SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of
September 1, 2004, is made by and among iMedia International, Inc., a
corporation organized under the laws of Delaware (the "Company"), and each of
the purchasers (individually, a "Purchaser" and collectively the "Purchasers")
set forth on the execution pages hereof (each, an "Execution Page" and
collectively the "Execution Pages").
BACKGROUND
A. The Company and each Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D"), as promulgated by the
United States Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Securities Act").
B. Upon the terms and conditions stated in this Agreement, the Company
desires to issue and sell to the Purchasers, and each Purchaser desires to
purchase units (each a "Unit") consisting of (i) a convertible bridge note, in
the form attached hereto as Exhibit A (collectively the "Notes"), in the
principal face amount of one thousand dollars ($1,000), which Notes shall be
initially convertible into one thousand six hundred sixty seven (1,667) shares
of the Company's common stock, $0.001 par value per share (the "Common Stock
and (ii) 1,111 non-redeemable warrants, in the form attached hereto as Exhibit
B, each to purchase, for a period of five (5) years, one share of the
Company's Common Stock, $0.001 par value per share, initially at ninety cents
($0.90) per share (the "Warrants"). The shares of Common Stock issuable upon
conversion of or otherwise pursuant to the Notes and Warrants are referred to
herein as the "Conversion Shares." The Notes, Warrants and the Conversion
Shares are collectively referenced herein as the "Securities" and each of them
may individually be referred to herein as a "Security."
C. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights
Agreement, in the form attached hereto as Exhibit C (the "Registration Rights
Agreement"), pursuant to which the Company has agreed to provide certain
registration rights under the Securities Act and the rules and regulations
promulgated thereunder, and applicable state securities laws. This Agreement,
the Notes, the Warrants and the Registration Rights Agreement are collectively
referred to herein as the "Transaction Documents."
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Purchasers,
intending to be legally bound, hereby agree as follows:
1. PURCHASE AND SALE OF SECURITIES.
(a) Purchase and Sale of Securities. Subject to the terms and conditions
hereof, at the Closing (as defined in Section 1(b) below), the Company shall
issue and sell to each Purchaser, and each Purchaser, severally and not
jointly, shall purchase from the Company, such number of Units as is set forth
on such Purchaser's Execution Page, for a purchase price (as to each
Purchaser, the "Purchase Price") per Unit equal to One Thousand Dollars
($1,000.00). The aggregate amount of Units to be issued and sold by the
Company to all Purchasers pursuant to this Agreement shall not exceed Two
Million Dollars ($2,000,000.00).
(b) The Closing. Subject to the satisfaction (or waiver) of the
conditions set forth in Sections 6 and 7 below, the closing of the
transactions contemplated hereby (the "Closing") shall take place at the
offices of MicroCapital LLC at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ at 10:00 a.m., Pacific Time on the date hereof or such other
time and place as the Company and the Purchasers may mutually agree (the
"Closing Date").
2. PURCHASER'S REPRESENTATIONS AND WARRANTIES.
Each Purchaser severally, but not jointly, represents and warrants to the
Company as follows:
(a) Purchase for Own Account, Etc. Such Purchaser is purchasing the
Securities for such Purchaser's own account for investment purposes only and
not with a present view towards the public sale or distribution thereof,
except pursuant to sales that are exempt from the registration requirements of
the Securities Act and/or sales registered under the Securities Act. Such
Purchaser understands that such Purchaser must bear the economic risk of this
investment indefinitely, unless the Securities are registered pursuant to the
Securities Act and any applicable state securities or blue sky laws or an
exemption from such registration is available, and that the Company has no
present intention of registering the resale of any such Securities other than
as contemplated by the Registration Rights Agreement. Notwithstanding
anything in this Section 2(a) to the contrary, 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 or pursuant to a registration statement or an
exemption from the registration requirements under the Securities Act.
(b) Accredited Investor Status. Such Purchaser is an "Accredited
Investor" as that term is defined in Rule 501(a) of Regulation D.
(c) Reliance on Exemptions. Such Purchaser understands that the
Securities are being offered and sold to such Purchaser in reliance upon
specific exemptions from the registration requirements of United States
federal and state securities laws and that the Company is relying upon the
truth and accuracy of, and such Purchaser's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
such Purchaser set forth herein in order to determine the availability of such
exemptions and the eligibility of such Purchaser to acquire the Securities.
(d) Information. Such Purchaser and its counsel, if any, have been
furnished all materials relating to the business, finances and operations of
the Company and materials relating to the offer and sale of the Securities
that have been specifically requested by such Purchaser or its counsel.
Neither such inquiries nor any other investigation conducted by such Purchaser
or its counsel or any of its representatives shall modify, amend or affect
such Purchaser's right to rely on the Company's representations and warranties
contained in Section 3 below. Such Purchaser understands that such
Purchaser's investment in the Securities involves a high degree of risk.
(e) Governmental Review. Such Purchaser understands that no United
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.
(f) Authorization; Enforcement. This Agreement and the Registration
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of such Purchaser and are valid and binding agreements of such
Purchaser enforceable against such Purchaser in accordance with their
respective terms.
(g) Residency. Such Purchaser is a resident of the jurisdiction set
forth under such Purchaser's name on the Execution Page hereto executed by
such Purchaser.
(h) Transactions in the Company's Common Stock. Such Purchaser has not
effected any purchases or sales of the Company's Common Stock during the five
trading days (as hereinafter defined) prior to the date hereof. For purposes
of this subsection (h), the term "trading day" means any day on which the
principal United States securities exchange or trading market where the Common
Stock is then listed or traded, is open for trading.
Each Purchaser's representations and warranties made in this Article 2
are made solely for the purpose of permitting the Company to make a
determination that the offer and sale of the Securities pursuant to this
Agreement comply with applicable U.S. federal and state securities laws and
not for any other purpose. Accordingly, the Company may not rely on such
representations and warranties for any other purpose. No Purchaser has made
or hereby makes any other representations or warranties, express or implied,
to the Company in connection with the transactions contemplated hereby.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth on the Disclosure Schedule attached hereto as Exhibit
D executed and delivered by the Company to each Purchaser dated the date
hereof (the "Disclosure Schedule"), the Company represents and warrants to
each Purchaser as follows:
(a) Organization and Qualification. The Company and each of its direct
and indirect subsidiaries (collectively, the "Subsidiaries") is a corporation
duly organized and existing in good standing under the laws of the
jurisdiction in which it is incorporated or organized, and has the requisite
corporate power to own its properties and to carry on its business as now
being conducted. The Company and each of its Subsidiaries 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 by it makes such
qualification necessary and where the failure so to qualify or be in good
standing would have a Material Adverse Effect. For purposes of this
Agreement, "Material Adverse Effect" means any effect which, individually or
in the aggregate with all other effects, reasonably would be expected to be
materially adverse to (i) the Securities, (ii) the ability of the Company to
perform its obligations under this Agreement or the other Transaction
Documents or (iii) the business, operations, properties, prospects, financial
condition or results of operations of the Company and its Subsidiaries, taken
as a whole.
(b) Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement and the other Transaction Documents, to issue and sell the
Units in accordance with the terms hereof, to issue the Conversion Shares upon
conversion of the Notes in accordance with the terms thereof; (ii) the
execution, delivery and performance of this Agreement and the other
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby (including, without limitation,
the issuance of the Units and the issuance and reservation for issuance of the
Conversion Shares) have been duly authorized by the Company's Board of
Directors and no further consent or authorization of the Company, its Board of
Directors, or any committee of the Board of Directors is required, and (iii)
this Agreement constitutes, and, upon execution and delivery by the Company of
the other Transaction Documents, such Transaction Documents will constitute,
valid and binding obligations of the Company enforceable against the Company
in accordance with their respective terms. Neither the execution, delivery or
performance by the Company of its obligations under this Agreement or the
other Transaction Documents, nor the consummation by it of the transactions
contemplated hereby or thereby (including, without limitation, the issuance of
the Units or the issuance or reservation for issuance of the Conversion
Shares) requires any consent or authorization of the Company's stockholders
(including, without limitation, any consent under Rule 4350(i) of the National
Association of Securities Dealers, Inc.).
(c) Capitalization. The capitalization of the Company as of the date
hereof, including the authorized capital stock, the number of shares issued
and outstanding, the number of shares issuable and reserved for issuance
pursuant to the Company's stock option plans, the number of shares issuable
and reserved for issuance pursuant to securities (other than the Notes)
exercisable or exchangeable for, or convertible into, any shares of capital
stock and the number of shares to be reserved for issuance upon conversion of
the Notes is set forth in Section 3(c) of the Disclosure Schedule. All of
such outstanding shares of capital stock have been, or upon issuance in
accordance with the terms of any such exercisable, exchangeable or convertible
securities will be, validly issued, fully paid and non-assessable. No shares
of capital stock of the Company (including the Conversion Shares) are subject
to preemptive rights or any other similar rights of the stockholders of the
Company or any liens or encumbrances. Except for the Securities and as set
forth in Section 3(c) of the Disclosure Schedule, (i) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into or
exercisable or exchangeable for, any shares of capital stock of the Company or
any of its Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
Subsidiaries, nor are any such issuances, contracts, commitments,
understandings or arrangements contemplated, (ii) there are no contracts,
commitments, understandings or arrangements under which the Company or any of
its Subsidiaries is obligated to register the sale of any of its or their
securities under the Securities Act (except the Registration Rights
Agreement); (iii) there are no outstanding securities or instruments of the
Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem or otherwise acquire any security of the Company or any of its
Subsidiaries; and (iv) the Company does not have any shareholder rights plan,
"poison pill" or other anti-takeover plans or similar arrangements. Section
3(c) of the Disclosure Schedule sets forth all of the securities or
instruments issued by the Company or any of its Subsidiaries that contain
anti-dilution or similar provisions, and, except as and to the extent set
forth thereon, the sale and issuance of the Securities will not trigger any
anti-dilution adjustments to any such securities or instruments. The Company
has furnished to each Purchaser true and correct copies of the Company's
organizational documents ("Organizational Documents") as in effect on the date
hereof and all other instruments and agreements governing securities
convertible into or exercisable or exchangeable for capital stock of the
Company, all of which instruments and agreements are set forth in Section 3(c)
of the Disclosure Schedule. The Company or one of its Subsidiaries has the
unrestricted right to vote, and (subject to limitations imposed by applicable
law) to receive dividends and distributions on, all capital securities of its
Subsidiaries as owned by the Company or any such Subsidiary.
(d) Issuance of Securities. The Units are duly authorized and, upon
issuance in accordance with the terms of this Agreement, (i) will be validly
issued, fully paid and non-assessable and free from all taxes, liens, claims
and encumbrances, (ii) will not be subject to preemptive rights, rights of
first refusal or other similar rights of stockholders of the Company or any
other person and (iii) will not impose personal liability on the holder
thereof. The Conversion Shares are duly authorized and reserved for issuance,
and, upon conversion of the Notes in accordance with the terms thereof, (x)
will be validly issued, fully paid and non-assessable, and free from all
taxes, liens, claims and encumbrances, (y) will not be subject to preemptive
rights, rights of first refusal or other similar rights of stockholders of the
Company or any other person and (III) will not impose personal liability upon
the holder thereof.
(e) No Conflicts. The execution, delivery and performance of this
Agreement and the other Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and
thereby (including, without limitation, the issuance of the Units and the
issuance and reservation for issuance of the Conversion Shares) will not (i)
result in a violation of the Organizational Documents, (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment (including, without limitation, the triggering of any anti-dilution
provisions), acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party, or
(iii) result in a violation of any law, rule, regulation, order, judgment or
decree (including United States federal and state securities laws, rules and
regulations and rules and regulations of any self-regulatory organizations to
which either the Company or its securities are subject) applicable to the
Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected (except, with respect
to clauses (ii) and (iii), for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations that would not,
individually or in the aggregate, have a Material Adverse Effect).
(f) Compliance. The Company is not in violation of the Organizational
Documents, and no Subsidiary is in violation of its organizational documents.
Neither the Company nor any of its Subsidiaries is in default (and no event
has occurred that with notice or lapse of time or both would put the Company
or any of its Subsidiaries in default) under, nor has there occurred any event
giving others (with notice or lapse of time or both) any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party (including, without limitation, the Contracts (as defined in Section
3(g) below)), except for actual or possible violations, defaults or rights
that would not, individually or in the aggregate, have a Material Adverse
Effect. The businesses of the Company and its Subsidiaries are not being
conducted, and shall not be conducted so long as any Purchaser owns any of the
Securities, in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations the sanctions for which
either individually or in the aggregate have not had and would not have a
Material Adverse Effect. Neither the Company, nor any of its Subsidiaries,
nor any director, officer, agent, employee or other person acting on behalf of
the Company or any Subsidiary has, in the course of his actions for, or on
behalf of, the Company or any Subsidiary, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity, made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds,
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, or made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government
official or employee. The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, provincial or foreign regulatory authorities that are material to the
conduct of its business, and neither the Company nor any of its Subsidiaries
has received any notice of proceeding relating to the revocation or
modification of any such certificate, authorization or permit. Except (i) as
may be required under the Securities Act in connection with the performance of
the Company's obligations under the Registration Rights Agreement, (ii) for
the filing of a Form D with the SEC, (iii) as may be required for compliance
with applicable state securities or "blue sky" laws, or (iv) as otherwise set
forth in Section 3(f) of the Disclosure Schedule, the Company is not required
to obtain any consent, approval, authorization or order of, or make any filing
or registration with, any court or governmental agency or any regulatory or
self-regulatory agency or other third party in order for it to execute,
deliver or perform any of its obligations under this Agreement or any of the
other Transaction Documents.
(g) SEC Documents, Financial Statements. Since January 1, 2000, the
Company has timely filed (within applicable extension periods) all reports,
schedules, forms, statements and other documents required to be filed by it
with the SEC pursuant to the reporting requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") (all of the foregoing filed prior
to the date hereof and all exhibits included therein and financial statements
and schedules thereto and documents incorporated by reference therein, the
"SEC Documents"). The Company has delivered, or has made available, to each
Purchaser true and complete copies of the SEC Documents. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act or the Securities Act, as the case may be,
and the rules and regulations of the SEC promulgated thereunder applicable to
the SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading. None of the statements made in any such SEC
Documents is, or has been, required to be amended or updated under applicable
law (except for such statements as have been amended or updated in subsequent
filings made prior to the date hereof). As of their respective dates, the
financial statements of the Company included in the SEC Documents complied as
to form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC applicable with respect
thereto. Such financial statements have been prepared in accordance with U.S.
generally accepted accounting principles ("GAAP"), consistently applied,
during the periods involved (except as may be otherwise indicated in such
financial statements or the notes thereto or, 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
consolidated financial position of the Company and its consolidated
Subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal, immaterial year-end audit adjustments).
Except as set forth in Section 3(g) of the Disclosure Statements, the Company
has no liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to the date of such
financial statements and (ii) obligations under contracts and commitments
incurred in the ordinary course of business and not required under GAAP to be
reflected in such financial statements, which liabilities and obligations
referred to in clauses (i) and (ii), individually or in the aggregate, are not
material to the financial condition or operating results of the Company. To
the extent required by the rules and regulations of the SEC applicable
thereto, the Section 3(g) of the Disclosure Statements contains a complete and
accurate list of all material undischarged written or oral contracts,
agreements, leases or other instruments to which the Company or any Subsidiary
is a party or by which the Company or any Subsidiary is bound or to which any
of the properties or assets of the Company or any Subsidiary is subject (each,
a "Contract"). Except as set forth in Section 3(g) of the Disclosure
Statements, none of the Company, its Subsidiaries or, to the best knowledge of
the Company, any of the other parties thereto is in breach or violation of any
Contract, which breach or violation would have a Material Adverse Effect.
(h) Internal Accounting Controls. The Company and each of its
Subsidiaries maintains a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences. The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 15a-14 and 15d-14)
for the Company and designed such disclosures controls and procedures to
ensure that material information relating to the Company, including its
Subsidiaries, is made known to the certifying officers by others within those
entities, particularly during the period in which the Company's Annual Report
on Form 10-K or Quarterly Report on Form 10-QSB, as the case may be, is being
prepared. The Company's certifying officers have evaluated the effectiveness
of the Company's controls and procedures as of a date within 90 days prior to
the filing date of the 2003 Annual Report and the Company's most recently
filed Quarterly Report on Form 10-QSB (each such date, an "Evaluation Date").
The Company presented in the 2003 Annual Report and its most recently filed
Quarterly Report on Form 10-QSB the conclusions of the certifying officers
about the effectiveness of the disclosure controls and procedures based on
their evaluations as of the respective Evaluation Date. Since the Evaluation
Date for the 2003 Annual Report, there have been no significant changes in the
Company's internal controls (as such term is defined in Item 307(b) of
Regulation S-K under the Exchange Act) or, to the Company's knowledge, in
other factors that could significantly affect the Company's internal controls.
(i) Absence of Certain Changes. Except as set forth in Section 3(i) of
the Disclosure Schedule, since December 31, 2003, there has been no material
adverse change and no material adverse development in the business,
properties, operations, prospects, financial condition or results of
operations of the Company and its Subsidiaries, taken as a whole. The Company
has not taken any steps, and does not currently expect to take any steps, to
seek protection pursuant to any bankruptcy or receivership law, nor does the
Company or any of its Subsidiaries have any knowledge or reason to believe
that its creditors intend to initiate involuntary bankruptcy proceedings with
respect to the Company or any of its Subsidiaries.
(j) Transactions With Affiliates. Except as set forth in Section 3(j)
of the Disclosure Schedule, none of the officers, directors, or employees of
the Company or any of its Subsidiaries is presently a party to any transaction
with the Company or any of its Subsidiaries (other than for ordinary course
services solely in their capacity as officers, directors or employees),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any such
officer, director or employee or any corporation, partnership, trust or other
entity in which any such officer, director, or employee has an ownership
interest of five percent or more or is an officer, director, trustee or
partner.
(k) Absence of Litigation. Except as disclosed in Section 3(k) of the
Disclosure Schedule, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body (including, without limitation, the SEC)
pending or, to the knowledge of the Company or any of its Subsidiaries,
threatened against or affecting the Company, any of its Subsidiaries, or any
of their respective directors or officers in their capacities as such. There
are no facts which, if known by a potential claimant or governmental
authority, could give rise to a claim or proceeding which, if asserted or
conducted with results unfavorable to the Company or any of its Subsidiaries,
could reasonably be expected to have a Material Adverse Effect. The SEC has
not issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the
Securities Act or the Exchange Act.
(l) Intellectual Property. Each of the Company and its Subsidiaries
owns or is duly licensed (and, in such event, has the unfettered right to
grant sublicenses) to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, permits, inventions, discoveries, processes,
scientific, technical, engineering and marketing data, object and source
codes, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures)
and other similar rights and proprietary knowledge (collectively,
"Intangibles") necessary for the conduct of its business as now being
conducted and as presently contemplated to be conducted in the future.
Section 3(l) of the Disclosure Schedule sets forth a list of all Intangibles
owned and/or used by the Company in its business. To the knowledge of the
Company and its Subsidiaries, neither the Company nor any Subsidiary of the
Company infringes or is in conflict with any right of any other person with
respect to any third party Intangibles. Neither the Company nor any of its
Subsidiaries has received written notice of any pending conflict with or
infringement upon such third party Intangibles. Neither the Company nor any
of its Subsidiaries has entered into any consent agreement, indemnification
agreement, forbearance to ▇▇▇ or settlement agreement with respect to the
validity of the Company's or its Subsidiaries' ownership of or right to use
its Intangibles. To the best of the Company's knowledge, the Intangibles are
valid and enforceable and no registration relating thereto has lapsed, expired
or been abandoned or canceled or is the subject of cancellation or other
adversarial proceedings, and all applications therefor are pending and in good
standing. The Company and its Subsidiaries have complied, in all material
respects, with their respective contractual obligations relating to the
protection of the Intangibles used pursuant to licenses. To the best of
Company's knowledge, no person is infringing on or violating the Intangibles
owned or used by the Company or its Subsidiaries.
(m) Title. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property and good and merchantable title to
all personal property owned by them that is material to the business of the
Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as do not materially affect the value of
such property and do not materially interfere with the use made and proposed
to be made of such property by the Company and its Subsidiaries. Any real
property and facilities held under lease by the Company and its Subsidiaries
are held by them under valid, subsisting and enforceable leases with such
exceptions as are not material and do not materially interfere with the use
made and proposed to be made of such property and buildings by the Company and
its Subsidiaries.
(n) Tax Status. Except as set forth in the Disclosure Schedule, the
Company and each of its Subsidiaries has made or filed all foreign, U.S.
federal, state, provincial and local income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject (unless
and only to the extent that the Company and each of its Subsidiaries has set
aside on its books provisions reasonably adequate for the payment of all
unpaid and unreported taxes) and has paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be
due on such returns, reports and declarations, except those being contested in
good faith and has set aside on its books provisions reasonably adequate for
the payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company know of no basis for any such claim. The
Company has not executed a waiver with respect to any statute of limitations
relating to the assessment or collection of any foreign, federal, state,
provincial or local tax. None of the Company's tax returns is presently being
audited by any taxing authority.
(o) Key Employees. Each of the Company's directors and officers and any
Key Employee (as defined below) is currently serving the Company in the
capacity disclosed in the Company's current SEC filings. To the best of
Company's knowledge, no Key Employee is, or is now expected to be, in
violation of any material term of any employment contract, confidentiality,
disclosure or proprietary information agreement, non-competition agreement, or
any other contract or agreement or any restrictive covenant, and the continued
employment of each Key Employee does not subject the Company or any of its
Subsidiaries to any material liability with respect to any of the foregoing
matters. No Key Employee has, to the knowledge of the Company and its
Subsidiaries, any intention to terminate or limit his employment with, or
services to, the Company or any of its Subsidiaries, nor is any such Key
Employee subject to any constraints which would cause such employee to be
unable to devote his full time and attention to such employment or services.
For purposes of this Agreement, "Key Employee" means the persons listed in
Section 3(o) of the Disclosure Schedule and any individual who assumes or
performs any of the duties of a Key Employee.
(p) Employee Relations. (i) Neither the Company nor any of its
Subsidiaries is involved in any material union labor dispute nor, to the
knowledge of the Company or any of its Subsidiaries, is any such dispute
threatened. The Company and its Subsidiaries believe that their relations with
their employees are good; (ii) no executive officer (as defined in Rule 501(f)
of the Securities Act) has notified the Company that such officer intends to
leave the Company or otherwise terminate such officer's employment with the
Company; and (iii) the Company and its Subsidiaries are in compliance with all
federal, state, local and foreign laws and regulations respecting employment
and employment practices, terms and conditions of employment and wages and
hours, except where failure to be in compliance would not, either individually
or in the aggregate, result in a Material Adverse Effect.
(q) Insurance. The Company and each of its Subsidiaries has in force
fire, casualty, product liability and other insurance policies, with extended
coverage, sufficient in amount to allow it to replace any of its material
properties or assets which might be damaged or destroyed or sufficient to
cover liabilities to which the Company may reasonably become subject, and such
types and amounts of other insurance with respect to its business and
properties, on both a per occurrence and an aggregate basis, as are
customarily carried by persons engaged in the same or similar business as the
Company. No default or event has occurred that could give rise to a default
under any such policy.
(r) Environmental Matters. There is no environmental litigation or
other environmental proceeding pending or, to the knowledge of the Company or
any of its Subsidiaries, threatened by any governmental regulatory authority
or others with respect to the current or any former business of the Company or
any of its Subsidiaries or any partnership or joint venture currently or at
any time affiliated with the Company or any of its Subsidiaries. No state of
facts exists as to environmental matters or Hazardous Substances (as defined
below) that involves the reasonable likelihood of a material capital
expenditure by the Company or any of its Subsidiaries that may otherwise have
a Material Adverse Effect. No Hazardous Substances have been treated, stored
or disposed of, or otherwise deposited, in or on the properties owned or
leased by the Company or any of its Subsidiaries or by any partnership or
joint venture currently or at any time affiliated with the Company or any of
its Subsidiaries in violation of any applicable environmental laws. The
environmental compliance programs of the Company and each of its Subsidiaries
comply in all material respects with all environmental laws, whether foreign,
federal, state, provincial or local, currently in effect. For purposes of
this Agreement, "Hazardous Substances" means any substance, waste,
contaminant, pollutant or material that has been determined by any
governmental authority to be capable of posing a risk of injury to health,
safety, property or the environment.
(s) Solvency. The Company's ability to pay all outstanding
indebtedness, after the Closing Date, is dependent on its ability to secure
additional capital and increase its revenue as more fully described in Section
3(s) of the Disclosure Schedule. The Company does not intend to incur debts
beyond its ability to pay such debts as they mature (taking into account the
timing and amounts of cash to be payable on or in respect of its debt).
(t) Listing. The Common Stock is currently listed for trading in the
Pink Sheets (the "Pink Sheets"). The Company is not in violation of the
listing requirements of the Pink Sheets, does not reasonably anticipate that
the Common Stock will be delisted from the Pink Sheets for the foreseeable
future, and has not received any notice regarding the possible delisting of
the Common Stock from the Pink Sheets. The Company will attempt to secure
(subject to the Registration Rights Agreement) the listing of the Conversion
Shares on the American Stock Exchange and on each other national securities
exchange, automated quotation system or over-the-counter market upon which
shares of Common Stock are currently listed (subject to official notice of
issuance).
(u) Form SB-2 Eligibility. The Company is eligible to register the
resale of its Common Stock on a registration statement on Form SB-2 under the
Securities Act. There exist no facts or circumstances that would prohibit or
delay the preparation and filing of a registration statement on Form SB-2 with
respect to the Registrable Securities (as defined in the Registration Rights
Agreement). The Company has no basis to believe that its past or present
independent public auditors will withhold their consent to the inclusion, or
incorporation by reference, of their audit opinion concerning the Company's
financial statements that are included in the Registration Statement required
to be filed pursuant to the Registration Rights Agreement.
(v) Anti-Takeover Provisions. The Company and its board of directors
have taken all necessary action, if any, in order to render inapplicable any
control share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar anti-takeover
provision under its Organizational Documents or the laws of the jurisdiction
of its organization which is or could become applicable to any Purchaser as a
result of the transactions contemplated by this Agreement, including, without
limitation, the Company's issuance of the Securities or any other securities
pursuant to the terms of this Agreement and any and all Purchaser's ownership
of the Securities or any such other securities.
(w) Acknowledgment Regarding Each Purchaser's Purchase of the
Securities. The Company acknowledges and agrees that each Purchaser is acting
solely in the capacity of arm's length purchaser with respect to this
Agreement and the other Transaction Documents and the transactions
contemplated hereby and thereby, and that no Purchaser is (i) an officer or
director of the Company, (ii) an "affiliate" of the Company (as defined in
Rule 144) or (iii) a "beneficial owner" of more than 5% of the Common Stock
(as defined for purposes of Rule 13d-3 of the Exchange Act). The Company
further acknowledges that no Purchaser is acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to this
Agreement or the other Transaction Documents and the transactions contemplated
hereby and thereby, and any advice given by a Purchaser or any of its
representatives or agents in connection with this Agreement or the other
Transaction Documents and the transactions contemplated hereby and thereby is
merely incidental to such Purchaser's purchase of the Securities. The Company
further represents to each Purchaser that the Company's decision to enter into
this Agreement and the other Transaction Documents has been based solely on
the independent evaluation by the Company and its representatives.
(x) No General Solicitation or Integrated Offering. Neither the Company
nor any distributor participating on the Company's behalf in the transactions
contemplated hereby (if any) nor any person acting for the Company, or any
such distributor, has conducted any "general solicitation" (as such term is
defined in Regulation D) with respect to any of the Securities being offered
hereby. Neither the Company nor any of its affiliates, nor any person acting
on its or their behalf, has directly or indirectly made any offers or sales of
any security or solicited any offers to buy any security under circumstances
that would require registration of the Securities being offered hereby under
the Securities Act or cause this offering of Securities to be integrated with
any prior offering of securities of the Company for purposes of the Securities
Act, which result of such integration would require registration under the
Securities Act, or any applicable stockholder approval provisions.
(y) No Brokers. Except for the investment banking agreement that
Company has entered into with the Shemano Group, as disclosed to Purchasers,
Company has taken no action that would give rise to any claim by any person
for brokerage commissions, finder's fees or similar payments by any Purchaser
relating to this Agreement or the transactions contemplated hereby.
(z) Acknowledgment Regarding Securities. The number of Conversion
Shares issuable upon conversion of the Notes may increase in certain
circumstances. The Company's directors and executive officers have studied
and fully understand the nature of the Securities being sold hereunder. The
Company acknowledges that its obligation to issue Conversion Shares upon
conversion of the Notes in accordance with the terms thereof is absolute and
unconditional, regardless of the dilution that such issuance may have on the
ownership interests of other stockholders and the availability of remedies
provided for in any of the Transaction Documents relating to a failure or
refusal to issue Conversion Shares. Taking the foregoing into account, the
Company's Board of Directors has determined in its good faith business
judgment that the issuance of the Units hereunder and the consummation of the
other transactions contemplated hereby are in the best interests of the
Company and its stockholders.
(aa) Disclosure. All information relating to or concerning the Company
and/or any of its Subsidiaries set forth in this Agreement or provided to the
Purchasers pursuant to Section 2(d) hereof or otherwise in connection with the
transactions contemplated hereby is true and correct in all material respects
and the Company has not omitted to state any material fact necessary in order
to make the statements made herein or therein, in light of the circumstances
under which they were made, not misleading. No event or circumstance known by
the Company has occurred or exists with respect to the Company or its
Subsidiaries or their respective businesses, properties, prospects, operations
or financial conditions, which has not been publicly disclosed but, under
applicable law, rule or regulation, would be required to be disclosed by the
Company in a registration statement filed on the date hereof by the Company
under the Securities Act with respect to a primary issuance of the Company's
securities.
4. COVENANTS.
(a) Best Efforts. The parties shall use their respective commercially
reasonable efforts timely to satisfy each of the conditions described in
Sections 6 and 7 of this Agreement.
(b) Form D; Blue Sky Laws. The Company shall file with the SEC a Form D
with respect to the Securities as required under Regulation D and provide a
copy thereof to each Purchaser promptly after such filing. The Company shall,
on or before the Closing Date, take such action as the Company shall
reasonably determine is necessary to qualify the Securities for sale to each
Purchaser pursuant to this Agreement under applicable securities or "blue sky"
laws of the states of the United States or obtain exemption therefrom, and
shall provide evidence of any such action so taken to each Purchaser on or
prior to the Closing Date. Within three days after the Closing Date, the
Company shall file a Form 8-K with the SEC concerning this Agreement and the
transactions contemplated hereby, which Form 8-K shall attach this Agreement
and its Exhibits as exhibits to such Form ▇-▇ (▇▇▇ "▇-▇ ▇▇▇▇▇▇"). From and
after the 8-K Filing, the Company hereby acknowledges that no Purchaser shall
be in possession of any material nonpublic information received from the
Company, any of its Subsidiaries or any of its respective officers, directors,
employees or agents that is not disclosed in the 8-K Filing. The Company shall
not, and shall cause each of its Subsidiaries and its and each of their
respective officers, directors, employees and agents not to, provide any
Purchaser with any material nonpublic information regarding the Company or any
of its Subsidiaries from and after the 8-K Filing without the express written
consent of such Purchaser; provided, however, that a Purchaser that exercises
its rights under Section 4(m) and/or 4(d) hereof shall be deemed to have given
such express written consent. In the event of a breach of the foregoing
covenant by the Company, any of its Subsidiaries or any of its or their
respective officers, directors, employees and agents, in addition to any other
remedy provided herein or in the other Transaction Documents, a Purchaser
shall have the right to make a public disclosure, in the form of a press
release, public advertisement or otherwise, of such material nonpublic
information without the prior approval by the Company, its Subsidiaries or any
of its or their respective officers, directors, employees or agents. No
Purchaser shall have any liability to the Company, its Subsidiaries or any of
its or their respective officers, directors, employees, shareholders or agents
for any such disclosure. Subject to the foregoing, neither the Company nor
any Purchaser shall issue any press releases or any other public statements
with respect to the transactions contemplated hereby; provided, however, that
the Company shall be entitled, without the prior approval of any Purchaser, to
make any press release or other public disclosure with respect to such
transactions (i) in substantial conformity with the 8-K Filing and
contemporaneously therewith and (ii) as is required by applicable law and
regulations (provided that in the case of clause (i) each Purchaser shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release).
(c) Reporting Status. So long as any Purchasers (or any of their
respective affiliates) beneficially own any of the Securities, the Company
shall timely file all reports required to be filed with the SEC 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. In
addition, the Company shall take all actions necessary to meet the "registrant
eligibility" requirements set forth in the general instructions to Form SB-2
or any successor form thereto, to continue to be eligible to register the
resale of its Common Stock on a registration statement on Form SB-2 under the
Securities Act.
(d) Participation Right. Subject to the terms and conditions specified
in this Section 4(d), until the third anniversary of the date hereof, the
Purchasers shall have a right to participate in any issuance by the Company of
(i) equity or equity-linked securities, or (ii) debt which is convertible into
equity or in which there is an equity component ("Additional Securities") on
the same terms and conditions as offered by the Company to the other
purchasers of such Additional Securities. Each time the Company proposes to
offer any Additional Securities, the Company shall make an offering of such
Additional Securities to each Purchaser in accordance with the following
provisions:
(i) The Company shall deliver a notice (the "Notice") to the
Purchasers, at least ten (10) business days prior to the date on which it
proposes to offer such Additional Securities, stating (A) its bona fide
intention to offer such Additional Securities, (B) the number of such
Additional Securities to be offered, (C) the price and terms, if any, upon
which it proposes to offer such Additional Securities, and (D) the anticipated
closing date of the sale of such Additional Securities.
(ii) Each Purchaser shall have the right, exercisable by delivering
written notice to such effect to the Company within five business (5) days
after such Purchaser's receipt of the Notice, to purchase, at the price and on
the terms specified in the Notice, up to that portion of such Additional
Securities which equals the proportion that the number of Conversion Shares
that such Purchaser then owns or has the right to acquire (upon conversion of
the Notes) bears to the total number of shares of Common Stock then
outstanding (assuming full conversion, exercise or exchange of all
convertible, exercisable or exchangeable securities then outstanding). The
Company shall promptly, in writing, inform each Purchaser that elects to
purchase all of the Additional Shares available to it (each, a
"Fully-Exercising Purchaser") of any other Purchaser's failure to do likewise,
and, during the five-day period commencing after such information is given,
each Fully-Exercising Purchaser shall be entitled to purchase up to that
portion of the Additional Securities for which the Purchasers were entitled to
subscribe but which were not subscribed for by the Purchasers which is equal
to the proportion that the number of shares of Conversion Shares that such
Fully-Exercising Purchaser then owns or has the right to acquire (upon
conversion of the Notes) bears to the total number of shares of Conversion
Shares that all Fully-Exercising Purchasers who wish to purchase some of the
unsubscribed shares then own or have the right to acquire (upon conversion of
the Notes).
(iii) If all Additional Securities which the Purchasers are
entitled to purchase pursuant to this Section 4(d) are not purchased as
provided herein, the Company may, during the 75-day period following the
expiration of the 5-day period (and, if necessary, such additional five-day
period) provided in clause (ii), offer the remaining unsubscribed portion of
such Additional Securities to any person at a price not less than, and upon
terms no more favorable to the offeree than, as specified in the Notice. If
the Company does not consummate the sale of such Additional Securities within
such period, the right provided hereunder shall be deemed to be revived and
such Additional Securities shall not be offered or sold unless first reoffered
to the Purchasers in accordance herewith.
(iv) Notwithstanding the foregoing, the participation rights
granted in this Section 4(d) shall not be applicable to: (A) the issuance of
shares of Common Stock upon the exercise or conversion of the Company's
options, warrants or convertible securities outstanding as of the date hereof
and disclosed in Section 3(c) of the Disclosure Schedule in accordance with
the terms of such options, warrants or other securities as in effect on the
date hereof; (B) the grant of options to purchase Common Stock, with exercise
prices not less than the market price of the Common Stock on the date of
grant, or the grant of restricted shares of Common Stock, in each case which
are issued to employees, officers, directors or consultants of the Company for
the primary purpose of soliciting or retaining their employment or service
pursuant to an equity compensation plan approved by the Company's Board of
Directors, and the issuance of shares of Common Stock upon the exercise of any
such options; (C) the issuance of securities pursuant to a bona fide
underwritten public offering; (D) the issuance of the Notes, the Conversion
Shares upon conversion of the Notes; or (E) the issuance of securities in a
bona fide business acquisition.
(e) Use of Proceeds. The Company shall use the proceeds from the sale
and issuance of the Units for general corporate purposes and working capital.
Such proceeds shall not be used to (i) pay dividends; (ii) pay for any
increase in executive compensation or make any loan or other advance to any
officer, employee, shareholder, director or other affiliate of the Company,
without the express approval of the Board of Directors acting in accordance
with past practice; (iii) purchase debt or equity securities of any entity
(including redeeming the Company's own securities), except for (A) evidences
of indebtedness issued or fully guaranteed by the United States of America and
having a maturity of not more than one year from the date of acquisition, (B)
certificates of deposit, notes, acceptances and repurchase agreements having a
maturity of not more than one year from the date of acquisition issued by a
bank organized in the United States having capital, surplus and undivided
profits of at least $500,000,000, (C) the highest-rated commercial paper
having a maturity of not more than one year from the date of acquisition, and
(D) "Money Market" fund shares, or money market accounts fully insured by the
Federal Deposit Insurance Corporation and sponsored by banks and other
financial institutions, provided that the investments consist principally of
the types of investments described in clauses (A), (B), or (C) above; or (iv)
make any investment not directly related to the current business of the
Company.
(f) Financial Information. So long as any Purchasers (or any of their
respective affiliates) beneficially own any Securities, the Company shall send
(via electronic transmission or otherwise) the following reports to such
Purchaser: (i) within ten days after the filing with the SEC, a copy of its
Annual Report on Form 10-K, its Quarterly Reports on Form 10-QSB, its proxy
statements and any Current Reports on Form 8-K; and (ii) within one day after
release, copies of all press releases issued by the Company or any of its
Subsidiaries.
(g) Reservation of Shares. The Company currently has authorized and
reserved for the purpose of issuance a minimum of 2,778,000 shares of Common
Stock to provide for the full conversion of the Notes and Warrants and
issuance of the Conversion Shares in connection therewith and as otherwise
required by the Notes, the Warrants and the Registration Rights Agreement
(collectively, the "Issuance Obligations"). In the event such number of
shares becomes insufficient to satisfy the Issuance Obligations, the Company
shall take all necessary action to authorize and reserve such additional
shares of Common Stock necessary to satisfy the Issuance Obligations.
(h) Listing. So long as any Purchasers (or any of their respective
affiliates) beneficially own any Securities, the Company shall maintain the
listing of all Conversion Shares from time to time issuable upon conversion of
the Notes and Warrants on each national securities exchange, automated
quotation system or electronic bulletin board on which shares of Common Stock
are currently listed. The Company shall use its commercially reasonable
efforts to continue the listing and trading of its Common Stock on the Pink
Sheets, the OTC Bulletin Board, the Nasdaq SmallCap Market (the "SmallCap
Market"), or on the Nasdaq National Market (the "National Market"), the New
York Stock Exchange (the "NYSE") or the American Stock Exchange (the "AMEX")
and shall comply in all respects with the reporting, filing and other
obligations under the bylaws or rules of the National Association of
Securities Dealers, Inc. (the "NASD"), such exchanges, or such electronic
system, as applicable. The Company shall promptly provide to each Purchaser
copies of any notices it receives regarding the continued eligibility of the
Common Stock for trading on any securities exchange or automated quotation
system on which securities of the same class or series issued by the Company
are then listed or quoted, if any.
(i) Corporate Existence. So long as any Purchasers (or any of their
respective affiliates) beneficially owns any Securities, the Company shall
maintain its corporate existence, and in the event of a merger, consolidation
or sale of all or substantially all of the Company's assets, the Company shall
ensure that the surviving or successor entity in such transaction (i) assumes
the Company's obligations under this Agreement and the other Transaction
Documents and the agreements and instruments entered into in connection
herewith and therewith regardless of whether or not the Company would have had
a sufficient number of shares of Common Stock authorized and available for
issuance in order to effect the conversion of all the Notes outstanding as of
the date of such transaction and (ii) except in the event of a merger,
consolidation of the Company into any other corporation, or the sale or
conveyance of all or substantially all of the assets of the Company where the
consideration consists solely of cash, the surviving or successor entity is a
publicly traded corporation whose common stock is listed for trading on the
SmallCap Market, the National Market, the NYSE or the AMEX.
(j) No Integrated Offerings. The Company shall not make any offers or
sales of any security (other than the Securities) under circumstances that
would require registration of the Securities being offered or sold hereunder
under the Securities Act or cause this offering of the Securities to be
integrated with any other offering of securities by the Company for purposes
of any stockholder approval provision applicable to the Company or its
securities.
(k) Legal Compliance. The Company shall conduct its business and the
business of its Subsidiaries in compliance with all laws, ordinances or
regulations of governmental entities applicable to such businesses, except
where the failure to do so would not have a Material Adverse Effect.
(l) Information. So long as any Purchasers (or any of their respective
affiliates) beneficially own any Securities, the Company shall furnish to each
such Purchaser:
(i) Intentionally deleted; and
(ii) the information the Company must deliver to any holder or to
any prospective transferee of Securities in order to permit the sale or other
transfer of such Securities pursuant to Rule 144A of the SEC or any similar
rule then in effect.
The Company shall keep at its principal executive office a true copy of this
Agreement (as at the time in effect), and cause the same to be available for
inspection at such office during normal business hours by any holder of
Securities or any prospective transferee of Securities designated by a holder
thereof.
(m) Inspection of Properties and Books. So long as any Purchasers (or
any of their respective affiliates) beneficially own any Securities, each such
Purchaser and its representatives and agents (collectively, the "Inspectors")
shall have the right, at such Purchaser's expense, to visit and inspect any of
the properties of the Company and of its Subsidiaries, to examine the books of
account and records of the Company and of its Subsidiaries, to make or be
provided with copies and extracts therefrom, to discuss the affairs, finances
and accounts of the Company and of its Subsidiaries with, and to be advised as
to the same by, its and their officers, employees and independent public
accountants (and by this provision the Company authorizes such accountants to
discuss such affairs, finances and accounts, whether or not a representative
of the Company is present) all at such reasonable times and intervals and to
such reasonable extent as the Purchasers may desire; provided, however, that
each Inspector shall hold in confidence and shall not make any disclosure
(except to such Purchaser) of any such information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (i) the disclosure of such information is
necessary to avoid or correct a misstatement or omission in any Registration
Statement filed pursuant to the Registration Rights Agreement, (ii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or government body of competent jurisdiction, or (iii) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. Each Purchaser agrees
that it shall, upon learning that disclosure of such information is sought in
or by a court or governmental body of competent jurisdiction or through other
means, give prompt notice to the Company and allow the Company, at its
expense, to undertake appropriate action to prevent disclosure of, or to
obtain a protective order for, the information deemed confidential.
(n) Shareholders Rights Plan. No claim shall be made or enforced by the
Company or any other person that any Purchaser is an "Acquiring Person" under
any shareholders rights plan or similar plan or arrangement in effect or
hereafter adopted by the Company, or that any Purchaser could be deemed to
trigger the provisions of any such plan or arrangement, by virtue of receiving
Securities under this Agreement or any other Transaction Documents or under
any other agreement between the Company and the Purchasers.
(o) Pledge of Securities. The Company acknowledges and agrees that the
Securities may be pledged by any 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 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. The Company shall 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.
(p) Variable Securities. So long as any Purchasers (or any of their
respective affiliates) beneficially own any Securities, the Company shall not,
without first obtaining the written approval of the holders of a majority of
the aggregate principal face amount of the Notes then outstanding (which
approval may be given or withheld by such holders in their sole and absolute
discretion), issue or sell any rights, warrants or options to subscribe for or
purchase Common Stock, or any other securities directly or indirectly
convertible into or exchangeable or exercisable for Common Stock, at an
effective conversion, exchange or exercise price that varies or may vary with
the market price of the Common Stock, including by way of one or more reset(s)
to any fixed price. Notwithstanding the foregoing, nothing in this paragraph
is intended to prohibit Company in the future from issuing securities at a
discount from market, so long as the discount is fixed; i.e. no toxic
financings.
(q) Expenses. At the Closing, the Company shall pay to MicroCapital LLC
("MicroCapital") reimbursement for the out-of-pocket expenses reasonably
incurred by MicroCapital, its affiliates and its or their advisors in
connection with the negotiation, preparation, execution and delivery of this
Agreement and the other Transaction Documents and the consummation of the
transactions contemplated hereby and thereby, including, without limitation,
▇▇▇▇▇▇▇▇▇▇▇▇'▇ and its affiliates' and advisors' reasonable due diligence and
attorneys' fees and expenses (the "Expenses"); provided, however, that the
aggregate amount of the Expenses payable to MicroCapital shall not exceed
$10,000 (the "Expense Cap") unless prior approval is obtained from the
Company.
5. SECURITIES TRANSFER MATTERS.
(a) Conversion and Exercise. Upon conversion of the Notes or Warrants
by any person, (i) if the DTC Transfer Conditions (as defined below) are
satisfied, the Company shall cause its transfer agent to electronically
transmit all Conversion Shares by crediting the account of such person or its
nominee with the Depository Trust Company ("DTC") through its Deposit
Withdrawal Agent Commission system; or (ii) if the DTC Transfer Conditions are
not satisfied, the Company shall issue and deliver, or instruct its transfer
agent to issue and deliver, certificates (subject to the legend and other
applicable provisions hereof), registered in the name of such person its
nominee, physical certificates representing the Conversion Shares. Even if
the DTC Transfer Conditions are satisfied, any person effecting a conversion
of Notes or Warrants may instruct the Company to deliver to such person or its
nominee physical certificates representing the Conversion Shares in lieu of
delivering such shares by way of DTC Transfer. For purposes of this
Agreement, "DTC Transfer Conditions" means that (A) the Company's transfer
agent is participating in the DTC Fast Automated Securities Transfer program
and (B) the certificates for the Conversion Shares required to be delivered do
not bear a legend and the person effecting such conversion or exercise is not
then required to return such certificate for the placement of a legend
thereon.
(b) Transfer or Resale. Each Purchaser understands that (i) except as
provided in the Registration Rights Agreement, the sale or resale of the
Securities have not been and are not being registered under the Securities Act
or any state securities laws, and the Securities may not be transferred unless
(A) the transfer is made pursuant to and as set forth in an effective
registration statement under the Securities Act covering the Securities; or
(B) such Purchaser shall have delivered to the Company an opinion of counsel
(which opinion shall be in form, substance and scope customary for opinions of
counsel in comparable transactions) to the effect that the Securities to be
sold or transferred may be sold or transferred pursuant to an exemption from
such registration; or (C) sold under and in compliance with Rule 144; or (D)
sold or transferred to an affiliate of such Purchaser that is an Accredited
Investor and agrees to sell or otherwise transfer the Securities only in
accordance with the provisions of this Section 5(b); and (ii) neither the
Company nor any other person is under any obligation to register such
Securities under the Securities Act or any state securities laws (other than
pursuant to the terms of the Registration Rights Agreement). Notwithstanding
the foregoing or anything else contained herein to the contrary, the
Securities may be pledged as collateral in connection with a bona fide margin
account or other lending arrangement, provided such pledge is consistent with
applicable laws, rules and regulations.
(c) Legends. Each Purchaser understands that the Notes and Warrants,
until such time as the Conversion Shares have been registered under the
Securities Act (including registration pursuant to Rule 416 thereunder) as
contemplated by the Registration Rights Agreement or otherwise may be sold by
such Purchaser under Rule 144, the certificates for the Conversion Shares may
bear a restrictive legend in substantially the following form:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or
the securities laws of any state of the United States or in
any other jurisdiction. The securities represented hereby
may not be offered, sold or transferred in the absence of an
effective registration statement for the securities under
applicable securities laws unless offered, sold or transferred
pursuant to an available exemption from the registration
requirements of those laws.
The Company shall, immediately prior to a registration statement covering
the Securities (including, without limitation, the Registration Statement
contemplated by the Registration Rights Agreement) being declared effective,
deliver to its transfer agent an opinion letter of counsel, opining that at
any time such registration statement is effective, the transfer agent shall
issue, in connection with the issuance of the Conversion Shares, certificates
representing such Conversion Shares without the restrictive legend above,
provided such Conversion Shares are to be sold pursuant to the prospectus
contained in such registration statement. Upon receipt of such opinion, the
Company shall cause the transfer agent to confirm, for the benefit of the
holders, that no further opinion of counsel is required at the time of
transfer in order to issue such shares without such restrictive legend.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by state securities laws, (i) the sale
of such Security is registered under the Securities Act (including
registration pursuant to Rule 416 thereunder); (ii) such holder provides the
Company with an opinion of counsel, in form, substance and scope customary for
opinions of counsel in comparable transactions, to the effect that a public
sale or transfer of such Security may be made without registration under the
Securities Act; or (iii) such holder provides the Company with reasonable
assurances that such Security can be sold under Rule 144. In the event the
above legend is removed from any Security and thereafter the effectiveness of
a registration statement covering such Security is suspended or the Company
determines that a supplement or amendment thereto is required by applicable
securities laws, then upon reasonable advance written notice to such Purchaser
the Company may require that the above legend be placed on any such Security
that cannot then be sold pursuant to an effective registration statement or
under Rule 144 and such Purchaser shall cooperate in the replacement of such
legend. Such legend shall thereafter be removed when such Security may again
be sold pursuant to an effective registration statement or under Rule 144.
(d) Transfer Agent Instructions. Upon compliance by any Purchaser with
the provisions of this Section 5 with respect to the transfer of any
Securities, the Company shall permit the transfer of such Securities and, in
the case of the transfer of Conversion Shares, promptly instruct its transfer
agent to issue one or more certificates (or effect a DTC Transfer) in such
name and in such denominations as specified by such Purchaser. The Company
shall not give any instructions to its transfer agent with respect to the
Securities, other than any permissible or required instructions provided in
this Section 5, and the Securities shall otherwise be freely transferable on
the books and records of the Company as and to the extent provided in this
Agreement.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Units to
each Purchaser hereunder is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions as to such Purchaser,
provided that such conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion:
(a) Execution of Transaction Documents. Each Purchaser shall have
executed such Purchaser's Execution Page to this Agreement and each other
Transaction Document to which such Purchaser is a party and delivered the same
to the Company.
(b) Payment of Purchase Price. Each Purchaser shall have delivered the
full amount of such Purchaser's Purchase Price to the Company by wire transfer
in accordance with the Company's written wiring instructions.
(c) Representations and Warranties True; Covenants Performed. The
representations and warranties of each Purchaser shall be true and correct as
of the date when made and as of the Closing Date as though made at that time
(except for representations and warranties that speak as of a specific date,
which representations and warranties shall be true and correct as of such
date), and such Purchaser shall have performed, satisfied and complied with
the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by such Purchaser at or prior to the
Closing Date.
(d) No Legal Prohibition. No statute, rule, regulation, executive
order, decree, ruling, injunction, action or proceeding shall have been
enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction or any self-regulatory organization having
authority over the matters contemplated hereby which restricts or prohibits
the consummation of any of the transactions contemplated by this Agreement.
7. CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE.
The obligation of each Purchaser hereunder to purchase the Units for
which it is subscribing from the Company hereunder is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that such conditions are for each Purchaser's individual
and sole benefit and may be waived by any Purchaser as to such Purchaser at
any time in such Purchaser's sole discretion:
(a) Execution of Transaction Documents. The Company shall have executed
such Purchaser's Execution Page to this Agreement and each other Transaction
Document to which the Company is a party and delivered executed originals of
the same to such Purchaser.
(b) Delivery of Securities. The Company shall have delivered to such
Purchaser duly executed Notes for the number of Units being purchased by such
Purchaser (each in such denominations as such Purchaser shall request),
registered in such Purchaser's name.
(c) Listing. The Common Stock shall be authorized for quotation and
listed in the Pink Sheets and trading in the Common Stock (or on the Pink
Sheets generally) shall not have been suspended by the SEC, the NASD or
otherwise.
(d) Representations and Warranties True; Covenants Performed. The
representations and warranties of the Company shall be true and correct as of
the date when made and as of the Closing Date as though made at that time
(except for representations and warranties that speak as of a specific date,
which representations and warranties shall be true and correct as of such
date) and the Company shall have performed, satisfied and complied with the
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the
Closing Date. Such Purchaser shall have received a certificate, executed by
the Chief Executive Officer of the Company after reasonable investigation,
dated as of the Closing Date, to the foregoing effect and as to such other
matters as may reasonably be requested by such Purchaser.
(e) No Legal Prohibition. No statute, rule, regulation, executive
order, decree, ruling, injunction, action or proceeding shall have been
enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction or any self-regulatory organization having
authority over the matters contemplated hereby which restricts or prohibits
the consummation of any of the transactions contemplated by this Agreement.
(f) Legal Opinion. Such Purchaser shall have received an opinion of the
Company's counsel, dated as of the Closing Date, in the form attached hereto
as Exhibit E.
(g) Corporate Approvals. Such Purchaser shall have received a copy of
resolutions, duly adopted by the Board of Directors of the Company, which
shall be in full force and effect at the time of the Closing, authorizing the
execution, delivery and performance by the Company of this Agreement and the
other Transaction Documents and the consummation by the Company of the
transactions contemplated hereby and thereby, certified as such by the
Secretary or Assistant Secretary of the Company, and such other documents they
reasonably request in connection with the Closing, in the form attached hereto
as Exhibit F.
8. GOVERNING LAW; MISCELLANEOUS.
(a) Governing Law; Jurisdiction. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware applicable
to contracts made and to be performed in the State of Delaware. The Company
and each Purchaser irrevocably consent to the jurisdiction of the United
States federal courts and the state courts located in the City and County of
San Francisco, California, in any suit or proceeding based on or arising under
this Agreement and irrevocably agree that all claims in respect of such suit
or proceeding may be determined in such courts. The Company irrevocably waives
the defense of an inconvenient forum to the maintenance of such suit or
proceeding in such forum. The Company further agrees that service of process
upon the Company mailed by first class mail shall be deemed in every respect
effective service of process upon the Company in any such suit or proceeding.
Nothing herein shall affect the right of any Purchaser to serve process in any
other manner permitted by law. The Company agrees that a final non-appealable
judgment in any such suit or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
(b) Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. This Agreement, once executed by a party, may
be delivered to the other parties hereto by facsimile transmission of a copy
of this Agreement bearing the signature of the party so delivering this
Agreement. In the event any signature is delivered by facsimile transmission,
the party using such means of delivery shall cause the manually executed
execution page(s) hereof to be physically delivered to the other party within
five days of the execution hereof, provided that the failure to so deliver any
manually executed execution page shall not affect the validity or
enforceability of this Agreement.
(c) Construction. Whenever the context requires, the gender of any word
used in this Agreement includes the masculine, feminine or neuter, and the
number of any word includes the singular or plural. Unless the context
otherwise requires, all references to articles and sections refer to articles
and sections of this Agreement, and all references to schedules are to
schedules attached hereto, each of which is made a part hereof for all
purposes. The descriptive headings of the several articles and sections of
this Agreement are inserted for purposes of reference only, and shall not
affect the meaning or construction of any of the provisions hereof.
(d) Severability. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability
shall not affect the validity or enforceability of the remainder of this
Agreement or the validity or enforceability of this Agreement in any other
jurisdiction.
(e) Entire Agreement; Amendments. This Agreement and the other
Transaction Documents (including any schedules and exhibits hereto and
thereto) contain the entire understanding of the Purchasers, the Company,
their affiliates and persons acting on their behalf with respect to the
matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Purchasers make any
representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived other than by an
instrument in writing signed by the party to be charged with enforcement, and
no provision of this Agreement may be amended other than by an instrument in
writing signed by the Company and each Purchaser.
(f) Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be in writing and sent by certified or
registered mail (return receipt requested) or delivered personally, by
nationally recognized overnight carrier or by confirmed facsimile
transmission, and shall be effective five days after being placed in the mail,
if mailed, or upon receipt or refusal of receipt, if delivered personally or
by nationally recognized overnight carrier or confirmed facsimile
transmission, in each case addressed to a party as provided herein. The
initial addresses for such communications shall be as follows, and each party
shall provide notice to the other parties of any change in such party's
address:
(i) If to the Company:
iMedia International, Inc.
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▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, Chairman & Chief Executive Officer
(ii) If to any Purchaser, to the address set forth under such
Purchaser's name on the Execution Page hereto executed by such
Purchaser.
(g) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Except
as provided herein, the Company shall not assign this Agreement or any rights
or obligations hereunder. Any Purchaser may assign or transfer the Securities
pursuant to the terms of this Agreement and of such Securities, or assign such
Purchaser's rights hereunder to any other person or entity.
(h) Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
(i) Survival. The representations and warranties of the Company and the
agreements and covenants set forth in Sections 3, 4, 5 and 8 hereof shall
survive the Closing notwithstanding any due diligence investigation conducted
by or on behalf of any Purchaser. Moreover, none of the representations and
warranties made by the Company herein shall act as a waiver of any rights or
remedies any Purchaser may have under applicable U.S. federal or state
securities laws.
(j) Publicity. The Company and each Purchaser shall have the right to
approve before issuance any press releases, SEC or, to the extent applicable,
NASD filings, or any other public statements with respect to the transactions
contemplated hereby; provided, however, that the Company shall be entitled,
without the prior approval of the Purchasers, to make any press release or SEC
or, to the extent applicable, NASD filings with respect to such transactions
as is required by applicable law and regulations (although the Purchasers
shall be consulted by the Company in connection with any such press release
and filing prior to its release and shall be provided with a copy thereof and
must provide specific consent to the use of their name in connection
therewith).
(k) Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(l) Indemnification. In consideration of each Purchaser's execution and
delivery of this Agreement and the other Transaction Documents and purchase of
the Securities hereunder, and in addition to all of the Company's other
obligations under this Agreement and the other Transaction Documents, from and
after the Closing, the Company shall defend, protect, indemnify and hold
harmless each Purchaser and each other holder of the Securities and all of
their stockholders, partners, members, officers, directors, employees and
direct or indirect investors and any of the foregoing persons' agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement, collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses
in connection therewith (irrespective of whether any such Indemnitee is a
party to the action for which indemnification hereunder is sought), and
including reasonable attorneys' fees and disbursements (the "Indemnified
Liabilities"), incurred by any Indemnitee as a result of, or arising out of,
or relating to (i) any misrepresentation or breach of any representation or
warranty made by the Company in this Agreement, any other Transaction Document
or any other certificate, instrument or document contemplated hereby or
thereby, (ii) any breach of any covenant, agreement or obligation of the
Company contained in this Agreement, any other Transaction Document or any
other certificate, instrument or document contemplated hereby or thereby or
(iii) any cause of action, suit or claim brought or made against such
Indemnitee by a third party (including for these purposes a derivative action
brought on behalf of the Company) and arising out of or resulting from (A) the
execution, delivery, performance or enforcement of this Agreement, any other
Transaction Document or any other certificate, instrument or document
contemplated hereby or thereby, (B) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
and sale of the Securities, (C) any disclosure made by such Purchaser pursuant
to Section 4(b) or 4(m) hereof, or (D) the status of such Purchaser or holder
of the Securities as an investor in the Company. To the extent that the
foregoing undertaking by the Company may be unenforceable for any reason, the
Company shall make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities that is permissible under applicable law.
Except as otherwise set forth herein, the mechanics and procedures with
respect to the rights and obligations under this Section 8(l) shall be the
same as those set forth in the Registration Rights Agreement.
(m) Payment Set Aside. To the extent that the Company makes a payment
or payments to any Purchaser hereunder or pursuant to any of the other
Transaction Documents or any Purchaser enforces or exercises its rights
hereunder or thereunder, and such payment or payments or the proceeds of such
enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from,
disgorged by or are required to be refunded, repaid or otherwise restored to
the Company, a trustee, receiver or any other person under any law (including,
without limitation, any bankruptcy law, state or federal law, common law or
equitable cause of action), then to the extent of any such restoration the
obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
(n) Joint Participation in Drafting. Each party to this Agreement has
participated in the negotiation and drafting of this Agreement and the other
Transaction Documents. As such, the language used herein and therein shall be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction will be applied against any party
to this Agreement.
(o) Remedies. No provision of this Agreement or any other Transaction
Document providing for any remedy to a Purchaser shall limit any other remedy
which would otherwise be available to such Purchaser at law, in equity or
otherwise. Nothing in this Agreement or any other Transaction Document shall
limit any rights any Purchaser may have under any applicable federal or state
securities laws with respect to the investment contemplated hereby. The
Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Purchasers by vitiating the intent and purpose
of the transactions contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations hereunder
(including, but not limited to, its obligations pursuant to Section 5 hereof)
will be inadequate and agrees, in the event of a breach or threatened breach
by the Company of the provisions of this Agreement (including, but not limited
to, its obligations pursuant to Section 5 hereof), that each Purchaser shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer of the
Securities, without the necessity of showing economic loss and without any
bond or other security being required.
(p) Knowledge. As used in this Agreement, the term "knowledge" of any
person or entity shall mean and include (i) actual knowledge and (ii) that
knowledge which a reasonably prudent business person could have obtained in
the management of his or her business affairs after making due inquiry and
exercising due diligence which a prudent business person should have made or
exercised, as applicable, with respect thereto.
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused
this Agreement to be duly executed as of the date first above written.
iMEDIA INTERNATIONAL, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Title: Chairman & Chief Executive Officer
PURCHASER:
MicroCapital Fund LP
By: /s/ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Vice President
ADDRESS: ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
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Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
