Exhibit 10.40
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") dated as of August
23, 2005 by and among U.S. HELICOPTER CORPORATION, a Delaware corporation (the
"Company") and the Buyers listed on Schedule I attached hereto (individually, a
"Buyer" or collectively "Buyers").
WITNESSETH:
WHEREAS, the Company and the Buyer(s) are executing and delivering this
Agreement in reliance upon an exemption from securities registration pursuant to
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");
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Buyer(s),
as provided herein, and the Buyer(s) shall purchase Two Hundred Twenty Thousand
Dollars ($220,000) of secured convertible debentures (the "Convertible
Debentures"), which shall be convertible into shares of the Company's common
stock, par value $0.001 per share (the "Common Stock") (as converted, the
"Conversion Shares"), which shall be funded within five (5) business days hereof
(the "Closing"), for a total purchase price of Two Hundred Twenty Thousand
Dollars ($220,000) (the "Purchase Price") in the respective amounts set forth
opposite each Buyer(s) name on Schedule I (the "Subscription Amount"); and
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement (the "Investor Registration Rights Agreement") pursuant to which the
Company has agreed to provide certain registration rights under the 1933 Act and
the rules and regulations promulgated there under, and applicable state
securities laws; and
WHEREAS, the aggregate proceeds of the sale of the Convertible Debentures
contemplated hereby shall be held in escrow pursuant to the terms of an Escrow
Agreement (the "Escrow Agreement") of even date herewith.
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering Irrevocable Transfer
Agent Instructions (the "Irrevocable Transfer Agent Instructions").
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering an Amended and
Restated Security Agreement, which amends and restates the Security Agreement
dated August 4, 2004 (the "Amended and Restated Security Agreement") pursuant to
which the Company has agreed to provide the Buyer a security interest in Pledged
Collateral (as this term is defined in the Amended and Restated Security
Agreement) to secure Company's obligations under this Agreement, the Convertible
Debenture, the Investor Registration Rights Agreement, the Irrevocable Transfer
Agent Instructions, or any other obligations of the Company to the Investor.
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Buyer(s) hereby agree
as follows:
1. PURCHASE AND SALE OF CONVERTIBLE DEBENTURES.
(a) Purchase of Convertible Debentures. Subject to the satisfaction
(or waiver) of the terms and conditions of this Agreement, each Buyer agrees,
severally and not jointly, to purchase at the Closing and the Company agrees to
sell and issue to each Buyer, severally and not jointly, at the Closing,
Convertible Debentures in amounts corresponding with the Subscription Amount set
forth opposite each Buyer's name on Schedule I hereto. Upon execution hereof by
a Buyer, the Buyer shall wire transfer the Subscription Amount set forth
opposite his name on Schedule I in same-day funds or a check payable to "Xxxxx
Xxxxxxxx, Esq., as Escrow Agent for U.S. Helicopter Corporation/Cornell Capital
Partners, LP", which Subscription Amount shall be held in escrow pursuant to the
terms of the Escrow Agreement (as hereinafter defined) and disbursed in
accordance therewith.
(b) Closing Date. The Closing of the purchase and sale of the
Convertible Debentures shall take place on or before the fifth (5th) business
day following the date hereof, subject to notification of satisfaction of the
conditions to the Closing set forth herein and in Sections 6 and 7 below (or
such later date as is mutually agreed to by the Company and the Buyer(s)) (the
"Closing Date"). The Closing shall occur on the respective Closing Dates at the
offices of Yorkville Advisors, LLC, 000 Xxxxxx Xxxxxx, Xxxxx 0000, Xxxxxx Xxxx,
Xxx Xxxxxx 00000 (or such other place as is mutually agreed to by the Company
and the Buyer(s)).
(c) Escrow Arrangements; Form of Payment. Upon execution hereof by
Buyer(s) and pending the Closing, the aggregate proceeds of the sale of the
Convertible Debentures to Buyer(s) pursuant hereto shall be deposited in a
non-interest bearing escrow account with Xxxxx Xxxxxxxx, Esq., as escrow agent
(the "Escrow Agent"), pursuant to the terms of the Escrow Agreement. Subject to
the satisfaction of the terms and conditions of this Agreement, on the Closing
Date, (i) the Escrow Agent shall deliver to the Company in accordance with the
terms of the Escrow Agreement such aggregate proceeds for the Convertible
Debentures to be issued and sold to such Buyer(s), minus a structuring fee of
Ten Thousand Dollars ($10,000) to the Buyer pursuant to Section 4 hereof and the
Twenty Thousand Dollar ($20,000) commitment fee referenced in Section 4 hereof,
both of which shall be paid directly from the gross proceeds of the Closing held
in escrow, and (ii) the Company shall deliver to each Buyer, Convertible
Debentures which such Buyer(s) is purchasing in amounts indicated opposite such
Buyer's name on Schedule I, duly executed on behalf of the Company.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants, severally and not jointly, that:
(a) Investment Purpose. Each Buyer is acquiring the Convertible
Debentures and, upon conversion of Convertible Debentures, the Buyer will
acquire the Conversion Shares then issuable, for its own account for investment
only 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; and has no present or contemplated agreement, undertaking,
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arrangement, obligation, indebtedness or commitment providing for the
disposition thereof; provided, however, that by making the representations
herein, such Buyer reserves the right to dispose of the Conversion Shares at any
time in accordance with or pursuant to an effective registration statement (the
"Registration Statement") covering such Conversion Shares or an available
exemption under the 1933 Act.
(b) Accredited Investor Status. Each Buyer is an "Accredited Investor"
as that term is defined in Rule 501(a)(3) of Regulation D.
(c) Reliance on Exemptions. Each Buyer understands that the
Convertible Debentures are being offered and sold to it in reliance on specific
exemptions from the registration requirements of United States 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 such securities.
(d) Information. Each Buyer and its advisors (and his or, its
counsel), if any, have been furnished with all materials relating to the
business, finances and operations of the Company and information he deemed
material to making an informed investment decision regarding his purchase of the
Convertible Debentures and the Conversion Shares, which have been requested by
such Buyer. Each Buyer and its advisors, if any, have been afforded the
opportunity to ask questions of the Company and its management. 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
in Section 3 below. Each Buyer understands that its investment in the
Convertible Debentures and the Conversion Shares involves a high degree of risk
and each Buyer has the financial wherewithal to lose its entire investment and
understands that it could lose its entire investment. Each Buyer is in a
position regarding the Company, which, based upon employment, family
relationship or economic bargaining power, enabled and enables such Buyer to
obtain information from the Company in order to evaluate the merits and risks of
this investment. Each 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 Convertible Debentures and the Conversion Shares.
(e) No Governmental Review. Each Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Convertible
Debentures or the Conversion Shares, or the fairness or suitability of the
investment in the Convertible Debentures or the Conversion Shares, nor have such
authorities passed upon or endorsed the merits of the offering of the
Convertible Debentures or the Conversion Shares. Each Buyer understands and
acknowledges that the Company has undertaken and will undertake no efforts to
comply with any laws of any jurisdiction outside the United States relating to
the insurance and sale of its securities except as may be provided herein.
(f) Transfer or Resale. Each Buyer understands that except as provided
in the Investor Registration Rights Agreement: (i) the Convertible Debentures
have not been and are
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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, or (B) such Buyer shall have delivered to the Company an
opinion of counsel, in a generally acceptable form, 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 requirements; (ii)
any sale of such securities made in reliance on Rule 144 under the 1933 Act (or
a successor rule thereto) ("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 such
securities under circumstances in which the seller (or the person 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 such securities
under the 1933 Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder. The Company reserves the right to place
stop transfer instructions against the shares and certificates for the
Conversion Shares. Additionally, each Buyer understands that the securities of
the Company are not listed on any Stock Exchange in the United States, Canada or
elsewhere; that there is currently no market through which the Committee
Debenture and/or the Conversion Shares may be traded and as such market is
expected to develop.
(g) Legends. Each Buyer understands that the certificates or other
instruments representing the Convertible Debentures and or the Conversion Shares
shall bear a restrictive legend in substantially the following form (and a stop
transfer order may be placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED SOLELY FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARD RESALE AND MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS.
The legend set forth above shall be removed and the Company within two (2)
business days shall issue a certificate without such legend to the holder of the
Conversion Shares upon which it is stamped, if, unless otherwise required by
state securities laws, (i) in connection with a sale transaction, provided the
Conversion Shares are registered under the 1933 Act, or (ii) in connection with
a sale transaction, after such holder provides the Company with an opinion of
counsel, which opinion shall be in form, substance and scope customary for
opinions of counsel in comparable transactions, to the effect that a public
sale, assignment or transfer of the Conversion Shares may be made without
registration under the 1933 Act.
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(h) Authorization, Enforcement. This Agreement and all related
agreements are within Buyer's corporate power and have been duly and validly
authorized, executed and delivered on behalf of such Buyer and each is a valid
and binding agreement of such Buyer enforceable in accordance with its terms,
except as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies. All necessary corporate action has
been taken with respect to the Buyer to authorize and approve this Agreement and
all the related agreements, and Buyer is under no obligation to obtain any
approval, consent, or other action from any third party in order for Buyer to
consummate the transaction contemplated hereby.
(i) Receipt of Documents. Each Buyer and his or its counsel has
received and read in their entirety: (i) this Agreement and each representation,
warranty and covenant set forth herein, the Amended and Restated Security
Agreement, the Investor Registration Rights Agreement, the Escrow Agreement, and
the Irrevocable Transfer Agent Instructions; (ii) all due diligence and other
information necessary to verify the accuracy and completeness of such
representations, warranties and covenants; (iii) answers to all questions each
Buyer submitted to the Company regarding an investment in the Company; and each
Buyer has relied on the information contained therein and has not been furnished
any other documents, literature, memorandum or prospectus. Buyer acknowledges
and agrees that the Company's representations and warranties are limited to
exclusively those expressly stated in this Agreement and exclude any and all
statements made in any other business plan, prospectus, projections, memorandum
or other document or in any oral communication.
(j) Due Formation of Corporate and Other Buyers. If the Buyer(s) is a
corporation, trust, partnership or other entity that is not an individual
person, it has been formed and validly exists and is in good standing in its
jurisdiction of formation and has not been organized for the specific purpose of
purchasing the Convertible Debentures and is not prohibited from doing so.
(k) No Legal Advice From the Company. Each Buyer acknowledges that it
had the opportunity to review this Agreement and the transactions contemplated
by this Agreement with his or its own legal counsel and investment and tax
advisors. Each Buyer is relying solely on such counsel and advisors and not on
any statements or representations of the Company or any of its representatives
or agents for legal, tax or investment advice with respect to this investment,
the transactions contemplated by this Agreement or the securities laws of any
jurisdiction.
(l) No Buyer makes any representation or warranty regarding the
Company's ability to successfully become a public company or to have any
registration statement filed by the Company pursuant to the Registration Rights
Agreement or otherwise declared effective by the SEC. The Company has the sole
obligation to make any and all such filings as may be necessary to become a
public company and to have any registration statement declared effective by the
SEC.
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3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that, except as
set forth in the Disclosure Schedule attached as Exhibit "A" hereto:
(a) Organization and Qualification. The Company and its subsidiaries
(if any) are corporations duly organized and validly existing in good standing
under the laws of the jurisdiction in which they are incorporated, and have the
requisite corporate power to own their properties and to carry on their business
as now being conducted. The Company will within 30 days after the Closing become
duly qualified as a foreign corporation to do business and in good standing in
every jurisdiction in which the nature of the business conducted by it makes
such qualification necessary, promptly after the Closing and except to the
extent that the failure to be so qualified or be in good standing would not have
a material adverse effect on the Company and its subsidiaries taken as a whole.
(b) Authorization, Enforcement, Compliance with Other Instruments. (i)
The Company has the requisite corporate power and authority to enter into and
perform this Agreement, the Amended and Restated Security Agreement, the
Investor Registration Rights Agreement, the Escrow Agreement, the Irrevocable
Transfer Agent Instructions, and any related agreements, and to issue the
Convertible Debentures and the Conversion Shares in accordance with the terms
hereof and thereof, (ii) the execution and delivery of this Agreement, the
Amended and Restated Security Agreement, the Investor Registration Rights
Agreement, the Escrow Agreement, the Irrevocable Transfer Agent Instructions (as
defined herein) and any related agreements by the Company and the consummation
by it of the transactions contemplated hereby and thereby, including, without
limitation, the issuance of the Convertible Debentures the Conversion Shares and
the reservation for issuance and the issuance of the Conversion Shares issuable
upon conversion or exercise thereof, have been duly authorized by the Company's
Board of Directors and no further consent or authorization is required by the
Company, its Board of Directors or its stockholders, (iii) this Agreement, the
Amended and Restated Security Agreement, the Investor Registration Rights
Agreement, the Escrow Agreement, the Irrevocable Transfer Agent Instructions and
any related agreements have been duly executed and delivered by the Company,
(iv) this Agreement, the Amended and Restated Security Agreement, the Investor
Registration Rights Agreement, the Escrow Agreement, the Irrevocable Transfer
Agent Instructions and any related agreements constitute the valid and binding
obligations of the Company enforceable against the Company in accordance with
their 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 creditors' rights and remedies. The authorized officer of the Company
executing this Agreement, the Amended and Restated Security Agreement, the
Investor Registration Rights Agreement, the Escrow Agreement, the Irrevocable
Transfer Agent Instructions and any related agreements knows of no reason why
the Company cannot file the registration statement as required under the
Investor Registration Rights Agreement or perform any of the Company's other
obligations under such documents.
(c) Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of 100,000,000 shares of stock, of which (i)
95,000,000 shares are designated as Common Stock, of which 24,545,723 shares are
outstanding, and (ii) 5,000,0000 shares are
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designated as Preferred Stock of which 316,000 shares of Series A Preferred
Stock are outstanding shares. All of such outstanding shares have been validly
issued and are fully paid and nonassessable. Except as disclosed in the
Disclosure Schedule no shares of Common Stock are subject to preemptive rights
or any other similar rights or any liens or encumbrances suffered or permitted
by the Company. Except as disclosed in the Disclosure Schedule and immediately
preceding the Closing, as of the date of this Agreement, (i) 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, any shares of 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 shares of 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, any
shares of capital stock of the Company or any of its subsidiaries, (ii) there
are no outstanding debt securities and (iii) 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) and (iv) there are no outstanding
registration statements and there are no outstanding comment letters from the
SEC or any other regulatory agency. There are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Convertible Debentures as described in this Agreement. The
Company has furnished to the Buyer true and correct 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 By-laws, as in effect on
the date hereof (the "By-laws"), and the terms of all securities convertible
into or exercisable for Common Stock and the material rights of the holders
thereof in respect thereto other than stock options issued to employees and
consultants.
(d) Issuance of Securities. The Convertible Debentures are duly
authorized and, upon issuance in accordance with the terms hereof, shall be duly
issued, fully paid and nonassessable, are free from all taxes, liens and charges
with respect to the issue thereof. The Conversion Shares issuable upon
conversion of the Convertible Debentures have been duly authorized and reserved
for issuance. Upon conversion or exercise in accordance with the Convertible
Debentures the Conversion Shares will be duly issued, fully paid and
nonassessable.
(e) No Conflicts. Except as disclosed in the Disclosure Schedule, the
execution, delivery and performance of this Agreement, the Amended and Restated
Security Agreement, the Investors Registration Rights Agreement, the Escrow
Agreement and the Irrevocable Transfer Agent Instructions by the Company and the
consummation by the Company of the transactions contemplated hereby will not (i)
result in a violation of the Certificate of Incorporation, any certificate of
designations of any outstanding series of preferred stock of the Company or the
By-laws or (ii) material conflict with or constitute a materially default (or an
event which with notice or lapse of time or both would become a material
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, or result in a material
violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations) and 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 as disclosed in the
Disclosure Schedule, neither the Company nor its subsidiaries is in
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violation of any term of or in default under its Certificate of Incorporation or
By-laws or their organizational charter or by-laws, respectively, or material
violation of any material contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its subsidiaries. The business of the
Company and its subsidiaries is not being conducted, and shall not be conducted
in material violation of any material law, ordinance, or regulation of any
governmental entity. Except as specifically contemplated by this Agreement and
as required under the 1933 Act and any applicable state securities laws, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency in order
for it to execute, deliver or perform any of its obligations under or
contemplated by this Agreement or the Registration Rights Agreement in
accordance with the terms hereof or thereof. Except as disclosed in the
Disclosure Schedule, all consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof. The
Company and its subsidiaries are unaware of any facts or circumstance, which
might give rise to any of the foregoing.
(f) Financial Statements. The Company has supplied the Buyer with the
Company's unaudited balance sheet as of June 30, 2005 and unaudited income
statement for the six (6) month period through and including June 30, 2005 (the
"Financial Statements"). The Financial Statements are accompanied by a letter
from the Company's Chief Executive Officer or Treasurer confirming that the
Financial Statements are true, correct, and complete to the best of his
knowledge. The Financial Statements are subject to adjustments, footnote
disclosure, and the like consistent with year-end audit procedures.
(g) Absence of Litigation. Except as disclosed in the Disclosure
Schedule, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board, government agency, self-regulatory organization
or body pending against or affecting the Company, the Common Stock or any of the
Company's subsidiaries, wherein an unfavorable decision, ruling or finding would
(i) have a material adverse effect on the transactions contemplated hereby (ii)
adversely affect the validity or enforceability of, or the authority or ability
of the Company to perform its obligations under, this Agreement or any of the
documents contemplated herein, or (iii) except as expressly disclosed in the
Disclosure Schedule, have a material adverse effect on the business, operations,
properties, financial condition or results of operations of the Company and its
subsidiaries taken as a whole.
(h) Acknowledgment Regarding Buyer's Purchase of the Convertible
Debentures. The Company acknowledges and agrees that the Buyer(s) is acting
solely in the capacity of an arm's length purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that the Buyer(s) is not acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereby and any advice given by the Buyer(s) or any
of their respective representatives or agents in connection with this Agreement
and the transactions contemplated hereby is merely incidental to such Buyer's
purchase of the Convertible Debentures or the Conversion Shares. The Company
further represents to the Buyer that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation by the Company and
its representatives.
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(i) No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 0000 Xxx) in connection with the offer or sale of the
Convertible Debentures or the Conversion Shares.
(j) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
Convertible Debentures or the Conversion Shares under the 1933 Act or cause this
offering of the Convertible Debentures or the Conversion Shares to be integrated
with prior offerings by the Company for purposes of the 1933 Act.
(k) Employee Relations. Neither the Company nor any of its
subsidiaries is involved in any labor dispute nor, to the knowledge of the
Company or any of its subsidiaries, is any such dispute threatened. None of the
Company's or its subsidiaries' employees is a member of a union and the Company
and its subsidiaries believe that their relations with their employees are good.
(l) Intellectual Property Rights. The Company and its subsidiaries own
or possess or are currently seeking to develop 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 rights necessary to
conduct their respective businesses as now conducted. The Company and its
subsidiaries do not have any knowledge of any infringement by the Company or its
subsidiaries of trademark, trade name rights, patents, patent rights,
copyrights, inventions, licenses, service names, service marks, service xxxx
registrations, trade secret or other similar rights of others, and, to the
knowledge of the Company there is no claim, action or proceeding being made or
brought against, or to the Company's knowledge, being threatened against, the
Company or its subsidiaries regarding trademark, trade name, patents, patent
rights, invention, copyright, license, service names, service marks, service
xxxx registrations, trade secret or other infringement; and the Company and its
subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing.
(m) Environmental Laws. The Company is, to the best of management's
knowledge, (i) in material compliance with any and all applicable foreign,
federal, state and local laws and regulations relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("Environmental Laws"), (ii) has received all
material permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct its business and (iii) is in material compliance
with all terms and conditions of any such permit, license or approval.
(n) Title. Any real property and facilities held under lease by the
Company are held by the Company 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 buildings by the Company.
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(o) Insurance. The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
management of the Company believes to be reasonably prudent and customary in the
business in which the Company is engaged. The Company has neither been refused
any insurance coverage sought or applied for nor 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 materially and
adversely affect the condition, financial or otherwise, or the earnings,
business or operations of the Company, taken as a whole.
(p) Regulatory Permits. The Company possesses or is in the process of
applying for all material certificates, authorizations and permits issued or to
be issued by the appropriate federal, state or foreign regulatory authorities
necessary to conduct its business, and the Company has not received any notice
of proceedings relating to the revocation, modification or denial of any such
certificate, authorization or permit.
(q) Internal Accounting Controls. The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, and (iii) the
recorded amounts for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(r) No Material Adverse Breaches, etc. Except as set forth in the
Disclosure Schedule, neither the Company nor any of its subsidiaries is subject
to any charter, corporate or other legal restriction, or any judgment, decree,
order, rule or regulation which in the judgment of the Company's officers has or
is expected in the future to have a material adverse effect on the business,
properties, operations, financial condition, results of operations or prospects
of the Company or its subsidiaries. Except as set forth in the Disclosure
Schedule, neither the Company nor any of its subsidiaries is in breach of any
contract or agreement which breach, in the judgment of the Company's officers,
has or is expected to have a material adverse effect on the business,
properties, operations, financial condition, results of operations or prospects
of the Company or its subsidiaries.
(s) Tax Status. Except as set forth in the Disclosure Schedule, the
Company and each of its subsidiaries has made and filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject and (unless and only to the extent that the
Company and each of its subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) has paid
all taxes and other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports and declarations,
except those being contested in good faith and has set aside on its books
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.
10
(t) Certain Transactions. Except as set forth in the Disclosure
Schedule, and except for arm's length transactions pursuant to which the Company
makes payments in the ordinary course of business upon terms no less favorable
than the Company could obtain from third parties and other than the grant of
stock options disclosed in the Disclosure Schedule, none of the officers,
directors, or employees of the Company is presently a party to any transaction
with the Company (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
(u) Fees and Rights of First Refusal. The Company is not obligated to
offer the securities offered hereunder on a right of first refusal basis or
otherwise to any third parties including, but not limited to, current or former
shareholders of the Company, underwriters, brokers, agents or other third
parties.
(v) The Company acknowledges that the Buyer is relying on the
representations and warranties made by the Company hereunder and that such
representations and warranties are a material inducement to the Buyer purchasing
the Convertible Debentures. The Company further acknowledges that without such
representations and warranties of the Company made hereunder, the Buyer would
not enter into this Agreement.
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.
(b) Form D. The Company agrees to file a Form D with respect to the
Conversion Shares as required under Regulation D and to provide a copy thereof
to each Buyer promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary to qualify the Conversion Shares, or obtain an exemption for the
Conversion Shares for sale to the Buyers at the Closing pursuant to this
Agreement under applicable securities or "Blue Sky" laws of the states of the
United States in all states in which the manual exemption is applicable plus up
to ten (10) additional states as designated by the Buyer, and shall provide
evidence of any such action so taken to the Buyers on or prior to the Closing
Date.
(c) Reporting Status. Commencing on the effectiveness of the
registration statement filed with the SEC pursuant to the Investor Registration
Rights Agreement and until the earlier of (i) the date as of which the Buyer(s)
may sell all of the Conversion Shares without restriction pursuant to Rule
144(k) promulgated under the 1933 Act (or successor thereto), or (ii) the date
on which (A) the Buyer(s) shall have sold all except 10% of the Conversion
Shares and (B) $100,000 principal amount of the Convertible Debentures issued
under this Agreement or the Convertible Debentures issued under the Securities
Purchase Agreement dated August 4, 2004 are outstanding (the "Registration
Period"), the Company shall file in a timely manner all reports required to be
filed with the SEC pursuant to the 1934 Act and the regulations of the SEC
11
thereunder, 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 Convertible Debentures for general corporate and working capital
purposes.
(e) Reservation of Shares. The Company shall take all action
reasonably necessary to at all times have authorized, and reserved for the
purpose of issuance, such number of shares of Common Stock as shall be necessary
to effect the issuance of the Conversion Shares. If at any time the Company does
not have available such shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all of the Conversion Shares of the
Company shall call and hold a special meeting of the shareholders within sixty
(60) days of such occurrence, for the sole purpose of increasing the number of
shares authorized. The Company's management shall recommend to the shareholders
to vote in favor of increasing the number of shares of Common Stock authorized.
Management shall also vote all of its shares in favor of increasing the number
of authorized shares of Common Stock.
(f) Listings or Quotation. The Company shall, concurrently with the
effectiveness of the registration statement filed with the SEC pursuant to the
Investor Registration Rights Agreement dated August 4, 2004, use its best
efforts to secure the listing or quotation of its Common Stock (including,
without limitation, the Conversion Shares) upon a national securities exchange,
automated quotation system or the Over-The-Counter Bulletin Board ("OTCBB")
maintained by the National Association of Securities Dealers, Inc. The Company
shall maintain the listing or quotation of the Common Stock for so long as the
Investor is the beneficial owner of any Common Stock or Conversion Shares
(whether obtained or to be obtained under this Agreement), the Convertible
Debentures or any other agreement between the Company and the Buyer equivalent
to $100,000 principal amount of the Buyer's original purchase of the Convertible
Debentures. The Company shall use its best efforts to maintain the Common
Stock's authorization for quotation on the OTCBB.
(g) Fees and Expenses. Except as set forth below, each of the Company
and the Buyer(s) shall pay all costs and expenses incurred by such party in
connection with the negotiation, investigation, preparation, execution and
delivery of this Agreement, the Escrow Agreement, the Investor Registration
Rights Agreement, the Amended and Restated Security Agreement and the
Irrevocable Transfer Agent Instructions. The Buyer(s) shall be entitled to a
commitment fee of Twenty Thousand Dollars ($20,000) paid directly from the gross
proceeds held in escrow.
The Company shall pay to the Buyer a one-time structuring fee of Ten
Thousand Dollars ($10,000) (the "Structuring Fee") in connection with this
transaction, which shall be paid directly from the gross proceeds of the First
Closing. The structuring fee shall be deemed fully earned on the date hereof.
(h) Corporate Existence. So long as at least $100,000 principal amount
of the Convertible Debentures issued under this Agreement or the Convertible
Debentures issued under the Securities Purchase Agreement dated August 4, 2004
remain outstanding, the Company shall
12
not directly or indirectly consummate any merger, reorganization, restructuring,
reverse stock split consolidation, sale of all or substantially all of the
Company's assets or any similar transaction or related transactions (each such
transaction, an "Organizational Change") unless, prior to the consummation an
Organizational Change, the Company obtains the written consent of each Buyer not
to be unreasonably withheld. In any such case, the Company will make appropriate
provision with respect to such holders' rights and interests to insure that the
provisions of this Section 4(h) will thereafter be applicable to the Convertible
Debentures.
(i) Transactions With Affiliates. So long as at least $100,000
principal amount Convertible Debentures issued under this Agreement or the
Convertible Debentures issued under the Securities Purchase Agreement dated
August 4, 2004 are outstanding, the Company shall not, and shall cause each of
its subsidiaries not to, enter into, amend, modify or supplement, or permit any
subsidiary to enter into, amend, modify or supplement any agreement,
transaction, commitment, or arrangement with any of its or any subsidiary's
officers, directors, person who were officers or directors at any time during
the previous two (2) years, stockholders who beneficially own five percent (5%)
or more of the Common Stock, or Affiliates (as defined below) or with any
individual related by blood, marriage, or adoption to any such individual or
with any entity in which any such entity or individual owns a five percent (5%)
or more beneficial interest (each a "Related Party"), except for (a) customary
employment arrangements and benefit programs on reasonable terms, (b) any
investment in an Affiliate of the Company, (c) any agreement, transaction,
commitment, or arrangement on an arms-length basis on terms no less favorable
than terms which would have been obtainable from a person other than such
Related Party, (d) any agreement transaction, commitment, or arrangement which
is approved by a majority of the disinterested directors of the Company, for
purposes hereof, any director who is also an officer of the Company or any
subsidiary of the Company shall not be a disinterested director with respect to
any such agreement, transaction, commitment, or arrangement. "Affiliate" for
purposes hereof means, with respect to any person or entity, another person or
entity that, directly or indirectly, (i) has a ten percent (10%) or more equity
interest in that person or entity, (ii) has ten percent (10%) or more common
ownership with that person or entity, (iii) controls that person or entity, or
(iv) shares common control with that person or entity. "Control" or "controls"
for purposes hereof means that a person or entity has the power, direct or
indirect, to conduct or govern the policies of another person or entity.
(j) Transfer Agent. The Company covenants and agrees that, in the
event that the Company's agency relationship with the transfer agent should be
terminated for any reason prior to a date which is two (2) years after the
Closing Date, the Company shall promptly appoint a new transfer agent and shall
require that the new transfer agent execute and agree to be bound by the terms
of the Irrevocable Transfer Agent Instructions (as defined herein).
(k) Restriction on Issuance of the Capital Stock. So long as at least
$100,000 principal amount Convertible Debentures issued under this Agreement or
the Convertible Debentures issued under the Securities Purchase Agreement dated
August 4, 2004 are outstanding, the Company shall not, without the prior written
consent of the Buyer(s) not to be unreasonably withheld, issue or sell shares of
Common Stock or Preferred Stock (i) without consideration or for a consideration
per share less than the Bid Price of the Common Stock determined immediately
prior to its issuance, (ii) any warrant, option, right, contract, call, or other
security instrument granting the holder thereof, the right to acquire Common
Stock without
13
consideration or for a consideration less than such Common Stock's Bid Price
value determined immediately prior to it's issuance, (iii) enter into any
security instrument granting the holder a security interest in any and all
assets of the Company (provided that the Company may enter into security
agreements with a third party (the "Third Party") relating to the purchase,
lease, and/or financing of equipment and the Buyer will subordinate the priority
of Buyer's lien as a secured party to the lien such Third Party specific to the
equipment so purchased, leased and/or financed), or (iv) file any registration
statement on Form S-8, except to register securities to be issued under the
Company's 2004 Stock Incentive Plan. So long as at least $100,000 principal
amount of the Convertible Debentures issued under this Agreement or the
Convertible Debentures issued under the Securities Purchase Agreement dated
August 4, 2004 remain outstanding, the Company covenants that it shall not make
any amendments, modifications or other changes to the 2004 Stock Incentive Plan
as in existence on the date hereof, including, without limitation, increasing
the number of shares of capital stock available for issuance thereunder.
(l) Financial and Accounting. Prior to the effective of the Company's
registration statement on Form SB-2, the Company will have instituted and will
be employing and maintaining customary internal accounting controls and methods
in its business operations sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation
or financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability, and (iii) the recorded amounts
for assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(m) Use of Proceeds. The Company covenants to the Investor that the
net proceeds to be received by the Company in this transaction shall be used for
general corporate and working capital purposes.
(n) Deferral of Compensation. The Company covenants and agrees that it
shall (i) not declare or pay bonuses and (ii) defer forty percent (40%) of the
base salary of Chief Executive Officer and Chief Marketing Officer, as detailed
in the Board Consent dated July 19, 2004, until sixty days after the
effectiveness of the Registration Statement filed with the SEC pursuant to the
Registration Rights Agreement dated August 4, 2004. The Company covenants and
agrees that it shall (i) not declare or pay bonuses and (ii) defer twenty
percent (20%) of the base salary of Chief Financial Officer, as detailed in the
Board Consent dated July 19, 2004, until sixty days after the effectiveness of
the Registration Statement filed with the SEC pursuant to the Registration
Rights Agreement dated August 4, 2004. The Company shall obtain letters
confirming such deferral from the officers specified above.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue the Irrevocable Transfer Agent Instructions to its
transfer agent irrevocably appointing Xxxxx Xxxxxxxx, Esq. as its agent for
purpose of having certificates issued, registered in the name of the Buyer(s) or
its respective nominee(s), for the Conversion Shares representing such amounts
of Convertible Debentures as specified from time to time by the Buyer(s) to the
Company upon conversion of the Convertible Debentures, for interest owed
14
pursuant to the Convertible Debenture, and for any and all Liquidated Damages
(as this term is defined in the Investor Registration Rights Agreement). Xxxxx
Xxxxxxxx, Esq. shall be paid a cash fee of Fifty Dollars ($50) for every
occasion they act pursuant to the Irrevocable Transfer Agent Instructions. As
long as the Buyer owns at least $100,000 principal amount of the Convertible
Debentures issued under this Agreement or the Convertible Debentures issued
under the Securities Purchase Agreement dated August 4, 2004 the Company shall
not change its transfer agent without the express written consent of the
Buyer(s), not to be unreasonably withheld. Prior to registration of the
Conversion Shares under the 1933 Act, all such certificates shall bear the
restrictive legend specified in Section 2(g) of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(g) hereof (in the case of the Conversion Shares prior
to registration of such shares under the 0000 Xxx) will be given by the Company
to its transfer agent and that the Conversion Shares shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Investor Registration Rights Agreement.
Nothing in this Section 5 shall affect in any way the Buyer's obligations and
agreement to comply with all applicable securities laws upon resale of
Conversion Shares. If the Buyer(s) provides the Company with an opinion of
counsel, in form, scope and substance customary for opinions of counsel in
comparable transactions to the effect that registration of a resale by the
Buyer(s) of any of the Conversion Shares is not required under the 1933 Act, the
Company shall within two (2) business days instruct its transfer agent to issue
one or more certificates in such name and in such denominations as specified by
the Buyer. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Buyer by vitiating the intent and
purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 5 will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Section 5, that the Buyer(s)
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELLER.
The obligation of the Company hereunder to issue and sell the Convertible
Debentures to the Buyer(s) at the Closings is subject to the satisfaction, at or
before the Closing Dates, 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:
(a) Each Buyer shall have executed this Agreement, the Amended and
Restated Security Agreement, the Escrow Agreement and the Investor Registration
Rights Agreement and the Irrevocable Transfer Agent Instructions and delivered
the same to the Company.
(b) The Buyer(s) shall have delivered to the Escrow Agent the Purchase
Price for Convertible Debentures in respective amounts as set forth next to each
Buyer as outlined on Schedule I attached hereto and the Escrow Agent shall have
delivered the net proceeds to the Company by wire transfer of immediately
available U.S. funds pursuant to the wire instructions provided by the Company.
15
(c) The representations and warranties of the Buyer(s) 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 the Buyer(s) 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 the Buyer(s) at or prior to the Closing Date.
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The obligation of the Buyer(s) hereunder to purchase the Convertible
Debentures 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 Buyer's sole benefit and may be waived by the Buyer(s) at
any time in its sole discretion:
(a) The Company shall have executed this Agreement, the Amended and
Restated Security Agreement, the Convertible Debenture, the Escrow Agreement,
the Irrevocable Transfer Instructions and the Investor Registration Rights
Agreement, and delivered the same to the Buyer(s).
(b) The representations and warranties of the Company shall be true
and correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in Section
3 above, in which case, such representations and warranties shall be true and
correct without further qualification) 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 material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. If requested by
the Buyer, the Buyer shall have received a certificate, executed by the
President of the Company, dated as of the Closing Date, to the foregoing effect
and an update as of the Closing Date regarding the representation contained in
Section 3(c) above.
(c) The Company shall have executed and delivered to the Buyer(s) the
Convertible Debentures in the respective amounts set forth opposite each
Buyer(s) name on Schedule I attached hereto.
(d) The Buyer(s) shall have received an opinion of counsel in a form
satisfactory to the Buyer(s).
(e) The Company shall have provided to the Buyer(s) a certificate of
good standing from the Secretary of State of Delaware.
(f) As of the Closing Date, the Company shall have reserved out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Convertible Debentures, shares of Common Stock to effect the
conversion of all of the Conversion Shares then outstanding.
16
(g) The Irrevocable Transfer Agent Instructions, in form and substance
satisfactory to the Buyer, shall have been delivered to and acknowledged in
writing by the Company's transfer agent been engaged.
8. INDEMNIFICATION.
(a) In consideration of the Buyer's execution and delivery of this
Agreement and acquiring the Convertible Debentures and the Conversion Shares
hereunder, and in addition to all of the Company's other obligations under this
Agreement, the Company shall defend, protect, indemnify and hold harmless the
Buyer(s) and each other holder of the Convertible Debentures and the Conversion
Shares, and all of their officers, directors, employees and agents (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "Buyer 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
(irrespective of whether any such Buyer Indemnitee is a party to the action for
which indemnification hereunder is sought), and including reasonable attorneys'
fees and disbursements (the "Indemnified Liabilities"), incurred by the Buyer
Indemnitees or any of them 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 this Agreement, the Convertible Debentures or the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement, or the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, or (c) any cause of action, suit or claim
brought or made against such Indemnitee and arising out of or resulting from the
execution, delivery, performance or enforcement of this Agreement or any other
instrument, document or agreement executed pursuant hereto by any of the
Indemnities, any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of the issuance of the Convertible
Debentures or the status of the Buyer or holder of the Convertible Debentures
the Conversion Shares, as a Buyer of Convertible Debentures in the Company. 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. This indemnification shall not apply to any Indemnified
Liabilities arising out of the willful or reckless actions or inactions of any
Buyer Indemnitee.
(b) In consideration of the Company's execution and delivery of this
Agreement, and in addition to all of the Buyer's other obligations under this
Agreement, the Buyer shall defend, protect, indemnify and hold harmless the
Company and all of its officers, directors, employees and agents (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "Company Indemnitees") from
and against any and all Indemnified Liabilities incurred by the Indemnitees or
any of them as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Buyer(s) in this Agreement, the Convertible Debentures or the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby executed by the Buyer, (b) any breach of any
covenant, agreement or obligation of the Buyer(s) contained in this Agreement,
the Investor Registration Rights Agreement or any other certificate, instrument
or document contemplated hereby or
17
thereby executed by the Buyer, or (c) any cause of action, suit or claim brought
or made against such Company Indemnitee based on material misrepresentations or
due to a material breach and arising out of or resulting from the execution,
delivery, performance or enforcement of this Agreement, the Investor
Registration Rights Agreement or any other instrument, document or agreement
executed pursuant hereto by any of the Company Indemnities. To the extent that
the foregoing undertaking by each Buyer may be unenforceable for any reason,
each Buyer shall make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities, which is permissible under applicable
law. This indemnification shall not apply to any Indemnified Liabilities arising
out of the willful or reckless actions or inactions of any Company Indemnitee.
9. GOVERNING LAW: MISCELLANEOUS.
(a) Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of New Jersey without regard to the
principles of conflict of laws. The parties further agree that any action
between them shall be heard exclusively in Xxxxxx County, New Jersey, and
expressly consent to the jurisdiction and venue of the Superior Court of New
Jersey, sitting in Xxxxxx County and the United States District Court for the
District of New Jersey sitting in Newark, New Jersey for the adjudication of any
civil action asserted pursuant to this Paragraph.
(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. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature pages to be
physically delivered to the other party within five (5) days of the execution
and delivery hereof.
(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.
(d) Severability. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement in
that jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
(e) Entire Agreement, Amendments. This Agreement supersedes all other
prior oral or written agreements between the Buyer(s), the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
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 waived or amended other than by an instrument in writing signed
by the party to be charged with enforcement.
(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
18
be deemed to have been delivered (i) upon receipt, when delivered personally;
(ii) upon confirmation of receipt, when sent by facsimile; (iii) three (3) days
after being sent by U.S. certified mail, return receipt requested, or (iv) one
(1) day after deposit with a nationally recognized overnight delivery service,
in each case properly addressed to the party to receive the same. The addresses
and facsimile numbers for such communications shall be:
If to the Company, to: U.S. Helicopter Corporation
Downtown Manhattan Heliport
Pier 0, Xxxx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx X. Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Xxxxxxxxx, Xxxxxx & Xxxxxx
Princeton Xxxxxxxxx Village
000 Xxxxxxx Xxxx., Xxxxx 000
Xxxxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Transfer Agent, to: StockTrans, Inc.
0 X Xxxxxxxxx Xxxxxx
Xxxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
If to the Buyer(s), to its address and facsimile number on Schedule I, with
copies to the Buyer's counsel as set forth on Schedule I. Each party shall
provide five (5) days' prior written notice to the other party of any change in
address or facsimile number.
(g) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns.
Neither the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other party
hereto.
(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.
(i) Survival. Unless this Agreement is terminated under Section 9(l),
the representations and warranties of the Company and the Buyer(s) contained in
Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9,
and the indemnification provisions set forth in Section 8, shall survive the
Closing for a period of two (2) years following the date
19
on which the Convertible Debentures are converted in full. The Buyer(s) shall be
responsible only for its own representations, warranties, agreements and
covenants hereunder.
(j) Publicity. The Company and the Buyer(s) shall have the right to
approve, before issuance any press release or any other public statement with
respect to the transactions contemplated hereby made by any party; provided,
however, that the Company shall be entitled, without the prior approval of the
Buyer(s), to issue any press release or other public disclosure with respect to
such transactions required under applicable securities or other laws or
regulations (the Company shall use its best efforts to consult the Buyer(s) in
connection with any such press release or other public disclosure prior to its
release and Buyer(s) shall be provided with a copy thereof upon release
thereof).
(k) 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
the 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.
(l) Termination. In the event that the Closing shall not have occurred
with respect to the Buyers on or before five (5) business days from the date
hereof due to the Company's or the Buyer's failure to satisfy the conditions set
forth in Sections 6 and 7 above (and the non-breaching party's failure to waive
such unsatisfied condition(s)), the non-breaching party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date without liability of any party to any other party.
(m) 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.
[REMAINDER PAGE INTENTIONALLY LEFT BLANK]
20
IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.
COMPANY:
U.S. HELICOPTER CORPORATION
By: /s/ Xxxx X. Xxxxxx
------------------------------------
Name: Xxxx X. Xxxxxx
Title: President & CEO
THE BUYER'S(S') SIGNATURES ARE CONTAINED
ON SCHEDULE I HERETO
21
EXHIBIT A
DISCLOSURE SCHEDULE
a. Organization and Qualification: None.
b. Authorization, Enforcement, Compliance with Other Instruments: None.
c. Capitalization:
1. Options: The Company has adopted a 2004 Stock Incentive Plan and has
reserved the right to issue and sell up to 3,700,000 million shares of
common stock under such plan. To date, the Company has authorized the
following options, all of which are exercisable at $0.50 per share:
Name Options
---- -------
Xxxxxx Xxxx 231,000
Xxxx Xxxxxxx 300,000
Xxxxxxx Xxxxxxxx 211,000
Xxxxx Xxxxxxxxx 70,000
Xxxx Xxxxxxxx 70,000
2. Warrants: The Company conducted a private placement (the "Private
Placement") from November through December, 2004 wherein the Company issued
warrants to 20 purchasers to purchase a total of 126,400 shares of the
Company's common stock which are exercisable upon conversion of the Series
A Preferred Stock issued to subscribers in the Private Placement. A total
of 63,200 warrants have exercise prices of 125% of the conversion price of
the Series A Preferred Stock, and the remaining 63,200 warrants an exercise
price of 150% of the conversion price of the Series A Preferred Stock. The
126,400 warrants issued in connection with the Private Placement constitute
all warrants issued by the Company to date.
Preferred Stock: Shares of the Company's Series A Preferred Stock
issued in the Private Placement are convertible into the Company's common
stock at an exercise price equal to 80% of the average closing bid price of
the Company's common stock on the OTC-BB for the 20 trading days
immediately preceding the day upon which the Company receives a notice of
conversion from the Preferred Stockholder. In the event that the Company's
shares are not traded on the OTC-BB, the conversion price shall be equal to
80% of the average bid price of the Company's common stock posted in the
Pink Sheets for the 20 trading days immediately preceding the day upon
which the Company receives a conversion notice from the Preferred
Stockholder. In the event that the Company's shares are not traded on the
OTC-BB or on the Pink Sheets, the conversion price shall be equal to 80% of
the fair market value of the Company's common stock on
SCHEDULE I-1
the date upon which the Company receives the notice of conversion from the
Preferred Stockholder.
3. Rights Convertible Into Common Stock: The Buyer holds an Amended and
Restated Secured Debenture (the "Convertible Debenture") dated April 8,
2005 in the principal amount of $1,335,424, of which up to 10% may be
converted into shares of the Company's common stock at a price of $0.20 per
share. Upon the occurrence of an Event of Default, as defined in the
Convertible Debenture, the Buyer may convert all sums due and owing under
the Convertible Debenture without regard to the aforementioned 10%
limitation.
4. Understandings/Arrangements for which the Company is Bound to Issue
Common Stock: The Company and the Buyer are parties to an Amended and
Restated Standby Equity Distribution Agreement dated April 8, 2005 (the
"SEDA"). Pursuant to the SEDA, the Company may, at its discretion,
periodically sell to the Buyer shares of common stock for a total purchase
price of up to $11.0 million.
5. Outstanding Debt Securities: See the description of the Convertible
Debenture (#3 above).
6. Agreements to Register the Sale of the Company's Securities:
A. Convertible Debenture: The Company has agreed to register the
shares of common stock issuable upon conversion of the Convertible
Debenture (see #3 above) pursuant to an Investor Registration Rights
Agreement dated August 4, 2004. The Company filed a registration
statement with the SEC on April 22, 2005 (together with its subsequent
amendments, the "First Registration Statement") which includes the
registration of up to 7,344,830 shares issuable upon conversion of the
Convertible Debenture. The First Registration Statement was
subsequently amended on June 27, 2005, July 21, 2005 and August 17,
2005.
X. XXXX: The Company has agreed to register the shares of common stock
issuable pursuant to the SEDA (see #4 above) pursuant to a
Registration Rights Agreement dated August 4, 2004. The Company
intends to file a registration statement (the "Second Registration
Statement") for the resale of these shares by the Buyer after the
effectiveness of the First Registration Statement. The Company has
also issued a total of 2,472,527 shares originally issued to the Buyer
as a commitment fee pursuant to the SEDA. Of the 2,472,527 shares
originally issued to the Buyer for payment of such commitment fee, the
Buyer subsequently transferred a total of 494,505 shares to Xxxx
Xxxxx, and a total of 247,253 shares to Xxxx Xxxxx. All 2,472,527
shares originally issued to the Buyer as a commitment fee under the
SEDA are included in the First Registration Statement.
C. 3B Group, Inc.: The Company has agreed to register 773,196 shares
held by 3B Group, Inc. received in consideration of its efforts in
assisting the
2
Company to raise capital and to induce the Buyer to make an investment
in the Company. These shares are included in the First Registration
Statement.
D. Newbridge Securities Corporation: The Company has agreed to
register $10,000 worth of common stock to be issued to Newbridge in
consideration of its acting as placement agent for the Company's
transaction with the Buyer in August, 2004, with the number of shares
to be determined on the first day which the Company's shares are
publicly traded. The Company anticipates including such shares in the
Second Registration Statement.
E. Private Placement Investors: The Company has agreed to register the
common stock issuable upon conversion of the Series A Preferred Stock
and the warrants acquired by investors in the Private Placement (see
#2 above). The Company anticipates including such shares in the Second
Registration Statement.
F. North Coast Securities Corporation Warrants: The Company has agreed
to register the common stock issuable upon conversion of certain
warrants issued to North Coast Securities Corporation to purchase a
total of 279,600 shares, of which 250,000 warrants were issued for
services rendered pursuant to a Financial Advisory and Investment
Banking Agreement, and 29,600 warrants were issued as partial
consideration for North Coast acting as placement agent for the
Private Placement. The Company anticipates including such shares in
the Second Registration Statement.
7. Outstanding Registration Statements: The Company filed the First
Registration Statement on April 22, 2005 (see #6(a) above), which was
amended on June 27, 2005, July 21, 2005 and August 17, 2005. The Company
has responded to all comment letters to date received from the SEC with
respect to the First Registration Statement; such comment letters have been
provided to the Buyer.
d. Issuance of Securities: None.
e. No Conflicts: None.
f. Financial Statements: None.
g. Absence of Litigation: None.
h. Acknowledgement Regarding Buyer's Purchase of the Convertible Debentures:
None.
i. No General Solicitation: None.
j. No Integrated Offering: None.
k. Employee Relations: None.
3
l. Intellectual Property Rights: The Company is aware that third parties are
using the words, or variations on, "U.S." and "Helicopter". None are known to
the Company to be using such words in the same style or format as the Company.
The Company may conduct its business in the future under a trade name other than
"U.S. Helicopter".
m. Environmental Laws: None.
n. Title: None.
o. Insurance: None.
p. Regulatory Permits: None.
q. Internal Accounting Controls: None.
r. No Material Adverse Breaches, etc.: None.
s. Tax Status: None.
t. Certain Transactions: See disclosures set forth in the schedules to the
August 4, 2004 Securities Purchase Agreement (the "8/4/04 SPA") between the
Company and the Buyer. In addition:
1. The Company has a letter of employment with Xxxxxxx X. Xxxxxxxx (Chief
Operating Officer; Base Salary of $90,000; 211,000 options; bonus
eligibility same as in 8/4/04 SPA's disclosures).
2. Stock options issued (see c(1) above).
u. Fees and Rights of First Refusal: None.
v. None.
4
SCHEDULE I
SCHEDULE OF BUYERS
ADDRESS/FACSIMILE
NAME SIGNATURE NUMBER OF BUYER AMOUNT OF SUBSCRIPTION
---------------------------- --------------------------- ------------------------------ ----------------------
Cornell Capital Partners, LP By: Yorkville Advisors, LLC 000 Xxxxxx Xxxxxx - Xxxxx 0000 $220,000
Its: General Partner Xxxxxx Xxxx, XX 00000
Facsimile: (000) 000-0000
By: /s/ Xxxx X. Xxxxxx With a copy to:
----------------------- Cornell Capital Partners, LP
Name: Xxxx X. Xxxxxx 000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxx: Portfolio Manager Xxxxxx Xxxx, XX 00000
Attention: Xxxx X. Xxxxx, Esq.
Facsimile: (000) 000-0000
5
