SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT Dated as of March 3, 2006 among IMPART MEDIA GROUP, INC. and THE PURCHASERS LISTED ON EXHIBIT A
Exhibit
10.1
SERIES
A CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
Dated
as of March 3, 2006
among
IMPART
MEDIA GROUP, INC.
and
THE
PURCHASERS LISTED ON EXHIBIT A
TABLE
OF CONTENTS
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PAGE
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ARTICLE
I
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PURCHASE
AND SALE OF PREFERRED STOCK
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1
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Section
1.1
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Purchase
and Sale of Stock
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1
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|
Section
1.2
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The
Conversion Shares
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1
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|
Section
1.3
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Purchase
Price and Closing
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2
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Section
1.4
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Warrants
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2
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ARTICLE
II
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REPRESENTATIONS
AND WARRANTIES
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2
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|
Section
2.1
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Representations
and Warranties of the Company
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2
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Section
2.2
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Representations,
Warranties and Covenants of the Purchasers
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14
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ARTICLE
III
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COVENANTS
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16
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Section
3.1
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Securities
Compliance
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16
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Section
3.2
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Registration
and Listing
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17
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|
Section
3.3
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Inspection
Rights
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17
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Section
3.4
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Compliance
with Laws
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17
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Section
3.5
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Keeping
of Records and Books of Account
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17
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Section
3.6
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Reporting
Requirements
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17
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Section
3.7
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Amendments
|
18
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Section
3.8
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Other
Agreements; Amendments
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18
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Section
3.9
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Intentionally
Omitted.
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18
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Section
3.10
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Status
of Dividends
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18
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Section
3.11
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Use
of Proceeds
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19
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Section
3.12
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Reservation
of Shares
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19
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Section
3.13
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Transfer
Agent Instructions
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19
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Section
3.14
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Disposition
of Assets
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20
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Section
3.15
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Reporting
Status
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20
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Section
3.16
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Disclosure
of Transaction
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21
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Section
3.17
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Disclosure
of Material Information
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21
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Section
3.18
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Pledge
of Securities
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21
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Section
3.19
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Form
SB-2 Eligibility
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21
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Section
3.20
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Restrictions
on Certain Issuances of Securities
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22
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Section
3.21
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Future
Financings; Right of First Offer and Refusal.
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22
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ARTICLE
IV
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CONDITIONS
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24
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Section
4.1
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Conditions
Precedent to the Obligation of the Company to Sell the
Shares
|
24
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Section
4.2
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Conditions
Precedent to the Obligation of the Purchasers to Purchase the
Shares
|
24
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ARTICLE
V
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STOCK
CERTIFICATE LEGEND
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26
|
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Section
5.1
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Legend
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26
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ARTICLE
VI
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INDEMNIFICATION
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27
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Section
6.1
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General
Indemnity
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27
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|
Section
6.2
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Indemnification
Procedure
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28
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ARTICLE
VII
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MISCELLANEOUS
|
29
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Section
7.1
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Fees
and Expenses
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29
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Section
7.2
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Specific
Enforcement, Consent to Jurisdiction.
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29
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Section
7.3
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Entire
Agreement; Amendment
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30
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Section
7.4
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Notices
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30
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Section
7.5
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Waivers
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31
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Section
7.6
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Headings
|
31
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|
Section
7.7
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Successors
and Assigns
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31
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Section
7.8
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No
Third Party Beneficiaries
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31
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|
Section
7.9
|
Governing
Law
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31
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|
Section
7.10
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Survival
|
32
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|
Section
7.11
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Counterparts
|
32
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Section
7.12
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Publicity
|
32
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Section
7.13
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Severability
|
32
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Section
7.14
|
Further
Assurances
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32
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ii
This
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the “Agreement”) is
dated as of March 3, 2006 by and among Impart Media Group, Inc., a Nevada
corporation (the “Company”), and each of the Purchasers of shares of Series A
Convertible Preferred Stock of the Company whose names are set forth on
Exhibit
A
hereto
(individually, a “Purchaser” and collectively, the “Purchasers”).
The
parties hereto agree as follows:
ARTICLE
I
PURCHASE
AND SALE OF PREFERRED SHARES
Section
1.1 Purchase
and Sale of Stock.
Upon
the following terms and conditions, the Company shall issue and sell to the
Purchasers and each of the Purchasers shall purchase from the Company, the
number of shares of the Company’s Series A Convertible Preferred Stock, par
value $.001 per share (the “Preferred Shares”), set forth opposite such
Purchaser’s name on Exhibit
A
hereto
and Warrants (as defined in Section 1.4 hereof) to purchase the number of shares
of the Company’s common stock, par value $.001 per share (the “Common Stock”)
set forth opposite such Purchaser’s name on Exhibit
A
hereto.
The aggregate purchase price for the Preferred Shares and the Warrants (as
defined in Section 1.4 hereof) shall be $4,500,000. The designation, rights,
preferences and other terms and provisions of the Series A Convertible Preferred
Stock are as set forth in the Certificate of Designation of the Relative Rights
and Preferences of the Series A Convertible Preferred Stock attached hereto
as
Exhibit
B
(the
“Certificate of Designation”) which shall be filed prior to Closing. The Company
and the Purchasers are executing and delivering this Agreement in accordance
with and in reliance upon (i) the exemption from registration of the Securities
under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”)
afforded by Rule 506 of Regulation D (“Regulation D”) as promulgated by the
United States Securities and Exchange Commission (the “Commission”), or by
Section 4(2) of the Securities Act, and (ii) all applicable state securities
laws and regulations in the several states where Preferred Shares are sold
by
the Company.
Section
1.2 The
Conversion Shares.
The
Company has authorized and has reserved and covenants to continue to reserve,
free of preemptive rights and other similar contractual rights of stockholders,
a number of shares of Common Stock equal to one hundred ten percent (110%)
of
the number of shares of Common Stock as shall from time to time be sufficient
to
effect the conversion of all of the Preferred Shares and exercise of the
Warrants then outstanding. The Company has authorized and has reserved and
covenants to continue to reserve, free of preemptive rights and other similar
contractual rights of stockholders, such number of shares of Preferred Stock
as
shall from time to time be sufficient to effect the sale and issuance of the
Preferred Shares. Any shares of Common Stock issuable upon conversion of the
Preferred Shares and exercise of the Warrants (and such shares when issued)
are
herein referred to as the “Conversion Shares” and the "Warrant Shares",
respectively. The Preferred Shares, the Conversion Shares and the Warrant Shares
are sometimes collectively referred to as the “Shares”-.
Section
1.3 Purchase
Price and Closing.
The
Company agrees to issue and sell to the Purchasers and, in consideration of
and
in express reliance upon the representations, warranties, covenants, terms
and
conditions of this Agreement, the Purchasers, severally but not jointly, agree
to purchase that number of Preferred Shares and Warrants set forth opposite
their respective names on Exhibit
A.
The
aggregate purchase price of the Preferred Shares and Warrants being acquired
by
each Purchaser is set forth opposite such Purchaser’s name on Exhibit
A
(for
each such Purchaser, the “Purchase Price” and collectively referred to as the
“Purchase Prices”). The closing of the purchase and sale of the Preferred Shares
and Warrants shall take place at the offices of ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇ LLP, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (the
“Closing”) at 1:00 p.m. (eastern time) or at such other time and place as the
Purchasers and the Company may agree upon, upon the satisfaction of each of
the
conditions set forth in Article IV hereof (the “Closing Date”). Subject to the
terms and conditions of this Agreement, at the Closing, the Company shall
deliver or cause to be delivered to each Purchaser (x) a stock certificate
representing the number of Preferred Shares set forth opposite the name of
such
Purchaser on Exhibit
A
hereto,
(y) a Warrant to purchase such number of shares of Common Stock as is set forth
opposite the name of such Purchaser on Exhibit
A
attached
hereto and (z) any other deliveries as required by Article IV. Funding with
respect to the Closing shall take place by wire transfer of immediately
available funds on or prior to the Closing Date.
Section
1.4 Warrants.
Upon
the following terms and conditions, the Purchasers shall be issued Warrants,
in
substantially the form attached hereto as Exhibit
C
(the
"Warrants"), to purchase a number of shares of Common Stock equal to one hundred
percent (100%) of the number of Conversion Shares initially issuable upon
conversion of such Purchaser’s Preferred Shares purchased, at an exercise price
per share equal to $1.55 and a term of three (3) years following the Closing
Date. The number of shares of Common Stock issuable upon exercise of the
Warrants issuable to each Purchaser is set forth opposite such Purchaser’s name
on Exhibit
A
attached
hereto.
ARTICLE
II
REPRESENTATIONS
AND WARRANTIES
Section
2.1 Representations
and Warranties of the Company.
The
Company hereby makes the following representations and warranties to the
Purchasers, except as set forth in the Company’s disclosure schedule delivered
with this Agreement as follows:
(a) Organization,
Good Standing and Power.
The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Nevada and has the requisite corporate
power to own, lease and operate its properties and assets and to conduct its
business as it is now being conducted. The Company does not have any
subsidiaries except as set forth in the Company’s Form 10-KSB for the year ended
December 31, 2004, including the accompanying financial statements (the “Form
10-KSB”), or in the Company’s Form 10-QSB for the fiscal quarters ended
September 30, 2005, June 30, 2005 and March 31, 2005 (collectively, the “Form
10-QSB”), or on Schedule
2.1(a)
hereto.
The Company and each such subsidiary is duly qualified as a foreign corporation
to do business and is in good standing in every jurisdiction in which the nature
of the business conducted or property owned by it makes such qualification
necessary except for any jurisdiction(s) (alone or in the aggregate) in which
the failure to be so qualified will not have a Material Adverse Effect (as
defined in Section 2.1(c) hereof) on the Company.
2
(b) Authorization;
Enforcement.
The
Company has the requisite corporate power and authority to enter into and
perform this Agreement, the Registration Rights Agreement attached hereto as
Exhibit
D
(the
“Registration Rights Agreement”), the Escrow Agreement by and among the Company,
the Purchasers and the escrow agent, dated as of the date hereof, substantially
in the form of Exhibit
E
attached
hereto (the “Escrow Agreement”), the Irrevocable Transfer Agent Instructions (as
defined in Section 3.13), the Certificate of Designation, and the Warrants
(collectively, the “Transaction Documents”) and to issue and sell the Shares and
the Warrants in accordance with the terms hereof. The execution, delivery and
performance of the Transaction Documents by the Company and the consummation
by
it of the transactions contemplated hereby and thereby have been duly and
validly authorized by all necessary corporate action, and no further consent
or
authorization of the Company or its Board of Directors or stockholders is
required. This Agreement has been duly executed and delivered by the Company.
The other Transaction Documents will have been duly executed and delivered
by
the Company at the Closing. Each of the Transaction Documents constitutes,
or
shall constitute when executed and delivered, a valid and binding obligation
of
the Company enforceable against the Company in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditor’s
rights and remedies or by other equitable principles of general application.
(c) Capitalization.
The
authorized capital stock of the Company and the shares thereof currently issued
and outstanding as of the date hereof are set forth on Schedule
2.1(c)
hereto.
All of the outstanding shares of the Company’s Common Stock and Series A
Convertible Preferred Stock have been duly and validly authorized and issued,
are fully paid, non-assessable and free and clear of pre-emptive rights, other
than the rights of first refusal set forth on Schedule
2.1(c)
hereto
which have been duly waived in writing by the holders thereof in connection
with
the transactions contemplated by this Agreement and the other Transaction
Documents. Except as set forth in this Agreement and the Registration Rights
Agreement and as set forth on Schedule
2.1(c)
hereto,
no shares of Common Stock are entitled to preemptive rights or registration
rights and there are no outstanding options, warrants, scrip, rights to
subscribe to, call or commitments of any character whatsoever relating to,
or
securities or rights convertible into, any shares of capital stock of the
Company. Furthermore, except as set forth in this Agreement and the Registration
Rights Agreement or on Schedule
2.1(c),
there
are no contracts, commitments, understandings, or arrangements by which the
Company is or may become bound to issue additional shares of the capital stock
of the Company or options, securities or rights convertible into shares of
capital stock of the Company. Except for customary transfer restrictions
contained in agreements entered into by the Company in order to sell restricted
securities or as set forth on Schedule
2.1(c)
hereto,
the Company is not a party to any agreement granting registration or
anti-dilution rights to any person with respect to any of its equity or debt
securities. The Company is not a party to, and it has no knowledge of, any
agreement restricting the voting or transfer of any shares of the capital stock
of the Company. Except as set forth on Schedule
2.1(c)
hereto,
the offer and sale of all capital stock, convertible securities, rights,
warrants, or options of the Company issued prior to the Closing complied with
all applicable Federal and state securities laws, and no stockholder has a
right
of rescission or claim for damages with respect thereto. The Company has
furnished or made available to the Purchasers true and correct copies of the
Company’s Articles of Incorporation as in effect on the date hereof (the
“Articles”), and the Company’s Bylaws as in effect on the date hereof (the
“Bylaws”). For the purposes of this Agreement, “Material Adverse Effect” means
any material adverse effect on the business, operations, properties, prospects,
or financial condition of the Company and its subsidiaries and/or any condition,
circumstance, or situation that would prohibit or otherwise materially interfere
with the ability of the Company to perform any of its obligations under this
Agreement in any material respect.
3
(d) Issuance
of Shares.
The
Preferred Shares and the Warrants to be issued at the Closing have been duly
authorized by all necessary corporate action and the Preferred Shares, when
paid
for or issued in accordance with the terms hereof, shall be validly issued
and
outstanding, fully paid and nonassessable and, in the case of the Preferred
Shares, entitled to the rights and preferences set forth in the Certificate
of
Designation. When the Conversion Shares and the Warrant Shares are issued in
accordance with the terms of the Certificate of Designation and the Warrants,
respectively, such shares will be duly authorized by all necessary corporate
action and validly issued and outstanding, fully paid and nonassessable, and
the
holders shall be entitled to all rights accorded to a holder of Common Stock.
Except as described in Schedule
2.1(d)
hereto,
the issuance and sale of the Preferred Shares and the Warrants hereunder will
not obligate the Company to issue any shares of Common Stock , Preferred Stock
or other securities to any other Person (other than the Purchasers) and will
not
result in the adjustment of the exercise, conversion, exchange or reset price
of
any outstanding security of the Company.
(e) No
Conflicts.
The
execution, delivery and performance of the Transaction Documents by the Company,
the performance by the Company of its obligations under the Certificate of
Designation and the consummation by the Company of the transactions contemplated
herein and therein do not and will not (i) violate any provision of the
Company’s Articles or 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 agreement, mortgage, deed of trust, indenture, note, bond,
license, lease agreement, instrument or obligation to which the Company is
a
party or by which it or its properties or assets are bound, (iii) create or
impose a lien, mortgage, security interest, charge or encumbrance of any nature
on any property of the Company under any agreement or any commitment to which
the Company is a party or by which the Company is bound or by which any of
its
respective properties or assets are bound, or (iv) result in a violation of
any
federal, state, local or foreign statute, rule, regulation, order, judgment
or
decree (including Federal and state securities laws and regulations) applicable
to the Company or any of its subsidiaries or by which any property or asset
of
the Company or any of its subsidiaries are bound or affected, except, in all
cases other than violations pursuant to clauses (i) and (iv) above, for such
conflicts, defaults, terminations, amendments, accelerations, cancellations
and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect. The business of the Company and its subsidiaries is not being
conducted in violation of any laws, ordinances or regulations of any
governmental entity, except for possible violations which singularly or in
the
aggregate do not and will not have a Material Adverse Effect. The Company is
not
required under Federal, state or local law, rule or regulation to obtain any
consent, authorization or order of, or make any filing or registration with,
any
court or governmental agency in order for it to execute, deliver or perform
any
of its obligations under the Transaction Documents, or issue and sell the
Preferred Shares, the Warrants, the Conversion Shares and the Warrant Shares
in
accordance with the terms hereof or thereof (other than any filings which may
be
required to be made by the Company with the Commission or state securities
administrators subsequent to the Closing, any registration statement which
may
be filed pursuant hereto, and the Certificate of Designation); provided
that,
for purposes of the representation made in this sentence, the Company is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Purchasers herein.
4
(f) Commission
Documents, Financial Statements.
The
Common Stock is registered pursuant to Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), and, since October 31,
2004, the Company has timely filed all reports, schedules, forms, statements
and
other documents required to be filed by it with the Commission pursuant to
the
reporting requirements of the Exchange Act, including material filed pursuant
to
Section 13(a) or 15(d) of the Exchange Act (all of the foregoing including
filings incorporated by reference therein being referred to herein as the
“Commission Documents”). The Company has delivered or made available to each of
the Purchasers true and complete copies of the Commission Documents filed with
the Commission since April 30, 2004. The Company has not provided to the
Purchasers any material non-public information or other information which,
according to applicable law, rule or regulation, was required to have been
disclosed publicly by the Company but which has not been so disclosed, other
than with respect to the transactions contemplated by this Agreement and the
information, if any, disclosed on Schedule
2.1(i)
hereto.
At the times of their respective filings, the Form 10-KSB and the Form 10-QSB
complied in all material respects with the requirements of the Exchange Act
and
the rules and regulations of the Commission promulgated thereunder and other
federal, state and local laws, rules and regulations applicable to such
documents, and, as of their respective dates, none of the Form 10-KSB and the
Form 10-QSB 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. The financial statements of the Company included in the
Commission Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
Commission or other applicable rules and regulations with respect thereto.
Such
financial statements have been prepared in accordance with United States
generally accepted accounting principles (“GAAP”) applied on a consistent basis
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements), and fairly present in all material respects
the financial position of the Company and its subsidiaries as of the dates
thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
5
(g) Subsidiaries.
Schedule
2.1(g)
hereto
sets forth each subsidiary of the Company, showing the jurisdiction of its
incorporation or organization and showing the percentage of each person’s
ownership. For the purposes of this Agreement, “subsidiary” shall mean any
corporation or other entity of which at least a majority of the securities
or
other ownership interest having ordinary voting power (absolutely or
contingently) for the election of directors or other persons performing similar
functions are at the time owned directly or indirectly by the Company and/or
any
of its other subsidiaries. All of the outstanding shares of capital stock of
each subsidiary have been duly authorized and validly issued, and are fully
paid
and nonassessable. There are no outstanding preemptive, conversion or other
rights, options, warrants or agreements granted or issued by or binding upon
any
subsidiary for the purchase or acquisition of any shares of capital stock of
any
subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital stock. Neither
the Company nor any subsidiary is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of the
capital stock of any subsidiary or any convertible securities, rights, warrants
or options of the type described in the preceding sentence. Neither the Company
nor any subsidiary is party to, nor has any knowledge of, any agreement
restricting the voting or transfer of any shares of the capital stock of any
subsidiary.
(h) No
Material Adverse Change.
Except
as disclosed in any Commission Document, since December 31, 2004, the Company
has not experienced or suffered any Material Adverse Effect.
(i)
No
Undisclosed Liabilities.
Except
as set forth on Schedule
2.1(i)
hereto
or as disclosed in any Commission Document, neither the Company nor any of
its
subsidiaries has any liabilities, obligations, claims or losses (whether
liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent
or otherwise) other than those incurred in the ordinary course of the Company’s
or its subsidiaries respective businesses since December 31, 2004 and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect on the Company or its subsidiaries.
(j)
No
Undisclosed Events or Circumstances.
Except
as set forth on Schedule
2.1(j)
hereto
or as disclosed in any Commission Document, no event or circumstance has
occurred or exists with respect to the Company or its subsidiaries or their
respective businesses, properties, prospects, operations or financial condition,
which, under applicable law, rule or regulation, requires public disclosure
or
announcement by the Company but which has not been so publicly announced or
disclosed.
(k) Indebtedness.
The
Form 10-KSB, Form 10-QSB or Schedule
2.1(k)
hereto
sets forth as of a recent date all outstanding secured and unsecured
Indebtedness of the Company or any subsidiary, or for which the Company or
any
subsidiary has commitments. For the purposes of this Agreement, “Indebtedness”
shall mean (a) any liabilities for borrowed money or amounts owed in excess
of
$100,000 (other than trade accounts payable incurred in the ordinary course
of
business), (b) all guaranties, endorsements and other contingent obligations
in
respect of Indebtedness of others, whether or not the same are or should be
reflected in the Company’s balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or collection
or
similar transactions in the ordinary course of business; and (c) the present
value of any lease payments in excess of $25,000 due under leases required
to be
capitalized in accordance with GAAP. Except as set forth on Schedule
2.1(k),
neither
the Company nor any subsidiary is in default with respect to any
Indebtedness.
6
(l)
Title
to Assets.
Each of
the Company and the subsidiaries has good and marketable title to all of its
real and personal property reflected in the Form 10-KSB, free and clear of
any
mortgages, pledges, charges, liens, security interests or other encumbrances,
except for those disclosed in the Form 10-KSB, Form 10-QSB or on Schedule
2.1(l)
hereto
or such that, individually or in the aggregate, do not cause a Material Adverse
Effect. All said leases of the Company and each of its subsidiaries are valid
and subsisting and in full force and effect.
(m) Actions
Pending.
There
is no action, suit, claim, investigation, arbitration, alternate dispute
resolution proceeding or any other proceeding pending or, to the knowledge
of
the Company, threatened against the Company or any subsidiary which questions
the validity of this Agreement or any of the other Transaction Documents or
the
transactions contemplated hereby or thereby or any action taken or to be taken
pursuant hereto or thereto. Except as set forth in the Form 10-KSB, Form 10-QSB
or on Schedule
2.1(m)
hereto,
there is no action, suit, claim, investigation, arbitration, alternate dispute
resolution proceeding or any other proceeding pending or, to the knowledge
of
the Company, threatened, against or involving the Company, any subsidiary or
any
of their respective properties or assets. Except as set forth in the Form
10-KSB, Form 10-QSB or Schedule
2.1(m)
hereto,
there are no outstanding orders, judgments, injunctions, awards or decrees
of
any court, arbitrator or governmental or regulatory body against the Company
or
any subsidiary or any officers or directors of the Company or subsidiary in
their capacities as such.
(n) Compliance
with Law.
The
business of the Company and the subsidiaries has been and is presently being
conducted in accordance with all applicable federal, state and local
governmental laws, rules, regulations and ordinances, except as set forth in
the
Form 10-KSB, Form 10-QSB, or such that, individually or in the aggregate, do
not
cause a Material Adverse Effect. The Company and each of its subsidiaries have
all franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals necessary for the conduct of its business as now
being conducted by it unless the failure to possess such franchises, permits,
licenses, consents and other governmental or regulatory authorizations and
approvals, individually or in the aggregate, could not reasonably be expected
to
have a Material Adverse Effect.
(o) Taxes.
The
Company and each of the subsidiaries has accurately prepared and filed all
federal, state and other tax returns required by law to be filed by it, has
paid
or made provisions for the payment of all taxes shown to be due and all
additional assessments, and adequate provisions have been and are reflected
in
the financial statements of the Company and the subsidiaries for all current
taxes and other charges to which the Company or any subsidiary is subject and
which are not currently due and payable. None of the federal income tax returns
of the Company or any subsidiary have been audited by the Internal Revenue
Service. The Company has no knowledge of any additional assessments, adjustments
or contingent tax liability (whether federal or state) of any nature whatsoever,
whether pending or threatened against the Company or any subsidiary for any
period, nor of any basis for any such assessment, adjustment or
contingency.
(p) Certain
Fees.
Except
as set forth in this Agreement or on Schedule
2.1(p)
hereto,
no brokers, finders or financial advisory fees or commissions will be payable
by
the Company or any subsidiary or any Purchaser with respect to the transactions
contemplated by this Agreement.
7
(q) Disclosure.
Neither
this Agreement or the Schedules hereto nor any other documents, certificates
or
instruments furnished to the Purchasers by or on behalf of the Company or any
subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omit to state a material
fact
necessary in order to make the statements made herein or therein, in the light
of the circumstances under which they were made herein or therein, not
misleading.
(r) Operation
of Business.
The
Company and each of the subsidiaries owns or possesses all patents, trademarks,
domain names (whether or not registered) and any patentable improvements or
copyrightable derivative works thereof, websites and intellectual property
rights relating thereto, service marks, trade names, copyrights, licenses and
authorizations as set forth in the Commission Documents and on Schedule
2.1(r)
hereto,
and all rights with respect to the foregoing, which are necessary for the
conduct of its business as now conducted without any conflict with the rights
of
others.
(s) Environmental
Compliance.
The
Company and each of its subsidiaries have obtained all material approvals,
authorization, certificates, consents, licenses, orders and permits or other
similar authorizations of all governmental authorities, or from any other
person, that are required under any Environmental Laws. The Form 10-KSB or
Form
10-QSB describes all material permits, licenses and other authorizations issued
under any Environmental Laws to the Company or its subsidiaries. “Environmental
Laws” shall mean all applicable laws relating to the protection of the
environment including, without limitation, all requirements pertaining to
reporting, licensing, permitting, controlling, investigating or remediating
emissions, discharges, releases or threatened releases of hazardous substances,
chemical substances, pollutants, contaminants or toxic substances, materials
or
wastes, whether solid, liquid or gaseous in nature, into the air, surface water,
groundwater or land, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances,
material or wastes, whether solid, liquid or gaseous in nature. The Company
has
all necessary governmental approvals required under all Environmental Laws
and
used in its business or in the business of any of its subsidiaries. The Company
and each of its subsidiaries are also in compliance with all other limitations,
restrictions, conditions, standards, requirements, schedules and timetables
required or imposed under all Environmental Laws. Except for such instances
as
would not individually or in the aggregate have a Material Adverse Effect,
there
are no past or present events, conditions, circumstances, incidents, actions
or
omissions relating to or in any way affecting the Company or its subsidiaries
that violate or may violate any Environmental Law after the Closing Date or
that
may give rise to any environmental liability, or otherwise form the basis of
any
claim, action, demand, suit, proceeding, hearing, study or investigation (i)
under any Environmental Law, or (ii) based on or related to the manufacture,
processing, distribution, use, treatment, storage (including without limitation
underground storage tanks), disposal, transport or handling, or the emission,
discharge, release or threatened release of any hazardous substance.
8
(t) Books
and Record Internal Accounting Controls.
The
books and records of the Company and its subsidiaries accurately reflect in
all
material respects the information relating to the business of the Company and
the subsidiaries, the location and collection of their assets, and the nature
of
all transactions giving rise to the obligations or accounts receivable of the
Company or any subsidiary. The Company and each of its subsidiaries maintain
a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management’s
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management’s general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate actions is taken with respect to any
differences. The Company has established disclosure controls and procedures
(as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
designed such disclosure controls and procedures to ensure that material
information relating to the Company is made known to the certifying officers
by
others within those entities, particularly during the period in which the
Company's most recently filed period report under the Exchange Act, as the
case
may be, is being prepared. The Company's certifying officers have evaluated
the
effectiveness of the Company's disclosure controls and procedures as of the
end
of the most recent periodic reporting period under the Exchange Act (such date,
the "Evaluation Date"). The Company presented in its most recently filed
periodic report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures
based
on their evaluations as of the Evaluation Date. Since the Evaluation Date,
except with respect to the remediation of the material weakness in internal
control over financial reporting and the ineffectiveness of disclosure controls
and procedures as described in the Commission Documents, there have been no
significant changes in the Company's internal control over financial reporting
(as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) or,
to
the Company's knowledge, in other factors that could significantly affect the
Company's internal control over financial reporting.
(u) Material
Agreements.
Except
as set forth in the Commission Documents or on Schedule
2.1(u)
hereto,
neither the Company nor any subsidiary is a party to any written or oral
contract, instrument, agreement, commitment, obligation, plan or arrangement,
a
copy of which would be required to be filed with the Commission as an exhibit
to
a registration statement on Form S-3 or applicable form (collectively, “Material
Agreements”) if the Company or any subsidiary were registering securities under
the Securities Act. Except as set forth on Schedule
2.1(u)
or in
the Commission Documents, the Company and each of its subsidiaries has in all
material respects performed all the obligations required to be performed by
them
to date under the foregoing agreements, have received no notice of default
and
are not in default under any Material Agreement now in effect, the result of
which could cause a Material Adverse Effect. All Material Agreements are in
full
force and effect on the date hereof and except as disclosed on Schedule
2.1(u)
or set
forth in the Commission Documents, the Company has not received any notice
of
the intention of any party to terminate any Material Agreement. Except as set
forth on Schedule
2.1(u)
or in
the Commission Documents, no written or oral contract, instrument, agreement,
commitment, obligation, plan or arrangement of the Company or of any subsidiary
limits or shall limit the payment of dividends on the Company’s Preferred
Shares, other Preferred Stock, if any, or its Common Stock.
(v) Transactions
with Affiliates.
Except
as set forth in the Commission Documents or on Schedule
2.1(v)
hereto,
there are no loans, leases, agreements, contracts, royalty agreements,
management contracts or arrangements or other continuing transactions between
(a) the Company or any subsidiary on the one hand, and (b) on the other hand,
any officer, employee, consultant or director of the Company, or any of its
subsidiaries, or any person owning any capital stock of the Company or any
subsidiary or any member of the immediate family of such officer, employee,
consultant, director or stockholder or any corporation or other entity
controlled by such officer, employee, consultant, director or stockholder,
or a
member of the immediate family of such officer, employee, consultant, director
or stockholder.
9
(w) Securities
Act of 1933.
Based
in material part upon the representations herein of the Purchasers, the Company
has complied and will comply with all applicable federal and state securities
laws in connection with the offer, issuance and sale of the Shares and the
Warrants hereunder. Neither the Company nor anyone acting on its behalf,
directly or indirectly, has or will sell, offer to sell or solicit offers to
buy
any of the Shares, the Warrants or similar securities to, or solicit offers
with
respect thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any person, or has taken or will take any
action so as to bring the issuance and sale of any of the Shares and the
Warrants under the registration provisions of the Securities Act and applicable
state securities laws, and neither the Company nor any of its affiliates, nor
any person acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D under
the Securities Act) in connection with the offer or sale of any of the Shares
and the Warrants.
(x) Governmental
Approvals.
Except
for the filing of any notice prior or subsequent to the Closing Date that may
be
required under applicable state and/or Federal securities laws (which if
required, shall be filed on a timely basis), including the filing of a Form
D
and a registration statement or statements pursuant to the Registration Rights
Agreement, and the filing of the Certificate of Designation with the Secretary
of State for the State of Nevada, no authorization, consent, approval, license,
exemption of, filing or registration with any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
is or
will be necessary for, or in connection with, the execution or delivery of
the
Preferred Shares and the Warrants, or for the performance by the Company of
its
obligations under the Transaction Documents.
(y) Employees.
Neither
the Company nor any subsidiary has any collective bargaining arrangements or
agreements covering any of its employees, except as set forth in the Form
10-KSB, Form 10-QSB or on Schedule
2.1(y)
hereto.
Except as set forth in the Form 10-KSB, Form 10-QSB or on Schedule
2.1(y)
hereto,
neither the Company nor any subsidiary has any employment contract, agreement
regarding proprietary information, non-competition agreement, non-solicitation
agreement, confidentiality agreement, or any other similar contract or
restrictive covenant, relating to the right of any officer, employee or
consultant to be employed or engaged by the Company or such subsidiary. Since
December 31, 2004 , no officer, consultant or key employee of the Company or
any
subsidiary whose termination, either individually or in the aggregate, could
have a Material Adverse Effect, has terminated or, to the knowledge of the
Company, has any present intention of terminating his or her employment or
engagement with the Company or any subsidiary.
(z) Absence
of Certain Developments.
Except
as provided on Schedule
2.1(z)
hereto
or as disclosed in the Commission Documents, since December 31, 2004, neither
the Company nor any subsidiary has:
10
(i)
issued
any stock, bonds or other corporate securities or any rights, options or
warrants with respect thereto;
(ii) borrowed
any amount or incurred or become subject to any liabilities (absolute or
contingent) except current liabilities incurred in the ordinary course of
business which are comparable in nature and amount to the current liabilities
incurred in the ordinary course of business during the comparable portion of
its
prior fiscal year, as adjusted to reflect the current nature and volume of
the
Company’s or such subsidiary’s business;
(iii) discharged
or satisfied any lien or encumbrance or paid any obligation or liability
(absolute or contingent), other than current liabilities paid in the ordinary
course of business;
(iv) declared
or made any payment or distribution of cash or other property to stockholders
with respect to its stock, or purchased or redeemed, or made any agreements
so
to purchase or redeem, any shares of its capital stock;
(v) sold,
assigned or transferred any other tangible assets, or canceled any debts or
claims, except in the ordinary course of business;
(vi) sold,
assigned or transferred any patent rights, trademarks, trade names, copyrights,
trade secrets or other intangible assets or intellectual property rights, or
disclosed any proprietary confidential information to any person except to
customers in the ordinary course of business or to the Purchasers or their
representatives;
(vii)
suffered
any substantial losses or waived any rights of material value, whether or not
in
the ordinary course of business, or suffered the loss of any material amount
of
prospective business;
(viii)
made
any
changes in employee compensation except in the ordinary course of business
and
consistent with past practices;
(ix)
made
capital expenditures or commitments therefor that aggregate in excess of
$100,000;
(x) entered
into any other transaction other than in the ordinary course of business, or
entered into any other material transaction, whether or not in the ordinary
course of business;
(xi) made
charitable contributions or pledges in excess of $25,000;
(xii)
suffered
any material damage, destruction or casualty loss, whether or not covered by
insurance;
11
(xiii) experienced
any material problems with labor or management in connection with the terms
and
conditions of their employment;
(xiv)
effected
any two or more events of the foregoing kind which in the aggregate would be
material to the Company or its subsidiaries; or
(xv)
entered
into an agreement, written or otherwise, to take any of the foregoing
actions.
(aa)
Public
Utility Holding Company Act and Investment Company Act Status.
The
Company is not a “holding company” or a “public utility company” as such terms
are defined in the Public Utility Holding Company Act of 1935, as amended.
The
Company is not, and as a result of and immediately upon the Closing will not
be,
an “investment company” or a company “controlled” by an “investment company,”
within the meaning of the Investment Company Act of 1940, as
amended.
(bb)
ERISA.
No
liability to the Pension Benefit Guaranty Corporation has been incurred with
respect to any Plan by the Company or any of its subsidiaries which is or would
be materially adverse to the Company and its subsidiaries. The execution and
delivery of this Agreement and the issuance and sale of the Preferred Shares
will not involve any transaction which is subject to the prohibitions of Section
406 of ERISA or in connection with which a tax could be imposed pursuant to
Section 4975 of the Internal Revenue Code of 1986, as amended, provided that,
if
any of the Purchasers, or any person or entity that owns a beneficial interest
in any of the Purchasers, is an “employee pension benefit plan” (within the
meaning of Section 3(2) of ERISA) with respect to which the Company is a “party
in interest” (within the meaning of Section 3(14) of ERISA), the requirements of
Sections 407(d)(5) and 408(e) of ERISA, if applicable, are met. As used in
this
Section 2.1(ac), the term “Plan” shall mean an “employee pension benefit plan”
(as defined in Section 3 of ERISA) which is or has been established or
maintained, or to which contributions are or have been made, by the Company
or
any subsidiary or by any trade or business, whether or not incorporated, which,
together with the Company or any subsidiary, is under common control, as
described in Section 414(b) or (c) of the Code.
(cc)
Dilutive
Effect.
The
Company understands and acknowledges that its obligation to issue Conversion
Shares upon conversion of the Preferred Shares in accordance with this Agreement
and the Certificate of Designation and its obligations to issue the Warrant
Shares upon the exercise of the Warrants in accordance with this Agreement
and
the Warrants, is, in each case, absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interest of
other
stockholders of the Company.
(dd)
No
Integrated Offering.
Neither
the Company, nor any of its affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales of any security
or
solicited any offers to buy any security under circumstances that would cause
the offering of the Shares pursuant to this Agreement to be integrated with
prior offerings by the Company for purposes of the Securities Act which would
prevent the Company from selling the Shares pursuant to Rule 506 under the
Securities Act, or any applicable exchange-related stockholder approval
provisions, nor will the Company or any of its affiliates or subsidiaries take
any action or steps that would cause the offering of the Shares to be integrated
with other offerings.
The
Company does not have any registration statement pending before the Commission
or currently under the Commission’s review and except as set forth on
Schedule
2.1(dd)
hereto,
since July 1,
2005,
the Company has not offered or sold any of its equity securities or debt
securities convertible into shares of Common Stock.
12
(ee)
▇▇▇▇▇▇▇▇-▇▇▇▇▇
Act.
The
Company is in compliance with the applicable provisions of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇
Act of 2002 (the “▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act”), and the rules and regulations
promulgated thereunder, that are effective, and intends to comply with other
applicable provisions of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act, and the rules and regulations
promulgated thereunder, upon the effectiveness of such provisions.
(ff)
Independent
Nature of Purchasers.
The
Company acknowledges that the obligations of each Purchaser under the
Transaction Documents are several and not joint with the obligations of any
other Purchaser, and no Purchaser shall be responsible in any way for the
performance of the obligations of any other Purchaser under the Transaction
Documents. The Company acknowledges that the decision of each Purchaser to
purchase Securities pursuant to this Agreement has been made by such Purchaser
independently of any other purchase and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition (financial
or
otherwise) or prospects of the Company or of its Subsidiaries which may have
made or given by any other Purchaser or by any agent or employee of any other
Purchaser, and no Purchaser or any of its agents or employees shall have any
liability to any Purchaser (or any other person) relating to or arising from
any
such information, materials, statements or opinions. The Company acknowledges
that nothing contained herein, or in any Transaction Document, and no action
taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute
the Purchasers as a partnership, an association, a joint venture or any other
kind of entity, or create a presumption that the Purchasers are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company acknowledges
that each Purchaser shall be entitled to independently protect and enforce
its
rights, including without limitation, the rights arising out of this Agreement
or out of the other Transaction Documents, and it shall not be necessary for
any
other Purchaser to be joined as an additional party in any proceeding for such
purpose. The Company acknowledges that for reasons of administrative convenience
only, the Transaction Documents have been prepared by counsel for the placement
agent and such counsel does not represent the Purchasers and the Purchasers
have
retained their own individual counsel with respect to the transactions
contemplated hereby. The Company acknowledges that it has elected to
provide all Purchasers with the same terms and Transaction Documents for the
convenience of the Company and not because it was required or requested to
do so
by the Purchasers. The Company acknowledges that such procedure with respect
to
the Transaction Documents in no way creates a presumption that the Purchasers
are in any way acting in concert or as a group with respect to the Transaction
Documents or the transactions contemplated hereby or thereby.
(gg)
DTC
Status.
The
Company’s transfer agent is a participant in and the Common Stock is eligible
for transfer pursuant to the Depository Trust Company Automated Securities
Transfer Program. The name, address, telephone number, fax number, contact
person and email address of the Company’s transfer agent is set forth on
Schedule
2.1(gg)
hereto.
13
(hh)
Investment
Company Act.
The
Company is not, and as a result of and immediately upon the Closing will not
be,
an “investment company” or a company controlled by an “investment company”,
within the meaning of the Investment Company Act of 1940, as amended.
Section
2.2 Representations,
Warranties and Covenants of the Purchasers.
Each of
the Purchasers hereby makes the following representations, warranties and
covenants to the Company with respect solely to itself and not with respect
to
any other Purchaser:
(a) Organization
and Standing of the Purchasers.
If the
Purchaser is an entity, such Purchaser is a corporation or partnership duly
incorporated or organized, validly existing and in good standing under the
laws
of the jurisdiction of its incorporation or organization.
(b) Authorization
and Power.
Each
Purchaser has the requisite power and authority to enter into and perform this
Agreement and to purchase the Preferred Shares and Warrants being sold to it
hereunder. The execution, delivery and performance of this Agreement and the
Registration Rights Agreement by such Purchaser and the consummation by it
of
the transactions contemplated hereby and thereby have been duly authorized
by
all necessary corporate or partnership action, and no further consent or
authorization of such Purchaser or its Board of Directors, stockholders, or
partners, as the case may be, is required. Each of this Agreement and the
Registration Rights Agreement has been duly authorized, executed and delivered
by such Purchaser and constitutes, or shall constitute when executed and
delivered, a valid and binding obligation of the Purchaser enforceable against
the Purchaser in accordance with the terms thereof, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditor’s
rights and remedies or by other equitable principles of general
application.
(c) No
Conflicts.
The
execution, delivery and performance of this Agreement and the Registration
Rights Agreement and the consummation by such Purchaser of the transactions
contemplated hereby and thereby or relating hereto do not and will not (i)
result in a violation of such Purchaser’s charter documents or bylaws or other
organizational documents or (ii) conflict with, or constitute a default (or
an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of any agreement, indenture or instrument or obligation to which
such Purchaser is a party or by which its properties or assets are bound, or
result in a violation of any law, rule, or regulation, or any order, judgment
or
decree of any court or governmental agency applicable to such Purchaser or
its
properties (except for such conflicts, defaults and violations as would not,
individually or in the aggregate, have a material adverse effect on such
Purchaser). Such Purchaser is not required to obtain any consent, authorization
or order of, or make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its obligations
under this Agreement or the Registration Rights Agreement or to purchase the
Preferred Shares or acquire the Warrants in accordance with the terms hereof,
provided that for purposes of the representation made in this sentence, such
Purchaser is assuming and relying upon the accuracy of the relevant
representations and agreements of the Company herein.
14
(d) Acquisition
for Investment.
Each
Purchaser is acquiring the Preferred Shares and the Warrants solely for its
own
account for the purpose of investment and not with a view to or for sale in
connection with distribution. Each Purchaser does not have a present intention
to sell the Preferred Shares or the Warrants, nor a present arrangement (whether
or not legally binding) or intention to effect any distribution of the Preferred
Shares or the Warrants to or through any person or entity; provided,
however,
that by
making the representations herein and subject to Section 2.2(h) below, such
Purchaser does not agree to hold the Shares or the Warrants for any minimum
or
other specific term and reserves the right to dispose of the Shares or the
Warrants at any time in accordance with Federal and state securities laws
applicable to such disposition. Each Purchaser acknowledges that it is able
to
bear the financial risks associated with an investment in the Preferred Shares
and the Warrants and that it has been given full access to such records of
the
Company and the subsidiaries and to the officers of the Company and the
subsidiaries and received such information as it has deemed necessary or
appropriate to conduct its due diligence investigation and has sufficient
knowledge and experience in investing in companies similar to the Company in
terms of the Company’s stage of development so as to be able to evaluate the
risks and merits of its investment in the Company.
(e) Status
of Purchasers.
Such
Purchaser is an “accredited investor” as defined in Regulation D promulgated
under the Securities Act. Such Purchaser is not required to be registered as
a
broker-dealer under Section 15 of the Exchange Act and such Purchaser is not
a
broker-dealer.
(f) Opportunities
for Additional Information.
Each
Purchaser acknowledges that such Purchaser has had the opportunity to ask
questions of and receive answers from, or obtain additional information from,
the executive officers of the Company concerning the financial and other affairs
of the Company, and to the extent deemed necessary in light of such Purchaser’s
personal knowledge of the Company’s affairs, such Purchaser has asked such
questions and received answers to the full satisfaction of such Purchaser,
and
such Purchaser desires to invest in the Company. Neither such inquiries nor
any
other due diligence investigation conducted by the Purchasers shall modify,
amend or affect the Purchasers’ right to rely on the Company’s representations
and warranties contained in this Agreement.
(g) No
General Solicitation.
Each
Purchaser acknowledges that the Preferred Shares and the Warrants were not
offered to such Purchaser by means of any form of general or public solicitation
or general advertising, or publicly disseminated advertisements or sales
literature, including (i) any advertisement, article, notice or other
communication published in any newspaper, magazine, or similar media, or
broadcast over television or radio, or (ii) any seminar or meeting to which
such
Purchaser was invited by any of the foregoing means of
communications.
(h) Rule
144.
Such
Purchaser understands that the Shares must be held indefinitely unless such
Shares are registered under the Securities Act or an exemption from registration
is available. Such Purchaser acknowledges that such Purchaser is familiar with
Rule 144 of the rules and regulations of the Commission, as amended, promulgated
pursuant to the Securities Act (“Rule 144”), and that such person has been
advised that Rule 144 permits resales only under certain circumstances. Such
Purchaser understands that to the extent that Rule 144 is not available, such
Purchaser will be unable to sell any Shares without either registration under
the Securities Act or the existence of another exemption from such registration
requirement.
15
(i)
General.
Such
Purchaser understands that the Shares are being offered and sold in reliance
on
a transactional exemption from the registration requirement of Federal and
state
securities laws and the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings
of
such Purchaser set forth herein in order to determine the applicability of
such
exemptions and the suitability of such Purchaser to acquire the
Shares.
(j)
Independent
Investment.
Except
as may be disclosed in any filings with the Commission by the Purchasers under
Section 13 and/or Section 16 of the Exchange Act, no Purchaser has agreed to
act
with any other Purchaser for the purpose of acquiring, holding, voting or
disposing of the Shares purchased hereunder for purposes of Section 13(d) under
the Exchange Act, and each Purchaser is acting independently with respect to
its
investment in the Shares.
(k) Short
Sales.
Each
Purchaser covenants that neither it nor any affiliates acting on its behalf
or
pursuant to any understanding with it will execute
any
Short Sales (as
defined below) during the period after the date
that
such
Purchaser first received a term sheet from the Company or any other person
or
entity setting forth the material terms of the transactions contemplated
hereunder until the date that
the
transactions contemplated by this Agreement are first publicly announced as
described in Section 3.16 hereof. For purposes hereof, “Short
Sales”
shall
include all “short sales” as defined in Rule 200 of Regulation SHO under the
Exchange Act.
(l)
Confidentiality.
The
Purchaser agrees that it will not disclose, and will not include in any public
announcement, the name of the Company, unless expressly agreed to by the Company
or unless and until such disclosure is required by law or applicable regulation,
and then only to the extent of such requirement.
ARTICLE
III
COVENANTS
The
Company covenants with each of the Purchasers as follows, which covenants are
for the benefit of the Purchasers and their permitted assignees (as defined
herein).
Section
3.1 Securities
Compliance.
The
Company shall notify the Commission in accordance with their rules and
regulations, of the transactions contemplated by any of the Transaction
Documents, including filing a Form D with respect to the Preferred Shares,
Warrants, Conversion Shares and Warrant Shares as required under Regulation
D,
and shall take all other necessary action and proceedings as may be required
and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Preferred Shares, the Warrants, the Conversion Shares and the
Warrant Shares to the Purchasers or subsequent holders.
16
Section
3.2 Registration
and Listing.
The
Company will cause its Common Stock to continue to be registered under Sections
12(b) or 12(g) of the Exchange Act, will comply in all respects with its
reporting and filing obligations under the Exchange Act, will comply with all
requirements related to any registration statement filed pursuant to this
Agreement or the Registration Rights Agreement, and will not take any action
or
file any document (whether or not permitted by the Securities Act or the rules
promulgated thereunder) to terminate or suspend such registration or to
terminate or suspend its reporting and filing obligations under the Exchange
Act
or Securities Act, except as permitted herein. The Company will take all action
necessary to continue the listing or trading of its Common Stock on the OTC
Bulletin Board or other exchange or market on which the Common Stock is
trading.
Section
3.3 Inspection
Rights.
The
Company shall permit, during normal business hours and upon reasonable request
and reasonable notice, each Purchaser or any employees, agents or
representatives thereof, so long as such Purchaser shall be obligated hereunder
to purchase the Preferred Shares or shall beneficially own any Preferred Shares,
or shall own Conversion Shares which, in the aggregate, represent more than
two
percent (2%) of the total combined voting power of all voting securities then
outstanding, for purposes reasonably related to such Purchaser’s interests as a
stockholder to examine and make reasonable copies of and extracts from the
records and books of account of, and visit and inspect the properties, assets,
operations and business of the Company and any subsidiary (but only to the
extent not contractually required of the Company or any subsidiary to be kept
confidential), and to discuss the affairs, finances and accounts of the Company
and any subsidiary with any of its officers, consultants, directors, and key
employees.
Section
3.4 Compliance
with Laws.
The
Company shall comply, and cause each subsidiary to comply, with all applicable
laws, rules, regulations and orders, the noncompliance of which could have
a
Material Adverse Effect.
Section
3.5 Keeping
of Records and Books of Account.
The
Company shall keep and cause each subsidiary to keep adequate records and books
of account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions of the Company
and
its subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section
3.6 Reporting
Requirements.
If the
Commission ceases making periodic reports filed under Section 13 of the Exchange
Act available via the Internet, then at a Purchaser’s request the Company shall
furnish the following to such Purchaser so long as such Purchaser shall be
obligated hereunder to purchase the Preferred Shares or shall beneficially
own
any Preferred Shares, or shall own Conversion Shares which, in the aggregate,
represent more than 2% of the total combined voting power of all voting
securities then outstanding:
(a) Quarterly
Reports filed with the Commission on Form 10-QSB as soon as practical after
the
document is filed with the Commission, and in any event within five (5) days
after the document is filed with the Commission;
17
(b) Annual
Reports filed with the Commission on Form 10-KSB as soon as practical after
the
document is filed with the Commission, and in any event within five (5) days
after the document is filed with the Commission; and
(c) Copies
of
all notices and information, including without limitation notices and proxy
statements in connection with any meetings, that are provided to holders of
shares of Common Stock, contemporaneously with the delivery of such notices
or
information to such holders of Common Stock.
Section
3.7 Amendments.
The
Company shall not, without the prior written consent of the holders of at least
seventy-five percent (75%) of the Preferred Shares then outstanding, amend
or
waive any provision of the Articles or Bylaws of the Company in any way that
would adversely affect the liquidation preferences, dividends rights, conversion
rights, voting rights or redemption rights of the Preferred Shares; provided,
however,
that
any creation and issuance of another series of Junior Stock (as defined in
the
Certificate of Designation) or any other class or series of equity securities
which by its terms shall rank on parity with the Preferred Shares shall not
be
deemed to materially and adversely affect such rights, preferences or
privileges.
Section
3.8 Other
Agreements; Amendments.
The
Company shall not enter into any agreement in which the terms of such agreement
would restrict or impair the right or ability to perform of the Company or
any
subsidiary under any Transaction Document; provided,
however,
that
the foregoing clause shall in no way restrict the Company from entering into
any
senior secured financing agreement or instrument with Laurus Master Fund, Ltd.
(“Laurus”), including without limitation, any supplement or modification to, or
amendment or substitution of, the Company’s existing credit facility with Laurus
(a “Laurus Facility”). The Company shall not amend or waive any provision of the
Articles or Bylaws of the Company in any way that would adversely affect the
exercise rights, voting rights, conversion rights or redemption rights of the
holders of the Preferred Shares.
Section
3.9 Intentionally
Omitted.
18
Section
3.10 Status
of Dividends.
The
Company covenants and agrees that (i) no Federal income tax return or claim
for
refund of Federal income tax or other submission to the Internal Revenue Service
will adversely affect the Preferred Shares, any other series of its Preferred
Stock, or the Common Stock, and any deduction shall not operate to jeopardize
the availability to Purchasers of the dividends received deduction provided
by
Section 243(a)(1) of the Code or any successor provision, (ii) in no report
to
shareholders or to any governmental body having jurisdiction over the Company
or
otherwise will it treat the Preferred Shares other than as equity capital or
the
dividends paid thereon other than as dividends paid on equity capital unless
required to do so by a governmental body having jurisdiction over the accounts
of the Company or by a change in generally accepted accounting principles
required as a result of action by an authoritative accounting standards setting
body, and (iii) other than pursuant to this Agreement or the Certificate of
Designation, it will take no action which would result in the dividends paid
by
the Company on the Preferred Shares out of the Company’s current or accumulated
earnings and profits being ineligible for the dividends received deduction
provided by Section 243(a)(1) of the Code. The preceding sentence shall not
be
deemed to prevent the Company from designating the Preferred Stock as
“Convertible Preferred Stock” in its annual and quarterly financial statements
in accordance with its prior practice concerning other series of preferred
stock
of the Company. Notwithstanding the foregoing, the Company shall not be required
to restate or modify its tax returns for periods prior to the Closing Date.
In
the event that the Purchasers have reasonable cause to believe that dividends
paid by the Company on the Preferred Shares out of the Company’s current or
accumulated earnings and profits will not be treated as eligible for the
dividends received deduction provided by Section 243(a)(1) of the Code, or
any
successor provision, the Company will, at the reasonable request of the
Purchasers of 51% of the outstanding Preferred Shares, join with the Purchasers
in the submission to the Service of a request for a ruling that dividends paid
on the Shares will be so eligible for Federal income tax purposes, at the
Purchasers expense. In addition, the Company will reasonably cooperate with
the
Purchasers (at Purchasers’ expense) in any litigation, appeal or other
proceeding challenging or contesting any ruling, technical advice, finding
or
determination that earnings and profits are not eligible for the dividends
received deduction provided by Section 243(a)(1) of the Code, or any successor
provision to the extent that the position to be taken in any such litigation,
appeal, or other proceeding is not contrary to any provision of the Code or
incurred in connection with any such submission, litigation, appeal or other
proceeding. Notwithstanding the foregoing, nothing herein contained shall be
deemed to preclude the Company from claiming a deduction with respect to such
dividends if (i) the Code shall hereafter be amended, or final Treasury
regulations thereunder are issued or modified, to provide that dividends on
the
Preferred Shares or Conversion Shares should not be treated as dividends for
Federal income tax purposes or that a deduction with respect to all or a portion
of the dividends on the Shares is allowable for Federal income tax purposes,
or
(ii) in the absence of such an amendment, issuance or modification and after
a
submission of a request for ruling or technical advice, the service shall rule
or advise that dividends on the shares should not be treated as dividends for
Federal income tax purposes. If the Service determines that the Preferred Shares
or Conversion Shares constitute debt, the Company may file protective claims
for
refund.
Section
3.11 Use
of
Proceeds.
The net
proceeds from the sale of the Preferred Shares will be used by the Company
for
working capital and general corporate purposes and not to redeem any Common
Stock or securities convertible, exercisable or exchangeable into Common Stock
or to settle any outstanding litigation except as set forth on Schedule
2.1(m);
provided,
however,
that
nothing in this Section 3.11 shall prohibit the Company from using all or a
portion of the net proceeds for the acquisitions of assets or capital stock
of
any other entity.
Section
3.12 Reservation
of Shares.
So long
as any of the Preferred Shares or Warrants remain outstanding, the Company
shall
take all action necessary to at all times have authorized, and reserved for
the
purpose of issuance, no less than one hundred ten percent (110%) the aggregate
number of shares of Common Stock needed to provide for the issuance of the
Conversion Shares and the Warrant Shares.
19
Section
3.13 Transfer
Agent Instructions.
The
Company shall issue irrevocable instructions to its transfer agent, and any
subsequent transfer agent, to issue certificates, registered in the name of
each
Purchaser or its respective nominee(s), for the Conversion Shares and the
Warrant Shares in such amounts as specified from time to time by each Purchaser
to the Company upon conversion of the Preferred Shares or exercise of the
Warrants in the form of Exhibit
F
attached
hereto (the “Irrevocable Transfer Agent Instructions”). All such certificates
shall bear the restrictive legend specified in Section 5.1 of this Agreement.
The Company warrants that no instruction other than the Irrevocable Transfer
Agent Instructions referred to in this Section 3.13 will be given by the Company
to its transfer agent and that the Shares shall otherwise be freely transferable
on the books and records of the Company as and to the extent provided in this
Agreement and the Registration Rights Agreement. Nothing in this Section 3.13
shall affect in any way each Purchaser’s obligations and agreements set forth in
Section 5.1 to comply with all applicable prospectus delivery requirements,
if
any, upon resale of the Shares. If, prior to the registration statement covering
the Shares being declared effective, a Purchaser provides the Company with
an
opinion of counsel, in a generally acceptable form, to the effect that a public
sale, assignment or transfer of the Shares may be made without registration
under the Securities Act or a Purchaser provides the Company with reasonable
assurances that the Shares can be sold pursuant to Rule 144 without any
restriction as to the number of securities acquired as of a particular date
that
can then be immediately sold, the Company shall permit the transfer, and, in
the
case of the Conversion Shares and the Warrant Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by such Purchaser and without any restrictive legend.
The Company acknowledges that a breach by it of its obligations under this
Section 3.13 will cause irreparable harm to the Purchasers by vitiating the
intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section 3.13 will be inadequate and agrees, in the event of a
breach or threatened breach by the Company of the provisions of this Section
3.13, that the Purchasers shall be entitled, in addition to all other available
remedies, to an order and/or injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic
loss
and without any bond or other security being required.
Section
3.14 Disposition
of Assets.
So long
as at least thirty-five percent (35%) of the original Liquidation Preference
Amount of the Preferred Shares remain outstanding, neither the Company nor
any
Subsidiary shall sell, transfer or otherwise dispose of any of its properties,
assets and rights including, without limitation, its software and intellectual
property, to any person except for sales to customers in the ordinary course
of
business or with the prior written consent of the holders of a majority of
the
Preferred Shares then outstanding.
Notwithstanding the foregoing sentence, no consent of the Purchasers shall
be
required with respect to any such sale, transfer or other disposition by the
Company or any Subsidiary if such sale, transfer or other disposition is made
pursuant to an exercise by Laurus of any of its rights, or the performance
by
the Company or any Subsidiary of any their respective obligations, under a
Laurus Facility.
Section
3.15 Reporting
Status. So
long
as a Purchaser beneficially owns any of the Securities, the Company shall timely
file all reports required to be filed with the Commission pursuant to the
Exchange Act, and the Company shall not terminate its status as an issuer
required to file reports under the Exchange Act even if the Exchange Act or
the
rules and regulations thereunder would permit such termination.
20
Section
3.16 Disclosure
of Transaction.
The
Company shall issue a press release describing the material terms of the
transactions contemplated hereby (the “Press Release”) as soon as practicable
after the Closing but in no event later than one hour after the Closing;
provided,
however,
that if
the Closing occurs after 4:00 P.M. Eastern Time on any Trading Day, the Company
shall issue the Press Release no later than 9:00 A.M. Eastern Time on the first
Trading Day following the Closing Date. The Company shall also file with the
Commission a Current Report on Form 8-K (the “Form 8-K”) describing the material
terms of the transactions contemplated hereby (and attaching as exhibits thereto
this Agreement, the Registration Rights Agreement, the Certificate of
Designation, the form of each Warrant and the Press Release) as soon as
practicable following the Closing Date but in no event more than two (2) Trading
Days following the Closing Date, which Press Release and Form 8-K shall be
subject to prior review and comment by counsel to the placement agent. "Trading
Day" means any day during which the OTC Bulletin Board (or other principal
exchange on which the Common Stock is traded) shall be open for
trading.
Section
3.17 Disclosure
of Material Information.
The
Company covenants and agrees that neither it nor any other person acting on
its
behalf has provided or will provide any Purchaser or its agents or counsel
with
any information that the Company believes constitutes material non-public
information, unless prior to disclosure of such information the Company
identifies such information as being material, non-public information and
provides the Purchasers or their respective agents or counsel, as applicable,
with the opportunity to accept or refuse to accept such material, non-public
information for review and any Purchaser wishing to obtain such information
shall have executed a written agreement regarding the confidentiality and use
of
such information. The Company understands and confirms that each Purchaser
shall be relying on the foregoing representations in effecting transactions
in
securities of the Company.
It is
expressly agreed by each Purchaser that any disclosure made to such Purchaser
pursuant to the covenants of the Company hereunder or under any other
Transaction Document shall not be deemed a breach of the provisions of this
Section 3.17.
Section
3.18 Pledge
of Securities.
The
Company acknowledges and agrees that the Securities may be pledged by a
Purchaser in connection with a bona fide
margin
agreement or other loan or financing arrangement that is secured by the Common
Stock. The pledge of Common Stock shall not be deemed to be a transfer, sale
or
assignment of the Common Stock hereunder, and no Purchaser effecting a pledge
of
Common Stock shall be required to provide the Company with any notice thereof
or
otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document; provided that a Purchaser and its pledgee shall
be
required to comply with the provisions of Article V hereof in order to effect
a
sale, transfer or assignment of Common Stock to such pledgee. At the Purchasers'
expense, the Company hereby agrees to execute and deliver such documentation
as
a pledgee of the Common Stock may reasonably request in connection with a pledge
of the Common Stock to such pledgee by a Purchaser.
Section
3.19 Form
SB-2 Eligibility. The
Company currently meets, and will take all necessary action to continue to
meet,
the "registrant eligibility" and transaction requirements set forth in the
general instructions to Form SB-2 applicable to "resale" registrations on
Form SB-2 during the Effectiveness Period (as defined in the Registration
Rights Agreement) and the Company shall file all reports required to be filed
by
the Company with the Commission in a timely manner so as to maintain such
eligibility for the use of Form SB-2.
21
Section
3.20 Intentionally
Omitted.
Section
3.2 Future
Financings; Right of First Offer and Refusal.
(a) For
a
period of one (1) year following the Closing Date, the Company covenants and
agrees to promptly notify (in no event later than five (5) Trading Days after
making or receiving an applicable offer) in writing (a "Rights
Notice")
the
Purchasers of the terms and conditions of any proposed offer or sale to, or
exchange with (or other type of distribution to) any third party (a
“Subsequent
Financing”),
of
Common Stock or any securities convertible, exercisable or exchangeable into
Common Stock, including convertible debt securities (collectively, the
"Financing
Securities").
The
Rights Notice shall describe, in reasonable detail, the proposed Subsequent
Financing, the names and investment amounts of all investors participating
in
the Subsequent Financing, the proposed closing date of the Subsequent Financing,
which shall be within twenty (20) calendar days from the date of the Rights
Notice, and all of the terms and conditions thereof and proposed definitive
documentation to be entered into in connection therewith. The Rights Notice
shall provide each Purchaser an option (the “Rights
Option”)
during
the seven (7) Trading Days following delivery of the Rights Notice (the
“Option
Period”)
to
inform the Company whether such Purchaser will purchase up to its pro rata
portion of the securities being offered in such Subsequent Financing on the
same, absolute terms and conditions as contemplated by such Subsequent
Financing. Each Purchaser shall have an additional three (3) Trading Days to
fund the purchase of the securities being offered in such Subsequent Financing.
If any Purchaser elects not to participate in such Subsequent Financing, the
other participating Purchasers may participate in such non-participating
Purchaser’s share on a pro-rata basis so long as, with respect to any such
participating Purchaser, such participation in the aggregate does not exceed
the
total Purchase Price of such participating Purchasers hereunder. For purposes
of
this Section, all references to “pro rata” means, for any Purchaser electing to
participate in such Subsequent Financing, the percentage obtained by dividing
(x) the total number of Preferred Shares purchased by such Purchaser at the
Closing by (y) the total number of Preferred Shares purchased by all of the
participating Purchasers at the Closing. Delivery of any Rights Notice
constitutes a representation and warranty by the Company that there are no
other
material terms and conditions, arrangements, agreements or otherwise except
for
those disclosed in the Rights Notice, to provide additional compensation to
any
party participating in any proposed Subsequent Financing, including, but not
limited to, additional compensation based on changes in the Purchase Price
or
any type of reset or adjustment of a purchase or conversion price or to issue
additional securities at any time after the closing date of a Subsequent
Financing. If the Company does not receive notice of exercise of the Rights
Option from the Purchasers within the Option Period, the Company shall have
the
right to close the Subsequent Financing on the scheduled closing date with
a
third party; provided
that all
of the material terms and conditions of the closing are substantially the same
as those provided to the Purchasers in the Rights Notice. If the closing of
the
proposed Subsequent Financing does not occur within fifteen (15) days following
that date, any closing of the contemplated Subsequent Financing or any other
Subsequent Financing shall be subject to all of the provisions of this Section
3.21(a), including, without limitation, the delivery of a new Rights Notice.
The
provisions of this Section 3.21(a) shall not apply to issuances of securities
in
a Permitted Financing.
22
(b) Notwithstanding
anything to the contrary contained in this Section 3.21(a), to the extent that
the Financing Securities are secured debt securities, the terms and conditions
of this Section 3.21(a) shall be subject to and subordinate to any right of
first refusal of Laurus under any Laurus Facility with respect to such secured
debt securities (a “Laurus Senior Right of First Refusal”). For so long as
Laurus has a Laurus Senior Right of First Refusal, paragraph (a) above shall
be
modified to provide that the Company shall deliver the Rights Notice described
in paragraph (a) above to the Purchasers not later than five (5) Trading Days
after the earlier of the (i) the expiration date of Laurus’s option period to
exercise the Laurus Senior Right of First Refusal or (ii) the date on which
Laurus provides notice to the Company of Laurus’ waiver of the Laurus Senior
Right of First Refusal.
(c) For
purposes of this Agreement, a Permitted Financing (as defined hereinafter)
shall
not be considered a Subsequent Financing. A "Permitted Financing" shall mean
(i)
securities issued (other than for cash) in connection with a merger,
acquisition, or consolidation, (ii) securities issued pursuant to a bona fide
firm underwritten public offering of the Company’s securities generating gross
proceeds to the Company of not less than $20 million in which the price per
share is at least $4.00 (subject to appropriate adjustment in the event of
any
stock dividend, stock split, stock distribution or combination with respect
to
the Common Stock), (iii) securities issued pursuant to the conversion or
exercise of convertible or exercisable securities issued or outstanding on
or
prior to the date hereof or issued pursuant to this Agreement and the
Certificate of Designation, (iv) the Warrant Shares, (v) securities issued
in
connection with bona fide strategic license agreements or other partnering
arrangements so long as such issuances are not for the primary purpose of
raising capital, (vi) Common Stock issued or options to purchase Common Stock
granted or issued pursuant to the Company’s stock option plans as they now exist
and employee stock purchase plans as they now exist, (vii) any warrants or
shares of Common Stock issuable upon exercise of such warrants issued to the
placement agent and its designees for the transactions contemplated by this
Agreement and (viii) the
payment of any dividends in shares of Common Stock pursuant to the Certificate
of Designation.
(d) For
a
period of two (2) years following the Closing Date, if the Company enters into
any Subsequent Financing having material terms more favorable than the material
terms governing the Preferred Shares, then the Purchasers shall have the right
to benefit from such more favorable terms or, in their sole discretion, may
exchange the Preferred Shares, valued at the Liquidation Preference Amount
(as
defined in the Certificate of Designation), together with accrued but unpaid
dividends (which dividend payments shall be payable, at the sole option of
the
Purchasers, in cash or in the form of the new securities to be issued in the
Subsequent Financing), for the securities issued or to be issued in the
Subsequent Financing. The Company covenants and agrees to promptly notify in
writing the Purchasers of the terms and conditions of any such proposed
Subsequent Financing. The provisions of this Section 3.21(c) shall not apply
to
issuances of securities in a Permitted Financing or the issuance of secured
debt
securities issued to Laurus pursuant to an exercise of a Laurus Senior Right
of
First Refusal.
ARTICLE
IV
23
CONDITIONS
Section
4.1 Conditions
Precedent to the Obligation of the Company to Sell the Shares.
The
obligation hereunder of the Company to issue and sell the Preferred Shares
and
the Warrants to the Purchasers is subject to the satisfaction or waiver, at
or
before the Closing, of each of the conditions set forth below. These conditions
are for the Company’s sole benefit and may be waived by the Company at any time
in its sole discretion.
(a) Accuracy
of Each Purchaser’s Representations and Warranties.
The
representations and warranties of each Purchaser in this Agreement shall be
true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time, except for (i) representations and
warranties that are expressly made as of a particular date, which shall be
true
and correct in all material respects as of such date and (ii) representations
and warranties qualified as to materiality which shall be true and correct
in
all respects as of the date when made and as of the Closing Date.
(b) Performance
by the Purchasers.
Each
Purchaser shall have performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by this Agreement to
be
performed, satisfied or complied with by such Purchaser at or prior to the
Closing.
(c) No
Injunction.
No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation of any
of
the transactions contemplated by this Agreement.
(d) Delivery
of Purchase Price.
The
Purchase Price for the Preferred Shares and Warrants has been delivered to
the
Escrow Agent by each Purchaser at the Closing Date.
(e) Delivery
of Transaction Documents.
The
Transaction Documents shall have been duly executed and delivered by the
Purchasers and, with respect to the Escrow Agreement, the escrow agent, to
the
Company.
Section
4.2 Conditions
Precedent to the Obligation of the Purchasers to Purchase the
Shares.
The
obligation hereunder of each Purchaser to acquire and pay for the Preferred
Shares and the Warrants is subject to the satisfaction or waiver, at or before
the Closing, of each of the conditions set forth below. These conditions are
for
each Purchaser’s sole benefit and may be waived by such Purchaser at any time in
its sole discretion.
(a) Accuracy
of the Company’s Representations and Warranties.
Each of
the representations and warranties of the Company in this Agreement and the
Registration Rights Agreement shall be true and correct in all respects as
of
the date when made and as of the Closing Date as though made at that time
(except for representations and warranties that are expressly made as of a
particular date), which shall be true and correct in all material respects
as of
such date.
24
(b) Performance
by the Company.
The
Company shall have performed, satisfied and complied in all respects with all
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the
Closing.
(c) No
Suspension, Etc.
Trading
in the Company’s Common Stock shall not have been suspended by the Commission or
the OTC Bulletin Board, and, at any time prior to the Closing Date, trading
in
securities generally as reported by Bloomberg Financial Markets (“Bloomberg”)
shall not have been suspended or limited, or minimum prices shall not have
been
established on securities whose trades are reported by Bloomberg, or on the
New
York Stock Exchange, nor shall a banking moratorium have been declared either
by
the United States or New York State authorities.
(d) No
Injunction.
No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation of any
of
the transactions contemplated by this Agreement.
(e) No
Proceedings or Litigation.
No
action, suit or proceeding before any arbitrator or any governmental authority
shall have been commenced, and no investigation by any governmental authority
shall have been threatened, against the Company or any subsidiary, or any of
the
officers, directors or affiliates of the Company or any subsidiary seeking
to
restrain, prevent or change the transactions contemplated by this Agreement,
or
seeking damages in connection with such transactions.
(f) Certificate
of Designation of Rights and Preferences.
Prior
to the Closing, the Certificate of Designation in the form of Exhibit
C
attached
hereto shall have been filed with the Secretary of State of Nevada.
(g) Opinion
of Counsel, Etc.
At the
Closing, the Purchasers shall have received an opinion of counsel to the
Company, dated the date of the Closing, in the form of Exhibit
G
hereto,
and such other certificates and documents as the Purchasers or its counsel
shall
reasonably require incident to the Closing.
(h) Registration
Rights Agreement.
At the
Closing, the Company shall have executed and delivered the Registration Rights
Agreement to each Purchaser.
(i)
Certificates.
The
Company shall have executed and delivered to the Purchasers the certificates
(in
such denominations as such Purchaser shall request) for the Preferred Shares
and
Warrants being acquired by such Purchaser at the Closing (in such denominations
as such Purchaser shall request).
(j)
Resolutions.
The
Board of Directors of the Company shall have adopted resolutions consistent
with
Section 2.1(b) hereof in a form reasonably acceptable to such Purchaser (the
"Resolutions").
25
(k) Reservation
of Shares.
As of
the Closing Date, the Company shall have reserved out of its authorized and
unissued Common Stock, solely for the purpose of effecting the conversion of
the
Preferred Shares and the exercise of the Warrants, a number of shares of Common
Stock equal to one hundred ten percent (110%) of the aggregate number of
Conversion Shares issuable upon conversion of the Preferred Shares and Warrant
Shares issuable upon exercise of the Warrants.
(l)
Transfer
Agent Instructions.
The
Irrevocable Transfer Agent Instructions, in the form of Exhibit
F
attached
hereto, shall have been delivered to and acknowledged in writing by the
Company’s transfer agent.
(m) Escrow
Agreement.
At the
Closing, the Company and the escrow agent shall have executed and delivered
the
Escrow Agreement to each Purchaser.
(n) Secretary’s
Certificate.
The
Company shall have delivered to such Purchaser a secretary’s certificate, dated
as of the Closing Date, as to (i) the Resolutions, (ii) the Articles, (iii)
the
Bylaws, (iv) the Certificate of Designation, each as in effect at the Closing,
and (v) the authority and incumbency of the officers of the Company executing
the Transaction Documents and any other documents required to be executed or
delivered in connection therewith.
(o) Officer’s
Certificate.
The
Company shall have delivered to the Purchasers a certificate of an executive
officer of the Company, dated as of the Closing Date, confirming the accuracy
of
the Company’s representations, warranties and covenants as of such Closing Date
and confirming the compliance by the Company with the conditions precedent
set
forth in this Section 4.2 as of the Closing Date.
(p) Material
Adverse Effect.
No
Material Adverse Effect shall have occurred at or before the Closing Date.
ARTICLE
V
STOCK
CERTIFICATE LEGEND
Section
5.1 Legend.
Each
certificate representing the Preferred Shares and the Warrants, and, if
appropriate, securities issued upon conversion thereof, shall be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required by applicable state securities or “blue sky”
laws):
THESE
SECURITIES REPRESENTED BY THIS CERTIFICATE (THE “SECURITIES”) HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”)
OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE
STATE SECURITIES LAWS OR IMPART MEDIA GROUP, INC. SHALL HAVE RECEIVED AN OPINION
OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND
UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED.
26
The
Company agrees to reissue certificates representing any of the Conversion Shares
and the Warrant Shares, without the legend set forth above if at such time,
prior to making any transfer of any such securities, such holder thereof shall
give written notice to the Company describing the manner and terms of such
transfer and removal as the Company may reasonably request. Such proposed
transfer and removal will not be effected until: (a) either (i) the Company
has
received an opinion of counsel reasonably satisfactory to the Company, to the
effect that the registration of the Conversion Shares or the Warrant Shares
under the Securities Act is not required in connection with such proposed
transfer, (ii) a registration statement under the Securities Act covering such
proposed disposition has been filed by the Company with the Commission and
has
become effective under the Securities Act, (iii) the Company has received other
evidence reasonably satisfactory to the Company that such registration and
qualification under the Securities Act and state securities laws are not
required, or (iv) the holder provides the Company with reasonable assurances
that such security can be sold pursuant to Rule 144 under the Securities Act.
The Company will respond to any such notice from a holder within three (3)
business days. In the case of any proposed transfer under this Section 5.1,
the
Company will use reasonable efforts to comply with any such applicable state
securities or "blue sky" laws, but shall in no event be required, (x) to qualify
to do business in any state where it is not then qualified, (y) to take any
action that would subject it to tax or to the general service of process in
any
state where it is not then subject, or (z) to comply with state securities
or
“blue sky” laws of any state for which registration by coordination is
unavailable to the Company. The restrictions on transfer contained in this
Section 5.1 shall be in addition to, and not by way of limitation of, any other
restrictions on transfer contained in any other section of this Agreement.
Whenever
a
certificate representing the Conversion Shares or Warrant Shares is required
to
be issued to a Purchaser without a legend, in lieu of delivering physical
certificates representing the Conversion Shares or Warrant Shares (provided
that a registration statement under the Securities Act providing for the resale
of the Warrant Shares and Conversion Shares is then in effect and such Purchaser
complies with all applicable securities laws in connection with the sale,
including, without limitation, the prospectus delivery requirements),
the
Company shall cause its transfer agent to electronically transmit the Conversion
Shares or Warrant Shares to a Purchaser by crediting the account of such
Purchaser's Prime Broker with the Depository Trust Company through its Deposit
Withdrawal Agent Commission system (to the extent not inconsistent with any
provisions of this Agreement).
ARTICLE
VI
INDEMNIFICATION
Section
6.1 General
Indemnity.
The
Company agrees to indemnify and hold harmless the Purchasers (and their
respective directors, officers, affiliates, agents, successors and assigns)
from
and against any and all losses, liabilities, deficiencies, costs, damages and
expenses (including, without limitation, reasonable attorneys’ fees, charges and
disbursements) incurred by the Purchasers as a result of any inaccuracy in
or
breach of the representations, warranties or covenants made by the Company
herein.
27
Section
6.2 Indemnification
Procedure.
Any
party entitled to indemnification under this Article VI (an “indemnified party”)
will give written notice to the indemnifying party of any matters giving rise
to
a claim for indemnification; provided, that the failure of any party entitled
to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VI except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder,
the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between
it
and the indemnifying party may exist with respect of such action, proceeding
or
claim, to assume the defense thereof with counsel reasonably satisfactory to
the
indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle
or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then
the
indemnified party may, at its option, defend, settle or otherwise compromise
or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party’s costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party
and
shall furnish to the indemnifying party all information reasonably available
to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto.
If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not
be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this Article VI to the
contrary, the indemnifying party shall not, without the indemnified party’s
prior written consent, settle or compromise any claim or consent to entry of
any
judgment in respect thereof which imposes any future obligation on the
indemnified party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the indemnified party of a
release from all liability in respect of such claim. The indemnification
required by this Article VI shall be made by periodic payments of the amount
thereof during the course of investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred, so long as the
indemnified party irrevocably agrees to refund such moneys if it is ultimately
determined by a court of competent jurisdiction that such party was not entitled
to indemnification. The indemnity agreements contained herein shall be in
addition to (a) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.
28
ARTICLE
VII
MISCELLANEOUS
Section
7.1 Fees
and Expenses.
Except
as otherwise set forth in this Agreement, the Registration Rights Agreement
or
the Certificate of Designation, each party shall pay the fees and expenses
of
its advisors, counsel, accountants and other experts, if any, and all other
expenses, incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement, provided
that the
Company shall pay all actual attorneys' fees and expenses (including
disbursements and out-of-pocket expenses) incurred by the Purchasers in
connection with (i) the preparation, negotiation, execution and delivery of
this
Agreement, the Certificate of Designation, the Warrants, the Registration Rights
Agreement and the transactions contemplated thereunder, which payment shall
be
made at Closing (unless this Agreement is terminated in accordance with its
terms, in which case such payment shall be made upon termination of this
Agreement) and shall not exceed $17,500, (ii) the filing and declaration of
effectiveness by the Commission of the Registration Statement (as defined in
the
Registration Rights Agreement) and (iii) any amendments, modifications or
waivers of this Agreement or any of the other Transaction Documents. In
addition, the Company shall pay all reasonable fees and expenses incurred by
the
Purchasers in connection with the enforcement of this Agreement or any of the
other Transaction Documents, including, without limitation, all reasonable
attorneys' fees and expenses. The Company shall pay all stamp or other similar
taxes and duties levied in connection with issuance of the Preferred Shares
pursuant hereto.
The
Company shall also pay all actual attorneys' fees and expenses (including
disbursements and out-of-pocket expenses) of ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ P.C. incurred
by
Enable Capital Management, which payment shall be made at Closing (unless this
Agreement is terminated in accordance with its terms, in which case such payment
shall be made upon termination of this Agreement) and shall not exceed
$10,000.
Section
7.2 Specific
Enforcement, Consent to Jurisdiction.
(a) The
Company and the Purchasers acknowledge and agree that irreparable damage would
occur in the event that certain of the provisions of this Agreement, the
Certificate of Designation or the Registration Rights Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement
or
the Registration Rights Agreement and to enforce specifically the terms and
provisions hereof or thereof, this being in addition to any other remedy to
which any of them may be entitled by law or equity.
(b) Each
of
the Company and the Purchasers (i) hereby irrevocably submits to the
jurisdiction of the United States District Court sitting in the Southern
District of New York and the courts of the State of New York located in New
York
county for the purposes of any suit, action or proceeding arising out of or
relating to this Agreement or any of the other Transaction Documents or the
transactions contemplated hereby or thereby and (ii) hereby waives, and agrees
not to assert in any such suit, action or proceeding, any claim that it is
not
personally subject to the jurisdiction of such court, that the suit, action
or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. Each of the Company and the Purchasers
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to
it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing in this Section 7.2
shall affect or limit any right to serve process in any other manner permitted
by law.
29
Section
7.3 Entire
Agreement; Amendment.
This
Agreement and the Transaction Documents contains the entire understanding and
agreement of the parties with respect to the matters covered hereby and, except
as specifically set forth herein or in the Transaction Documents or the
Certificate of Designation, neither the Company nor any of the Purchasers makes
any representations, warranty, covenant or undertaking with respect to such
matters and they supersede all prior understandings and agreements with respect
to said subject matter, all of which are merged herein. No provision of this
Agreement may be waived or amended other than by a written instrument signed
by
the Company and the holders of at least seventy-five percent (75%) of the
Preferred Shares then outstanding, and no provision hereof may be waived other
than by an a written instrument signed by the Company in instances when
enforcement of any such amendment or waiver is sought against the Company and
by
the holders of at least seventy-five percent (75%) of the Preferred Shares
then
outstanding in instances when enforcement of any such amendment or waiver is
sought against the Purchasers. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the Preferred Shares
then outstanding. No consideration shall be offered or paid to any person to
amend or consent to a waiver or modification of any provision of any of the
Transaction Documents or the Certificate of Designation unless the same
consideration is also offered to all of the parties to the Transaction Documents
or holders of Preferred Shares, as the case may be.
Section
7.4 Notices.
Any
notice, demand, request, waiver or other communication required or permitted
to
be given hereunder shall be in writing and shall be effective (a) upon hand
delivery, telecopy or facsimile at the address or number designated below (if
delivered on a business day during normal business hours where such notice
is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice
is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses
for
such communications shall be:
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If
to the Company:
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Impart
Media Group, Inc.
▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention:
Chief Executive Officer
Tel.
No.: (▇▇▇) ▇▇▇-▇▇▇▇
Fax
No.: (▇▇▇) ▇▇▇-▇▇▇▇
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with
copies (which shall not constitute notice) to:
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▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP
▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇
▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention:
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Tel.
No.: (▇▇▇) ▇▇▇-▇▇▇▇
Fax
No.: (▇▇▇) ▇▇▇-▇▇▇▇
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30
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If
to any Purchaser:
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At
the address of such Purchaser set forth on Exhibit
A
to
this Agreement, with copies to Purchaser’s counsel as set forth on
Exhibit
A
or
as specified in writing by such:
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with
copies (which shall not constitute notice) to:
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▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP
▇▇▇▇
▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention:
▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Tel
No.: (▇▇▇) ▇▇▇-▇▇▇▇
Fax
No.: (▇▇▇) ▇▇▇-▇▇▇▇
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Any
party
hereto may from time to time change its address for notices by giving at least
ten (10) days written notice of such changed address to the other party
hereto.
Section
7.5 Waivers.
No
waiver by either party of any default with respect to any provision, condition
or requirement of this Agreement shall be deemed to be a continuing waiver
in
the future or a waiver of any other provisions, condition or requirement hereof,
nor shall any delay or omission of any party to exercise any right hereunder
in
any manner impair the exercise of any such right accruing to it
thereafter.
Section
7.6 Headings.
The
article, section and subsection headings in this Agreement are for convenience
only and shall not constitute a part of this Agreement for any other purpose
and
shall not be deemed to limit or affect any of the provisions
hereof.
Section
7.7 Successors
and Assigns; Assignment.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and assigns. This
Agreement may not be assigned by a party hereto without the prior written
consent of the Company or the Purchasers, as applicable; provided,
however,
that a
Purchaser may assign its rights and delegate its duties hereunder in whole
or in
part to an affiliate of such Purchaser which shall be an “accredited investor”
as defined in Rule 501(a) of Regulation D, as amended, under the Securities
Act,
and which shall agree in writing to be bound by the terms and conditions of
this
Agreement.
Section
7.8 No
Third Party Beneficiaries.
This
Agreement is intended for the benefit of the parties hereto and their respective
permitted successors and assigns and is not for the benefit of, nor may any
provision hereof be enforced by, any other person.
Section
7.9 Governing
Law.
This
Agreement shall be governed by and construed in accordance with the internal
laws of the State of New York, without giving effect to any of the conflicts
of
law principles which would result in the application of the substantive law
of
another jurisdiction. This Agreement shall not be interpreted or construed
with
any presumption against the party causing this Agreement to be
drafted.
31
Section
7.10 Survival.
The
representations and warranties of the Company and the Purchasers contained
in
Article II shall survive the execution and delivery hereof and the Closing
until
the date two (2) years from the Closing Date, and the agreements and covenants
set forth in Articles I, III, VI and VII of this Agreement shall survive the
execution and delivery hereof and the Closing hereunder until the Purchasers
in
the aggregate beneficially own (determined in accordance with Rule 13d-3 under
the Exchange Act) less than 10% of the total combined voting power of all voting
securities then outstanding, provided, that Sections 3.1, 3.2, 3.4, 3.5, 3.8,
3.9, 3.10, 3.12, 3.13, 3.14, 3.15. 3.17, 3.18, 3.19, 3.20 and 3.21 shall not
expire until the Registration Statement required by Section 2 of the
Registration Rights Agreement is no longer required to be effective under the
terms and conditions of Registration Rights Agreement (or, in the case of any
of
the foregoing Sections which pertain to the Preferred Shares and/or the
Warrants, then such Sections shall expire once there are no further Preferred
Shares or Warrants outstanding, as applicable) (the “Survival
Period”).
Expiration of the Survival Period shall not affect the rights of any Purchaser
under Article VI hereof in respect of any specific claim for indemnification
made in writing by such Purchaser and received by the Company prior to such
expiration.
Section
7.11 Counterparts.
This
Agreement may be executed in any number of counterparts, all of which taken
together shall constitute one and the same instrument and shall become effective
when counterparts have been signed by each party and delivered to the other
parties hereto, it being understood that all parties need not sign the same
counterpart. In the event any signature is delivered by facsimile transmission,
the party using such means of delivery shall cause four additional executed
signature pages to be physically delivered to the other parties within five
days
of the execution and delivery hereof.
Section
7.12 Publicity.
The
Company agrees that it will not disclose, and will not include in any public
announcement, the name of the Purchasers without the consent of the Purchasers
unless and until such disclosure is required by law or applicable regulation,
and then only to the extent of such requirement.
Section
7.13 Severability.
The
provisions of this Agreement, the Certificate of Designation and the
Registration Rights Agreement are severable and, in the event that any court
of
competent jurisdiction shall determine that any one or more of the provisions
or
part of the provisions contained in this Agreement, the Certificate of
Designation or the Registration Rights Agreement shall, for any reason, be
held
to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision or part
of a
provision of this Agreement, the Certificate of Designation or the Registration
Rights Agreement shall be reformed and construed as if such invalid or illegal
or unenforceable provision, or part of such provision, had never been contained
herein, so that such provisions would be valid, legal and enforceable to the
maximum extent possible.
Section
7.14 Further
Assurances.
From
and after the date of this Agreement, upon the request of any Purchaser or
the
Company, each of the Company and the Purchasers shall execute and deliver such
instrument, documents and other writings as may be reasonably necessary or
desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement, the Preferred Shares, the Conversion Shares, the
Warrants, the Warrant Shares, the Certificate of Designation, and the
Registration Rights Agreement.
32
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officer as of the date first above
written.
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IMPART
MEDIA GROUP, INC.
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By:
/s/▇▇▇▇▇▇
▇▇▇▇▇▇▇▇
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Name:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
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Title:
Chief Financial Officer
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PURCHASER:
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Enable
Growth Partners LP
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By:
/s/▇▇▇▇▇▇▇
▇’▇▇▇▇
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Name:
▇▇▇▇▇▇▇ ▇’▇▇▇▇
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Title:
Principal and Portfolio Manager
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Enable
Opportunity Partners LP
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By:
/s/▇▇▇▇▇▇▇
▇’▇▇▇▇
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Name:
▇▇▇▇▇▇▇ ▇’▇▇▇▇
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Title:
Principal and Portfolio Manager
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▇▇▇▇▇▇
Diversified Strategy Master Fund LLC
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By:
/s/▇▇▇▇▇▇▇
▇’▇▇▇▇
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Name:
▇▇▇▇▇▇▇ ▇’▇▇▇▇
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Title:
Principal and Portfolio Manager
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Gryphon
Master Fund, L.P.
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By:/s/▇.▇.
▇▇▇▇, ▇▇
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Name:
▇.▇. ▇▇▇▇, ▇▇
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Title:
Authorized Agent
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GSSF
Master Fund, LP
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By:
/s/▇.▇.
▇▇▇▇, ▇▇
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Name:
▇.▇. ▇▇▇▇, ▇▇
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Title:
Authorized Agent
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▇▇▇▇▇▇
Bay Fund LP
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By:
/s/▇▇▇▇
▇▇▇▇
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Name:
▇▇▇▇ ▇▇▇▇
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Title:
Portfolio Manager
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34