EXHIBIT 10.13
SECURITIES PURCHASE AGREEMENT
LAURUS MASTER FUND, LTD.
and
AMS HEALTH SCIENCES, INC.
Dated: June 28, 2006
TABLE OF CONTENTS
1. Agreement to Sell and Purchase............................................
2. Fees and Warrant. On the Closing Date:...................................
3. Closing, Delivery and Payment.............................................
3.1 Closing..........................................................
3.2 Delivery.........................................................
4. Representations and Warranties of the Company.............................
4.1 Organization, Good Standing and Qualification....................
4.2 Subsidiaries.....................................................
4.3 Capitalization; Voting Rights....................................
4.4 Authorization; Binding Obligations...............................
4.5 Liabilities......................................................
4.6 Agreements; Action...............................................
4.7 Obligations to Related Parties...................................
4.8 Changes..........................................................
4.9 Title to Properties and Assets; Liens, Etc.......................
4.10 Intellectual Property............................................
4.11 Compliance with Other Instruments................................
4.12 Litigation.......................................................
4.13 Tax Returns and Payments.........................................
4.14 Employees........................................................
4.15 Registration Rights and Voting Rights............................
4.16 Compliance with Laws; Permits....................................
4.17 Environmental and Safety Laws....................................
4.18 Valid Offering...................................................
4.19 Full Disclosure..................................................
4.20 Insurance........................................................
4.21 SEC Reports......................................................
4.22 Listing..........................................................
4.23 No Integrated Offering...........................................
4.24 Stop Transfer....................................................
4.25 Dilution.........................................................
4.26 Patriot Act......................................................
4.27 ERISA............................................................
5. Representations and Warranties of the Purchaser...........................
5.1 No Shorting......................................................
5.2 Requisite Power and Authority....................................
5.3 Investment Representations.......................................
5.4 The Purchaser Bears Economic Risk................................
5.5 Acquisition for Own Account......................................
5.6 The Purchaser Can Protect Its Interest...........................
5.7 Accredited Investor..............................................
5.8 Legends..........................................................
6. Covenants of the Company..................................................
6.1 Stop-Orders......................................................
6.2 Listing..........................................................
6.3 Market Regulations...............................................
6.4 Reporting Requirements...........................................
6.5 Use of Funds.....................................................
6.6 Access to Facilities.............................................
6.7 Taxes............................................................
6.8 Insurance........................................................
6.9 Intellectual Property............................................
6.10 Properties.......................................................
6.11 Confidentiality..................................................
6.12 Required Approvals...............................................
6.13 Reissuance of Securities.........................................
6.14 Opinion..........................................................
6.15 Margin Stock.....................................................
6.16 Financing Right of First Refusal.................................
6.17 Authorization and Reservation of Shares..........................
7. Covenants of the Purchaser................................................
7.1 Confidentiality..................................................
7.2 Non-Public Information...........................................
7.3 Limitation on Acquisition of Common Stock of the Company.........
8. Covenants of the Company and the Purchaser Regarding Indemnification......
8.1 Company Indemnification..........................................
8.2 Purchaser's Indemnification......................................
9. Conversion of Convertible Note............................................
9.1 Mechanics of Conversion..........................................
10. Registration Rights.......................................................
10.1 Registration Rights Granted......................................
10.2 Offering Restrictions............................................
11. Miscellaneous.............................................................
11.1 Governing Law, Jurisdiction and Waiver of Jury Trial.............
11.2 Severability.....................................................
11.3 Survival.........................................................
11.4 Successors.......................................................
11.5 Entire Agreement; Maximum Interest...............................
11.6 Amendment and Waiver.............................................
11.7 Delays or Omissions..............................................
11.8 Notices..........................................................
11.9 Attorneys' Fees..................................................
11.10 Titles and Subtitles.............................................
11.11 Facsimile Signatures; Counterparts...............................
11.12 Broker's Fees....................................................
11.13 Construction.....................................................
LIST OF EXHIBITS
Form of Convertible Term Note.................................Exhibit A
Form of Warrant...............................................Exhibit B
Form of Opinion...............................................Exhibit C
Form of Escrow Agreement......................................Exhibit D
Closing Checklist............................................Exhibit __
Form of Disbursement Letter Exhibit __
SCHEDULES
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of June 28, 2006, by and between AMS Health Sciences, Inc., an
Oklahoma corporation (the "Company"), and LAURUS MASTER FUND, LTD., a Cayman
Islands company (the "Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale to the Purchaser of a
Secured Convertible Term Note in the aggregate principal amount of Two Million
Dollars ($2,000,000) in the form of Exhibit A hereto (as amended, modified
and/or supplemented from time to time, the "Note"), which Note is convertible
into shares of the Company's common stock, $0.0001 par value per share (the
"Common Stock") at an initial fixed conversion price of $0.51 per share of
Common Stock ("Fixed Conversion Price");
WHEREAS, the Company wishes to issue to the Purchaser a warrant in the
form of Exhibit B hereto (as amended, modified and/or supplemented from time to
time, the "Warrant") to purchase up to 2,272,727 shares of the Company's Common
Stock (subject to adjustment as set forth therein) in connection with the
Purchaser's purchase of the Note;
WHEREAS, the Purchaser desires to purchase the Note and the Warrant on
the terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Note and Warrant to
the Purchaser on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises, representations, warranties and covenants hereinafter set forth
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Agreement to Sell and Purchase. Pursuant to the terms and
conditions set forth in this Agreement, on the Closing Date (as defined in
Section 3), the Company shall sell to the Purchaser, and the Purchaser shall
purchase from the Company, the Note. The sale of the Note on the Closing Date
shall be known as the "Offering." The Note will mature on the Maturity Date (as
defined in the Note). Collectively, the Note and Warrant and Common Stock
issuable upon conversion of the Note and upon exercise of the Warrant are
referred to as the "Securities."
2. Fees and Warrant. On the Closing Date:
(a) The Company will issue and deliver to the Purchaser the Warrant to
purchase up to 2,272,727 shares of Common Stock (subject to adjustment as
set forth therein) in connection with the Offering, pursuant to Section 1
hereof. All the representations, covenants, warranties, undertakings, and
indemnification, and other rights made or granted to or for the benefit of
the Purchaser by the Company are hereby also made and granted for the
benefit of the holder of the Warrant and shares of the Company's Common
Stock issuable upon exercise of the Warrant (the "Warrant Shares").
(b) Subject to the terms of Section 2(d) below, the Company shall pay
to Laurus Capital Management, LLC, the manager of the Purchaser, a closing
payment in an amount equal to three and seven-tenths percent (3.70%) of the
aggregate principal amount of the Note. The foregoing fee is referred to
herein as the "Closing Payment."
(c) The Company shall reimburse the Purchaser for its reasonable
expenses (including legal fees and expenses) incurred in connection with
the preparation and negotiation of this Agreement and the Related
Agreements (as hereinafter defined), and expenses incurred in connection
with the Purchaser's due diligence review of the Company and its
Subsidiaries (as defined in Section 4.2) and all related matters. Amounts
required to be paid under this Section 2(c) will be paid on the Closing
Date and shall be $40,000 for such expenses referred to in this Section
2(c), $15,000 of which has been paid by the Company prior to the date
hereof as a deposit.
(d) The Closing Payment and the expenses referred to in the preceding
clause (c) (net of deposits previously paid by the Company) shall be paid
at closing out of funds held pursuant to the Escrow Agreement (as defined
below) and a disbursement letter.
3. Closing, Delivery and Payment.
3.1 Closing. Subject to the terms and conditions herein, the closing of the
transactions contemplated hereby (the "Closing"), shall take place on the date
hereof, at such time or place as the Company and the Purchaser may mutually
agree (such date is hereinafter referred to as the "Closing Date").
3.2 Delivery. Pursuant to the Escrow Agreement, at the Closing on the
Closing Date, the Company will deliver to the Purchaser, among other things, the
Note and the Warrant and the Purchaser will deliver to the Company, among other
things, the amounts set forth in the Disbursement Letter by certified funds or
wire transfer. The Company hereby acknowledges and agrees that Purchaser's
obligation to purchase the Note from the Company on the Closing Date, and shall
be contingent upon the satisfaction (or waiver by the Purchaser in its sole
discretion) of the items and matters set forth in the closing checklist provided
by the Purchaser to the Company on or prior to the Closing Date.
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchaser as follows:
4.1 Organization, Good Standing and Qualification. Each of the Company and
each of its Subsidiaries is a corporation, partnership or limited liability
company, as the case may be, duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. Each of the Company
and each of its Subsidiaries has the corporate, limited liability company or
partnership, as the case may be, power and authority to own and operate its
properties and assets and, insofar as it is or shall be a party thereto, to (1)
execute and deliver (i) this Agreement, (ii) the Note and the Warrant to be
issued in connection with this Agreement, (iii) the Master Security Agreement
dated as of the date hereof between the Company, certain Subsidiaries of the
Company and the Purchaser (as amended, modified and/or supplemented from time to
time, the "Master Security Agreement"), (iv) the Registration Rights Agreement
relating to the Securities dated as of the date hereof between the Company and
the Purchaser (as amended, modified and/or supplemented from time to time, the
"Registration Rights Agreement"), (v) the Subsidiary Guaranty dated as of the
date hereof made by certain Subsidiaries of the Company (as amended, modified
and/or supplemented from time to time, the "Subsidiary Guaranty"), (vi) the
Stock Pledge Agreement dated as of the date hereof among the Company, certain
Subsidiaries of the Company and the Purchaser (as amended, modified and/or
supplemented from time to time, the "Stock Pledge Agreement"), (vii) the Grant
of Assignment in Patents and Trademarks dated as of the date hereof among the
Company, certain Subsidiaries of the Company and the Purchaser (as amended,
modified and/or supplemented from time to time, the "IP Assignment"); (viii) the
Funds Escrow Agreement dated as of the date hereof among the Company, the
Purchaser and the escrow agent referred to therein, substantially in the form of
Exhibit D hereto (as amended, modified and/or supplemented from time to time,
the "Escrow Agreement"); (ix) the Mortgage, Assignment of Leases, Rents, Income
and Profits, Security Agreement and Fixture Filing dated as of the date hereof
among the Company and the Purchaser, substantially in the form of Exhibit E
hereto (as amended, modified and/or supplemented from time to time, the
"Mortgage")and (x) all other documents, instruments and agreements entered into
in connection with the transactions contemplated hereby and thereby (the
preceding clauses (ii) through (x), collectively, the "Related Agreements"); (2)
issue and sell the Note and the shares of Common Stock issuable upon conversion
of the Note (the "Note Shares"); (3) issue and sell the Warrant and the Warrant
Shares; and (4) carry out the provisions of this Agreement and the Related
Agreements and to carry on its business as presently conducted. Each of the
Company and each of its Subsidiaries is duly qualified and is authorized to do
business and is in good standing as a foreign corporation, partnership or
limited liability company, as the case may be, in all jurisdictions in which the
nature or location of its activities and of its properties (both owned and
leased) makes such qualification necessary, except for those jurisdictions in
which failure to do so has not, or could not reasonably be expected to have,
individually or in the aggregate, a material adverse effect on the business,
assets, liabilities, condition (financial or otherwise), properties, operations
or prospects of the Company and its Subsidiaries, taken individually and as a
whole (a "Material Adverse Effect").
4.2 Subsidiaries. Each direct and indirect Subsidiary of the Company, the
direct owner of such Subsidiary and its percentage ownership thereof, is set
forth on Schedule 4.2. For the purpose of this Agreement, a "Subsidiary" of any
person or entity means (i) a corporation or other entity whose shares of stock
or other ownership interests having ordinary voting power (other than stock or
other ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the directors of such corporation, or other
persons or entities performing similar functions for such person or entity, are
owned, directly or indirectly, by such person or entity or (ii) a corporation or
other entity in which such person or entity owns, directly or indirectly, more
than 50% of the equity interests at such time.
4.3 Capitalization; Voting Rights.]
(a) The authorized capital stock of the Company, as of the date hereof
consists of 500,000,000 shares, of which 495,000,000are shares of Common
Stock, par value $0.0001 per share, 8,354,053 shares of which are issued
and 7,775,824 of which are outstanding, and 5,000,000are shares of
preferred stock, par value $0.00001 per share of which no shares of
preferred stock are issued and outstanding. The authorized, issued and
outstanding capital stock of each Subsidiary of the Company is set forth on
Schedule 4.3.
(b) Except as disclosed on Schedule 4.3, other than: (i) the shares
reserved for issuance under the Company's stock option plans; and (ii)
shares which may be granted pursuant to this Agreement and the Related
Agreements, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal), proxy or
stockholder agreements, or arrangements or agreements of any kind for the
purchase or acquisition from the Company of any of its securities. Except
as disclosed on Schedule 4.3, neither the offer, issuance or sale of any of
the Note or the Warrant, or the issuance of any of the Note Shares or
Warrant Shares, nor the consummation of any transaction contemplated hereby
will result in a change in the price or number of any securities of the
Company outstanding, under anti-dilution or other similar provisions
contained in or affecting any such securities.
(c) All issued and outstanding shares of the Company's Common Stock:
(i) have been duly authorized and validly issued and are fully paid and
nonassessable; and (ii) were issued in compliance with all applicable state
and federal laws concerning the issuance of securities.
(d) The rights, preferences, privileges and restrictions of the shares
of the Common Stock are as stated in the Company's Certificate of
Incorporation (the "Charter"). The Note Shares and Warrant Shares have been
duly and validly reserved for issuance. When issued in compliance with the
provisions of this Agreement, the Note, Warrant and the Company's Charter,
the Securities will be validly issued, fully paid and nonassessable, and
will be free of any liens or encumbrances; provided, however, that the
Securities may be subject to restrictions on transfer under state and/or
federal securities laws as set forth herein or as otherwise required by
such laws at the time a transfer is proposed.
4.4 Authorization; Binding Obligations. All corporate, partnership or
limited liability company, as the case may be, action on the part of the Company
and each of its Subsidiaries (including their respective officers and directors)
necessary for the authorization of this Agreement and the Related Agreements,
the performance of all obligations of the Company and its Subsidiaries hereunder
and under the other Related Agreements at the Closing and, the authorization,
sale, issuance and delivery of the Note and Warrant has been taken or will be
taken prior to the Closing. This Agreement and the Related Agreements, when
executed and delivered and to the extent it is a party thereto, will be valid
and binding obligations of each of the Company and each of its Subsidiaries,
enforceable against each such person or entity in accordance with their terms,
except:
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; and
(b) general principles of equity that restrict the availability of
equitable or legal remedies.
The sale of the Note and the subsequent conversion of the Note into Note Shares
are not and will not be subject to any preemptive rights or rights of first
refusal that have not been properly waived or complied with. The issuance of the
Warrant and the subsequent exercise of the Warrant for Warrant Shares are not
and will not be subject to any preemptive rights or rights of first refusal that
have not been properly waived or complied with.
4.5 Liabilities. Neither the Company nor any of its Subsidiaries has any
liabilities, except current liabilities incurred in the ordinary course of
business and liabilities disclosed in any of the Company's filings under the
Securities Exchange Act of 1934 ("Exchange Act") made prior to the date of this
Agreement (collectively, the "Exchange Act Filings"), copies of which have been
provided to the Purchaser.
4.6 Agreements; Action. Except as set forth on Schedule 4.6 or as disclosed
in any Exchange Act Filings:
(a) there are no agreements, understandings, instruments, contracts,
proposed transactions, judgments, orders, writs or decrees to which the
Company or any of its Subsidiaries is a party or by which it is bound which
may involve: (i) obligations (contingent or otherwise) of, or payments to,
the Company or any of its Subsidiaries in excess of $50,000 (other than
obligations of, or payments to, the Company or any of its Subsidiaries
arising from purchase or sale agreements entered into in the ordinary
course of business); or (ii) the transfer or license of any patent,
copyright, trade secret or other proprietary right to or from the Company
or any of its Subsidiaries (other than licenses arising from the purchase
of "off the shelf" or other standard products); or (iii) provisions
restricting the development, manufacture or distribution of the Company's
or any of its Subsidiaries products or services; or (iv) indemnification by
the Company or any of its Subsidiaries with respect to infringements of
proprietary rights.
(b) Since December 31, 2005 (the "Balance Sheet Date"), neither the
Company nor any of its Subsidiaries has: (i) declared or paid any
dividends, or authorized or made any distribution upon or with respect to
any class or series of its capital stock; (ii) incurred any indebtedness
for money borrowed or any other liabilities (other than ordinary course
obligations) individually in excess of $50,000 or, in the case of
indebtedness and/or liabilities individually less than $50,000, in excess
of $100,000 in the aggregate; (iii) made any loans or advances to any
person or entity not in excess, individually or in the aggregate, of
$100,000, other than ordinary course advances for travel expenses; or (iv)
sold, exchanged or otherwise disposed of any of its assets or rights, other
than the sale of its inventory in the ordinary course of business.
(c) For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same person or entity
(including persons or entities the Company or any Subsidiary of the Company
has reason to believe are consolidated therewith) shall be aggregated for
the purpose of meeting the individual minimum dollar amounts of such
subsections.
(d) The Company maintains disclosure controls and procedures
("Disclosure Controls") designed to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized, and reported, within the
time periods specified in the rules and forms of the Securities and
Exchange Commission ("SEC").
(e) The Company makes and keeps books, records, and accounts that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the Company's assets. To the extent required by federal
securities laws, the Company maintains internal control over financial
reporting ("Financial Reporting Controls") designed by, or under the
supervision of, the Company's principal executive and principal financial
officers, and effected by the Company's board of directors, management, and
other personnel, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles ("GAAP"), including that:
(i) transactions are executed in accordance with management's general
or specific authorization;
(ii) unauthorized acquisition, use, or disposition of the Company's
assets that could have a material effect on the financial statements are
prevented or timely detected;
(iii) transactions are recorded as necessary to permit preparation of
financial statements in accordance with GAAP, and that the Company's
receipts and expenditures are being made only in accordance with
authorizations of the Company's management and board of directors;
(iv) transactions are recorded as necessary to maintain accountability
for assets; and
(v) the recorded accountability for assets is compared with the
existing assets at reasonable intervals, and appropriate action is taken
with respect to any differences.
(f) There is no weakness in any of the Company's Disclosure Controls
or Financial Reporting Controls that is required to be disclosed in any of
the Exchange Act Filings, except as so disclosed.
4.7 Obligations to Related Parties. Except as set forth on Schedule 4.7,
there are no obligations of the Company or any of its Subsidiaries to officers,
directors, stockholders or employees of the Company or any of its Subsidiaries
other than:
(a) for payment of salary for services rendered and for bonus
payments;
(b) reimbursement for reasonable expenses incurred on behalf of the
Company and its Subsidiaries;
(c) for other standard employee benefits made generally available to
all employees (including stock option agreements outstanding under any
stock option plan approved by the Board of Directors of the Company and
each Subsidiary of the Company, as applicable); and
(d) obligations listed in the Company's and each of its Subsidiary's
financial statements or disclosed in any of the Company's Exchange Act
Filings.
Except as described above or set forth on Schedule 4.7, none of the officers,
directors or, to the best of the Company's knowledge, key employees or
stockholders of the Company or any of its Subsidiaries or any members of their
immediate families, are indebted to the Company or any of its Subsidiaries,
individually or in the aggregate, in excess of $50,000 or have any direct or
indirect ownership interest in any firm or corporation with which the Company or
any of its Subsidiaries is affiliated or with which the Company or any of its
Subsidiaries has a business relationship, or any firm or corporation which
competes with the Company or any of its Subsidiaries, other than passive
investments in publicly traded companies (representing less than one percent
(1%) of such company) which may compete with the Company or any of its
Subsidiaries. Except as described above, no officer, director or stockholder of
the Company or any of its Subsidiaries, or any member of their immediate
families, is, directly or indirectly, interested in any material contract with
the Company or any of its Subsidiaries and no agreements, understandings or
proposed transactions are contemplated between the Company or any of its
Subsidiaries and any such person. Except as set forth on Schedule 4.7, neither
the Company nor any of its Subsidiaries is a guarantor or indemnitor of any
indebtedness of any other person or entity.
4.8 Changes. Since the Balance Sheet Date, except as disclosed in any
Exchange Act Filing or in any Schedule to this Agreement or to any of the
Related Agreements, there has not been:
(a) any change in the business, assets, liabilities, condition
(financial or otherwise), properties, operations or prospects of the
Company or any of its Subsidiaries, which individually or in the aggregate
has had, or could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect;
(b) any resignation or termination of any officer, key employee or
group of employees of the Company or any of its Subsidiaries;
(c) any material change, except in the ordinary course of business, in
the contingent obligations of the Company or any of its Subsidiaries by way
of guaranty, endorsement, indemnity, warranty or otherwise;
(d) any damage, destruction or loss, whether or not covered by
insurance, which has had, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect;
(e) any waiver by the Company or any of its Subsidiaries of a valuable
right or of a material debt owed to it;
(f) any direct or indirect loans made by the Company or any of its
Subsidiaries to any stockholder, employee, officer or director of the
Company or any of its Subsidiaries, other than advances made in the
ordinary course of business;
(g) any material change in any compensation arrangement or agreement
with any employee, officer, director or stockholder of the Company or any
of its Subsidiaries;
(h) any declaration or payment of any dividend or other distribution
of the assets of the Company or any of its Subsidiaries;
(i) any labor organization activity related to the Company or any of
its Subsidiaries;
(j) any debt, obligation or liability incurred, assumed or guaranteed
by the Company or any of its Subsidiaries, except those for immaterial
amounts and for current liabilities incurred in the ordinary course of
business;
(k) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets owned by the Company
or any of its Subsidiaries;
(l) any change in any material agreement to which the Company or any
of its Subsidiaries is a party or by which either the Company or any of its
Subsidiaries is bound which either individually or in the aggregate has
had, or could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect;
(m) any other event or condition of any character that, either
individually or in the aggregate, has had, or could reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect; or
(n) any arrangement or commitment by the Company or any of its
Subsidiaries to do any of the acts described in subsection (a) through (m)
above.
4.9 Title to Properties and Assets; Liens, Etc. Except as set forth on
Schedule 4.9, each of the Company and each of its Subsidiaries has good and
marketable title to its properties and assets, and good title to its leasehold
interests, in each case subject to no mortgage, pledge, lien, lease, encumbrance
or charge, other than:
(a) those resulting from taxes which have not yet become delinquent;
(b) minor liens and encumbrances which do not materially detract from
the value of the property subject thereto or materially impair the
operations of the Company or any of its Subsidiaries, so long as in each
such case, such liens and encumbrances have no effect on the lien priority
of the Purchaser in such property; and
(c) those that have otherwise arisen in the ordinary course of
business, so long as they have no effect on the lien priority of the
Purchaser therein.
All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company and its Subsidiaries are in good operating
condition and repair and are reasonably fit and usable for the purposes for
which they are being used. Except as set forth on Schedule 4.9, the Company and
its Subsidiaries are in compliance with all material terms of each lease to
which it is a party or is otherwise bound.
4.10 Intellectual Property.
(a) Each of the Company and each of its Subsidiaries owns or possesses
sufficient legal rights to all patents, trademarks, service marks, trade
names, copyrights, trade secrets, licenses, information and other
proprietary rights and processes necessary for its business as now
conducted and, to the Company's knowledge, as presently proposed to be
conducted (the "Intellectual Property"), without any known infringement of
the rights of others. There are no outstanding options, licenses or
agreements of any kind relating to the foregoing proprietary rights, nor is
the Company or any of its Subsidiaries bound by or a party to any options,
licenses or agreements of any kind with respect to the patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses,
information and other proprietary rights and processes of any other person
or entity other than such licenses or agreements arising from the purchase
of "off the shelf" or standard products.
(b) Neither the Company nor any of its Subsidiaries has received any
communications alleging that the Company or any of its Subsidiaries has
violated any of the patents, trademarks, service marks, trade names,
copyrights or trade secrets or other proprietary rights of any other person
or entity, nor is the Company or any of its Subsidiaries aware of any basis
therefor.
(c) The Company does not believe it is or will be necessary to utilize
any inventions, trade secrets or proprietary information of any of its
employees made prior to their employment by the Company or any of its
Subsidiaries, except for inventions, trade secrets or proprietary
information that have been rightfully assigned to the Company or any of its
Subsidiaries.
4.11 Compliance with Other Instruments. Neither the Company nor any of its
Subsidiaries is in violation or default of (x) any term of its Charter or
Bylaws, or (y) any provision of any indebtedness, mortgage, indenture, contract,
agreement or instrument to which it is party or by which it is bound or of any
judgment, decree, order or writ, which violation or default, in the case of this
clause (y), has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. The execution,
delivery and performance of and compliance with this Agreement and the Related
Agreements to which it is a party, and the issuance and sale of the Note by the
Company and the other Securities by the Company each pursuant hereto and
thereto, will not, with or without the passage of time or giving of notice,
result in any such material violation, or be in conflict with or constitute a
default under any such term or provision, or result in the creation of any
mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company or any of its Subsidiaries or the suspension, revocation,
impairment, forfeiture or nonrenewal of any permit, license, authorization or
approval applicable to the Company, its business or operations or any of its
assets or properties.
4.12 Litigation. Except as set forth on Schedule 4.12 hereto, there is no
action, suit, proceeding or investigation pending or, to the Company's
knowledge, currently threatened against the Company or any of its Subsidiaries
that prevents the Company or any of its Subsidiaries from entering into this
Agreement or the other Related Agreements, or from consummating the transactions
contemplated hereby or thereby, or which has had, or could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect or any change in the current equity ownership of the Company or any of
its Subsidiaries, nor is the Company aware that there is any basis to assert any
of the foregoing. Neither the Company nor any of its Subsidiaries is a party to
or subject to the provisions of any order, writ, injunction, judgment or decree
of any court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company or any of its Subsidiaries currently
pending or which the Company or any of its Subsidiaries intends to initiate.
4.13 Tax Returns and Payments. Each of the Company and each of its
Subsidiaries has timely filed all tax returns (federal, state and local)
required to be filed by it. All taxes shown to be due and payable on such
returns, any assessments imposed, and all other taxes due and payable by the
Company or any of its Subsidiaries on or before the Closing, have been paid or
will be paid prior to the time they become delinquent. Except as set forth on
Schedule 4.13, neither the Company nor any of its Subsidiaries has been advised:
(a) that any of its returns, federal, state or other, have been or are
being audited as of the date hereof; or
(b) of any adjustment, deficiency, assessment or court decision in
respect of its federal, state or other taxes.
The Company has no knowledge of any liability for any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.
4.14 Employees. Except as set forth on Schedule 4.14, neither the Company
nor any of its Subsidiaries has any collective bargaining agreements with any of
its employees. There is no labor union organizing activity pending or, to the
Company's knowledge, threatened with respect to the Company or any of its
Subsidiaries. Except as disclosed in the Exchange Act Filings or on Schedule
4.14, neither the Company nor any of its Subsidiaries is a party to or bound by
any currently effective employment contract, deferred compensation arrangement,
bonus plan, incentive plan, profit sharing plan, retirement agreement or other
employee compensation plan or agreement. To the Company's knowledge, no employee
of the Company or any of its Subsidiaries, nor any consultant with whom the
Company or any of its Subsidiaries has contracted, is in violation of any term
of any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or to
contract with, the Company or any of its Subsidiaries because of the nature of
the business to be conducted by the Company or any of its Subsidiaries; and to
the Company's knowledge the continued employment by the Company and its
Subsidiaries of their present employees, and the performance of the Company's
and its Subsidiaries' contracts with its independent contractors, will not
result in any such violation. Neither the Company nor any of its Subsidiaries is
aware that any of its employees is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency that
would interfere with their duties to the Company or any of its Subsidiaries.
Neither the Company nor any of its Subsidiaries has received any notice alleging
that any such violation has occurred. Except for employees who have a current
effective employment agreement with the Company or any of its Subsidiaries, no
employee of the Company or any of its Subsidiaries has been granted the right to
continued employment by the Company or any of its Subsidiaries or to any
material compensation following termination of employment with the Company or
any of its Subsidiaries. Except as set forth on Schedule 4.14, the Company is
not aware that any officer, key employee or group of employees intends to
terminate his, her or their employment with the Company or any of its
Subsidiaries, nor does the Company or any of its Subsidiaries have a present
intention to terminate the employment of any officer, key employee or group of
employees.
4.15 Registration Rights and Voting Rights. Except as set forth on Schedule
4.15 and except as disclosed in Exchange Act Filings, neither the Company nor
any of its Subsidiaries is presently under any obligation, and neither the
Company nor any of its Subsidiaries has granted any rights, to register any of
the Company's or its Subsidiaries' presently outstanding securities or any of
its securities that may hereafter be issued. Except as set forth on Schedule
4.15 and except as disclosed in Exchange Act Filings, to the Company's
knowledge, no stockholder of the Company or any of its Subsidiaries has entered
into any agreement with respect to the voting of equity securities of the
Company or any of its Subsidiaries.
4.16 Compliance with Laws; Permits. Neither the Company nor any of its
Subsidiaries is in violation of any provision of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002
or any SEC related regulation or rule or any rule of the Principal Market (as
hereafter defined) promulgated thereunder or any other applicable statute, rule,
regulation, order or restriction of any domestic or foreign government or any
instrumentality or agency thereof in respect of the conduct of its business or
the ownership of its properties which has had, or could reasonably be expected
to have, either individually or in the aggregate, a Material Adverse Effect. No
governmental orders, permissions, consents, approvals or authorizations are
required to be obtained and no registrations or declarations are required to be
filed in connection with the execution and delivery of this Agreement or any
other Related Agreement and the issuance of any of the Securities, except such
as have been duly and validly obtained or filed, or with respect to any filings
that must be made after the Closing, as will be filed in a timely manner. Each
of the Company and its Subsidiaries has all material franchises, permits,
licenses and any similar authority necessary for the conduct of its business as
now being conducted by it, the lack of which could, either individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect.
4.17 Environmental and Safety Laws. Neither the Company nor any of its
Subsidiaries is in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to its
knowledge, no material expenditures are or will be required in order to comply
with any such existing statute, law or regulation. Except as set forth on
Schedule 4.17, no Hazardous Materials (as defined below) are used or have been
used, stored, or disposed of by the Company or any of its Subsidiaries or, to
the Company's knowledge, by any other person or entity on any property owned,
leased or used by the Company or any of its Subsidiaries. For the purposes of
the preceding sentence, "Hazardous Materials" shall mean:
(a) materials which are listed or otherwise defined as "hazardous" or
"toxic" under any applicable local, state, federal and/or foreign laws and
regulations that govern the existence and/or remedy of contamination on
property, the protection of the environment from contamination, the control
of hazardous wastes, or other activities involving hazardous substances,
including building materials; or
(b) any petroleum products or nuclear materials.
4.18 Valid Offering. Assuming the accuracy of the representations and
warranties of the Purchaser contained in this Agreement, the offer, sale and
issuance of the Securities will be exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"), and will have
been registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws.
4.19 Full Disclosure. Each of the Company and each of its Subsidiaries has
provided the Purchaser with all information requested by the Purchaser in
connection with its decision to purchase the Note and Warrant, including all
information the Company and its Subsidiaries believe is reasonably necessary to
make such investment decision. Neither this Agreement, the Related Agreements,
the exhibits and schedules hereto and thereto nor any other document delivered
by the Company or any of its Subsidiaries to Purchaser or its attorneys or
agents in connection herewith or therewith or with the transactions contemplated
hereby or thereby, contain any untrue statement of a material fact nor omit to
state a material fact necessary in order to make the statements contained herein
or therein, in light of the circumstances in which they are made, not
misleading. Any financial projections and other estimates provided to the
Purchaser by the Company or any of its Subsidiaries were based on the Company's
and its Subsidiaries' experience in the industry and on assumptions of fact and
opinion as to future events which the Company or any of its Subsidiaries, at the
date of the issuance of such projections or estimates, believed to be
reasonable.
4.20 Insurance. Each of the Company and each of its Subsidiaries has
general commercial, product liability, fire and casualty insurance policies with
coverages which the Company believes are customary for companies similarly
situated to the Company and its Subsidiaries in the same or similar business.
Without limiting the foregoing, the Company additionally is named as a loss
payee and is therefore covered under the insurance policy of its manufacturer,
Chemins, which has an aggregate coverage limit of $2,000,000, with respect to
liabilities arising from the product liability claims at issue in the case of
▇▇▇▇▇▇ ▇▇▇▇▇▇ et. Al. v. Advantage Marketing Systems, Inc. described on Schedule
4.12 hereto (the "Potter Case").
4.21 SEC Reports. Except as set forth on Schedule 4.21, the Company has
filed all proxy statements, reports and other documents required to be filed by
it under the Securities ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇, as amended (the "Exchange Act"). The
Company has furnished the Purchaser copies of: (i) its Annual Reports on Form
10-KSB for its fiscal years ended December 31, 2005; and (ii) its Quarterly
Reports on Form 10-QSB for its fiscal quarter ended March 31, 2006, and the Form
8-K filings which it has made during the fiscal year 2006 to date (collectively,
the "SEC Reports"). Except as set forth on Schedule 4.21, each SEC Report was,
at the time of its filing, in substantial compliance with the requirements of
its respective form and none of the SEC Reports, nor the financial statements
(and the notes thereto) included in the SEC Reports, as of their respective
filing dates, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
4.22 Listing. The Company's Common Stock is listed or quoted, as
applicable, on a Principal Market (as hereafter defined) and satisfies and at
all times hereafter will satisfy, all requirements for the continuation of such
listing or quotation, as applicable except as set forth on Schedule 4.22. Except
as set forth on Schedule 4.22, the Company has not received any notice that its
Common Stock will be delisted from, or no longer quoted on, as applicable, the
Principal Market or that its Common Stock does not meet all requirements for
such listing or quotation, as applicable. For purposes hereof, the term
"Principal Market" means the NASD Over The Counter Bulletin Board, NASDAQ
Capital Market, NASDAQ National Markets System, American Stock Exchange or New
York Stock Exchange (whichever of the foregoing is at the time the principal
trading exchange or market for the Common Stock).
4.23 No Integrated Offering. Neither the Company, nor any of its
Subsidiaries or affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales of any security or solicited any
offers to buy any security under circumstances that would cause the offering of
the Securities pursuant to this Agreement or any of the Related Agreements to be
integrated with prior offerings by the Company for purposes of the Securities
Act which would prevent the Company from selling the Securities pursuant to Rule
506 under the Securities Act, or any applicable exchange-related stockholder
approval provisions, nor will the Company or any of its affiliates or
Subsidiaries take any action or steps that would cause the offering of the
Securities to be integrated with other offerings.
4.24 Stop Transfer. The Securities are restricted securities as of the date
of this Agreement. Neither the Company nor any of its Subsidiaries will issue
any stop transfer order or other order impeding the sale and delivery of any of
the Securities at such time as the Securities are registered for public sale or
an exemption from registration is available, except as required by state and
federal securities laws.
4.25 Dilution. The Company specifically acknowledges that its obligation to
issue the shares of Common Stock upon conversion of the Note and exercise of the
Warrant is binding upon the Company and enforceable regardless of the dilution
such issuance may have on the ownership interests of other shareholders of the
Company.
4.26 Patriot Act. The Company certifies that, to the best of Company's
knowledge, neither the Company nor any of its Subsidiaries has been designated,
nor is or shall be owned or controlled, by a "suspected terrorist" as defined in
Executive Order 13224. The Company hereby acknowledges that the Purchaser seeks
to comply with all applicable laws concerning money laundering and related
activities. In furtherance of those efforts, the Company hereby represents,
warrants and covenants that: (i) none of the cash or property that the Company
or any of its Subsidiaries will pay or will contribute to the Purchaser has been
or shall be derived from, or related to, any activity that is deemed criminal
under United States law; and (ii) no contribution or payment by the Company or
any of its Subsidiaries to the Purchaser, to the extent that they are within the
Company's and/or its Subsidiaries' control shall cause the Purchaser to be in
violation of the United States Bank Secrecy Act, the United States International
Money Laundering Control Act of 1986 or the United States International Money
Laundering Abatement and Anti-Terrorist Financing Act of 2001. The Company shall
promptly notify the Purchaser if any of these representations, warranties or
covenants ceases to be true and accurate regarding the Company or any of its
Subsidiaries. The Company shall provide the Purchaser all additional information
regarding the Company or any of its Subsidiaries that the Purchaser deems
necessary or convenient to ensure compliance with all applicable laws concerning
money laundering and similar activities. The Company understands and agrees that
if at any time it is discovered that any of the foregoing representations,
warranties or covenants are incorrect, or if otherwise required by applicable
law or regulation related to money laundering or similar activities, the
Purchaser may undertake appropriate actions to ensure compliance with applicable
law or regulation, including but not limited to segregation and/or redemption of
the Purchaser's investment in the Company. The Company further understands that
the Purchaser may release confidential information about the Company and its
Subsidiaries and, if applicable, any underlying beneficial owners, to proper
authorities if the Purchaser, in its sole discretion, determines that it is in
the best interests of the Purchaser in light of relevant rules and regulations
under the laws set forth in subsection (ii) above.
4.27 ERISA. Based upon the Employee Retirement Income Security Act of 1974
("ERISA"), and the regulations and published interpretations thereunder: (i)
neither the Company nor any of its Subsidiaries has engaged in any Prohibited
Transactions (as defined in Section 406 of ERISA and Section 4975 of the
Internal Revenue Code of 1986, as amended (the "Code")); (ii) each of the
Company and each of its Subsidiaries has met all applicable minimum funding
requirements under Section 302 of ERISA in respect of its plans; (iii) neither
the Company nor any of its Subsidiaries has any knowledge of any event or
occurrence which would cause the Pension Benefit Guaranty Corporation to
institute proceedings under Title IV of ERISA to terminate any employee benefit
plan(s); (iv) neither the Company nor any of its Subsidiaries has any fiduciary
responsibility for investments with respect to any plan existing for the benefit
of persons other than the Company's or such Subsidiary's employees; and (v)
neither the Company nor any of its Subsidiaries has withdrawn, completely or
partially, from any multi-employer pension plan so as to incur liability under
the Multiemployer Pension Plan Amendments Act of 1980.
5. Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants to the Company as follows (such representations and
warranties do not lessen or obviate the representations and warranties of the
Company set forth in this Agreement):
5.1 Organization, Good Standing and Qualification. The Purchaser is a
company duly organized, validly existing and in good standing under the laws of
its jurisdiction of organization.
5.2 No Shorting. The Purchaser or any of its affiliates and investment
partners has not, will not and will not cause any person or entity, to directly
engage in "short sales" of the Company's Common Stock as long as the Note shall
be outstanding.
5.3 Requisite Power and Authority. The Purchaser has all necessary power
and authority under all applicable provisions of law to execute and deliver this
Agreement and the Related Agreements and to carry out their provisions. All
corporate action on the Purchaser's part required for the lawful execution and
delivery of this Agreement and the Related Agreements have been or will be
effectively taken prior to the Closing. Upon their execution and delivery, this
Agreement and the Related Agreements will be valid and binding obligations of
the Purchaser, enforceable in accordance with their terms, except:
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; and
(b) as limited by general principles of equity that restrict the
availability of equitable and legal remedies.
5.4 Investment Representations. The Purchaser understands that the
Securities are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon the Purchaser's
representations contained in this Agreement, including, without limitation, that
the Purchaser is an "accredited investor" within the meaning of Regulation D
under the Securities Act of 1933, as amended (the "Securities Act"). The
Purchaser confirms that it has received or has had full access to all the
information it considers necessary or appropriate to make an informed investment
decision with respect to the Note and the Warrant to be purchased by it under
this Agreement and the Note Shares and the Warrant Shares acquired by it upon
the conversion of the Note and the exercise of the Warrant, respectively. The
Purchaser further confirms that it has had an opportunity to ask questions and
receive answers from the Company regarding the Company's and its Subsidiaries'
business, management and financial affairs and the terms and conditions of the
Offering, the Note, the Warrant and the Securities and to obtain additional
information (to the extent the Company possessed such information or could
acquire it without unreasonable effort or expense) necessary to verify any
information furnished to the Purchaser or to which the Purchaser had access.
5.5 The Purchaser Bears Economic Risk. The Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. The Purchaser must bear the economic risk
of this investment until the Securities are sold pursuant to: (i) an effective
registration statement under the Securities Act; or (ii) an exemption from
registration is available with respect to such sale.
5.6 Acquisition for Own Account. The Purchaser is acquiring the Note and
Warrant and the Note Shares and the Warrant Shares for the Purchaser's own
account for investment only, and not as a nominee or agent and not with a view
towards or for resale in connection with their distribution.
5.7 The Purchaser Can Protect Its Interest. The Purchaser represents that
by reason of its, or of its management's, business and financial experience, the
Purchaser has the capacity to evaluate the merits and risks of its investment in
the Note, the Warrant and the Securities and to protect its own interests in
connection with the transactions contemplated in this Agreement and the Related
Agreements. Further, the Purchaser is aware of no publication of any
advertisement in connection with the transactions contemplated in the Agreement
or the Related Agreements.
5.8 Accredited Investor. The Purchaser represents that it is an accredited
investor within the meaning of Regulation D under the Securities Act.
5.9 Legends.
(a) The Note shall bear substantially the following legend:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE OR SUCH SHARES UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO AMS HEALTH SCIENCES, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(b) The Note Shares and the Warrant Shares, if not issued by DWAC
system (as hereinafter defined), shall bear a legend which shall be in
substantially the following form until such shares are covered by an
effective registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE STATE SECURITIES LAWS. THESE SHARES MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES
ACT AND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO AMS HEALTH SCIENCES, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(c) The Warrant shall bear substantially the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS WARRANT OR THE UNDERLYING SHARES OF
COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO AMS
HEALTH SCIENCES, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
6. Covenants of the Company. The Company covenants and agrees with the
Purchaser as follows:
6.1 Stop-Orders. The Company will advise the Purchaser, promptly after it
receives notice of issuance by the SEC, any state securities commission or any
other regulatory authority of any stop order or of any order preventing or
suspending any offering of any securities of the Company, or of the suspension
of the qualification of the Common Stock of the Company for offering or sale in
any jurisdiction, or the initiation of any proceeding for any such purpose.
6.2 Listing. The Company shall promptly secure the listing or quotation, as
applicable, of the shares of Common Stock issuable upon conversion of the Note
and upon the exercise of the Warrant on the Principal Market upon which shares
of Common Stock are listed or quoted for trading, as applicable (subject to
official notice of issuance) and shall maintain such listing or quotation, as
applicable, so long as any other shares of Common Stock shall be so listed or
quoted, as applicable. The Company will use its reasonable efforts to maintain
the listing or quotation, as applicable, of its Common Stock on the Principal
Market, and will comply in all material respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the National
Association of Securities Dealers ("NASD") and such exchanges, as applicable.
6.3 Market Regulations. The Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to the
Purchaser and promptly provide copies thereof to the Purchaser.
6.4 Reporting Requirements. The Company will deliver, or cause to be
delivered, to the Purchaser each of the following, which shall be in form and
detail acceptable to the Purchaser:
(a) As soon as available, and in any event within ninety (90) days
after the end of each fiscal year of the Company, each of the Company's and
each of its Subsidiaries' audited financial statements with a report of
independent certified public accountants of recognized standing selected by
the Company and acceptable to the Purchaser (the "Accountants"), which
annual financial statements shall be without qualification and shall
include each of the Company's and each of its Subsidiaries' balance sheet
as at the end of such fiscal year and the related statements of each of the
Company's and each of its Subsidiaries' income, retained earnings and cash
flows for the fiscal year then ended, prepared on a consolidating and
consolidated basis to include the Company, each Subsidiary of the Company
and each of their respective affiliates, all in reasonable detail and
prepared in accordance with GAAP, together with (i) if and when available,
copies of any management letters prepared by the Accountants; and (ii) a
certificate of the Company's President, Chief Executive Officer or Chief
Financial Officer stating that such financial statements have been prepared
in accordance with GAAP and whether or not such officer has knowledge of
the occurrence of any Event of Default (as defined in the Note) and, if so,
stating in reasonable detail the facts with respect thereto;
(b) As soon as available and in any event within forty five (45) days
after the end of each fiscal quarter of the Company, an unaudited/internal
balance sheet and statements of income, retained earnings and cash flows of
the Company and each of its Subsidiaries as at the end of and for such
quarter and for the year to date period then ended, prepared on a
consolidating and consolidated basis to include all the Company, each
Subsidiary of the Company and each of their respective affiliates, in
reasonable detail and stating in comparative form the figures for the
corresponding date and periods in the previous year, all prepared in
accordance with GAAP, subject to year-end adjustments and accompanied by a
certificate of the Company's President, Chief Executive Officer or Chief
Financial Officer, stating (i) that such financial statements have been
prepared in accordance with GAAP, subject to year-end audit adjustments,
and (ii) whether or not such officer has knowledge of the occurrence of any
Event of Default (as defined in the Note) not theretofore reported and
remedied and, if so, stating in reasonable detail the facts with respect
thereto;
(c) As soon as available and in any event within fifteen (15) days
after the end of each calendar month, an unaudited/internal balance sheet
and statements of income, retained earnings and cash flows of each of the
Company and its Subsidiaries as at the end of and for such month and for
the year to date period then ended, prepared on a consolidating and
consolidated basis to include the Company, each Subsidiary of the Company
and each of their respective affiliates, prepared in accordance with
historic practice and in reasonable detail and stating in comparative form
the figures for the corresponding date and periods in the previous year,
all prepared in accordance with GAAP, subject to year-end adjustments and
accompanied by a certificate of the Company's President, Chief Executive
Officer or Chief Financial Officer, stating (i) that such financial
statements have been prepared in accordance with GAAP, subject to year-end
audit adjustments and footnotes, and (ii) whether or not such officer has
knowledge of the occurrence of any Event of Default (as defined in the
Note) not theretofore reported and remedied and, if so, stating in
reasonable detail the facts with respect thereto;
(d) The Company shall timely file with the SEC all reports required to
be filed pursuant to the Exchange Act and refrain from terminating its
status as an issuer required by the Exchange Act to file reports thereunder
even if the Exchange Act or the rules or regulations thereunder would
permit such termination. Promptly after (i) the filing thereof, copies of
the Company's most recent registration statements and annual, quarterly,
monthly or other regular reports which the Company files with the
Securities and Exchange Commission (the "SEC"), and (ii) the issuance
thereof, copies of such financial statements, reports and proxy statements
as the Company shall send to its stockholders shall be sent to Purchaser;
and
(e) The Company shall deliver, or cause the applicable Subsidiary of
the Company to deliver, such other information as the Purchaser shall
reasonably request.
6.5 Use of Funds. The Company shall use the proceeds of the sale of the
Note and the Warrant for general working capital purposes only, and in no event
shall any of the proceeds of the sale of the Note and the Warrant be given to or
used by Heartland for any purpose.
6.6 Access to Facilities. Each of the Company and each of its Subsidiaries
will permit any representatives designated by the Purchaser (or any successor of
the Purchaser), upon reasonable notice and during normal business hours, at such
person's expense and accompanied by a representative of the Company or any
Subsidiary (provided that no such prior notice shall be required to be given and
no such representative of the Company or any Subsidiary shall be required to
accompany the Purchaser in the event the Purchaser believes such access is
necessary to preserve or protect the Collateral (as defined in the Master
Security Agreement) or following the occurrence and during the continuance of an
Event of Default (as defined in the Note)), to:
(a) visit and inspect any of the properties of the Company or any of
its Subsidiaries;
(b) examine the corporate and financial records of the Company or any
of its Subsidiaries (unless such examination is not permitted by federal,
state or local law or by contract) and make copies thereof or extracts
therefrom; and
(c) discuss the affairs, finances and accounts of the Company or any
of its Subsidiaries with the directors, officers and independent
accountants of the Company or any of its Subsidiaries.
Notwithstanding the foregoing, neither the Company nor any of its Subsidiaries
will provide any material, non-public information to the Purchaser unless the
Purchaser signs a confidentiality agreement and otherwise complies with
Regulation FD, under the federal securities laws.
6.7 Taxes. Each of the Company and each of its Subsidiaries will promptly
pay and discharge, or cause to be paid and discharged, when due and payable, all
taxes, assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company and its Subsidiaries; provided,
however, that any such tax, assessment, charge or levy need not be paid
currently if (i) the validity thereof shall currently and diligently be
contested in good faith by appropriate proceedings, (ii) such tax, assessment,
charge or levy shall have no effect on the lien priority of the Purchaser in any
property of the Company or any of its Subsidiaries and (iii) if the Company
and/or such Subsidiary shall have set aside on its books adequate reserves with
respect thereto in accordance with GAAP; and provided, further, that the Company
and its Subsidiaries will pay all such taxes, assessments, charges or levies
forthwith upon the commencement of proceedings to foreclose any lien which may
have attached as security therefor.
6.8 Insurance. Each of the Company and its Subsidiaries will keep its
assets which are of an insurable character insured by financially sound and
reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in similar business similarly situated
as the Company and its Subsidiaries; and the Company and its Subsidiaries will
maintain, with financially sound and reputable insurers, insurance against other
hazards and risks and liability to persons and property to the extent and in the
manner which the Company reasonably believes is customary for companies in
similar business similarly situated as the Company and its Subsidiaries and to
the extent available on commercially reasonable terms. Without limiting the
foregoing, the Company shall continue to be named as a loss payee and will
therefore remain covered under the insurance policy of its manufacturer,
Chemins, which has an aggregate coverage limit of $2,000,000, with respect to
liabilities arising from the product liability claims at issue in the case of
▇▇▇▇▇▇ ▇▇▇▇▇▇ et. Al. v. Advantage Marketing Systems, Inc. described on Schedule
4.12 hereto (the "Potter Case").
6.9
6.10 The Company, and each of its Subsidiaries, will jointly and severally
bear the full risk of loss from any loss of any nature whatsoever with respect
to the assets pledged to the Purchaser as security for their respective
obligations hereunder and under the Related Agreements. At the Company's and
each of its Subsidiaries' joint and several cost and expense in amounts and with
carriers reasonably acceptable to the Purchaser, each of the Company and each of
its Subsidiaries shall (i) keep all its insurable properties and properties in
which it has an interest insured against the hazards of fire, flood, sprinkler
leakage, those hazards covered by extended coverage insurance and such other
hazards, and for such amounts, as is customary in the case of companies engaged
in businesses similar to the Company's or the respective Subsidiary's including
business interruption insurance; (ii) maintain a bond in such amounts as is
customary in the case of companies engaged in businesses similar to the
Company's or the respective Subsidiary's insuring against larceny, embezzlement
or other criminal misappropriation of insured's officers and employees who may
either singly or jointly with others at any time have access to the assets or
funds of the Company or any of its Subsidiaries either directly or through
governmental authority to draw upon such funds or to direct generally the
disposition of such assets; (iii) maintain public and product liability
insurance against claims for personal injury, death or property damage suffered
by others; (iv) maintain all such worker's compensation or similar insurance as
may be required under the laws of any state or jurisdiction in which the Company
or the respective Subsidiary is engaged in business; and (v) furnish the
Purchaser with (x) copies of all policies and evidence of the maintenance of
such policies at least thirty (30) days before any expiration date, (y)
excepting the Company's workers' compensation policy, endorsements to such
policies naming the Purchaser as "co-insured" or "additional insured" and
appropriate loss payable endorsements in form and substance satisfactory to the
Purchaser, naming the Purchaser as loss payee, and (z) evidence that as to the
Purchaser the insurance coverage shall not be impaired or invalidated by any act
or neglect of the Company or any Subsidiary and the insurer will provide the
Purchaser with at least thirty (30) days notice prior to cancellation. The
Company and each Subsidiary shall instruct the insurance carriers that in the
event of any loss thereunder, the carriers shall make payment for such loss to
the Company and/or the Subsidiary and the Purchaser jointly. In the event that
as of the date of receipt of each loss recovery upon any such insurance, the
Purchaser has not declared an event of default with respect to this Agreement or
any of the Related Agreements, then the Company and/or such Subsidiary shall be
permitted to direct the application of such loss recovery proceeds toward
investment in property, plant and equipment that would comprise "Collateral"
secured by the Purchaser's security interest pursuant to the Master Security
Agreement or such other security agreement as shall be required by the
Purchaser, with any surplus funds to be applied toward payment of the
obligations of the Company to the Purchaser. In the event that the Purchaser has
properly declared an event of default with respect to this Agreement or any of
the Related Agreements, then all loss recoveries received by the Purchaser upon
any such insurance thereafter may be applied to the obligations of the Company
hereunder and under the Related Agreements, in such order as the Purchaser may
determine. Any surplus (following satisfaction of all Company obligations to the
Purchaser) shall be paid by the Purchaser to the Company or applied as may be
otherwise required by law. Any deficiency thereon shall be paid by the Company
or the Subsidiary, as applicable, to the Purchaser, on demand.
6.11 Intellectual Property. Each of the Company and each of its
Subsidiaries shall maintain in full force and effect its existence, rights and
franchises and all licenses and other rights to use Intellectual Property owned
or possessed by it and reasonably deemed to be necessary to the conduct of its
business.
6.12 Properties. Each of the Company and each of its Subsidiaries will keep
its properties in good repair, working order and condition, reasonable wear and
tear excepted, and from time to time make all needful and proper repairs,
renewals, replacements, additions and improvements thereto; and each of the
Company and each of its Subsidiaries will at all times comply with each
provision of all leases to which it is a party or under which it occupies
property if the breach of such provision could, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
6.13 Confidentiality. The Company will not, and will not permit any of its
Subsidiaries to, disclose, and will not include in any public announcement, the
name of the Purchaser, unless expressly agreed to by the Purchaser or unless and
until such disclosure is required by law or applicable regulation, and then only
to the extent of such requirement. Notwithstanding the foregoing, the Company
may disclose the Purchaser's identity and the terms of this Agreement to its
current and prospective debt and equity financing sources.
6.14 Required Approvals. (I) For so long as twenty-five percent (25%) of
the principal amount of the Note is outstanding, the Company, without the prior
written consent of the Purchaser, shall not, and shall not permit any of its
Subsidiaries to:
(a) (i) directly or indirectly declare or pay any dividends, other
than dividends paid to the Company or any of its wholly-owned Subsidiaries
other than Heartland Cup, Inc. ("Heartland"), (ii) issue any preferred
stock that is manditorily redeemable prior to the one year anniversary of
the Maturity Date (as defined in the Note) or (iii) redeem any of its
preferred stock or other equity interests;
(b) liquidate, dissolve or effect a material reorganization (it being
understood that in no event shall the Company or any of its Subsidiaries,
other than Heartland, dissolve, liquidate or merge with any other person or
entity (unless, in the case of such a merger, the Company or, in the case
of merger not involving the Company, such Subsidiary, as applicable, is the
surviving entity);
(c) become subject to (including, without limitation, by way of
amendment to or modification of) any agreement or instrument which by its
terms would (under any circumstances) restrict the Company's or any of its
Subsidiaries' (other than Heartland), right to perform the provisions of
this Agreement, any Related Agreement or any of the agreements contemplated
hereby or thereby;
(d) materially alter or change the scope of the business of the
Company and its Subsidiaries taken as a whole; or
(e) (i) create, incur, assume or suffer to exist any indebtedness
(exclusive of trade debt and debt incurred to finance the purchase of
equipment (not in excess of ten percent (10%) of the fair market value of
the Company's and its Subsidiaries' assets, other than the assets of
Heartland)) whether secured or unsecured other than (x) the Company's
obligations owed to the Purchaser, (y) indebtedness set forth on Schedule
6.12(e) attached hereto and made a part hereof and any refinancings or
replacements thereof on terms no less favorable to the Purchaser than the
indebtedness being refinanced or replaced, and (z) any indebtedness
incurred in connection with the purchase of assets (other than equipment)
in the ordinary course of business, or any refinancings or replacements
thereof on terms no less favorable to the Purchaser than the indebtedness
being refinanced or replaced, so long as any lien relating thereto shall
only encumber the fixed assets so purchased and no other assets of the
Company or any of its Subsidiaries; (ii) cancel any indebtedness owing to
it in excess of $50,000 in the aggregate during any 12 month period; (iii)
assume, guarantee, endorse or otherwise become directly or contingently
liable in connection with any obligations of any other person or entity,
except the endorsement of negotiable instruments by the Company or any
Subsidiary (other than Heartland) thereof for deposit or collection or
similar transactions in the ordinary course of business or guarantees of
indebtedness otherwise permitted to be outstanding pursuant to this clause
(e); and
(II) The Company, without the prior written consent of the
Purchaser, shall not, and shall not permit any of its Subsidiaries
(other than Heartland) to, create or acquire any Subsidiary after the
date hereof unless (i) such Subsidiary is a wholly-owned Subsidiary of
the Company and (ii) such Subsidiary becomes a party to the Master
Security Agreement, the Stock Pledge Agreement and the Subsidiary
Guaranty (either by executing a counterpart thereof or an assumption
or joinder agreement in respect thereof) and, to the extent required
by the Purchaser, satisfies each condition of this Agreement and the
Related Agreements as if such Subsidiary were a Subsidiary on the
Closing Date.
(III) For so long as any obligations are outstanding under this
Agreement or any Related Agreement, neither the Company nor AMS
Manufacturing, Inc. shall distribute any funds or assets of any kind
to Heartland.
6.15 Reissuance of Securities. The Company agrees to reissue certificates
representing the Securities without the legends set forth in Section 5.8 above
at such time as:
(a) the holder thereof is permitted to dispose of such Securities
pursuant to Rule 144(k) under the Securities Act; or
(b) upon resale subject to an effective registration statement after
such Securities are registered under the Securities Act.
The Company agrees to cooperate with the Purchaser in connection with all
resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions
necessary to allow such resales provided the Company and its counsel receive
reasonably requested representations from the Purchaser and broker, if any.
6.16 Opinion. On the Closing Date, the Company will deliver to the
Purchaser an opinion acceptable to the Purchaser from the Company's external
legal counsel. The Company will provide, at the Company's expense, such other
legal opinions in the future as are deemed reasonably necessary by the Purchaser
(and acceptable to the Purchaser) in connection with the conversion of the Note
and exercise of the Warrant.
6.17 Margin Stock. The Company will not permit any of the proceeds of the
Note or the Warrant to be used directly or indirectly to "purchase" or "carry"
"margin stock" or to repay indebtedness incurred to "purchase" or "carry"
"margin stock" within the respective meanings of each of the quoted terms under
Regulation U of the Board of Governors of the Federal Reserve System as now and
from time to time hereafter in effect.
6.18 Financing Right of First Refusal.
(a) The Company hereby grants to the Purchaser a right of first
refusal to provide any Additional Financing (as defined below) to be issued
by the Company and/or any of its Subsidiaries, subject to the following
terms and conditions. From and after the date hereof, prior to the
incurrence of any additional indebtedness and/or the sale or issuance of
any equity interests of the Company or any of its Subsidiaries (an
"Additional Financing"), the Company and/or any Subsidiary of the Company,
as the case may be, shall notify the Purchaser of its intention to enter
into such Additional Financing. In connection therewith, the Company and/or
the applicable Subsidiary thereof shall submit a fully executed term sheet
(a "Proposed Term Sheet") to the Purchaser setting forth the terms,
conditions and pricing of any such Additional Financing (such financing to
be negotiated on "arm's length" terms and the terms thereof to be
negotiated in good faith) proposed to be entered into by the Company and/or
such Subsidiary. The Purchaser shall have the right, but not the
obligation, to deliver its own proposed term sheet (the "Purchaser Term
Sheet") setting forth the terms and conditions upon which the Purchaser
would be willing to provide such Additional Financing to the Company and/or
such Subsidiary. The Purchaser Term Sheet shall contain terms no less
favorable to the Company and/or such Subsidiary than those outlined in
Proposed Term Sheet. The Purchaser shall deliver such Purchaser Term Sheet
within ten business days of receipt of each such Proposed Term Sheet. If
the provisions of the Purchaser Term Sheet are at least as favorable to the
Company and/or such Subsidiary, as the case may be, as the provisions of
the Proposed Term Sheet, the Company and/or such Subsidiary shall enter
into and consummate the Additional Financing transaction outlined in the
Purchaser Term Sheet.
(b) The Company will not, and will not permit its Subsidiaries to,
agree, directly or indirectly, to any restriction with any person or entity
which limits the ability of the Purchaser to consummate an Additional
Financing with the Company or any of its Subsidiaries.
6.19 Authorization and Reservation of Shares. The Company shall at all
times have authorized and reserved a sufficient number of shares of Common Stock
to provide for the conversion of the Note and exercise of the Warrants.
7. Covenants of the Purchaser. The Purchaser covenants and agrees with the
Company as follows:
7.1 Confidentiality. The Purchaser will not disclose, and will not include
in any public announcement, the name of the Company, unless expressly agreed to
by the Company or unless and until such disclosure is required by law or
applicable regulation, and then only to the extent of such requirement.
7.2 Non-Public Information. The Purchaser will neither disclose material,
non-public information regarding the Company, nor effect any sales in the shares
of the Company's Common Stock while in possession of material, non-public
information regarding the Company if such disclosures or sales would violate
applicable securities law.
7.3 Limitation on Acquisition of Common Stock of the Company.
Notwithstanding anything to the contrary contained in this Agreement, any
Related Agreement or any document, instrument or agreement entered into in
connection with any other transactions between the Purchaser and the Company,
the Purchaser may not acquire stock in the Company (including, without
limitation, pursuant to a contract to purchase, by exercising an option or
warrant, by converting any other security or instrument, by acquiring or
exercising any other right to acquire, shares of stock or other security
convertible into shares of stock in the Company, or otherwise, and such
contracts, options, warrants, conversion or other rights shall not be
enforceable or exercisable) to the extent such stock acquisition would cause any
interest (including any original issue discount) payable by the Company to the
Purchaser not to qualify as "portfolio interest" within the meaning of Section
881(c)(2) of the Code, by reason of Section 881(c)(3) of the Code, taking into
account the constructive ownership rules under Section 871(h)(3)(C) of the Code
(the "Stock Acquisition Limitation"). The Stock Acquisition Limitation shall
automatically become null and void without any notice to the Company upon the
earlier to occur of either (a) the Company's delivery to the Purchaser of a
Notice of Redemption (as defined in the Note) or (b) the existence of an Event
of Default (as defined in the Note) at a time when the average closing price of
the Company's common stock as reported by Bloomberg, L.P. on the Principal
Market for the immediately preceding five trading days is greater than or equal
to $0.77 of the Fixed Conversion Price (as defined in the Note).
8. Covenants of the Company and the Purchaser Regarding Indemnification.
8.1 Company Indemnification. The Company agrees to indemnify, hold
harmless, reimburse and defend the Purchaser, each of the Purchaser's officers,
directors, agents, affiliates, control persons, and principal shareholders,
against all claims, costs, expenses, liabilities, obligations, losses or damages
(including reasonable legal fees) of any nature (each, a "Claim"), incurred by
or imposed upon the Purchaser which result, arise out of or are based upon: (i)
any misrepresentation by the Company or any of its Subsidiaries or breach of any
warranty by the Company or any of its Subsidiaries in this Agreement, any other
Related Agreement or in any exhibits or schedules attached hereto or thereto; or
(ii) any breach or default in performance by Company or any of its Subsidiaries
of any covenant or undertaking to be performed by Company or any of its
Subsidiaries hereunder, under any other Related Agreement or any other agreement
entered into by the Company and/or any of its Subsidiaries and the Purchaser
relating hereto or thereto. In no event shall a Claim be asserted hereunder
unless (a) the amount of such Claim is in excess of $50,000 or (b) the aggregate
amount of all Claims asserted is in excess of $50,000.
8.2 Purchaser's Indemnification. The Purchaser agrees to indemnify, hold
harmless, reimburse and defend the Company and each of the Company's officers,
directors, agents, affiliates, control persons and principal shareholders, at
all times against any Claims incurred by or imposed upon the Company which
result, arise out of or are based upon: (i) any misrepresentation by the
Purchaser or breach of any warranty by the Purchaser in this Agreement or in any
exhibits or schedules attached hereto or any Related Agreement; or (ii) any
breach or default in performance by the Purchaser of any covenant or undertaking
to be performed by the Purchaser hereunder, or any other agreement entered into
by the Company and the Purchaser relating hereto. In no event shall a Claim be
asserted hereunder unless (a) the amount of such Claim is in excess of $50,000
or (b) the aggregate amount of all Claims asserted is in excess of $50,000.
9. Conversion of Convertible Note. 9.1 Mechanics of Conversion.
(a) Provided the Purchaser has notified the Company of the Purchaser's
intention to sell the Note Shares and the Note Shares are included in an
effective registration statement or are otherwise exempt from registration
when sold: (i) upon the conversion of the Note or part thereof, the Company
shall, at its own cost and expense, take all necessary action (including
the issuance of an opinion of counsel reasonably acceptable to the
Purchaser following a request by the Purchaser) to assure that the
Company's transfer agent shall issue shares of the Company's Common Stock
in the name of the Purchaser (or its nominee) or such other persons as
designated by the Purchaser in accordance with Section 9.1(b) hereof and in
such denominations to be specified representing the number of Note Shares
issuable upon such conversion; and (ii) the Company warrants that no
instructions other than these instructions have been or will be given to
the transfer agent of the Company's Common Stock and that after the
Effectiveness Date (as defined in the Registration Rights Agreement) the
Note Shares issued will be freely transferable subject to the prospectus
delivery requirements of the Securities Act and the provisions of this
Agreement, and will not contain a legend restricting the resale or
transferability of the Note Shares.
(b) The Purchaser will give notice of its decision to exercise its
right to convert the Note or part thereof by telecopying or otherwise
delivering an executed and completed notice of the number of shares to be
converted to the Company (the "Notice of Conversion"). The Purchaser will
not be required to surrender the Note until the Purchaser receives a credit
to the account of the Purchaser's prime broker through the DWAC system (as
defined below), representing the Note Shares or until the Note has been
fully satisfied. Each date on which a Notice of Conversion is telecopied or
delivered to the Company in accordance with the provisions hereof shall be
deemed a "Conversion Date." Pursuant to the terms of the Notice of
Conversion, the Company will issue instructions to the transfer agent
accompanied by an opinion of counsel within two (2) business days of the
date of the delivery to the Company of the Notice of Conversion and shall
cause the transfer agent to transmit the certificates representing the
Conversion Shares to the Holder by crediting the account of the Purchaser's
prime broker with the Depository Trust Company ("DTC") through its Deposit
Withdrawal Agent Commission ("DWAC") system within three (3) business days
after receipt by the Company of the Notice of Conversion (the "Delivery
Date").
(c) The Company understands that a delay in the delivery of the Note
Shares in the form required pursuant to Section 9 hereof beyond the
Delivery Date could result in economic loss to the Purchaser. In the event
that the Company fails to direct its agent to deliver the Note Shares to
the Purchaser via the DWAC system within the time frame set forth in
Section 9.1(b) above and the Note Shares are not delivered to the Purchaser
by the Delivery Date, ascompensation to the Purchaser for such loss, the
Company agrees to pay late payments to the Purchaser for late issuance of
the Note Shares in the form required pursuant to Section 9 hereof upon
conversion of the Note in the amount equal to the greater of: (i) $400 per
business day after the Delivery Date; or (ii) the Purchaser's actual
damages from such delayed delivery. The Company shall pay any payments
incurred under this Section in immediately available funds upon demand and,
in the case of actual damages, accompanied by reasonable documentation of
the amount of such damages. Such documentation shall show the number of
shares of Common Stock the Purchaser is forced to purchase (in an open
market transaction) which the Purchaer anticipated receiving upon such
conversion, and shall be calculated as the amount by which (A) the
Purchaser's total purchase price (including customary brokerage
commissions, if any) for the shares of Common Stock so purchased exceeds
(B) the aggregate principal and/or interest amount of the Note, for which
such Conversion Notice was not timely honored.
10. Registration Rights.
10.1 Registration Rights Granted. The Company hereby grants registration
rights to the Purchaser pursuant to the Registration Rights Agreement. 10.2
Offering Restrictions. Except as previously disclosed in the SEC Reports or in
the Exchange Act Filings, or stock or stock options granted to employees or
directors of the Company (these exceptions hereinafter referred to as the
"Excepted Issuances"), neither the Company nor any of its Subsidiaries will,
prior to the full exercise by Purchaser of the Warrants, (x) enter into any
equity line of credit agreement or similar agreement or (y) issue, or enter into
any agreement to issue, any securities with a variable/floating conversion
and/or pricing feature which are or could be (by conversion or registration)
free trading securities (i.e. common stock subject to a registration statement).
11. Miscellaneous.
11.1 Governing Law, Jurisdiction and Waiver of Jury Trial.
(a) THIS AGREEMENT AND THE OTHER RELATED AGREEMENTS SHALL BE GOVERNED
BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
(b) THE COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL
COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE
EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN
THE COMPANY, ON THE ONE HAND, AND THE PURCHASER, ON THE OTHER HAND,
PERTAINING TO THIS AGREEMENT OR ANY OF THE RELATED AGREEMENTS OR TO ANY
MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE OTHER
RELATED AGREEMENTS; PROVIDED, THAT THE PURCHASER AND THE COMPANY
ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A
COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK; AND
FURTHER PROVIDED, THAT, NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR
OPERATE TO PRECLUDE THE PURCHASER FROM BRINGING SUIT OR TAKING OTHER LEGAL
ACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON
THE COLLATERAL (AS DEFINED IN THE MASTER SECURITY AGREEMENT) OR ANY OTHER
SECURITY FOR THE OBLIGATIONS (AS DEFINED IN THE MASTER SECURITY AGREEMENT),
OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE PURCHASER.
THE COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION
IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND THE COMPANY HEREBY
WAIVES ANY OBJECTION THAT IT MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. THE COMPANY HEREBY
WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED
IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS,
COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO THE COMPANY AT THE ADDRESS SET FORTH IN SECTION 11.8 AND THAT
SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF THE COMPANY'S
ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS,
PROPER POSTAGE PREPAID.
(c) THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE
APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION
OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES
HERETO WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING
BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR
OTHERWISE BETWEEN THE PURCHASER AND/OR THE COMPANY ARISING OUT OF,
CONNECTED WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, ANY OTHER RELATED AGREEMENT
OR THE TRANSACTIONS RELATED HERETO OR THERETO.
11.2 Severability. Wherever possible each provision of this Agreement and
the Related Agreements shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this Agreement or any
Related Agreement shall be prohibited by or invalid or illegal under applicable
law such provision shall be ineffective to the extent of such prohibition or
invalidity or illegality, without invalidating the remainder of such provision
or the remaining provisions thereof which shall not in any way be affected or
impaired thereby.
11.3 Survival. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by the Purchaser and the
closing of the transactions contemplated hereby to the extent provided therein.
All statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date of
such certificate or instrument. All indemnities set forth herein shall survive
the execution, delivery and termination of this Agreement and the Note and the
making and repayment of the obligations arising hereunder, under the Note and
under the other Related Agreements.
11.4 Successors. Except as otherwise expressly provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, heirs, executors and administrators of the parties hereto and shall
inure to the benefit of and be enforceable by each person or entity which shall
be a holder of the Securities from time to time, other than the holders of
Common Stock which has been sold by the Purchaser pursuant to Rule 144 or an
effective registration statement. The Purchaser shall not be permitted to assign
its rights hereunder or under any Related Agreement to a competitor of the
Company unless an Event of Default (as defined in the Note) has occurred and is
continuing.
11.5 Entire Agreement; Maximum Interest. This Agreement, the Related
Agreements, the exhibits and schedules hereto and thereto and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement between the parties with regard to the subjects hereof and no
party shall be liable or bound to any other in any manner by any
representations, warranties, covenants and agreements except as specifically set
forth herein and therein. Nothing contained in this Agreement, any Related
Agreement or in any document referred to herein or delivered in connection
herewith shall be deemed to establish or require the payment of a rate of
interest or other charges in excess of the maximum rate permitted by applicable
law. In the event that the rate of interest or dividends required to be paid or
other charges hereunder exceed the maximum rate permitted by such law, any
payments in excess of such maximum shall be credited against amounts owed by the
Company to the Purchaser and thus refunded to the Company.
11.6 Amendment and Waiver.
(a) This Agreement may be amended or modified only upon the written
consent of the Company and the Purchaser.
(b) The obligations of the Company and the rights of the Purchaser
under this Agreement may be waived only with the written consent of the
Purchaser.
(c) The obligations of the Purchaser and the rights of the Company
under this Agreement may be waived only with the written consent of the
Company.
11.7 Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement or the Related
Agreements, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring. All remedies, either under this Agreement or the Related
Agreements, by law or otherwise afforded to any party, shall be cumulative and
not alternative.
11.8 Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given:
(a) upon personal delivery to the party to be notified;
(b) when sent by confirmed facsimile if sent during normal business
hours of the recipient, if not, then on the next business day;
(c) three (3) business days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or (d) one (1)
day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt.
All communications shall be sent as follows:
AMS Health Sciences, Inc.
If to the Company, to: ▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
McAfee & ▇▇▇▇
▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇,
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Purchaser, to: Laurus Master Fund, Ltd.
c/o M&C Corporate Services Limited
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▇▇▇▇▇▇ ▇▇▇▇▇
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South Church Street
Grand Cayman, Cayman Islands
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
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▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
or at such other address as the Company or the Purchaser may designate by
written notice to the other parties hereto given in accordance herewith.
11.9 Attorneys' Fees. In the event that any suit or action is instituted to
enforce any provision in this Agreement or any Related Agreement, the prevailing
party in such dispute shall be entitled to recover from the losing party all
fees, costs and expenses of enforcing any right of such prevailing party under
or with respect to this Agreement and/or such Related Agreement, including,
without limitation, such reasonable fees and expenses of attorneys and
accountants, which shall include, without limitation, all fees, costs and
expenses of appeals.
11.10 Titles and Subtitles. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement. 11.11 Facsimile Signatures;
Counterparts. This Agreement may be executed by facsimile signatures and in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one agreement.
11.12 Broker's Fees. Except as set forth on Schedule 11.12 hereof, each
party hereto represents and warrants that no agent, broker, investment banker,
person or firm acting on behalf of or under the authority of such party hereto
is or will be entitled to any broker's or finder's fee or any other commission
directly or indirectly in connection with the transactions contemplated herein.
Each party hereto further agrees to indemnify each other party for any claims,
losses or expenses incurred by such other party as a result of the
representation in this Section 11.12 being untrue.
11.13 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Agreement and the Related Agreements
and, therefore, stipulates that the rule of construction that ambiguities are to
be resolved against the drafting party shall not be applied in the
interpretation of this Agreement or any Related Agreement to favor any party
against the other.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES PURCHASE
AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
AMS HEALTH SCIENCES, INC. LAURUS MASTER FUND, LTD.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇ Grin
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Name: ▇▇▇▇▇ Grin
Title: Chairman, President Title: Director
and CEO
EXHIBIT A
FORM OF CONVERTIBLE NOTE
EXHIBIT B
FORM OF WARRANT
EXHIBIT C
FORM OF OPINION
1. The Company and each of its Subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its formation and has all requisite corporate power and
authority to own, operate and lease its properties and to carry on its business
as it is now being conducted.
2. Each of the Company and each of its Subsidiaries has the requisite
corporate power and authority to execute, deliver and perform its obligations
under the Agreement and the Related Agreements. All corporate action on the part
of the Company and each of its Subsidiaries and its officers, directors and
stockholders necessary has been taken for: (i) the authorization of the
Agreement and the Related Agreements and the performance of all obligations of
the Company and each of its Subsidiaries thereunder; and (ii) the authorization,
sale, issuance and delivery of the Securities pursuant to the Agreement and the
Related Agreements. The Note Shares and the Warrant Shares, when issued pursuant
to and in accordance with the terms of the Agreement and the Related Agreements
and upon delivery shall be validly issued and outstanding, fully paid and non
assessable.
3. The execution, delivery and performance by each of the Company and each
of its Subsidiaries of the Agreement and the Related Agreements (to which it is
a party) and the consummation of the transactions on its part contemplated by
any thereof, will not, with or without the giving of notice or the passage of
time or both:
(a) Violate the provisions of their respective Charter or bylaws; or
(b) Violate any judgment, decree, order or award of any court binding
upon the Company or any of its Subsidiaries; or
(c) Violate any [insert jurisdictions in which counsel is qualified]
or federal law
4. The Agreement and the Related Agreements will constitute, valid and
legally binding obligations of each of the Company and each of its Subsidiaries
(to the extent such entity is a party thereto), and are enforceable against each
of the Company and each of its Subsidiaries party thereto in accordance with
their respective terms, except:
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; and
(b) general principles of equity that restrict the availability of
equitable or legal remedies.
5. To such counsel's knowledge, the sale of the Note and the subsequent
conversion of the Note into Note Shares are not subject to any preemptive rights
or rights of first refusal that have not been properly waived or complied with.
To such counsel's knowledge, the sale of the Warrant and the subsequent exercise
of the Warrant for Warrant Shares are not subject to any preemptive rights or,
to such counsel's knowledge, rights of first refusal that have not been properly
waived or complied with.
6. Assuming the accuracy of the representations and warranties of the
Purchaser contained in the Agreement, the offer, sale and issuance of the
Securities on the Closing Date will be exempt from the registration requirements
of the Securities Act. To such counsel's knowledge, neither the Company, nor any
of its affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy and security under circumstances that would cause the offering of the
Securities pursuant to the Agreement or any Related Agreement to be integrated
with prior offerings by the Company for purposes of the Securities Act which
would prevent the Company from selling the Securities pursuant to Rule 506 under
the Securities Act, or any applicable exchange-related stockholder approval
provisions.
7. There is no action, suit, proceeding or investigation pending or, to
such counsel's knowledge, currently threatened against the Company or any of its
Subsidiaries that prevents the right of the Company or any of its Subsidiaries
to enter into this Agreement or any Related Agreement, or to consummate the
transactions contemplated thereby. To such counsel's knowledge, the Company is
not a party or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality; nor is
there any action, suit, proceeding or investigation by the Company currently
pending or which the Company intends to initiate.
8. The terms and provisions of the Master Security Agreement and the Stock
Pledge Agreement create a valid security interest in favor of the Purchaser, in
the respective rights, title and interests of the Company and its Subsidiaries
in and to the Collateral (as defined in each of the Master Security Agreement
and the Stock Pledge Agreement). Each UCC-1 Financing Statement naming the
Company or any Subsidiary thereof as debtor and the Purchaser as secured party
are in proper form for filing and assuming that such UCC-1 Financing Statements
have been filed with the Secretary of State of [Delaware], the security interest
created under the Master Security Agreement will constitute a perfected security
interest under the Uniform Commercial Code in favor of the Purchaser in respect
of the Collateral that can be perfected by filing a financing statement. After
giving effect to the delivery to the Purchaser of the stock certificates
representing the ownership interests of each Subsidiary of the Company (together
with effective endorsements) and assuming the continued possession by the
Purchaser of such stock certificates in the State of New York, the security
interest created in favor of the Purchaser under the Stock Pledge Agreement
constitutes a valid and enforceable first perfected security interest in such
ownership interests (and the proceeds thereof) in favor of the Purchaser,
subject to no other security interest. No filings, registrations or recordings
are required in order to perfect (or maintain the perfection or priority of) the
security interest created under the Stock Pledge Agreement in respect of such
ownership interests.
EXHIBIT D
FORM OF ESCROW AGREEMENT
