SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
DATED AS OF APRIL 23, 2007
AMONG
MARKETING WORLDWIDE CORPORATION
AND
THE PURCHASERS LISTED ON EXHIBIT A
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ARTICLE I PURCHASE AND SALE OF PREFERRED STOCK
Section 1.1 Purchase and Sale of Preferred Stock 1
Section 1.2 Warrants 1
Section 1.3 Conversion Shares 1
Section 1.4 Purchase Price and Closing 2
ARTICLE II REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Company 2
Section 2.2 Representations and Warranties of the Purchasers 11
ARTICLE III COVENANTS
Section 3.1 Securities Compliance 13
Section 3.2 Registration and Listing 13
Section 3.3 Inspection Rights 13
Section 3.4 Compliance with Laws 13
Section 3.5 Keeping of Records and Books of Account 14
Section 3.6 Reporting Requirements 14
Section 3.7 Amendments 14
Section 3.8 Other Agreements 14
Section 3.9 Distributions 14
Section 3.10 Status of Dividends 15
Section 3.11 Use of Proceeds 15
Section 3.12 Reservation of Shares 16
Section 3.13 Transfer Agent Instructions 16
Section 3.14 Disposition of Assets 16
Section 3.15 Reporting Status 16
Section 3.16 Disclosure of Transaction 16
Section 3.17 Disclosure of Material Information 17
Section 3.18 Pledge of Securities 17
Section 3.19 Form SB-2 Eligibility 17
Section 3.20 Lock-Up Agreement 17
Section 3.21 DTC 17
Section 3.22 Subsequent Financings 17
Section 3.23 Approval of Acquisitions. 18
Section 3.24 ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act 19
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(continued)
ARTICLE IV CONDITIONS
Section 4.1 Conditions Precedent to the Obligation 19
of the Company to Sell the Shares
Section 4.2 Conditions Precedent to the Obligation 19
of the Purchasers to Purchase the Shares
ARTICLE V STOCK CERTIFICATE LEGEND
Section 5.1 Legend 21
ARTICLE VI INDEMNIFICATION
Section 6.1 General Indemnity 22
Section 6.2 Indemnification Procedure 22
ARTICLE VII MISCELLANEOUS
Section 7.1 Fees and Expenses 23
Section 7.2 Specific Enforcement, Consent to Jurisdiction 23
Section 7.3 Entire Agreement; Amendment 24
Section 7.4 Notices 24
Section 7.5 Waivers 25
Section 7.6 Headings 25
Section 7.7 Successors and Assigns 25
Section 7.8 No Third Party Beneficiaries 25
Section 7.9 Governing Law 25
Section 7.10 Survival 25
Section 7.11 Counterparts 26
Section 7.12 Publicity 26
Section 7.13 Severability 26
Section 7.14 Further Assurances 26
EXHIBITS
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Exhibit A List of Purchasers
Exhibit B Certificate of Designation of the Relative Rights and Preferences
of the Series A Convertible Preferred Stock
Exhibit C-1 Series A Warrant
Exhibit C-2 Series B Warrant
Exhibit C-3 Series C Warrant
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TABLE OF CONTENTS
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(continued)
Exhibit C-4 Series J Warrant
Exhibit C-5 Series D Warrant
Exhibit C-6 Series E Warrant
Exhibit C-7 Series F Warrant
Exhibit D Registration Rights Agreement
Exhibit E Lock-Up Agreement
Exhibit F Escrow Agreement
Exhibit G Irrevocable Transfer Agent Instructions
Exhibit H Opinion of Counsel
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SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
This SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the
"AGREEMENT") is dated as of April 23, 2007 by and among Marketing Worldwide
Corporation, a Delaware corporation (the "COMPANY"), and each of the Purchasers
of shares of Series A Convertible Preferred Stock of the Company whose names are
set forth on EXHIBIT A hereto (individually, a "PURCHASER" and collectively, the
"PURCHASERS").
The parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED STOCK
SECTION 1.1 PURCHASE AND SALE OF PREFERRED STOCK. Upon the following
terms and conditions, the Company shall issue and sell to the Purchasers and
each of the Purchasers shall purchase from the Company, the number of shares of
the Company's Series A Convertible Preferred Stock, par value $0.001 per share
and at a purchase price of $1.00 per share (the "PREFERRED SHARES"), convertible
into shares of the Company's common stock, par value $0.001 per share (the
"COMMON STOCK"), in the amounts set forth opposite such Purchaser's name on
EXHIBIT A hereto. The designation, rights, preferences and other terms and
provisions of the Series A Convertible Preferred Stock are set forth in the
Certificate of Designation of the Relative Rights and Preferences of the Series
A Convertible Preferred Stock attached hereto as EXHIBIT B (the "CERTIFICATE OF
DESIGNATION"). The Company and the Purchasers are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration afforded by Rule 506 of Regulation D ("REGULATION D") as
promulgated by the United States Securities and Exchange Commission (the
"COMMISSION") under the Securities Act of 1933, as amended (the "SECURITIES
ACT") or Section 4(2) of the Securities Act.
SECTION 1.2 WARRANTS. Upon the following terms and conditions and
for no additional consideration, each of the Purchasers shall be issued (i)
Series A Warrants, in substantially the form attached hereto as EXHIBIT C-1 (the
"SERIES A WARRANT"), (ii) Series B Warrants, in substantially the form attached
hereto as EXHIBIT C-2 (the "SERIES B WARRANT"), (iii) Series C Warrants, in
substantially the form attached hereto as EXHIBIT C-3 (the "SERIES C WARRANT"),
(iv) Series J Warrants, in substantially the form attached hereto as EXHIBIT C-4
(the "SERIES J WARRANT"), (v) Series D Warrants, in substantially the form
attached hereto as EXHIBIT C-5 (the "SERIES D WARRANT"), (vi) Series E Warrants,
in substantially the form attached hereto as EXHIBIT C-6 (the "SERIES E
WARRANT"), and (vii) Series F Warrants, in substantially the form attached
hereto as EXHIBIT C-7 (the "SERIES F WARRANT"; and, together with the Series A
Warrant, the Series B Warrant, the Series C Warrant, the Series J Warrant, the
Series D Warrant and the Series E Warrant, the "WARRANTS"). Any shares of Common
Stock issuable upon exercise of the Warrants (and such shares when issued) are
herein referred to as the "WARRANT Shares."
SECTION 1.3 CONVERSION SHARES. The Company has authorized and has
reserved and covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of stockholders, a number of shares of Common
Stock equal to one hundred twenty percent (120%) of the number of shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all of the Preferred Shares and a number of shares of Common Stock equal to
one hundred percent (100%) of the number of shares of Common Stock as shall from
time to time be sufficient to effect the exercise of the Warrants then
outstanding. Any shares of Common Stock issuable upon conversion of the
Preferred Shares and exercise of the Warrants (and such shares when issued) are
herein referred to as the "CONVERSION SHARES" and the Warrant Shares,
respectively. The Preferred Shares, the Conversion Shares and the Warrant Shares
are sometimes collectively referred to as the "SHARES."
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SECTION 1.4 PURCHASE PRICE AND CLOSING. Subject to the terms and
conditions hereof, the Company agrees to issue and sell to the Purchasers and,
in consideration of and in express reliance upon the representations,
warranties, covenants, terms and conditions of this Agreement, the Purchasers,
severally but not jointly, agree to purchase the Preferred Shares and the
Warrants for an aggregate purchase price of up to Three Million Five Hundred
Thousand Dollars ($3,500,000) (the "PURCHASE PRICE"). The closing of the
purchase and sale of the Preferred Shares and the Warrants to be acquired by the
Purchasers from the Company under this Agreement shall take place at the offices
of Sadis & ▇▇▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
(the "CLOSING") at 10:00 a.m., New York time on such date as the Purchasers and
the Company may agree upon; PROVIDED, that all of the conditions set forth in
ARTICLE IV hereof and applicable to the Closing shall have been fulfilled or
waived in accordance herewith (the "CLOSING DATE"). Subject to the terms and
conditions of this Agreement, at the Closing the Company shall deliver or cause
to be delivered to each Purchaser (x) a certificate for the number of Preferred
Shares set forth opposite the name of such Purchaser on EXHIBIT A hereto, (y)
its Warrants to purchase such number of shares of Common Stock as is set forth
opposite the name of such Purchaser on EXHIBIT A attached hereto and (z) any
other documents required to be delivered pursuant to ARTICLE IV hereof. At the
Closing, each Purchaser shall deliver its Purchase Price by wire transfer to the
escrow account pursuant to the Escrow Agreement (as hereafter defined). In
addition, the parties acknowledge that Thirty Five Thousand Dollars ($35,000) of
the Purchase Price funded on the Closing Date shall be deducted by the escrow
agent from the total amount otherwise payable to the Company, and paid over to
counsel for the Purchasers in payment of legal fees of the Purchasers.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company hereby represents and warrants to the Purchasers, as of the date hereof
and Closing Date (except as set forth on the Schedule of Exceptions attached
hereto with each numbered Schedule corresponding to the section number herein),
as follows:
(a) ORGANIZATION, GOOD STANDING AND POWER. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware and has the requisite corporate power to own, lease and
operate its properties and assets and to conduct its business as it is now being
conducted. The Company does not have any Subsidiaries except as set forth in the
Company's Form 10-KSB for the year ended September 30, 2006, including the
accompanying financial statements (the "FORM 10-KSB"), or in the Company's Form
10-QSB for the fiscal quarter ended December 31, 2006 (the "FORM 10-QSB"), or on
SCHEDULE 2.1(G) hereto. Except as set forth on SCHEDULE 2.1(A), the Company and
each such Subsidiary is duly qualified as a foreign corporation to do business
and is in good standing in every jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary
except for any jurisdiction(s) (alone or in the aggregate) in which the failure
to be so qualified will not have a Material Adverse Effect (as defined in
SECTION 2.1(C) hereof) on the Company's financial condition.
(b) AUTHORIZATION; ENFORCEMENT. The Company has the requisite corporate
power and authority to enter into and perform this Agreement, the Registration
Rights Agreement in the form attached hereto as EXHIBIT D (the "REGISTRATION
RIGHTS AGREEMENT"), the Lock-Up Agreement (as defined in SECTION 3.20 hereof) in
the form attached hereto as EXHIBIT E, the Escrow Agreement by and among the
Company, the Purchasers and the escrow agent named therein, dated as of the date
hereof, substantially in the form of EXHIBIT F attached hereto (the "ESCROW
AGREEMENT"), the Irrevocable Transfer Agent Instructions (as defined in SECTION
3.13) substantially in the form of EXHIBIT G attached hereto, the Certificate of
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Designation, and the Warrants (collectively, the "TRANSACTION DOCUMENTS") and to
issue and sell the Shares, the Warrants and the Additional Warrants in
accordance with the terms hereof. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action, and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required. This Agreement has been duly executed and delivered by the Company.
The other Transaction Documents will have been duly executed and delivered by
the Company at the Closing. Each of the Transaction Documents constitutes, or
shall constitute when executed and delivered, a valid and binding obligation of
the Company enforceable against the Company in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditor's
rights and remedies or by other equitable principles of general application.
(c) CAPITALIZATION. The authorized capital stock of the Company and the
shares thereof currently issued and outstanding as of the date hereof are set
forth on SCHEDULE 2.1(C) hereto. All of the outstanding shares of the Common
Stock and the Preferred Shares have been duly and validly authorized. Except as
set forth on SCHEDULE 2.1(C) hereto, no shares of Common Stock are entitled to
preemptive rights or registration rights and there are no outstanding options,
warrants, scrip, rights to subscribe to, call or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company. There are no contracts, commitments,
understandings, or arrangements by which the Company is or may become bound to
issue additional shares of the capital stock of the Company or options,
securities or rights convertible into shares of capital stock of the Company.
Except as set forth on SCHEDULE 2.1(C) hereto, the Company is not a party to any
agreement granting registration or anti-dilution rights to any person with
respect to any of its equity or debt securities. The Company is not a party to,
and it has no knowledge of, any agreement restricting the voting or transfer of
any shares of the capital stock of the Company. The offer and sale of all
capital stock, convertible securities, rights, warrants, or options of the
Company issued prior to the Closing complied with all applicable Federal and
state securities laws, and no stockholder has a right of rescission or claim for
damages with respect thereto. The Company has furnished or made available to the
Purchasers true and correct copies of the Company's Certificate of Incorporation
as in effect on the date hereof (the "CERTIFICATE"), and the Company's Bylaws as
in effect on the date hereof (the "BYLAWS"). For the purposes of this Agreement,
"MATERIAL ADVERSE EFFECT" means any material adverse effect on the business,
operations, properties, prospects, or financial condition of the Company and its
Subsidiaries and/or any condition, circumstance, or situation that would
prohibit or otherwise materially interfere with the ability of the Company to
perform any of its obligations under this Agreement.
(d) ISSUANCE OF SHARES. The Preferred Shares and the Warrants to be
issued at the Closing have been duly authorized by all necessary corporate
action and the Preferred Shares, when paid for or issued in accordance with the
terms hereof, shall be validly issued and outstanding, fully paid and
nonassessable and entitled to the rights and preferences set forth in the
Certificate of Designation. When the Conversion Shares and the Warrant Shares
are issued in accordance with the terms of the Certificate of Designation and
the Warrants, respectively, such shares will be duly authorized by all necessary
corporate action and validly issued and outstanding, fully paid and
nonassessable, and the holders shall be entitled to all rights accorded to a
holder of Common Stock.
(e) NO CONFLICTS. The execution, delivery and performance of the
Transaction Documents by the Company, the performance by the Company of its
obligations under the Certificate of Designation and the consummation by the
Company of the transactions contemplated herein and therein do not and will not
(i) violate any provision of the Company's Certificate or Bylaws, (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
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amendment, acceleration or cancellation of, any agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which the Company is a party or by which it or its properties or assets are
bound, (iii) create or impose a lien, mortgage, security interest, charge or
encumbrance of any nature on any property of the Company under any agreement or
any commitment to which the Company is a party or by which the Company is bound
or by which any of its respective properties or assets are bound, or (iv) result
in a violation of any federal, state, local or foreign statute, rule,
regulation, order, judgment or decree (including Federal and state securities
laws and regulations) applicable to the Company or any of its Subsidiaries or by
which any property or asset of the Company or any of its Subsidiaries are bound
or affected. The business of the Company and its Subsidiaries is not being
conducted in violation of any laws, ordinances or regulations of any
governmental entity, except for possible violations which singularly or in the
aggregate do not and will not have a Material Adverse Effect. The Company is not
required under Federal, state or local law, rule or regulation to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under the Transaction Documents, or issue and sell the
Preferred Shares, the Warrants, the Conversion Shares and the Warrant Shares in
accordance with the terms hereof or thereof (other than (x) any consent,
authorization or order that has been obtained as of the date hereof, (y) any
filing or registration that has been made as of the date hereof or (z) any
filings which may be required to be made by the Company with the Commission or
state securities administrators subsequent to the Closing, any registration
statement which may be filed pursuant hereto or any other Transaction Document,
and the Certificate of Designation); PROVIDED, that for purposes of the
representation made in this sentence, the Company is assuming and relying upon
the accuracy of the relevant representations and agreements of the Purchasers
herein.
(f) COMMISSION DOCUMENTS, FINANCIAL STATEMENTS. The Company has timely
filed all reports, schedules, forms, statements and other documents required to
be filed by it with the Commission pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended the ("EXCHANGE ACT"), including
material filed pursuant to Section 13(a) or 15(d) of the Exchange Act (all of
the foregoing including filings incorporated by reference therein being referred
to herein as the "COMMISSION DOCUMENTS"). The Company has delivered or made
available to each of the Purchasers true and complete copies of the Commission
Documents. The Company has not provided to the Purchasers any material
non-public information or other information which, according to applicable law,
rule or regulation, was required to have been disclosed publicly by the Company
but which has not been so disclosed, other than with respect to the transactions
contemplated by this Agreement. At the times of their respective filings, the
Form 10-KSB and the Form 10-QSB complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the Commission
promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such documents, and, as of their respective dates,
none of the Form 10-KSB and the Form 10-QSB contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the Commission Documents comply as to form
in all material respects with applicable accounting requirements and the
published rules and regulations of the Commission or other applicable rules and
regulations with respect thereto. Such financial statements have been prepared
in accordance with U. S. generally accepted accounting principles ("GAAP")
applied on a consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto or (ii) in
the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements), and fairly present in all
material respects the financial position of the Company and its Subsidiaries as
of the dates thereof and the results of operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments).
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(g) SUBSIDIARIES. SCHEDULE 2.1(G) hereto sets forth each Subsidiary of
the Company, showing the jurisdiction of its incorporation or organization and
showing the percentage of each person's ownership. For the purposes of this
Agreement, "SUBSIDIARY" shall mean any corporation or other entity of which at
least a majority of the securities or other ownership interest having ordinary
voting power (absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other Subsidiaries. All of the
outstanding shares of capital stock of each Subsidiary have been duly authorized
and validly issued, and are fully paid and nonassessable. There are no
outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any Subsidiary for the purchase
or acquisition of any shares of capital stock of any Subsidiary or any other
securities convertible into, exchangeable for or evidencing the rights to
subscribe for any shares of such capital stock. Neither the Company nor any
Subsidiary is subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of the capital stock of any Subsidiary
or any convertible securities, rights, warrants or options of the type described
in the preceding sentence. Neither the Company nor any Subsidiary is party to,
nor has any knowledge of, any agreement restricting the voting or transfer of
any shares of the capital stock of any Subsidiary.
(h) NO MATERIAL ADVERSE CHANGE. Other than as disclosed in the Company's
Commission Documents, since September 30, 2006, the Company has not experienced
or suffered any Material Adverse Effect.
(i) NO UNDISCLOSED LIABILITIES. Except as set forth on SCHEDULE 2.1(I),
since September 30, 2006 neither the Company nor any of its Subsidiaries has any
liabilities, obligations, claims or losses (whether liquidated or unliquidated,
secured or unsecured, absolute, accrued, contingent or otherwise) other than
those incurred in the ordinary course of the Company's or its Subsidiaries'
respective businesses and which, individually or in the aggregate, do not or
would not have a Material Adverse Effect on the Company or its Subsidiaries, as
the case may be.
(j) OFF BALANCE SHEET ARRANGEMENTS. There is no transaction,
arrangement, or other relationship between the Company and an unconsolidated or
other off balance sheet entity that is required to be disclosed by the Company
in its Commission Documents and is not so disclosed or that otherwise would be
reasonably likely to have a Material Adverse Effect.
(k) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. No event or circumstance has
occurred or exists with respect to the Company or its Subsidiaries or their
respective businesses, properties, prospects, operations or financial condition,
which, under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed.
(l) INDEBTEDNESS. The Form 10-KSB, Form 10-QSB or SCHEDULE 2.1(L) hereto
sets forth as of a recent date all outstanding secured and unsecured
Indebtedness of the Company or any Subsidiary, or for which the Company or any
Subsidiary has commitments. For the purposes of this Agreement, "INDEBTEDNESS"
shall mean (a) any liabilities for borrowed money or amounts owed, whether
individually or in aggregate, in excess of $100,000 (other than trade accounts
payable incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of Indebtedness of
others, whether or not the same are or should be reflected in the Company's
balance sheet (or the notes thereto), except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business; and (c) the present value of any lease payments in
excess of $25,000 due under leases required to be capitalized in accordance with
GAAP. Except as set forth on SCHEDULE 2.1(L), neither the Company nor any
Subsidiary is in default with respect to any Indebtedness.
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(m) TITLE TO ASSETS. Except as set forth on SCHEDULE 2.1(M), each of the
Company and the Subsidiaries has good and marketable title to all of its real
and personal property reflected in the Form 10-KSB, free and clear of any
mortgages, pledges, charges, liens, security interests or other encumbrances,
except for those disclosed in the Form 10-KSB. Except as set forth on SCHEDULE
2.1(M), all leases of the Company and each of its Subsidiaries are valid and
subsisting and in full force and effect.
(n) ACTIONS PENDING. There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or any other proceeding
pending or, to the knowledge of the Company, threatened against the Company or
any Subsidiary which questions the validity of this Agreement or any of the
other Transaction Documents or the transactions contemplated hereby or thereby
or any action taken or to be taken pursuant hereto or thereto. There is no
action, suit, claim, investigation, arbitration, alternate dispute resolution
proceeding or any other proceeding pending or, to the knowledge of the Company,
threatened, against or involving the Company, any Subsidiary or any of their
respective properties or assets. There are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any Subsidiary or any officers or
directors of the Company or Subsidiary in their capacities as such.
(o) COMPLIANCE WITH LAW. The business of the Company and the
Subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except for such noncompliance that, individually or in the
aggregate, would not cause a Material Adverse Effect. The Company and each of
its Subsidiaries have all franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals necessary for the
conduct of its business as now being conducted by it unless the failure to
possess such franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals, individually or in the aggregate, would
not have a Material Adverse Effect.
(p) TAXES. The Company and each of the Subsidiaries has accurately
prepared and filed all federal, state and other tax returns required by law to
be filed by it, has paid or made provisions for the payment of all taxes shown
to be due and all additional assessments, and adequate provisions have been and
are reflected in the financial statements of the Company and the Subsidiaries
for all current taxes and other charges to which the Company or any Subsidiary
is subject and which are not currently due and payable. None of the federal
income tax returns of the Company or any Subsidiary have been audited by the
Internal Revenue Service. The Company has no knowledge of any additional
assessments, adjustments or contingent tax liability (whether federal or state)
of any nature whatsoever, whether pending or threatened against the Company or
any Subsidiary for any period, nor of any basis for any such assessment,
adjustment or contingency.
(q) CERTAIN FEES. Except for the fees payable pursuant to that certain
securities placement agreement dated December 21, 2006 by and between ▇▇▇▇▇▇
Securities LLC and the Company, no brokers, finders or financial advisory fees
or commissions will be payable by the Company or any Subsidiary or any Purchaser
with respect to the transactions contemplated by this Agreement.
(r) DISCLOSURE. Neither this Agreement or the Schedules hereto nor any
other documents, certificates or instruments furnished to the Purchasers by or
on behalf of the Company or any Subsidiary in connection with the transactions
contemplated by this Agreement contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements made
herein or therein, in the light of the circumstances under which they were made
herein or therein, not misleading.
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(s) OPERATION OF BUSINESS. Except as set forth in SCHEDULE 2.1(S), the
Company and each of the Subsidiaries owns or possesses all patents, trademarks,
domain names (whether or not registered) and any patentable improvements or
copyrightable derivative works thereof, websites and intellectual property
rights relating thereto, service marks, trade names, copyrights, licenses and
authorizations, and all rights with respect to the foregoing, which are
necessary for the conduct of its business as now conducted without any conflict
with the rights of others.
(t) ENVIRONMENTAL COMPLIANCE. The Company and each of its Subsidiaries
have obtained all material approvals, authorization, certificates, consents,
licenses, orders and permits or other similar authorizations of all governmental
authorities, or from any other person, that are required under any Environmental
Laws. Except as set forth on SCHEDULE 2.1(T), the Form 10-KSB or Form 10-QSB
describes all material permits, licenses and other authorizations issued under
any Environmental Laws to the Company or its Subsidiaries. "ENVIRONMENTAL LAWS"
shall mean all applicable laws relating to the protection of the environment
including, without limitation, all requirements pertaining to reporting,
licensing, permitting, controlling, investigating or remediating emissions,
discharges, releases or threatened releases of hazardous substances, chemical
substances, pollutants, contaminants or toxic substances, materials or wastes,
whether solid, liquid or gaseous in nature, into the air, surface water,
groundwater or land, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances,
material or wastes, whether solid, liquid or gaseous in nature. The Company has
all necessary governmental approvals required under all Environmental Laws and
used in its business or in the business of any of its Subsidiaries. The Company
and each of its Subsidiaries are also in compliance with all other limitations,
restrictions, conditions, standards, requirements, schedules and timetables
required or imposed under all Environmental Laws. Except for such instances as
would not individually or in the aggregate have a Material Adverse Effect, there
are no past or present events, conditions, circumstances, incidents, actions or
omissions relating to or in any way affecting the Company or its Subsidiaries
that violate or may violate any Environmental Law after the Closing Date or that
may give rise to any environmental liability, or otherwise form the basis of any
claim, action, demand, suit, proceeding, hearing, study or investigation (i)
under any Environmental Law, or (ii) based on or related to the manufacture,
processing, distribution, use, treatment, storage (including without limitation
underground storage tanks), disposal, transport or handling, or the emission,
discharge, release or threatened release of any hazardous substance.
(u) BOOKS AND RECORD INTERNAL ACCOUNTING CONTROLS. The books and records
of the Company and its Subsidiaries accurately reflect in all material respects
the information relating to the business of the Company and the Subsidiaries,
the location and collection of their assets, and the nature of all transactions
giving rise to the obligations or accounts receivable of the Company or any
Subsidiary. The Company and each of its Subsidiaries maintain a system of
internal accounting controls sufficient, in the judgment of the Company, to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(v) MATERIAL AGREEMENTS. Except for the Transaction Documents (with
respect to clause (i) only), as disclosed in the Commission Documents or as set
forth on SCHEDULE 2.1(V) hereto, or as would not be reasonably likely to have a
Material Adverse Effect, (i) the Company and each of its Subsidiaries have
performed all obligations required to be performed by them to date under any
written or oral contract, instrument, agreement, commitment, obligation, plan or
arrangement, filed or required to be filed with the Commission (the "MATERIAL
AGREEMENTS"), (ii) neither the Company nor any of its Subsidiaries has received
any notice of default under any Material Agreement and, (iii) to the best of the
Company's knowledge, neither the Company nor any of its Subsidiaries is in
default under any Material Agreement now in effect.
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(w) TRANSACTIONS WITH AFFILIATES. Except as set forth in the Commission
Documents, there are no loans, leases, agreements, contracts, royalty
agreements, management contracts or arrangements or other continuing
transactions between (a) the Company or any Subsidiary on the one hand, and (b)
on the other hand, any officer, employee, consultant or director of the Company
or any of its Subsidiaries, or any person owning any capital stock of the
Company or any Subsidiary or any member of the immediate family of such officer,
employee, consultant, director or stockholder, or any corporation or other
entity controlled by such officer, employee, consultant, director or
stockholder, or a member of the immediate family of such officer, employee,
consultant, director or stockholder.
(x) SECURITIES ACT OF 1933. Based in material part upon the
representations herein of the Purchasers, the Company has complied and will
comply with all applicable federal and state securities laws in connection with
the offer, issuance and sale of the Shares and the Warrants hereunder. Neither
the Company nor anyone acting on its behalf, directly or indirectly, has or will
sell, offer to sell or solicit offers to buy any of the Shares, the Warrants or
similar securities to, or solicit offers with respect thereto from, or enter
into any preliminary conversations or negotiations relating thereto with, any
person, or has taken or will take any action so as to bring the issuance and
sale of any of the Shares and the Warrants under the registration provisions of
the Securities Act and applicable state securities laws, and neither the Company
nor any of its affiliates, nor any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Securities Act) in connection with the offer
or sale of any of the Shares and the Warrants.
(y) GOVERNMENTAL APPROVALS. Except for the filing of any notice prior or
subsequent to the Closing Date that may be required under applicable state
and/or Federal securities laws (which if required, shall be filed on a timely
basis), including the filing of a Form D and a registration statement or
statements pursuant to the Registration Rights Agreement, and the filing of the
Certificate of Designation with the Secretary of State for the State of
Delaware, no authorization, consent, approval, license, exemption of, filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be necessary
for, or in connection with, the execution or delivery of the Preferred Shares
and the Warrants, or for the performance by the Company of its obligations under
the Transaction Documents.
(z) EMPLOYEES. Neither the Company nor any Subsidiary has any collective
bargaining arrangements or agreements covering any of its employees. Except as
set forth on SCHEDULE 2.1(Z), neither the Company nor any Subsidiary has any
employment contract, agreement, regarding proprietary information,
non-competition agreement, non-solicitation agreement, confidentiality
agreement, or any other similar contract or restrictive covenant, relating to
the right of any officer, employee or consultant to be employed or engaged by
the Company or such Subsidiary. No officer, consultant or key employee of the
Company or any Subsidiary whose termination, either individually or in the
aggregate, could have a Material Adverse Effect, has terminated or, to the
knowledge of the Company, has any present intention of terminating his or her
employment or engagement with the Company or any Subsidiary.
(aa) ABSENCE OF CERTAIN DEVELOPMENTS. Except as set forth on SCHEDULE
2.1(AA), since September 30, 2006, neither the Company nor any Subsidiary has:
(i) issued any stock, bonds or other corporate securities or any
rights, options or warrants with respect thereto;
8
(ii) borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities incurred
in the ordinary course of business which are comparable in nature and
amount to the current liabilities incurred in the ordinary course of
business during the comparable portion of its prior fiscal year;
(iii) discharged or satisfied any lien or encumbrance or paid any
obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash or other
property to stockholders with respect to its stock, or purchased or
redeemed, or made any agreements so to purchase or redeem, any shares of
its capital stock;
(v) sold, assigned or transferred any other tangible assets, or
canceled any debts or claims, except in the ordinary course of business;
(vi) sold, assigned or transferred any patent rights, trademarks,
trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights, or disclosed any proprietary confidential
information to any person except to customers in the ordinary course of
business;
(vii) suffered any substantial losses or waived any rights of
material value, whether or not in the ordinary course of business, or
suffered the loss of any material amount of prospective business;
(viii) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that
aggregate in excess of $100,000;
(x) entered into any other transaction other than in the ordinary
course of business, or entered into any other material transaction,
whether or not in the ordinary course of business;
(xi) made charitable contributions or pledges in excess of $25,000;
(xii) suffered any material damage, destruction or casualty loss,
whether or not covered by insurance;
(xiii) experienced any material problems with labor or management in
connection with the terms and conditions of their employment;
(xiv) effected any two or more events of the foregoing kind which in
the aggregate would be material to the Company or its Subsidiaries; or
(xv) entered into an agreement, written or otherwise, to take any
of the foregoing actions.
9
(bb) PUBLIC UTILITY HOLDING COMPANY ACT AND INVESTMENT COMPANY ACT
STATUS. The Company is not a "holding company" or a "public utility company" as
such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately upon the Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
(cc) ERISA. No liability to the Pension Benefit Guaranty
Corporation has been incurred with respect to any Plan (as defined below) by the
Company or any of its Subsidiaries which is or would be materially adverse to
the Company and its Subsidiaries. The execution and delivery of this Agreement
and the issuance and sale of the Shares will not involve any transaction which
is subject to the prohibitions of Section 406 of ERISA or in connection with
which a tax could be imposed pursuant to Section 4975 of the Internal Revenue
Code of 1986, as amended (the "CODE"); PROVIDED that if any of the Purchasers,
or any person or entity that owns a beneficial interest in any of the
Purchasers, is an "employee pension benefit plan" (within the meaning of Section
3(2) of ERISA) with respect to which the Company is a "party in interest"
(within the meaning of Section 3(14) of ERISA), the requirements of Sections
407(d)(5) and 408(e) of ERISA, if applicable, are met. As used in this SECTION
2.1(CC), the term "PLAN" shall mean an "employee pension benefit plan" (as
defined in Section 3 of ERISA) which is or has been established or maintained,
or to which contributions are or have been made, by the Company or any
Subsidiary or by any trade or business, whether or not incorporated, which,
together with the Company or any Subsidiary, is under common control, as
described in Section 414(b) or (c) of the Code.
(dd) DILUTIVE EFFECT. The Company understands and acknowledges that
its obligation to issue Conversion Shares upon conversion of the Preferred
Shares in accordance with this Agreement and the Certificate of Designation and
its obligations to issue the Warrant Shares upon the exercise of the Warrants in
accordance with this Agreement and the Warrants, is, in each case, absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interest of other stockholders of the Company.
(ee) NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the Shares
pursuant to this Agreement to be integrated with prior offerings by the Company
for purposes of the Securities Act which would prevent the Company from selling
the Shares 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 Shares to be integrated with other offerings. The Company does
not have any registration statement pending before the Commission or currently
under the Commission's review and since July 1, 2006, the Company has not
offered or sold any of its equity securities or debt securities convertible into
shares of Common Stock.
(ff) INDEPENDENT NATURE OF PURCHASERS. The Company acknowledges
that the obligations of each Purchaser under the Transaction Documents are
several and not joint with the obligations of any other Purchaser, and no
Purchaser shall be responsible in any way for the performance of the obligations
of any other Purchaser under the Transaction Documents. The Company acknowledges
that the decision of each Purchaser to purchase securities pursuant to this
Agreement has been made by such Purchaser independently of any other purchase
and independently of any information, materials, statements or opinions as to
the business, affairs, operations, assets, properties, liabilities, results of
operations, condition (financial or otherwise) or prospects of the Company or of
its Subsidiaries which may have made or given by any other Purchaser or by any
agent or employee of any other Purchaser, and no Purchaser or any of its agents
or employees shall have any liability to any Purchaser (or any other person)
relating to or arising from any such information, materials, statements or
opinions. The Company acknowledges that nothing contained herein, or in any
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Transaction Document, and no action taken by any Purchaser pursuant hereto or
thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. The Company acknowledges that each Purchaser shall be
entitled to independently protect and enforce its rights, including without
limitation, the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose. The Company
acknowledges that for reasons of administrative convenience only, the
Transaction Documents have been prepared by counsel for one of the Purchasers
and such counsel does not represent all of the Purchasers but only such
Purchaser and the other Purchasers have retained their own individual counsel
with respect to the transactions contemplated hereby. The Company acknowledges
that it has elected to provide all Purchasers with the same terms and
Transaction Documents for the convenience of the Company and not because it was
required or requested to do so by the Purchasers.
(gg) TRANSFER AGENT. The name, address, telephone number, fax
number, contact person and email address of the Company's current transfer agent
is set forth on SCHEDULE 2.1(GG) hereto.
SECTION 2.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each
Purchaser hereby makes the following representations and warranties to the
Company with respect solely to itself and not with respect to any other
Purchaser:
(a) ORGANIZATION AND STANDING OF THE PURCHASERS. If the Purchaser
is an entity, such Purchaser is a corporation, partnership or limited liability
company duly incorporated or organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization.
(b) AUTHORIZATION AND POWER. Each Purchaser has the requisite
power and authority to enter into and perform this Agreement and to purchase the
Preferred Shares and Warrants being sold to it hereunder. The execution,
delivery and performance of this Agreement and the Registration Rights Agreement
by such Purchaser and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate or
partnership action, and no further consent or authorization of such Purchaser or
its Board of Directors, stockholders or partners, as the case may be, is
required. Each of this Agreement and the Registration Rights Agreement has been
duly authorized, executed and delivered by such Purchaser and constitutes, or
shall constitute when executed and delivered, a valid and binding obligation of
the Purchaser enforceable against the Purchaser in accordance with the terms
thereof, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation, conservatorship,
receivership or similar laws relating to, or affecting generally the enforcement
of, creditor's rights and remedies or by other equitable principles of general
application.
(c) NO CONFLICTS. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement and the consummation by such
Purchaser of the transactions contemplated hereby and thereby or relating hereto
do not and will not (i) result in a violation of such Purchaser's charter
documents or bylaws or other organizational documents or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of any agreement, indenture or
instrument or obligation to which such Purchaser is a party or by which its
properties or assets are bound, or result in a violation of any law, rule, or
regulation, or any order, judgment or decree of any court or governmental agency
applicable to such Purchaser or its properties (except for such conflicts,
defaults and violations as would not, individually or in the aggregate, have a
11
material adverse effect on such Purchaser). Such Purchaser is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or the
Registration Rights Agreement or to purchase the Preferred Shares or acquire the
Warrants in accordance with the terms hereof, provided that for purposes of the
representation made in this sentence, such Purchaser is assuming and relying
upon the accuracy of the relevant representations and agreements of the Company
herein.
(d) ACQUISITION FOR INVESTMENT. Each Purchaser is acquiring the
Preferred Shares and the Warrants solely for its own account for the purpose of
investment and not with a view to or for sale in connection with distribution.
Each Purchaser does not have a present intention to sell the Preferred Shares or
the Warrants, nor a present arrangement (whether or not legally binding) or
intention to effect any distribution of the Preferred Shares or the Warrants to
or through any person or entity; PROVIDED, HOWEVER, that by making the
representations herein and subject to SECTION 2.2(H) below, such Purchaser does
not agree to hold the Shares or the Warrants for any minimum or other specific
term and reserves the right to dispose of the Shares or the Warrants at any time
in accordance with Federal and state securities laws applicable to such
disposition. Each Purchaser acknowledges that it is able to bear the financial
risks associated with an investment in the Preferred Shares and the Warrants and
that it has been given full access to such records of the Company and the
Subsidiaries and to the officers of the Company and the Subsidiaries and
received such information as it has deemed necessary or appropriate to conduct
its due diligence investigation and has sufficient knowledge and experience in
investing in companies similar to the Company in terms of the Company's stage of
development so as to be able to evaluate the risks and merits of its investment
in the Company.
(e) STATUS OF PURCHASERS. Each Purchaser is an "accredited
investor" as defined in Regulation D promulgated under the Securities Act. Such
Purchaser is not required to be registered as a broker-dealer under Section 15
of the Exchange Act and such Purchaser is not a broker-dealer.
(f) OPPORTUNITIES FOR ADDITIONAL INFORMATION. Each Purchaser
acknowledges that such Purchaser has had the opportunity to ask questions of and
receive answers from, or obtain additional information from, the executive
officers of the Company concerning the financial and other affairs of the
Company, and to the extent deemed necessary in light of such Purchaser's
personal knowledge of the Company's affairs, such Purchaser has asked such
questions and received answers to the full satisfaction of such Purchaser, and
such Purchaser desires to invest in the Company.
(g) NO GENERAL SOLICITATION. Each Purchaser acknowledges that the
Preferred Shares and the Warrants were not offered to such Purchaser by means of
any form of general or public solicitation or general advertising, or publicly
disseminated advertisements or sales literature, including (i) any
advertisement, article, notice or other communication published in any
newspaper, magazine, or similar media, or broadcast over television or radio, or
(ii) any seminar or meeting to which such Purchaser was invited by any of the
foregoing means of communications.
(h) RULE 144. Such Purchaser understands that the Shares must be
held indefinitely unless such Shares are registered under the Securities Act or
an exemption from registration is available. Such Purchaser acknowledges that
such Purchaser is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act ("RULE 144"),
and that such Purchaser has been advised that Rule 144 permits resales only
under certain circumstances. Such Purchaser understands that to the extent that
Rule 144 is not available, such Purchaser will be unable to sell any Shares
without either registration under the Securities Act or the existence of another
exemption from such registration requirement.
12
(i) GENERAL. Such Purchaser understands that the Shares are being
offered and sold in reliance on a transactional exemption from the registration
requirement of Federal and state securities laws and the Company is relying upon
the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of such Purchaser set forth herein in order
to determine the applicability of such exemptions and the suitability of such
Purchaser to acquire the Shares.
(j) INDEPENDENT INVESTMENT. Except as may be disclosed in any
filings with the Commission by the Purchasers under Section 13 and/or Section 16
of the Exchange Act, no Purchaser has agreed to act with any other Purchaser for
the purpose of acquiring, holding, voting or disposing of the Shares purchased
hereunder for purposes of Section 13(d) under the Exchange Act, and each
Purchaser is acting independently with respect to its investment in the Shares.
ARTICLE III
COVENANTS
The Company covenants with each of the Purchasers as follows, which
covenants are for the benefit of each Purchaser and its permitted assignees (as
defined herein):
SECTION 3.1 SECURITIES COMPLIANCE. The Company shall notify the
Commission in accordance with their rules and regulations, of the transactions
contemplated by any of the Transaction Documents, including filing a Form D with
respect to the Preferred Shares, Warrants, Conversion Shares and the Warrant
Shares as required under Regulation D and applicable "blue sky" laws, 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
Preferred Shares, the Warrants, the Conversion Shares and the Warrant Shares to
the Purchasers or subsequent holders.
SECTION 3.2 REGISTRATION AND LISTING. The Company shall (a) comply
in all respects with its reporting and filing obligations under the Exchange
Act, (b) comply with all requirements related to any registration statement
filed pursuant to this Agreement and the Registration Rights Agreement, and (c)
not take any action or file any document (whether or not permitted by the
Securities Act or the rules promulgated thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under the Exchange Act or Securities Act, except as permitted herein. The
Company will take all action necessary to continue the listing or trading of its
Common Stock on the OTC Bulletin Board or other exchange or market on which the
Common Stock is trading or may be traded in the future. Subject to the terms of
the Transaction Documents, the Company further covenants that it will take such
further action as the Purchasers may reasonably request, all to the extent
required from time to time to enable the Purchasers to sell the Shares without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144 promulgated under the Securities Act. Upon the request of
the Purchasers, the Company shall deliver to the Purchasers a written
certification of a duly authorized officer as to whether it has complied with
such requirements.
SECTION 3.3 INSPECTION RIGHTS. The Company shall permit, during
normal business hours and upon reasonable request and reasonable notice, each
Purchaser or any employees, agents or representatives thereof, so long as such
Purchaser shall be obligated hereunder to purchase the Preferred Shares or shall
beneficially own any Preferred Shares, or shall own Conversion Shares which, in
the aggregate, represent more than two percent (2%) of the total combined voting
power of all voting securities then outstanding, for purposes reasonably related
to such Purchaser's interests as a stockholder, to examine and make reasonable
copies of and extracts from the records and books of account of, and visit and
inspect the properties, assets, operations and business of the Company and any
Subsidiary, and to discuss the affairs, finances and accounts of the Company and
any Subsidiary with any of its officers, consultants, directors, and key
employees.
13
SECTION 3.4 COMPLIANCE WITH LAWS. The Company shall comply, and
cause each Subsidiary, whether such Subsidiary is in existence as of the date of
this agreement or formed or acquired subsequent to the date of this agreement,
to comply, with all applicable laws, rules, regulations and orders,
noncompliance with which could have a Material Adverse Effect.
SECTION 3.5 KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company
shall keep and cause each Subsidiary to keep adequate records and books of
account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions of the Company and
its Subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
SECTION 3.6 REPORTING REQUIREMENTS. If the Commission ceases making
periodic reports filed under the Exchange Act available via the Internet, then
at a Purchaser's request the Company shall furnish the following to such
Purchaser so long as such Purchaser shall be obligated hereunder to purchase the
Preferred Shares or shall beneficially own any Shares:
(a) quarterly Reports filed with the Commission on Form 10-QSB as
soon as practical after the document is filed with the Commission, and in any
event within five (5) days after the document is filed with the Commission;
(b) annual Reports filed with the Commission on Form 10-KSB as
soon as practical after the document is filed with the Commission, and in any
event within five (5) days after the document is filed with the Commission; and
(c) copies of all notices and information, including without
limitation notices and proxy statements in connection with any meetings, that
are provided to holders of shares of Common Stock, contemporaneously with the
delivery of such notices or information to such holders of Common Stock.
SECTION 3.7 AMENDMENTS. The Company shall not amend or waive any
provision of the Certificate or Bylaws of the Company in any way that would
adversely affect the liquidation preferences, dividends rights, conversion
rights, voting rights or redemption rights of the Preferred Shares; PROVIDED,
however, that any creation and issuance, in accordance with the Certificate of
Designation, of another series of Junior Stock (as defined in the Certificate of
Designation) or any other class or series of equity securities which by its
terms shall rank on parity with the Preferred Shares shall not be deemed to
materially and adversely affect such rights, preferences or privileges. No
consideration shall be offered or paid to any holders of Preferred Shares or
holders of the Warrants to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration also
is offered to all of the parties to the Transaction Documents, holders of
Preferred Shares or holders of the Warrants, as the case may be. The Company has
not, directly or indirectly, made any agreements with any Purchasers relating to
the terms or conditions of the transactions contemplated by the Transaction
Documents except as set forth in the Transaction Documents. Without limiting the
foregoing, the Company confirms that, except as set forth in this Agreement, no
Purchaser has made any commitment or promise or has any other obligation to
provide any financing to the Company or otherwise.
SECTION 3.8 OTHER AGREEMENTS. The Company shall not enter into any
agreement in which the terms of such agreement would restrict or impair the
right or ability to perform of the Company or any Subsidiary under any
Transaction Document.
14
SECTION 3.9 DISTRIBUTIONS. So long as any Preferred Shares remain
outstanding, the Company agrees that it shall not (i) declare or pay any
dividends or make any distributions to any holder(s) of Common Stock or (ii)
purchase or otherwise acquire for value, directly or indirectly, any Common
Stock or other equity security of the Company.
SECTION 3.10 STATUS OF DIVIDENDS. The Company covenants and agrees
that (i) no Federal income tax return or claim for refund of Federal income tax
or other submission to the Internal Revenue Service (the "SERVICE") will
adversely affect the Preferred Shares, any other series of its preferred stock,
or the Common Stock, and no deduction shall operate to jeopardize the
availability to Purchasers of the dividends received deduction provided by
Section 243(a)(1) of the Code or any successor provision, (ii) in no report to
shareholders or to any governmental body having jurisdiction over the Company or
otherwise will it treat the Preferred Shares other than as equity capital or the
dividends paid thereon other than as dividends paid on equity capital unless
required to do so by a governmental body having jurisdiction over the accounts
of the Company or by a change in generally accepted accounting principles
required as a result of action by an authoritative accounting standards setting
body, and (iii) it will take no action which would result in the dividends paid
by the Company on the Preferred Shares out of the Company's current or
accumulated earnings and profits being ineligible for the dividends received
deduction provided by Section 243(a)(1) of the Code. In the event that the
Purchasers have reasonable cause to believe that dividends paid by the Company
on the Preferred Shares out of the Company's current or accumulated earnings and
profits will not be treated as eligible for the dividends received deduction
provided by Section 243(a)(1) of the Code, or any successor provision, the
Company will, at the reasonable request of the Purchasers of 51% of the
outstanding Preferred Shares, join with the Purchasers in the submission to the
Service of a request for a ruling that dividends paid on the Shares will be so
eligible for Federal income tax purposes, at the Purchasers expense. In
addition, the Company will reasonably cooperate with the Purchasers (at
Purchasers' expense) in any litigation, appeal or other proceeding challenging
or contesting any ruling, technical advice, finding or determination that
earnings and profits are not eligible for the dividends received deduction
provided by Section 243(a)(1) of the Code, or any successor provision to the
extent that the position to be taken in any such litigation, appeal, or other
proceeding is not contrary to any provision of the Code. Notwithstanding the
foregoing, nothing herein contained shall be deemed to preclude the Company from
claiming a deduction with respect to such dividends if (i) the Code shall
hereafter be amended, or final Treasury regulations thereunder are issued or
modified, to provide that dividends on the Preferred Shares or Conversion Shares
should not be treated as dividends for Federal income tax purposes or that a
deduction with respect to all or a portion of the dividends on the Shares is
allowable for Federal income tax purposes, or (ii) in the absence of such an
amendment, issuance or modification and after a submission of a request for
ruling or technical advice, the Service shall issue a published ruling or advise
that dividends on the Shares should not be treated as dividends for Federal
income tax purposes. If the Service specifically determines that the Preferred
Shares or Conversion Shares constitute debt, the Company may file protective
claims for refund.
SECTION 3.11 USE OF PROCEEDS. The net proceeds from the sale of the
Shares hereunder shall be used by the Company for working capital, with an
emphasis on an infusion into a painting facility to be acquired in an all-equity
transaction independent of the transactions contemplated in this Agreement. The
proceeds shall also be used for new product development, new product inventory,
new tooling, other capital assets, partial payment on the principal of a loan
linked to a credit line and general corporate purposes and not to redeem any
Common Stock or securities convertible, exercisable or exchangeable into Common
Stock, to settle any outstanding litigation or to cause any increase in
management's compensation, direct or otherwise, in a manner other than in the
ordinary course of business. An estimated allocation of the net proceeds from
the sale of the Shares hereunder is set forth on SCHEDULE 3.11 hereto.
15
SECTION 3.12 RESERVATION OF SHARES. So long as any of the Preferred
Shares or Warrants remain outstanding, the Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than one hundred fifty percent (150%) of the aggregate number
of shares of Common Stock needed to provide for the issuance of the Conversion
Shares and the Warrant Shares.
SECTION 3.13 TRANSFER AGENT INSTRUCTIONS. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates, registered in the name of each Purchaser or its
respective nominee(s), for the Conversion Shares and the Warrant Shares in such
amounts as specified from time to time by each Purchaser to the Company upon
conversion of the Preferred Shares or exercise of the Warrants in the form of
EXHIBIT G attached hereto (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). Prior
to registration of the Conversion Shares and the Warrant Shares under the
Securities Act, all such certificates shall bear the restrictive legend
specified in SECTION 5.1 of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this SECTION 3.13 will be given by the Company to its transfer agent and that
the Shares shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement and the Registration
Rights Agreement. If a Purchaser provides the Company with an opinion of
counsel, in a generally acceptable form, to the effect that a public sale,
assignment or transfer of the Shares may be made without registration under the
Securities Act or the Purchaser provides the Company with reasonable assurances
that such Shares can be sold pursuant to Rule 144 without any restriction as to
the number of securities acquired as of a particular date that can then be
immediately sold, the Company shall permit the transfer, and, in the case of the
Conversion Shares and the Warrant Shares, promptly instruct its transfer agent
to issue one or more certificates in such name and in such denominations as
specified by such Purchaser and without any restrictive legend. The Company
acknowledges that a breach by it of its obligations under this SECTION 3.13 will
cause irreparable harm to the Purchasers by vitiating the intent and purpose of
the transaction contemplated hereby. Accordingly, the Company acknowledges that
the remedy at law for a breach of its obligations under this SECTION 3.13 will
be inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this SECTION 3.13, that the Purchasers shall be
entitled, in addition to all other available remedies, to an order and/or
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required.
SECTION 3.14 DISPOSITION OF ASSETS. So long as any Preferred Shares
remain outstanding, neither the Company nor any Subsidiary shall sell, transfer
or otherwise dispose of any of its properties, assets and rights including,
without limitation, its software and intellectual property, to any person except
for sales to customers in the ordinary course of business or with the prior
written consent of the holders of a majority of the Preferred Shares then
outstanding.
SECTION 3.15 REPORTING STATUS. So long as a Purchaser beneficially
owns any of the Shares, the Company shall timely file all reports required to be
filed with the Commission pursuant to the Exchange Act, and the Company shall
not cease filing reports under the Exchange Act even if the Exchange Act or the
rules and regulations thereunder would permit such termination.
SECTION 3.16 DISCLOSURE OF TRANSACTION. The Company shall issue a
press release describing the material terms of the transactions contemplated
hereby (the "PRESS RELEASE") as soon as practicable after the Closing but in no
event later than 9:00 A.M. Eastern Time on the first Trading Day following the
Closing. The Company shall also file with the Commission a Current Report on
Form 8-K (the "FORM 8-K") describing the material terms of the transactions
contemplated hereby (and attaching as exhibits thereto this Agreement, the
Registration Rights Agreement, the Certificate of Designation, the Lock-Up
Agreement, the Escrow Agreement, the form of each series of Warrant and the
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Press Release) as soon as practicable following the Closing Date but in no event
more than four (4) Trading Days following the Closing Date, which Press Release
and Form 8-K shall be subject to prior review and comment by counsel for the
Purchasers. "TRADING DAY" means any day during which the OTC Bulletin Board (or
other quotation venue or principal exchange on which the Common Stock is traded)
shall be open for trading.
SECTION 3.17 DISCLOSURE OF MATERIAL INFORMATION. The Company
represents, covenants and agrees that neither it nor any other person acting on
its behalf has provided or will provide any Purchaser or its agents or counsel
with any information that the Company believes constitutes material non-public
information (other than with respect to the transactions contemplated by this
Agreement), unless prior thereto such Purchaser shall have executed a written
agreement regarding the confidentiality and use of such information. The Company
understands and confirms that each Purchaser shall be relying on the foregoing
representations in effecting transactions in securities of the Company.
SECTION 3.18 PLEDGE OF SECURITIES. The Company acknowledges and
agrees that the Shares may be pledged by a Purchaser in connection with a BONA
FIDE margin agreement or other loan or financing arrangement that is secured by
the Common Stock. The pledge of Common Stock shall not be deemed to be a
transfer, sale or assignment of the Common Stock hereunder, and no Purchaser
effecting a pledge of Common Stock shall be required to provide the Company with
any notice thereof or otherwise make any delivery to the Company pursuant to
this Agreement or any other Transaction Document; PROVIDED that a Purchaser and
its pledgee shall be required to comply with the provisions of ARTICLE V hereof
in order to effect a sale, transfer or assignment of Common Stock to such
pledgee. At the Purchasers' expense, the Company hereby agrees to execute and
deliver such documentation as a pledgee of the Common Stock may reasonably
request in connection with a pledge of the Common Stock to such pledgee by a
Purchaser.
SECTION 3.19 FORM SB-2 ELIGIBILITY. The Company currently meets the
"registrant eligibility" and transaction requirements set forth in the general
instructions to Form SB-2 applicable to "resale" registrations on Form SB-2 and
the Company shall file all reports required to be filed by the Company with the
Commission in a timely manner.
SECTION 3.20 LOCK-UP AGREEMENT. The persons listed on SCHEDULE 3.20
attached hereto shall be subject to the terms and provisions of a lock-up
agreement in substantially the form as EXHIBIT E hereto (the "LOCK-UP
AGREEMENT"), which shall provide the manner in which such persons will sell,
transfer or dispose of their shares of Common Stock.
SECTION 3.21 DTC. Not later than the effective date of the
Registration Statement (as defined in the Registration Rights Agreement), the
Company shall cause its Common Stock to be eligible for transfer with its
transfer agent pursuant to the Depository Trust Company Automated Securities
Transfer Program.
SECTION 3.22 SUBSEQUENT FINANCINGS.
(a) For a period of three (3) years following the effective date
of the Registration Statement (as defined in the Registration Rights Agreement),
the Company covenants and agrees to promptly notify (in no event later than five
(5) days after making or receiving an applicable offer) in writing (a "RIGHTS
Notice") each holder of Preferred Shares (each, a "PREFERRED STOCKHOLDER" and
collectively the "PREFERRED STOCKHOLDERS") of the terms and conditions of any
proposed offer or sale to, or exchange with (or other type of distribution to)
any third party (a "SUBSEQUENT FINANCING"), of Common Stock or any debt or
equity securities convertible, exercisable or exchangeable into Common Stock;
PROVIDED, HOWEVER, prior to delivering to each Preferred Stockholder a Rights
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Notice, the Company shall first deliver to each Preferred Stockholder a written
notice of its intention to effect a Subsequent Financing ("PRE-NOTICE") within
three (3) Trading Days of receiving an applicable offer, which Pre-Notice shall
ask such Preferred Stockholder if it wants to review the details of such
financing. Upon the request of a Preferred Stockholder, and only upon a request
by such Preferred Stockholder within three (3) Trading Days of receipt of a
Pre-Notice, the Company shall promptly, but no later than two (2) Trading Days
after such request, deliver a Rights Notice to such Preferred Stockholder. The
Rights Notice shall describe, in reasonable detail, the proposed Subsequent
Financing, the names and investment amounts of all investors participating in
the Subsequent Financing (if known), the proposed closing date of the Subsequent
Financing, which shall be no earlier than ten (10) Trading Days from the date of
the Rights Notice, and all of the terms and conditions thereof and proposed
definitive documentation to be entered into in connection therewith. The Rights
Notice shall provide each Preferred Stockholder an option (the "RIGHTS OPTION")
during the ten (10) Trading Days following delivery of the Rights Notice (the
"OPTION PERIOD") to inform the Company whether such Preferred Stockholder will
purchase up to its PRO RATA portion of all or a portion of the securities being
offered in such Subsequent Financing on the same, absolute terms and conditions
as contemplated by such Subsequent Financing. If any Preferred Stockholder
elects not to participate in any such Subsequent Financing, the other Preferred
Stockholders may therein participate on a PRO RATA basis. For purposes of this
Section, all references to "PRO RATA" means, for any Preferred Stockholder
electing to participate in such Subsequent Financing, the percentage obtained by
dividing (x) the number of Preferred Shares held by such Preferred Stockholder
at the Closing by (y) the total number of all of the Preferred Shares
outstanding. Delivery of any Rights Notice constitutes a representation and
warranty by the Company that there are no other material terms and conditions,
arrangements, agreements or otherwise except for those disclosed in the Rights
Notice, to provide additional compensation to any party participating in any
proposed Subsequent Financing, including, but not limited to, additional
compensation based on changes in the Purchase Price or any type of reset or
adjustment of a purchase or conversion price or to issue additional securities
at any time after the closing date of a Subsequent Financing. If the Company
does not receive notice of exercise of the Rights Option from the Preferred
Stockholder within the Option Period, the Company shall have the right to close
the Subsequent Financing on the scheduled closing date with a third party;
PROVIDED that all of the material terms and conditions of the closing are the
same as those provided to the Preferred Stockholder in the Rights Notice. If the
closing of the proposed Subsequent Financing does not occur that date, any
closing of the contemplated Subsequent Financing or any other Subsequent
Financing shall be subject to all of the provisions of this SECTION 3.22(A),
including, without limitation, the delivery of a new Rights Notice. The
provisions of this SECTION 3.22(A) shall not apply to issuances of securities in
a Permitted Financing.
(b) For purposes of this Agreement, a Permitted Financing (as
defined hereinafter) shall not be considered a Subsequent Financing. A
"PERMITTED FINANCING" shall mean (i) securities issued (other than for cash) in
connection with a merger, acquisition, or consolidation that do no exceed 10% of
the outstanding Common Stock of the Company as of the date hereof (such
percentage subject to adjustment consistent with the terms of SECTION 5 of the
Certificate of Designation), (ii) securities issued pursuant to the conversion
or exercise of convertible or exercisable securities issued or outstanding on or
prior to the date of this Agreement or issued pursuant to this Agreement (so
long as the conversion or exercise price in such securities are not amended to
lower such price and/or adversely affect the Purchasers), (iii) Common Stock
issued or the issuance or grants of options to purchase Common Stock pursuant to
the Company's stock option plans and employee stock purchase plans that either
(x) exist on the date hereof, or (y) do not exceed ten percent (10%) of the
outstanding Common Stock of the Company as of the date hereof (such percentage
subject to adjustment consistent with the terms of SECTION 5 of the Certificate
of Designation), and (v) any warrants issued to the placement agent and its
designees for the transactions contemplated by this Agreement.
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(c) Nothing herein shall prohibit the Company from establishing an
employee stock option, restricted stock or other form of equity incentive plan
for employees, officers or directors of the Company, and any awards made under
such plan or exercises of such awards by the recipients thereof shall be deemed
to be a Permitted Financing.
SECTION 3.23 APPROVAL OF ACQUISITIONS. So long as any shares of the
Series A Preferred Stock remain outstanding, the Company shall not effect, or
agree to effect, an acquisition or buy out of or with any entity (including
without limitation the acquisition of a substantial portion of the outstanding
securities or assets of another entity other than in the ordinary course of
business), or a consolidation or merger of the Company with or into any other
corporation or corporations (or other entity or entities), or a sale of all or
substantially all of the assets of the Company, or the effectuation by the
Company of a transaction or series of related transactions in which more than
50% of the voting shares of the Company is disposed of or conveyed, without the
affirmative vote or consent of the holders of at least seventy-five percent
(75%) of the Preferred Shares outstanding at the time.
SECTION 3.24 ▇▇▇▇▇▇▇▇-▇▇▇▇▇ ACT. The Company shall use its best
efforts to be in compliance with the applicable provisions of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇
Act of 2002, and the rules and regulations promulgated thereunder, as required
under such Act.
ARTICLE IV
CONDITIONS
SECTION 4.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO
SELL THE SHARES. The obligation hereunder of the Company to issue and sell the
Preferred Shares and the Warrants to the Purchasers is subject to the
satisfaction or waiver, at or before the Closing, of each of the conditions set
forth below. These conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion.
(a) ACCURACY OF EACH PURCHASER'S REPRESENTATIONS AND WARRANTIES.
The representations and warranties of each Purchaser shall be true and correct
in all material respects as of the date when made and as of the Closing Date as
though made at that time, except for representations and warranties that are
expressly made as of a particular date, which shall be true and correct in all
material respects as of such date.
(b) PERFORMANCE BY THE PURCHASERS. Each Purchaser shall have
performed, satisfied and complied in all respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by such Purchaser at or prior to the Closing.
(c) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(d) DELIVERY OF PURCHASE PRICE. The Purchase Price for the
Preferred Shares and Warrants has been delivered to the escrow agent pursuant to
the Escrow Agreement.
(e) DELIVERY OF TRANSACTION DOCUMENTS. The Transaction Documents
have been duly executed and delivered by the Purchasers to the Company.
SECTION 4.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE PURCHASERS
TO PURCHASE THE Shares. The obligation hereunder of each Purchaser to acquire
and pay for the Preferred Shares and the Warrants is subject to the satisfaction
or waiver, at or before the Closing, of each of the conditions set forth below.
These conditions are for each Purchaser's sole benefit and may be waived by such
Purchaser at any time in its sole discretion.
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(a) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. Each
of the representations and warranties of the Company in this Agreement and the
Registration Rights Agreement shall be true and correct in all respects as of
the date when made and as of the Closing Date as though made at that time
(except for representations and warranties that are expressly made as of a
particular date), which shall be true and correct in all respects as of such
date.
(b) PERFORMANCE BY THE COMPANY. The Company shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing.
(c) NO SUSPENSION, ETC. Trading in the Company's Common Stock
shall not have been suspended by the Commission or the OTC Bulletin Board
(except for any suspension of trading of limited duration agreed to by the
Company, which suspension shall be terminated prior to the applicable Closing),
and, at any time prior to the Closing Date, trading in securities generally as
reported by Bloomberg Financial Markets ("Bloomberg") shall not have been
suspended or limited, or minimum prices shall not have been established on
securities whose trades are reported by Bloomberg, or on the New York Stock
Exchange, nor shall a banking moratorium have been declared either by the United
States or New York State authorities, nor shall there have occurred any material
outbreak or escalation of hostilities or other national or international
calamity or crisis of such magnitude in its effect on, or any material adverse
change in any financial market which, in each case, in the judgment of such
Purchaser, makes it impracticable or inadvisable to purchase the Preferred
Shares.
(d) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(e) NO PROCEEDINGS OR LITIGATION. No action, suit or proceeding
before any arbitrator or any governmental authority shall have been commenced,
and no investigation by any governmental authority shall have been threatened,
against the Company or any Subsidiary, or any of the officers, directors or
affiliates of the Company or any Subsidiary seeking to restrain, prevent or
change the transactions contemplated by this Agreement, or seeking damages in
connection with such transactions.
(f) CERTIFICATE OF DESIGNATION OF RIGHTS AND PREFERENCES. Prior to
the Closing, the Certificate of Designation in the form of EXHIBIT B attached
hereto shall have been filed with the Secretary of State of Delaware.
(g) OPINION OF COUNSEL, ETC. At the Closing, the Purchasers shall
have received an opinion of counsel to the Company, dated the date of the
Closing, in substantially the form of EXHIBIT H hereto, and such other
certificates and documents as the Purchasers or its counsel shall reasonably
require incident to the Closing.
(h) REGISTRATION RIGHTS AGREEMENT. At the Closing, the Company
shall have executed and delivered the Registration Rights Agreement to each
Purchaser.
(i) CERTIFICATES. The Company shall have executed and delivered to
the Purchasers the certificates (in such denominations as such Purchaser shall
request) for the Preferred Shares and the Warrants being acquired by such
Purchaser at the Closing (in such denominations as such Purchaser shall
request).
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(j) RESOLUTIONS. The Board of Directors of the Company shall have
adopted resolutions consistent with SECTION 2.1(B) hereof in a form reasonably
acceptable to such Purchaser (the "RESOLUTIONS").
(k) RESERVATION OF SHARES. So long as any of the Preferred Shares
or Warrants remain outstanding, the Company shall take all action necessary to
at all times have authorized, and reserved for the purpose of issuance, no less
than one hundred twenty percent (120%) of the aggregate number of shares of
Common Stock needed to provide for the issuance of the Conversion Shares and no
less than one hundred percent (100%) of the aggregate number of shares of Common
Stock needed to provide for the issuance of the Warrant Shares.
(l) TRANSFER AGENT INSTRUCTIONS. As of the Closing Date, the
Irrevocable Transfer Agent Instructions, in the form of EXHIBIT G attached
hereto, shall have been delivered to and acknowledged in writing by the
Company's transfer agent.
(m) LOCK-UP AGREEMENT. As of the Closing Date, the persons listed
on SCHEDULE 3.20 hereto shall have delivered to the Purchasers a fully executed
Lock-Up Agreement in the form of EXHIBIT E attached hereto.
(n) SECRETARY'S CERTIFICATE. The Company shall have delivered to
such Purchaser a secretary's certificate, dated as of the Closing Date, as to
(i) the Resolutions, (ii) the Certificate, (iii) the Bylaws, (iv) the
Certificate of Designation, each as in effect at the Closing, and (iv) the
authority and incumbency of the officers of the Company executing the
Transaction Documents and any other documents required to be executed or
delivered in connection therewith.
(o) OFFICER'S CERTIFICATE. The Company shall have delivered to the
Purchasers a certificate of an executive officer of the Company, dated as of the
Closing Date, confirming the accuracy of the Company's representations,
warranties and covenants as of the Closing Date and confirming the compliance by
the Company with the conditions precedent set forth in this SECTION 4.2 as of
the Closing Date.
(p) ESCROW AGREEMENT. At the Closing, the Escrow Agreement shall
have been executed by, and delivered in the form of EXHIBIT F attached hereto,
the parties thereto.
(q) MATERIAL ADVERSE EFFECT. No Material Adverse Effect shall have
occurred at or before the Closing Date.
ARTICLE V
STOCK CERTIFICATE LEGEND
SECTION 5.1 LEGEND. Each certificate representing the Preferred
Shares and the Warrants, and, if appropriate, securities issued upon conversion
or exercise thereof (or securities issued in connection with SECTION 1.4, shall
be stamped or otherwise imprinted with a legend substantially in the following
form (in addition to any legend required by applicable state securities or "blue
sky" laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE
SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR MARKETING
WORLDWIDE CORPORATION SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
21
The Company agrees to reissue certificates representing any of the
Conversion Shares and the Warrant Shares, without the legend set forth above if
at such time, prior to making any transfer of any such securities, such holder
thereof shall give written notice to the Company describing the manner and terms
of such transfer and removal as the Company may reasonably request. Such
proposed transfer and removal will not be effected until: (a) either (i) the
Company has received an opinion of counsel reasonably satisfactory to the
Company, to the effect that the registration of the Conversion Shares or the
Warrant Shares under the Securities Act is not required in connection with such
proposed transfer, (ii) a registration statement under the Securities Act
covering such proposed disposition has been filed by the Company with the
Commission and has become effective under the Securities Act, (iii) the Company
has received other evidence reasonably satisfactory to the Company that such
registration and qualification under the Securities Act and state securities
laws are not required, or (iv) the holder provides the Company with reasonable
assurances that such security can be sold pursuant to Rule 144 under the
Securities Act; and (b) either (i) the Company has received an opinion of
counsel reasonably satisfactory to the Company, to the effect that registration
or qualification under the securities or "blue sky" laws of any state is not
required in connection with such proposed disposition, or (ii) compliance with
applicable state securities or "blue sky" laws has been effected or a valid
exemption exists with respect thereto. The Company will respond to any such
notice from a holder within five (5) business days. In the case of any proposed
transfer under this SECTION 5.1, the Company will use reasonable efforts to
comply with any such applicable state securities or "blue sky" laws, but shall
in no event be required, (x) to qualify to do business in any state where it is
not then qualified, (y) to take any action that would subject it to tax or to
the general service of process in any state where it is not then subject, or (z)
to comply with state securities or "blue sky" laws of any state for which
registration by coordination is unavailable to the Company. The restrictions on
transfer contained in this SECTION 5.1 shall be in addition to, and not by way
of limitation of, any other restrictions on transfer contained in any other
section of this Agreement. Whenever a certificate representing the Conversion
Shares or Warrant Shares is required to be issued to a Purchaser without a
legend, in lieu of delivering physical certificates representing the Conversion
Shares or Warrant Shares (provided that a registration statement under the
Securities Act providing for the resale of the Warrant Shares and Conversion
Shares is then in effect), the Company shall cause its transfer agent to
electronically transmit the Conversion Shares or Warrant Shares to a Purchaser
by crediting the account of such Purchaser or such Purchaser's Prime Broker with
the Depository Trust Company ("DTC") through its Deposit Withdrawal Agent
Commission ("DWAC") system (to the extent not inconsistent with any provisions
of this Agreement).
ARTICLE VI
INDEMNIFICATION
SECTION 6.1 GENERAL INDEMNITY. The Company agrees to indemnify and
hold harmless the Purchasers (and their respective directors, officers,
managers, partners, members, shareholders, affiliates, agents, successors and
assigns) from and against any and all losses, liabilities, deficiencies, costs,
damages and expenses (including, without limitation, reasonable attorneys' fees,
charges and disbursements) incurred by the Purchasers as a result of any
inaccuracy in or breach of the representations, warranties or covenants made by
the Company herein.
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SECTION 6.2 INDEMNIFICATION PROCEDURE. Any party entitled to
indemnification under this ARTICLE VI (an "INDEMNIFIED PARTY") will give written
notice to the indemnifying party of any matters giving rise to a claim for
indemnification; PROVIDED that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this ARTICLE VI except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist with respect of such action, proceeding or
claim, to assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this ARTICLE VI to the
contrary, the indemnifying party shall not, without the indemnified party's
prior written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof which imposes any future obligation on the
indemnified party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the indemnified party of a
release from all liability in respect of such claim. The indemnification
required by this ARTICLE VI shall be made by periodic payments of the amount
thereof during the course of investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred, so long as the
indemnified party irrevocably agrees to refund such moneys if it is ultimately
determined by a court of competent jurisdiction that such party was not entitled
to indemnification. The indemnity agreements contained herein shall be in
addition to (a) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1 FEES AND EXPENSES. Except as otherwise set forth in this
Agreement and the other Transaction Documents, each party shall pay the fees and
expenses of its advisors, counsel, accountants and other experts, if any, and
all other expenses, incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement.
Notwithstanding the foregoing sentence, the Company shall pay all reasonable
attorneys' fees and expenses (including disbursements and out-of-pocket
expenses) incurred by the Purchasers in connection with (i) the preparation,
negotiation, execution and delivery of this Agreement and the other Transaction
Documents and the transactions contemplated thereunder, which payment shall be
made at the Closing, (ii) the filing and declaration of effectiveness by the
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Commission of the Registration Statement and (iii) any amendments, modifications
or waivers of this Agreement or any of the other Transaction Documents. The
Company shall pay all reasonable fees and expenses incurred by the Purchasers in
connection with the enforcement of this Agreement or any of the other
Transaction Documents, including, without limitation, all reasonable attorneys'
fees and expenses but only if the Purchasers are successful in any litigation or
arbitration relating to such enforcement.
SECTION 7.2 SPECIFIC ENFORCEMENT, CONSENT TO JURISDICTION.
(a) The Company and the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement or the other Transaction Documents were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of this Agreement or the Registration Rights
Agreement and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.
(b) Each of the Company and the Purchasers (i) hereby irrevocably
submits to the jurisdiction of the United States District Court sitting in the
Southern District of New York and the courts of the State of New York located in
New York county for the purposes of any suit, action or proceeding arising out
of or relating to this Agreement or any of the other Transaction Documents or
the transactions contemplated hereby or thereby and (ii) hereby waives, and
agrees not to assert in any such suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. Each of the Company and the
Purchasers consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing in this
SECTION 7.2 shall affect or limit any right to serve process in any other manner
permitted by law.
SECTION 7.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the
Transaction Documents contains the entire understanding and agreement of the
parties with respect to the matters covered hereby and, except as specifically
set forth herein or in the Transaction Documents, neither the Company nor any of
the Purchasers makes any representations, warranty, covenant or undertaking with
respect to such matters and they supersede all prior understandings and
agreements with respect to said subject matter, all of which are merged herein.
No provision of this Agreement may be waived or amended other than by a written
instrument signed by the Company and the holders of at least seventy-five
percent (75%) of the Preferred Shares then outstanding, and no provision hereof
may be waived other than by an a written instrument signed by the party against
whom enforcement of any such amendment or waiver is sought. No such amendment
shall be effective to the extent that it applies to less than all of the holders
of the Preferred Shares then outstanding. No consideration shall be offered or
paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents or holders of
Preferred Shares, as the case may be.
SECTION 7.4 NOTICES. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telex (with correct answer back
received), telecopy or facsimile at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
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by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be: If to the Company: Marketing Worldwide Corporation
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ Attention: ▇▇▇▇▇ ▇▇▇▇▇▇ Tel.
No.: (▇▇▇) ▇▇▇-▇▇▇▇ Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to: Weed & Co. LLP
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Tel. No.: (▇▇▇) ▇▇▇-▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
If to any Purchaser: At the address of such Purchaser set forth on
EXHIBIT A to this Agreement, with copies to
Purchaser's counsel (which copies shall not
constitute notice to such purchaser) as set
forth on EXHIBIT A or as specified in writing by
such Purchaser.
with copies to: Sadis & ▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
Tel No.: (▇▇▇) ▇▇▇-▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
Any party hereto may from time to time change its address for notices by
giving at least ten (10) days written notice of such changed address to the
other parties hereto.
SECTION 7.5 WAIVERS. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provisions, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
SECTION 7.6 HEADINGS. The article, section and subsection headings
in this Agreement are for convenience only and shall not constitute a part of
this Agreement for any other purpose and shall not be deemed to limit or affect
any of the provisions hereof.
SECTION 7.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
SECTION 7.8 NO THIRD PARTY BENEFICIARIES. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
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SECTION 7.9 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware, without
giving effect to any of the conflicts of law principles which would result in
the application of the substantive law of another jurisdiction. This Agreement
shall not be interpreted or construed with any presumption against the party
causing this Agreement to be drafted.
SECTION 7.10 SURVIVAL. The representations and warranties of the
Company and the Purchasers shall survive the execution and delivery hereof and
the Closing hereunder.
SECTION 7.11 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
Agreement, and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile or electronic mail transmission, such signature shall
create a valid binding obligation of the party executing (or on whose behalf
such signature is executed) the same with the same force and effect as if such
facsimile signature were the original thereof.
SECTION 7.12 PUBLICITY. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Purchasers
without the consent of the Purchasers unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement.
SECTION 7.13 SEVERABILITY. The provisions of this Agreement and the
Transaction Documents are severable and, in the event that any court of
competent jurisdiction shall determine that any one or more of the provisions or
part of the provisions contained in this Agreement or the Transaction Documents
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Agreement or the Transaction
Documents and such provision shall be reformed and construed as if such invalid
or illegal or unenforceable provision, or part of such provision, had never been
contained herein, so that such provisions would be valid, legal and enforceable
to the maximum extent possible.
SECTION 7.14 FURTHER ASSURANCES. From and after the date of this
Agreement, upon the request of any Purchaser or the Company, each of the Company
and the Purchasers shall execute and deliver such instrument, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement, the
Preferred Shares, the Conversion Shares, the Warrants, the Warrant Shares, the
Certificate of Designation and the Registration Rights Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officer as of the date first above
written.
MARKETING WORLDWIDE CORPORATION
By: /s/ ▇▇▇▇▇▇▇ Winzkowski
----------------------
Name: ▇▇▇▇▇▇▇ Winzkowski
Title: Chief Executive Officer
PURCHASER
Vision Opportunity Master Fund, Ltd.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Portfolio Manager
27