Interactive Television Networks, Inc. Shares of Common Stock (Amendment to Certificate of Designation) SUBSCRIPTION AGREEMENT
EXHIBIT
10.1
Shares
of Common Stock
(Amendment
to Certificate of Designation)
December
14, 2006
M.A.G.
Capital, LLC
Mercator
Momentum Fund, L.P.
Mercator
Momentum Fund III, L.P.
Monarch
Pointe Fund, Ltd.
c/o
M.A.G. Capital, LLC
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Ladies
and Gentlemen:
Interactive
Television Networks, Inc., a Nevada corporation (the "Company"),
hereby confirms its agreement with Mercator Momentum Fund, L.P. ("MMF"),
Mercator Momentum Fund III, L.P. ("MMF
III"),
and
Monarch Pointe Fund, Ltd. ("Monarch")
as set
forth below. Each of MMF, MMF III and Monarch are sometimes referred to herein
as a "Purchaser"
and
together as the "Purchasers".
The
Purchasers currently are the record and beneficial owners of an aggregate of
3,333,333 shares of the Company’s Series A Convertible Preferred Stock (the
"Series
A Stock"),
which
shares represent all of the currently issued and outstanding shares of the
Series A Stock.
1. The
Transaction.
Subject
to the terms and conditions herein contained, the Company agrees that it shall:
(a) Issue and sell to the Purchasers 933,333 shares (the “Securities”)
of the
Company's common stock, par value $0.001 per share (the "Common
Stock");
and
(b) Amend the Certificate of Designation of Preferences and Rights of Series
A
Convertible Preferred Stock as currently on file with the Secretary of State
of
the State of Nevada (the "Series
A Certificate of Designation")
to
reduce the Conversion Price (as defined in the Series A Certificate of
Designation) from $3.75 to $0.75 per share. The form of the amendment of the
Series A Certificate of Designation is attached hereto as Exhibit
A.
The
3,333,333 shares of its Series A Convertible Preferred Stock (the "Series
A Stock")
shall
continue to be convertible into shares (the "Conversion
Shares")
of the
Common Stock in accordance with the formula set forth in the Series A
Certificate of Designation. The number of Conversion Shares that any Purchaser
may acquire at any time are subject to limitation in the Series A Certificate
of
Designation so that the aggregate number of shares of Common Stock of which
such
Purchaser and all persons affiliated with such Purchaser have beneficial
ownership (calculated pursuant to Rule 13d-3 of the Securities Exchange Act
of
1934, as amended) does not at any time exceed 9.99% of the Company's then
outstanding Common Stock.
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This
Agreement, the amendment to the Series A Certificate
of
Designation, and the Registration Rights Agreement by and among the Company
and
the Purchasers, entered into concurrently herewith and attached hereto as
Exhibit
B,
are
sometimes herein collectively referred to as the "Transaction
Documents."
The
Securities will be offered and sold to the Purchasers without such offers and
sales being registered under the Securities Act of 1933, as amended (together
with the rules and regulations of the Securities and Exchange Commission (the
"SEC")
promulgated thereunder, the "Securities
Act"),
in
reliance on exemptions therefrom.
In
connection with the sale of the Securities, the Company has made available
(including electronically via the SEC's ▇▇▇▇▇ system) to Purchasers the
Company's periodic and current reports, forms, schedules, proxy statements
and
other documents (including exhibits and all other information incorporated
by
reference) filed with the SEC under the Securities Exchange Act of 1934, as
amended (the "Exchange
Act").
The
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
2005, and all subsequent reports, forms, schedules, statements, documents,
filings and amendments filed by the Company with the SEC under the Exchange
Act,
are collectively referred to as the "Disclosure
Documents."
All
references in this Agreement to financial statements and schedules and other
information which is "contained," "included" or "stated" in the Disclosure
Documents (or other references of like import) shall be deemed to mean and
include all such financial statements and schedules, documents, exhibits and
other information which is incorporated by reference in the Disclosure
Documents.
2. Representations
and Warranties of the Company.
Except
as set forth in the Disclosure Schedule, the Company represents and warrants
to
and agrees with Purchasers as follows:
(a) The
Disclosure Documents as of their respective dates did not, and will not (after
giving effect to any updated disclosures therein) as of the Closing Date,
contain any untrue statement of a material fact or omit to state a material
fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The Disclosure Documents and the
documents incorporated or deemed to be incorporated by reference therein, at
the
time they were filed or hereafter are filed with the SEC, complied and will
comply, at the time of filing, in all material respects with the requirements
of
the Securities Act and/or the Exchange Act, as the case may be, as
applicable.
(b) Schedule
A
of the
Disclosure Schedules sets forth a complete list of the subsidiaries of the
Company (the "Subsidiaries").
Each
of the Company and its Subsidiaries has been duly incorporated and each of
the
Company and the Subsidiaries is validly existing and in good standing as a
corporation under the laws of its jurisdiction of incorporation, with the
requisite corporate power and authority to own its properties and conduct its
business as now conducted as described in the Disclosure Documents and is duly
qualified to do business as a foreign corporation in good standing in all other
jurisdictions where the ownership or leasing of its properties or the conduct
of
its business requires such qualification, except where the failure to be so
qualified would not, individually or in the aggregate, have a material adverse
effect on the business, condition (financial or other), properties or results
of
operations of the Company and the Subsidiaries, taken as a whole (any such
event, a "Material
Adverse Effect");
as of
the Closing Date, the Company will have the authorized, issued and outstanding
capitalization set forth in on Schedule
B
(the
"Company
Capitalization");
except as set forth in the Disclosure Documents or on Schedule
A,
the
Company does not have any Subsidiaries or own directly or indirectly any of
the
capital stock or other equity or long-term debt securities of or have any equity
interest in any other person; all of the outstanding shares of capital stock
of
the Company and the Subsidiaries have been duly authorized and validly issued,
are fully paid and nonassessable and were not issued in violation of any
preemptive or similar rights and are owned free and clear of all liens,
encumbrances, equities, and restrictions on transferability (other than those
imposed by the Securities Act and the state securities or "blue sky" laws)
or
voting; except as set forth in the Disclosure Documents, all of the outstanding
shares of capital stock of the Subsidiaries are owned, directly or indirectly,
by the Company; except as set forth in the Disclosure Documents, no options,
warrants or other rights to purchase from the Company or any Subsidiary,
agreements or other obligations of the Company or any Subsidiary to issue or
other rights to convert any obligation into, or exchange any securities for,
shares of capital stock of or ownership interests in the Company or any
Subsidiary are outstanding; and except as set forth in the Disclosure Documents
or on Schedule
C,
there
is no agreement, understanding or arrangement among the Company or any
Subsidiary and each of their respective stockholders or any other person
relating to the ownership or disposition of any capital stock of the Company
or
any Subsidiary or the election of directors of the Company or any Subsidiary
or
the governance of the Company's or any Subsidiary's affairs, and, if any, such
agreements, understandings and arrangements will not be breached or violated
as
a result of the execution and delivery of, or the consummation of the
transactions contemplated by, the Transaction Documents.
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(c) The
Company has the requisite corporate power and authority to execute, deliver
and
perform its obligations under the Transaction Documents. Each of the Transaction
Documents has been duly and validly authorized by the Company and, when executed
and delivered by the Company, will constitute a valid and legally binding
agreement of the Company, enforceable against the Company in accordance with
its
terms except as the enforcement thereof may be limited by (A) bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other similar
laws now or hereafter in effect relating to or affecting creditors' rights
generally or (B) general principles of equity and the discretion of the
court before which any proceeding therefore may be brought (regardless of
whether such enforcement is considered in a proceeding at law or in equity)
(collectively, the "Enforceability
Exceptions").
(d) The
shares of Securities have been duly authorized and, when issued upon payment
thereof in accordance with this Agreement, will have been validly issued, fully
paid and non-assessable. The additional Conversion Shares that will be issuable
as a result of the decrease in the Conversion Price have been duly authorized
and validly reserved for issuance, and when issued upon conversion of the Series
A Stock in accordance with the terms of the amended Series A Certificate of
Designation, will have been validly issued, fully paid and non-assessable.
The
Common Stock of the Company conforms to the description thereof contained in
the
Disclosure Documents. The stockholders of the Company have no preemptive or
similar rights with respect to the Common Stock.
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(e) No
consent, approval, authorization, license, qualification, exemption or order
of
any court or governmental agency or body or third party is required for the
performance of the Transaction Documents by the Company or for the consummation
by the Company of any of the transactions contemplated thereby, or the
application of the proceeds of the issuance of the Securities as described
in
this Agreement, except for such consents, approvals, authorizations, licenses,
qualifications, exemptions or orders (i) as have been obtained on or prior
to the Closing Date, (ii) as are not required to be obtained on or prior to
the Closing Date that will be obtained when required, or (iii) the failure
to obtain which would not, individually or in the aggregate, have a Material
Adverse Effect.
(f) Except
as
set forth on Schedule
D
of the
Disclosure Schedule, none of the Company or the Subsidiaries is (i) in material
violation of its articles of incorporation or bylaws (or similar organizational
document), (ii) in breach or violation of any statute, judgment, decree, order,
rule or regulation applicable to it or any of its properties or assets, which
breach or violation would, individually or in the aggregate, have a Material
Adverse Effect, or (iii) except as described in the Disclosure Documents, in
default (nor has any event occurred which with notice or passage of time, or
both, would constitute a default) in the performance or observance of any
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, deed of trust, loan agreement, note, lease, license,
franchise agreement, permit, certificate or agreement or instrument to which
it
is a party or to which it is subject, which default would, individually or
in
the aggregate, have a Material Adverse Effect.
(g) The
execution, delivery and performance by the Company of the Transaction Documents
and the consummation by the Company of the transactions contemplated thereby
and
the fulfillment of the terms thereof will not (a) violate, conflict with or
constitute or result in a breach of or a default under (or an event that, with
notice or lapse of time, or both, would constitute a breach of or a default
under) any of (i) the terms or provisions of any contract, indenture,
mortgage, deed of trust, loan agreement, note, lease, license, franchise
agreement, permit, certificate or agreement or instrument to which any of the
Company or the Subsidiaries is a party or to which any of their respective
properties or assets are subject, (ii) the Certificate of Incorporation or
bylaws of any of the Company or the Subsidiaries (or similar organizational
document) or (iii) any statute, judgment, decree, order, rule or regulation
of any court or governmental agency or other body applicable to the Company
or
the Subsidiaries or any of their respective properties or assets or
(b) result in the imposition of any lien upon or with respect to any of the
properties or assets now owned or hereafter acquired by the Company or any
of
the Subsidiaries; which violation, conflict, breach, default or lien would,
individually or in the aggregate, have a Material Adverse Effect.
(h) The
audited consolidated financial statements included in the Disclosure Documents
present fairly the consolidated financial position, results of operations,
cash
flows and changes in shareholders' equity of the entities, at the dates and
for
the periods to which they relate and have been prepared in all material respects
in accordance with generally accepted accounting principles applied on a
consistent basis; the interim un-audited consolidated financial statements
included in the Disclosure Documents present fairly the consolidated financial
position, results of operations and cash flows of the entities, at the dates
and
for the periods to which they relate subject to year-end audit adjustments
and
have been prepared in all material respects in accordance with generally
accepted accounting principles applied on a consistent basis with the audited
consolidated financial statements included therein; the selected financial
and
statistical data included in the Disclosure Documents present fairly the
information shown therein and have been prepared and compiled in all material
respects on a basis consistent with the audited financial statements included
therein, except as otherwise stated therein; and each of the auditors previously
engaged by the Company or to be engaged in the future by the Company is an
independent certified public accountant as required by the Securities Act for
an
offering registered thereunder.
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(i) Except
as
described in the Disclosure Documents, there is not pending or, to the knowledge
of the Company, threatened any action, suit, proceeding, inquiry or
investigation, governmental or otherwise, to which any of the Company or the
Subsidiaries is a party, or to which their respective properties or assets
are
subject, before or brought by any court, arbitrator or governmental agency
or
body, that, if determined adversely to the Company or any such Subsidiary,
would, individually or in the aggregate, have a Material Adverse Effect or
that
seeks to restrain, enjoin, prevent the consummation of or otherwise challenge
the issuance or sale of the Securities to be sold hereunder or the application
of the proceeds therefrom or the other transactions described in the Disclosure
Documents.
(j) The
Company and the Subsidiaries own or possess adequate licenses or other rights
to
use all patents, trademarks, service marks, trade names, copyrights and know-how
that are necessary to conduct their businesses as described in the Disclosure
Documents. None of the Company or the Subsidiaries has received any written
notice of infringement of (or knows of any such infringement of) asserted rights
of others with respect to any patents, trademarks, service marks, trade names,
copyrights or know-how that, if such assertion of infringement or conflict
were
sustained, would, individually or in the aggregate, have a Material Adverse
Effect.
(k) Each
of
the Company and the Subsidiaries possesses all licenses, permits, certificates,
consents, orders, approvals and other authorizations from, and has made all
declarations and filings with, all federal, state, local and other governmental
authorities, all self-regulatory organizations and all courts and other
tribunals presently required or necessary to own or lease, as the case may
be,
and to operate its respective properties and to carry on its respective
businesses as now or proposed to be conducted as set forth in the Disclosure
Documents ("Permits"),
except where the failure to obtain such Permits would not, individually or
in
the aggregate, have a Material Adverse Effect and none of the Company or the
Subsidiaries has received any notice of any proceeding relating to revocation
or
modification of any such Permit, except as described in the Disclosure Documents
and except where such revocation or modification would not, individually or
in
the aggregate, have a Material Adverse Effect.
(l) Subsequent
to September 30, 2006 and except as described in the Company’s Quarterly Report
on Form 10-QSB for the quarter ended September 30, 2006 or in Schedule
E,
(i) the Company and the Subsidiaries have not incurred any material
liabilities or obligations, direct or contingent, or entered into any material
transactions not in the ordinary course of business or (ii) the Company and
the Subsidiaries have not purchased any of their respective outstanding capital
stock, or declared, paid or otherwise made any dividend or distribution of
any
kind on any of their respective capital stock or otherwise (other than, with
respect to any of such Subsidiaries, the purchase of capital stock by the
Company), (iii) there has not been any material increase in the long-term
indebtedness of the Company or any of the Subsidiaries, (iv) there has not
occurred any event or condition, individually or in the aggregate, that has
a
Material Adverse Effect, and (v) the Company and the Subsidiaries have not
sustained any material loss or interference with respect to their respective
businesses or properties from fire, flood, hurricane, earthquake, accident
or
other calamity, whether or not covered by insurance, or from any labor dispute
or any legal or governmental proceeding.
-5-
(m) There
are
no material legal or governmental proceedings nor are there any material
contracts or other documents required by the Securities Act to be described
in a
prospectus that are not described in the Disclosure Documents. Except as
described in the Disclosure Documents, none of the Company or the Subsidiaries
is in default under any of the contracts described in the Disclosure Documents,
has received a notice or claim of any such default or has knowledge of any
breach of such contracts by the other party or parties thereto, except for
such
defaults or breaches as would not, individually or in the aggregate, have a
Material Adverse Effect.
(n) Each
of
the Company and the Subsidiaries has good and marketable title to all real
property described in the Disclosure Documents as being owned by it and good
and
marketable title to the leasehold estate in the real property described therein
as being leased by it, free and clear of all liens, charges, encumbrances or
restrictions, except, in each case, as described in the Disclosure Documents
or
such as would not, individually or in the aggregate, have a Material Adverse
Effect. All material leases, contracts and agreements to which the Company
or
any of the Subsidiaries is a party or by which any of them is bound are valid
and enforceable against the Company or any such Subsidiary, are, to the
knowledge of the Company, valid and enforceable against the other party or
parties thereto and are in full force and effect, in each case subject to the
Enforceability Exceptions.
(o) Each
of
the Company and the Subsidiaries has filed all necessary federal, state and
foreign income and franchise tax returns, except where the failure to so file
such returns would not, individually or in the aggregate, have a Material
Adverse Effect, and has paid all taxes shown as due thereon; and other than
tax
deficiencies which the Company or any Subsidiary is contesting in good faith
and
for which adequate reserves have been provided in accordance with generally
accepted accounting principles, there is no tax deficiency that has been
asserted against the Company or any Subsidiary that would, individually or
in
the aggregate, have a Material Adverse Effect.
(p) None
of
the Company or the Subsidiaries is, or immediately after the Closing Date will
be, required to register as an "investment company" or a company "controlled
by"
an "investment company" within the meaning of the Investment Company Act of
1940, as amended (the "Investment
Company Act").
(q) Since
January 2002 none of the Company or the Subsidiaries or, to the knowledge of
any
of such entities' directors, officers, employees, agents or controlling persons,
has taken, directly or indirectly, any action for the purpose of causing the
stabilization or manipulation of the price of the Common Stock.
(r) None
of
the Company, the Subsidiaries or any of their respective Affiliates (as defined
in Rule 501(b) of Regulation D under the Securities Act) directly, or
through any agent, engaged in any form of general solicitation or general
advertising (as those terms are used in Regulation D under the Securities
Act) in connection with the offering of the Securities or engaged in any other
conduct that would cause such offering to constitute a public offering within
the meaning of Section 4(2) of the Securities Act. Assuming the accuracy of
the representations and warranties of the Purchaser in Section 6 hereof, it
is not necessary in connection with the offer, sale and delivery of the
Securities to the Purchaser in the manner contemplated by this Agreement to
register any of the Securities under the Securities Act.
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(s) There
is
no strike, labor dispute, slowdown or work stoppage with the employees of the
Company or any of the Subsidiaries which is pending or, to the knowledge of
the
Company or any of the Subsidiaries, threatened.
(t) Each
of
the Company and the Subsidiaries carries general liability insurance coverage
comparable to other companies of its size and similar business.
(u) Each
of
the Company and the Subsidiaries maintains internal accounting controls which
provide reasonable assurance that (A) transactions are executed in
accordance with management's authorization, (B) transactions are recorded
as necessary to permit preparation of its financial statements and to maintain
accountability for its assets, and (C) access to its material assets is
permitted only in accordance with management's authorization and (D) the
values and amounts reported for its material assets are compared with its
existing assets at reasonable intervals.
(v) The
Company does not know of any claims for services, either in the nature of a
finder's fee or financial advisory fee, with respect to the offering of the
Securities and the transactions contemplated by the Transaction
Documents.
(w) The
Common Stock is traded on the Over-the-Counter Bulletin Board (the "OTC
BB").
Except as described in the Disclosure Documents, the Company currently is not
in
violation of, and the consummation of the transactions contemplated by the
Transaction Documents will not violate, any rule of the National Association
of
Securities Dealers.
(x) The
Company is eligible to use Form SB-2 for the resale of the Securities and the
Conversion Shares by Purchaser or their transferees. The Company has no reason
to believe that it is not capable of satisfying the registration or
qualification requirements (or an exemption therefrom) necessary to permit
the
resale of the Securities and the Conversion Shares under the securities or
"blue
sky" laws of any jurisdiction within the United States.
(y) To
the
Company's knowledge, none of the officers or directors of the Company
(i) has been convicted of any crime (other than traffic
violations or misdemeanors not involving
fraud) or is currently under investigation or indictment for any
such crime, (ii) has been found by a court or governmental agency to have
violated any securities or commodities law or to have committed fraud or is
currently a party to any legal proceeding in which either is alleged, (iii)
has been the subject of a proceeding under the bankruptcy laws or any
similar state laws, or (iv) has been an officer, director, general partner,
or managing member of an entity which has been the subject of such a
proceeding.
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3. Purchase,
Sale, and Delivery of the Securities; Amendment of Certificate of
Designation.
(a) On
the basis of the representations, warranties, agreements and covenants herein
contained and subject to the terms and conditions herein set forth, the Company
agrees to issue and sell to the Purchasers, and Purchasers agree to purchase
from the Company, a total of 933,333 shares of Common Stock.
(b) Subject
to the fulfillment of each of the conditions to closing set forth herein, the
closing of the transactions described herein (the "Closing")
shall
take place on December 14, 2006 or
such
later date as may be specified by the parties (the "Closing
Date").
On
the
Closing Date, Purchasers shall acquire 933,333
shares of
Common
Stock. Within three business days following the
Closing Date, the Company shall (i) deliver to Purchasers a certificate in
definitive form for 933,333
shares of Common Stock
issued to the respective Purchasers, and (ii) file the amendment to the
Certificate of Designation in the form set forth as Exhibit A hereto. On
the Closing Date, the Company, MMF, MMF III, Monarch shall execute and deliver
that certain Registration Rights Agreement in the form attached hereto.
(c) In
consideration for the sale of the Securities and the amendment of the
Certificate of Designation, the Purchasers shall, on the Closing Date, pay
to
the Company, by wire transfer, a total of $700,000.
4. Certain
Covenants of the Company.
The
Company covenants and agrees with Purchasers as follows:
(a) None
of
the Company or any of its Affiliates will sell, offer for sale or solicit offers
to buy or otherwise negotiate in respect of any "security" (as defined in the
Securities Act) which would be integrated with the sale of the Securities in
a
manner which would require the registration under the Securities Act of the
Securities.
(b) The
Company will not become, at any time prior to the expiration of three years
after the Closing Date, an open-end investment company, unit investment trust,
closed-end investment company or face-amount certificate company that is or
is
required to be registered under the Investment Company Act.
(c) None
of
the proceeds of the Series A Stock will be used to reduce or retire any insider
note or convertible debt held by an officer or director of the
Company.
(d) The
Securities and the additional Conversion Shares will be eligible for trading
on
the OTC BB or such market on which the Company's shares are subsequently listed
or traded, immediately following the effectiveness of the Registration
Statement.
(e) The
Company will do and perform all things required to be done and performed by
it
under this Agreement and the other Transaction Documents and to satisfy all
conditions precedent on its part to the obligations of the Purchasers to
purchase and accept delivery of the Securities.
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(f) The
Company shall allocate the $700,000 of proceeds to be received under Section
3(c) above substantially as follows: (i) $250,000 will be used to fund the
payments required to be made under the recently announced distribution agreement
between the Company and Major League Baseball Advanced Media, L.P.; (ii) $50,000
will be used for the encoding and storage required under the Company’s agreement
related to the programming of NBC Universal Cable; (iii) $400,000 will be used
for sales and marketing and for working capital and general corporate
purposes.
5. Conditions
to Closing.
(a) The
obligation of Purchasers to consummate the Closing is subject to the following
conditions unless waived in writing by the Purchasers:
(i) The
representations and warranties of the Company contained in this Agreement shall
be true and correct in all material respects (other than representations and
warranties with a Material Adverse Effect qualifier, which shall be true and
correct as written) on and as of the Closing Date and the Company shall have
complied in all material respects with all agreements and satisfied all
conditions on its part to be performed or satisfied hereunder at or prior to
the
Closing Date.
(ii) No
Event
of Default or breach of any covenant under this Agreement or the Transaction
Documents shall have occurred.
(iii) The
Company shall be current in all of its public filings.
(iv) None
of
the
issuance
and sale of the Securities pursuant to this Agreement or any of the transactions
contemplated by any of the other Transaction Documents shall be enjoined
(temporarily or permanently) and no restraining order or other injunctive order
shall have been issued in respect thereof; and there shall not have been any
legal action, order, decree or other administrative proceeding instituted or,
to
the Company's knowledge, threatened against the Company or against Purchaser
relating to the issuance of the Securities or Purchasers' activities in
connection therewith or any other transactions contemplated by this Agreement,
the other Transaction Documents or the Disclosure Documents.
(b) The
obligation of the Company to consummate the Closing is subject to the condition
(unless waived in writing by the Company) that the representations and
warranties of the Purchasers contained in this Agreement shall be true and
correct in all material respects (other than representations and warranties
with
a Material Adverse Effect qualifier, which shall be true and correct as written)
on and as of the Closing Date and the Purchasers shall have complied in all
material respects with all agreements and satisfied all conditions on their
part
to be performed or satisfied hereunder at or prior to the Closing
Date.
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6. Representations
and Warranties of the Purchasers.
(a) Each
Purchaser represents and warrants to the Company that the Securities to be
acquired by it hereunder and the additional Conversion Shares that it may
acquire upon conversion or exercise of the Series A Stock are being acquired
for
their own account for investment and with no intention of distributing or
reselling such Securities or such additional Conversion Shares in any
transaction which would be in violation of the securities laws of the United
States of America or any State. Nothing in this Agreement, however, shall
prejudice or otherwise limit the Purchasers' right to sell or otherwise dispose
of all or any part of such Securities and additional Conversion Shares under
an
effective registration statement under the Securities Act and in compliance
with
applicable state securities laws or under an exemption from such registration.
By executing this Agreement, each Purchaser further represents that such
Purchaser does not have any contract, undertaking, agreement or arrangement
with
any person to sell, transfer or grant participation to any person with respect
to any of the Securities.
(b) Each
Purchaser understands that neither the Securities nor the Conversion Shares
have
been registered under the Securities Act and may not be offered, resold, pledged
or otherwise transferred except (a) pursuant to an exemption from
registration under the Securities Act (and, if requested by the Company, based
upon an opinion of counsel acceptable to the Company) or pursuant to an
effective registration statement under the Securities Act and (b) in
accordance with all applicable securities laws of the states of the United
States and other jurisdictions.
Each
Purchaser agrees to the imprinting, so long as appropriate, of the following
legend on the Securities and the Conversion Shares that it may acquire upon
conversion of the Series A Stock:
The
shares of stock evidenced by this certificate have not been registered under
the
U.S. Securities Act of 1933, as amended, and may not be offered, sold, pledged
or otherwise transferred ("transferred") in the absence of such registration
or
an applicable exemption therefrom. In the absence of such registration, such
shares may not be transferred unless, if the Company requests, the Company
has
received a written opinion from counsel in form and substance satisfactory
to
the Company stating that such transfer is being made in compliance with all
applicable federal and state securities laws.
The
legend set forth above may be removed if and when the Securities or Conversion
Shares, as the case may be, are disposed of pursuant to an effective
registration statement under the Securities Act or in the opinion of counsel
to
the Company experienced in the area of United States Federal securities laws
such legends are no longer required under applicable requirements of the
Securities Act. The Securities and the Conversion Shares shall also bear any
other legends required by applicable Federal or state securities laws, which
legends may be removed when in the opinion of counsel to the Company experienced
in the applicable securities laws, the same are no longer required under the
applicable requirements of such securities laws. The Company agrees that it
will
provide Purchasers, upon request, with a substitute certificate, not bearing
such legend at such time as such legend is no longer applicable. Each Purchaser
agrees that, in connection with any transfer of the Securities or the Conversion
Shares by it pursuant to an effective registration statement under the
Securities Act, such Purchaser will comply with all prospectus delivery
requirements of the Securities Act.
-10-
(c) Each
Purchaser represents and warrants to the Company that it is an "accredited
investor" within the meaning of Rule 501(a) of Regulation D under the Securities
Act. Each Purchaser represents and warrants to the Company that such Purchaser
did not learn of the opportunity to acquire Securities or any other security
issuable by the Company through any form of general advertising or public
solicitation.
(d) Each
Purchaser represents and warrants to the Company that it has such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks of the prospective investment in
the
Securities, having been represented by its own independent counsel, and has
so
evaluated the merits and risks of such investment and is able to bear the
economic risk of such investment and, at the present time, is able to afford
a
complete loss of such investment.
(e) Each
Purchaser represents and warrants to the Company that its overall commitment
to
investments which are not readily marketable is not disproportionate to its
net
worth, and its purchase of the Securities will not cause such overall commitment
to become excessive.
(f) Each
Purchaser recognizes that the purchase of the Securities involves a high degree
of risk.
(g) Each
Purchaser represents and warrants to the Company that all information it has
provided to the Company including, but not limited to, its financial position
and its knowledge of financial and business matters is true, correct and
complete as of the date of execution of this Agreement. Each Purchaser
undertakes to provide promptly to the Company written notice of any material
changes in its financial position or otherwise, and such information shall
be
true, correct and complete as of the date given. Each Purchaser understands
that
the Company will rely to a material degree upon the representations contained
therein.
(h) Each
Purchaser represents and warrants to the Company that (i) the purchase of the
Securities to be purchased by it hereunder has been duly and properly authorized
and this Agreement has been duly executed and delivered by it or on its behalf
and constitutes the valid and legally binding obligation of Purchaser,
enforceable against Purchaser in accordance with its terms, subject to the
Enforceability Exceptions, (ii) the purchase of the Securities to be
purchased by it does not conflict with or violate its charter, by-laws or any
law, regulation or court order applicable to it; and (iii) the purchase of
the Securities to be purchased by it does not impose any penalty or other
onerous condition on Purchaser under or pursuant to any applicable law or
governmental regulation.
(i) Each
Purchaser represents and warrants to the Company that neither it nor any of
its
directors, officers, employees, agents, partners, members, controlling persons
or shareholders holding 5% or more of the Common Stock outstanding on the
Closing Date, has taken or will take, directly or indirectly, any actions
designed, or might reasonably be expected to cause or result in the
stabilization or manipulation of the price of the Common Stock.
-11-
(j) Each
Purchaser acknowledges it or its representatives have reviewed and understand
the Transaction Documents and Disclosure Documents and further acknowledges
that
it or its representatives have been afforded (i) the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management
and
prospects sufficient to enable it to evaluate its investment in the Securities;
and (iii) the opportunity to obtain such additional information which the
Company possesses or can acquire without unreasonable effort or expense that
is
necessary to verify the accuracy and completeness of the information contained
in the Disclosure Documents.
(k) Each
Purchaser represents and warrants to the Company that it has based its
investment decision solely upon the information contained in the Disclosure
Documents and such other information as may have been provided to it or its
representatives by the Company in response to their inquiries, and has not
based
its investment decision on any research or other report regarding the Company
prepared by any third party ("Third
Party Reports").
Each
Purchaser understands and acknowledges that (i) the Company does not endorse
any
Third Party Reports and (ii) its actual results may differ materially from
those
projected in any Third Party Report.
(l) Each
Purchaser represents and warrants to the Company that no oral or written
representations have been made and no oral or written information has been
furnished to them or their advisors in connection with this offering that were
in any way inconsistent with the information set forth in the Disclosure
Documents.
(m) Each
Purchaser understands and acknowledges that (i) any forward-looking information
included in the Disclosure Documents supplied to Purchaser by the Company or
its
management is subject to risks and uncertainties, including those risks and
uncertainties set forth in the Disclosure Documents; and (ii) the Company's
actual results may differ materially from those projected by the Company or
its
management in such forward-looking information.
(n) Each
Purchaser understands and acknowledges that (i) the Securities are offered
and sold without registration under the Securities Act in a private placement
that is exempt from the registration provisions of the Securities Act and
(ii) the availability of such exemption depends in part on, and that the
Company and its counsel will rely upon, the accuracy and truthfulness of the
foregoing representations and each of the Purchasers hereby consents to such
reliance.
(o) Each
Purchaser understands that no U.S. federal or state agency, or any agency or
governmental or regulatory authority in any other country, including without
limitation, the U.S. Securities and Exchange Commission, has passed upon the
Securities or made any finding or determination as to the fairness of this
investment.
-12-
(p) Each
Purchaser represents and warrants to the Company that it is not a prohibited
investor under the anti-money laundering or anti-terrorism laws of any
jurisdiction, including without limitation, any country, territory, nation
or
national association.
(q) Each
Purchaser understands that the Company and its assets may be subject to the
laws
and regulations of many jurisdictions, including but not limited to
anti-terrorism laws and anti-money laundering laws. No Purchaser, nor
any
person or entity who controls Purchaser, nor, to the best of Purchasers'
knowledge, any person or entity who owns any direct equity interest in it,
is
identified on the list of "Specially Designated Nationals and Blocked Persons"
("SDNs")
maintained by the U.S. Department of Treasury's Office of Foreign Assets Control
("OFAC"),
and
Purchaser is not owned or controlled by any SDN. Each Purchaser is not involved
in business arrangements or otherwise engaged in transactions with or involving
countries subject to economic or trade sanctions imposed by the United States
Government, or with or involving SDNs in violation of the regulations maintained
by the OFAC. Each Purchaser is in full compliance with the Bank Secrecy Act
(31
U.S.C. § 5311 et. seq.) and 18 U.S.C. §§ 1956 and 1957 and the regulations under
such statutes; and any other applicable anti-terrorist or anti-money laundering
Laws and regulations.
(r) Each
Purchaser represents and warrants to the Company that none of the Purchasers,
nor any of their affiliates has, directly or indirectly, offered to "short
sell", contracted to "short sell," otherwise engaged in any "short selling"
or
encouraged others to "short sell" the securities of the Company, including,
without limitation, shares of Common Stock that will be received as a result
of
the conversion of the Series A Stock; provided, however, that nothing contained
herein shall prohibit the Purchasers from selling any shares of the Company's
Common Stock "against the box."
(s) Each
Purchaser has the requisite power and authority to execute, deliver and perform
its obligations under this Agreement and the Registration Rights Agreement,
and
all other documents executed and delivered by such Purchaser in connection
with
the purchase of the Securities (collectively, the “Purchaser
Documents”).
Each
of the Purchaser Documents has been duly and validly authorized by the Purchaser
and, when executed and delivered by such Purchaser, will constitute a valid
and
legally binding agreement of the Purchaser, enforceable against the Purchaser
in
accordance with its terms except as the enforcement thereof may be limited
by
Enforceability
Exceptions.
(t) Neither
the execution and delivery of the Purchaser Documents nor the consummation
or
performance of any of the transactions contemplated thereby will, directly
or
indirectly (with or without notice or lapse of time) (i) contravene, conflict
with, or result in a violation of any provision of the charter documents of
the
Purchasers, or (ii) contravene, conflict with, or result in a violation of,
or
give any governmental body or other person the right to challenge any of the
contemplated transactions.
7. Covenants
of Purchasers.
(a) Not
to
Short Sell Stock.
Purchaser, on behalf of itself, its affiliates, its successors and assigns
and
any other direct or indirect transferee holding any of the Securities or any
shares of Common Stock issuable upon the conversion of any shares of the Series
A Stock, hereby covenants and agrees not to, directly or indirectly, offer
to
"short sell", contract to "short sell" or otherwise "short sell" or encourage
others to "short sell" the securities of the Company, including, without
limitation, shares of Common Stock that will be received as a result of the
conversion of the Series A Stock; provided, however, that nothing contained
herein shall prohibit the Purchasers from selling any shares of the Company's
Common Stock "against the box."
-13-
(b) Consent
to Amendment of Series A Certificate of Designation.
The
Purchasers, representing the holders of all of the issued and outstanding shares
of Series A Stock, hereby consent to the amendment of the Series A Certificate
of Designation in the form set forth as Exhibit A attached hereto. This consent
shall constitute the consent required to be given by the holders of the
preferred stock under with NRS 78.1955(3) of the Nevada Corporate Law. The
Purchasers hereby further agree to execute and deliver any and all consent
forms
or stockholder resolutions reasonably requested by the Company in order to
evidence their consent to the amendment of the Series A Certificate of
Designation.
8. Termination.
(a) This
Agreement may be terminated in the sole discretion of the Company by notice
to
Purchasers if at the Closing Date:
(i) the
representations and warranties made by Purchasers in Section 6 are not true
and
correct in all material respects; or
(ii) as
to the
Company, the sale of the Securities hereunder (i) is prohibited or enjoined
by
any applicable law or governmental regulation or (ii) subjects the Company
to
any penalty, or in its reasonable judgment, other onerous condition under or
pursuant to any applicable law or government regulation that would materially
reduce the benefits to the Company of the sale of the Securities to Purchasers,
so long as such regulation, law or onerous condition was not in effect in such
form at the date of this Agreement.
(b) This
Agreement may be terminated by the Purchasers by notice to the Company given
in
the event that the Company shall have failed, refused or been unable to satisfy
all material conditions on its part to be performed or satisfied hereunder
on or
prior to the Closing Date, or if after the execution and delivery of this
Agreement and immediately prior to the Closing Date, trading in securities
of
the Company on the OTC BB shall have been suspended.
(c) This
Agreement may be terminated by mutual written consent of all
parties.
9. Registration.
The
Company shall prepare and file with the SEC a Registration Statement on Form
SB-2 covering the resale of the (i) the Securities and (ii) the maximum number
of additional Conversion Shares issuable upon conversion of the Series A Stock
which may be acquired by the Purchasers as a result of the reduction in the
Conversion Price (collectively, the "Registrable
Securities"),
on or
before January 31, 2007, as set forth in the Registration Rights Agreement.
-14-
10. Indemnification.
In
consideration of the Company acquiring the IBD Securities, the Purchasers
jointly and severally shall defend, protect, indemnify and hold harmless the
Company from and against any and all causes of action, suits, claims, losses,
costs, liabilities and damages incurred by any the Company as a result of,
or
arising out of, the gross negligence or willful misconduct of any Purchaser
with
respect to the Purchaser's ownership of the IBD Securities free and clear of
encumbrances.
11. Event
of Default.
If an
Event of Default (as defined below) occurs and remains uncured for a period
of
15 days, each Purchaser shall have the right to exercise any or all of the
rights given to each Purchaser relating to the Securities or the Series A Stock.
In addition, the Company shall pay the Purchasers an aggregate of $1,500 per
day
during which an Event of Default is occurring and remains uncured.
Each
Purchaser need not provide and the Company hereby waives any presentment,
demand, protest or other notice of any kind, and each Purchaser may immediately
and without expiration of any grace period enforce any and all of its rights
and
remedies hereunder and all other remedies available to it under applicable
law.
Such declaration may be rescinded and annulled by Purchaser at any time prior
to
payment hereunder. No such rescission or annulment shall affect any subsequent
Event of Default or impair any right consequent thereon.
An
"Event
of Default"
shall
include the commencement by the Company of a voluntary case or proceeding under
the bankruptcy laws or the Company's failure to: (i) discharge or stay a
bankruptcy proceeding within 60 days of such action being taken against the
Company, (ii) file the Registration Statement with the SEC on or before January
31, 2007, and (iii) maintain trading of the Company’s Common Stock on the
OTC BB except for any periods when the stock is listed on the NASDAQ Small
Stock
Market, the NASDAQ National Stock Market, the AMEX or the NYSE.
12. Notices.
All
communications hereunder shall be in writing and shall be hand delivered, mailed
by first-class mail, couriered by next-day air courier or by facsimile and
confirmed in writing (i) if to the Company, at the addresses set forth below,
or
(ii) if to a Purchaser, to the address set forth on the signature page
hereto.
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If
to the Company:
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Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
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Attention:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, CFO
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All
such
notices and communications shall be deemed to have been duly given: (i) when
delivered by hand, if personally delivered; (ii) five business days after being
deposited in the mail, postage prepaid, if mailed certified mail, return receipt
requested; (iii) one business day after being timely delivered to a next-day
air
courier guaranteeing overnight delivery; (iv) the date of transmission if sent
via facsimile to the facsimile number as set forth in this Section or the
signature page hereof prior to 6:00 p.m. on a business day, or (v) the business
day following the date of transmission if sent via facsimile at a facsimile
number set forth in this Section or on the signature page hereof after 6:00
p.m.
or on a date that is not a business day. Change of a party's address or
facsimile number may be designated hereunder by giving notice to all of the
other parties hereto in accordance with this Section.
-15-
13. Survival
Clause.
The
respective representations, warranties, agreements and covenants of the Company
and the Purchasers set forth in this Agreement shall survive until December
31,
2007, except that the rights and remedies of Purchasers upon the existence
of an
Event of Default shall continue to survive.
14. Fees
and Expenses.
Each
party shall pay its own legal expenses incurred in connection with the
preparation and negotiation of the Transaction Documents.
15. Attorneys'
Fees.
If any
action at law or in equity is necessary to enforce or interpret the terms of
this Agreement or to the amendment to the Series A Certificate of Designation,
the prevailing party or parties shall be entitled to receive from the other
party or parties reasonable attorneys’ fees, costs and necessary disbursements
in addition to any other relief to which the prevailing party or parties may
be
entitled.
16. Successors.
This
Agreement shall inure to the benefit of and be binding upon the Purchasers
and
the Company and their respective successors and legal representatives, and
nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any other person any legal or equitable right, remedy or
claim
under or in respect of this Agreement, or any provisions herein contained;
this
Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such persons and for the benefit
of
no other person. Neither the Company nor any Purchaser may assign this Agreement
or any rights or obligation hereunder without the prior written consent of
the
other party.
17. No
Waiver; Modifications in Writing.
No
failure or delay on the part of the Company or the Purchasers in exercising
any
right, power or remedy hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power or remedy preclude
any
other or further exercise thereof or the exercise of any other right, power
or
remedy. The remedies provided for herein are cumulative and are not exclusive
of
any remedies that may be available to the Company or the Purchasers at law
or in
equity or otherwise. No waiver of or consent to any departure by the Company
or
the Purchasers from any provision of this Agreement shall be effective unless
signed in writing by the party entitled to the benefit thereof, provided
that
notice of any such waiver shall be given to each party hereto as set forth
below. Except as otherwise provided herein, no amendment, modification or
termination of any provision of this Agreement shall be effective unless signed
in writing by or on behalf of each of the Company and the Purchaser. Any
amendment, supplement or modification of or to any provision of this Agreement,
any waiver of any provision of this Agreement, and any consent to any departure
by the Company or the Purchasers from the terms of any provision of this
Agreement shall be effective only in the specific instance and for the specific
purpose for which made or given. Except where notice is specifically required
by
this Agreement, no notice to or demand on the Company in any case shall entitle
the Company to any other or further notice or demand in similar or other
circumstances.
-16-
18. Entire
Agreement.
This
Agreement, together with Transaction Documents, constitutes the entire agreement
among the parties hereto and supersedes all prior agreements, understandings
and
arrangements, oral or written, among the parties hereto with respect to the
subject matter hereof and thereof.
19. Severability.
If any
provision of this Agreement is held to be invalid or unenforceable in any
respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired
thereby.
20. APPLICABLE
LAW.
THE
VALIDITY AND INTERPRETATION OF THIS AGREEMENT, AND THE TERMS AND CONDITIONS
SET
FORTH HEREIN SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF
THE STATE OF CALIFORNIA, WITHOUT GIVING EFFECT TO PROVISIONS RELATING TO
CONFLICTS OF LAW TO THE EXTENT THE APPLICATION OF THE LAWS OF ANOTHER
JURISDICTION WOULD BE REQUIRED THEREBY. THE PARTIES HEREBY IRREVOCABLY AND
UNCONDITIONALLY AGREE THAT ACTIONS, SUITS OR PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS AGREEMENT MAY BE BROUGHT ONLY IN STATE OR FEDERAL COURTS
LOCATED IN THE CITY OF LOS ANGELES, CALIFORNIA AND HEREBY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF SUCH COURTS FOR SUCH PURPOSE.
21. Counterparts.
This
Agreement may be executed in two or more counterparts and may be delivered
by
facsimile transmission, each of which shall be deemed an original, but all
of
which together shall constitute one and the same instrument.
If
the
foregoing correctly sets forth our understanding, please indicate your
acceptance thereof in the space provided below for that purpose, whereupon
this
Agreement shall constitute a binding agreement among the Company and the
Purchasers.
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Very
truly yours,
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By:
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___________________________
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Name:
▇▇▇▇▇▇▇ ▇▇▇▇▇
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Title:
Chief Executive
Officer
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-17-
ACCEPTED
AND AGREED:
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Shares
of Common Stock: -0-
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Mecator
Momentum Fund, L.P.
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By:
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__________________________
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▇▇▇▇▇
▇▇▇▇▇▇▇▇▇
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Managing
Partner
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__________________________
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Portfolio
Manager
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Shares
of Common Stock: -0-
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Mecator
Momentum Fund III, L.P.
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By:
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__________________________
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▇▇▇▇▇▇▇▇▇
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Managing
Partner
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__________________________
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Portfolio
Manager
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Shares
of Common Stock: 933,333
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Monarch
Pointe Fund Ltd.
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By:
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__________________________
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Managing
Partner
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__________________________
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Portfolio
Manager
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-18-
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Addresses
for Notice to any Purchaser:
c/o
M.A.G. Capital, LLC
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Attention:
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or:
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
with
copy to:
▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇
& ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ LLP
▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
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Tel
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Fax:
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-19-
Exhibit
A
Amendment
to Certificate of Designation of
Series
A
Convertible Preferred Stock
Section
(f)(iii) of the Certificate of Designation of Series A Convertible Preferred
Stock is hereby restated in its entirety to read as follows:
(iii)Conversion
Price.
The
number of shares into which one share of Series A Preferred Stock shall be
convertible shall be determined by dividing the Series A Purchase Price by
the
then existing Conversion Price (as set forth below)
(the
"Conversion
Ratio").
The
"Conversion
Price"
per
share for the Series A Preferred Stock shall be equal
to
$0.75 (subject to appropriate adjustment for stock splits, stock dividends,
combinations, recapitalizations or other recapitalization affecting the Series
A
Preferred Stock and as otherwise set forth herein).
The
Conversion Price shall
be
further adjusted upon the occurrence of any event in
paragraph (f)(iv)-(vi)
or
(ix).
-1-
Exhibit
B
Registration
Rights Agreement
-2-