SECURITIES PURCHASE AGREEMENT
Exhibit 10.1
This
Securities Purchase Agreement (this “Agreement”)
is
dated as of February 29, 2008 between Fearless International, Inc., a Nevada
corporation (the “Company”),
and
each purchaser identified on the signature pages hereto (each, including its
successors and assigns, a “Purchaser”
and
collectively the “Purchasers”).
WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant
to
Section 4(2) of the Securities Act of 1933, as amended (the “Securities
Act”),
and
Rule 506 promulgated thereunder, the Company desires to issue and sell to each
Purchaser, and each Purchaser, severally and not jointly, desires to purchase
from the Company, securities of the Company as more fully described in this
Agreement.
NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration, the receipt and adequacy of
which
are hereby acknowledged, the Company and each Purchaser agree as
follows:
ARTICLE
I.
DEFINITIONS
1.1 Definitions.
In
addition to the terms defined elsewhere in this Agreement: (a) capitalized
terms
that are not otherwise defined herein have the meanings given to such terms
in
the Debentures (as defined herein), and (b) the following terms have the
meanings set forth in this Section 1.1:
“Action”
shall
have the meaning ascribed to such term in Section 3.1(j).
“Affiliate”
means
any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a Person, as such
terms are used in and construed under Rule 405 under the Securities
Act.
With
respect to a Purchaser, any investment fund or managed account that is managed
on a discretionary basis by the same investment manager as such Purchaser will
be deemed to be an Affiliate of such Purchaser.
“Board
of Directors”
means
the board of directors of the Company.
“Business
Day”
means
any day except any Saturday, any Sunday, any day which is a federal legal
holiday in the United States or any day on which banking institutions in the
State of New York are authorized or required by law or other governmental action
to close.
“Closing”
means
the closing of the purchase and sale of the Securities pursuant to Section
2.1.
“Closing
Date”
means
the Trading Day when all of the Transaction Documents have been executed and
delivered by the applicable parties thereto, and all conditions precedent to
(i)
the Purchasers’ obligations to pay the Subscription Amount and (ii) the
Company’s obligations to deliver the Securities have been satisfied or
waived.
“Commission”
means
the Securities and Exchange Commission.
“Common
Stock”
means
the common stock of the Company, par value $0.001 per share, and any other
class
of securities into which such securities may hereafter be reclassified or
changed into.
“Common
Stock Equivalents”
means
any securities of the Company or the Subsidiaries which would entitle the holder
thereof to acquire at any time Common Stock, including, without limitation,
any
debt, preferred stock, restricted stock, restricted stock units, rights,
options, warrants or other instrument that is at any time convertible into
or
exercisable or exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock.
“Company
Counsel”
means
Xxxxxxx Xxxx LLP, with offices located at 0000 Xxxxxxxx, 00xx
Xxxxx,
Xxx Xxxx, XX 00000.
“Conversion
Price”
shall
have the meaning ascribed to such term in the Debentures.
“Debentures”
means
the 9% Senior Secured Convertible Debentures due, subject to the terms therein,
36 months from their date of issuance, issued by the Company to the Purchasers
hereunder, in the form of Exhibit
A
attached
hereto.
“Disclosure
Schedules”
shall
have the meaning ascribed to such term in Section 3.1.
“Effective
Date”
means
the date that the initial Registration Statement filed by the Company pursuant
to the Registration Rights Agreement is first declared effective by the
Commission.
“Employee
Benefit Plan”
shall
have the meaning ascribed to such term by Rule 405 promulgated under the
Securities Act but without regard to the limitation imposed by paragraph (1)
(regarding natural persons) of such rule.
“Evaluation
Date”
shall
have the meaning ascribed to such term in Section 3.1(r).
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“Exempt
Issuance”
means
the issuance of (a) shares of Common Stock or Common Stock Equivalents pursuant
to any Employee Benefit Plan adopted for such
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purpose
by the Board of Directors or a committee thereof, (b) securities upon the
exercise or exchange of or conversion of any Securities issued or issuable
pursuant to the Transaction Documents, (c) securities exercisable or
exchangeable for or convertible into shares of Common Stock issued and
outstanding on the date of this Agreement (or issuable as reflected on
Schedule
3.1(g),
provided that such securities have not been amended since the date of this
Agreement to increase the number of such securities or to decrease the exercise,
exchange or conversion price of such securities (it being understood and agreed
that adjustments provided by the terms of the agreements existing as of the
date
hereof for securities under outstanding agreements will not be deemed included
in this restriction), (d) securities issued pursuant to acquisitions or
strategic transactions approved by a majority of the directors disinterested
in
the transaction at issue of the Company, provided that any such issuance shall
only be to a Person which is, itself or through its subsidiaries, an operating
company in which the Company receives benefits in addition to the investment
of
funds, but shall not include a transaction in which the Company is issuing
securities primarily for the purpose of raising capital or to an entity whose
primary business is investing in securities and (e) up to an amount of
Debentures and Warrants equal to the difference between $13,000,000 and the
aggregate Subscription Amounts hereunder, on the same terms, conditions and
prices as hereunder, with investors executing definitive agreements for the
purchase of such securities, including the identical Security Agreement, and
such transactions having closed on or before the earlier of (i) the Filing
Date
(as defined in the Registration Rights Agreement), (ii) the date that the
Initial Registration Statement (as defined in the Registration Rights Agreement)
is actually filed with the Commission or (iii) the 45 day anniversary of the
date hereof.
“FWS”
means
Xxxxxxx Xxxxxxxxx & Xxxxx LLP with offices located at 000 Xxxxxxxxx Xxxxxx,
Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000-0000.
“GAAP”
shall
have the meaning ascribed to such term in Section 3.1(h).
“Indebtedness”
shall
have the meaning ascribed to such term in Section 3.1(aa).
“Intellectual
Property Rights”
shall
have the meaning ascribed to such term in Section 3.1(o).
“Knowledge”
or
“Knowledge
of the Company”
or
terms of similar import means the conscious awareness of facts by the Senior
Officers.
“Legend
Removal Date”
shall
have the meaning ascribed to such term in Section 4.1(c).
“Liens”
means
a
lien, charge, security interest, encumbrance, right of first refusal, preemptive
right or other restriction, other than restrictions imposed by the securities
laws of any jurisdiction.
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“Material
Adverse Effect”
shall
have the meaning assigned to such term in Section 3.1(b).
“Material
Permits”
shall
have the meaning ascribed to such term in Section 3.1(m).
“Maximum
Rate”
shall
have the meaning ascribed to such term in Section 5.17.
“New
Conversion Price”
shall
have the meaning ascribed to such term in the Debentures.
“Participation
Maximum”
shall
have the meaning ascribed to such term in Section 4.12.
“Pay-Off
Letters”
shall
mean the Pay-Off Letter in the form of Exhibit
G
attached
hereto.
“Person”
means
an individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.
“Pre-Notice”
shall
have the meaning ascribed to such term in Section 4.12.
“Principal
Amount”
shall
mean, as to each Purchaser, the amounts set forth below such Purchaser’s
signature block on the signature pages hereto and next to the heading “Principal
Amount,” in United States Dollars, which shall equal such Purchaser’s
Subscription Amount multiplied by 1.0989.
“Proceeding”
means
an action, claim, suit, investigation or proceeding (including, without
limitation, an informal investigation or partial proceeding, such as a
deposition), whether commenced or threatened.
“Purchaser”
shall
have the meaning ascribed to such term in the preamble to this agreement;
provided,
however,
that
notwithstanding anything to the contrary herein, such term shall not include
any
Person purchasing or acquiring Securities pursuant to the Registration Statement
or Rule 144.
“Purchaser
Party”
shall
have the meaning ascribed to such term in Section 4.10.
“Registration
Rights Agreement”
means
the Registration Rights Agreement, dated the date hereof, among the Company
and
the Purchasers, in the form of Exhibit
B
attached
hereto.
“Registration
Statement”
means
a
registration statement meeting the requirements set forth in the Registration
Rights Agreement and covering the resale of the Shares and Underlying Shares
by
each Purchaser as provided for in the Registration Rights
Agreement.
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“Required
Approvals”
shall
have the meaning ascribed to such term in Section 3.1(e).
“Required
Minimum”
means,
as of any date, the maximum aggregate number of shares of Common Stock then
issued or potentially issuable in the future pursuant to the Transaction
Documents, including any Underlying Shares issuable upon exercise or conversion
in full of all Warrants and Debentures (including Underlying Shares issuable
as
payment of interest), ignoring any conversion or exercise limits set forth
therein, and assuming that the Conversion Price is at all times on and after
the
date of determination 75% of the then Conversion Price on the Trading Day
immediately prior to the date of determination.
“Rule
144”
means
Rule 144 promulgated by the Commission pursuant to the Securities Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same effect as
such
Rule.
“SEC
Reports”
shall
have the meaning ascribed to such term in Section 3.1(h).
“Securities”
means
the Shares, Debentures, the Warrants, the Warrant Shares and the Underlying
Shares.
“Securities
Act”
means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“Security
Agreement”
means
the Security Agreement, dated the date hereof, among the Company and the
Purchasers, in the form of Exhibit
E
attached
hereto.
“Security
Documents”
shall
mean the Security Agreement, the Subsidiary Guarantees and any other documents
and filing required thereunder in order to grant the Purchasers a first priority
security interest in the assets of the Company and the Subsidiaries as provided
in the Security Agreement, including all UCC-1 filing receipts.
“Senior
Officers”
means
(a) Xxxxxxx Xxxxxx, the Company’s Chief Executive Officer, (b) Xxxxx Xxxxxxx,
the Company’s Chief Financial Officer and (c) Xxxxxxx XxXxxxxx, the Company’s
Chief Operations Officer.
“Shares”
means
the shares of Common Stock issued or issuable to each Purchaser pursuant to
this
Agreement.
“Short
Sales”
means
all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange
Act (but shall not be deemed to include the location and/or reservation of
borrowable shares of Common Stock).
“Subscription
Amount”
means,
as
to each Purchaser, the aggregate amount
to be
paid for Debentures, Shares and Warrants purchased hereunder as specified below
such
5
Purchaser’s
name on the signature page of this Agreement and next to the heading
“Subscription Amount,” in United States dollars and in immediately available
funds.
“Subsequent
Financing”
shall
have the meaning ascribed to such term in Section 4.12.
“Subsequent
Financing Notice”
shall
have the meaning ascribed to such term in Section 4.12.
“Subsidiary”
means
any subsidiary of the Company as set forth on Schedule
3.1(a)
and
shall, where applicable, include any direct or indirect subsidiary of the
Company formed or acquired after the date hereof.
“Subsidiary
Guarantee”
means
the Subsidiary Guarantee, dated the date hereof, by each Subsidiary in favor
of
the Purchasers, in the form of Exhibit
F
attached
hereto.
“Trading
Day”
means
a
day on which the New York Stock Exchange is open for trading.
“Trading
Market”
means
the following markets or exchanges on which the Common Stock is listed or quoted
for trading on the date in question: the American Stock Exchange, the Nasdaq
Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market,
the
New York Stock Exchange or the OTC Bulletin Board.
“Transaction
Documents”
means
this Agreement, the Debentures, the Warrants, the Registration Rights Agreement,
the Security Agreement, the Subsidiary Guarantee, all exhibits and schedules
thereto and hereto and any other documents or agreements executed in connection
with the transactions contemplated hereunder.
“Transfer
Agent”
means
First Global Stock Transfer, LLC, the current transfer agent of the Company
with
a mailing address of 0000 Xxxxxxx Xxxxxx Xx., Xxxxx 000, Xxx Xxxxx, XX 00000
and
a facsimile number of (000) 000-0000, and any successor transfer agent of the
Company.
“Underlying
Shares”
means
the shares of Common Stock issued and issuable upon conversion or redemption
of
the Debentures and upon exercise of the Warrants and issued and issuable in
lieu
of the cash payment of interest on the Debentures in accordance with the terms
of the Debentures.
“Variable
Rate Transaction”
shall
have the meaning ascribed to such term in Section 4.13(b).
“VWAP”
means,
for any date, the price determined by the first of the following clauses that
applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
the daily volume weighted average price of the Common Stock for such date (or
the nearest preceding date) on the Trading Market on which the Common Stock
is
then
6
listed
or
quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m.
New
York City time to 4:02 p.m. New York City time); (b) if the OTC Bulletin
Board is not a Trading Market, the volume weighted average price of the Common
Stock for such date (or the nearest preceding date) on the OTC Bulletin Board;
(c) if the Common Stock is not then listed or quoted on the OTC Bulletin Board
and if prices for the Common Stock are then reported in the “Pink Sheets”
published by Pink Sheets, LLC (or a similar organization or agency succeeding
to
its functions of reporting prices), the most recent bid price per share of
the
Common Stock so reported; or (d) in all other cases, the fair market value
of a share of Common Stock as determined by an independent appraiser selected
in
good faith by the Purchasers of a majority in interest of the Securities then
outstanding and reasonably acceptable to the Company, the fees and expenses
of
which shall be paid by the Company.
“Warrants”
means,
collectively, the Common Stock purchase warrants delivered to the Purchasers
at
the Closing in accordance with Section 2.2(a) hereof, which Warrants shall
be
exercisable immediately and have a term of exercise equal to five years, in
the
form of Exhibit C
attached
hereto.
“Warrant
Shares”
means
the shares of Common Stock issuable upon exercise of the Warrants.
ARTICLE
II.
PURCHASE
AND SALE
2.1 Closing.
On the
Closing Date, upon the terms and subject to the conditions set forth herein,
substantially concurrent with the execution and delivery of this Agreement
by
the parties hereto, the Company agrees to sell, and the Purchasers, severally
and not jointly, agree to purchase, up to an aggregate of $14,285,700 in
Principal Amount of the Debentures (for an aggregate cash Subscription Amount
of
up to $13,000,000). Each Purchaser shall deliver to the Company, via wire
transfer or a certified check, immediately available funds equal to its
Subscription Amount and the Company shall deliver to each Purchaser its
respective Debenture, Shares, and a Warrant, as determined pursuant to Section
2.2(a), and the Company and each Purchaser shall deliver the other items set
forth in Section 2.2 deliverable at the Closing. Upon satisfaction of the
conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the
offices of FWS or such other location as the parties shall mutually agree.
2.2 Deliveries.
(a) On
the
Closing Date, the Company shall deliver or cause to be delivered to each
Purchaser the following:
(i)
this
Agreement duly executed by the Company;
(ii) a
legal
opinion of Company Counsel, in substantially the form of Exhibit
D-1
attached
hereto;
7
(iii) a
legal
opinion of counsel to Fearless Yachts, LLC, a limited liability company
organized under the laws of Missouri, in substantially the form of Exhibit
D-2
attached
hereto;
(iv) a
Debenture with a principal amount equal to such Purchaser’s Principal Amount,
registered in the name of such Purchaser;
(v) a
Warrant
registered in the name of such Purchaser to purchase up to a number of shares
of
Common Stock equal to 100% of such Purchaser’s Principal Amount divided by
$0.20, with an exercise price equal to $0.25, subject to adjustment therein;
(vi) a
copy of
the irrevocable instructions to the Transfer Agent instructing the Transfer
Agent to deliver, on an expedited basis, a certificate evidencing a number
of
Shares equal to such Purchaser’s Principal Amount divided by $0.3333333333,
registered in the name of such Purchaser;
(vii) the
Security Agreement, duly executed by the Company and each Subsidiary, along
with
all of the Security Documents, including the Subsidiary Guarantee, duly executed
by the parties thereto; and
(viii) the
Registration Rights Agreement duly executed by the Company.
(b) On
the
Closing Date, each Purchaser shall deliver or cause to be delivered to the
Company the following:
(i)
this
Agreement duly executed by such Purchaser;
(ii) such
Purchaser’s Subscription Amount by wire transfer to the account as specified in
writing by the Company;
(iii) the
Security Agreement duly executed by such Purchaser; and
(iv) the
Registration Rights Agreement duly executed by such Purchaser.
2.3 Closing
Conditions.
(a) The
obligations of the Company hereunder in connection with the Closing are subject
to the following conditions being met:
(i) the
accuracy in all material respects on the Closing Date of the representations
and
warranties of the Purchasers contained herein;
(ii) all
obligations, covenants and agreements of each Purchaser required to be performed
at or prior to the Closing Date shall have been performed; and
8
(iii) the
delivery by each Purchaser of the items set forth in Section 2.2(b) of this
Agreement.
(b) The
respective obligations of the Purchasers hereunder in connection with the
Closing are subject to the following conditions being met:
(i) the
accuracy in all material respects when made and on the Closing Date of the
representations and warranties of the Company contained herein;
(ii) all
obligations, covenants and agreements of the Company required to be performed
at
or prior to the Closing Date shall have been performed;
(iii) the
delivery by the Company of the items set forth in Section 2.2(a) of this
Agreement;
(iv) there
shall have been no Material Adverse Effect with respect to the Company since
the
date hereof;
(v) an
executed Pay-Off Letter from each Purchaser who has received cash credit from
the Company to be applied towards its Subscription Amount in the amount of
principal and/or interest set forth on Schedule
2.3
attached
hereto;
(vi) written
confirmation that the off-balance sheet pledge agreement, dated April 13, 2007,
by and among the Company and Xxxxx X. Xxxxx whereby Xx. Xxxxx pledged $2,080,000
in a letter of credit to Mellon Bank, has been extended until April 12, 2009;
and
(vii) from
the
date hereof to the Closing Date, trading in the Common Stock shall not have
been
suspended by the Commission or the Company’s principal Trading Market (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 L.P. shall not have been suspended or limited, or minimum prices
shall
not have been established on securities whose trades are reported by such
service, or on any Trading Market, 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 of such magnitude in its effect on, or any
material adverse change in, any financial market which, in each case, in the
reasonable judgment of each Purchaser, makes it impracticable or inadvisable
to
purchase the Securities at the Closing.
ARTICLE
III.
REPRESENTATIONS
AND WARRANTIES
9
3.1 Representations
and Warranties of the Company.
Except
as
set forth in the Disclosure Schedules, which Disclosure Schedules shall be
deemed a part hereof and shall, without any further specific reference herein
thereto, qualify any representation or warranty otherwise made herein, the
Company hereby makes the representations and warranties set forth below to
each
Purchaser:
(a) Subsidiaries.
All of
the direct and indirect subsidiaries of the Company are set forth on
Schedule
3.1(a).
The
Company owns, directly or indirectly, all of the capital stock or other equity
interests of each Subsidiary free and clear of any Liens, and all of the issued
and outstanding shares of capital stock of each Subsidiary are validly issued
and are fully paid, non-assessable and free of preemptive and similar rights
to
subscribe for or purchase securities. If the Company has no subsidiaries, all
other references to the Subsidiaries or any of them in the Transaction Documents
shall be disregarded.
(b) Organization
and Qualification.
The
Company and each of the Subsidiaries is an entity duly incorporated or otherwise
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with the
requisite power and authority to own and use its properties and assets and
to
carry on its business as currently conducted. Neither the Company nor any
Subsidiary is in violation or default of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or
charter documents. Each of the Company and the Subsidiaries is duly qualified
to
conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, could not
have or reasonably be expected to result in (i) a material adverse effect on
the
legality, validity or enforceability of any Transaction Document, (ii) a
material adverse effect on the results of operations, assets, business,
prospects or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (iii) a material adverse effect on the
Company’s ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a
“Material
Adverse Effect”)
and no
Proceeding has been instituted in any such jurisdiction revoking, limiting
or
curtailing or seeking to revoke, limit or curtail such power and authority
or
qualification.
(c) Authorization;
Enforcement.
The
Company has the requisite corporate power and authority to enter into and to
consummate the transactions contemplated by each of the Transaction Documents
and otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery by the Company of each of the Transaction Documents
to
which it is a party and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized by all necessary action on the
part
of the Company and no further action is required by the Company, the Board
of
Directors or the Company’s stockholders in connection therewith other than in
connection with the Required Approvals. Each Transaction Document to which
the
Company is a party has been (or upon delivery will have been) duly executed
by
the Company and, when delivered in accordance with the terms hereof and thereof,
will
10
constitute
the valid and binding obligation of the Company enforceable against the Company
in accordance with its terms, except (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization, moratorium
and
other laws of general application affecting enforcement of creditors’ rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii) insofar
as
indemnification and contribution provisions may be limited by applicable
law.
(d) No
Conflicts.
The
execution, delivery and performance by the Company of each of the Transaction
Documents to which it is a party and the consummation by the Company of the
other transactions contemplated hereby and thereby do not and will not: (i)
conflict with or violate any provision of the Company’s or any Subsidiary’s
certificate or articles of incorporation, bylaws or other organizational or
charter documents, or (ii) conflict with, or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, result
in the creation of any Lien upon any of the properties or assets of the Company
or any Subsidiary, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both)
of,
any agreement, credit facility, debt or other instrument (evidencing a Company
or Subsidiary debt or otherwise) or other understanding to which the Company
or
any Subsidiary is a party or by which any property or asset of the Company
or
any Subsidiary is bound or affected, or (iii) subject to the Required Approvals,
conflict with or result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including federal
and
state securities laws and regulations), or by which any property or asset of
the
Company or a Subsidiary is bound or affected; except in the case of each of
clauses (ii) and (iii), such as could not have or reasonably be expected to
result in a Material Adverse Effect.
(e) Filings,
Consents and Approvals.
The
Company is not required to obtain any consent, waiver, authorization or order
of, give any notice to, or make any filing or registration with, any court
or
other federal, state, local or other governmental authority or other Person
in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) filings required pursuant to Section
4.6,
(ii) the filing with the Commission of the Registration Statement, (iii) the
notice and/or application(s) to each applicable Trading Market for the issuance
and sale of the Securities and the listing of the Underlying Shares for trading
thereon in the time and manner required thereby, and (iv) the filing of Form
D
with the Commission and such filings as are required to be made under applicable
state securities laws (collectively, the “Required
Approvals”).
(f) Issuance
of the Securities.
The
Securities are duly authorized and, when issued and paid for in accordance
with
the applicable Transaction Documents, will be duly and validly issued, fully
paid and nonassessable, free and clear of all Liens imposed by the Company
other
than restrictions on transfer provided for in the Transaction Documents. The
Underlying Shares, when issued in accordance with the terms of the
11
Transaction
Documents, will be validly issued, fully paid and nonassessable, free and clear
of all Liens imposed by the Company other than restrictions on transfer provided
for in the Transaction Documents. The Company has reserved from its duly
authorized capital stock a number of shares of Common Stock for issuance of
the
Underlying Shares at least equal to the Required Minimum on the date hereof.
(g) Capitalization.
As of
the date hereof, the Company has 67,664,197 shares of Common Stock issued and
outstanding. The capitalization of the Company is as set forth on Schedule
3.1(g),
which
Schedule
3.1(g)
shall
also include the number of shares of Common Stock owned beneficially, and of
record, by, as of the date hereof (i) to the Company’s Knowledge, Affiliates of
the Company and (ii) the Senior Officers and the members of the Board of
Directors. Except as set forth on Schedule
3.1(g),
the
Company has not issued any capital stock since its most
recently filed periodic report under the Exchange Act,
other
than pursuant to the exercise of employee stock options under the Company’s
stock option plans, the issuance of shares of Common Stock to employees pursuant
to the Company’s employee stock purchase plans and pursuant to the conversion or
exercise of Common Stock Equivalents outstanding as of the date of the most
recently filed periodic report under the Exchange Act. Other than as
contemplated by the Transaction Documents, no Person has any right of first
refusal, preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction Documents.
Except as a result of the transactions contemplated by Schedule
3.1(g),
the
Transaction Documents or as otherwise reflected in the Company’s Annual report
on Form 10-KSB for the year ended March 31, 2007, as amended, the Company’s
Quarterly Report on Form 10-QSB for the period ended June 30, 2007, as amended,
and the Company’s Quarterly Report on Form 10-QSB for the period ended September
30, 2007, there are no outstanding options, warrants, scrip rights to subscribe
to, calls or commitments of any character whatsoever relating to, or securities,
rights or obligations convertible into or exercisable or exchangeable for,
or
giving any Person any right to subscribe for or acquire, any shares of Common
Stock, or contracts, commitments, understandings or arrangements by which the
Company or any Subsidiary is or may become bound to issue additional shares
of
Common Stock or Common Stock Equivalents. Except as contemplated by Schedule
3.1(g),
the
issuance and sale of the Securities will not obligate the Company to issue
shares of Common Stock or other securities to any Person (other than the
Purchasers) and will not result in a right of any holder of Company securities
to adjust the exercise, conversion, exchange or reset price under any of such
securities. To the Knowledge of the Company, all of the outstanding shares
of
capital stock of the Company are validly issued, fully paid and nonassessable,
have been issued in compliance with all federal and state securities laws,
and
none of such outstanding shares was issued in violation of any preemptive rights
or similar rights to subscribe for or purchase securities. No further approval
or authorization of any stockholder, the Board of Directors or others is
required for the issuance and sale of the Securities. There are no stockholders
agreements, voting agreements or other similar agreements with respect to the
Company’s capital stock to which the Company is a party or, to the Knowledge of
the Company, between or among any of the Company’s stockholders.
12
(h) SEC
Reports; Financial Statements.
Since
December 8, 2006, the Company has filed all reports, schedules, forms,
statements and other documents required to be filed by the Company under the
Securities Act and the Exchange Act, and all amendments thereto, including
pursuant to Section 13(a) or 15(d) thereof (the foregoing materials, including
the exhibits thereto and documents incorporated by reference therein, being
collectively referred to herein as the “SEC
Reports”)
on a
timely basis or has received a valid extension of such time of filing and has
filed any such SEC Reports prior to the expiration of any such extension. As of
their respective dates, the SEC Reports complied in all material respects with
the requirements of the Securities Act and the Exchange Act, as applicable,
and
none of the SEC Reports, when filed, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Reports comply, in all material
respects with applicable accounting requirements and the rules and regulations
of the Commission with respect thereto as in effect at the time of filing.
Such
financial statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis during
the periods involved (“GAAP”),
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated Subsidiaries as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to appropriate
year-end audit adjustments.
(i) Material
Changes.
Since
the date of the latest audited financial statements included within the SEC
Reports, except as disclosed in a subsequent SEC Report filed prior to the
date
hereof, (i) there has been no event, occurrence or development that, to the
Knowledge of the Company, has had or that could reasonably be expected to result
in a Material Adverse Effect, (ii) the Company has not incurred any liabilities
(contingent or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice and
(B) liabilities not required to be reflected in the Company’s financial
statements pursuant to GAAP or disclosed in filings made with the Commission,
(iii) the Company has not altered its method of accounting, (iv) the Company
has
not declared or made any dividend or distribution of cash or other property
to
its stockholders or purchased, redeemed or made any agreements to purchase
or
redeem any shares of its capital stock and (v) the Company has not issued any
equity securities to any officer or director, except pursuant to existing
Company Employee Benefit Plans or agreements or instruments issued in connection
therewith. The Company does not have pending before the Commission any request
for confidential treatment of information. To the Knowledge of the Company,
except for the issuance of the Securities contemplated by the Transaction
Documents or as set forth on Schedule
3.1(i),
no
event, liability or development has occurred or exists with respect to the
Company or its Subsidiaries or their respective business, properties, operations
or financial condition, that would be required to be disclosed by the Company
under applicable securities laws
13
at
the
time this representation is made or deemed made that has not been publicly
disclosed at least one Trading Day prior to the date that this representation
is
made.
(j) Litigation.
There
is no action, suit, inquiry, notice of violation, proceeding or investigation
pending or, to the Knowledge of the Company, threatened in writing against
or
affecting the Company, any Subsidiary or any of their respective properties
before or by any court, arbitrator, governmental or administrative agency or
regulatory authority (federal, state, county, local or foreign) (collectively,
an “Action”)
which
(i) adversely affects or challenges the legality, validity or enforceability
of
any of the Transaction Documents or the Securities or (ii) would, if there
were
an unfavorable decision, have or reasonably be expected to result in a Material
Adverse Effect. Neither the Company nor any Subsidiary, nor any director or
executive officer thereof, is or has been, during the five years preceding
the
date of this Agreement, the subject of any Action involving a claim of violation
of or liability under federal or state securities laws or a claim of breach
of
fiduciary duty. There has not been, and to the Knowledge of the Company, during
the five years preceding the date of this Agreement, there has not been nor
is
there pending or contemplated, any investigation by the Commission involving
the
Company or any current or former director or officer of the Company. The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.
(k) Labor
Relations.
No
material labor dispute exists or, to the Knowledge of the Company, is imminent
with respect to any of the employees of the Company which could reasonably
be
expected to result in a Material Adverse Effect. None of the Company’s or its
Subsidiaries’ employees is a member of a union that relates to such employee’s
relationship with the Company or such Subsidiary, and neither the Company nor
any of its Subsidiaries is a party to a collective bargaining agreement, and
the
Company and its Subsidiaries believe that their relationships with their
employees are satisfactory. To the Knowledge of the Company, no executive
officer, is, or is now expected to be, in violation of any material term of
any
employment contract, confidentiality, disclosure or proprietary information
agreement or non-competition agreement, or any other contract or agreement
or
any restrictive covenant in favor of any third party, and the continued
employment of each such executive officer does not subject the Company or any
of
its Subsidiaries to any liability with respect to any of the foregoing matters.
The Company and its Subsidiaries are in compliance with all U.S. federal, state,
local and foreign laws and regulations relating to employment and employment
practices, terms and conditions of employment and wages and hours, except where
the failure to be in compliance would not, individually or in the aggregate,
have a Material Adverse Effect.
(l) Compliance.
Neither
the Company nor any Subsidiary (i) is in default under or in violation of (and
no event has occurred that has not been waived that, with notice or lapse of
time or both, would result in a default by the Company or any Subsidiary under),
nor has the Company or any Subsidiary received written notice of a
14
claim
that it is in default under or that it is in violation of, any indenture, loan
or credit agreement or any other agreement or instrument to which it is a party
or by which it or any of its properties is bound (whether or not such default
or
violation has been waived), (ii) is in violation of any order of any court,
arbitrator or governmental body, or (iii) is or has been in violation of any
statute, rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its business
and all such laws that affect the environment, except in each case as could
not
have or reasonably be expected to result in a Material Adverse
Effect.
(m) Regulatory
Permits.
The
Company and the Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate federal, state, local or foreign regulatory
authorities necessary to conduct their respective businesses as currently
conducted as described in the SEC Reports, except where the failure to possess
such permits would not result in a Material Adverse Effect (“Material
Permits”),
and
neither the Company nor any Subsidiary has received any notice of proceedings
relating to the revocation or modification of any Material Permit.
(n) Title
to Assets.
Neither
the Company nor any of the Subsidiaries own any real property. Except as set
forth on Schedule
3.1(n),
the
Company and the Subsidiaries have good and marketable title in all personal
property owned by them that are currently used in the business of the Company
and the Subsidiaries, in each case free and clear of all Liens, except for
Liens
as do not materially affect the value of such property and do not materially
interfere with the use made and proposed to be made of such property by the
Company and the Subsidiaries and Liens for the payment of federal, state or
other taxes, the payment of which is neither delinquent nor subject to
penalties. Any real property and facilities held under lease by the Company
and
the Subsidiaries are held by them under valid, subsisting and enforceable leases
with which the Company and the Subsidiaries are in compliance, except where
the
failure to be in compliance would not, individually or in the aggregate, have
a
Material Adverse Effect.
(o) Patents
and Trademarks.
The
Company and the Subsidiaries have, or have rights to use, all patents, patent
applications, trademarks, trademark applications, service marks, trade names,
trade secrets, inventions, copyrights, licenses and other intellectual property
rights and similar rights described in the SEC Reports as necessary or material
for use in connection with their respective businesses and which the failure
to
so have would have a Material Adverse Effect (collectively, the “Intellectual
Property Rights”).
Neither the Company nor any Subsidiary has received any written notice that
any
of the Intellectual Property Rights violates or infringes upon the rights of
any
Person. To the Knowledge of the Company, all such Intellectual Property Rights
are enforceable and there is no existing infringement by another Person of
any
of the Intellectual Property Rights. The Company and its Subsidiaries have
taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their trade secrets, except where failure to do so would not,
individually or in the aggregate, have a Material Adverse Effect.
15
(p) Insurance.
Except
as set forth on Schedule
3.1(p),
the
Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which the Company and the Subsidiaries are
engaged, including, but not limited to, directors and officers insurance
coverage at least equal to the aggregate Subscription Amount. Neither the
Company nor any Subsidiary has any reason to believe that it will not be able
to
renew its existing insurance coverage as and when such coverage expires or
to
obtain similar coverage from similar insurers as may be necessary to continue
its business without a significant increase in cost.
(q) Transactions
with Affiliates and Employees.
Except
as set forth in the SEC Reports, none of the officers or directors of the
Company and, to the Knowledge of the Company, none of the employees of the
Company is presently a party to any transaction with the Company or any
Subsidiary (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the Knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial economic
interest or is an officer, director, trustee or partner, in each case in excess
of $60,000 other than for (i) payment of salary or consulting fees for services
rendered, (ii) reimbursement for expenses incurred on behalf of the Company
and
(iii) other employee benefits, including stock option agreements under any
Employee Benefit Plan.
(r) Xxxxxxxx-Xxxxx;
Internal Accounting Controls.
The
Company is in material compliance with all provisions of the Xxxxxxxx-Xxxxx
Act
of 2002 which are applicable to it as of the Closing Date. To the extent
required by applicable law, the
Company and the Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed
in
accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences. The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Company and designed such disclosure controls and procedures
to ensure that information required to be disclosed by the Company in the
reports it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Commission’s
rules and forms. The Company’s certifying officers have evaluated the
effectiveness of the Company’s disclosure controls and procedures as of the end
of the period covered by the Company’s most recently filed periodic report under
the Exchange Act (such date, the “Evaluation
Date”).
The
Company presented in its most recently filed periodic report under the Exchange
Act the conclusions of the certifying officers about the effectiveness of the
disclosure controls
16
and
procedures based on their evaluations as of the Evaluation Date. Since the
Evaluation Date, there have been no changes in the Company’s internal control
over financial reporting (as such term is defined in the Exchange Act) that
has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
(s) Certain
Fees.
Except
as set forth in Schedule
3.1(s),
no
brokerage or finder’s fees or commissions are or will be payable by the Company
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by the Transaction Documents. The Purchasers shall have no
obligation with respect to any fees or with respect to any claims made by or
on
behalf of other Persons for fees of a type contemplated in this Section that
may
be due in connection with the transactions contemplated by the Transaction
Documents.
(t) Private
Placement.
Assuming the accuracy of the Purchasers’ representations and warranties set
forth in Section 3.2, no registration under the Securities Act is required
for
the offer and sale of the Warrants, Debentures and Shares issuable pursuant
to
this Agreement by the Company to the Purchasers. The issuance and sale of the
Securities hereunder does not contravene the rules and regulations of the
Trading Market.
(u) Investment
Company.
The
Company is not, and is not an Affiliate of, and immediately after receipt of
payment for the Securities, will not be or be an Affiliate of, an “investment
company” within the meaning of the Investment Company Act of 1940, as amended;
provided,
however,
the
term Affiliate in this Section 3.1(u) shall not include any Purchaser upon
the
date of this Agreement.
(v) Registration
Rights.
Other
than the Purchasers, no Person has any right to cause the Company to effect
the
registration under the Securities Act of any securities of the
Company.
(w) Listing
and Maintenance Requirements.
The
Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange
Act, and the Company has taken no action designed to, or which to its Knowledge
is likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act nor has the Company received, since December 8,
2006, any notification that the Commission is contemplating terminating such
registration. The Company has not, since December 8, 2006, received notice
from
any Trading Market on which the Common Stock is or has been listed or quoted
to
the effect that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company is, and has no reason to
believe that it will not in the foreseeable future continue to be, in compliance
in all material respects with the listing and maintenance requirements of its
Trading Market.
(x) Application
of Takeover Protections.
The
Company and the Board of Directors have taken all necessary action, if any,
in
order to render inapplicable any
17
control
share acquisition, business combination, poison pill (including any distribution
under a rights agreement) or other similar anti-takeover provision under the
Company’s certificate of incorporation (or similar charter documents) or the
laws of its state of incorporation that is or could become applicable to the
Purchasers as a result of the Purchasers and the Company fulfilling their
obligations or exercising their rights under the Transaction Documents,
including without limitation as a result of the Company’s issuance of the
Securities and the Purchasers’ ownership of the Securities.
(y) Disclosure.
Except
with respect to the information provided to the Purchaser in connection with
the
transactions contemplated by the Transaction Documents, 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 it believes
constitutes or might constitute material, nonpublic information. The Company
understands and confirms that the Purchasers will rely on the foregoing
representation in effecting transactions in securities of the Company. All
disclosure furnished by or on behalf of the Company to the Purchasers regarding
the Company, its business and the transactions contemplated hereby, including
the Disclosure Schedules to this Agreement, is true and correct and does not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The press releases
disseminated by the Company during the twelve months preceding the date of
this
Agreement taken as a whole do 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 and when made, not misleading. The Company acknowledges
and
agrees that no Purchaser makes or has made any representations or warranties
with respect to the transactions contemplated hereby other than those
specifically set forth in Section 3.2 hereof.
(z) No
Integrated Offering.
Except
as set forth on Schedule
3.1(z),
assuming the accuracy of the Purchasers’ representations and warranties set
forth in Section 3.2, neither the Company, nor to its Knowledge, 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 this offering of the
Securities to be integrated with prior offerings by the Company for purposes
of
(i) the Securities Act which would require the registration of any such
securities under the Securities Act, or (ii) any applicable shareholder approval
provisions of any Trading Market on which any of the securities of the Company
are listed or designated.
(aa) Solvency.
Except
as set forth on Schedule
3.1(aa),
based
on the consolidated financial condition of the Company as of the Closing Date
after giving effect to the receipt by the Company of the proceeds from the
sale
of the Securities hereunder, to the Company’s Knowledge, (i) the fair saleable
value of the Company’s assets exceeds the amount that will be required to be
paid on or in respect of the
18
Company’s
existing debts and other liabilities (including known contingent liabilities)
as
they mature, (ii) the Company’s assets do not constitute unreasonably small
capital to carry on its business as now conducted and as proposed to be
conducted including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected capital
requirements and capital availability thereof, and (iii) the current cash flow
of the Company, together with the proceeds the Company would receive, were
it to
liquidate all of its assets, after taking into account all anticipated uses
of
the cash, would be sufficient to pay all amounts on or in respect of its
liabilities when such amounts are required to be paid. Except as set forth
on
Schedule
3.1(aa),
the
Company does not intend to incur debts beyond its ability to pay such debts
as
they mature (taking into account the timing and amounts of cash to be payable
on
or in respect of its debt). The Company has no Knowledge of any facts or
circumstances which lead it to believe that it will file for reorganization
or
liquidation under the bankruptcy or reorganization laws of any jurisdiction
within one year from the Closing Date. Schedule
3.1(aa)
sets
forth as of the date hereof all outstanding secured and unsecured Indebtedness
of the Company or any Subsidiary, or for which the Company or any Subsidiary
has
commitments. For the purposes of this Agreement, “Indebtedness”
means
(a) any liabilities for borrowed money or amounts owed in excess of $50,000
(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 $50,000 due under leases required to be capitalized in accordance
with GAAP. Except
as
set forth on Schedule
3.1(aa),
neither
the Company nor any Subsidiary is in default with respect to any
Indebtedness.
(bb) Tax
Status.
Except
for matters that would not, individually or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect, the Company and each
Subsidiary has filed all necessary federal, state and foreign income and
franchise tax returns and has paid or accrued all taxes shown as due thereon,
and the Company has no Knowledge of a tax deficiency which has been asserted
or
threatened against the Company or any Subsidiary.
(cc) No
General Solicitation.
Neither
the Company nor any person acting on behalf of the Company has offered or sold
any of the Securities by any form of general solicitation or general
advertising. The Company has offered the Securities for sale only to the
Purchasers and certain other “accredited investors” within the meaning of Rule
501 under the Securities Act.
(dd) Foreign
Corrupt Practices.
Since
December 8, 2006, neither the Company, nor to the Knowledge of the Company,
any
agent or other person acting on behalf of the Company, violated in any material
respect any provision of the Foreign Corrupt Practices Act of 1977, as
amended.
19
(ee) Accountants.
The
Company’s accounting firm is Xxxxxxxx & Company. To the Company’s Knowledge,
such accounting firm is a registered public accounting firm as required by
the
Exchange Act. The Company expects that such accounting firm will express its
opinion with respect to the financial statements to be included in the Company’s
Annual Report on Form 10-KSB for the year ending March 31, 2008.
(ff) Seniority.
Except
as set forth on Schedule
3.1(ff),
as of
the Closing Date, no Indebtedness or other claim against the Company is senior
to the Debentures in right of payment, whether with respect to interest or
upon
liquidation or dissolution, or otherwise, other than indebtedness secured by
purchase money security interests (which is senior only as to underlying assets
covered thereby), capital lease obligations (which is senior only as to the
property covered thereby).
(gg) No
Disagreements with Accountants and Lawyers.
There
are no disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the Company and the accountants and lawyers
formerly or presently employed by the Company and the Company is current with
respect to any fees owed to its accountants and lawyers which could affect
the
Company’s ability to perform any of its obligations under any of the Transaction
Documents.
(hh) Acknowledgment
Regarding Purchasers’ Purchase of Securities.
The
Company acknowledges and agrees that each of the Purchasers is acting solely
in
the capacity of an arm’s length purchaser with respect to the Transaction
Documents and the transactions contemplated thereby. The Company further
acknowledges that no Purchaser is acting as a financial advisor or fiduciary
of
the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated thereby and any advice given by
any
Purchaser or any of their respective representatives or agents in connection
with the Transaction Documents and the transactions contemplated thereby is
merely incidental to the Purchasers’ purchase of the Securities. The Company
further represents to each Purchaser that the Company’s decision to enter into
this Agreement and the other Transaction Documents has been based solely on
the
independent evaluation of the transactions contemplated hereby by the Company
and its representatives.
(ii) Acknowledgment
Regarding Purchasers’ Trading Activity.
Notwithstanding anything in this Agreement or elsewhere herein to the contrary
(except for Sections 3.2(f) and 4.15 hereof), it is understood and acknowledged
by the Company that (i) none of the Purchasers has been asked to agree by the
Company, nor has any Purchaser agreed, to desist from purchasing or selling,
long and/or short, securities of the Company, or “derivative” securities based
on securities issued by the Company or to hold the Securities for any specified
term, (ii) past or future open market or other transactions by any Purchaser,
specifically including, without limitation, Short Sales or “derivative”
transactions, before or after the closing of this or future private placement
transactions, may negatively impact the market price of the Company’s
publicly-traded securities, (iii) any Purchaser, and counter-parties in
“derivative” transactions to which any such
20
Purchaser
is a party, directly or indirectly, may presently have a “short” position in the
Common Stock, and (iv) each Purchaser shall not be deemed to have any
affiliation with or control over any arm’s length counter-party in any
“derivative” transaction merely as a result of being a counter-party to such
transaction. The
Company further understands and acknowledges that (a) one or more Purchasers
may
engage in hedging activities at various times during the period that the
Securities are outstanding, including, without limitation, during the periods
that the value of the Underlying Shares deliverable with respect to Securities
are being determined and (b) such hedging activities (if any) could reduce
the
value of the existing stockholders' equity interests in the Company at and
after
the time that the hedging activities are being conducted. The Company
acknowledges that such aforementioned hedging activities do not constitute
a
breach of any of the Transaction Documents.
(jj) Regulation
M Compliance.
The Company has not, and to its Knowledge no one acting on its behalf has,
(i)
taken, directly or indirectly, any action designed to cause or to result in
the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of any of the Securities, (ii) sold, bid for,
purchased, or paid any compensation for soliciting purchases of, any of the
securities of the Company or (iii) paid or agreed to pay to any Person any
compensation for soliciting another to purchase any other securities of the
Company, other than, in the case of clauses (ii) and (iii), compensation paid
to
the Company’s placement agent in connection with the placement of the
Securities.
(kk) Senior
Officers.
The
Company represents and warrants that the Senior Officers are the only officers
of the Company as of the date hereof.
3.2 Representations
and Warranties of the Purchasers.
Each
Purchaser, for itself and for no other Purchaser hereby, represents and warrants
as of the date hereof and as of the Closing Date to the Company as
follows:
(a) Organization;
Authority.
Such
Purchaser is an entity duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization with full right,
corporate or partnership power and authority to enter into and to consummate
the
transactions contemplated by the Transaction Documents and otherwise to carry
out its obligations hereunder and thereunder. The execution and delivery of
the
Transaction Documents and performance by such Purchaser of the transactions
contemplated by the Transaction Documents have been duly authorized by all
necessary corporate or similar action on the part of such Purchaser. Each
Transaction Document to which it is a party has been duly executed by such
Purchaser, and when delivered by such Purchaser in accordance with the terms
hereof, will constitute the valid and legally binding obligation of such
Purchaser, enforceable against it in accordance with its terms, except (i)
as
limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the
21
availability
of specific performance, injunctive relief or other equitable remedies and
(iii)
insofar as indemnification and contribution provisions may be limited by
applicable law.
(b) Own
Account.
Such
Purchaser understands that the Securities are “restricted securities” and have
not been registered under the Securities Act or any applicable state securities
law and is acquiring the Securities as principal for its own account and not
with a view to or for distributing or reselling such Securities or any part
thereof in violation of the Securities Act or any applicable state securities
law, has no present intention of distributing any of such Securities in
violation of the Securities Act or any applicable state securities law and
has
no direct or indirect arrangement or understandings with any other persons
to
distribute or regarding the distribution of such Securities (this representation
and warranty not limiting such Purchaser’s right to sell the Securities pursuant
to the Registration Statement or otherwise in compliance with applicable federal
and state securities laws) in violation of the Securities Act or any applicable
state securities law. Such Purchaser is acquiring the Securities hereunder
in
the ordinary course of its business.
(c) Purchaser
Status.
At the
time such Purchaser was offered the Securities, it was, and at the date hereof
it is, and on each date on which it exercises any Warrants, converts any
Debentures or interest on the Debentures is paid in shares of Common Stock
it
will be either: (i) an “accredited investor” as defined in Rule 501(a)(1),
(a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified
institutional buyer” as defined in Rule 144A(a) under the Securities Act. Such
Purchaser is not required to be registered as a broker-dealer under Section
15
of the Exchange Act.
(d) Experience
of Such Purchaser; Opportunity to Obtain Information.
Such
Purchaser, either alone or together with its representatives, has such
knowledge, sophistication and experience in business and financial matters
so as
to be capable of evaluating the merits and risks of the prospective investment
in the Securities, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of such
investment. Such Purchaser acknowledges that (i) it has had the right to request
copies of any documents, records and books pertaining to the transactions
contemplated hereby and the Company, (ii) such documents, records and books
which the undersigned requested have been made available for inspection by
the
Purchaser and its representative, and (iii) it has had a reasonable opportunity
to ask questions of and receive answers from a person or persons acting on
behalf of the Company concerning the Company and all such questions have been
answered to the full satisfaction of the Purchaser.
(e) General
Solicitation.
Such
Purchaser is not purchasing the Securities as a result of any advertisement,
article, notice or other communication regarding the Securities published in
any
newspaper, magazine or similar media or broadcast over television or radio
or
presented at any seminar or any other general solicitation or general
advertisement.
22
(f) Residence.
The
office or offices of such Purchaser in which its investment decision was made
is
located at the address or addresses of such Purchaser set forth on the signature
page hereto.
(g) Rule
144.
Subject
to the recently adopted amendments to Rule 144 by the Commission, such Purchaser
acknowledges and agrees that the Securities are “restricted securities” as
defined in Rule 144 promulgated under the Securities Act as in effect from
time
to time and must be held indefinitely unless they are subsequently registered
under the Securities Act or an exemption from such registration is available.
Such Purchaser has been advised or is aware of the provisions of Rule 144,
which
permits limited resale of shares purchased in a private placement subject to
the
satisfaction of certain conditions, including, among other things: the
availability of certain current public information about the Company, the resale
occurring following the required holding period under Rule 144 and the number
of
shares being sold during any three-month period not exceeding specified
limitations.
(h) Short
Sales and Confidentiality Prior To The Date Hereof.
Other
than consummating the transactions contemplated hereunder, such Purchaser has
not directly or indirectly, nor has any Person acting on behalf of or pursuant
to any understanding with such Purchaser, executed any purchases or sales,
including Short Sales, of the securities of the Company during the period
commencing from
the time
that such Purchaser first received a term sheet (written or oral) from the
Company or any other Person representing the Company setting forth the material
terms of the transactions contemplated hereunder until the date hereof
(“Discussion
Time”).
Notwithstanding
the foregoing, in the case of a Purchaser that is a multi-managed investment
vehicle whereby separate portfolio managers manage separate portions of such
Purchaser's assets and the portfolio managers have no direct knowledge of the
investment decisions made by the portfolio managers managing other portions
of
such Purchaser's assets, the representation set forth above shall only apply
with respect to the portion of assets managed by the portfolio manager that
made
the investment decision to purchase the Securities covered by this Agreement.
Other than to other Persons party to this Agreement, such Purchaser has
maintained the confidentiality of all disclosures made to it in connection
with
this transaction (including the existence and terms of this
transaction).
ARTICLE
IV.
OTHER
AGREEMENTS OF THE PARTIES
4.1 Transfer
Restrictions.
(a) The
Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Securities other than
pursuant to an effective registration statement or Rule 144, to the Company
or
to an Affiliate of a Purchaser or in connection with a pledge as contemplated
in
Section 4.1(b), the Company may require the transferor thereof to provide to
the
Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and
23
substance
of which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration of such transferred Securities
under the Securities Act. As a condition of transfer, any such transferee shall
agree in writing to be bound by the terms of this Agreement and the Registration
Rights Agreement and shall have the rights of a Purchaser under this Agreement
and the Registration Rights Agreement.
(b) The
Purchasers agree to the imprinting, so long as is required by this Section
4.1,
of a legend on any of the Securities in the following form:
[NEITHER]
THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE]
[CONVERTIBLE]] HAS [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL
TO
THE TRANSFEROR TO SUCH EFFECT, THE FORM AND SUBSTANCE OF WHICH SHALL BE
REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY [AND THE SECURITIES ISSUABLE
UPON [EXERCISE] [CONVERSION] OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION
WITH
A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.
The
Company acknowledges and agrees that a Purchaser may from time to time pledge
pursuant to a bona fide margin agreement with a registered broker-dealer or
grant a security interest in some or all of the Securities to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this Agreement
and the Registration Rights Agreement and, if required under the terms of such
arrangement, such Purchaser may transfer pledged or secured Securities to the
pledgees or secured parties. Such a pledge or transfer would not be subject
to
approval of the Company and no legal opinion of legal counsel of the pledgee,
secured party or pledgor shall be required in connection therewith. Further,
no
notice shall be required of such pledge. At the appropriate Purchaser’s expense,
the Company will execute and deliver such reasonable documentation as a pledgee
or secured party of Securities may reasonably request in connection with a
pledge or transfer of the Securities, including, if the Securities are subject
to registration pursuant to the Registration Rights Agreement, the preparation
and filing of any required prospectus supplement under Rule 424(b)(3) under
the
Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of Selling Stockholders thereunder.
24
(c) Certificates
evidencing the Shares and Underlying Shares shall not contain any legend
(including the legend set forth in Section 4.1(b) hereof): (i) while a
registration statement (including the Registration Statement) covering the
resale of such security is effective under the Securities Act, or (ii) following
any sale of such Shares or Underlying Shares pursuant to Rule 144, or (iii)
if
such Shares or Underlying Shares are eligible for sale under Rule 144(k), or
(iv) if such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements issued
by
the staff of the Commission). The Company shall cause its counsel to issue
a
legal opinion to the Transfer Agent promptly after the Effective Date if
required by the Transfer Agent to effect the removal of the legend hereunder.
If
all or any portion of a Debenture or Warrant is converted or exercised (as
applicable) at a time when there is an effective registration statement to
cover
the resale of the Underlying Shares, or if such Shares or Underlying Shares
may
be sold under Rule 144(k) or if such legend is not otherwise required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission) then
such Shares or Underlying Shares shall be issued free of all legends. The
Company agrees that following the Effective Date or at such time as such legend
is no longer required under this Section 4.1(c), it will, no later than three
Trading Days following the delivery by a Purchaser to the Company or the
Transfer Agent of a certificate representing the Shares or Underlying Shares,
as
applicable, issued with a restrictive legend (such third Trading Day, the
“Legend
Removal Date”),
deliver or cause to be delivered to such Purchaser a certificate representing
such shares that is free from all restrictive and other legends. The Company
may
not make any notation on its records or give instructions to the Transfer Agent
that enlarge the restrictions on transfer set forth in this Section. If
requested by a Purchaser, and if the Company is then a participant in such
system, the Company shall use commercially reasonable efforts to cause
certificates for Shares or Underlying Shares subject to legend removal hereunder
to be transmitted by the Transfer Agent to the Purchaser by crediting the
account of the Purchaser’s prime broker with the Depository Trust Company System
as directed by such Purchaser.
(d) In
addition to such Purchaser’s other available remedies, the Company shall pay to
a Purchaser, in cash, as partial liquidated damages and not as a penalty, for
each $1,000 of Shares or Underlying Shares (based on the VWAP of the Common
Stock on the date such Securities are submitted to the Transfer Agent) delivered
for removal of the restrictive legend and subject to Section 4.1(c), $5 per
Trading Day (increasing to $10 per Trading Day 5 Trading Days after such damages
have begun to accrue) for each Trading Day after the second Trading Day
following Legend Removal Date until such certificate is delivered without a
legend. Nothing herein shall limit such Purchaser’s right to pursue actual
damages for the Company’s failure to deliver certificates representing any
Securities as required by the Transaction Documents, and such Purchaser shall
have the right to pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief.
(e) Each
Purchaser, severally and not jointly with the other Purchasers, agrees that
such
Purchaser will sell any Securities pursuant to either the registration
25
requirements
of the Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom, and that if Securities are sold
pursuant to a Registration Statement, they will be sold in compliance with
the
plan of distribution set forth therein, and acknowledges that the removal of
the
restrictive legend from certificates representing Securities as set forth in
this Section 4.1 is predicated upon the Company’s reliance upon this
understanding.
4.2 Acknowledgment
of Dilution.
The
Company acknowledges that the issuance of the Securities may result in dilution
of the outstanding shares of Common Stock, which dilution may be substantial
under certain market conditions. The Company further acknowledges that its
obligations under the Transaction Documents, including without limitation its
obligation to issue the Shares and Underlying Shares pursuant to the Transaction
Documents, are unconditional and absolute and not subject to any right of set
off, counterclaim, delay or reduction, regardless of the effect of any such
dilution or any claim the Company may have against any Purchaser and regardless
of the dilutive effect that such issuance may have on the ownership of the
other
stockholders of the Company.
4.3 Furnishing
of Information.
Until
the earliest of the time that (i) no Purchaser owns Securities or (ii) the
Warrants have expired, the Company covenants use to commercially reasonable
efforts to timely file (or obtain extensions in respect thereof and file within
the applicable grace period) all reports required to be filed by the Company
after the date hereof pursuant to the Exchange Act. As long as any Purchaser
owns Securities, if the Company is not required to file reports pursuant to
the
Exchange Act, it will use commercially reasonable efforts to prepare and furnish
to the Purchasers and make publicly available in accordance with Rule 144(c)
such information as is required for the Purchasers to sell the Securities under
Rule 144. The Company further covenants that it will take such further action
as
any holder of Securities may reasonably request, to the extent required from
time to time to enable such Person to sell such Securities without registration
under the Securities Act within the requirements of the exemption provided
by
Rule 144.
4.4 Integration.
The
Company shall not sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Securities to the
Purchasers in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Purchasers or that would be integrated
with the offer or sale of the Securities for purposes of the rules and
regulations of any Trading Market.
4.5 Conversion
and Exercise Procedures.
The
form of Notice of Exercise included in the Warrants and the form of Notice
of
Conversion included in the Debentures set
forth
the totality of the procedures required of the Purchasers in order to exercise
the Warrants or convert the Debentures. No additional legal opinion or other
information or instructions shall be required of the Purchasers to exercise
their Warrants or convert their Debentures.
4.6 Securities
Laws Disclosure; Publicity.
The
Company shall (a) by 8:30 AM (New York City time) on the Trading Day following
the date hereof issue a press release and (b) by 8:30 AM (New York City time)
on
the third Trading Day following the date hereof, issue a
26
Current
Report on Form 8-K disclosing the material terms of the transactions
contemplated hereby and attaching the Transaction Documents as exhibits thereto.
The Company and each Purchaser shall consult with each other in issuing any
other press releases with respect to the transactions contemplated hereby,
and
neither the Company nor any Purchaser shall issue any such press release or
otherwise make any such public statement without the prior consent of the
Company, with respect to any press release of any Purchaser, or without the
prior consent of each Purchaser, with respect to any press release of the
Company, which consent shall not unreasonably be withheld or delayed, except
if
such disclosure is required by law, in which case the disclosing party shall
promptly provide the other party with prior notice of such public statement
or
communication. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Purchaser, or include the name of any Purchaser in
any
filing with the Commission or any regulatory agency or Trading Market, without
the prior written consent of such Purchaser, except (i) as required by federal
securities law in connection with (A) any registration statement contemplated
by
the Registration Rights Agreement and (B) the filing of final Transaction
Documents (including signature pages thereto) with the Commission and (ii)
to
the extent such disclosure is required by law or Trading Market regulations,
in
which case the Company shall provide the Purchasers with prior notice of such
disclosure permitted under this clause (ii).
4.7 Shareholder
Rights Plan.
No
claim will be made or enforced by the Company or, with the consent of the
Company, any other Person, that any Purchaser is an “Acquiring Person” under any
control share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or similar anti-takeover plan or
arrangement in effect or hereafter adopted by the Company, or that any Purchaser
could be deemed to trigger the provisions of any such plan or arrangement,
by
virtue of receiving Securities under the Transaction Documents or under any
other agreement between the Company and the Purchasers.
4.8 Non-Public
Information.
Except
with respect to the material terms and conditions of the transactions
contemplated by the Transaction Documents, the Company covenants and agrees
that
after the date hereof, neither it nor any other Person acting on its behalf
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 covenant in
effecting transactions in securities of the Company.
4.9 Use
of
Proceeds.
Except
as set forth on Schedule
4.9
attached
hereto, the Company shall use the net proceeds from the sale of the Securities
hereunder for general working capital purposes, including, but not limited
to,
repayment of existing bridge loans, and funding production, and shall not use
such proceeds for (a) the satisfaction of any portion of the Company’s debt
(other than payment of trade payables in the ordinary course of the Company’s
business), (b) the redemption of any Common Stock or Common Stock Equivalents
or
(c) the settlement of any outstanding litigation.
27
4.10 Indemnification
of Purchasers.
Subject
to the provisions of this Section 4.10, the Company will indemnify and hold
each
Purchaser and its directors, officers, shareholders, members, partners,
employees and agents (and any other Persons with a functionally equivalent
role
of a Person holding such titles notwithstanding a lack of such title or any
other title), each Person who controls such Purchaser (within the meaning of
Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, shareholders, agents, members, partners or employees (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title) of such
controlling person (each, a “Purchaser
Party”)
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation that any such Purchaser Party may suffer or incur as a result
of
or relating to (a) any breach of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or in the other
Transaction Documents or (b) any action instituted against a Purchaser in any
capacity, or any of them or their respective Affiliates, by any stockholder
of
the Company who is not an Affiliate of such Purchaser, with respect to any
of
the transactions contemplated by the Transaction Documents (unless such action
is based upon a breach of such Purchaser’s representations, warranties or
covenants under the Transaction Documents or any agreements or understandings
such Purchaser may have with any such stockholder or any violations by the
Purchaser of state or federal securities laws or any conduct by such Purchaser
which constitutes fraud, gross negligence, willful misconduct or malfeasance).
If any action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right
to
assume the defense thereof with counsel of its own choosing reasonably
acceptable to the Purchaser Party. Any Purchaser Party shall have the right
to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense
of
such Purchaser Party except to the extent that (i) the employment thereof has
been specifically authorized by the Company in writing, (ii) the Company has
failed after a reasonable period of time to assume such defense and to employ
counsel or (iii) in such action there is, in the reasonable opinion of such
separate counsel, a material conflict on any material issue between the position
of the Company and the position of such Purchaser Party, in which case the
Company shall be responsible for the reasonable fees and expenses of no more
than one such separate counsel. The Company will not be liable to any Purchaser
Party under this Agreement (i) for any settlement by a Purchaser Party effected
without the Company’s prior written consent, which shall not be unreasonably
withheld or delayed; or (ii) to the extent, but only to the extent that a loss,
claim, damage or liability is attributable to any Purchaser Party’s breach of
any of the representations, warranties, covenants or agreements made by such
Purchaser Party in this Agreement or in the other Transaction
Documents.
4.11 Reservation
and Listing of Securities.
(a) The
Company shall maintain a reserve from its duly authorized shares of Common
Stock
for issuance pursuant to the Transaction Documents in such amount as may then
be
required to fulfill its obligations in full under the Transaction
Documents.
28
(b) If,
on
any date, the number of authorized but unissued (and otherwise unreserved)
shares of Common Stock is less than the Required Minimum on such date, then
the
Board of Directors shall use commercially reasonable efforts to amend the
Company’s certificate or articles of incorporation to increase the number of
authorized but unissued shares of Common Stock to at least the Required Minimum
at such time, as soon as possible and in any event not later than the 75th
day
after such date.
(c) The
Company shall, if applicable: (i) in the time and manner required by the
principal Trading Market, prepare and file with such Trading Market an
additional shares listing application covering a number of shares of Common
Stock at least equal to the Required Minimum on the date of such application,
(ii) take all steps necessary to cause such shares of Common Stock to be
approved for listing on such Trading Market as soon as possible thereafter,
(iii) provide to the Purchasers evidence of such listing, and (iv) maintain
the
listing of such Common Stock on any date at least equal to the Required Minimum
on such date on such Trading Market or another Trading Market.
4.12 Participation
in Future Financing.
(a) From
the
date hereof until such time as no Purchaser holds any of the Debentures, upon
any issuance by the Company or any of its Subsidiaries of Common Stock or Common
Stock Equivalents (a “Subsequent
Financing”),
each
Purchaser shall have the right to participate in up to an amount of the
Subsequent Financing equal to 75% of the Subsequent Financing (the “Participation
Maximum”)
on the
same terms, conditions and price provided for in the Subsequent Financing.
(b) At
least
5 Trading Days prior to the closing of the Subsequent Financing, the Company
shall deliver to each Purchaser a written notice of its intention to effect
a
Subsequent Financing (“Pre-Notice”),
which
Pre-Notice shall ask such Purchaser if it wants to review the details of such
financing (such additional notice, a “Subsequent
Financing Notice”).
Upon
the request of a Purchaser, and only upon a request by such Purchaser, for
a
Subsequent Financing Notice, the Company shall promptly, but no later than
1
Trading Day after such request, deliver a Subsequent Financing Notice to such
Purchaser. The Subsequent Financing Notice shall describe in reasonable detail
the proposed terms of such Subsequent Financing, the amount of proceeds intended
to be raised thereunder and the Person or Persons through or with whom such
Subsequent Financing is proposed to be effected and shall include a term sheet
or similar document relating thereto as an attachment.
(c) Any
Purchaser desiring to participate in such Subsequent Financing must provide
written notice to the Company by not later than 5:30 p.m. (New York City time)
on the 5th
Trading
Day after all of the Purchasers have received the Pre-Notice that the Purchaser
is willing to participate in the Subsequent Financing, the amount of the
Purchaser’s participation, and that the Purchaser has such funds ready, willing,
and available for investment on the terms set forth in the Subsequent Financing
Notice. If the Company receives no notice from a Purchaser as of such
5th
Trading
Day, such Purchaser shall be deemed to have notified the Company that it does
not elect to participate.
29
(d) If
by
5:30 p.m. (New York City time) on the 5th
Trading
Day after all of the Purchasers have received the Pre-Notice, notifications
by
the Purchasers of their willingness to participate in the Subsequent Financing
(or to cause their designees to participate) is, in the aggregate, less than
the
total amount of the Subsequent Financing, then the Company may effect the
remaining portion of such Subsequent Financing on the terms and with the Persons
set forth in the Subsequent Financing Notice.
(e) If
by
5:30 p.m. (New York City time) on the 5th
Trading
Day after all of the Purchasers have received the Pre-Notice, the Company
receives responses to a Subsequent Financing Notice from Purchasers seeking
to
purchase more than the aggregate amount of the Participation Maximum, each
such
Purchaser shall have the right to purchase its Pro Rata Portion (as defined
below) of the Participation Maximum. “Pro
Rata Portion”
means
the ratio of (x) the Subscription Amount of Securities purchased on the Closing
Date by a Purchaser participating under this Section 4.12 and (y) the sum of
the
aggregate Subscription Amounts of Securities purchased on the Closing Date
by
all Purchasers participating under this Section 4.12 plus the aggregate
subscription amounts of investors party to securities purchase agreement(s)
contemplated by clause (e) in the definition of Exempt Issuance that are
participating in such Subsequent Financing pursuant to participation rights
granted to such investors under such agreements that are substantially similar
to this Section 4.12.
(f) The
Company must provide the Purchasers with a second Subsequent Financing Notice,
and the Purchasers will again have the right of participation set forth above
in
this Section 4.12, if the Subsequent Financing subject to the initial Subsequent
Financing Notice is not consummated for any reason on the terms set forth in
such Subsequent Financing Notice within 60 Trading Days after the date of the
initial Subsequent Financing Notice.
(g) Notwithstanding
the foregoing, this Section 4.12 shall not apply in respect of (i) an Exempt
Issuance or (ii) an underwritten public offering of Common Stock.
4.13 Subsequent
Equity Sales.
(a) From
the
date hereof until 90 days after the Effective Date, neither the Company nor
any
Subsidiary shall issue shares of Common Stock or Common Stock Equivalents;
provided,
however,
the 90
day period set forth in this Section 4.13 shall be extended for the number
of
Trading Days during such period in which (i) trading in the Common Stock is
suspended by any Trading Market, or (ii) following the Effective Date, the
Registration Statement is not effective or the prospectus included in the
Registration Statement may not be used by the Purchasers for the resale of
the
Shares and Underlying Shares.
(b) From
the
date hereof until such time as no Purchaser holds any of the Securities, the
Company shall be prohibited from effecting or entering into an agreement to
effect any Subsequent Financing involving a Variable Rate Transaction.
“Variable
Rate Transaction”
means
a
transaction in which the Company issues or sells (i) any debt
30
or
equity
securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (A) at
a
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the shares of Common Stock
at any time after the initial issuance of such debt or equity securities, or
(B)
with a conversion, exercise or exchange price that is subject to being reset
at
some future date after the initial issuance of such debt or equity security
or
upon the occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common Stock or
(ii) enters into any agreement, including, but not limited to, an equity line of
credit, whereby the Company may sell securities at a future determined price.
(c) Notwithstanding
the foregoing, this Section 4.13 shall not apply in respect of an Exempt
Issuance, except that no Variable Rate Transaction shall be an Exempt
Issuance.
4.14 Equal
Treatment of Purchasers.
No
consideration shall be offered or paid to any Person 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. Further, the Company shall not make any payment of
principal or interest on the Debentures in amounts which are disproportionate
to
the respective principal amounts outstanding on the Debentures at any applicable
time. For clarification purposes, this provision constitutes a separate right
granted to each Purchaser by the Company and negotiated separately by each
Purchaser, and is intended for the Company to treat the Purchasers as a class
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.
4.15 Short
Sales and Confidentiality After The Date Hereof.
Each
Purchaser, severally and not jointly with the other Purchasers, covenants that
neither it nor any Affiliate acting on its behalf or pursuant to any
understanding with it will execute any Short Sales during the period commencing
at the Discussion Time and ending at the time that the transactions contemplated
by this Agreement are first publicly announced as described in Section
4.6.
Each
Purchaser, severally and not jointly with the other Purchasers, covenants that
until such time as the transactions contemplated by this Agreement are publicly
disclosed by the Company as described in Section 4.6, such Purchaser will
maintain the confidentiality of the existence and terms of this transaction
and
the information included in the Disclosure Schedules. Each Purchaser
severally and not jointly with any other Purchaser understands and acknowledges,
and agrees, to act in a manner that will not violate the positions of the
Commission as set forth in Item 65, Section A, of the Manual of Publicly
Available Telephone Interpretations, dated July 1997, compiled by the Office
of
Chief Counsel, Division of Corporation Finance. Notwithstanding
the foregoing, no Purchaser makes any representation, warranty or covenant
hereby that it will not engage in Short Sales in the securities of the Company
after the time that the transactions contemplated by this Agreement are first
publicly announced as described in Section 4.6. Notwithstanding
the foregoing, in the case of a Purchaser that is a multi-managed investment
vehicle whereby separate portfolio managers manage separate portions of such
Purchaser’s assets and the portfolio managers have no direct knowledge of the
investment
31
decisions
made by the portfolio managers managing other portions of such Purchaser’s
assets, the covenant set forth above shall only apply with respect to the
portion of assets managed by the portfolio manager that made the investment
decision to purchase the Securities covered by this Agreement.
4.16 Form
D; Blue Sky Filings.
The
Company agrees to timely file a Form D with respect to the Securities as
required under Regulation D and to provide a copy thereof, promptly upon request
of any Purchaser. The Company shall take such action as the Company shall
reasonably determine is necessary in order to obtain an exemption for, or to
qualify the Securities for, sale to the Purchasers at the Closing under
applicable securities or “Blue Sky” laws of the states of the United States, and
shall provide evidence of such actions promptly upon request of any
Purchaser.
4.17 Capital
Changes.
Until
the one year anniversary of the Effective Date, except as otherwise required
by
Section 4.19 of this Agreement, the Company shall not undertake a reverse or
forward stock split or reclassification of the Common Stock without the prior
written consent of the Purchasers holding a majority in principal amount
outstanding of the Debentures.
4.18 Insurance.
Within
15 days from the date hereof, the Company and each Subsidiary agree to be
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as are prudent and customary in the businesses
in
which the Company and the Subsidiaries are engaged, including, but not limited
to, directors and officers insurance coverage at least equal to
$5,000,000.
4.19 Reverse
Split.
Notwithstanding anything to the contrary herein (including Section 4.17 hereof)
or in the Transaction Documents, no later than the six month anniversary of
the
date hereof, the Company shall effect a reverse stock split of not less than
four for one (i.e. four or more shares will be converted into one share) of
the
issued and outstanding Common Stock (the “Reverse
Stock Split”).
4.20 Board
of Director Appointments / Full-Time Chief Financial Officer.
No
later than the nine month anniversary of the date of hereof, the Board of
Directors shall appoint two new independent directors to the Board of Directors
(the “New
Directors”).
The
Board of Directors shall not exceed a total of seven directors following the
appointment of the New Directors. Each of the New Directors shall (a) have
audit
committee experience and experience and knowledge of the industry of the
Company, and (b) satisfy the independence requirements set forth in NASDAQ
Rule
4200. The Board of Directors has authority to appoint the New Directors pursuant
to Article II of the Company’s By-Laws. In addition, no later than the earlier
of (a) the 30th
day
following the date the Company actually files its Annual Report on Form 10-KSB
for the fiscal year ending March 31, 2008 and (b) July 31, 2008, the Company
shall retain a full-time chief financial officer who shall have experience
as a
chief financial officer for a public company.
ARTICLE
V.
MISCELLANEOUS
32
5.1 Termination.
This Agreement may be terminated by any Purchaser, as to such Purchaser’s
obligations hereunder only and without any effect whatsoever on the obligations
between the Company and the other Purchasers, by written notice to the other
parties, if the Closing has not been consummated on or before March ___, 2008;
provided,
however,
that
such termination will not affect the right of any party to xxx for any breach
by
the other party (or parties).
5.2 Fees
and Expenses.
At the
Closing, the Company has agreed to reimburse Midsummer Capital, LLC
(“Midsummer”)
the
non-accountable sum of $30,000, for its legal fees and expenses, $12,500 of
which has been paid prior to the Closing. The Company shall deliver to each
Purchaser, prior to the Closing, a completed and executed copy of the Closing
Statement attached hereto as Annex
A.
Except
as expressly set forth in the Transaction Documents to the contrary, each party
shall pay the fees and expenses of its advisers, 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.
The Company shall pay all transfer agent fees, stamp taxes and other taxes
and
duties levied in connection with the delivery of any Securities to the
Purchasers.
5.3 Entire
Agreement.
The
Transaction Documents, together with the exhibits and schedules thereto, contain
the entire understanding of the parties with respect to the subject matter
hereof and supersede all prior agreements and understandings, oral or written,
with respect to such matters, which the parties acknowledge have been merged
into such documents, exhibits and schedules.
5.4 Notices.
Any and
all notices or other communications or deliveries required or permitted to
be
provided hereunder shall be in writing and shall be deemed given and effective
on the earliest of (a) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile number set forth on the signature
pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading
Day,
(b) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth
on
the signature pages attached hereto on a day that is not a Trading Day or later
than 5:30 p.m. (New York City time) on any Trading Day, (c) the second Trading
Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service, or (d) upon actual receipt by the party to whom
such
notice is required to be given. The address for such notices and communications
shall be as set forth on the signature pages attached hereto.
5.5 Amendments;
Waivers.
No
provision of this Agreement may be waived, modified, supplemented or amended
except in a written instrument signed, in the case of an amendment, by the
Company and the Purchasers of at least 60% in interest of the Securities still
held by Purchasers or, in the case of a waiver, by the party against whom
enforcement of any such waived provision is sought. No waiver 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 subsequent
default 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.
33
5.6 Headings.
The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof.
5.7 Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of each Purchaser (other than by merger). Any Purchaser may assign
any
or all of its rights under this Agreement to any Person to whom such Purchaser
assigns or transfers any Securities, provided that such transferee agrees in
writing to be bound, with respect to the transferred Securities, by the
provisions of the Transaction Documents that apply to the
“Purchasers.”
5.8 No
Third-Party Beneficiaries.
This
Agreement is intended for the benefit of the parties hereto and their respective
successors and permitted assigns and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person, except as otherwise set
forth
in Section 4.10.
5.9 Governing
Law.
All
questions concerning the construction, validity, enforcement and interpretation
of the Transaction Documents shall be governed by and construed and enforced
in
accordance with the internal laws of the State of New York, without regard
to
the principles of conflicts of law thereof. Each party agrees that all legal
proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement and any other Transaction Documents
(whether brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced exclusively
in
the state and federal courts sitting in the City of New York. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect
to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper or is an inconvenient venue for
such
proceeding. Each party hereby irrevocably waives personal service of process
and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) 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 contained herein
shall be deemed to limit in any way any right to serve process in any other
manner permitted by law. If either party shall commence an action or proceeding
to enforce any provisions of the Transaction Documents, then the prevailing
party in such action or proceeding shall be reimbursed by the other party for
its reasonable attorneys’ fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or
proceeding.
5.10 Survival.
The
representations and warranties shall survive the Closing and the delivery of
the
Securities for the applicable statute of limitations.
34
5.11 Execution.
This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to
the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission or by e-mail delivery of a “.pdf” format data file, such signature
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) with the same force and effect as if such
facsimile or “.pdf” signature page were an original thereof.
5.12 Severability.
If any
term, provision, covenant or restriction of this Agreement is held by a court
of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their commercially reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may
be
hereafter declared invalid, illegal, void or unenforceable.
5.13 Rescission
and Withdrawal Right.
Notwithstanding anything to the contrary contained in (and without limiting
any
similar provisions of) any of the other Transaction Documents, whenever any
Purchaser exercises a right, election, demand or option under a Transaction
Document and the Company does not timely perform its related obligations within
the periods therein provided, then such Purchaser may rescind or withdraw,
in
its sole discretion from time to time upon written notice to the Company, any
relevant notice, demand or election in whole or in part without prejudice to
its
future actions and rights; provided,
however,
in the
case of a rescission of a conversion of a Debenture or exercise of a Warrant,
the Purchaser shall be required to return any shares of Common Stock delivered
in connection with any such rescinded conversion or exercise
notice.
5.14 Replacement
of Securities.
If any
certificate or instrument evidencing any Securities is mutilated, lost, stolen
or destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation thereof (in the case of mutilation),
or
in lieu of and substitution therefor, a new certificate or instrument, but
only
upon receipt of evidence reasonably satisfactory to the Company of such loss,
theft or destruction. The applicant for a new certificate or instrument under
such circumstances shall also pay any reasonable third-party costs (including
customary indemnity) associated with the issuance of such replacement
Securities.
5.15 Remedies.
In
addition to being entitled to exercise all rights provided herein or granted
by
law, including recovery of damages, each of the Purchasers and the Company
will
be entitled to specific performance under the Transaction Documents. The parties
agree that monetary damages may not be adequate compensation for any loss
incurred by reason of any breach of obligations contained in the Transaction
Documents and hereby agrees to waive and
35
not
to
assert in any action for specific performance of any such obligation the defense
that a remedy at law would be adequate.
5.16 Payment
Set Aside.
To the
extent that the Company makes a payment or payments to any Purchaser pursuant
to
any Transaction Document or a Purchaser enforces or exercises its rights
thereunder, and such payment or payments or the proceeds of such enforcement
or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other person under any law (including, without limitation,
any
bankruptcy law, state or federal law, common law or equitable cause of action),
then to the extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full
force
and effect as if such payment had not been made or such enforcement or setoff
had not occurred.
5.17 Usury.
To the
extent it may lawfully do so, the Company hereby agrees not to insist upon
or
plead or in any manner whatsoever claim, and will resist any and all efforts
to
be compelled to take the benefit or advantage of, usury laws wherever enacted,
now or at any time hereafter in force, in connection with any claim, action
or
proceeding that may be brought by any Purchaser in order to enforce any right
or
remedy under any Transaction Document. Notwithstanding any provision to the
contrary contained in any Transaction Document, it is expressly agreed and
provided that the total liability of the Company under the Transaction Documents
for payments in the nature of interest shall not exceed the maximum lawful
rate
authorized under applicable law (the “Maximum
Rate”),
and,
without limiting the foregoing, in no event shall any rate of interest or
default interest, or both of them, when aggregated with any other sums in the
nature of interest that the Company may be obligated to pay under the
Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum
contract rate of interest allowed by law and applicable to the Transaction
Documents is increased or decreased by statute or any official governmental
action subsequent to the date hereof, the new maximum contract rate of interest
allowed by law will be the Maximum Rate applicable to the Transaction Documents
from the effective date forward, unless such application is precluded by
applicable law. If under any circumstances whatsoever, interest in excess of
the
Maximum Rate is paid by the Company to any Purchaser with respect to
indebtedness evidenced by the Transaction Documents, such excess shall be
applied by such Purchaser to the unpaid principal balance of any such
indebtedness or be refunded to the Company, the manner of handling such excess
to be at such Purchaser’s election.
5.18 Independent
Nature of Purchasers’ Obligations and Rights.
The
obligations of each Purchaser under any Transaction Document are several and
not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance or non-performance of the obligations
of any other Purchaser under any Transaction Document. Nothing contained herein
or in any other Transaction Document, and no action taken by any Purchaser
pursuant 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. Each Purchaser shall be entitled to
36
independently
protect and enforce its rights, including without limitation the rights arising
out of this Agreement or out of the other Transaction Documents, and it shall
not be necessary for any other Purchaser to be joined as an additional party
in
any proceeding for such purpose. Each Purchaser has been represented by its
own
separate legal counsel in their review and negotiation of the Transaction
Documents. For reasons of administrative convenience only, Purchasers and their
respective counsel have chosen to communicate with the Company through FWS.
FWS
does not represent all of the Purchasers but only Midsummer. The Company 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.
5.19 Liquidated
Damages.
The
Company’s obligations to pay any partial liquidated damages or other amounts
owing under the Transaction Documents is a continuing obligation of the Company
and shall not terminate until all unpaid partial liquidated damages and other
amounts have been paid notwithstanding the fact that the instrument or security
pursuant to which such partial liquidated damages or other amounts are due
and
payable shall have been canceled.
5.20 Saturdays,
Sundays, Holidays, etc. If
the
last or appointed day for the taking of any action or the expiration of any
right required or granted herein shall not be a Business Day, then such action
may be taken or such right may be exercised on the next succeeding Business
Day.
5.21 Construction.
The
parties agree that each of them and/or their respective counsel has reviewed
and
had an opportunity to revise the Transaction Documents and, therefore, the
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of the Transaction Documents or any amendments hereto.
5.22 Waiver
of Jury Trial.
In any action, suit or proceeding in any jurisdiction brought by any party
against any other party, the parties each knowingly and intentionally, to the
greatest extent permitted by applicable law, hereby absolutely, unconditionally,
irrevocably and expressly waives forever trial by jury.
(Signature
Pages Follow)
37
IN
WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as
of
the date first indicated above.
|
By:
|
Address
for Notice:
|
|
|
Name:
Xxxxxxx Xxxxxx
Title:
Chief Executive Officer
|
000
Xxxxxxx Xxxx
Xxxxx
000
Xxxxx,
XX 00000
Attention:
Chief Executive Officer
Fax:
000.000.0000
|
|
With
a
copy to (which shall not constitute notice):
Xxxxxxx
Xxxx LLP
0000
Xxxxxxxx
00xx
Xxxxx
Xxx
Xxxx,
XX 00000
Fax:
000.000.0000
Attention:
Xxxxxxx Xxxxx
And
Xxxxxxx
X. Xxxxxxxx, Esq.
Xxxxxxxx
Xxxxxx & Xxxxxxxxx LLP
0000
Xxxxxxxx Xxxxxx
Xxxxxxxxx,
Xxxxxxx 00000
Fax:
000.000.0000
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE
PAGE FOR PURCHASER FOLLOWS]
38
[PURCHASER
SIGNATURE PAGES TO FRLE SECURITIES PURCHASE AGREEMENT]
IN
WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement
to be duly executed by their respective authorized signatories as of the date
first indicated above.
Name
of
Purchaser: ________________________________________________________
Signature
of Authorized Signatory of Purchaser:
__________________________________
Name
of
Authorized Signatory:
____________________________________________________
Title
of
Authorized Signatory:
_____________________________________________________
Email
Address of Purchaser:
________________________________________________
Facsimile
Number of Purchaser:
________________________________________________
Address
for Notice of Purchaser:
Address
for Delivery of Securities for Purchaser (if not same as address for
notice):
Subscription
Amount (Cash Consideration): _____________
Subscription
Amount (Consideration In Kind): _____________
Principal
Amount (Subscription
Amount x 1.0989):
________________
Shares:
_________________________
Warrant
Shares: _________________
Place
of
Jurisdiction: _____________
EIN
Number: ___________________
39
[SIGNATURE
PAGES CONTINUE]
40
Schedule
2.3 –
Pay-Off Letters
|
Name
of Prior
Noteholder
|
Principal
Amount
Applied
to
Rollover
|
Principal
Amount –
Outstanding
|
Interest
Applied
to
Rollover
|
Interest
-
Outstanding
|
41
Schedule
3.1 a - Subsidiaries
Subsidiaries
of Fearless International, Inc.
Fearless
Yachts, LLC., a wholly owned subsidiary
42
Schedule
3.1 g - Capitalization
|
as of 1/31/08
|
||||
|
TOTAL
ISSUED AND OUTSTANDING SHARES
OF COMMON STOCK
|
67,664,197
|
|||
|
INSIDERS
AND AFFILIATES* (INCLUDED IN TOTAL
OUTSTANDING)
|
||||
|
Xxxxxxx
Xxxxxx, CEO
|
5,499,900
|
|||
|
Xxxxxxx
Xxxxxx, CEO**
|
2,497,500
|
|||
|
Xxxxx
XxXxxxxx, COO
|
2,497,500
|
|||
|
Xxxxx
Xxxxxxx, CFO
|
220,000
|
|||
|
TOTAL
INSIDERS AND AFFILIATES
|
10,714,900
|
|||
*5%
or more shareholders.
**In
the name Jemj Financial Services
The
Company’s consolidated financial statements included in its quarterly report on
Form 10-QSB for the period ending September 30, 2007 (the “Report”), noted that:
“There is an off-balance sheet pledge agreement that the Company entered into
on
April 13, 2007, whereby Xxxxx X. Xxxxx pledged $2,080,000 in a letter of credit
to Mellon. The Company agreed to pay Xxxxx X. Xxxxx interest at a per annum
rate
equal to 15% of the face amount of the agreement. The Company issued warrants
to
acquire 2.1 million shares in connection with the pledge.
In
connection with the extension of the pledge (the “Extension”), (i) the exercise
price of such warrants will be reduced to $0.25 and (ii) the Company will also
issue to the pledgor additional warrants to acquire 2.1 million shares of common
stock at an exercise price of $0.25 per share in consideration of the agreement
being extended for one year.
Note
3 of
the Report stated: “All purchasers under the Securities Purchase Agreement also
acquired a warrant to purchase common stock of the Company. These warrants
will
entitle each holder thereof to purchase a presently indeterminate number of
shares of common stock of the Company at an exercise price, subject to
adjustment, that is also presently indeterminate.” The Company intends to issue
warrants to such purchasers to acquire an aggregate of up to 9 million shares
of
common stock, with an exercise price of $0.25 per share.
The
Company, in consideration of receiving a bridge loan of $200,000, has agreed
to
issue 1.2 million shares of common stock to the lenders thereof. This loan
is to
be repaid from the proceeds of this transaction.
Pursuant
to an agreement with Global Hunter Securities, LLC and Ardent Advisors, LLC
(collectively, the “Advisor”), we may be obligated to issue up to 10% of the
aggregate
43
number
of
shares of common stock (or warrants) issued or issuable pursuant to the
Transaction Documents. Such fee is payable, in thew Advisor’s sole discretion,
in shares of common stock or warrants. Such agreement further provides that
such
securities will have the same registration rights as are applicable to the
securities issued pursuant to the Transaction Documents. Global also has a
right
of first refusal with respect to certain Company financings.
Schedule
3.1 i - Material Changes
The
Company’s consolidated financial statements included in its quarterly report on
Form 10-QSB for the period ending September 30, 2007 (the “Report”), noted that:
“There is an off-balance sheet pledge agreement that the Company entered into
on
April 13, 2007, whereby Xxxxx X. Xxxxx pledged $2,080,000 in a letter of credit
to Mellon. The Company agreed to pay Xxxxx X. Xxxxx interest at a per annum
rate
equal to 15% of the face amount of the agreement. The Company issued warrants
to
acquire 2.1 million shares in connection with the pledge.
In
connection with the extension of the pledge (the “Extension”), (i) the exercise
price of such warrants will be reduced to $0.25 and (ii) the Company will also
issue to the pledgor additional warrants to acquire 2.1 million shares of common
stock at an exercise price of $0.25 per share in consideration of the agreement
being extended for one year.
Note
3 of
the Report stated: “All purchasers under the Securities Purchase Agreement also
acquired a warrant to purchase common stock of the Company. These warrants
will
entitle each holder thereof to purchase a presently indeterminate number of
shares of common stock of the Company at an exercise price, subject to
adjustment, that is also presently indeterminate.” The Company intends to issue
warrants to such purchasers to acquire an aggregate of up to 9 million shares
of
common stock, with an exercise price of $0.25 per share.
The
Company, in consideration of receiving a bridge loan of $200,000, has agreed
to
issue 1.2 million shares of common stock to the lenders thereof. This loan
is to
be repaid from the proceeds of this transaction.
44
Securities
Purchase Agreement
Schedule
3.1 n - Title to Assets
The
Company does not own any real property. The Company, along with its wholly
owned
subsidiary, hold title to all assets, free and clear of all liens, except as
noted in Schedule B of the Security Agreement.
The
Company and the Subsidiaries have contractual rights pursuant to which they
are
entitled to use intellectual property rights which rights may not be marketable
or transferable to another person.
45
Securities
Purchase Agreement
Schedule
3.1 p - Insurance
The
Company is insured by insurers of recognized financial responsibility against
losses and risks as are prudent and customary in the business.
We
have
acquired D & O coverage with an effective date of February 4,
2008.
46
Securities
Purchase Agreement
Schedule
3.1 s - Certain Fees
The
Company has a placement agreement with Global Hunter Securities and Ardent
Advisors for providing certain services including capital raising and placement
services.
47
Securities
Purchase Agreement
Schedule
3.1.v
The
Company has not entered into any agreement granting any registration rights
with
respect to any of its securities except as noted below.
Note
3 of
the Company’s Quarterly Report on Form 10-QSB for the period ended September 30,
2007 states:
“The
warrants have a Registration Rights Agreement which requires the Company to
use
commercially reasonable efforts to effect the registration of the registerable
securities sold. There is no provision for liquidated damages in the event
the
securities are not registered.”
It
is
anticipated that in connection with the issuance of up to 9 million warrants
as
described in Schedule 3.1 (g) of the Securities Purchase Agreement, the above
referenced Registration Rights Agreement will be terminated.
48
Securities
Purchase Agreement
Schedule
3.1 z - Integrated Offerings
None
49
Securities Purchase Agreement
Schedule
3.1 aa - Schedule of Indebtedness
Based
on
the consolidated financial condition of the Company as of the Closing Date
after
giving effect to the receipt by the Company of the proceeds from the sale of
the
Securities hereunder, (i) the fair saleable value of the Company’s assets
exceeds the amount that will be required to be paid on or in respect of the
Company’s existing debts and other liabilities (including known contingent
liabilities) as they mature, (ii) the Company’s assets do not constitute
unreasonably small capital to carry on its business as now conducted and as
proposed to be conducted during the twelve months following the Closing Date,
including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected capital
requirements and capital availability thereof, and (iii) the current cash flow
of the Company, together with the proceeds the Company would receive, were
it to
liquidate all of its assets, after taking into account all anticipated uses
of
the cash, during the twelve months following the Closing Date, would be
sufficient to pay all amounts on or in respect of its liabilities when such
amounts are required to be paid.
50
Securities
Purchase Agreement
Schedule
3.1 aa
Schedule
of Indebtedness excluding Trade Accounts Payable
As
of January 31, 2008
Bridge
Loan
|
Investor
|
Principal
Amount**
|
|||
|
Investor
|
50,000.00
|
|||
|
Investor
|
50,000.00
|
|||
|
Investor
|
25,000.00
|
|||
|
Investor
|
25,000.00
|
|||
|
Investor
|
25,000.00
|
|||
|
Investor
|
79,667.00
|
|||
|
Investor
|
100,000.00
|
|||
|
Investor
|
50,000.00
|
|||
|
Investor
|
100,000.00
|
|||
|
Investor
|
50,000.00
|
|||
|
Investor
|
25,000.00
|
|||
|
Investor
|
25,000.00
|
|||
|
Investor
|
200,000.00
|
|||
|
Investor
|
100,000.00
|
|||
|
Investor
|
93,259.05
|
|||
|
Investor
|
75,000.00
|
|||
|
Investor
|
500,000.00
|
|||
|
1,572,926.05
|
||||
|
Accrued
Interest on Bridge Loan Per
Diem Interest 786.46
|
403,350.80
|
|||
|
Line
of Credit, Mellon*
|
2,073,301.00
|
|||
|
Interest
to X. Xxxxx on
|
209,429.00
|
|||
|
Collateral
for Mellon Per
Diem Interest 854.79
|
||||
|
Short
Term Loan, Due 03/15/08
|
720,000.00
|
|||
|
Short
Term Loan, Due 03/05/08
|
200,000.00
|
|||
|
Short
Term Loans, payble on demand
|
100,000.00
|
|||
*The
interest rate on the note is subject to change from time to time based on
changes in an index which is the rate announced from time to time by Mellon
as
its Prime Rate. The interest rate for the period ended January 31, 2008 was
6.5%. Interest is payable on a monthly basis.
**Some
of the investors may agree to roll all or a portion of the sums due them as
an
investment into the financing contemplated by the Securities
Purchase Agreements
51
Securities
Purchase Agreement
Schedule
3.1 ff - Indebtedness or other claims senior to the Debentures
$720,000
Short Term Bridge Loan, Secured Promissory Note*
*Note:
To
be paid off upon closing
52
Securities
Purchase Agreement
Schedule
4.9
|
Gross
Proceeds Raised
|
$
|
5,650,000.00
|
||
|
Deal
Expenses*
|
$
|
(300,000.00
|
)
|
|
|
Bridge
Loan
|
$
|
(1,572,926.00
|
)
|
|
|
LH/Midsummer
Bridge
|
$
|
(720,000.00
|
)
|
|
|
Midsummer
Fees
|
$
|
(17,500.00
|
)
|
|
|
Last
Bridge Loan
|
$
|
(200,000.00
|
)
|
|
|
Accrued
Interest
|
$
|
(403,350.00
|
)
|
|
|
Legal
Expenses
|
$
|
(150,000.00
|
)
|
|
|
LOC
Repayment
|
$
|
(650,000.00
|
)
|
|
|
Other
Debt (Xxxxx Xxxxx)
|
$
|
(294,000.00
|
)
|
|
|
Porsche
Design Fees
|
$
|
(280,000.00
|
)
|
|
|
General
Design Fees
|
$
|
(50,000.00
|
)
|
|
|
44'
Tooling
|
$
|
(150,000.00
|
)
|
|
|
44'
Prototype
|
$
|
(500,000.00
|
)
|
|
|
68'
Tooling
|
$
|
(500,000.00
|
)
|
|
|
Subtotal
Use of Proceeds
|
$
|
(5,787,776.00
|
)
|
|
|
Rollover
from Prior Bridge
|
$
|
205,000.00
|
||
|
Additional
Working Capital
|
$
|
67,224.00
|
*Such
sum
represents 50% of the cash commission to be paid to the advisors with the
balance to be paid in cash in one year.
53
