NOTE AND WARRANT PURCHASE
AGREEMENT
DATED AS OF AUGUST 11, 2006
BY AND AMONG
MANARIS CORPORATION
AND
THE PURCHASERS LISTED ON EXHIBIT A
TABLE OF CONTENTS
Page
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ARTICLE I PURCHASE AND SALE OF NOTES AND WARRANTS............................1
Section 1.1 Purchase and Sale of Notes and Warrants..................1
Section 1.2 Purchase Price and Closings..............................2
Section 1.3 Conversion Shares / Warrant Shares.......................2
ARTICLE II REPRESENTATIONS AND WARRANTIES.....................................2
Section 2.1 Representations and Warranties of the Company............2
Section 2.2 Representations and Warranties of the Purchasers........13
ARTICLE III COVENANTS.........................................................15
Section 3.1 Securities Compliance...................................15
Section 3.2 Registration and Listing................................15
Section 3.3 Inspection Rights.......................................16
Section 3.4 Compliance with Laws....................................16
Section 3.5 Keeping of Records and Books of Account.................16
Section 3.6 Reporting Requirements..................................16
Section 3.7 Other Agreements........................................16
Section 3.8 Use of Proceeds.........................................17
Section 3.9 Reporting Status........................................17
Section 3.10 Disclosure of Transaction...............................17
Section 3.11 Disclosure of Material Information......................17
Section 3.12 Pledge of Securities....................................17
Section 3.13 Amendments..............................................18
Section 3.14 Distributions...........................................18
Section 3.15 Reservation of Shares...................................18
Section 3.16 Transfer Agent Instructions.............................18
Section 3.17 Disposition of Assets...................................19
Section 3.18 Acquisition of Assets...................................19
Section 3.19 Restrictions on Certain Issuances of Securities.........19
Section 3.20 Outstanding Promissory Notes............................19
Section 3.21 DTC.....................................................19
Section 3.22 Subsequent Financings...................................19
ARTICLE IV CONDITIONS........................................................20
Section 4.1 Conditions Precedent to the Obligation of the
Company to Close and to Sell the Securities.............20
Section 4.2 Conditions Precedent to the Obligation of the
Purchasers to Close and to Purchase the Securities......21
ARTICLE V CERTIFICATE LEGEND................................................23
Section 5.1 Legend..................................................23
ARTICLE VI INDEMNIFICATION...................................................24
Section 6.1 General Indemnity.......................................24
TABLE OF CONTENTS
(continued)
Section 6.2 Indemnification Procedure....................................25
ARTICLE VII MISCELLANEOUS.....................................................26
Section 7.1 Fees and Expenses.......................................26
Section 7.2 Specific Performance; Consent to
Jurisdiction; Venue.....................................26
Section 7.3 Entire Agreement; Amendment.............................27
Section 7.4 Notices.................................................27
Section 7.5 Waivers.................................................28
Section 7.6 Headings................................................28
Section 7.7 Successors and Assigns..................................28
Section 7.8 No Third Party Beneficiaries............................28
Section 7.9 Governing Law...........................................28
Section 7.10 Survival................................................29
Section 7.11 Counterparts............................................29
Section 7.12 Publicity...............................................29
Section 7.13 Severability............................................29
Section 7.14 Further Assurances......................................29
NOTE AND WARRANT PURCHASE AGREEMENT
This NOTE AND WARRANT PURCHASE AGREEMENT dated as of August 11, 2006
(this "Agreement") by and among Manaris Corporation, a Nevada corporation (the
"Company"), and each of the purchasers of the series B subordinated secured
convertible promissory notes of the Company whose names are set forth on Exhibit
A attached hereto (each a "Purchaser" and collectively, the "Purchasers").
The parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF NOTES AND WARRANTS
Section 1.1 Purchase and Sale of Notes and Warrants.
(a) Upon the following terms and conditions, the Company shall issue
and sell to the Purchasers, and the Purchasers shall purchase (in the amounts
set forth as Exhibit A hereto) from the Company, (i) series B subordinated
secured convertible promissory notes in the aggregate principal amount of
$3,622,142.86, convertible into shares of the Company's common stock, par value
$0.00001 per share (the "Common Stock"), in substantially the form attached
hereto as Exhibit B-1 (the "Series B Notes"), and (ii) original issue discount
series B subordinated secured convertible promissory notes in the aggregate
principal amount equal to fifteen percent (15%) of the aggregate principal
amount of Series B Notes, convertible into shares of Common Stock, in
substantially the form attached hereto as Exhibit B-2 (the "OID Notes", and
together with the Series B Notes, the "Notes"). The Company and the Purchasers
are executing and delivering this Agreement in accordance with and in reliance
upon the exemption from securities registration afforded by Section 4(2) of the
U.S. Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder (the "Securities Act"), including Regulation D
("Regulation D"), and/or upon such other exemption from the registration
requirements of the Securities Act as may be available with respect to any or
all of the investments to be made hereunder.
(b) Upon the following terms and conditions, each Purchaser shall be
issued (i) Series Z Warrants, in substantially the form attached hereto as
Exhibit C-1 (the "Series Z Warrants") and (ii) Series Y Warrants, in
substantially the form attached hereto as Exhibit C-2 (the "Series Y Warrants"
and, together with the Series Z Warrants, the "Warrants"). The Series Z Warrants
shall entitle each Purchaser to purchase a number of shares of Common Stock
equal to thirty-seven and one-half percent (37.5%) of the number of Conversion
Shares (as defined in Section 1.3 hereof) issuable upon conversion of such
Purchaser's Series B Note on the date of issuance of such Series B Note. The
Series Y Warrants shall entitle each Purchaser to purchase a number of shares of
Common Stock equal to two and one-half percent (2.5%) of the number of
Conversion Shares issuable upon conversion of such Purchaser's Series B Note on
the date of issuance of such Series B Note. The Series Z Warrants shall have an
exercise price per share equal to $0.45 and the Series Y Warrants shall have an
exercise price per share equal to $0.65. Each of the Warrants shall have a term
of four (4) years following the effective date of the Registration Statement (as
defined in Section 1.2 hereof) providing for the resale of the
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Conversion Shares and the Warrant Shares (as defined in Section 1.3 hereof). The
number of shares of Common Stock issuable upon exercise of the Warrants issuable
to each Purchaser is set forth opposite such Purchaser's name on Exhibit A
attached hereto.
Section 1.2 Purchase Price and Closings. Subject to the terms and
conditions hereof, the Company agrees to issue and sell to the Purchasers and,
in consideration of and in express reliance upon the representations,
warranties, covenants, terms and conditions of this Agreement, the Purchasers,
severally but not jointly, agree to purchase the Notes and Warrants for an
aggregate purchase price of $3,622,142.86 (the "Purchase Price"). The Notes and
Warrants shall be sold and funded in two separate closings (each, a "Closing").
The initial Closing under this Agreement (the "Initial Closing") shall be funded
in the amount of $2,112,916.67 and shall take place on or about August 11, 2006
(the "Initial Closing Date"). The second Closing under this Agreement (the
"Second Closing") shall be funded in the amount of $1,509,226.19 and shall take
place no later than five (5) business days following the date that the
Securities and Exchange Commission (the "Commission") declares the registration
statement (the "Registration Statement") providing for the resale of the
Conversion Shares and the Warrant Shares effective (the "Second Closing Date").
The Initial Closing Date and the Second Closing Date are sometimes referred to
in this Agreement as the "Closing Date". Each Closing under this Agreement shall
take place at the offices of Xxxxxx Xxxxx Xxxxxxxx & Xxxxxxx LLP, 0000 Xxxxxx xx
xxx Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000 at 10:00 a.m. New York time; provided,
that all of the conditions set forth in Article IV hereof and applicable to such
Closing shall have been fulfilled or waived in accordance herewith. Subject to
the terms and conditions of this Agreement, at each Closing the Company shall
deliver or cause to be delivered to each Purchaser (x) its Notes for the
principal amount set forth opposite the name of such Purchaser on Exhibit A
hereto, (y) its Warrants to purchase such number of shares of Common Stock as is
set forth opposite the name of such Purchaser on Exhibit A attached hereto and
(z) any other documents required to be delivered pursuant to Article IV hereof.
At each Closing, each Purchaser shall deliver its Purchase Price by wire
transfer to an account designated by the Company.
Section 1.3 Conversion Shares / Warrant Shares. The Company has
authorized and has reserved and covenants to continue to reserve, free of
preemptive rights and other similar contractual rights of stockholders, a number
of its authorized but unissued shares of Common Stock equal to one hundred fifty
percent (150%) of the aggregate number of shares of Common Stock to effect the
conversion of the Notes and exercise of the Warrants as of the Initial Closing
Date. Any shares of Common Stock issuable upon conversion of the Notes are
herein referred to as the "Conversion Shares". Any shares of Common Stock
issuable upon exercise of the Warrants (and such shares when issued) are herein
referred to as the "Warrant Shares". The Notes, the Warrants, the Conversion
Shares and the Warrant Shares are sometimes collectively referred to herein as
the "Securities".
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Company. The
Company hereby represents and warrants to the Purchasers, as of the date hereof
and each Closing Date (except as set forth on the Schedule of Exceptions
attached hereto with each numbered Schedule corresponding to the section number
herein), as follows:
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(a) Organization, Good Standing and Power. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Nevada and has the requisite corporate power to own, lease
and operate its properties and assets and to conduct its business as it is now
being conducted. The Company does not have any Subsidiaries (as defined in
Section 2.1(g)) or own securities of any kind in any other entity except as set
forth on Schedule 2.1(g) hereto. The Company and each such Subsidiary (as
defined in Section 2.1(g)) 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 or property owned by it makes such qualification
necessary except for any jurisdiction(s) (alone or in the aggregate) in which
the failure to be so qualified will not have a Material Adverse Effect. For the
purposes of this Agreement, "Material Adverse Effect" means any material adverse
effect on the business, operations, properties, prospects, or financial
condition of the Company and its Subsidiaries and/or any condition,
circumstance, or situation that would prohibit or otherwise materially interfere
with the ability of the Company to perform any of its obligations under this
Agreement in any material respect.
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Notes, the Warrants, the Registration Rights Agreement by
and among the Company and the Purchasers, dated as of the date hereof,
substantially in the form of Exhibit D attached hereto (the "Registration Rights
Agreement"), the Pledge and Security Agreement by and among the Company and
C-Chip Technologies Corporation (North America), a wholly-owned subsidiary of
the Company ("C-Chip"), on the one hand, and the collateral agent on behalf of
the Purchasers, on the other hand, dated as of the date hereof, substantially in
the form of Exhibit E attached hereto (the "Pledge and Security Agreement"), the
Escrow Deposit Agreement by and among the Company, the placement agent and the
escrow agent named therein, dated as of the date hereof, substantially in the
form of Exhibit F-1 attached hereto (the "Escrow Deposit Agreement"), the
Securities Escrow Agreement by and among the Company, the placement agent and
the escrow agent named therein, dated as of the date hereof, substantially in
the form of Exhibit F-2 attached hereto (the "Securities Escrow Agreement" and
together with the Escrow Deposit Agreement, the "Escrow Agreements"), the Deed
of Hypothec by and between C-Chip and the collateral agent acting on behalf of
the Purchasers, dated as of the date hereof, substantially in the form of
Exhibit G attached hereto (the "Deed of Hypothec"), the Collateral Mortgage
Demand Bond by and between C-Chip and the collateral agent acting on behalf of
the Purchasers, dated as of the date hereof, substantially in the form of
Exhibit H attached hereto (the "Mortgage Bond"), the Pledge of Mortgage Bond by
and between C-Chip and the collateral agent acting on behalf of the Purchasers,
dated as of the date hereof, substantially in the form of Exhibit I attached
hereto (the "Pledge of Bond"), the Delivery Order executed by C-Chip dated as of
the date hereof substantially in the form of Exhibit J attached hereto (the
"Delivery Order"), and the Irrevocable Transfer Agent Instructions (as defined
in Section 3.16 hereof) (collectively, the "Transaction Documents"), and to
issue and sell the Securities in accordance with the terms hereof. The
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by it of the transactions contemplated thereby have been
duly and validly authorized by all necessary corporate action, and, except as
set forth on Schedule 2.1(b), no further consent or authorization of the
Company, its Board of Directors or stockholders is required. When executed and
delivered by the Company, each of the Transaction Documents shall constitute a
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, reorganization, moratorium, liquidation, conservatorship,
receivership or similar laws relating to, or affecting generally the enforcement
of, creditor's rights and remedies or by other equitable principles of general
application.
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(c) Capitalization. The authorized capital stock and the issued and
outstanding shares of capital stock of the Company as of the date hereof is set
forth on Schedule 2.1(c) hereto. All of the outstanding shares of the Common
Stock and any other outstanding security of the Company have been duly and
validly authorized. Except as set forth in this Agreement, the Commission
Documents (as defined in Section 2.1(f)) or as set forth on Schedule 2.1(c)
hereto, no shares of Common Stock or any other security of the Company are
entitled to preemptive rights or registration rights and there are no
outstanding options, warrants, scrip, rights to subscribe to, call or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company. Furthermore,
except as set forth in this Agreement and as set forth on Schedule 2.1(c)
hereto, there are no contracts, commitments, understandings, or arrangements by
which the Company is or may become bound to issue additional shares of the
capital stock of the Company or options, securities or rights convertible into
shares of capital stock of the Company. Except for customary transfer
restrictions contained in agreements entered into by the Company in order to
sell restricted securities or as provided on Schedule 2.1(c) hereto, the Company
is not a party to or bound by any agreement or understanding granting
registration or anti-dilution rights to any person with respect to any of its
equity or debt securities. Except as set forth on Schedule 2.1(c), the Company
is not a party to, and it has no knowledge of, any agreement or understanding
restricting the voting or transfer of any shares of the capital stock of the
Company.
(d) Issuance of Securities. The Notes and the Warrants to be issued
at the Closing have been duly authorized by all necessary corporate action and,
when paid for or issued in accordance with the terms hereof, the Notes shall be
validly issued and outstanding, free and clear of all liens, encumbrances and
rights of refusal of any kind. When the Conversion Shares and Warrant Shares are
issued and paid for in accordance with the terms of this Agreement and as set
forth in the Notes and Warrants, such shares will be duly authorized by all
necessary corporate action and validly issued and outstanding, fully paid and
nonassessable, free and clear of all liens, encumbrances and rights of refusal
of any kind and the holders shall be entitled to all rights accorded to a holder
of Common Stock.
(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company, the performance by the Company of its
obligations under the Notes and the consummation by the Company of the
transactions contemplated hereby and thereby, (including the issuance of the
Securities as contemplated hereby) do not and will not (i) violate or conflict
with any provision of the Company's Articles of Incorporation (the "Articles")
or Bylaws (the "Bylaws"), each as amended to date, or any Subsidiary's
comparable charter documents, (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, mortgage, deed of trust, indenture, note, bond,
license, lease agreement, instrument or obligation to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries' respective properties or assets are bound, or (iii) result in a
violation of any federal, state, local or foreign statute, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Company or any of its Subsidiaries or by which
any property or asset of the Company or any of its Subsidiaries are bound or
affected, except, with respect to clauses (ii) and (iii) above for such
conflicts, defaults, terminations, amendments, acceleration, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect (excluding with respect to federal and state securities laws)).
Neither the Company nor any of its Subsidiaries is required under federal,
state, foreign or local law, rule or regulation 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 the Transaction Documents or issue and sell the Securities in
accordance with the terms hereof (other than any filings, consents and approvals
which may be required to be made by the Company under applicable state and
federal securities laws, rules or regulations or any registration provisions
provided in the Registration Rights Agreement).
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(f) Commission Documents, Financial Statements. The
Common Stock of the Company is registered pursuant to Section 12(b) or 12(g) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and except
as set forth on Schedule 2.1(f) hereto, the Company has timely filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the Commission pursuant to the reporting requirements of the Exchange
Act (all of the foregoing including filings incorporated by reference therein
being referred to herein as the "Commission Documents"). At the times of their
respective filings, the Form 10-QSB for the fiscal quarters ended March 31,
2006, December 31, 2005 and September 30, 2005 (collectively, the "Form 10-QSB")
and the Form 10-KSB for the fiscal year ended June 30, 2005 (the "Form 10-KSB")
complied in all material respects with the requirements of the Exchange Act and
the rules and regulations of the Commission promulgated thereunder, and the Form
10-QSB and Form 10-KSB did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. As of their respective dates, the financial
statements of the Company included in the Commission Documents complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the Commission. Such financial statements
have been prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis 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 not
include footnotes or may be condensed or summary statements), and fairly present
in all material respects the financial position of the Company and its
Subsidiaries as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments).
(g) Subsidiaries. Schedule 2.1(g) hereto sets forth each Subsidiary
of the Company, showing the jurisdiction of its incorporation or organization
and showing the percentage of each person's ownership of the outstanding stock
or other interests of such Subsidiary. For the purposes of this Agreement,
"Subsidiary" shall mean any corporation or other entity of which at least a
majority of the securities or other ownership interest having ordinary voting
power (absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other Subsidiaries. All of the
outstanding shares of capital stock of each Subsidiary have been duly authorized
and validly issued, and are fully paid and nonassessable. Except as set forth on
Schedule 2.1(g) hereto, there are no outstanding preemptive, conversion or other
rights, options, warrants or agreements granted or issued by or binding upon any
Subsidiary for the purchase or acquisition of any shares of capital stock of any
Subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital stock. Neither
the Company nor any Subsidiary is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of the
capital stock of any Subsidiary or any convertible securities, rights, warrants
or options of the type described in the preceding sentence except as set forth
on Schedule 2.1(g) hereto. Neither the Company nor any Subsidiary is party to,
nor has any knowledge of, any agreement restricting the voting or transfer of
any shares of the capital stock of any Subsidiary.
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(h) No Material Adverse Change. Since June 30, 2005, the Company has
not experienced or suffered any Material Adverse Effect, except as disclosed on
Schedule 2.1(h) hereto and as disclosed in its Commission Documents.
(i) No Undisclosed Liabilities. Except as disclosed on Schedule
2.1(i) hereto, neither the Company nor any of its Subsidiaries has incurred any
liabilities, obligations, claims or losses (whether liquidated or unliquidated,
secured or unsecured, absolute, accrued, contingent or otherwise) other than
those incurred in the ordinary course of the Company's or its Subsidiaries
respective businesses or which, individually or in the aggregate, are not
reasonably likely to have a Material Adverse Effect.
(j) No Undisclosed Events or Circumstances. Since June 30, 2005,
except as disclosed on Schedule 2.1(j) hereto, no event or circumstance has
occurred or exists with respect to the Company or its Subsidiaries or their
respective businesses, properties, prospects, operations or financial condition,
which, under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed.
(k) Indebtedness. Schedule 2.1(k) hereto sets forth as of the date
hereof all outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or Indebtedness for which the Company or any Subsidiary has
commitments. For the purposes of this Agreement, "Indebtedness" shall mean (a)
any liabilities for borrowed money or amounts owed in excess of $100,000 (other
than trade accounts payable incurred in the ordinary course of business), (b)
all guaranties, endorsements and other contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be reflected in
the Company's balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value of
any lease payments in excess of $25,000 due under leases required to be
capitalized in accordance with GAAP. Except as disclosed in the Commission
Documents or on Schedule 2.1(k) hereto, neither the Company nor any Subsidiary
is in default with respect to any Indebtedness.
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(l) Title to Assets. Each of the Company and the Subsidiaries has
good and valid title to all of its real and personal property reflected in the
Commission Documents, free and clear of any mortgages, pledges, charges, liens,
security interests or other encumbrances, except for those indicated on Schedule
2.1(l) hereto or such that, individually or in the aggregate, do not cause a
Material Adverse Effect. Any leases of the Company and each of its Subsidiaries
are valid and subsisting and in full force and effect.
(m) Actions Pending. There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or other proceeding pending
or, to the knowledge of the Company, threatened against the Company or any
Subsidiary which questions the validity of this Agreement or any of the other
Transaction Documents or any of the transactions contemplated hereby or thereby
or any action taken or to be taken pursuant hereto or thereto. Except as set
forth in the Commission Documents or on Schedule 2.1(m) hereto, there is no
action, suit, claim, investigation, arbitration, alternate dispute resolution
proceeding or other proceeding pending or, to the knowledge of the Company,
threatened against or involving the Company, any Subsidiary or any of their
respective properties or assets, which individually or in the aggregate, would
reasonably be expected, if adversely determined, to have a Material Adverse
Effect. There are no outstanding orders, judgments, injunctions, awards or
decrees of any court, arbitrator or governmental or regulatory body against the
Company or any Subsidiary or any officers or directors of the Company or
Subsidiary in their capacities as such, which individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect.
(n) Compliance with Law. The business of the Company and the
Subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as set forth in the Commission Documents or on Schedule
2.1(n) hereto or such that, individually or in the aggregate, the noncompliance
therewith could not reasonably be expected to have a Material Adverse Effect.
The Company and each of its Subsidiaries have all franchises, permits, licenses,
consents and other governmental or regulatory authorizations and approvals
necessary for the conduct of its business as now being conducted by it unless
the failure to possess such franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
(o) Taxes. The Company and each of the Subsidiaries has accurately
prepared and filed all federal, state and other tax returns required by law to
be filed by it, has paid or made provisions for the payment of all taxes shown
to be due and all additional assessments, and adequate provisions have been and
are reflected in the financial statements of the Company and the Subsidiaries
for all current taxes and other charges to which the Company or any Subsidiary
is subject and which are not currently due and payable. Except as disclosed on
Schedule 2.1(o) hereto or in the Commission Documents, none of the federal
income tax returns of the Company or any Subsidiary have been audited by the
Internal Revenue Service. The Company has no knowledge of any additional
assessments, adjustments or contingent tax liability (whether federal or state)
of any nature whatsoever, whether pending or threatened against the Company or
any Subsidiary for any period, nor of any basis for any such assessment,
adjustment or contingency.
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(p) Certain Fees. Except as set forth on Schedule 2.1(p) hereto, the
Company has not employed any broker or finder or incurred any liability for any
brokerage or investment banking fees, commissions, finders' structuring fees,
financial advisory fees or other similar fees in connection with the Transaction
Documents.
(q) Disclosure. Except for the transactions contemplated by this
Agreement, the Company confirms that neither it nor any other person acting on
its behalf has provided any of the Purchasers or their agents or counsel with
any information that constitutes or might constitute material, nonpublic
information. To the Company's knowledge, neither the representations and
warranties contained in Section 2.1 of this Agreement or the Schedules hereto
nor any other documents, certificates or instruments furnished to the Purchasers
by or on behalf of the Company or any Subsidiary in connection with the
transactions contemplated by this Agreement contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements made herein or therein, in the light of the circumstances under which
they were made herein or therein, not misleading.
(r) Operation of Business. Except as set forth on Schedule 2.1(r)
hereto, the Company and each of the Subsidiaries owns or possesses the rights to
all patents, trademarks, domain names (whether or not registered) and any
patentable improvements or copyrightable derivative works thereof, websites and
intellectual property rights relating thereto, service marks, trade names,
copyrights, licenses and authorizations which are necessary for the conduct of
its business as now conducted without any conflict with the rights of others.
(s) Environmental Compliance. Except as set forth on Schedule 2.1(s)
hereto or in the Commission Documents, the Company and each of its Subsidiaries
have obtained all material approvals, authorization, certificates, consents,
licenses, orders and permits or other similar authorizations of all governmental
authorities, or from any other person, that are required under any Environmental
Laws. "Environmental Laws" shall mean all applicable laws relating to the
protection of the environment including, without limitation, all requirements
pertaining to reporting, licensing, permitting, controlling, investigating or
remediating emissions, discharges, releases or threatened releases of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances,
materials or wastes, whether solid, liquid or gaseous in nature, into the air,
surface water, groundwater or land, or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
hazardous substances, chemical substances, pollutants, contaminants or toxic
substances, material or wastes, whether solid, liquid or gaseous in nature. To
the Company's knowledge, the Company has all necessary governmental approvals
required under all Environmental Laws as necessary for the Company's business or
the business of any of its subsidiaries. Except for such instances as would not
individually or in the aggregate have a Material Adverse Effect and to the
knowledge of the Company, there are no past or present events, conditions,
circumstances, incidents, actions or omissions relating to or in any way
affecting the Company or its Subsidiaries that violate or may violate any
Environmental Law after the Closing Date or that may give rise to any
environmental liability, or otherwise form the basis of any claim, action,
demand, suit, proceeding, hearing, study or investigation (i) under any
Environmental Law, or (ii) based on or related to the manufacture, processing,
distribution, use, treatment, storage (including without limitation underground
storage tanks), disposal, transport or handling, or the emission, discharge,
release or threatened release of any hazardous qubstance.
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(t) Books and Reaords; Internal Accounting Controls. The records and
documents of the Company and its Subsidiaries accurately reflect in all material
respects the information relating to the business of the Company and the
Subsidiaries, the location of their assets, and the nature of all transactions
giving rise to the obligations or accounts receivable of the Company or any
Subsidiary. The C/mpany and each of its Subsidiaries maintain a system of
internal accounting controls sufficient, in the judgment of the Compan9's board
of directors, to provide reasonable assurance that (i) transactions are executed
in accordance with management's gen%ral or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in #onformity with generally accepted accounting principles and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with man!gement's general or specific authorization and (iv) the
recorded accountability for assets is !ompared with the existing assets at
reasonable intervals and appropriate actions are taken with respect to any
differences.
(u) Material Agreements. Except for the Transaction Documents (with
respect to clause (i) only), as disclosed in the Commission Documents or as set
forth on Schedule 2.1(u) hereto, or as would not be reasonably likely to have a
Material Adverse Effect, (i) the Company and each of its Subsidiaries have
performed all obligations required to be performed by them to date under any
written or oral cmntract, instrument, agreement, commitment, obligation, plan or
arrangement, filed or required to be filed with the Commission (the "Material
Agreements"), (ii) neither the Company nor any of its Subsidiaries has received
any notice of default under any Material Agreement and, (iii) to the Company's
knowledge, neither the Company nor any of its Subsidiaries is in default under
any Material Agreement now in effect.
(v) Transactions with Affiliates. Except as set forth on Schedule
2.1(v) hereto and in the Commission Documents, there are no loans, leases,
agreements, contracts, royalty agreements, management contracts or arrangements
or other continuing transactions between (a) the Company, any Subsidiary or any
of their respective customers or suppliers on the one hand, and (b) on the other
hand, any officer, employee, consultant or director of the Company, or any of
its Subsidiaries, or any person owning at least 5% of the outstanding capital
stock of the Company or any Subsidiary or any member of the immediate family of
such officer, employee, consultant, director or stockholder or any corporation
or other entity controlled by such officer, employee, consultant, director or
stockholder, or a member of the immediate family of such officer, employee,
consultant, director or stockholder which, in each case, is required to be
disclosed in the Commission Documents or in the Company's most recently filed
definitive proxy statement on Schedule 14A, that is not so disclosed in the
Commission Documents or in such proxy statement.
(w) Securities Act of 1933. Based in material part upon the
representations herein of the Purchasers, the Company has complied and will
comply with all applicable federal and state securities laws in connection with
the offer, issuance and sale of the Securities hereunder. Neither the Company
nor anyone acting on its behalf, directly or indirectly, has or will sell, offer
to sell or solicit offers to buy any of the Securities or similar securities to,
or solicit offers with respect thereto from, or enter into any negotiations
relating thereto with, any person, or has taken or will take any action so as to
bring the issuance and sale of any of the Securities under the registration
provisions of the Securities Act and applicable state securities laws. Neither
the Company nor any of its affiliates, nor any person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the Securities Act) in connection with
the offer or sale of any of the Securities.
9
(x) Employees. Neither the Company nor any Subsidiary has any
collective bargaining arrangements or agreements covering any of its employees,
except as set forth on Schedule 2.1(x) hereto. Except as set forth on Schedule
2.1(x) hereto, neither the Company nor any Subsidiary has any employment
contract, agreement regarding proprietary information, non-competition
agreement, non-solicitation agreement, confidentiality agreement, or any other
similar contract or restrictive covenant, relating to the right of any officer,
employee or consultant to be employed or engaged by the Company or such
Subsidiary required to be disclosed in the Commission Documents that is not so
disclosed. No officer, consultant or key employee of the Company or any
Subsidiary whose termination, either individually or in the aggregate, would be
reasonably likely to have a Material Adverse Effect, has terminated or, to the
knowledge of the Company, has any present intention of terminating his or her
employment or engagement with the Company or any Subsidiary.
(y) Absence of Certain Developments. Except as set forth in the
Commission Documents or provided on Schedule 2.1(y) hereto, since June 30, 2005,
neither the Company nor any Subsidiary has:
(i) issued any stock, bonds or other corporate
securities or any right, options or warrants with respect thereto;
(ii) borrowed any amount in excess of $100,000 or
incurred or become subject to any other liabilities in excess of $100,000
(absolute or contingent) except current liabilities incurred in the ordinary
course of business which are comparable in nature and amount to the current
liabilities incurred in the ordinary course of business during the comparable
portion of its prior fiscal year, as adjusted to reflect the current nature and
volume of the business of the Company and its Subsidiaries;
(iii) discharged or satisfied any lien or encumbrance
in excess of $100,000 or paid any obligation or liability (absolute or
contingent) in excess of $100,000, other than current liabilities paid in the
ordinary course of business;
(iv) declared or made any payment or distribution of
cash or other property to stockholders with respect to its stock, or purchased
or redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock, in each case in excess of $50,000 individually or $100,000 in the
aggregate;
(v) sold, assigned or transferred any other tangible
assets, or canceled any debts or claims, in each case in excess of $100,000,
except in the ordinary course of business;
(vi) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights in excess of $100,000, or disclosed any proprietary
confidential information to any person except to customers in the ordinary
course of business or to the Purchasers or their representatives;
10
(vii) suffered any material losses or waived any
rights of material value, whether or not in the ordinary course of business, or
suffered the loss of any material amount of prospective business;
(viii) made any changes in employee compensation
except in the ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments
therefor that aggregate in excess of $100,000;
(x) entered into any material transaction, whether or
not in the ordinary course of business which has not been disclosed in the
Commission Documents;
(xi) made charitable contributions or pledges in
excess of $10,000;
(xii) suffered any material damage, destruction or
casualty loss, whether or not covered by insurance;
(xiii) experienced any material problems with labor
or management in connection with the terms and conditions of their employment;
or
(xiv) entered into an agreement, written or
otherwise, to take any of the foregoing actions.
(z) Investment Company Act Status. The Company is not,
and as a result of and immediately upon the Closing will not be, an "investment
company" or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
(aa) ERISA. No liability to the Pension Benefit Guaranty Corporation
has been incurred with respect to any Plan (as defined below) by the Company or
any of its Subsidiaries which is or would be materially adverse to the Company
and its Subsidiaries. The execution and delivery of this Agreement and the
issuance and sale of the Securities will not involve any transaction which is
subject to the prohibitions of Section 406 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or in connection with which a tax
could be imposed pursuant to Section 4975 of the Internal Revenue Code of 1986,
as amended, provided that, if any of the Purchasers, or any person or entity
that owns a beneficial interest in any of the Purchasers, is an "employee
pension benefit plan" (within the meaning of Section 3(2) of ERISA) with respect
to which the Company is a "party in interest" (within the meaning of Section
3(14) of ERISA), the requirements of Sections 407(d)(5) and 408(e) of ERISA, if
applicable, are met. As used in this Section 2.1(aa), the term "Plan" shall mean
an "employee pension benefit plan" (as defined in Section 3 of ERISA) which is
or has been established or maintained, or to which contributions are or have
been made, by the Company or any Subsidiary or by any trade or business, whether
or not incorporated, which, together with the Company or any Subsidiary, is
under common control, as described in Section 414(b) or (c) of the Code.
11
(bb) Independent Nature of Purchasers. The Company acknowledges that
the obligations of each Purchaser under the Transaction Documents are several
and not joint with the obligations of any other Purchaser, and no Purchaser
shall be responsible in any way for the performance of the obligations of any
other Purchaser under the Transaction Documents. The Company acknowledges that
the decision of each Purchaser to purchase Securities pursuant to this Agreement
has been made by such Purchaser independently of any other Purchaser and
independently of any information, materials, statements or opinions as to the
business, affairs, operations, assets, properties, liabilities, results of
operations, condition (financial or otherwise) or prospects of the Company or of
its Subsidiaries which may have made or given by any other Purchaser or by any
agent or employee of any other Purchaser, and no Purchaser or any of its agents
or employees shall have any liability to any Purchaser (or any other person)
relating to or arising from any such information, materials, statements or
opinions. The Company acknowledges that nothing contained herein, or in any
Transaction Document, and no action taken by any Purchaser pursuant hereto or
thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. The Company acknowledges that for reasons of
administrative convenience only, the Transaction Documents have been prepared by
counsel for the placement agent and such counsel does not represent the
Purchasers. The Company acknowledges that it has elected to provide all
Purchasers with the same terms and Transaction Documents for the convenience of
the Company and not because it was required or requested to do so by the
Purchasers and the Purchasers have retained their own counsel with respect to
the transactions contemplated hereby. The Company acknowledges that such
procedure with respect to the Transaction Documents in no way creates a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to the Transaction Documents or the transactions contemplated
hereby or thereby.
(cc) 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 cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the Securities Act in a manner that would prevent
the Company from selling the Securities pursuant to Regulation D and Rule 506
thereof under the Securities Act, nor will the Company or any of its affiliates
or subsidiaries take any action or steps that would cause the offering of the
Securities to be integrated with other offerings. The Company does not have any
registration statement pending before the Commission or currently under the
Commission's review. Except as set forth on Schedule 2.1(cc) hereto, since
December 1, 2005, the Company has not offered or sold any of its equity
securities or debt securities convertible into shares of Common Stock.
12
(dd) Xxxxxxxx-Xxxxx Act. The Company is in compliance with the
applicable provisions of the Xxxxxxxx-Xxxxx Act of 2002 (the "Xxxxxxxx-Xxxxx
Act"), and the rules and regulations promulgated thereunder, that are effective
and presently applicable to the Company and intends to comply with other
applicable provisions of the Xxxxxxxx-Xxxxx Act, and the rules and regulations
promulgated thereunder, upon the effectiveness and applicability of such
provisions with respect to the Company.
(ee) Dilutive Effect. The Company understands and acknowledges that
its obligation to issue Conversion Shares upon conversion of the Notes in
accordance with this Agreement and the Notes and its obligations to issue the
Warrant Shares upon the exercise of the Warrants in accordance with this
Agreement and the Warrants, is, in each case, absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interest of other stockholders of the Company.
(ff) Transfer Agent. The name, address, telephone number, fax
number, contact person and email address of the Company's current transfer agent
is set forth on Schedule 2.1(ff) hereto.
Section 2.2 Representations and Warranties of the Purchasers. Each
of the Purchasers hereby represents and warrants to the Company with respect
solely to itself and not with respect to any other Purchaser as follows as of
the date hereof and as of each Closing Date:
(a) Organization and Standing of the Purchasers. If the Purchaser is
an entity, such Purchaser is a corporation, limited liability company or
partnership duly incorporated or organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization.
(b) Authorization and Power. Each Purchaser has the requisite power
and authority to enter into and perform its obligations under the Transaction
Documents and to purchase the Securities being sold to it hereunder. The
execution, delivery and performance of the Transaction Documents by each
Purchaser and the consummation by it of the transactions contemplated hereby
have been duly authorized by all necessary corporate or partnership action, and
no further consent or authorization of such Purchaser or its Board of Directors,
stockholders, or partners, as the case may be, is required. When executed and
delivered by the Purchasers, the other Transaction Documents shall constitute
valid and binding obligations of each Purchaser enforceable against such
Purchaser in accordance with their terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, receivership or similar laws relating to, or
affecting generally the enforcement of, creditor's rights and remedies or by
other equitable principles of general application.
(c) No Conflict. The execution, delivery and performance of the
Transaction Documents by the Purchaser and the consummation by the Purchaser of
the transactions contemplated thereby and hereby do not and will not (i) violate
any provision of the Purchaser's charter or organizational documents, (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,
mortgage, deed of trust, indenture, note, bond, license, lease agreement,
instrument or obligation to which the Purchaser is a party or by which the
Purchaser's respective properties or assets are bound, or (iii) result in a
violation of any federal, state, local or foreign statute, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Purchaser or by which any property or asset of
the Purchaser are bound or affected, except, in all cases, other than violations
pursuant to clauses (i) or (iii) (with respect to federal and state securities
laws) above, except, for such conflicts, defaults, terminations, amendments,
acceleration, cancellations and violations as would not, individually or in the
aggregate, materially and adversely affect the Purchaser's ability to perform
its obligations under the Transaction Documents.
13
(d) Acquisition for Investment. Each Purchaser is purchasing the
Securities solely for its own account and not with a view to, or for sale in
connection with, public sale or distribution thereof. Each Purchaser does not
have a present intention to sell any of the Securities, nor a present
arrangement (whether or not legally binding) or intention to effect any
distribution of any of the Securities to or through any person or entity;
provided, however, that by making the representations herein, such Purchaser
does not agree to hold the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in accordance with
Federal and state securities laws applicable to such disposition. Each Purchaser
acknowledges that it (i) has such knowledge and experience in financial and
business matters such that Purchaser is capable of evaluating the merits and
risks of Purchaser's investment in the Company, (ii) is able to bear the
financial risks associated with an investment in the Securities and (iii) has
been given full access to such records of the Company and the Subsidiaries and
to the officers of the Company and the Subsidiaries as it has deemed necessary
or appropriate to conduct its due diligence investigation.
(e) Rule 144. Each Purchaser understands that the Securities must be
held indefinitely unless such Securities are registered under the Securities Act
or an exemption from registration is available. Each Purchaser acknowledges that
such person is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act ("Rule 144"),
and that such Purchaser has been advised that Rule 144 permits resales only
under certain circumstances. Each Purchaser understands that to the extent that
Rule 144 is not available, such Purchaser will be unable to sell any Securities
without either registration under the Securities Act or the existence of another
exemption from such registration requirement.
(f) General. Each Purchaser understands that the Securities are
being offered and sold in reliance on a transactional exemption from the
registration requirements of federal and state securities laws and the Company
is relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Purchaser set forth
herein in order to determine the applicability of such exemptions and the
suitability of such Purchaser to acquire the Securities. Each Purchaser
understands that no United States federal or state agency or any government or
governmental agency has passed upon or made any recommendation or endorsement of
the Securities.
(g) No General Solicitation. Each Purchaser acknowledges that the
Securities were not offered to such Purchaser by means of any form of general or
public solicitation or general advertising, or publicly disseminated
advertisements or sales literature, including (i) any advertisement, article,
notice or other communication published in any newspaper, magazine, Internet
website or similar media, or broadcast over television or radio, or (ii) any
seminar or meeting to which such Purchaser was invited by any of the foregoing
means of communications. Each Purchaser, in making the decision to purchase the
Securities, has relied upon independent investigation made by it and has not
relied on any information or representations made by third parties.
14
(h) Accredited Investor. Each Purchaser is an "accredited investor"
(as defined in Rule 501 of Regulation D), and such Purchaser has such experience
in business and financial matters that it is capable of evaluating the merits
and risks of an investment in the Securities. Such Purchaser is not required to
be registered as a broker-dealer under Section 15 of the Exchange Act and such
Purchaser is not a broker-dealer. Each Purchaser acknowledges that an investment
in the Securities is speculative and involves a high degree of risk.
(i) Certain Fees. The Purchasers have not employed any broker or
finder or incurred any liability for any brokerage or investment banking fees,
commissions, finders' structuring fees, financial advisory fees or other similar
fees in connection with the Transaction Documents.
(j) Independent Investment. Except as may be disclosed in any
filings made by a Purchaser with the Commission, no Purchaser has agreed to act
with any other Purchaser for the purpose of acquiring, holding, voting or
disposing of the Securities purchased hereunder for purposes of Section 13(d)
under the Exchange Act, and each Purchaser is acting independently with respect
to its investment in the Securities.
ARTICLE III
COVENANTS
The Company covenants with each Purchaser as follows, which covenants
are for the benefit of each Purchaser and their respective permitted assignees.
Section 3.1 Securities Compliance. The Company shall notify the
Commission in accordance with its rules and regulations, of the transactions
contemplated by any of the Transaction Documents and shall take all other
necessary action and proceedings as may be required and permitted by applicable
law, rule and regulation, for the legal and valid issuance of the Securities to
the Purchasers, or their respective subsequent holders.
Section 3.2 Registration and Listing. The Company shall cause its
Common Stock to continue to be registered under Sections 12(b) or 12(g) of the
Exchange Act, to comply in all respects with its reporting and filing
obligations under the Exchange Act, to comply with all requirements related to
any registration statement filed pursuant to this Agreement, and to not take any
action or file any document (whether or not permitted by the Securities Act or
the rules promulgated thereunder) to terminate or suspend such registration or
to terminate or suspend its reporting and filing obligations under the Exchange
Act or Securities Act, except as permitted herein. The Company will take all
action necessary to continue the listing or trading of its Common Stock on the
OTC Bulletin Board or other exchange or market on which the Common Stock is
trading. Subject to the terms of the Transaction Documents, the Company further
covenants that it will take such further action as the Purchasers may reasonably
request, all to the extent required from time to time to enable the Purchasers
to sell the Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144 promulgated under the
Securities Act. Upon the request of the Purchasers, the Company shall deliver to
the Purchasers a written certification of a duly authorized officer as to
whether it has complied with the issuer requirements of Rule 144.
15
Section 3.3 Inspection Rights. Provided the same would not be in
violation of Regulation FD, the Company shall permit, during normal business
hours and upon reasonable request and reasonable notice, each Purchaser or any
employees, agents or representatives thereof, so long as such Purchaser shall be
obligated hereunder to purchase the Notes or shall beneficially own any
Conversion Shares or Warrant Shares, for purposes reasonably related to such
Purchaser's interests as a stockholder, to examine the publicly available,
non-confidential records and books of account of, and visit and inspect the
properties, assets, operations and business of the Company and any Subsidiary,
and to discuss the publicly available, non-confidential affairs, finances and
accounts of the Company and any Subsidiary with any of its officers,
consultants, directors and key employees.
Section 3.4 Compliance with Laws. The Company shall comply, and
cause each Subsidiary to comply, with all applicable laws, rules, regulations
and orders, noncompliance with which would be reasonably likely to have a
Material Adverse Effect.
Section 3.5 Keeping of Records and Books of Account. The Company
shall keep and cause each Subsidiary to keep adequate records and books of
account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions of the Company and
its Subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 3.6 Reporting Requirements. If the Commission ceases making
the Company's periodic reports available via the Internet without charge, then
the Company shall furnish the following to each Purchaser so long as such
Purchaser shall be obligated hereunder to purchase the Securities or shall
beneficially own Securities:
(a) Quarterly Reports filed with the Commission on Form 10-QSB as
soon as practical after the document is filed with the Commission, and in any
event within five (5) days after the document is filed with the Commission;
(b) Annual Reports filed with the Commission on Form 10-KSB as soon
as practical after the document is filed with the Commission, and in any event
within five (5) days after the document is filed with the Commission; and
(c) Copies of all notices, information and proxy statements in
connection with any meetings that are, in each case, provided to holders of
shares of Common Stock, contemporaneously with the delivery of such notices or
information to such holders of Common Stock.
Section 3.7 Other Agreements. The Company shall not enter into any
agreement in which the terms of such agreement would restrict or impair the
right or ability to perform of the Company or any Subsidiary under any
Transaction Document.
16
Section 3.8 Use of Proceeds. The net proceeds from the sale of the
Securities hereunder shall be used by the Company for working capital and
general corporate purposes and not to redeem any Common Stock or securities
convertible, exercisable or exchangeable into Common Stock or to settle any
outstanding litigation; provided, however, the Company may use the net proceeds
from the sale of the Securities to redeem or prepay the outstanding secured
convertible promissory notes issued pursuant to the Purchase Agreement dated as
of February 2005 among the Company and the purchasers named therein.
Section 3.9 Reporting Status. So long as a Purchaser beneficially
owns any of the Securities, the Company shall timely file all reports required
to be filed with the Commission pursuant to the Exchange Act, 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 permit such termination.
Section 3.10 Disclosure of Transaction. The Company shall issue a
press release describing the material terms of the transactions contemplated
hereby (the "Press Release") on the day of each Closing but in no event later
than one hour after such Closing; provided, however, that if the Closing occurs
after 4:00 P.M. Eastern Time on any Trading Day, the Company shall issue the
Press Release no later than 9:00 A.M. Eastern Time on the first Trading Day
following the Closing Date. The Company shall also file with the Commission a
Current Report on Form 8-K (the "Form 8-K") describing the material terms of the
transactions contemplated hereby (and attaching as exhibits thereto this
Agreement, each form of Note, the Registration Rights Agreement, the Pledge and
Security Agreement, each form of Warrant, the Deed of Hypothec and the Press
Release) as soon as practicable following such Closing Date but in no event more
than two (2) Trading Days following such Closing Date, which Press Release and
Form 8-K shall be subject to prior review and reasonable comment by the
Purchasers. "Trading Day" means any day during which the principal exchange on
which the Common Stock is traded shall be open for trading.
Section 3.11 Disclosure of Material Information. The Company
covenants and agrees that neither it nor any other person acting on its behalf
has provided or will provide any Purchaser or its agents or counsel with any
information that the Company believes constitutes material non-public
information, unless prior thereto such Purchaser shall have executed a written
agreement regarding the confidentiality and use of such information. The Company
understands and confirms that each Purchaser shall be relying on the foregoing
representations in effecting transactions in securities of the Company.
Section 3.12 Pledge of Securities. The Company acknowledges that the
Securities may be pledged by a Purchaser in connection with a bona fide margin
agreement or other loan or financing arrangement that is secured by the
Securities. The pledge of Securities shall not be deemed to be a transfer, sale
or assignment of the Securities hereunder, and no Purchaser effecting a pledge
of the Securities shall be required to provide the Company with any notice
thereof or otherwise make any delivery to the Company pursuant to this Agreement
or any other Transaction Document; provided that a Purchaser and its pledgee
shall be required to comply with the provisions of Article V hereof in order to
effect a sale, transfer or assignment of Securities to such pledgee. At the
Purchasers' expense, the Company hereby agrees to execute and deliver such
documentation as a pledgee of the Securities may reasonably request in
connection with a pledge of the Securities to such pledgee by a Purchaser.
17
Section 3.13 Amendments. The Company shall not amend or waive any
provision of the Articles or Bylaws of the Company in any way that would
adversely affect exercise rights, voting rights, conversion rights, prepayment
rights or redemption rights of the holder of the Notes.
Section 3.14 Distributions. So long as any Notes or Warrants remain
outstanding, the Company agrees that it shall not (i) declare or pay any
dividends or make any distributions to any holder(s) of Common Stock or (ii)
purchase or otherwise acquire for value, directly or indirectly, any Common
Stock or other equity security of the Company.
Section 3.15 Reservation of Shares. So long as any of the Notes or
Warrants remain outstanding, the Company shall take all action necessary to at
all times have authorized and reserved for the purpose of issuance, one hundred
fifty percent (150%) of the aggregate number of shares of Common Stock needed to
provide for the issuance of the Conversion Shares and the Warrant Shares.
Section 3.16 Transfer Agent Instructions. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates, registered in the name of each Purchaser or its
respective nominee(s), for the Conversion Shares and the Warrant Shares in such
amounts as specified from time to time by each Purchaser to the Company upon
conversion of the Notes or exercise of the Warrants in the form of Exhibit K
attached hereto (the "Irrevocable Transfer Agent Instructions"). Prior to
registration of the Conversion Shares and the Warrant Shares under the
Securities Act, all such certificates shall bear the restrictive legend
specified in Section 5.1 of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 3.16 will be given by the Company to its transfer agent and that
the Conversion Shares and Warrant 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 Registration Rights Agreement. If a Purchaser provides the
Company with an opinion of counsel, in a generally acceptable form, to the
effect that a public sale, assignment or transfer of the Conversion Shares or
Warrant Shares may be made without registration under the Securities Act or the
Purchaser provides the Company with reasonable assurances that the Conversion
Shares or Warrant Shares can be sold pursuant to Rule 144 without any
restriction as to the number of securities acquired as of a particular date that
can then be immediately sold, the Company shall permit the transfer, and, in the
case of the Conversion Shares and the Warrant Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by such Purchaser and without any restrictive legend.
The Company acknowledges that a breach by it of its obligations under this
Section 3.16 will cause irreparable harm to the Purchasers 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 3.16 will be inadequate and agrees, in the event of a breach
or threatened breach by the Company of the provisions of this Section 3.16, that
the Purchasers shall be entitled, in addition to all other available remedies,
to an order and/or injunction restraining any breach and requiring immediate
issuance and transfer, without the necessity of showing economic loss and
without any bond or other security being required.
18
Section 3.17 Disposition of Assets. So long as the Notes remain
outstanding, neither the Company nor any subsidiary shall sell, transfer or
otherwise dispose of any of its properties, assets and rights including, without
limitation, its software and intellectual property, to any person except (i) for
sales of obsolete assets and sales to customers in the ordinary course of
business, (ii) with the prior written consent of the holders of a majority of
the principal amount of the Notes then outstanding; provided, however, that
written consent of the holders of a majority of the principal amount of the
Notes then outstanding shall not be required if the aggregate principal amount
of the Notes then outstanding is less than $3,000,000 or (iii) as security in
connection with the issuance of secured non-equity linked commercial debt which
shall rank senior to the Notes in an amount equal to the greater of (a)
$2,000,000 or (b) fifty percent (50%) of the Purchase Price.
Section 3.18 Acquisition of Assets. In the event the Company or any
Subsidiary acquires any assets or other properties, such assets or properties
shall constitute a part of the Collateral (as defined in the Pledge and Security
Agreement) and the Company shall take all action necessary to perfect the
Purchasers' security interest in such assets or properties pursuant to the
Pledge and Security Agreement; provided, however, that, without consent, the
Company or any Subsidiary may hereinafter acquire assets, properties, leases
(including corporations, partnerships, and other entities holding the foregoing)
for use in its business, directly or through subsidiaries, which may be secured
by the asset acquired (the "Senior Security Interest") and financed using cash
payments of the Company or any Subsidiary and up to $2,000,000 of secured
non-equity linked commercial debt. Said Senior Security Interest shall rank
senior to the security interest granted to the Purchasers pursuant to the Pledge
and Security Agreement.
Section 3.19 Restrictions on Certain Issuances of Securities. So
long as the Notes remain outstanding, the Company shall not issue any securities
that rank pari passu or senior to the Notes without the prior written consent of
a majority of the principal amount of the Notes outstanding at such time except
for secured non-equity linked commercial debt which shall rank senior to the
Notes in an amount equal to the greater of (a) $2,000,000 or (b) fifty percent
(50%) of the Purchase Price.
Section 3.20 Outstanding Promissory Notes. So long as the average
closing bid price of the Common Stock for the five (5) Trading Days preceding
the applicable notice date is less than $0.35, the Company shall not make any
payments of principal or interest in shares of Common Stock pursuant to the
outstanding secured convertible promissory notes issued pursuant to the Purchase
Agreement dated as of February 2005 among the Company and the purchasers named
therein.
Section 3.21 DTC. Not later than the effective date of the
Registration Statement, the Company shall use its best efforts to cause its
Common Stock to be eligible for transfer with a transfer agent pursuant to the
Depository Trust Company Automated Securities Transfer Program.
Section 3.22 Subsequent Financings.
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(a) For purposes of this Agreement, a "Subsequent Financing" shall
mean any offer or sale to, or exchange with (or other type of distribution to)
any third party of Common Stock or any securities convertible, exercisable or
exchangeable into Common Stock, including convertible debt securities. For
purposes of this Agreement, a Permitted Financing (as defined hereinafter) shall
not be considered a Subsequent Financing. A "Permitted Financing" shall mean (i)
securities issued pursuant to a bona fide firm underwritten public offering of
the Company's securities, (ii) securities issued pursuant to the conversion or
exercise of convertible or exercisable securities issued or outstanding on or
prior to the Initial Closing Date or issued pursuant to this Agreement (so long
as the conversion or exercise price in such securities are not amended to lower
such price and/or adversely affect the Purchasers), (iii) the Warrant Stock,
(iv) securities issued (other than for cash) in connection with an acquisition
of the Company, (v) any warrants issued to the placement agent for the
transactions contemplated by this Agreement or in connection with other
financial services rendered to the Company, (vi) securities issued in connection
with strategic license agreements and other partnering arrangements so long as
such issuances are not for the purpose of raising capital, (vii) the issuance of
Common Stock or the issuance or grants of options to purchase Common Stock
pursuant to the Company's stock option plans and employee stock purchase plans
outstanding on the Initial Closing Date and which have been approved by the
Company's Board of Directors, and (viii) the payment of any principal in shares
of Common Stock pursuant to the Notes.
(b) For a period of twelve (12) months following the effective date
of the Registration Statement, if the Company enters into any Subsequent
Financing on terms more favorable than the terms governing the Notes, then the
Purchasers in their sole discretion may exchange the Notes, valued at their
stated value, for the securities issued or to be issued in the Subsequent
Financing. The Company covenants and agrees to promptly notify in writing the
Purchasers of the terms and conditions of any such proposed Subsequent
Financing.
ARTICLE IV
CONDITIONS
Section 4.1 Conditions Precedent to the Obligation of the Company to
Close and to Sell the Securities. The obligation hereunder of the Company to
close and issue and sell the Securities to the Purchasers at each Closing is
subject to the satisfaction or waiver, at or before each Closing of the
conditions set forth below. These conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion.
(a) Accuracy of the Purchasers' Representations and Warranties. The
representations and warranties of each Purchaser shall be true and correct in
all material respects (except for those representations and warranties that are
qualified by materiality or Material Adverse Effect, which shall be true and
correct in all respects) as of the date when made and as of each Closing Date as
though made at that time, except for representations and warranties that are
expressly made as of a particular date, which shall be true and correct in all
material respects (except for those representations and warranties that are
qualified by materiality or Material Adverse Effect, which shall be true and
correct in all respects) as of such date.
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(b) Performance by the Purchasers. Each Purchaser shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Purchasers at or prior to each Closing Date.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(d) Delivery of Purchase Price. The Purchase Price for the
Securities shall have been delivered to the Company on each Closing Date.
(e) Delivery of Transaction Documents. The Transaction Documents
shall have been duly executed and delivered by the Purchasers and, with respect
to the Escrow Agreements, the applicable escrow agent, to the Company.
Section 4.2 Conditions Precedent to the Obligation of the Purchasers
to Close and to Purchase the Securities. The obligation hereunder of the
Purchasers to purchase the Securities and consummate the transactions
contemplated by this Agreement is subject to the satisfaction or waiver, at or
before each Closing, of each of the conditions set forth below. These conditions
are for the Purchasers' sole benefit and may be waived by the Purchasers at any
time in their sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each
of the representations and warranties of the Company in this Agreement and the
other Transaction Documents shall be true and correct in all material respects
(except for those representations and warranties that are qualified by
materiality or Material Adverse Effect, which shall be true and correct in all
respects) as of the date when made and as of each Closing Date as though made at
that time, except for representations and warranties that are expressly made as
of a particular date, which shall be true and correct in all material respects
(except for those representations and warranties that are qualified by
materiality or Material Adverse Effect, which shall be true and correct in all
respects) as of such date.
(b) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to each Closing Date.
(c) No Suspension, Etc. Trading in the Common Stock shall not have
been suspended by the Commission or the OTC Bulletin Board (except for any
suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the Closing), and, at any time prior to
the Closing Date, trading in securities generally as reported by Bloomberg
Financial Markets ("Bloomberg") shall not have been suspended or limited, or
minimum prices shall not have been established on securities whose trades are
reported by Bloomberg, or on the New York Stock Exchange, nor shall a banking
moratorium have been declared either by the United States or New York State
authorities, nor shall there have occurred any material outbreak or escalation
of hostilities or other national or international calamity or crisis of such
magnitude in its effect on, or any material adverse change in any financial
market which, in each case, in the judgment of such Purchaser, makes it
impracticable or inadvisable to purchase the Securities.
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(d) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(e) No Proceedings or Litigation. No action, suit or proceeding
before any arbitrator or any governmental authority shall have been commenced,
and no investigation by any governmental authority shall have been threatened,
against the Company or any Subsidiary, or any of the officers, directors or
affiliates of the Company or any Subsidiary seeking to restrain, prevent or
change the transactions contemplated by this Agreement, or seeking damages in
connection with such transactions.
(f) Opinion of Counsel. The Purchasers shall have received an
opinion of counsel to the Company, dated the date of each Closing, substantially
in the form of Exhibit L hereto, with such exceptions and limitations as shall
be reasonably acceptable to counsel to the Purchasers.
(g) Notes and Warrants. At each Closing, the Company shall have
delivered to the Purchasers the Notes (in such denominations as each Purchaser
may request) and the Warrants (in such denominations as each Purchaser may
request).
(h) Secretary's Certificate. The Company shall have delivered to the
Purchasers a secretary's certificate, dated as of each Closing Date, as to (i)
the resolutions adopted by the Board of Directors approving the transactions
contemplated hereby, (ii) the Articles, (iii) the Bylaws, each as in effect at
such Closing, and (iv) the authority and incumbency of the officers of the
Company executing the Transaction Documents and any other documents required to
be executed or delivered in connection therewith.
(i) Officer's Certificate. On each Closing Date, the Company shall
have delivered to the Purchasers a certificate signed by an executive officer on
behalf of the Company, dated as of each Closing Date, confirming the accuracy of
the Company's representations, warranties and covenants as of such Closing Date
and confirming the compliance by the Company with the conditions precedent set
forth in this Section 4.2 as of such Closing Date (provided that, with respect
to the matters in paragraphs (d) and (e) of this Section 4.2, such confirmation
shall be based on the knowledge of the executive officer after due inquiry).
(j) Registration Rights Agreement. As of the Initial Closing Date,
the Company shall have executed and delivered the Registration Rights Agreement
to each Purchaser.
(k) Transfer Agent Instructions. As of the Initial Closing Date, the
Irrevocable Transfer Agent Instructions, in the form of Exhibit K attached
hereto, shall have been delivered to the Company's transfer agent.
22
(l) Escrow Agreements. At the Initial Closing, the Company and the
applicable escrow agent shall have executed and delivered the Escrow Agreements
to each Purchaser.
(m) Pledge and Security Agreement. At the Initial Closing, the
Company shall have executed and delivered the Pledge and Security Agreement to
each Purchaser.
(n) UCC Financing Statements. At or prior to the Initial Closing,
the Company shall have filed all UCC financing statements in form and substance
satisfactory to the Purchasers at the appropriate offices to create a valid and
perfected security interest in the Collateral (as defined in the Pledge and
Security Agreement).
(o) Effective Registration Statement. With respect to the Second
Closing, the Registration Statement shall have been declared effective by the
Commission.
(p) Material Adverse Effect. No Material Adverse Effect shall have
occurred at or before each Closing Date.
ARTICLE V
CERTIFICATE LEGEND
Section 5.1 Legend. Each certificate representing the Securities
shall be stamped or otherwise imprinted with a legend substantially in the
following form (in addition to any legend required by applicable state
securities or "blue sky" laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE
SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR MANARIS
CORPORATION SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION
OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
The Company agrees to issue or reissue certificates representing any of
the Conversion Shares and the Warrant Shares, without the legend set forth above
if at such time, prior to making any transfer of any such Conversion Shares or
Warrant Shares, such holder thereof shall give written notice to the Company
describing the manner and terms of such transfer and removal as the Company may
reasonably request. Such proposed transfer and removal will not be effected
until: (a) either (i) the Company has received an opinion of counsel reasonably
satisfactory to the Company, to the effect that the registration of the
Conversion Shares or Warrant Shares under the Securities Act is not required in
connection with such proposed transfer, (ii) a registration statement under the
Securities Act covering such proposed disposition has been filed by the Company
with the Commission and has become effective under the Securities Act, (iii) the
Company has received other evidence reasonably satisfactory to the Company that
such registration and qualification under the Securities Act and state
securities laws are not required (which may include an opinion of counsel
provided by the Company), or (iv) the holder provides the Company with
reasonable assurances that such security can be sold pursuant to Rule 144 under
the Securities Act (which may include an opinion of counsel provided by the
Company); and (b) either (i) the Company has received an opinion of counsel
reasonably satisfactory to the Company, to the effect that registration or
qualification under the securities or "blue sky" laws of any state is not
required in connection with such proposed disposition, (ii) compliance with
applicable state securities or "blue sky" laws has been effected, or (iii) the
holder provides the Company with reasonable assurances that a valid exemption
exists with respect thereto (which may include an opinion of counsel provided by
the Company). The Company will respond to any such notice from a holder within
three (3) business days. In the case of any proposed transfer under this Section
5.1, the Company will use commercially reasonable efforts to comply with any
such applicable state securities or "blue sky" laws, but shall in no event be
required, (x) to qualify to do business in any state where it is not then
qualified, (y) to take any action that would subject it to tax or to the general
service of process in any state where it is not then subject, or (z) to comply
with state securities or "blue sky" laws of any state for which registration by
coordination is unavailable to the Company. The restrictions on transfer
contained in this Section 5.1 shall be in addition to, and not by way of
limitation of, any other restrictions on transfer contained in any other section
of this Agreement. Whenever a certificate representing the Conversion Shares or
Warrant Shares is required to be issued to a Purchaser without a legend, in lieu
of delivering physical certificates representing the Conversion Shares or
Warrant Shares, the Company shall cause its transfer agent to electronically
transmit the Conversion Shares or Warrant Shares to a Purchaser by crediting the
account of such Purchaser's prime broker with the Depository Trust Company Fast
Automated Securities Transfer program, through its Deposit Withdrawal Agent
Commission system (to the extent not inconsistent with any provisions of this
Agreement).
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ARTICLE VI
INDEMNIFICATION
Section 6.1 General Indemnity. The Company agrees to indemnify and
hold harmless the Purchasers (and their respective directors, officers,
affiliates, agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys' fees, charges and disbursements) incurred by
the Purchasers as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein. Each
Purchaser severally but not jointly agrees to indemnify and hold harmless the
Company and its directors, officers, affiliates, agents, successors and assigns
from and against any and all losses, liabilities, deficiencies, costs, damages
and expenses (including, without limitation, reasonable attorneys' fees, charges
and disbursements) incurred by the Company as result of any inaccuracy in or
breach of the representations, warranties or covenants made by such Purchaser
herein. The maximum aggregate liability of each Purchaser pursuant to its
indemnification obligations under this Article VI shall not exceed the portion
of the Purchase Price paid by such Purchaser hereunder.
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Section 6.2 Indemnification Procedure. Any party entitled to
indemnification under this Article VI (an "indemnified party") will give written
notice to the indemnifying party of any matter giving rise to a claim for
indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VI except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnifying party a conflict of interest between it
and the indemnified party exists with respect to such action, proceeding or
claim (in which case the indemnifying party shall be responsible for the
reasonable fees and expenses of one separate counsel for the indemnified
parties), to assume the defense thereof with counsel reasonably satisfactory to
the indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this Article VI to the
contrary, the indemnifying party shall not, without the indemnified party's
prior written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof which imposes any future obligation on the
indemnified party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the indemnified party of a
release from all liability in respect of such claim. The indemnification
obligations to defend the indemnified party required by this Article VI shall be
made by periodic payments of the amount thereof during the course of
investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred, so long as the indemnified party shall refund
such moneys if it is ultimately determined by a court of competent jurisdiction
that such party was not entitled to indemnification. The indemnity agreements
contained herein shall be in addition to (a) any cause of action or similar
rights of the indemnified party against the indemnifying party or others, and
(b) any liabilities the indemnifying party may be subject to pursuant to the
law. No indemnifying party will be liable to the indemnified party under this
Agreement to the extent, but only to the extent that a loss, claim, damage or
liability is attributable to the indemnified party's breach of any of the
representations, warranties or covenants made by such party in this Agreement or
in the other Transaction Documents.
25
ARTICLE VII
MISCELLANEOUS
Section 7.1 Fees and Expenses. Each party shall pay the fees and
expenses of its advisors, counsel, accountants and other experts, if any, and
all other expenses, incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement; provided,
however, that the Company shall pay all actual attorneys' fees and expenses
(including disbursements and out-of-pocket expenses) incurred by the Purchasers
in connection with (i) the preparation, negotiation, execution and delivery of
the Transaction Documents and the transactions contemplated thereunder, which
payment shall be made at the Initial Closing and shall not exceed $40,000 (plus
disbursements and out-of-pocket expenses), of which $9,990 was paid prior to the
Initial Closing Date, (ii) the review of the Registration Statement in
accordance with the Section 4(iv) of the Registration Rights Agreement, and
(iii) any amendments, modifications or waivers of this Agreement or any of the
other Transaction Documents. In addition, the Company shall pay (A) $3,000 to
the Collateral Agent (as defined in the Pledge and Security Agreement) on the
Initial Closing Date, (B) $2,500 to the escrow agent pursuant to the Escrow
Deposit Agreement on the Initial Closing Date, (C) a due diligence fee to LH
Financial payable on each Closing Date in restricted shares of Common Stock in
an amount equal to the quotient of (y) 1.25% of the net proceeds received by the
Company pursuant to this Agreement divided by (z) the average closing bid price
of the Common Stock for the five (5) Trading Days preceding the applicable
Closing Date, up to a maximum aggregate amount of $75,000, and (D) all
reasonable fees and expenses incurred by the Purchasers in connection with the
enforcement of this Agreement or any of the other Transaction Documents,
including, without limitation, all reasonable attorneys' fees and expenses.
Section 7.2 Specific Performance; Consent to Jurisdiction; Venue.
(a) The Company and the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement or the other Transaction Documents were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of this Agreement or the other Transaction
Documents and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.
(b) The parties agree that venue for any dispute arising under this
Agreement will lie exclusively in the state or federal courts located in New
York County, New York, and the parties irrevocably waive any right to raise
forum non conveniens or any other argument that New York is not the proper
venue. The parties irrevocably consent to personal jurisdiction in the state and
federal courts of the state of New York. The Company and each Purchaser consent
to process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this Section 7.2 shall affect
or limit any right to serve process in any other manner permitted by law. The
Company and the Purchasers hereby agree that the prevailing party in any suit,
action or proceeding arising out of or relating to the Securities, this
Agreement or the other Transaction Documents, shall be entitled to reimbursement
for reasonable legal fees from the non-prevailing party. The parties hereby
waive all rights to a trial by jury.
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Section 7.3 Entire Agreement; Amendment. This Agreement and the
Transaction Documents contain the entire understanding and agreement of the
parties with respect to the matters covered hereby and, except as specifically
set forth herein or in the other Transaction Documents, neither the Company nor
any Purchaser make any representation, warranty, covenant or undertaking with
respect to such matters, and they supersede all prior understandings and
agreements with respect to said subject matter, all of which are merged herein.
No provision of this Agreement may be waived or amended other than by a written
instrument signed by the Company and the Purchasers holding at least a majority
of the principal amount of the Notes then held by the Purchasers. Any amendment
or waiver effected in accordance with this Section 7.3 shall be binding upon
each Purchaser (and their permitted assigns) and the Company.
Section 7.4 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telecopy or facsimile at the
address or number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the third business
day following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:
If to the Company: Manaris Corporation
0000 Xxxx-Xxxxxxxx Xxxx. Xxxx, Xxxxx 0000
Xxxxxxxx, Xxxxxx
Xxxxxx H3B 2K8
Attention: Chief Executive Officer
Tel. No.: (000) 000-0000
Fax No.: (000) 000-0000
with copies (which
copies shall not
constitute notice
to the Company) to:
Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxx, Esq.
Tel. No.: (000) 000-0000
Fax No.: (000) 000-0000
27
If to any Purchaser: At the address of such Purchaser set forth on Exhibit A
to this Agreement, with copies to Purchaser's counsel as
set forth on Exhibit A or as specified in writing by
such Purchaser with copies to:
Xxxxxx Xxxxx Xxxxxxxx & Xxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxxxxx X. Xxxxxxx, Esq.
Tel. No.: (000) 000-0000
Fax No.: (000) 000-0000
Any party hereto may from time to time change its address for notices
by giving written notice of such changed address to the other party hereto
pursuant to the provisions of this Section 7.4.
Section 7.5 Waivers. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter. No consideration shall be offered or
paid to any Purchaser to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. This provision
constitutes a separate right granted to each Purchaser by the Company and shall
not in any way be construed as the Purchasers acting in concert or as a group
with respect to the purchase, disposition or voting of Securities or otherwise.
Section 7.6 Headings. The article, section and subsection headings
in this Agreement are for convenience only and shall not constitute a part of
this Agreement for any other purpose and shall not be deemed to limit or affect
any of the provisions hereof.
Section 7.7 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
After the Closing, the assignment by a party to this Agreement of any rights
hereunder shall not affect the obligations of such party under this Agreement.
Subject to Section 5.1 hereof, the Purchasers may assign the Securities and its
rights under this Agreement and the other Transaction Documents and any other
rights hereto and thereto without the consent of the Company.
Section 7.8 No Third Party Beneficiaries. Except as contemplated by
Article VI hereof, 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.
Section 7.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to any of the conflicts of law principles which would result in
the application of the substantive law of another jurisdiction. This Agreement
shall not be interpreted or construed with any presumption against the party
causing this Agreement to be drafted.
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Section 7.10 Survival. The representations and warranties of the
Company and the Purchasers shall survive the execution and delivery hereof and
the Closings hereunder.
Section 7.11 Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and shall become effective when counterparts have been signed by
each party and delivered to the other parties hereto, it being understood that
all parties need not sign the same counterpart.
Section 7.12 Publicity. The Company agrees that it will not
disclose, and will not include in any public announcement, the names of the
Purchasers without the consent of the Purchasers, which consent shall not be
unreasonably withheld or delayed, or unless and until such disclosure is
required by law, rule or applicable regulation, including without limitation any
disclosure pursuant to the Registration Statement, and then only to the extent
of such requirement.
Section 7.13 Severability. The provisions of this Agreement are
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement and this Agreement shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of such provision, had
never been contained herein, so that such provisions would be valid, legal and
enforceable to the maximum extent possible.
Section 7.14 Further Assurances. From and after the date of this
Agreement, upon the request of the Purchasers or the Company, the Company and
each Purchaser shall execute and deliver such instruments, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement and the other
Transaction Documents.
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IN WITNESS WHEREOF, the parties hereto have caused this Note and
Warrant Purchase Agreement to be duly executed by their respective authorized
officers as of the date first above written.
MANARIS CORPORATION
By:________________________________
Name:
Title:
PURCHASER:
By:________________________________
Name:
Title:
