EXIBIT 10.10 Form of Securities Purchase and Loan Agreement dated September 24, 2007
EXIBIT
10.10
Form
of
Securities Purchase and Loan Agreement dated September 24, 2007
-1-
Execution
Copy
SECURITIES
PURCHASE AND
LOAN AGREEMENT
THIS
SECURITIES PURCHASE AND LOAN AGREEMENT, dated as of September 24, 2007 (this
“Agreement”),
is by
and between MANARIS CORPORATION, a Nevada corporation (the “Company”),
and
IMPERIUM MASTER FUND, LTD., a Cayman Islands company (“Imperium”).
A. The
Company wishes to sell to Imperium, and Imperium wishes to purchase from the
Company, upon
the
terms and subject to the conditions set forth in this Agreement, (i) a 6%
Original Issue Discount Senior Secured Convertible Note in the form attached
hereto as Exhibit
A
(the
“Convertible
Note”)
and
(ii) a Warrant in the form of Exhibit
B
hereto
(the “Warrant”).
The
Convertible Note will be convertible into shares of the Company’s common stock,
par value $0.00001 per share (the “Common
Stock”).
The
shares of Common Stock into which the Convertible Note is convertible are
referred to herein as the “Conversion
Shares”
and
the
shares of Common Stock into which the Warrant is exercisable are referred to
herein as the “Warrant
Shares”.
B. The
Company has agreed to effect the registration of the Conversion Shares and
the
Warrant Shares for resale by the holders thereof under the Securities Act of
1933, as amended (the “Securities
Act”),
pursuant to a Registration Rights Agreement in the form attached hereto as
Exhibit
C
(the
“Registration
Rights Agreement”).
C. The
sale
of the Convertible Notes and the Warrants by the Company to Imperium will be
effected in reliance upon the exemption from securities registration afforded
by
the provisions of Regulation D (“Regulation
D”),
as
promulgated by the Securities and Exchange Commission (the “Commission”)
under
the Securities Act.
D. The
Company has requested from Imperium, and Imperium has agreed to provide to
the
Company, a working capital drawdown facility in the aggregate amount of up
to
$2,500,000 (the “Working
Capital Facility”),
and
each loan made under such facility shall be reflected by a Promissory Note
in
the
form attached hereto as Exhibit
D
(each, a
“Working
Capital Note”).
E. The
Company’s obligations under this Agreement, and all of the other agreements,
instruments and other documents contemplated hereby, are to be
(i)
guaranteed by each of the Company’s material subsidiaries, and (ii)
secured
by the assets of the Company’s material subsidiaries.
In
consideration of the mutual promises made herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the
Company and Imperium hereby agree as follows:
-2-
1. TERMINOLOGY
AND USAGE.
1.1
Definitions.
When
used herein, the terms below shall have the respective meanings
indicated:
“Accounts
and Inventory Threshold”
means
$4,000,000.
“Accounts
Receivable”
means,
as to any Person at any time of determination, all accounts receivable of such
Person (i) not including prepaid deposits, deferred revenue and offsets, and
(ii) excluding (1) all receivables that remain unpaid for over ninety (90)
days
from the respective invoice dates thereof, (2) if twenty-five percent (25%)
or
more of all receivables of such Person is payable by any one debtor and its
Affiliates, then all receivables payable by such debtor and its Affiliates
in
excess of twenty-five percent (25%) of the total amount of all receivables
of
such Person; (3) all receivables payable by any Affiliate of such Person; (4)
all receivables generated as a result of pre-billing, progress billing,
retention billing, ▇▇▇▇ and hold accounts, ship in place accounts, contra
revenue accounts or cross-aged balances; (5) all receivables of a debtor and
its
Affiliates if twenty-five percent (25%) or more of all receivables payable
by
such debtor and its Affiliates remain unpaid for over ninety (90) days from
the
respective invoice dates thereof; and (6) all receivables payable by debtors
whose principal place of business is located outside of the United States,
Canada and the member nations of the European Union.
“Acquisition”
has
the
meaning specified in Section
3.2.3
of this
Agreement.
“Acquisition
Note”
means
a
Working Capital Note issued in order to finance an Acquisition.
“Advisory
Fee Warrant”
means
the warrant to purchase Common Stock issued to Imperium, dated as of August
22,
2007.
“Advisory
Fee Warrant Shares”
means
the
shares
of Common Stock into which the Advisory Fee Warrant is exercisable.
“Affiliate”
means,
as to any Person (the “subject
Person”),
any
other Person (a) that directly or indirectly through one or more
intermediaries controls or is controlled by, or is under direct or indirect
common control with, the subject Person, (b) that directly or indirectly
beneficially owns or holds ten percent (10%) or more of any class of voting
equity of the subject Person, or (c) ten percent (10%) or more of the
voting equity of which is directly or indirectly beneficially owned or held
by
the subject Person. For the purposes of this definition, “control”
when
used with respect to any Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, through representation on such Person’s board of directors
or other management committee or group, by contract or otherwise.
-3-
“Bank
of Montreal Facility”
means
the revolving line of credit provided by the Bank of Montreal to Avensys Inc.
pursuant to the “Convention se rapportant aux prêts et avances et aux garanties
qui les couvrent", dated as of January 11, 2007; provided,
that
the parties hereto acknowledge that the maximum amount borrowable under such
facility shall not exceed $1,450,000.
“Board
of Directors”
means
the Company’s board of directors.
“Business
Day”
means
any
day
other than a Saturday, a Sunday or a day on which the Principal Market is closed
or on which banks in the City of New York are required or authorized by law
to
be closed.
“Closing”
and
“Closing
Date”
have
the respective meanings specified in Section
2.1
of this
Agreement.
“Commission”
has
the
meaning specified in the recitals to this Agreement.
“Common
Stock”
has
the
meaning specified in the recitals to this Agreement.
“Company
Subsidiary”
means
a
Person that is a Subsidiary of the Company.
“Consolidated
Accounts and Inventory”
means,
at any time of determination, the total Accounts Receivable plus the total
Inventory of the Company and Wholly Owned Subsidiaries less the total Debt
outstanding under the Bank of Montreal Facility.
“Consolidated
Tangible Assets”
means,
at any time of determination, the total Tangible Assets of the Company and
the
Wholly Owned Subsidiaries at such time, without duplication.
“Conversion
Shares”
has
the
meaning specified in the recitals of this Agreement.
“Convertible
Note” has
the
meaning specified in the recitals to this Agreement.
“Debt”
means,
as to any Person at any time: (a) all indebtedness, liabilities and obligations
of such Person for borrowed money; (b) all indebtedness, liabilities and
obligations of such Person to pay the deferred purchase price of Property or
services, except trade accounts payable of such Person arising in the ordinary
course of business that are not past due by more than 90 days; (c) all capital
lease obligations of such Person; (d) all Debt of others guaranteed by such
Person; (e) all indebtedness, liabilities and obligations secured by a Lien
(other than a Permitted Lien) existing on Property owned by such Person, whether
or not the indebtedness, liabilities or obligations secured thereby have been
assumed by such Person or are non-recourse to such Person; (f) all reimbursement
obligations of such Person (whether contingent or otherwise) in respect of
letters of credit, bankers’ acceptances, surety or other bonds and similar
instruments; and (g) all liabilities and obligations of such Person to redeem
or
retire shares of capital stock of such Person (other than the Company’s
obligation to redeem the Securities or Working Capital Notes under the
circumstances specified therein).
-4-
“Demand
Notes”
has
the
meaning specified in Section
2.3.5
of this
Agreement.
“Disclosure
Documents”
means
all SEC Documents filed with the Commission at least three (3) Business Days
prior to the Execution Date.
“Dollars”
or
“$”
means
U.S. Dollars.
“Effective
Date”
has
the
meaning specified in the Registration Rights Agreement.
“Embargoed
Person”
has
the
meaning specified in Section
5.27
of this
Agreement.
“Environmental
Law”
means
any federal, state, provincial, local or foreign law, statute, code or
ordinance, principle of common law, rule or regulation, as well as any Permit,
order, decree, judgment or injunction issued, promulgated, approved or entered
thereunder, relating to pollution or the protection, cleanup or restoration
of
the environment or natural resources, or to the public health or safety, or
otherwise governing the generation, use, handling, collection, treatment,
storage, transportation, recovery, recycling, discharge or disposal of hazardous
materials.
“ERISA”
means
the Employee Retirement Income Security Act of 1974, as amended, and the
regulations and published interpretations thereunder.
“Event
of Default”
means
any event, occurrence or circumstance that constitutes an “Event of Default”
under any of the Notes.
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended (or any successor act), and
the
rules and regulations thereunder (or respective successors
thereto).
“Excluded
Securities”
means
(i) any securities issued upon the conversion or exercise of any options,
warrants, convertible securities or any other agreements outstanding as of
the
Closing Date to the extent disclosed on Schedule
5.5(c)
and
issued at the exercise or conversion price as set forth on Schedule
5.5(c);
(ii)
shares of Common Stock issuable or issued to employees,
officers, directors of,
and
consultants to, the Company and/or any Company Subsidiary, from time to time
upon the exercise of options granted or to be granted in the discretion of
the
Board of Directors pursuant to one or more employee stock option plans or stock
plans duly adopted by the Board of Directors; (iii) shares of Common Stock
issued in connection with any stock split, stock dividend or recapitalization
of
the Company; or (iv) securities issued pursuant to any acquisition transaction,
licensing agreement or other strategic transaction, provided
that no
issuances shall be made to a Person that is itself, or has any affiliates that
are, in the business of providing loans or making equity
investments.
“Execution
Date”
means
the date of this Agreement.
“GAAP”
means
generally accepted accounting principles, applied on a consistent basis, as
set
forth in (i) opinions of the Accounting Principles Board of the American
Institute of Certified Public Accountants, (ii) statements of the Financial
Accounting Standards Board and (iii) interpretations of the Commission and
the
staff of the Commission. Accounting principles are applied on a “consistent
basis” when the accounting principles applied in a current period are comparable
in all material respects to those accounting principles applied in a preceding
period.
-5-
“Governmental
Authority”
means
any nation or government, any state, provincial or political subdivision thereof
and any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, including, without
limitation, any stock exchange, securities market or self-regulatory
organization.
“Governmental
Requirement”
means
any law, statute, code, ordinance, order, rule, regulation, judgment, decree,
injunction, franchise, license or other directive or requirement of any federal,
state, county, municipal, parish, provincial or other Governmental Authority
or
any department, commission, board, court, agency or any other instrumentality
of
any of them.
“Holder”
shall
initially mean Imperium, provided
that
any
Person that subsequently holds any Securities or Working Capital Notes shall
also be deemed a Holder.
“Holder
Party”
has
the
meaning specified in Section
6.9
of this
Agreement.
“Intellectual
Property”
means
any U.S. or foreign patents, patent rights, patent applications, trademarks,
trade names, service marks, brand names, logos and other trade designations
(including unregistered names and marks), trademark and service ▇▇▇▇
registrations and applications, copyrights and copyright registrations and
applications, inventions, invention disclosures, protected formulae,
formulations, processes, methods, trade secrets, computer software, computer
programs and source codes, manufacturing research and similar technical
information, engineering know-how, customer and supplier information, assembly
and test data drawings or royalty rights.
“Inventory”
means,
as to any Person at any time of determination, all inventory of such Person,
valued at cost and multiplied by 0.90 and excluding the portion of all work
in
process inventory that is in excess of twenty percent (20%) of the total
inventory of such Person.
“Investment
Company Act”
has
the
meaning specified in Section
5.24
of this
Agreement.
“Key
Employee”
has
the
meaning specified in Section
5.16
of this
Agreement.
“Liabilities”
means,
as to any Person at any time of determination, all Debt (including Permitted
Debt) of such Person, provided
that
with respect to any revolving credit line facility of such Person, only (x)
that
portion of such facility that has actually been drawn under such facility at
such time plus
(y)
any
additional amount that such Person is obligated to draw pursuant to the terms
of
such facility at any time on or after such time, shall be included as a
Liability of such Person.
-6-
“Lien”
means,
with respect to any Property, any mortgage, pledge, hypothecation, assignment,
deposit arrangement, security interest, tax lien, financing statement, pledge,
charge, or other lien, charge, easement, encumbrance, preference, priority
or
other security agreement or preferential arrangement of any kind or nature
whatsoever on or with respect to such Property (including, without limitation,
any conditional sale or other title retention agreement having substantially
the
same economic effect as any of the foregoing).
“Material
Adverse Effect”
means
an effect that is material and adverse to
(i) the
consolidated business, properties, assets, operations, results of operations,
financial condition, credit worthiness or prospects of the Company and the
Company Subsidiaries taken as a whole, (ii) the ability of the Company or any
material Company Subsidiary to perform its obligations under this Agreement
or
the other Transaction Documents or (iii) the rights and benefits to which a
Holder is entitled under this Agreement, the Notes and the other Transaction
Documents.
“Material
Contracts”
means,
as to the Company and the Company Subsidiaries, any agreement
required pursuant to Item 601 of Regulation S-B or Item 601 of Regulation S-K,
as applicable, promulgated under the Securities Act to be filed as an exhibit
to
any report,
schedule, registration statement or definitive proxy statement filed or required
to be filed by the Company with the Commission under
the
Exchange Act or any rule or regulation promulgated thereunder,
and any
and all amendments, modifications, supplements, renewals or restatements
thereof.
“NASD”
means
the National Association of Securities Dealers, Inc.
“Notes”
means
the Convertible Notes and the Working Capital Notes.
“Pension
Plan”
means
an employee benefit plan (as defined in ERISA) maintained by the Company for
employees of the Company or any of its Affiliates.
“Permitted
Debt”
means
the following:
(a) the
Notes;
(b) Debt
outstanding on the Execution Date to the extent disclosed on Schedule
5.5(d)
hereto;
(c) Debt
consisting of capitalized lease obligations and purchase money indebtedness
incurred in connection with acquisition of capital assets and obligations under
sale-leaseback or similar arrangements provided in each case that such
obligations are not secured by Liens on any assets of the Company or the Company
Subsidiaries other than the assets so leased; and
(d) Debt
consisting of monies borrowed from the Bank of Montreal Facility; provided,
however,
that
the aggregate amount of such Debt, including any amount outstanding as of the
date hereof, shall not exceed $1,450,000.
-7-
“Permitted
Liens”
means
each of the following:
(a) Liens
in
existence on the Execution Date to the extent disclosed on Schedule
5.22
hereto;
(b) encumbrances
consisting of easements, rights-of-way, zoning restrictions or other
restrictions on the use of real Property or imperfections to title that do
not
(individually or in the aggregate) materially impair the ability of the Company
or any Company Subsidiary to use such Property in its businesses, and none
of
which is violated in any material respect by existing or proposed structures
or
land use;
(c) Liens
for
taxes, assessments or other governmental charges (including without limitation
in connection with workers’ compensation and unemployment insurance) that are
not delinquent or which are being contested in good faith by appropriate
proceedings, which proceedings have the effect of preventing the forfeiture
or
sale of the Property subject to such Liens, and for which adequate reserves
(as
determined in accordance with GAAP) have been established; and
(d) Liens
of
mechanics, materialmen, warehousemen, carriers, landlords or other similar
statutory Liens securing obligations that are not yet due and are incurred
in
the ordinary course of business or which are being contested in good faith
by
appropriate proceedings, which proceedings have the effect of preventing the
forfeiture or sale of the Property subject to such Liens, for which adequate
reserves (as determined in accordance with GAAP) have been
established.
“Person”
means
any individual, corporation, trust, association, company, partnership, joint
venture, limited liability company, joint stock company, Governmental Authority
or other entity.
“Principal
Market”
means
the principal exchange, market or quotation system on which the Common Stock
is
listed, traded or quoted.
“Property”
means
property and/or assets of all kinds, whether real, personal or mixed, tangible
or intangible (including, without limitation, all rights relating
thereto).
“Pro
Rata Share”
means,
with respect to a Holder, the ratio determined by dividing (x) the principal
amount of the Notes held by such Holder by (y) the aggregate principal amount
of
the Notes held by all of the Holders.
“Purchase
Price”
has
the
meaning specified in Section
2.1.
“Registrable
Securities”
has
the
meaning specified in the Registration Rights Agreement.
“Registration
Rights Agreement”
has
the
meaning specified in the recitals to this Agreement.
-8-
“Registration
Statement”
has
the
meaning specified in the Registration Rights Agreement.
“Regulation
D”
has
the
meaning specified in the recitals to this Agreement.
“Reserved
Amount”
has
the
meaning specified in Section
6.6
of this
Agreement.
“Restricted
Payment”
means
(a) any dividend or other distribution (whether in cash, Property or
obligations), direct or indirect, on account of (or the setting apart of money
for a sinking or other analogous fund for the benefit of) any shares of any
class of capital stock of the Company or the Company Subsidiaries now or
hereafter outstanding, except a dividend payable solely in shares of that class
of stock to all of the holders of that class; (b) any redemption, exchange,
retirement, sinking fund or similar payment, purchase or other acquisition
for
value, direct or indirect, of any shares of any class of capital stock of the
Company or any of its Affiliates now or hereafter outstanding, except the
Securities; (c) any prepayment of principal of, premium, if any, or
interest on, or any redemption, conversion, exchange, purchase, retirement,
sinking fund or defeasance of, any Debt (whether upon acceleration of such
Debt
or otherwise) other than the Securities or Working Capital Notes; and
(d) any loan, advance or payment to any officer, director or stockholder of
the Company or any of its Affiliates, exclusive of reasonable compensation
and
reimbursements paid to officers or directors in the ordinary course of
business.
“Rule
144”
means
Rule 144 under the Securities Act or any successor provision.
“SEC
Documents”
means
all reports, schedules, registration statements and definitive proxy statements
filed by the Company with the Commission.
“Securities”
means
the Convertible Notes, the Conversion Shares, the Warrants and the Warrant
Shares.
“Securities
Act”
has
the
meaning specified in the recitals of this Agreement.
“Security
Documents”
means
all agreements, instruments and other documents executed and delivered in
connection with or in furtherance of (i) the guarantee by each of the Company
Subsidiaries of the Company’s
obligations under the Transaction Documents, and/or (ii) the grant of a security
interest by the Company and the Company
Subsidiaries in their respective assets to secure the Company’s
obligations under the Transaction Documents.
“Subsequent
Placement”
means
any issuance, sale or exchange by the Company or any Company Subsidiary at
any
time after the Closing Date, or any agreement or obligation of the Company
or
any Company Subsidiary to issue, sell or exchange, at any time after the Closing
Date, (i) any shares of common stock of the Company or any Company Subsidiary,
(ii) any other equity security, including, without limitation, preferred stock,
(iii) any other security of the Company or any Company Subsidiary which by
its
terms is convertible into or exchangeable or exercisable for any equity security
of the Company or any Company Subsidiary, (iv) any option, warrant or other
right to subscribe for, purchase or otherwise acquire any such security
described in the foregoing clauses
(i)
through
(iii),
or (v)
any debt instruments or securities, including promissory notes and convertible
debt instruments; provided,
however,
that
the term “Subsequent
Placement”
shall
not be deemed to include any issuance, sale or exchange of Excluded
Securities.
-9-
“Subsidiary”
means,
with respect to any Person, any corporation or other entity of which at least
a
majority of the outstanding shares of stock or other ownership interests having
by the terms thereof ordinary voting power to elect a majority of the board
of
directors (or Persons performing similar functions) of such corporation or
entity (regardless of whether or not at the time, in the case of a corporation,
stock of any other class or classes of such corporation shall have or might
have
voting power by reason of the happening of any contingency) is at the time
directly or indirectly owned or controlled by such Person or one or more of
its
Subsidiaries or by such Person and one or more of its Subsidiaries.
“Tangible
Assets”
means,
as to any Person at any time of determination, the aggregate value of (i) all
cash and cash equivalents of such Person, (ii) all Accounts Receivable of such
Person, (iii) all Inventory of such Person, and (iv) all real and personal
property and equipment of such Person net of depreciation.
“Tangible
Asset Threshold”
means,
at any time of determination, an amount equal to one hundred fifty percent
(150%) of the aggregate principal amount of all of the Notes (other than
Acquisition Notes) then outstanding, plus all accrued interest thereon.
“Termination
Date”
means
the first date on which there are no Notes outstanding and none of the Holders
has any further obligation to loan any amount to the Company under the Working
Capital Facility.
“Trading
Day”
means
any day on which shares of Common Stock are purchased and sold on the Principal
Market.
“Transaction
Documents”
means
(i) this Agreement, (ii) the Notes, (iii) the Warrant and the Advisory Fee
Warrant, (iv) the Registration Rights Agreement, (v) the Security Documents
and
(vi) all other agreements, documents and other instruments executed and
delivered by or on behalf of the Company, the Company Subsidiaries or any of
their respective officers at the Closing, on any Working Capital Drawdown Date
or otherwise in connection with this Agreement.
“Transfer
Agent”
has
the
meaning specified in Section
4.5
of this
Agreement.
“Variable
Rate Security”
means
any Option or Convertible Security that is convertible into, exchangeable for
or
that requires the Company to issue shares of Common Stock at a conversion,
exercise or exchange ratio
or
price
that
varies with
the
market price of the Common Stock.
“Warrant”
has
the
meaning specified in the recitals to this Agreement.
“Warrant
Shares”
has
the
meaning specified in the recitals to this Agreement.
-10-
“Wholly
Owned Subsidiary”
means
a
Company Subsidiary that is (i) wholly owned by the Company or another Wholly
Owned Subsidiary, and (ii) is a party to the Security Documents.
“Working
Capital Drawdown”
has
the
meaning specified in Section
3.2
of this
Agreement.
“Working
Capital Drawdown Amount”
has
the
meaning specified in Section
3.2.1
of this
Agreement.
“Working
Capital Drawdown Date”
has
the
meaning specified in Section
3.2
of this
Agreement.
“Working
Capital Drawdown Notice”
has
the
meaning specified in Section
3.2
of this
Agreement.
“Working
Capital Facility”
has
the
meaning specified in the recitals to this Agreement.
“Working
Capital Note”
has
the
meaning specified in the recitals to this Agreement.
1.2 Other
Definitional Provisions.
All
definitions contained in this Agreement are equally applicable to the singular
and plural forms of the terms defined. The words “hereof”, “herein” and
“hereunder” and words of similar import contained in this Agreement refer to
this Agreement as a whole and not to any particular provision of this
Agreement.
2. PURCHASE
AND SALE OF CONVERTIBLE NOTE AND WARRANT.
2.1 Purchase
Price; Closing.
Upon
the terms and subject to the satisfaction or waiver of the conditions set forth
in Sections
2.2 and
2.3,
the
Company agrees to sell and Imperium agrees to purchase (i) a Convertible Note
with the stated principal amount equal to the amount set forth below Imperium’s
name on the signature page hereof and (ii) a Warrant exercisable into the number
of shares of Common Stock set forth below Imperium’s name on the signature page
hereof. The purchase price for the Convertible Note and Warrant shall be
$4,000,0001
(the
“Purchase
Price”).
The
date on which the closing of such purchase and sale occurs (the “Closing”)
is
hereinafter referred to as the “Closing
Date”.
The
Closing will be deemed to occur at the offices of ▇▇▇▇▇▇ Song LLP, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ when each of the conditions to the Closing described
in
Sections
2.2
and
2.3
has been
satisfied or waived as specified therein.
| 1 |
Purchase
Price equals the sum of:
|
|
(A) Aggregate
Principal Amount of Demand Notes:
|
$ | 2,940,421.56 | ||
|
(B) Payment
to Alpha to purchase Series B Notes:
|
500,000.00
|
|||
|
(C) Accrued
Interest on Items (A) and (B):
|
43,368.29
|
|||
|
(D) Additional
Principal:
|
448,710.15
|
|||
|
(E) Legal
Fees:
|
67,500.00
|
|||
|
$
|
4,000,000.00
|
-11-
2.2 Conditions
to Imperium’s Obligations at the Closing.
Imperium’s obligations to effect the Closing, including, without limitation, its
obligation to purchase the Convertible Note and Warrant at the Closing, are
conditioned upon the fulfillment (or waiver by Imperium in its sole and absolute
discretion) of each of the following events as of the Closing Date, and the
Company shall use commercially reasonable efforts to cause each of such
conditions to be satisfied:
|
2.2.1
|
the
representations and warranties of the Company set forth in this Agreement
and in the other Transaction Documents shall be true and correct
in all
material respects as of such date as if made on such date (except
that to
the extent that any such representation or warranty relates to a
particular date, such representation or warranty shall be true and
correct
in all material respects as of that particular date);
|
|
2.2.2
|
the
Company shall have complied with or performed in all material respects
all
of the agreements, obligations and conditions set forth in this Agreement
and in the other Transaction Documents that are required to be complied
with or performed by the Company on or before the Closing;
|
|
2.2.3
|
the
Company shall have delivered to Imperium a certificate, signed
by the
Chief Executive Officer and Chief Financial Officer of the Company,
certifying that the conditions specified in this Section
2.2
have been fulfilled as of the Closing, it being understood that
such
Holder may rely on such certificate as though it were a representation
and
warranty of the Company made
herein;
|
|
2.2.4
|
the
Company shall have delivered to Imperium opinions of U.S. and Canadian
counsel for the Company, dated as of the Closing Date, in the form
and
substance satisfactory to Imperium;
|
|
2.2.5
|
the
Company shall have executed and delivered to Imperium the Convertible
Note
and the Warrant being purchased by Imperium, and each of the other
Transaction Documents to which the Company and/or a Company Subsidiary
is
a party;
|
|
2.2.6
|
the
Company shall have delivered to Imperium a certificate, signed by
the
Secretary or an Assistant Secretary of the Company, attaching (i)
the
articles and by-laws of the Company and (ii) resolutions passed by
the
board of directors of the Company and each Company Subsidiary party
to a
Transaction Document, in each case, authorizing the transactions
contemplated by the Transaction Documents to which such entity is
a
party;
|
-12-
|
2.2.7
|
there
shall have occurred no material adverse change in the Company’s
consolidated business or financial condition since the date of the
Company’s most recent financial statements contained in the Disclosure
Documents;
|
|
2.2.8
|
the
Company shall have authorized and reserved for issuance upon conversion
of
the Convertible Note and exercise of the Warrant two hundred percent
(200%) of the aggregate number of shares of Common Stock issuable
upon
conversion of the Convertible Note and exercise of the Warrant and
the
Advisory Fee Warrant in full at the Closing (such number to be determined
without regard to any restriction on such conversion or exercise);
|
|
2.2.9
|
there
shall be no injunction, restraining order or decree of any nature
of any
court or Governmental Authority of competent jurisdiction that is
in
effect that restrains or prohibits the consummation of the transactions
contemplated hereby and by the other Transaction Documents;
and
|
|
2.2.10
|
the
Company shall have paid the expenses described in Section
7.10
of
this Agreement.
|
2.3 Conditions
to Company’s Obligations at the Closing.
The
Company’s obligations to effect the Closing with Imperium are conditioned upon
the fulfillment (or waiver by the Company in its sole and absolute discretion)
of each of the following events as of the Closing Date:
|
2.3.1
|
the
representations and warranties of Imperium set forth in this Agreement
and
in the other Transaction Documents to which it is a party shall be
true
and correct in all material respects as of such date as if made on
such
date (except that to the extent that any such representation or warranty
relates to a particular date, such representation or warranty shall
be
true and correct in all material respects as of that
date);
|
|
2.3.2
|
Imperium
shall have complied with or performed all of the agreements, obligations
and conditions set forth in this Agreement that are required to be
complied with or performed by Imperium
on
or before the Closing;
|
|
2.3.3
|
there
shall be no injunction, restraining order or decree of any nature
of any
court or Governmental Authority of competent jurisdiction that is
in
effect that restrains or prohibits the consummation of the transactions
contemplated hereby and by the other Transaction Documents;
|
-13-
|
2.3.4
|
Imperium
shall have executed each Transaction Document to which it is a
party and
shall have delivered the same to the Company;
and
|
|
2.3.5
|
Imperium
shall have tendered to the Company the Purchase Price as follows:
(i)
Imperium shall have confirmed by email that it has sent the
original of
each Demand Note (as defined below) to the Company for cancellation,
and
(ii) Imperium shall have wire transferred to the Company’s account, in
immediately available funds, an amount equal $448,710.15.
In addition to the foregoing, the Company acknowledges and
agrees that
Imperium has purchased, and caused to be delivered to the Company,
certain
of the Company’s Series B Convertible Notes for $500,000. As used herein,
the term “Demand
Notes”
means (1) the Demand Note, dated as of July 24, 2007, issued
by the
Company to Imperium and having a principal face amount of $2,274,053,
(2)
the Demand Note, dated as of July 27, 2007, issued by the Company
to
Imperium and having a principal face amount of $237,028, (3)
the Demand
Note, dated as of August 3, 2007, issued by the Company to
Imperium and
having a principal face amount of $385,000, and (4) the Demand
Note, dated
as of August 29, 2007, issued by the Company to Imperium and
having a
principal face amount of $44,340.56. The Company and Imperium
acknowledge
and agree that (i) the aggregate amount of outstanding principal
and
accrued and unpaid interest on the Demand Notes and the Series
B Notes
purchased by Imperium as of the date hereof is $43,368.29.
|
3. WORKING
CAPITAL FACILITY.
3.1 Loan
Facility and Commitment.
The
Company may desire to borrow additional funds from the Holders to finance its
working capital requirements and certain acquisitions. In furtherance of the
foregoing, the Company has agreed to sell, and the Holders have agreed to
purchase, Working Capital Notes, which shall be offered for sale by the Company
in accordance with this Section
3.
The
purchase price for each Working Capital Note shall be equal to the stated
principal amount of such note. From and after the Execution Date until the
two-year anniversary of the Execution Date, each Holder shall purchase its
Pro
Rata Share of Working Capital Notes as and when offered by the Company, subject
to the satisfaction of the conditions set forth in Section
3.3.
With
respect to each offering of Working Capital Notes, the Pro Rata Share of a
Holder shall be determined as of the date on which the Working Capital Drawdown
Notice for such offering is delivered to such Holder. The aggregate principal
amount of all Working Capital Notes outstanding at any time shall not exceed
$2,500,000. The interest rate, maturity date and other repayment terms,
including, without limitation, amortization
schedule (if any), of
each
Working Capital Note shall be subject to mutual agreement between the Company
and the Holders on or prior to the applicable Working Capital Drawdown
Date.
3.2 Drawdown
Request by the Company.
If the
Company wishes to offer Working Capital Notes (a “Working
Capital Drawdown”),
the
Company shall notify each Holder in writing (a “Working
Capital Drawdown Notice”)
no
later than ten (10) Business Days (or such shorter period as the Holders may
agree in their sole discretion) prior to the date on which the Company wishes
to
effectuate a sale of Working Capital Notes (the “Working
Capital Drawdown Date”).
The
Working Capital Drawdown Notice shall specify in reasonable detail the following
information along with any other information that the Company deems
relevant:
|
3.2.1
|
the
aggregate principal amount of Working Capital Notes that the Company
desires to sell to the Holders (the “Working
Capital Drawdown Amount”);
|
-14-
|
3.2.2
|
the
date on which the Company desires to close such Working Capital Drawdown;
and
|
|
3.2.3
|
either
(i) confirmation that such Working Capital Drawdown Amount will be
used
for general working capital purposes or (ii) if such Working Capital
Drawdown Amount is to be used to acquire the assets, operations or
business of another Person, whether by way of asset or stock purchase,
merger, exchange offer or other business combination or similar
transaction (any such transaction, an “Acquisition”),
the Company shall provide each Holder the information specified on
Schedule
3.2.3.
|
3.3 Conditions
to Each Holder’s Obligation to Purchase Working Capital Notes.
Each
Holder’s obligation to purchase a Working Capital Note is conditioned upon the
fulfillment (or waiver by such Holder in its sole and absolute discretion)
of
each of the following events as of the applicable Working Capital Drawdown
Date:
|
3.3.1
|
the
representations and warranties of the Company set forth in this Agreement
and in the other Transaction Documents shall be true and correct
in all
material respects as of such Working Capital Drawdown Date as if
made on
such date (except that to the extent that any such representation
or
warranty relates to a particular date, such representation or warranty
shall be true and correct in all material respects as of that particular
date);
|
|
3.3.2
|
the
Company shall have complied with or performed in all material respects
all
of the agreements, obligations and conditions set forth in this Agreement
and in the other Transaction Documents that are required to be complied
with or performed by the Company on or before such Working Capital
Drawdown Date;
|
|
3.3.3
|
no
Event of Default shall have occurred, unless such Event of Default
was
cured not less than ten Business Days prior to such Working Capital
Drawdown Date;
|
-15-
|
3.3.4
|
the
Company shall have delivered to such Holder a certificate, signed
by the
Chief Executive Officer and Chief Financial Officer of the Company,
certifying that the conditions specified in this Section
3.3
have been fulfilled as of such date, it being understood that such
Holder
may rely on such certificate as though it were a representation
and
warranty of the Company made
herein;
|
|
3.3.5
|
the
Company shall have executed and delivered to such Holder the Working
Capital Note being purchased by such
Holder;
|
|
3.3.6
|
there
shall have occurred no material adverse change in the Company’s
consolidated business or financial condition since the later of (i)
the
Closing Date and (ii) the most recent prior Working Capital Drawdown
Date;
|
|
3.3.7
|
there
shall be no injunction, restraining order or decree of any nature
of any
court or Governmental Authority of competent jurisdiction that is
in
effect that restrains or prohibits the consummation of such offer
and sale
of a Working Capital Note;
|
|
3.3.8
|
the
Company and the Holders shall have agreed upon the interest rate,
maturity
date and other repayment terms applicable to the Working Capital
Notes
being sold on such Working Capital Drawdown Date;
and
|
|
3.3.9
|
in
the event that the proceeds of the Working Capital Note being purchased
by
such Holder is to be used in connection with an Acquisition, such
Holder
shall
have completed its review of the information provided to such Holder
pursuant to Section
3.2.3
and otherwise with respect to such Acquisition, and such Holder shall
be
satisfied with its review of all such information in its sole and
absolute
discretion.
|
3.4 Conditions
to Company’s Obligation to Sell Working Capital Notes.
The
Company’s obligation to sell a Working Capital Note to a Holder is conditioned
upon the fulfillment (or waiver by the Company in its sole and absolute
discretion) of each of the following events as of the applicable Working Capital
Drawdown Date:
|
3.4.1
|
the
representations and warranties of such Holder set forth in this Agreement
and in the other Transaction Documents to which it is a party shall
be
true and correct in all material respects as of such Working Capital
Drawdown Date as if made on such date (except that to the extent
that any
such representation or warranty relates to a particular date, such
representation or warranty shall be true and correct in all material
respects as of that date);
|
-16-
|
3.4.2
|
such
Holder shall have complied with or performed all of the agreements,
obligations and conditions set forth in this Agreement that are required
to be complied with or performed by such
Holder
on
or before such Working Capital Drawdown
Date;
|
|
3.4.3
|
there
shall be no injunction, restraining order or decree of any nature
of any
court or Governmental Authority of competent jurisdiction that is
in
effect that restrains or prohibits the consummation of such sale
of a
Working Capital Note;
|
|
3.4.4
|
the
Company and the Holders shall have agreed upon the interest rate,
maturity
date and other repayment terms applicable to the Working Capital
Notes
being sold on such Working Capital Drawdown Date;
and
|
|
3.4.5
|
such
Holder shall have wire transferred to the Company’s account, in
immediately available funds, an amount equal to the stated
principal
amount of the Working Capital Note being purchased by such
Holder.
|
4. REPRESENTATIONS
AND WARRANTIES OF IMPERIUM.
Imperium
hereby represents and warrants to the Company and agrees with the Company that,
as of the Execution Date:
4.1 Authorization;
Enforceability.
Imperium is duly and validly organized, validly existing and in good standing
under the laws of the Cayman Islands with the requisite corporate power and
authority to purchase the Notes and Warrants to be purchased by it hereunder
and
to execute and deliver this Agreement and the other Transaction Documents to
which it is a party. This Agreement constitutes, and upon execution and delivery
thereof, each other Transaction Document to which Imperium is a party will
constitute, Imperium’s valid and legally binding obligation, enforceable in
accordance with its terms, subject to (i) applicable bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium or other similar laws of general
application relating to or affecting the enforcement of creditors’ rights
generally and (ii) general principles of equity.
4.2 Accredited
Investor.
Imperium (i) is an “accredited investor” as that term is defined in Rule 501 of
Regulation D, (ii)
was
not
formed or organized for the specific purpose of making an investment in the
Company, and (iii)
is
acquiring the Securities solely for its own account and not with a present
view
to the public resale or distribution of all or any part thereof, except pursuant
to sales that are registered under, or exempt from the registration requirements
of, the Securities Act and/or sales registered under the Securities Act;
provided,
however,
that in
making such representation, Imperium does not agree to hold the Securities
for
any minimum or specific term and reserves the right to sell, transfer or
otherwise dispose of the Securities at any time in accordance with the
provisions of this Agreement and with Federal and state securities laws
applicable to such sale, transfer or disposition. Imperium
can bear
the economic risk of a total loss of its investment in the Securities and has
such knowledge and experience in business and financial matters so as to enable
it to understand the risks of and form an investment decision with respect
to
its investment in the Securities.
-17-
4.3 Information.
The
Company has, prior to the Execution Date, provided Imperium with information
regarding the business, operations and financial condition of the
Company and
has,
prior to the Execution Date, granted to Imperium the opportunity to ask
questions of and receive answers from representatives of the Company, its
officers, directors, employees and agents concerning the Company in order for
Imperium to make an informed decision with respect to its investment in the
Securities. Neither such information nor any other investigation conducted
by
Imperium or any of its representatives shall modify, amend or otherwise affect
Imperium’s right to rely on the Company’s representations and warranties
contained in this Agreement.
4.4 Limitations
on Disposition.
Imperium acknowledges that, except as provided in the Registration Rights
Agreement, the Securities have not been and are not being registered under
the
Securities Act and may not be transferred or resold without registration under
the Securities Act or unless pursuant to an exemption therefrom.
4.5 Legend.
Imperium understands that the certificates representing the Securities may
bear
at issuance a restrictive legend in substantially the following
form:
“The
securities represented by this certificate have not been registered under the
Securities Act of 1933, as amended (the “Securities Act”), or any state
securities laws, and may not be offered for sale or sold unless a registration
statement under the Securities Act and applicable state securities laws shall
have become effective with respect thereto, or an exemption from registration
under the Securities Act and applicable state securities laws is available
in
connection with such offer or sale. These securities and the securities issuable
upon conversion or exercise hereof (i) may be pledged or hypothecated in
connection with a bona fide margin account or other financing secured by such
securities or (ii) may be transferred or assigned to an affiliate of the holder
hereof without the necessity of an opinion of counsel or the consent of the
issuer hereof.”
Notwithstanding
the foregoing, it is agreed that, as long as (A) the resale or transfer
(including, without limitation, a pledge) of any of the Securities is registered
pursuant to an effective registration statement, (B) such Securities have been
sold pursuant to Rule 144, subject to receipt by the Company of customary
documentation reasonably acceptable to the Company in connection therewith,
or
(C) such Securities are eligible for resale under Rule 144(k) or any successor
provision, such Securities shall be issued without any legend or other
restrictive language and, with respect to Securities upon which such legend
is
stamped, the Company shall issue new certificates without such legend to the
holder upon request. The Company shall execute and deliver written instructions
to the transfer agent for its Common Stock (the “Transfer
Agent”)
as may
be necessary to satisfy any request by a Holder for removal of such legends
no
later than the close of business on the third (3rd)
Business Day following the receipt of the request from a Holder to the extent
such legends may be removed in accordance with this Section
4.5.
-18-
4.6 Reliance
on Exemptions.
Imperium
understands that the Securities are being offered and sold to it in reliance
upon specific exemptions from the registration requirements of U.S. federal
and
state securities laws and that the Company is relying upon the truth and
accuracy of the representations and warranties of Imperium
set
forth in this Section
4
in order
to determine the availability of such exemptions and the eligibility of
Imperium
to
acquire the Securities. Imperium
acknowledges that it did not purchase the Securities based upon any
advertisement in any publication of general circulation. Imperium
is
relying on the representations, acknowledgements and agreements made by the
Company in Section
5
and
elsewhere in this Agreement in making investing, trading and/or other decisions
concerning the Company’s securities.
4.7 Non-Affiliate
Status; Common Stock Ownership.
Imperium
is not
an Affiliate of the Company and is not acting in association or concert with
any
other Person in regard to its purchase of the Securities or otherwise in respect
of the Company. Imperium’s
investment in the Securities is not for the purpose of acquiring, directly
or
indirectly, control of, and it has no intent to acquire or exercise control
of,
the Company or to influence the decisions or policies of the Board of Directors.
4.8
Fees.
Imperium has not agreed to pay any compensation or other fee, cost or related
expenditure to any underwriter, broker, agent or other representative in
connection with the transactions contemplated hereby.
4.9
No
Conflicts. The execution and performance of this Agreement and the other
Transaction Documents to which Imperium
is a
party do not conflict in any material respect with any agreement to which
Imperium
is a
party or is bound, any court order or judgment applicable to Imperium,
or the
constituent documents of Imperium.
4.10 No
Governmental Review. Imperium
understands that no U.S. federal or state agency or any other Governmental
Authority has passed on or made any recommendation or endorsement of the
Securities or the fairness or suitability of an investment in the Securities
nor
have such authorities passed upon the
accuracy of any information provided to Imperium
or made
any findings or determinations as to the merits of the offering of the
Securities.
5. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.
The
Company hereby represents and warrants to Imperium and agrees with Imperium
that, as of the Execution Date:
5.1 Organization,
Good Standing and Qualification.
Each of
the Company and each Company Subsidiary is
duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization and has all requisite power
and authority to carry on its business as now conducted. The Company and each
Company Subsidiary is duly qualified to transact business and is in good
standing in each jurisdiction in which it conducts business except where the
failure so to qualify has not had or would not reasonably be expected to have
a
Material Adverse Effect.
5.2 Authorization;
Consents.
The
Company has the requisite corporate power and authority to enter into and
perform its obligations under the Transaction Documents, to issue and sell
the
Notes and the Warrants to Imperium in accordance with the terms hereof and
thereof, and to issue the Conversion Shares upon conversion of the Convertible
Notes and the Warrant Shares upon exercise of the Warrants. All
corporate action on the part of the Company by its officers, directors and
shareholders necessary for the authorization, execution and delivery of, and
the
performance by the Company of its obligations under, the Transaction Documents
has been taken, and no further consent or authorization of the Company, the
Board of Directors, shareholders, any Governmental Authority (other than such
approval as may be required under the Securities Act and applicable state laws
in respect of the Registration Rights Agreement) or any other Person is required
(pursuant to any rule of the Principal Market or otherwise). The
Board
of Directors has determined that the sale and issuance of the Convertible Notes
and Warrants, and contemplated sale and issuance of the Working Capital Notes,
and the consummation of the transactions contemplated hereby and by the other
Transaction Documents, are in the best interests of the Company.
-19-
5.3 Enforcement.
This
Agreement has been and, at or prior to the Closing, each other Transaction
Document required to be delivered by the terms hereof at the Closing will be,
duly executed and delivered by the Company. This Agreement constitutes and,
upon
the execution and delivery thereof by the Company, each other Transaction
Document will constitute the valid and legally binding obligation of the
Company, enforceable against the Company in accordance with their respective
terms, subject to (i) applicable bankruptcy, insolvency, fraudulent transfer,
moratorium, reorganization or other similar laws of general application relating
to or affecting the enforcement of creditors’ rights generally and (ii) general
principles of equity.
5.4 Disclosure
Documents; Agreements; Financial Statements; Other Information.
The
Company is subject to the reporting requirements of the Exchange Act and, except
as described on Schedule
5.4,
the
Company has filed with the Commission all SEC Documents that the Company was
required to file with the Commission on or after December 31, 2005. The Company
is not aware of any event occurring or expected to occur on or prior to the
Closing Date (other than the transactions effected hereby) that would require
the filing of, or with respect to which the Company intends to file, a Form
8-K
after the Closing. Each SEC Document filed on or after December 31, 2005, as
of
the date of the filing thereof with the Commission (or if amended or superseded
by a filing prior to the Execution Date, then on the date of such amending
or
superseding filing), complied in all material respects with the requirements
of
the Securities Act or Exchange Act, as applicable, and the rules and regulations
promulgated thereunder and, as of the date of such filing (or if amended or
superseded by a filing prior to the Execution Date, then on the date of such
filing), such SEC Document (including all exhibits and schedules thereto and
documents incorporated by reference therein) did not contain an untrue statement
of material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under
which they were made, not misleading. All documents required to be filed as
exhibits to the SEC Documents filed on or after December 31, 2005 have been
filed as required. Except as set forth in the Disclosure Documents, the Company
has no liabilities, contingent or otherwise, other than liabilities incurred
in
the ordinary course of business which, under GAAP, are not required to be
reflected in the financial statements included in the Disclosure Documents
and
which, individually or in the aggregate, are not material to the consolidated
business or financial condition of the Company. As of their respective dates,
the financial statements of the Company included in the SEC Documents complied
as to form in all material respects with applicable accounting requirements
and
the published rules and regulations of the Commission with respect thereto.
Such
financial statements have been prepared in accordance with GAAP consistently
applied at the times and 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 exclude
footnotes or may be condensed or summary statements) and fairly present in
all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end adjustments).
The Company will prepare the financial statements to be included in any reports,
schedules, registration statements and definitive proxy statements that the
Company is required to file or files with the Commission after the date hereof
in accordance with GAAP (except in the case of unaudited interim statements,
to
the extent they may exclude footnotes or may be condensed or summary
statements).
-20-
5.5 Capitalization;
Subsidiaries; Outstanding Debt.
(a) The
capitalization of the Company, including its authorized capital stock, the
number of shares issued and outstanding, the number of shares issuable and
reserved for issuance pursuant to the Company’s stock option plans and
agreements, the number of shares issuable and reserved for issuance pursuant
to
securities (other than the Convertible Note and Warrant) exercisable for, or
convertible into or exchangeable for any shares of Common Stock and the number
of shares initially to be reserved for issuance upon conversion of the
Convertible Note and exercise of the Warrant, is set forth on Schedule
5.5(a).
All
outstanding shares of capital stock of the Company have been, or upon issuance
will be, validly issued, fully paid and non-assessable.
(b) All
of
the Company Subsidiaries are disclosed on Schedule
5.5(b).
None of
the Company Subsidiaries other than C-Chip Technologies Corporation (North
America) and Avensys Inc. has any assets or operations. Except as disclosed
on
Schedule 5.5(b),
the
Company or a wholly-owned Company Subsidiary owns all of the capital stock
of
each Company Subsidiary, which capital stock is validly issued, fully paid
and
non-assessable, and no shares of the capital stock of the Company or any Company
Subsidiary are subject to preemptive rights or any other similar rights of
the
shareholders of the Company or any such Company Subsidiary or any Liens created
by or through the Company or any such Company Subsidiary.
(c) Except
as
disclosed on Schedule
5.5(c)
or as
contemplated herein, there are no outstanding options, warrants, scrip, rights
to subscribe to, calls or commitments of any character whatsoever relating
to,
or securities or rights convertible into or exercisable or exchangeable for,
any
shares of capital stock of the Company or any Company Subsidiary, or
arrangements by which the Company or any Company Subsidiary is or may become
bound to issue additional shares of capital stock of the Company or any Company
Subsidiary (whether
pursuant to anti-dilution, “reset” or other similar provisions).
(d) Schedule
5.5(d)
identifies all Debt of the Company and/or any Company Subsidiary currently
outstanding in excess of $75,000 as of the date hereof.
5.6 Due
Authorization; Valid Issuance.
The
Notes are duly authorized and, when issued, sold and delivered in accordance
with the terms of this Agreement, will be duly and validly issued, free and
clear of any Liens imposed by or through the Company. The Warrants are duly
authorized and, when issued, sold and delivered in accordance with the terms
of
this Agreement, will be duly and validly issued, free and clear of any Liens
imposed by or through the Company. The Conversion Shares issuable under the
Convertible Note and the Warrant Shares issuable under the Warrant are duly
authorized and reserved for issuance and, when issued and delivered in
accordance with the terms of the Convertible Note or the Warrant, as the case
may be, will be duly and validly issued, fully paid and nonassessable, free
and
clear of any Liens imposed by or through the Company. Assuming the accuracy
of
Imperium’s representations contained herein, the issuance and sale of the
Convertible Note and Warrant under this Agreement will be effected in compliance
with all applicable Federal and state securities laws.
-21-
5.7 Form
SB-2.
The
Company is eligible to register the Conversion Shares and Warrant Shares for
resale in a secondary offering by each Holder on a registration statement on
Form SB-2 under the Securities Act.
To the
Company’s knowledge, as
of the
date hereof and as of the Closing Date, there
exist no facts or circumstances (including without limitation any required
approvals or waivers of any circumstances that may delay or prevent the
obtaining of accountant’s consents) that could reasonably be expected to
prohibit or delay the preparation, filing or effectiveness of such registration
statement on Form SB-2.
5.8 No
Conflict.
Neither
the Company nor any Company Subsidiary is in violation of any provisions of
its
charter, bylaws or any other governing document. Neither the Company nor any
Company Subsidiary is in violation of or in default (and no event has occurred
which, with notice or lapse of time or both, would constitute a default) under
any provision of any instrument or contract to which it is a party or by which
it or any of its Property is bound, or in violation of any provision of any
Governmental Requirement applicable to the Company or any Company Subsidiary,
except for any violation or default that has not had or would not reasonably
be
expected to have a Material Adverse Effect. The
(i)
execution, delivery and performance of this Agreement and the other Transaction
Documents and (ii) consummation of the transactions contemplated hereby and
thereby will not result in any violation of any provisions of the Company’s or
any Company Subsidiary’s charter, bylaws or any other governing document or in a
default under any provision of any instrument or contract to which the Company
or any Company Subsidiary is a party or by which it or any of its Property
is
bound, or in violation of any provision of any Governmental Requirement
applicable to the Company or any Company Subsidiary or be in conflict with
or
constitute, with or without the passage of time and giving of notice, a default
under any such provision, instrument or contract or the triggering of any
preemptive or anti-dilution rights (including
without limitation pursuant to any “reset” or similar provisions) or
rights
of first refusal or first offer,
or
any
other rights that would allow or permit the holders of the Company’s securities
or any other Person to purchase shares of Common Stock or other securities
of
the Company or any Company Subsidiary (whether
pursuant to a shareholder rights plan provision or otherwise).
5.9 Financial
Condition; Taxes; Litigation.
5.9.1 The
financial condition of the Company and each Company Subsidiary is, in all
material respects, as described in the Disclosure Documents, except for changes
in the ordinary course of business and normal year-end adjustments that are
not,
in the aggregate, materially adverse to the consolidated business or financial
condition of the Company. There has been no (i) material adverse change to
the
business, operations, properties, financial condition, prospects or results
of
operations of the Company and any Company Subsidiary since the date of the
Company’s most recent financial statements contained in the Disclosure
Documents or
(ii)
change by the Company in its accounting principles, policies and methods except
as required by changes in GAAP.
-22-
5.9.2 The
Company and each Company Subsidiary has prepared in good faith and duly and
timely filed all tax returns required to be filed by it and such returns are
complete and accurate in all material respects and the Company and each Company
Subsidiary has paid all taxes required to have been paid by it, except for
taxes
which it reasonably disputes in good faith or the failure of which to pay has
not had or would not reasonably be expected to have a Material Adverse Effect.
Neither the Company nor any Company Subsidiary has any liability with respect
to
taxes that accrued on or before the date of the most recent balance sheet of
the
Company included in the Disclosure Documents in excess of the amounts accrued
with respect thereto that are reflected on such balance sheet.
5.9.3 Except
for sales tax audits undertaken by state taxing authorities in the ordinary
course of business, neither the Company nor any Company Subsidiary is the
subject of any pending or, to the Company’s knowledge, threatened inquiry,
investigation or administrative or legal proceeding by the Internal Revenue
Service, the taxing authorities of any state or local jurisdiction, the
Commission, the NASD, any state securities commission or other Governmental
Authority.
5.9.4
Other
than as set forth on Schedule
5.9.4,
there
is no material claim, litigation or administrative proceeding pending, or,
to
the Company’s knowledge, threatened or contemplated, against the Company or any
Company Subsidiary, or against any officer, director or employee of the Company
or any such Company Subsidiary in connection with such Person’s employment
therewith. Neither the Company nor any Company Subsidiary is a party to or
subject to the provisions of, any order, writ, injunction, judgment or decree
of
any court or Governmental Authority which has had or would reasonably be
expected to have a Material Adverse Effect.
5.10
Acknowledgement
of Dilution.
The
Company acknowledges that the issuance of Conversion Shares upon conversion
of
the Convertible Note and issuance of the Warrant Shares upon exercise of the
Warrant may result in dilution of the outstanding shares of Common Stock, which
dilution may be substantial under certain market conditions. The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion
of
the Convertible Note in accordance with the terms of the Convertible Note,
and
to issue Warrant Shares upon exercise of the Warrant in accordance with the
terms of the Warrant, is unconditional (other than with respect to the
conditions set forth in the Convertible Note and the Warrant, respectively)
regardless of the effect of any such dilution. The Company further acknowledges
that, to the extent not otherwise prohibited by applicable law, each Holder
may
enter into hedging transactions with respect to the Common Stock.
5.11 Intellectual
Property.
(a) The
Company and each Company Subsidiary own, free and clear of claims or rights
or
any other Person, with full right to use, sell, license, sublicense, dispose
of,
and bring actions for infringement of, or, to the knowledge of the Company,
has
acquired licenses or other rights to use, all Intellectual Property necessary
for the conduct of its business as presently conducted (other than with respect
to software which is generally commercially available and not used or
incorporated into the Company’s or such Company Subsidiary’s products and open
source software which may be subject to one or more “general public” licenses).
All works that are used or incorporated into the Company’s or any Company
Subsidiary’s services, products or services or products actively under
development and which is proprietary to the Company or such Company Subsidiary
was developed by or for the Company or a Company Subsidiary by the current
or
former employees, consultants or independent contractors of the Company or
a
Company Subsidiary or purchased or licensed by the Company or a Company
Subsidiary.
-23-
(b) The
business of the Company and each Company Subsidiary as presently conducted
and
the production, marketing, licensing, use and servicing of any products or
services of the Company and each Company Subsidiary do not, to the knowledge
of
the Company, infringe or conflict with any patent, trademark, copyright, or
trade secret rights of any third parties or any other Intellectual Property
of
any third parties in any material respect. Neither the Company nor any Company
Subsidiary has received written notice from any third party asserting that
any
Intellectual Property owned or licensed by the Company or a Company Subsidiary,
or which the Company or any Company Subsidiary otherwise has the right to use,
is invalid or unenforceable by the Company or such Company Subsidiary and,
to
the Company’s knowledge, there is no valid basis for any such claim (whether or
not pending or threatened).
(c) Other
than as set forth on Schedule
5.11(c),
no
claim is pending or, to the Company’s knowledge, threatened against the Company
or any Company Subsidiary nor has the Company or any Company Subsidiary received
any written notice or other written claim from any Person asserting that the
Company’s or any Company Subsidiary’s present or contemplated activities
infringe or may infringe in any material respect any Intellectual Property
of
such Person, and the Company is not aware of any infringement by any other
Person of any material rights of the Company or any Company Subsidiary under
any
Intellectual Property Rights.
(d) All
licenses or other agreements under which the Company or any Company Subsidiary
is granted Intellectual Property (excluding licenses to use software utilized
in
the Company’s or such Company Subsidiary’s internal operations and which is
generally commercially available) are in full force and effect and, to the
Company’s knowledge, there is no material default by any party thereto. The
Company has no reason to believe that the licensors under such licenses and
other agreements do not have and did not have all requisite power and authority
to grant the rights to the Intellectual Property purported to be granted
thereby.
(e) All
licenses or other agreements under which the Company or any Company Subsidiary
has granted rights to Intellectual Property to others (including all end-user
agreements) are in full force and effect, there has been no material default
by
the Company or any Company Subsidiary thereunder and, to the Company’s
knowledge, there is no material default of any provision thereof relating to
Intellectual Property by any other party thereto.
(f) The
Company and each Company Subsidiary have taken all steps required in accordance
with commercially reasonable business practice to establish and preserve their
ownership in their owned Intellectual Property and to keep confidential all
material technical information developed by or belonging to the Company or
such
Company Subsidiary which has not been patented or copyrighted. To the Company’s
knowledge, neither the Company nor any Company Subsidiary is making any unlawful
use of any Intellectual Property of any other Person, including, without
limitation, any former employer of any past or present employees of the Company
or any Company Subsidiary. To the Company’s knowledge, neither the Company, any
Company Subsidiary nor any of their respective employees has any agreements
or
arrangements with former employers of such employees relating to any
Intellectual Property of such employers, which materially interfere or conflict
with the performance of such employee’s duties for the Company or any Company
Subsidiary or result in any former employers of such employees having any rights
in, or claims on, the Company’s or any Company Subsidiary’s Intellectual
Property. Each current employee of the Company and each Company Subsidiary
has
executed agreements regarding confidentiality, proprietary information and
assignment of inventions and copyrights to the Company or such Company
Subsidiary, as the case may be, each independent contractor or consultant of
the
Company and each Company Subsidiary has executed agreements regarding
confidentiality and proprietary information, and neither the Company nor any
Company Subsidiary has received written notice that any employee, consultant
or
independent contractor is in violation of any agreement or in breach of any
agreement or arrangement with former or present employers relating to
proprietary information or assignment of inventions. Without limiting the
foregoing: (i) the Company and each Company Subsidiary has taken reasonable
security measures to guard against unauthorized disclosure or use of any of
its
Intellectual Property that is confidential or proprietary; and (ii) the Company
has no reason to believe that any Person (including, without limitation, any
former employee or consultant of the Company or any Company Subsidiary) has
unauthorized possession of any of its Intellectual Property, or any part
thereof, or that any Person has obtained unauthorized access to any of its
Intellectual Property. The Company and each Company Subsidiary has complied
in
all material respects with its respective obligations pursuant to all agreements
relating to Intellectual Property rights that are the subject of licenses
granted by third parties, except for any non-compliance that has not had or
would not reasonably be expected to have a Material Adverse Effect.
-24-
5.12 Registration
Rights; Rights of Participation.
Except
as set forth on Schedule
5.12,
the
Company has not granted or agreed to grant to any person or entity any rights
(including “piggy-back” registration rights) to have any securities of the
Company registered with the Commission or any other Governmental Authority
which
has not been satisfied in full or waived on or prior to the date hereof and
no
person or entity, including, but not limited to, current or former shareholders
of the Company, underwriters, brokers, agents or other third parties, has any
right of first refusal, preemptive right, right of participation, anti-dilutive
right or any similar right to participate in, or to receive securities or other
assets of the Company solely as a result of the transactions contemplated by
this Agreement or the other Transaction Documents.
5.13 Solicitation;
Other Issuances of Securities.
Neither
the Company nor any of its Affiliates, nor any Person acting on its or their
behalf, (i) has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D) in connection with the offer
or
sale of the Securities, or (ii) has, directly or indirectly, made any offers
or
sales of any security or the right to purchase any security, or solicited any
offers to buy any security or any such right, under circumstances that would
require registration of the Securities under the Securities Act.
-25-
5.14 Fees.
Except
as set forth on Schedule
5.14,
the
Company is not obligated to pay any brokers, finders or financial advisory
fees
or commissions to any underwriter, broker, agent or other representative in
connection with the transactions contemplated hereby. The Company will indemnify
and hold harmless each Holder from and against any claim by any Person alleging
that such Holder is obligated to pay any such compensation, fee, cost or related
expenditure in connection with the transactions contemplated
hereby.
5.15 Foreign
Corrupt Practices.
Neither
the Company, any Company Subsidiary nor, to the knowledge of the Company, any
director, officer, agent, employee or other Person acting on behalf of the
Company or any Company Subsidiary, has (i) used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity, (ii) made any direct or indirect unlawful payment to
any
foreign or domestic government official or employee, or (iii) violated any
provision of the Foreign Corrupt Practices Act of 1977, as amended, or made
any
bribe, rebate, payoff, influence payment, kickback or other unlawful payment
to
any foreign or domestic government official or employee.
5.16 Key
Employees.
The
Company’s and each Company Subsidiary’s executive officers (as defined in Rule
501(f) of the Securities Act) (each, a “Key
Employee”)
is
currently serving in the capacity described in the Disclosure Documents. The
Company has no knowledge of any fact or circumstance (including, without
limitation, (i) the terms of any agreement to which such person is a party
or
any litigation in which such person is or may become involved and (ii) any
illness or medical condition that could reasonably be expected to result in
the
disability or incapacity of such person) that would limit or prevent any such
person from serving in such capacity on a full-time basis in the foreseeable
future, or of any intention on the part of any such person to limit or terminate
his or her employment with the Company or any Company Subsidiary. No Key
Employee has borrowed money pursuant to a currently outstanding loan that is
secured by Common Stock or any right or option to receive Common Stock.
5.17 Labor
Matters.
There
is no strike, labor dispute or union organization activities pending or, to
the
knowledge of the Company, threatened between the Company or any Company
Subsidiary and their respective employees. No employees of the Company or any
Company Subsidiary belong to any union or collective bargaining unit. The
Company and each Company Subsidiary has complied in all material respects with
all applicable federal and state equal opportunity and other laws related to
employment.
5.18 Environment.
Neither
the Company nor any Company Subsidiary has any liabilities under any
Environmental Law, nor, to the Company's knowledge, do any factors exist that
are reasonably likely to give rise to any such liability, affecting any of
the
properties owned or leased by the Company or any Company Subsidiary. Neither
the
Company nor any Company Subsidiary has violated any Environmental Law applicable
to it now or previously in effect, other than minor violations or infringements
that are immaterial in nature.
5.19 ERISA.
The
Company does not maintain or contribute to, or have any obligation under, any
Pension Plan. The Company is in compliance in all material respects with the
presently applicable provisions of ERISA and the United States Internal Revenue
Code of 1986, as amended, with respect to each Pension Plan except in any such
case for any such matters that, individually or in the aggregate, have not
had,
and would not reasonably be expected to have, a Material Adverse
Effect.
-26-
5.20 Disclosure.
The
representations, warranties and written statements contained in this Agreement
and the other Transaction Documents and in the certificates, exhibits and
schedules delivered to Imperium pursuant to this Agreement and the other
Transaction Documents and in connection with Imperium’s due diligence
investigation of the Company, do not contain any untrue statement of a material
fact, and do not omit to state a material fact required to be stated therein
or
necessary in order to make such representations, warranties or statements not
misleading in light of the circumstances under which they were made. Neither
the
Company nor any Person acting on its behalf or at its direction has provided
Imperium with material non-public information other than the terms of the
transactions contemplated hereby. Following the issuance of a press release
in
accordance with Section
6.1(c),
to the
Company’s knowledge, Imperium will not possess any material non-public
information concerning the Company that was provided to Imperium by the Company
or its agents or representatives. The Company acknowledges that Imperium is
relying on the representations, acknowledgments and agreements made by the
Company in this Section
5.20
and
elsewhere in this Agreement in making trading and other decisions concerning
the
Company’s securities.
5.21 Insurance.
The
Company maintains insurance for itself and each material Company Subsidiary
in
such amounts and covering such losses and risks as are reasonably sufficient
and
customary in the businesses in which the Company and each such Company
Subsidiary are engaged. As
of the
date hereof and as of the Closing Date, no
notice
of cancellation has been received for any of such policies and the Company
is in
compliance in all material respects with all of the terms and conditions
thereof. The Company has no reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue to
conduct its business as currently conducted without a significant increase
in
cost. Without limiting the generality of the foregoing, the Company maintains
Director’s and Officer’s insurance in an amount not less than $5 million for
each covered occurrence.
5.22
Property.
The
Company and each Company Subsidiary have good and marketable title to all real
and personal Property owned by them, in each case free and clear of all Liens,
other than the Liens set forth on Schedule
5.22
and the
Permitted Liens specified in clauses
(b)
through
(d)
in the
definition thereof. Any Property held under lease by the Company or a Company
Subsidiary is held by them under valid, subsisting and enforceable leases with
such exceptions as are not material and do not interfere with the use made
or
proposed to be made of such Property by the Company or such Company Subsidiary.
5.23
Regulatory
Permits. The Company and each Company Subsidiary possess all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective
businesses,
except
where the failure to have any such certificate,
authorization
or permit would not have a Material Adverse Effect,
and
neither the Company nor any Company Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit.
-27-
5.24 Investment
Company Status.
The
Company is not, and immediately after the Closing will not be, an “investment
company”
or
an
entity “controlled”
by
an
“investment
company”
within
the meaning of the Investment Company Act of 1940, as amended (the “Investment
Company Act”),
and
shall conduct its business in a manner so that it will not become subject to
the
Investment Company Act.
5.25 Transfer
Taxes.
No
stock transfer or other taxes (other than income taxes) are required to be
paid
in connection with the issuance and sale of any of the Securities or Working
Capital Notes, other than such taxes for which the Company has established
appropriate reserves and intends to pay in full on or before the
Closing.
5.26 ▇▇▇▇▇▇▇▇-▇▇▇▇▇
Act; Internal Controls and Procedures.
The
Company is in material compliance with any and all applicable requirements
of
the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002, as amended, and any and all applicable rules
and
regulations promulgated by the Commission thereunder that are effective as
of
the date hereof. The Company maintains internal accounting controls, policies
and procedures, and such books and records as are reasonably designed to provide
reasonable assurance that (i)
all
transactions to which the Company or any Company Subsidiary is a party or by
which its properties are bound are effected by a duly authorized employee or
agent of the Company, supervised by and acting within the scope of the authority
granted by the Company’s senior management; (ii)
the
recorded accounting of the Company’s consolidated assets is compared with
existing assets at regular intervals; and
(iii) all
transactions to which the Company or any Company Subsidiary is a party, or
by
which its properties are bound, are recorded (and such records maintained)
in
accordance with all Governmental Requirements and as may be necessary or
appropriate to ensure that the financial statements of the Company are prepared
in accordance with GAAP.
5.27 Embargoed
Person.
None of
the funds or other assets of the Company or any Company Subsidiary shall
constitute property of, or shall be beneficially owned, directly or indirectly,
by any Person subject to trade restrictions under United States law, including,
but not limited to, the International Emergency Economic Powers Act,
50 U.S.C. § 1701 et seq.,
the
Trading with the Enemy Act, 50 U.S.C. App. 1 et seq.,
and any
Executive Orders or regulations promulgated under any such United States laws
(each, an “Embargoed
Person”),
with
the result that the investments evidenced by the Securities or Working Capital
Notes are or would be in violation of any Governmental Requirements. No
Embargoed Person shall have any interest of any nature whatsoever in the Company
or any Company Subsidiary with the result that the investments evidenced by
the
Securities or Working Capital Notes are or would be in violation of any
Governmental Requirements. None of the funds or other assets of the Company
or
any Company Subsidiary shall be derived from any unlawful activity with the
result that the investments evidenced by the Securities or Working Capital
Notes
are or would be in violation of any Governmental Requirements.
5.28 Transactions
with Interested Persons.
No
officer, director or employee of the Company or any Company Subsidiary is or
has
made any arrangements with the Company or any Company Subsidiary to become
a
party to any transaction with the Company or any Company Subsidiary (other
than
for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to
or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to
the
knowledge of the Company, any entity in which any officer, director, or any
such
employee has a substantial interest or is an officer, director, trustee or
partner.
-28-
5.29 Customers
and Suppliers.
The
relationships of the Company and each Company Subsidiary with their respective
customers and suppliers are maintained on commercially reasonable terms. To
the
Company’s knowledge, no customer or supplier of the Company or any Company
Subsidiary has any plan or intention to terminate its agreement with the Company
or any Company Subsidiary, which termination would reasonably be expected to
have a Material Adverse Effect.
5.30 Accountants.
The
Company’s accountants, who
the
Company expects will render their opinion with respect to the financial
statements to be included in the Company’s Annual Report on Form 10-KSB for the
year ended June 30, 2007, are, to the Company’s knowledge, independent
accountants as required by the Securities Act.
5.31 Solvency.
(i) The
fair saleable value of the Company’s assets exceeds the amount that will be
required to be paid on or in respect of the Company’s existing Debt; and (ii)
the expected cash flows of the Company for future periods, together with the
proceeds the Company would receive upon liquidation of its assets and the
proceeds from expected debt or equity offerings, after taking into account
all
anticipated uses of such amounts, would be sufficient to pay all Debt when
such
Debt is required to be paid. The Company has no knowledge of any facts or
circumstances which led it to believe that it will be required to file for
reorganization or liquidation under bankruptcy or reorganization laws of any
jurisdiction, and has no present intention to so file.
5.32 Tangible
Assets; Inventory; Accounts Receivable.
(i) The
Consolidated Tangible Assets are equal to or greater than the Tangible Asset
Threshold and (ii) the Consolidated Accounts and Inventory are equal to or
greater than the Accounts and Inventory Threshold.
6. COVENANTS
AND AGREEMENTS.
6.1 Filings
and Public Disclosure by the Company.
The
Company shall:
(a) file
a
Form D with respect to the Securities issued at the Closing as and when required
under Regulation D and provide a copy thereof to Imperium promptly after such
filing;
(b) at
or
prior to the Closing, take such action as the Company reasonably determines
upon
the advice of counsel is necessary to qualify the Securities for sale under
applicable state or “blue-sky” laws or obtain an exemption therefrom, and shall
promptly provide evidence of any such action to Imperium at Imperium’s request;
and
(c) (i)
on or
prior to 8:30 a.m. (eastern time) on the fourth Business Day
following the Execution Date,
issue a
press release disclosing the material terms of this Agreement and the other
Transaction Documents and the transactions contemplated hereby and thereby,
and
(ii) on or prior to 5:00 p.m. (eastern time) on the fourth Business Day
following the Execution Date,
file
with the Commission a Current Report on Form 8-K disclosing the material terms
of and including as exhibits this Agreement and the other Transaction Documents
and the transactions contemplated hereby and thereby; provided,
however,
that
each Holder shall have a reasonable opportunity to review and comment on any
such press release or Form 8-K prior to the issuance or filing thereof; and
provided,
further,
that if
the Company fails to issue a press release disclosing the material terms of
this
Agreement and the other Transaction Documents within the time frames described
herein, any Holder may issue a press release disclosing such information without
any notice to or consent by the Company. Thereafter, the Company shall timely
file any filings and notices required by the Commission or applicable law with
respect to the transactions contemplated hereby.
-29-
6.2 Use
of
Proceeds.
The
Company shall use the proceeds from the sale of the Convertible Notes and
Warrant for working capital and general corporate purposes.
6.3 Certain
Affirmative Covenants of the Company.
The
Company agrees that, during the period beginning on the Execution Date and
ending on the Termination Date, the Company shall, and shall cause each Company
Subsidiary to:
(a) maintain
its corporate existence in good standing;
(b) comply
with all Governmental Requirements applicable to the operation of its business,
except for instances of noncompliance that would not reasonably be expected
to
have, individually or in the aggregate, a Material Adverse Effect;
(c) comply
with all agreements, documents and instruments binding on it or affecting its
Properties or business, including, without limitation, all Material Contracts,
except for instances of noncompliance that would not reasonably be expected
to
have, individually or in the aggregate, a Material Adverse Effect;
(d) provide
each Holder with copies of all materials sent to its shareholders at the same
time as such materials are delivered to such shareholders;
(e) timely
file with the Commission all reports required to be filed pursuant to the
Exchange Act and refrain from terminating its status as an issuer required
by
the Exchange Act to file reports thereunder even if the Exchange Act or the
rules or regulations thereunder would permit such termination;
(f) ensure
that the Common Stock is at all times
listed
or quoted on the OTC Bulletin Board, the New York Stock Exchange, the NASDAQ
Capital Market, the American Stock Exchange, or such other exchange or quotation
service reasonably satisfactory to the Holders; and
(g) maintain
commercially reasonable insurance coverage (including D&O insurance) for the
Company and each Company Subsidiary.
-30-
6.4 Certain
Negative Covenants of the Company.
The
Company agrees that, during the period beginning on the Execution Date and
ending on the Termination Date, the Company shall not, and shall cause each
Company Subsidiary not to:
(a) enter
into any transaction or arrangement with any Affiliate, employee, officer,
director or shareholder of the Company or Company Subsidiary, unless such
transaction is effectuated on an arms’ length basis and approved by the
independent directors of the Company or such Company Subsidiary, as the case
may
be;
(b) incur
(or
permit to exist) any Debt other than Permitted Debt;
(c) grant,
establish or maintain any Lien on any of its Property other than Permitted
Liens;
(d) make
any
Restricted Payments other than Restricted Payments made by a Company Subsidiary
to the Company;
(e) dispose
of all or any part of its Property unless (i) such disposition is in the
ordinary course of business and for fair market value, and (ii) such Property
is
not material to the Company’s or any Company Subsidiary’s business, operations
or financial condition or performance;
(f) consent
to or implement any termination, amendment, modification, supplement or waiver
of the certificate or articles of incorporation, articles of organization,
bylaws, regulations or other constituent documents of the Company or any Company
Subsidiary which could reasonably be expected to adversely affect the rights
of
the Holders under the Transaction Documents; and
(g) effectuate
a Subsequent Placement of (x) any Variable Rate Security or (y) any securities
of a Company Subsidiary.
6.5 Use
of
Holder’s Name.
Except
as may be required by applicable law and/or this Agreement, the Company shall
not use, directly or indirectly, any Holder’s name or the name of any of its
Affiliates in any advertisement, announcement, press release or other similar
communication unless it has received the prior written consent of such Holder
for the specific use contemplated or as otherwise required by applicable law
or
regulation.
6.6 Reservation
of Common Stock.
The
Company shall, on the Closing Date, have authorized and reserved for issuance
to
the Holders free from any preemptive rights, and shall keep available at all
times during which any Convertible Notes, Warrants, or Advisory Fee Warrants
are
outstanding, a number of shares of Common Stock (the “Reserved
Amount”)
that,
on the Closing Date, is not less than two hundred percent (200%) of (i) the
number of Conversion Shares issuable upon conversion of the Convertible Note
to
be issued at the Closing in full plus
(ii) the
number of Warrant Shares issuable upon exercise of the Warrant to be issued
at
the Closing in full plus
(iii)
the number of Advisory Fee Warrant Shares issuable upon exercise of the Advisory
Fee Warrant, in each case without regard to any limitation or restriction on
such conversion or exercise that may be set forth in the Convertible Note,
Warrant, or the Advisory Fee Warrant. The Reserved Amount shall be allocated
among the Holders in accordance with each Holder’s pro
rata
share of
the outstanding Convertible Notes, Warrants and Advisory Fee Warrants. In the
event that a Holder shall sell or otherwise transfer any of such Holder’s
Convertible Notes, Warrants or Advisory Fee Warrants, each transferee shall
be
allocated a pro
rata
portion
of such transferor’s Reserved Amount. Any portion of the Reserved Amount
allocated to any Holder or other Person which no longer holds any Convertible
Notes, Warrants, or Advisory Fee Warrants shall be reallocated to the remaining
Holders pro
rata
based on
the number of the Registrable Securities held by such Holders at such time.
In
the event that the Reserved Amount is insufficient at any time to cover one
hundred twenty five percent (125%) of the Registrable Securities issuable upon
the conversion of the Convertible Notes and exercise of the Warrants and
Advisory Fee Warrants (without regard to any restriction on such conversion
or
exercise), the Company shall take such action (including, without limitation,
holding a meeting of its shareholders) to increase the Reserved Amount to cover
two hundred percent (200%) of such Registrable Securities, such increase to
be
effective not later than the thirtieth (30th) day (or sixtieth (60th) day,
in
the event shareholder approval is required for such increase) following the
date
on which the Reserved Amount became insufficient hereunder. While any
Convertible Notes, Warrants or Advisory Fee Warrants are outstanding, the
Company shall not reduce the Reserved Amount without obtaining the prior written
consent of each Holder then holding a Convertible Note, Warrant or Advisory
Fee
Warrant.
-31-
6.7 Disclosure
of Non-Public Information.
The
Company agrees that it will not at any time following the Execution Date
disclose material non-public information to any Holder without first obtaining
such Holder’s prior written consent confirming that such Holder is willing to
receive material non-public information at such time.
6.8 Guarantee
by Company Subsidiaries. During the period beginning on the date hereof and
ending on the Termination Date, if the Company creates or acquires any new
Company Subsidiary that has, or any existing Company Subsidiary develops or
acquires, any business operations or owns any material assets, then the Company
shall cause such new or existing Company Subsidiary to, contemporaneously with
such creation, acquisition or development, become party to the Security
Documents.
6.9 Indemnification
of Holders.
The
Company will indemnify and hold each Holder and its directors, managers,
officers, shareholders, members, partners, employees and agents (each, a
“Holder
Party”)
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation that any such Holder Party may suffer or incur as a result of
or
relating to (a) any breach of any of the representations, warranties, covenants
or agreements made by the Company in this Agreement or by the Company or any
Company Subsidiary in the other Transaction Documents or (b) any action
instituted against a Holder, or any of its Affiliates, by any shareholder of
the
Company who is not an Affiliate of such Holder, with respect to any of the
transactions contemplated by the Transaction Documents (unless such action
is
based upon a breach of such Holder’s representation, warranties or covenants
under the Transaction Documents or any agreements or understandings such Holder
may have with any such shareholder or any violations by such Holder of state
or
federal securities laws or any conduct by such Holder which constitutes fraud,
gross negligence, willful misconduct or malfeasance). If any action shall be
brought against any Holder Party in respect of which indemnity may be sought
pursuant to this Agreement, such Holder Party shall promptly notify the Company
in writing, and the Company shall have the right to assume the defense thereof
with counsel of its own choosing. Any Holder Party shall have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense
of
such Holder Party except to the extent that (i) the employment thereof has
been
specifically authorized by the Company in writing, (ii) the Company has failed
after a reasonable period of time following such Holder Party’s written request
that it do so, to assume such defense and to employ counsel or (iii) in such
action there is, in the reasonable opinion of such separate counsel, a material
conflict on any material issue between the position of the Company and the
position of such Holder Party. The Company will not be liable to any Holder
Party under this Agreement (i) for any settlement by a Holder Party effected
without the Company’s prior written consent, which shall not be unreasonably
withheld or delayed; or (ii) to the extent, but only to the extent that a loss,
claim, damage or liability is attributable to such Holder Party’s wrongful
actions or omissions, or gross negligence or to such Holder Party’s breach of
any of the representations, warranties, covenants or agreements made by such
Holder in this Agreement or in the other Transaction Documents.
-32-
6.10 Limitations
on Disposition.
No
Holder shall sell, transfer, assign or dispose of any Securities,
unless:
(a) there
is
then in effect an effective registration statement under the Securities Act
covering such proposed disposition and such disposition is made in accordance
with such registration statement; or
(b) such
Holder has notified the Company in writing of any such disposition, and
furnished the Company with an opinion of counsel, reasonably satisfactory to
the
Company, that such disposition will not require registration of such Securities
under the Securities Act; provided,
however,
that no
such opinion of counsel will be required (A) if the sale, transfer,
assignment or disposition is made to an Affiliate of such Holder, (B) if the
sale, transfer, assignment or disposition is made pursuant to Rule 144 and
such Holder provides the Company with evidence reasonably satisfactory to the
Company that the proposed transaction satisfies the requirements of Rule 144,
(C) if such
Securities are eligible for resale under Rule 144(k) or any successor
provision
or
(D) if in connection with a bona
fide
pledge
or hypothecation of any Securities under a margin arrangement with a
broker-dealer or other financial institution or the sale of any such Securities
by such broker-dealer or other financial institution following such Holder’s
default under such margin arrangement.
6.11 Consolidated
Tangible Assets. During
the period beginning on the date hereof and ending on the Termination Date,
the
Consolidated Tangible Assets shall on the last Business Day of each calendar
month be equal to or exceed the Tangible Asset Threshold. If, at any time or
from time to time during the period beginning on the date hereof and ending
on
the Termination Date, the Consolidated Tangible Assets on the last Business
Day
of a calendar month are less than the Tangible Asset Threshold on such Business
Day, the Holder shall have the option to notify the Company in writing demanding
the Company prepay the Notes then outstanding by an amount equal to such
shortfall on a pro
rata basis
in
proportion to the outstanding principal of each such Note. In furtherance of
the
foregoing financial covenant, the Company shall, on or prior to the thirtieth
(30th)
day
following each calendar month following the date hereof, deliver to Imperium
a
certificate certified by the Chief Financial Officer of the Company certifying
(i) that the Company is in compliance with the foregoing financial covenant
as
of the last Business Day of such calendar month; or (ii) if the Company is
not
in compliance with the foregoing financial covenant, the amount of such
shortfall.
-33-
6.12 Consolidated
Accounts and Inventory.
During
the period beginning on the date hereof and ending on the Termination Date,
the
Consolidated Accounts and Inventory shall on the last Business Day of each
calendar month be equal to or exceed the Accounts and Inventory Threshold.
If,
at any time or from time to time during the period beginning on the date hereof
and ending on the Termination Date, the Consolidated Accounts and Inventory,
on
the last Business Day of a calendar month are less than the Accounts and
Inventory Threshold, the Holder shall have the option to notify the Company
in
writing demanding the Company prepay the Notes then outstanding by an amount
equal to such shortfall on a pro
rata basis
in
proportion to the outstanding principal of each such Note. In furtherance of
the
foregoing financial covenant, the Company shall, on or prior to the thirtieth
(30th)
day
following each calendar month following the date hereof, deliver to Imperium
a
certificate certified by the Chief Financial Officer of the Company certifying
(i) that the Company is in compliance with the foregoing financial covenant
as
of the last Business Day of such calendar month; or (ii) if the Company is
not
in compliance with the foregoing financial covenant, the amount of such
shortfall.
7. MISCELLANEOUS.
7.1 Survival;
Severability.
The
representations, warranties, covenants and indemnities made by the parties
herein and in the other Transaction Documents shall survive the Closing
notwithstanding any due diligence investigation made by or on behalf of the
party seeking to rely thereon. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided
that in
such case the parties shall negotiate in good faith to replace such provision
with a new provision which is not illegal, unenforceable or void, as long as
such new provision does not materially change the economic benefits of this
Agreement to the parties.
7.2 Successors
and Assigns.
The
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and permitted assigns of the parties.
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and permitted
assigns any rights, remedies, obligations or liabilities under or by reason
of
this Agreement, except as expressly provided in this Agreement. A Holder may
assign its rights and obligations hereunder in connection with any private
sale
or transfer of the Securities or any Working Capital Note, as long as, as a
condition precedent to such transfer, the transferee executes an acknowledgment
agreeing to be bound by the applicable provisions of this Agreement, in which
case the term “Holder” shall be deemed to refer to such transferee as though
such transferee were an original signatory hereto, and such assignment complies
with applicable Governmental Requirements. The Company may not assign its rights
or obligations under this Agreement.
-34-
7.3 No
Reliance.
Each
party acknowledges that (i) it has such knowledge in business and financial
matters as to be fully capable of evaluating this Agreement, the other
Transaction Documents and the transactions contemplated hereby and thereby,
(ii)
it is not relying on any advice or representation of any other party in
connection with entering into this Agreement, the other Transaction Documents
or
such transactions (other than the representations made in this Agreement
or the
other Transaction Documents), (iii) it has not received from any other party
any
assurance or guarantee as to the merits (whether legal, regulatory, tax,
financial or otherwise) of entering into this Agreement or the other Transaction
Documents or the performance of its obligations hereunder and thereunder,
and
(iv) it has consulted with its own legal, regulatory, tax, business, investment,
financial and accounting advisors to the extent that it has deemed necessary,
and has entered into this Agreement and the other Transaction Documents based
on
its own independent judgment and, if applicable, on the advice of such advisors,
and not on any view (whether written or oral) expressed by any other
party.
7.4
Independent
Nature of Holders’ Obligations and Rights.
The
obligations of each Holder hereunder are several and not joint with the
obligations of the other Holders hereunder, and no Holder shall be responsible
in any way for the performance of the obligations of any other Holder hereunder.
The Company acknowledges and agrees that nothing contained herein or in any
other Transaction Document, and no action taken by any Holder pursuant hereto
or
thereto, shall be deemed to constitute the Holders as a partnership, an
association, a joint venture or any other kind of entity, or a “group” as
described in Section 13(d) of the Exchange Act, or create a presumption that
the
Holders are in any way acting in concert with respect to such obligations
or the
transactions contemplated by this Agreement. Each Holder has been represented
by
its own separate counsel in connection with the transactions contemplated
hereby, shall be entitled to protect and enforce its rights, including, without
limitation, rights arising out of this Agreement or the other Transaction
Documents, individually, and shall not be required to join any other Holder
as
an additional party in any proceeding for such purpose.
7.5 Injunctive
Relief.
The
Company acknowledges and agrees that a breach by it of its obligations hereunder
will cause irreparable harm to each Holder and that the remedy or remedies
at
law for any such breach will be inadequate and agrees, in the event of any
such
breach, in addition to all other available remedies, such Holder shall be
entitled to an injunction restraining any breach and requiring immediate
and
specific performance of such obligations without the necessity of showing
economic loss or the posting of any bond.
7.6 Governing
Law; Jurisdiction; Waiver of Jury Trial.
(a) This
Agreement shall be governed by and construed under the laws of the State
of New
York applicable to contracts made and to be performed entirely within the
State
of New York. Each party hereby irrevocably submits to the exclusive jurisdiction
of the state and federal courts sitting in the City and County of New York
for
the adjudication of any dispute hereunder or any other Transaction Document
or
in connection herewith or therewith or with any transaction contemplated
hereby
or thereby, and hereby irrevocably waives, and agrees not to assert in any
suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding
is
improper. Each party hereby irrevocably waives personal service of process
and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices
to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein
shall
be deemed to limit in any way any right to serve process in any manner permitted
by law.
-35-
(b) EACH
PARTY TO THIS AGREEMENT ACKNOWLEDGES AND AGREES THAT ANY DISPUTE OR CONTROVERSY
THAT MAY ARISE UNDER THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS IS
LIKELY
TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH PARTY HEREBY
IRREVOCABLY
AND
UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING
TO
THIS AGREEMENT, OR THE BREACH, TERMINATION OR VALIDITY OF THIS AGREEMENT
OR THE
OTHER TRANSACTION DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
EACH PARTY TO THIS AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (I) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION,
SEEK
TO ENFORCE THE FOREGOING WAIVER, (II) EACH SUCH PARTY UNDERSTANDS AND HAS
CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III) EACH SUCH PARTY MAKES THIS
WAIVER VOLUNTARILY, AND (IV) EACH SUCH PARTY HAS BEEN INDUCED TO ENTER INTO
THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN
THIS
SECTION
7.6(b).
7.7 Counterparts.
This
Agreement may be executed in any number of counterparts, each of which shall
be
deemed an original, and all of which together shall constitute one and the
same
instrument. This Agreement may be executed and delivered by facsimile
transmission.
7.8 Headings.
The
headings used in this Agreement are used for convenience only and are not
to be
considered in construing or interpreting this Agreement.
7.9 Notices.
Any
notice, demand or request required or permitted to be given by the Company
or
the Holder pursuant to the terms of this Agreement shall be in writing and
shall
be deemed delivered (i) when delivered personally or by verifiable facsimile
transmission, unless such delivery is made on a day that is not a Business
Day,
in which case such delivery will be deemed to be made on the next succeeding
Business Day, (ii) on the next Business Day after timely delivery to an
overnight courier and (iii) on the Business Day actually received if deposited
in the U.S. mail (certified or registered mail, return receipt requested,
postage prepaid), addressed as follows:
If
to
the Company:
Manaris
Corporation
▇▇▇
▇▇▇▇.
▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇
▇▇▇▇▇▇
▇▇▇ ▇▇▇
Attn:
▇▇▇▇ ▇▇▇▇▇▇, Chief Executive Officer
Tel:
▇▇▇-▇▇▇-▇▇▇▇
Fax:
▇▇▇-▇▇▇-▇▇▇▇
-36-
With
a copy (which
shall not constitute notice) to:
Sichenzia
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ LLP
▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇
▇▇▇
▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇
▇▇▇▇▇▇, Esq.
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
and
if to
any Holder, to such address for such Holder as shall appear on such Holder’s
signature page hereto, or as shall be designated by such Holder in writing
to
the Company in accordance with this Section
7.9.
7.10 Expenses.
The
Company and each Holder shall pay all costs and expenses that it incurs in
connection with the negotiation, execution, delivery and performance of this
Agreement or the other Transaction Documents; provided,
however,
that
the Company shall, at the Closing, pay to Imperium’s counsel the amount of
$67,500 in immediately available funds as reimbursement for its out-of-pocket
expenses (including, without limitation, legal fees and expenses) incurred
or to
be incurred by it in connection with its due diligence investigation of the
Company and the negotiation, preparation, execution, delivery and performance
of
this Agreement and the other Transaction Documents.
At the
Closing, the amount due for such fees and expenses may be netted out of the
Purchase Price payable by Imperium.
7.11 Entire
Agreement; Amendments.
This
Agreement and the other Transaction Documents constitute the entire agreement
between the parties with regard to the subject matter hereof and thereof,
superseding all prior agreements or understandings, whether written or oral,
between or among the parties. Except as expressly provided herein, neither
this
Agreement nor any term hereof may be amended except pursuant to a written
instrument executed by the Company and (i) prior to the Termination Date, by
the
holders of a majority of the aggregate principal of the Notes then outstanding,
and (ii) on and after the Termination Date, by the holders of a majority of
the
aggregate number of the Warrant Shares into which the Warrants then outstanding
are exercisable (without
regard to any limitation on the exercise of the Warrants). Any
waiver or consent shall be effective only in the specific instance and for
the
specific purpose for which given.
[Signature
Pages to Follow]
-37-
IN
WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first-above written.
MANARIS
CORPORATION
By:
Name:
Title:
IMPERIUM
MASTER FUND, LTD.
By:
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, Esq.
General
Counsel
|
Stated
Principal Amount of Convertible Note Purchased at Closing:
|
$ | 4,708,900 | ||
|
Number
of Shares into which Warrant Exercisable:
|
20,276,190 |
ADDRESS:
c/o
Imperium Advisers, LLC
▇▇▇
▇▇▇▇
▇▇▇▇
▇▇▇▇▇▇-
▇▇▇▇
▇▇▇▇▇
▇▇▇
▇▇▇▇,
▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, Esq.
Tel:
(▇▇▇) ▇▇▇-▇▇▇▇
Fax:
(▇▇▇) ▇▇▇-▇▇▇▇
-38-
Schedule
3.2.3
Acquisition
Information
In
addition to any other information requested by the Holders, the following
information shall be provided to the Holders in respect of each proposed
Acquisition:
|
1.
|
the
purchase price and all other anticipated transaction costs of such
Acquisition;
|
|
2.
|
a
description of the assets, business or operations being acquired
(including the name of the Acquisition target, if
applicable);
|
|
3.
|
the
total Debt and other liabilities of such Acquisition target, including
a
breakdown of the liabilities that will be assumed by the Company
versus
the liabilities that will be paid off at closing (along with copies
of all
applicable payoff letters);
|
|
4.
|
a
list of all Liens encumbering such Acquisition target or its
assets;
|
|
5.
|
the
Acquisition target’s existing insurance
protection;
|
|
6.
|
the
annual revenues of such Acquisition
target;
|
|
7.
|
the
anticipated annual revenues per dollar of the purchase price of such
Acquisition;
|
|
8.
|
the
book value of the assets being
purchased;
|
|
9.
|
the
market value of the assets being
purchased;
|
|
10.
|
the
net value of the assts being purchased (i.e. the book value of the
assets
being purchased less the liabilities being
assumed);
|
|
11.
|
the
net assets per dollar of the purchase price of such Acquisition;
and
|
|
12.
|
the
annual revenues plus net assets per dollar of the purchase price
of such
Acquisition.
|
-39-