STOCK PURCHASE AND LOAN OPTION AGREEMENT
EXHIBIT
10.1
This
Stock Purchase and Loan Option Agreement (this “Agreement”)
is
entered into as of May 30, 2005 by and among MRD Holdings Inc., (the
“Investor”),
a
corporation organized and existing under the laws of the State of Delaware,
with
its corporate address at The Naaman’s Building Suite 206, 305 Silverside Rd., DE
19810 Wilmington, Delaware, USA, and MR3 Systems, Inc., (the “Company”), a
corporation organized and existing under the laws of the State of Delaware,
with
its corporate address at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇.
RECITALS
A. The
Company desires to issue and sell to Investor, and Investor desires to purchase
at the Initial Closing (as defined below), on the terms and conditions set
forth
herein, 400,000 shares of Series B Convertible Preferred Stock of the Company,
par value $0.01 per share, for a total purchase price of $1,000,000. The
purchase price being paid by Investor shall be $2.50 per share, or an aggregate
of $1,000,000 (“Purchase
Price”).
Each
share of Preferred Shares shall be convertible into Common shares of the Company
at the rate of twenty-five (25) Common shares for each share of Preferred
Shares.
B. Subject
to the terms and conditions set forth in this Agreement, the Company desires
to
grant to Investor a ninety day (90) day option to purchase from the Company,
the
following securities: (a) Convertible Promissory Notes in the aggregate
principal amount of $4,500,000 (the “Notes”)
and/or
(b) 2,534,090 shares of Series B Convertible Preferred Stock. The Convertible
Promissory Notes shall be in the form of Exhibit
A
hereto.
The shares of Series B Convertible Preferred Stock issued to Investor
pursuant to this Agreement are hereinafter referred to as the “Preferred
Shares.”
The
Company also desires to issue to Investor the Warrant(s) in the form of
Exhibit
B
hereto
(the “Warrant”).
The
Preferred Shares, the Notes, the Warrant, and the Common Stock issuable on
exercise of the Warrants are referred to herein as the “Securities”).
AGREEMENT
In
consideration of the mutual covenants and agreements set forth herein, and
for
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. DEFINITIONS.
For
the
purpose of this Agreement capitalized terms not otherwise defined herein have
the meanings set forth in Exhibit
F.
2. PURCHASE
AND SALE OF COMPANY SECURITIES - LOAN OPTION.
2.1 Purchase
Price.
Subject
to the terms and conditions contained herein, and in reliance upon the
representations, warranties and agreements contained herein, the Company shall
issue and sell to Investor, and Investor shall purchase, the Preferred Shares
at
the Initial Closing (as defined in Section
2.2).
The
purchase price being paid by Investor shall be $2.50 per share, or an aggregate
of $1,000,000 (“Purchase
Price”).
2.2 Closing;
Delivery.
The
purchase and sale of the Preferred Shares shall take place at the offices of
the
Company at ten o’clock a.m. on May 30, 2005, or at such other time and place as
the Company and Investor mutually agree upon, orally or in writing (which time
and place are designated as the “Initial
Closing”).
In
the event there is more than one closing, the term “Closing”
and
“Closing
Date”
shall
apply to each such closing unless otherwise specified herein. At each Closing,
the Company shall deliver to Investor certified copies of minutes of meetings
of
directors approving the issuance, allotment and registration of the Preferred
Shares together with a certificate representing the Preferred Stock being
purchased thereby against payment of the purchase price by wire transfer to
a
bank account designated by the Company.
2.3 Option.
Investor shall have the right, but not the obligation, any time within ninety
(90) days of the Initial Closing (the “Option
Period”),
to
purchase from the Company in any combination, (a) Notes in the maximum aggregate
principal amount of $4,500,000, and/or (b) 2,534,090 shares of Series B
Preferred Stock, par value of $.01 per share, with a purchase price of $2.50
per
share. Should the Investor elect to convert the Notes into Series B Preferred
Stock, then the number of shares of Preferred Shares, when converted into Common
Stock and when combined with the Preferred Shares purchased at the Initial
Closing, shall constitute, upon issuance, 51% of the issued and outstanding
voting and capital stock of the Company. At the second closing (“Second
Closing”),
the
Company shall also issue to Investor the Warrant. The Warrant shall represent
Holder’s continuing right to purchase that number of shares of Common Stock of
the Company representing fifty-one percent (51%) of the total number of shares
of capital stock of the Company as of the Second Closing Date, calculated on
a
fully-diluted as converted-to-common basis (“Fully
Diluted Basis”).
2.4 Second
Closing.
Should
the Investor exercise the option granted to the Investor under Section
2.3
above,
the Company agrees to execute and deliver to the Investor, at the Second Closing
the Notes and/or the Preferred Shares. The Company and the Investor also agree
as follows:
2.4.1 The
proceeds from the Notes and/or Preferred Shares, as applicable, are to be
allocated and used as follows as determined by the Board of Directors of the
Company:
(a) Three
Million Dollars (US$3,000,000) for the working capital of the Company,
and
(b) One
Million Five Hundred Thousand Dollars (US$1,500,000) to pay down existing
liabilities of the Company (other than any liability to any Affiliate of the
Company) as determined by the Board of Directors of the Company after the Second
Closing.
2.4.2 As
security for the Loan, the Company will grant to the Investor a first priority
lien on all the assets of the Company, pursuant to the Security Agreement
attached hereto as Exhibit
E.
The
Security Agreement shall secure all amounts owing under the Notes, together
with
the performance of all obligations of the Company to the Investor under this
Agreement.
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2.5 Jurisdictions,
Technology Transfer, Protection and Access To Trade Secrets
As
further consideration for the Investor’s agreement to acquire the Securities,
concurrent with the Second Closing, the Company agrees to transfer to Investor
exclusive rights to the Company Technology, for utilization and development
in
the countries of Greater China (including Hong Kong, Macau and Taiwan) India,
Pakistan, Middle East, Switzerland, Austria, and the Philippines (collectively
referred as “Areas
of Jurisdiction”).
The
terms of the Technology Transfer are outlined in a Strategic Partnership
Agreement between the Investor and the Company in the form of Exhibit G hereto.
Investor and the Company agree that any utilization or deployment of the Company
Technology shall be fully supported by the Company Technology teams. These
exclusive technology transfers and utilization will be jointly implemented
by
the Investor and the Company during the Option Period, and after the Second
Closing, based on the following basic understanding and parameters:
2.5.1 The
Company will publish its original intellectual property in Europe. Thereafter,
the Investor will register the IP in any country in Europe selected by the
Investor within the Option Period with the understanding that the IP registered
in the name of the Company will remain in Escrow for the safekeeping by the
Company during the Option Period.
Upon
the
receipt by the Company of the proceeds from the Notes and/or Preferred Shares,
as applicable, the physical possession of the Company Technology shall be
delivered to the Investor who will license the Company Technology to the Company
for projects in the US with a fully paid license fee of US$1.00. The Company
Technology shall be owned jointly by the Company and the Investor, as
co-developers. Investor shall have the option to assign its interest in the
Company Technology to its Affiliates.
2.5.2 The
consequence of applying the Company Technology in the market are: (i) Investor
will be paying the Company for the work in the Areas of Jurisdiction as a
contractor, and may elect through approval of the Board of Directors, to pay
the
Company a fair and reasonable royalty from the profits realized in areas of
Jurisdiction as part of the promotional campaign of the Company in the US.
(ii)
Any new intellectual property (“New
IP”)
developed from the work in the Areas of Jurisdiction will be published and
registered in any country selected by Investor in Europe and shall be solely
owned by Investor or its designate. In the event that the Company desires to
employ any of the techniques developed in the Areas of Jurisdiction it must
obtain a license from the Investor or its designate on terms, including
royalties, acceptable to Investor or its designate.
2.5.3 Operational
protocol and other formula developed or discovered in the course of technology
application that results in its optimization will be treated and guarded as
trade secrets. Such formula and protocols that result in the optimization of
basic Company Technology, and those obtained during the course of the
application in actual operation will be recorded in writing in the form of
journals containing the steps and chemicals used and operational parameters
(i.e. temperature, resident times, ORP, etc.) starting from the chemical bench
to the pilot stage and such other vital data and formula that contributed to
the
optimization of technology use. These journals will be kept confidential in
Escrow and shall serve to recreate any process in the event the operators and
other important key personnel who have the sole knowledge of the said formula
become physically and mentally incapacitated. Such will address the problem
of
delay, stoppage or intermittent stoppage of operations. A compartmentalized
protocol will be set according to the need of a particular project.
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Investor
shall have complete and unconditional access to the said Escrow containing
the
journals and the trade secrets in the event of temporary or permanent incapacity
of key officers of the Company who have the full and unrestricted knowledge
of
the protocols, formula and other trade secrets of the company to avert the
delay, disruption or stoppage of company operation or any of its impending
or
pending projects.
2.6 The
Company and the Investor will jointly determine the best strategy for protecting
the Company’s intellectual property and complete the filing of the necessary
applications and documentation in the various jurisdictions approved by both
the
Company and the Investor.
3. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.
The
Company hereby represents and warrants to Investor that:
3.1 Organization
and Qualification.
The
Company is a corporation duly organized and validly existing in good standing
under the laws of the State of Delaware, and has the requisite corporate power
and authorization to own its properties and to carry on its businesses as now
being conducted or as is proposed to be conducted. The Company is duly qualified
as a foreign corporation to do business and is in good standing in every
jurisdiction in which its ownership of property or the nature of the business
conducted by it or proposed to be conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a Material Adverse Effect.
3.2 Subsidiaries.
The
subsidiaries of the Company are set forth on Schedule
3.2
(the
“Subsidiaries”).
Each
of such Subsidiaries is duly organized and validly existing in good standing
under the laws of the jurisdiction in which it is formed, and has the requisite
corporate power and authorization to own its properties and to carry on its
businesses as now being conducted or as is proposed to be conducted. Each of
the
Subsidiaries is duly qualified to do business and is in good standing in every
jurisdiction in which its ownership of property or the nature of the business
conducted by it or proposed to be conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a Material Adverse Effect.
3.3 Authorization;
Enforcement; Validity.
The
Company has the requisite corporate power and authority to enter into and
perform its obligations under this Agreement and to issue the Securities in
accordance with the terms hereof. The execution and delivery of the Agreement
and each of the other agreements entered into by the parties hereto in
connection with the transactions contemplated by this Agreement, including,
without limitation, the Certificate of Designation for the Series B Preferred
Stock, the Investor Rights Agreement, the
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Notes,
the Security Agreement (as hereinafter defined), and the Warrant (collectively,
the “Transaction
Documents”)
by the
Company and the consummation by it of the transactions contemplated hereby
and
thereby, including, without limitation, the issuance of the Preferred Shares,
the Notes and the Warrants, and the reservation for issuance of the conversion
shares issuable upon conversion of the Preferred Shares, the Notes and/or the
Warrant Shares issuable upon exercise of the Warrants (individually and
collectively, the “Conversion
Shares”)
have
been duly authorized by the Company’s Board of Directors and no further consent
or authorization is required by the Company, its Board of Directors or from
the
staff, the creditors, the stockholders or the warrant-holders of the Company.
This Agreement and Transaction Documents have been duly executed and delivered
by the Company, and constitute the valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors’ rights and remedies. No
consent, approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any federal, state, local or provincial
governmental authority on the part of the Company is required in connection
with
the consummation of the transactions contemplated by this Agreement, except
such
filings as have been made prior to the Closing, or such post-closing filings
as
may be required under Rule 506 of Regulation D and applicable state securities
laws, which will be timely filed within the applicable periods therefore. All
such filings are listed on Schedule
3.3.
3.4 Capitalization.
As of
the date hereof, the authorized capital stock of the Company consists of (i)
250,000,000 shares of Common Stock, 70,242,963 of which are issued and
outstanding immediately prior to the Initial Closing, and (ii) 5,000,000 shares
of Preferred Stock, of which as of the date hereof, 232,714 shares of Series
A
Preferred Stock are issued and outstanding. There is disclosed on Schedule
3.4
the
number of shares of Common Stock (x) issued and outstanding, (y) reserved for
issuance pursuant to the Company’s stock option and purchase plans and (z)
issuable and reserved for issuance pursuant to securities (other than the
Preferred Shares, the Notes and the Warrants) exercisable or exchangeable for,
or convertible into, shares of Common Stock. All of such outstanding or issuable
shares have been, or upon issuance will be, validly issued and are fully paid
and nonassessable. Except as disclosed in Schedule
3.4:
3.4.1 No
shares
of the Company’s capital stock are subject to preemptive rights or any other
similar rights or any liens or encumbrances granted or created by the Company;
3.4.2 There
are
no outstanding debt securities issued by the Company;
3.4.3 There
are
no outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company, or contracts,
commitments, understandings or arrangements by which the Company is or may
become bound to issue additional shares of capital stock of the Company or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into,
any
shares of capital stock of the Company.
-5-
3.4.4 There
are
no agreements or arrangements under which the Company is obligated to register
the sale of any of their securities under the Securities Act (except this
Agreement).
3.4.5 There
are
no outstanding securities or instruments of the Company, which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company is or may become bound
to
redeem a security of the Company.
3.4.6 There
are
no securities or instruments containing anti-dilution or similar provisions
and
no such anti-dilution or similar provisions will be triggered by the issuance
of
the option granted pursuant to Section
2.3
of this
Agreement or the issuance of the Securities as described in this
Agreement.
3.4.7 The
Company does not have any stock appreciation rights or “phantom stock” plans or
agreements or any similar plan or agreement.
3.4.8 The
Company does not currently own or control, directly or indirectly, any interest
in any other corporation, association, or other business entity. The Company
is
not a participant in any joint venture, partnership or similar
arrangement.
3.5 Issuance
of Stock.
The
Preferred Shares which are being issued to Investor hereunder, when issued,
sold
and delivered in accordance with the terms hereof for the consideration
expressed herein, will be validly issued, fully paid and nonassessable and
free
from all taxes, liens and charges with respect to the issue thereof, and free
of
restrictions on transfer other than restrictions on transfer under the
Transaction Documents with Investor being entitled to all rights accorded to
a
holder of Preferred Stock. Upon conversion or exercise of the Preferred Shares,
the Notes or the Warrants, as the case may be, the Conversion Shares will be
validly issued, fully paid and nonassessable and free from all taxes, liens,
charges and preemptive rights, with the holders thereof entitled to all rights
accorded to a holder of Preferred Stock or Common Stock, as applicable. The
number of shares of Common Stock and Preferred Shares that have been duly
authorized and reserved for issuance upon conversion of the Preferred Shares
and
Notes, as applicable, and upon exercise of the Warrants is set forth on
Schedule
3.5.
The
issuance by the Company of the Securities is exempt from registration under
the
Securities Act and will be issued in compliance with all applicable federal
and
state securities laws.
3.6 No
Conflicts.
Except
as disclosed in Schedule
3.6,
the
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby
(including, without limitation, the reservation for issuance and issuance of
the
Conversion Shares) will not (i) result in a violation of the Company’s
Certificate of Incorporation or the Bylaws; (ii) conflict with, or constitute
a
default (or an event which with notice or lapse of time or both would become
a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture or instrument
to which the Company is a party; (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and the rules and regulations of the Principal Market)
applicable to the Company or by which any property or asset of the Company
is
bound or affected. Except as disclosed in Schedule
3.6,
the
Company is not in violation of any term of its Certificate of
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Incorporation
or Bylaws or its organizational charter or bylaws. Except as disclosed in
Schedule
3.6,
the
Company is not in violation of any term of or in default under any contract,
agreement, mortgage, indebtedness, indenture, instrument, judgment, decree
or
order or any statute, rule or regulation applicable to the Company. The business
of the Company is not being conducted, and shall not be conducted, in violation
of any law, ordinance or regulation of any governmental entity, except where
such violation would not have a Material Adverse Effect. Except as specifically
contemplated by this Agreement, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with,
any
court or governmental agency or any regulatory or self-regulatory agency in
order for it to execute, deliver or perform any of its obligations under or
contemplated by the Transaction Documents in accordance with the terms hereof
or
thereof. Except as disclosed in Schedule
3.6,
all
consents, authorizations, orders, filings and registrations which the Company
is
required to obtain as described in the preceding sentence have been obtained
or
effected on or prior to the date hereof. The Company is unaware of any facts
or
circumstances that might give rise to any of the foregoing. The Company is
not
in violation of the listing requirements of the Principal Market and has no
actual knowledge of any facts or any reason to believe that facts exist that
would reasonably lead to delisting or suspension of the Common Stock by the
Principal Market in the foreseeable future.
3.7 SEC
Documents; Financial Statements.
Since
December 31, 2004, except as set forth on Schedule
3.7,
the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Exchange Act (all of the foregoing filed prior to the date
hereof (including all exhibits included therein and financial statements and
schedules thereto and documents incorporated by reference therein) being
hereinafter referred to as the “SEC
Documents”).
A
complete and accurate list of the SEC Documents that have been filed by the
Company on ▇▇▇▇▇ is set forth on Schedule
3.7.
As of
their respective dates, the SEC Documents complied in all material respects
with
the requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents. None of the SEC
Documents, at the time they were filed with the SEC, 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 light
of
the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
with
respect thereto. Such financial statements have been prepared in accordance
with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case
of
unaudited statements, to normal year-end audit adjustments). Neither the Company
nor any of its officers, directors, employees or agents have provided Investor
with any material, nonpublic information.
3.8 Absence
of Certain Changes.
Except
as disclosed in Schedule
3.8,
since
December 31, 2003, there has been no material adverse change and no material
adverse development in the business, properties, assets, operations, results
of
operations, financial conditions or prospects of the Company. The Company has
not taken any steps, and does not currently expect to take any steps, to seek
protection pursuant to any bankruptcy law nor does the Company have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings or any actual knowledge of any fact which would
reasonably lead a creditor to do so. Except as disclosed in Schedule
3.8,
since
December 31, 2004, the Company has not declared or paid any dividends, sold
any
assets, individually or in the aggregate, in excess of $100,000 outside of
the
ordinary course of business or had capital expenditures, individually or in
the
aggregate, in excess of $100,000.
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3.9 Absence
of Litigation.
There
is no action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or body pending
or, to the knowledge of the Company, threatened against or affecting the Company
or any of the Company’s officers or directors in their capacities as such,
except as expressly set forth in Schedule
3.9.
Except
as set forth in Schedule
3.9,
to the
knowledge of the Company none of the directors or officers of the Company have
been involved in securities related litigation during the past five years.
There
is no action, suit, proceeding or investigation pending or, to the Company’s
knowledge, currently threatened against the Company that questions the validity
of the Transaction Documents or the right of the Company to enter into them,
or
to consummate the transactions contemplated hereby or thereby, or that might
result, either individually or in the aggregate, in any material adverse changes
in the assets, condition or affairs of the Company, financially or otherwise,
or
any change in the current equity ownership of the Company, nor is the Company
aware that there is any basis for the foregoing. The Company is not a party
or
subject to the provisions of any order, writ, injunction, judgment or decree
of
any court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company currently pending or which the
Company intends to initiate. The foregoing includes, without limitation,
actions, suits, proceedings or investigations pending or threatened in writing
(or any basis therefore known to the Company) involving the prior employment
of
any of the Company’s employees, their use in connection with the Company’s
business, or any information or techniques allegedly proprietary to any of
their
former employers, or their obligations under any agreements with prior
employers.
3.10 No
Undisclosed Events, Liabilities, Developments or Circumstances.
Except
for the issuance of the Securities contemplated by this Agreement and as set
forth on Schedule
3.10,
no
event, liability, development or circumstance has occurred or exists, or is
contemplated to occur, with respect to the Company or its business, properties,
prospects, operations or financial condition, that would be required to be
disclosed by the Company under applicable securities laws on a Form 8-K filed
with the SEC or on a registration statement on Form S-1 filed with the SEC
relating to an issuance and sale by the Company of its Common Stock, and which
has not been publicly disclosed.
3.11 No
General Solicitation.
Neither
the Company, nor any of its affiliates, nor any person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the Securities Act) in connection
with
the offer or sale of the Securities.
3.12 Employee
Relations.
The
Company is not a party to a collective bargaining agreement, and the Company
believes that its relations with its employees are good. No executive officer
(as defined in Rule 501(f) of the Securities Act) has notified the Company
that
he intends to leave the Company or otherwise terminate his employment with
the
Company. No executive officer, to the knowledge of the Company, is, or is now
expected to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does
not
subject the Company to any liability with respect to any of the foregoing
matters.
-8-
3.13 Intellectual
Property Rights.
The
Company owns or possesses total and absolute rights and /or licenses to use
all
trademarks, trade names, service marks, service ▇▇▇▇ registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and other intellectual property
rights necessary to conduct its businesses as now conducted or as proposed
to be
conducted in the future. Except as set forth on Schedule
3.13,
none of
the Company’s trademarks, trade names, service marks, service ▇▇▇▇
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, governmental authorizations, trade secrets or other
intellectual property rights have expired or terminated, or are expected to
expire or terminate within ten years from the date of this Agreement. The
Company does not have any knowledge of any infringement by the Company of
trademarks, trade names, service marks, service ▇▇▇▇ registrations, service
names, patents, patent rights, copyrights, inventions, licenses, trade secrets
or other intellectual property rights of others, or of any development of
similar or identical trade secrets or technical information by others and,
except as set forth on Schedule
3.13,
there
is no claim, action or proceeding being made or brought against, or to the
Company’s knowledge, being threatened against, the Company, regarding its
trademarks, trade names, service marks, service ▇▇▇▇ registrations, service
names, patents, patent rights, copyrights, inventions, licenses, trade secrets,
or infringement of other intellectual property rights; and the Company is
unaware of any facts or circumstances which might give rise to any of the
foregoing. The Company has taken security measures to protect the secrecy,
confidentiality and value of all of its intellectual properties consistent
with
industry practices used by comparable companies. Schedule
3.13
contains
a complete list of all patents and trademarks for which the Company has sought
intellectual property protection with the Patent and Trademark Office. There
are
no outstanding options, licenses, or agreements of any kind relating to the
foregoing, nor is the Company bound by or a party to any options, licenses
or
agreements of any kind with respect to the patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information, proprietary
rights and processes of any other person or entity. The Company has not received
any communications alleging that the Company has violated or, by conducting
its
business, would violate any of the patents, trademarks, service marks, trade
names, copyrights, trade secrets or other proprietary rights or processes of
any
other person or entity. The Company is not aware that any of its employees
is
obligated under any contract (including licenses, covenants or commitments
of
any nature) or other agreement, or subject to any judgment, decree or order
of
any court or administrative agency, that would interfere with the use of such
employee’s best efforts to promote the interest of the Company or that would
conflict with the Company’s business. Neither the execution or delivery of this
Agreement, nor the carrying on of the Company’s business by the employees of the
Company, nor the conduct of the Company’s business as proposed, will, to the
Company’s knowledge, conflict with or result in a breach of the terms,
conditions, or provisions of, or constitute a default under, any contract,
covenant or instrument under which any such employee is now obligated. The
Company does not believe it is or will be necessary to use any inventions of
any
of its employees (or persons it currently intends to hire) made prior to their
employment by the Company.
-9-
3.14 Environmental
Laws.
The
Company (i) is in compliance with any and all applicable foreign, federal,
state
and local laws and regulations relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes, pollutants
or contaminants (“Environmental
Laws”),
(ii)
has received all permits, licenses or other approvals required of it under
applicable Environmental Laws to conduct its businesses and (iii) is in
compliance with all terms and conditions of any such permit, license or
approval. The Company is not in violation of any applicable statute, law or
regulation relating to the environment or occupational health and safety, and
to
its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law or regulation. Except as set forth
on
Schedule
3.14,
no
Hazardous Materials (as defined below) are used or have been used, stored,
or
disposed of by the Company or, to the Company’s knowledge, by any other person
or entity on any property owned, leased or used by the Company. For the purposes
of the preceding sentence, “Hazardous
Materials”
shall
mean (a) materials which are listed or otherwise defined as “hazardous”
or
“toxic”
under
any applicable local, state, federal and/or foreign laws and regulations that
govern the existence and/or remedy of contamination on property, the protection
of the environment from contamination, the control of hazardous wastes, or
other
activities involving hazardous substances, including building materials or
(b)
any petroleum products or nuclear materials.
3.15 Title.
The
Company has good title to all property owned by it which is material to the
business of the Company free and clear of all liens, encumbrances and defects
except such as are described in Schedule
3.15
or such
as do not materially affect the value of such property and do not interfere
with
the use made and proposed to be made of such property by the Company. Any real
property and facilities held under lease by the Company are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of
such
property and facilities by the Company.
3.16 Insurance.
The
Company is insured by insurers of recognized financial responsibility against
such losses and risks and in such amounts as management of the Company
reasonably believes to be prudent and customary in the businesses in which
the
Company is engaged. The Company has not been refused any insurance coverage
sought or applied for and, except as set forth in Schedule
3.16,
the
Company has no reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business
at a
cost that would not have a Material Adverse Effect.
3.17 Regulatory
Permits.
The
Company possesses all certificates, authorizations and permits issued by the
appropriate federal, state or foreign regulatory authorities necessary to
conduct its businesses, and the Company has not received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit. The Company is not in default in any material respect
under any of such permits, licenses or other similar authority.
-10-
3.18 Internal
Accounting Controls.
The
Company maintains a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management’s general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
(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.
3.19 Tax
Status.
Except
as set forth in Schedule
3.19,
the
Company (i) has made or filed all federal and state income and all other tax
returns, reports and declarations required by any jurisdiction to which it
is
subject (unless and only to the extent that the Company has set aside on its
books provisions reasonably adequate for the payment of all unpaid and
unreported taxes), (ii) has paid all taxes and other governmental assessments
and charges shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and for which the
Company has made appropriate reserves for on its books, and (iii) has set aside
on its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
(referred to in clause (i) above) apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company know of no basis for any such
claim.
3.20 Agreements.
3.20.1 Except
as
set forth on Schedule
3.20,
and
other than the grant of stock options disclosed on Schedule
3.4,
none of
the officers, directors, or employees of the Company is presently a party to
any
transaction with the Company (other than for services as employees, officers
and
directors), including any contract, agreement or other arrangement providing
for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any such
officer, director or employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any such officer,
director, or employee has a substantial interest or is an officer, director,
trustee or partner, and there are no agreements, understandings or proposed
transactions between the Company and any of its officers, directors, affiliates,
or any affiliate thereof.
3.20.2 Except
as
set forth in Schedule
3.20,
there
are no agreements, understandings, instruments, contracts, proposed
transactions, judgments, orders, writs or decrees to which the Company is a
party or by which it is bound which may involve (i) obligations (contingent
or
otherwise) of, or payments to the Company in excess of $25,000, or (ii) the
license of any patent, copyright, trade secret or other proprietary right to
or
from the Company or (iii) provisions restricting or affecting the development,
manufacture or distribution of the Company’s products or services.
3.20.3 Except
as
set forth in Schedule
3.20,
the
Company has not (i) declared or paid any dividends, or authorized or made any
distribution upon or with respect to any class or series of its capital stock,
(ii) incurred any indebtedness for money borrowed or any other liabilities
individually in excess of $25,000 or, in the case of indebtedness and/or
liabilities individually less than $25,000, in excess of $100,000 in the
aggregate, (iii) made any loans or advances to any person, other than ordinary
advances for travel expenses, or (iv) sold, exchanged or otherwise disposed
of
any of its assets or rights, other than in the ordinary course of business.
For
the purposes of Sections
3.20.2
above
and this Section
3.20.3,
all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall
be
aggregated for the purpose of meeting the individual minimum dollar amounts
of
such subsections.
-11-
3.20.4 The
Company is not a party to and is not bound by any contract, agreement or
instrument, or subject to any restriction under its Certificate of Incorporation
or Bylaws, which materially adversely affects its business as now conducted
or
as proposed to be conducted in the MR3 CFDD 03-20-05 report, its properties
or
its financial condition.
3.20.5 Except
as
set forth in the Schedule
3.20,
the
Company is not a party to and has not entered into any agreements in the past
three (3) months (i) with any representative of any corporation or corporations
regarding the consolidation or merger of the Company with or into any such
corporation or corporations, (ii) with any corporation, partnership, association
or other business entity or any individual regarding the sale, conveyance or
disposition of all or substantially all of the assets of the Company, or a
transaction or series of related transactions in which more than fifty percent
(50%) of the voting power of the Company is disposed of, or (iii) regarding
any
other form of acquisition, liquidation, dissolution or winding up of the
Company.
3.21 Disclosure.
The
Company has provided Investor with all the information reasonably available
to
it which Investor has requested for deciding whether to purchase the Securities
and all information which the Company believes is reasonably necessary to enable
such Investor to make such decision. All documents in relation to the Company
supplied or to be supplied to Investor are genuine or copies of genuine
documents. Neither this Agreement nor any other statements or certificates
made
or delivered in connection herewith contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements herein
or therein not misleading. To the Company’s knowledge, there are no facts that,
individually or in the aggregate, would have a Material Adverse Effect that
have
not been set forth in this Agreement (including the exhibits and schedules
attached hereto).
3.22 Labor
Agreements and Actions.
The
Company is not bound by or subject to (and none of its assets or properties
is
bound by or subject to) any written or oral, express or implied, contract,
commitment or arrangement with any labor union, and no labor union has requested
or, to the knowledge of the Company, has sought to represent any of the
employees, representatives or agents of the Company. There is no strike or
other
labor dispute involving the Company pending, or to the knowledge of the Company
threatened, which could have a material adverse effect on the assets,
properties, financial condition, operating results, or business of the Company,
nor is the Company aware of any labor organization activity involving its
employees. Except as set forth in Schedule
3.22,
the
employment of each officer and employee of the Company is terminable at the
will
of the Company. The Company has complied in all material respects with all
applicable state and federal equal employment opportunity laws and with other
laws related to employment.
-12-
3.23 Obligations
to Related Parties.
Except
as set forth in Schedule
3.23,
there
are no obligations of the Company to officers, directors, stockholders, or
employees of the Company or its affiliates other than (i) for payment of salary
for services rendered, (ii) reimbursement for reasonable expenses incurred
on
behalf of the Company and (iii) for other standard employee benefits made
generally available to all employees (including stock option agreements
outstanding under any stock option plan approved by the Board of Directors
of
the Company). Except as set forth in the Schedule
3.23,
none of
the officers, members of the Board of Directors or stockholders of the Company,
or any members of their families or their affiliates, are indebted to the
Company or have any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company
has a
business relationship, or any firm or corporation which competes with the
Company, except that officers, directors and/or stockholders of the Company
may
own stock in publicly traded companies which may compete with the Company.
Except as set forth in Schedule
3.23,
no
officer, director or stockholder, or any member of their families or their
affiliates, is, directly or indirectly, interested in any contract with the
Company (other than such contracts as relate to any such person’s ownership of
capital stock or other securities of the Company). The Company is not liable
to
make any payment to any officers, directors, stockholders or employee or former
officers, directors, stockholders or employee by way of damages (whether for
breach of contract or otherwise) or compensation for loss of office or
employment or for redundancy, pension, provident fund, superannuation or
retirement benefit funds, schemes or arrangements, protective awards, wrongful
dismissal or unfair dismissal or for failure to comply with any order for the
reinstatement or re-engagement of any officers, directors or employee or for
any
other liability accruing from the termination of any contract of service or
for
services. The Company is not a guarantor or indemnitor of any indebtedness
of
any other person, firm or corporation.
3.24 Changes.
Since
December 31, 2004, and except as provided in Schedule
3.24,
there
has not been:
3.24.1 any
change in the assets, liabilities, financial condition or operating results
of
the Company from that reflected in the financial statements dated December
31,
2004, except changes in the ordinary course of business that have not been,
in
the aggregate, materially adverse;
3.24.2 any
damage, destruction or loss, whether or not covered by insurance, materially
and
adversely affecting the business, properties, prospects, or financial condition
of the Company;
3.24.3 any
waiver or compromise by the Company of a valuable right or of a material debt
owed to it;
3.24.4 any
satisfaction or discharge of any lien, claim, or encumbrance or payment of
any
obligation by the Company, except in the ordinary course of business and that
is
not material to the business, properties, prospects or financial condition
of
the Company;
-13-
3.24.5 any
material change to a material contract or agreement by which the Company or
any
of its assets is bound or subject;
3.24.6 any
material change in any compensation arrangement or agreement with any employee,
officer, director or stockholder;
3.24.7 any
sale,
assignment or transfer of any patents, trademarks, copyrights, trade secrets
or
other intangible assets;
3.24.8 any
resignation or termination of employment of any officer or key employee of
the
Company; and the Company is not aware of any impending resignation or
termination of employment of any such officer or key employee;
3.24.9 any
mortgage, pledge, transfer of a security interest in, or lien, created by the
Company, with respect to any of its material properties or assets, except liens
for taxes not yet due or payable;
3.24.10 any
loans
or guarantees made by the Company to or for the benefit of its employees,
officers or directors, or any members of their immediate families, other than
travel advances and other advances made in the ordinary course of its
business;
3.24.11 any
declaration, setting aside or payment or other distribution in respect to any
of
the Company’s capital stock, or any direct or indirect redemption, purchase, or
other acquisition of any of such stock by the Company;
3.24.12 to
the
Company’s knowledge, any other event or condition of any character that might
materially and adversely affect the business, properties, prospects or financial
condition of the Company; or
3.24.13 any
arrangement or commitment by the Company to do any of the things described
in
this Section
3.24.
3.25 Rights
Agreement; Employee Benefit Plan.
The
Company has not adopted a stockholder rights plan or similar arrangement
relating to accumulations of beneficial ownership of Common Stock or a change
in
control of the Company. Except as set forth in Schedule
3.25,
the
Company does not have any Employee Benefit Plan as defined in the Employee
Retirement Income Securities Act of 1974.
3.26 Confidential
Information and Invention Assignment Agreements.
Each
employee, consultant and officer of the Company has executed an agreement with
the Company regarding confidentiality and proprietary information substantially
in the form or forms delivered to the counsel for Investor. The Company is
not
aware that any of its employees or consultants is in violation thereof, and
the
Company will use its best efforts to prevent any such violation.
-14-
3.27 Corporate
Documents.
The
Certificate of Incorporation and Bylaws of the Company are in the form provided
to counsel for Investor and except as set forth in Schedule
3.27,
no
amendments are contemplated. The copy of the minute books of the Company
provided to Investor’s counsel contains minutes of all meetings of directors and
stockholders and all actions by written consent without a meeting by the
directors and stockholders since the date of incorporation and reflects all
actions by the directors (and any committee of directors) and stockholders
with
respect to all transactions referred to in such minutes accurately in all
material respects.
3.28 Real
Property Holding Corporation.
The
Company is not a “United States real property holding corporation” within the
meaning of the Code and any regulation promulgated thereunder.
3.29 Foreign
Corrupt Practices.
Neither
the Company, nor any director, officer, agent, employee or other person acting
on behalf of the Company has, in the course of its actions for, or on behalf
of,
the Company, used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expenses relating to political activity; made
any direct or indirect unlawful payment to any foreign or domestic government
official or employee from corporate funds; violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or
made
any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or
employee.
3.30 No
Undisclosed Liabilities.
The
Company has no liabilities or obligations of any nature, whether accrued,
absolute, contingent, unliquidated or otherwise, except those disclosed or
described in the SEC Documents, including the financial statements and notes
thereto included in the SEC Documents, and those liabilities and obligations
incurred in the ordinary course of business since the last day covered by the
financial statements included in the most recently filed SEC Document listed
on
Schedule
3.7.
3.31 Investment
Company Act Status.
The
Company is not an “investment company” or a company “controlled” by an
“investment company” as those terms are defined in the Investment Company Act of
1940, as amended.
3.32 No
Integrated Offering.
Except
as set forth on Schedule
3.32,
neither
the Company, nor any of its affiliates, nor any person acting on its or their
behalf has, directly or indirectly, made any offers or sales of any security
or
solicited any offers to buy any security, under circumstances that would require
registration of any of the Securities under the Securities Act or cause this
offering of the Securities to be integrated with prior offerings by the Company
for purposes of the Securities Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations
of
the Principal Market or any exchange or automated quotation system on which
any
of the securities of the Company are listed or designated, nor will the Company
take any action or steps that would require registration of any of the
Securities under the Securities Act or cause the offering of the Securities
to
be integrated with other offerings.
-15-
3.33 Certain
Officers.
▇▇▇▇▇▇▇
▇. ▇▇▇▇ is the current Chairman, Chief Financial Officer and Secretary of the
Company. ▇▇▇▇▇▇▇ ▇. ▇▇▇, Ph.D. is the current Chief Executive Officer of the
Company.
3.34 Significant
Stockholders.
Set
forth on Schedule
3.34
is a
list of stockholders each of whom is the record owner of 100,000 or more shares
of the Company’s Common Stock. There are no other record owners of 100,000 or
more shares of the Company’s Common Stock.
3.35 Key
Employees.
Each of
the Company’s directors and officers and any Key Employee (as defined below) are
currently serving the Company in the capacity disclosed in the SEC Documents.
No
Key Employee is, or is now expected to be, in violation of any material term
of
any employment contract, confidentiality, disclosure or proprietary information
agreement, non-competition agreement, or any other contract or agreement or
any
restrictive covenant, and the continued employment of each Key Employee does
not
subject the Company to any material liability with respect to any of the
foregoing matters. No Key Employee has, to the knowledge of the Company, any
intention to terminate or limit his employment with, or services to, the
Company, nor is any such Key Employee subject to any constraints which would
cause such employee to be unable to devote his full time and attention to such
employment or services. For purposes of this Agreement, “Key
Employee”
means
the persons listed in Schedule
3.35
and any
individual who assumes or performs any of the duties of a Key
Employee.
3.36 Listing.
The
Common Stock is currently listed for trading on the Over-the-Counter Bulletin
Board (the “OTCBB”).
The
Company is not in violation of the listing requirements of the OTCBB, does
not
reasonably anticipate that the Common Stock will be delisted by the OTCBB for
the foreseeable future, and, except as set forth in Schedule
3.36,
had not
received during 2003, 2004, or 2005 any notice regarding the possible delisting
of the Common Shares from the OTCBB. The Company shall secure the listing of
the
Stock on the OTCBB and on each other national securities exchange, automated
quotation system or over-the-counter market upon which shares of Common Stock
are then listed (subject to official notice of issuance).
3.37 Anti-Takeover
Provisions.
The
Company and its board of directors have taken all necessary action, if any,
in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under its Certificate of Incorporation
or Bylaws or applicable law which is or could become applicable to Investor
as a
result of the transactions contemplated by this Agreement and the other
Transaction Documents (the “Transactions”),
including, without limitation, the Company’s issuance of the Securities or any
other securities pursuant to the terms of this Agreement and any and all
Investor ownership of the Securities or any such other securities.
3.38 Acknowledgement
Regarding Investor’s Purchase of the Securities.
The
Company acknowledges and agrees that Investor is acting solely in the capacity
of an arm’s length purchaser with respect to this Agreement and the other
Transaction Documents and the Transactions, and that Investor is not (i) an
officer or director of the Company, (ii) an “affiliate” of the Company (as
defined in Rule 144 under the Securities Act (including any successor rule,
“Rule
144”)
or
(iii) to the actual knowledge of the Company (without any inquiry of Investor),
except as set forth on Schedule
3.38,
a
“beneficial owner” of more than 5% of the Common Stock (as defined for purposes
of Rule 13d-3 of the Exchange Act). The Company further acknowledges that
Investor is not acting as a financial advisor or fiduciary of the Company (or
in
any similar capacity) with respect to this Agreement or the other Transaction
Documents and the Transactions, and any advice given by Investor or any of
its
representatives or agents in connection with this Agreement or the other
Transaction Documents and the Transactions is merely incidental to Investor’s
purchase of the Securities. The Company further represents to Investor that
the
Company’s decision to enter into this Agreement and the other Transaction
Documents has been based solely on the independent evaluation by the Company
and
its representatives.
-16-
3.39 Legal
Compliance.
The
Company shall conduct its business in compliance with all laws, ordinances
or
regulations of governmental entities applicable to such businesses, except
where
the failure to do so would not have a Material Adverse Effect.
3.40 Variable
Securities.
Except
as contemplated in this Agreement, so long as Investor (or any of its respective
affiliates) beneficially owns any Common Stock, the Company shall not, without
first obtaining the written approval of Investor (which approval may be given
or
withheld by Investor in its sole discretion), issue or sell any rights, warrants
or options to subscribe for or purchase Common Stock, or any other securities
directly or indirectly convertible into or exchangeable or exercisable for
Common Stock, at an effective conversion, exchange or exercise price that varies
or may vary with the market price of the Common Stock, including by way of
one
or more reset(s) to any fixed price.
3.41 Representations
and Warranties Effective as of Each Closing Date.
The
representations and warranties of the Company set forth in this Section
3
will be
true, correct and complete on the Initial Closing and on each Closing Date
as if
made as of that date.
4. INVESTOR
REPRESENTATIONS AND WARRANTIES.
Investor
represents and warrants to the Company that:
4.1 Investment
Purpose.
Investor (i) is acquiring the Securities for Investor’s own account and not with
a view towards, or for resale in connection with, the public sale or
distribution thereof, except pursuant to sales registered or exempted under
the
Securities Act.
4.2 Accredited
Investor Status.
Investor is an “accredited investor” as that term is defined in Rule 501(a) of
Regulation D.
4.3 Reliance
on Exemptions.
Investor understands that the Securities are being offered and sold to Investor
in reliance on specific exemptions from the registration requirements of the
United States federal and state securities laws and that the Company is relying
in part upon the truth and accuracy of, and Investor’s compliance with, the
representations, warranties, agreements, acknowledgments and understandings
of
Investor set forth herein in order to determine the availability of such
exemptions and the eligibility of Investor to acquire the
Securities.
-17-
4.4 Information.
Investor and Investor’s advisors, if any, have been furnished with all materials
relating to the business, finances and operations of the Company, including,
without limitation, the information required to be delivered to Investor under
Rule 502(b)(2) of Regulation D as promulgated under the Securities Act, and
any
other materials relating to the offer and sale of the Securities that have
been
requested by Investor. Investor and Investor’s advisors, if any, have been
afforded the opportunity to ask questions of the Company. Investor understands
that Investor’s investment in the Securities involves a high degree of risk.
Investor has sought such accounting, legal and tax advice as Investor has
considered necessary to make an informed investment decision with respect to
Investor’s acquisition of the Securities.
4.5 No
Governmental Review.
Investor understands that no United States federal or state agency or any other
government or governmental agency has passed on or made any recommendation
or
endorsement of the Securities or the fairness or suitability of the investment
in the Securities nor have such authorities passed upon or endorsed the merits
of the offering of the Securities.
4.6 Transfer
or Resale.
Investor understands that, except as provided in the Transaction Documents:
(i)
the Securities have not been and are not being registered under the Securities
Act or any state securities laws, and may not be offered for sale, sold,
assigned or transferred unless (A) subsequently registered thereunder, (B)
Investor delivers to the Company an opinion of counsel, in a generally
acceptable form, to the effect that the Securities to be sold, assigned or
transferred may be sold, assigned or transferred pursuant to an exemption from
such registration, or (C) Investor provides the Company with reasonable
assurance that the Securities can be sold, assigned or transferred pursuant
to
Rule 144 promulgated under the Securities Act, as amended, (or a successor
rule
thereto) (“Rule
144”);
(ii)
any sale of the Securities made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the person through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the Securities Act) may require compliance with
some
other exemption under the Securities Act or the rules and regulations of the
SEC
thereunder; and except as provided in this Agreement (iii) neither the Company
nor any other person is under any obligation to register the Securities under
the Securities Act or any state securities laws.
4.7 Legends.
Investor understands that the certificates or other instruments representing
the
Securities and, until such time as the sale of the Securities have been
registered under the Securities Act, the stock certificates and other
instruments representing the Securities, except as set forth below, shall bear
a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN
THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR
(B)
AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS
NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS
SOLD
PURSUANT TO RULE 144 UNDER THAT ACT.
-18-
The
legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which
it is
stamped, if, unless otherwise required by state securities laws, (i) the
Securities are registered for resale under the Securities Act, (ii) in
connection with a sale transaction, such holder provides the Company with an
opinion of counsel, in a generally acceptable form, to the effect that a public
sale, assignment or transfer of the Securities may be made without registration
under the Securities Act, or (iii) such holder provides the Company with
reasonable assurances that the Securities can be sold pursuant to Rule 144
without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold.
4.8 Authorization;
Enforcement; Validity.
This
Agreement has been duly and validly authorized, executed and delivered on behalf
of Investor and is a valid and binding agreement of Investor enforceable against
Investor in accordance with its terms, subject as to enforceability to general
principles of equity and to applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation and other similar laws relating to, or affecting
generally, the enforcement of applicable creditors’ rights and
remedies.
4.9 Residency.
Investor is a resident of that jurisdiction specified in its address in
Section
9.6.
4.10 Representations
and Warranties Effective as of Closing Date.
The
representations and warranties of Investor set forth in this Section
4
will be
true, correct and complete on the Initial Closing and on each Closing Date
as if
made as of that date.
5. COVENANTS.
The
Company covenants and agrees as set forth in Sections
5.1 through 5.10.
Investor covenants and agrees as set forth in Section
5.11.
5.1 Notice
of Issuance.
Promptly, and in any event within five (5) business days after an officer of
the
Company obtains knowledge thereof, the Company shall deliver to Investor written
notice of the issuance of any capital stock of the Company issued or issuable
pursuant to the exercise, conversion or exchange of stock options, rights to
acquire stock or other equity securities or securities convertible into stock
or
other equity securities, convertible notes, warrants and other equity securities
of the Company outstanding on the date hereof.
5.2 Notice
of Default or Litigation.
Promptly, and in any event within five (5) business days after an officer of
the
Company obtains knowledge thereof, the Company shall deliver to Investor notice
of (i) the occurrence of any event, act or condition which constitutes a Default
or Event of Default, (ii) any litigation or governmental proceeding pending
against the Company and (iii) any other event which is likely to have a Material
Adverse Effect. Each such notice shall specify in reasonable detail the nature
of the event, act, condition, Default, Event of Default or proceeding and what
action the Company is taking or proposes to take with respect
thereto.
-19-
5.3 Books,
Records and Inspections.
The
Company shall keep proper books of record and account in which full, true and
correct entries in conformity with all requirements of law and with GAAP (except
that all interim information shall be subject to normal year-end adjustments)
shall be made of all dealings and transactions in relation to its business
and
activities. The Company shall permit designated agents of Investor to visit
and
inspect any of the properties of the Company, and to examine the books of
account and records of the Company and make copies thereof, and discuss the
affairs, finances and accounts of the Company with, and be advised as to the
same by, its officers and independent accountants, all during the Company’s
normal business hours, upon prior notice and to such extent as Investor may
request.
5.4 Taxes.
The
Company shall pay when due all Taxes, except as contested in good faith and
by
appropriate proceedings if adequate reserves have been established with respect
thereto.
5.5 Form
D
and Blue Sky.
The
Company agrees to file, at its expense, a Form D with respect to the Securities
as required under Regulation D and to provide a copy thereof to Investor and
their counsel promptly after the filing. 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 Investor pursuant to
this
Agreement under applicable securities or “Blue Sky” laws of the states of the
United States, and shall provide evidence of any such action so taken to
Investor. The Company, at its expense, shall make all filings and reports
relating to the offer and sale of the Securities required under applicable
securities or “Blue Sky” laws of the states of the United States.
5.6 Reporting
Status.
Until
the date as of which Investor may sell all of the Securities without restriction
pursuant to Rule 144(k) promulgated under the Securities Act (or successor
thereto), the Company shall timely file all reports required to be filed with
the SEC pursuant to the Exchange Act and with any Principal Market, and the
Company shall not terminate its status as an issuer required to file reports
under the Exchange Act even if the Exchange Act or the rules and regulations
thereunder would otherwise permit termination.
5.7 Reservation
of Shares.
The
Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, the number of shares of Common Stock
and
Preferred Shares needed to provide for the issuance of the shares of Securities
upon the Initial Closing and any subsequent Closings.
5.8 Listing.
The
Company shall promptly secure the listing of all of the Common Stock upon each
national securities exchange and automated quotation system, if any, upon which
shares of Common Stock are then listed (subject to official notice of issuance)
and shall maintain, so long as any other shares of Common Stock shall be so
listed, such listing of all Common Stock issuable under the terms of the Warrant
and the Transaction Documents. The Company shall maintain the Common Stock’s
authorization for quotation on the OTCBB (the “Principal
Market”).
The
Company shall not take any action that would be reasonably expected to result
in
the delisting or suspension of the Common Stock from the Principal Market,
and
the Company shall use best efforts to continue such listing. The Company shall
pay all fees and expenses in connection with satisfying its obligations under
this Section
5.8.
-20-
5.9 Filing
of Form 8-K.
On or
before the second Business Day following the execution of this Agreement and
each Closing Date, the Company shall issue a press release describing the
material terms of the Transactions and shall also file a Current Report on
Form
8-K with the SEC describing the terms of the transactions, as and to the extent
required by the Exchange Act, and including as exhibits to the Form 8-Ks this
Agreement and other Transaction Documents.
5.10 Reservation
of Common Stock.
The
Company shall at all time reserve and keep available from its authorized shares
of Common Stock, the maximum number of shares that are issuable upon the
conversion of the Preferred Stock and the exercise of the Warrant. The Company
shall promptly upon exercise of the Warrant, issue to Investor the maximum
number of shares that are issuable upon exercise of the Warrant, and issue
to
Investor a new Warrant in the form of Exhibit
B.
5.11 Investor
Covenants.
Investor hereby covenants and agrees that it shall comply with all prospectus
delivery requirements under applicable law in connection with the Securities
as
to which the legend referenced in Section
4.7
has been
removed, and if a registration statement covering any such stock has lapsed,
been withdrawn or is otherwise ineffective, and the Company so requests it
shall
tender certificates representing such previously registered stock held by it
to
the Company (whereupon the Company shall promptly return to Investor new
certificates for such stock bearing a legend substantially similar to the one
referenced in Section
4.7),
it
being understood and agreed that Investor shall in any case have the right
to
pursue any remedies it may have under any applicable law or agreement if such
lapse, withdrawal or ineffectiveness constitutes a breach or violation of the
Company’s obligations to Investor.
6. DEFAULTS
AND REMEDIES.
6.1 Events
of Default.
An
“Event
of Default”
occurs
if:
6.1.1 the
Company fails to comply with any of the agreements or covenants contained in,
or
otherwise breaches, the Certificate of Incorporation, the Certificate of
Designation for the Series B Preferred Stock, this Agreement or any other
agreement, covenant or provision contained in the Transaction Documents and
such
failure continues for a period of ten days after an officer of the Company
obtains knowledge thereof;
6.1.2 any
representation or warranty made by the Company under, relating to or in
connection with this Agreement shall be false or misleading when
made;
6.1.3 the
Company, pursuant to or within the meaning of any Bankruptcy Law, commences
a
voluntary case or proceeding, consents to the entry of an order for relief
against it in an involuntary case or proceeding, consents to the appointment
of
a Custodian of it or for all or substantially all of its property, makes a
general assignment for the benefit of its creditors, or generally is unable
to
pay its debts as they become due;
-21-
6.1.4 a
court
of competent jurisdiction enters an order or decree under any Bankruptcy Law
that is for relief against the Company in an involuntary case or proceeding,
appoints a Custodian of the Company or for all or substantially all of its
property, or orders the liquidation of the Company;
6.1.5 except
for liens or security interests described in Section
3.15,
the
Company grants or agrees to grant to any Person a security interest in any
property of the Company; or
6.1.6 the
Company fails for any reason to effect the registration of the Securities
pursuant to Section
1.2
of the
Stockholder Agreement (as hereinafter defined).
6.2 Remedies.
If any
Default or Event of Default occurs and is continuing, Investor may proceed
to
protect and enforce its rights under this Agreement or the Transaction Documents
with respect to the Securities by exercising such remedies as are available
in
respect thereof under this Agreement and/or the Transaction Documents or under
applicable law, either by suit in equity or by action at law, or both, or to
enforce the specific performance of any covenant or other agreement contained
in
this Agreement or the Transaction Documents. No remedy conferred in this
Agreement upon Investor is intended to be exclusive of any other remedy, and
each and every remedy shall be cumulative and shall be in addition to every
other remedy conferred herein or now or hereafter existing at law or in equity
or by statute or otherwise.
6.3 Waiver
of Past Defaults.
Investor, by written notice to the Company, may waive an existing Default or
Event of Default and its consequences with respect to the Securities; provided,
however, that no such waiver will extend to any subsequent or other Default
or
Event of Default or impair any right of Investor which may arise as a result
of
the Default or Event of Default.
7. CONDITIONS
TO THE COMPANY’S OBLIGATION TO SELL OR BORROW.
The
obligation of the Company hereunder to issue and sell the Preferred Shares
or
issue the Promissory Note is subject to the satisfaction, at or before each
Closing Date, of each of the following conditions as to such Investor, and
may
be waived by the Company at any time in its sole discretion:
7.1 Execution
of Transaction Documents.
Investor shall have executed this Agreement and each other Transaction Document
to which Investor is a party and delivered the same to the Company.
7.2 Payment
of Purchase Price.
Investor shall have delivered to the Company the full amount of the cash portion
of Investor’s Purchase Price or amount of the Notes by wire transfer in
accordance with the Company’s written wiring instructions.
7.3 Representations
and Warranties True; Covenants Performed.
The
representations and warranties of Investor shall be true and correct as of
the
date when made and as of the Initial Closing and each subsequent Closing Date
as
though made at that time (except for representations and warranties that speak
as of a specific date, which representations and warranties shall be true and
correct as of such date), and Investor shall have performed, satisfied and
complied with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by such Investor at or
prior to the Initial Closing and each subsequent Closing Date.
-22-
7.4 No
Legal Prohibition.
No
statute, rule, regulation, executive order, decree, ruling, injunction, action
or proceeding shall have been enacted, entered, promulgated or endorsed by
any
court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
restricts or prohibits the consummation of any of the transactions contemplated
by this Agreement.
7.5 Amendment
of Certificate of Incorporation.
The
parties hereto agree that the Company’s Certificate of Incorporation or the
by-laws shall not be amended in any manner, which is inconsistent with the
terms
of this Agreement while this Agreement remains in effect. To the extent that
any
provisions of this Agreement shall conflict with any provision of the Company’s
Certificate of Incorporation or the by-laws, the parties agree that the
provisions of this Agreement shall supersede and the Company shall cause the
Certificate of Incorporation or the by-laws to be amended to comply with the
provisions of this Agreement.
8. CONDITIONS
TO INVESTOR’S OBLIGATIONS TO PURCHASE OR LEND.
The
obligation of Investor hereunder to purchase the Securities for which it is
subscribing from the Company hereunder, is subject to the satisfaction, at
or
before the Initial Closing and at each subsequent Closing Date, of each of
the
following conditions, provided that such conditions may be waived by Investor
at
any time in Investor’s sole discretion:
8.1 Execution
of Transaction Documents.
The
Company shall have executed this Agreement and each other Transaction Document
to which the Company is a party and delivered executed originals of the same
to
Investor, and shall have filed the Certificate of Designation for the Series
B
Preferred Stock in the form of Exhibit
C
hereto.
8.2 Listing.
The
Common Stock shall be authorized for quotation and listed on the OTCBB and
trading in the Common Stock (or on the OTCBB generally) shall not have been
suspended by the SEC or the OTCBB, and there is no pending or threatened or
anticipated suspension.
8.3 Representations
and Warranties True; Covenants Performed.
The
representations and warranties of the Company shall be true and correct as
of
the date when made and as of the Initial Closing and each subsequent Closing
Date as though made at that time (except for representations and warranties
that
speak as of a specific date, which representations and warranties shall be
true
and correct as of such date) and the Company shall have performed, satisfied
and
complied with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Company at or
prior
to each Closing Date. Investor shall have received a certificate, executed
by
the Chief Executive Officer of the Company after reasonable investigation,
dated
as of the Closing Date to the foregoing effect and as to such other matters
as
may reasonably be requested by Investor.
-23-
8.4 No
Legal Prohibition.
No
statute, rule regulation, executive order, decree, ruling, injunction, action
or
proceeding shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
restricts or prohibits the consummation of any of the transactions contemplated
by this Agreement.
8.5 Legal
Opinion.
Investor shall have received an opinion of the Company’s counsel, dated as of
each Closing Date, in the form and substance acceptable to
Investor.
8.6 Corporate
Approvals.
Investor shall have received a copy of resolutions, duly adopted by the Board
of
Directors of the Company, which shall be in full force and effect at the time
of
the Closing, authorizing the execution, delivery and performance by the Company
of this Agreement and the other Transaction Documents and the consummation
by
the Company of the Transactions, certified as such by the Secretary or Assistant
Secretary of the Company, and such other documents they reasonably request
in
connection with the Closing, and any subsequent Closing.
8.7 Qualifications.
All
authorizations, approvals or permits, if any, of any governmental authority
or
regulatory body of the United States or of any state required in connection
with
the lawful issuance and sale of the Securities pursuant to this Agreement shall
be obtained and effective as of each Closing Date.
8.8 Board
of Directors.
As of
the Initial Closing, the Board shall be comprised of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇▇▇▇▇▇
▇.
▇▇▇, Ph.D. and ▇▇▇▇▇▇▇ ▇. ▇. ▇▇▇▇ or his designate, and the officers shall
be
▇▇▇▇▇▇▇ ▇. ▇▇▇▇ as Chairman of the Board, ▇▇▇▇▇▇▇ ▇. ▇▇▇, Ph.D as the Chief
Executive Officer. As of the Loan Closing, the Board shall be comprised of
▇▇▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇, Ph.D., ▇▇▇▇▇▇▇ ▇. ▇. ▇▇▇▇, and two (2)
additional members designated by the Investor.
8.9 Stockholder
Agreement.
At the
Loan Closing, the Company, Investor and each of management stockholders
designated in Schedule
8.9
shall
have executed and delivered the Investor Rights and Stockholder Agreement
(“Stockholder
Agreement”),
in
the form attached as Exhibit
D
hereto.
8.10 Secretary’s
Certificate.
The
Secretary of the Company shall deliver to Investor at the Initial Closing the
Certificate certifying (i) the Certificate of Incorporation of the Company,
(ii)
the Bylaws of the Company, and (iii) Resolutions of the Board of Directors
of
the Company approving the Agreement and the Transaction Documents.
8.11 Proceedings
and Documents.
All
corporate and other proceedings in connection with the transactions contemplated
at each Closing and all documents incident thereto shall be reasonably
satisfactory in form and substance to Investor, and Investor (or its counsel)
shall have received all such counterpart original and certified or other copies
of such documents as reasonably requested. Such documents may include good
standing certificates.
9. MISCELLANEOUS.
9.1 Consent
to Amendments.
This
Agreement may be amended, restated, supplemented, modified or extended, and
the
Company may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, if, and only if, prior to taking any such action
or omitting to perform any such act, the Company shall have obtained the written
consent of Investor to such amendment, restatement, supplement, modification,
extension, action, or omission to act.
-24-
9.2 Form,
Registration, Transfer and Exchange of Certificates; Lost
Certificates.
The
Company shall cause its transfer agent to keep a register in which it shall
provide for the registration of its securities and of transfers of its
securities or any portions thereof. Upon surrender of any certificate for
registration or transfer of such securities at the principal office of the
transfer agent, the transfer agent shall, within three Business Days of such
surrender and provided it can do so without violating Applicable Law, execute
and deliver one or more new certificates of like tenor, which new securities
shall be registered in the name of such transferee or transferees.
9.3 Entire
Agreement.
This
Agreement, the Transaction Documents, and the other agreements and instruments
furnished pursuant hereto or in connection herewith constitute the full and
entire agreement and understanding between Investor and the Company, and
supersede all prior written or oral agreements and understandings relating
to
the subject matter hereof.
9.4 Severability.
Any
provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provisions
in any other jurisdiction.
9.5 Successors
and Assigns.
All
covenants and agreements in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto (including, without limitation, any Transferee).
Investor may assign any and all of its rights under this Agreement, and the
Securities to any Transferee and upon such assignment the Transferee shall
be
entitled to all of the rights of Investor hereunder to the same extent as if
the
Transferee were an original party hereof, provided that the Transferee agrees
to
be bound by any covenants, restrictions or limitations applicable to Investor
under this Agreement and the other Transaction Documents.
9.6 Notices.
All
notices, requests, demands and other communications which are required or may
be
given under this Agreement shall be in writing and shall be deemed to have
been
duly given if transmitted by telecopier with receipt acknowledged, or upon
delivery, if delivered personally or by recognized commercial courier with
receipt acknowledged, or upon the expiration of 72 hours after mailing, if
mailed by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
|
If
to the Company, at:
|
If
to the Investor, at:
|
|
▇▇.
▇▇▇▇▇▇▇ ▇. ▇▇▇
|
▇▇▇▇▇▇▇
▇. ▇. ▇▇▇▇
|
|
Chief
Executive Officer
|
Managing
Director
|
|
MR3
Systems, Inc.
|
MRD
Holdings Inc.
|
|
▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
|
The
Naaman’▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇
|
|
▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
|
▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇
|
|
▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇
|
|
or
at such other address or addresses as Investor or the Company, as the case
may
be, may specify by written notice given in accordance with this Section
9.6.
-25-
9.7 Accounting
Terms.
For
purposes of this Agreement, all accounting terms not otherwise defined herein
shall have the meanings assigned to them by generally accepted accounting
principles (“GAAP”) in the United States and all accounting determinations
hereunder or pursuant hereto shall be made, and all financial statements
required to be delivered by the Company hereunder shall be prepared in
accordance with generally accepted accounting principles in the United States
applied on a consistent basis.
9.8 Descriptive
Headings.
The
descriptive headings of the several paragraphs of this Agreement are for
convenience of reference only and do not constitute a part of this Agreement
and
are not to be considered in construing or interpreting this
Agreement.
9.9 Exhibits
and Disclosure Schedules.
The
Exhibits and the Schedules attached hereto are incorporated herein and shall
be
an integral part of this Agreement.
9.10 Counterparts.
This
Agreement may be executed in two or more counterparts, each of which shall
be
deemed an original, but all of which together shall constitute one
instrument.
9.11 Survival.
The
warranties and representations of the Company and Investor contained in or
made
pursuant to this Agreement shall survive the execution and delivery of this
Agreement, and each Closing Date and any investigation of the subject matter
thereof made by or on behalf of Investor.
9.12 Remedies.
In the
event of any litigation relating to this Agreement or the Securities, each
party
shall bear its own fees, costs, and expenses, including without limitation
fees
and expenses of attorneys and accountants and all fees, costs and expenses
of
appeals. None of the rights, powers or remedies conferred under this Agreement
or the Securities shall be mutually exclusive, and each such right, power or
remedy shall be cumulative and in addition to any other right, power or remedy
whether conferred by this Agreement or now or hereafter available at law, in
equity, by statute or otherwise.
9.13 Governing
Law and Choice of Forum.
In all
respects, including all matters of construction, validity and performance,
this
Agreement and the rights and obligations arising hereunder shall be governed
by,
and construed and enforced in accordance with, the laws of the State of
California applicable to contracts made and performed in such state, without
regard to principles thereof regarding conflicts of laws. The parties hereby
consent, in any dispute, action, litigation or other proceeding concerning
the
Transaction Documents (including arbitration) to the jurisdiction of the courts
of California, with the County of San Francisco being the sole venue for the
bringing of the action or proceeding.
9.14 Indemnification.
The
Company shall indemnify and hold harmless Investor, its respective Affiliates
and their respective officers, directors, partners and members (collectively,
the “Investor
Indemnitees”),
from
and against any and all claims, losses, damages and liabilities, and agrees
to
reimburse Investor Indemnitees for all reasonable out-of-pocket expenses
(including without limitation the reasonable fees and expenses of legal
counsel), in each case promptly as incurred by Investor Indemnitees and to
the
extent arising out of or in connection with:
-26-
9.14.1 any
misrepresentation, omission of fact or breach of any of the representations
or
warranties by the Company contained in this Agreement, the annexes, schedules
or
exhibits hereto or any instrument, agreement or certificate entered into or
delivered by the Company pursuant to this Agreement;
9.14.2 any
failure by the Company to perform in any material respect its respective
covenants, agreements, undertakings or obligations set forth in this Agreement,
the annexes, schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Company pursuant to this Agreement;
or
9.14.3 any
action instituted against Investor by any stockholder of the Company who is
not
an Affiliate of Investor, with respect to any of the transactions contemplated
by this Agreement;
9.14.4 any
action, suit, proceeding, inquiry or investigation disclosed in Schedule
3.9,
and/or
9.14.5 any
taxes
or other payments due to any taxing authorities, including, without limitation,
those disclosed on Schedule
3.19.
9.15 Representation
by Counsel.
Each
party represents and warrants that it has been represented by independent
counsel in the negotiation of this Agreement, its Exhibits and
Schedules.
9.16 WAIVER
OF JURY TRIAL.
BECAUSE
DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST
QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE
PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION
RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING
SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS
OF THE JUDICIAL SYSTEM AND OF ARBITRATION AND UNDERSTANDING THEY ARE WAIVING
A
CONSTITUTIONAL RIGHT, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN
ANY
ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER IN CONTRACT,
TORT OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL
TO,
THIS AGREEMENT, THE SECURITIES AND/OR ANY RELATED AGREEMENT OR THE TRANSACTIONS
COMPLETED HEREBY OR THEREBY.
[Signatures
on following page.]
-27-
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
and delivered by their duly authorized representatives as of the date first
written above.
|
“COMPANY”
|
MR3
SYSTEMS, INC., a Delaware
corporation
|
By:
/s/
▇▇▇▇▇▇▇ ▇. ▇▇▇, PhD
Its:
Chief Executive Officer
By:
/s/
▇▇▇▇▇▇▇ ▇. ▇▇▇▇
Its:
Chairman of the Board
|
“INVESTOR”
|
MRD
HOLDINGS INC., a Delaware
corporation
|
By:
/s/
▇▇▇▇▇▇▇ ▇. ▇. ▇▇▇▇
Its:
Managing Director
-28-
EXHIBIT
A
CONVERTIBLE
PROMISSORY NOTE
-29-
EXHIBIT
B
WARRANTS
I
-30-
EXHIBIT
C
CERTIFICATE
OF DESIGNATION
-31-
EXHIBIT
D
INVESTOR
RIGHTS AND STOCKHOLDER AGREEMENT
-32-
EXHIBIT
E
SECURITY
AGREEMENT
-33-
EXHIBIT
F
DEFINITIONS
“Affiliate”
has the
meaning specified in Rule 405 under the Securities Act.
“Applicable
Laws”
means
any federal, state or local statute, law, rule, regulation or ordinance
applicable to the Company or its business, including, without limitation, laws
relating to franchise, building, zoning, health, sanitation, safety or labor
relations, and any order, ruling, judgment or decree of any court, governmental
agency or authority or self-regulatory agency which is binding on the Company
or
its properties.
“Bankruptcy
Law”
means
Title 11 of the U.S. Code or any similar Federal or state law for the relief
of
debtors.
“Board
of Directors”
means
the board of directors of any Person.
“Business
Day”
means
any day except Saturday, Sunday and any day, which either is a legal holiday
under the laws of the State of California or is a day on which banking
institutions located in such state are authorized or required by law or other
governmental action to close.
“Certificate
of Incorporation”
means
the Certificate of Incorporation and any Certificate of Designation, Preferences
and Rights of the Company, as filed with the Secretary of State of the State
of
Delaware on June 14, 1999, and as amended on November 5, 2004.
“Common
Stock”
means
the common stock, $0.01 par value per share, of the Company.
“Company
Technology”
means
the MR3 technology itself, the collective technologies and intellectual property
rights of the company necessary to ensure the basic, and optimum application
of
the MR3 technology.
“Custodian”
means
any receiver, trustee, assignee, liquidator, sequestrator or similar official
under any Bankruptcy Law.
“Default”
means
any event which is, or after notice or lapse of time or both would be, an Event
of Default.
“ERISA”
means
the Employee Retirement Income Securities Act of 1974, as amended, and the
rules
and regulations promulgated thereunder, all as the same shall be in effect
at
the time.
“Escrow
Agent”
has the
meaning ascribed to such term in the Escrow Agreement.
“Escrow
Agreement”
means
that certain Escrow Agreement, dated the date hereof, along the Company, the
Escrow Agent and the Investor substantially in the form attached hereto as
Exhibit
E.
-34-
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
of the Commission promulgated thereunder, all as the same shall be in effect
at
the time.
“GAAP”
means
generally accepted accounting principles and practices set forth in the opinions
and pronouncements of the Accounting Principles Board and the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board.
“Material
Adverse Effect”
means
an adverse effect on the Company’s ability to satisfy its covenants or
obligations to Investor under this Agreement or the other Transaction Documents
or, with respect to any Person, a material adverse effect on the condition
(financial or otherwise), business, results of operations, prospects or
properties of that Person.
“Notes”
means
the Secured Convertible Promissory Notes issued by the Company at the Second
Closing and any subsequent closing, if applicable.
“Person”
means
any individual, trustee, sole proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation, limited liability
company, limited liability partnership, public benefit corporation, institution,
entity or government.
“Registrable
Securities”
has the
meaning given to it in the Stockholder Agreement.
“SEC”
means
the Securities and Exchange Commission or any other Federal agency at the time
administering the Securities Act.
“Preferred
Stock”
means
the shares of the Company’s Series B Convertible Preferred Stock issuable to
Investor under Section
2
of this
Agreement.
Each
share of Preferred Shares shall be convertible into Common shares of the Company
at the rate of twenty-five (25) Common shares for each share of Preferred
Shares.
“Securities”
means
the Preferred Shares, the Notes and the Warrants issuable to the Investor
hereunder and the Conversion Shares issuable upon conversion or exercise
thereof.
“Securities
Act”
means
the Securities Act of 1933, as amended, and the rules and regulations of the
Commission promulgated thereunder, all as the same shall be in effect at the
time.
“Subsidiary”
and
“Subsidiaries”
means
any Person of which more than 50% of the total voting power of shares of capital
stock (or equivalent interest in a limited liability company or other entity)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, officers or trustees thereof, is at the time owned in
the
aggregate, directly or indirectly, by the Company or its
Subsidiaries.
“Taxes”
means
any income, excise, sales, use, stamp or franchise taxes and any other taxes,
fees, duties, levies, withholdings or other charges of any nature whatsoever
imposed by any taxing authority, whether Federal, state, local or foreign,
together with any interest and penalties and additions to tax.
“Transferee”
means
any direct or indirect transferee of all or any part of the Securities.
“Warrant
Shares”
means
the shares of the Company’s Common Stock issuable upon exercise of the
Warrants.
-35-
EXHIBIT
G
STRATEGIC
PARTNERSHIP AGREEMENT
-36-
DISCLOSURE
SCHEDULES
SCHEDULE
3.2 Reference
CFDD Section II(A)(1) & IV(A)(2)(a)
SCHEDULE
3.3 None
-
Not Applicable
SCHEDULE
3.4 Reference
CFDD Section I(A)
SCHEDULE
3.6 Reference
CFDD Section V(H)
SCHEDULE
3.7 Reference
CFDD Section V(L)
SCHEDULE
3.8 Reference
CFDD Section V(L)(2)(d) & V(L)(3)(a)
SCHEDULE
3.9 Reference
CFDD Section V(A) & V(B)
SCHEDULE
3.10 Reference
CFDD Section V(B)
SCHEDULE
3.13 Reference
CFDD Section II(B)(1) & V(A)
SCHEDULE
3.14 Reference
CFDD Section V(L)(2)(c)(page F-26)
SCHEDULE
3.15 Reference
CFDD Section V(G)
SCHEDULE
3.16 Reference
CFDD Section V(D)
SCHEDULE
3.19 Reference
CFDD Section V(E)
SCHEDULE
3.20 Reference
CFDD Section IV(B)(2) & V(J)(1)
SCHEDULE
3.23 Reference
CFDD Section IV(B)(2) & V(J)(1)
SCHEDULE
3.26 Reference
CFDD Section IV(F)(1)
SCHEDULE
3.28 Reference
CFDD Section V(H)
SCHEDULE
3.33 None
-
Not Applicable
SCHEDULE
3.35 Reference
CFDD Section V(F)
SCHEDULE
3.36 Reference
CFDD Section IV(D)
SCHEDULE
3.37 Reference
CFDD Section V(C)
SCHEDULE
3.39 None
-
Not Applicable
-37-
by
and among
MR3
SYSTEMS, INC.
and
MRD
HOLDINGS INC.
Dated
as of May 30, 2005
TABLE
OF CONTENTS
Page
|
1.
|
DEFINITIONS.
|
1
|
|
2.
|
PURCHASE
AND SALE OF COMPANY SECURITIES - LOAN OPTION.
|
1
|
|
2.1
|
Purchase
Price
|
1
|
|
|
2.2
|
Closing;
Delivery
|
2
|
|
|
2.3
|
Option
|
2
|
|
|
2.4
|
Second
Closing
|
2
|
|
|
2.5
|
Jurisdictions,
Technology Transfer, Protection and Access To Trade
Secrets
|
3
|
|
|
2.6
|
Joint
Best Strategy.
|
4
|
|
3.
|
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.
|
4
|
|
3.1
|
Organization
and Qualification
|
4
|
|
|
3.2
|
Subsidiaries
|
4
|
|
|
3.3
|
Authorization;
Enforcement; Validity
|
4
|
|
|
3.4
|
Capitalization
|
5
|
|
|
3.5
|
Issuance
of Stock
|
6
|
|
|
3.6
|
No
Conflicts
|
6
|
|
|
3.7
|
SEC
Documents; Financial Statements
|
7
|
|
|
3.8
|
Absence
of Certain Changes
|
7
|
|
|
3.9
|
Absence
of Litigation
|
8
|
|
|
3.10
|
No
Undisclosed Events, Liabilities, Developments or
Circumstances
|
8
|
|
|
3.11
|
No
General Solicitation
|
8
|
|
|
3.12
|
Employee
Relations
|
8
|
|
|
3.13
|
Intellectual
Property Rights
|
9
|
|
|
3.14
|
Environmental
Laws
|
10
|
|
|
3.15
|
Title
|
10
|
|
|
3.16
|
Insurance
|
10
|
|
|
3.17
|
Regulatory
Permits
|
10
|
|
|
3.18
|
Internal
Accounting Controls
|
11
|
|
|
3.19
|
Tax
Status
|
11
|
|
|
3.20
|
Agreements.
|
11
|
|
|
3.21
|
Disclosure
|
12
|
|
|
3.22
|
Labor
Agreements and Actions
|
12
|
|
|
3.23
|
Obligations
to Related Parties
|
13
|
|
|
3.24
|
Changes
|
13
|
|
|
3.25
|
Rights
Agreement; Employee Benefit Plan
|
14
|
|
|
3.26
|
Confidential
Information and Invention Assignment Agreements
|
14
|
|
|
3.27
|
Corporate
Documents
|
15
|
|
|
3.28
|
Real
Property Holding Corporation
|
15
|
|
|
3.29
|
Foreign
Corrupt Practices
|
15
|
|
|
3.30
|
No
Undisclosed Liabilities
|
15
|
|
|
3.31
|
Investment
Company Act Status
|
15
|
-i-
Page
|
3.32
|
No
Integrated Offering
|
15
|
|
|
3.33
|
Certain
Officers
|
16
|
|
|
3.34
|
Significant
Stockholders
|
16
|
|
|
3.35
|
Key
Employees
|
16
|
|
|
3.36
|
Listing
|
16
|
|
|
3.37
|
Anti-Takeover
Provisions
|
16
|
|
|
3.38
|
Acknowledgement
Regarding Investor’s Purchase of the Securities
|
16
|
|
|
3.39
|
Legal
Compliance
|
17
|
|
|
3.40
|
Variable
Securities
|
17
|
|
|
3.41
|
Representations
and Warranties Effective as of Each Closing Date
|
17
|
|
4.
|
INVESTOR
REPRESENTATIONS AND WARRANTIES.
|
17
|
|
4.1
|
Investment
Purpose
|
17
|
|
|
4.2
|
Accredited
Investor Status
|
17
|
|
|
4.3
|
Reliance
on Exemptions
|
17
|
|
|
4.4
|
Information
|
18
|
|
|
4.5
|
No
Governmental Review
|
18
|
|
|
4.6
|
Transfer
or Resale
|
18
|
|
|
4.7
|
Legends
|
18
|
|
|
4.8
|
Authorization;
Enforcement; Validity
|
19
|
|
|
4.9
|
Residency
|
19
|
|
|
4.10
|
Representations
and Warranties Effective as of Closing Date
|
19
|
|
5.
|
COVENANTS.
|
19
|
|
5.1
|
Notice
of Issuance
|
19
|
|
|
5.2
|
Notice
of Default or Litigation
|
19
|
|
|
5.3
|
Books,
Records and Inspections
|
20
|
|
|
5.4
|
Taxes
|
20
|
|
|
5.5
|
Form
D and Blue Sky
|
20
|
|
|
5.6
|
Reporting
Status
|
20
|
|
|
5.7
|
Reservation
of Shares
|
20
|
|
|
5.8
|
Listing
|
20
|
|
|
5.9
|
Filing
of Form 8-K
|
21
|
|
|
5.10
|
Reservation
of Common Stock
|
21
|
|
|
5.11
|
Investor
Covenants
|
21
|
|
6.
|
DEFAULTS
AND REMEDIES.
|
21
|
|
6.1
|
Events
of Default
|
21
|
|
|
6.2
|
Remedies
|
22
|
|
|
6.3
|
Waiver
of Past Defaults
|
22
|
|
7.
|
CONDITIONS
TO THE COMPANY’S OBLIGATION TO SELL OR BORROW.
|
22
|
|
7.1
|
Execution
of Transaction Documents
|
22
|
|
|
7.2
|
Payment
of Purchase Price
|
22
|
|
|
7.3
|
Representations
and Warranties True; Covenants Performed
|
22
|
|
|
7.4
|
No
Legal Prohibition
|
23
|
|
|
7.5
|
Amendment
of Certificate of Incorporation
|
23
|
-ii-
Page
|
8.
|
CONDITIONS
TO INVESTOR’S OBLIGATIONS TO PURCHASE OR LEND.
|
23
|
|
8.1
|
Execution
of Transaction Documents
|
23
|
|
|
8.2
|
Listing
|
23
|
|
|
8.3
|
Representations
and Warranties True; Covenants Performed
|
23
|
|
|
8.4
|
No
Legal Prohibition
|
24
|
|
|
8.5
|
Legal
Opinion
|
24
|
|
|
8.6
|
Corporate
Approvals
|
24
|
|
|
8.7
|
Qualifications
|
24
|
|
|
8.8
|
Board
of Directors
|
24
|
|
|
8.9
|
Stockholder
Agreement
|
24
|
|
|
8.10
|
Secretary’s
Certificate
|
24
|
|
|
8.11
|
Proceedings
and Documents
|
24
|
|
9.
|
MISCELLANEOUS.
|
24
|
|
9.1
|
Consent
to Amendments
|
24
|
|
|
9.2
|
Form,
Registration, Transfer and Exchange of Certificates; Lost
Certificates
|
25
|
|
|
9.3
|
Entire
Agreement
|
25
|
|
|
9.4
|
Severability
|
25
|
|
|
9.5
|
Successors
and Assigns
|
25
|
|
|
9.6
|
Notices
|
25
|
|
|
9.7
|
Accounting
Terms
|
26
|
|
|
9.8
|
Descriptive
Headings
|
26
|
|
|
9.9
|
Exhibits
and Disclosure Schedules
|
26
|
|
|
9.10
|
Counterparts
|
26
|
|
|
9.11
|
Survival
|
26
|
|
|
9.12
|
Remedies
|
26
|
|
|
9.13
|
Governing
Law and Choice of Forum
|
26
|
|
|
9.14
|
Indemnification
|
26
|
|
|
9.15
|
Representation
by Counsel
|
27
|
|
|
9.16
|
Waiver
of Jury Trial
|
27
|
EXHIBITS
Exhibit
A CONVERTIBLE
PROMISSORY NOTE
Exhibit
B WARRANTS
I
Exhibit
C CERTIFICATE
OF DESIGNATION
Exhibit
D INVESTOR
RIGHTS AND STOCKHOLDER AGREEMENT
Exhibit
E SECURITY
AGREEMENT
Exhibit
F DEFINITIONS
Exhibit
G STRATEGIC
PARTNERSHIP AGREEMENT
Disclosure
Schedules
-iii-