Exhibit 10.3.1
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SECURED CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
Among
DIGITAL DESCRIPTOR SYSTEMS, INC.
and
THE INVESTORS SIGNATORY HERETO
Dated as of December 28, 2000
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SECURED CONVERTIBLE DEBENTURE PURCHASE AGREEMENT (this "Agreement"),
dated as of December 28, 2000, among Digital Descriptor Systems, Inc., a
Delaware corporation (the "Company"), and the investors signatory hereto (each
such investor is a "Purchaser" and all such investors are, collectively, the
"Purchasers").
WHEREAS, subject to the terms and conditions set forth in this
Agreement and in accordance with ss. 4(2) under the Securities Act of 1933, as
amended (the "Securities Act"), and Rule 506 promulgated thereunder, the Company
desires to issue and sell to the Purchasers and the Purchasers, severally and
not jointly, desire to purchase from the Company, (i) an aggregate principal
amount of $600,000 of the Company's 12% Secured Convertible Debentures, due
twelve months from issuance, which shall be in the form of Exhibit A (the
"Debentures"), which are convertible into shares of the Company's common stock,
$0.001 par value per share (the "Common Stock"), and (ii) certain Warrants (as
defined in Section 1.1(a)(ii) hereof). As used herein, Debentures shall include
all "Additional Debentures" (as hereinafter defined).
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchasers agree
as follows:
ARTICLE I
PURCHASE AND SALE
1.1 The Closing: Settlement Dates
(a) (i) Subject to the terms and conditions set forth in this
Agreement, the Company shall issue and sell to the Purchasers and the Purchasers
shall, severally and not jointly, purchase from the Company, to be paid and
issued on settlement dates described in this Section 1.1 herein, the Debentures
for an aggregate purchase price of $600,000. The closing of the purchase and
sale of the Debentures (the "Closing") shall take place at the offices of
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP ("▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇"), ▇▇▇▇
▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, on the first funding date
described in Section 1.1(a)(ii).
(ii) On the date of execution of this Agreement (the "Closing
Date"), the parties shall deliver or shall cause to be delivered the following:
(A) the Company shall deliver to each Purchaser: (1) Debentures registered in
the name of such Purchaser in the aggregate principal amount of 33.33% of the
purchase price indicated below such Purchaser's name on the signature page to
this Agreement, (2) a Common Stock purchase warrant, in the form of Exhibit D,
registered in the name of such Purchaser, pursuant to which such Purchaser shall
have the right to acquire, for every one Dollar ($1) of the principal amount of
the Debentures acquired by it hereunder, two shares of Common Stock, upon the
terms and conditions set forth therein (collectively, the "Warrants"), (3) the
legal opinion of ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq., outside counsel to the Company, in the
form of Exhibit C, (4) an executed Registration Rights Agreement, dated the date
hereof, among the Company and the Purchasers, in the form of Exhibit B (the
"Registration Rights Agreement"), (5)Transfer Agent Instructions in the form of
Exhibit E delivered to and acknowledged in writing by
the Company's transfer agent (the "Transfer Agent Instructions"), and (6) an
executed Security Agreement, dated the date hereof, among the Company and the
Purchasers, in the form of Exhibit E (the "Security Agreement); and (B) each
Purchaser will deliver to the Company: (1) 33.33% of the purchase price
indicated below such Purchaser's name on the signature page to this Agreement in
United States dollars in immediately available funds by wire transfer to an
account designated in writing by the Company for such purpose, and (2) executed
originals of this Agreement, the Registration Rights Agreement and Security
Agreement.
(iii) If each of the conditions set forth in Section
1.1 (b ), other than the condition in Section 1.1(b)(iii), have been either
satisfied by the Company or waived by each Purchaser, then on the tenth (10th)
Trading Day ( "First Additional Funding Date"), as contemplated in Section
1.1(b)(A) the Company will, against delivery of the amounts set forth in clause
(B) in this paragraph, deliver to each Purchaser, Debentures in the aggregate
principal amount of 16.67% of the purchase price indicated below such
Purchaser's name on the signature page to this Agreement (the "First Additional
Debentures"), and (B) each Purchaser will deliver to the Company, 16.67% of the
purchase price indicated below such Purchaser's name on the signature page to
this Agreement in United States Dollars in immediately available funds by wire
transfer to an account designated in writing by the Company for such purpose.
(iv) If each of the conditions set forth in Section
1.1(b), have been either satisfied by the Company or waived by each Purchaser,
then on the fifth(5th) Trading Day ("Second Additional Funding Date") after the
Effective Date (as defined herein), (A) the Company will, against delivery of
the amounts set forth in clause (B) in this paragraph, deliver to each
Purchaser, Debentures in the aggregate principal amount of 50% of the purchase
price indicated below such Purchaser's name on the signature page to this
Agreement (the "Second Additional Debentures"), and (B) each Purchaser will
deliver to the Company, 50% of the purchase price indicated below such
Purchaser's name on the signature page to this Agreement in United States
Dollars in immediately available funds by wire transfer to an account designated
in writing by the Company for such purpose. The First Additional Debentures and
Second Additional Debentures are collectively referred to as ("Additional
Debentures") and the First Additional Funding Date and Second Additional Funding
Date are collectively referred to as ("Additional Funding Dates").
(b) Conditions precedent to the purchase of Additional
Debentures. Notwithstanding anything to the contrary contained in this
Agreement, the obligation of a Purchaser to purchase the securities described in
Section 1.1(a)(iii) and (iv) above is subject to the satisfaction by the Company
or waiver by each Purchaser of each of the following conditions as of each
Additional Funding Date:
(i) Accuracy of the Company's Representations and
Warranties. The representations and warranties of the Company contained in this
Agreement shall be true and correct as of the date when made and as of each
Additional Funding Date as though made on and as each Additional Funding Date
(other than representations and warranties which relate to a specific
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date, which shall not include representations and warranties relating to the
"date hereof" which representations and warranties shall be true as of such
specific date);
(ii) Performance by the Company. The Company shall
have timely performed, satisfied and complied with all covenants, agreements and
conditions required by the Transaction Documents to be performed, satisfied or
complied with by the Company between the Closing Date and each Additional
Funding Date and no Event (as defined in the Registration Rights Agreement)
shall have occurred which has not been cured;
(iii) Underlying Shares Registration Statement. The
Underlying Shares Registration Statement (as hereinafter defined) shall have
been declared effective under the Securities Act by the Securities and Exchange
Commission (the "Commission") by the 90th day following the Closing Date and
shall have remained effective at all times from the date the Commission first
declared it effective (the "Effective Date") through the Second Additional
Funding Date, not subject to any actual or threatened stop order or subject to
any actual or threatened suspension at any time during such period;
(iv) No Injunction. Since the Closing Date, no
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated, amended, modified or endorsed by any
court of governmental authority of competent jurisdiction or governmental
authority, stock market or trading facility which prohibits the consummation of
any of the transactions contemplated by the Transaction Documents or makes
impracticable the transactions contemplated thereby;
(v) Adverse Changes. Since the Closing Date, no event
or series of events which reasonably would be expected to have or result in a
Material Adverse Effect shall have occurred;
and
(vi) Change of Control. No Change of Control in the
Company shall have occurred. "Change of Control" means the occurrence of any of
(A) an acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule 13d-5(b)(I) promulgated under the Exchange Act) of
in excess of 33% of the voting securities of the Company, (B) a replacement of
more than one-half of the members of the Company's board of directors which is
not approved by those individuals who are members of the board of directors on
the date hereof in one or a series of related transactions, (C) the merger of
the Company with or into another entity, consolidation or sale of all or
substantially all of the assets of the Company in one or a series of related
transactions or (D) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (A), (B) or (C).
(viii) Registration of Securities. Pursuant to
Section 12(b) or Section 12(g) (as applicable), of the Securities Exchange Act
of 1934, as amended ("Exchange Act"), the Company shall have: (i) filed a
registration statement on Form 10 with the Commission and any
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applicable national securities exchange, (ii) such registration statement shall
have been declared effective by the Commission and remained effective as of each
Additional Funding Date and (iii) the Common Stock shall be eligible for
quotation and be quoted for trading on the OTC Bulletin Board ("OTC").
(ix) Compliance Certificate. The Company shall have
delivered to each Purchaser on each Additional Funding Date, a certificate,
signed by the President of the Company, stating that all applicable conditions
specified in Section 1.1 (b) have been fulfilled and stating that there shall
have been no adverse change in the business, affairs, prospects, operations,
properties, assets or condition of the Company since the date of the Closing
Date (provided, however, that such certificate shall not preclude Purchasers
from making their own determination as to such compliance, and that such
certificate shall not cure compliance defaults) and that the UCC's in the
Security Agreement are in full force and effect, and granting the Purchasers
with a first priority.
1.2 Certain Defined Terms. For purposes of this Agreement,
"Conversion Price," "Original Issue Date" and "Trading Day" shall have the
meanings set forth in the Debentures; "Business Day" shall mean any day except
Saturday, Sunday and any day which shall be a federal legal holiday in the
United States or a day on which banking institutions in the State of New York or
the Commonwealth of Pennsylvania are authorized or required by law or other
governmental action to close. A "Person" means an individual or corporation,
partnership, trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of the Company. The Company hereby
makes the following representations and warranties to the Purchasers:
(a) Organization and Qualification. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Nevada with the requisite corporate power and authority to
own and use its properties and assets and to carry on its business as currently
conducted. The Company has no subsidiaries other than as set forth in Schedule
2.1(a) (collectively the "Subsidiaries"). Each of the Subsidiaries is an entity,
duly incorporated or otherwise organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization (as
applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted. Each
of the Company and the Subsidiaries is duly qualified to do business and is in
good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not, individually or in the aggregate, (x)
adversely affect the legality, validity or enforceability of the Securities (as
defined below) or any of this Agreement, the Registration Rights Agreement, the
Security Agreement, the Transfer Agent Instructions or the Warrants
(collectively, the "Transaction Documents"), (y) have or result in a material
adverse effect on the results of operations, assets, prospects, or condition
(financial or otherwise) of the Company and the Subsidiaries, taken as a whole,
or (z) adversely
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impair the Company's ability to perfonu fully on a timely basis its obligations
under any of the Transaction Documents (any of (x), (y) or (z), a "Material
Adverse Effect").
(b) Authorization: Enforcement. Subject to the effectiveness
of the Company's Form 10 registration statement as described in Section
1.1(b)(viii), the Company has the requisite corporate power and authority to
enter into and to consummate the transactions contemplated by each of the
Transaction Documents and otherwise to carry out its obligations thereunder.
Subject to the effectiveness of the Company's Form 10 registration statement as
described in Section 1.1 (b)(viii), the execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly authorized by all necessary
action on the part of the Company and no further action is required by the
Company. Each of the Transaction Documents has been duly executed by the Company
and, when delivered in accordance with the terms hereof, will constitute the
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms. Neither the Company nor any Subsidiary is in
violation of any of the provisions of its respective certificate or articles of
incorporation, by-laws or other organizational or charter documents.
(c) Capitalization. The number of authorized, issued and
outstanding capital stock of the Company is set forth in Schedule 2.1(c). No
shares of Common Stock are entitled to preemptive or similar rights, nor is any
holder of the securities of the Company entitled to preemptive or similar rights
arising out of any agreement or understanding with the Company by virtue of any
of the Transaction Documents. Except as a result of the purchase and sale of the
Debentures and the Warrants and except as disclosed in Schedule 2.1(c), there
are no outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable for, or giving any Person any right
to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings, or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common Stock.
The issue and sale of the Underlying Shares (as hereinafter defined) will not
obligate the Company to issue shares of Common Stock or other securities to any
person other than the Purchaser and will not result in a right of any holder of
Company securities to adjust the exercise or conversion or reset price under
such securities.
(d) Issuance of the Debentures and the Warrants. The
Debentures will be duly and validly issued, free and clear of all liens,
encumbrances and rights of first refusal of any kind (collectively, "Liens"). On
the date hereof, the Company will have (and will, at all times while Debentures
and the Warrants are outstanding, maintain) an adequate reserve of duly
authorized shares of Common Stock, reserved for issuance to the holders of such
Debentures and Warrants, to enable it to perform its conversion, exercise and
other obligations under this Agreement. Such number of reserved and available
shares of Common Stock shall not be less than the sum of 200% of the number of
shares of Common Stock which would be issuable upon (i) conversion in full of
the Debentures assuming such conversion occurred on the Original Issue Date, and
the Debentures remain outstanding for one year and all interest is paid in
shares of Common Stock and (ii) exercise in full of the Warrants. All such
authorized shares of Common Stock shall be duly reserved for issuance to the
holders of the Debentures and the Warrants. The shares of Common Stock issuable
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upon conversion of the Debentures and upon exercise of the Warrants are
collectively referred to herein as the "Underlying Shares." All Underlying
Shares shall be duly reserved for issuance to the holders of the Debentures and
the Warrants. The Debentures, the Warrants and the Underlying Shares are
collectively referred to herein as, the "Securities."
(e) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of the Company's or any Subsidiary's certificate or
articles of incorporation, bylaws or other charter documents (each as amended
through the date hereof), or (ii) subject to obtaining the Required Approvals
(as defined below), conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation (with
or without notice, lapse of time or both) of, any agreement, credit facility,
debt or other instrument ( evidencing a Company or Subsidiary debt or otherwise)
or other understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including federal and
state securities laws and regulations)" or by which any property or asset of the
Company or a Subsidiary is bound or affected; except in the case of each of
clauses (ii) and (iii), as could not, individually or in the aggregate, have or
result in a Material Adverse Effect. The business of the Company is not being
conducted in violation of any law, ordinance or regulation of any governmental
authority, except for violations which, individually or in the aggregate, could
not have or result in a Material Adverse Effect.
(f) Filings. Consents and Approvals. Neither the Company nor
any Subsidiary is required to obtain any consent, waiver, authorization or order
of, give any notice to, or make any filing or registration with, any court or
other federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filings required pursuant to Section
3.10, (ii) the filing with the Commission of a registration statement meeting
the requirements set forth in the Registration Rights Agreement and covering the
resale of the Underlying Shares by the Purchasers (the "Underlying Shares
Registration Statement"), (iii) the Form 10 registration statement as described
in Section 1.1 (b)(viii), (iv) applicable Blue Sky filings, and (v) in all
other cases where the failure to obtain such consent, waiver, authorization or
order, or to give such notice or make such filing or registration could not have
or result in, individually or in the aggregate, a Material Adverse Effect
(collectively, the "Required Approvals").
(g) Litigation: Proceedings. There is no action, suit,
inquiry, notice of violation, proceeding or investigation pending or, to the
knowledge of the Company, threatened against or affecting the Company or any of
its Subsidiaries or any of their respective properties before or by any court,
arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an "Action") which (i)
adversely affects or challenges the legality, validity or enforceability of any
of the Transaction Documents or the Securities or (ii) could, if there were an
unfavorable decision, individually or in the aggregate, have or result in a
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Material Adverse Effect. Neither the Company nor any Subsidiary, nor any
director or officer thereof, is or has been the subject of any Action involving
a claim of violation of or liability under federal or state securities laws or a
claim of breach of fiduciary duty. The Company does not have pending before the
Commission any request for confidential treatment of information and the Company
has no knowledge of any expected such request that would be made prior to the
Effectiveness Date (as defined in the Registration Rights Agreement). There has
not been, and to the best of the Company's knowledge there is not pending or
contemplated, any investigation by the Commission involving the Company or any
current or former director or officer of the Company.
(h) No Default or Violation. Neither the Company nor any
Subsidiary (i) is in default under or in violation of (and no event has occurred
which has not been waived which, with notice or lapse of time or both, would
result in a default by the Company or any Subsidiary under), nor has the Company
or any Subsidiary received notice of a claim that it is in default under or that
it is in violation of, any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its
properties is bound, (ii) is in violation of any order of any court, arbitrator
or governmental body, or (iii) is in violation of any statute, rule or
regulation of any governmental authority, in each case of clauses (i), (ii) or
(iii) above, except as could not individually or in the aggregate, have or
result in a Material Adverse Effect. The security interests granted to the
Purchasers pursuant to the Security Agreement and Intellectual Property Security
Agreement will convey and grant to the Purchasers a first priority security
interest in all of the Collateral (as such term is defined in such Agreements).
(i) Private Offering. Assuming the accuracy of the
representations and warranties of the Purchasers set forth in Sections
2.2(b)-(g), the offer, issuance and sale of the Securities to the Purchasers as
contemplated hereby are exempt from the registration requirements of the
Securities Act. Neither the Company nor any Person acting on its behalf has
taken or is, to the knowledge of the Company, contemplating taking any action
which could subject the offering, issuance or sale of the Securities to the
registration requirements of the Securities Act including soliciting any offer
to buy or sell the Securities by means of any form of general solicitation or
advertising.
(j) Financial Statements. The financial statements of the
Company provided to the Purchaser complies in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at that time. Such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved ("GAAP"),
except as may be otherwise specified in such financial statements or the notes
thereto, and fairly present in all material respects the financial position of
the Company and its consolidated subsidiaries as of and for the dates thereof
and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, immaterial, year-end
audit adjustments. Since [],2000, except as specifically disclosed to the
Purchaser, (a) there has been no event, occurrence or development that has or
that could result in a Material Adverse Effect,(b) the Company has not incurred
any liabilities (contingent or otherwise) other than (x) liabilities incurred in
the ordinary course of business consistent with past practice and (y)
liabilities not required to be reflected in the Company's financial statements
pursuant to GAAP, (c) the Company has not altered its method of accounting or
the identity of its auditors and (d) the Company has not declared or made any
payment or
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distribution of cash or other property to its stockholders or officers or
directors (other than in compliance with existing Company stock option plans)
with respect to its capital stock, or purchased, redeemed (or made any
agreements to purchase or redeem) any shares of its capital stock.
(k) Investment Company. The Company is not, and is not an
Affiliate (as defined in Rule 405 under the Securities Act) of, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(l) Certain Fees. No fees or commissions will be payable by
the Company to any broker, financial advisor or consultant, finder, placement
agent, investment banker, bank or other Person with respect to the transactions
contemplated by this Agreement. The Purchasers shall have no obligation with
respect to any fees or with respect to any claims made by or on behalf of other
Persons for fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated by this Agreement. The Company
shall indemnify and hold harmless the Purchasers, their employees, officers,
directors, agents, and partners, and their respective Affiliates, from and
against all claims, losses, damages, costs (including the costs of preparation
and attorney's fees) and expenses suffered in respect of any such claimed or
existing fees, as such fees and expenses are incurred.
(m) Solicitation Materials. Neither the Company nor any Person
acting on the Company's behalf has solicited any offer to buy or sell the
Securities by means of any form of general solicitation or advertising.
(n) Exclusivity. The Company shall not issue and sell the
Debentures or the Warrants to any Person other than the Purchasers without the
specific prior written consent of the Purchasers.
(o) Seniority. No indebtedness of the Company is senior to the
Debentures in right of payment, whether with respect to interest or upon
liquidation or dissolution, or otherwise.
(p) Patents and Trademarks. The Company and its Subsidiaries
have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and rights which
are necessary or material for use in connection with their respective businesses
and which the failure to so have would have a Material Adverse Effect
(collectively, the "Intellectual Property Rights"). Neither the Company nor any
Subsidiary are the holders of any patents or trademarks and neither has filed
any applications thereunder. Neither the Company nor any Subsidiary has received
a written notice that the Intellectual Property Rights used by the Company or
its Subsidiaries violates or infringes upon the rights of any Person. To the
best knowledge of the Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of any of
the Intellectual Property Rights. In the event that while the Debentures are
outstanding the Company or a Subsidiary ever owns patents, trademarks or should
make an application therefore, then the Company shall promptly execute and
cooperate to cause to be filed with the Patent and Trademark Office an
Intellectual Property Security Agreement in the form to be prepared by
Purchasers to provide the Purchasers a first priority lien on all such
intellectual property.
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(q) Registration Rights: Rights of Participation. Except as
set forth on Schedule 202} to the Registration Rights Agreement, the Company has
not granted or agreed to grant to any Person any rights (including "piggy-back"
registration rights) to have any securities of the Company registered with the
Commission or any other governmental authority which has not been satisfied.
Except as set forth on Schedule 6(b) to the Registration Rights Agreement, no
Person has any right of first refusal, preemptive right, right of participation,
or any similar right to participate in the transactions contemplated by the
Transaction Documents.
(r) Regulatory Permits. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, except where the failure to possess such permits could
not, individually or in the aggregate, have or result in a Material Adverse
Effect ("Material Permits"), and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification of
any Material Permit.
(s) Title. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them which is
material to the business of the Company and its Subsidiaries and good and
marketable title in all personal property owned by them which is material to the
business of the Company and its Subsidiaries, in each case free and clear of all
Liens, except for Liens granted to the Purchasers pursuant to the Security
Agreement and for other Liens as do not materially affect the value of such
property and do not 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 of which the Company and its
Subsidiaries are in compliance and do not interfere with the use made and
proposed to be made of such property and buildings by the Company and its
Subsidiaries.
(t) Labor Relations. No material labor problem exists or, to
the knowledge of the Company, is imminent with respect to any of the employees
of the Company.
(u) Disclosure. The Company confirms that neither it nor any
other Person acting on its behalf has provided any of the Purchasers or its
agents or counsel with any information that constitutes or might constitute
material non-public information. The Company understands and confirms that the
Purchasers shall be relying on the foregoing representations in effecting
transactions in securities of the Company. All disclosure provided to the
Purchasers regarding the Company, its business and the transactions contemplated
hereby, including the Schedules to this Agreement, furnished by or on behalf of
the Company are true and correct and do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
(v) Solvency. Based on the financial condition of the Company
as of the Closing Date, (i) the Company's fair saleable value of its assets
exceeds the amount that will be required to be paid on or in respect of the
Company's existing debts and other liabilities (including known contingent
liabilities) as they mature; (ii) the Company's assets do not constitute
unreasonably small capital to carry on its business for the current fiscal year
as now conducted and as proposed to be
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conducted including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected capital
requirements and capital availability thereof; and (iii) the current cash flow
of the Company, together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated uses of
the cash, would be sufficient to pay all amounts on or in respect of its debt
when such amounts are required to be paid. 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).
(w) Application of Takeover Protections. 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 the Company's Certificate of Incorporation (or
similar charter documents) or the laws of its state of incorporation that is or
could become applicable to the Purchasers as a result of the Purchasers and the
Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation the Company's issuance of
the Securities and the Purchasers' ownership of the Securities.
2.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby for itself and for no other Purchaser represents and warrants to the
Company as follows:
(a) Organization: Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The purchase by such Purchaser of the Securities
hereunder has been duly authorized by all necessary action on the part of such
Purchaser. Each of Transaction Documents has been duly executed by such
Purchaser, and when delivered by such Purchaser in accordance with the terms
hereof, will constitute the valid and legally binding obligation of such
Purchaser, enforceable against it in accordance with its terms.
(b) Investment Intent. Such Purchaser is acquiring the
Securities as principal for its own account for investment purposes only and not
with a view to or for distributing or reselling such Securities or any part
thereof, without prejudice, however, to such Purchaser's right, subject to the
provisions of this Agreement, the Registration Rights Agreement and the Warrant,
at all times to sell or otherwise dispose of all or any part of such Securities
pursuant to an effective registration statement under the Securities Act or
under an exemption from such registration and in compliance with applicable
federal and state securities laws. Nothing contained herein shall be deemed a
representation or warranty by such Purchaser to hold the Securities for any
period of time. Such Purchaser is acquiring the Securities hereunder in the
ordinary course of its business. Such Purchaser does not have any agreement or
understanding, directly or indirectly, with any person to distribute the
Securities.
-10-
(c) Purchaser Status. At the time such Purchaser was offered
the Securities, it was, and at the date hereof it is an "accredited investor" as
defined in Rule 501(a) under the Securities Act.
(d) Experience of such Purchaser. Such Purchaser, either alone
or together with its representatives, 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, and has so
evaluated the merits and risks of such investment.
(e) Ability of such Purchaser to Bear Risk of Investment. Such
Purchaser is able to bear the economic risk of an investment in the Securities
and, at the present time, is able to afford a complete loss of such investment.
(f) Access to Information. Such Purchaser acknowledges that it
has reviewed the Disclosure Materials and has 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; 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 make an
informed investment decision with respect to the investment and to verify the
accuracy and completeness of the information contained in the Disclosure
Materials. Neither such inquiries nor any other investigation conducted by or on
behalf of such Purchaser or its representatives or counsel shall modify, amend
or affect such Purchaser's right to rely on the truth, accuracy and completeness
of the Disclosure Materials and the Company's representations and warranties
contained in the Transaction Documents.
(g) General Solicitation. Such Purchaser is not purchasing the
Securities as a result of or subsequent to any advertisement, article, notice or
other communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or presented at
any seminar or any other general solicitation or general advertisement.
(h) Reliance. Such Purchaser understands and acknowledges that
(i) the Securities are being offered and sold to it 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 the Company will rely upon the accuracy and truthfulness
of, the foregoing representations and such Purchaser hereby consents to such
reliance.
The Company acknowledges and agrees that no Purchaser makes or
has made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 2.2.
-11-
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions. (a) The Securities may only be disposed of
pursuant to an effective registration statement under the Securities Act, to the
Company or pursuant or to an available exemption from or in a transaction not
subject to the registration requirements of the Securities Act, and in
compliance with any applicable federal and state securities laws. In connection
with any transfer of Securities other than pursuant to an effective registration
statement or to the Company, except as otherwise set forth herein, the Company
may require the transferor thereof to provide to the Company an opinion of
counsel selected by the transferor, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred Securities under the
Securities Act. Any such transferee shall agree in writing to be bound by the
terms of this Agreement and shall have the rights of a Purchaser under this
Agreement and the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is
required by this Section 3.1(b), of the following legend on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES
ARE [CONVERTIBLE] [EXERCISABLE] HA VE BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMP ANY.
Underlying Shares shall not contain the legend set forth above nor any
other legend if the conversion of Debentures or the exercise of the Warrants, as
the case may be, occurs at any time while an Underlying Shares Registration
Statement is effective under the Securities Act or the holder is relying on Rule
144 promulgated under the Securities Act ("Rule 144") in connection with the
resale of such Underlying Shares, or in the event there is not an effective
Underlying Shares Registration Statement, and Rule 144 is not then available for
resale of the Underlying Shares, at such time as such legend is not required
under applicable requirements of the Securities Act (including, without
limitation, judicial interpretations and pronouncements issued by the staff of
the Commission). The Company shall cause its counsel to issue the legal opinion
included in the Transfer Agent Instructions to the Company's transfer agent on
the Effective Date. The Company agrees that following the Effective Date, it
will, no later than three Trading Days following the delivery by a Purchaser to
the Company of a certificate or certificates representing such Underlying Shares
issued with a restrictive legend, deliver to such Purchaser certificates
representing such Underlying Shares which shall be free from all restrictive and
other legends. The Company may not
-12-
make any notation on its records or give instructions to any transfer agent of
the Company which enlarge the restrictions of transfer set forth in this
Section.
3.2 Acknowledgment of Dilution. The Company acknowledges that the
issuance of Underlying Shares upon the conversion of the Debentures and the
exercise of the Warrants will result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
3.3 Furnishing of Information. After the Closing Date, and thereafter,
for as long as the Purchasers own Securities, the Company covenants to timely
file (or obtain extensions in respect thereof and file within the applicable
grace period) all reports required to be filed by the Company after the date
hereof pursuant to Section 13(a) or 15(d) of the Exchange Act. As long as the
Purchasers own Securities, if the Company is not required to file reports
pursuant to such sections, it will prepare and furnish to the Purchasers and
make publicly available in accordance with Rule 144(c) promulgated under the
Securities Act such information as is required for the Purchasers to sell the
Securities under Rule 144 promulgated under the Securities Act. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Person to sell Underlying Shares without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act, including causing its attorneys to render
and deliver any legal opinion required in order to permit a Purchaser to receive
Underlying Shares free of all restrictive legends and to subsequently sell
Underlying Shares under Rule 144 upon receipt of a notice of an intention to
sell or other form of notice having a similar effect. Upon the request of any
such Person, the Company shall deliver to such Person a written certification of
a duly authorized officer as to whether it has complied with such requirements.
3.4 Integration. The Company shall not, and shall use its best efforts
to ensure that, no Affiliate of the Company shall, sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers.
3.5 Increase in Authorized Shares. If on any date the Company would be,
if a notice of conversion or exercise (as the case may be) were to be delivered
on such date, precluded from issuing (a) 200% of the number of Underlying Shares
as would then be issuable upon a conversion in full of the Debentures and (b )
the number of Underlying Shares issuable upon exercise in full of the Warrants
(the "Current Required Minimum"), in either case, due to the unavailability of a
sufficient number of authorized but unissued or reserved shares of Common Stock,
then the Board of Directors of the Company shall promptly prepare and mail to
the stockholders of the Company proxy materials requesting authorization to
amend the Company's certificate or articles of incorporation to increase the
number of shares of Common Stock which the Company is authorized to issue to at
least such number of shares as reasonably requested by the Purchasers in order
to provide for such number of authorized and unissued shares of Common Stock to
enable the Company to comply with its issuance, conversion exercise and
reservation of shares obligations as set forth in this Agreement, the Debentures
and the Warrants (the sum of (x) the number of shares
-13-
of Common Stock then outstanding plus all shares of Common Stock issuable upon
exercise of all outstanding options, warrants and convertible instruments, and
(y) the Current Required Minimum, shall be a reasonable number). In connection
therewith, the Board of Directors shall (a) adopt proper resolutions authorizing
such increase, (b) recommend to and otherwise use its best efforts to promptly
and duly obtain stockholder approval to carry out such resolutions (and hold a
special meeting of the stockholders no later than the earlier to occur of the
sixtieth (60th) day after delivery of the proxy materials relating to such
meeting and the ninetieth (90th) day after request by a holder of Securities to
issue the number of Underlying Shares in accordance with the terms hereof and
(c) within five (5) Business Days of obtaining such stockholder authorization,
file an appropriate amendment to the Company's certificate or articles of
incorporation to evidence such increase.
3.6 Reservation and Listing of Underlying Shares. (a) The Company shall
(i) in the time and manner required by any national securities exchange, market,
trading or quotation facility on which the Common Stock is then traded, prepare
and file with such national securities exchange, market, trading or quotation
facility on which the Common Stock is then traded an additional shares listing
application covering a number of shares of Common Stock which is not less than
the Initial Minimum, (ii) take all steps necessary to cause such shares of
Common Stock to be approved for listing on any such national securities
exchange, market or trading or quotation facility on which the Common Stock is
then listed as soon as possible thereafter, and (iii) provide to the Purchasers
evidence of such listing, and the Company shall maintain the listing of its
Common Stock thereon. If the number of Underlying Shares issuable upon (x)
conversion in full of the then outstanding Debentures and (y) exercise in full
of the then unexercised portion of the Warrants, exceeds eighty-five percent
(85%) of the number of Underlying Shares previously listed on account thereof
with any such required exchanges, then the Company shall take the necessary
actions to immediately list a number of Underlying Shares as equals no less than
the then Current Required Minimum.
(b) The Company shall maintain a reserve of shares of Common
Stock for issuance upon conversion of the Debentures in full and upon exercise
in full of the Warrants in accordance with this Agreement, in such amount as may
be required to fulfill its obligations in full under the Transaction Documents,
which reserve shall equa1 no less than the then Current Required Minimum.
3.7 Conversion and Exercise Procedures. The Transfer Agent
Instructions, the Conversion Notice (as defined in the Debentures) and the Form
of Election to Purchase (as defined in the Warrants) sets forth the totality of
the procedures with respect to the conversion of the Debentures and the exercise
of the Warrants, including the form of legal opinion, if necessary, that shall
be rendered to the Company's transfer agent and such other information and
instructions as may be reasonably necessary to enable the Purchasers to convert
their Debentures and their Warrants, as the case may be.
3.8 Conversion and Exercise Obligations of the Company. The Company
shall honor conversions of the Debentures and exercise of the Warrants and shall
deliver Underlying Shares in accordance with the respective terms, conditions
and time periods set forth in the Debentures and the Warrants.
-14-
3.9 Subsequent Financing: Limitation on Registrations. (a) From the
date hereof through the ninetieth (90th) Trading Day following the Effective
Date, the Company will not offer, sell, grant any option to purchase, or
otherwise dispose of (or announce any offer, sale, grant or any option to
purchase or other disposition) any of its or its Affiliates' equity or equity
equivalent securities (including the issuance of any debt or other instrument at
any time over the life thereof convertible into or exchangeable for Common
Stock) other than to the Purchasers.
(b) The Company shall not, directly or indirectly, offer,
sell, grant any option to purchase, or otherwise dispose of (or announce any
offer, sale, grant or any option to purchase or other disposition) any of its
equity or equity-equivalent securities or securities of any of its Affiliates
that are exchangeable or convertible (directly or indirectly) for shares of
Common Stock, including the issuance of any debt or other instrument at any time
over the life thereof convertible into or exchangeable for Common Stock
(collectively, a "Subsequent Placement") from the date hereof until the
expiration of the l80th Trading Day after the Effective Date, unless (A) the
Company delivers to each of the Purchasers a written notice (the "Subsequent
Placement Notice") of its intention to effect such Subsequent Placement, which
Subsequent Placement Notice shall describe in reasonable detail the proposed
terms of such Subsequent Placement, the amount of proceeds intended to be raised
thereunder, the Person with whom such Subsequent Placement shall be effected,
and attached to which shall be a term sheet or similar document relating thereto
and (B) such Purchaser shall not have notified the Company by 6:30 p.m. (New
York City time) on the tenth Trading Day after its receipt of the Subsequent
Placement Notice of its willingness to provide (or to cause its sole designee to
provide), subject to completion of mutually acceptable documentation, financing
to the Company on the same terms set forth in the Subsequent Placement Notice.
If the Purchasers shall fail to notify the Company of their intention to enter
into such negotiations within such time period, the Company may effect the
Subsequent Placement substantially upon the terms and to the Persons (or
Affiliates of such Persons) set forth in the Subsequent Placement Notice;
provided, that the Company shall provide the Purchasers with a second Subsequent
Placement Notice, and the Purchasers shall again have the right of first refusal
set forth above in this paragraph (a), if the Subsequent Placement subject to
the initial Subsequent Placement Notice shall not have been consummated for any
reason on the terms set forth in such Subsequent Placement Notice within thirty
(30) Trading Days after the date of the initial Subsequent Placement Notice with
the Person (or an Affiliate of such Person) identified in the Subsequent
Placement Notice. If the Purchasers shall indicate a willingness to provide
financing in excess of the amount set forth in the Subsequent Placement Notice,
then each Purchaser shall be entitled to provide financing pursuant to such
Subsequent Placement Notice up to an amount equal to such Purchaser's pro-rata
portion of the aggregate number of Securities purchased by such Purchaser under
this Agreement, but the Company shall not be required to accept financing from
the Purchasers in an amount in excess of the amount set forth in the Subsequent
Placement Notice.
(c) Except for (x) Underlying Shares, (y) other "Registrable
Securities" (as such term is defined in the Registration Rights Agreement) to be
registered, and securities of the Company permitted pursuant to Section 6(c) of
the Registration Rights Agreement to be registered, in the Underlying Shares
Registration Statement in accordance with the Registration Rights Agreement, and
(z) Common S tock permitted to be issued pursuant to Section 3.9(e), the Company
shall not, for a period of not less than ninety (90) Trading Days after the
Effective Date, without the
-15-
prior written consent of the Purchasers, register any securities of the Company.
Any days after the Effective Date that a Purchaser is unable to sell Underlying
Shares under the Underlying Shares Registration Statement shall be added to such
ninety (90) Trading Day period.
(d) With respect to Section 3.9(a) and (b), the ninety (90)
and one hundred and eighty (180) Trading Day periods shall be extended for the
number of Trading Days following the Effective Date during such period (A) in
which trading in the Common Stock is suspended by any securities exchange or
market or quotation system on which the Common Stock is then listed, or (B)
during which the Underlying Shares Registration Statement is not effective, or
(C) during which the prospectus included in the Underlying Shares Registration
Statement may not be used by the holders thereof for the resale of Underlying
Shares.
(e) The restrictions contained in Section 3.9(a), and (b)
shall not apply to (i) the granting of options or warrants to employees,
officers and directors of the Company, and the issuance of Common Stock upon
exercise of such options or warrants granted under any stock option plan
heretofore or hereinafter duly adopted by the Company and (ii) and (ii)
issuances of Common Stock pursuant to a Strategic Transaction (as defined
herein). A "Strategic Transaction" shall mean a transaction or relationship in
which the Company issues shares of Common Stock to a Person which is, itself or
through its subsidiaries, an operating company in a business related to the
business of the Company and in which the Company receives material benefits in
addition to the investment of funds, but shall not include a transaction in
which the Company is issuing securities primarily for the purpose of raising
capital or to an entity whose primary business is investing in securities.
3.10 Certain Securities Laws Disclosures: Publicity. The Company shall:
(i) on the Closing Date, issue a press release reasonably acceptable to the
Purchasers disclosing the transactions contemplated hereby, (ii) file with the
Commission a Report on Form 8-K disclosing the transactions contemplated hereby
within ten Business Days after the Closing Date, and (iii) timely file with the
Commission a Form D promulgated under the Securities Act. The Company shall, no
less than two Business Days prior to the filing of any disclosure required by
clauses (ii) and (iii) above, provide a copy thereof to the Purchasers for their
review. The Company and the Purchasers shall consult with each other in issuing
any other press releases or otherwise making public statements or filings and
other communications with the Commission or any regulatory agency or stock
market or trading facility with respect to the transactions contemplated hereby
and neither party shall issue any such press release or otherwise make any such
public statement, filings or other communications without the prior written
consent of the other, except that if such disclosure is required by law or stock
market regulation, in which such case the disclosing party shall promptly
provide the other party with prior notice of such public statement, filing or
other communication. Notwithstanding the foregoing, the Company shall not
publicly disclose the names of the Purchasers, or include the names of the
Purchasers in any filing with the Commission, or any regulatory agency, trading
facility or stock market without the prior written consent of the Purchasers,
except to the extent such disclosure (but not any disclosure as to the
controlling Persons thereof) is required by law or stock market regulations, in
which case the Company shall provide the Purchasers with prior notice of such
disclosure.
-16-
3.11 Use of Proceeds. The Company shall use the net proceeds from the
sale of the Securities hereunder for working capital purposes and not for the
satisfaction of any portion of the Company's debt (other than payment of trade
payables in the ordinary course of the Company's business and prior practices),
to redeem any Company equity or equity-equivalent securities or to settle any
outstanding litigation.
3.12 Reimbursement. So long as Purchasers have complied with the terms
and conditions of this Agreement, if any Purchaser becomes involved in any
capacity in any action, proceeding or investigation brought by or against any
Person, including stockholders of the Company, solely as a result of acquiring
the Securities under this Agreement, the Company will reimburse such Purchaser
for its reasonable legal and other expenses (including, but not limited to, the
cost of any investigation, preparation or travel) incurred in connection
therewith, as such expenses are incurred. The reimbursement obligations of the
Company under this paragraph shall be in addition to any liability which the
Company may otherwise have, shall extend upon the same terms and conditions to
any Affiliates of the Purchasers who are actually named in such action,
proceeding or investigation, and partners, directors, agents, employees and
controlling persons (if any), as the case may be, of the Purchasers and any such
Affiliate, and shall be binding upon and inure to the benefit of any successors,
assigns, heirs and personal representatives of the Company, the Purchasers and
any such Affiliate and any such Person. The Company also agrees that neither the
Purchasers nor any such Affiliates, partners, directors, agents, employees or
controlling persons shall have any liability to the Company or any Person
asserting claims on behalf of or in right of the Company solely as a result of
acquiring the Securities under this Agreement.
3.13 Non-Disclosure of Non-Public Information (a) The Company shall not
disclose non-public information to the Purchasers or their advisors or
representatives unless prior to disclosure of such information the Company
identifies such information as being non-public information and the Purchasers
enter into a non-disclosure agreement in form mutually acceptable to the Company
and the Purchasers.
(b) The Company represents that it does not disseminate
non-public information to any investors who purchase stock in the Company in a
public offering, to money managers or to securities analysts. Notwithstanding
the foregoing or anything herein to the contrary, the Company will immediately
notify the Purchasers of any event or the existence of any circumstance (without
any obligation to disclose the specific event or circumstance) of which it
becomes aware, which, if not disclosed in the prospectus included in the
Underlying Shares Registration Statement would cause such prospectus to include
a material misstatement or to omit a material fact required to be stated therein
in order to make the statements, therein in light of the circumstances in which
they were made, not misleading.
3.14 Shareholder Rights Plan. No claim will 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 or shares of Common Stock under the Transaction Documents.
-17-
ARTICLE IV
MISCELLANEOUS
4.1 Fees and Expenses. At the Closing, the Company shall reimburse the
Purchasers for their legal fees and expenses incurred in connection with the
preparation and negotiation of the Transaction Documents by paying to ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ $30,000 for the preparation and negotiation of the Transaction
Documents. The amount contemplated by the immediately preceding sentence shall
be retained by the Purchasers and shall not be delivered to the Company at the
Closing. Other than the amount contemplated herein, and except as otherwise
specified in the Registration Rights Agreement and the Security Agreement, each
party shall pay the fees and expenses of its advisers, counsel, accountants and
other experts, if any, and all other expenses incurred by such party incident to
the negotiation, preparation, execution, delivery and performance of this
Agreement. The Company shall pay all stamp and other taxes and duties levied in
connection with the issuance of the Securities.
4.2 Entire Agreement: Amendments. The Transaction Documents, together
with the Exhibits and Schedules thereto and Transfer Agent Instructions, contain
the entire understanding of the parties with respect to the subject matter
hereof and supersede all prior agreements and understandings, oral or written,
with respect to such matters, which the parties acknowledge have been merged
into such documents, exhibits and schedules.
4.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 5:00 p.m. (New York City
time) on a Business Day, (ii) the Business Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Agreement later than 5:00p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such date,
(iii) the Business Day following the date of mailing, if sent by U.S. nationally
recognized overnight courier service, or (iv) upon actual receipt by the party
to whom such notice is required to be given. The address for such notices and
communications shall be as follows:
If to the Company: Digital Descriptor Systems, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇ ▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
With copies to: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
-18-
If to a Purchaser: To the address set forth under such
Purchaser's name on the signature pages
hereto.
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
4.4 Amendments: Waivers. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by both the Company and each of the Purchasers or, in the case of a waiver, by
the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
4.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
4.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers. The Purchasers may not
assign this Agreement or any of the rights or obligations hereunder without the
consent of the Company; however this provision shall not limit any Purchaser's
right to transfer Securities accrued hereunder or transfer or assign rights
under the Registration Rights Agreement.
4.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
4.8 Governing Law. All other questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
-19-
4.9 Survival. The representations, warranties, agreements and covenants
contained herein shall survive the Closing and the delivery, exercise and
conversion of the Warrants or the Debentures, as the case may be.
4.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together 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, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
4.11 Severability. In case anyone or more of the provisions of this
Agreement shall 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 affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
4.12 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers will be entitled to specific performance of the obligations of the
Company under the Transaction Documents. The parties hereto agree that monetary
damages may not be adequate compensation for any loss incurred by reason of any
breach of its obligations described in the foregoing sentence and hereby agrees
to waive in any action for specific performance of any such obligation the
defense that a remedy at law would be adequate.
4.13 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document is several and not
joint with the obligations of any other Purchaser and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association,
ajoint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert with respect to such obligations or
the transactions contemplated by the Transaction Document. Each Purchaser shall
be entitled to independently protect and enforce its rights, including without
limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this
Secured Convertible Debenture Purchase Agreement to be duly executed by their
respective authorized signatories as of the date first indicated above.
DIGITAL DESCRIPTOR SYSTEMS, INC.
By: /s/▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
---------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Title: Chief Financial Officer
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
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AJW PARTNERS II, LLC
By: SMS Group, LLC
By. /s/▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title:
Purchase Price for Debentures: $300,000
Address for Notice:
AJW Partners II, LLC
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
With copies to: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇ and (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
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NEW MILLENNIUM CAPITAL PARTNERS II, LLC
By: First Street Manager II, LLC
By. /s/▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title:
Purchase Price for Debentures: $300,000
Address for Notice:
New Millennium Capital Partners II, LLC
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
With copies to: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇ and (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
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