Exhibit 4.6
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
Dated as of September 5, 2007
among
▇▇▇▇▇▇▇▇▇▇.▇▇▇
and
THE PURCHASERS LISTED ON EXHIBIT A
TABLE OF CONTENTS
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PAGE
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ARTICLE I Purchase and Sale of Preferred Stock................................ 1
Section 1.1 Purchase and Sale of Stock.................................. 1
Section 1.2 Warrants.................................................... 1
Section 1.3 Conversion Shares........................................... 2
Section 1.4 Purchase Price and Closing.................................. 2
ARTICLE II Representations and Warranties..................................... 2
Section 2.1 Representations and Warranties of the Company............... 2
Section 2.2 Representations and Warranties of the Purchasers........... 12
ARTICLE III Covenants........................................................ 15
Section 3.1 Securities Compliance...................................... 15
Section 3.2 Registration and Listing................................... 15
Section 3.3 Inspection Rights.......................................... 16
Section 3.4 Compliance with Laws....................................... 16
Section 3.5 Keeping of Records and Books of Account.................... 16
Section 3.6 Reporting Requirements..................................... 16
Section 3.7 Amendments................................................. 17
Section 3.8 Other Agreements........................................... 17
Section 3.9 Distributions.............................................. 17
Section 3.10 Status of Dividends........................................ 17
Section 3.11 Use of Proceeds............................................ 18
Section 3.12 Reservation of Shares...................................... 18
Section 3.13 Transfer Agent Instructions................................ 18
Section 3.14 Disposition of Assets...................................... 19
Section 3.15 Disclosure of Transaction ................................. 19
Section 3.16 Disclosure of Material Information......................... 19
Section 3.17 Pledge of Securities....................................... 20
Section 3.18 Form SB-2 Eligibility...................................... 20
Section 3.19 Lock-Up Agreement.......................................... 20
Section 3.20 Investor Relations Firm.................................... 20
Section 3.21 Reverse Split of Outstanding Shares ....................... 20
Section 3.22 Authorization of Preferred Shares.......................... 21
Section 3.23 Increase in Authorized Shares.............................. 21
Section 3.24 Subsequent Financings ..................................... 21
ARTICLE IV Conditions ....................................................... 22
Section 4.1 Conditions Precedent to the Obligation of the
Company to Sell the Shares................................. 22
Section 4.2 Conditions Precedent to the Obligation of the
Purchasers to Purchase the Shares.......................... 23
ARTICLE V Stock Certificate Legend........................................... 25
Section 5.1 Legend..................................................... 25
ARTICLE VI Indemnification................................................... 26
Section 6.1 General Indemnity.......................................... 26
Section 6.2 Indemnification Procedure.................................. 26
ARTICLE VII Miscellaneous.................................................... 28
Section 7.1 Fees and Expenses.......................................... 28
Section 7.2 Specific Enforcement, Consent to Jurisdiction.............. 28
Section 7.3 Entire Agreement; Amendment................................ 29
Section 7.4 Notices.................................................... 29
Section 7.5 Waivers.................................................... 30
Section 7.6 Headings................................................... 30
Section 7.7 Successors and Assigns..................................... 30
Section 7.8 No Third Party Beneficiaries............................... 30
Section 7.9 Governing Law.............................................. 30
Section 7.10 Survival................................................... 30
Section 7.11 Counterparts............................................... 30
Section 7.12 Publicity.................................................. 31
Section 7.13 Severability............................................... 31
Section 7.14 Further Assurances......................................... 31
ii
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
This SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the
"Agreement") is dated as of September 5, 2007, by and among ▇▇▇▇▇▇▇▇▇▇.▇▇▇, a
Nevada 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 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, 6,668,230 shares of the Company's
Series A Convertible Preferred Stock, par value $0.01 per share (the "Preferred
Shares") for an aggregate purchase price of $13,000,000, convertible into shares
of the Company's common stock, par value $0.01 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 Warrants"), to purchase 6,668,230 shares of Common Stock, (ii) Series
B Warrants, in substantially the form attached hereto as Exhibit C-2 (the
"Series B Warrants"), to purchase 6,668,230 shares of Common Stock, (iii) Series
J Warrants, in substantially the form attached hereto as Exhibit C-3 (the
"Series J Warrants"), to purchase 5,975,116 shares of Common Stock, provided
that such Purchaser purchases Preferred Shares for a purchase price equal to or
greater than $5,000,000 pursuant to the terms of this Agreement, as set forth
opposite such Purchaser's name on Exhibit A hereto, and, provided further that,
the terms of exercise of the Series J Warrants (along with the Series C
Warrants) shall be at an amount twenty percent (20%) higher than the terms of
conversion of the Series A and Series B Warrants and (iv) Series C Warrants, in
substantially the form attached hereto as Exhibit C-4, shall be issued to such
Purchaser to purchase 5,975,116 shares of Common Stock (the "Series C
Warrants"), provided that, the Series C Warrants shall only be exercisable to
the extent the Series J Warrant has been exercised (the Series A Warrants, the
Series B Warrants, the Series J Warrants and the Series C Warrants shall
collectively be known herein as, the "Warrants"). The Warrants shall expire five
(5) years following the Closing Date, except for the Series J Warrants, which
shall expire fifteen (15) months following the Closing
Date. Each of the Warrants shall have an exercise price per share equal to the
Warrant Price (as defined in the applicable Warrant).
Section 1.3 Conversion Shares/Warrant 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 the number of shares of Common Stock that are
not currently issued or reserved for issuance; provided, however, upon the
Company filing the Charter Amendment (as defined in Section 3.23 hereof), the
Company shall authorize and reserve and 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 fifty percent (150%) 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 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".
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 not less than $13,000,000 (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 Lord Bissell & Brook 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).
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 the 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:
2
(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 Nevada 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 Schedule 2.1(a) hereof. 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, 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), the Certificate of Designation, and the Warrants (collectively, the
"Transaction Documents") and to issue and sell the Shares and the 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, or contemplated by the
Transaction Documents, 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
3
stock of the Company, except for the Transaction Documents. 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 which would have a Material Adverse Effect (as
defined below). The Company has furnished or made available to the Purchasers
true and correct copies of the Company's Articles of Incorporation as in effect
on the date hereof (the "Articles"), 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 in any material respect, or
to conduct its business in the ordinary course.
(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 Articles 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,
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 assuming the representations made by the Purchasers herein
are true and correct) 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, except, in all cases other than violations pursuant to clauses (i)
and (iv) above, for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect. 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
4
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 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, the Certificate of Designation and any other filings to be made
with the Nevada Secretary of State or as would not be expected to have a
Material Adverse Effect).
(f) Commission Documents, Financial Statements. At the time of the
Closing the Common Stock shall be registered pursuant to Section 12(b) or 12(g)
of the Securities Exchange Act of 1934, as amended the "Exchange Act"). 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. The financial statements of the Company provided to the Purchasers
(the "Financial Statements") were true and accurate and contain no misstatements
of material fact, except as would not have a Material Adverse Effect. Such
Financial Statements have been prepared in accordance with United States
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).
(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. Since December 31, 2006, the Company
5
has not experienced or suffered any Material Adverse Effect.
(i) No Undisclosed Liabilities. 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 since December 31, 2006 and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect on the Company or its subsidiaries.
(j) No Undisclosed Events or Circumstances. Except as set forth on
Schedule 2.1(j), 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 to the Purchasers.
(k) Indebtedness. Schedule 2.1(k) hereto sets forth as of March 31,
2007, 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 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(k), neither the Company nor any
subsidiary is in default with respect to any Indebtedness.
(l) Title to Assets. Each of the Company and the subsidiaries has
good and marketable title to all of its real and personal property reflected in
Schedule 2.1(l), free and clear of any mortgages, pledges, charges, liens,
security interests or other encumbrances, except for those disclosed in Schedule
2.1(l) or such that, individually or in the aggregate, do not cause a Material
Adverse Effect. All leases of the Company and each of its subsidiaries are valid
and subsisting and in full force and effect.
(m) Actions Pending. Except as disclosed on Schedule 2.1(m), 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
6
any subsidiary or any officers or directors of the Company or subsidiary in
their capacities as such.
(n) 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, could
not reasonably be expected to have a Material Adverse Effect.
(o) Taxes. Except as disclosed on Schedule 2.1(o), 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.
(p) Certain Fees. Except for the fees being paid to SC Capital
Partners, LLC in connection with the transactions contemplated hereby, 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.
(q) 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.
(r) Operation of Business. 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 as set forth in
Schedule 2.1(r), 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.
(s) Environmental Compliance. The Company and each of its
subsidiaries
7
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. Schedule 2.1(s) 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.
(t) 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
actions is taken with respect to any differences.
(u) Material Agreements. Except as set forth on Schedule 2.1(u) and
the Transaction Documents themselves, neither the Company nor any subsidiary is
a party to any written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement, a copy of which would be required to be filed
with the Commission as an exhibit to a registration statement on Form S-3 or
applicable form (collectively, "Material Agreements") if the Company or any
subsidiary were registering securities under the Securities Act. The Company and
each of its subsidiaries has in all material respects performed all the
obligations required to be performed
8
by them to date under the foregoing agreements, have received no notice of
default and are not in default under any Material Agreement now in effect, the
result of which could cause a Material Adverse Effect. No written or oral
contract, instrument, agreement, commitment, obligation, plan or arrangement of
the Company or of any subsidiary limits or shall limit the payment of dividends
on the Company's Preferred Shares, other preferred stock, if any, or its Common
Stock, except for the Transaction Documents.
(v) Transactions with Affiliates. Except as set forth on Schedule
2.1(v) hereof, 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.
(w) 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.
(x) 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 and other filings with the Secretary of State for the
State of Nevada, 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.
(y) Employees. Except as set forth on Schedule 2.1(y), 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(y), 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
9
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.
(z) Absence of Certain Developments. Except as disclosed on Schedule
2.1(z), since December 31, 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;
(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, as adjusted to reflect the current
nature and volume of the Company's or such subsidiary's business;
(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
or to the Purchasers or their representatives;
(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;
10
(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.
(aa) Investment Company Act Status. 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.
(bb) 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 Preferred 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, 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(ac), 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.
(cc) 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.
11
(dd) 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 January 1, 2007, the Company has not
offered or sold any of its equity securities or debt securities convertible into
shares of Common Stock.
(ee) 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 been 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
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.
(ff) DTC Status. The Company's transfer agent is a participant in
and, as of the time of the Closing, the Common Stock shall be eligible for
transfer pursuant to the Depository Trust Company Automated Securities Transfer
Program. The name, address, telephone number, fax number, contact person and
email address of the Company's transfer agent is set forth on Schedule 2.1(ff)
hereto.
12
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 or partnership 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 the other Transaction
Documents, as applicable, 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.
(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
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
13
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 person 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.
(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.
14
(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.
(k) Trading Activities. Each Purchaser's trading activities with
respect to the Shares shall be in compliance with all applicable federal and
state securities laws. No Purchaser nor any of its affiliates has an open short
position in the Common Stock, each Purchaser agrees that it shall not, and that
it will cause its affiliates not to, engage in any short sales with respect to
the Common Stock. In making its investment decision, no Purchaser has relied on
any forward looking statements provided to such Purchaser by the Company.
ARTICLE III
Covenants
The Company covenants with each of the Purchasers as follows, which
covenants are for the benefit of the Purchasers and their 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 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. As of the time of the Closing,
the Company shall cause its Common Stock to be registered under Sections 12(b)
or 12(g) of the Exchange Act, to comply in all respects with its reporting and
filing obligations under the Exchange Act, to comply with all requirements
related to any registration statement filed pursuant to this Agreement, and to
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. As of the
time of the Closing, the Company will take all action necessary for 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 and shall ensure that its Common
Stock shall continue to be traded on the OTC Bulletin Board or other exchange of
market on which its Common Stock 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
15
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 1% 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,
provided, however, that the Company shall not provide to or discuss with such
Purchaser any material non-public information, unless prior thereto such
Purchaser shall have executed a written agreement regarding the confidentiality
and use of such information.
Section 3.4 Compliance with Laws. The Company shall comply, and
cause each subsidiary 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.
16
Section 3.7 Amendments. The Company shall not amend or waive any
provision of the Articles 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.
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.
Section 3.9 Distributions. Excluding any items set forth in Section
3.11 hereto, so long as any Preferred Shares or Warrants 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. The preceding sentence
shall not be deemed to prevent the Company from designating the Preferred Stock
as "Convertible Preferred Stock" in its annual and quarterly financial
statements in accordance with its prior practice concerning other series of
preferred stock of the Company. 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. In addition, the Company will reasonably cooperate with the Purchasers
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
17
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 as set forth on Schedule 3.11.
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 a number of shares of Common Stock equal to the number of
shares of Common Stock that are not currently issued or reserved for issuance;
provided, however, upon the Company filing the Charter Amendment, the Company
shall take all action necessary to at all times have authorized, and reserved
for the purpose of issuance, free of preemptive rights and other similar
contractual rights of stockholders, a number of shares of Common Stock equal to
one hundred fifty percent (150%) 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 exercise of the Warrants then outstanding.
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 all or some of such Purchaser's Shares may be made
without registration under the Securities Act and any applicable state
securities laws or the Purchaser provides the Company with reasonable assurances
that such Shares can be sold pursuant to Rule 144 and any applicable state
securities laws within the limitations of Rule 144, 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
18
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 substantially all 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 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 form of each series of Warrant and the 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 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 3.16 Disclosure of Material Information. The Company
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. By
executing this Agreement, each Purchaser agrees to keep all information provided
by the Company confidential (the "Confidential Information") and to only use
such information in connection with evaluating a purchase of the Shares. Each
Purchaser shall destroy or return all Confidential Information provided by the
Company upon Company's request.
Section 3.17 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,
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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 3.18 Form SB-2 Eligibility. The Company currently meets the
"registrant eligibility" requirements set forth in the general instructions to
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 3.19 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 3.20 Investor Relations Firm. The company will agree to set
aside a minimum of $250,000 to be used exclusively for investor relations,
including but not limited to hiring an Investor Relations firm within 30 days of
closing.
Section 3.21 Reverse Split of Outstanding Shares. Immediately prior
to the consummation of the transactions contemplated hereby, the Company shall
effect a 4-to-1 reverse stock split bringing reducing its outstanding shares
from 5,584,000 shares of Common Stock to 1,396,000 shares of Common Stock (the
"Reverse Split").
Section 3.22 Authorization of Preferred Shares. Immediately prior to
the consummation of the transactions contemplated hereby, the Company shall file
an amendment to the Articles with the Nevada Secretary of State to authorize the
issuance of the Preferred Shares (the "Preferred Shares Authorization"),
consistent with the terms set forth in the Certificate of Designation of the
Relative Rights and Preferences of the Series A Convertible Preferred Stock of
▇▇▇▇▇▇▇▇▇▇.▇▇▇ (the "Certificate of Designations") being executed by the Company
concurrent with the execution of this Agreement.
Section 3.23 Increase in Authorized Shares. Not later than ninety
(90) days following the Closing Date, the Company shall file an amendment to the
Articles with the Nevada Secretary of State to effect an increase in the number
of its authorized shares of Common Stock to at least a number of shares of
Common Stock sufficient to reserve one hundred fifty percent (150%) 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 exercise of the
Warrants then outstanding (the "Charter Amendment"). In the event that the
Authorized Share Increase has not been effected within ninety (90) days
following the Closing Date, the term of each series of Warrant issued pursuant
to this Agreement shall be automatically extended for a period of one (1) year
(and the Company shall promptly issue to each Purchaser new Warrants evidencing
the extension of such Warrant term) and each Purchaser shall have the right to
redeem any Preferred Shares then held by it in accordance with the terms of the
Certificate of Designation.
Section 3.24 Subsequent Financings.
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(a) For a period of one (1) year following the effective date of the
Registration Statement (as defined in the Registration Rights Agreement), the
Company covenants and agrees to promptly notify in writing (a "Rights Notice")
the Purchasers 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. The Rights Notice shall describe,
in reasonable detail, the proposed Subsequent Financing, 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. The Rights Notice shall provide each Purchaser 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 Purchaser
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 Purchaser elects
not to participate in such Subsequent Financing, the other Purchasers may
participate on a pro-rata basis. For purposes of this Section, all references to
"pro rata" means, for any Purchaser electing to participate in such Subsequent
Financing, the percentage obtained by dividing (x) the number of Preferred
Shares purchased by such Purchaser at the Closing by (y) the total number of all
of the Preferred Shares purchased by all of the participating Purchasers at the
Closing. If the Company does not receive notice of exercise of the Rights Option
from any or all of Purchasers within the Option Period, the Company shall have
the right to close the Subsequent Financing on or before the scheduled closing
date set forth in the Rights Notice (or within thirty (30) days thereafter)
without the participation of any or all of such Purchasers; provided that all of
the material terms and conditions of the closing are the same as those provided
to the Purchasers in the Rights Notice. If the closing of the proposed
Subsequent Financing does not occur on the scheduled closing date set forth in
the Rights Notice (or within thirty (30) days thereafter), any closing of the
contemplated Subsequent Financing or any other Subsequent Financing shall be
subject to all of the provisions of this Section 3.23(a), including, without
limitation, the delivery of a new Rights Notice. The provisions of this Section
3.23(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, or the issuance of
securities in connection with the purchase of patent or related rights to
medical equipment or devices, (ii) warrants for up to 3,000,000 shares of Common
Stock of the Company in connection with an employee stock option program,
incentive stock option program, or other qualified or non-qualified employee
benefit plan (an "ESOP") to be established concurrent with the closing of the
Merger (as defined in Section 4.2(c) hereof), priced at $1.81 per share, to be
issued to the current management of Medpro Safety Products, Inc. ("Medpro") and
the future management of the Company (the "ESOP Warrants"), (iii) 68,036
warrants, priced at $1.99, to be issued to ▇▇▇▇▇▇▇▇ Research (the "▇▇▇▇▇▇▇▇
Research Warrants"), (iv) 533,458 warrants, priced at $1.81, to be issued to SC
Capital Partners, LLC (the "SC Capital Warrants"), (v) 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 outstanding as
they exist on the date of this Agreement, and (vi) any warrants issued to the
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placement agent, any investor relations firm, and their designees for the
transactions contemplated by the Purchase Agreement.
(c) For a period of two (2) years following the Closing Date, the
Company shall be prohibited from effecting or entering into an agreement to
effect any Subsequent Financing involving a "Variable Rate Transaction" without
the prior written consent of the holders of 75% of the Preferred Shares then
outstanding; provided, however, that the number of Preferred Shares then
outstanding is greater than two hundred thousand (200,000). The term "Variable
Rate Transaction" shall mean a transaction in which the Company issues or sells
(i) any debt or equity securities that are convertible into, exchangeable or
exercisable for, or include the right to receive additional shares of Common
Stock either (A) at a conversion, exercise or exchange rate or other price that
is based upon and/or varies with the trading prices of or quotations for the
shares of Common Stock at any time after the initial issuance of such debt or
equity securities, or (B) with a conversion, exercise or exchange price that is
subject to being reset at some future date after the initial issuance of such
debt or equity security or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Company or the market for
the Common Stock (other than customary anti-dilution features) or (ii) enters
into any agreement, including, but not limited to, an equity line of credit,
whereby the Company may sell securities at a future determined price.
(d) For the period commencing on the Closing Date and ending on the
date that is one hundred eighty (180) days following the effective date of the
Registration Statement, the Company shall not file any registration statement
under the Securities Act without the prior written consent of the Purchasers,
other than the Registration Statement. Notwithstanding the foregoing, this
Section 3.23 shall not be applicable as to any securities issued in connection
with (i) any future strategic acquisitions which are approved in writing by the
Purchasers, such approval not to be unreasonably withheld, (ii) the consummation
or operation of the agency agreement between Medpro and SPGF, LLC , (iii) the
ESOP Warrants, (iv) the ▇▇▇▇▇▇▇▇ Research Warrants, or (v) the SC Capital
Warrants.
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.
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(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
shall have been duly executed and delivered by the Purchasers and, with respect
to the Escrow Agreement, the escrow agent, 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.
(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) Merger with Medpro. The Company shall have completed a merger
with and into Medpro, with the Company being the surviving corporation thereof
(the "Merger").
(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,
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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 Nevada.
(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 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).
(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. As of the Closing Date, the Company shall
have reserved out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Preferred Shares and the exercise of
the Warrants, a number of shares of Common Stock equal to one hundred fifty
percent (150%) of the aggregate number of Conversion Shares issuable upon
conversion of the Preferred Shares issued or to be issued pursuant to this
Agreement and the number of Warrant Shares issuable upon exercise of the number
of Warrants issued or to be issued pursuant to this Agreement.
(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 Articles, (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
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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) Voting Agreements. The Purchasers shall have received copies of
executed voting agreements of the Company's stockholders, in substantially the
form of Exhibit I hereto, evidencing such stockholder's agreement to vote in
favor of the Merger, the Reverse Split, the Charter Amendment and the Preferred
Shares Authorization.
(q) Escrow Agreement. At the Closing, the Company and the escrow
agent shall have executed and delivered the Escrow Agreement in the form of
Exhibit F attached hereto to each Purchaser.
(r) 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
thereof, 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 ▇▇▇▇▇▇▇▇▇▇.▇▇▇ 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.
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
25
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 or any applicable state securities laws
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 pursuant to any applicable
state securities laws; 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. Each Purchaser severally but not jointly agrees to indemnify
and hold harmless the Company and its directors, officers, 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 Company a
26
result of any inaccuracy in or breach of the representations, warranties or
covenants made by such Purchaser herein. The maximum aggregate liability of each
Purchaser pursuant to its indemnification obligations under this Article VI
shall not exceed the portion of the Purchase Price paid by such Purchaser
hereunder.
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
27
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, provided
that the Company shall pay all actual 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 and shall not exceed
$40,000 (plus disbursements and out-of-pocket expenses), (ii) the filing and
declaration of effectiveness by the 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 also pay up to $30,000 to the
Purchasers at the Closing in connection with all reasonable and documented due
diligence expenses incurred by the Purchasers and 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.
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.
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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; provided, however, that
the number of Preferred Shares then outstanding is greater than two hundred
thousand (200,000), 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
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: ▇▇▇▇▇▇▇▇▇▇.▇▇▇
▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Tel. No.: (▇▇▇) ▇▇▇-▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to: Law Office of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇. ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
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 as set
forth on Exhibit A or as
29
specified in writing by such
Purchaser with copies to:
Lord Bissell & Brook 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 party 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.
Section 7.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, 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 Closings 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 transmission or scanned electronic mail (e-mail)
attachment, such signature shall create a valid binding obligation of the party
executing (or on whose behalf such
30
signature is executed) the same with the same force and effect as if such
facsimile or scanned 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 or as required herein,
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]
31
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.
▇▇▇▇▇▇▇▇▇▇.▇▇▇
By:/s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
--------------------------------------------
Name: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title: President and Chief Executive Officer
PURCHASER
Sands Brothers Venture Capital II LLC
By:/s/ ▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇
Title: Chief Operating Officer
Sands Brothers Venture Capital III LLC
By:/s/ ▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇
Title: Chief Operating Officer
Sands Brothers Venture Capital IV LLC
By:/s/ ▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇
Title: Chief Operating Officer
Vision Opportunity Master Fund, LTD
By:/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
--------------------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Director
EXHIBIT A to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
▇▇▇▇▇▇▇▇▇▇.▇▇▇
Names and Addresses Number of Preferred Shares Amount of
of Purchasers & Warrants Purchased Investment
--------------- -------------------- ----------
Vision Opportunity Master Fund, Ltd Preferred Shares: 5,129,407 $10,000,000.00
▇▇ ▇ ▇▇▇▇ ▇▇., ▇▇▇ floor Series A Warrants: 5,129,407
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ Series B Warrants: 5,129,407
Series J Warrants: 5,975,116
Series C Warrants: 5,975,116
Vision Opportunity Master Fund, Ltd Preferred Shares: 1,025,881 $2,000,000.00
▇▇ ▇ ▇▇▇▇ ▇▇., ▇▇▇ floor Series A Warrants: 1,025,881 Promissory Note
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ Series B Warrants: 1,025,881
Sands Brothers Venture Capital II LLC Preferred Shares: 76,941 $150,000.00
▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ Series A Warrants: 76,941
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ Series B Warrants: 76,941
Sands Brothers Venture Capital III LLC Preferred Shares: 307,765 $600,000.00
▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ Series A Warrants: 307,765
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ Series B Warrants: 307,765
Sands Brothers Venture Capital IV LLC Preferred Shares: 128,235 $250,000.00
▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ Series A Warrants: 128,235
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ Series B Warrants: 128,235