Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of November 21,
2006, by and among Catuity, Inc., a Delaware corporation, with its principal
executive offices located at 0000 X. Xxxxxxxxx Xxxxxx, Xxxxxxx, Xxxxxxxx 00000
(the "COMPANY"), and the investors listed on the Schedule of Buyers attached
hereto (individually, a "BUYER" and collectively, the "BUYERS").
WHEREAS:
A. The Company and each Buyer is executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by Section
4(2) of the Securities Act of 1933, as amended (the "1933 ACT"), and Rule 506 of
Regulation D ("REGULATION D") as promulgated by the United States Securities and
Exchange Commission (the "SEC") under the 1933 Act.
B. The Company has authorized a new series of senior secured convertible
notes of the Company which notes shall be convertible into the Company's common
stock, par value $0.001 per share (the "COMMON STOCK"), in accordance with the
terms of the Notes (as defined below).
C. Each Buyer wishes to purchase, and the Company wishes to sell, upon the
terms and conditions stated in this Agreement, (i) that aggregate principal
amount of the Notes, in substantially the form attached hereto as Exhibit A (the
"NOTES"), set forth opposite such Buyer's name in column (3) on the Schedule of
Buyers attached hereto (which aggregate amount for all Buyers shall be
$1,800,000) (as converted, collectively, the "NOTE CONVERSION SHARES"), and (ii)
warrants, in substantially the form attached hereto as Exhibit B (the
"WARRANTS"), to acquire that number of shares of Common Stock (as exercised,
collectively, the "WARRANT SHARES") set forth opposite such Buyer's name in
column (4) on the Schedule of Note Buyers.
D. The Company has authorized a new series of convertible preferred stock
of the Company designated as Series A Cumulative Preferred Stock, the terms of
which are set forth in the certificate of designation for such series of
preferred stock (the "CERTIFICATE OF DESIGNATIONS") in the form attached hereto
as Exhibit D (together with any convertible Preferred Stock issued in
replacement thereof in accordance with the terms thereof, the "PREFERRED
STOCK"), which Preferred Stock shall be convertible into Common Stock, in
accordance with the terms of the Certificate of Designations.
E. Each Buyer wishes to purchase, and the Company wishes to sell, upon the
terms and conditions stated in this Agreement, that aggregate number of
Preferred Stock set forth opposite such Buyer's name in column (3) on the
Schedule of Buyers (which aggregate number for all Buyers shall be up to 700
shares of Preferred Stock and the shares of Common Stock into which such
Preferred Stock are convertible being referred to herein as the "PREFERRED STOCK
CONVERSION SHARES" and together with the Note Conversion Shares, the "CONVERSION
SHARES").
F. Contemporaneously with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement,
substantially in the
form attached hereto as Exhibit F (the "REGISTRATION RIGHTS AGREEMENT"),
pursuant to which the Company has agreed to provide certain registration rights
with respect to the Conversion Shares under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.
G. The Notes, the Preferred Stock, the Conversion Shares, the Warrants and
the Warrant Shares collectively are referred to herein as the "SECURITIES".
H. The Notes will rank senior to all future indebtedness of the Company,
subject to Permitted Senior Indebtedness (as defined in the Notes), and will be
secured by a perfected security interest in all of the assets of the Company and
each of the Company's subsidiaries, as evidenced by the security agreement
attached hereto as Exhibit G (the "SECURITY AGREEMENT") and together with the
Guaranty, attached hereto as Exhibit H (the "GUARANTY"), and any ancillary
documents related thereto, collectively the "SECURITY DOCUMENTS").
NOW, THEREFORE, the Company and each Buyer hereby agree as follows:
1. PURCHASE AND SALE OF NOTES, PREFERRED STOCK AND WARRANTS.
(a) Purchase of Notes, Preferred Stock and Warrants.
(b) Subject to the satisfaction (or waiver) of the conditions set forth in
Sections 6 and 7 below, the Company shall issue and sell to each Buyer, and each
Buyer severally, but not jointly, will purchase from the Company on the Closing
Date (as defined below), (w) a principal amount of Notes as is set forth
opposite such Buyer's name in column (3) on the Schedule of Note Buyers, (x)
Warrants to acquire that number of Warrant Shares as is set forth opposite such
Buyer's name in column (4) on the Schedule of Note Buyers, (y) the number of
Preferred Stock as is set forth opposite such Buyer's name in column (3) on the
Schedule of Preferred Stock Buyers (the "CLOSING").
(i) Closing. The date and time of the Closing (the "CLOSING DATE")
shall be 10:00 a.m., New York City Time, on November 22, 2006 (or such
later date as is mutually agreed to by the Company and the Required Holders
(as defined in the Note and Certificate of Designation)) after notification
of satisfaction (or waiver) of the conditions to the Closing set forth in
Sections 6 and 7 below at the offices of Gottbetter & Partners, LLP, 000
Xxxxxxx Xxxxxx, Xxx Xxxx, XX 00000.
(ii) Notes and Warrants Purchase Price. The aggregate purchase price
for the Notes and the Warrants to be purchased by each Buyer at the Closing
(the "NOTE PURCHASE PRICE") shall be 90% of their face value. Each Buyer
shall pay $.90 for each $1.00 of principal amount of Notes and related
Warrants to be purchased by such Buyer at the Closing.
(iii) Preferred Stock Purchase Price. The aggregate purchase price for
the Preferred Stock to be purchased by each Buyer (the "PREFERRED STOCK
PURCHASE PRICE") shall be the amount set forth opposite such Buyer's name
in column (4) on the
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Schedule of Preferred Stock Buyers. Each Buyer shall pay $900 for each
share of Preferred Stock to be purchased by such Buyer at the Closing.
(c) Form of Payment. On the Closing Date, (i) each Buyer shall pay its
Purchase Price to the Company for the Notes, Preferred Stock and the Warrants to
be issued and sold to such Buyer at the Closing by wire transfer of immediately
available funds in accordance with the Company's written wire instructions and
(ii) the Company shall deliver to each Buyer (A) the Notes (in the principal
amounts as such Buyer shall have requested prior to the Closing) which such
Buyer is then purchasing, (B) the Preferred Stock which such Buyer is then
buying and (C) the Warrants (in the amounts as such Buyer shall have requested
prior to the Closing) which such Buyer is purchasing, in each case duly executed
on behalf of the Company and registered in the name of such Buyer or its
designee.
(d) Closing. The Closing shall occur on the applicable Closing Date at the
offices of Gottbetter & Partners, LLP, 000 Xxxxxxx Xxxxxx, Xxx Xxxx, XX 00000.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself that:
(a) No Public Sale or Distribution. Such Buyer is (i) acquiring the Notes,
the Preferred Stock and the Warrants and (ii) upon conversion of the Notes and
the Preferred Stock and exercise of the Warrants (other than pursuant to a
Cashless Exercise (as defined in the Warrants)) will acquire the Conversion
Shares issuable upon conversion of the Notes and the Preferred Stock and the
Warrant Shares issuable upon exercise of the Warrants, for its own account and
not with a view towards, or for resale in connection with, the public sale or
distribution thereof, except pursuant to sales registered or exempted under the
1933 Act; provided, however, that by making the representations herein, such
Buyer does not agree to hold any of the Securities for any minimum or other
specific term and reserves the right to dispose of the Securities at any time in
accordance with or pursuant to a registration statement or an exemption under
the 1933 Act. Such Buyer is acquiring the Securities hereunder in the ordinary
course of its business. Such Buyer does not presently have any agreement or
understanding, directly or indirectly, with any Person to distribute any of the
Securities.
(b) Accredited Investor Status. Such Buyer is an "accredited investor" as
that term is defined in Rule 501(a) under the 1933 Act. Such Buyer is not a
registered broker-dealer under Section 15 of the 1934 Act.
(c) Reliance on Exemptions. Such Buyer understands that the Securities are
being offered and sold to it in reliance on specific exemptions from the
registration requirements of 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 the Securities.
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(d) Information. Such Buyer and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Securities which
have been requested by such Buyer. Such Buyer and its advisors, if any, have
been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
herein. Such Buyer understands that its investment in the Securities involves a
high degree of risk. Such Buyer has sought such accounting, legal and tax advice
as it has considered necessary to make an informed investment decision with
respect to its acquisition of the Securities.
(e) No Governmental Review. Such Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
(f) Transfer or Resale. Such Buyer understands that except as provided in
the Registration Rights Agreement: (i) the Securities have not been and are not
being registered under the 1933 Act or any state securities laws, and may not be
offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Buyer shall have delivered to the Company an
opinion of counsel, in a form reasonably acceptable to the Company, to the
effect that such Securities to be sold, assigned or transferred may be sold,
assigned or transferred pursuant to an exemption from such registration, or (C)
such Buyer provides the Company with reasonable assurance that such Securities
can be sold, assigned or transferred pursuant to Rule 144 or Rule 144A
promulgated under the 1933 Act, as amended, (or a successor rule thereto)
(collectively, "RULE 144"); (ii) any sale of the Securities made in reliance on
Rule 144 may be made only in accordance with the terms of Rule 144 and further,
if Rule 144 is not applicable, any resale of the Securities under circumstances
in which the seller (or the Person (as defined in Section 3(s)) through whom the
sale is made) may be deemed to be an underwriter (as that term is defined in the
0000 Xxx) may require compliance with some other exemption under the 1933 Act or
the rules and regulations of the SEC thereunder; and (iii) neither the Company
nor any other Person is under any obligation to register the Securities under
the 1933 Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder. The Notes, Preferred Stock or Warrants
may be pledged in connection with a bona fide margin account or other loan or
financing arrangement secured by the Notes, Preferred Stock or Warrants and such
pledge of Securities shall not be deemed to be a transfer, sale or assignment of
the Notes, Preferred Stock or Warrants hereunder, and no Buyer effecting a
pledge of Notes, Preferred Stock or Warrants shall be required to provide the
Company with any notice thereof or otherwise make any delivery to the Company
pursuant to this Agreement or any other Transaction Document (as defined in
Section 3(b)), including, without limitation, this Section 2(f).
(g) Legends. Such Buyer understands that the certificates or other
instruments representing the Notes, the Preferred Stock and the Warrants and,
until such time as the resale of the Conversion Shares have been registered
under the 1933 Act as contemplated by each of the
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Registration Rights Agreement, the stock certificates representing the
Conversion Shares and the Warrant Shares, except as set forth below, shall bear
any legend as required by the "blue sky" laws of any state and a restrictive
legend in substantially the following form (and a stop-transfer order may be
placed against transfer of such stock certificates):
[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
[CONVERTIBLE] [EXERCISABLE] HAVE BEEN] [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 MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A)
AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A FORM REASONABLY
ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT
OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT
SECURED BY THE SECURITIES.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection with
a sale, assignment or other transfer, such holder provides the Company with an
opinion of counsel, in a form reasonably acceptable to the Company, to the
effect that such sale, assignment or transfer of the Securities may be made
without registration under the applicable requirements of the 1933 Act, or (iii)
such holder provides the Company with reasonable assurance that the Securities
can be sold, assigned or transferred pursuant to Rule 144 or Rule 144A.
(h) Validity; Enforcement. This Agreement, the Registration Rights
Agreement and the Security Documents to which such Buyer is a party have been
duly and validly authorized, executed and delivered on behalf of such Buyer and
shall constitute the legal, valid and binding obligations of such Buyer
enforceable against such Buyer in accordance with their respective terms, except
as such enforceability may be limited by general principles of equity or to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
(i) No Conflicts. The execution, delivery and performance by such Buyer of
this Agreement, the Registration Rights Agreement and the Security Documents to
which such Buyer is a party and the consummation by such Buyer of the
transactions contemplated hereby and
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thereby will not (i) result in a violation of the organizational documents of
such Buyer or (ii) conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which such Buyer is a party, or (iii)
result in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws) applicable to such Buyer, except
in the case of clauses (ii) and (iii) above, for such conflicts, defaults,
rights or violations which would not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on the ability of such
Buyer to perform its obligations hereunder.
(j) Residency. Such Buyer is a resident of that jurisdiction specified
below its address on the Schedule of Buyers.
(k) Independent Investment Decision. Such Buyer has independently evaluated
the merits of its decision to purchase Securities pursuant to the Transaction
Documents (as defined herein), and such Buyer confirms that it has not relied on
the advice of any other Buyer's business and/or legal counsel in making such
decision.
(l) Certain Trading Activities. Such Buyer has not directly or indirectly,
nor has any Person acting on behalf of or pursuant to any understanding with
such Buyer, engaged in any transactions in the securities of the Company
(including, without limitations, any Short Sales involving the Company's
securities) since the time that such Buyer was first contacted by the Company
regarding the transactions contemplated hereby. Such Buyer covenants that
neither it nor any Person acting on its behalf or pursuant to any understanding
with it will engage in any transactions in the securities of the Company
(including Short Sales) prior to the time that the transactions contemplated by
this Agreement are publicly disclosed. For the purpose of this Agreement, "SHORT
SALES" include, without limitation, all "short sales" as defined in Rule 200
promulgated under Regulation SHO under the 1934 Act and all types of direct and
indirect stock pledges, forward sale contracts, options, puts, calls, swaps and
similar arrangements (including on a total return basis), and sales and other
transactions through non-US broker dealers or foreign regulated brokers.
(m) Limited Ownership. The purchase by such Buyer of the Securities
issuable to it at any Closing will not result in such Buyer or in the aggregate
with other Buyers (individually or together with other Persons with whom such
Buyer has identified, or will have identified, itself as part of a "group" in a
public filing made with the SEC involving the Company's securities) acquiring,
or obtaining the right to acquire, in excess of 19.999% of the outstanding
shares of Common Stock or the voting power of the Company on a post transaction
basis that assumes that the Closing shall have occurred. Such Buyer does not
presently intend to, alone or together with others, make a public filing with
the SEC to disclose that it has (or that it together with such other Persons
have) acquired, or obtained the right to acquire, as a result of the Closing
(when added to any other securities of the Company that it or they then own or
have the right to acquire), in excess of 19.999% of the outstanding shares of
Common Stock or the voting power of the Company on a post transaction basis that
assumes that the Closing shall have occurred.
(n) General Solicitation. Such Buyer is not purchasing the Securities as a
result of
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any advertisement, article, notice or other communication regarding the
Securities published in any newspaper, magazine or similar media or broadcast
over television or radio or presented at any seminar.
(o) Organization. Such Buyer is an entity duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization with
the requisite corporate or partnership power and authority to enter into and to
consummate the transactions contemplated by the applicable Transaction Documents
and otherwise to carry out its obligations thereunder.
(p) Prohibited Transactions. During the last ten (10) days prior to the
date hereof, neither such Buyer nor any Person acting on behalf of or pursuant
to any understanding with such Buyer has, directly or indirectly, effected or
agreed to effect any short sale, whether or not against the box, established any
"put equivalent position" (as defined in Rule 16a-1(h) under the Exchange Act)
with respect to the Common Stock, granted any other right (including, without
limitation, any put or call option) with respect to the Common Stock or with
respect to any security that includes, relates to or derived any significant
part of its value from the Common Stock or otherwise sought to hedge its
position in the Securities (but not including any actions to secure available
shares to borrow in order to effect short sales or similar transactions in the
future) (each, a "PROHIBITED TRANSACTION"). Prior to the earliest to occur of
(i) the termination of this Agreement or (ii) the date of the 8-K Filing as
described in Section 4(i), such Buyer shall not, and shall cause any Person
acting on behalf of or pursuant to any understanding with such Buyer not to,
engage, directly or indirectly, in a Prohibited Transaction. Such Buyer
acknowledges that the representations, warranties and covenants contained in
this Section 2(p) are being made for the benefit of the Buyers as well as the
Company.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that:
(a) Organization and Qualification. The Company and its "SUBSIDIARIES"
(which for purposes of this Agreement means any joint venture or any entity in
which the Company, directly or indirectly, owns capital stock or holds an equity
or similar interest) are entities duly organized and validly existing in good
standing under the laws of the jurisdiction in which they are formed, and have
the requisite power and authority to own their properties and to carry on their
business as now being conducted. Each of the Company and its Subsidiaries is
duly qualified as a foreign entity to do business and is in good standing in
every jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not have
a Material Adverse Effect. As used in this Agreement, "MATERIAL ADVERSE EFFECT"
means any material adverse effect on the business, properties, assets,
operations, results of operations, condition (financial or otherwise) or
prospects of the Company and its Subsidiaries, taken as a whole, or on the
transactions contemplated hereby and the other Transaction Documents or by the
agreements and instruments to be entered into in connection herewith or
therewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined below). The Company has
no Subsidiaries except as set forth on Schedule 3(a). The
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Company owns, directly or indirectly, all of the capital stock or other equity
interests of each Subsidiary free and clear of any liens, and all the issued and
outstanding shares of capital stock of each Subsidiary are validly issued and
are fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities.
(b) Authorization; Enforcement; Validity. The Company has the requisite
power and authority to enter into and perform its obligations under this
Agreement, the Notes, the Preferred Stock, the Certificate of Designations, the
Warrants, the Registration Rights Agreement, the Security Documents, the Power
of Attorney (as defined in Section 5(b)), the Transfer Agent Letter (as defined
in Section 5(b)), and each of the other agreements entered into by the parties
hereto in connection with the transactions contemplated by this Agreement
(collectively, the "TRANSACTION DOCUMENTS") and to issue the Securities in
accordance with the terms hereof and thereof. The execution and delivery of this
Agreement and the other Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby,
including, without limitation, the issuance of the Notes, the Preferred Stock
and the Warrants, the reservation for issuance and the issuance of the
Conversion Shares issuable upon conversion of the Notes or the Preferred Stock,
the reservation for issuance and issuance of Warrant Shares issuable upon
exercise of the Warrants, and the granting of a security interest in the
Collateral (as defined in the Security Documents) have been duly authorized by
the Company's Board of Directors and (other than (i) the filing of appropriate
UCC financing statements with the appropriate states and other authorities
pursuant to the Security Agreement, (ii) the filing of a Form D under Regulation
D of the 1933 Act and (iii) the filing with the SEC of one or more Registration
Statements in accordance with the requirements of the Registration Rights
Agreement) no further filing, consent, or authorization is required by the
Company, its Board of Directors or its stockholders. This Agreement and the
other Transaction Documents of even date herewith have been duly executed and
delivered by the Company, and constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
(c) Issuance of Securities. The issuance of the Notes, the Preferred Stock
and the Warrants are duly authorized and are free from all taxes, liens and
charges with respect to the issue thereof and the Preferred Stock shall be
entitled to the rights and preferences set forth in the Certificate of
Designations. As of the Closing, a number of shares of Common Stock shall have
been duly authorized and reserved for issuance which equals 300% of the maximum
number of shares Common Stock issuable upon conversion of the Notes and the
Preferred Stock and upon exercise of the Warrants (without taking into account
any limitations on ownership set forth in the Notes or the Certificate of
Designations). Upon conversion in accordance with the Notes or Preferred Stock
or exercise in accordance with the Warrants, as the case may be, the Conversion
Shares and the Warrant Shares, respectively, will be validly issued, fully paid
and nonassessable and free from all preemptive or similar rights, taxes, liens
and charges with respect to the issue thereof, with the holders being entitled
to all rights accorded to a holder of Common Stock. The offer and issuance by
the Company of the Securities is exempt from registration under the 1933 Act.
The Certificate of Designations shall be filed with the Secretary of State of
Delaware on or
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prior to the Closing.
(d) No Conflicts. The execution, delivery and performance of this Agreement
and the other Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby (including, without
limitation, the issuance of the Notes, the Preferred Stock and the Warrants, the
granting of a security interest in the Collateral and reservation for issuance
and issuance of the Conversion Shares and the Warrant Shares) will not (i)
result in a violation of the Articles of Incorporation (as defined in Section
3(r)) of the Company or any of its Subsidiaries, any capital stock of the
Company or Bylaws (as defined in Section 3(r)) of the Company or any of its
Subsidiaries or the Certificate of Designations or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party, or (iii)
result in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations and the rules and
regulations of the Nasdaq Small Cap Market (the "PRINCIPAL MARKET") applicable
to the Company or any of its Subsidiaries or by which any property or asset of
the Company or any of its Subsidiaries is bound or affected.
(e) Consents. Other than as set forth on Schedule 3(e), the Company is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency or any regulatory or
self-regulatory agency or any other Person in order for it to execute, deliver
or perform any of its obligations under or contemplated by the Transaction
Documents, in each case in accordance with the terms hereof or thereof. 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 Closing Date, and the Company and its Subsidiaries
are unaware of any facts or circumstances which might prevent the Company from
obtaining or effecting any of the registration, application or filings pursuant
to the preceding sentence. The Company is not in violation of the applicable
listing requirements of the Principal Market and has no knowledge of any facts
which would reasonably lead to delisting or suspension of the Common Stock in
the foreseeable future. The issuance by the Company of the Securities shall not
have the effect of delisting or suspending the Common Stock from the Principal
Market.
(f) Acknowledgment Regarding Buyer's Purchase of Securities. The Company
acknowledges and agrees that each Buyer is acting solely in the capacity of an
arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that no Buyer is (i) an officer
or director of the Company, (ii) to the knowledge of the Company, an "affiliate"
of the Company (as defined in Rule 144) or (iii) to the knowledge of the
Company, a "beneficial owner" of more than 10% of the shares of Common Stock (as
defined for purposes of Rule 13d-3 of the Securities Exchange Act of 1934, as
amended (the "1934 ACT"). The Company further acknowledges that no Buyer is
acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the other Transaction Documents and
the transactions contemplated hereby and thereby, and any advice given by a
Buyer or any of its representatives or agents in connection with this Agreement
and the other Transaction Documents and the transactions contemplated hereby and
thereby is
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merely incidental to such Buyer's purchase of the Securities. The Company
further represents to each Buyer that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.
(g) No General Solicitation. Neither the Company, nor any of its
Subsidiaries or affiliates, nor, to the Company's knowledge, any Person acting
on its or their behalf, has engaged in any form of general solicitation or
general advertising (within the meaning of Regulation D) in connection with the
offer or sale of the Securities.
(h) No Integrated Offering. None of the Company, its Subsidiaries, any of
their affiliates, or any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system on
which any of the securities of the Company are listed or designated. None of the
Company, its Subsidiaries, their affiliates or any Person acting on its or their
behalf will take any action or steps referred to in the preceding sentence that
would require registration of any of the Securities under the 1933 Act or cause
the offering of the Securities to be integrated with other offerings.
(i) Dilutive Effect. The Company understands and acknowledges that the
number of Conversion Shares issuable upon conversion of the Notes, the Preferred
Stock and the Warrant Shares issuable upon exercise of the Warrants will
increase in certain circumstances. The Company further acknowledges that its
obligation to issue Conversion Shares upon conversion of the Notes in accordance
with this Agreement and the Notes, its obligation to issue Conversion Shares
upon conversion of the Preferred Stock in accordance with this Agreement and the
Certificate of Designation and its obligation to issue the Warrant Shares upon
exercise of the Warrants in accordance with this Agreement and the Warrant is,
in each case, absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other stockholders of the
Company.
(j) Application of Takeover Protections; Rights Agreement. The Company and
its board of directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Articles of Incorporation or the laws of the
jurisdiction of its formation which is or could become applicable to any Buyer
as a result of the transactions contemplated by this Agreement, including,
without limitation, the Company's issuance of the Securities and any Buyer's
ownership of the Securities. The Company has not adopted a stockholder rights
plan or similar arrangement relating to accumulations of beneficial ownership of
Common Stock or a change in control of the Company.
(k) SEC Documents; Financial Statements. Except as disclosed in Schedule
3(k), during the two (2) years prior to the date hereof, the Company has filed
all reports, schedules, forms, statements and other documents required to be
filed by it with the SEC pursuant to the reporting requirements of the 1934 Act
(all of the foregoing filed prior to the date hereof and all
10
exhibits included therein and financial statements, notes and schedules thereto
and documents incorporated by reference therein being hereinafter referred to as
the "SEC DOCUMENTS"). The Company has delivered to the Buyers or their
respective representatives true, correct and complete copies of the SEC
Documents not available on the XXXXX system if such SEC Documents have been
requested in writing by Buyers. As of their respective filing dates, the SEC
Documents complied in all material respects with the requirements of the 1934
Act and the rules and regulations of the SEC promulgated thereunder applicable
to the SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. As of their respective filing dates, the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Buyers in connection with the transactions contemplated hereby which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 2(d) of this Agreement or in any disclosure schedules,
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements therein, in the light of the
circumstance under which they are or were made, not misleading.
(l) Absence of Certain Changes. Except as disclosed in Schedule 3(l), since
the date of the Company's most recent audited financial statements contained in
a Form 10-K, there has been no material adverse change and no material adverse
development in the business, assets, properties, operations, condition
(financial or otherwise), results of operations or prospects of the Company.
Except as disclosed in Schedule 3(l), since the date of the Company's most
recent audited financial statements contained in a Form 10-K, neither the
Company nor any of its Subsidiaries has (i) declared or paid any dividends, (ii)
sold any assets, individually or in the aggregate, in excess of $100,000 outside
of the ordinary course of business or (iii) except as set forth in Schedule
3(l), had capital expenditures, individually or in the aggregate, in excess of
$100,000. Neither Company nor any of its Subsidiaries has taken any steps to
seek protection pursuant to any bankruptcy law nor does the Company have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings or any actual knowledge of any fact which would
reasonably lead a creditor to do so. The Company and its Subsidiaries,
individually and on a consolidated basis, are not as of the date hereof, and
after giving effect to the transactions contemplated hereby to occur at the
Closing, will not be Insolvent (as defined below). For purposes of this Section
3(l), "INSOLVENT" means (i) to the knowledge of the Company, the present fair
saleable value of the Company's assets is less than the amount required to pay
the Company's total Indebtedness (as defined in Section 3(s)), (ii) the Company
is unable to pay its debts and liabilities, subordinated, contingent or
otherwise, as such debts and
11
liabilities become absolute and matured, (iii) the Company intends to incur or
believes that it will incur debts that would be beyond its ability to pay as
such debts mature or (iv) the Company has unreasonably small capital with which
to conduct the business in which it is engaged as such business is now conducted
and is proposed to be conducted.
(m) No Undisclosed Events, Liabilities, Developments or Circumstances. No
event, liability, development or circumstance has occurred or exists, or is
contemplated to occur with respect to the Company, its Subsidiaries or their
respective business, properties, prospects, operations or financial condition,
that would be required to be disclosed by the Company under applicable
securities laws on a registration statement on Form S-1 filed with the SEC
relating to an issuance and sale by the Company of its Common Stock and which
has not been publicly announced.
(n) Conduct of Business; Regulatory Permits. Neither the Company nor any of
its Subsidiaries is in violation of any term of or in default under the
Certificate of Designations, its Articles of Incorporation or Bylaws or their
organizational charter or certificate of incorporation or bylaws, respectively.
Neither the Company nor any of its Subsidiaries is in violation of any judgment,
decree or order or any law, statute, ordinance, rule or regulation applicable to
the Company or its Subsidiaries, and neither the Company nor any of its
Subsidiaries will conduct its business in violation of any of the foregoing,
except for possible violations which would not, individually or in the
aggregate, have a Material Adverse Effect. Without limiting the generality of
the foregoing, the Company is not in violation of any of the rules, regulations
or requirements of the Principal Market and has no knowledge of any facts or
circumstances which would reasonably lead to delisting or suspension of the
Common Stock by the Principal Market in the foreseeable future. During the two
(2) years prior to the date hereof, (i) the Common Stock has been designated for
quotation on the Principal Market, (ii) trading in the Common Stock has not been
suspended by the SEC or the Principal Market and (iii) the Company has received
no communication, written or oral, from the SEC or the Principal Market
regarding the suspension or delisting of the Common Stock from the Principal
Market. The Company and its Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate regulatory authorities
necessary to conduct their respective businesses, except where the failure to
possess such certificates, authorizations or permits would not have,
individually or in the aggregate, a Material Adverse Effect, and neither the
Company nor any such Subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit.
(o) Foreign Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other Person acting
on behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company or any of its Subsidiaries (i) used
any corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; (ii) made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; (iii) violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or employee.
12
(p) Xxxxxxxx-Xxxxx Act. The Company is in compliance with any and all
applicable requirements of the Xxxxxxxx-Xxxxx Act of 2002 that are effective as
of the date hereof, and any and all applicable rules and regulations promulgated
by the SEC thereunder that are effective as of the date hereof.
(q) Transactions With Affiliates. Except as set forth in the SEC Documents
filed at least ten days prior to the date hereof and other than the grant of
stock options disclosed on Schedule 3(q), none of the officers, directors or
employees of the Company or any of its Subsidiaries is presently a party to any
transaction with the Company or any of its Subsidiaries (other than for ordinary
course services as employees, officers or directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any such officer, director or employee or, to the
knowledge of the Company or any of its Subsidiaries, any corporation,
partnership, trust or other entity in which any such officer, director, or
employee has a substantial interest or is an officer, director, trustee or
partner.
(r) Equity Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of (i) 6,666,667 shares of Common Stock, of which
as of the date hereof, 2,252,593 are issued and 2,237,166 are outstanding, up to
675,667 shares will be reserved for issuance pursuant to the Company's stock
option and purchase plans and no shares are reserved for issuance pursuant to
securities (other than the Notes, the Preferred Stock and the Warrants)
exercisable or exchangeable for, or convertible into, shares of Common Stock and
(ii) 666,667 shares of preferred stock, par value $0.001 per share, of which as
of the date hereof, none are issued and outstanding (excluding the Preferred
Stock to be issued pursuant hereto. All of such outstanding shares have been, or
upon issuance will be, validly issued and are fully paid and nonassessable.
Except as disclosed in Schedule 3(r): (i) none of the Company's capital stock is
subject to preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company; (ii) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, or
exercisable or exchangeable for, any capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional capital stock of the Company or any of its Subsidiaries or options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, or exercisable
or exchangeable for, any capital stock of the Company or any of its
Subsidiaries; (iii) there are no outstanding debt securities, notes, credit or
loan agreements, credit facilities or other agreements, documents or instruments
evidencing Indebtedness (as defined below) of the Company or any of its
Subsidiaries or by which the Company or any of its Subsidiaries is or may become
bound; (iv) there are no financing statements securing obligations in any
material amounts, either singly or in the aggregate, filed in connection with
the Company or any of its Subsidiaries; (v) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act (except pursuant
to the Registration Rights Agreement); (vi) there are no outstanding securities
or instruments of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to purchase, repurchase, retire or
13
redeem a security of the Company or any of its Subsidiaries; (vii) there are no
securities or instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of the Securities; (viii) the Company does not
have any stock appreciation rights or "phantom stock" plans or agreements or any
similar plan or agreement; and (ix) the Company and its Subsidiaries have no
liabilities or obligations required to be disclosed in the SEC Documents but not
so disclosed in the SEC Documents, other than those incurred in the ordinary
course of the Company's or its Subsidiaries' respective businesses and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect. The Company has furnished to the Buyer true, correct and complete copies
of the Company's Articles of Incorporation, as amended and as in effect on the
date hereof (the "ARTICLES OF INCORPORATION"), and the Company's Bylaws, as
amended and as in effect on the date hereof (the "BYLAWS"), and the terms of all
securities convertible into, or exercisable or exchangeable for, shares of
Common Stock and the material rights of the holders thereof in respect thereto.
(s) Indebtedness and Other Contracts. Except as disclosed in Schedule 3(s),
neither the Company nor any of its Subsidiaries (i) has any outstanding
Indebtedness (as defined below), (ii) is a party to any contract, agreement or
instrument, the violation of which, or default under which, by the other
party(ies) to such contract, agreement or instrument would result in a Material
Adverse Effect, (iii) is in violation of any term of or in default under any
contract, agreement or instrument relating to any Indebtedness, except where
such violations and defaults would not result, individually or in the aggregate,
in a Material Adverse Effect, or (iv) is a party to any contract, agreement or
instrument relating to any Indebtedness, the performance of which, in the
judgment of the Company's officers, has or is expected to have a Material
Adverse Effect. Schedule 3(s) provides a detailed description of the material
terms of any such outstanding Indebtedness. For purposes of this Agreement: (x)
"INDEBTEDNESS" of any Person means, without duplication (A) all indebtedness for
borrowed money, (B) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services including (without limitation)
"Capital Leases" in accordance with generally accepted accounting principles
(other than trade payables entered into in the ordinary course of business), (C)
all reimbursement or payment obligations with respect to letters of credit,
surety bonds and other similar instruments, (D) all obligations evidenced by
notes, bonds, debentures or similar instruments, including obligations so
evidenced incurred in connection with the acquisition of property, assets or
businesses, (E) all indebtedness created or arising under any conditional sale
or other title retention agreement, or incurred as financing, in either case
with respect to any property or assets acquired with the proceeds of such
indebtedness (even though the rights and remedies of the seller or bank under
such agreement in the event of default are limited to repossession or sale of
such property), (F) all monetary obligations under any leasing or similar
arrangement which, in connection with generally accepted accounting principles,
consistently applied for the periods covered thereby, is classified as a capital
lease, (G) all indebtedness referred to in clauses (A) through (F) above secured
by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge,
security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by any Person, even though the
Person which owns such assets or property has not assumed or become liable for
the payment of such indebtedness, and (H) all Contingent Obligations in respect
of indebtedness or obligations of others of the kinds referred to in clauses (A)
through (G) above; (y) "CONTINGENT OBLIGATION" means, as to any Person, any
direct or
14
indirect liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto; and (z)
"PERSON" means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
(t) Absence of Litigation. There is no action, suit, proceeding, inquiry or
investigation before or by the Principal Market, any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company, threatened against or affecting the Company or any of
its Subsidiaries, the Common Stock or any of the Company's Subsidiaries or any
of the Company's or its Subsidiaries' officers or directors, except as set forth
in Schedule 3(t).
(u) Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.
(v) Employee Relations.
(i) Neither the Company nor any of its Subsidiaries is a party to any
collective bargaining agreement or employs any member of a union. The Company
and its Subsidiaries believe that their relations with their employees are good.
No executive officer of the Company or any of its Subsidiaries (as defined in
Rule 501(f) of the 0000 Xxx) has notified the Company or any such Subsidiary
that such officer intends to leave the Company or any such Subsidiary or
otherwise terminate such officer's employment with the Company or any such
Subsidiary. No executive officer of the Company or any of its Subsidiaries, to
the knowledge of the Company or any such Subsidiary, is, or is now expected to
be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability with respect to
any of the foregoing matters.
(ii) The Company and its Subsidiaries are in compliance with all
federal, state, local and foreign laws and regulations respecting labor,
employment and employment practices and benefits, terms and conditions of
employment and wages and hours, except where failure to be in compliance would
not, either individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect.
15
(w) Title. The Company and its Subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and any of its Subsidiaries. Any real property and facilities held under
lease by the Company and any of its Subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such property and
facilities by the Company and its Subsidiaries.
(x) Intellectual Property Rights. The Company and its Subsidiaries own or
possess adequate rights or licenses to use all trademarks, trade names, service
marks, service xxxx registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental authorizations, trade
secrets and other intellectual property rights ("INTELLECTUAL PROPERTY RIGHTS")
necessary to conduct their respective businesses as now conducted. Except as set
forth in Schedule 3(x), none of the Company's Intellectual Property Rights have
expired or terminated, or are expected to expire or terminate, within three
years from the date of this Agreement. The Company does not have any knowledge
of any infringement by the Company or its Subsidiaries of Intellectual Property
Rights of others. There is no claim, action or proceeding being made or brought,
or to the knowledge of the Company, being threatened, against the Company or any
of its Subsidiaries regarding its Intellectual Property Rights. The Company is
unaware of any facts or circumstances which might give rise to any of the
foregoing infringements or claims, actions or proceedings. Neither the Company
nor any of its Subsidiaries and its Subsidiaries has taken reasonable security
measures to protect the secrecy, confidentiality and value of all of their
Intellectual Property Rights.
(y) Environmental Laws. The Company and its Subsidiaries (i) are in
compliance with any and all Environmental Laws (as hereinafter defined), (ii)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit, license or
approval where, in each of the foregoing clauses (i), (ii) and (iii), the
failure to so comply could be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect. The term "ENVIRONMENTAL LAWS" means
all federal, state, local or foreign laws relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, "HAZARDOUS MATERIALS") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.
(z) Subsidiary Rights. Except as set forth in Schedule 3(z), the Company or
one of its Subsidiaries has the unrestricted right to vote, and (subject to
limitations imposed by
16
applicable law) to receive dividends and distributions on, all capital
securities of its Subsidiaries as owned by the Company or such Subsidiary.
(aa) Investment Company. The Company is not, and is not an affiliate of, an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
(bb) Tax Status. The Company and each of its Subsidiaries (i) has made or
filed all foreign, federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject, (ii) has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and (iii) has set aside
on its books provision reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim. No liens have been filed and no claims are being
asserted by or against the Company or any of its Subsidiaries with respect to
any taxes (other than liens for taxes not yet due and payable). Neither the
Company nor it Subsidiaries has received notice of assessment or proposed
assessment of any taxes claimed to be owed by it or any other Person on its
behalf. Except as disclosed on Schedule 3(w), neither the Company nor any
Subsidiary is a party to any tax sharing or tax indemnity agreement or any other
agreement of a similar nature that remains in effect. Each of the Company and
its Subsidiaries has complied in all material respects with all applicable legal
requirements relating to the payment and withholding of taxes and, within the
time and in the manner prescribed by law, has withheld from wages, fees and
other payments and paid over to the proper governmental or regulatory
authorities all amounts required.
(cc) Internal Accounting and Disclosure Controls. The Company and each of
its Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
and liability accountability, (iii) access to assets or incurrence of
liabilities is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets and
liabilities is compared with the existing assets and liabilities at reasonable
intervals and appropriate action is taken with respect to any difference (the
"INTERNAL ACCOUNTING CONTROLS"). The Company maintains disclosure controls and
procedures (as such term is defined in Rule 13a-14 under the 0000 Xxx) that are
effective in ensuring that information required to be disclosed by the Company
in the reports that it files or submits under the 1934 Act is recorded,
processed, summarized and reported, within the time periods specified in the
rules and forms of the SEC, including, without limitation, controls and
procedures designed in to ensure that information required to be disclosed by
the Company in the reports that it files or submits under the 1934 Act is
accumulated and communicated to the Company's management, including its
principal executive officer or officers and its principal financial officer or
officers, as appropriate, to allow timely decisions regarding required
disclosure.
(dd) Off Balance Sheet Arrangements. There is no transaction, arrangement,
or other
17
relationship between the Company or any of its Subsidiaries and an
unconsolidated or other off balance sheet entity that is required to be
disclosed by the Company in its Exchange Act filings and is not so disclosed or
that otherwise would be reasonably likely to have a Material Adverse Effect.
(ee) Ranking of Notes. Except as set forth on Schedule (ee), no
Indebtedness of the Company is senior to or ranks pari passu with the Notes in
right of payment, whether with respect of payment of redemptions, interest,
damages or upon liquidation or dissolution or otherwise.
(ff) Form S-1 Eligibility. The Company is eligible to register the
Conversion Shares and the Warrant Shares for resale by the Buyers using Form S-1
promulgated under the 1933 Act.
(gg) Transfer Taxes. On the Closing Date, all stock transfer or other taxes
(other than income or similar taxes) which are required to be paid in connection
with the sale and transfer of the Securities to be sold to each Buyer hereunder
will be, or will have been, fully paid or provided for by the Company, and all
material laws imposing such taxes will be or will have been complied with.
(hh) Manipulation of Price. The Company and its Subsidiaries have not, and
to its knowledge no one acting on its behalf has, (i) taken, directly or
indirectly, any action designed to cause or to result or that could reasonably
be expected to cause or result in the stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay
to any person any compensation for soliciting another to purchase any other
securities of the Company.
(ii) U.S. Real Property Holding Corporation. The Company is not, nor has
ever been, a U.S. real property holding corporation within the meaning of
Section 897 of the Internal Revenue Code of 1986, as amended, and the Company
shall so certify upon Buyer's request.
(jj) Disclosure. The Company confirms that neither it nor any other Person
acting on its behalf has provided any of the Buyers or their agents or counsel
with any information that constitutes or could reasonably be expected to
constitute material, nonpublic information other than the existence of the
transactions contemplated by this Agreement or the other Transaction Documents.
The Company understands and confirms that each of the Buyers will rely on the
foregoing representations in effecting transactions in the Securities. All
disclosure provided to the Buyers regarding the Company, its business and the
transactions contemplated by this Agreement and the other Transaction Documents,
including the Schedules and Exhibits hereto and thereto, furnished by or on
behalf of the Company is true and correct and does not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made herein or herein, in the light of the
circumstances under which they were made, not misleading. Each press release
issued by the Company or its Subsidiaries during the twelve (12) months
preceding the date of this Agreement did not at the time of release contain any
untrue statement of a material fact or omit to state a material fact required to
be
18
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. No event
or circumstance has occurred or information exists with respect to the Company
or any of its Subsidiaries or its or their business, assets, liabilities,
properties, prospects, operations or financial conditions (financial or
otherwise), which, under applicable law, rule or regulation, requires public
disclosure or announcement by the Company but which has not been so publicly
announced or disclosed.
(kk) Lien Searches. Within 6 Business Days prior to the date hereof, the
Company shall have delivered or caused to be delivered to each Buyer certified
copies of UCC financing statement search results listing any and all effective
financing statements filed within five years prior to such date in any
applicable jurisdiction that name the Company or any of their Subsidiaries as a
debtor to perfect an interest in any of the assets thereof, together with copies
of such financing statements, none of which financing statements, except for any
financing statements filed with respect to the Senior Indebtedness and as
otherwise agreed to in writing by the Buyers, shall cover any of the
"Collateral" (as defined in the Security Documents), and the results of searches
for any effective tax liens and judgment liens filed against any such Person or
its property in any applicable jurisdiction, which results, except as otherwise
agreed to in writing by the Buyers, shall not show any such effective tax liens
and judgment liens.
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 and Blue Sky. The Company agrees to file a Form D with respect
to the Securities 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 in order to obtain an exemption for or to qualify the Securities 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 (or to obtain
an exemption from such qualification), and shall provide evidence of any such
action so taken to the Buyers on or prior to the Closing Date. The Company shall
make all filings and reports relating to the offer and sale of the Securities
required under applicable securities or "Blue Sky" laws of the states of the
United States following the Closing Date.
(c) Reporting Status. Until the date on which the Investors (as defined in
the Registration Rights Agreement) shall have sold all the Conversion Shares and
Warrant Shares and none of the Notes, Preferred Stock or Warrants is outstanding
(the "REPORTING PERIOD"), the Company shall file all reports required to be
filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate
its status as an issuer required to file reports under the 1934 Act even if the
1934 Act or the rules and regulations thereunder would otherwise permit such
termination.
(d) Use of Proceeds. The Company will use the proceeds from the sale of the
Securities for general corporate and for working capital purposes, provided,
that the Company
19
may not use the proceeds from the sale of the Securities for (i) the repayment
of any other outstanding Indebtedness of the Company or any of its Subsidiaries,
other than Indebtedness set forth on Schedule 4(d) or (ii) the redemption or
repurchase of any of its or its Subsidiaries' equity securities.
(e) Financial Information. The Company agrees to send the following to each
Investor (as defined in the Registration Rights Agreement) during the Reporting
Period (i) unless the following are filed with the SEC through XXXXX and are
available to the public through the XXXXX system, within one (1) Business Day
after the filing thereof with the SEC, a copy of its Annual Reports on Form 10-K
or 10-KSB, any interim reports or any consolidated balance sheets, income
statements, stockholders' equity statements and/or cash flow statements for any
period other than annual, any Current Reports on Form 8-K and any registration
statements (other than on Form S-8) or amendments filed pursuant to the 1933
Act, (ii) on the same day as the release thereof, facsimile or e-mailed copies
of all press releases issued by the Company or any of its Subsidiaries, and
(iii) copies of any notices and other information made available or given to the
stockholders of the Company generally, contemporaneously with the making
available or giving thereof to the stockholders. As used herein "Business Day"
means any other day other than a Saturday, Sunday, or other day on which
commercial banks in The City of New York are authorized or required by law to
remain closed.
(f) Listing. The Company shall promptly secure the listing of all of the
Registrable Securities (as defined in the Registration Rights Agreement) upon
each national securities exchange and automated quotation system, if any, upon
which the Common Stock is then listed (subject to official notice of issuance)
and shall maintain such listing of all Registrable Securities from time to time
issuable under the terms of the Transaction Documents. The Company shall
maintain the Common Stock's authorization for quotation on the Principal Market.
Neither the Company nor any of its Subsidiaries shall take any action which
would be reasonably expected to result in the delisting or suspension of the
Common Stock on the Principal Market. The Company shall pay all fees and
expenses in connection with satisfying its obligations under this Section 4(f).
(g) Fees. The Company shall (i) pay Gottbetter & Partners, LLP ("G&P")
$20,000 in legal fees for services related to the Notes plus reasonable
expenses; (ii) pay G&P $20,000 in legal fees for services related to the
Preferred Stock plus reasonable expenses and (iii) shall reimburse Gottbetter
Capital Master, Ltd. (a Buyer) ("GCF") or its designee(s) $20,000 for due
diligence and all reasonable expenses incurred in connection with the
transactions contemplated by the Transaction Documents (including all reasonable
legal fees and disbursements in connection therewith, documentation and
implementation of the transactions contemplated by the Transaction Documents and
due diligence in connection therewith), which amounts shall be withheld by such
Buyer from its Purchase Price at the Closing. GCF and G&P acknowledge G&P
received $20,000 delivered prior to the date hereof as an advance against legal
fees. The Company shall be responsible for the payment of any placement agent's
fees, financial advisory fees, or broker's commissions (other than for Persons
engaged by any Buyer) relating to or arising out of the transactions
contemplated by the Transaction Documents. The Company shall pay, and hold each
Buyer harmless against, any liability, loss or expense (including, without
limitation, reasonable attorney's fees and out-of-pocket expenses) arising in
connection with any
20
claim against a Buyer relating to any such payment. Except as otherwise set
forth in the Transaction Documents, each party to this Agreement shall bear its
own expenses in connection with the sale of the Securities to the Buyers.
(h) Pledge of Securities. The Company acknowledges and agrees that the
Notes, Preferred Stock or Warrants may be pledged by an Investor (as defined in
the Registration Rights Agreement) in connection with a bona fide margin
agreement or other loan or financing arrangement that is secured by the Notes,
Preferred Stock or Warrants. The pledge of Notes, Preferred Stock or Warrants
shall not be deemed to be a transfer, sale or assignment of the Notes, Preferred
Stock or Warrants hereunder, and no Investor effecting a pledge of Notes,
Preferred Stock or Warrants shall be required to provide the Company with any
notice thereof or otherwise make any delivery to the Company pursuant to this
Agreement or any other Transaction Document, including, without limitation,
Section 2(f) hereof; provided that an Investor and its pledgee shall be required
to comply with the provisions of Section 2(f) hereof in order to effect a sale,
transfer or assignment of Notes, Preferred Stock or Warrants to such pledgee.
The Company hereby agrees to execute and deliver such documentation as a pledgee
of the Notes, Preferred Stock or Warrants may reasonably request in connection
with a pledge of the Notes, Preferred Stock or Warrants to such pledgee by an
Investor.
(i) Disclosure of Transactions and Other Material Information. On or before
8:30 a.m., New York Time, on the first Business Day following the date of this
Agreement, the Company shall file a Current Report on Form 8-K describing the
terms of the transactions contemplated by the Transaction Documents in the form
required by the 1934 Act and attaching the material Transaction Documents
(including, without limitation, this Agreement (and all schedules to this
Agreement), the form of each of the Notes, the form of the Certificate of
Designations, the form of Warrants, the Registration Rights Agreement and the
Security Documents) as exhibits to such filing (including all attachments, the
"8-K FILING"). From and after the filing of the 8-K Filing with the SEC, no
Buyer shall be in possession of any material, nonpublic information received
from the Company, any of its Subsidiaries or any of their respective officers,
directors, employees, stockholders, representatives or agents, that is not
disclosed in the 8-K Filing. The Company shall not, and shall cause each of its
Subsidiaries and its and each of their respective officers, directors, employees
and agents, not to, provide any Buyer with any material, nonpublic information
regarding the Company or any of its Subsidiaries from and after the filing of
the 8-K Filing with the SEC without the express written consent of such Buyer.
In the event of a breach of the foregoing covenant by the Company, any of their
Subsidiaries, or any of their respective officers, directors, employees and
agents, in addition to any other remedy provided herein or in the Transaction
Documents, a Buyer shall have the right to make a public disclosure, in the form
of a press release, public advertisement or otherwise, of such material,
nonpublic information without the prior approval by the Company, their
Subsidiaries, or any of their respective officers, directors, employees or
agents. No Buyer shall have any liability to the Company, its Subsidiaries, or
any of its or their respective officers, directors, employees, stockholders or
agents for any such disclosure. Subject to the foregoing, none of the Company,
its Subsidiaries or any Buyer shall issue any press releases or any other public
statements with respect to the transactions contemplated hereby without the
approval of all of the Buyers; provided, however , that the Company shall be
entitled, without the prior approval of any Buyer, to make any press release or
other public disclosure with respect to such
21
transactions (i) in substantial conformity with the 8-K Filing and
contemporaneously therewith and (ii) as is required by applicable law and
regulations (provided that in the case of clause (i) the Required Holders shall
be consulted by the Company in connection with any such press release or other
public disclosure prior to its release). Without the prior written consent of
any applicable Buyer, the Company shall not disclose the name of any Buyer in
any filing, announcement, release or otherwise.
(j) Restriction on Redemption and Cash Dividends. So long as any Notes or
Preferred Stock are outstanding, the Company shall not, directly or indirectly,
redeem, or declare or pay any cash dividend or distribution on, the Common Stock
without the prior express written consent of the Required Holders (as defined in
the Notes and in the Certificate of Designations).
(k) Additional Notes; Variable Securities; Dilutive Issuances. So long as
any Buyer beneficially owns any Securities, the Company will not issue any Notes
or Preferred Stock (other than to the Buyers as contemplated hereby) and the
Company shall not issue any other securities that would cause a breach or
default under the Notes. For long as any Notes, Preferred Stock or Warrants
remain outstanding, the Company shall not, in any manner, issue or sell any
rights, warrants or options to subscribe for or purchase Common Stock or
directly or indirectly convertible into or exchangeable or exercisable for
Common Stock at a price which varies or may vary with the market price of the
Common Stock, including by way of one or more reset(s) to any fixed price unless
the conversion, exchange or exercise price of any such security cannot be less
than the then applicable Conversion Price (as defined in the Notes) with respect
to the Common Stock into which any Note is convertible, the then applicable
Conversion Price (as defined in the Certificate of Designations) with respect
with the Common Stock into which the Preferred Stock is convertible or the then
applicable Exercise Price (as defined in the Warrants) with respect to the
Common Stock into which any Warrant is exercisable. For long as any Notes,
Preferred Stock or Warrants remain outstanding, the Company shall not, in any
manner, enter into or affect any Dilutive Issuance (as defined in the Notes and
in the Certificate of Designations) if the effect of such Dilutive Issuance is
to cause the Company to be required to issue upon conversion of any Note or
Preferred Stock or exercise of any Warrant any shares of Common Stock in excess
of that number of shares of Common Stock which the Company has authorized and
reserved for purposes of such conversions or exercises or which the Company may
issue upon conversion of the Notes and the Preferred Stock and exercise of the
Warrants without breaching the Company's obligations under the rules or
regulations of the Principal Market.
(l) Corporate Existence. So long as any Buyer beneficially owns any
Securities, the Company shall not be party to any Fundamental Transaction (as
defined in the Notes and in the Certificate of Designations) unless the Company
is in compliance with the applicable provisions governing Fundamental
Transactions set forth in the Notes, the Certificate of Designations and the
Warrants.
(m) Reservation of Shares. So long as any Buyer owns any Securities, the
Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, no less than 300% of the number of shares
of Common Stock issuable upon conversion of all of the Notes and Preferred Stock
and issuable upon exercise of the Warrants then
22
outstanding (without taking into account any limitations on the conversion of
the Notes, the Preferred Stock or exercise of the Warrants set forth in the
Notes, the Certificate of Designations and Warrants, respectively).
(n) Conduct of Business. The business of the Company and its Subsidiaries
shall not be conducted in violation of any law, ordinance or regulation of any
government, or any department or agency thereof or governmental entity, except
where such violations would not result, either individually or in the aggregate,
in a Material Adverse Effect.
(o) Additional Issuances of Securities.
(i) For purposes of this Section 4(o), the following definitions shall
apply.
(1) "CONVERTIBLE SECURITIES" means any stock or securities (other
than Options) convertible into or exercisable or exchangeable for
shares of Common Stock.
(2) "OPTIONS" means any rights, warrants or options to subscribe
for or purchase shares of Common Stock or Convertible Securities.
(3) "COMMON STOCK EQUIVALENTS" means, collectively, Options and
Convertible Securities.
(ii) From the date hereof until the date that is 30 Trading Days (as
defined in the Notes and Certificate of Designations) following the
Effective Date (as defined in the Registration Rights Agreement) (the
"TRIGGER DATE"), the Company will not, directly or indirectly, offer, sell,
grant any option to purchase, or otherwise dispose of (or announce any
offer, sale, grant or any option to purchase or other disposition of) any
of its or its Subsidiaries' equity or equity equivalent securities,
including without limitation any debt, preferred stock or other instrument
or security that is, at any time during its life and under any
circumstances, convertible into or exchangeable or exercisable for shares
of Common Stock or Common Stock Equivalents (any such offer, sale, grant,
disposition or announcement being referred to as a "SUBSEQUENT PLACEMENT").
(iii) From the Trigger Date until the date on which none of the Notes
or Preferred Stock is outstanding, the Company will not, directly or
indirectly, effect any Subsequent Placement unless the Company shall have
first complied with this Section 4(o)(iii).
(1) The Company shall deliver to each Buyer who still holds Notes
or Preferred Stock a written notice (the "OFFER NOTICE") of any
proposed or intended issuance or sale or exchange (the "OFFER") of the
securities being offered (the "OFFERED SECURITIES") in a Subsequent
Placement, which Offer Notice shall (w) identify and describe the
Offered Securities, (x) describe the price and other terms upon which
they are to be issued, sold or exchanged, and the number or amount of
the Offered Securities to be issued, sold or exchanged, (y) identify
the persons or entities (if known) to which or with which the Offered
Securities are to be
23
offered, issued, sold or exchanged and (z) offer to issue and sell to
or exchange with such Buyers all of the Offered Securities, allocated
among such Buyers (a) based on such Buyer's pro rata portion of the
aggregate principal amount of Notes and Preferred Stock purchased
hereunder (the "BASIC AMOUNT"), and (b) with respect to each Buyer
that elects to purchase its Basic Amount, any additional portion of
the Offered Securities attributable to the Basic Amounts of other
Buyers as such Buyer shall indicate it will purchase or acquire should
the other Buyers subscribe for less than their Basic Amounts (the
"UNDERSUBSCRIPTION AMOUNT").
(2) To accept an Offer, in whole or in part, such Buyer must
deliver a written notice to the Company prior to the end of the tenth
(10th ) Business Day after such Buyer's receipt of the Offer Notice
(the "OFFER PERIOD"), setting forth the portion of such Buyer's Basic
Amount that such Buyer elects to purchase and, if such Buyer shall
elect to purchase all of its Basic Amount, the Undersubscription
Amount, if any, that such Buyer elects to purchase (in either case,
the "NOTICE OF ACCEPTANCE"). If the Basic Amounts subscribed for by
all Buyers are less than the total of all of the Basic Amounts, then
each Buyer who has set forth an Undersubscription Amount in its Notice
of Acceptance shall be entitled to purchase, in addition to the Basic
Amounts subscribed for, the Undersubscription Amount it has subscribed
for; provided, however , that if the Undersubscription Amounts
subscribed for exceed the difference between the total of all the
Basic Amounts and the Basic Amounts subscribed for (the "AVAILABLE
UNDERSUBSCRIPTION AMOUNT"), each Buyer who has subscribed for any
Undersubscription Amount shall be entitled to purchase only that
portion of the Available Undersubscription Amount as the Basic Amount
of such Buyer bears to the total Basic Amounts of all Buyers that have
subscribed for Undersubscription Amounts, subject to rounding by the
Company to the extent its deems reasonably necessary.
(3) The Company shall have ten (10) Business Days from the
expiration of the Offer Period above to offer, issue, sell or exchange
all or any part of such Offered Securities as to which a Notice of
Acceptance has not been given by the Buyers (the "REFUSED
SECURITIES"), but only to the offerees described in the Offer Notice
(if so described therein) and only upon terms and conditions
(including, without limitation, unit prices and interest rates) that
are not more favorable to the acquiring person or persons or less
favorable to the Company than those set forth in the Offer Notice.
(4) In the event the Company shall propose to sell less than all
the Refused Securities (any such sale to be in the manner and on the
terms specified in Section 4(o)(iii)(3) above), then each Buyer may,
at its sole option and in its sole discretion, reduce the number or
amount of the Offered Securities specified in its Notice of Acceptance
to an amount that shall be not less than the number or amount of the
Offered Securities that such Buyer elected to purchase pursuant to
Section 4(o)(iii)(2) above multiplied by a fraction, (i) the numerator
of which
24
shall be the number or amount of Offered Securities the Company
actually proposes to issue, sell or exchange (including Offered
Securities to be issued or sold to Buyers pursuant to Section
4(o)(iii)(3) above prior to such reduction) and (ii) the denominator
of which shall be the original amount of the Offered Securities. In
the event that any Buyer so elects to reduce the number or amount of
Offered Securities specified in its Notice of Acceptance, the Company
may not issue, sell or exchange more than the reduced number or amount
of the Offered Securities unless and until such securities have again
been offered to the Buyers in accordance with Section 4(o)(iii)(1)
above.
(5) Upon the closing of the issuance, sale or exchange of all or
less than all of the Refused Securities, the Buyers shall acquire from
the Company, and the Company shall issue to the Buyers, the number or
amount of Offered Securities specified in the Notices of Acceptance,
as reduced pursuant to Section 4(o)(iii)(3) above if the Buyers have
so elected, upon the terms and conditions specified in the Offer. The
purchase by the Buyers of any Offered Securities is subject in all
cases to the preparation, execution and delivery by the Company and
the Buyers of a purchase agreement relating to such Offered Securities
reasonably satisfactory in form and substance to the Buyers and their
respective counsel and to the Company and its counsel.
(6) Any Offered Securities not acquired by the Buyers or other
persons in accordance with Section 4(o)(iii)(3) above may not be
issued, sold or exchanged until they are again offered to the Buyers
under the procedures specified in this Agreement.
(iv) The restrictions contained in subsections (ii) and (iii) of this
Section 4(o) shall not apply in connection with the issuance of any
Excluded Securities (as defined in the Notes).
(p) Additional Registration Statements. Until the Effective Date (as
defined in the Registration Rights Agreement), the Company will not file a
registration statement under the 1933 Act relating to securities that are not
the Securities.
(q) No Short Position. Each of the Buyers and any of its Affiliates do not
have an open short position in the Common Stock.
(r) Account Control Agreements. The Company shall deliver to the Buyer(s)
within ten (10) Business Days following the Closing Date, a deposit account
control agreement, in form and substance satisfactory to the Buyer(s), duly
executed by the Company, the Buyer(s) and LaSalle Bank (the "DEPOSITORY BANK")
with respect to the accounts of the Company and, if applicable, the accounts of
its Subsidiaries maintained at the LaSalle Bank.
(s) Transactions With Affiliates. So long as any Note or Warrant is
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,
25
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.
(t) Restriction on Issuance of the Capital Stock. Except for Excluded
Securities (as defined in the Convertible Debentures), the Company shall not,
without the prior written consent of the Buyer, (i) issue or sell shares of
Common Stock or preferred stock without consideration or for a consideration per
share less than the greater of the Closing Bid Price of the Common Stock
determined immediately prior to its issuance or $.01, if the Common Stock is not
traded or quoted on the Nasdaq Small Cap Market or any national exchange, (ii)
issue any warrant, option, right, contract, call, or other security instrument
granting the holder thereof, the right to acquire Common Stock without
consideration or for a consideration less than the greater of such Common
Stock's Closing Bid Price value determined immediately prior to its issuance or
$.01, if the Common Stock is not traded on the Nasdaq Small Cap Market or any
national exchange, (iii) enter into any security instrument granting the holder
a security interest in any and all assets of the Company, or (iv) file any
registration statement on Form S-8, provided that (x) such shares are not issued
without consideration or for a consideration less than the greater of the Common
Stock's Closing Bid Price on the date of issuance or $.01, if the Common Stock
is not traded or quoted on the Nasdaq Small Cap Market or any national exchange,
and (y) such Form S-8 registration statement is not filed prior to 90 days
following the effectiveness of the registration statement. "Closing Bid Price"
on any day shall be the closing bid price for a share of Common Stock on such
date on the Nasdaq Small Cap Market (or such other exchange, market, or other
system that the Common Stock is then traded on), as reported on Bloomberg, L.P.
(or similar organization or agency succeeding to its functions of reporting
prices).
(u) Removal of Legend. In addition to the Buyer's other available remedies,
the Company shall pay to the Buyer, in cash, as partial liquidated damages and
not as a penalty, for each $1,000 of Warrant Shares and/or Conversion Shares
(based on the closing price of the Common Stock on the date such Warrant Shares
and/or Conversion Shares are submitted to the Company's transfer agent), $5 per
trading day (increasing to $10 per trading day five (5) trading days after such
damages have begun to accrue) for each trading day after the third (3rd) trading
26
day following delivery by a Buyer to the Company or the Company's transfer agent
of a certificate representing Warrant Shares and/or Conversion Shares issued
with a restrictive legend, until such certificate is delivered to the Buyer with
such legend removed. Nothing herein shall limit the Buyer's right to pursue
actual damages for the failure of the Company and its transfer agent to deliver
certificates representing any securities as required hereby or by the Transfer
Agent Letter and the Power of Attorney, and the Buyer shall have the right to
pursue all remedies available to it at law or in equity, including, without
limitation, a decree of specific performance and/or injunctive relief.
(v) Stockholder Approval. The Company shall provide each stockholder
entitled to vote at a special or annual meeting of stockholders of the Company
(the "STOCKHOLDER MEETING"), which shall be promptly called and held not later
than January 31, 2007 (the "STOCKHOLDER MEETING DEADLINE"), a proxy statement,
substantially in the form which has been previously reviewed by the Buyers and
Gottbetter & Partners, LLP, soliciting each such stockholder's affirmative vote
at the Stockholder Meeting for approval of resolutions providing for the
Company's issuance of all of the Securities as described in the Transaction
Documents in accordance with applicable law and the rules and regulations of the
Principal Market and such affirmative approval being referred to herein as the
"STOCKHOLDER APPROVAL"), and the Company shall use its reasonable best efforts
to solicit its stockholders' approval of such resolutions and to cause the Board
of Directors of the Company to recommend to the stockholders that they approve
such resolutions. The Company shall be obligated to use its reasonable best
efforts to obtain the Stockholder Approval by the Stockholder Meeting Deadline.
If, despite the Company's reasonable best efforts the Stockholder Approval is
not obtained on or prior to the Stockholder Meeting Deadline, the Company shall
cause an additional Stockholder Meeting to be held every six (6) months
thereafter until such Stockholder Approval is obtained or the Notes are no
longer outstanding. The parties acknowledge that this is a material covenant.
5. REGISTER; TRANSFER AGENT INSTRUCTIONS.
(a) Register. The Company shall maintain at its principal executive offices
(or such other office or agency of the Company as it may designate by notice to
each holder of Securities), a register for the Notes, Preferred Stock and the
Warrants in which the Company shall record the name and address of the Person in
whose name the Notes, Preferred Stock and the Warrants have been issued
(including the name and address of each transferee), the principal amount of
Notes held by such Person, the number of shares of Preferred Stock held by such
Person, the number of Conversion Shares issuable upon conversion of the Notes,
the number of Conversion Shares issuable upon conversion of Preferred Stock and
the number of Warrant Shares issuable upon exercise of the Warrants held by such
Person. The Company shall keep the register open and available at all times
during business hours for inspection of any Buyer or its legal representatives
following reasonable written notice of not less than two Business Days.
(b) Transfer Agent Instructions. The Company shall issue to Computershare
(the "Transfer Agent") irrevocable instructions for the Transfer Agent (the
"Transfer Agent Letter", to be in the form of Exhibit I attached hereto) to
establish three reserve accounts of authorized but unissued Common Stock (the
"Reserve Account") to be used in conjunction with the Conversion Shares and the
Warrant Shares and to authorize the Transfer Agent to accept and act
27
upon instructions of the Buyers (in the Form of Exhibit J attached hereto) in
connection with the Reserve Account. The Company hereby agrees to give a power
of attorney (the "Power of Attorney") as is evidenced by Exhibit K attached
hereto. All acts done under such power of attorney are hereby ratified and
approved and neither the Attorney-in-Fact nor any designee or agent thereof
shall be liable for any acts of commission or omission, for any error of
judgment or for any mistake of fact or law, as long as the Attorney-in-Fact is
operating within the scope of the power of attorney and this Agreement and its
exhibits. The power of attorney, being coupled with an interest, shall be
irrevocable while any of the Notes or Preferred Stock remain unconverted, any of
the Warrants remain unexercised or any portion of this Agreement remains
unsatisfied. In addition, the Company shall give the Attorney-in-Fact
resolutions executed by the Board of Directors of the Company which authorize
(i) transfers of the Notes, the Preferred Stock and Warrants and (ii) future
issuances of the Conversion Shares or Warrant Shares, and which resolutions
state that they are irrevocable while any of the Notes or Preferred Stock remain
unconverted or the any of the Warrants remain unexercised, or any portion of
this Agreement remains unsatisfied.
In the event that any sale, assignment or transfer under this Agreement
involves Conversion Shares or Warrant Shares sold, assigned or transferred
pursuant to an effective registration statement or pursuant to Rule 144, the
transfer agent shall issue such Securities to the Buyer, assignee or transferee,
as the case may be, without any restrictive legend. The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable harm to
a Buyer. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5(b) will be inadequate and agrees,
in the event of a breach or threatened breach by the Company of the provisions
of this Section 5(b), that a Buyer shall be entitled, in addition to all other
available remedies, to an order and/or injunction restraining any breach and
requiring immediate issuance and transfer, without the necessity of showing
economic loss and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
(a) Closing Date. The obligation of the Company hereunder to issue and sell
the Notes, Preferred Stock and the related Warrants to each Buyer at the Closing
is subject to the satisfaction, at or before the Closing Date, of each of the
following conditions, provided that these conditions are for the Company's sole
benefit and may be waived by the Company at any time in its sole discretion by
providing each Buyer with prior written notice thereof:
(i) Such Buyer shall have executed each of the Transaction Documents
to which it is a party and delivered the same to the Company.
(ii) Such Buyer and each other Buyer shall have delivered to the
Company the Purchase Price (less, in the case of GCF, the amounts withheld
pursuant to Section 4(g)) for the Notes, Preferred Stock and the related
Warrants being purchased by such Buyer at the Closing by wire transfer of
immediately available funds pursuant to the wire instructions provided by
the Company.
(iii) The representations and warranties of such Buyer shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though
28
made at that time (except for representations and warranties that speak as
of a specific date), and such Buyer shall have performed, satisfied and
complied in all material respects with the covenants, agreements and
conditions required by this Agreement to be performed, satisfied or
complied with by such Buyer at or prior to the Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
(a) Closing Date. The obligation of each Buyer hereunder to purchase the
Notes, Preferred Stock and the Warrants at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for each Buyer's sole benefit and
may be waived by such Buyer at any time in its sole discretion by providing the
Company with prior written notice thereof:
(i) The Company shall have executed and delivered to such Buyer (A)
each of the Transaction Documents, (B) the Notes (in such principal amounts
as such Buyer shall request) being purchased by such Buyer at the Closing
pursuant to this Agreement, (C) the Preferred Stock is being purchased at
the closing pursuant to this Agreement, and (D) the Warrants (in such
amounts as such Buyer shall request) being purchased by such Buyer at the
Closing pursuant to this Agreement.
(ii) Such Buyer shall have received the opinion of Jaffe, Raitt, Heuer
& Xxxxx, P.C., the Company's outside counsel, dated as of the Closing Date,
in substantially the form of Exhibit L attached hereto.
(iii) The Company shall have delivered to such Buyer a true copy of
the Transfer Agent Letter and the Power of Attorney.
(iv) The Company shall have delivered to such Buyer a true copy of
certificate evidencing the formation and good standing of the Company and
each of its Subsidiaries in such entity's jurisdiction of formation issued
by the Secretary of State (or comparable office) of such jurisdiction, as
of a date within 10 days of the Closing Date.
(v) The Company shall have delivered to such Buyer a true copy of
certificate evidencing the Company's qualification as a foreign corporation
and good standing issued by the Secretary of State (or comparable office)
of each jurisdiction in which the Company conducts business, as of a date
within 10 days of the Closing Date.
(vi) The Company shall have delivered to such Buyer a certified copy
of the Articles of Incorporation as certified by the Secretary of State of
the State of Delaware within ten (10) days of the Closing Date.
(vii) The Company shall have delivered to such Buyer a certificate,
executed by the Chief Executive Officer of the Company and dated as of the
Closing Date, as to (i) the resolutions consistent with Section 3(b),
appointing the attorney-in-fact pursuant to the Power of Attorney and as
consistent with Section 5(b), as adopted by the Company's Board of
Directors in a form reasonably acceptable to such Buyer, (ii) the Articles
of
29
Incorporation and (iii) the Bylaws, each as in effect at the Closing, in
the form attached hereto as Exhibit M .
(viii) The representations and warranties of the Company shall be true
and correct in all material respects (other than representations and
warranties that are already qualified by materiality or Material Adverse
Effect which shall be true and correct in all respects) as of the date when
made and as of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and the
Company shall have performed, satisfied and complied in all respects with
the covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by the Company at or
prior to the Closing Date. Such Buyer shall have received a certificate,
executed by the Chief Executive Officer of the Company, dated as of the
Closing Date, to the foregoing effect and as to such other matters as may
be reasonably requested by such Buyer in the form attached hereto as
Exhibit N .
(ix) The Company shall have delivered to such Buyer a letter from the
Company's transfer agent certifying the number of shares of Common Stock
outstanding as of a date within five days of the Closing Date.
(x) The Common Stock (I) shall be designated for quotation or listed
on the Principal Market and (II) shall not have been suspended, as of the
Closing Date, by the SEC or the Principal Market from trading on the
Principal Market nor shall suspension by the SEC or the Principal Market
have been threatened, as of the Closing Date, either (A) in writing by the
SEC or the Principal Market or (B) by falling below the minimum listing
maintenance requirements of the Principal Market.
(xi) The Company shall have obtained all governmental, regulatory or
third party consents and approvals, if any, necessary for the sale of the
Securities.
(xii) Within six (6) Business Days prior to the Closing, the Company
shall have delivered or caused to be delivered to each Buyer (A) true
copies of UCC search results, listing all effective financing statements
which name as debtor the Company or any of its Subsidiaries filed in the
prior five years to perfect an interest in any assets thereof, together
with copies of such financing statements, none of which, except as
otherwise agreed in writing by the Buyers, shall cover any of the
Collateral (as defined in the Security Documents) and the results of
searches for any tax lien and judgment lien filed against such Person or
its property, which results, except as otherwise agreed to in writing by
the Buyers shall not show any such Liens (as defined in the Security
Documents); and (B) a perfection opinion in form and substance satisfactory
to the Buyers.
(xiii) The Certificate of Designations shall have been filed with the
Secretary of State of the State of Delaware and shall be in full force and
effect, enforceable against the Company in accordance with its terms and
shall not have been amended.
30
(xiv) The Company shall have delivered to the Buyers Board of
Directors resolutions of the Company which authorize (i) transfers of the
Notes, the Preferred Stock and Warrants and (ii) future issuances of the
Conversion Shares or Warrant Shares, and which resolutions state that they
are irrevocable while any of the Notes or Preferred Stock remain
unconverted or the any of the Warrants remain unexercised, or any portion
of this Agreement remains unsatisfied
(xv) The Company shall have delivered to such Buyer such other
documents relating to the transactions contemplated by this Agreement as
such Buyer or its counsel may reasonably request.
8. TERMINATION. In the event that the Closing shall not have occurred with
respect to a Buyer on or before five (5) Business Days from the date hereof due
to the Company's or such Buyer's failure to satisfy the conditions set forth in
Sections 6 and 7 above (and the nonbreaching party's failure to waive such
unsatisfied condition(s)), the nonbreaching 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;
provided, however, that if this Agreement is terminated pursuant to this Section
8, the Company shall remain obligated to reimburse the non-breaching Buyers for
the expenses described in Section 4(g) above.
9. MISCELLANEOUS.
(a) Governing Law; Jurisdiction; Jury Trial. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
(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
31
effective when counterparts have been signed by each party and delivered to the
other party; provided that a facsimile signature shall be considered due
execution and shall be binding upon the signatory thereto with the same force
and effect as if the signature were an original, not a facsimile signature.
(c) Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(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 and the other Transaction
Documents supersede all other prior oral or written agreements between the
Buyers, the Company, their Affiliates and Persons acting on their behalf with
respect to the matters discussed herein, and this Agreement, the other
Transaction Documents and the instruments referenced herein and therein contain
the entire understanding of the parties with respect to the matters covered
herein and therein and, except as specifically set forth herein or therein,
neither the Company nor any Buyer makes any representation, warranty, covenant
or undertaking with respect to such matters.
No provision of this Agreement may be amended other than by an instrument
in writing signed by the Company and the Required Holders, and any amendment to
this Agreement made in conformity with the provisions of this Section 9(e) shall
be binding on all Buyers and holders of Securities, as applicable. No provision
hereof may be waived other than by an instrument in writing signed by the party
against whom enforcement is sought. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the applicable
Securities then outstanding. No consideration shall be offered or paid to any
Person to amend or consent to a waiver or modification of any provision of any
of the Transaction Documents unless the same consideration also is offered to
all of the parties to the Transaction Documents, holders of Notes, holders of
Preferred Stock or holders of the Warrants, as the case may be. The Company has
not, directly or indirectly, made any agreements with any Buyers relating to the
terms or conditions of the transactions contemplated by the Transaction
Documents except as set forth in the Transaction Documents.
(f) Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit with
an overnight courier service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company:
Catuity, Inc.
000 Xxxxxxx Xxxxxx
Xxxxx 000
00
Xxxxxxxxxxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxx Xxxxxx
Copy to (for informational purposes only):
Jaffe, Raitt, Heuer, & Xxxxx, P.C.
00000 Xxxxxxxx Xxxx, Xxxxx 0000
Xxxxxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxx X. Xxxxxx
If to the Transfer Agent: Computershare Investor Services
0 Xxxxx XxXxxxx Xxxxxx
Xxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to a Buyer, to its address and facsimile number set forth on the
Schedule of Buyers, with copies to such Buyer's representatives as set forth on
the Schedule of Buyers, with a copy (for informational purposes only) to:
Gottbetter & Partners, LLP
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxx X. Xxxxxxx, Esq.
or to such other address and/or facsimile number and/or to the attention of
such other Person as the recipient party has specified by written notice given
to each other party five (5) days prior to the effectiveness of such change.
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender's facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission or (C)
provided by an overnight courier service shall be rebuttable evidence of
personal service, receipt by facsimile or receipt from an overnight courier
service in accordance with clause (i), (ii) or (iii) above, respectively.
(g) Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Notes, Preferred Stock or the Warrants. The
Company shall not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Required Holders (unless the Company is
in compliance with the applicable provisions governing Fundamental Transactions
set forth in the Notes, the Certificate of Designations and the Warrants). A
Buyer
33
may assign some or all of its rights hereunder without the consent of the
Company, in which event such assignee shall be deemed to be a Buyer hereunder
with respect to such assigned rights; provided that such assignee agrees in
writing to be bound by all of the provisions contained herein.
(h) No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
(i) Survival. Unless this Agreement is terminated under Section 8, the
representations and warranties of the Company and the Buyers contained in
Sections 2 and 3 and the agreements and covenants set forth in Sections 4, 5 and
9 shall survive the Closing. Each Buyer shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.
(j) Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
any other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(k) Indemnification. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer and each other holder of the Securities and all of their stockholders,
partners, members, officers, directors, employees and direct or indirect
investors and any of the foregoing Persons' agents or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "INDEMNITEES")
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (irrespective of whether any such 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
any Indemnitee as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby or
(c) any cause of action, suit or claim brought or made against such Indemnitee
by a third party (including for these purposes a derivative action brought on
behalf of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, (iii) any
disclosure made by such Buyer pursuant to Section 4(i), or (iv) the status of
such Buyer or holder of the Securities as an investor in the Company pursuant to
the transactions contemplated by the Transaction Documents. To the extent that
the foregoing undertaking by
34
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. Except as otherwise set
forth herein, the mechanics and procedures with respect to the rights and
obligations under this Section 9(k) shall be the same as those set forth in
Section 6 of the Registration Rights Agreement.
(l) No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
(m) Remedies. Each Buyer and each holder of the Securities shall have all
rights and remedies set forth in the Transaction Documents and all rights and
remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any
law. Any Person having any rights under any provision of this Agreement shall be
entitled to enforce such rights specifically (without posting a bond or other
security), to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law. Furthermore, the
Company recognizes that in the event that it fails to perform, observe, or
discharge any or all of its obligations under the Transaction Documents, any
remedy at law may prove to be inadequate relief to the Buyers. The Company
therefore agrees that the Buyers shall be entitled to seek temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages and without posting a bond or other security.
(n) Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Buyer exercises a right, election, demand or
option under a Transaction Document and the Company does not timely perform its
related obligations within the periods therein provided, then such Buyer may
rescind or withdraw, in its sole discretion from time to time upon written
notice to the Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights.
(o) Payment Set Aside. To the extent that the Company makes a payment or
payments to the Buyers hereunder or pursuant to any of the other Transaction
Documents or the Buyers enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including, without limitation, any
bankruptcy law, foreign, state or federal law, common law or equitable cause of
action), then to the extent of any such restoration the obligation or part
thereof originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred.
(p) Independent Nature of Buyers' Obligations and Rights. The obligations
of each Buyer under any Transaction Document are several and not joint with the
obligations of any other Buyer, and no Buyer shall be responsible in any way for
the performance of the obligations
35
of any other Buyer under any Transaction Document. Nothing contained herein or
in any other Transaction Document, and no action taken by any Buyer pursuant
hereto or thereto, shall be deemed to constitute the Buyers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Buyers are in any way acting in concert or as a group with
respect to such obligations or the transactions contemplated by the Transaction
Documents and the Company acknowledges that to its knowledge the Buyers are not
acting in concert or as a group, and the Company will not assert any such claim,
with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Buyer confirms that it has independently
participated in the negotiation of the transaction contemplated hereby with the
advice of its own counsel and advisors. Each Buyer shall be entitled to
independently protect and enforce its rights, including, without limitation, the
rights arising out of this Agreement or out of any other Transaction Documents,
and it shall not be necessary for any other Buyer to be joined as an additional
party in any proceeding for such purpose.
[SIGNATURE PAGE FOLLOWS]
36
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
COMPANY:
CATUITY, INC.
By:
------------------------------------
Name: Xxxx Xxxxxx
Title: Chief Executive Officer
37
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
BUYERS:
GOTTBETTER CAPITAL MASTER, LTD.
By:
------------------------------------
Name: Xxxx X. Xxxxxxxxxx
Title: Director
BRIDGEPOINTE MASTER FUND LTD.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
38
SCHEDULE OF NOTE BUYERS
(4)
(3) AGGREGATE
(2) AGGREGATE NUMBER OF (5) (6)
(1) ADDRESS AND PRINCIPAL WARRANT PURCHASE LEGAL REPRESENTATIVE'S
BUYER FACSIMILE NUMBER OF NOTE SHARES PRICE ADDRESS AND FACSIMILE NUMBER
----- ---------------- --------- --------- -------- ----------------------------
Gottbetter Capital 000 Xxxxxxx Xxxxxx 1,111,112 220,459 $1,000,000.80 Xxxxx X. Xxxxxxx, Esq.
Master, Ltd. 00xx Xxxxx Xxxxxxxxxx & Xxxxxxxx, XXX
Xxx Xxxx, XX 00000 000 Xxxxxxx Xxxxxx
Facsimile: 212.400.6999 00xx Xxxxx
Xxx Xxxx, XX 00000
Facsimile: 212.400.6901
BridgePointe Master 0000 Xxxxxxxxx Xxxxxxx 688,888 136,684 619,999.20 P. Xxxxxxxx Xxxxxxx, Esq.
Fund Ltd. Suite 275 Roswell Capital Partners, LLC
Xxxxxxxxxx, XX 00000 0000 Xxxxxxxxx Xxxxxxx, Xxxxx 000
Facsimile: 770.777.5844 Xxxxxxxxxx, XX 00000
Facsimile: 000-000-0000
---------- ------- -------------
Total: $1,800,000 357,143 $ 1,620,000
========== ======= =============
39
SCHEDULE OF PREFERRED STOCK BUYERS
(3)
AGGREGATE (5)
(2) NUMBER OF (4) LEGAL REPRESENTATIVE'S
(1) ADDRESS AND PREFERRED PURCHASE ADDRESS AND
BUYER FACSIMILE NUMBER SHARES PRICE FACSIMILE NUMBER
----- ---------------- --------- -------- ----------------------
Gottbetter Capital 000 Xxxxxxx Xxxxxx 432.10 388,889.10 Xxxxx X. Xxxxxxx, Esq.
Master, Ltd. 00xx Xxxxx Xxxxxxxxxx & Xxxxxxxx, XXX
Xxx Xxxx, XX 00000 000 Xxxxxxx Xxxxxx
Facsimile: 212.400.6999 00xx Xxxxx
Xxx Xxxx, XX 00000
Facsimile: 212.400.6901
BridgePointe Master 0000 Xxxxxxxxx Xxxxxxx 267.90 241,110.90 P. Xxxxxxxx Xxxxxxx, Esq.
Fund Ltd. Suite 275 Roswell Capital Partners, LLC
Xxxxxxxxxx, XX 00000 0000 Xxxxxxxxx Xxxxxxx, Xxxxx 000
Facsimile: 770.777.5844 Xxxxxxxxxx, XX 00000
Facsimile: 000-000-0000
------ -----------
Total: 700 $ 630,000
====== ===========
40
