EXHIBIT 10.5
SECURITIES PURCHASE AGREEMENT
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THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of November
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___, 2005, by and among NS8 CORPORATION, a Delaware corporation (the "Company"),
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and the Buyers listed on Schedule I attached hereto (individually, a "Buyer" or
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collectively "Buyers").
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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
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the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act
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of 1933, as amended (the "Securities Act");
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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 Three Million One
Hundred Sixty Three Thousand Four Hundred Thirty Dollars ($3,163,430) of secured
convertible debentures (the "Convertible Debentures"), which shall be
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convertible into shares of the Company's common stock, par value $0.0001 (the
"Common Stock") (as converted, the "Conversion Shares"), of which the aggregate
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amount of One Million Eight Hundred Sixty Three Thousand Four Hundred Thirty
Dollars ($1,863,430) was previously funded pursuant to the promissory note
issued by the Company to the Buyer on May 27, 2005 and the promissory note
issued by the Company to the Buyer on June 9, 2004 (consisting of outstanding
principal along with accrued and unpaid interest), Five Hundred Thousand Dollars
shall be funded on the fifth (5th) business day following the date hereof (the
"First Closing"), Five Hundred Thousand Dollars ($500,000) shall be funded two
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(2) business days prior to the date the registration statement (the
"Registration Statement") is filed, pursuant to the Investor Registration Rights
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Agreement dated the date hereof, with the United States Securities and Exchange
Commission (the "SEC") (the "Second Closing") and Three Hundred Thousand Dollars
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($300,000) shall be funded on the fifth (5th) business day following the date
the Registration Statement is declared effective by the SEC (the "Third
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Closing") (individually referred to as a "Closing" collectively referred to as
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the "Closings"), for a total purchase price of up to Three Million One Hundred
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Sixty Three Thousand Four Hundred Thirty Dollars ($3,163,430), (the "Purchase
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Price") in the respective amounts set forth opposite each Buyer(s) name on
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Schedule I (the "Subscription Amount");
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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
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Registration Rights Agreement") pursuant to which the Company has agreed to
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provide certain registration rights under the Securities Act and the rules and
regulations promulgated there under, and applicable state securities laws;
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;
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WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering an Amended and
Restated Security Agreement substantially in the form attached hereto as Exhibit
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C (the "Security Agreement") pursuant to which the Company has agreed to provide
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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 Subsidiary 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
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and Escrow Agreement") pursuant to which the Company has agreed to provide the
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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 Subsidiary 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
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"Irrevocable Transfer Agent Instructions"); and
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WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto and CanOnline Media Corporation, a British
Columbia corporation, and CanOnline Global Media Inc., a Washington corporation,
each a wholly owned subsidiary of the Company (the "Subsidiaries"), is executing
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and delivering a security agreement substantially in the form attached hereto as
Exhibit F (collectively, the "Subsidiary Security Agreement") pursuant to which
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the Company and the Subsidiaries have agreed to provide the Buyer a security
interest in Pledged Collateral (as this term is defined in the Subsidiary
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 Subsidiary
Security Agreement, the Pledge and Escrow Agreement or any other obligations of
the Company to the Buyer.
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.
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(a) Purchase of Convertible Debentures. Subject to the satisfaction
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(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
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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 NS8 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
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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"), the Second Closing of the
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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") and the Third Closing of the purchase and sale of
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the Convertible Debentures shall take place at 10:00 a.m. Eastern Standard Time
on the fifth (5th) business day following the date the Registration Statement is
declared effective by the SEC, subject to notification of satisfaction of the
conditions to the Third 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 "Third Closing Date") (collectively referred to a the "Closing Dates").
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The Closings shall occur on the respective Closing Dates at the offices of
Yorkville Advisors, LLC, 000 Xxxxxx Xxxxxx, Xxxxx 0000, Xxxxxx Xxxx, Xxx Xxxxxx
00000 (or such other place as is mutually agreed to by the Company and the
Buyer(s)).
(c) Escrow Arrangements; Form of Payment. Upon execution hereof by
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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
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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
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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) 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.
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Each Buyer represents and warrants, severally and not jointly, that:
(a) Investment Purpose. Each Buyer is acquiring the Convertible
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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
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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"
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as that term is defined in Rule 501(a)(3) of Regulation D.
(c) Reliance on Exemptions. Each Buyer understands that the
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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
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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.
Each Buyer is in a position regarding the Company, which, based upon employment,
family relationship or economic bargaining power, enabled and enables such Buyer
to obtain information from the Company in order to evaluate the merits and risks
of this investment. Each Buyer has sought such accounting, legal and tax
advice, as it has considered necessary to make an informed investment decision
with respect to its acquisition of the Convertible Debentures and the Conversion
Shares.
(e) No Governmental Review. Each Buyer understands that no United
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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
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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
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under the Securities Act (or a successor rule thereto) ("Rule 144") may be made
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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
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instruments representing the Convertible Debentures and or the Conversion Shares
shall bear a restrictive legend in substantially the following form (and a stop
-transfer order may be placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED SOLELY FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARD RESALE AND MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS.
The legend set forth above shall be removed and the Company within two (2)
business days shall issue a certificate without such legend to the holder of the
Conversion Shares upon which it is stamped, if, unless otherwise required by
state securities laws, (i) in connection with a sale transaction, provided the
Conversion Shares are registered under the Securities Act or (ii) in connection
with a sale transaction, after such holder provides the Company with an opinion
of counsel, which opinion shall be in form, substance and scope customary for
opinions of counsel in comparable transactions, to the effect that a public
sale, assignment or transfer of the Conversion Shares may be made without
registration under the Securities Act.
(h) Authorization, Enforcement. This Agreement has been duly and
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validly authorized, executed and delivered on behalf of such Buyer and is a
valid and binding agreement of such Buyer enforceable in accordance with its
terms, except as such enforceability may be limited by general principles of
equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
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(i) Receipt of Documents. Each Buyer and his or its counsel has
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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 December 31, 2004; (iv) the
Company's Form 10-QSB for the fiscal quarter ended June 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
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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
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had the opportunity to review this Agreement and the transactions contemplated
by this Agreement with his or its own legal counsel and investment and tax
advisors. Each Buyer is relying solely on such counsel and advisors and not on
any statements or representations of the Company or any of its representatives
or agents for legal, tax or investment advice with respect to this investment,
the transactions contemplated by this Agreement or the securities laws of any
jurisdiction.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
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The Company represents and warrants to each of the Buyers that, except as
set forth in the SEC Documents (as defined herein):
(a) Organization and Qualification. The Company and its subsidiaries
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are corporations duly organized and validly existing in good standing under the
laws of the jurisdiction in which they are incorporated, and have the requisite
corporate power to own their properties and to carry on their business as now
being conducted. Each of the Company and its subsidiaries is duly qualified as
a foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted by it makes such
qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse effect on the
Company and its subsidiaries taken as a whole.
(b) Authorization, Enforcement, Compliance with Other Instruments. (i)
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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, the Warrants of even date herewith issued by the
Company to the Buyer and any related agreements (collectively the "Transaction
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Documents") and to issue the Convertible Debentures and the Conversion Shares in
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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
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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
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of the Company consists of 500,000,000 shares of Common Stock, par value $0.0001
and 5,000,000 shares of Preferred Stock, par value $0.0001 ("Preferred Stock").
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As of August 18, 2005, 104,390,721 shares of Common Stock were issued and
7,100,722 shares of Common Stock were issued and outstanding for unexchanged
shares of CanOnline Global Media, Inc. and zero shares of Preferred Stock are
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 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) except as otherwise disclosed in the
SEC Documents, 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 Securities
Act (except pursuant to the Registration Rights Agreement) and (iv) except for
the letter dated July 8, 2005, 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
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
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date hereof (the "By-laws"), and the terms of all securities convertible into or
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exercisable for Common Stock and the material rights of the holders thereof in
respect thereto other than stock options issued to employees and consultants.
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(d) Issuance of Securities. The Convertible Debentures are duly
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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. The execution, delivery and performance of the
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Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby will not (i) result in a violation of the
Articles of Incorporation, any certificate of designations of any outstanding
series of preferred stock of the Company or the By-laws or (ii) conflict with or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, or result
in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations and the rules and
regulations of The National Association of Securities Dealers Inc.'s OTC
Bulletin Board on which the Common Stock is quoted) applicable to the Company or
any of its subsidiaries or by which any property or asset of the Company or any
of its subsidiaries is bound or affected. Neither the Company nor its
subsidiaries is in violation of any term of or in default under its Articles of
Incorporation or By-laws or their organizational charter or by-laws,
respectively, or any material contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its subsidiaries. The business of the
Company and its subsidiaries is not being conducted, and shall not be conducted
in violation of any material law, ordinance, or regulation of any governmental
entity. Except as specifically contemplated by this Agreement and as required
under the Securities Act and any applicable 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. All consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof. The
Company and its subsidiaries are unaware of any facts or circumstance, which
might give rise to any of the foregoing.
(f) SEC Documents: Financial Statements. Since January 1, 2003, the
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Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC under the Securities Exchange Act of
1934, as amended (the "Exchange Act") (all of the foregoing filed prior to the
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date hereof or amended after the date 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
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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
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as to form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto. Such
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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
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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. There is no action, suit, proceeding,
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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) 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.
(i) Acknowledgment Regarding Buyer's Purchase of the Convertible
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Debentures. The Company acknowledges and agrees that the Buyer(s) is acting
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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.
(j) No General Solicitation. Neither the Company, nor any of its
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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
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affiliates, nor any person acting on its or their behalf has, directly or
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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
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subsidiaries is involved in any labor dispute nor, to the knowledge of the
Company or any of its subsidiaries, is any such dispute threatened. None of the
Company's or its subsidiaries' employees is a member of a union and the Company
and its subsidiaries believe that their relations with their employees are good.
(m) Intellectual Property Rights. The Company and its subsidiaries own
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or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service xxxx registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. The Company and its subsidiaries do not have any
knowledge of any infringement by the Company or its subsidiaries of trademark,
trade name rights, patents, patent rights, copyrights, inventions, licenses,
service names, service marks, service xxxx registrations, trade secret or other
similar rights of others, and, to the knowledge of the Company there is no
claim, action or proceeding being made or brought against, or to the Company's
knowledge, being threatened against, the Company or its subsidiaries regarding
trademark, trade name, patents, patent rights, invention, copyright, license,
service names, service marks, service xxxx registrations, trade secret or other
infringement; and the Company and its subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
(n) Environmental Laws. The Company and its subsidiaries 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 subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its subsidiaries.
(p) Insurance. The Company and each of its subsidiaries are insured by
---------
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its subsidiaries are
engaged. Neither the Company nor any such subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
EX-61
financial or otherwise, or the earnings, business or operations of the Company
and its subsidiaries, taken as a whole.
(q) Regulatory Permits. The Company and its subsidiaries possess all
-------------------
material certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.
(r) Internal Accounting Controls. The Company and each of its
------------------------------
subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, and (iii) the recorded amounts for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(s) No Material Adverse Breaches, etc. 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 disclosed in the Disclosure Schedule (the "Disclosure
----------
Schedule") attached hereto as Exhibit G, 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.
(t) Tax Status. 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.
(u) Certain Transactions. 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
EX-62
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 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 thirty
(30) 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.
EX-63
(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 One
Hundred Thirty Thousand Dollars ($130,000).
(ii) The Company shall pay a structuring fee to Yorkville Advisors
Management, LLC of Fifteen Thousand ($15,000), which shall be paid directly from
the proceeds of the First Closing.
(iii) The Company shall issue to the Buyer (A) a warrant to purchase
Five Million (5,000,000) shares of the Company's Common Stock for a period of
five (5) years at an exercise price of $0.075 per share, (B) a warrant to
purchase Ten Million (10,000,000) shares of the Company's Common Stock for a
period of five (5) years at an exercise price of $0.06 per share, and (C) a
warrant to purchase Ten Million (10,000,000) shares of the Company's Common
Stock for a period of five (5) years at an exercise price of $0.05 per share
(all the shares of Common Stock underlying the warrants in this Section shall
collectively be referred to as the "Warrant Shares"). The Warrant Shares shall
--------------
have "piggy-back" and demand registration rights.
(h) Corporate Existence. So long as any of the Convertible Debentures
--------------------
remain outstanding, the Company shall not directly or indirectly consummate any
merger, reorganization, restructuring, reverse stock split consolidation, sale
of all or substantially all of the Company's assets or any similar transaction
or related transactions (each such transaction, an "Organizational Change")
---------------------
unless, prior to the consummation an Organizational Change, the Company obtains
the written consent of each Buyer. In any such case, the Company will make
appropriate provision with respect to such holders' rights and interests to
insure that the provisions of this Section 4(h) will thereafter be applicable to
the Convertible Debentures.
(i) Transactions With Affiliates. So long as any Convertible
------------------------------
Debentures are outstanding, the Company shall not, and shall cause each of its
subsidiaries not to, enter into, amend, modify or supplement, or permit any
subsidiary to enter into, amend, modify or supplement any agreement,
transaction, commitment, or arrangement with any of its or any subsidiary's
officers, directors, person who were officers or directors at any time during
the previous two (2) years, stockholders who beneficially own five percent (5%)
or more of the Common Stock, or Affiliates (as defined below) or with any
individual related by blood, marriage, or adoption to any such individual or
with any entity in which any such entity or individual owns a five percent (5%)
EX-64
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 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), which shall not be unreasonably withheld (i)
issue or sell shares of Common Stock or Preferred Stock without consideration or
for a consideration per share less than 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. Notwithstanding the foregoing, the above
restriction shall not apply to only those holders of the Company's stock options
contained in the Stock Option Grants (the "Stock Option Grants") attached hereto
-------------------
as Exhibit F.
(l) 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) Rights of First Refusal. So long as any portion of Convertible
--------------------------
Debentures are outstanding, if the Company intends to raise additional capital
by the issuance or sale of capital stock of the Company, including without
limitation shares of any class of common stock, any class of preferred stock,
options, warrants or any other securities convertible or exercisable into shares
EX-65
of common stock (whether the offering is conducted by the Company, underwriter,
placement agent or any third party) the Company shall be obligated to offer to
the Buyers such issuance or sale of capital stock, by providing in writing the
principal amount of capital it intends to raise and outline of the material
terms of such capital raise, prior to the offering such issuance or sale of
capital stock to any third parties including, but not limited to, current or
former officers or directors, current or former shareholders and/or investors of
the obligor, underwriters, brokers, agents or other third parties. The Buyers
shall have ten (10) business days from receipt of such notice of the sale or
issuance of capital stock to accept or reject all or a portion of such capital
raising offer.
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. 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 two
(2) business days instruct its transfer agent to issue one or more certificates
in such name and in such denominations as specified by the Buyer. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Buyer by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5, that the Buyer(s) shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
EX-66
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 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
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. If requested
by the Buyer, the Buyer shall have received a certificate, executed by the
President of the Company, dated as of the Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by the Buyer
including, without limitation an update as of the Closing Date regarding the
representation contained in Section 3(c) above.
EX-67
(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
McGuireWoods, 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.
(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 as executed and medallion guaranteed stock 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 delivered to and acknowledged in
writing by 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,
EX-68
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.
(iv) The Company shall have increased its number of authorized shares
of Common Stock to a number satisfactory to the Buyers in its sole discretion.
(v) 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.
(vi) No default or event of default shall have occurred under any
Transaction Document.
(c) The obligation of the Buyer(s) hereunder to accept the Convertible
Debentures at the Third Closing is subject to the satisfaction, at or before the
Third 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
Third 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 Third 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 Third Closing Date, to the
foregoing effect and as to such other matters as may be reasonably requested by
EX-69
the Buyer including, without limitation an update as of the Third 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.
(iv) No default or event of default shall have occurred under any
Transaction Document.
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
-------------------
EX-70
and against any and all Indemnified Liabilities incurred by the Indemnitees or
any of them as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Buyer(s) in this Agreement, instrument or document contemplated hereby or
thereby executed by the Buyer, (b) any breach of any covenant, agreement or
obligation of the Buyer(s) contained in this Agreement, the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby executed by the Buyer, or (c) any cause of
action, suit or claim brought or made against such Company Indemnitee based on
material misrepresentations or due to a material breach and arising out of or
resulting from the execution, delivery, performance or enforcement of this
Agreement, the Investor Registration Rights Agreement or any other instrument,
document or agreement executed pursuant hereto by any of the 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 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
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Agreement may be waived or amended other than by an instrument in writing signed
by the party to be charged with enforcement.
(f) Notices. Any notices, consents, waivers, or other communications
-------
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon confirmation of receipt, when sent by facsimile;
(iii) three (3) days after being sent by U.S. certified mail, return receipt
requested, or (iv) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company, to: NS8 Corporation
000 Xxxxxxxxxx Xxxxxx - Xxxxx 0000
Xxxxxxx, XX 00000
Attention: Xxxxxxx Xxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: McGuireWoods, LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxxx, 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.
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(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;
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]
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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:
NS8 CORPORATION
By: /s/ Xxxxxxx Xxxx
Name: Xxxxxxx Xxxx
Title: CEO
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EXHIBIT A
FORM OF INVESTOR REGISTRATION RIGHTS AGREEMENT
----------------------------------------------
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EXHIBIT B
FORM OF ESCROW AGREEMENT
------------------------
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EXHIBIT C
SECURITY AGREEMENT
------------------
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EXHIBIT D
PLEDGE AND ESCROW AGREEMENT
---------------------------
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EXHIBIT E
IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
---------------------------------------
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EXHIBIT F
THE SUBSIDIARY AGREEMENT
------------------------
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EXHIBIT G
DISCLOSURE SCHEDULE
-------------------
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EXHIBIT F
DISCLOSURE SCHEDULE
-------------------
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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 $ 3,163,430
Its: General Partner Xxxxxx Xxxx, XX 00000
Facsimile: (000) 000-0000
By: /s/ Xxxx Xxxxxx
-----------------
Name: Xxxx Xxxxxx
Its: Portfolio Manager
With a copy to: Xxxxx Xxxxxxxx, Esq. 000 Xxxxxx Xxxxxx - Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Facsimile: (000) 000-0000
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