EXHIBIT 10.27
▇▇▇▇, INC.
SECURITIES PURCHASE AGREEMENT
October 29, 2004
Table of Contents
Page
1. Agreement to Sell and Purchase 1
2 Fees and Warrant 1
3. Closing, Delivery and Payment 2
3.1 Closing 2
3.2 Delivery 2
3.3 Redirection Notices 2
4. Representations and Warranties of the Company 3
4.1 Organization, Good Standing and Qualification 3
4.2 Subsidiaries 4
4.3 Capitalization; Voting Rights 4
4.4 Authorization; Binding Obligations 4
4.5 Liabilities 5
4.6 Agreements; Action 5
4.7 Obligations to Related Parties 5
4.8 Changes 5
4.9 Title to Properties and Assets; Liens, Etc. 5
4.10 Intellectual Property 5
4.11 Compliance with Other Instruments 5
4.12 Litigation 5
4.13 Tax Returns and Payments 5
4.14 Employees 5
4.15 Registration Rights and Voting Rights 5
4.16 Compliance with Laws; Permits 5
4.17 Environmental and Safety Laws 5
4.18 Valid Offering 5
4.19 Full Disclosure 5
4.20 Insurance 5
4.21 SEC Reports 5
4.22 Listing 5
4.23 No Integrated Offering 5
4.24 Stop Transfer 5
4.25 Dilution 5
4.26 Patriot Act 12
5. Representations and Warranties of the Purchaser 13
5.1 No Shorting 13
5.2 Requisite Power and Authority 13
5.3 Investment Representations 13
5.4 Purchaser Bears Economic Risk 14
5.5 Acquisition for Own Account 14
5.6 Purchaser Can Protect Its Interest 14
5.7 Accredited Investor 14
5.8 Legends 14
ii
6. Covenants of the Company 15
6.1 Stop-Orders 15
6.2 Listing 15
6.3 Market Regulations 16
6.4 Reporting Requirements 16
6.5 Use of Funds 16
6.6 Access to Facilities 16
6.7 Taxes 16
6.8 Insurance 16
6.9 Intellectual Property 18
6.10 Properties 18
6.11 Confidentiality 18
6.12 Required Approvals 18
6.13 Reissuance of Securities 19
6.14 Opinion 19
6.15 Margin Stock 19
6.16 Financing Right of First Refusal 19
6.17 Merchant Processors 19
7. Covenants of the Purchaser 21
7.1 Confidentiality 21
7.2 Non-Public Information 21
8. Covenants of the Company and Purchaser Regarding
Indemnification 21
8.1 Company Indemnification 21
8.2 Purchaser's Indemnification 21
9. Conversion of Convertible Note 21
9.1 Mechanics of Conversion 21
10. Registration Rights 23
10.1 Registration Rights Granted 23
10.2 Offering Restrictions 23
11. Miscellaneous 23
11.1 Governing Law 23
11.2 Survival 24
11.3 Successors 24
11.4 Entire Agreement 24
11.5 Severability 24
11.6 Amendment and Waiver 24
11.7 Delays or Omissions 24
11.8 Notices 25
11.9 Attorneys' Fees 25
11.10 Titles and Subtitles 25
11.11 Facsimile Signatures; Counterparts 26
11.12 Broker's Fees 26
11.13 Construction 26
ii
LIST OF EXHIBITS
Form of Convertible Term Note Exhibit A
Form of Warrant Exhibit B
Form of Opinion Exhibit C
Form of Escrow Agreement Exhibit D
iii
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of October 29, 2004, by and between ▇▇▇▇, INC., a Delaware corporation
(the "Company"), and Laurus Master Fund, Ltd., a Cayman Islands company (the
"Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale to the Purchaser of a
Convertible Term Note in the aggregate principal amount of Six Hundred
Thousand Dollars ($600,000) (as amended, modified or supplemented from time to
time, the "Note"), which Note is convertible into shares of the Company's
common stock, $0.0001 par value per share (the "Common Stock") at an initial
fixed conversion price of $0.073 per share of Common Stock ("Fixed Conversion
Price");
WHEREAS, the Company wishes to issue a warrant to the Purchaser to
purchase up to 2,666,667 shares of the Company's Common Stock (subject to
adjustment as set forth therein) in connection with Purchaser's purchase of
the Note;
WHEREAS, Purchaser desires to purchase the Note and the Warrant (as
defined in Section 2) on the terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Note and Warrant to
Purchaser on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Agreement to Sell and Purchase. Pursuant to the terms and
conditions set forth in this Agreement, on the Closing Date (as defined in
Section 3), the Company agrees to sell to the Purchaser, and the Purchaser
hereby agrees to purchase from the Company, a Note in the aggregate principal
amount of $600,000 convertible in accordance with the terms thereof into
shares of the Company's Common Stock in accordance with the terms of the Note
and this Agreement. The Note purchased on the Closing Date shall be known as
the "Offering." A form of the Note is annexed hereto as Exhibit A. The Note
will mature on the Maturity Date (as defined in the Note). Collectively, the
Note and Warrant and Common Stock issuable in payment of the Note, upon
conversion of the Note and upon exercise of the Warrant are referred to as the
"Securities."
2. Fees and Warrant. On the Closing Date:
(a) The Company will issue and deliver to the Purchaser a Warrant
to purchase up to 2,666,667 shares of Common Stock in connection with the
Offering (as amended, modified or supplemented from time to time, the
"Warrant") pursuant to Section 1 hereof. The Warrant must be delivered on the
Closing Date. A form of Warrant is annexed hereto as Exhibit B. All the
representations, covenants, warranties, undertakings, and indemnification, and
other rights made or granted to or for the benefit of the Purchaser by the
Company are hereby also made and granted in respect of the Warrant and shares
of the Company's Common Stock issuable upon exercise of the Warrant (the
"Warrant Shares").
(b) Subject to the terms of Section 2(d) below, the Company shall
pay to Laurus Capital Management, LLC, the manager of the Purchaser, a closing
payment in an amount equal to three and one half percent (3.50%) of the
aggregate principal amount of the Note. The foregoing fee is referred to
herein as the "Closing Payment."
(c) The Company shall reimburse the Purchaser for its reasonable
expenses (including legal fees and expenses) incurred in connection with the
preparation and negotiation of this Agreement and the Related Agreements (as
hereinafter defined), and expenses incurred in connection with the Purchaser's
due diligence review of the Company and its Subsidiaries (as defined in
Section 4.2) and all related matters. Amounts required to be paid under this
Section 2(c) will be paid on the Closing Date and shall be $10,000 for such
expenses referred to in this Section 2(c).
(d) The Closing Payment and the expenses referred to in the
preceding clause (c) (net of deposits previously paid by the Company) shall be
paid at closing out of funds held pursuant to the Escrow Agreement (as defined
below) and a disbursement letter (the "Disbursement Letter").
3. Closing, Delivery and Payment.
3.1 Closing. Subject to the terms and conditions herein, the
closing of the transactions contemplated hereby (the "Closing"), shall take
place on the date hereof, at such time or place as the Company and Purchaser
may mutually agree (such date is hereinafter referred to as the "Closing
Date").
3.2 Delivery. Pursuant to the Escrow Agreement, at the Closing on
the Closing Date, the Company will deliver to the Purchaser, among other
things, a Note in the form attached as Exhibit A representing the aggregate
principal amount of $600,000 and a Warrant in the form attached as Exhibit B
in the Purchaser's name representing 2,666,667 Warrant Shares and the
Purchaser will deliver to the Company, among other things, the amounts set
forth in the Disbursement Letter by certified funds or wire transfer.
3.3 Redirection Notices. The Company shall have delivered to the
Purchaser notices provided by the Company to each Existing Merchant Processor
(as defined below), and each Merchant Processor shall have acknowledged, a
notice redirecting certain holdbacks and reserves (collectively, the
"Holdbacks") to one or more deposit accounts maintained and designated by the
Purchaser (and/or an affiliate thereof) (collectively, the "Laurus Accounts"),
which notices shall be in form and substance satisfactory to the Purchaser.
The Holdbacks deposited in the Laurus Accounts in accordance with the notices
delivered pursuant to this Section 3.3 shall be held by the Purchaser for the
benefit of the Purchaser as Collateral (as defined in the Master Security
Agreement (as defined below).
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchaser as follows (which representations and
warranties are supplemented by the Company's filings under the Securities
Exchange Act of 1934 made prior to the date of this Agreement (collectively,
the "Exchange Act Filings"), copies of which have been provided to the
Purchaser):
4.1 Organization, Good Standing and Qualification. Each of the
Company and each of its Subsidiaries is a corporation, partnership or limited
liability company, as the case may be, duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization. Each of the
Company and each of its Subsidiaries has the corporate power and authority to
own and operate its properties and assets, to execute and deliver (i) this
Agreement, (ii) the Note and the Warrant to be issued in connection with this
Agreement, (iii) the Master Security Agreement dated as of the date hereof
between the Company, certain Subsidiaries of the Company and the Purchaser (as
amended, modified or supplemented from time to time, the "Master Security
Agreement"), (iv) the Registration Rights Agreement relating to the Securities
dated as of the date hereof between the Company and the Purchaser (as amended,
modified or supplemented from time to time, the "Registration Rights
Agreement"), (v) the Subsidiary Guaranty dated as of the date hereof made by
certain Subsidiaries of the Company in favor of the Purchaser (as amended,
modified or supplemented from time to time, the "Subsidiary Guaranty"), (vi)
the Stock Pledge Agreement dated as of the date hereof among the Company,
certain Subsidiaries of the Company and the Purchaser (as amended, modified or
supplemented from time to time, the "Stock Pledge Agreement"), (vii) the Funds
Escrow Agreement dated as of the date hereof among the Company, the Purchaser
and the escrow agent referred to therein, substantially in the form of Exhibit
D hereto (as amended, modified or supplemented from time to time, the "Escrow
Agreement"), (viii) the Supplemental Guaranty dated as of the date hereof,
made by ▇▇▇▇▇ ▇▇▇▇▇ Root in favor of the Purchaser (as amended, modified or
supplemented from time to time, the "Supplemental Guaranty"), (ix) the
Supplemental Stock Pledge Agreement dated as of the date hereof between the
Purchaser and ▇▇▇▇▇ ▇▇▇▇▇ Root (as amended, modified or supplemented from time
to time, the "Supplemental Stock Pledge Agreement"), and (x) all other
agreements related to this Agreement and the Note and referred to herein (the
preceding clauses (ii) through (x), collectively, the "Related Agreements"),
to issue and sell the Note and the shares of Common Stock issuable upon
conversion of the Note (the "Note Shares"), to issue and sell the Warrant and
the Warrant Shares, and to carry out the provisions of this Agreement and the
Related Agreements and to carry on its business as presently conducted. Each
of the Company and each of its Subsidiaries is duly qualified and is
authorized to do business and is in good standing as a foreign corporation,
partnership or limited liability company, as the case may be, in all
jurisdictions in which the nature of its activities and of its properties
(both owned and leased) makes such qualification necessary, except for those
jurisdictions in which failure to do so has not, or could not reasonably be
expected to have, individually or in the aggregate, a material adverse effect
on the business, assets, liabilities, condition (financial or otherwise),
properties, operations or prospects of the Company and it Subsidiaries, taken
individually and as a whole (a "Material Adverse Effect").
4.2 Subsidiaries. Each direct and indirect Subsidiary of the
Company, the direct owner of such Subsidiary and its percentage ownership
thereof, is set forth on Schedule 4.2. For the purpose of this Agreement, a
"Subsidiary" of any person or entity means (i) a corporation or other entity
whose shares of stock or other ownership interests having ordinary voting
power (other than stock or other ownership interests having such power only by
reason of the happening of a contingency) to elect a majority of the directors
of such corporation, or other persons or entities performing similar functions
for such person or entity, are owned, directly or indirectly, by such person
or entity or (ii) a corporation or other entity in which such person or entity
owns, directly or indirectly, more than 50% of the equity interests at such
time.
4.3 Capitalization; Voting Rights.
(a) The authorized capital stock of the Company, as of the
date hereof consists of 155,000,000 shares, of which 150,000,000 are shares of
Common Stock, par value $0.0001 per share, 83,290,496 shares of which are
issued and outstanding, and 5,000,000 are shares of preferred stock, par value
$0.0001 per share of which no shares of preferred stock are issued and
outstanding. The authorized capital stock of each Subsidiary of the Company
is set forth on Schedule 4.3.
(b) Except as disclosed on Schedule 4.3, other than: (i) the
shares reserved for issuance under the Company's stock option plans; and (ii)
shares which may be granted pursuant to this Agreement and the Related
Agreements, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal), proxy or
stockholder agreements, or arrangements or agreements of any kind for the
purchase or acquisition from the Company of any of its securities. Except as
disclosed on Schedule 4.3, neither the offer, issuance or sale of any of the
Note or the Warrant, or the issuance of any of the Note Shares or Warrant
Shares, nor the consummation of any transaction contemplated hereby will
result in a change in the price or number of any securities of the Company
outstanding, under anti-dilution or other similar provisions contained in or
affecting any such securities.
(c) All issued and outstanding shares of the Company's Common
Stock: (i) have been duly authorized and validly issued and are fully paid
and nonassessable; and (ii) were issued in compliance with all applicable
state and federal laws concerning the issuance of securities.
(d) The rights, preferences, privileges and restrictions of
the shares of the Common Stock are as stated in the Company's Certificate of
Incorporation (the "Charter"). The Note Shares and Warrant Shares have been
duly and validly reserved for issuance. When issued in compliance with the
provisions of this Agreement and the Company's Charter, the Securities will be
validly issued, fully paid and nonassessable, and will be free of any liens or
encumbrances; provided, however, that the Securities may be subject to
restrictions on transfer under state and/or federal securities laws as set
forth herein or as otherwise required by such laws at the time a transfer is
proposed.
4.4 Authorization; Binding Obligations. All corporate, partnership
or limited liability company, as the case may be, action on the part of the
Company and each of its Subsidiaries (including the respective officers and
directors) necessary for the authorization of this Agreement and the Related
Agreements, the performance of all obligations of the Company and its
Subsidiaries hereunder and under the other Related Agreements at the Closing
and, the authorization, sale, issuance and delivery of the Note and Warrant
has been taken or will be taken prior to the Closing. This Agreement and the
Related Agreements, when executed and delivered and to the extent it is a
party thereto, will be valid and binding obligations of each of the Company
and each of its Subsidiaries, enforceable against each such person in
accordance with their terms, except:
(a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights; and
(b) general principles of equity that restrict the
availability of equitable or legal remedies.
The sale of the Note and the subsequent conversion of the Note into Note
Shares are not and will not be subject to any preemptive rights or rights of
first refusal that have not been properly waived or complied with. The
issuance of the Warrant and the subsequent exercise of the Warrant for Warrant
Shares are not and will not be subject to any preemptive rights or rights of
first refusal that have not been properly waived or complied with.
4.5 Liabilities. Neither the Company nor any of its Subsidiaries
has any contingent liabilities, except current liabilities incurred in the
ordinary course of business and liabilities disclosed in any Exchange Act
Filings.
4.6 Agreements; Action. Except as set forth on Schedule 4.6 or as
disclosed in any Exchange Act Filings:
(a) there are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company or any of its Subsidiaries is a party or by which it is bound
which may involve: (i) obligations (contingent or otherwise) of, or payments
to, the Company in excess of $50,000 (other than obligations of, or payments
to, the Company arising from purchase or sale agreements entered into in the
ordinary course of business); or (ii) the transfer or license of any patent,
copyright, trade secret or other proprietary right to or from the Company
(other than licenses arising from the purchase of "off the shelf" or other
standard products); or (iii) provisions restricting the development,
manufacture or distribution of the Company's products or services; or (iv)
indemnification by the Company with respect to infringements of proprietary
rights.
(b) Since July 31, 2003, neither the Company nor any of its
Subsidiaries has: (i) declared or paid any dividends, or authorized or made
any distribution upon or with respect to any class or series of its capital
stock; (ii) incurred any indebtedness for money borrowed or any other
liabilities (other than ordinary course obligations) individually in excess of
$50,000 or, in the case of indebtedness and/or liabilities individually less
than $50,000, in excess of $100,000 in the aggregate; (iii) made any loans or
advances to any person not in excess, individually or in the aggregate, of
$100,000, other than ordinary course advances for travel expenses; or (iv)
sold, exchanged or otherwise disposed of any of its assets or rights, other
than the sale of its inventory in the ordinary course of business.
(c) For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including
persons or entities the Company has reason to believe are affiliated
therewith) shall be aggregated for the purpose of meeting the individual
minimum dollar amounts of such subsections.
4.7 Obligations to Related Parties. Except as set forth on
Schedule 4.7, there are no obligations of the Company or any of its
Subsidiaries to officers, directors, stockholders or employees of the Company
or any of its Subsidiaries other than:
(a) for payment of salary for services rendered and for bonus
payments;
(b) reimbursement for reasonable expenses incurred on behalf
of the Company and its Subsidiaries;
(c) for other standard employee benefits made generally
available to all employees (including stock option agreements outstanding
under any stock option plan approved by the Board of Directors of the
Company); and
(d) obligations listed in the Company's financial statements
or disclosed in any of its Exchange Act Filings.
Except as described above or set forth on Schedule 4.7, none of the officers,
directors or, to the best of the Company's knowledge, key employees or
stockholders of the Company or any members of their immediate families, are
indebted to the Company, individually or in the aggregate, in excess of
$50,000 or have any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company has
a business relationship, or any firm or corporation which competes with the
Company, other than passive investments in publicly traded companies
(representing less than one percent (1%) of such company) which may compete
with the Company. Except as described above, no officer, director or
stockholder, or any member of their immediate families, is, directly or
indirectly, interested in any material contract with the Company and no
agreements, understandings or proposed transactions are contemplated between
the Company and any such person. Except as set forth on Schedule 4.7, the
Company is not a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation.
4.8 Changes. Since July 31, 2003, except as disclosed in any
Exchange Act Filing or in any Schedule to this Agreement or to any of the
Related Agreements, there has not been:
(a) any change in the business, assets, liabilities, condition
(financial or otherwise), properties, operations or prospects of the Company
or any of its Subsidiaries, which individually or in the aggregate has had, or
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect;
(b) any resignation or termination of any officer, key
employee or group of employees of the Company or any of its Subsidiaries;
(c) any material change, except in the ordinary course of
business, in the contingent obligations of the Company or any of its
Subsidiaries by way of guaranty, endorsement, indemnity, warranty or
otherwise;
(d) any damage, destruction or loss, whether or not covered by
insurance, has had, or could reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect;
(e) any waiver by the Company or any of its Subsidiaries of a
valuable right or of a material debt owed to it;
(f) any direct or indirect loans made by the Company or any of
its Subsidiaries to any stockholder, employee, officer or director of the
Company or any of its Subsidiaries, other than advances made in the ordinary
course of business;
(g) any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder of the Company
or any of its Subsidiaries;
(h) any declaration or payment of any dividend or other
distribution of the assets of the Company or any of its Subsidiaries;
(i) any labor organization activity related to the Company or
any of its Subsidiaries;
(j) any debt, obligation or liability incurred, assumed or
guaranteed by the Company or any of its Subsidiaries, except those for
immaterial amounts and for current liabilities incurred in the ordinary course
of business;
(k) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets owned by the
Company or any of its Subsidiaries;
(l) any change in any material agreement to which the Company
or any of its Subsidiaries is a party or by which either the Company or any of
its Subsidiaries is bound which either individually or in the aggregate has
had, or could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect;
(m) any other event or condition of any character that, either
individually or in the aggregate, has had, or could reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect; or
(n) any arrangement or commitment by the Company or any of its
Subsidiaries to do any of the acts described in subsection (a) through (m)
above.
4.9 Title to Properties and Assets; Liens, Etc. Except as set
forth on Schedule 4.9, each of the Company and each of its Subsidiaries has
good and marketable title to its properties and assets, and good title to its
leasehold estates, in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge, other than:
(a) those resulting from taxes which have not yet become
delinquent;
(b) minor liens and encumbrances which do not materially
detract from the value of the property subject thereto or materially impair
the operations of the Company or any of its Subsidiaries; and
(c) those that have otherwise arisen in the ordinary course of
business.
All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company and its Subsidiaries are in good
operating condition and repair and are reasonably fit and usable for the
purposes for which they are being used. Except as set forth on Schedule 4.9,
the Company and its Subsidiaries are in compliance with all material terms of
each lease to which it is a party or is otherwise bound.
4.10 Intellectual Property.
(a) Each of the Company and each of its Subsidiaries owns or
possesses sufficient legal rights to all patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information and other
proprietary rights and processes necessary for its business as now conducted
and to the Company's knowledge, as presently proposed to be conducted (the
"Intellectual Property"), without any known infringement of the rights of
others. There are no outstanding options, licenses or agreements of any kind
relating to the foregoing proprietary rights, nor is the Company or any of its
Subsidiaries bound by or a party to any options, licenses or agreements of any
kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information and other proprietary rights
and processes of any other person or entity other than such licenses or
agreements arising from the purchase of "off the shelf" or standard products.
(b) Neither the Company nor any of its Subsidiaries has
received any communications alleging that the Company or any of its
Subsidiaries has violated any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets or other proprietary rights of any other
person or entity, nor is the Company or any of its Subsidiaries aware of any
basis therefor.
(c) The Company does not believe it is or will be necessary to
utilize any inventions, trade secrets or proprietary information of any of its
employees made prior to their employment by the Company or any of its
Subsidiaries, except for inventions, trade secrets or proprietary information
that have been rightfully assigned to the Company or any of its Subsidiaries.
4.11 Compliance with Other Instruments. Neither the Company nor any
of its Subsidiaries is in violation or default of (x) any term of its Charter
or Bylaws, or (y) of any provision of any indebtedness, mortgage, indenture,
contract, agreement or instrument to which it is party or by which it is bound
or of any judgment, decree, order or writ, which violation or default, in the
case of this clause (y), has had, or could reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect. The
execution, delivery and performance of and compliance with this Agreement and
the Related Agreements to which it is a party, and the issuance and sale of
the Note by the Company and the other Securities by the Company each pursuant
hereto and thereto, will not, with or without the passage of time or giving of
notice, result in any such material violation, or be in conflict with or
constitute a default under any such term or provision, or result in the
creation of any mortgage, pledge, lien, encumbrance or charge upon any of the
properties or assets of the Company or any of its Subsidiaries or the
suspension, revocation, impairment, forfeiture or nonrenewal of any permit,
license, authorization or approval applicable to the Company, its business or
operations or any of its assets or properties.
4.12 Litigation. Except as set forth on Schedule 4.12 hereto, there
is no action, suit, proceeding or investigation pending or, to the Company's
knowledge, currently threatened against the Company or any of its Subsidiaries
that prevents the Company or any of its Subsidiaries from entering into this
Agreement or the other Related Agreements, or from consummating the
transactions contemplated hereby or thereby, or which has had, or could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect or any change in the current equity ownership of the
Company or any of its Subsidiaries, nor is the Company aware that there is any
basis to assert any of the foregoing. Neither the Company nor any of its
Subsidiaries is a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company or any of its Subsidiaries currently pending or which the Company or
any of its Subsidiaries intends to initiate.
4.13 Tax Returns and Payments. Each of the Company and each of its
Subsidiaries has timely filed all tax returns (federal, state and local)
required to be filed by it. All taxes shown to be due and payable on such
returns, any assessments imposed, and all other taxes due and payable by the
Company or any of its Subsidiaries on or before the Closing, have been paid or
will be paid prior to the time they become delinquent. Except as set forth on
Schedule 4.13, neither the Company nor any of its Subsidiaries has been
advised:
(a) that any of its returns, federal, state or other, have
been or are being audited as of the date hereof; or
(b) of any deficiency in assessment or proposed judgment to
its federal, state or other taxes.
The Company has no knowledge of any liability of any tax to be imposed upon
its properties or assets as of the date of this Agreement that is not
adequately provided for.
4.14 Employees. Except as set forth on Schedule 4.14, neither the
Company nor any of its Subsidiaries has any collective bargaining agreements
with any of its employees. There is no labor union organizing activity
pending or, to the Company's knowledge, threatened with respect to the Company
or any of its Subsidiaries. Except as disclosed in the Exchange Act Filings
or on Schedule 4.14, neither the Company nor any of its Subsidiaries is a
party to or bound by any currently effective employment contract, deferred
compensation arrangement, bonus plan, incentive plan, profit sharing plan,
retirement agreement or other employee compensation plan or agreement. To the
Company's knowledge, no employee of the Company or any of its Subsidiaries,
nor any consultant with whom the Company or any of its Subsidiaries has
contracted, is in violation of any term of any employment contract,
proprietary information agreement or any other agreement relating to the right
of any such individual to be employed by, or to contract with, the Company or
any of its Subsidiaries because of the nature of the business to be conducted
by the Company or any of its Subsidiaries; and to the Company's knowledge the
continued employment by the Company or any of its Subsidiaries of its present
employees, and the performance of the Company's and its Subsidiaries'
contracts with its independent contractors, will not result in any such
violation. Neither the Company nor any of its Subsidiaries is aware that any
of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with their duties to the Company or any of its Subsidiaries.
Neither the Company nor any of its Subsidiaries has received any notice
alleging that any such violation has occurred. Except for employees who have
a current effective employment agreement with the Company or any of its
Subsidiaries, no employee of the Company or any of its Subsidiaries has been
granted the right to continued employment by the Company or any of its
Subsidiaries or to any material compensation following termination of
employment with the Company or any of its Subsidiaries. Except as set forth
on Schedule 4.14, the Company is not aware that any officer, key employee or
group of employees intends to terminate his, her or their employment with the
Company or any of its Subsidiaries, nor does the Company or any of its
Subsidiaries have a present intention to terminate the employment of any
officer, key employee or group of employees.
4.15 Registration Rights and Voting Rights. Except as set forth on
Schedule 4.15 and except as disclosed in Exchange Act Filings, neither the
Company nor any of its Subsidiaries is presently under any obligation, and
neither the Company nor any of its Subsidiaries has granted any rights, to
register any of the Company's or its Subsidiaries' presently outstanding
securities or any of its securities that may hereafter be issued. Except as
set forth on Schedule 4.15 and except as disclosed in Exchange Act Filings, to
the Company's knowledge, no stockholder of the Company or any of its
Subsidiaries has entered into any agreement with respect to the voting of
equity securities of the Company or any of its Subsidiaries.
4.16 Compliance with Laws; Permits. Neither the Company nor any of
its Subsidiaries is in violation of any applicable statute, rule, regulation,
order or restriction of any domestic or foreign government or any
instrumentality or agency thereof in respect of the conduct of its business or
the ownership of its properties which has had, or could reasonably be expected
to have, either individually or in the aggregate, a Material Adverse Effect.
No governmental orders, permissions, consents, approvals or authorizations are
required to be obtained and no registrations or declarations are required to
be filed in connection with the execution and delivery of this Agreement or
any other Related Agreement and the issuance of any of the Securities, except
such as has been duly and validly obtained or filed, or with respect to any
filings that must be made after the Closing, as will be filed in a timely
manner. Each of the Company and its Subsidiaries has all material franchises,
permits, licenses and any similar authority necessary for the conduct of its
business as now being conducted by it, the lack of which could, either
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
4.17 Environmental and Safety Laws. Neither the Company nor any of
its Subsidiaries is in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to its
knowledge, no material expenditures are or will be required in order to comply
with any such existing statute, law or regulation. Except as set forth on
Schedule 4.17, no Hazardous Materials (as defined below) are used or have been
used, stored, or disposed of by the Company or any of its Subsidiaries or, to
the Company's knowledge, by any other person or entity on any property owned,
leased or used by the Company or any of its Subsidiaries. For the purposes of
the preceding sentence, "Hazardous Materials" shall mean:
(a) materials which are listed or otherwise defined as
"hazardous" or "toxic" under any applicable local, state, federal and/or
foreign laws and regulations that govern the existence and/or remedy of
contamination on property, the protection of the environment from
contamination, the control of hazardous wastes, or other activities involving
hazardous substances, including building materials; or
(b) any petroleum products or nuclear materials.
4.18 Valid Offering. Assuming the accuracy of the representations
and warranties of the Purchaser contained in this Agreement, the offer, sale
and issuance of the Securities will be exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
and will have been registered or qualified (or are exempt from registration
and qualification) under the registration, permit or qualification
requirements of all applicable state securities laws.
4.19 Full Disclosure. Each of the Company and each of its
Subsidiaries has provided the Purchaser with all information requested by the
Purchaser in connection with its decision to purchase the Note and Warrant,
including all information the Company and its Subsidiaries believe is
reasonably necessary to make such investment decision. Neither this
Agreement, the Related Agreements, the exhibits and schedules hereto and
thereto nor any other document delivered by the Company or any of its
Subsidiaries to Purchaser or its attorneys or agents in connection herewith or
therewith or with the transactions contemplated hereby or thereby, contain any
untrue statement of a material fact nor omit to state a material fact
necessary in order to make the statements contained herein or therein, in
light of the circumstances in which they are made, not misleading. Any
financial projections and other estimates provided to the Purchaser by the
Company or any of its Subsidiaries were based on the Company's and its
Subsidiaries' experience in the industry and on assumptions of fact and
opinion as to future events which the Company or any of its Subsidiaries, at
the date of the issuance of such projections or estimates, believed to be
reasonable.
4.20 Insurance. Each of the Company and each of its Subsidiaries
has general commercial, product liability, fire and casualty insurance
policies with coverages which the Company believes are customary for companies
similarly situated to the Company and its Subsidiaries in the same or similar
business.
4.21 SEC Reports. Except as set forth on Schedule 4.21, since
December 31, 2001, the Company has filed all proxy statements, reports and
other documents required to be filed by it under the Securities ▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇, as amended (the "Exchange Act"). The Company has furnished the
Purchaser with copies of: (i) its Annual Reports on Form 10-KSB for its
fiscal year ended July 31, 2003; and (ii) its Quarterly Reports on Form 10-QSB
for its fiscal quarter ended October 31, 2003, January 31, 2004 and April, 30,
2004, and the Form 8-K filings which it has made during the fiscal year 2004
to date (collectively, the "SEC Reports"). Except as set forth on Schedule
4.21, each SEC Report was, at the time of its filing, in substantial
compliance with the requirements of its respective form and none of the SEC
Reports, nor the financial statements (and the notes thereto) included in the
SEC Reports, as of their respective filing dates, contained any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
4.22 Listing. The Company's Common Stock is listed for trading on
the National Association of Securities Dealers Over the Counter Bulletin Board
("NASD OTCBB") and satisfies all requirements for the continuation of such
trading. The Company has not received any notice that its Common Stock will
not be eligible to be traded on the NASD OTCBB or that its Common Stock does
not meet all requirements for such trading.
4.23 No Integrated Offering. Neither the Company, nor any of its
Subsidiaries or affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales of any security or solicited
any offers to buy any security under circumstances that would cause the
offering of the Securities pursuant to this Agreement or any of the Related
Agreements to be integrated with prior offerings by the Company for purposes
of the Securities Act which would prevent the Company from selling the
Securities 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 Securities to be integrated with other offerings.
4.24 Stop Transfer. The Securities are restricted securities as of
the date of this Agreement. Neither the Company nor any of its Subsidiaries
will issue any stop transfer order or other order impeding the sale and
delivery of any of the Securities at such time as the Securities are
registered for public sale or an exemption from registration is available,
except as required by state and federal securities laws.
4.25 Dilution. The Company specifically acknowledges that its
obligation to issue the shares of Common Stock upon conversion of the Note and
exercise of the Warrant is binding upon the Company and enforceable regardless
of the dilution such issuance may have on the ownership interests of other
shareholders of the Company.
4.26 Patriot Act. The Company certifies that, to the best of
Company's knowledge, neither the Company nor any of its Subsidiaries has been
designated, and is not owned or controlled, by a "suspected terrorist" as
defined in Executive Order 13224. The Company hereby acknowledges that the
Purchaser seeks to comply with all applicable laws concerning money laundering
and related activities. In furtherance of those efforts, the Company hereby
represents, warrants and agrees that: (i) none of the cash or property that
the Company or any of its Subsidiaries will pay or will contribute to the
Purchaser has been or shall be derived from, or related to, any activity that
is deemed criminal under United States law; and (ii) no contribution or
payment by the Company or any of its Subsidiaries to the Purchaser, to the
extent that they are within the Company's and/or its Subsidiaries' control
shall cause the Purchaser to be in violation of the United States Bank Secrecy
Act, the United States International Money Laundering Control Act of 1986 or
the United States International Money Laundering Abatement and Anti-Terrorist
Financing Act of 2001. The Company shall promptly notify the Purchaser if any
of these representations ceases to be true and accurate regarding the Company
or any of its Subsidiaries. The Company agrees to provide the Purchaser any
additional information regarding the Company or any of its Subsidiaries that
the Purchaser deems necessary or convenient to ensure compliance with all
applicable laws concerning money laundering and similar activities. The
Company understands and agrees that if at any time it is discovered that any
of the foregoing representations are incorrect, or if otherwise required by
applicable law or regulation related to money laundering similar activities,
the Purchaser may undertake appropriate actions to ensure compliance with
applicable law or regulation, including but not limited to segregation and/or
redemption of the Purchaser's investment in the Company. The Company further
understands that the Purchaser may release confidential information about the
Company and its Subsidiaries and, if applicable, any underlying beneficial
owners, to proper authorities if the Purchaser, in its sole discretion,
determines that it is in the best interests of the Purchaser in light of
relevant rules and regulations under the laws set forth in subsection (ii)
above.
5. Representations and Warranties of the Purchaser. The Purchaser
hereby represents and warrants to the Company as follows (such representations
and warranties do not lessen or obviate the representations and warranties of
the Company set forth in this Agreement):
5.1 No Shorting. The Purchaser or any of its affiliates and
investment partners has not, will not and will not cause any person or entity,
to directly engage in "short sales" of the Company's Common Stock as long as
the Note shall be outstanding.
5.2 Requisite Power and Authority. The Purchaser has all necessary
power and authority under all applicable provisions of law to execute and
deliver this Agreement and the Related Agreements and to carry out their
provisions. All corporate action on Purchaser's part required for the lawful
execution and delivery of this Agreement and the Related Agreements have been
or will be effectively taken prior to the Closing. Upon their execution and
delivery, this Agreement and the Related Agreements will be valid and binding
obligations of Purchaser, enforceable in accordance with their terms, except:
(a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights; and
(b) as limited by general principles of equity that restrict
the availability of equitable and legal remedies.
5.3 Investment Representations. Purchaser understands that the
Securities are being offered and sold pursuant to an exemption from
registration contained in the Securities Act based in part upon Purchaser's
representations contained in the Agreement, including, without limitation,
that the Purchaser is an "accredited investor" within the meaning of
Regulation D under the Securities Act of 1933, as amended (the "Securities
Act"). The Purchaser confirms that it has received or has had full access to
all the information it considers necessary or appropriate to make an informed
investment decision with respect to the Note and the Warrant to be purchased
by it under this Agreement and the Note Shares and the Warrant Shares acquired
by it upon the conversion of the Note and the exercise of the Warrant,
respectively. The Purchaser further confirms that it has had an opportunity to
ask questions and receive answers from the Company regarding the Company's and
its Subsidiaries' business, management and financial affairs and the terms and
conditions of the Offering, the Note, the Warrant and the Securities and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify any information furnished to the Purchaser or to which the
Purchaser had access.
5.4 Purchaser Bears Economic Risk. The Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. The Purchaser must bear the economic
risk of this investment until the Securities are sold pursuant to: (i) an
effective registration statement under the Securities Act; or (ii) an
exemption from registration is available with respect to such sale.
5.5 Acquisition for Own Account. The Purchaser is acquiring the
Note and Warrant and the Note Shares and the Warrant Shares for the
Purchaser's own account for investment only, and not as a nominee or agent and
not with a view towards or for resale in connection with their distribution.
5.6 Purchaser Can Protect Its Interest. The Purchaser represents
that by reason of its, or of its management's, business and financial
experience, the Purchaser has the capacity to evaluate the merits and risks of
its investment in the Note, the Warrant and the Securities and to protect its
own interests in connection with the transactions contemplated in this
Agreement and the Related Agreements. Further, Purchaser is aware of no
publication of any advertisement in connection with the transactions
contemplated in the Agreement or the Related Agreements.
5.7 Accredited Investor. Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities
Act.
5.8 Legends.
(a) The Note shall bear substantially the following legend:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION
OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY APPLICABLE, STATE SECURITIES
LAWS. THIS NOTE AND THE COMMON STOCK ISSUABLE UPON
CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH SHARES
UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR
AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ▇▇▇▇, INC.
THAT SUCH REGISTRATION IS NOT REQUIRED."
(b) The Note Shares and the Warrant Shares, if not issued by
DWAC system (as hereinafter defined), shall bear a legend which shall be in
substantially the following form until such shares are covered by an effective
registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THESE
SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE STATE
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO ▇▇▇▇, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) The Warrant shall bear substantially the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT
AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT OR THE
UNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO ▇▇▇▇, INC. THAT
SUCH REGISTRATION IS NOT REQUIRED."
6. Covenants of the Company. The Company covenants and agrees with the
Purchaser as follows:
6.1 Stop-Orders. The Company will advise the Purchaser, promptly
after it receives notice of issuance by the Securities and Exchange Commission
(the "SEC"), any state securities commission or any other regulatory authority
of any stop order or of any order preventing or suspending any offering of any
securities of the Company, or of the suspension of the qualification of the
Common Stock of the Company for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.
6.2 Listing. The Company's shares of Common Stock issuable upon
conversion of the Note and upon the exercise of the Warrant are listed on the
NASD OTCBB (the "Principal Market") as of the date hereof and, the Company
shall maintain such on a Principal Market so long as any other shares of
Common Stock shall be so listed. The Company will maintain the listing of its
Common Stock on a Principal Market, and will comply in all material respects
with the Parent's reporting, filing and other obligations under the bylaws or
rules of the National Association of Securities Dealers ("NASD") and such
exchanges, as applicable.
6.3 Market Regulations. The Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other
necessary action and proceedings as may be required and permitted by
applicable law, rule and regulation, for the legal and valid issuance of the
Securities to the Purchaser and promptly provide copies thereof to the
Purchaser.
6.4 Reporting Requirements. The Company will timely file with the
SEC all reports required to be filed pursuant to the Exchange Act and refrain
from terminating its status as an issuer required by the Exchange Act to file
reports thereunder even if the Exchange Act or the rules or regulations
thereunder would permit such termination.
6.5 Use of Funds. The Company agrees that it will use the proceeds
of the sale of the Note and the Warrant for general working capital purposes
only.
6.6 Access to Facilities. Each of the Company and each of its
Subsidiaries will permit any representatives designated by the Purchaser (or
any successor of the Purchaser), upon reasonable notice and during normal
business hours, at such person's expense and accompanied by a representative
of the Company, to:
(a) visit and inspect any of the properties of the Company or
any of its Subsidiaries;
(b) examine the corporate and financial records of the Company
or any of its Subsidiaries (unless such examination is not permitted by
federal, state or local law or by contract) and make copies thereof or
extracts therefrom; and
(c) discuss the affairs, finances and accounts of the Company
or any of its Subsidiaries with the directors, officers and independent
accountants of the Company or any of its Subsidiaries.
Notwithstanding the foregoing, neither the Company nor any of its Subsidiaries
will provide any material, non-public information to the Purchaser unless the
Purchaser signs a confidentiality agreement and otherwise complies with
Regulation FD, under the federal securities laws.
6.7 Taxes. Each of the Company and each of its Subsidiaries will
promptly pay and discharge, or cause to be paid and discharged, when due and
payable, all lawful taxes, assessments and governmental charges or levies
imposed upon the income, profits, property or business of the Company and its
Subsidiaries; provided, however, that any such tax, assessment, charge or levy
need not be paid if the validity thereof shall currently be contested in good
faith by appropriate proceedings and if the Company and/or such Subsidiary
shall have set aside on its books adequate reserves with respect thereto, and
provided, further, that the Company and its Subsidiaries will pay all such
taxes, assessments, charges or levies forthwith upon the commencement of
proceedings to foreclose any lien which may have attached as security
therefor.
6.8 Insurance. Each of the Company and its Subsidiaries will keep
its assets which are of an insurable character insured by financially sound
and reputable insurers against loss or damage by fire, explosion and other
risks customarily insured against by companies in similar business similarly
situated as the Company and its Subsidiaries; and the Company and its
Subsidiaries will maintain, with financially sound and reputable insurers,
insurance against other hazards and risks and liability to persons and
property to the extent and in the manner which the Company reasonably believes
is customary for companies in similar business similarly situated as the
Company and its Subsidiaries and to the extent available on commercially
reasonable terms. The Company, and each of its Subsidiaries will jointly and
severally bear the full risk of loss from any loss of any nature whatsoever
with respect to the assets pledged to the Purchaser as security for its
obligations hereunder and under the Related Agreements. At the Company's and
each of its Subsidiaries' joint and several cost and expense in amounts and
with carriers reasonably acceptable to Purchaser, the Company and each of its
Subsidiaries shall (i) keep all its insurable properties and properties in
which it has an interest insured against the hazards of fire, flood, sprinkler
leakage, those hazards covered by extended coverage insurance and such other
hazards, and for such amounts, as is customary in the case of companies
engaged in businesses similar to the Company's or the respective Subsidiary's
including business interruption insurance; (ii) maintain a bond in such
amounts as is customary in the case of companies engaged in businesses similar
to the Company's or the respective Subsidiary's insuring against larceny,
embezzlement or other criminal misappropriation of insured's officers and
employees who may either singly or jointly with others at any time have access
to the assets or funds of the Company or any of its Subsidiaries either
directly or through governmental authority to draw upon such funds or to
direct generally the disposition of such assets; (iii) maintain public and
product liability insurance against claims for personal injury, death or
property damage suffered by others; (iv) maintain all such worker's
compensation or similar insurance as may be required under the laws of any
state or jurisdiction in which the Company or the respective Subsidiary is
engaged in business; and (v) furnish Purchaser with (x) copies of all policies
and evidence of the maintenance of such policies at least thirty (30) days
before any expiration date, (y) excepting the Company's workers' compensation
policy, endorsements to such policies naming Purchaser as "co-insured" or
"additional insured" and appropriate loss payable endorsements in form and
substance satisfactory to Purchaser, naming Purchaser as loss payee, and (z)
evidence that as to Purchaser the insurance coverage shall not be impaired or
invalidated by any act or neglect of the Company or any Subsidiary and the
insurer will provide Purchaser with at least thirty (30) days notice prior to
cancellation. The Company and each Subsidiary shall instruct the insurance
carriers that in the event of any loss thereunder, the carriers shall make
payment for such loss to the Company and/or the Subsidiary and Purchaser
jointly. In the event that as of the date of receipt of each loss recovery
upon any such insurance, the Purchaser has not declared an event of default
with respect to this Agreement or any of the Related Agreements, then the
Company and/or such Subsidiary shall be permitted to direct the application of
such loss recovery proceeds toward investment in property, plant and equipment
that would comprise "Collateral" secured by Purchaser's security interest
pursuant to its security agreement, with any surplus funds to be applied
toward payment of the obligations of the Company to Purchaser. In the event
that Purchaser has properly declared an event of default with respect to this
Agreement or any of the Related Agreements, then all loss recoveries received
by Purchaser upon any such insurance thereafter may be applied to the
obligations of the Company hereunder and under the Related Agreements, in such
order as the Purchaser may determine. Any surplus (following satisfaction of
all Company obligations to Purchaser) shall be paid by Purchaser to the
Company or applied as may be otherwise required by law. Any deficiency
thereon shall be paid by the Company or the Subsidiary, as applicable, to
Purchaser, on demand.
6.9 Intellectual Property. Each of the Company and each of its
Subsidiaries shall maintain in full force and effect its existence, rights and
franchises and all licenses and other rights to use Intellectual Property
owned or possessed by it and reasonably deemed to be necessary to the conduct
of its business.
6.10 Properties. Each of the Company and each of its Subsidiaries
will keep its properties in good repair, working order and condition,
reasonable wear and tear excepted, and from time to time make all needful and
proper repairs, renewals, replacements, additions and improvements thereto;
and each of the Company and each of its Subsidiaries will at all times comply
with each provision of all leases to which it is a party or under which it
occupies property if the breach of such provision could, either individually
or in the aggregate, reasonably be expected tohave a Material Adverse Effect.
6.11 Confidentiality. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Purchaser,
unless expressly agreed to by the Purchaser or unless and until such
disclosure is required by law or applicable regulation, and then only to the
extent of such requirement. Notwithstanding the foregoing, the Company may
disclose Purchaser's identity and the terms of this Agreement to its current
and prospective debt and equity financing sources.
6.12 Required Approvals. For so long as twenty-five percent (25%)
of the principal amount of the Note is outstanding, the Company, without the
prior written consent of the Purchaser, shall not, and shall not permit any of
its Subsidiaries to:
(a) (i) directly or indirectly declare or pay any dividends,
other than dividends paid to the Parent or any of its wholly-owned
Subsidiaries, (ii) issue any preferred stock that is manditorily redeemable
prior to the one year anniversary of the Maturity Date (as defined in the
Note) or (iii) redeem any of its preferred stock or other equity interests;
(b) liquidate, dissolve or effect a material reorganization
(it being understood that in no event shall the Company dissolve, liquidate or
merge with any other person or entity (unless the Company is the surviving
entity);
(c) become subject to (including, without limitation, by way
of amendment to or modification of) any agreement or instrument which by its
terms would (under any circumstances) restrict the Company's or any of its
Subsidiaries right to perform the provisions of this Agreement, any Related
Agreement or any of the agreements contemplated hereby or thereby;
(d) materially alter or change the scope of the business of
the Company and its Subsidiaries taken as a whole;
(e) (i) create, incur, assume or suffer to exist any
indebtedness (exclusive of trade debt and debt incurred to finance the
purchase of equipment (not in excess of five percent (5%) of the fair market
value of the Company's and its Subsidiaries' assets) whether secured or
unsecured other than (x) the Company's indebtedness to the Purchaser, (y)
indebtedness set forth on Schedule 6.12(e) attached hereto and made a part
hereof and any refinancings or replacements thereof on terms no less favorable
to the Purchaser than the indebtedness being refinanced or replaced, and (z)
any debt incurred in connection with the purchase of assets in the ordinary
course of business, or any refinancings or replacements thereof on terms no
less favorable to the Purchaser than the indebtedness being refinanced or
replaced; (ii) cancel any debt owing to it in excess of $50,000 in the
aggregate during any 12 month period; (iii) assume, guarantee, endorse or
otherwise become directly or contingently liable in connection with any
obligations of any other Person, except the endorsement of negotiable
instruments by the Company for deposit or collection or similar transactions
in the ordinary course of business or guarantees of indebtedness otherwise
permitted to be outstanding pursuant to this clause (e); and
(f) create or acquire any Subsidiary after the date hereof
unless (i) such Subsidiary is a wholly-owned Subsidiary of the Company and
(ii) such Subsidiary becomes party to the Master Security Agreement, the Stock
Pledge Agreement and the Subsidiary Guaranty (either by executing a
counterpart thereof or an assumption or joinder agreement in respect thereof)
and, to the extent required by the Purchaser, satisfies each condition of this
Agreement and the Related Agreements as if such Subsidiary were a Subsidiary
on the Closing Date.
6.13 Reissuance of Securities. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Section 5.8 above at such time as:
(a) the holder thereof is permitted to dispose of such
Securities pursuant to Rule 144(k) under the Securities Act; or
(b) upon resale subject to an effective registration statement
after such Securities are registered under the Securities Act.
The Company agrees to cooperate with the Purchaser in connection with all
resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions
necessary to allow such resales provided the Company and its counsel receive
reasonably requested representations from the selling Purchaser and broker, if
any.
6.14 Opinion. On the Closing Date, the Company will deliver to the
Purchaser an opinion acceptable to the Purchaser from the Company's external
legal counsel. The Company will provide, at the Company's expense, such other
legal opinions in the future as are deemed reasonably necessary by the
Purchaser (and acceptable to the Purchaser) in connection with the conversion
of the Note and exercise of the Warrant.
6.15 Margin Stock. The Company will not permit any of the proceeds
of the Note or the Warrant to be used directly or indirectly to "purchase" or
"carry" "margin stock" or to repay indebtedness incurred to "purchase" or
"carry" "margin stock" within the respective meanings of each of the quoted
terms under Regulation U of the Board of Governors of the Federal Reserve
System as now and from time to time hereafter in effect.
6.16 Financing Right of First Refusal. (a) The Company hereby
grants to the Purchaser a right of first refusal to provide any Additional
Financing (as defined below) to be issued by the Company and/or any of its
Subsidiaries, subject to the following terms and conditions. From and after
the date hereof, prior to the incurrence of any additional indebtedness
and/or the sale or issuance of any equity interests of the Company or any of
its Subsidiaries (an "Additional Financing"), the Company and/or any
Subsidiary of the Company, as the case may be, shall notify the Purchaser of
its intention to enter into such Additional Financing. In connection
therewith, the Company and/or the applicable Subsidiary thereof shall submit a
fully executed term sheet (a "Proposed Term Sheet") to the Purchaser setting
forth the terms, conditions and pricing of any such Additional Financing (such
financing to be negotiated on "arm's length" terms and the terms thereof to be
negotiated in good faith) proposed to be entered into by the Company and/or
such Subsidiary. The Purchaser shall have the right, but not the obligation,
to deliver its own proposed term sheet (the "Purchaser Term Sheet") setting
forth the terms and conditions upon which Purchaser would be willing to
provide such Additional Financing to the Company and/or such Subsidiary. The
Purchaser Term Sheet shall contain terms no less favorable to the Company
and/or such Subsidiary than those outlined in Proposed Term Sheet. The
Purchaser shall deliver such Purchaser Term Sheet within ten business days of
receipt of each such Proposed Term Sheet. If the provisions of the Purchaser
Term Sheet are at least as favorable to the Company and/or such Subsidiary, as
the case may be, as the provisions of the Proposed Term Sheet, the Company
and/or such Subsidiary shall enter into and consummate the Additional
Financing transaction outlined in the Purchaser Term Sheet.
(b) The Company will not, and will not permit its Subsidiaries
to, agree, directly or indirectly, to any restriction with any person or
entity which limits the ability of the Purchaser to consummate an Additional
Financing with the Company or any of its Subsidiaries.
6.17 Merchant Processors. The Company shall not, and shall not
permit any of its Subsidiaries to, without the consent of the Purchaser, agree
with any of Cardservice International, Inc. or Atlantic Payment Systems, LLC
(collectively, the "Existing Merchant Processor" and each, an "Existing
Merchant Processor") or, following the establishment thereof, any Additional
Merchant Processor (as defined below), to modify the calculation with respect
to the amount of reserves, holdbacks or similar amounts required to be
returned to the Company or such Subsidiary, as the case may be, and placed in
the Laurus Account \(or, in each case, the procedure therefore). The Company
shall not, nor will it permit any of its Subsidiaries to, direct any Merchant
Processor (as defined below) to forward any reserve, holdback or similar
amount maintained by any Merchant Processor to any deposit account other than
the Laurus Account. The Company agrees to notify, and cause its Subsidiaries
to notify, the Purchaser in the event that any billing agency other than the
Existing Merchant Processors (each such merchant processor, an "Additional
Merchant Processor" and, together with the Existing Merchant Processors, the
"Merchant Processors") maintains reserve or holdback accounts similar to those
maintained by the Existing Merchant Processors on the date hereof. In the
event an Additional Merchant Processor exists and at such time the sum of (A)
the amount of reserves and holdbacks held by any Existing Merchant Processor
which is subject to a redirection notice of the type referred to in Section
3.3 (a "Redirection Notice") and (B) the amount of cash contained in the
Restricted Account, is less than the outstanding principal amount of the Note
(plus any accrued and unpaid interest and fees related thereto), the Company
hereby agrees to, or cause its relevant Subsidiary to, as promptly as
practicable but in no event later than 30 days following a request by the
Purchaser, execute a Redirection Notice, redirecting any distribution of
reserve amounts maintained by an Additional Merchant Processor to the
Restricted Account and, in connection therewith, have such Redirection Notice
executed by the respective Additional Merchant Processor. Upon the request of
the Purchaser, the Company shall provide the Purchaser with accounting
summaries of the holdbacks and reserves referred to in this Section 6.17,
which accounting summaries have been prepared by the Merchant Processors.
7. Covenants of the Purchaser. The Purchaser covenants and agrees with
the Company as follows:
7.1 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.
7.2 Non-Public Information. The Purchaser agrees not to effect any
sales in the shares of the Company's Common Stock while in possession of
material, non-public information regarding the Company if such sales would
violate applicable securities law.
8. Covenants of the Company and Purchaser Regarding Indemnification.
8.1 Company Indemnification. The Company agrees to indemnify, hold
harmless, reimburse and defend the Purchaser, each of the Purchaser's
officers, directors, agents, affiliates, control persons, and principal
shareholders, against any claim, cost, expense, liability, obligation, loss or
damage (including reasonable legal fees) of any nature, incurred by or imposed
upon the Purchaser which results, arises out of or is based upon: (i) any
misrepresentation by the Company or any of its Subsidiaries or breach of any
warranty by the Company or any of its Subsidiaries in this Agreement, any
other Related Agreement or in any exhibits or schedules attached hereto or
thereto; or (ii) any breach or default in performance by Company or any of its
Subsidiaries of any covenant or undertaking to be performed by Company or any
of its Subsidiaries hereunder, under any other Related Agreement or any other
agreement entered into by the Company and/or any of its Subsidiaries and
Purchaser relating hereto or thereto.
8.2 Purchaser's Indemnification. Purchaser agrees to indemnify,
hold harmless, reimburse and defend the Company and each of the Company's
officers, directors, agents, affiliates, control persons and principal
shareholders, at all times against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company which results, arises out of or is
based upon: (i) any misrepresentation by Purchaser or breach of any warranty
by Purchaser in this Agreement or in any exhibits or schedules attached hereto
or any Related Agreement; or (ii) any breach or default in performance by
Purchaser of any covenant or undertaking to be performed by Purchaser
hereunder, or any other agreement entered into by the Company and Purchaser
relating hereto.
9. Conversion of Convertible Note.
9.1 Mechanics of Conversion.
(a) Provided the Purchaser has notified the Company of the
Purchaser's intention to sell the Note Shares and the Note Shares are included
in an effective registration statement or are otherwise exempt from
registration when sold: (i) upon the conversion of the Note or part thereof,
the Company shall, at its own cost and expense, take all necessary action
(including the issuance of an opinion of counsel reasonably acceptable to the
Purchaser following a request by the Purchaser) to assure that the Company's
transfer agent shall issue shares of the Company's Common Stock in the name of
the Purchaser (or its nominee) or such other persons as designated by the
Purchaser in accordance with Section 9.1(b) hereof and in such denominations
to be specified representing the number of Note Shares issuable upon such
conversion; and (ii) the Company warrants that no instructions other than
these instructions have been or will be given to the transfer agent of the
Company's Common Stock and that after the Effectiveness Date (as defined in
the Registration Rights Agreement) the Note Shares issued will be freely
transferable subject to the prospectus delivery requirements of the Securities
Act and the provisions of this Agreement, and will not contain a legend
restricting the resale or transferability of the Note Shares.
(b) Purchaser will give notice of its decision to exercise its
right to convert the Note or part thereof by telecopying or otherwise
delivering an executed and completed notice of the number of shares to be
converted to the Company (the "Notice of Conversion"). The Purchaser will not
be required to surrender the Note until the Purchaser receives a credit to the
account of the Purchaser's prime broker through the DWAC system (as defined
below), representing the Note Shares or until the Note has been fully
satisfied. Each date on which a Notice of Conversion is telecopied or
delivered to the Company in accordance with the provisions hereof shall be
deemed a "Conversion Date." Pursuant to the terms of the Notice of
Conversion, the Company will issue instructions to the transfer agent
accompanied by an opinion of counsel within one (1) business day of the date
of the delivery to the Company of the Notice of Conversion and shall cause
the transfer agent to transmit the certificates representing the Conversion
Shares to the Holder by crediting the account of the Purchaser's prime broker
with the Depository Trust Company ("DTC") through its Deposit Withdrawal Agent
Commission ("DWAC") system within three (3) business days after receipt by the
Company of the Notice of Conversion (the "Delivery Date").
(c) The Company understands that a delay in the delivery of
the Note Shares in the form required pursuant to Section 9 hereof beyond the
Delivery Date could result in economic loss to the Purchaser. In the event
that the Company fails to direct its transfer agent to deliver the Note Shares
to the Purchaser via the DWAC system within the time frame set forth in
Section 9.1(b) above and the Note Shares are not delivered to the Purchaser by
the Delivery Date, as compensation to the Purchaser for such loss, the Company
agrees to pay late payments to the Purchaser for late issuance of the Note
Shares in the form required pursuant to Section 9 hereof upon conversion of
the Note in the amount equal to the greater of: (i) $500 per business day
after the Delivery Date; or (ii) the Purchaser's actual damages from such
delayed delivery. Notwithstanding the foregoing, the Company will not owe the
Purchaser any late payments if the delay in the delivery of the Note Shares
beyond the Delivery Date is solely out of the control of the Company and the
Company is actively trying to cure the cause of the delay. The Company shall
pay any payments incurred under this Section in immediately available funds
upon demand and, in the case of actual damages, accompanied by reasonable
documentation of the amount of such damages. Such documentation shall show
the number of shares of Common Stock the Purchaser is forced to purchase (in
an open market transaction) which the Purchaser anticipated receiving upon
such conversion, and shall be calculated as the amount by which (A) the
Purchaser's total purchase price (including customary brokerage commissions,
if any) for the shares of Common Stock so purchased exceeds (B) the aggregate
principal and/or interest amount of the Note, for which such Conversion Notice
was not timely honored.
Nothing contained herein or in any document referred to herein or delivered in
connection herewith shall be deemed to establish or require the payment of a
rate of interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest or dividends required
to be paid or other charges hereunder exceed the maximum amount permitted by
such law, any payments in excess of such maximum shall be credited against
amounts owed by the Company to a Purchaser and thus refunded to the Company.
10. Registration Rights.
10.1 Registration Rights Granted. The Company hereby grants
registration rights to the Purchaser pursuant to a Registration Rights
Agreement dated as of even date herewith between the Company and the
Purchaser.
10.2 Offering Restrictions. Except as previously disclosed in the
SEC Reports or in the Exchange Act Filings, or stock or stock options granted
to employees or directors of the Company (these exceptions hereinafter
referred to as the "Excepted Issuances"), neither the Company nor any of its
Subsidiaries will issue any securities with a continuously variable/floating
conversion feature which are or could be (by conversion or registration)
free-trading securities (i.e. common stock subject to a registration
statement) prior to the full repayment or conversion of the Note (together
with all accrued and unpaid interest and fees related thereto) (the "Exclusion
Period").
11. Miscellaneous.
11.1 Governing Law. THIS AGREEMENT AND EACH RELATED AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. ANY ACTION
BROUGHT BY EITHER PARTY AGAINST THE OTHER CONCERNING THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT AND EACH RELATED AGREEMENT SHALL BE BROUGHT
ONLY IN THE STATE COURTS OF NEW YORK OR IN THE FEDERAL COURTS LOCATED IN THE
STATE OF NEW YORK. BOTH PARTIES AND THE INDIVIDUALS EXECUTING THIS AGREEMENT
AND THE RELATED AGREEMENTS ON BEHALF OF THE COMPANY AGREE TO SUBMIT TO THE
JURISDICTION OF SUCH COURTS AND WAIVE TRIAL BY JURY. IN THE EVENT THAT ANY
PROVISION OF THIS AGREEMENT OR ANY RELATED AGREEMENT DELIVERED IN CONNECTION
HEREWITH IS INVALID OR UNENFORCEABLE UNDER ANY APPLICABLE STATUTE OR RULE OF
LAW, THEN SUCH PROVISION SHALL BE DEEMED INOPERATIVE TO THE EXTENT THAT IT MAY
CONFLICT THEREWITH AND SHALL BE DEEMED MODIFIED TO CONFORM WITH SUCH STATUTE
OR RULE OF LAW. ANY SUCH PROVISION WHICH MAY PROVE INVALID OR UNENFORCEABLE
UNDER ANY LAW SHALL NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF ANY OTHER
PROVISION OF THIS AGREEMENT OR ANY RELATED AGREEMENT.
11.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Purchaser
and the closing of the transactions contemplated hereby to the extent provided
therein. All statements as to factual matters contained in any certificate or
other instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date
of such certificate or instrument.
11.3 Successors. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, heirs, executors and administrators of the parties hereto and
shall inure to the benefit of and be enforceable by each person who shall be a
holder of the Securities from time to time, other than the holders of Common
Stock which has been sold by the Purchaser pursuant to Rule 144 or an
effective registration statement. Purchaser may not assign its rights
hereunder to a competitor of the Company.
11.4 Entire Agreement. This Agreement, the Related Agreements, the
exhibits and schedules hereto and thereto and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and no party shall be
liable or bound to any other in any manner by any representations, warranties,
covenants and agreements except as specifically set forth herein and therein.
11.5 Severability. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
11.6 Amendment and Waiver.
(a) This Agreement may be amended or modified only upon the
written consent of the Company and the Purchaser.
(b) The obligations of the Company and the rights of the
Purchaser under this Agreement may be waived only with the written consent of
the Purchaser.
(c) The obligations of the Purchaser and the rights of the
Company under this Agreement may be waived only with the written consent of
the Company.
11.7 Delays or Omissions. It is agreed that no delay or omission
to exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement or the Related
Agreements, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring. All remedies, either under this Agreement or the
Related Agreements, by law or otherwise afforded to any party, shall be
cumulative and not alternative.
11.8 Notices. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given:
(a) upon personal delivery to the party to be notified;
(b) when sent by confirmed facsimile if sent during normal
business hours of the recipient, if not, then on the next business day;
(c) three (3) business days after having been sent by
registered or certified mail, return receipt requested, postage prepaid; or
(d) one (1) day after deposit with a nationally recognized
overnight courier, specifying next day delivery, with written verification of
receipt.
All communications shall be sent as follows:
If to the Company, to: ▇▇▇▇, INC.
▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer
Facsimile: (702) 967 - 6002
If to the Purchaser, to: Laurus Master Fund, Ltd.
c/o M&C Corporate Services Limited
▇.▇. ▇▇▇ ▇▇▇ ▇▇, ▇▇▇▇▇▇ House, ▇▇▇▇▇▇ Town
South Church Street, Grand Cayman, Cayman
Islands
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
a copy to:
▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
or at such other address as the Company or the Purchaser may designate by
written notice to the other parties hereto given in accordance herewith.
11.9 Attorneys' Fees. In the event that any suit or action is
instituted to enforce any provision in this Agreement, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees,
costs and expenses of enforcing any right of such prevailing party under or
with respect to this Agreement, including, without limitation, such reasonable
fees and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
11.10 Titles and Subtitles. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
11.11 Facsimile Signatures; Counterparts. This Agreement may be
executed by facsimile signatures and in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
11.12 Broker's Fees. Except as set forth on Schedule 11.12 hereof,
each party hereto represents and warrants that no agent, broker, investment
banker, person or firm acting on behalf of or under the authority of such
party hereto is or will be entitled to any broker's or finder's fee or any
other commission directly or indirectly in connection with the transactions
contemplated herein. Each party hereto further agrees to indemnify each other
party for any claims, losses or expenses incurred by such other party as a
result of the representation in this Section 11.12 being untrue.
11.13 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Agreement and the Related Agreements
and, therefore, stipulates that the rule of construction that ambiguities are
to be resolved against the drafting party shall not be applied in the
interpretation of this Agreement to favor any party against the other.
11.14 Limitation on Acquisition of Common Stock of the Company.
Notwithstanding anything to the contrary contained in this Agreement, any
Related Agreement, any document, instrument or agreement entered into in
connection with the transactions contemplated hereby or any document,
instrument or agreement entered into in connection withany other transaction
entered into by and between the Purchaser and the Company (and/or subsidiaries
or affiliates of the Company), the Purchaser shall not acquire stock in the
Company (including, without limitation, pursuant to a contract to purchase, by
exercising an option or warrant, by converting any other security or
instrument, by acquiring or exercising any other right to acquire, shares of
stock or other security convertible into shares of stock in the Company, or
otherwise, and such options, warrants, conversion or other rights shall not be
exercisable) to the extent such stock acquisition would cause any interest
(including any original issue discount) payable by the Company to the
Purchaser not to qualify as portfolio interest, within the meaning of Section
881(c)(2) of the Internal Revenue Code of 1986, as amended (the "Code") by
reason of Section 881(c)(3) of the Code, taking into account the constructive
ownership rules under Section 871(h)(3)(C) of the Code.
[the remainder of this page is intentionally left blank]
IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
▇▇▇▇, INC. Laurus Master Fund, Ltd.
By:/s/ By:/s/
Name: Name:
Title: Title:
EXHIBIT A
FORM OF CONVERTIBLE NOTE
EXHIBIT B
FORM OF WARRANT
EXHIBIT C
FORM OF OPINION
1. Each of the Company and each of its Subsidiaries is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to own,
operate and lease its properties and to carry on its business as it is now
being conducted.
2. Each of the Company and each of its Subsidiaries has the requisite
corporate power and authority to execute, deliver and perform its obligations
under the Agreement and the Related Agreements. All corporate action on the
part of the Company and each of its Subsidiaries and its officers, directors
and stockholders necessary has been taken for: (i) the authorization of the
Agreement and the Related Agreements and the performance of all obligations of
the Company and each of its Subsidiaries thereunder; and (ii) the
authorization, sale, issuance and delivery of the Securities pursuant to the
Agreement and the Related Agreements. The Note Shares and the Warrant Shares,
when issued pursuant to and in accordance with the terms of the Agreement and
the Related Agreements and upon delivery shall be validly issued and
outstanding, fully paid and non assessable.
3. The execution, delivery and performance by each of the Company and
each of its Subsidiaries of the Agreement and the Related Agreements to which
it is a party and the consummation of the transactions on its part
contemplated by any thereof, will not, with or without the giving of notice or
the passage of time or both:
(a) Violate the provisions of their respective Charter or bylaws;
or
(b) Violate any judgment, decree, order or award of any court
binding upon the Company or any of its Subsidiaries; or
(c) Violate any [insert jurisdictions in which counsel is
qualified] or federal law
4. The Agreement and the Related Agreements will constitute, valid and
legally binding obligations of each of the Company and each of its
Subsidiaries (to the extent such person is a party thereto), and are
enforceable against each of the Company and each of its Subsidiaries in
accordance with their respective terms, except:
(a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights; and
(b) general principles of equity that restrict the availability of
equitable or legal remedies.
5. To such counsel's knowledge, the sale of the Note and the subsequent
conversion of the Note into Note Shares are not subject to any preemptive
rights or rights of first refusal that have not been properly waived or
complied with. To such counsel's knowledge, the sale of the Warrant and the
subsequent exercise of the Warrant for Warrant Shares are not subject to any
preemptive rights or, to such counsel's knowledge, rights of first refusal
that have not been properly waived or complied with.
6. Assuming the accuracy of the representations and warranties of the
Purchaser contained in the Agreement, the offer, sale and issuance of the
Securities on the Closing Date will be exempt from the registration
requirements of the Securities Act. To such counsel's knowledge, 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 and security under circumstances that would cause
the offering of the Securities pursuant to the Agreement or any Related
Agreement to be integrated with prior offerings by the Company for purposes of
the Securities Act which would prevent the Company from selling the Securities
pursuant to Rule 506 under the Securities Act, or any applicable
exchange-related stockholder approval provisions.
7. There is no action, suit, proceeding or investigation pending or, to
such counsel's knowledge, currently threatened against the Company or any of
its Subsidiaries that prevents the right of the Company or any of its
Subsidiaries to enter into this Agreement or any of the Related Agreements, or
to consummate the transactions contemplated thereby. To such counsel's
knowledge, the Company is not a party or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency
or instrumentality; nor is there any action, suit, proceeding or investigation
by the Company currently pending or which the Company intends to initiate.
8. The terms and provisions of the Master Security Agreement and the
Stock Pledge Agreement create a valid security interest in favor of Laurus, in
the respective rights, title and interests of the Company and its Subsidiaries
in and to the Collateral (as defined in each of the Master Security Agreement
and the Stock Pledge Agreement). Each UCC-1 Financing Statement naming the
Company or any Subsidiary thereof as debtor and Laurus as secured party are in
proper form for filing and assuming that such UCC-1 Financing Statements have
been filed with the Secretary of State of Delaware, the security interest
created under the Master Security Agreement will constitute a perfected
security interest under the Uniform Commercial Code in favor of Laurus in
respect of the Collateral that can be perfected by filing a financing
statement. After giving effect to the delivery to Laurus of the stock
certificates representing the ownership interests of each Subsidiary of the
Company (together with effective endorsements) and assuming the continued
possession by Laurus of such stock certificates in the State of New York, the
security interest created in favor of Laurus under the Stock Pledge Agreement
constitutes a valid and enforceable first perfected security interest in such
ownership interests (and the proceeds thereof) in favor of Laurus, subject to
no other security interest. No filings, registrations or recordings are
required in order to perfect (or maintain the perfection or priority of) the
security interest created under the Stock Pledge Agreement in respect of such
ownership interests.
EXHIBIT D
FORM OF ESCROW AGREEMENT