NOTE AND WARRANT PURCHASE AGREEMENT Dated as of August 15, 2007 by and among TECHNOCONCEPTS INC. and THE PURCHASERS LISTED ON EXHIBIT A
NOTE
AND WARRANT PURCHASE
AGREEMENT
Dated
as of August 15, 2007
by
and among
TECHNOCONCEPTS
INC.
and
THE
PURCHASERS LISTED ON EXHIBIT A
TABLE
OF
CONTENTS
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Page
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1
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ARTICLE
I PURCHASE
AND SALE OF NOTES AND WARRANTS
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1
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Section
1.1
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Purchase
and Sale of Notes and Warrants.
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1
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Section
1.2
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Purchase
Price and Closing
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1
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Section
1.3
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Warrant
Shares
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3
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ARTICLE
II REPRESENTATIONS
AND WARRANTIES
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2
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Section
2.1
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Representations
and Warranties of the Company
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2
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Section
2.2
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Representations
and Warranties of the Purchasers
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13
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ARTICLE
III COVENANTS
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15
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Section
3.1
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Securities
Compliance
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15
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Section
3.2
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Registration
and Listing
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15
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Section
3.3
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Inspection
Rights
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16
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Section
3.4
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Compliance
with Laws
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16
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Section
3.5
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Keeping
of Records and Books of Account
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16
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Section
3.6
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Reporting
Requirements
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16
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Section
3.7
|
Other
Agreements
|
16
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Section
3.8
|
Use
of Proceeds
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16
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Section
3.9
|
Reporting
Status
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16
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Section
3.10
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Disclosure
of Transaction
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17
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Section
3.11
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Disclosure
of Material Information
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17
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Section
3.12
|
Pledge
of Securities
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17
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Section
3.13
|
Amendments
|
17
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Section
3.14
|
Distributions
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17
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Section
3.15
|
Reservation
of Shares
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17
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Section
3.16
|
Transfer
Agent Instructions
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18
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Section
3.17
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Disposition
of Assets
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18
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Section
3.18
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Form
SB-2 Eligibility
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18
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ARTICLE
IV CONDITIONS
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19
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Section
4.1
|
Conditions
Precedent to the Obligation of the Company to Close and to Sell the
Securities
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19
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Section
4.2
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Conditions
Precedent to the Obligation of the Purchasers to Close and to Purchase
the
Securities
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19
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Section
4.3
|
Post-Closing
Conditions
|
21
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ARTICLE
V CERTIFICATE
LEGEND
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22
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Section
5.1
|
Legend
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22
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ARTICLE
VI INDEMNIFICATION
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23
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Section
6.1
|
Company
Indemnity
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23
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Section
6.2
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Indemnification
Procedure
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23
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TABLE
OF
CONTENTS
(continued)
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Page
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ARTICLE
VII MISCELLANEOUS
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24
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Section
7.1
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Fees
and Expenses
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24
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Section
7.2
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Specific
Performance; Consent to Jurisdiction; Venue.
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24
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Section
7.3
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Entire
Agreement; Amendment
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25
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Section
7.4
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Notices
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25
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Section
7.5
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Waivers
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26
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Section
7.6
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Headings
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26
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Section
7.7
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Successors
and Assigns
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26
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Section
7.8
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No
Third Party Beneficiaries
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27
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Section
7.9
|
Governing
Law
|
27
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Section
7.10
|
Survival
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27
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Section
7.11
|
Counterparts
|
27
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Section
7.12
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Publicity
|
27
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Section
7.13
|
Severability
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27
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Section
7.14
|
Further
Assurances
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27
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This
NOTE
AND WARRANT PURCHASE AGREEMENT dated as of August 15, 2007 (this “Agreement”)
by and
among TechnoConcepts Inc., a Colorado corporation (the “Company”),
and
each of the purchasers of the secured promissory notes of the Company whose
names are set forth on Exhibit
A
attached
hereto (each a “Purchaser,”
and
collectively, the “Purchasers”).
The
parties hereto agree as follows:
ARTICLE
I
PURCHASE
AND SALE OF NOTES AND WARRANTS
Section
1.1 Purchase
and Sale of Notes and Warrants.
(a) Upon
the
following terms and conditions, the Company shall issue and sell to the
Purchasers, and the Purchasers shall purchase (in the amounts set forth in
Exhibit
A
hereto)
from the Company, secured promissory notes in the aggregate principal amount
of
up to Three Million Dollars ($3,000,000), in substantially the form attached
hereto as Exhibit
B
(the
“Notes”).
The
Company and the Purchasers are executing and delivering this Agreement in
accordance with and in reliance upon the exemption from securities registration
afforded by Section 4(2) of the U.S. Securities Act of 1933, as amended, and
the
rules and regulations promulgated thereunder (the “Securities
Act”),
including Regulation D (“Regulation
D”),
and/or upon such other exemption from the registration requirements of the
Securities Act as may be available with respect to any or all of the investments
to be made hereunder.
(b) Upon
the
following terms and conditions and for no additional consideration, each of
the
Purchasers shall be issued at the Initial Closing Date (as defined below)
Warrants, in substantially the form attached hereto as Exhibit
C
(the
“Warrants”),
to
purchase an aggregate of up to 2,000,000 shares of the Company’s common stock,
no par value (the “Common
Stock”).
The
Warrants shall expire seven (7) years following the Initial Closing Date and
shall have an exercise price per share equal to the Warrant Price (as defined
in
the Warrant).
Section
1.2 Purchase
Price and Closing.
Subject
to the terms and conditions hereof, the Company agrees to issue and sell to
the
Purchasers and, in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
the Purchasers, severally but not jointly, agree to purchase the Notes and
Warrants for an aggregate purchase price of up to Three Million Dollars
($3,000,000) (the “Purchase
Price”).
As of
the effective date of this Agreement, the Company has sold Notes and Warrants
for an aggregate purchase price of Two Million Dollars ($2,000,000) in the
Initial
Closing
on June
29, 2007. The remaining Notes and Warrants shall be sold and funded in two
separate closings (each a “Closing”).
The
second Closing under this Agreement (the “Second
Closing”)
shall
be funded in the amount of $500,000 and shall take place on the date hereof
(the
“Second
Closing Date”).
The
third closing under this Agreement (the “Third
Closing”)
shall
be funded in the amount of $500,000 and shall take place on or before August
31,
2007; provided,
that
the Company has not closed a financing of its debt or equity securities prior
to
such date (the “Third
Closing Date”).
The
Initial Closing Date, the Second Closing Date, and the Third Closing Date are
sometimes referred to in this Agreement as the “Closing
Date”.
Each
Closing of the purchase and sale of the Notes to be acquired by the Purchasers
from the Company under this Agreement shall take place at the offices of the
Company, ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇. ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ at 5:00
p.m., Pacific Daylight Savings time; provided,
that
all of the conditions set forth in Article IV hereof and applicable to such
Closing shall have been fulfilled or waived in accordance herewith. Subject
to
the terms and conditions of this Agreement, at each Closing the Company shall
deliver or cause to be delivered to each Purchaser (x) its Notes for the
principal amount set forth opposite the name of such Purchaser on Exhibit
A
hereto,
(y) its Warrants to purchase such number of shares of Common Stock as is set
forth opposite the name of such Purchaser on Exhibit
A
attached
hereto and (z) any other documents required to be delivered pursuant to Article
IV hereof. At each Closing, each Purchaser shall deliver its Purchase Price
by
wire transfer to an escrow account designated by the escrow agent.
1
Section
1.3 Warrant
Shares.
The
Company has authorized and has reserved and covenants to continue to reserve,
free of preemptive rights and other similar contractual rights of stockholders,
a sufficient number of its authorized but unissued shares of Common Stock to
effect the exercise of the Warrants as of the Initial Closing Date. Any shares
of Common Stock issuable upon exercise of the Warrants (and such shares when
issued) are herein referred to as the “Warrant
Shares”.
The
Notes, the Warrants and the Warrant Shares are sometimes collectively referred
to herein as the “Securities”.
ARTICLE
II
REPRESENTATIONS
AND WARRANTIES
Section
2.1 Representations
and Warranties of the Company.
The
Company hereby represents and warrants to the Purchasers, as of the date hereof
and each Closing Date (except as set forth on the Schedule of Exceptions
attached hereto with each numbered Schedule corresponding to the section number
herein), as follows:
(a) Organization,
Good Standing and Power.
The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Colorado and has the requisite corporate
power to own, lease and operate its properties and assets and to conduct its
business as it is now being conducted. The Company does not have any
Subsidiaries (as defined in Section 2.1(g)) or own securities of any kind in
any
other entity except as set forth on Schedule
2.1(g)
hereto.
The Company and each such Subsidiary (as defined in Section 2.1(g)) is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary except for any jurisdiction(s)
(alone or in the aggregate) in which the failure to be so qualified will not
have a Material Adverse Effect. For the purposes of this Agreement,
“Material
Adverse Effect”
means
any material adverse effect on the business, operations, properties, or
financial condition of the Company and its Subsidiaries and/or any condition,
circumstance, or situation that would prohibit or otherwise materially interfere
with the ability of the Company to perform any of its obligations under this
Agreement in any material respect.
2
(b)
Authorization; Enforcement.
The
Company has the requisite corporate power and authority to enter into and
perform its obligations under this Agreement, the Note, the Warrants,
the
Security Agreement by and among the Company and the Purchaser, dated as of
the
date hereof, substantially in the form of Exhibit
D
attached
hereto (the “Security
Agreement”),
and
the
Irrevocable Transfer Agent Instructions (as defined in Section 3.16 hereof)
(collectively, the “Transaction
Documents”)
and to
issue and sell the Securities in accordance with the terms hereof. The
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by it of the transactions contemplated thereby have been
duly and validly authorized by all necessary corporate action, and, except
as
set forth on Schedule
2.1(b),
no
further consent or authorization of the Company, its Board of Directors or
stockholders is required. When executed and delivered by the Company, each
of
the Transaction Documents shall constitute a valid and binding obligation of
the
Company enforceable against the Company in accordance with its terms, except
as
such enforceability may be limited by applicable bankruptcy, reorganization,
moratorium, liquidation, conservatorship, receivership or similar laws relating
to, or affecting generally the enforcement of, creditor’s rights and remedies or
by other equitable principles of general application.
(c) Capitalization.
The
authorized capital stock of the Company as of the date hereof is set forth
on
Schedule
2.1(c)
hereto.
All of the outstanding shares of the Common Stock and any other outstanding
security of the Company have been duly and validly authorized and validly
issued, fully paid and nonassessable and were issued in accordance with the
registration or qualification provisions of the Securities Act, or pursuant
to
valid exemptions therefrom. Except as set forth in this Agreement and as set
forth on Schedule
2.1(c)
hereto,
no shares of Common Stock or any other security of the Company are entitled
to
preemptive rights, registration rights, rights of first refusal or similar
rights and there are no outstanding options, warrants, scrip, rights to
subscribe to, call or commitments of any character whatsoever relating to,
or
securities or rights convertible into, any shares of capital stock of the
Company. Furthermore, except as set forth in this Agreement and as set forth
on
Schedule
2.1(c)
hereto,
there are no contracts, commitments, understandings, or arrangements by which
the Company is or may become bound to issue additional shares of the capital
stock of the Company or options, securities or rights convertible into shares
of
capital stock of the Company. Except for customary transfer restrictions
contained in agreements entered into by the Company in order to sell restricted
securities or as provided on Schedule
2.1(c)
hereto,
the Company is not a party to or bound by any agreement or understanding
granting registration or anti-dilution rights to any person with respect to
any
of its equity or debt securities. Except as set forth on Schedule
2.1(c),
the
Company is not a party to, and it has no knowledge of, any agreement or
understanding restricting the voting or transfer of any shares of the capital
stock of the Company. Except as disclosed on Schedule
2.1(c)
or in
the Commission Documents, (i) there are no outstanding debt securities, or
other
form of material debt of the Company or any of its Subsidiaries, (ii) there
are
no contracts, commitments, understandings, agreements or arrangements under
which the Company or any of its Subsidiaries is required to register the sale
of
any of their securities under the Securities Act, (iii) there are no outstanding
securities of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings, agreements or arrangements by which the Company or any of its
Subsidiaries is or may become bound to redeem a security of the Company or
any
of its Subsidiaries, (iv) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance
of
the Securities, (v) the Company does not have any stock appreciation rights
or
“phantom stock” plans or agreements, or any similar plan or agreement and (vi)
as of the date of this Agreement, except as disclosed on Schedule
2.1(c),
to the
Company’s and each of its Subsidiaries’ knowledge, no Person (as defined below)
or group of related Persons beneficially owns (as determined pursuant to Rule
13d-3 promulgated under the Exchange Act) or has the right to acquire by
agreement with or by obligation binding upon the Company, beneficial ownership
of in excess of 5% of the Common Stock. Any
Person with any right to purchase securities of the Company that would be
triggered as a result of the transactions contemplated hereby or by any of
the
other Transaction Documents has waived such rights or the time for the exercise
of such rights has passed, except where failure of the Company to receive such
waiver would not have a Material Adverse Effect. Except as set forth on
Schedule
2.1(c),
there
are no
options, warrants or other outstanding securities of the Company (including,
without limitation, any equity securities issued pursuant to any Company stock
option or incentive plan) the vesting of which will be accelerated by the
transactions contemplated hereby or by any of the other Transaction Documents.
Except as set forth in Schedule
2.1(c),
none of
the transactions contemplated by this Agreement or by any of the other
Transaction Documents shall cause, directly or indirectly, the acceleration
of
vesting of any options issued pursuant the Company’s stock option
plans.
3
(d) Issuance
of Securities.
The
Notes and the Warrants to be issued at each Closing have been duly authorized
by
all necessary corporate action and, when paid for or issued in accordance with
the terms hereof, the Notes shall be validly issued and outstanding, free and
clear of all liens, encumbrances and rights of refusal of any kind. When the
Warrant Shares are issued and paid for in accordance with the terms of this
Agreement and as set forth in the Warrants, such shares will be duly authorized
by all necessary corporate action and validly issued and outstanding, fully
paid
and nonassessable, free and clear of all liens, encumbrances and rights of
refusal of any kind and the holders shall be entitled to all rights accorded
to
a holder of Common Stock.
(e) No
Conflicts.
The
execution, delivery and performance of the Transaction Documents by the Company,
the performance by the Company of its obligations under the Notes and the
consummation by the Company of the transactions contemplated hereby and thereby,
(including the issuance of the Securities as contemplated hereby) do not and
will not (i) violate or conflict with any provision of the Company’s Articles of
Incorporation (the “Articles”)
or
Bylaws (the “Bylaws”),
each
as amended to date, or any Subsidiary’s comparable charter documents, (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights
of
termination, amendment, acceleration or cancellation of, any agreement,
mortgage, deed of trust, indenture, note, bond, license, lease agreement,
instrument or obligation to which the Company or any of its Subsidiaries is
a
party or by which the Company or any of its Subsidiaries’ respective properties
or assets are bound, or (iii) result in a violation of any federal, state,
local
or foreign statute, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations) applicable to the Company
or
any of its Subsidiaries or by which any property or asset of the Company or
any
of its Subsidiaries are bound or affected, except, with respect to clauses
(ii)
and (iii) above for such conflicts, defaults, terminations, amendments,
acceleration, cancellations and violations as would not, individually or in
the
aggregate, have a Material Adverse Effect (excluding with respect to federal
and
state securities laws)). Neither
the Company nor any of its Subsidiaries is required under federal, state,
foreign or local law, rule or regulation to obtain any consent, authorization
or
order of, or make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its obligations
under the Transaction Documents or issue and sell the Securities in accordance
with the terms hereof (other than any filings, consents and approvals which
may
be required to be made by the Company under applicable state and federal
securities laws, rules or regulations).
4
(f) Commission
Documents, Financial Statements.
The
Common
Stock of the Company is registered pursuant to Section 15(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange
Act”),
and
the Company
has timely filed all reports, schedules, forms, statements and other documents
required to be filed by it with the Commission pursuant to the reporting
requirements of the Exchange Act (all of the foregoing including filings
incorporated by reference therein being referred to herein as the “Commission
Documents”).
At
the times of their respective filings, the Form 10-QSB for the fiscal quarters
ended March 31, 2007, December 31, 2006 and June 30, 2006 (collectively, the
“Form
10-QSB”)
and
the Form 10-KSB for the fiscal year ended September 30, 2006, as amended (the
“Form
10-KSB”),
complied in all material respects with the requirements of the Exchange Act
and
the rules and regulations of the Commission promulgated thereunder, and the
Form
10-QSB and Form 10-KSB did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. As of their respective dates, the financial
statements of the Company included in the Commission Documents complied as
to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the Commission. Such financial statements
have been prepared in accordance with generally accepted accounting principles
(“GAAP”)
applied on a consistent basis during the periods involved (except (i) as may
be
otherwise indicated in such financial statements or the notes thereto or (ii)
in
the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements), and fairly present in
all
material respects the financial position of the Company and its Subsidiaries
as
of the dates thereof and the results of operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments).
(g) Subsidiaries.
Schedule
2.1(g)
hereto
sets forth each Subsidiary of the Company, showing the jurisdiction of its
incorporation or organization and showing the percentage of each person’s
ownership of the outstanding stock or other interests of such Subsidiary. For
the purposes of this Agreement, “Subsidiary”
shall
mean any corporation or other entity of which at least a majority of the
securities or other ownership interest having ordinary voting power (absolutely
or contingently) for the election of directors or other persons performing
similar functions are at the time owned directly or indirectly by the Company
and/or any of its other Subsidiaries. All of the outstanding shares of capital
stock of each Subsidiary have been duly authorized and validly issued, and
are
fully paid and nonassessable. Except as set forth on Schedule
2.1(g)
hereto,
there are no outstanding preemptive, conversion or other rights, options,
warrants or agreements granted or issued by or binding upon any Subsidiary
for
the purchase or acquisition of any shares of capital stock of any Subsidiary
or
any other securities convertible into, exchangeable for or evidencing the rights
to subscribe for any shares of such capital stock. Neither the Company nor
any
Subsidiary is subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of the capital stock of any Subsidiary
or any convertible securities, rights, warrants or options of the type described
in the preceding sentence except as set forth on Schedule
2.1(g)
hereto.
Neither the Company nor any Subsidiary is party to, nor has any knowledge of,
any agreement restricting the voting or transfer of any shares of the capital
stock of any Subsidiary.
5
(h) No
Material Adverse Change.
Since
September 30, 2006, the Company has not experienced or suffered any Material
Adverse Effect, except as disclosed on Schedule
2.1(h)
hereto
and as disclosed in its Commission Documents.
(i) No
Undisclosed Liabilities.
Except
as disclosed on Schedule
2.1(i)
hereto,
neither the Company nor any of its Subsidiaries has incurred any liabilities,
obligations, claims or losses (whether liquidated or unliquidated, secured
or
unsecured, absolute, accrued, contingent or otherwise) other than those incurred
in the ordinary course of the Company’s or its Subsidiaries respective
businesses or which, individually or in the aggregate, are not reasonably likely
to have a Material Adverse Effect.
(j) No
Undisclosed Events or Circumstances.
Since
September 30, 2006, except as disclosed on Schedule
2.1(j)
hereto,
no event or circumstance has occurred or exists with respect to the Company
or
its Subsidiaries or their respective businesses, properties, prospects,
operations or financial condition, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but which
has not been so publicly announced or disclosed.
(k) Indebtedness.
Schedule
2.1(k)
hereto
sets forth as of the date hereof all outstanding secured and unsecured
Indebtedness of the Company or any Subsidiary, or Indebtedness for which the
Company or any Subsidiary has commitments. For the purposes of this Agreement,
“Indebtedness” shall mean (a) any liabilities for borrowed money or amounts owed
in excess of $100,000 (other than trade accounts payable incurred in the
ordinary course of business); (b) all guaranties, endorsements and other
contingent obligations in respect of Indebtedness of others, whether or not
the
same are or should be reflected in the Company’s balance sheet (or the notes
thereto), except guaranties by endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of business; and
(c) the present value of any lease payments in excess of $25,000 due under
leases required to be capitalized in accordance with GAAP. Neither the Company
nor any Subsidiary is in default with respect to any Indebtedness.
(l) Title
to Assets.
Each of
the Company and the Subsidiaries has good and valid title to all of its real
and
personal property reflected in the Commission Documents, free and clear of
any
mortgages, pledges, charges, liens, security interests or other encumbrances,
except for those indicated on Schedule
2.1(l)
hereto
or such that, individually or in the aggregate, do not cause a Material Adverse
Effect. Any leases of the Company and each of its Subsidiaries are valid and
subsisting and, to the Company’s knowledge, in full force and
effect.
(m) Actions
Pending.
There
is no action, suit, claim, investigation, arbitration, alternate dispute
resolution proceeding or other proceeding pending or, to the knowledge of the
Company, threatened against the Company or any Subsidiary which questions the
validity of this Agreement or any of the other Transaction Documents or any
of
the transactions contemplated hereby or thereby or any action taken or to be
taken pursuant hereto or thereto. Except as set forth in the Commission
Documents or on Schedule
2.1(m)
hereto,
there is no action, suit, claim, investigation, arbitration, alternate dispute
resolution proceeding or other proceeding pending or, to the knowledge of the
Company, threatened against or involving the Company, any Subsidiary or any
of
their respective properties or assets, which individually or in the aggregate,
would reasonably be expected, if adversely determined, to have a Material
Adverse Effect. There are no outstanding orders, judgments, injunctions, awards
or decrees of any court, arbitrator or governmental or regulatory body against
the Company or any Subsidiary or any officers or directors of the Company or
Subsidiary in their capacities as such, which individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect.
6
(n) Compliance
with Law.
The
business of the Company and the Subsidiaries has been and is presently being
conducted in accordance with all applicable federal, state and local
governmental laws, rules, regulations and ordinances, except as set forth in
the
Commission Documents or on Schedule
2.1(n)
hereto
or such that, individually or in the aggregate, the noncompliance therewith
could not reasonably be expected to have a Material Adverse Effect. The Company
and each of its Subsidiaries have all franchises, permits, licenses, consents
and other governmental or regulatory authorizations and approvals necessary
for
the conduct of its business as now being conducted by it unless the failure
to
possess such franchises, permits, licenses, consents and other governmental
or
regulatory authorizations and approvals, individually or in the aggregate,
could
not reasonably be expected to have a Material Adverse Effect.
(o) Taxes.
The
Company and each of the Subsidiaries has accurately prepared and filed all
federal, state and other tax returns required by law to be filed by it, has
paid
or made provisions for the payment of all taxes shown to be due and all
additional assessments, and adequate provisions have been and are reflected
in
the financial statements of the Company and the Subsidiaries for all current
taxes and other charges to which the Company or any Subsidiary is subject and
which are not currently due and payable. Except as disclosed on Schedule
2.1(o)
hereto
or in the Commission Documents, none of the federal income tax returns of the
Company or any Subsidiary have been audited by the Internal Revenue Service.
The
Company has no knowledge of any additional assessments, adjustments or
contingent tax liability (whether federal or state) of any nature whatsoever,
whether pending or threatened against the Company or any Subsidiary for any
period, nor of any basis for any such assessment, adjustment or
contingency.
(p) Certain
Fees.
Except
as set forth on Schedule
2.1(p)
hereto,
the Company has not employed any broker or finder or incurred any liability
for
any brokerage or investment banking fees, commissions, finders’ structuring
fees, financial advisory fees or other similar fees in connection with the
Transaction Documents.
(q) Disclosure.
Except
for the transactions contemplated by this Agreement, the Company confirms that
neither it nor any other person acting on its behalf has provided any of the
Purchasers or their agents or counsel with any information that constitutes
or
might constitute material, nonpublic information. To the Company’s knowledge,
neither the representations and warranties contained in Section
2.1
of this
Agreement or the Schedules hereto nor any other documents, certificates or
instruments furnished to the Purchasers by or on behalf of the Company or any
Subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omit to state a material
fact
necessary in order to make the statements made herein or therein, in the light
of the circumstances under which they were made herein or therein, not
misleading.
7
(r) Operation
of Business.
Except
as set forth on Schedule
2.1(r)
hereto,
the Company and each of the Subsidiaries owns or possesses the rights to all
patents, trademarks, domain names (whether or not registered) and any patentable
improvements or copyrightable derivative works thereof, websites and
intellectual property rights relating thereto, service marks, trade names,
copyrights, licenses and authorizations which are necessary for the conduct
of
its business as now conducted without any conflict with the rights of
others.
(s) Environmental
Compliance.
Except
as set forth on Schedule
2.1(s)
hereto
or in the Commission Documents, the Company and each of its Subsidiaries have
obtained all material approvals, authorization, certificates, consents,
licenses, orders and permits or other similar authorizations of all governmental
authorities, or from any other person, that are required under any Environmental
Laws. “Environmental Laws” shall mean all applicable laws relating to the
protection of the environment including, without limitation, all requirements
pertaining to reporting, licensing, permitting, controlling, investigating
or
remediating emissions, discharges, releases or threatened releases of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances,
materials or wastes, whether solid, liquid or gaseous in nature, into the air,
surface water, groundwater or land, or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
hazardous substances, chemical substances, pollutants, contaminants or toxic
substances, material or wastes, whether solid, liquid or gaseous in nature.
To
the Company’s knowledge, the Company has all necessary governmental approvals
required under all Environmental Laws as necessary for the Company’s business or
the business of any of its subsidiaries. Except for such instances as would
not
individually or in the aggregate have a Material Adverse Effect and to the
knowledge of the Company, there are no past or present events, conditions,
circumstances, incidents, actions or omissions relating to or in any way
affecting the Company or its Subsidiaries that violate or may violate any
Environmental Law after the Closing Date or that may give rise to any
environmental liability, or otherwise form the basis of any claim, action,
demand, suit, proceeding, hearing, study or investigation (i) under any
Environmental Law, or (ii) based on or related to the manufacture, processing,
distribution, use, treatment, storage (including without limitation underground
storage tanks), disposal, transport or handling, or the emission, discharge,
release or threatened release of any hazardous substance.
(t) Books
and Records; Internal Accounting Controls.
The
records and documents of the Company and its Subsidiaries accurately reflect
in
all material respects the information relating to the business of the Company
and the Subsidiaries, the location of their assets, and the nature of all
transactions giving rise to the obligations or accounts receivable of the
Company or any Subsidiary. Except as set forth on Schedule
2.1(t)
hereto,
the Company and each of its Subsidiaries maintain a system of internal
accounting controls sufficient, in the judgment of the Company’s board of
directors, to provide reasonable assurance that (i) transactions are executed
in
accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and
to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management’s general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate actions are taken with respect to any
differences.
8
(u) Material
Agreements.
Except
for the Transaction Documents (with respect to clause (i) below only), as
disclosed in the Commission Documents, or as would not be reasonably likely
to
have a Material Adverse Effect, (i) the Company and each of its Subsidiaries
have performed all obligations required to be performed by them to date under
any written or oral contract, instrument, agreement, commitment, obligation,
plan or arrangement, filed or required to be filed with the Commission (the
“Material
Agreements”),
(ii)
neither the Company nor any of its Subsidiaries has received any notice of
default under any Material Agreement and, (iii) to the Company’s knowledge,
neither the Company nor any of its Subsidiaries is in default under any Material
Agreement now in effect.
(v) Transactions
with Affiliates.
Except
as set forth in the Commission Documents, there are no loans, leases,
agreements, contracts, royalty agreements, management contracts or arrangements
or other continuing transactions between (a) the Company, any Subsidiary or
any
of their respective customers or suppliers on the one hand, and (b) on the
other
hand, any officer, employee, consultant or director of the Company, or any
of
its Subsidiaries, or any person owning at least 5% of the outstanding capital
stock of the Company or any Subsidiary or any member of the immediate family
of
such officer, employee, consultant, director or stockholder or any corporation
or other entity controlled by such officer, employee, consultant, director
or
stockholder, or a member of the immediate family of such officer, employee,
consultant, director or stockholder which, in each case, is required to be
disclosed in the Commission Documents or in the Company’s most recently filed
definitive proxy statement on Schedule 14A, that is not so disclosed in the
Commission Documents or in such proxy statement.
(w) Securities
Act of 1933.
Based
in material part upon the representations herein of the Purchasers, the Company
has complied and will comply with all applicable federal and state securities
laws in connection with the offer, issuance and sale of the Securities
hereunder. Neither the Company nor anyone acting on its behalf, directly or
indirectly, has or will sell, offer to sell or solicit offers to buy any of
the
Securities or similar securities to, or solicit offers with respect thereto
from, or enter into any negotiations relating thereto with, any person, or
has
taken or will take any action so as to bring the issuance and sale of any of
the
Securities under the registration provisions of the Securities Act and
applicable state securities laws. Neither the Company nor any of its affiliates,
nor any person acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D under
the Securities Act) in connection with the offer or sale of any of the
Securities.
(x) Employees.
Neither
the Company nor any Subsidiary has any collective bargaining arrangements or
agreements covering any of its employees, except as set forth on Schedule
2.1(x)
hereto.
Except as set forth on Schedule
2.1(x)
hereto,
neither the Company nor any Subsidiary has any employment contract, agreement
regarding proprietary information, non-competition agreement, non-solicitation
agreement, confidentiality agreement, or any other similar contract or
restrictive covenant, relating to the right of any officer, employee or
consultant to be employed or engaged by the Company or such Subsidiary required
to be disclosed in the Commission Documents that is not so disclosed. No
officer, consultant or key employee of the Company or any Subsidiary whose
termination, either individually or in the aggregate, would be reasonably likely
to have a Material Adverse Effect, has terminated or, to the knowledge of the
Company, has any present intention of terminating his or her employment or
engagement with the Company or any Subsidiary.
9
(y) Absence
of Certain Developments.
Except
as set forth in the Commission Documents or provided on Schedule
2.1(y)
hereto,
since September 30, 2006, neither the Company nor any Subsidiary
has:
(i) issued
any stock, bonds or other corporate securities or any right, options or warrants
with respect thereto;
(ii) borrowed
any amount in excess of $100,000 or incurred or become subject to any other
liabilities in excess of $100,000 (absolute or contingent) except current
liabilities incurred in the ordinary course of business which are comparable
in
nature and amount to the current liabilities incurred in the ordinary course
of
business during the comparable portion of its prior fiscal year, as adjusted
to
reflect the current nature and volume of the business of the Company and its
Subsidiaries;
(iii) discharged
or satisfied any lien or encumbrance in excess of $100,000 or paid any
obligation or liability (absolute or contingent) in excess of $100,000, other
than current liabilities paid in the ordinary course of business;
(iv) declared
or made any payment or distribution of cash or other property to stockholders
with respect to its stock, or purchased or redeemed, or made any agreements
so
to purchase or redeem, any shares of its capital stock, in each case in excess
of $50,000 individually or $100,000 in the aggregate;
(v) sold,
assigned or transferred any other tangible assets, or canceled any debts or
claims, in each case in excess of $100,000, except in the ordinary course of
business;
(vi) sold,
assigned or transferred any patent rights, trademarks, trade names, copyrights,
trade secrets or other intangible assets or intellectual property rights in
excess of $100,000, or disclosed any proprietary confidential information to
any
person except to customers in the ordinary course of business or to the
Purchasers or their representatives;
(vii) suffered
any material losses or waived any rights of material value, whether or not
in
the ordinary course of business, or suffered the loss of any material amount
of
prospective business;
(viii) made
any
changes in employee compensation except in the ordinary course of business
and
consistent with past practices;
10
(ix) made
capital expenditures or commitments therefor that aggregate in excess of
$100,000;
(x) entered
into any material transaction, whether or not in the ordinary course of business
which has not been disclosed in the Commission Documents;
(xi) made
charitable contributions or pledges in excess of $10,000;
(xii) suffered
any material damage, destruction or casualty loss, whether or not covered by
insurance;
(xiii) experienced
any material problems with labor or management in connection with the terms
and
conditions of their employment; or
(xiv) entered
into an agreement, written or otherwise, to take any of the foregoing
actions.
(z) Investment
Company Act Status.
The
Company is not, and as a result of and immediately upon the Closing will not
be,
an “investment company” or a company “controlled” by an “investment company,”
within the meaning of the Investment Company Act of 1940, as
amended.
(aa) ERISA.
No
liability to the Pension Benefit Guaranty Corporation has been incurred with
respect to any Plan (as defined below) by the Company or any of its Subsidiaries
which is or would be materially adverse to the Company and its Subsidiaries.
The
execution and delivery of this Agreement and the issuance and sale of the
Securities will not involve any transaction which is subject to the prohibitions
of Section 406 of the Employee Retirement Income Security Act of 1974, as
amended (“ERISA”) or in connection with which a tax could be imposed pursuant to
Section 4975 of the Internal Revenue Code of 1986, as amended, provided that,
if
any of the Purchasers, or any person or entity that owns a beneficial interest
in any of the Purchasers, is an “employee pension benefit plan” (within the
meaning of Section 3(2) of ERISA) with respect to which the Company is a “party
in interest” (within the meaning of Section 3(14) of ERISA), the requirements of
Sections 407(d)(5) and 408(e) of ERISA, if applicable, are met. As used in
this
Section 2.1(aa), the term “Plan” shall mean an “employee pension benefit plan”
(as defined in Section 3 of ERISA) which is or has been established or
maintained, or to which contributions are or have been made, by the Company
or
any Subsidiary or by any trade or business, whether or not incorporated, which,
together with the Company or any Subsidiary, is under common control, as
described in Section 414(b) or (c) of the Code.
(bb) Independent
Nature of Purchasers.
The
Company acknowledges that the obligations of each Purchaser under the
Transaction Documents are several and not joint with the obligations of any
other Purchaser, and no Purchaser shall be responsible in any way for the
performance of the obligations of any other Purchaser under the Transaction
Documents. The Company acknowledges that it has been advised the decision of
each Purchaser to purchase securities pursuant to this Agreement has been made
by such Purchaser independently of any other purchase and independently of
any
information, materials, statements or opinions as to the business, affairs,
operations, assets, properties, liabilities, results of operations, condition
(financial or otherwise) or prospects of the Company or of its Subsidiaries
which may have made or given by any other Purchaser or by any agent or employee
of any other Purchaser, and no Purchaser or any of its agents or employees
shall
have any liability to any Purchaser (or any other person) relating to or arising
from any such information, materials, statements or opinions. The Company
acknowledges that nothing contained herein, or in any Transaction Document,
and
no action taken by any Purchaser pursuant hereto or thereto, shall be deemed
to
constitute the Purchasers as a partnership, an association, a joint venture
or
any other kind of entity, or create a presumption that the Purchasers are in
any
way acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company acknowledges
that each Purchaser shall be entitled to independently protect and enforce
its
rights, including without limitation, the rights arising out of this Agreement
or out of the other Transaction Documents, and it shall not be necessary for
any
other Purchaser to be joined as an additional party in any proceeding for such
purpose. The Company acknowledges that for reasons of administrative convenience
only, the Transaction Documents have been prepared by counsel for one of the
Purchasers and such counsel does not represent all of the Purchasers but only
such Purchaser and the other Purchasers have retained their own individual
counsel with respect to the transactions contemplated hereby. The Company
acknowledges that it has elected to provide all Purchasers with the same terms
and Transaction Documents for the convenience of the Company and not because
it
was required or requested to do so by the Purchasers.
11
(cc) No
Integrated Offering.
Neither
the Company, nor any of its affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales of any security
or
solicited any offers to buy any security under circumstances that would cause
the offering of the Securities pursuant to this Agreement to be integrated
with
prior offerings by the Company for purposes of the Securities Act in a manner
that would prevent the Company from selling the Securities pursuant to
Regulation D and Rule 506 thereof under the Securities Act, nor will the Company
or any of its affiliates or subsidiaries take any action or steps that would
cause the offering of the Securities to be integrated with other
offerings.
The
Company does not have any registration statement pending before the Commission
or currently under the Commission’s review. Except as set forth on Schedule
2.1(cc)
hereto,
since December 1, 2006, the Company has not offered or sold any of its equity
securities or debt securities convertible into shares of Common
Stock.
(dd) ▇▇▇▇▇▇▇▇-▇▇▇▇▇
Act.
The
Company is in compliance with the applicable provisions of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇
Act of 2002 (the “▇▇▇▇▇▇▇▇-▇▇▇▇▇
Act”),
and
the rules and regulations promulgated thereunder, that are effective and
presently applicable to the Company, and intends to comply with (and at such
time required by) other applicable provisions of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act, and
the
rules and regulations promulgated thereunder, upon the effectiveness and
applicability of such provisions with respect to the Company.
(ee) Dilutive
Effect.
The
Company understands and acknowledges that its obligation to issue the Warrant
Shares upon the exercise of the Warrants in accordance with the Warrants, is
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interest of other stockholders of the
Company.
12
(ff) DTC
Status.
The
Company’s current transfer agent is a participant in and the Common Stock is
eligible for transfer pursuant to the Depository Trust Company Automated
Securities Transfer Program. The name, address, telephone number, fax number,
contact person and email address of the Company’s transfer agent is set forth on
Schedule
2.1(ff)
hereto.
Section
2.2 Representations
and Warranties of the Purchasers.
Each of
the Purchasers hereby represents and warrants to the Company with respect solely
to itself and not with respect to any other Purchaser as follows as of the
date
hereof and as of each Closing Date:
(a) Organization
and Standing of the Purchasers.
If the
Purchaser is an entity, such Purchaser is a corporation, limited liability
company or partnership duly incorporated or organized, validly existing and
in
good standing under the laws of the jurisdiction of its incorporation or
organization.
(b) Authorization
and Power.
Each
Purchaser has the requisite power and authority to enter into and perform its
obligations under the Transaction Documents and to purchase the Securities
being
sold to it hereunder. The execution, delivery and performance of the Transaction
Documents by each Purchaser and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate or
partnership action, and no further consent or authorization of such Purchaser
or
its Board of Directors, stockholders, or partners, as the case may be, is
required. When executed and delivered by the Purchasers, the other Transaction
Documents shall constitute valid and binding obligations of each Purchaser
enforceable against such Purchaser in accordance with their terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditor’s
rights and remedies or by other equitable principles of general
application.
(c) No
Conflict.
The
execution, delivery and performance of the Transaction Documents by the
Purchaser and the consummation by the Purchaser of the transactions contemplated
thereby and hereby do not and will not (i) violate any provision of the
Purchaser’s charter or organizational documents, (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which the Purchaser is a party or by which the Purchaser’s respective
properties or assets are bound, or (iii) result in a violation of any
federal, state, local or foreign statute, rule, regulation, order, judgment
or
decree (including federal and state securities laws and regulations) applicable
to the Purchaser or by which any property or asset of the Purchaser are bound
or
affected, except, in all cases, other than violations pursuant to clauses (i)
or
(iii) (with respect to federal and state securities laws) above, except, for
such conflicts, defaults, terminations, amendments, acceleration, cancellations
and violations as would not, individually or in the aggregate, materially and
adversely affect the Purchaser’s ability to perform its obligations under the
Transaction Documents.
(d) Acquisition
for Investment.
Each
Purchaser is purchasing the Securities solely for its own account and not with
a
view to, or for sale in connection with, public sale or distribution thereof.
Each Purchaser does not have a present intention to sell any of the Securities,
nor a present arrangement (whether or not legally binding) or intention to
effect any distribution of any of the Securities to or through any person or
entity; provided,
however,
that by
making the representations herein, such Purchaser does not agree to hold the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with Federal and state
securities laws applicable to such disposition. Each Purchaser acknowledges
that
it (i) has such knowledge and experience in financial and business matters
such
that Purchaser is capable of evaluating the merits and risks of Purchaser’s
investment in the Company, (ii) is able to bear the financial risks associated
with an investment in the Securities and (iii) has been given full access to
such records of the Company and the Subsidiaries and to the officers of the
Company and the Subsidiaries as it has deemed necessary or appropriate to
conduct its due diligence investigation.
13
(e) Rule
144.
Each
Purchaser understands that the Securities must be held indefinitely unless
such
Securities are registered under the Securities Act or an exemption from
registration is available. Each Purchaser acknowledges that such person is
familiar with Rule 144 of the rules and regulations of the Commission, as
amended, promulgated pursuant to the Securities Act (“Rule
144”),
and
that such Purchaser has been advised that Rule 144 permits resales only under
certain circumstances. Each Purchaser understands that to the extent that Rule
144 is not available, such Purchaser will be unable to sell any Securities
without either registration under the Securities Act or the existence of another
exemption from such registration requirement.
(f) General.
Each
Purchaser understands that the Securities are being offered and sold in reliance
on a transactional exemption from the registration requirements of federal
and
state securities laws and the Company is relying upon the truth and accuracy
of
the representations, warranties, agreements, acknowledgments and understandings
of such Purchaser set forth herein in order to determine the applicability
of
such exemptions and the suitability of such Purchaser to acquire the Securities.
Each Purchaser understands that no United States federal or state agency or
any
government or governmental agency has passed upon or made any recommendation
or
endorsement of the Securities.
(g) No
General Solicitation.
Each
Purchaser acknowledges that the Securities were not offered to such Purchaser
by
means of any form of general or public solicitation or general advertising,
or
publicly disseminated advertisements or sales literature, including (i) any
advertisement, article, notice or other communication published in any
newspaper, magazine, Internet website or similar media, or broadcast over
television or radio, or transmitted by electronic mail over the Internet, (ii)
any seminar or meeting to which such Purchaser was invited by any of the
foregoing means of communications. Each Purchaser, in making the decision to
purchase the Securities, has relied upon independent investigation made by
it
and has not relied on any information or representations made by third
parties.
(h) Accredited
Investor.
Each
Purchaser is an “accredited investor” (as defined in Rule 501 of Regulation
D), and such Purchaser has such experience in business and financial matters
that it is capable of evaluating the merits and risks of an investment in the
Securities. Such Purchaser is not required to be registered as a broker-dealer
under Section 15 of the Exchange Act and such Purchaser is not a broker-dealer.
Each Purchaser acknowledges that an investment in the Securities is speculative
and involves a high degree of risk.
14
(i) Certain
Fees.
The
Purchasers have not employed any broker or finder or incurred any liability
for
any brokerage or investment banking fees, commissions, finders’ structuring
fees, financial advisory fees or other similar fees in connection with the
Transaction Documents.
(j) Independent
Investment.
Except
as may be disclosed in any filings made by a Purchaser with the Commission,
no
Purchaser has agreed to act with any other Purchaser for the purpose of
acquiring, holding, voting or disposing of the Securities purchased hereunder
for purposes of Section 13(d) under the Exchange Act, and each Purchaser is
acting independently with respect to its investment in the Securities.
ARTICLE
III
COVENANTS
The
Company covenants with each Purchaser as follows, which covenants are for the
benefit of each Purchaser and their respective permitted assignees.
Section
3.1 Securities
Compliance.
The
Company shall notify the Commission in accordance with its rules and
regulations, of the transactions contemplated by any of the Transaction
Documents and shall take all other necessary action and proceedings as may
be
required and permitted by applicable law, rule and regulation, for the legal
and
valid issuance of the Securities to the Purchasers, or their respective
subsequent holders.
Section
3.2 Registration
and Listing.
The
Company shall cause its Common Stock to continue to be registered under Sections
15(d) of the Exchange Act, to comply in all respects with its reporting and
filing obligations under the Exchange Act, to comply with all requirements
related to any registration statement filed pursuant to this Agreement, and
to
not take any action or file any document (whether or not permitted by the
Securities Act or the rules promulgated thereunder) to terminate or suspend
such
registration or to terminate or suspend its reporting and filing obligations
under the Exchange Act or Securities Act, except as permitted herein. The
Company will take all action necessary to continue the listing or trading of
its
Common Stock on the OTC Bulletin Board or other exchange or market on which
the
Common Stock is trading. Subject to the terms of the Transaction Documents,
the
Company further covenants that it will take such further action as the
Purchasers may reasonably request, all to the extent required from time to
time
to enable the Purchasers to sell the Securities without registration under
the
Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act. Upon the request of the Purchasers, the
Company shall deliver to the Purchasers a written certification of a duly
authorized officer as to whether it has complied with the issuer requirements
of
Rule 144.
Section
3.3 Inspection
Rights.
Provided the same would not be in violation of Regulation FD, the Company shall
permit, during normal business hours and upon reasonable request and reasonable
advance notice, each Purchaser or any employees, agents or representatives
thereof, so long as such Purchaser shall hold the Notes or shall beneficially
own any Warrant Shares, for purposes reasonably related to such Purchaser’s
interests as a stockholder, to examine the publicly available, non-confidential
records and books of account of, and visit and inspect the properties, assets,
operations and business of the Company and any Subsidiary, and to discuss the
publicly available, non-confidential affairs, finances and accounts of the
Company and any Subsidiary with any of its officers, consultants, directors
and
key employees.
15
Section
3.4 Compliance
with Laws.
The
Company shall comply, and cause each Subsidiary to comply, with all applicable
laws, rules, regulations and orders, noncompliance with which would be
reasonably likely to have a Material Adverse Effect.
Section
3.5 Keeping
of Records and Books of Account.
The
Company shall keep and cause each Subsidiary to keep adequate records and books
of account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions of the Company
and
its Subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section
3.6 Reporting
Requirements.
If the
Commission ceases making the Company’s periodic reports available via the
Internet without charge, then the Company shall furnish the following to each
Purchaser so long as such Purchaser shall be obligated hereunder to purchase
the
Securities or shall beneficially own Securities:
(a) Quarterly
Reports filed with the Commission on Form 10-QSB as soon as practical after
the
document is filed with the Commission, and in any event within five (5) days
after the document is filed with the Commission;
(b) Annual
Reports filed with the Commission on Form 10-KSB as soon as practical after
the
document is filed with the Commission, and in any event within five (5) days
after the document is filed with the Commission; and
(c) Copies
of
all notices, information and proxy statements in connection with any meetings
that are, in each case, provided to holders of shares of Common Stock,
contemporaneously with the delivery of such notices or information to such
holders of Common Stock.
Section
3.7 Other
Agreements.
The
Company shall not enter into any agreement in which the terms of such agreement
would restrict or impair the right or ability to perform of the Company or
any
Subsidiary under any Transaction Document.
Section
3.8 Use
of
Proceeds.
The net
proceeds from the sale of the Securities hereunder shall be used by the Company
for working capital and general corporate purposes and not to redeem any Common
Stock or securities convertible, exercisable or exchangeable into Common Stock
or to settle any outstanding litigation.
Section
3.9 Reporting
Status. So
long
as a Purchaser beneficially owns any of the Securities, the Company shall timely
file all reports required to be filed with the Commission pursuant to the
Exchange Act, and the Company shall not terminate its status as an issuer
required to file reports under the Exchange Act even if the Exchange Act or
the
rules and regulations thereunder would permit such termination.
16
Section
3.10 Disclosure
of Transaction.
The
Company shall issue a press release describing the material terms of the
transactions contemplated hereby (the “Press
Release”)
on the
day of the Initial Closing but in no event later than one hour after the opening
of the market on the business day next succeeding such Closing; provided,
however,
that if
such Closing occurs after 4:00 P.M. Eastern Time on any Trading Day, the Company
shall issue the Press Release no later than 9:00 A.M. Eastern Time on the first
Trading Day following such Closing Date. The Company shall also file with the
Commission a Current Report on Form 8-K (the “Form
8-K”)
describing the material terms of the transactions contemplated hereby (and
attaching as exhibits thereto this Agreement, the form of Note, the Security
Agreement, the form of Warrant and the Press Release) as soon as practicable
following each Closing Date but in no event more than two (2) Trading Days
following such Closing Date, which Press Release and Form 8-K shall be subject
to prior review and reasonable comment by the Purchasers. “Trading
Day”
means
any day during which the principal exchange on which the Common Stock is traded
shall be open for trading.
Section
3.11 Disclosure
of Material Information.
The
Company covenants and agrees that neither it nor any other person acting on
its
behalf has provided or will provide any Purchaser or its agents or counsel
with
any information that the Company believes constitutes material non-public
information, unless prior thereto such Purchaser shall have executed a written
agreement regarding the confidentiality and use of such information. The
Company understands and confirms that each Purchaser shall be relying on the
foregoing representations in effecting transactions in securities of the
Company.
Section
3.12 Pledge
of Securities.
The
Company acknowledges that the Securities may be pledged by a Purchaser in
connection with a bona fide
margin
agreement or other loan or financing arrangement that is secured by the
Securities. The pledge of Securities shall not be deemed to be a transfer,
sale
or assignment of the Securities hereunder, and no Purchaser effecting a pledge
of the Securities shall be required to provide the Company with any notice
thereof or otherwise make any delivery to the Company pursuant to this Agreement
or any other Transaction Document; provided,
that a
Purchaser and its pledgee shall be required to comply with the provisions of
Article V hereof in order to effect a sale, transfer or assignment of Securities
to such pledgee. At the Purchasers’ expense, the Company hereby agrees to
execute and deliver such documentation as a pledgee of the Securities may
reasonably request in connection with a pledge of the Securities to such pledgee
by a Purchaser.
Section
3.13 Amendments.
The
Company shall not amend or waive any provision of the Articles or Bylaws of
the
Company in any way that would adversely affect exercise rights, voting rights,
conversion rights, prepayment rights or redemption rights of the holder of
the
Notes.
Section
3.14 Distributions.
So long
as any Notes or Warrants remain outstanding, the Company agrees that it shall
not (i) declare or pay any dividends or make any distributions to any holder(s)
of Common Stock or (ii) purchase or otherwise acquire for value, directly or
indirectly, any Common Stock or other equity security of the
Company.
Section
3.15 Reservation
of Shares.
So long
as any of the Warrants remain outstanding, the Company shall take all action
necessary to at all times have authorized and reserved for the purpose of
issuance of a sufficient number of shares of Common Stock needed to provide
for
the issuance of the Warrant Shares.
17
Section
3.16 Transfer
Agent Instructions.
The
Company shall issue irrevocable instructions to its transfer agent, and any
subsequent transfer agent, to issue certificates, registered in the name of
each
Purchaser or its respective nominee(s), for the Warrant Shares in such amounts
as specified from time to time by each Purchaser to the Company upon conversion
of the Notes or exercise of the Warrants in the form of Exhibit
E
attached
hereto (the “Irrevocable
Transfer Agent Instructions”).
Prior
to registration of the Warrant Shares under the Securities Act, all such
certificates shall bear the restrictive legend specified in Section 5.1 of
this
Agreement. The Company warrants that no instruction other than the Irrevocable
Transfer Agent Instructions referred to in this Section 3.16 will be given
by
the Company to its transfer agent and that the Warrant Shares shall otherwise
be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement. If a Purchaser provides the Company with an opinion
of counsel, in a generally acceptable form, to the effect that a public sale,
assignment or transfer of the Warrant Shares may be made without registration
under the Securities Act or the Purchaser provides the Company with reasonable
assurances that the Warrant Shares can be sold pursuant to Rule 144 without
any
restriction as to the number of securities acquired as of a particular date
that
can then be immediately sold, the Company shall permit the transfer, and, in
the
case of the Warrant Shares, promptly instruct its transfer agent to issue one
or
more certificates in such name and in such denominations as specified by such
Purchaser and without any restrictive legend. The Company acknowledges that
a
breach by it of its obligations under this Section 3.16 will cause irreparable
harm to the Purchasers by vitiating the intent and purpose of the transaction
contemplated hereby. Accordingly, the Company acknowledges that the remedy
at
law for a breach of its obligations under this Section 3.16 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 3.16, that the Purchasers shall be
entitled, in addition to all other available remedies, to an order and/or
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required.
Section
3.17 Disposition
of Assets.
So long
as the Notes remain outstanding, neither the Company nor any Subsidiary shall
sell, transfer or otherwise dispose of any of its properties, assets and rights
including, without limitation, its software and intellectual property, to any
person except (i) for sales of obsolete assets and sales to customers in the
ordinary course of business and (ii) with the prior written consent of the
holders of a majority of the principal amount of the Notes then
outstanding.
Section
3.18 Form
SB-2 Eligibility.
The
Company currently meets the “registrant eligibility” and transaction
requirements set forth in the general instructions to Form SB-2 applicable
to
“resale” registrations on Form SB-2 and the Company shall file all reports
required to be filed by the Company with the Commission in a timely
manner.
18
ARTICLE
IV
CONDITIONS
Section
4.1 Conditions
Precedent to the Obligation of the Company to Close and to Sell the
Securities.
The
obligation hereunder of the Company to close and issue and sell the Securities
to the Purchasers at each Closing Date is subject to the satisfaction or waiver,
at or before such Closing Date of the conditions set forth below. These
conditions are for the Company’s sole benefit and may be waived by the Company
at any time in its sole discretion.
(a) Accuracy
of the Purchasers’ Representations and Warranties.
The
representations and warranties of each Purchaser shall be true and correct
in
all material respects (except for those representations and warranties that
are
qualified by materiality or Material Adverse Effect, which shall be true and
correct in all respects) as of the date when made and as of each Closing Date
as
though made at that time, except for representations and warranties that are
expressly made as of a particular date, which shall be true and correct in
all
material respects (except for those representations and warranties that are
qualified by materiality or Material Adverse Effect, which shall be true and
correct in all respects) as of such date.
(b) Performance
by the Purchasers.
Each
Purchaser shall have performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by this Agreement to
be
performed, satisfied or complied with by the Purchasers at or prior to each
Closing Date.
(c) No
Injunction.
No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation of any
of
the transactions contemplated by this Agreement.
(d) Delivery
of Purchase Price.
The
Purchase Price for the Securities shall have been delivered to the Company
on
each Closing Date.
(e) Delivery
of Transaction Documents.
The
Transaction Documents shall have been duly executed and delivered by the
Purchasers and, with respect to the Escrow Agreement, the escrow agent, to
the
Company.
Section
4.2 Conditions
Precedent to the Obligation of the Purchasers to Close and to Purchase the
Securities.
The
obligation hereunder of the Purchasers to purchase the Securities and consummate
the transactions contemplated by this Agreement is subject to the satisfaction
or waiver, at or before each Closing, of each of the conditions set forth below.
These conditions are for the Purchasers’ sole benefit and may be waived by the
Purchasers at any time in their sole discretion.
(a) Accuracy
of the Company’s Representations and Warranties.
Each of
the representations and warranties of the Company in this Agreement and the
other Transaction Documents shall be true and correct in all material respects
(except for those representations and warranties that are qualified by
materiality or Material Adverse Effect, which shall be true and correct in
all
respects) as of the date when made and as of each Closing Date as though made
at
that time, except for representations and warranties that are expressly made
as
of a particular date, which shall be true and correct in all material respects
(except for those representations and warranties that are qualified by
materiality or Material Adverse Effect, which shall be true and correct in
all
respects) as of such date.
19
(b) Performance
by the Company.
The
Company shall have performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by this Agreement to
be
performed, satisfied or complied with by the Company at or prior to each Closing
Date.
(c) No
Suspension, Etc.
Trading
in the Common Stock shall not have been suspended by the Commission or the
OTC
Bulletin Board (except for any suspension of trading of limited duration agreed
to by the Company, which suspension shall be terminated prior to each Closing),
and, at any time prior to each Closing Date, trading in securities generally
as
reported by Bloomberg Financial Markets (“Bloomberg”)
shall
not have been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by Bloomberg, or on the
New
York Stock Exchange, nor shall a banking moratorium have been declared either
by
the United States or New York State authorities,
nor
shall there have occurred any material outbreak or escalation of hostilities
or
other national or international calamity or crisis of such magnitude in its
effect on, or any material adverse change in any financial market which, in
each
case, in the judgment of such Purchaser, makes it impracticable or inadvisable
to purchase the Securities.
(d) No
Injunction.
No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation of any
of
the transactions contemplated by this Agreement.
(e) No
Proceedings or Litigation.
No
action, suit or proceeding before any arbitrator or any governmental authority
shall have been commenced, and no investigation by any governmental authority,
to the Company’s knowledge, shall have been threatened, against the Company or
any Subsidiary, or any of the officers, directors or affiliates of the Company
or any Subsidiary seeking to restrain, prevent or change the transactions
contemplated by this Agreement, or seeking damages in connection with such
transactions.
(f) Opinion
of Counsel.
The
Purchasers shall have received an opinion of counsel to the Company, dated
the
date of each Closing, substantially in the form of Exhibit
F
hereto,
with such exceptions and limitations as shall be reasonably acceptable to
counsel to the Purchasers.
(g) Notes
and Warrants.
At or
prior to each Closing Date, the Company shall have delivered to the Purchasers
the Notes (in such denominations as each Purchaser may request). At or prior
to
each Closing Date, the Company shall have delivered to the Purchasers the
Warrants (in such denominations as each Purchaser may request).
(h) Secretary’s
Certificate.
The
Company shall have delivered to the Purchasers a secretary’s certificate, dated
as of each Closing Date, as to (i) the resolutions adopted by the Board of
Directors approving the transactions contemplated hereby, (ii) the Articles,
(iii) the Bylaws, each as in effect at each Closing, and (iv) the authority
and
incumbency of the officers of the Company executing the Transaction Documents
and any other documents required to be executed or delivered in connection
therewith.
20
(i) Officer’s
Certificate.
On each
Closing Date, the Company shall have delivered to the Purchasers a certificate
signed by an executive officer on behalf of the Company, dated as of such
Closing Date, confirming the accuracy of the Company’s representations,
warranties and covenants as of such Closing Date (except those representations
and warranties made as of a specific date) and confirming the compliance by
the
Company with the conditions precedent set forth in paragraphs (b)-(e) and (j)
of
this Section 4.2 as of such Closing Date (provided that, with respect to the
matters in paragraphs (d) and (e) of this Section 4.2, such confirmation shall
be based on the knowledge of the executive officer after due
inquiry).
(j) Transfer
Agent Instructions.
As of
the Initial Closing Date, the Irrevocable Transfer Agent Instructions, in the
form of Exhibit
E
attached
hereto, shall have been delivered to the Company’s transfer agent.
(k) Security
Agreement.
At the
Initial Closing Date, the Company shall have executed and delivered the Security
Agreement to each Purchaser.
(l) UCC
Financing Statements.
At or
prior to the Initial Closing Date, all UCC financing statements in form and
substance satisfactory to the Purchasers shall have been filed at the
appropriate offices.
(m) Reserved.
(n) Material
Adverse Effect.
No
Material Adverse Effect shall have occurred at or before each Closing
Date.
(o) Subsequent
Financing.
The
Company shall not have consummated a financing of its debt or equity securities.
Section
4.3 Post-Closing
Conditions.
The
Company shall comply with the following post-closing conditions on or prior
to
thirty (30) days following the Initial Closing Date.
(a) Termination
of Silicon Valley Bank Lien.
The
Company shall cause to be filed a UCC-3 termination statement terminating the
existing lien filed against the Company in favor of Silicon Valley
Bank.
(b) Delivery
of an Intellectual Property Security Agreement.
The
Company shall cause to be executed a security agreement with respect to all
of
the Company’s Intellectual Property (as defined in the Security Agreement) to be
filed in the United States Patent and Trademark Office.
21
ARTICLE
V
CERTIFICATE
LEGEND
Section
5.1 Legend.
Each
certificate representing the Securities shall be stamped or otherwise imprinted
with a legend substantially in the following form (in addition to any legend
required by applicable state securities or “blue sky” laws):
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE (THE “SECURITIES”) HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”)
OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE
STATE SECURITIES LAWS OR INTELLIGENTIAS, INC. SHALL HAVE RECEIVED AN OPINION
OF
COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER
THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
The
Company agrees to issue or reissue certificates representing any of the Warrant
Shares, without the legend set forth above if at such time, prior to making
any
transfer of any such Warrant Shares, such holder thereof shall give written
notice to the Company describing the manner and terms of such transfer and
removal as the Company may reasonably request. Such proposed transfer and
removal will not be effected until: (a) either (i) the Company has received
an
opinion of counsel reasonably satisfactory to the Company, to the effect that
the registration of the Warrant Shares under the Securities Act is not required
in connection with such proposed transfer, (ii) a registration statement under
the Securities Act covering such proposed disposition has been filed by the
Company with the Commission and has become effective under the Securities Act,
(iii) the Company has received other evidence reasonably satisfactory to the
Company that such registration and qualification under the Securities Act and
state securities laws are not required (which may include an opinion of counsel
provided by the Company), or (iv) the holder provides the Company with
reasonable assurances that such security can be sold pursuant to Rule 144 under
the Securities Act (which may include an opinion of counsel provided by the
Company); and (b) either (i) the Company has received an opinion of counsel
reasonably satisfactory to the Company, to the effect that registration or
qualification under the securities or “blue sky” laws of any state is not
required in connection with such proposed disposition, (ii) compliance with
applicable state securities or “blue sky” laws has been effected, or (iii) the
holder provides the Company with reasonable assurances that a valid exemption
exists with respect thereto (which may include an opinion of counsel provided
by
the Company). The Company will respond to any such notice from a holder within
three (3) business days. In the case of any proposed transfer under this Section
5.1, the Company will use commercially reasonable efforts to comply with any
such applicable state securities or “blue sky” laws, but shall in no event be
required, (x) to qualify to do business in any state where it is not then
qualified, (y) to take any action that would subject it to tax or to the general
service of process in any state where it is not then subject, or (z) to comply
with state securities or “blue sky” laws of any state for which registration by
coordination is unavailable to the Company. The restrictions on transfer
contained in this Section 5.1 shall be in addition to, and not by way of
limitation of, any other restrictions on transfer contained in any other section
of this Agreement. Whenever
a
certificate representing the Warrant Shares is required to be issued to a
Purchaser without a legend, in lieu of delivering physical certificates
representing the Warrant Shares, provided the Company’s transfer agent is
participating in the Depository Trust Company (“DTC”)
Fast
Automated Securities Transfer program, the Company shall use its reasonable
best
efforts to cause its transfer agent to electronically transmit the Warrant
Shares to a Purchaser by crediting the account of such Purchaser’s Prime Broker
with DTC through its Deposit Withdrawal Agent Commission (“DWAC”)
system
(to the extent not inconsistent with any provisions of this
Agreement).
22
ARTICLE
VI
INDEMNIFICATION
Section
6.1 Company
Indemnity.
The
Company agrees to indemnify and hold harmless the Purchasers (and their
respective directors, officers, affiliates, agents, successors and assigns)
from
and against any and all losses, liabilities, deficiencies, costs, damages and
expenses (including, without limitation, reasonable attorneys’ fees, charges and
disbursements) incurred by the Purchasers as a result of any inaccuracy in
or
breach of the representations, warranties or covenants made by the Company
herein.
Section
6.2 Indemnification
Procedure.
Any
party entitled to indemnification under this Article VI (an “indemnified party”)
will give written notice to the indemnifying party of any matter giving rise
to
a claim for indemnification; provided, that the failure of any party entitled
to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VI except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action, proceeding or claim is brought against
an
indemnified party in respect of which indemnification is sought hereunder,
the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnifying party a conflict of interest between
it
and the indemnified party exists with respect to such action, proceeding or
claim (in which case the indemnifying party shall be responsible for the
reasonable fees and expenses of one separate counsel for the indemnified
parties), to assume the defense thereof with counsel reasonably satisfactory
to
the indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle
or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then
the
indemnified party may, at its option, defend, settle or otherwise compromise
or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party’s costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party
and
shall furnish to the indemnifying party all information reasonably available
to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto.
If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not
be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this Article VI to the
contrary, the indemnifying party shall not, without the indemnified party’s
prior written consent, settle or compromise any claim or consent to entry of
any
judgment in respect thereof which imposes any future obligation on the
indemnified party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the indemnified party of a
release from all liability in respect of such claim. The indemnification
obligations to defend the indemnified party required by this Article VI shall
be
made by periodic payments of the amount thereof during the course of
investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred, so long as the indemnified party shall refund
such moneys if it is ultimately determined by a court of competent jurisdiction
that such party was not entitled to indemnification. The indemnity agreements
contained herein shall be in addition to (a) any cause of action or similar
rights of the indemnified party against the indemnifying party or others, and
(b) any liabilities the indemnifying party may be subject to pursuant to the
law.
No
indemnifying party will be liable to the indemnified party under this Agreement
to the extent, but only to the extent that a loss, claim, damage or liability
is
attributable to the indemnified party’s breach of any of the representations,
warranties or covenants made by such party in this Agreement or in the other
Transaction Documents.
23
ARTICLE
VII
MISCELLANEOUS
Section
7.1 Fees
and Expenses.
Except
as otherwise set forth in this Agreement and the other Transaction Documents,
each party shall pay the fees and expenses of its advisors, counsel, accountants
and other experts, if any, and all other expenses, incurred by such party
incident to the negotiation, preparation, execution, delivery and performance
of
this Agreement; provided,
that
the Company shall pay all actual attorneys’ fees and expenses (including
disbursements and out-of-pocket expenses) incurred by the Purchasers in
connection with (i) the preparation, negotiation, execution and delivery of
this
Agreement and the other Transaction Documents and the transactions contemplated
thereunder, which payment shall be made at the Initial Closing and shall not
exceed $35,000 (plus disbursements and out-of-pocket expenses), and (ii) any
amendments, modifications or waivers of this Agreement or any of the other
Transaction Documents. The Company shall also pay all reasonable fees and
expenses incurred by the Purchasers in connection with the enforcement of this
Agreement or any of the other Transaction Documents, including, without
limitation, all reasonable attorneys’ fees and expenses. In addition, on the
Maturity Date (as defined in the Note), the Company shall pay to Fleet
Consulting Inc. a loan fee of $100,000, which shall be payable in cash or in
stock (at a price to be mutually agreed on), at the Company’s
discretion.
Section
7.2 Specific
Performance; Consent to Jurisdiction; Venue.
24
(a) The
Company and the Purchasers acknowledge and agree that irreparable damage would
occur in the event that any of the provisions of this Agreement or the other
Transaction Documents were not performed in accordance with their specific
terms
or were otherwise breached. It is accordingly agreed that the parties shall
be
entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Agreement or the other Transaction Documents and to enforce
specifically the terms and provisions hereof or thereof, this being in addition
to any other remedy to which any of them may be entitled by law or
equity.
(b) The
parties agree that venue for any dispute arising under this Agreement will
lie
exclusively in the state or federal courts located in Los Angeles County,
California, and the parties irrevocably waive any right to raise forum
non conveniens
or any
other argument that Los Angeles is not the proper venue. The parties irrevocably
consent to personal jurisdiction in the state and federal courts of the state
of
California. The Company and each Purchaser consent to process being served
in
any such suit, action or proceeding by mailing a copy thereof to such party
at
the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing in this Section 7.2 shall affect or limit any right to serve
process in any other manner permitted by law. The Company and the Purchasers
hereby agree that the prevailing party in any suit, action or proceeding arising
out of or relating to the Securities, this Agreement or the other Transaction
Documents, shall be entitled to reimbursement for reasonable legal fees from
the
non-prevailing party. The parties hereby waive all rights to a trial by jury.
Section
7.3 Entire
Agreement; Amendment.
This
Agreement and the Transaction Documents contain the entire understanding and
agreement of the parties with respect to the matters covered hereby and, except
as specifically set forth herein or in the other Transaction Documents, neither
the Company nor any Purchaser make any representation, warranty, covenant or
undertaking with respect to such matters, and they supersede all prior
understandings and agreements with respect to said subject matter, all of which
are merged herein. No provision of this Agreement may be waived or amended
other
than by a written instrument signed by the Company and the Purchasers holding
at
least a majority of the principal amount of the Notes then held by the
Purchasers. Any amendment or waiver effected in accordance with this Section
7.3
shall be binding upon each Purchaser (and their permitted assigns) and the
Company.
Section
7.4 Notices.
Any
notice, demand, request, waiver or other communication required or permitted
to
be given hereunder shall be in writing and shall be effective (a) upon hand
delivery by telecopy or facsimile at the address or number designated below
(if
delivered on a business day during normal business hours where such notice
is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice
is
to be received) or (b) on the third business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses
for
such communications shall be:
25
If
to the
Company:
TechnoConcepts
Inc.
▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇. #▇▇▇
▇▇▇
▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention:
Chief Executive Officer
Tel.
No.:
(▇▇▇) ▇▇▇-▇▇▇▇
Fax
No.:
(▇▇▇) ▇▇▇-▇▇▇▇
with
copies (which copies
shall
not
constitute notice
to
the
Company) to:
If
to any
Purchaser: At
the
address of such Purchaser set forth on Exhibit
A
to this
Agreement, with copies to Purchaser’s counsel as set forth on Exhibit
A
or as
specified in writing by such Purchaser with copies to:
Law
Offices of ▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇
▇▇▇▇▇
▇▇▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Tel.
No.:
(▇▇▇) ▇▇▇-▇▇▇▇
Fax
No.:
(▇▇▇) ▇▇▇-▇▇▇▇
Any
party
hereto may from time to time change its address for notices by giving written
notice of such changed address to the other party hereto pursuant to the
provisions of this Section 7.4.
Section
7.5 Waivers.
No
waiver by either party of any default with respect to any provision, condition
or requirement of this Agreement shall be deemed to be a continuing waiver
in
the future or a waiver of any other provision, condition or requirement hereof,
nor shall any delay or omission of any party to exercise any right hereunder
in
any manner impair the exercise of any such right accruing to it thereafter.
No
consideration shall be offered or paid to any Purchaser to amend or consent
to a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration is also offered to all of the parties to the
Transaction Documents. This provision constitutes a separate right granted
to
each Purchaser by the Company and shall not in any way be construed as the
Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.
Section
7.6 Headings.
The
article, section and subsection headings in this Agreement are for convenience
only and shall not constitute a part of this Agreement for any other purpose
and
shall not be deemed to limit or affect any of the provisions
hereof.
Section
7.7 Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and assigns. After the Closing, the assignment by a party
to
this Agreement of any rights hereunder shall not affect the obligations of
such
party under this Agreement. Subject to Section 5.1 hereof, the Purchasers may
assign the Securities and its rights under this Agreement and the other
Transaction Documents and any other rights hereto and thereto without the
consent of the Company.
26
Section
7.8 No
Third Party Beneficiaries.
Except
as contemplated by Article VI hereof, this Agreement is intended for the benefit
of the parties hereto and their respective permitted successors and assigns
and
is not for the benefit of, nor may any provision hereof be enforced by, any
other person.
Section
7.9 Governing
Law.
This
Agreement shall be governed by and construed in accordance with the internal
laws of the State of California, without giving effect to any of the conflicts
of law principles which would result in the application of the substantive
law
of another jurisdiction. This Agreement shall not be interpreted or construed
with any presumption against the party causing this Agreement to be
drafted.
Section
7.10 Survival.
The
representations and warranties of the Company and the Purchasers shall survive
the execution and delivery hereof and the Closing hereunder.
Section
7.11 Counterparts.
This
Agreement may be executed in any number of counterparts, all of which taken
together shall constitute one and the same instrument and shall become effective
when counterparts have been signed by each party and delivered to the other
parties hereto, it being understood that all parties need not sign the same
counterpart.
Section
7.12 Publicity.
The
Company agrees that it will not disclose, and will not include in any public
announcement, the names of the Purchasers without the consent of the Purchasers,
which consent shall not be unreasonably withheld or delayed, or unless and
until
such disclosure is required by law, rule or applicable regulation, including
without limitation any disclosure pursuant to the Registration Statement, and
then only to the extent of such requirement.
Section
7.13 Severability.
The
provisions of this Agreement are severable and, in the event that any court
of
competent jurisdiction shall determine that any one or more of the provisions
or
part of the provisions contained in this Agreement shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision or part
of a
provision of this Agreement and this Agreement shall be reformed and construed
as if such invalid or illegal or unenforceable provision, or part of such
provision, had never been contained herein, so that such provisions would be
valid, legal and enforceable to the maximum extent possible.
Section
7.14 Further
Assurances.
From
and after the date of this Agreement, upon the request of the Purchasers or
the
Company, the Company and each Purchaser shall execute and deliver such
instruments, documents and other writings as may be reasonably necessary or
desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement and the other Transaction Documents.
27
IN
WITNESS WHEREOF, the parties hereto have caused this Note and Warrant Purchase
Agreement to be duly executed by their respective authorized officers as of
the
date first above written.
| TECHNOCONCEPTS INC. | ||
| |
|
|
| By: | ||
|
Name:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title:
Chairman and CEO
|
||
| |
|
|
| By: | ||
|
Name: |
||
| Title: | ||
EXHIBIT
A
LIST
OF PURCHASERS
|
Names
and Addresses
|
|
Investment
Amount and Number of
|
|
of
Purchasers
|
Warrants
Purchased
|
|
|
Initial
Closing:
|
||
|
|
Investment
Amount: $1,000,000
|
|
|
|
Warrants:
1,000,000
|
|
|
|
||
|
|
Investment
Amount: $1,000,000
|
|
|
|
Warrants:
1,000,000
|
|
|
|
||
|
|
||
|
|
||
|
Subsequent
Closings:
|
||
|
|
Investment
Amount: $1,000,000
|
|
|
|
Warrants:
2,375,000
|
|
|
|
1
EXHIBIT
B
FORM
OF NOTE
2
EXHIBIT
C
FORM
OF WARRANT
3
EXHIBIT
D
FORM
OF SECURITY AGREEMENT
4
EXHIBIT
E
FORM
OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
TECHNOCONCEPTS
INC.
as
of
June 29, 2007
[Name
and
address of Transfer Agent]
Attn:
_____________
Ladies
and Gentlemen:
Reference
is made to that certain Note and Warrant Purchase Agreement (the “Purchase
Agreement”),
dated
as of August 15, 2007, by and among TechnoConcepts Inc., a Colorado corporation
(the “Company”),
and
the purchasers named therein (collectively, the “Purchasers”)
pursuant to which the Company is issuing to the Purchasers secured promissory
notes (the “Notes”)
and
warrants (the “Warrants”)
to
purchase shares of the Company’s common stock, no par value (the “Common
Stock”).
This
letter shall serve as our irrevocable authorization and direction to you
(provided that you are the transfer agent of the Company at such time) to issue
shares of Common Stock upon exercise of the Warrants (the “Warrant
Shares”)
to or
upon the order of a Purchaser from time to time upon (i) surrender to you of
a
properly completed and duly executed Exercise Notice in the form attached hereto
as Exhibit I, (ii) a copy of the Warrants being exercised (or, in each case,
an
indemnification undertaking with respect to such Notes or the Warrants in the
case of their loss, theft or destruction), and (iii) delivery of a treasury
order or other appropriate order duly executed by a duly authorized officer
of
the Company. So long as you have previously received written confirmation from
counsel to the Company that a registration statement covering resales of the
Warrant Shares has been declared effective by the Securities and Exchange
Commission (the “SEC”)
under
the Securities Act of 1933, as amended (the “1933
Act”),
and
no subsequent notice by the Company or its counsel of the suspension or
termination of its effectiveness, then certificates representing the Warrant
Shares shall not bear any legend restricting transfer of the Warrant Shares
thereby and should not be subject to any stop-transfer restriction. Provided,
however, that if you have not previously received written confirmation from
counsel to the Company that a registration statement covering resales of the
Warrant Shares has been declared effective by the SEC under the 1933 Act, then
the certificates for the Warrant Shares shall bear the following
legend:
“THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
REGISTERED UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS, OR
INTELLIGENTIAS, INC. SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.”
5
and,
provided further, that the Company may from time to time notify you to place
stop-transfer restrictions on the certificates for the Warrant Shares in the
event a registration statement covering the Warrant Shares is subject to
amendment for events then current.
Please
be
advised that the Purchasers are relying upon this letter as an inducement to
enter into the Purchase Agreement and, accordingly, each Purchaser is a third
party beneficiary to these instructions.
Please
execute this letter in the space indicated to acknowledge your agreement to
act
in accordance with these instructions. Should you have any questions concerning
this matter, please contact me at ___________.
|
Very
truly yours,
TECHNOCONCEPTS
INC.
|
||
| |
|
|
| By: | ||
|
Name: _______________________________ |
||
| Title: _____________________________ | ||
ACKNOWLEDGED
AND AGREED:
[TRANSFER
AGENT]
By:
_______________________________________
Name:
_____________________________________
Title:
______________________________________
Date:
______________________
6
EXHIBIT
I
FORM
OF EXERCISE NOTICE
EXERCISE
FORM
TECHNOCONCEPTS
INC.
The
undersigned _______________, pursuant to the provisions of the within Warrant,
hereby elects to purchase _____ shares of Common Stock of TechnoConcepts Inc.
covered by the within Warrant.
Dated:
_________________
Signature ___________________________
Address _____________________
_____________________
Number
of
shares of Common Stock beneficially owned or deemed beneficially owned by the
Holder on the date of Exercise: _________________________
The
undersigned is an “accredited investor” as defined in Regulation D under the
Securities Act of 1933, as amended.
The
undersigned intends that payment of the Warrant Price shall be made as (check
one):
Cash
Exercise_______
Cashless
Exercise_______
If
the
Holder has elected a Cash Exercise, the Holder shall pay the sum of $________
by
certified or official bank check (or via wire transfer) to the Issuer in
accordance with the terms of the Warrant.
If
the
Holder has elected a Cashless Exercise, a certificate shall be issued to the
Holder for the number of shares equal to the whole number portion of the product
of the calculation set forth below, which is ___________. The Company shall
pay
a cash adjustment in respect of the fractional portion of the product of the
calculation set forth below in an amount equal to the product of the fractional
portion of such product and the Per Share Market Value on the date of exercise,
which product is ____________.
X
= Y -
(A)(Y)
B
Where:
The
number of shares of Common Stock to be issued to the Holder
__________________(“X”).
The
number of shares of Common Stock purchasable upon exercise of all of the Warrant
or, if only a portion of the Warrant is being exercised, the portion of the
Warrant being exercised ___________________________ (“Y”).
The
Warrant Price ______________ (“A”).
The
Per
Share Market Value of one share of Common Stock _______________________
(“B”).
7
ASSIGNMENT
FOR
VALUE
RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and
does
irrevocably constitute and appoint _____________, attorney, to transfer the
said
Warrant on the books of the within named corporation.
Dated:
_________________
Signature ___________________________
Address _____________________
_____________________
PARTIAL
ASSIGNMENT
FOR
VALUE
RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the right to purchase _________ shares of Warrant Stock
evidenced by the within Warrant together with all rights therein, and does
irrevocably constitute and appoint ___________________, attorney, to transfer
that part of the said Warrant on the books of the within named
corporation.
Dated:
_________________
Signature ___________________________
Address _____________________
_____________________
FOR
USE
BY THE ISSUER ONLY:
This
Warrant No. W-___ canceled (or transferred or exchanged) this _____ day of
___________, _____, shares of Common Stock issued therefor in the name of
_______________, Warrant No. W-_____ issued for ____ shares of Common Stock
in
the name of _______________.
8
EXHIBIT
F
FORM
OF OPINION
1. The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Colorado and has the requisite corporate
power to own, lease and operate its properties and assets, and to carry on
its
business as presently conducted. The Company is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the failure to so qualify would have a Material Adverse
Effect.
2. The
Company has the requisite corporate power and authority to enter into and
perform its obligations under the Transaction Documents and to issue the Notes,
the Warrants and the Common Stock issuable upon exercise of the Warrants. The
execution, delivery and performance of each of the Transaction Documents by
the
Company and the consummation by it of the transactions contemplated thereby
have
been duly and validly authorized by all necessary corporate action and no
further consent or authorization of the Company, its Board of Directors or
its
stockholders is required. Each of the Transaction Documents have been duly
executed and delivered, and the Notes and the Warrants have been duly executed,
issued and delivered by the Company and each of the Transaction Documents
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its respective terms. The Common Stock
issuable upon conversion of the Notes and exercise of the Warrants are not
subject to any preemptive rights under the Articles of Incorporation or the
Bylaws.
3. The
Notes
and the Warrants have been duly authorized and, when delivered against payment
in full as provided in the Purchase Agreement, will be validly issued, fully
paid and nonassessable. The shares of Common Stock issuable upon conversion
of
the Notes and exercise of the Warrants have been duly authorized and reserved
for issuance, and when delivered upon conversion or against payment in full
as
provided in the Notes and the Warrants, as applicable, will be validly issued,
fully paid and nonassessable.
4. The
execution, delivery and performance of and compliance with the terms of the
Transaction Documents and the issuance of the Notes, the Warrants and the Common
Stock issuable upon conversion of the Notes and exercise of the Warrants do
not
(a) violate any provision of the Articles of Incorporation or Bylaws, (b)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights
of
termination, amendment, acceleration or cancellation of, any material agreement,
mortgage, deed of trust, indenture, note, bond, license, lease agreement,
instrument or obligation to which the Company is a party and which is set forth
on Schedule I, (c) create or impose a lien, charge or encumbrance on any
property of the Company under any agreement or any commitment which is set
forth
on Schedule I to which the Company is a party or by which the Company is bound
or by which any of its respective properties or assets are bound, or (d) result
in a violation of any Federal, state, local or foreign statute, rule,
regulation, order, judgment, injunction or decree (including Federal and state
securities laws and regulations) applicable to the Company or by which any
property or asset of the Company is bound or affected, except, in all cases
other than violations pursuant to clauses (a) and (d) above, for such conflicts,
default, terminations, amendments, acceleration, cancellations and violations
as
would not, individually or in the aggregate, have a Material Adverse
Effect.
9
5. No
consent, approval or authorization of or designation, declaration or filing
with
any governmental authority on the part of the Company is required under Federal,
state or local law, rule or regulation in connection with the valid execution,
delivery and performance of the Transaction Documents, or the offer, sale or
issuance of the Notes, the Warrants and the Common Stock issuable upon exercise
of the Warrants other than filings as may be required by applicable Federal
and
state securities laws and regulations and any applicable stock exchange rules
and regulations.
6. To
our
knowledge, there is no action, suit, claim, investigation or proceeding pending
or threatened against the Company which questions the validity of the Purchase
Agreement, the other Transaction Documents or the transactions contemplated
thereby or any action taken or to be taken pursuant thereto. There is no action,
suit, claim, investigation or proceeding pending, or to our knowledge,
threatened, against or involving the Company or any of its properties or assets
and which, if adversely determined, is reasonably likely to result in a Material
Adverse Effect. To our knowledge, there are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any officers or directors of the Company
in their capacities as such.
7. Assuming
that all of the Purchasers’ representations and warranties in the Purchase
Agreement are complete and accurate, the offer, issuance and sale of the Notes
and the Warrants and the offer, issuance and sale of the Common Stock issuable
upon exercise of the Warrants are exempt from the registration requirements
of
the Securities Act of 1933, as amended.
8. The
Security Agreement will create a valid security interest in favor of the
Purchasers in such assets of the Company that are subject to such Security
Agreement.
9. The
financing statement on form UCC-1, a copy of which is attached hereto as
Schedule
[X]
(the
“Financing
Statement”)
is in
appropriate form for filing with the Secretary of State of the State of Colorado
under the Uniform Commercial Code in effect in that State (the “Colorado
UCC”).
The
security interest created in favor of the Purchasers by the Security Agreement
in those items and types of Collateral described in the Security Agreement
in
which a security interest may be perfected by the filing of a financing
statement under the Colorado UCC will be perfected upon the filing of the
Financing Statement with the Secretary of State of the State of Colorado,
together with the payment of requisite filing or recording fees.
10. The
Company is not, and as a result of and immediately upon Closing will not be,
an
“investment company” or a company “controlled” by an “investment company,”
within the meaning of the Investment Company Act of 1940, as
amended.
10