Exhibit 10.5
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") dated as of August
4, 2004 by and among U.S. HELICOPTER CORPORATION, a Delaware corporation (the
"Company") and the Buyers listed on Schedule I attached hereto (individually, a
"Buyer" or collectively "Buyers").
WITNESSETH:
WHEREAS, the Company and the Buyer(s) are executing and delivering this
Agreement in reliance upon an exemption from securities registration pursuant to
Section 4(2) and/or Rule 506 of Regulation D ("Regulation D") as promulgated by
the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 Act");
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Buyer(s),
as provided herein, and the Buyer(s) shall purchase One Million Three Hundred
Thousand Dollars ($1,300,000) of secured convertible debentures (the
"Convertible Debentures"), which shall be convertible into shares of the
Company's common stock, par value $0.001 per share (the "Common Stock") (as
converted, the "Conversion Shares"), of which One Million Dollars ($1,000,000)
shall be funded within five (5) business days hereof (the "First Closing"), and
Three Hundred Thousand Dollars ($300,000) shall be funded within five (5)
business days after the filing of a registration statement (the "Registration
Statement") pursuant to the Investor Registration Rights Agreement of even date
herewith, with the United States Securities and Exchange Commission (the "SEC")
(the "Second Closing") (collectively referred to as the "Closings"), for a total
purchase price of One Million Three Hundred Thousand Dollars ($1,300,000) (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 (the "Investor Registration Rights Agreement") pursuant to which the
Company has agreed to provide certain registration rights under the 1933 Act and
the rules and regulations promulgated there under, and applicable state
securities laws; and
WHEREAS, the aggregate proceeds of the sale of the Convertible Debentures
contemplated hereby shall be held in escrow pursuant to the terms of an Escrow
Agreement (the "Escrow Agreement") of even date herewith.
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering Irrevocable Transfer
Agent Instructions (the "Irrevocable Transfer Agent Instructions").
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Security Agreement
(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 Company's obligations
under this Agreement, the Convertible Debenture, the Investor Registration
Rights Agreement, the Irrevocable Transfer Agent Instructions, or any other
obligations of the Company to the Investor.
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Buyer(s) hereby agree
as follows:
1. PURCHASE AND SALE OF CONVERTIBLE DEBENTURES.
(a) Purchase of Convertible Debentures. Subject to the satisfaction
(or waiver) of the terms and conditions of this Agreement, each Buyer agrees,
severally and not jointly, to purchase at 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 "Xxxxxx
Xxxxxxxx LLP, as Escrow Agent for U.S. Helicopter Corporation/Cornell Capital
Partners, LP", which Subscription Amount shall be held in escrow pursuant to the
terms of the Escrow Agreement (as hereinafter defined) and disbursed in
accordance therewith.
(b) Closing Date. The First Closing of the purchase and sale of the
Convertible Debentures shall take place on or before the fifth (5th) business
day following the date hereof, subject to notification of satisfaction of the
conditions to the 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"), the Second Closing of the purchase and sale of the
Convertible Debentures shall take place on or before the fifth (5th) business
day after 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 a the "Closing Dates"). The Closing shall occur on the respective
Closing Dates at the offices of Xxxxxx Xxxxxxxx, LLP, 0000 Xxxxxx Xxxxxx, Xxxxx
000, Xxxxx, XX 00000 (or such other place as is mutually agreed to by the
Company and the Buyer(s)).
(c) Escrow Arrangements; Form of Payment. Upon execution hereof by
Buyer(s) and pending the 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 Xxxxxx Xxxxxxxx LLP, as escrow agent
(the "Escrow Agent"), pursuant to the terms of the Escrow Agreement. Subject to
the satisfaction of the terms and conditions of this Agreement, on the Closing
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 a structuring fee of
Ten Thousand Dollars ($10,000) to the Buyer pursuant to Section 4(g) hereof, a
structuring fee of Ten Thousand Dollars ($10,000) to the Buyer pursuant to
Section 12.4 of the Standby Equity Distribution Agreement of even date herewith
and the one-time commitment fee referenced in Section 4(g) hereof, all of which
shall be paid directly from the gross proceeds of the First Closing held in
escrow, and (ii) the Company shall deliver to each Buyer, Convertible
2
Debentures which such Buyer(s) is purchasing in amounts indicated opposite such
Buyer's name on Schedule I, duly executed on behalf of the Company.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants, severally and not jointly, that:
(a) Investment Purpose. Each Buyer is acquiring the Convertible
Debentures and, upon conversion of Convertible Debentures, the Buyer will
acquire the Conversion Shares then issuable, for its own account for investment
only and not with a view towards, or for resale in connection with, the public
sale or distribution thereof, except pursuant to sales registered or exempted
under the 1933 Act; and has no present or contemplated agreement, undertaking,
arrangement, obligation, indebtedness or commitment providing for the
disposition thereof; provided, however, that by making the representations
herein, such Buyer reserves the right to dispose of the Conversion Shares at any
time in accordance with or pursuant to an effective registration statement
covering such Conversion Shares or an available exemption under the 1933 Act.
(b) Accredited Investor Status. Each Buyer is an "Accredited
Investor" as that term is defined in Rule 501(a)(3) of Regulation D.
(c) Reliance on Exemptions. Each Buyer understands that the
Convertible Debentures are being offered and sold to it in reliance on specific
exemptions from the registration requirements of United States federal and state
securities laws and that the Company is relying in part upon the truth and
accuracy of, and such Buyer's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of such Buyer set forth herein in
order to determine the availability of such exemptions and the eligibility of
such Buyer to acquire such securities.
(d) Information. Each Buyer and its advisors (and his or, its
counsel), if any, have been furnished with all materials relating to the
business, finances and operations of the Company and information he deemed
material to making an informed investment decision regarding his purchase of the
Convertible Debentures and the Conversion Shares, which have been requested by
such Buyer. Each Buyer and its advisors, if any, have been afforded the
opportunity to ask questions of the Company and its management. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Section 3 below. Each Buyer understands that its investment in the
Convertible Debentures and the Conversion Shares involves a high degree of risk
and each Buyer has the financial wherewithal to lose its entire investment and
understands that it could lose its entire investment. Each Buyer is in a
position regarding the Company, which, based upon employment, family
relationship or economic bargaining power, enabled and enables such Buyer to
obtain information from the Company in order to evaluate the merits and risks of
this investment. Each Buyer has sought such accounting, legal and tax advice, as
it has considered necessary to make an informed investment decision with respect
to its acquisition of the Convertible Debentures and the Conversion Shares.
3
(e) No Governmental Review. Each Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Convertible
Debentures or the Conversion Shares, or the fairness or suitability of the
investment in the Convertible Debentures or the Conversion Shares, nor have such
authorities passed upon or endorsed the merits of the offering of the
Convertible Debentures or the Conversion Shares. Each Buyer understands and
acknowledges that the Company has undertaken and will undertake no efforts to
comply with any laws of any jurisdiction outside the United States relating to
the insurance and sale of its securities except as may be provided herein.
(f) Transfer or Resale. Each Buyer understands that except as
provided in the Investor Registration Rights Agreement: (i) the Convertible
Debentures have not been and are not being registered under the 1933 Act or any
state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder, or (B) such Buyer
shall have delivered to the Company an opinion of counsel, in a generally
acceptable form, to the effect that such securities to be sold, assigned or
transferred may be sold, assigned or transferred pursuant to an exemption from
such registration requirements; (ii) any sale of such securities made in
reliance on Rule 144 under the 1933 Act (or a successor rule thereto) ("Rule
144") may be made only in accordance with the terms of Rule 144 and further, if
Rule 144 is not applicable, any resale of such securities under circumstances in
which the seller (or the person through whom the sale is made) may be deemed to
be an underwriter (as that term is defined in the 0000 Xxx) may require
compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder. The Company reserves the right to place stop transfer
instructions against the shares and certificates for the Conversion Shares.
Additionally, each Buyer understands that the securities of the Company are not
listed on any Stock Exchange in the United States, Canada or elsewhere; that
there is currently no market through which the Committee Debenture and/or the
Conversion Shares may be traded and as such market is expected to develop.
(g) Legends. Each Buyer understands that the certificates or other
instruments representing the Convertible Debentures and or the Conversion Shares
shall bear a restrictive legend in substantially the following form (and a stop
transfer order may be placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN
ACQUIRED SOLELY FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
TOWARD RESALE AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS,
OR AN OPINION OF COUNSEL,
4
IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS.
The legend set forth above shall be removed and the Company within two (2)
business days shall issue a certificate without such legend to the holder of the
Conversion Shares upon which it is stamped, if, unless otherwise required by
state securities laws, (i) in connection with a sale transaction, provided the
Conversion Shares are registered under the 1933 Act, or (ii) in connection with
a sale transaction, after such holder provides the Company with an opinion of
counsel, which opinion shall be in form, substance and scope customary for
opinions of counsel in comparable transactions, to the effect that a public
sale, assignment or transfer of the Conversion Shares may be made without
registration under the 1933 Act.
(h) Authorization, Enforcement. This Agreement and all related
agreements are within Buyer's corporate power and have been duly and validly
authorized, executed and delivered on behalf of such Buyer and each is a valid
and binding agreement of such Buyer enforceable in accordance with its terms,
except as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies. All necessary corporate action has
been taken with respect to the Buyer to authorize and approve this Agreement and
all the related agreements, and Buyer is under no obligation to obtain any
approval, consent, or other action from any third party in order for Buyer to
consummate the transaction contemplated hereby.
(i) Receipt of Documents. Each Buyer and his or its counsel has
received and read in their entirety: (i) this Agreement and each representation,
warranty and covenant set forth herein, the Security Agreement, the Investor
Registration Rights Agreement, the Escrow Agreement, and the Irrevocable
Transfer Agent Instructions; (ii) all due diligence and other information
necessary to verify the accuracy and completeness of such representations,
warranties and covenants; (iii) answers to all questions each Buyer submitted to
the Company regarding an investment in the Company; and each Buyer has relied on
the information contained therein and has not been furnished any other
documents, literature, memorandum or prospectus. Buyer acknowledges and agrees
that the Company's representations and warranties are limited to exclusively
those expressly stated in this Agreement and exclude any and all statements made
in any other business plan, prospectus, projections, memorandum or other
document or in any oral communication.
(j) Due Formation of Corporate and Other Buyers. If the Buyer(s) is
a corporation, trust, partnership or other entity that is not an individual
person, it has been formed and validly exists and is in good standing in its
jurisdiction of formation and has not been organized for the specific purpose of
purchasing the Convertible Debentures and is not prohibited from doing so.
(k) No Legal Advice From the Company. Each Buyer acknowledges that
it had the opportunity to review this Agreement and the transactions
contemplated by this Agreement with his or its own legal counsel and investment
and tax advisors. Each Buyer is relying solely on such counsel and advisors and
not on any statements or representations of the
5
Company or any of its representatives or agents for legal, tax or investment
advice with respect to this investment, the transactions contemplated by this
Agreement or the securities laws of any jurisdiction.
(l) No Buyer makes any representation or warranty regarding the
Company's ability to successfully become a public company or to have any
registration statement filed by the Company pursuant to the Registration Rights
Agreement or otherwise declared effective by the SEC. The Company has the sole
obligation to make any and all such filings as may be necessary to become a
public company and to have any registration statement declared effective by the
SEC.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that, except as
set forth in the Disclosure Schedule attached as Exhibit "A" hereto:
(a) Organization and Qualification. The Company and its subsidiaries
(if any) are corporations duly organized and validly existing in good standing
under the laws of the jurisdiction in which they are incorporated, and have the
requisite corporate power to own their properties and to carry on their business
as now being conducted. The Company will within 30 days after the First Closing
become duly qualified as a foreign corporation to do business and in good
standing in every jurisdiction in which the nature of the business conducted by
it makes such qualification necessary, promptly after the First Closing and
except to the extent that the failure to be so qualified or be in good standing
would not have a material adverse effect on the Company and its subsidiaries
taken as a whole.
(b) Authorization, Enforcement, Compliance with Other Instruments.
(i) The Company has the requisite corporate power and authority to enter into
and perform this Agreement, the Security Agreement, the Investor Registration
Rights Agreement, the Escrow Agreement, the Irrevocable Transfer Agent
Instructions, and any related agreements, and to issue the Convertible
Debentures and the Conversion Shares in accordance with the terms hereof and
thereof, (ii) the execution and delivery of this Agreement, the Security
Agreement, the Investor Registration Rights Agreement, the Escrow Agreement, the
Irrevocable Transfer Agent Instructions (as defined herein) and any related
agreements by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including, without limitation, the issuance of
the Convertible Debentures the Conversion Shares and the reservation for
issuance and the issuance of the Conversion Shares issuable upon conversion or
exercise thereof, have been duly authorized by the Company's Board of Directors
and no further consent or authorization is required by the Company, its Board of
Directors or its stockholders, (iii) this Agreement, the Security Agreement, the
Investor Registration Rights Agreement, the Escrow Agreement, the Irrevocable
Transfer Agent Instructions and any related agreements have been duly executed
and delivered by the Company, (iv) this Agreement, the Security Agreement, the
Investor Registration Rights Agreement, the Escrow Agreement, the Irrevocable
Transfer Agent Instructions and any related agreements constitute the valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting
6
generally, the enforcement of creditors' rights and remedies. The authorized
officer of the Company executing this Agreement, the Security Agreement, the
Investor Registration Rights Agreement, the Escrow Agreement, the Irrevocable
Transfer Agent Instructions and any related agreements knows of no reason why
the Company cannot file the registration statement as required under the
Investor Registration Rights Agreement or perform any of the Company's other
obligations under such documents.
(c) Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of 100,000,000 shares of stock, of which (i)
95,000,000 shares are designated as Common Stock, of which 21,300,000 shares are
outstanding, and (ii) 5,000,0000 shares are designated as Preferred Stock of
which none are outstanding shares. All of such outstanding shares have been
validly issued and are fully paid and nonassessable. Except as disclosed in the
Disclosure Schedule no shares of Common Stock are subject to preemptive rights
or any other similar rights or any liens or encumbrances suffered or permitted
by the Company. Except as disclosed in the Disclosure Schedule and immediately
preceding the Closing, as of the date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its subsidiaries, (ii) there
are no outstanding debt securities and (iii) there are no agreements or
arrangements under which the Company or any of its subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act (except pursuant
to the Registration Rights Agreement) and (iv) there are no outstanding
registration statements and there are no outstanding comment letters from the
SEC or any other regulatory agency. There are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Convertible Debentures as described in this Agreement. The
Company has furnished to the Buyer true and correct copies of the Company's
Certificate of Incorporation, as amended and as in effect on the date hereof
(the "Certificate of Incorporation"), and the Company's By-laws, as in effect on
the date hereof (the "By-laws"), and the terms of all securities convertible
into or exercisable for Common Stock and the material rights of the holders
thereof in respect thereto other than stock options issued to employees and
consultants.
(d) Issuance of Securities. The Convertible Debentures are duly
authorized and, upon issuance in accordance with the terms hereof, shall be duly
issued, fully paid and nonassessable, are free from all taxes, liens and charges
with respect to the issue thereof. The Conversion Shares issuable upon
conversion of the Convertible Debentures have been duly authorized and reserved
for issuance. Upon conversion or exercise in accordance with the Convertible
Debentures the Conversion Shares will be duly issued, fully paid and
nonassessable.
(e) No Conflicts. Except as disclosed in the Disclosure Schedule,
the execution, delivery and performance of this Agreement, the Security
Agreement, the Investors Registration Rights Agreement, the Escrow Agreement and
the Irrevocable Transfer Agent Instructions by the Company and the consummation
by the Company of the transactions contemplated hereby will not (i) result in a
violation of the Certificate of Incorporation, any
7
certificate of designations of any outstanding series of preferred stock of the
Company or the By-laws or (ii) material conflict with or constitute a materially
default (or an event which with notice or lapse of time or both would become a
material default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, or result in a material
violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations) and applicable to the Company
or any of its subsidiaries or by which any property or asset of the Company or
any of its subsidiaries is bound or affected. Except as disclosed in the
Disclosure Schedule, neither the Company nor its subsidiaries is in violation of
any term of or in default under its Certificate of Incorporation or By-laws or
their organizational charter or by-laws, respectively, or material violation of
any material contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation applicable to the
Company or its subsidiaries. The business of the Company and its subsidiaries is
not being conducted, and shall not be conducted in material violation of any
material law, ordinance, or regulation of any governmental entity. Except as
specifically contemplated by this Agreement and as required under the 1933 Act
and any applicable state securities laws, the Company is not required to obtain
any consent, authorization or order of, or make any filing or registration with,
any court or governmental agency in order for it to execute, deliver or perform
any of its obligations under or contemplated by this Agreement or the
Registration Rights Agreement in accordance with the terms hereof or thereof.
Except as disclosed in the Disclosure Schedule, all consents, authorizations,
orders, filings and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected on or prior to
the date hereof. The Company and its subsidiaries are unaware of any facts or
circumstance, which might give rise to any of the foregoing.
(f) Financial Statements. The Company has supplied the Buyer with
the Company's unaudited balance sheet as of June 30, 2004 and unaudited income
statement for the period from inception through and including June 30, 2004 (the
"Financial Statements"). The Financial Statements are accompanied by a letter
from the Company's Chief Executive Officer or Treasurer confirming that the
Financial Statements are true, correct, and complete to the best of his
knowledge. The Financial Statements are subject to adjustments, footnote
disclosure, and the like consistent with year-end audit procedures.
(g) Absence of Litigation. Except as disclosed in the Disclosure
Schedule, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board, government agency, self-regulatory organization
or body pending against or affecting the Company, the Common Stock or any of the
Company's subsidiaries, wherein an unfavorable decision, ruling or finding would
(i) have a material adverse effect on the transactions contemplated hereby (ii)
adversely affect the validity or enforceability of, or the authority or ability
of the Company to perform its obligations under, this Agreement or any of the
documents contemplated herein, or (iii) except as expressly disclosed in the
Disclosure Schedule, have a material adverse effect on the business, operations,
properties, financial condition or results of operations of the Company and its
subsidiaries taken as a whole.
(h) Acknowledgment Regarding Buyer's Purchase of the Convertible
Debentures. The Company acknowledges and agrees that the Buyer(s) is acting
solely in the capacity of an arm's length purchaser with respect to this
Agreement and the transactions
8
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.
(i) No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 0000 Xxx) in connection with the offer or sale of the
Convertible Debentures or the Conversion Shares.
(j) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
Convertible Debentures or the Conversion Shares under the 1933 Act or cause this
offering of the Convertible Debentures or the Conversion Shares to be integrated
with prior offerings by the Company for purposes of the 1933 Act.
(k) Employee Relations. Neither the Company nor any of its
subsidiaries is involved in any labor dispute nor, to the knowledge of the
Company or any of its subsidiaries, is any such dispute threatened. None of the
Company's or its subsidiaries' employees is a member of a union and the Company
and its subsidiaries believe that their relations with their employees are good.
(l) Intellectual Property Rights. The Company and its subsidiaries
own or possess or are currently seeking to develop adequate rights or licenses
to use all trademarks, trade names, service marks, service xxxx registrations,
service names, patents, patent rights, copyrights, inventions, licenses,
approvals, governmental authorizations, trade secrets and rights necessary to
conduct their respective businesses as now conducted. The Company and its
subsidiaries do not have any knowledge of any infringement by the Company or its
subsidiaries of trademark, trade name rights, patents, patent rights,
copyrights, inventions, licenses, service names, service marks, service xxxx
registrations, trade secret or other similar rights of others, and, to the
knowledge of the Company there is no claim, action or proceeding being made or
brought against, or to the Company's knowledge, being threatened against, the
Company or its subsidiaries regarding trademark, trade name, patents, patent
rights, invention, copyright, license, service names, service marks, service
xxxx registrations, trade secret or other infringement; and the Company and its
subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing.
(m) Reserved.
(n) Reserved.
(o) Reserved.
9
(p) Reserved.
(q) Reserved.
(r) No Material Adverse Breaches, etc. Except as set forth in the
Disclosure Schedule, neither the Company nor any of its subsidiaries is subject
to any charter, corporate or other legal restriction, or any judgment, decree,
order, rule or regulation which in the judgment of the Company's officers has or
is expected in the future to have a material adverse effect on the business,
properties, operations, financial condition, results of operations or prospects
of the Company or its subsidiaries. Except as set forth in the Disclosure
Schedule, neither the Company nor any of its subsidiaries is in breach of any
contract or agreement which breach, in the judgment of the Company's officers,
has or is expected to have a material adverse effect on the business,
properties, operations, financial condition, results of operations or prospects
of the Company or its subsidiaries.
(s) Tax Status. Except as set forth in the Disclosure Schedule, the
Company and each of its subsidiaries has made and filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject and (unless and only to the extent that the
Company and each of its subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) has paid
all taxes and other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports and declarations,
except those being contested in good faith and has set aside on its books
provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.
(t) Certain Transactions. Except as set forth in the Disclosure
Schedule, and except for arm's length transactions pursuant to which the Company
makes payments in the ordinary course of business upon terms no less favorable
than the Company could obtain from third parties and other than the grant of
stock options disclosed in the Disclosure Schedule, none of the officers,
directors, or employees of the Company is presently a party to any transaction
with the Company (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
(u) Fees and Rights of First Refusal. The Company is not obligated
to offer the securities offered hereunder on a right of first refusal basis or
otherwise to any third parties including, but not limited to, current or former
shareholders of the Company, underwriters, brokers, agents or other third
parties.
(v) The Company acknowledges that the Buyer is relying on the
representations and warranties made by the Company hereunder and that such
representations and warranties are a material inducement to the Buyer purchasing
the Convertible Debentures.
10
The Company further acknowledges that without such representations and
warranties of the Company made hereunder, the Buyer would not enter into this
Agreement.
(w) General. As of the execution of this Agreement the Company (i)
neither owns nor leases any real property or facilities; (ii) is not party to
any contract or policy of insurance covering its business operations, personnel,
employees, liability or any facilities, except Directors and Officers coverage
to become effective promptly after the First Closing; and (iii) has not
obtained, and to the best of its knowledge is not required to obtain, any
regulatory materials, certificates, authorizations or permits for its present
status.
4. COVENANTS.
(a) Best Efforts. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.
(b) Form D. The Company agrees to file a Form D with respect to the
Conversion Shares as required under Regulation D and to provide a copy thereof
to each Buyer promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary to qualify the Conversion Shares, or obtain an exemption for the
Conversion Shares for sale to the Buyers at the Closing pursuant to this
Agreement under applicable securities or "Blue Sky" laws of the states of the
United States in all states in which the manual exemption is applicable plus up
to ten (10) additional states as designated by the Buyer, and shall provide
evidence of any such action so taken to the Buyers on or prior to the Closing
Date.
(c) Reporting Status. Commencing on the effectiveness of the
registration statement filed with the SEC pursuant to the Investor Registration
Rights Agreement and until the earlier of (i) the date as of which the Buyer(s)
may sell all of the Conversion Shares without restriction pursuant to Rule
144(k) promulgated under the 1933 Act (or successor thereto), or (ii) the date
on which (A) the Buyer(s) shall have sold all except 10% of the Conversion
Shares and (B) $100,000 principal amount of the Convertible Debentures are
outstanding (the "Registration Period"), the Company shall file in a timely
manner all reports required to be filed with the SEC pursuant to the 1934 Act
and the regulations of the SEC thereunder, and the Company shall not terminate
its status as an issuer required to file reports under the 1934 Act even if the
1934 Act or the rules and regulations thereunder would otherwise permit such
termination.
(d) Use of Proceeds. The Company will use the proceeds from the sale
of the Convertible Debentures for general corporate and working capital
purposes.
(e) Reservation of Shares. The Company shall take all action
reasonably necessary to at all times have authorized, and reserved for the
purpose of issuance, such number of shares of Common Stock as shall be necessary
to effect the issuance of the Conversion Shares. If at any time the Company does
not have available such shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all of the Conversion Shares of the
Company shall call and hold a special meeting of the shareholders within
forty-five (45) days of such occurrence, for the sole purpose of increasing the
number of shares authorized. The
11
Company's management shall recommend to the shareholders to vote in favor of
increasing the number of shares of Common Stock authorized. Management shall
also vote all of its shares in favor of increasing the number of authorized
shares of Common Stock.
(f) Listings or Quotation. The Company shall, concurrently with the
effectiveness of the registration statement filed with the SEC pursuant to the
Investor Registration Rights Agreement, use its best efforts to secure the
listing or quotation of its Common Stock (including, without limitation, the
Conversion Shares) upon a national securities exchange, automated quotation
system or the Over-The-Counter Bulletin Board ("OTCBB") maintained by the
National Association of Securities Dealers, Inc. The Company shall maintain the
listing or quotation of the Common Stock for so long as the Investor is the
beneficial owner of any Common Stock or Conversion Shares (whether obtained or
to be obtained under this Agreement), the Convertible Debentures or any other
agreement between the Company and the Buyer equivalent to $100,000 principal
amount of the Buyer's original purchase of the Convertible Debentures. The
Company shall use its best efforts to maintain the Common Stock's authorization
for quotation on the OTCBB.
(g) Fees and Expenses. Except as set forth below, each of the
Company and the Buyer(s) shall pay all costs and expenses incurred by such party
in connection with the negotiation, investigation, preparation, execution and
delivery of this Agreement, the Escrow Agreement, the Investor Registration
Rights Agreement, the Security Agreement and the Irrevocable Transfer Agent
Instructions. The Buyer(s) shall be entitled to a commitment fee of ten percent
(10%) on the Purchase Price paid directly from the gross proceeds held in
escrow.
The Company shall pay to the Buyer a one-time structuring fee of Ten
Thousand Dollars ($10,000) (the "Structuring Fee") in connection with this
transaction, which shall be paid directly from the gross proceeds of the First
Closing. The structuring fee shall be deemed fully earned on the date hereof.
(h) Corporate Existence. So long as at least $100,000 principal
amount of the Convertible Debentures 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 an
Organizational Change, the Company obtains the written consent of each Buyer not
to be unreasonably withheld. In any such case, the Company will make appropriate
provision with respect to such holders' rights and interests to insure that the
provisions of this Section 4(h) will thereafter be applicable to the Convertible
Debentures.
(i) Transactions With Affiliates. So long as at least $100,000
principal amount Convertible Debentures 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
12
individual owns a five percent (5%) or more beneficial interest (each a "Related
Party"), except for (a) customary employment arrangements and benefit programs
on reasonable terms, (b) any investment in an Affiliate of the Company, (c) any
agreement, transaction, commitment, or arrangement on an arms-length basis on
terms no less favorable than terms which would have been obtainable from a
person other than such Related Party, (d) any agreement transaction, commitment,
or arrangement which is approved by a majority of the disinterested directors of
the Company, for purposes hereof, any director who is also an officer of the
Company or any subsidiary of the Company shall not be a disinterested director
with respect to any such agreement, transaction, commitment, or arrangement.
"Affiliate" for purposes hereof means, with respect to any person or entity,
another person or entity that, directly or indirectly, (i) has a ten percent
(10%) or more equity interest in that person or entity, (ii) has ten percent
(10%) or more common ownership with that person or entity, (iii) controls that
person or entity, or (iv) shares common control with that person or entity.
"Control" or "controls" for purposes hereof means that a person or entity has
the power, direct or indirect, to conduct or govern the policies of another
person or entity.
(j) Transfer Agent. The Company covenants and agrees that, in the
event that the Company's agency relationship with the transfer agent should be
terminated for any reason prior to a date which is two (2) years after the
Closing Date, the Company shall promptly appoint a new transfer agent and shall
require that the new transfer agent execute and agree to be bound by the terms
of the Irrevocable Transfer Agent Instructions (as defined herein).
(k) Restriction on Issuance of the Capital Stock. So long as at
least $100,000 principal amount Convertible Debentures are outstanding, the
Company shall not, without the prior written consent of the Buyer(s) not to be
unreasonably withheld, issue or sell shares of Common Stock or Preferred Stock
(i) without consideration or for a consideration per share less than the Bid
Price of the Common Stock determined immediately prior to its issuance, (ii) any
warrant, option, right, contract, call, or other security instrument granting
the holder thereof, the right to acquire Common Stock without consideration or
for a consideration less than such Common Stock's Bid Price value determined
immediately prior to it's issuance, (iii) enter into any security instrument
granting the holder a security interest in any and all assets of the Company
(provided that the Company may enter into security agreements with a third party
(the "Third Party") relating to the purchase, lease, and/or financing of
equipment and the Buyer will subordinate the priority of Buyer's lien as a
secured party to the lien such Third Party specific to the equipment so
purchased, leased and/or financed), or (iv) file any registration statement on
Form S-8, except to register securities to be issued under the Company's 2004
Stock Incentive Plan. So long as at least $100,000 principal amount of the
Convertible Debentures remain outstanding, the Company covenants that it shall
not make any amendments, modifications or other changes to the 2004 Stock
Incentive Plan as in existence on the date hereof, including, without
limitation, increasing the number of shares of capital stock available for
issuance thereunder. .
(l) Financial and Accounting. Prior to the effective of the
Company's registration statement on Form SB-2, the Company will have instituted
and will be employing and maintaining customary internal accounting controls and
methods in its business operations sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
13
permit preparation or financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, and (iii) the
recorded amounts for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(m) Use of Proceeds. The Company covenants to the Investor that the
net proceeds to be received by the Company in this transaction shall be used in
a manner consistent with uses described in Schedule 4(m) hereto. The Company has
the discretion to deviate up to Ten Percent (10%) for any single line described
in schedule 4(m) hereto.
(n) Deferral of Compensation. The Company covenants and agrees that
it shall (i) not declare or pay bonuses and (ii) defer forty percent (40%) of
the base salary of Chief Executive Officer and Chief Marketing Officer, as
detailed in the Board Consent dated July 19, 2004, until sixty days after the
effectiveness of the Registration Statement filed with the SEC pursuant to the
Registration Rights Agreement of even date herewith. The Company covenants and
agrees that it shall (i) not declare or pay bonuses and (ii) defer twenty
percent (20%) of the base salary of Chief Financial Officer, as detailed in the
Board Consent dated July 19, 2004, until sixty days after the effectiveness of
the Registration Statement filed with the SEC pursuant to the Registration
Rights Agreement of even date herewith. The Company shall obtain letters
confirming such deferral from the officers specified above.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue the Irrevocable Transfer Agent Instructions to its
transfer agent irrevocably appointing Xxxxxx Xxxxxxxx LLP as its agent for
purpose of having certificates issued, registered in the name of the Buyer(s) or
its respective nominee(s), for the Conversion Shares representing such amounts
of Convertible Debentures as specified from time to time by the Buyer(s) to the
Company upon conversion of the Convertible Debentures, for interest owed
pursuant to the Convertible Debenture, and for any and all Liquidated Damages
(as this term is defined in the Investor Registration Rights Agreement). Xxxxxx
Xxxxxxxx LLP shall be paid a cash fee of Fifty Dollars ($50) for every occasion
they act pursuant to the Irrevocable Transfer Agent Instructions. As long as the
Buyer owns at least $100,000 principal amount of the Convertible Debentures the
Company shall not change its transfer agent without the express written consent
of the Buyer(s), not to be unreasonably withheld. Prior to registration of the
Conversion Shares under the 1933 Act, all such certificates shall bear the
restrictive legend specified in Section 2(g) of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(g) hereof (in the case of the Conversion Shares prior
to registration of such shares under the 0000 Xxx) will be given by the Company
to its transfer agent and that the Conversion Shares shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Investor Registration Rights Agreement.
Nothing in this Section 5 shall affect in any way the Buyer's obligations and
agreement to comply with all applicable securities laws upon resale of
Conversion Shares. If the Buyer(s) provides the Company with an opinion of
counsel, in form, scope and substance customary for opinions of counsel in
comparable transactions to the effect that registration of a resale by the
Buyer(s) of any of the Conversion Shares is not required under the 1933 Act, the
Company shall within two (2) business days instruct its transfer agent to issue
14
one or more certificates in such name and in such denominations as specified by
the Buyer. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Buyer by vitiating the intent and
purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 5 will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Section 5, that the Buyer(s)
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELLER.
The obligation of the Company hereunder to issue and sell the Convertible
Debentures to the Buyer(s) at the Closings is subject to the satisfaction, at or
before the Closing Dates, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion:
(a) Each Buyer shall have executed this Agreement, the Security
Agreement, the Escrow Agreement and the Investor Registration Rights Agreement
and the Irrevocable Transfer Agent Instructions and delivered the same to the
Company.
(b) The Buyer(s) shall have delivered to the Escrow Agent the
Purchase Price for Convertible Debentures in respective amounts as set forth
next to each Buyer as outlined on Schedule I attached hereto and the Escrow
Agent shall have delivered the net proceeds to the Company by wire transfer of
immediately available U.S. funds pursuant to the wire instructions provided by
the Company.
(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.
(d) 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).
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The obligation of the Buyer(s) hereunder to purchase the Convertible
Debentures at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that these
conditions are for the Buyer's sole benefit and may be waived by the Buyer(s) at
any time in its sole discretion:
(a) The Company shall have executed this Agreement, the Security
Agreement, the Convertible Debenture, the Escrow Agreement, the Irrevocable
Transfer
15
Instructions and the Investor Registration Rights Agreement, and delivered the
same to the Buyer(s).
(b) With regard to the Second Closing, the Company shall have filed
a registration statement with the SEC as described in the Investor Registration
Rights Agreement.
(c) The representations and warranties of the Company shall be true
and correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in Section
3 above, in which case, such representations and warranties shall be true and
correct without further qualification) as of the date when made and as of the
Closing Dates as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Dates. If requested
by the Buyer, the Buyer shall have received a certificate, executed by the
President of the Company, dated as of the Closing Dates, to the foregoing effect
and an update as of the Closing Dates regarding the representation contained in
Section 3(c) above.
(d) 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.
(e) The Buyer(s) shall have received an opinion of counsel in a form
satisfactory to the Buyer(s).
(f) The Company shall have provided to the Buyer(s) a certificate of
good standing from the Secretary of State of Delaware.
(g) As of each Closing Date, the Company shall have reserved out of
its authorized and unissued Common Stock, solely for the purpose of effecting
the conversion of the Convertible Debentures, shares of Common Stock to effect
the conversion of all of the Conversion Shares then outstanding.
(h) The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to the Buyer, shall have been delivered to and
acknowledged in writing by the Company's transfer agent been engaged.
(i) The Company shall have provided to the Investor an
acknowledgement, to the satisfaction of the Investor, from Xxxxx Xxxxxxxx, P.C.,
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.
(j) The Company shall have filed a form UCC - 1 with regard to the
Pledged Property and Pledged Collateral as detailed in the Security Agreement
and provided proof of such filing to the Buyer(s).
16
(k) The Company shall obtained the approval of its board of
directors and a majority of its outstanding shares of capital stock (voting as
separate classes, if required by applicable law) to increase its authorized
common stock to a number mutually acceptable to the Company and the Investor.
8. INDEMNIFICATION.
(a) In consideration of the Buyer's execution and delivery of this
Agreement and acquiring the Convertible Debentures and the Conversion Shares
hereunder, and in addition to all of the Company's other obligations under this
Agreement, the Company shall defend, protect, indemnify and hold harmless the
Buyer(s) and each other holder of the Convertible Debentures and the Conversion
Shares, and all of their officers, directors, employees and agents (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "Buyer Indemnitees") from and
against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Buyer Indemnitee is a party to the action for
which indemnification hereunder is sought), and including reasonable attorneys'
fees and disbursements (the "Indemnified Liabilities"), incurred by the Buyer
Indemnitees or any of them as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in this Agreement, the Convertible Debentures or the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement, or the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, or (c) any cause of action, suit or claim
brought or made against such Indemnitee and arising out of or resulting from the
execution, delivery, performance or enforcement of this Agreement or any other
instrument, document or agreement executed pursuant hereto by any of the
Indemnities, any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of the issuance of the Convertible
Debentures or the status of the Buyer or holder of the Convertible Debentures
the Conversion Shares, as a Buyer of Convertible Debentures in the Company. To
the extent that the foregoing undertaking by the Company may be unenforceable
for any reason, the Company shall make the maximum contribution to the payment
and satisfaction of each of the Indemnified Liabilities, which is permissible
under applicable law. This indemnification shall not apply to any Indemnified
Liabilities arising out of the willful or reckless actions or inactions of any
Buyer Indemnitee.
(b) In consideration of the Company's execution and delivery of this
Agreement, and in addition to all of the Buyer's other obligations under this
Agreement, the Buyer shall defend, protect, indemnify and hold harmless the
Company and all of its officers, directors, employees and agents (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "Company Indemnitees") from
and against any and all Indemnified Liabilities incurred by the Indemnitees or
any of them as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Buyer(s) in this Agreement, the Convertible Debentures or the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby executed by the Buyer, (b) any breach of any
covenant, agreement or obligation of the Buyer(s) contained in this Agreement,
the Investor Registration
17
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. This indemnification shall not apply to any Indemnified
Liabilities arising out of the willful or reckless actions or inactions of any
Company Indemnitee.
9. GOVERNING LAW: MISCELLANEOUS.
(a) Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New Jersey without
regard to the principles of conflict of laws. The parties further agree that any
action between them shall be heard exclusively in Xxxxxx County, New Jersey, and
expressly consent to the jurisdiction and venue of the Superior Court of New
Jersey, sitting in Xxxxxx County and the United States District Court for the
District of New Jersey sitting in Newark, New Jersey for the adjudication of any
civil action asserted pursuant to this Paragraph.
(b) Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature pages to be
physically delivered to the other party within five (5) days of the execution
and delivery hereof.
(c) Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
(e) Entire Agreement, Amendments. This Agreement supersedes all
other prior oral or written agreements between the Buyer(s), the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by an instrument in writing signed
by the party to be charged with enforcement.
18
(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: U.S. Helicopter Corporation
Downtown Manhattan Heliport
Pier 0, Xxxx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx X. Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Xxxxxxxxx, Xxxxxx & Xxxxxx
Princeton Xxxxxxxxx Village
000 Xxxxxxx Xxxx., Xxxxx 000
Xxxxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Transfer Agent, to: StockTrans, Inc.
0 X Xxxxxxxxx Xxxxxx
Xxxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
If to the Buyer(s), to its address and facsimile number on Schedule I,
with copies to the Buyer's counsel as set forth on Schedule I. Each party shall
provide five (5) days' prior written notice to the other party of any change in
address or facsimile number.
(g) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns.
Neither the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other party
hereto.
(h) No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
(i) Survival. Unless this Agreement is terminated under Section
9(l), the representations and warranties of the Company and the Buyer(s)
contained in Sections 2 and 3,
19
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 disclosure with respect to
such transactions required under applicable securities or other laws or
regulations (the Company shall use its best efforts to consult the Buyer(s) in
connection with any such press release or other public disclosure prior to its
release and Buyer(s) shall be provided with a copy thereof upon release
thereof).
(k) Further Assurances. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(l) Termination. In the event that the Closing shall not have
occurred with respect to the Buyers on or before five (5) business days from the
date hereof due to the Company's or the Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the non-breaching party's
failure to waive such unsatisfied condition(s)), the non-breaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of business on such date without liability of any party to any
other party.
(m) No Strict Construction. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
[REMAINDER PAGE INTENTIONALLY LEFT BLANK]
20
IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.
COMPANY:
U.S. HELICOPTER CORPORATION
By: /s/ Xxxx X. Xxxxxx
------------------------------------------
Name: Xxxx X. Xxxxxx
Title: President & CEO
THE BUYER'S(S') SIGNATURES ARE
CONTAINED ON SCHEDULE I HERETO
21
EXHIBIT A
DISCLOSURE SCHEDULE
DRAFT DATED
JULY 23, 2004
1:25 P.M.
EXHIBIT A
DISCLOSURE SCHEDULE
a. Organization and Qualification: None.
b. Authorization, Enforcement, Compliance with Other Instruments: None.
c. Capitalization:
1. The Company has adopted a 2004 Stock Incentive Plan and has reserved
the right to issue and sell up to 3,700,000 million shares of common stock
under such plan.
2. The Company has made commitments to the following individuals in
connection with such individuals serving on the Company's Board of
Directors:
Name Commitments
Xxxxxx Xxxx 231,000 stock options exercisable
at $ 0.50 per share.
d. Issuance of Securities: None.
e. No Conflicts: None.
f. Financial Statements: None.
g. Absence of Litigation: None.
h. Acknowledgement Regarding Buyer's Purchase of the Convertible Debentures:
None.
i. No General Solicitation: None.
j. No Integrated Offering: None.
k. Employee Relations: None.
l. Intellectual Property Rights:
1. The Company is aware that third parties are using the words, or
variations on, "U.S." and "Helicopter". None are known to the Company to
be using such words in the same style or format as the Company. The
Company may conduct its business in the future under a trade name other
than "U.S. Helicopter".
m. Reserved.
n. Reserved.
o. Reserved.
p. Reserved.
q. Reserved.
r. No Material Adverse Breaches, etc.: None.
s. Tax Status: None.
t. Certain Transactions:
1. The Company has letters of employment with respect to certain
individuals including Xxxx X. Xxxxxx, Xxxxxxx Xxxxxxx, Xxxxxx Xxxx, and
Xxxxx XxXxxxxxxx. The general description of these employment arrangements
are as follows; all of these individuals are eligible for stock options:
Name Title Salary
--------------- ------------------------------------------- -----------
Xxxx X. Xxxxxx President and Chief Executive Officer $225,000(1)
Xxxxxxx Xxxxxxx Vice President Finance and Administration $ 90,000(2)
Xxxxxx Xxxx Senior Vice President, Treasurer & CFO $130,000(2)
Xxxxx XxXxxxxxxx Senior Vice President, Chief Marketing Officer $130,000(2)
-------------
(1) Plus incentive plan providing for bonuses from 5% to 200% of salary
based on performance against plan from 95% of plan to 125% of plan.
(2) Bonus to be determined pursuant to a bonus plan to be adopted by the
Company's Board of Directors.
2. Xxxxx XxXxxxxxxx and Xxxx Xxxxxxx have provided certain consulting
services to the Company from its inception. In connection with the
provision of such consulting services they have an agreement with the
Company to receive 10% of the proceeds of any financings arranged with
Cornell Capital. It is anticipated that they will receive $100,000 of the
proceeds of the initial transaction with Cornell Capital. In addition,
McSullivan and Xxxxxxx are to receive 10% commissions relating to commuter
flights pre-sell seats and scheduled service pre-sell seats pursuant to an
agreement dated April 15, 2004 attached hereto.
3. Stock options to be issued to Xxxxxx Xxxx as set forth above.
4. Rue Xxxxxxxx is the Vice President Operation Services through August
31, 2004. He has been compensated with Company stock.
u. Fees and Rights of First Refusal: None.
v. None.
w. General: None.
3
US HELICOPTER
MARKETING SERVICES AGREEMENT APRIL 15 2004
Xxxx Xxxxxxx and Xxxxx XxXxxxxxxx terms: This document supercedes all previous
agreements.
1) Services: Xxxxxxx and McSullivan will function as marketing
consultants to US Helicopter (working title) and will assist the
company in building its business plan, structuring a marketing plan,
researching and securing candidates to pre-purchase inventory,
selection of board members, finalizing equipment leasing
arrangements, finalizing gate arrangements at major airports,
working with the TSA, FAA, NY, NJ Port Authority and others to
secure favorable terms for the company and finding financial leads
and commercial partners. The company management and the company
attorney will then meet with such financial leads and act to close
either equity or debt financing for the company.
2) Equity Distribution: Xxxx Xxxxxxx (JMC) and Xxxxx XxXxxxxxxx
(McSullivan), through their marketing efforts, will identify
financing sources for company management to negotiate and close with
the goal of obtaining a commitment for up to $10 Million in equity
or debt funding for US Helicopter. Should the company receive such a
commitment for all or part of the funding required to then launch
the business, the following will pertain:
- Cash - A commission of 10% of the debt or equity received from
JMC/McSullivan sources will be paid to JMC/McSullivan.
- Equity - In the event US Helicopter management decides to
commence commercial operations with funding of any amount
received through JMC/McSullivan sources, regardless of the
structure, then JMC/McSullivan will be granted 29% of the
stock in the company in compensation for all of the services
identified above. Such 29% can be diluted on the same terms
and conditions as all other equity held by other founding
shareholders in the company.
3) JMC will provide the following additional Services:
- Introductions to key individuals who can assist USH going
forward
- Serve as Advisory Board Member
- Board of Directors Member (Once D&O Insurance is in place)
- Work with USH on business aspects relating to funding,
pre-sell marketing and other business partnerships
As a board member, JMC will be entitled to receive 2% equity in USH. Such
2%will not be diluted during the original funding round.
4) Commuter Flights Pre-Sell Seats - JMC/McSullivan and sources will have the
responsibility to Pre-Sell seats on USH commuter flights at the beginning
and end of each business day. Activities will include research, target
audience selection, marketing/sales activities and contract signing with
customers
JMC/McSullivan will receive a commission on all seats sold by
JMC/McSullivan and sources (based on USH receiving certification) as
follows:
- Commission - - JMC/McSullivan will receive a commission of 10%
based on net revenue for Pre-Sold Commuter Seats, sold by
JMC/McSullivan
- JMC/McSullivan shall be eligible to receive a commission on
future agreements signed with these accounts for a period of
three (3) years as long as JMC/McSullivan are servicing these
accounts
- Payments to JMC/McSullivan by USH will take place on usage and
will to be tied to USH first year cash flow, however
JMC/McSullivan would receive at a minimum 50% of earned
commission in the first year and balance 50% paid in year two.
Scheduled Service Pre-Sell Seats - JMC/McSullivan and sources will
undertake a marketing effort to Pre-Sell seats on "all" Scheduled service
flights.
- JMC and McSullivan will receive a commission of 10% on
Pre-Sell seats sold by JMC/McSullivan prior to startup of
schedule service.
- Payment to JMC /McSullivan will be based on net ticket price
and will be tied to USH cash flow however, JMC would receive
at a minimum 75% of commission in the first year and the
balance 25% in year two
5) USH will enter into a Retainer Agreement with JMC for ongoing
marketing and or public relations services (to be agreed upon) that would
start immediately after full funding is completed at a rate of $5,000 per
month
Agreed to: April 15 2004
______________________________ __________________________________
By: Xxxx Xxxxxxx By: Xxxxx Xxxxxx
President Chief Executive Officer/President
JMC US Helicopter
______________________________ __________________________________
By: Xxxxx XxXxxxxxxx By: Xxxx Xxxxxxx or Rue Xxxxxxxx
2
SCHEDULE I
SCHEDULE OF BUYERS
ADDRESS/FACSIMILE
NAME SIGNATURE NUMBER OF BUYER AMOUNT OF SUBSCRIPTION
---------------------------- ---------------------------- ------------------------------ ------------------------------
Cornell Capital Partners, LP By: Yorkville Advisors, LLC 000 Xxxxxx Xxxxxx - Xxxxx 0000 $1,300,000($1,000,000 at First
Closing and $300,000
at Second Closing)
Its: General Partner Xxxxxx Xxxx, XX 00000
Facsimile: (000) 000-0000
By: /s/ Xxxx X. Xxxxxx With a copy to:
----------------------- Cornell Capital Partners, LP
Name: Xxxx X. Xxxxxx 000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxx: Portfolio Manager Xxxxxx Xxxx, XX 00000
Attention: Xxxx X. Xxxxx,Esq.
Facsimile: (000) 000-0000
