, now owned or hereafter acquired, to secure any
indebtedness; excluding, however, from the operation of the foregoing, purchase
money security interests relating to the acquisition of machinery and equipment
of the Company not exceeding the lesser of cost or fair market value
thereof.
(b) Guaranties.
The
Company will not assume, guarantee, endorse or otherwise become directly or
contingently liable in connection with any obligations of any other
Person.
(c) Restriction
on Debt Issuances.
The
Company will not incur, issue or sell more than $3,000,000 of debt in the
aggregate (including the Notes and the senior secured promissory note issued
by
the Company under that certain Note and Warrant Agreement dated as of July
2,
2007), except for Permitted Indebtedness, as such term is hereafter defined,
so
long as any of the principal amount or interest on the Notes remains unpaid
unless the proceeds of the issuance or sale of the Company’s debt, directly from
the gross proceeds of the issuance or sale, will be used to repay all
outstanding principal and accrued interest owed under the Notes. “Permitted
Indebtedness”
means
indebtedness to trade creditors incurred in the ordinary course of business,
and
extensions, refinancings and renewals (but only if the amount of such existing
indebtedness is not increased thereby) of any items of any existing
indebtedness.
(d) Restriction
on Payments.
The
Company will not make any payments to its officers, directors, stockholders
or
related parties, whether for accrued and unpaid salaries or otherwise, in excess
of $200,000 in the aggregate.
(e) Sale
or Transfer of Assets; Suspension of Business Operations.
The
Company will not sell, lease, assign, transfer or otherwise dispose of
(i) the stock of any subsidiary, (ii) all or a substantial part of its
assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) including, without limitation,
the
Intellectual Property, to any other person other than the sale of inventory
in
the ordinary course of business and will not liquidate, dissolve or suspend
business operations. The Company will not in any manner transfer any property
without prior or present receipt of full and adequate consideration. The Company
will not enter into any arrangement, directly or indirectly, with any other
person whereby the Company shall sell or transfer any real or personal property,
whether now owned or hereafter acquired, and then or thereafter rent or lease
as
lessee such property or any part thereof or any other property which the Company
intends to use for substantially the same purpose or purposes as the property
being sold or transferred.
(f) Dividends.
The
Company will not
declare
or pay any dividends (other than dividends payable solely in stock of the
Company) on any class of its stock or make any payment on account of the
purchase, redemption or other retirement of any shares of such stock or make
any
distribution in respect thereof, either
directly or indirectly.
11
(g) Restrictions
on Nature of Business.
The
Company will not engage in any line of business materially different from that
presently engaged in by the Company and will not purchase, lease or otherwise
acquire assets not related to its business.
7.4 Observation
Rights.
So long
as any amounts remain outstanding under the Notes, and subject to the
limitations set forth in this Section 7.4, the Company shall permit a
representative of each Purchaser to be present in a nonvoting observer capacity
at all meetings of the Company’s board of directors (the “Board”)
or any
committee thereof, including any telephonic meetings, and the Company will
give
each Purchaser’s designated representative notice of such meetings, by telecopy
or by such other means as such notices are delivered to the members of the
Board
at the same time notice is provided or delivered to the Board; provided,
however,
that
(a) such representative shall agree to hold in confidence and trust and to
act
in a fiduciary manner with respect to all information so provided, and (b)
the
Company reserves the right to withhold any information and to exclude such
representative from any meeting or portion thereof if, in the reasonable good
faith judgment of the Board, access to such information or attendance at such
meeting is reasonably likely to (i) adversely affect the attorney-client
privilege between the Company and its counsel with respect to any matter, (ii)
result in a material and present conflict of interest between the Company and
a
Purchaser, or (iii) result in a violation of a confidentiality agreement between
the Company and a third party, a copy of which has been provided in advance
to
each Purchaser. Each Purchaser, on behalf of itself and its representative,
agrees that it shall not use any information obtained by it pursuant to its
rights under this Section 7.4 except relative to its interests in the Company
hereunder and otherwise only as expressly authorized in writing by the Company.
Each Purchaser, and its representative, shall use the same degree of care to
protect the Company’s confidential information as such Purchaser uses to protect
its own confidential information of like nature, but in no circumstances with
less than reasonable care.
7.5 Delaware
Good Standing.
The
Company hereby agrees to take any and all actions necessary to restore its
good
standing with the State of Delaware, including, but not limited to, the payment
of any outstanding taxes owed to the State of Delaware, within 5 Business Days
following the Closing Date.
ARTICLE
8
MISCELLANEOUS
8.1 Successors
and Assigns.
Subject
to the exceptions specifically set forth in this Agreement, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective executors, administrators, heirs, successors and assigns of
the
parties. The Transaction Documents may be assigned by the Purchasers, and none
of the Transaction Documents may be assigned by the Company.
8.2 Titles
and Subtitles.
The
titles and subtitles of the Articles and Sections of this Agreement are used
for
convenience only and shall not be considered in construing or interpreting
this
agreement.
8.3 Notices.
Any
notice, request or other communication required or permitted hereunder shall
be
in writing and shall be delivered personally or by facsimile (receipt confirmed
electronically) or shall be sent by a reputable express delivery service or
by
certified mail, postage prepaid with return receipt requested, addressed as
follows:
12
if
to the
Company, to:
Xxxxxx
Science, Inc
8th
Floor, LG Palace Building
000-0
Xxxxxxx-Xxxx, Xxxx-Xx
Xxxxx,
Xxxxx
Attn:
Chief
Executive Officer
Fax:
00-0-000-0000
if
to the
Purchasers, to
the
addresses set forth in the signature page.
Any
party
hereto may change the above specified recipient or mailing address by notice
to
the other parties given in the manner herein prescribed. All notices shall
be
deemed given on the day when actually delivered as provided above (if delivered
personally or by facsimile, provided that any such facsimile is received during
regular business hours at the recipient's location) or on the day shown on
the
return receipt (if delivered by mail or delivery service).
8.4 Governing
Law.
This
Agreement shall be governed by and construed in accordance with the domestic
laws of the State of Delaware without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of Delaware or any
other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Delaware. The parties hereto hereby agree that any
suit
or proceeding arising under this Agreement, or in connection with the
consummation of the transactions contemplated hereby, shall be brought solely
in
a federal or state court located in the United States. The prevailing party
in
any suit or proceeding shall be entitled to its reasonable attorneys’ fees and
costs.
8.5 Waiver
and Amendment.
Any
term of this Agreement may be amended, waived or modified with the written
consent of the Company and the Purchasers.
8.6 Remedies.
The
rights and remedies of the Purchasers described herein shall be cumulative
and
not restrictive of any other rights or remedies available under any other
instrument, at law or in equity.
8.7
Counterparts.
This
Agreement may be executed in one or more identical counterparts each of which
when taken together shall constitute one and the same Agreement.
[Remainder
of Page Intentionally Left Blank; Signature Page Follows]
13
IN
WITNESS WHEREOF, the undersigned have caused this Note and Warrant Purchase
Agreement to be signed in their names on the date first set forth
above.
|
The
Warrants are to be issued in:
|
Print
Name of Investor
|
|
|
o individual
name
|
Principal
Amount of Note: $
.00
|
|
|
o tenants
in the entirety
|
||
|
|
||
|
o corporation
(an officer must
sign)
|
Signature
of Authorized Person
|
|
|
|
||
|
x partnership
(all general partners must sign)
|
Name
of Authorized Signatory
|
|
|
o trust
|
||
|
o limited
liability company
|
Address
of Investor:
|
|
|
XXXXXX
SCIENCE, INC.
|
||
|
|
||
|
Name:
|
Xxxxx
Xxxx Noh
|
|
|
Title:
|
President
and Chief Executive Officer
|
|
EXHIBIT
A
10%
SENIOR NOTE
See
attached.
EXHIBIT
B
COMMON
STOCK PURCHASE WARRANT
See
attached.
EXHIBIT
C
WIRE
TRANSFER INSTRUCTIONS
EXHIBIT
D
SECURITY
AGREEMENT
See
attached.
EXHIBIT
E
PLEDGE
AGREEMENT
See
attached.
