Exhibit 10.5
SECURITIES PURCHASE AGREEMENT
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THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of
September 15, 2005, by and among STARTECH ENVIRONMENTAL CORPORATION, a Colorado
corporation (the "Company"), and the Buyers listed on Schedule I attached hereto
(individually, a "Buyer" or collectively "Buyers").
WITNESSETH
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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 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 up to Two Million Three
Hundred Thousand Dollars ($2,300,000) of secured convertible debentures (the
"Convertible Debentures"), which shall be convertible into shares of the
Company's common stock, no par value (the "Common Stock") (as converted, the
"Conversion Shares") of which One Million One Hundred Fifty Thousand Dollars
($1,150,000) shall be funded on the fifth (5th) business day following the date
hereof (the "First Closing") and One Million One Hundred Fifty Thousand Dollars
($1,150,000) shall be funded two (2) business days prior to the date the
registration statement (the "Registration Statement") is filed, pursuant to the
Investor Registration Rights Agreement dated the date hereof, with the United
States Securities and Exchange Commission (the "SEC") (the "Second Closing")
(individually referred to as a "Closing" collectively referred to as the
"Closings"), for a total purchase price of up to Two Million Three Hundred
Thousand Dollars ($2,300,000), (the "Purchase Price") in the respective amounts
set forth opposite each Buyer(s) name on Schedule I (the "Subscription Amount");
and
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement 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
contemplated hereby shall be held in escrow pursuant to the terms of an escrow
agreement substantially in the form of the Escrow Agreement attached hereto as
Exhibit B.
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 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 Debenture, the Investor Registration Rights Agreement, the
Irrevocable Transfer
Agent Instructions, the Security Agreement, the Pledge and Escrow Agreement or
any other obligations of the Company to the Buyer;
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Pledge and Escrow
Agreement substantially in the form attached hereto as Exhibit D (the "Pledge
and Escrow Agreement") pursuant to which the Company has agreed to provide the
Buyer a security interest in the Pledged Shares (as this term is defined in the
Pledge and Escrow Agreement) to secure the Company's obligations under this
Agreement, the Convertible Debenture, the Investor Registration Rights
Agreement, the Irrevocable Transfer Agent Instructions, the Security Agreement,
the Pledge and Escrow Agreement or any other obligations of the Company to the
Buyer;
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")
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 each Closing and the Company agrees to
sell and issue to each Buyer, severally and not jointly, at each Closing,
Convertible Debentures in amounts corresponding with the Subscription Amount set
forth opposite each Buyer's name on Schedule I hereto. Upon execution hereof by
a Buyer, the Buyer shall wire transfer the Subscription Amount set forth
opposite his name on Schedule I in same-day funds or a check payable to "Xxxxx
Xxxxxxxx, Esq., as Escrow Agent for Startech Environmental Corporation/Cornell
Capital Partners, LP", which Subscription Amount shall be held in escrow
pursuant to the terms of the Escrow Agreement (as hereinafter defined) and
disbursed in accordance therewith. Notwithstanding the foregoing, a Buyer may
withdraw his Subscription Amount and terminate this Agreement as to such Buyer
at any time after the execution hereof and prior to Closing (as hereinafter
defined).
(b) Closing Date. The First Closing of the purchase and sale of the
Convertible Debentures 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 First Closing set forth herein and in
Sections 6 and 7 below (or such later date as is mutually agreed to by the
Company and the Buyer(s)) (the "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 Standard Time two (2) business days prior to the date the
Registration Statement is filed with the SEC, subject to notification of
satisfaction of the conditions to the Second Closing set forth herein and in
Sections 6 and 7 below (or such later date as is mutually agreed to by the
Company and the Buyer(s)) (the "Second Closing Date") (collectively referred to
as the "Closing Dates"). The Closing shall occur on the respective Closing Dates
at the offices of Yorkville Advisors, LLC, 0000 Xxxxxx Xxxxxx, Xxxxx 0000,
Xxxxxx Xxxx, Xxx Xxxxxx 00000 (or such other place as is mutually agreed to by
the Company and the Buyer(s)).
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(c) Escrow Arrangements; Form of Payment. Upon execution hereof by
Buyer(s) and pending the Closings, the aggregate proceeds of the sale of the
Convertible Debentures to Buyer(s) pursuant hereto shall be deposited in a
non-interest bearing escrow account with Xxxxx Xxxxxxxx, Esq., as escrow agent
(the "Escrow Agent"), pursuant to the terms of an escrow agreement between the
Company, the Buyer(s) and the Escrow Agent in the form attached hereto as
Exhibit B (the "Escrow Agreement"). Subject to the satisfaction of the terms and
conditions of this Agreement, on the 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 to be issued and sold to such
Buyer(s), minus the unpaid structuring fees and expenses of Yorkville Advisors
Management, LLC of Ten Thousand Dollars ($10,000), which shall be paid directly
from the gross proceeds held in escrow of the First Closing and (ii) the Company
shall deliver to each Buyer, Convertible Debentures which such Buyer(s) is
purchasing in amounts indicated opposite such Buyer's name on Schedule I, duly
executed on behalf of the Company.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants, severally and not jointly, that:
(a) Investment Purpose. Each Buyer is acquiring the Convertible
Debentures and, upon conversion of Convertible Debentures, the Buyer will
acquire the Conversion Shares then issuable, for its own account for investment
only and not with a view towards, or for resale in connection with, the public
sale or distribution thereof, except pursuant to sales registered or exempted
under the Securities Act; provided, however, that by making the representations
herein, such Buyer reserves the right to dispose of the Conversion Shares at any
time in accordance with or pursuant to an effective registration statement
covering such Conversion 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 are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire such securities.
(d) Information. Each Buyer and its advisors (and his or, its counsel),
if any, have been furnished with all materials relating to the business,
finances and operations of the Company and information he deemed material to
making an informed investment decision regarding his purchase of the Convertible
Debentures and the Conversion Shares, which have been requested by such Buyer.
Each Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company and its management. Neither such inquiries nor any
other due diligence investigations conducted by such Buyer or its advisors, if
any, or its representatives shall modify, amend or affect such Buyer's right to
rely on the Company's
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representations and warranties contained in Section 3 below. Each Buyer
understands that its investment in the Convertible Debentures and the Conversion
Shares involves a high degree of risk. Each Buyer is in a position to obtain
information from the Company in order to evaluate the merits and risks of this
investment. Each Buyer has sought such accounting, legal and tax advice, as it
has considered necessary to make an informed investment decision with respect to
its acquisition of the Convertible Debentures and the Conversion Shares.
(e) No Governmental Review. Each Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Convertible
Debentures or the Conversion Shares, or the fairness or suitability of the
investment in the Convertible Debentures or the Conversion Shares, nor have such
authorities passed upon or endorsed the merits of the offering of the
Convertible Debentures or the Conversion Shares.
(f) Transfer or Resale. Each Buyer understands that except as provided
in the Investor Registration Rights Agreement: (i) the Convertible Debentures
have not been and are 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. The Company reserves the right to place stop transfer
instructions against the shares and certificates for the Conversion Shares.
(g) Legends. Each Buyer understands that the certificates or other
instruments representing the Convertible Debentures and or the Conversion Shares
shall bear a restrictive legend in substantially the following form (and a stop
transfer order may be placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT
PURPOSES AND NOT WITH A VIEW TOWARD RESALE AND MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE
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XXXXX XXXXXXXXXX XXXX, XX AN OPINION OF COUNSEL, IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES
LAWS.
The legend set forth above shall be removed and the Company within three (3)
business days shall issue a certificate without such legend to the holder of the
Conversion Shares upon which it is stamped, if, unless otherwise required by
state securities laws, (i) in connection with a sale transaction, provided the
Conversion Shares are registered under the Securities Act (and, if requested by
the Company, in writing, the Buyer confirms that it has complied with the
prospectus delivery requirements) or (ii) in connection with a sale transaction,
after such holder provides the Company with an opinion of counsel, which opinion
shall be in form, substance and scope customary for opinions of counsel in
comparable transactions, to the effect that a public sale, assignment or
transfer of the Conversion Shares may be made without registration under the
Securities Act.
(h) Authorization, Enforcement. This Agreement and the other
Transaction Documents (as such term is defined herein) to which each Buyer is
party 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.
(i) Receipt of Documents. Each Buyer and his or its counsel has
received and read in their entirety: (i) this Agreement and each representation,
warranty and covenant set forth herein, the Security Agreement, the Investor
Registration Rights Agreement, the Escrow Agreement, the Irrevocable Transfer
Agent Agreement, and the Pledge and 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 October 31, 2004; (iv) the Company's Form 10-QSB for the
fiscal quarter ended April 30, 2005 and (v) 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 the Buyer(s) is a
corporation, trust, partnership or other entity that is not an individual
person, it has been formed and validly exists and has not been organized for the
specific purpose of purchasing the Convertible Debentures and is not prohibited
from doing so.
(k) No Legal Advice From the Company. Each Buyer acknowledges, that it
had the opportunity to review this Agreement and the transactions contemplated
by this Agreement with his or its own legal counsel and investment and tax
advisors. Each Buyer is relying solely on such counsel and advisors and not on
any statements or representations of the Company or any of its representatives
or agents for legal, tax or investment advice with respect
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to this investment, the transactions contemplated by this Agreement or the
securities laws of any jurisdiction.
(l) Short Sales. Except as otherwise permitted in Section 3.11 of the
Standby Equity Distribution Agreement of even date herewith, neither the
Buyer(s) nor any of its affiliates have an open short position in the Common
Stock of the Company, and the Buyer(s) agrees that it shall 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 as long as any Convertible
Debenture or warrants to purchase the Warrant Shares shall remain outstanding.
(m) Communication of Offer. At no time was the Subscriber presented
with or solicited by any leaflet, newspaper or magazine article, radio or
television advertisement, or any other form of general advertising or solicited
or invited to attend a promotional meeting otherwise than in connection and
concurrently with the communicated offer to purchase the Convertible Debentures.
(n) Patriot Act. If the Buyer is an individual, the Buyer certifies
that he or she is not nor to his or her knowledge has been designated, a
"suspected terrorist" as defined in Executive Order 13224. If the Buyer is a
corporation, trust, partnership, limited liability company or other
organization, the Buyer certifies that, to the best of Buyer's knowledge, the
Buyer has not been designated, and is not owned or controlled, by a "suspected
terrorist" as defined in Executive Order 13224. The Buyer shall promptly notify
the Company if any of these representations ceases to be true and accurate
regarding the Buyer. In the event that the Company is requested or required (by
deposition, interrogatory, request for documents, subpoena, civil investigative
demand or similar legal, judiciary or regulatory process or as otherwise
required by applicable law or regulation) to disclose any confidential
information about a Buyer, the Company shall (A) provide such Buyer with prompt
written notice of such request or requirement and (B) cooperate with the Buyer
so that the Buyer may seek a protective order or other appropriate remedy. In
the event that such protective order or other remedy is not obtained, the
Company and its respective representatives shall disclose only that portion of
the confidential information that such person is advised by legal counsel is
legally required to be disclosed, and provided that the Company in each instance
shall request that confidential treatment be accorded to any confidential
information so disclosed.
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 herein) or the Disclosure Schedule
attached hereto as Exhibit "F":
(a) Organization and Qualification. The Company and its subsidiary 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 subsidiary is duly qualified as a
foreign corporation to do business and is in good standing in
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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 on the
Company and its subsidiary taken as a whole.
(b) Authorization, Enforcement, Compliance with Other Instruments. (i)
The Company has the requisite corporate power and authority to enter into and
perform this Agreement, the Security Agreement, the Investor Registration Rights
Agreement, the Irrevocable Transfer Agent Agreement, the Escrow Agreement, the
Pledge and Escrow Agreement, and any related agreements (collectively the
"Transaction Documents") and to issue the Convertible Debentures 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
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. As of the date hereof, the authorized capital stock
of the Company consists of 800,000,000 shares of Common Stock, no par value per
share and 10,000,000 shares of Preferred Stock, no par value per share
("Preferred Stock"), of which 23,077,136 shares of Common Stock and no shares of
Preferred Stock were issued and outstanding. All of such outstanding shares have
been validly issued and are fully paid and nonassessable. Except as disclosed in
the SEC Documents (as defined in Section 3(f)), 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 subsidiary, or contracts,
commitments, understandings or arrangements by which the Company or any of its
subsidiary is or may become bound to issue additional shares of capital stock of
the Company or any of its subsidiary 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 subsidiary, (ii) there are no outstanding debt securities
and (iii) there are no agreements or arrangements under which the Company or any
of its subsidiary is obligated to register the sale of any of their securities
under the Securities Act (except pursuant to the Registration Rights Agreement)
and (iv) there are no outstanding registration statements and there are no
outstanding comment letters from the SEC or any other regulatory agency. There
are no securities or instruments containing anti-dilution or similar provisions
that will be
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triggered by the issuance of the Convertible Debentures as described in this
Agreement. The Company has furnished to the Buyer true and correct copies of the
Company's 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
validly issued and outstanding, are free from all taxes, liens and charges with
respect to the issue thereof. The Conversion Shares issuable upon conversion of
the Convertible Debentures have been duly authorized and reserved for issuance.
Upon conversion or exercise in accordance with the Convertible Debentures the
Conversion Shares will be duly issued, fully paid and nonassessable.
(e) No Conflicts. Except as disclosed in the 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 material agreement, indenture or instrument to which the Company or any of
its subsidiary 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 subsidiary or by which any
property or asset of the Company or any of its subsidiary is bound or affected.
Except as disclosed in the SEC Documents, neither the Company nor its subsidiary
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 subsidiary. The business of the Company and its subsidiary 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 state securities laws, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under or contemplated by this Agreement or the Registration
Rights Agreement in accordance with the terms hereof or thereof. Except as
disclosed in the 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 subsidiary are unaware of any facts or circumstance,
which might give rise to any of the foregoing.
(f) SEC Documents: Financial Statements. Since January 1, 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 foregoing filed prior to the
date hereof or amended after the date
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hereof and all exhibits included therein and financial statements and schedules
thereto and documents incorporated by reference therein, being hereinafter
referred to as the "SEC Documents"). The Company has delivered to the Buyers or
their representatives, or made available through the SEC's website at
xxxx://xxx.xxx.xxx., true and complete copies of the SEC Documents. As of their
respective dates, the financial statements of the Company 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 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 subsidiary, 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 material adverse effect on the business, operations,
properties, financial condition or results of operations of the Company and its
subsidiary taken as a whole.
(i) Acknowledgment Regarding Buyer's Purchase of the Convertible
Debentures. The Company acknowledges and agrees that the Buyer(s) is acting
solely in the capacity of an arm's length purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that the Buyer(s) is not acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereby and any advice given by the Buyer(s) or any
of their respective representatives or agents in connection with this Agreement
and the transactions contemplated hereby is merely incidental to such Buyer's
purchase of the Convertible Debentures or the Conversion Shares. The Company
further represents to the Buyer that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation by the Company and
its representatives.
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(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 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 or the Conversion Shares under the Securities Act or
cause this offering of the Convertible Debentures or the Conversion Shares to be
integrated with prior offerings by the Company for purposes of the Securities
Act.
(l) Employee Relations. Neither the Company nor any of its subsidiary
is involved in any labor dispute nor, to the knowledge of the Company or any of
its subsidiary, is any such dispute threatened. None of the Company's or its
subsidiary' employees is a member of a union and the Company and its subsidiary
believe that their relations with their employees are good.
(m) Intellectual Property Rights. To the Company's knowledge, the
Company and its subsidiary 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 subsidiary do not
have any knowledge of any infringement by the Company or its subsidiary 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 subsidiary
regarding trademark, trade name, patents, patent rights, invention, copyright,
license, service names, service marks, service xxxx registrations, trade secret
or other infringement; and the Company and its subsidiary are unaware of any
facts or circumstances which might give rise to any of the foregoing.
(n) Environmental Laws. To the Company's knowledge, the Company and its
subsidiary are (i) in compliance with any and all applicable foreign, federal,
state and local laws and regulations relating to the protection of human health
and safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants ("Environmental Laws"), (ii) 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 subsidiary 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 subsidiary.
10
(p) Insurance. The Company and each of its subsidiary 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 subsidiary 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
subsidiary, taken as a whole.
(q) Regulatory Permits. The Company and its subsidiary 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
subsidiary 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 subsidiary is subject to any
charter, corporate or other legal restriction, or any judgment, decree, order,
rule or regulation which in the judgment of the Company's officers has or is
expected in the future to have a material adverse effect on the business,
properties, operations, financial condition, results of operations or prospects
of the Company or its subsidiary. Except as set forth in the SEC Documents,
neither the Company nor any of its subsidiary is in breach of any contract or
agreement which breach, in the judgment of the Company's officers, has or is
expected to have a material adverse effect on the business, properties,
operations, financial condition, results of operations or prospects of the
Company or its subsidiary.
(t) Tax Status. Except as set forth in the SEC Documents, the Company
and each of its subsidiary 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 subsidiary has set aside on its books provisions reasonably adequate for
the payment of all unpaid and unreported taxes) has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim.
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(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.
4. COVENANTS.
(a) Best Efforts. Each party shall use its best efforts to timely
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.
(b) Form D. The Company agrees to file a Form D with respect to the
Conversion Shares as required under Regulation D and to provide a copy thereof
to each Buyer promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary to qualify the Conversion Shares, or obtain an exemption for the
Conversion Shares for sale to the Buyers at the Closing pursuant to this
Agreement under applicable securities or "Blue Sky" laws of the states of the
United States, 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 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 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 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. The Company will use the proceeds from the sale of
the Convertible Debentures for general corporate and working capital purposes.
(e) Reservation of Shares. The Company shall take all action reasonably
necessary to at all times have authorized, and reserved for the purpose of
issuance, such number of shares of Common Stock as shall be necessary to effect
the issuance of the
12
Conversion Shares. If at any time the Company does not have available such
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all of the Conversion Shares, the Company shall call and hold a
special meeting of the shareholders within forty five (45) 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 promptly secure the
listing or quotation of the Conversion Shares upon each 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.
(g) Fees and Expenses.
(i) 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 a fee equal to ten
percent (10%) of the Purchase Price.
(ii) The Company shall pay a structuring fee to Yorkville Advisors
Management, LLC of Ten Thousand Dollars ($10,000), which shall be paid directly
from the proceeds of the First Closing.
(iii) The Company shall issue to the Buyer a warrant to purchase
Six Hundred Fifty Thousand (650,000) shares of the Company's Common Stock (the
"Warrant Shares") for a period of three (3) years at an exercise price of $2.53
per share. The Warrant Shares shall have "piggy-back" and demand registration
rights.
(h) Intentionally Omitted.
(i) Transactions With Affiliates. So long as any Convertible
Debentures are outstanding, the Company shall not, and shall cause each of its
subsidiary 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
13
been obtainable from a person other than such Related Party, (d) any agreement,
transaction, commitment, or arrangement which is approved by a majority of the
disinterested directors of the Company; for purposes hereof, any director who is
also an officer of the Company or any subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment, or arrangement. "Affiliate" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or indirectly,
(i) has a ten percent (10%) or more equity interest in that person or entity,
(ii) has ten percent (10%) or more common ownership with that person or entity,
(iii) controls that person or entity, or (iv) shares common control with that
person or entity. "Control" or "controls" for purposes hereof means that a
person or entity has the power, direct or indirect, to conduct or govern the
policies of another person or entity.
(j) Transfer Agent. The Company covenants and agrees that, in the event
that the Company's agency relationship with the transfer agent should be
terminated for any reason prior to a date which is two (2) years after the
Closing Date, the Company shall 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).
(k) Restriction on Issuance of the Capital Stock. So long as any
Convertible Debentures 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, as quoted by Bloomberg, LP (the "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 Bid Price value determined
immediately prior to it's issuance, (iii) enter into any security instrument
granting the holder a security interest in any and all assets of the Company, or
(iv) file any registration statement on Form S-8. The foregoing restriction
shall not apply to the following: (a) any issuance by the Company of securities
in connection with a strategic partnership or a joint venture or other
partnering arrangement or to consultants (the primary purpose of which is not to
raise equity capital), (b) any issuance by the Company of securities as
consideration for a merger or consolidation or the acquisition of a business,
product, license, or other assets of another person or entity, (c) securities
issued pursuant to the conversion or exercise of convertible or exercisable
securities issued or outstanding on or prior to the date hereof or issued
pursuant to the Securities Purchase Agreement, (d) any warrants issued to
Trendwith Securities, Inc. and its designees for the transactions contemplated
by the Securities Purchase Agreement, provided, however, that the exercise price
of such warrants is not less than the Bid Price of the Common Stock on the date
of issuance of such options, (e) the Warrant Shares and any securities issued or
issuable pursuant to the Securities Purchase Agreement, (f) options or grants of
options to purchase up to 500,000 shares of Common Stock, provided (I) such
options are issued after the date of this Warrant to employees of the Company,
and (II) the exercise price of such options is not less than the Bid Price of
the Common Stock on the date of issuance of such option and (g) previously
issued options prior to the date hereof to X. Xxxxxxxx, X. Xxxxxx, X. Xxxxx and
X. Xxxx.
14
5. TRANSFER AGENT INSTRUCTIONS.
(a) The Company shall issue the Irrevocable Transfer Agent Instructions
to its transfer agent irrevocably appointing Xxxxx Xxxxxxxx, Esq. as the
Company's agent for purpose of having certificates issued, registered in the
name of the Buyer(s) or its respective nominee(s), for the Conversion Shares
representing such amounts of Convertible Debentures as specified from time to
time by the Buyer(s) to the Company upon conversion of the Convertible
Debentures, for interest owed pursuant to the Convertible Debenture, and for any
and all Liquidated Damages (as this term is defined in the Investor Registration
Rights Agreement). Xxxxx Xxxxxxxx, Esq. shall be paid a cash fee of Fifty
Dollars ($50) for every occasion they act pursuant to the Irrevocable Transfer
Agent Instructions. 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 its sole discretion. 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,
including the Prospectus Delivery requirements. 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, the Company shall within three (3) business days
instruct its transfer agent to issue one or more certificates in such name and
in such denominations as specified by the Buyer. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to the
Buyer by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5 will be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the provisions of
this Section 5, that the Buyer(s) shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Convertible
Debentures to the Buyer(s) at the Closings is subject to the satisfaction, at or
before the Closing Dates, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion:
(a) Each Buyer shall have executed the Transaction Documents and
delivered them to the Company.
(b) The Buyer(s) shall have delivered to the Escrow Agent the Purchase
Price for Convertible Debentures in respective amounts as set forth next to each
Buyer as outlined on Schedule I attached hereto and the Escrow Agent shall have
delivered the net
15
proceeds 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
Closing Dates as though made at that time (except for representations and
warranties that speak as of a specific date), and the Buyer(s) shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Buyer(s) at or prior to the Closing Dates.
7. 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).
(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 the Conversion Shares issuable upon the conversion of the Convertible
Debentures shall be approved by the OTCBB.
(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 President 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 Buyer 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.
(v) The Buyer(s) shall have received an opinion of counsel from
Xxxxxx Xxxxx Xxxxxxxx & Xxxxxxx, LLP in a form 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.
16
(vii) The Company shall have filed a form UCC-1 or such other forms
as may be required to perfect the Buyer's interest in the Pledged Property as
detailed in the Security Agreement dated the date hereof and provided proof of
such filing to the Buyer(s).
(viii) The Company shall have delivered to the Escrow Agent the
Pledged Shares as well executed and medallion guaranteed stock bond powers as
required pursuant to the Pledge and Escrow Agreement.
(ix) The Company shall have provided to the Buyer an
acknowledgement, to the satisfaction of the Buyer, from the Company's
independent certified public accountants as to its ability to provide all
consents required in order to file a registration statement in connection with
this transaction.
(x) The Company shall have reserved out of its authorized and
unissued Common Stock, solely for the purpose of effecting the conversion of the
Convertible Debentures, shares of Common Stock to effect the conversion of all
of the Conversion Shares then outstanding.
(xi) The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to the Buyer, shall have been signed and delivered to the
Company's transfer agent.
(b) The obligation of the Buyer(s) hereunder to accept the 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 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 the Conversion Shares issuable upon the conversion of the Convertible
Debentures shall be approved by the OTCBB.
(ii) 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
two officers 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.
(iii) 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.
17
(iv) The Company shall have certified that all conditions to the
Second Closing have been satisfied and that the Company will file the
Registration Statement with the SEC in compliance with the rules and regulations
promulgated by the SEC for filing thereof two (2) business days after the Second
Closing. If requested by the Buyer, the Buyer shall have received a certificate,
executed by the two officers of the Company, dated as of the Second Closing
Date, to the foregoing effect. The Buyers have no obligation to fund at the
Second Closing if the Company has filed the Registration Statement.
8. INDEMNIFICATION.
(a) In consideration of the Buyer's execution and delivery of this
Agreement and acquiring the Convertible Debentures and the Conversion Shares
hereunder, and in addition to all of the Company's other obligations under this
Agreement, the Company shall defend, protect, indemnify and hold harmless the
Buyer(s) and each other holder of the Convertible Debentures and the Conversion
Shares, and all of their officers, directors, employees and agents (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "Buyer Indemnitees") from and
against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Buyer Indemnitee is a party to the action for
which indemnification hereunder is sought), and including reasonable attorneys'
fees and disbursements (the "Indemnified Liabilities"), incurred by the Buyer
Indemnitees or any of them as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in this Agreement, the Convertible Debentures or the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement, or the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, or (c) any cause of action, suit or claim
brought or made against such Indemnitee and arising out of or resulting from the
execution, delivery, performance or enforcement of this Agreement or any other
instrument, document or agreement executed pursuant hereto by any of the parties
hereto, any transaction financed or to be financed in whole or in part, directly
or indirectly, with the proceeds of the issuance of the Convertible Debentures
or the status of the Buyer or holder of the Convertible Debentures the
Conversion Shares, as a Buyer of Convertible Debentures in the Company. To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities, which is permissible under
applicable law.
(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,
18
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 parties hereto. 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.
9. GOVERNING LAW: MISCELLANEOUS.
(a) Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of New Jersey without regard to the
principles of conflict of laws. The parties further agree that any action
between them shall be heard in Xxxxxx County, New Jersey, and expressly consent
to the jurisdiction and venue of the Superior Court of New Jersey, sitting in
Xxxxxx County and the United States District Court for the District of New
Jersey sitting in Newark, New Jersey for the adjudication of any civil action
asserted pursuant to this Paragraph.
(b) Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature pages to be
physically delivered to the other party within five (5) days of the execution
and delivery hereof.
(c) Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) Severability. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement in
that jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
(e) Entire Agreement, Amendments. This Agreement and the other
Transaction Documents supersede 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.
19
(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:
If to the Company, to: Startech Environmental Corporation
00 Xxx Xxxxxxx Xxxx - Xxxxx 000
Xxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Xxxxxx Xxxxx Xxxxxxxx & Xxxxxxx, LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Buyer(s), to its address and facsimile number on Schedule I,
with copies to the Buyer's counsel as set forth on Schedule I. Each party shall
provide five (5) days' prior written notice to the other party of any change in
address or facsimile number.
(g) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns.
Neither the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other party
hereto.
(h) No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
(i) Survival. Unless this Agreement is terminated under Section 9(l),
the representations and warranties of the Company and the Buyer(s) contained in
Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9,
and the indemnification provisions set forth in Section 8, shall survive the
Closing for a period of two (2) years following the date 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
20
disclosure with respect to such transactions required under applicable
securities or other laws or regulations (the Company shall use its best efforts
to consult the Buyer(s) in connection with any such press release or other
public disclosure prior to its release and Buyer(s) shall be provided with a
copy thereof upon release thereof).
(k) Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(l) Termination. In the event that the Closing shall not have occurred
with respect to the Buyers on or before five (5) business days from the date
hereof due to the Company's or the Buyer's failure to satisfy the conditions set
forth in Sections 6 and 7 above (and the non-breaching party's failure to waive
such unsatisfied condition(s)), the non-breaching party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date without liability of any party to any other party;
provided, however, that if this Agreement is terminated by the Company pursuant
to this Section 9(l), the Company shall remain obligated to reimburse the
Buyer(s) for the fees and expenses of Yorkville Advisors Management, LLC
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.
[REMAINDER PAGE INTENTIONALLY LEFT BLANK]
21
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:
STARTECH ENVIRONMENTAL CORPORATION
By:__________________________________
Name: Xxxxx X. Xxxxxxx
Title: CFO
22
EXHIBIT A
FORM OF INVESTOR REGISTRATION RIGHTS AGREEMENT
----------------------------------------------
EXHIBIT B
FORM OF ESCROW AGREEMENT
------------------------
EXHIBIT C
SECURITY AGREEMENT
------------------
EXHIBIT D
PLEDGE AND ESCROW AGREEMENT
---------------------------
EXHIBIT E
IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
---------------------------------------
EXHIBIT F
DISCLOSURE SCHEDULE
-------------------
SCHEDULE I
----------
SCHEDULE OF BUYERS
------------------
Address/Facsimile Amount of
Name Signature Number of Buyer Subscription
---- --------- --------------- ------------
Cornell Capital Partners, LP By: Yorkville Advisors, LLC 000 Xxxxxx Xxxxxx - Xxxxx 0000 $2,300,000
Its: General Partner Xxxxxx Xxxx, XX 00000
Facsimile: (000) 000-0000
By:__________________________
Name: Xxxx Xxxxxx
Its: Portfolio Manager
With a copy to: Xxxx Xxxxx, Esq. 000 Xxxxxx Xxxxxx - Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Facsimile: (000) 000-0000
