EXHIBIT 10.37
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NOTE PURCHASE AGREEMENT
DATED AS OF
MAY 30, 2003
AMONG
MIGRATEC, INC.
AND
THE INVESTORS
WHO EXECUTE COUNTERPART SIGNATURE PAGES HERETO
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TABLE OF CONTENTS
PAGE
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SECTION 1. DEFINITIONS...........................................................................................1
SECTION 2. ISSUANCE OF THE NOTES.................................................................................4
2.1 Agreement to Issue the Notes..............................................................................4
2.2 Advances under the Notes..................................................................................4
2.3 Security Agreement........................................................................................4
2.4 Issuance of Common Stock..................................................................................4
2.5 The Initial Closing.......................................................................................5
2.6 Subsequent Closings.......................................................................................5
2.7 Funding Fee...............................................................................................6
2.8 Default...................................................................................................6
2.9 Notice of Default and Remedies............................................................................7
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION.....................................................7
3.1 Organization, Good Standing and Power.....................................................................7
3.2 Authorization; Enforcement................................................................................8
3.3 Authorization of Reserved Shares..........................................................................8
3.4 No Conflicts..............................................................................................8
3.5 SEC Documents, Financial Statements.......................................................................9
3.6 No Material Adverse Effect................................................................................9
3.7 No Undisclosed Liabilities................................................................................9
3.8 No Undisclosed Events or Circumstances....................................................................9
3.9 Indebtedness.............................................................................................10
3.10 Title to Assets.........................................................................................10
3.11 Actions Pending.........................................................................................10
3.12 No Violation of Law.....................................................................................10
3.13 Operation of Business...................................................................................10
3.14 Books and Records.......................................................................................10
3.15 Absence of Certain Developments.........................................................................10
3.16 No Consent or Approval Required.........................................................................11
3.17 Taxes...................................................................................................12
3.18 Offering................................................................................................12
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS......................................................12
4.1 Authorization; Enforcement...............................................................................12
4.2 Investment Representations...............................................................................12
4.3 No Violation of Law......................................................................................13
4.4 No Consent or Approval Required..........................................................................13
4.5 No Short Sales...........................................................................................13
SECTION 5. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE INVESTORS AT THE INITIAL CLOSING..........................13
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5.1 Corporate Proceedings; Consents; Etc.....................................................................14
5.2 Blue Sky Matters.........................................................................................14
5.3 Notes....................................................................................................14
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE CORPORATION AT THE INITIAL CLOSING........................14
6.1 Blue Sky Matters.........................................................................................14
6.2 Delivery of Consideration by the Investors...............................................................14
SECTION 7. COVENANTS............................................................................................14
7.1 Information Rights.......................................................................................14
7.2 Transfer of Securities...................................................................................15
7.3 Registration Rights......................................................................................16
7.4 Use of Proceeds..........................................................................................16
7.5 Restriction on Short Sales...............................................................................16
SECTION 8. INDEMNIFICATION......................................................................................17
8.1 Indemnification by the Corporation.......................................................................17
8.2 Indemnification by the Investors.........................................................................17
8.3 Limitations Regarding Indemnification Obligations of the Corporation.....................................17
8.4 Limitations Regarding Indemnification Obligations of the Investors.......................................17
8.5 Conditions of Indemnification............................................................................18
8.6 Claim Disputes...........................................................................................18
SECTION 9. EXPENSES.............................................................................................19
SECTION 10. NOTICES.............................................................................................19
SECTION 11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES..........................................................20
SECTION 12. FURTHER ASSURANCES..................................................................................20
SECTION 13. REMEDIES............................................................................................20
13.1 General.................................................................................................20
13.2 Remedies Cumulative.....................................................................................20
SECTION 14. NO THIRD-PARTY BENEFICIARIES........................................................................20
SECTION 15. INDEPENDENCE OF COVENANTS AND REPRESENTATIONS AND WARRANTIES........................................21
SECTION 16. SEVERABILITY........................................................................................21
SECTION 17. SUCCESSORS AND ASSIGNS..............................................................................21
SECTION 18. AMENDMENTS..........................................................................................21
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SECTION 19. ENTIRE AGREEMENT....................................................................................21
SECTION 20. COUNTERPARTS........................................................................................21
SECTION 21. HEADINGS............................................................................................22
SECTION 22. GENDER..............................................................................................22
SECTION 23. GOVERNING LAW.......................................................................................22
SECTION 24. CONFIDENTIALITY.....................................................................................22
LIST OF EXHIBITS:
EXHIBIT A - Form of Convertible Secured Promissory Note
EXHIBIT B - Form of Common Stock Purchase Warrant
LIST OF SCHEDULES:
SCHEDULE 3.4 - No Conflicts
SCHEDULE 3.7 - No Undisclosed Liabilities
SCHEDULE 3.15 - Absence of Certain Developments
SCHEDULE 3.17 - Taxes
iii
MIGRATEC, INC.
NOTE PURCHASE AGREEMENT
This Note Purchase Agreement (this "Agreement") is made and entered
into as of this 30th day of May, 2003, by and between MigraTEC, Inc., a Delaware
corporation (the "Corporation"), and the Persons whose names are set forth in
Schedule 1 hereto who execute counterpart signature pages to this Agreement
(each an "Investor" and collectively, the "Investors").
RECITALS:
WHEREAS, the Investors have agreed to provide financing to the
Corporation in an initial amount of not less than Three Hundred Thousand Dollars
($300,000) (the "Initial Loan Amount") pursuant to the terms of Convertible
Secured Promissory Notes of the Corporation in the form attached hereto as
Exhibit A (each such note, together with all renewals, extensions, modifications
and rearrangements thereof, a "Note" and collectively, the "Notes");
WHEREAS, the Investors have agreed to make additional loans to the
Corporation in one or more subsequent closings hereunder (each, a "Subsequent
Closing") in the aggregate amount of up to One Million Seven Hundred Thousand
Dollars ($1,700,000) which, together with the Initial Loan Amount, shall equal
up to Two Million Dollars ($2,000,000) in the aggregate (the aggregate amount of
principal advanced by the Investors hereunder shall be referred to herein as the
"Total Loan Amount");
WHEREAS, the parties desire for the Notes to be convertible as soon as
practical into shares of the Corporation's common stock, par value $0.001 per
share ("Common Stock"), as described herein; and
WHEREAS, as consideration for each Investor entering into this
Agreement and providing the financing described herein, the Corporation shall
issue to each Investor one or more warrants containing the terms and conditions
as set forth on Exhibit B attached hereto (each, a "Warrant" and, collectively,
the "Warrants") to purchase the number of shares of Common Stock set forth
therein.
NOW, THEREFORE, in consideration of the foregoing and for other
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Corporation and the Investors agree as follows:
AGREEMENT:
SECTION 1. DEFINITIONS. The following terms have the meanings set forth
below:
"Additional Investor" shall have the meaning set forth in Section 2.6.
Effective upon an Additional Investor's execution of a counterpart signature
page to this Agreement as provided herein, the term "Investor," as used herein,
shall also mean "Additional Investor."
"Affiliate" means as to any Person or any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control of such Person. For purposes of this definition, "control," when used
with respect to any Person, means the power to direct the management and
policies
NOTE PURCHASE AGREEMENT - Page 1
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agreement" shall have the meaning set forth in the preamble.
"Automatic Conversion" shall have the meaning set forth in Section
2.4(b).
"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the State of
Texas are authorized or required by Law or other government actions to close.
"Claims" shall have the meaning set forth in Section 8.2.
"Collateral Agent" shall have the meaning set forth in the Security
Agreement.
"Common Stock" shall have the meaning set forth in the RECITALS.
"Conversion" shall have the meaning set forth in Section 2.4(a).
"Conversion Price" shall have the meaning set forth in Section 2.4(a).
"Corporation" shall have the meaning set forth in the preamble.
"Corporation Claims" shall have the meaning set forth in Section 8.2.
"Corporation Group" shall have the meaning set forth in Section 8.2.
"Corporation Group Damages" shall have the meaning set forth in Section
8.2.
"▇▇▇▇▇ System" means the SEC's Electronic Data Gathering, Analysis, and
Retrieval System.
"Event of Default" shall have the meaning set forth in Section 2.7.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Financial Statements" means the Corporation's financial statements
consisting of a balance sheet and related statements of income, cash flows and
owners' equity.
"Funding Fee" shall have the meaning set for in Section 2.7.
"GAAP" means generally accepted accounting principles, consistently
applied.
"Indebtedness" means (a) any liabilities for borrowed money or amounts
owed in excess of $500,000 (other than trade accounts payable incurred in the
ordinary course of business), (b) all guaranties, endorsements and contingent
obligations in respect of Indebtedness of others, whether or not the same are or
should be reflected in the Corporation's balance sheet (or the notes thereto),
except guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course
NOTE PURCHASE AGREEMENT - Page 2
of business; and (c) the present value of any lease payments in excess of
$500,000 due under leases required to be capitalized in accordance with GAAP.
"Initial Advance," shall have the meaning set forth in the Notes.
"Initial Closing" shall have the meaning set forth in Section 2.5.
"Initial Closing Date" shall have the meaning set forth in Section 2.5.
"Initial Loan Amount" shall have the meaning set forth in the RECITALS.
"Investor" or "Investors" shall have the meaning set forth in the
preamble.
"Investor Claims" shall have the meaning set forth in Section 8.1.
"Investor Group" shall have the meaning set forth in Section 8.1.
"Investor Group Damages" shall have the meaning set forth in Section
8.1.
"Law" or "Laws" means any statute, law, ordinance, regulation, rule,
order, writ, injunction or decree of any state, commonwealth, federal, foreign,
territorial or other court or government body, subdivision, agency, department,
commission, board, bureau or instrumentality of a governmental body.
"Loan Documents" means, collectively, this Agreement, the Notes, the
Security Agreement, the Warrants and any and all agreements, documents,
instruments and other writings contemplated by this Agreement and all amendments
modifications, renewals, extensions, increases, supplements and restatements of
any of the foregoing.
"Material Adverse Effect" means any event, occurrence, fact, condition,
change or effect that is materially adverse to the business, operations,
prospects, results of operations, prospects, condition (financial or otherwise),
properties (including intangible properties), assets (including intangible
assets) or liabilities of any Person.
"Maturity" shall have the meaning set forth in the Notes.
"Note" or "Notes" shall have the meaning set forth in the RECITALS.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Pro Rata Portion" shall mean, in the case of each Investor, the pro
rata portion of the Total Loan Amount owing to such Investor under the Notes.
"Registration Statement" shall have the meaning set forth in Section
7.3.
"Reserved Shares" shall have the meaning set forth in Section 2.4(c).
NOTE PURCHASE AGREEMENT - Page 3
"SEC" means the Securities and Exchange Commission.
"SEC Documents" means the Corporation's latest Form 10-KSB, all forms
10-QSB and 8-K filed thereafter and the most recent Proxy Statement of the
Corporation on file with the SEC.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement" shall have the meaning set forth in Section 2.3.
"Short Sales" shall have the meaning set forth in Section 4.5.
"Subject Securities" shall have the meaning set forth in Section
4.2(a).
"Subsequent Advance," shall have the meaning set forth in Section 2.2.
"Subsequent Closing" shall have the meaning set forth the RECITALS.
"Total Loan Amount" shall have the meaning set forth in the RECITALS.
"Transfer" shall have the meaning set forth in Section 7.2(a).
"Warrant" shall have the meaning set forth in the RECITALS.
SECTION 2. ISSUANCE OF THE NOTES.
2.1 Agreement to Issue the Notes. Concurrently with the execution of
and pursuant to the terms and conditions set forth in this Agreement, the
Corporation shall issue to each Investor a Note in favor of such Investor (or a
replacement note issued pursuant to such Investor's Note) dated as of the date
hereof in the principal amount of such Investor's Pro Rata Portion of the Total
Loan Amount.
2.2 Advances under the Notes. Concurrently with the execution of and
pursuant to the terms and conditions set forth in the Notes, each Investor shall
make the Initial Advance under such Note. Subsequent to each Investor's Initial
Advance, each Investor shall make one or more additional advances to the
Corporation (each, a "Subsequent Advance") in the amounts, if any, set forth in
Schedule 1 hereto, subject to the conditions set forth herein and in the Notes,
at the Subsequent Closings.
2.3 Security Agreement. Concurrently with the execution of this
Agreement and the Notes and pursuant to the terms and conditions set forth
herein and therein, the Corporation shall execute a Security Agreement (the
"Security Agreement") in favor of the Collateral Agent for the benefit of each
Investor. Notwithstanding anything to the contrary in this Agreement, the
Investors shall not have any duties or obligations pursuant to this Agreement
until the Corporation has executed a Note in favor of each Investor and the
Security Agreement.
2.4 Issuance of Common Stock.
(a) At any time after the date hereof and subject to the terms
and conditions hereof and of the Notes, the Investors shall have the
right to voluntarily convert all or any portion of the outstanding
principal and interest of the Notes, after taking into account any
prepayment of the
NOTE PURCHASE AGREEMENT - Page 4
Notes as provided therein, into shares of Common Stock (each such
transaction, a "Conversion"). The number of fully paid and
nonassessable shares of Common Stock issuable upon a Conversion of the
Notes shall be determined by dividing (x) the outstanding amount of the
Notes being converted by (y) fifty percent (50%) of the volume-weighted
average of the closing sale price on the OTC Bulletin Board of the
Corporation's Common Stock for the five (5) consecutive trading days
immediately preceding the date of such Conversion (the "Conversion
Price").
(b) Subject to the provisions hereof, the amount of principal
and interest outstanding under the Notes shall automatically convert
("Automatic Conversion") into shares of Common Stock, effective upon
the earlier of either (i) the consummation of any merger or
consolidation or other business combination involving the Corporation
in which the Common Stock of the Corporation is valued at not less than
$0.10 per share, or (ii) the first trading day for the OTC Bulletin
Board (or such exchange on which the Common Stock is listed for
trading) following a period of fifteen (15) consecutive trading days
during which the closing sale price per share of the Common Stock has
been in excess of $0.20, such fifteen (15)-day period to begin at any
time after June 13, 2003; provided, however, that any Automatic
Conversion of the Notes into shares of Common Stock pursuant to this
Section 2.4(b) shall not be effective prior to the effective date of
the Registration Statement.
(c) The Corporation shall take all action necessary to have
authorized and reserved for issuance no less than the number of shares
of Common Stock issuable upon Conversion of the amount outstanding
under the Notes, as of the date of such Conversion, if any (the
"Reserved Shares").
2.5 The Initial Closing. The initial closing (the "Initial Closing")
hereunder shall take place on the date hereof at the offices of ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ P.C., 5400 Renaissance Tower, ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇,
simultaneously with the execution and delivery of this Agreement (the date
hereof being sometimes herein referred to as the "Initial Closing Date").
2.6 Subsequent Closings.
(a) Subsequent Advances shall be made as provided in this
Section 2.6 and from time to time hereunder by the Investors, in the
amounts set forth in Schedule 1 hereto, provided that the aggregate
amount of all advances (which shall include the Initial Advances and
any Subsequent Advances, including Subsequent Advances made by any
Additional Investors as provided herein) shall not exceed the Total
Loan Amount. The Investors hereby authorize the Corporation to amend
Schedule 1 hereto (i) to provide for Subsequent Advances and (ii) for
the purpose of adding additional Investors (each, an "Additional
Investor") who shall make Subsequent Advances hereunder, provided that
each such Additional Investor has executed a counterpart signature page
hereto, a copy of which shall be delivered to each Investor as soon as
practical. Each Investor hereby acknowledges and agrees that execution
by any Additional Investor of a counterpart signature page hereto shall
be deemed to constitute execution by such Additional Investor of the
Security Agreement. Upon each and every amendment to Schedule 1 hereto,
the Corporation shall provide a copy thereof, as amended, to each
Investor as soon as practical.
NOTE PURCHASE AGREEMENT - Page 5
(b) On or before June 13, 2003, each Investor shall be
obligated to make a Subsequent Advance to the Corporation in the amount
designated to be paid on such date set forth opposite such Investor's
name on Schedule 1 hereto.
(c) On or before June 27, 2003, each Investor shall be
obligated to make an additional Subsequent Advance to the Corporation
in the amount designated to be paid on such date set forth opposite
such Investor's name on Schedule 1 hereto.
(d) Notwithstanding the foregoing, the Investors shall have no
obligation to make a Subsequent Advance if the Corporation has not
filed the Registration Statement, pursuant to which the Reserved Shares
will be registered, in accordance with Section 7.3 hereof on or before
June 13, 2003. However, each Investor agrees and acknowledges that such
Investor shall be obligated to make Subsequent Advances in accordance
with the terms hereof and Schedule 1 hereto, even if the Registration
Statement has not been declared effective by the SEC on or before June
13, 2003, provided, however, that upon filing the Registration
Statement, the Corporation shall use its best efforts to cause the
Registration Statement to become effective as soon as practical.
2.7 Funding Fee. At the Initial Closing and each Subsequent Closing, if
any, the Corporation shall pay each Investor a fee equal to 5% of such
Investor's Initial Advance, and any Subsequent Advance, respectively (each, a
"Funding Fee"). The Funding Fee shall be payable by check or wire transfer (or
other acceptable method of payment) in immediately available funds in U.S.
dollars. As additional consideration for each Investor's advance hereunder,
concurrently with the making of such advance, the Corporation shall issue to
such Investor a Warrant to purchase one share of Common Stock for every $1.00
advanced by such Investor on such date at an exercise price of $0.01 per share.
For example, should an Investor's Initial Advance equal $100,000, at the Initial
Closing, the Corporation shall pay such Investor a Funding Fee of $5,000 and
issue such Investor a Warrant to purchase 100,000 shares of Common Stock at an
exercise price of $0.01 per share.
2.8 Default. The term "Event of Default," as used in this Agreement,
shall mean any one or more of the following events:
(a) the failure of the Corporation to pay, when due, any
amount owing to any Investor under the Notes which remains uncured for
a period of thirty (30) days after written notice of any such failure
is given to the Corporation by such Investor;
(b) the appointment of a receiver for the Corporation of all
or any substantial part of the property of the Corporation and the
failure of such receiver to be discharged within ninety (90) days
thereafter or the commencement of involuntary bankruptcy or other
similar proceedings against the Corporation and the failure of such
proceedings to be stayed or dismissed within ninety (90) days
thereafter; or
(c) the Corporation voluntarily seeks, consents to, or
acquiesces in the benefit or benefits of any provision of any
bankruptcy or other debtor relief Law, whether now or hereafter in
effect; consents to the filing of any petition against it under such
Law; makes an assignment for the benefit of its creditors; or consents
to the appointment of a receiver, trustee, liquidator or conservator
for it or any part of its property.
NOTE PURCHASE AGREEMENT - Page 6
2.9 Notice of Default and Remedies.
(a) Upon the occurrence of an Event of Default and subsequent
written notice to the Corporation by the Investors that the Investors
intend to accelerate the due date of the Notes, the Notes shall become
immediately due and payable without presentment, demand, protest, nor
notice of protest, all of which are hereby expressly waived by the
Corporation. Upon the occurrence and during the continuance of any
Event of Default, each Investor may, by notice in writing to the
Corporation, declare all or any portion of the Notes held by it
together with all amounts due thereunder, to be due and such Notes and
all such amounts shall thereupon be and become, forthwith due and
payable, without presentment, demand, protest, nor notice of protest,
all of which are hereby expressly waived by the Corporation.
(b) If any Event of Default shall occur, the Investors may
proceed to protect and enforce their rights by a suit in equity, action
at Law or other appropriate proceeding, whether for the specific
performance of any agreement contained herein or for an injunction
against a violation of any of the terms or provisions hereof, or in aid
of the exercise of any power granted herein or by Law. No course of
dealing and no delay on the part of the Investors in exercising any
right shall operate as a waiver thereof or otherwise prejudice their
rights, and no remedy herein conferred upon or reserved to the
Investors is intended to be exclusive of any other remedy or remedies;
but each and every such remedy shall be cumulative, and shall be in
addition to every other remedy given hereunder, or now or hereafter
existing at Law or in equity or by statute, and may be exercised from
time to time and as often as the Investors may deem expedient.
(c) The Investors agree, as among themselves, that they will
cooperate with each other in protecting and enforcing their rights
hereunder and under the other Loan Documents. Without limitation of the
foregoing, each Investor agrees that if any Investor shall at any time
obtain any payment or other recovery (whether voluntary, involuntary,
or otherwise) under the Loan Documents in excess of its Pro Rata
Portion of the Total Loan Amount calculated as of such date of payments
or other recoveries then or therewith obtained by the Investors, such
Investor shall pay such amounts to the other Investor as shall be
necessary to cause each Investor to share such payment or other
recovery with all Investors in accordance with their Pro Rata Portion
of the Total Loan Amount. All security interests of Investors shall be
pari passu regardless of the order of filing of any financing
statements with respect thereto or the taking of any other action
relevant to the determination of the perfection or priority of such
security interests.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION. The
Corporation hereby represents and warrants to each Investor that to its
knowledge the following representations and warranties are true and correct in
all material respects:
3.1 Organization, Good Standing and Power. The Corporation is a
corporation duly incorporated validly existing and in good standing under the
Laws of Delaware and has all requisite corporate authority to own, lease and
operate its properties and assets and to carry on its business as now being
conducted. The Corporation does not have any subsidiaries and does not own more
than fifty percent (50%) of or control any other business entity except as set
forth in the SEC Documents. The Corporation is duly qualified to do business and
is in good standing as a foreign corporation in every jurisdiction in which the
nature of the business conducted or property owned by it makes such
qualification
NOTE PURCHASE AGREEMENT - Page 7
necessary, other than those in which the failure to so qualify would not have a
Material Adverse Effect on the Corporation.
3.2 Authorization; Enforcement. (a) The Corporation has the requisite
corporate power and corporate authority to enter into and perform its
obligations under this Agreement and the other Loan Documents and to issue the
Notes and the Reserved Shares pursuant to their respective terms, (b) the
execution and delivery of this Agreement and the other Loan Documents by the
Corporation and the consummation by it of the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate action and no
further consent or authorization of the Corporation or its Board of Directors or
stockholders is required, and (c) this Agreement, the Notes, and the Security
Agreement have been duly executed and delivered by the Corporation and at the
Initial Closing shall constitute valid and binding obligations of the
Corporation enforceable against the Corporation in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation, conservatorship,
receivership or similar Laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application.
3.3 Authorization of Reserved Shares. The Reserved Shares have been or
will be duly reserved for issuance upon conversion of the Notes in accordance
with the terms of this Agreement and the Notes, and when issued, sold and
delivered in accordance with the terms hereof and thereof, the Reserved Shares
will be validly issued and outstanding, fully paid and nonassessable, and will
not be subject to any preemptive or other similar rights of the stockholders of
the Corporation or others.
3.4 No Conflicts. Except as set forth in Schedule 3.4, the execution,
delivery and performance of this Agreement by the Corporation and the
consummation by the Corporation of the transactions contemplated herein do not
and will not (i) violate any provision of the Corporation's Certificate of
Incorporation, as amended, or Bylaws, (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, mortgage, deed of trust,
indenture, note, bond, license, lease agreement, instrument or obligation to
which the Corporation is a party, (iii) create or impose a lien, charge or
encumbrance on any property of the Corporation under any agreement or any
commitment to which the Corporation is a party or by which the Corporation is
bound or by which any of its respective properties or assets are bound, except
as provided herein or in the applicable Loan Documents, or (iv) result in a
violation of any federal, state, local or other foreign statute, rule,
regulation, order, judgment or decree (including any federal or state securities
Laws and regulations) applicable to the Corporation or by which any property or
asset of the Corporation is bound or affected, except, in all cases, for such
conflicts, defaults, termination, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect on the Corporation. The business of the Corporation is not being
conducted in violation of any Laws, except for possible violations which
singularly or in the aggregate do not and will not have a Material Adverse
Effect on the Corporation. The Corporation is not required under any Law to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement, or issue and
sell the Reserved Shares in accordance with the terms hereof (other than any
filings which may be required to be made by the Corporation with the SEC or
state securities administrators subsequent to the Initial Closing and any
registration statement which may be filed pursuant hereto); provided, however,
that for purposes of the representations made in this sentence, the
NOTE PURCHASE AGREEMENT - Page 8
Corporation is assuming and relying upon the accuracy of the relevant
representations and agreements of the Investors herein.
3.5 SEC Documents, Financial Statements. The Common Stock of the
Corporation is registered pursuant to Section 12(g) of the Exchange Act, and,
except as disclosed in the SEC Documents, since December 31, 1999, the
Corporation has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Exchange Act, including material filed pursuant to Section
13(a) or 15(d) of the Exchange Act. The Corporation has delivered or made
available to the Investors, through the ▇▇▇▇▇ System or otherwise, true and
complete copies of the SEC Documents filed with the SEC since December 31, 1999.
The Corporation has not provided to the Investors any information which,
according to applicable Law, should have been disclosed publicly by the
Corporation but which has not been so disclosed, other than with respect to the
transactions contemplated by this Agreement. As of their respective filing
dates, to the Corporation's knowledge, the SEC Documents complied in all
material respects with the requirements of the Exchange Act or the Securities
Act, as applicable, and the rules and regulations of the SEC promulgated
thereunder applicable to such documents, and, as of their respective filing
dates, none of the SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The Financial Statements of the
Corporation included in the SEC Documents comply as to form in all material
respects with applicable accounting requirements under GAAP and the published
rules and regulations of the SEC or other applicable rules and regulations with
respect thereto. Such Financial Statements have been prepared in accordance with
GAAP applied on a consistent basis during the periods involved (except (i) as
may be otherwise indicated in such Financial Statements or the notes thereto or
(ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements), and fairly present
in all material respects the financial position of the Corporation and its
subsidiary as of the dates thereof and the results of operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments).
3.6 No Material Adverse Effect. Since the date of the Financial
Statements contained in the most recently filed Form 10-QSB, no Material Adverse
Effect has occurred or exists with respect to the Corporation, except as
disclosed in the SEC Documents.
3.7 No Undisclosed Liabilities. Except as disclosed in the SEC
Documents or in Schedule 3.7 hereto, neither the Corporation nor its subsidiary
has any liabilities, obligations, claims or losses (whether liquidated or
unliquidated, secured or unsecured, absolute, accrued, contingent or otherwise)
that would be required to be disclosed on a balance sheet of the Corporation or
any subsidiary (including the notes thereto) in conformity with GAAP which are
not disclosed in the SEC Documents, other than those incurred in the ordinary
course of the Corporation's or its subsidiary's respective businesses since such
date and which, individually or in the aggregate, do not or would not have a
Material Adverse Effect on the Corporation.
3.8 No Undisclosed Events or Circumstances. Since the date of the
Financial Statements contained in the most recently filed Form 10-QSB, no event
or circumstance has occurred or exists with respect to the Corporation or its
businesses, properties, prospects, operations or financial condition, that,
NOTE PURCHASE AGREEMENT - Page 9
under applicable Law, requires public disclosure or announcement prior to the
date hereof by the Corporation but which has not been so publicly announced or
disclosed in the SEC Documents.
3.9 Indebtedness. The SEC Documents sets forth, as of the date hereof,
all outstanding secured and unsecured Indebtedness of the Corporation and its
subsidiary, or for which the Corporation or its subsidiary has commitments.
Neither the Corporation nor any subsidiary is in default with respect to any
Indebtedness.
3.10 Title to Assets. The Corporation has good and marketable title to
all of its real and personal property reflected in the SEC Documents, free of
any mortgages, pledges, charges, liens, security interests or other
encumbrances, except for those indicated in the SEC Documents hereto or
contemplated in the Loan Documents or such that do not cause a Material Adverse
Effect with respect to the Corporation.
3.11 Actions Pending. There is no action, suit, claim, investigation or
proceeding pending or, to the knowledge of the Corporation, threatened against
the Corporation which questions the validity of this Agreement or the
transactions contemplated hereby or any action taken or to be taken pursuant
hereto or thereto. Except as set forth in the SEC Documents, there is no action,
suit, claim, investigation or proceeding pending or, to the knowledge of the
Corporation, threatened, against or involving the Corporation or any of its
properties or assets. Except as set forth in the SEC Documents, there are no
outstanding orders, judgments, injunctions, awards or decrees of any court,
arbitrator or governmental or regulatory body against the Corporation.
3.12 No Violation of Law. The execution, delivery and performance of
this Agreement and the other Loan Documents, as the case may be, by the
Corporation will not violate any Laws.
3.13 Operation of Business. The Corporation owns or possesses all
patents, trademarks, service marks, trade names, copyrights, licenses and
authorizations and all rights with respect to the foregoing, which are necessary
for the conduct of its business as now conducted without, to the Corporation's
knowledge, any conflict with the rights of others.
3.14 Books and Records. The records and documents of the Corporation
and any subsidiary accurately reflect, in all material respects, the information
relating to the business of the Corporation, the location and collection of its
assets, and the nature of all transactions giving rise to the obligations or
accounts receivable of the Corporation or any subsidiary.
3.15 Absence of Certain Developments. Except as disclosed in the SEC
Documents or in Schedule 3.15 hereto, since the date of the Financial Statements
contained in the most recently filed Form 10-QSB, the Corporation has not:
(a) issued any stock, bonds or other corporate securities or
any rights, options or warrants with respect thereto, other than in
connection with this Agreement or the other Loan Documents;
(b) borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities
incurred in the ordinary course of business which are comparable in
nature and amount to the current liabilities incurred in the ordinary
course of business
NOTE PURCHASE AGREEMENT - Page 10
during the comparable portion of its prior fiscal year, as adjusted to
reflect the current nature and volume of the Corporation's business;
(c) discharged or satisfied any lien or encumbrance or paid
any obligation or liability (absolute or contingent), other than
current liabilities paid in the ordinary course of business;
(d) declared or made any payment or distribution of cash or
other property to stockholders with respect to its stock, or purchased
or redeemed, or made any agreements to so purchase or redeem, any
shares of its capital stock;
(e) sold, assigned or transferred any other tangible assets,
or canceled any debts or claims, except in the ordinary course of
business;
(f) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other intangible
assets or intellectual property rights, or disclosed any proprietary
confidential information to any person except to customers in the
ordinary course of business, or to the Investors and their respective
representatives;
(g) suffered any material losses (except for anticipated
losses consistent with prior quarters) or waived any rights of material
value, whether or not in the ordinary course of business, or suffered
the loss of any material amount of prospective business;
(h) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;
(i) made capital expenditures or commitments therefor that
aggregate in excess of $500,000;
(j) entered into any other material transaction, whether or
not in the ordinary course of business;
(k) suffered any material damage, destruction or casualty
loss, whether or not covered by insurance;
(l) experienced any material problems with labor or management
in connection with the terms and conditions of their employment; or
(m) effected any two (2) or more events of the foregoing kind
which in the aggregate would be material to the Corporation.
3.16 No Consent or Approval Required. Except as set forth in the SEC
Documents and this Agreement and except for the filing of any notice prior or
subsequent to the Initial Closing or any Subsequent Closing that may be required
under applicable federal or state securities Laws (which if required, shall be
filed on a timely basis), no authorization, consent, approval or other order of,
or declaration to or filing with, any governmental agency or body or other
person or entity is required for (i) the valid authorization, execution,
delivery and performance by the Corporation of this Agreement and the other Loan
Documents, or (ii) the consummation by the Corporation of the transactions
contemplated hereby.
NOTE PURCHASE AGREEMENT - Page 11
3.17 Taxes. Except as set forth in Schedule 3.17 attached hereto:
(a) the Corporation has filed all tax returns, if any, that
are required to have been filed on or before the date hereof with
appropriate federal, state, county and local governmental agencies or
instrumentalities, within the time prescribed by Law (including
extensions of time approved by the appropriate taxing authority);
(b) the Corporation has not been advised (i) that any of its
returns, federal, state or other, have been or are being audited as of
the date hereof, or (ii) of any deficiency in assessment or proposed
adjustment to its federal, state or other taxes;
(c) the tax returns so filed are complete, correct and
accurate representations of the tax liabilities of the Corporation and
such tax returns accurately set forth all items to the extent required
to be reflected or included in such returns in all material respects;
and
(d) to the knowledge of the Corporation, the Corporation has
withheld and paid all taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, creditor,
independent contractor, or other person.
3.18 Offering. Subject to the accuracy of the Investors'
representations and warranties in SECTION 4 hereof, the offer, sale and issuance
of the Notes to the Investors in conformity with the terms of this Agreement and
the issuance to the Investors of the Reserved Shares issuable upon conversion
thereof, constitute (and will constitute) transactions exempt from the
registration requirements of Section 5 of the Securities Act, and any applicable
state securities Laws.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each of the
Investors hereby severally and not jointly represents and warrants to the
Corporation as follows:
4.1 Authorization; Enforcement. (a) Such Investor has the requisite
corporate power and corporate authority to enter into and perform its
obligations under this Agreement and the other Loan Documents, as the case may
be, (b) the execution and delivery of this Agreement and the other Loan
Documents, as the case may be, by such Investor and the consummation by it of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action and no further consent or authorization of such
Investor or its Board of Directors or stockholders is required, and (c) this
Agreement and the other Loan Documents, as the case may be, have been duly
executed and delivered by such Investor and at the Initial Closing shall
constitute valid and binding obligations of such Investor enforceable against
such Investor in accordance with their terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, receivership or similar Laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
4.2 Investment Representations.
(a) Such Investor has carefully reviewed and understands the
risk of an investment in the Corporation; is able to bear the economic
risk of an investment in the Notes and the Reserved Shares
(collectively, the "Subject Securities"); can withstand a complete loss
of its investment in the
NOTE PURCHASE AGREEMENT - Page 12
Subject Securities; can hold the Subject Securities for an indefinite
period of time; and has the net worth to undertake these risks. Such
Investor believes that it, either alone or together with its advisors,
has the knowledge and experience in business and financial matters that
make it capable of evaluating the merits and risks of an investment in
the Subject Securities.
(b) Such Investor understands that an investment in the
Subject Securities is highly speculative. Such Investor believes an
investment in the Subject Securities is suitable for it based upon its
investment objectives and financial needs, and such Investor has no
need for liquidity in its investment in the Subject Securities.
(c) Such Investor is acquiring the Subject Securities solely
for such Investor's own account and not as a nominee for any other
party, and for investment purposes, and not with a view toward
distribution or resale. Such Investor will not offer, sell or otherwise
dispose of the Subject Securities except in accordance with the terms
of this Agreement and under circumstances that will not result in a
violation of the Securities Act or any state securities laws.
(d) Such Investor understands and acknowledges that (i) the
Subject Securities will, after issuance, be "restricted securities," as
that term is defined in Rule 144 promulgated under the Securities Act;
(ii) the Subject Securities are being offered and sold pursuant to an
exemption from registration under the Securities Act; and (iii) the
transactions contemplated in this Agreement have not been reviewed or
passed upon by any federal or state agency.
(e) Such Investor is an "accredited investor" as defined in
Regulation D promulgated under the Securities Act.
(f) Such Investor understands and acknowledges that the
Corporation is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and
understandings of such Investor set forth herein in order to determine
the suitability of such Investor to acquire the Subject Securities and
such Investor hereby consents to such reliance.
4.3 No Violation of Law. The execution, delivery and performance of
this Agreement and the other Loan Documents, as the case may be, by such
Investor will not violate any Laws.
4.4 No Consent or Approval Required. No authorization, consent,
approval or other order of, or declaration to or filing with, any governmental
agency or body or other person or entity is required for (i) the valid
authorization, execution, delivery and performance by such Investor of this
Agreement and the other Loan Documents, as the case may be, or (ii) the
consummation by such Investor of the transactions contemplated hereby.
4.5 No Short Sales. Since May 23, 2003, neither such Investor nor any
of its Affiliates (if such Investor is an entity) has engaged, directly or
indirectly, in any transaction constituting a "short sale" (as defined in Rule
3b-3 of the Exchange Act) of the Corporation's Common Stock (collectively,
"Short Sales").
SECTION 5. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE INVESTORS AT THE
INITIAL CLOSING. The obligation of the Investors to fund the Notes on the
Initial Closing Date
NOTE PURCHASE AGREEMENT - Page 13
is subject to the following conditions precedent:
5.1 Corporate Proceedings; Consents; Etc. Except as waived by the
Investors, all corporate and other proceedings to be taken by the Corporation,
its officers, directors and stockholders and all waivers and consents to be
obtained by the Corporation in connection with the transactions contemplated by
this Agreement shall have been taken or obtained.
5.2 Blue Sky Matters. All consents, approvals, qualifications and/or
registrations required to be obtained or effected by the Corporation and the
Investors under any applicable state securities or "blue-sky" Laws in connection
with the issuance of the Notes shall have been obtained or effected, other than
those for which the failure to so obtain would not have a Material Adverse
Effect on the Investors.
5.3 Notes. The Corporation shall have delivered to each Investor a duly
executed Note in the form of Exhibit A attached hereto.
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE CORPORATION AT
THE INITIAL CLOSING. The obligations of the Corporation to issue the Notes is
subject to the following conditions precedent:
6.1 Blue Sky Matters. All consents, approvals, qualifications and/or
registrations required to be obtained or effected by the Corporation and the
Investors under any applicable state securities or "blue-sky" Laws in connection
with the sale and delivery of the Notes shall have been obtained or effected,
other than those for which the failure to so obtain would not have a Material
Adverse Effect on the Corporation.
6.2 Delivery of Consideration by the Investors. Each Investor shall
have delivered to the Corporation a check or wire transfer in immediately
available funds in U.S. dollars in the amount of such Investor's Initial Advance
as set forth in Schedule 1 hereto.
SECTION 7. COVENANTS.
7.1 Information Rights. Until the date the Investors cease to own more
than fifty percent (50%) of any Subject Securities, the Corporation shall
provide the Investors with the following rights:
(a) General. The Corporation will permit the Investors to
visit and inspect on a Business Day during normal business hours any of
the properties of the Corporation and to examine its books and records,
and to discuss with its officers the business and affairs of the
Corporation, at such reasonable times as such Investor may desire for
any purpose relating to its investment in the Corporation.
(b) Litigation. The Corporation, promptly upon becoming aware
thereof, shall notify the Investors in writing of any actual or
threatened litigation or governmental proceeding in which the
Corporation is involved and which might, if determined adversely, have
a Material Adverse Effect on the Corporation.
NOTE PURCHASE AGREEMENT - Page 14
7.2 Transfer of Securities.
(a) Restrictions on Transfer. Each Investor acknowledges that
the Subject Securities have not been registered under the Securities
Act, that the Subject Securities are being or will be issued pursuant
to an exemption from registration under the Securities Act and that
such securities constitute "restricted securities" under Rule 144
promulgated under the Securities Act. Accordingly, the Notes and any
Reserved Shares issuable upon conversion thereof which are held by the
Investors shall not be sold, transferred, assigned, pledged, encumbered
or otherwise disposed of (each, a "Transfer") except (i) upon the
conditions specified in this Section 7.2, which conditions are intended
to ensure compliance with the provisions of the Securities Act and this
Agreement, or (ii) after providing the Corporation with written notice
of such Transfer which notice shall identify the name and address of
such transferee and the securities being transferred, and such
transferee shall assume in writing the obligations of the transferor
under this Section 7.2.
(b) Restrictive Legend. Each certificate for any Reserved
Shares issued upon conversion of the Notes held by the Investors and
each certificate for any such securities issued to subsequent
transferees of any such certificate shall (unless otherwise permitted
by the provisions of Sections 7.2(c) and 7.2(d)), be stamped or
otherwise imprinted with a legend in substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY OTHER APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE
OFFERED FOR SALE, SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF UNLESS EITHER (I) SUCH SHARES ARE
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
REGISTERED OR QUALIFIED UNDER ANY OTHER APPLICABLE SECURITIES
STATUTE, OR (II) SUCH SHARES MAY BE OFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, OR OTHERWISE DISPOSED OF PURSUANT TO AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT OF 1933, AS AMENDED, AND ANY OTHER APPLICABLE SECURITIES
STATUTE. THE CORPORATION MAY, IN ITS DISCRETION, REQUIRE
DELIVERY OF AN OPINION OF COUNSEL, IN FORM AND SUBSTANCE
REASONABLY SATISFACTORY TO THE CORPORATION, TO THE EFFECT SUCH
EXEMPTIONS ARE AVAILABLE FOR THE OFFER, SALE, TRANSFER, PLEDGE
OR OTHER DISPOSITION OF THE SHARES REPRESENTED HEREBY.
(c) Notice of Transfer. Each Investor agrees that, prior to
any Transfer of the Subject Securities by such Investor, it will give
written notice to the Corporation of such Investor's intention to
effect such Transfer and to comply in all other respects with the
provisions of this Section 7.2.
NOTE PURCHASE AGREEMENT - Page 15
Each such notice shall describe the manner and circumstances of the
proposed Transfer and shall be accompanied by, if required by the
Corporation in its sole discretion, the written opinion, addressed to
the Corporation, of counsel for the holder of such securities, stating
that, in the opinion of counsel, such proposed Transfer does not
involve any transaction requiring registration or qualification of such
securities under the Securities Act or the securities or "blue-sky"
Laws of any relevant state of the United States. Such Investor shall
thereupon be entitled to Transfer such securities in accordance with
the terms of the notice delivered by it to the Corporation. Each
certificate or other instrument evidencing the securities issued upon
the Transfer of any such securities (and each certificate or other
instrument evidencing any untransferred balance of such securities)
shall bear the legend set forth in Section 7.2(b) unless (i) in such
opinion of counsel, registration of any future Transfer is not required
by the applicable provisions of the Securities Act or applicable state
securities or "blue-sky" Laws, or (ii) the Corporation shall have
waived the requirement of such legend; provided, however, that such
legend shall not be required on any certificate or other instrument
evidencing the securities issued upon such Transfer if such Transfer is
made in compliance with the requirements of Rule 144. Such Investor
shall not Transfer any Subject Securities until such opinion of counsel
has been given (unless waived by the Corporation or unless such opinion
is not required in accordance with the provisions of this Section 7.2).
(d) Removal of Legends, Etc. Notwithstanding the foregoing
provisions of this Section 7.2, the restrictions imposed herein upon
the transferability of any shares of the capital stock of the
Corporation held by the Investors shall cease and terminate when (i)
any such shares are sold or otherwise disposed of pursuant to an
effective registration statement under the Securities Act or as
otherwise contemplated by Section 7.2(c) and, pursuant to Section
7.2(c), the securities so transferred are not required to bear the
legend set forth in Section 7.2(b), or (ii) the holder of such shares
has met the requirements for Transfer of such shares pursuant to
subparagraph (k) of Rule 144, provided that an opinion of counsel
satisfactory to the Corporation has been delivered to the Corporation.
Whenever the restrictions imposed by this Section 7.2 shall terminate,
as herein provided, the Investors shall be entitled to receive from the
Corporation, without expense, a new certificate not bearing the
restrictive legend set forth in Section 7.2(b) and not containing any
other reference to the restrictions imposed by this Section 7.2.
7.3 Registration Rights. The Investors shall be entitled to piggyback
registration rights with respect to the Reserved Shares, 50,000,000 shares of
which the Corporation shall register under the Corporation's registration
statement on Form SB-2 (File no. 333-104797) (the "Registration Statement"),
pre-effective amendment no. 2 to which the Corporation anticipates filing with
the SEC within five Business Days of the date hereof. The Corporation covenants
to register the balance of such Reserved Shares, if any, as necessary.
7.4 Use of Proceeds. Proceeds from the Notes (net of the Funding Fees)
shall be applied as follows: (a) first, to repay in full all indebtedness owed
by the Corporation to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇; and (b) second, to finance the
Corporation's operations.
7.5 Restriction on Short Sales. Each Investor agrees that during the
period beginning on the Initial Closing Date and ending on the earlier of (i)
the date of Maturity and (ii) the date on which the
NOTE PURCHASE AGREEMENT - Page 16
Corporation has repaid the Notes and all interest accrued thereon in full,
neither such Investor nor any of its Affiliates (if such Investor is an entity)
shall engage, directly or indirectly, in any Short Sales.
SECTION 8. INDEMNIFICATION.
8.1 Indemnification by the Corporation. Subject to the other terms and
conditions of this Agreement, the Corporation agrees to indemnify, defend and
hold harmless each of the Investors and any of their respective stockholders,
partners, officers, directors, employees, representatives, Affiliates,
subsidiaries, designees, successors and assigns (collectively, the "Investor
Group"), at any time after the Initial Closing, from and against all demands,
claims, actions or causes of action, assessments, losses, damages, liabilities,
costs and expenses including, without limitation, interest, penalties and
reasonable attorneys' fees and expenses (collectively "Investor Group Damages")
asserted against, resulting to, imposed upon or incurred by the Investor Group
or any member thereof, by reason of or resulting from a breach of any
representation, warranty or agreement of the Corporation contained in or made
pursuant to this Agreement or any facts or circumstances constituting such a
breach (the "Investor Claims").
8.2 Indemnification by the Investors. Subject to the other terms and
conditions of this Agreement, each Investor agrees to indemnify, defend and hold
harmless the Corporation and any of its stockholders, officers, directors,
employees, representatives, Affiliates, subsidiaries, designees, successors and
assigns (collectively, the "Corporation Group"), at any time after the Initial
Closing, from and against all demands, claims, actions or causes of action,
assessments, losses, damages, liabilities, costs and expenses (collectively
"Corporation Group Damages") asserted against, resulting to, imposed upon or
incurred by the Corporation Group or any member thereof, by reason of or
resulting from a breach of any representation, warranty or agreement of such
Investor contained in or made pursuant to this Agreement or any facts or
circumstances constituting such a breach (collectively, the "Corporation
Claims"; the Investor Claims and the Corporation Claims are hereinafter
collectively referred to as the "Claims").
8.3 Limitations Regarding Indemnification Obligations of the
Corporation. Notwithstanding any other provision in this Agreement, the total
liability of the Corporation to indemnify the Investor Group pursuant to Section
8.1 hereof against any Investor Group Damages sustained by reason of any
Investor Claim shall be limited to (i) the Total Loan Amount, and (ii) Investor
Claims as to which any member of the Investor Group has given to the Corporation
written notice thereof within one (1) year following the Initial Closing,
whether or not any Investor Group Damages have then actually been sustained.
8.4 Limitations Regarding Indemnification Obligations of the Investors.
Notwithstanding any other provision in this Agreement, the liability of the
Investors to indemnify the Corporation Group pursuant to Section 8.2 hereof
against any Corporation Group Damages sustained by reason of any Corporation
Claim shall be limited to Corporation Claims as to which any member of the
Corporation Group has given to the Investors written notice thereof within one
(1) year following the Initial Closing, whether or not any Corporation Group
Damages have then actually been sustained.
NOTE PURCHASE AGREEMENT - Page 17
8.5 Conditions of Indemnification. The obligations and liabilities of
the parties with respect to the Claims shall be subject to the following terms
and conditions:
(a) the indemnified party shall give the indemnifying party
prompt notice of any such Claim, and the indemnifying party shall have
the right to undertake the defense thereof by representatives chosen by
it;
(b) if the indemnifying party fails to defend the indemnified
party against such Claim within a reasonable time after being notified
of the Claim, then the indemnified party shall (upon further notice to
the indemnifying party) have the right to defend, compromise or settle
such Claim on behalf of and for the account and risk of the
indemnifying party subject to the right of the indemnifying party to
assume the defense of such Claim at any time prior to settlement,
compromise or final determination thereof; provided, that the
indemnified party shall provide the indemnifying party with notice of
any proposed settlement or compromise of such Claim (as far in advance
of the actual settlement or compromise of the Claim as is reasonably
practicable); and
(c) anything in this Agreement to the contrary
notwithstanding, (i) if there is a reasonable probability that a Claim
may have a Material Adverse Affect on the indemnified party other than
as a result of money damages or other money payments, the indemnified
party shall have the right, at the cost and expense of the indemnifying
party, to manage the defense, compromise or settlement of such Claim;
provided, however, that if such Claim is settled without the
indemnifying party's consent (which consent shall not be unreasonably
withheld), the indemnified party shall be deemed to have waived all
rights hereunder against the indemnifying party for money damages
arising out of such Claim; and (ii) the indemnifying party shall not,
without the written consent of the indemnified party, settle or
compromise any Claim or consent to the entry of any judgment which does
not include as an unconditional term thereof the giving by the claimant
or the plaintiff to the indemnified party a release from all liability
in respect to such Claim.
8.6 Claim Disputes.
(a) Within thirty (30) days of its receipt of written notice
from the Corporation under Section 8.5 above regarding a Corporation
Claim and the amount of Corporation Group Damages related thereto, the
Investors shall deliver to the Corporation written notice containing
specific objections (prepared in good faith) to the nature of the
Corporation Claim or the amount of Corporation Group Damages specified
in the original notice. In such event, the Investors and the
Corporation shall work in good faith during the next thirty (30) days
toward resolving any such objections. If a resolution is reached within
such thirty (30) days, the Corporation Group shall be indemnified for
the amount so agreed upon in accordance with the other terms and
conditions of this Agreement.
(b) Within thirty (30) days of its receipt of written notice
from the Investors under Section 8.5 above regarding an Investor Claim
and the amount of Investor Group Damages related thereto, the
Corporation shall deliver to the Investors written notice containing
specific objections (prepared in good faith) to the nature of the
Investor Claim or the amount of Investor Group Damages specified in the
original notice. In such event, the Corporation and the Investors shall
work in good faith during the next thirty (30) days toward resolving
any such objections. If a
NOTE PURCHASE AGREEMENT - Page 18
resolution is reached within such thirty (30) days, the Investor Group
shall be indemnified for the amount so agreed upon in accordance with
the other terms and conditions of this Agreement.
(c) In the event no mutually agreeable resolution of an
indemnification matter is reached under the foregoing Sections 8.6(a)
or 8.6(b) within such thirty (30) day period, such dispute shall be
submitted to one arbitrator in accordance with the Rules of Commercial
Arbitration of the American Arbitration Association. The arbitrator
used will be selected from impartial arbitrators designated by the
American Arbitration Association who are familiar with the nature of
the subject matter of the Dispute. The arbitrator will be chosen by
mutual agreement of the Corporation and the Investors. If they cannot
agree within thirty (30) days upon the selection of the arbitrator, the
arbitrator will be selected by the Dallas, Texas office of the American
Arbitration Association in accordance with its rules and procedures.
Subject to the provisions of the indemnification obligations set forth
in this Agreement (i) each party will be responsible for one-half of
the expenses and fees of the arbitrator, and (ii) each party will bear
its own attorney's and expert's fees in connection therewith. If there
is a dispute as to whether all or any part of a Claim arose after the
Initial Closing, this issue (as well as the resulting allocation of
damages) may, without limitation as to other matters, be among the
matters addressed by the arbitrator. The arbitrator shall be governed
by and shall apply the substantive Law of the State of Texas in making
his determination, and his ruling shall be binding and conclusive upon
the Corporation and the Investors. This agreement to arbitrate will
survive the rescission or termination of this Agreement.
SECTION 9. EXPENSES. The Corporation, on the one hand, and each
Investor, on the other hand, shall bear its own expenses in connection with the
preparation for and consummation of the transactions contemplated by this
Agreement.
SECTION 10. NOTICES. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been received (a) upon hand delivery (receipt acknowledged) or delivery by telex
(with correct answer back received), telecopy or facsimile (with transmission
confirmation report) at the address or number designated below (if delivered on
a Business Day during normal business hours where such notice is to be
received), or the first Business Day following such delivery (if delivered on a
Business Day after normal business hours where such notice is to be received);
or (b) on the second Business Day following the date of mailing by express
overnight courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
(a) if to the Corporation, to:
MigraTEC, Inc.
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
President and Chief Executive Officer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
NOTE PURCHASE AGREEMENT - Page 19
with a copy to:
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ P.C.
5400 Renaissance Tower
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to any Investor, to the address set forth opposite such Investor's name on
Schedule 1 hereto. Any party may designate by written notice a new address to
which any notice or other communication required or permitted to be given
hereunder shall thereafter be given, served or sent.
SECTION 11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made hereunder shall survive any investigation
made by or on behalf of any party hereto for a period of one (1) year following
the Initial Closing except for representations and warranties made in Section
3.17, which shall be governed by statute. Each covenant and agreement of the
parties hereunder shall survive any investigation made by or on behalf of any
party hereto and shall survive the Initial Closing and any Subsequent Closing
hereunder.
SECTION 12. FURTHER ASSURANCES. The Corporation shall duly execute and
deliver, or cause to be duly executed and delivered, at its own cost and
expense, such further instruments and documents and to take all such action, in
each case as may be necessary or proper in the reasonable judgment of the
Investors to carry out the provisions and purposes of this Agreement.
SECTION 13. REMEDIES.
13.1 General. In case any one or more of the representations,
warranties, covenants and/or agreements set forth in this Agreement or the
documents contemplated hereby shall have been breached by the Corporation, the
Investors may proceed to protect and enforce its rights either by suit in equity
and/or by action at Law, including an action for damages as a result of any such
breach and/or an action for specific performance of any such covenant or
agreement contained in this Agreement or such other documents. Without limiting
the generality of the foregoing, the Corporation hereby agrees that in the event
the Corporation fails to perform its obligations under this Agreement, the
Investors' remedy at Law may be inadequate. In such event, the Investors shall
have the right, in addition to all other rights and remedies it may have, to
specific performance of the obligations of the Corporation under this Agreement.
13.2 Remedies Cumulative. The remedies provided to the parties in this
Agreement shall be cumulative and shall not preclude assertion by them of any
other rights or the seeking of any other remedies against any other party
hereto.
SECTION 14. NO THIRD-PARTY BENEFICIARIES. Except as expressly provided
herein, this Agreement shall not confer any rights or remedies upon any person
other than the parties hereto and their respective successors and permitted
assigns, personal representatives, heirs and estates, as the case may be.
Without limiting the generality of the foregoing, all representations, covenants
and agreements
NOTE PURCHASE AGREEMENT - Page 20
benefiting the Investors shall inure to the benefit of any and all Affiliates of
the Investors who subsequently become holders from time to time of the Subject
Securities.
SECTION 15. INDEPENDENCE OF COVENANTS AND REPRESENTATIONS AND
WARRANTIES. All covenants hereunder shall be given independent effect so that if
a certain action or condition constitutes a default under a certain covenant,
the fact that such action or condition is permitted by another covenant shall
not affect the occurrence of such default, unless expressly permitted under an
exception to such initial covenant. In addition, all representations and
warranties hereunder shall be given independent effect so that if a particular
representation or warranty proves to be incorrect or is breached, the fact that
another representation or warranty concerning the same or similar subject matter
is correct or is not breached will not affect the incorrectness of or a breach
of a representation and warranty hereunder.
SECTION 16. SEVERABILITY. It is the desire and intent of the parties
that the provisions of this Agreement be enforced to the fullest extent
permissible under the Laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, if any particular provision of this
Agreement shall be adjudicated by a court of competent jurisdiction to be
invalid, prohibited or unenforceable for any reason, such provision, as to such
jurisdiction, shall be ineffective, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of this
Agreement or affecting the validity or enforceability of such provision in any
other jurisdiction. Notwithstanding the foregoing, if such provision could be
more narrowly drawn so as not to be invalid, prohibited or unenforceable in such
jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
SECTION 17. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and permitted
assigns. Except as permitted in Section 7.2 hereof, the Investors may not assign
this Agreement or any rights or obligations hereunder without the prior written
consent of the Corporation. The Corporation may not assign this Agreement or any
rights or obligations hereunder without the prior written consent of the
Investors. The assignment by a party of this Agreement or any rights hereunder
shall not affect the obligations of such party under this Agreement.
SECTION 18. AMENDMENTS. Except as provided in Section 2.4(a), the terms
and provisions of this Agreement may only be amended or waived either (a) with
the written consent of the Corporation and the Investors or (b) in a writing by
the party against whom such amendment or waiver is sought to be enforced.
SECTION 19. ENTIRE AGREEMENT. This Agreement and the other writings
referred to herein or delivered pursuant hereto which form a part hereof contain
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior and contemporaneous arrangements or understandings with
respect thereto. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO.
SECTION 20. COUNTERPARTS. This Agreement may be executed in two (2) or
more counterparts, all of which when taken together shall be considered one and
the same agreement and shall become effective when counterparts have been signed
by each party hereto and delivered to the other party, it being understood that
all parties need not sign the same counterpart.
NOTE PURCHASE AGREEMENT - Page 21
SECTION 21. HEADINGS. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be a part of this Agreement.
SECTION 22. GENDER. Words of any gender used in this Agreement will be
held and construed to include any other gender, and words in the singular number
will be held to include the plural, unless the context otherwise requires.
SECTION 23. GOVERNING LAW. The substantive Laws of the State of Texas
shall govern the validity, construction, enforcement, and interpretation of this
agreement without regard to conflict of laws provisions.
SECTION 24. CONFIDENTIALITY. Each party acknowledges that it may have
access to various items or proprietary and confidential information of the other
in the course of investigations and negotiations prior to the Initial Closing.
Each party agrees that any such confidential information received from the other
party shall be kept confidential and shall not be used for any purpose other
than to facilitate the arrangement of financing for and the consummation of the
transactions contemplated herein. The furnishing of Financial Statements and
other information of the Corporation by the Investors to its institutional
lenders or investors, for purposes of obtaining approval of the transactions
contemplated hereby, or the disclosure of such financial or other information by
the Investors, and release of information to the Investors' insurers for risk
assessment purposes, shall not constitute a breach of this SECTION 24.
Confidential information shall include any business or other information which
is delivered by one party to the other, unless such information (a) is already
public knowledge, (b) becomes public knowledge through no fault, action or
inaction of the receiving party, or (c) was known by the receiving party, or any
of its directors, officers, employees, representatives, agents or advisors prior
to the disclosure of such information by the disclosing party to the receiving
party. No party, nor its respective officers, directors, employees, accountants,
attorneys or agents, shall intentionally disclose the existence or nature of, or
any of the terms and conditions relating to, the employees of the Corporation
and other parties with whom the Corporation may contract in the course of
operating the business, provided, however, that such information may be
disclosed in applications or requests required to be made to obtain licenses,
permits, approvals or consents needed to consummate the transactions
contemplated herein or in filings under applicable securities Laws.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
NOTE PURCHASE AGREEMENT - Page 22
IN WITNESS WHEREOF, the undersigned have caused this Note Purchase
Agreement to be executed as of the date first above written.
CORPORATION:
MIGRATEC, INC.
By: /s/ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-------------------------------------------
▇. ▇▇▇▇▇▇ Brechbuhl
President and Chief Executive Officer
NOTE PURCHASE AGREEMENT - Page 23
INVESTORS:
1900 Cedar Springs, LP
By: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ GP LLC, General Partner
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇
------------------------------
Title: Manager
-----------------------------
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
------------------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
------------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇▇
------------------------------------------------
▇▇▇▇ ▇▇▇▇▇
World-Wide Iron, Inc.
By: /s/ ▇▇▇▇ ▇▇▇▇▇
---------------------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇
--------------------------------------
Title: President
-------------------------------------
NOTE PURCHASE AGREEMENT - Page 24
EXHIBIT A
FORM OF CONVERTIBLE SECURED PROMISSORY NOTE
EXHIBIT B
FORM OF COMMON STOCK PURCHASE WARRANT
SCHEDULE 1
INVESTORS
Schedule 1 to Note Purchase Agreement - Investors
----------------------------------------------------------------------------------------------------------------------------
Subsequent Subsequent
Contact Pro Rata Initial Advance Advance
Name Domicile Information Portion Advance (June 13, 2003) (June 27, 2003)
---- -------- ----------- ------- ------- --------------- ---------------
--------------------- ------------ -------------------------------- ---------- ---------- ----------------- ----------------
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ Contact Person: ▇▇▇▇ ▇▇▇▇▇▇ $300,000 $125,000
LP Address: ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
--------------------- ------------ -------------------------------- ---------- ---------- ----------------- ----------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ New Jersey Address: ▇▇ ▇▇▇▇ ▇▇▇. $100,000 $37,500 $62,500 $0.00
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
--------------------- ------------ -------------------------------- ---------- ---------- ----------------- ----------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ New Jersey Address: ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇. $100,000 $37,500 $62,500 $0.00
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇.
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
--------------------- ------------ -------------------------------- ---------- ---------- ----------------- ----------------
▇▇▇▇ ▇▇▇▇▇ Arizona Address: ▇▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇ $100,000 $0.00 $100,000 $0.00
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
--------------------- ------------ -------------------------------- ---------- ---------- ----------------- ----------------
World-Wide Iron, Arizona Contact Person: ▇▇▇▇ ▇▇▇▇▇ $100,000 $100,000 $100,000 $0.00
Inc. Address: ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇.,
▇▇▇▇▇ ▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
--------------------- ------------ -------------------------------- ---------- ---------- ----------------- ----------------
TOTAL $700,000
----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------
Subsequent Subsequent
Name Advance Advance
---- ------- -------
--------------------- ------------------ ------------------
1900 Cedar Springs,
LP
--------------------- ------------------ ------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ $0.00 $0.00
--------------------- ------------------ ------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ $0.00 $0.00
--------------------- ------------------ ------------------
▇▇▇▇ ▇▇▇▇▇ $0.00 $0.00
--------------------- ------------------ ------------------
World-Wide Iron, $0.00 $0.00
Inc.
--------------------- ------------------ ------------------
TOTAL
-----------------------------------------------------------
SCHEDULE 3.4
NO CONFLICTS
The Corporation has entered into a Security Agreement, dated as of
April 14, 2003, with ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇. Immediately upon execution of this
Agreement and receipt by the Corporation of the Initial Loan Amount, the
Corporation will repay all indebtedness owed to ▇▇. ▇▇▇▇▇▇▇▇▇▇ and secured in
accordance with the terms of the Security Agreement.
SCHEDULE 3.7
NO UNDISCLOSED LIABILITIES
The Corporation owes $12,000 to the State of Texas for unemployment
taxes. The Corporation received notice of the foregoing in May, 2003.
SCHEDULE 3.15
ABSENCE OF CERTAIN DEVELOPMENTS
The Corporation has not issued any stock, bonds or other corporate
securities or any rights, options or warrants with respect thereto since March
31, 2003. However, the Corporation has entered into agreements to amend certain
warrants issued to each of Street Search, LLC, Street Search Partners, ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ on March 18, 2003, so as to change the
exercise price thereof from $0.35 to $0.065.
The Corporation entered into a Confidentiality Agreement with Noble
International Investments, Inc. on May 23, 2003.
Since March 31, 2003, the Corporation has terminated fifteen (15)
employees, including five (5) interns.
The Corporation failed to meet its payroll obligations on May 15, 2003.
SCHEDULE 3.17
TAXES
The Corporation owes $12,000 to the State of Texas for unemployment
taxes. The Corporation received notice of the foregoing in May, 2003.