EXHIBIT 4.01
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of
December 14, 2005, by and among NANOSCIENCE TECHNOLOGIES, INC., a Nevada
corporation (the "COMPANY"), and the Buyers listed on Schedule I attached hereto
(individually, a "BUYER" or collectively "BUYERS").
WITNESSETH:
WHEREAS, the Company and the Buyer(s) are executing and delivering this
Agreement in reliance upon an exemption from securities registration pursuant to
Section 4(2) and/or Rule 506 of Regulation D ("REGULATION D") as promulgated by
the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "SECURITIES ACT");
WHEREAS, the Buyers currently hold secured convertible debentures (the
"EXISTING DEBENTURES") previously issued by the Company having an aggregate
principal amount outstanding together with accrued and unpaid interest thereon
equal to One Million Fifty Thousand and Three Hundred Fifty Nine Dollars and
Twenty Cents ($1,050,359.20) (the "PAYOFF AMOUNT");
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Buyer(s),
as provided herein, and the Buyer(s) shall purchase (i) up to One Million Six
Hundred Ninety Thousand and Three Hundred Fifty-Nine Dollars and Twenty Cents
($1,690,359.20) principal amount of secured convertible debentures (the
"CONVERTIBLE DEBENTURES"), which shall be convertible into shares of the
Company's common stock, par value $0.001 (the "COMMON STOCK") (as converted, the
"CONVERSION SHARES"). Of such total principal amount, subject to the deduction
of any and all fees, (A) the Payoff Amount shall be immediately applied towards
the repayment in full of the Existing Debentures, (B) Three Hundred Twenty
Thousand Dollars ($320,000) shall be funded on the fifth (5th) business day
following the date hereof (the "FIRST CLOSING"), and (C) Three Hundred Twenty
Thousand Dollars ($320,000) shall be funded two (2) business days after the date
on which the Company provides the Buyers with the Company's financial statements
for the fiscal-year ended September 30, 2005, as audited by its independent
public accountant Xxxxxxxxx Xxxxx Xxxxxxx LLP (the "SECOND CLOSING")
(individually referred to as a "CLOSING" collectively referred to as the
"CLOSINGS"), and (ii) a warrant, substantially in the form attached hereto as
Exhibit G (the "WARRANT") to purchase an aggregate of 100,000 shares of Common
Stock (the "WARRANT SHARES") at the First Closing. The total purchase price for
the Convertible Debentures and the Warrant shall be up to One Million Six
Hundred Ninety Thousand and Three Hundred Fifty-Nine Dollars and Twenty Cents
($1,690,359.20), (the "PURCHASE PRICE") which Purchase Price shall be allocated
among the Buyer(s) in the respective amounts set forth opposite each Buyers name
on Schedule I (the "SUBSCRIPTION AMOUNT"); and
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement substantially in the form attached hereto as EXHIBIT A (the "INVESTOR
REGISTRATION RIGHTS AGREEMENT") pursuant to
which the Company has agreed to provide certain registration rights under the
Securities Act and the rules and regulations promulgated there under, and
applicable state securities laws; and
WHEREAS, the aggregate proceeds of the sale of the Convertible Debentures
and the Warrant contemplated hereby shall be held in escrow pursuant to the
terms of an escrow agreement substantially in the form of the Escrow Agreement
among the Company, the Buyer(s) and the Escrow Agent (as defined below) attached
hereto as EXHIBIT B (the "ESCROW AGREEMENT").
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Security Agreement
substantially in the form attached hereto as EXHIBIT C (the "SECURITY
AGREEMENT") pursuant to which the Company has agreed to provide the Buyer(s) a
security interest in Pledged Collateral (as this term is defined in the Security
Agreement) to secure the Company's obligations under this Agreement, the
Convertible Debentures, the Investor Registration Rights Agreement, the
Irrevocable Transfer Agent Instructions (as defined below), the Security
Agreement, the Escrow Agreement, the Escrow Shares Escrow Agreement (as defined
below) or any other obligations of the Company to the Buyer(s);
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering an Escrow Shares
Escrow Agreement substantially in the form attached hereto as EXHIBIT D (the
"ESCROW SHARES ESCROW AGREEMENT") pursuant to which the Company shall issue and
deliver to the Escrow Agent 7,171,000 shares of Common Stock or "security stock"
(the "ESCROW SHARES") and the Escrow Agent shall distribute the Escrow Shares to
the Buyer(s) upon receipt of a Conversion Notice (as defined herein);
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering Irrevocable Transfer
Agent Instructions substantially in the form attached hereto as EXHIBIT E (the
"IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"); and
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Buyer(s) hereby agree
as follows:
1. PURCHASE AND SALE OF CONVERTIBLE DEBENTURES.
(a) PURCHASE OF CONVERTIBLE DEBENTURES. Subject to the satisfaction
(or waiver) of the terms and conditions of this Agreement, each Buyer agrees,
severally and not jointly, to purchase at Closing (as defined herein below) and
the Company agrees to sell and issue to each Buyer, severally and not jointly,
at Closing, Convertible Debentures in amounts corresponding with the
Subscription Amount set forth opposite each Buyer's name on Schedule I hereto
and the Warrant set forth opposite each Buyer's name on Schedule I hereto.
(b) CLOSING DATE. The First Closing of the purchase and sale of the
Convertible Debentures and Warrant shall take place at 10:00 a.m. Eastern
Standard Time on the fifth (5th) business day following the date hereof, subject
to notification of satisfaction of the conditions to the Closing set forth
herein and in Sections 7 and 8 below (or such other date as is mutually agreed
to by the Company and the Buyer(s)) (the "FIRST CLOSING DATE") and the Second
Closing of the purchase and sale of the Convertible Debentures shall take place
at 10:00 a.m. Eastern
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Standard Time two (2) business days after the date on which the Company provides
the Buyers with the Company's financial statements for the year ended September
30, 2005 as audited by its independent public accountant Xxxxxxxxx Xxxxx Xxxxxxx
LLP, subject to notification of satisfaction of the conditions to the Second
Closing set forth herein and in Sections 7 and 8 below (or such other date as is
mutually agreed to by the Company and the Buyer(s)) (the "SECOND CLOSING DATE"
and collectively with the First Closing Date, the "CLOSING DATES"). The Closings
shall occur on the respective Closing Dates at the offices of Gottbetter &
Partners, LLP, 000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 (or such other place
as is mutually agreed to by the Company and the Buyer(s)).
(c) ESCROW ARRANGEMENTS; FORM OF PAYMENT. Upon execution hereof by
the Buyer(s) and pending the Closing, $320,000 shall be deposited in a
non-interest bearing escrow account with Gottbetter & Partners, LLP as escrow
agent (the "ESCROW AGENT"), pursuant to the terms of the Escrow Agreement. If
the conditions in Sections 7 and 8 and as set forth herein for the Second
Closing are satisfied, an additional $320,000 shall be deposited in the
non-interest bearing account with the Escrow Agent one business day prior to the
Second Closing Date. Subject to the satisfaction of the terms and conditions of
this Agreement, on the respective Closing Dates, (i) the Escrow Agent shall
deliver to the Company in accordance with the terms of the Escrow Agreement such
aggregate proceeds for the Convertible Debentures and Warrant to be issued and
sold to the Buyer(s), and (ii) the Company shall deliver to each Buyer,
Convertible Debentures which such Buyer(s) is purchasing in amounts indicated
opposite such Buyer's name on Schedule I, duly executed on behalf of the Company
and the Warrant which such Buyer(s) is purchasing in numbers indicated opposite
such Buyer's name on Schedule I.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants, severally and not jointly, that:
(a) INVESTMENT PURPOSE. Each Buyer is acquiring the Convertible
Debentures, the Warrant and, upon conversion of Convertible Debentures and/or
the exercise of the Warrant, in accordance with their terms, the Buyer will
acquire the Escrow Shares, Conversion Shares and/or Warrant Shares, as the case
may be, for its own account for investment only and not with a view towards, or
for resale in connection with, the public sale or distribution thereof, except
pursuant to sales registered or exempted under the Securities Act; provided,
however, that by making the representations herein, such Buyer reserves the
right to dispose of the Conversion Shares, the Warrant, the Warrant Shares and
the Escrow Shares at any time in accordance with or pursuant to an effective
registration statement covering such Conversion Shares, the Warrant, the Warrant
Shares and the Escrow Shares or an available exemption under the Securities Act.
(b) ACCREDITED INVESTOR STATUS. Each Buyer is an "ACCREDITED
INVESTOR" as that term is defined in Rule 501(a)(3) of Regulation D.
(c) RELIANCE ON EXEMPTIONS. Each Buyer understands that the
Convertible Debentures and the Warrant 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
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set forth herein in order to determine the availability of such exemptions and
the eligibility of such Buyer to acquire such securities.
(d) INFORMATION. Each Buyer and its advisors (and its counsel), if
any, have been furnished with all materials relating to the business, finances
and operations of the Company and information it deemed material to making an
informed investment decision regarding its purchase of the Convertible
Debentures, the Warrant, the Escrow Shares, the Warrant Shares and the
Conversion Shares, which have been requested by such Buyer. Each Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company and its management. Neither such inquiries nor any other due diligence
investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer's right to rely on the
Company's representations and warranties contained in Section 3 below. Each
Buyer understands that its investment in the Convertible Debentures, the
Warrant, the Escrow Shares, the Warrant Shares and the Conversion Shares
involves a high degree of risk. Each Buyer is in a position regarding the
Company, which, based upon employment, family relationship or economic
bargaining power, enabled and enables such Buyer to obtain information from the
Company in order to evaluate the merits and risks of this investment. Each Buyer
has sought such accounting, legal and tax advice, as it has considered necessary
to make an informed investment decision with respect to its acquisition of the
Convertible Debentures, the Warrant, the Escrow Shares, the Warrant Shares and
the Conversion Shares.
(e) NO GOVERNMENTAL REVIEW. Each Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Convertible
Debentures, the Warrant, the Escrow Shares, the Warrant Shares or the Conversion
Shares, or the fairness or suitability of the investment in the Convertible
Debentures, the Warrant, the Escrow Shares, the Warrant Shares or the Conversion
Shares, nor have such authorities passed upon or endorsed the merits of the
offering of the Convertible Debentures, the Warrant, the Escrow Shares, the
Warrant Shares or the Conversion Shares.
(f) TRANSFER OR RESALE. Each Buyer understands that except as
provided in the Investor Registration Rights Agreement: (i) the Convertible
Debentures, the Warrant, the Escrow Shares, the Warrant Shares and the
Conversion Shares have not been and are not being registered under the
Securities Act or any state securities laws, and may not be offered for sale,
sold, assigned or transferred unless (A) subsequently registered thereunder, or
(B) such Buyer shall have delivered to the Company an opinion of counsel, in a
generally acceptable form, to the effect that such securities to be sold,
assigned or transferred may be sold, assigned or transferred pursuant to an
exemption from such registration requirements; (ii) any sale of such securities
made in reliance on Rule 144 under the Securities Act (or a successor rule
thereto) ("RULE 144") may be made only in accordance with the terms of Rule 144
and further, if Rule 144 is not applicable, any resale of such securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the Securities
Act) may require compliance with some other exemption under the Securities Act
or the rules and regulations of the SEC thereunder; and (iii) neither the
Company nor any other person is under any obligation to register such securities
under the Securities Act or any state securities laws or to comply with the
terms and conditions of any exemption thereunder.
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(g) LEGENDS. Each Buyer understands that the certificates or other
instruments representing the Convertible Debentures, the Warrant, the Escrow
Shares, the Warrant Shares and/or the Conversion Shares shall bear a restrictive
legend in substantially the following form (and a stop transfer order may be
placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED
SOLELY FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARD RESALE AND
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE
FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE
STATE SECURITIES LAWS.
The legend set forth above shall be removed and the Company shall use its
reasonable best efforts within two (2) business days, to issue a certificate
without such legend to the holder of the Escrow Shares, Warrant, Warrant Shares
and Conversion Shares upon which it is stamped, if, unless otherwise required by
state securities laws, (i) in connection with a sale transaction, provided the
Escrow Shares, Warrant, Warrant Shares and Conversion Shares are registered
under the Securities Act or (ii) in connection with a sale transaction, after
such holder provides the Company with an opinion of counsel, which opinion shall
be in form, substance and scope customary for opinions of counsel in comparable
transactions, to the effect that a public sale, assignment or transfer of the
Escrow Shares, Warrant, Warrant Shares and Conversion Shares may be made without
registration under the Securities Act.
(h) AUTHORIZATION, ENFORCEMENT. This Agreement has been duly and
validly authorized, executed and delivered on behalf of such Buyer and is a
valid and binding agreement of such Buyer enforceable in accordance with its
terms, except as such enforceability may be limited by general principles of
equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
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(i) RECEIPT OF DOCUMENTS. Each Buyer and its counsel has received
and read in their entirety: (i) this Agreement and each representation, warranty
and covenant set forth herein, the Security Agreement, the Investor Registration
Rights Agreement, the Escrow Agreement, the Irrevocable Transfer Agent
Agreement, and the Escrow Shares Escrow Agreement; (ii) all due diligence and
other information necessary to verify the accuracy and completeness of such
representations, warranties and covenants; (iii) the Company's Form 10-KSB for
the fiscal year ended September 30, 2004; (iv) the Company's Form 10-QSB for the
fiscal quarter ended June 30, 2005; and (v) it has received answers to all
questions each Buyer submitted to the Company regarding an investment in the
Company; and each Buyer has relied on the information contained therein and has
not been furnished any other documents, literature, memorandum or prospectus.
(j) DUE FORMATION OF CORPORATE AND OTHER BUYERS. If a Buyer is a
corporation, trust, partnership or other entity that is not an individual
person, it has been formed and validly exists and has not been organized for the
specific purpose of purchasing the Convertible Debentures and Warrant is not
prohibited from doing so.
(k) NO LEGAL ADVICE FROM THE COMPANY. Each Buyer acknowledges that
it had the opportunity to review this Agreement and the transactions
contemplated by this Agreement with its own legal counsel and investment and tax
advisors. Each Buyer is relying solely on such counsel and advisors and not on
any statements or representations of the Company or any of its representatives
or agents for legal, tax or investment advice with respect to this investment,
the transactions contemplated by this Agreement or the securities laws of any
jurisdiction.
(l) NO GROUP PARTICIPATION. Each Buyer and its affiliates is not a
member of any group, nor is any Buyer acting in concert with any other person,
including any other Buyer, with respect to its acquisition of the Convertible
Debentures, Escrow Shares, the Warrant, the Warrant Shares or Conversion Shares.
(m) COMPANY REGISTRATION STATEMENT. No Buyer makes any
representation or warranty regarding the Company's ability or to have any
registration statement (the "Registration Statement") filed by the Company
pursuant to the Investor Registration Rights Agreement or otherwise declared
effective by the SEC. The Company has the sole obligation to make any and all
such filings as may be necessary and to have any registration statement declared
effective by the SEC.
(n) Existing Debentures. The Buyer(s) is the beneficial owner of the
Existing Debentures free and clear of any liens or encumbrances. The Buyer(s)
represents and warrants that upon payment of the Payoff Amount to the Buyer(s)
at the First Closing, the Company shall have satisfied all of its obligations
under and with respect to the Existing Debentures (including without limitation
obligations under related registration rights and security agreements, all of
which agreements shall be of no further force or effect from and after the First
Closing Date).
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that, except as
set forth in the SEC Documents (as defined in Section 3(f) below):
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(a) ORGANIZATION AND QUALIFICATION. The Company and its subsidiaries
are corporations duly organized and validly existing in good standing under the
laws of the jurisdiction in which they are incorporated, and have the requisite
corporate power to own their properties and to carry on their business as now
being conducted. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted 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 defined below.
(b) AUTHORIZATION, ENFORCEMENT, COMPLIANCE WITH OTHER INSTRUMENTS.
(i) The Company has the requisite corporate power and authority to enter into
and perform this Agreement, the Security Agreement, the Investor Registration
Rights Agreement, the Irrevocable Transfer Agent Instructions, the Escrow
Agreement, the Escrow Shares Escrow Agreement, and any related agreements
(collectively the "TRANSACTION DOCUMENTS") and to issue the Convertible
Debentures, the Escrow Shares, the Warrant, the Warrant Shares and the
Conversion Shares in accordance with the terms hereof and thereof, (ii) the
execution and delivery of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby,
including, without limitation, the issuance of the Convertible Debentures, the
Escrow Shares, the Warrant, the Warrant Shares and the Conversion Shares and the
reservation for issuance and the issuance of the Conversion Shares issuable upon
conversion or exercise thereof, have been duly authorized by the Company's Board
of Directors and no further consent or authorization is required by the Company,
its Board of Directors or its stockholders, (iii) the Transaction Documents have
been duly executed and delivered by the Company, (iv) the Transaction Documents
constitute the valid and binding obligations of the Company enforceable against
the Company in accordance with their terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies. The
authorized officer of the Company executing the Transaction Documents knows of
no reason why the Company cannot file the Registration Statement as required
under the Investor Registration Rights Agreement or perform any of the Company's
other obligations under such documents.
(c) CAPITALIZATION. The authorized capital stock of the Company
consists of 100,000,000 shares of Common Stock of which 11,101,946 shares of
Common Stock were issued and outstanding and no Classes of Preferred Stock
authorized. All of such outstanding shares have been validly issued and are
fully paid and nonassessable. Except as disclosed in the SEC Documents, no
shares of Common Stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company. Except
as disclosed in the SEC Documents, as of the date of this Agreement, (i) there
are no outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its subsidiaries, (ii) there
are no outstanding debt securities and (iii) there are no agreements or
arrangements under which the
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Company or any of its subsidiaries is obligated to register the sale of any of
their securities under the Securities Act (except pursuant to the Investor
Registration Rights Agreement) and (iv) there are no outstanding registration
statements and there are no outstanding comment letters from the SEC or any
other regulatory agency. There are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Convertible Debentures and the Warrant as described in this Agreement. The
Convertible Debentures, Warrant, Warrant Shares, Conversion Shares and Escrow
Shares when issued, will be free and clear of all pledges, liens, encumbrances
and other restrictions (other than those arising under federal or state
securities laws as a result of the private placement of such securities). No
co-sale right, right of first refusal or other similar right exists with respect
to the Convertible Debentures, the Warrant, Warrant Shares, Escrow Shares and
the Conversion Shares or the issuance and sale thereof. The issue and sale of
the Convertible Debentures, Warrant, Warrant Shares, Escrow Shares and the
Conversion Shares will not result in a right of any holder of Company securities
to adjust the exercise, conversion, exchange or reset price under such
securities. The Company has furnished to the Buyer true and correct 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 By-laws, as in
effect on the date hereof (the "BY-LAWS"), and the terms of all securities
convertible into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto other than stock options issued to employees
and consultants.
(d) ISSUANCE OF SECURITIES. The Convertible Debentures are duly
authorized and, upon issuance in accordance with the terms hereof, shall be duly
issued, and free from all taxes, liens and charges with respect to the issue
thereof. The Conversion Shares, the Warrant Shares and the Escrow Shares have
been duly authorized and reserved for issuance. Upon issuance upon conversion or
exercise in accordance with the Transaction Documents, the Conversion Shares,
the Warrant Shares and Escrow Shares will be duly issued, fully paid and
nonassessable.
(e) NO CONFLICTS. Except as disclosed in the SEC Documents, the
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby will
not (i) result in a violation of the Articles of Incorporation, any certificate
of designations of any outstanding series of preferred stock of the Company or
the By-laws 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 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 National Association of
Securities Dealers Inc.'s OTC Bulletin Board on which the Common Stock is
quoted) applicable to the Company or any of its subsidiaries or by which any
property or asset of the Company or any of its subsidiaries is bound or
affected. Except as disclosed in the SEC Documents, neither the Company nor its
subsidiaries is in violation of any term of or in default under its Articles of
Incorporation or By-laws or their organizational charter or by-laws,
respectively, or any material contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its subsidiaries. The business of the
Company and its subsidiaries is not being conducted, and shall not be conducted
in violation of any material law, ordinance, or regulation of any governmental
entity. Except as specifically contemplated by this Agreement and as required
under the Securities Act and any applicable
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state securities laws, the Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under or contemplated by this Agreement or the Investor Registration
Rights Agreement in accordance with the terms hereof or thereof. Except as
disclosed in the SEC Documents, all consents, authorizations, orders, filings
and registrations which the Company is required to obtain pursuant to the
preceding sentence have been obtained or effected on or prior to the date
hereof. The Company and its subsidiaries are unaware of any facts or
circumstance, which might give rise to any of the foregoing.
(f) SEC DOCUMENTS: FINANCIAL STATEMENTS. Except as set forth in
Schedule 3(f), since September 30, 2003, the Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC under of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (all of the forgoing filed prior to the date hereof or amended after the
date hereof and all exhibits included therein and financial statements and
schedules thereto and documents incorporated by references therein, being
hereinafter referred to as the ("SEC DOCUMENTS"). The Company has delivered to
the Buyer(s) or its/their representatives, or made available through the SEC's
website at http:/xxx.xxx.xxx., true and complete copies of the SEC Documents. As
of their respective dates, the financial statements disclosed in the SEC
Documents (the "FINANCIAL STATEMENTS") 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 Buyer(s) which is not included in the SEC Documents, including, without
limitation, information referred to in this Agreement, 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 circumstances under
which they were made, not misleading.
(g) 10(b)-5. The SEC Documents do not include any untrue statements
of material fact, nor do they omit to state any material fact required to be
stated therein necessary to make the statements made, in light of the
circumstances under which they were made, not misleading.
(h) ABSENCE OF LITIGATION. Except as disclosed in the SEC Documents,
there is no action, suit, proceeding, inquiry or investigation before or by any
court, public board, government agency, self-regulatory organization or body
pending against or affecting the Company, the Common Stock or any of the
Company's subsidiaries, wherein an unfavorable decision, ruling or finding would
(i) have a material adverse effect on the transactions contemplated hereby, (ii)
adversely affect the validity or enforceability of, or the authority or ability
of the Company to perform its obligations under, this Agreement or any of the
documents contemplated herein, or (iii) except as expressly disclosed in the SEC
Documents, have a
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material adverse effect on the business, operations, properties, financial
condition or results of operations of the Company and its subsidiaries taken as
a whole.
(i) ACKNOWLEDGMENT REGARDING BUYER'S PURCHASE OF THE CONVERTIBLE
DEBENTURES. The Company acknowledges and agrees that each Buyer is acting solely
in the capacity of an arm's length purchaser with respect to this Agreement and
the transactions contemplated hereby. The Company further acknowledges that each
Buyer is not acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any advice given by such Buyer or any of their
respective representatives or agents in connection with this Agreement and the
transactions contemplated hereby is merely incidental to such Buyer's purchase
of the Convertible Debentures, the Escrow Shares, the Warrant, the Warrant
Shares or the Conversion Shares. The Company further represents to the Buyers
that the Company's decision to enter into this Agreement has been based solely
on the independent evaluation by the Company and its representatives.
(j) NO GENERAL SOLICITATION. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the Convertible Debentures, the Escrow Shares, the Warrant, the Warrant Shares
or the Conversion Shares.
(k) NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
Convertible Debentures, the Escrow Shares, the Warrant, the Warrant Shares or
the Conversion Shares under the Securities Act or cause this offering of the
Convertible Debentures, the Escrow Shares, the Warrant, the Warrant Shares or
the Conversion Shares to be integrated with prior offerings by the Company for
purposes of the Securities Act.
(l) EMPLOYEE RELATIONS. Neither the Company nor any of its
subsidiaries is involved in any labor dispute nor, to the knowledge of the
Company or any of its subsidiaries, is any such dispute threatened. None of the
Company's or its subsidiaries' employees is a member of a union and the Company
and its subsidiaries believe that their relations with their employees are good.
(m) 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 rights necessary to conduct their respective
businesses as now conducted. The Company and its subsidiaries do not have any
knowledge of any infringement by the Company or its subsidiaries of trademark,
trade name rights, patents, patent rights, copyrights, inventions, licenses,
service names, service marks, service xxxx registrations, trade secret or other
similar rights of others, and, to the knowledge of the Company there is no
claim, action or proceeding being made or brought against, or to the Company's
knowledge, being threatened against, the Company or its subsidiaries regarding
trademark, trade name, patents, patent rights, invention, copyright, license,
service names,
10
service marks, service xxxx registrations, trade secret or other
infringement; and the Company and its subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
(n) ENVIRONMENTAL LAWS.
(i) Each of the Company and its subsidiaries has complied with
all applicable Environmental Laws (as defined below), except for violations of
Environmental Laws that, individually or in the aggregate, have not had and
would not reasonably be expected to have a material adverse effect on the
assets, business, condition (financial or otherwise), results of operations or
future prospects of the Company (a "MATERIAL ADVERSE EFFECT"). There is no
pending or, to the knowledge of the Company, threatened civil or criminal
litigation, written notice of violation, formal administrative proceeding, or
investigation, inquiry or information request, relating to any Environmental Law
involving the Company or any subsidiary, except for litigation, notices of
violations, formal administrative proceedings or investigations, inquiries or
information requests that, individually or in the aggregate, have not had and
would not reasonably be expected to have a Material Adverse Effect. For purposes
of this Agreement, "Environmental Law" means any federal, state or local law,
statute, rule or regulation or the common law relating to the environment or
occupational health and safety, including without limitation any statute,
regulation, administrative decision or order pertaining to (i) treatment,
storage, disposal, generation and transportation of industrial, toxic or
hazardous materials or substances or solid or hazardous waste; (ii) air, water
and noise pollution; (iii) groundwater and soil contamination; (iv) the release
or threatened release into the environment of industrial, toxic or hazardous
materials or substances, or solid or hazardous waste, including without
limitation emissions, discharges, injections, spills, escapes or dumping of
pollutants, contaminants or chemicals; (v) the protection of wild life, marine
life and wetlands, including without limitation all endangered and threatened
species; (vi) storage tanks, vessels, containers, abandoned or discarded
barrels, and other closed receptacles; (vii) health and safety of employees and
other persons; and (viii) manufacturing, processing, using, distributing,
treating, storing, disposing, transporting or handling of materials regulated
under any law as pollutants, contaminants, toxic or hazardous materials or
substances or oil or petroleum products or solid or hazardous waste. As used
above, the terms "release" and "environment" shall have the meaning set forth in
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA").
(ii) The Company has not received any environmental reports,
investigations and audits relating to premises currently or previously owned or
operated by the Company or a subsidiary (whether conducted by or on behalf of
the Company or a subsidiary or a third party, and whether done at the initiative
of the Company or a subsidiary or directed by a third party) which were issued
or conducted during the past five years and which the Company has possession of
or access to.
(iii) To the knowledge of the Company there is no material
environmental liability with respect to any solid or hazardous waste transporter
or treatment, storage or disposal facility that has been used by the Company or
any subsidiary.
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(iv) The Company and its subsidiaries (i) 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.
(o) TITLE. Any real property and facilities held under lease by the
Company and 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 buildings by the
Company and its subsidiaries.
(p) 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 materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its subsidiaries, taken as a whole.
(q) REGULATORY PERMITS. The Company and its subsidiaries possess all
material certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, 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.
(r) INTERNAL ACCOUNTING 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
accountability, and (iii) the recorded amounts for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(s) NO MATERIAL ADVERSE BREACHES, ETC. Except as set forth in the
SEC Documents, neither the Company nor any of its subsidiaries is subject to any
charter, corporate or other legal restriction, or any judgment, decree, order,
rule or regulation which in the judgment of the Company's officers has or is
expected in the future to have a Material Adverse Effect. Except as set forth in
the SEC Documents, neither the Company nor any of its subsidiaries is in breach
of any contract or agreement which breach, in the judgment of the Company's
officers, has or is expected to have a Material Adverse Effect.
(t) TAX STATUS. Except as set forth in the SEC Documents, the
Company and each of its subsidiaries has made and filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject and (unless and only to the extent that the
Company and each of its subsidiaries has set aside on its books provisions
12
reasonably adequate for the payment of all unpaid and unreported taxes) has paid
all taxes and other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports and declarations,
except those being contested in good faith and has set aside on its books
provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.
(u) CERTAIN TRANSACTIONS. Except as set forth in the SEC Documents,
and except for arm's length transactions pursuant to which the Company makes
payments in the ordinary course of business upon terms no less favorable than
the Company could obtain from third parties and other than the grant of stock
options disclosed in the SEC Documents, none of the officers, directors, or
employees of the Company is presently a party to any transaction with the
Company (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
(v) FEES AND RIGHTS OF FIRST REFUSAL. The Company is not obligated
to offer the securities offered hereunder on a right of first refusal basis or
otherwise to any third parties including, but not limited to, current or former
shareholders of the Company, underwriters, brokers, agents or other third
parties.
(w) RELIANCE. The Company acknowledges that the Buyers are relying
on the representations and warranties made by the Company hereunder and that
such representations and warranties are a material inducement to the Buyer
purchasing the Convertible Debentures and Warrant. The Company further
acknowledges that without such representations and warranties of the Company
made hereunder, the Buyers would not enter into this Agreement.
(x) REGISTRATION FORM. The Company meets the requirements for the
use of Form SB-2 for the registration of the resale of the Escrow Shares,
Conversion Shares and Warrant Shares by the Buyer.
(y) NON-PUBLIC INFORMATION. The Company confirms that neither it nor
any person acting on its behalf has provided the Buyers or their agents or
counsel with any information that the Company believes constitutes material,
non-public information. The Company understands and confirms that the Buyers
will rely on the foregoing representation in effecting transactions in
securities of the Company.
(z) ANTI-TAKEOVER PROVISION. 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 Company's certificate of incorporation (or similar charter documents)
or the laws of its jurisdiction of incorporation that is or could become
applicable to the Buyers as a result of the Buyers and the Company fulfilling
their obligations or
13
exercising their rights under this Agreement, including without limitation the
Company's issuance of the Convertible Debentures, Warrant, Warrant Shares,
Conversion Shares and Escrow Shares and the Buyer's ownership thereof.
(aa) XXXXXXXX-XXXXX. The Company is in compliance with the
applicable requirements of the Xxxxxxxx-Xxxxx Act of 2002, as amended, and the
rules and regulations thereunder, that are currently in effect and is actively
taking steps to ensure that it will be in compliance with other applicable
provisions of such Act not currently in effect at all times after the
effectiveness of such provisions except where such noncompliance would not have
or reasonably be expected to result in a Material Adverse Effect or which would
be reasonably likely to have a material adverse effect on the transactions
contemplated hereby or by the Investor Registration Rights Agreement.
4. COVENANTS.
(a) BEST EFFORTS. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Sections 7
and 8 of this Agreement.
(b) FORM D. The Company agrees to file a Form D with respect to the
Convertible Debentures, Escrow Shares, Warrant, Warrant Shares and Conversion
Shares as required under Regulation D and to provide a copy thereof to each
Buyer promptly after such filing. The Company shall, on or before the Closing
Date, take such action as the Company shall reasonably determine is necessary to
qualify the Convertible Debentures, Escrow Shares, Warrant, the Warrant Shares
and Conversion Shares, or obtain an exemption for the Convertible Debentures,
Escrow Shares, Warrant, the Warrant Shares and Conversion Shares for sale to the
Buyers at the Closing pursuant to this Agreement under applicable securities or
"Blue Sky" laws of the states of the United States, and shall provide evidence
of any such action so taken to the Buyers on or prior to the Closing Date.
(c) REPORTING STATUS. Until the earlier of (i) the date as of which
the Buyer(s) may sell all of the Escrow Shares, the Warrant, the Warrant Shares,
and Conversion Shares without restriction pursuant to Rule 144(k) promulgated
under the Securities Act (or successor thereto), or (ii) the date on which (A)
the Buyer(s) shall have sold all the Escrow Shares, the Warrant, the Warrant
Shares and Conversion Shares and (B) none of the Convertible Debentures are
outstanding (the "REGISTRATION PERIOD"), the Company shall file in a timely
manner all reports required to be filed with the SEC pursuant to the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT") and the regulations of the
SEC thereunder, and the Company shall not terminate its status as an issuer
required to file reports under the Exchange Act even if the Exchange Act or the
rules and regulations thereunder would otherwise permit such termination.
(d) USE OF PROCEEDS; SURRENDER OF EXISTING DEBENTURES. The Company
shall use the proceeds from the sale of the Convertible Debentures to satisfy in
full all of the Company's obligations under and with respect to the Existing
Debentures through payment of the Payoff Amount to the Buyer(s) simultaneously
with the First Closing, and shall use the remainder of such proceeds for general
corporate and working capital purposes, but in no event shall the
14
Company use the proceeds to repay any indebtedness of any Company insiders. The
Buyer(s) hereby agrees to surrender to the Company the original Existing
Debentures for cancellation or, if it fails to so surrender, hereby agrees to
indemnify the Company from and against any claims, liabilities, losses or
damages arising out of such failure to surrender same.
(e) RESERVATION OF SHARES. The Company shall take all action
reasonably necessary to at all times have authorized, and reserved for the
purpose of issuance, that number of shares of Common Stock equal to a multiple
of five (5) times the number of shares of Common Stock into which the
Convertible Debentures are from time to time convertible unless a change in such
multiple is agreed to in writing by the Buyer(s) and the Company. If at any time
the Company does not have available such number of authorized and unissued
shares of Common Stock as shall from time to time be sufficient to effect the
issuance of all of (i) the Conversion Shares, including the Escrow Shares, upon
the conversion of the entire principal amount of the Convertible Debentures and
(ii) Warrant Shares upon exercise of the Warrant, the Company shall call and
hold a special meeting of the shareholders within one hundred twenty (120) days
of such occurrence, for the sole purpose of increasing the number of shares
authorized. The Company's management shall recommend to the shareholders to vote
in favor of increasing the number of shares of Common Stock authorized.
Management shall also vote all of its shares in favor of increasing the number
of authorized shares of Common Stock.
(f) LISTINGS OR QUOTATION. The Company shall use its best efforts,
after the effectiveness of the Registration Statement pursuant to the Investor
Registration Rights Agreement, to promptly secure the listing or quotation of
the Conversion Shares, including the Escrow Shares, and the Warrant Shares, upon
a national securities exchange, automated quotation system or The National
Association of Securities Dealers Inc.'s Over-The-Counter Bulletin Board
("OTCBB") or other market, if any, upon which shares of Common Stock are then
listed or quoted (subject to official notice of issuance) and shall use its best
efforts to maintain, so long as any other shares of Common Stock shall be so
listed, such listing of all Conversion Shares from time to time issuable under
the terms of this Agreement. The Company shall maintain the Common Stock's
authorization for quotation on the OTCBB. It shall be an event of default
hereunder if the Company fails to strictly comply with its obligation under this
Section 4(f).
(g) FEES AND EXPENSES. (i) The Company shall pay a legal fee of
Sixteen Thousand Dollars ($16,000) in connection with this transaction to
Gottbetter & Partners, LLP. The Company shall bear all of its own legal and
professional fees and expenses, including but not limited to those associated
with the filing of the Registration Statement as contemplated herein. Each of
the Company and the Buyer(s) shall pay all costs and expenses incurred by such
party in connection with the negotiation, investigation, preparation, execution
and delivery of the Transaction Documents. The Company shall pay Yorkville
Advisors Management, LLC ("YAM") a fee equal to ten percent (10%) of the
Purchase Price, with half to be paid upon the First Closing and half to be paid
upon the Second Closing.
(h) WARRANT. The Company shall issue the Warrant to the Buyer(s).
The Warrant Shares shall have such registration rights as set forth in the
Investor Registration Rights Agreement.
15
(i) REGISTRATION STATEMENT. The Company shall be solely responsible
for the contents of the Registration Statement, prospectus or other filing made
with the SEC or otherwise used in the offering of the Company's securities
(except as such disclosure relates solely to the Buyer(s) and then only to the
extent that such disclosure conforms with information furnished in writing by
the Buyer(s) to the Company), even if the Buyer or its agents as an
accommodation to the Company participate or assist in the preparation of the
Registration Statement, prospectus or other SEC filing. The Company shall retain
its own legal counsel to review, edit, confirm and do all things such counsel
deems necessary or desirable to the Registration Statement, prospectus or other
SEC filing to ensure that it does not contain an untrue statement or alleged
untrue statement of material fact or omit or alleged to omit a material fact
necessary to make the statements made therein, in light of the circumstances
under which the statements were made, not misleading.
(j) CORPORATE EXISTENCE. So long as any of the Convertible
Debentures remain outstanding, the Company shall not directly or indirectly
consummate any merger, reorganization, restructuring, reverse stock split
consolidation, sale of all or substantially all of the Company's assets or any
similar transaction or related transactions (each such transaction, an
"ORGANIZATIONAL CHANGE") unless, prior to the consummation of an Organizational
Change, the Company obtains the written consent of each Buyer. In any such case,
the Company will make appropriate provision with respect to such holders' rights
and interests to insure that the provisions of this Section 4(j) will thereafter
be applicable to the Convertible Debentures.
(k) TRANSACTIONS WITH AFFILIATES. So long as any Convertible
Debentures are outstanding, the Company shall not, and shall cause each of its
subsidiaries not to, enter into, amend, modify or supplement, or permit any
subsidiary to enter into, amend, modify or supplement any agreement,
transaction, commitment, or arrangement with any of its or any subsidiary's
officers, directors, person who were officers or directors at any time during
the previous two (2) years, stockholders who beneficially own five percent (5%)
or more of the Common Stock, or Affiliates (as defined below) or with any
individual related by blood, marriage, or adoption to any such individual or
with any entity in which any such entity or individual owns a five percent (5%)
or more beneficial interest (each a "RELATED PARTY"), except for (a) customary
employment arrangements and benefit programs on reasonable terms, (b) any
investment in an Affiliate of the Company, (c) any agreement, transaction,
commitment, or arrangement on an arms-length basis on terms no less favorable
than terms which would have been obtainable from a person other than such
Related Party, (d) any agreement transaction, commitment, or arrangement which
is approved by a majority of the disinterested directors of the Company, for
purposes hereof, any director who is also an officer of the Company or any
subsidiary of the Company shall not be a disinterested director with respect to
any such agreement, transaction, commitment, or arrangement. "AFFILIATE" for
purposes hereof means, with respect to any person or entity, another person or
entity that, directly or indirectly, (i) has a ten percent (10%) or more equity
interest in that person or entity, (ii) has ten percent (10%) or more common
ownership with that person or entity, (iii) controls that person or entity, or
(iv) shares common control with that person or entity. "CONTROL" or "CONTROLS"
for purposes hereof means that a person or entity has the power, direct or
indirect, to conduct or govern the policies of another person or entity.
16
(l) TRANSFER AGENT. The Company covenants and agrees that, in the
event that the Company's agency relationship with the transfer agent should be
terminated for any reason prior to a date which is two (2) years after the
Closing Date, the Company shall immediately appoint a new transfer agent and
shall require that the new transfer agent execute and agree to be bound by the
terms of the Irrevocable Transfer Agent Instructions (as defined herein).
(m) RESTRICTION ON ISSUANCE OF THE CAPITAL STOCK. Except as
otherwise expressly provided in the Convertible Debentures or the Warrant, so
long as any Convertible Debentures or the Warrant are outstanding, the Company
shall not, without the prior written consent of the Buyer(s), (i) issue or sell
shares of Common Stock or Preferred Stock without consideration or for a
consideration per share less than the Closing Bid Price of the Common Stock
determined immediately prior to its issuance, (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 such Common Stock's Closing Bid Price value determined immediately
prior to its issuance, (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 Common Stock's
closing Bid Price on the date of issuance, 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 OTCBB (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).
(n) RESALES ABSENT EFFECTIVE REGISTRATION STATEMENT. Each of the
Buyers understands and acknowledges that (i) this Agreement and the agreements
contemplated hereby may require the Company to issue and deliver Conversion
Shares, Escrow Shares or Warrant Shares to the Buyers with legend restricting
their transferability under the Securities Act, and (ii) it is aware that
resales of such Conversion Shares, Escrow Shares or Warrant Shares may not be
made unless, at the time of resale, there is an effective registration statement
under the Securities Act covering such Buyer's resale(s) or an applicable
exemption from registration.
(o) LEGEND. Certificates evidencing the Convertible Debentures,
Warrant, Warrant Shares, Conversion Shares and Escrow Shares shall not contain
any legend (including the legend set forth above), (A) while a registration
statement covering the resale of such security is effective under the Securities
Act (provided, however, that the Buyer's prospectus delivery requirements under
the Securities Act will remain applicable), or (B) following any sale of such
Convertible Debentures, Warrant, Warrant Shares, Conversion Shares and/or Escrow
Shares pursuant to Rule 144, or (C) if such Convertible Debentures, Warrant,
Warrant Shares, Conversion Shares and/or Escrow Shares are eligible for sale
under Rule 144(k), or (D) if such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the Staff of the SEC). The Company shall cause its
counsel to issue a legal opinion to the Company's transfer agent promptly after
the effective date of any registration statement (the "EFFECTIVE DATE") if
required by the Company's transfer agent to effect the removal of the legend
hereunder. The Company agrees that following the Effective Date or at such time
as such legend is no longer required under this clause (ii), it will, no later
than three trading days following the delivery by the Buyer to the Company or
the
17
Company's transfer agent of a certificate representing Warrant Shares,
Conversion Shares and/or Escrow Shares issued with a restrictive legend, deliver
or cause to be delivered to such Buyer a certificate representing such Warrant
Shares, Conversion Shares and/or Escrow Shares that is free from all restrictive
and other legends. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company that enlarge(s) the
restrictions on transfer set forth herein.
(p) PLEDGE. The Company acknowledges and agrees that the Buyers may
from time to time pledge pursuant to a bona fide margin agreement with a
registered broker-dealer or grant a security interest in some or all of the
Convertible Debentures, Warrant, Warrant Shares, Conversion Shares and/or Escrow
Shares to a financial institution that is an "accredited investor" as defined in
Rule 501(a) under the Securities Act and, if required under the terms of such
arrangement, the Buyer may transfer pledged or secured Convertible Debentures,
Warrant, Warrant Shares, Conversion Shares and/or Escrow Shares to the pledgees
or secured parties. At the Buyer's expense, the Company will execute and deliver
such reasonable documentation as a pledgee or secured party of Convertible
Debentures, Warrant, Warrant Shares, Conversion Shares and/or Escrow Shares may
reasonably request in connection with a pledge or transfer of the Convertible
Debentures, Warrant, Warrant Shares, Conversion Shares and/or Escrow Shares,
including the preparation and filing of any required prospectus supplement under
Rule 424(b)(3) of the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of selling stockholders
thereunder.
(q) REMOVAL OF LEGEND. In addition to the Buyer's other available
remedies, the Company shall pay to the Buyer(s), in cash, as partial liquidated
damages and not as a penalty, for each $1,000 of Warrant Shares, Conversion
Shares and/or Escrow Shares (based on the closing price of the Common Stock on
the date such Warrant Shares, Conversion Shares and/or Escrow 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 seventh (7th) trading day following
delivery by a Buyer to the Company or the Company's transfer agent of a
certificate representing Warrant Shares, Conversion Shares and/or Escrow 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
Irrevocable Transfer Agent Instructions, 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.
(r) PRESS RELEASE. In addition to any and all other public
statements or disclosures made by the Company in its sole discretion (subject to
the last sentence of this Section 3(r), the Company will issue a press release
and file a Current Report on Form 8-K with the SEC regarding the Closings of the
purchase and sale of the Convertible Debentures and Warrant on or before four
(4) business days after each Closing. The Company covenants and agrees that
neither it nor any other person acting on its behalf will provide the Buyers or
their agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto the Buyers
shall have executed a written agreement regarding the confidentiality and use of
such information. The Company understands and
18
confirms that the Buyers shall be relying on the foregoing representations in
effecting transactions in securities of the Company.
(s) STOCK SPLITS, ETC. The provisions of this Agreement shall be
appropriately adjusted to reflect any stock split, stock divided, reverse stock
split, reorganization or other similar event effected after the date hereof.
(t) NO SHORT POSITION. Each of the Buyers and any of its affiliates
do not have an open short position in the Common Stock, and each Buyer agrees
that it will not, and that it will cause its affiliates not to, engage in any
short sales of, or hedging transactions with respect to the Common Stock until
the earlier to occur of (i) the third anniversary of the Closing Date and (ii)
the Buyer no longer owns a principal balance of the Convertible Debenture.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue the Irrevocable Transfer Agent Instructions to its
transfer agent irrevocably appointing Gottbetter & Partners, LLP as its agent
for purpose of having certificates issued, registered in the name of the
Buyer(s) or their respective nominee(s), for the Conversion Shares representing
such amounts of Convertible Debentures as specified from time to time by the
Buyer(s) to the Company upon conversion of the Convertible Debentures, for
interest owed pursuant to the Convertible Debentures, and for any and all
Liquidated Damages (as this term is defined in the Investor Registration Rights
Agreement). Gottbetter & Partners, LLP shall be paid a cash fee of One Hundred
Fifty Dollars ($150) by the Buyers or their assigns for every occasion they act
pursuant to the Irrevocable Transfer Agent Instructions. The Company shall not
change its transfer agent without the express written consent of the Buyer(s),
which may be withheld by the Buyer(s) in their sole discretion. The successor
transfer agent shall be required to execute the Irrevocable Transfer Agent
Instructions. Prior to registration of the Conversion Shares under the
Securities Act, all such certificates shall bear the restrictive legend
specified in Section 2(g) of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 5, and stop transfer instructions to give effect to Section 2(g)
hereof (in the case of the Conversion Shares prior to registration of such
shares under the Securities Act) will be given by the Company to its transfer
agent and that the Conversion Shares shall otherwise be freely transferable on
the books and records of the Company as and to the extent provided in this
Agreement and the Investor Registration Rights Agreement. Nothing in this
Section 5 shall affect in any way the Buyer's obligations and agreement to
comply with all applicable securities laws upon resale of Conversion Shares. If
the Buyer(s) provides the Company with an opinion of counsel, in form, scope and
substance customary for opinions of counsel in comparable transactions to the
effect that registration of a resale by the Buyer(s) of any of the Conversion
Shares is not required under the Securities Act, and absent manifest error in
such opinion, the Company shall within two (2) business days instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by the Buyers. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to the Buyers by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Section 5 will be inadequate and agrees, in the event of
a breach or threatened breach by the Company of the provisions of this Section
5, that the Buyer(s) shall be entitled, in addition to all other available
remedies, to an
19
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. THE ESCROW SHARES; LIMITATION ON CONVERSION.
(a) SHARE DENOMINATIONS. The Escrow Agent shall retain and hold the
Escrow Shares which shall be held in accordance with the terms of this Agreement
and the Escrow Shares Escrow Agreement. The Escrow Shares shall be in the share
denominations specified in SCHEDULE II attached hereto, registered in the name
of the Buyer(s) specified in Schedule II.
(b) CONVERSION NOTICE. EXHIBIT F attached hereto and made a part
hereof sets forth the procedures with respect to the conversion of the
Convertible Debentures, including the forms of Conversion Notice to be provided
upon conversion, instructions as to the procedures for conversion and such other
information and instructions as may be reasonably necessary to enable the
Buyer(s) or its permitted transferee(s) to exercise the right of conversion
smoothly and expeditiously.
(c) The Company agrees that, at any time the conversion price of the
Convertible Debentures is such that the number of Escrow Shares for the
Convertible Debentures is less than five (5) times the number of shares of
Common Stock that would be needed to satisfy full conversion of all of such
Convertible Debentures then outstanding, given the then current conversion price
(the "FULL CONVERSION SHARES"), upon five (5) business days written notice of
such circumstance to the Company by the Buyers and the Escrow Agent, the Company
shall issue additional share certificates in the name of the Buyer(s) and/or
their assigns in denominations specified by the Buyer(s), and deliver same to
the Escrow Agent, such that the new number of Escrow Shares with respect to the
Convertible Debentures is equal to five (5) times the Full Conversion Shares.
(d) BUYER'S OWNERSHIP OF COMMON STOCK. In addition to and not in
lieu of the limitations on conversion set forth in the Convertible Debentures,
the conversion rights of the Buyer set forth in the Convertible Debentures shall
be limited, solely to the extent required, from time to time, such that, unless
the Buyer gives written notice 65 days in advance to the Company of the Buyer's
intention to exceed the Limitation on Conversion as defined herein, with respect
to all or a specified amount of the Convertible Debentures and the corresponding
number of the Conversion Shares in no instance the Buyer (singularly, together
with any Persons who in the determination of the Buyer, together with the Buyer,
constitute a group as defined in Rule 13d-5 of the Exchange Act) be entitled to
convert the Convertible Debentures to the extent such conversion would result in
the Buyer beneficially owning four point nine nine percent (4.99%) of the
outstanding shares of Common Stock of the Company. For these purposes,
beneficial ownership shall be defined and calculated in accordance with Rule
13d-3, promulgated under the Exchange Act (the foregoing being herein referred
to as the "LIMITATION ON CONVERSION"); PROVIDED, HOWEVER, that the Limitation on
Conversion shall not apply to any forced or automatic conversion pursuant to
this Agreement or the Convertible Debentures; and PROVIDED, FURTHER that if the
Company shall have breached any of the Transaction Documents and, if capable of
cure, failed to cure such breach within the time provided in the relevant
agreement, the provisions of this Section 6(d) shall be null and void from and
after such date. The Company shall, promptly upon its receipt of a Conversion
Notice tendered by the Buyer (or its sole designee) for the
20
Convertible Debentures, as applicable, notify the Buyer by telephone and by
facsimile (the "LIMITATION NOTICE") of the number of shares of Common Stock
outstanding on such date and the number of Conversion Shares, which would be
issuable to the Buyer (or its sole designee, as the case may be) if the
conversion requested in such Conversion Notice were effected in full and the
number of shares of Common Stock outstanding giving full effect to such
conversion whereupon, in accordance with the Convertible Debentures,
notwithstanding anything to the contrary set forth in the Convertible
Debentures, the Buyer may, by notice to the Company within one (1) business day
of its receipt of the Limitation Notice by facsimile, revoke such conversion to
the extent (in whole or in part) that the Buyer determines that such conversion
would result in the ownership by the Buyer of shares of Common Stock in excess
of the Limitation on Conversion. The Limitation Notice shall begin the 65 day
advance notice required in this Section 6(d).
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Convertible
Debentures and the Warrant to the Buyer(s) at each Closing is subject to the
satisfaction, at or before the respective 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:
(a) Each Buyer shall have executed the Transaction Documents and
delivered them to the Company.
(b) The Buyer(s) shall have delivered to the Escrow Agent the
portion of the Purchase Price relating to the Convertible Debentures to be
issued on that date in respective amounts as set forth next to each Buyer as
outlined on Schedule I attached hereto and the Warrant and the Escrow Agent
shall have delivered the net proceeds of that Closing to the Company by wire
transfer of immediately available U.S. funds pursuant to the wire instructions
provided by the Company.
(c) The representations and warranties of the Buyer(s) shall be true
and correct in all material respects as of the date when made and as of the
respective Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and the Buyer(s) shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Buyer(s) at or prior to the respective Closing Date.
8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
(a) The obligation of the Buyer(s) hereunder to Purchase the
Convertible Debentures at the First Closing is subject to the satisfaction, at
or before the First Closing Date, of each of the following conditions:
(i) The Company shall have executed the Transaction Documents
and delivered the same to the Buyer(s).
21
(ii) The Common Stock shall be authorized for quotation on the
OTCBB, trading in the Common Stock shall not have been suspended for any reason,
and all required approvals by the OTCBB in respect of the Conversion Shares
issuable upon the conversion of the Convertible Debentures shall have been
obtained.
(iii) The representations and warranties of the Company shall
be true and correct in all material respects (except to the extent that any of
such representations and warranties is already qualified as to materiality in
Section 3 above, in which case, such representations and warranties shall be
true and correct without further qualification) as of the date when made and as
of the First Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and the Company
shall have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the First Closing Date.
If requested by the Buyer, the Buyer shall have received a certificate, executed
by the COO of the Company, dated as of the First Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by the Buyers
including, without limitation an update as of the First Closing Date regarding
the representation contained in Section 3(c) above.
(iv) The Company shall have executed and delivered to the
Buyer(s) the Convertible Debentures in the respective amounts set forth opposite
each Buyer(s) name on Schedule I attached hereto and the Warrant in the number
set forth opposite the Buyer(s) name on Schedule I attached hereto.
(v) The Buyer(s) shall have received an opinion of counsel
from Reitler Xxxxx & Xxxxxxxxxx LLC in a form reasonably satisfactory to the
Buyer(s).
(vi) The Company shall have provided to the Buyer(s) a
certificate of good standing from the Secretary of State from the state in which
the company is incorporated.
(vii) The Company shall have delivered to the Escrow Agent the
Escrow Shares.
(viii) The Company shall have provided to the Buyers an
acknowledgement, to the satisfaction of the Buyers, from the Company's certified
public accountant as to its ability to provide all consents required in order to
file a registration statement in connection with this transaction.
(ix) The Company shall have reserved out of its authorized and
unissued Common Stock, solely for the purpose of effecting the conversion of the
Convertible Debentures, shares of Common Stock to effect the conversion of all
of the Convertible Debentures then outstanding.
(x) The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to the Buyers, shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
22
(xi) The Company shall have filed a form UCC -1 with regard to
the Pledged Property and Pledged Collateral as detailed in the Security
Agreement dated the date hereof and provided proof of such filing to the
Buyer(s).
(b) The obligation of the Buyer hereunder to purchase the Second
Convertible Debentures at the Second Closing is subject to the satisfaction, at
or before the Second Closing Date, of each of the following conditions:
(i) The representations and warranties of the Company shall be
true and correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in Section
3 above, in which case, such representations and warranties shall be true and
correct without further qualification) as of the date when made and as of the
Second Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Second Closing Date. If
requested by the Buyer, the Buyer shall have received a certificate, executed by
the COO of the Company, dated as of the Second Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by the Buyer
including, without limitation an update as of the Second Closing Date regarding
the representation contained in Section 3(c) above.
(ii) The Company shall have executed and delivered to the
Buyer the Second Convertible Debentures in the respective amounts set forth
opposite each Buyer(s) name on Schedule I attached hereto.
(iii) The Company shall have certified that all conditions to
the Second Closing have been satisfied
(iv) The Company shall have provided to the Buyer a
certificate of good standing from the secretary of the state in which the
Company is incorporated.
(v) The Company shall have delivered to the Escrow Agent the
additional Escrow Shares pursuant to 6(c) hereof, if necessary.
(vi) The Company shall have provided to the Buyer an
acknowledgement, to the satisfaction of the Buyer, from the Company's certified
public accountant as to its ability to provide all consents required in order to
file a registration statement in connection with this transaction.
9. INDEMNIFICATION.
(a) In consideration of the Buyer's execution and delivery of this
Agreement and acquiring the Convertible Debentures, the Escrow Shares, the
Warrant and the Conversion Shares hereunder, and in addition to all of the
Company's other obligations under this Agreement, the Company shall defend,
protect, indemnify and hold harmless the Buyer(s) and each other holder of the
Convertible Debentures, the Escrow Shares, the Warrant and the Conversion
Shares, and all of their officers, directors, employees and agents (including,
without
23
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "BUYER INDEMNITEES") from and against any and
all actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Buyer Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys' fees
and disbursements (the "INDEMNIFIED LIABILITIES"), incurred by the Buyer
Indemnitees or any of them as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in this Agreement, the Convertible Debentures or the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement, or the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, or (c) any cause of action, suit or claim
brought or made against such Indemnitee and arising out of or resulting from the
execution, delivery, performance or enforcement of this Agreement or any other
instrument, document or agreement executed pursuant hereto by any of the
Indemnities, any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of the issuance of the Convertible
Debentures or the status of the Buyer or holder of the Convertible Debentures,
the Escrow Shares, the Warrant or the Conversion Shares, as a Buyer of
Convertible Debentures, the Escrow Shares, the Warrant or the Conversion Shares
in the Company. To the extent that the foregoing undertaking by the Company may
be unenforceable for any reason, the Company shall make the maximum contribution
to the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.
(b) In consideration of the Company's execution and delivery of this
Agreement, and in addition to all of the Buyer's other obligations under this
Agreement, the Buyer shall defend, protect, indemnify and hold harmless the
Company and all of its officers, directors, employees and agents (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "COMPANY INDEMNITEES") from
and against any and all Indemnified Liabilities incurred by the Indemnitees or
any of them as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Buyer(s) in this Agreement, instrument or document contemplated hereby or
thereby executed by the Buyer, (b) any breach of any covenant, agreement or
obligation of the Buyer(s) contained in this Agreement, the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby executed by the Buyer, or (c) any cause of
action, suit or claim brought or made against such Company Indemnitee based on
material misrepresentations or due to a material breach and arising out of or
resulting from the execution, delivery, performance or enforcement of this
Agreement, the Investor Registration Rights Agreement or any other instrument,
document or agreement executed pursuant hereto by any of the Company
Indemnities. To the extent that the foregoing undertaking by each Buyer may be
unenforceable for any reason, each Buyer shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.
10. GOVERNING LAW: MISCELLANEOUS.
(a) GOVERNING LAW. The parties hereto acknowledge that the
transactions contemplated by this Agreement and the exhibits hereto bear a
reasonable relation to the State of
24
New York. The parties hereto agree that the internal laws of the State of New
York shall govern this Agreement and the exhibits hereto, including, but not
limited to, all issues related to usury. Any action to enforce the terms of this
Agreement or any of its exhibits shall be brought exclusively in the state
and/or federal courts situated in the County and State of New York. Service of
process in any action by the Buyers to enforce the terms of this Agreement may
be made by serving a copy of the summons and complaint, in addition to any other
relevant documents, by commercial overnight courier to the Company at its
principal address set forth in this Agreement.
(b) COUNTERPARTS. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature pages to be
physically delivered to the other party within five (5) days of the execution
and delivery hereof.
(c) HEADINGS. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) SEVERABILITY. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
(e) ENTIRE AGREEMENT, AMENDMENTS. This Agreement supersedes all
other prior oral or written agreements between the Buyer(s), the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by an instrument in writing signed
by the party to be charged with enforcement.
(f) NOTICES. Any notices, consents, waivers, or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon confirmation of receipt, when sent by facsimile;
(iii) three (3) days after being sent by U.S. certified mail, return receipt
requested, or (iv) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
25
If to the Company, to: Nanoscience Technologies, Inc.
00 Xxxxxxxxxxx Xx., Xxxxx 0000 #00
Xxx Xxxx, XX 00000
Attention: Xxxxx Xxxxxx
Telephone: 000-000-0000
Facsimile: 212-332-3401
With a copy to: Reitler Xxxxx & Xxxxxxxxxx LLC
000 Xxxxx Xxxxxx, 00xx xxxxx
Xxx Xxxx, XX 00000
Attn: Xxxxxx X. Xxxxx, Esq.
Telephone: 000-000-0000
Facsimile: 000-000-0000
If to the Transfer Agent, to: Interstate Transfer Company
0000 Xxxxx 000 Xxxx, Xxxxx 000
Xxxx Xxxx Xxxx, XX 00000
Attention: Xxxxx Xxxxxxxxx
Phone: (000) 000 0000
Fax : (000) 000 0000
If to the Buyer(s), to its address and facsimile number on Schedule I,
with copies to the Buyer's counsel as set forth on Schedule I. Each party shall
provide five (5) days' prior written notice to the other party of any change in
address or facsimile number.
(g) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns.
Neither the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other party
hereto.
(h) NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
(i) SURVIVAL. Unless this Agreement is terminated under Section
10(l), the representations and warranties of the Company and the Buyer(s)
contained in Sections 2 and 3, the agreements and covenants set forth in
Sections 4, 5 and 10, and the indemnification provisions set forth in Section 9,
shall survive the Closing for a period of two (2) years following the date on
which the Convertible Debentures are converted in full. The Buyer(s) shall be
responsible only for its own representations, warranties, agreements and
covenants hereunder.
(j) PUBLICITY. The Company and the Buyer(s) shall have the right to
approve, before issuance any press release or any other public statement with
respect to the transactions contemplated hereby made by any party; provided,
however, that the Company shall be entitled, without the prior approval of the
Buyer(s), to issue any press release or other public disclosure with respect to
such transactions required under applicable securities or other laws or
regulations (the Company shall use its best efforts to consult the Buyer(s) in
connection with any such press
26
release or other public disclosure prior to its release and Buyer(s) shall be
provided with a copy thereof upon release thereof).
(k) FURTHER ASSURANCES. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(l) TERMINATION. In the event that the Closing shall not have
occurred with respect to the Buyers on or before five (5) business days from the
date hereof due to the Company's or the Buyer's failure to satisfy the
conditions set forth in Sections 7 and 8 above (and the non-breaching party's
failure to waive such unsatisfied condition(s)), the non-breaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of business on such date without liability of any party to any
other party; provided, however, that if this Agreement is terminated by the
Company pursuant to this Section 10(l), the Company shall remain obligated to
reimburse the Buyer(s) for the fees and expenses of Yorkville Advisors
Management, LLC and Gottbetter & Partners, LLP described in Section 4(g) above.
(m) NO STRICT CONSTRUCTION. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
(n) REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Buyer and
the Company will be entitled to specific performance under the Agreement. The
parties agree that monetary damages may not be adequate compensation for any
loss incurred by reason of any breach of obligations described in the foregoing
sentence and hereby agree to waive in any action for specific performance of any
such obligation the defense that a remedy at law would be adequate.
[REMAINDER PAGE INTENTIONALLY LEFT BLANK]
27
IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.
COMPANY:
NANOSCIENCE TECHNOLOGIES, INC.
By: /s/ Xxxxx Xxxxxx
-------------------------------------------
Name: Xxxxx Xxxxxx
Title: Secretary, Chief Operating Officer
28
EXHIBIT A
FORM OF INVESTOR REGISTRATION RIGHTS AGREEMENT
1
EXHIBIT B
FORM OF ESCROW AGREEMENT
1
EXHIBIT C
SECURITY AGREEMENT
1
EXHIBIT D
ESCROW SHARES ESCROW AGREEMENT
1
EXHIBIT E
IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
1
EXHIBIT F
CONVERSION PROCEDURES
1. At any time and from time to time during the term of the Convertible
Debentures, the Holder may deliver to the Escrow Agent written notice (a
"CONVERSION NOTICE") that it has elected to convert the Company Convertible
Debentures (the "DEBENTURES") registered in the name of such Holder in whole or
in part in accordance with the terms of the Debentures and the Conversion Notice
shall be in the form annexed as EXHIBIT A to the Debentures. A fee of $50,
payable by the Holder, shall accompany every Conversion Notice delivered to the
Escrow Agent.
2. The Holder shall send by fax or e-mail the executed Conversion Notice
to the Escrow Agent (with a copy to the Company) by 4:00 p.m. New York time at
least one business day prior to the Conversion Date (as defined in the
Debentures). The Escrow Agent shall send the Conversion Notice by facsimile or
e-mail address to the Company by the end of the business day on the day
received, assuming received by 6:00 p.m. New York time and if thereafter on the
next business day, at the facsimile telephone number or e-mail address, as the
case may be, of the principal place of business of the Company. Each Company
Conversion Notice price adjustment under Article V of the Debentures shall be
given by facsimile addressed to the Holder of Debentures at the facsimile
telephone number of such Holder appearing on the books of the Company as
provided to the Company by such Holder for the purpose of such Company
Conversion Notice price adjustment, with a copy to the Escrow Agent. Any such
notice shall be deemed given and effective upon the transmission of such
facsimile or e-mail at the facsimile telephone number or e-mail address, as the
case may be, specified in this paragraph 2 (with printed confirmation of
transmission). In the event that the Escrow Agent receives the Conversion Notice
after 4:00 p.m. New York time, the Conversion Notice shall be deemed to have
been received on the next business day. In the event that the Company receives
the Conversion Notice after the end of the business day, notice will be deemed
to have been given the next business day.
3. The Company shall have two (2) business days from transmission of the
Conversion Notice by the Escrow Agent to object only to the calculation of the
number of Company Escrow Shares to be released. If the Company fails to object
to the calculation of the number of Escrow Shares to be released within said
time, then the Company shall be deemed to have waived any objections to said
calculation. The Company's only basis for any objection hereunder shall be to
the calculation of the number of Escrow Shares to be released. If the Escrow
Agent does not receive said objection notice within the time period set forth
above from the Company, and provided that the Purchaser does not revoke such
conversion, the Escrow Agent shall release from escrow and deliver to the Holder
certificates or instruments representing the number of Escrow Shares issuable to
the Holder in accordance with such conversion on the second business day from
the receipt by the Company of the Conversion Notice. In the event that the
certificates evidencing the Escrow Shares held by the Escrow Agent are not in
denominations appropriate for such delivery to the Holder, the Escrow Agent
shall request the Company to cause its transfer agent and registrar to reissue
certificates in smaller denominations. The Escrow Agent shall, however,
immediately release to the requesting Holder certificates
1
representing such lesser number of shares as the denominations in its possession
will allow that is closest to but no more than the actual number to be released
to such Holder. Upon receipt of the reissued shares in lesser denominations from
the Company's transfer agent, the Escrow Agent shall release to such Holder the
balance of the shares due to such Holder.
4. The Holder shall send the original Debentures and Conversion Notice to
the Escrow Agent via FedEx or other commercial overnight courier, along with a
fee of $50, instructions regarding names and amount of certificates for the
issuance of the Conversion Shares, and, if conversion is not in full,
instructions as to the re-issuance of the balance of the Debentures; PROVIDED,
HOWEVER, that if the Escrow Agent is holding the Debentures, then the Conversion
Notice may be faxed or e-mailed and the fee may be transmitted via wire transfer
to the Escrow Agent. The Escrow Agent shall deliver the foregoing to the Company
within one (1) business day of the Escrow Agent's receipt thereof. In the event
that the Escrow Agent has custody of the Debentures, the Escrow Agent shall
notify the Company and the Holder in writing of the balance of the Debentures
remaining and the Company and the Holder shall acknowledge such notice in
writing, in lieu of issuance of a new Debenture for the balance.
5. If the Company will be issuing a new Debenture, it will send such new
Debenture to the Escrow Agent by overnight courier within five (5) business days
of its receipt of the original Debentures and Conversion Notice. The Escrow
Agent shall send the Conversion Shares to the Holder in accordance with Holder's
instructions within one (1) business day of receipt of the Conversion Notice and
will send the new Debenture (if any) to the Holder upon receipt.
6. The Escrow Agent agrees to notify the Company in writing by facsimile
or e-mail each time the Escrow Agent releases the Escrow Shares to the Holder,
such notice to be given at least one (1) business day prior to such release.
7. Subject to the provisions of and any limitations set forth in the
Purchase Agreement or the Debentures, the Company agrees that, at any time the
conversion price of the Debentures are such that the number of Escrow Shares
with respect to the Debentures is less than five (5) times the number of shares
of Common Stock that would be needed to satisfy full conversion of all of the
Debentures given the then current conversion price (the "Full Conversion
Shares"), upon five (5) business days written notice of such circumstance to the
Company by a Holder and/or Escrow Agent, it will issue additional share
certificates, in the names of all Holders and deliver same to the Escrow Agent,
such that the new number of Escrow Shares with respect to the Debentures is
equal to five (5) times the Full Conversion Shares.
2
EXHIBIT G
WARRANT
1
SCHEDULE I
SCHEDULE OF BUYERS
ADDRESS/FACSIMILE AMOUNT OF NUMBER OF
NAME SIGNATURE NUMBER OF BUYER SUBSCRIPTION WARRANTS
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Highgate House Funds, Ltd. By: /s/ Xxxx X. Xxxxxxxxxx 000 Xxxxxxx Xxxxxx $1,690,359.20 100,000
----------------------------- Xxx Xxxx, XX 00000
Name: Xxxx X. Xxxxxxxxxx Telephone: (000) 000-0000
Its: Portfolio Manager Facsimile: (000) 000-0000
Gottbetter & Partners, LLP
With a copy to: Xxx Xxxxxxx 000 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
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SCHEDULE II
SHARE DENOMINATIONS
NAME OF INVESTOR
Highgate House Funds, Ltd.
Stock Certificate Denominations for the Escrow Shares in the name of Highgate
House Funds, Ltd.:
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NO. OF CERTIFICATES CERTIFICATE AMOUNT TOTAL
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10 500 5,000
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11 1,000 11,000
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10 2,500 25,000
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11 5,000 55,000
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15 10,000 150,000
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11 25,000 275,000
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11 50,000 550,000
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11 100,000 1,100,000
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4 250,000 1,000,000
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8 500,000 4,000,000
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TOTAL 7,171,000
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SCHEDULE 3(F)
SEC DOCUMENTS: FINANCIAL STATEMENTS
The Company intends to imminently file amendments to its Form 10-QSBs
filed with the United States Securities and Exchange Commission for the quarters
ending December 31, 2004, March 31, 2005 and June 30, 2005, such amendments are
filed to revise accounting treatment of senior debentures previously issued to
Highgate and Xxxxxxxxxx.
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