EXHIBIT 4.4
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ILIVE, INC.
SECURITIES PURCHASE AGREEMENT
JANUARY 10, 2002
TABLE OF CONTENTS
Page
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1. AGREEMENT TO SELL AND PURCHASE............................................1
2. FEES AND WARRANTS.........................................................1
3. CLOSING, DELIVERY AND PAYMENT.............................................2
3.1 Closing..........................................................2
3.2 Delivery.........................................................2
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............................3
4.1 Organization, Good Standing and Qualification....................3
4.2 Subsidiaries.....................................................3
4.3 Capitalization; Voting Rights....................................3
4.4 Authorization; Binding Obligations...............................4
4.5 Liabilities......................................................4
4.6 Agreements; Action...............................................4
4.7 Obligations to Related Parties...................................5
4.8 Changes..........................................................6
4.9 Title to Properties and Assets; Liens, Etc.......................7
4.10 Intellectual Property............................................7
4.11 Compliance with Other Instruments................................7
4.12 Litigation.......................................................8
4.13 Tax Returns and Payments.........................................8
4.14 Employees........................................................8
4.15 Registration Rights and Voting Rights............................9
4.16 Compliance with Laws; Permits....................................9
4.17 Environmental and Safety Laws....................................9
4.18 Valid Offering...................................................9
4.19 Full Disclosure.................................................10
4.20 Insurance.......................................................10
4.21 SEC Reports.....................................................10
4.22 No Market Manipulation..........................................10
4.23 Listing.........................................................10
4.24 No Integrated Offering..........................................10
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4.25 Stop Transfer...................................................11
4.26 Dilution........................................................11
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.........................11
5.1 Requisite Power and Authority...................................11
5.2 Investment Representations......................................11
5.3 Purchaser Bears Economic Risk...................................11
5.4 Acquisition for Own Account.....................................12
5.5 Purchaser Can Protect Its Interest..............................12
5.6 Accredited Investor.............................................12
5.7 Legends.........................................................12
6. COVENANTS OF THE COMPANY.................................................13
6.1 Stop-Orders.....................................................13
6.2 Listing.........................................................13
6.3 Market Regulations..............................................13
6.4 Reporting Requirements.........................................13
6.5 Use of Funds....................................................14
6.6 Access to Facilities............................................14
6.7 Taxes...........................................................14
6.8 Books and Records...............................................14
6.9 Intellectual Property...........................................15
6.10 Properties......................................................15
6.11 Confidentiality.................................................15
6.12 Required Approvals..............................................15
6.13 Reissuance of Securities........................................16
6.14 Opinion.........................................................16
7. COVENANTS OF THE COMPANY AND PURCHASERS REGARDING INDEMNIFICATION........16
7.1 Company Indemnification.........................................16
7.2 Purchaser's Indemnification.....................................16
7.3 Procedures......................................................17
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8. CONVERSION OF CONVERTIBLE NOTES..........................................17
8.1 Mechanics of Conversion.........................................17
8.2 Mandatory Redemption............................................18
8.3 Maximum Conversion..............................................18
8.4 Injunction - Posting of Bond....................................19
8.5 Buy-In..........................................................19
8.6 Optional Redemption.............................................19
9. REGISTRATION RIGHTS......................................................20
9.1 Registration Rights Granted.....................................20
9.2 Registration Procedures.........................................22
9.3 Provision of Documents..........................................23
9.4 Non-Registration Events.........................................23
9.5 Expenses........................................................24
9.6 Indemnification and Contribution................................24
10. OFFERING RESTRICTIONS....................................................26
11. SECURITY INTEREST........................................................26
12. MISCELLANEOUS............................................................26
12.1 Governing Law...................................................26
12.2 Survival........................................................27
12.3 Successors and Assigns..........................................27
12.4 Entire Agreement................................................27
12.5 Amendment and Waiver............................................27
12.6 Delays or Omissions.............................................27
12.7 Notices.........................................................28
12.8 Attorneys' Fees.................................................28
12.9 Titles and Subtitles............................................28
12.10 Counterparts....................................................28
12.11 Broker's Fees...................................................28
12.12 Indemnification.................................................29
12.13 Construction....................................................29
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ILIVE, INC.
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "AGREEMENT") is made and
entered into as of January 10, 2002, by and among ILIVE, INC., a Nevada
corporation (the "COMPANY"), and the Purchaser listed on Exhibit A hereto (the
"PURCHASER").
RECITALS
WHEREAS, the Company has authorized the sale of 8% Convertible Notes in
an aggregate principal amount of $300,000 (the "NOTES"), convertible into shares
of the Company's common stock, $0.001 par value per share (the "COMMON STOCK");
WHEREAS, the Company wishes to issue warrants (the "WARRANTS") to the
Purchaser to purchase shares of the Company's Common Stock in connection with
Purchaser's purchase of the Notes;
WHEREAS, Purchaser desires to purchase the Notes and Warrants on the
terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Notes and Warrants
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 Notes in the amount set forth next to the Purchaser's
name on Exhibit A under the column heading "Closing Date Notes," convertible in
accordance with the terms thereof into shares of the Company's Common Stock,
which amount shall be equal to $300,000. The Notes purchased on the Closing Date
shall be known as the "OFFERING." The form of Notes is annexed hereto as Exhibit
B. The Notes will have a Maturity Date (as defined in the Notes) two years from
the date of issuance. Collectively, the Notes and Warrants (as defined in
Section 2) and Common Stock issuable upon conversion of the Notes and exercise
of the Warrants are referred to as the "SECURITIES."
2. FEES AND WARRANTS.
(a) The Company will issue and deliver to the persons listed
on Exhibit A under the column heading "Warrant Holders", or to such other
persons as the Purchaser shall otherwise designate (such named persons, as they
may be so otherwise designated, being referred to as the "WARRANT RECIPIENTS"),
Warrants to purchase shares of Common Stock (the "WARRANT SHARES") in the
amounts designated on Exhibit A hereto in connection with the Offering (the
"WARRANTS") pursuant to Section 1 hereof. The Warrants must be delivered on the
Closing Date. The aggregate number of shares of Common Stock purchasable upon
exercise of the Warrants granted on the Closing Date is set forth on Exhibit A
hereto. A form of Warrant is annexed hereto as Exhibit C. The per share
"PURCHASE PRICE" of Common Stock as defined in the Warrants shall be equal to
the lesser of (i) 120% of the average of the three lowest closing prices of the
Common Stock as reported by Bloomberg Financial for the Pink Sheets, the NASD
OTC Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Market, American
Stock Exchange, or New York Stock Exchange (each of the foregoing the "PRINCIPAL
MARKET"), or such other principal market or exchange where the Common Stock is
listed or traded, for the ten (10) trading days immediately preceding but not
including the Closing Date or (ii) 120% of the average of the three lowest
closing prices of the Common Stock as reported by Bloomberg Financial on the
Principal Market for the ten trading days immediately prior to but not including
the date the Warrant is exercised. .
(b) The Company shall reimburse Purchaser for its reasonable
legal fees of $7,500 for services rendered to Purchaser in preparation of this
Agreement and the Related Agreements (as defined below), and an additional
amount not to exceed $2,500 in connection with its due diligence review of the
Company and relevant matters. Amounts required to be paid hereunder will be paid
at the Closing.
(c) The Company will pay a cash fee in the amount of ten
percent (10%) of the aggregate gross purchase price to be paid to the Company
from the sale of Notes in the Offering (the "FUND MANAGER'S FEE") to the persons
listed on Exhibit A under the column heading "Fund Manager's Fee Recipient." The
Fund Manager's Fee must be paid on the Closing Date. The aforementioned Fund
Manager's Fee and legal fees will be payable at the Closing out of funds held
pursuant to a Funds Escrow Agreement to be entered into by the Company,
Purchaser and an Escrow Agent. Failure to timely deliver the Fund Manager's Fee,
or the Warrants shall be deemed an Event of Default as defined in Article III of
the Notes.
3. CLOSING, DELIVERY AND PAYMENT.
3.1 CLOSING. Subject to the terms and conditions herein, the
closing of the transactions contemplated hereby (the "CLOSING"), which closing
is comprised of Purchaser's purchase of Notes in the aggregate principal amount
of $300,000, shall take place on the date hereof, at the offices of ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇, Esq., ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or at
such other time or place as the Company and Purchaser may mutually agree (such
date is hereinafter referred to as the "CLOSING DATE").
3.2 DELIVERY. At the Closing, subject to the terms and
conditions hereof, the Company will deliver to the Purchaser an applicable Note
representing the aggregate principal amount borrowed by the Company at the
Closing from the Purchaser and a warrant certificate registered in the
Purchaser's name representing the number of Warrant Shares as to which the
Warrant is exercisable pursuant to this Agreement, against payment of the
purchase price therefor by certified funds or wire transfer made payable to the
order of the Company, cancellation of indebtedness or any combination of the
foregoing, as more fully described in the Warrant .
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4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Purchaser as
of the date of this Agreement as set forth below (such representations and
warranties do not lessen or obviate the representations and warranties of the
Purchaser set forth in this Agreement).
4.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Nevada. The Company has the necessary corporate power and
authority to own and operate its properties and assets, to execute and deliver
this Agreement, the Warrants to be issued in connection with this Agreement, the
Funds Escrow Agreement, the Security Agreement and all other agreements referred
to herein (collectively, the "RELATED AGREEMENTS"), to issue and sell the Notes
and the shares of Common Stock issuable upon conversion of the Notes (the
"CONVERSION SHARES"), to issue and sell the Warrants 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 and as presently proposed to be
conducted. The Company is duly qualified and is authorized to do business and is
in good standing as a foreign corporation 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 would not have a material adverse effect on the Company or its business.
4.2 SUBSIDIARIES. The Company does not own or control any
equity security or other interest of any other corporation, limited partnership
or other business entity that represents more than fifty percent (50%) of the
voting power of that corporation, limited partnership or other business entity
("Subsidiary").
4.3 CAPITALIZATION; VOTING RIGHTS.
(a) The authorized capital stock of the Company,
immediately prior to the Closing, consists of (i) 100,000,000 shares of Common
Stock, par value $0.001 per share, ________________ shares of which are issued
and outstanding as of January 10, 2002, and (ii)10,000,000 shares of Preferred
Stock, none of which are issued and outstanding as of January 10, 2002.
(b) Other than (i) the shares reserved for issuance
under the Company's stock option plans and the Company's Convertible Note with
Street Capital, Inc.; 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.
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Neither the offer, issuance or sale of any of the Notes or Warrants, or the
issuance of any of the Conversion Shares or Warrant Shares, nor the consummation
of any transaction contemplated hereby will result in a material 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 Articles of
Incorporation (the "Charter"). The Conversion 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.
(e) No stock plan, stock purchase, stock option or
other agreement or understanding between the Company and any holder of any
equity securities or rights to purchase equity securities provides for
acceleration or other changes in the vesting provisions or other terms of such
agreement or understanding as the result of any merger, consolidated sale of
stock or assets, change in control or any other transaction(s) by the Company,
including the transactions contemplated hereunder.
4.4 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action
on the part of the Company, its officers, directors and stockholders necessary
for the authorization of this Agreement and the Related Agreements, the
performance of all obligations of the Company hereunder at the Closing and the
authorization, sale, issuance and delivery of the Securities pursuant hereto and
the Related Agreements has been taken or will be taken prior to the Closing. The
Agreement and the Related Agreements, when executed and delivered, will be valid
and binding obligations of the Company 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 remedies. The sale of the
Notes and the subsequent conversion of the Notes into Conversion 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 sale of the Warrants and the
subsequent exercise of the Warrants 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. Except as set forth in the SEC Documents, the
Company has no material liabilities and, to the best of its knowledge, knows of
no material contingent liabilities, except current liabilities incurred in the
ordinary course of business which have not been, either in any individual case
or in the aggregate, material.
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4.6 AGREEMENTS; ACTION.
(a) Except as set forth in the SEC Documents, or as
contemplated by the terms of this Agreement or any other agreements to be
entered into between the Company and the Purchaser, there are no agreements,
understandings, instruments, contracts, proposed transactions, judgments,
orders, writs or decrees to which the Company is a party or to its knowledge by
which it is bound which may provide for (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) Except as set forth in the SEC Documents, the
Company has not (i) declared or paid any dividends, or authorized or made any
distribution upon or with respect to any class or series of its capital stock,
(ii) incurred any indebtedness for money borrowed 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, other than ordinary advances for travel or other
Company-related 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.
(d) The Company has not engaged in the past two years
in any negotiation (i) with any representative of any corporation or
corporations regarding the consolidation or merger of the Company with or into
any such corporation or corporations, (ii) with any corporation, partnership,
association or other business entity or any individual regarding the sale,
conveyance or disposition of all or substantially all of the assets of the
Company, or a transaction or series of related transactions in which more than
50% of the voting power of the Company is disposed of or (iii) regarding any
other form of acquisition, liquidation, dissolution or winding up of the
Company.
4.7 OBLIGATIONS TO RELATED PARTIES. There are no obligations
of the Company to officers, directors, stockholders or employees of the Company
other than (a) for payment of salary for services rendered, (b) reimbursement
for reasonable expenses incurred on behalf of the Company and (c) for other
employee benefits (including stock option plans and stock option agreements
outstanding under any stock option plan approved by the Board of Directors of
the Company). None of the officers or directors of the Company, nor any members
of their immediate families, are indebted to the Companyor, to the Company's
knowledge, have any direct or indirect ownership interest in any firm or
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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 1% of such company) which may compete with the Company.
No officer or director or, to the Company's knowledge, 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. The
Company is not a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation.
4.8 CHANGES. Since September 30, 2001, there has not been:
(a) Any material change in the assets, liabilities,
financial condition, prospects or operations of the Company, other than changes
in the ordinary course of business, none of which individually or in the
aggregate has had or is reasonably expected to have a material adverse effect on
such assets, liabilities, financial condition, prospects or operations of the
Company;
(b) Any resignation or termination of any officer,
key employee or group of employees of the Company;
(c) Any material change, except in the ordinary
course of business, in the contingent obligations of the Company by way of
guaranty, endorsement, indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the properties,
business or prospects or financial condition of the Company;
(e) Any waiver by the Company of a right deemed
valuable by the Company or of a material debt owed to it;
(f) Any direct or indirect loans made by the Company
to any employee, officer or director of the Company, other than advances made in
the ordinary course of business;
(g) Any material change in any compensation
arrangement or agreement with any employee, officer, or director;
(h) Any declaration or payment of any dividend or
other distribution of the assets of the Company;
(i) Any labor organization activity related to the
Company;
(j) Any debt, obligation or liability incurred,
assumed or guaranteed by the Company, except those for immaterial amounts and
for current liabilities incurred in the ordinary course of business;
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(k) Any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(l) Any change in any material agreement to which the
Company is a party or by which it is bound which may materially and adversely
affect the business, assets, liabilities, financial condition, operations or
prospects of the Company;
(m) Any other event or condition of any character
that, either individually or cumulatively, has or may materially and adversely
affect the business, assets, liabilities, financial condition, prospects or
operations of the Company; or
(n) Any arrangement or commitment by the Company to
do any of the acts described in subsection (a) through (m) above.
4.9 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company
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, 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 are in good
operating condition and repair, normal wear and tear excepted, and are
reasonably fit and usable for the purposes for which they are being used. The
Company is in compliance with all material terms of each lease to which it is a
party or is otherwise bound.
4.10 INTELLECTUAL PROPERTY.
(a) The Company 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 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) The Company has not received any written
communications alleging that the Company 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 aware of
any basis therefor.
4.11 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation or default of any material term of the Charter or Bylaws, or of any
material provision of any mortgage, indenture, contract, agreement, instrument
or contract to which it is party or by which it is bound or of any judgment,
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decree, order or writ. The execution, delivery and performance of and compliance
with this Agreement and the Related Agreements, and the issuance and sale of
Securities pursuant hereto, 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
material properties or assets of the Company or the suspension, revocation,
impairment, forfeiture or nonrenewal of any material permit, license,
authorization or approval applicable to the Company, its business or operations
or any of its material assets or properties.
4.12 LITIGATION. Except as set forth in the SEC Documents,
there is no action, suit or proceeding pending or, to the Company's knowledge,
currently threatened against the Company that questions the validity of this
Agreement or the Related Agreements or the right of the Company to enter into
any of such agreements, or to consummate the transactions contemplated hereby or
thereby, or which is reasonably likely to result, either individually or in the
aggregate, in any material adverse change in the assets, condition, affairs or
prospects of the Company, financially or otherwise, nor is the Company aware
that there is any basis for any of the foregoing. The Company is not a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. Except as set forth in the
SEC Documents, there is no action, suit, proceeding or investigation by the
Company currently pending or which the Company intends to initiate.
4.13 TAX RETURNS AND PAYMENTS. Except as set forth on Schedule
4.13, the Company 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 to the Company's knowledge all other taxes
due and payable by the Company on or before the Closing, have been paid or will
be paid prior to the time they become delinquent. The Company has not 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. The Company has no 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. The Company is not 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, nor
any consultant with whom the Company 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 because of the nature of the business to be conducted
by the Company; and to the Company's knowledge the continued employment by the
Company of its present employees, and the performance of the Company's contracts
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with its independent contractors, will not result in any such violation. The
Company is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with their duties to the Company. The Company has
not received any written notice alleging that any such violation has occurred.
No employee of the Company has been granted the right to continued employment by
the Company or to any material compensation following termination of employment
with the Company. 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, nor does the Company have a present intention to terminate the
employment of any officer, key employee or group of employees.
4.15 REGISTRATION RIGHTS AND VOTING RIGHTS. The Company is
presently not under any obligation, and has not granted any rights, to register
any of the Company's presently outstanding securities or any of its securities
that may hereafter be issued. To the Company's knowledge, no stockholder of the
Company has entered into any agreement with respect to the voting of equity
securities of the Company.
4.16 COMPLIANCE WITH LAWS; PERMITS. To its knowledge, the
Company is not 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 violation would materially and adversely affect the business,
assets, liabilities, financial condition, operations or prospects of the
Company. 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 and the issuance of any of the Securities, except (i) such as has been
duly and validly obtained or filed, or (ii) with respect to any filings that
must be made after the Closing, as will be filed in a timely manner, or (iii)
such as would not have a material adverse effect on the Company. The Company has
all 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
materially and adversely affect the business, properties, prospects or financial
condition of the Company.
4.17 ENVIRONMENTAL AND SAFETY LAWS. To the Company's
knowledge, the Company is not in violation of any applicable statute, law or
regulation relating to the environment or occupational health and safety, and to
its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law or regulation. No Hazardous Materials
(as defined below) are used or have been used, stored, or disposed of by the
Company or, to the Company's knowledge, by any other person or entity on any
property owned, leased or used by the Company. For the purposes of the preceding
sentence, "HAZARDOUS MATERIALS" shall mean (a) materials which are listed or
otherwise defined as "HAZARDOUS" or "TOXIC" under any applicable local, state,
federal and/or foreign laws and regulations that govern the existence and/or
remedy of contamination on property, the protection of the environment from
contamination, the control of hazardous wastes, or other activities involving
hazardous substances, including building materials, or (b) any petroleum
products or nuclear materials.
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. Neither the Company nor any agent on its
behalf has solicited or will solicit any offers to sell or has offered to sell
or will offer to sell all or any part of the Securities to any person or persons
so as to bring the sale of such Securities by the Company within the
registration provisions of the Securities Act or any state securities laws.
-9-
4.19 FULL DISCLOSURE. The Company has provided the Purchaser
with all information requested by the Purchaser in connection with its decision
to purchase the Notes and Warrants. Neither this Agreement, the exhibits and
schedules hereto, the Related Agreements nor any other document delivered by the
Company 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 not misleading. To
the Company's knowledge, there are no facts which (individually or in the
aggregate) materially adversely affect the business, assets, liabilities,
financial condition, prospects or operations of the Company that have not been
set forth in the Agreement, the exhibits and schedules hereto, the Related
Agreements or in other documents delivered to Purchaser or its attorneys or
agents in connection herewith.
4.20 INSURANCE. The Company does not maintain general
commercial, product liability, fire or casualty insurance policies.
4.21 SEC REPORTS. The Company has filed with the SEC all proxy
statements, reports and other documents required to be filed by it under the
Exchange Act. The Company has furnished the Purchaser with copies of (i) its
Annual Report on Form 10-KSB for the fiscal year ended December 31, 2000 and
(ii) its Quarterly Reports on Form 10-QSB for the fiscal quarters ended March
31, 2001, June 30, 2001 and September 30, 2001 (collectively, the "SEC
DOCUMENTS"). Each SEC Document was in substantial compliance with the
requirements of its respective form and none of the SEC Documents, nor the
financial statements (and the notes thereto) included in the SEC Documents, as
of their respective 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 NO MARKET MANIPULATION. The Company has not taken, and
will not take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation of
the price of the Common Stock of the Company to facilitate the sale or resale of
any of the Securities being offered hereby or affect the price at which any of
the Securities being offered hereby may be issued.
4.23 LISTING. The Company's Common Stock is listed for trading
on the NASD OTC Bulletin Board and satisfies all requirements for the
continuation of such listing. The Company has not received any written notice
that its Common Stock will be delisted from the NASD OTC Bulletin Board or that
the Common Stock does not meet all requirements for the continuation of such
listing.
4.24 NO INTEGRATED OFFERING. Neither the Company, nor any
person acting on its behalf, has directly or indirectly made any offers or sales
of any security or solicited any offers to buy any security under circumstances
that would cause the offering of the Securities pursuant to this Agreement to be
integrated with prior offerings by the Company for purposes of the Securities
Act 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 subsidiaries take any
action or steps that would cause the offering of the Securities to be integrated
with other offerings.
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4.25 STOP TRANSFER. The Securities are restricted securities
as of the date of this Agreement. The Company will not 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 federal securities laws.
4.26 DILUTION. The number of shares of Common Stock issuable
upon conversion of the Notes and exercise of the Warrants may increase
substantially in certain circumstances, including, but not necessarily limited
to, the circumstance wherein the trading price of the Common Stock declines
prior to conversion or exercise of such securities. The Company's executive
officers and directors have studied and fully understand the nature of the
Securities being sold hereby and recognize that they have a potential dilutive
effect. The Board of Directors of the Company has concluded, in its good faith
business judgment, that such issuance is in the best interests of the Company.
The Company specifically acknowledges that its obligation to issue the shares of
Common Stock upon conversion of the Notes and exercise of the Warrants is
binding upon the Company and enforceable regardless of the dilution such
issuance may have on the ownership interests of other stockholders of the
Company.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser hereby represents and warrants to the Company
with respect to itself or himself 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 REQUISITE POWER AND AUTHORITY. 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 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 remedies.
5.2 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.
5.3 PURCHASER BEARS ECONOMIC RISK. 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. Purchaser must bear the economic risk of
this investment until the Securities are sold by Purchaser.
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5.4 ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring the
Securities for Purchaser's own account for investment only, and not with a view
towards their distribution.
5.5 PURCHASER CAN PROTECT ITS INTEREST. Purchaser represents
that by reason of its, or of its management's, business or financial experience,
Purchaser has the capacity 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.
5.6 ACCREDITED INVESTOR. Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
5.7 LEGENDS.
(a) The Notes shall bear the following legend until
the Notes and Conversion Shares are covered by an effective registration
statement filed with the SEC:
"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, IF 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 ILIVE, INC. THAT SUCH REGISTRATION
IS NOT REQUIRED."
(b) The Conversion Shares and the Warrant Shares
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 IF
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 ILIVE, INC. THAT SUCH REGISTRATION
IS NOT REQUIRED."
(c) The Warrants shall bear 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 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
ILIVE, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
-12-
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 shall promptly secure the listing of
the shares of Common Stock issuable upon conversion of the Notes and upon the
exercise of the Warrants upon the Principal Market upon which shares of Common
Stock are then listed (subject to official notice of issuance) and shall
maintain such listing 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 Company's reporting,
filing and other obligations under the bylaws or rules of the National
Association of Securities Dealers ("NASD") and such exchanges, as applicable.
The Company will provide the Purchaser copies of all written notices it receives
from any Principal Market notifying the Company of the threatened and actual
delisting of the Common Stock from any Principal Market.
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 by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to Purchaser and
promptly provide copies to Purchaser of any such written notifications made by
the Company.
6.4 REPORTING REQUIREMENTS. (a) Until at least two (2) years
after the effectiveness of the Registration Statement on Form SB-2 or such other
Registration Statement described in Section 9.1(d) hereof, the Company will (i)
cause its Common Stock to continue to be registered under Sections 12(b) or
12(g) of the Exchange Act, (ii) comply in all material respects with its
reporting and filing obligations under the Exchange Act, (iii) comply in all
material respects with all reporting requirements that is applicable to an
issuer with a class of shares registered pursuant to Section 12(g) of the
Exchange Act, and (iv) comply in all material respects with all requirements
related to any registration statement filed pursuant to this Agreement. The
Company will not take any action or file any document (whether or not permitted
by the Securities Act or the Exchange Act or the rules thereunder) to terminate
or suspend such registration or to terminate or suspend its reporting and filing
obligations under said Acts until the earlier of (y) two (2) years after the
effective date of the Registration Statement on Form SB-2 or such other
Registration Statement described in Section 9.1(d) hereof, or (z) the sale by
the Purchaser of all the Securities issuable by the Company pursuant to this
Agreement. Until at least two (2) years after the Warrants have been exercised,
the Company will use its commercial best efforts to continue the listing of the
Common Stock on the NASD OTC Bulletin Board and will comply in all respects with
the Company's reporting, filing and other obligations under the bylaws or rules
of the NASD and NASDAQ.
-13-
6.5 USE OF FUNDS. The Company undertakes to use the proceeds
of the Purchaser's funds for the purposes set forth on SCHEDULE 6.5 attached
hereto. A deviation from the use of proceeds set forth on SCHEDULE 6.5 of more
than 10% per item or more than 20% in the aggregate shall be deemed a material
breach of the Company's obligations hereunder.
6.6 ACCESS TO FACILITIES. The Company will permit any
representatives designated by the Purchaser (or any transferee of the
Purchaser), so long as such person holds any Securities 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, (b) examine the corporate and financial records of the Company
(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 any such corporations with the directors,
officers and independent accountants of the Company.
6.7 TAXES. The Company 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; 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 shall have set aside on its books adequate reserves with respect
thereto, and provided, further, that the Company 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 BOOKS AND RECORDS. The Company will keep true records and
books of account in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and affairs in accordance
with generally accepted accounting principles applied on a consistent basis.
-14-
6.9 INTELLECTUAL PROPERTY. The Company shall maintain in full
force and effect its corporate 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. The Company 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 the Company 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 reasonably be expected
to have a material adverse effect on the Company.
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.
6.12 REQUIRED APPROVALS. For so long as at least 20% of the
principal amount of the Notes are outstanding, the Company, without the prior
written consent of the Purchaser, shall not:
(a) authorize, create or issue any securities (or any
rights or securities directly or indirectly convertible into or exercisable or
exchangeable for securities) having rights, preferences or privileges superior
to the Conversion Shares;
(b) directly or indirectly declare or pay any
dividends or make any distributions upon any of its capital stock or other
equity securities (or any securities directly or indirectly convertible into or
exercisable or exchangeable for equity securities);
(c) directly or indirectly redeem, purchase or
otherwise acquire any of the Corporation's capital stock or other equity
securities (including, without limitation, any warrants, options and other
rights to acquire such capital stock or other equity securities) or directly or
indirectly redeem, purchase or make any payments with respect to any stock
appreciation rights, phantom stock plans or similar rights or plans;
(d) sell, lease or otherwise dispose of more than 10%
of the assets of the Company (computed on the basis of book value, determined in
accordance with GAAP consistently applied, or fair market value, determined by
the Board of Directors in its reasonable good faith judgment) in any transaction
or series of related transactions (other than sales of inventory in the ordinary
course of business) or sell or permanently dispose of any of its Intellectual
Property;
(e) liquidate, dissolve or effect a recapitalization,
reclassification or reorganization in any form of transaction (including,
without limitation, any reorganization into a limited liability company, a
partnership or any other non-corporate entity which is treated as a partnership
for federal income tax purposes);
(f) 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 right to
perform the provisions of this Agreement or any of the agreements contemplated
thereby;
-15-
(g) create, incur, assume or suffer to exist
indebtedness exceeding an aggregate principal amount of $500,000 outstanding at
any time per $2.5 million of the Company's market capitalization, excluding any
indebtedness contemplated by this Agreement or any other indebtedness owed to
the Purchaser incurred from time to time;
(h) amend, alter or repeal the Company's Bylaws or
Charter as to increase the number of authorized shares of the Common Stock or
any series of preferred stock, or materially affect the rights or other powers
of the Conversion Shares, or otherwise take any action which is designed to, or
could have the effect of, adversely affecting the rights or other powers of the
Conversion Shares; or
(i) materially alter or change the business of the
Company.
6.13 REISSUANCE OF SECURITIES. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Section 5.7 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 legal
counsel in the form annexed hereto as Exhibit D. The Company will provide, at
the Company's expense, such other legal opinions in the future as are reasonably
necessary for the conversion of the Notes and exercise of the Warrants.
7. COVENANTS OF THE COMPANY AND PURCHASER REGARDING INDEMNIFICATION.
7.1 COMPANY INDEMNIFICATION. The Company agrees to indemnify,
hold harmless, reimburse and defend Purchaser, each of 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 Company or breach of any warranty by Company in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement, or (ii) any breach or default in performance by Company of any
covenant or undertaking to be performed by Company hereunder, or any other
agreement entered into by the Company and Purchaser relating hereto.
7.2 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
stockholders, 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 (a) any misrepresentation by Purchaser or breach of warranty by Purchaser
in this Agreement or in any exhibits or schedules attached hereto or any Related
Agreement; or (b) 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.
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7.3 PROCEDURES. The procedures and limitations set forth in
Section 9.6 shall apply to the indemnifications set forth in Sections 7.1 and
7.2 above.
8. CONVERSION OF CONVERTIBLE NOTES.
8.1 MECHANICS OF CONVERSION.
(a) Upon the conversion of the Notes or part thereof,
the Company shall, at its own cost and expense, take all necessary action
(including the issuance of an opinion of counsel) to assure that the Company's
transfer agent shall issue stock certificates in the name of the Purchaser (or
its nominee) or such other persons as designated by the Purchaser and in such
denominations to be specified representing the number of Conversion Shares
issuable upon such conversion. 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 the Conversion Shares issued will be unlegended,
free-trading, and freely transferable, and will not contain a legend restricting
the resale or transferability of the Conversion Shares, provided the Purchaser
has notified the Company of the Purchaser's intention to sell the Conversion
Shares and the Conversion Shares are included in an effective registration
statement or are otherwise exempt from registration when sold.
(b) Purchaser will give notice of its decision to
exercise its right to convert the Notes 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 Notes until the Purchaser receives a certificate or
certificates, as the case may be, representing the Conversion 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." Upon the Company's confirmation of the
number of Conversion Shares to be issued, the Company will or will cause the
transfer agent to transmit the Company's Common Stock certificates representing
the shares issuable upon conversion of the Notes (and a certificate representing
the balance of the Notes not so converted, if requested by Purchaser) to the
Purchaser via express courier for receipt by such Purchaser within three
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 Conversion Shares in the form required pursuant to Section 8
hereof, or the Mandatory Redemption Payment described in Section 8.2 hereof,
beyond the Delivery Date or Mandatory Redemption Payment Date (as defined in
Section 8.2) could result in economic loss to the Purchaser. As compensation to
the Purchaser for such loss, the Company agrees to pay late payments to the
Purchaser for late issuance of the Conversion Shares in the form required
pursuant to Section 8 hereof upon conversion of the Notes or late payment of the
Mandatory Redemption Payment, in the amount of $100 per business day after the
Delivery Date or Mandatory Redemption Payment Date, as the case may be, for each
$10,000 Note principal being converted or redeemed. The Company shall pay any
payments incurred under this Section in immediately available funds upon demand.
Furthermore, in addition to any other remedies which may be available to the
Purchaser, in the event that the Company fails for any reason to effect delivery
of the Conversion Shares by the Delivery Date or make payment by the Mandatory
Redemption Payment Date, the Purchaser will be entitled to revoke all or part of
the relevant Notice of Conversion or rescind all or part of the notice of
Mandatory Redemption by delivery of a notice to such effect to the Company
whereupon the Company and the Purchaser shall each be restored to their
respective positions immediately prior to the delivery of such notice, except
that late payment charges described above shall be payable through the date
notice of revocation or rescission is given to the Company.
-17-
(d) 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.
8.2 MANDATORY REDEMPTION. In the event the Company is unable
to issue Conversion Shares on a Delivery Date or at any time when a Note is
convertible, for any reason, then at the Purchaser's election, the Company must
pay to the Purchaser five (5) business days after request by the Purchaser or on
the Delivery Date (if requested by the Purchaser) a sum of money determined by
multiplying the principal of the Note required to be converted and not so
converted (or otherwise not convertible, as applicable) by 130%, together with
accrued but unpaid interest thereon ("MANDATORY REDEMPTION PAYMENT"). The
Mandatory Redemption Payment must be received by the Purchaser on the same date
as the Conversion Shares are otherwise deliverable or within five (5) business
days after request, whichever is sooner ("MANDATORY REDEMPTION PAYMENT DATE").
Upon receipt of the Mandatory Redemption Payment, the corresponding Note
principal and interest will be deemed paid and no longer outstanding.
8.3 MAXIMUM CONVERSION. The Purchaser shall not be entitled to
convert on a Conversion Date that amount of a Note or Notes in connection with
that number of shares of Common Stock which would be in excess of the sum of (i)
the number of shares of Common Stock beneficially owned by the Purchaser on a
Conversion Date, and (ii) the number of shares of Common Stock issuable upon the
conversion of the Notes with respect to which the determination of this proviso
is being made on a Conversion Date, which would result in beneficial ownership
by the Purchaser of more than 4.99% of the outstanding shares of Common Stock of
the Company on such Conversion Date. For the purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act and Regulation 13d-3
thereunder. Subject to the foregoing, a Purchaser shall not be limited to
aggregate conversions of only 4.99%. A Purchaser may void the conversion
limitation described in this Section 8.3 upon 75 days prior notice to the
Company or upon an Event of Default under the Note. A Purchaser may allocate
which of the equity of the Company deemed beneficially owned by such Purchaser
shall be included in the 4.99% amount described above and which shall be
allocated to the excess above 4.99%.
-18-
8.4 INJUNCTION - POSTING OF BOND. In the event a Purchaser
shall elect to convert a Note or part thereof, the Company may not refuse
conversion for any reason, unless an injunction from a court, on notice,
restraining and or enjoining conversion of all or part of said Note shall have
been sought and obtained and the Company posts a surety bond for the benefit of
such Purchaser in the amount of 130% of the amount of the Note, which is subject
to the injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute.
8.5 BUY-IN. In addition to any other rights available to the
Purchaser, if the Company fails to deliver to the Purchaser Conversion Shares by
the Delivery Date and if after the Delivery Date the Purchaser purchases (in an
open market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Purchaser of the Common Stock which the Purchaser
anticipated receiving upon such conversion (a "BUY-IN"), then the Company shall
pay in cash to the Purchaser (in addition to any remedies available to or
elected by such Purchaser) the amount by which (A) the Purchaser's total
purchase price (including 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 was not timely honored, together
with interest thereon at a rate of 15% per annum, accruing until such amount and
any accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For example, if the Purchaser
purchases shares of Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to an attempted conversion of $10,000 of Note
principal and/or interest, the Company shall be required to pay the Purchaser
$1,000, plus interest. The Purchaser shall provide the Company written notice
indicating the amounts payable to the Purchaser in respect of the Buy-In.
8.6 OPTIONAL REDEMPTION. The Company will have the option of
redeeming any outstanding Notes ("OPTIONAL REDEMPTION") by paying to the
Purchaser a sum of money as follows:
from the Closing Date through 30 days after the
Closing Date - 120% from 31 days through 90 days
after the Closing Date - 135% from 91 days through
180 days after the Closing Date - 150% after 180 days
following the Closing Date - 200%
of the principal amount of the Note together with accrued but unpaid interest
thereon and any and all other sums due, accrued or payable to the Purchaser
arising under this Agreement, Note or any other document delivered herewith
("REDEMPTION AMOUNT") outstanding on the day notice of redemption ("NOTICE OF
REDEMPTION) is given to a Purchaser ("REDEMPTION DATE"). A Notice of Redemption
may not be given in connection with any portion of Note for which notice of
conversion has been given by the Purchaser at any time before receipt of a
Notice of Redemption. The Purchaser may elect within three (3) business days
after receipt of a Notice of Redemption to give the Company Notice of Conversion
in connection with some or all of the Note principal and interest which was the
subject of the Notice of Redemption. A Notice of Redemption must be accompanied
by a certificate signed by the chief executive officer or chief financial
officer of the Company stating that the Company has on deposit and segregated
ready funds equal to the Redemption Amount. The Redemption Amount must be paid
in good funds to the Purchaser no later than the seventh (7th) business day
after the Redemption Date ("OPTIONAL REDEMPTION PAYMENT DATE"). In the event the
Company fails to pay the Redemption Amount by the Optional Redemption Payment
Date, then the Redemption Notice will be null and void and the Company will
thereafter have no further right to effect an Optional Redemption, and at the
Purchaser's election, the Redemption Amount will be deemed a Mandatory
Redemption Payment and the Optional Redemption Payment Date will be deemed a
Mandatory Redemption Payment Date. Such failure will also be deemed an Event of
Default under the Note. Any Notice of Redemption must be given to all holders of
Notes issued in connection with the Offering, in proportion to their holdings of
Note principal on a Redemption Date. A Notice of Redemption may be given by the
Company, provided (i) no Event of Default, as described in the Note shall have
occurred and be continuing; and (ii) the Conversion Shares issuable upon
conversion of the full outstanding Note principal are included for unrestricted
resale in a registration statement effective as of the Redemption Date. Note
proceeds may not be used to effect an Optional Redemption.
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9. REGISTRATION RIGHTS.
9.1 REGISTRATION RIGHTS GRANTED. The Company hereby grants the
following registration rights to holders of the securities purchased hereby.
(a) On two occasions, for a period commencing 90 days
after the Closing Date, but not later than four (4) years after the Closing Date
(the "REQUEST Date"), the Company, upon a written request therefor from holders
of more than 50% of the aggregate of the Company's Securities then outstanding,
on an as converted basis (the Conversion Shares and Warrant Shares issued or
issuable with respect to all Notes or Warrants issued or to be issued hereunder,
being, the "REGISTRABLE SECURITIES"), shall prepare and file with the SEC a
registration statement under the Securities Act covering the Registrable
Securities which are the subject of such request, unless such Registrable
Securities are the subject of an effective registration statement. In addition,
upon the receipt of such request, the Company shall promptly give written notice
to all other record holders of the Registrable Securities that such registration
statement is to be filed and shall include in such registration statement
Registrable Securities for which it has received written requests within 10 days
after the Company gives such written notice. Such other requesting record
holders shall be deemed to have exercised their demand registration right under
this Section 9.1. As a condition precedent to the inclusion of Registrable
Securities, the holder thereof shall provide the Company with such information
as the Company reasonably requests. The obligation of the Company under this
Section 9.1 shall be limited to two registration statements.
(b) If the Company at any time proposes to register
any of its securities under the Act for sale to the public, whether for its own
account or for the account of other security holders or both, except with
respect to registration statements on Forms ▇-▇, ▇-▇ or another form not
available for registering the Registrable Securities for sale to the public,
provided the Registrable Securities are not otherwise registered for resale by
the Purchaser or subsequent holder pursuant to an effective registration
statement, each such time it will give at least 30 days' prior written notice to
the record holder of any Securities of its intention so to do. Upon the written
request of the holder, received by the Company within 15 days after the giving
of any such notice by the Company, to register any of the Registrable
Securities, the Company will cause such Registrable Securities as to which
registration shall have been so requested to be included with the securities to
be covered by the registration statement proposed to be filed by the Company,
all to the extent required to permit the sale or other disposition of the
Registrable Securities so registered by the holder of such Registrable
Securities (the "SELLER"). In the event that any registration pursuant to this
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Section 9.1(b) shall be, in whole or in part, an underwritten public offering of
Common Stock of the Company, the number of shares of Registrable Securities to
be included in such an underwriting may be reduced by the managing underwriter
if and to the extent that the Company and the underwriter shall reasonably be of
the opinion that such inclusion would adversely affect the marketing of the
securities to be sold by the Company therein; provided, however, that the
Company shall notify the Seller in writing of any such reduction.
Notwithstanding the forgoing provisions, or Section 9.1(a) hereof, the Company
may withdraw or delay or suffer a delay of any registration statement referred
to in this Section 9.1(b) without thereby incurring any liability to the Seller.
(c) If, at the time any written request for
registration is received by the Company pursuant to Section 9.1(a), the Company
has determined to proceed with the actual preparation and filing of a
registration statement under the Securities Act in connection with the proposed
offer and sale for cash of any of its securities for the Company's own account,
such written request shall be deemed to have been given pursuant to Section
9.1(b) rather than Section 9.1(a), and the rights of the holders of Registrable
Securities covered by such written request shall be governed by Section 9.1(b)
except that the Company or underwriter, if any, may not withdraw such
registration or limit the amount of Registrable Securities included in such
registration.
(d) The Company shall file with the SEC within 30
days of the Closing Date (the "FILING DATE"), and use its reasonable commercial
efforts to cause to be declared effective a Form SB-2 registration statement (or
such other form that it is eligible to use) within 90 days of the Closing Date
in order to register the Registrable Securities for resale and distribution
under the Securities Act. The registration statement described in this paragraph
must be declared effective by the SEC within 120 days of the Closing Date (as
defined herein) ("EFFECTIVE DATE"). The Company will register not less than a
number of shares of Common Stock in the aforedescribed registration statement
that is equal to 300% of the Warrant Shares and Conversion Shares issuable at
the Conversion Prices set forth in the Warrants and Notes, respectively, that
would be in effect on the Closing Date or the date of filing of such
registration statement (employing the conversion price which would result in the
greater number of Shares), assuming the conversion of 100% of the Notes which
are then outstanding or issuable hereunder, and at least one share of common
stock for each common share issuable upon exercise of the Warrants which are
then outstanding or issuable hereunder (employing the Conversion Price that
would result in the greater number of shares). The Registrable Securities shall
be reserved and set aside exclusively for the benefit of the Purchaser and the
holders of the Warrants, as the case may be, and not issued, employed or
reserved for anyone other than the Purchaser and the holders of the Warrants.
Such registration statement will be promptly amended or additional registration
statements will be promptly filed by the Company as necessary to register
additional Company Shares to allow the public resale of all Common Stock
included in and issuable by virtue of the Registrable Securities. No securities
of the Company other than the Registrable Securities will be included in the
registration statement described in this Section 9.1(d).
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9.2 REGISTRATION PROCEDURES. If and whenever the Company is
required by the provisions hereof to effect the registration of any shares of
Registrable Securities under the Act, the Company will, as expeditiously as
possible:
(a) prepare and file with the SEC a registration
statement with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as herein provided), and promptly
provide to the holders of Registrable Securities copies of all filings and SEC
letters of comment;
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
until the later of: (i) six months after the latest exercise period of the
Warrants; (ii) twelve months after the Maturity Date of the last maturing Notes
or (iii) four years after the Closing Date, and comply with the provisions of
the Securities Act with respect to the disposition of all of the Registrable
Securities covered by such registration statement in accordance with the
Seller's intended method of disposition set forth in such registration statement
for such period;
(c) furnish to the Seller, and to each underwriter if
any, such number of copies of the registration statement and the prospectus
included therein (including each preliminary prospectus) as such persons
reasonably may request to facilitate the public sale or their disposition of the
securities covered by such registration statement;
(d) use its best efforts to register or qualify the
Seller's Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Seller and in the
case of an underwritten public offering, the managing underwriter shall
reasonably request, provided, however, that the Company shall not for any such
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction;
(e) list the Registrable Securities covered by such
registration statement with any securities exchange on which the Common Stock of
the Company is then listed;
(f) immediately notify the Seller and each
underwriter under such registration statement at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event of which the Company has knowledge as a result of which
the prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing; and
(g) make available for inspection by the Seller, any
underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by the Seller or
underwriter, all publicly available, non-confidential financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all publicly
available, non-confidential information reasonably requested by the seller,
underwriter, attorney, accountant or agent in connection with such registration
statement.
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9.3 PROVISION OF DOCUMENTS.
(a) At the request of the Seller, provided a demand
for registration has been made pursuant to Section 9.1(a) or a request for
registration has been made pursuant to Section 9.1(b), the Registrable
Securities will be included in a registration statement filed pursuant to this
Section 9.
(b) In connection with each registration hereunder,
the Seller will furnish to the Company in writing such information and
representation letters with respect to itself and the proposed distribution by
it as reasonably shall be necessary in order to assure compliance with federal
and applicable state securities laws. In connection with each registration
pursuant to Section 9 covering an underwritten public offering, the Company and
the Seller agree to enter into a written agreement with the managing underwriter
in such form and containing such provisions as are customary in the securities
business for such an arrangement between such underwriter and companies of the
Company's size and investment stature.
9.4 NON-REGISTRATION EVENTS. The Company and the Purchaser
agree that the Purchaser will suffer damages if any registration statement
required under Section 9.1(a) above is not filed within 60 days after written
request by the holder and not declared effective by the SEC within 120 days
after such request, and maintained in the manner and within the time periods
contemplated by Section 9 hereof, and it would not be feasible to ascertain the
extent of such damages with precision. Accordingly, if (i) the Registration
Statement described in Section 9.1(a) is not filed within 60 days of such
written request, or is not declared effective by the SEC on or prior to the date
that is 120 days after such request, or (ii) the registration statement on Form
SB-2 or such other form as described in Section 9.1(d) is not filed on or before
the Filing Date or not declared effective on or before the sooner of the
Effective Date, or within five days of receipt by the Company of a communication
from the SEC that the registration statement described in Section 9.1(d) will
not be reviewed, or (iii) any registration statement described in Section 9.1(a)
or (d) is filed and declared effective but shall thereafter cease to be
effective (without being succeeded immediately by an additional registration
statement filed and declared effective) for a period of time which shall exceed
60 days in the aggregate per year but not more than 20 consecutive calendar days
(defined as a period of 365 days commencing on the date the Registration
Statement is declared effective) (each such event referred to in this Section
9.4 is referred to herein as a "NON-REGISTRATION EVENT"), then, for so long as
such Non-Registration Event shall continue, (i) the Company shall pay in cash as
Liquidated Damages to the Purchaser an amount equal to two percent (2%) per
month or part thereof during the pendency of such Non-Registration Event of the
principal of the Notes issued in connection with the Offering, whether or not
converted, then owned of record by the Purchaser and (ii) the Conversion Price
as defined in Section 2.1 of the Notes shall be reduced by 10% for each 30-day
period following the Effective Date that the Registration Statement is not
declared effective by the SEC. Payments to be made pursuant to this Section
shall be due and payable immediately upon demand in immediately available funds.
In the event a Mandatory Redemption Payment is demanded from the Company by the
holder pursuant to Section 8.2 of this Agreement, then the Liquidated Damages
described in this Section 9.4 shall no longer accrue on the portion of the
purchase price underlying the Mandatory Redemption Payment, from and after the
date the Purchaser receives the Mandatory Redemption Payment. It shall be deemed
a Non-Registration Event to the extent that all the Common Stock included in the
Registrable Securities and underlying the Securities is not included in an
effective registration statement as of and after the Effective Date at the
conversion prices in effect from and after the Effective Date.
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9.5 EXPENSES. All expenses incurred by the Company in
complying with Section 9, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
reasonable counsel fees) incurred in connection with complying with state
securities or "blue sky" laws, fees of the NASD, transfer taxes, fees of
transfer agents and registrars, fees of, and disbursements incurred by, one
counsel for the Seller, and costs of insurance are called "REGISTRATION
EXPENSES". All underwriting discounts and selling commissions applicable to the
sale of Registrable Securities, including any fees and disbursements of any
special counsel to the Seller beyond those included in Registration Expenses,
are called "SELLING EXPENSES."
The Company will pay all Registration Expenses in connection
with the registration statement under Section 9. All Selling Expenses in
connection with each registration statement under Section 9 shall be borne by
the Purchaser.
9.6 INDEMNIFICATION AND CONTRIBUTION.
(a) In the event of a registration of any Registrable
Securities under the Securities Act pursuant to Section 9, the Company will
indemnify and hold harmless each Seller, each officer of each Seller, each
director of each Seller, each underwriter of such Registrable Securities
thereunder and each other person, if any, who controls any such Seller or
underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities was registered under the Securities Act
pursuant to Section 9, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Seller, each such underwriter and each such controlling
person for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company will be liable in any such case if
and only to the extent that any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission so made in conformity with information furnished by any such
Seller, the underwriter or any such controlling person in writing specifically
for use in such registration statement, prospectus or amendment or supplement
thereof.
(b) In the event of a registration of any of the
Registrable Securities under the Securities Act pursuant to Section 9, the
Seller will indemnify, defend and hold harmless the Company, and each of the
Company's officers, directors, affiliates, and principal stockholders, and each
person, if any, who controls the Company within the meaning of the Securities
Act, against all losses, claims, damages or liabilities, joint or several, to
which the Company or such officer, director, affiliate, principal stockholder or
control person may become subject under the Securities Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the registration statement under which such
Registrable Securities were registered under the Securities Act pursuant to
Section 9, any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse the Company and each such officer, director, affiliate, principal
stockholder or control person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action, provided, however, that the Seller will be
liable hereunder in any such case if and only to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with information pertaining to such Seller, as such, furnished
in writing to the Company by such Seller specifically for use in such
registration statement or prospectus or amendment or supplement thereof.
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(c) Promptly after receipt by an indemnified party
hereunder of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party hereunder, notify the indemnifying party in writing thereof, but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to such indemnified party other than under this
Section 9.6(c) and shall only relieve it from any liability which it may have to
such indemnified party under this Section 9.6(c) if and to the extent the
indemnifying party is prejudiced by such omission. In case any such action shall
be brought against any indemnified party and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate in and, to the extent it shall wish, to assume and undertake the
defense thereof with counsel satisfactory to such indemnified party, and, after
notice from the indemnifying party to such indemnified party of its election so
to assume and undertake the defense thereof, the indemnifying party shall not be
liable to such indemnified party under this Section 9.6(c) for any legal
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation and of liaison with
counsel so selected, provided, however, that, if the defendants in any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified parties shall have the right to select one separate
counsel and to assume such legal defenses and otherwise to participate in the
defense of such action, with the reasonable expenses and fees of such separate
counsel and other expenses related to such participation to be reimbursed by the
indemnifying party as incurred.
(d) In order to provide for just and equitable
contribution in the event of joint liability under the Securities Act in any
case in which either (i) the Seller, or any controlling person of the Seller,
makes a claim for indemnification pursuant to this Section 9.6 but it is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 9.6 provides for indemnification in
such case, or (ii) contribution under the Securities Act may be required on the
part of the Seller or controlling person of the Seller in circumstances for
which indemnification is provided under this Section 9.6; then, and in each such
case, the Company and the Seller will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that the Seller is responsible only for the
portion represented by the percentage that the public offering price of its
securities offered by the registration statement bears to the public offering
price of all securities offered by such registration statement, provided,
however, that, in any such case, (A) the Seller will not be required to
contribute any amount in excess of the public offering price of all such
securities offered by it pursuant to such registration statement; and (B) no
person or entity guilty of fraudulent misrepresentation (within the meaning of
Section 10(f) of the Act) will be entitled to contribution from any person or
entity who was not guilty of such fraudulent misrepresentation.
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10. OFFERING RESTRICTIONS. Except as previously disclosed in the SEC
Documents or stock or stock options granted or to be granted to employees,
consultants or directors of the Company; or equity or debt issued in connection
with an acquisition of a business or assets by the Company; or the issuance by
the Company of stock in connection with the establishment of a joint venture
partnership or licensing arrangement, or the issuance of any equity, convertible
debt or other securities to the Purchaser (these exceptions hereinafter referred
to as the "EXCEPTED ISSUANCES"), the Company will not issue any equity,
convertible debt or other securities which are or could be (by conversion or
registration) free-trading securities prior to the expiration of 30 days from
the actual effective date of the registration statement described in Section
9.1(d) above (the "EXCLUSION PERIOD"). This restriction shall not prohibit the
Company from issuing any equity, convertible debt or other securities prior to
the expiration of the Exclusion Period, provided that such equity, convertible
debt or other securities are restricted securities when issued and remain
restricted until the expiration of the Exclusion Period. Notwithstanding the
above, if the Purchaser elects not to further fund the Company following the
transaction contemplated hereby, the Purchaser shall waive the provisions of
this Section 10.
11. SECURITY INTEREST. As a condition of Closing, the Company will
deliver to the Purchaser certificates representing Common Shares of the Company
owned by certain stockholders of the Company for more than a period of one and
one half years, together with signature guaranteed stock powers. Collectively,
the foregoing stock is referred to as "Security Shares." The Security Shares
will be held by the Purchaser pursuant to a Security Agreement. The Company will
also execute all such documents reasonably necessary to memorialize and further
protect the security interest described above.
12. MISCELLANEOUS.
12.1 GOVERNING LAW. This 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 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 other agreements on behalf of the Company agree to submit to the
jurisdiction of such courts and waive trial by jury. The prevailing party shall
be entitled to recover from the other party its reasonable attorney's fees and
costs. In the event that any provision of this Agreement or any other 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 any agreement.
-26-
12.2 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 until the earlier of (i) the
full conversion of the Notes (including interest) or (ii) repayment of
indebtedness evidenced by the Notes (including interest). 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.
12.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, 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.
12.4 ENTIRE AGREEMENT. This Agreement, the exhibits and
schedules hereto, the Related Agreements 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.
12.5 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 holders of the Securities under the Agreement may be waived only with the
written consent of such holders of Securities. The rights of the holder of a
Note may be waived only with the written consent of the holder of such Note.
12.6 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. It is further agreed that any waiver, permit, consent or
approval of any kind or character on the Purchaser's part of any breach, default
or noncompliance under this Agreement, the Notes or the Related Agreements or
any waiver on such party's part of any provisions or conditions of the
Agreement, a Note or the Related Agreements must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, the Notes or the Related Agreements, by
law or otherwise afforded to any party, shall be cumulative and not alternative.
-27-
12.7 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 telex or
facsimile if sent during normal business hours of the recipient, if not, then on
the next business day, (c) five days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (d) one day after
deposit with a nationally recognized overnight courier, specifying next day
delivery, with written verification of receipt. All communications shall be sent
to the Company at the address as set forth on the signature page hereof, with a
copy to ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq., ▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, facsimile number (714) 546- and to the Purchaser at the
address set forth on the signature page hereto for such Purchaser, with a copy
in the case of the Purchaser to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq., ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, facsimile number (▇▇▇) ▇▇▇-▇▇▇▇, or at such
other address as the Company or the Purchaser may designate by ten days advance
written notice to the other parties hereto.
12.8 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.
12.9 TITLES AND SUBTITLES. The titles of the sections and
subsections of the Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
12.10 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
12.11 BROKER'S FEES. 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, except as specified herein with
respect to the Purchaser. 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 12.12 being untrue.
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12.12 INDEMNIFICATION. The Company shall indemnify the
Purchaser for any losses or expenses incurred by the Purchaser in connection
with any claims brought against the Purchaser by any third party (including any
other stockholder of the Company) as a result of the transactions contemplated
by this Agreement, other than for a breach of representation or warranty made by
the Purchaser herein.
12.13 CONSTRUCTION. Each party acknowledges that its legal
counsel participated in the preparation of this Agreement 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.
-29-
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:
ILIVE, INC. LAURUS MASTER FUND, LTD.
By: /S/ ▇▇▇▇▇▇ ▇▇▇▇▇▇ By: /S/ ▇▇▇▇▇ Grin
-------------------------------- ----------------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇ Name: ▇▇▇▇▇ Grin
Title: Chief Executive Officer
Address: ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ Address:c/o Onshore Corporate Services Ltd.
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇.▇. ▇▇▇ ▇▇▇▇ G.T.,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-30-
LIST OF EXHIBITS
Schedule of Purchasers Exhibit A
Form of Offering Convertible Note Exhibit B
Form of Warrant Exhibit C
Form of Opinion Exhibit D
EXHIBIT A
SCHEDULE OF PURCHASERS
--------------------------------------------- ----------------------------------
PURCHASER CLOSING DATE NOTES
--------------------------------------------- ----------------------------------
LAURUS MASTER FUND, LTD. $300,000
TOTAL $300,000
--------------------------------------------- ----------------------------------
SCHEDULE OF WARRANT HOLDERS
--------------------------------------------- ----------------------------------
NAME OF WARRANT HOLDER NUMBER OF WARRANT SHARES
--------------------------------------------- ----------------------------------
LAURUS MASTER FUND, LTD. 100,000
--------------------------------------------- ----------------------------------
SCHEDULE OF FUND MANAGER'S FEE RECIPIENTS
--------------------------------------------- ----------------------------------
FUND MANAGER CLOSING DATE FUND MANAGER'S FEES
--------------------------------------------- ----------------------------------
LAURUS MASTER FUND, LTD. $30,000
--------------------------------------------- ----------------------------------
TOTAL $30,000 (10% OF CLOSING)
--------------------------------------------- ----------------------------------
A-1
EXHIBIT B
FORM OF CONVERTIBLE NOTE
B-1
EXHIBIT C
FORM OF WARRANT
C-1
EXHIBIT D
FORM OF OPINION
1. The Company is a corporation validly existing and in good
standing under the laws of the State of Nevada 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. The Company has the requisite corporate power and authority
to execute, deliver and perform its obligations under the Agreement and Related
Agreements. All corporate action on the part of the Company, its officers,
directors and stockholders necessary for (i) the authorization of the Agreement
and Related Agreements, and the performance of all obligations of the Company
thereunder at the Closing, and (ii) the authorization, sale, issuance and
delivery of the Securities pursuant to the Agreement and the Related Agreements
has been taken. The Conversion Shares and the Warrant Shares, when issued
pursuant to and in accordance with the terms of the Agreement and upon delivery,
shall be validly issued and outstanding, fully paid and non assessable.
3. The execution, delivery and performance of the Agreement,
the Notes or the Related Agreements by the Company and the consummation of the
transactions 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 the Restated Articles
or bylaws of the Company; or
(b) To the best of such counsel's knowledge, violate
any judgment, decree, order or award of any court binding upon
the Company.
4. The Agreement and Related Agreements constitute and the
Notes, upon their issuance will constitute, valid and legally binding
obligations of the Company, and are enforceable against the Company in
accordance with their respective terms.
5. The sale of the Notes and the subsequent conversion of the
Notes into Conversion Shares are not and will not be subject to any preemptive
rights or, to such counsel's knowledge, rights of first refusal that have not
been properly waived or complied with. The sale of the Warrants and the
subsequent exercise of the Warrants for Warrant Shares are not and will not be
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 Purchasers contained in the Agreement, the offer, sale and issuance of
the Securities will be exempt from the registration requirements of 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. To the best of 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 this
Agreement to be integrated with prior offerings by the Company for purposes of
the Securities Act which would prevent the Company from selling the Securities
pursuant to Rule 506 under the Securities Act, or any applicable
exchange-related stockholder approval provisions.
D-1
7. There is no action, suit, proceeding or investigation
pending or, to the best of such counsel's knowledge, currently threatened
against the Company that questions the validity of the Agreement or the Related
Agreements or the right of the Company to enter into any of such agreements, or
to consummate the transactions contemplated thereby, or which might result,
either individually or in the aggregate, in any material adverse change in the
assets, condition, affairs or prospects of the Company, financially or
otherwise, or any change in the current equity ownership of the Company. To the
best of 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 holding period of the Company shares deposited as
security pursuant to the Security Agreement in the hands of the Purchasers for
purposes of Rule 144 of the Act will combine with and date back to the
acquisition date of such security shares by the depositing Shareholders.
D-2