SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of
January 14, 2004 by and among Y3K SECURE ENTERPRISE SOFTWARE INC., a Nevada
corporation, with its principal office located at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, (the "Company"), and the Buyers listed on Schedule I
attached hereto (individually, a "Buyer" or collectively "Buyers").
WITNESSETH:
WHEREAS, the Company and the Buyer(s) are executing and delivering this
Agreement in reliance upon an exemption from securities registration pursuant to
Section 4(2) and/or Rule 506 of Regulation D ("Regulation D") as promulgated by
the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 Act");
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Buyer(s),
as provided herein, and the Buyer(s) shall purchase up to Three Hundred Fifty
Thousand Dollars ($350,000) of secured convertible debentures (the "Convertible
Debentures"), which shall be convertible into shares of the Company's common
stock, par value $.001 (the "Common Stock") (as converted, the "Conversion
Shares") of which Two Hundred Thousand Dollars ($200,000) shall be funded on the
fifth (5th) business day following the date hereof (the "First Closing") and One
Hundred Fifty Thousand Dollars ($150,000) on the fifth (5th) business day
following the date the registration statement (the "Registration Statement") is
filed, pursuant the Investor Registration Rights Agreement dated the date
hereof, with the United States Securities and Exchange Commission (the "SEC")
(the "Second Closing") (collectively referred to as the "Closings"), for a total
purchase price of up to Three Hundred Fifty Thousand Dollars ($350,000), (the
"Purchase Price") in the respective amounts set forth opposite each Buyer(s)
name on Schedule I ( the "Subscription Amount"); and
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement substantially in the form attached hereto as Exhibit A (the "Investor
Registration Rights Agreement") pursuant to which the Company has agreed to
provide certain registration rights under the 1933 Act and the rules and
regulations promulgated there under, and applicable state securities laws; and
WHEREAS, the aggregate proceeds of the sale of the Convertible Debentures
contemplated hereby shall be held in escrow pursuant to the terms of an escrow
agreement substantially in the form of the Escrow Agreement attached hereto as
Exhibit B.
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering Irrevocable Transfer
Agent Instructions substantially in the form attached hereto as Exhibit C (the
"Irrevocable Transfer Agent Instructions").
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Security Agreement
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substantially in the form attached hereto as Exhibit D (the "Security
Agreement") pursuant to which the Company has agreed to provide the Buyer a
security interest in Pledged Collateral (as this term is defined in the Security
Agreement dated the date hereof) to secure Company's obligations under the
Agreement, the Convertible Debenture, the Investor Registration Rights
Agreement, the Irrevocable Transfer Agent Instructions or the Security
Agreement; and
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Buyer(s)hereby agree
as follows:
1. PURCHASE AND SALE OF CONVERTIBLE DEBENTURES.
(a) Purchase of Convertible Debentures. Subject to the satisfaction
(or waiver) of the terms and conditions of this Agreement, each Buyer agrees,
severally and not jointly, to purchase at Closing (as defined herein below) and
the Company agrees to sell and issue to each Buyer, severally and not jointly,
at Closing, Convertible Debentures in amounts corresponding with the
Subscription Amount set forth opposite each Buyer's name on Schedule I hereto.
Upon execution hereof by a Buyer, the Buyer shall wire transfer the Subscription
Amount set forth opposite his name on Schedule I in same-day funds or a check
payable to "▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP, as Escrow Agent for Y3K Secure Enterprise
Software Inc/ Cornell Capital Partners, LP", which Subscription Amount shall be
held in escrow pursuant to the terms of the Escrow Agreement (as hereinafter
defined) and disbursed in accordance therewith. Notwithstanding the foregoing, a
Buyer may withdraw his Subscription Amount and terminate this Agreement as to
such Buyer at any time after the execution hereof and prior to Closing (as
hereinafter defined).
(b) Closing Date. The First Closing of the purchase and sale of the
Convertible Debentures shall take place at 10:00 a.m. Eastern Standard Time on
the fifth (5th) business day following the date hereof, subject to notification
of satisfaction of the conditions to the First Closing set forth herein and in
Sections 6 and 7 below (or such later date as is mutually agreed to by the
Company and the Buyer(s)) (the "First Closing Date") and the Second Closing of
the purchase and sale of the Convertible Debentures shall take place at 10:00
a.m. Eastern Standard Time on the fifth (5th) business day following the date
the Registration Statement is filed with the SEC, subject to notification of
satisfaction of the conditions to the Second Closing set forth herein and in
Sections 6 and 7 below (or such later date as is mutually agreed to by the
Company and the Buyer(s)) (the "Second Closing Date") (collectively referred to
a the "Closing Dates"). The Closing shall occur on the respective Closing Dates
at the offices of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, LLP, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇, ▇▇▇▇▇,
▇▇ ▇▇▇▇▇ (or such other place as is mutually agreed to by the Company and the
Buyer(s)).
(c) Escrow Arrangements; Form of Payment. Upon execution hereof by
Buyer(s) and pending the Closings, the aggregate proceeds of the sale of the
Convertible Debentures to Buyer(s) pursuant hereto shall be deposited in a
non-interest bearing escrow account with ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP, as escrow agent
(the "Escrow Agent"), pursuant to the terms of an escrow agreement between the
Company, the Buyer(s) and the Escrow Agent in the form attached hereto as
Exhibit B (the "Escrow Agreement"). Subject to the satisfaction of the terms and
conditions of this Agreement, on the Closing Dates, (i) the Escrow Agent shall
deliver to the Company in accordance with the terms of the Escrow Agreement such
aggregate proceeds for the Convertible Debentures to be issued and sold to such
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Buyer(s), minus the fees and expenses of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP of Ten Thousand
Dollars ($10,000) shall be paid directly from the gross proceeds of the First
Closing and the retainer of ▇▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP of which Five Thousand
Dollars ($5,000) shall be paid from the gross proceeds of the First Closing, and
No Thousand Dollars ($0) shall be paid directly from the gross proceeds of the
Second Closing by wire transfer of immediately available funds in accordance
with the Company's written wire instructions, and (ii) the Company shall deliver
to each Buyer, Convertible Debentures which such Buyer(s) is purchasing in
amounts indicated opposite such Buyer's name on Schedule I, duly executed on
behalf of the Company.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants, severally and not jointly, that:
(a) Investment Purpose. Each Buyer is acquiring the Convertible
Debentures and, upon conversion of Convertible Debentures, the Buyer will
acquire the Conversion Shares then issuable, for its own account for investment
only and not with a view towards, or for resale in connection with, the public
sale or distribution thereof, except pursuant to sales registered or exempted
under the 1933 Act; provided, however, that by making the representations
herein, such Buyer reserves the right to dispose of the Conversion Shares at any
time in accordance with or pursuant to an effective registration statement
covering such Conversion Shares or an available exemption under the 1933 Act.
(b) Accredited Investor Status. Each Buyer is an "Accredited
Investor" as that term is defined in Rule 501(a)(3) of Regulation D.
(c) Reliance on Exemptions. Each Buyer understands that the
Convertible Debentures are being offered and sold to it in reliance on specific
exemptions from the registration requirements of United States federal and state
securities laws and that the Company is relying in part upon the truth and
accuracy of, and such Buyer's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of such Buyer set forth herein in
order to determine the availability of such exemptions and the eligibility of
such Buyer to acquire such securities.
(d) Information. Each Buyer and its advisors (and his or, its
counsel), if any, have been furnished with all materials relating to the
business, finances and operations of the Company and information he deemed
material to making an informed investment decision regarding his purchase of the
Convertible Debentures and the Conversion Shares, which have been requested by
such Buyer. Each Buyer and its advisors, if any, have been afforded the
opportunity to ask questions of the Company and its management. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Section 3 below. Each Buyer understands that its investment in the
Convertible Debentures and the Conversion Shares involves a high degree of risk.
Each Buyer is in a position regarding the Company, which, based upon employment,
family relationship or economic bargaining power, enabled and enables such Buyer
to obtain information from the Company in order to evaluate the merits and risks
of this investment. Each Buyer has sought such accounting, legal and tax advice,
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as it has considered necessary to make an informed investment decision with
respect to its acquisition of the Convertible Debentures and the Conversion
Shares.
(e) No Governmental Review. Each Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Convertible
Debentures or the Conversion Shares, or the fairness or suitability of the
investment in the Convertible Debentures or the Conversion Shares, nor have such
authorities passed upon or endorsed the merits of the offering of the
Convertible Debentures or the Conversion Shares.
(f) Transfer or Resale. Each Buyer understands that except as
provided in the Investor Registration Rights Agreement: (i) the Convertible
Debentures have not been and are not being registered under the 1933 Act or any
state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder, or (B) such Buyer
shall have delivered to the Company an opinion of counsel, in a generally
acceptable form, to the effect that such securities to be sold, assigned or
transferred may be sold, assigned or transferred pursuant to an exemption from
such registration requirements; (ii) any sale of such securities made in
reliance on Rule 144 under the 1933 Act (or a successor rule thereto) ("Rule
144") may be made only in accordance with the terms of Rule 144 and further, if
Rule 144 is not applicable, any resale of such securities under circumstances in
which the seller (or the person through whom the sale is made) may be deemed to
be an underwriter (as that term is defined in the ▇▇▇▇ ▇▇▇) may require
compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder. The Company reserves the right to place stop transfer
instructions against the shares and certificates for the Conversion Shares.
(g) Legends. Each Buyer understands that the certificates or other
instruments representing the Convertible Debentures and or the Conversion Shares
shall bear a restrictive legend in substantially the following form (and a stop
transfer order may be placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT
PURPOSES AND NOT WITH A VIEW TOWARD RESALE AND MAY NOT
BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN
OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS.
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The legend set forth above shall be removed and the Company within two (2)
business days shall issue a certificate without such legend to the holder of the
Conversion Shares upon which it is stamped, if, unless otherwise required by
state securities laws, (i) in connection with a sale transaction, provided the
Conversion Shares are registered under the 1933 Act or (ii) in connection with a
sale transaction, after such holder provides the Company with an opinion of
counsel, which opinion shall be in form, substance and scope customary for
opinions of counsel in comparable transactions, to the effect that a public
sale, assignment or transfer of the Conversion Shares may be made without
registration under the 1933 Act.
(h) Authorization, Enforcement. This Agreement has been duly and
validly authorized, executed and delivered on behalf of such Buyer and is a
valid and binding agreement of such Buyer enforceable in accordance with its
terms, except as such enforceability may be limited by general principles of
equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
(i) Receipt of Documents. Each Buyer and his or its counsel has
received and read in their entirety: (i) this Agreement and each representation,
warranty and covenant set forth herein, the Security Agreement, the Investor
Registration Rights Agreement, the Escrow Agreement, and the Irrevocable
transfer Agent Instructions; (ii) all due diligence and other information
necessary to verify the accuracy and completeness of such representations,
warranties and covenants; (iii) the Company's Form 10-KSB for the fiscal year
ended June, 2003; (iv) the Company's Form 10-QSB for the fiscal quarters ended
September, 2003. and (v) answers to all questions each Buyer submitted to the
Company regarding an investment in the Company; and each Buyer has relied on the
information contained therein and has not been furnished any other documents,
literature, memorandum or prospectus.
(j) Due Formation of Corporate and Other Buyers. If the Buyer(s) is
a corporation, trust, partnership or other entity that is not an individual
person, it has been formed and validly exists and has not been organized for the
specific purpose of purchasing the Convertible Debentures and is not prohibited
from doing so.
(k) No Legal Advice From the Company. Each Buyer acknowledges, that it had the
opportunity to review this Agreement and the transactions contemplated by this
Agreement with his or its own legal counsel and investment and tax advisors.
Each Buyer is relying solely on such counsel and advisors and not on any
statements or representations of the Company or any of its representatives or
agents for legal, tax or investment advice with respect to this investment, the
transactions contemplated by this Agreement or the securities laws of any
jurisdiction.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that, except as
set forth in the SEC Documents (as defined herein):
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(a) Organization and Qualification. The Company and its subsidiaries
are corporations duly organized and validly existing in good standing under the
laws of the jurisdiction in which they are incorporated, and have the requisite
corporate power to own their properties and to carry on their business as now
being conducted. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company and its
subsidiaries taken as a whole.
(b) Authorization, Enforcement, Compliance with Other Instruments.
(i) The Company has the requisite corporate power and authority to enter into
and perform this Agreement, the Security Agreement., the Investor Registration
Rights Agreement, the Escrow Agreement, the Irrevocable Transfer Agent
Instructions, and any related agreements, and to issue the Convertible
Debentures and the Conversion Shares in accordance with the terms hereof and
thereof, (ii) the execution and delivery of this Agreement, the Security
Agreement, the Investor Registration Rights Agreement, the Escrow Agreement, the
Irrevocable Transfer Agent Instructions (as defined herein) and any related
agreements by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including, without limitation, the issuance of
the Convertible Debentures the Conversion Shares and the reservation for
issuance and the issuance of the Conversion Shares issuable upon conversion or
exercise thereof, have been duly authorized by the Company's Board of Directors
and no further consent or authorization is required by the Company, its Board of
Directors or its stockholders, (iii) this Agreement, the Security Agreement, the
Investor Registration Rights Agreement, the Escrow Agreement, the Irrevocable
Transfer Agent Instructions and any related agreements have been duly executed
and delivered by the Company, (iv) this Agreement, the Security Agreement, the
Investor Registration Rights Agreement, the Escrow Agreement, the Irrevocable
Transfer Agent Instructions and any related agreements constitute the valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally, the
enforcement of creditors' rights and remedies. The authorized officer of the
Company executing this Agreement, the Security Agreement, the Investor
Registration Rights Agreement, the Escrow Agreement, the Irrevocable Transfer
Agent Instructions and any related agreements knows of no reason why the Company
cannot file the registration statement as required under the Investor
Registration Rights Agreement or perform any of the Company's other obligations
under such documents.
(c) Capitalization. The authorized capital stock of the Company
consists of 200,000,000 shares of Common Stock, par value $.001 per share and No
shares of Preferred Stock. As of the date hereof the Company has 68,442,170
shares of Common Stock and No shares of Preferred Stock issued and outstanding.
All of such outstanding shares have been validly issued and are fully paid and
nonassessable. Except as disclosed in the SEC Documents (as defined in Section
3(f)), no shares of Common Stock are subject to preemptive rights or any other
similar rights or any liens or encumbrances suffered or permitted by the
Company. Except as disclosed in the SEC Documents, as of the date of this
Agreement, (i) 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, any shares of capital stock of the
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Company or any of its subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
subsidiaries, (ii) there are no outstanding debt securities and (iii) there are
no agreements or arrangements under which the Company or any of its subsidiaries
is obligated to register the sale of any of their securities under the 1933 Act
(except pursuant to the Registration Rights Agreement) and (iv) there are no
outstanding registration statements and there are no outstanding comment letters
from the SEC or any other regulatory agency, except those already disclosed to
the Buyer. There are no securities or instruments containing anti-dilution or
similar provisions that will be triggered by the issuance of the Convertible
Debentures as described in this Agreement. The Company has furnished to the
Buyer true and correct copies of the Company's Certificate of Incorporation, as
amended and as in effect on the date hereof (the "Certificate of
Incorporation"), and the Company's By-laws, as in effect on the date hereof (the
"By-laws"), and the terms of all securities convertible into or exercisable for
Common Stock and the material rights of the holders thereof in respect thereto
other than stock options issued to employees and consultants.
(d) Issuance of Securities. The Convertible Debentures are duly
authorized and, upon issuance in accordance with the terms hereof, shall be duly
issued, fully paid and nonassessable, are free from all taxes, liens and charges
with respect to the issue thereof. The Conversion Shares issuable upon
conversion of the Convertible Debentures have been duly authorized and reserved
for issuance. Upon conversion or exercise in accordance with the Convertible
Debentures the Conversion Shares will be duly issued, fully paid and
nonassessable.
(e) No Conflicts. Except as disclosed in the SEC Documents, the
execution, delivery and performance of this Agreement, the Security Agreement,
the Investors Registration Rights Agreement, the Escrow Agreement and the
Irrevocable Transfer Agent Instructions by the Company and the consummation by
the Company of the transactions contemplated hereby will not (i) result in a
violation of the Certificate of Incorporation, any certificate of designations
of any outstanding series of preferred stock of the Company or the By-laws or
(ii) conflict with or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, or result in a violation of any law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations and the rules and regulations of The National Association of
Securities Dealers Inc.'s OTC Bulletin Board on which the Common Stock is
quoted) applicable to the Company or any of its subsidiaries or by which any
property or asset of the Company or any of its subsidiaries is bound or
affected. Except as disclosed in the SEC Documents, neither the Company nor its
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subsidiaries is in violation of any term of or in default under its Certificate
of Incorporation or By-laws or their organizational charter or by-laws,
respectively, or any material contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its subsidiaries. The business of the
Company and its subsidiaries is not being conducted, and shall not be conducted
in violation of any material law, ordinance, or regulation of any governmental
entity. Except as specifically contemplated by this Agreement and as required
under the 1933 Act and any applicable state securities laws, the Company is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under or contemplated by this
Agreement or the Registration Rights Agreement in accordance with the terms
hereof or thereof. Except as disclosed in the SEC Documents, all consents,
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof. The Company and its subsidiaries are unaware of any
facts or circumstance, which might give rise to any of the foregoing.
(f) SEC Documents: Financial Statements. Since April, 2002, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC under of the Securities Exchange Act of
1934, as amended (the "1934 Act") (all of the foregoing filed prior to the date
hereof or amended after the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein, being hereinafter referred to as the "SEC Documents"). The
Company has delivered to the Buyers or their representatives, or made available
through the SEC's website at ▇▇▇▇://▇▇▇.▇▇▇.▇▇▇., true and complete copies of
the SEC Documents. As of their respective dates, the financial statements of the
Company disclosed in the SEC Documents (the "Financial Statements") complied as
to form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles, consistently applied, 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 audit
adjustments). No other information provided by or on behalf of the Company to
the Buyer which is not included in the SEC Documents, including, without
limitation, information referred to in this Agreement, contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(g) 10(b)-5. The SEC Documents do not include any untrue statements
of material fact, nor do they omit to state any material fact required to be
stated therein necessary to make the statements made, in light of the
circumstances under which they were made, not misleading.
(h) Absence of Litigation. Except as disclosed in the SEC Documents,
there is no action, suit, proceeding, inquiry or investigation before or by any
court, public board, government agency, self-regulatory organization or body
pending against or affecting the Company, the Common Stock or any of the
Company's subsidiaries, wherein an unfavorable decision, ruling or finding would
(i) have a material adverse effect on the transactions contemplated hereby (ii)
adversely affect the validity or enforceability of, or the authority or ability
of the Company to perform its obligations under, this Agreement or any of the
documents contemplated herein, or (iii) except as expressly disclosed in the SEC
Documents, have a material adverse effect on the business, operations,
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properties, financial condition or results of operations of the Company and its
subsidiaries taken as a whole.
(i) Acknowledgment Regarding Buyer's Purchase of the Convertible
Debentures. The Company acknowledges and agrees that the Buyer(s) is acting
solely in the capacity of an arm's length purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that the Buyer(s) is not acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereby and any advice given by the Buyer(s) or any
of their respective representatives or agents in connection with this Agreement
and the transactions contemplated hereby is merely incidental to such Buyer's
purchase of the Convertible Debentures or the Conversion Shares. The Company
further represents to the Buyer that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation by the Company and
its representatives.
(j) No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the ▇▇▇▇ ▇▇▇) in connection with the offer or sale of the
Convertible Debentures or the Conversion Shares.
(k) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
Convertible Debentures or the Conversion Shares under the 1933 Act or cause this
offering of the Convertible Debentures or the Conversion Shares to be integrated
with prior offerings by the Company for purposes of the 1933 Act.
(l) Employee Relations. Neither the Company nor any of its
subsidiaries is involved in any labor dispute nor, to the knowledge of the
Company or any of its subsidiaries, is any such dispute threatened. None of the
Company's or its subsidiaries' employees is a member of a union and the Company
and its subsidiaries believe that their relations with their employees are good.
(m) Intellectual Property Rights. The Company and its subsidiaries
own or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service ▇▇▇▇ registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. The Company and its subsidiaries do not have any
knowledge of any infringement by the Company or its subsidiaries of trademark,
trade name rights, patents, patent rights, copyrights, inventions, licenses,
service names, service marks, service ▇▇▇▇ registrations, trade secret or other
similar rights of others, and, to the knowledge of the Company there is no
claim, action or proceeding being made or brought against, or to the Company's
knowledge, being threatened against, the Company or its subsidiaries regarding
trademark, trade name, patents, patent rights, invention, copyright, license,
service names, service marks, service ▇▇▇▇ registrations, trade secret or other
infringement; and the Company and its subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
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(n) Environmental Laws. The Company and its subsidiaries are (i) in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval.
(o) Title. Any real property and facilities held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its subsidiaries.
(p) Insurance. The Company and each of its subsidiaries are insured
by insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its subsidiaries are
engaged. Neither the Company nor any such subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
subsidiary has any 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 its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its subsidiaries, taken as a whole.
(q) Regulatory Permits. The Company and its subsidiaries possess all
material certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.
(r) Internal Accounting Controls. The Company and each of its
subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, and (iii) the recorded amounts for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(s) No Material Adverse Breaches, etc. Except as set forth in the
SEC Documents, neither the Company nor any of its subsidiaries is subject to any
charter, corporate or other legal restriction, or any judgment, decree, order,
rule or regulation which in the judgment of the Company's officers has or is
expected in the future to have a material adverse effect on the business,
properties, operations, financial condition, results of operations or prospects
of the Company or its subsidiaries. Except as set forth in the SEC Documents,
neither the Company nor any of its subsidiaries is in breach of any contract or
agreement which breach, in the judgment of the Company's officers, has or is
10
expected to have a material adverse effect on the business, properties,
operations, financial condition, results of operations or prospects of the
Company or its subsidiaries.
(t) Tax Status. The Company and each of its subsidiaries has made
and filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject and (unless and
only to the extent that the Company and each of its subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
(u) Certain Transactions. Except as set forth in the SEC Documents,
and except for arm's length transactions pursuant to which the Company makes
payments in the ordinary course of business upon terms no less favorable than
the Company could obtain from third parties and other than the grant of stock
options disclosed in the SEC Documents, none of the officers, directors, or
employees of the Company is presently a party to any transaction with the
Company (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 corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
(v) Fees and Rights of First Refusal. The Company is not obligated
to offer the securities offered hereunder on a right of first refusal basis or
otherwise to any third parties including, but not limited to, current or former
shareholders of the Company, underwriters, brokers, agents or other third
parties.
4. COVENANTS.
(a) Best Efforts. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.
(b) Form D. The Company agrees to file a Form D with respect to the
Conversion Shares as required under Regulation D and to provide a copy thereof
to each Buyer promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary to qualify the Conversion Shares, or obtain an exemption for the
Conversion Shares for sale to the Buyers at the Closing pursuant to this
Agreement under applicable securities or "Blue Sky" laws of the states of the
United States, and shall provide evidence of any such action so taken to the
Buyers on or prior to the Closing Date.
11
(c) Reporting Status. Until the earlier of (i) the date as of which
the Buyer(s) may sell all of the Conversion Shares without restriction pursuant
to Rule 144(k) promulgated under the 1933 Act (or successor thereto), or (ii)
the date on which (A) the Buyer(s) shall have sold all the Conversion Shares and
(B) none of the Convertible Debentures are outstanding (the "Registration
Period"), the Company shall file in a timely manner all reports required to be
filed with the SEC pursuant to the 1934 Act and the regulations of the SEC
thereunder, and the Company shall not terminate its status as an issuer required
to file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would otherwise permit such termination.
(d) Use of Proceeds. The Company will use the proceeds from the sale
of the Convertible Debentures for general corporate and working capital
purposes.
(e) Reservation of Shares. The Company shall take all action
reasonably necessary to at all times have authorized, and reserved for the
purpose of issuance, such number of shares of Common Stock as shall be necessary
to effect the issuance of the Conversion Shares. If at any time the Company does
not have available such shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all of the Conversion Shares of the
Company shall call and hold a special meeting of the shareholders within sixty
(60) days of such occurrence, for the sole purpose of increasing the number of
shares authorized. The Company's management shall recommend to the shareholders
to vote in favor of increasing the number of shares of Common Stock authorized.
Management shall also vote all of its shares in favor of increasing the number
of authorized shares of Common Stock.
(f) Listings or Quotation. The Company shall promptly secure the
listing or quotation of the Conversion Shares upon each national securities
exchange, automated quotation system or The National Association of Securities
Dealers Inc.'s Over-The-Counter Bulletin Board ("OTCBB") or other market, if
any, upon which shares of Common Stock are then listed or quoted (subject to
official notice of issuance) and shall use its best efforts to maintain, so long
as any other shares of Common Stock shall be so listed, such listing of all
Conversion Shares from time to time issuable under the terms of this Agreement.
The Company shall maintain the Common Stock's authorization for quotation on the
OTCBB.
(g) Fees and Expenses. Each of the Company and the Buyer(s) shall
pay all costs and expenses incurred by such party in connection with the
negotiation, investigation, preparation, execution and delivery of this
Agreement, the Escrow Agreement, and the Investor Registration Rights Agreement.
The Buyer(s) shall be entitled to a ten percent (10%) discount on the Purchase
Price.
(h) The costs and expenses of the Buyer(s) and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP,
which shall be Ten Thousand Dollars ($10,000) and the retainer of ▇▇▇▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇ LLP of which Five Thousand Dollars ($5,000) shall be paid for by the
Company at the First Closing and No Thousand Dollars ($0,) shall be paid
directly from the proceeds of the Second Closing directly from the gross
proceeds held in escrow.
12
(i) Corporate Existence. So long as any of the Convertible
Debentures remain outstanding, the Company shall not directly or indirectly
consummate any merger, reorganization, restructuring, reverse stock split
consolidation, sale of all or substantially all of the Company's assets or any
similar transaction or related transactions (each such transaction, an
"Organizational Change") unless, prior to the consummation an Organizational
Change, the Company obtains the written consent of each Buyer, which consent
will not be unreasonably withheld. In any such case, the Company will make
appropriate provision with respect to such holders' rights and interests to
insure that the provisions of this Section 4(h) will thereafter be applicable to
the Convertible Debentures.
(j) Transactions With Affiliates. So long as any Convertible
Debentures are outstanding, the Company shall not, and shall cause each of its
subsidiaries not to, enter into, amend, modify or supplement, or permit any
subsidiary to enter into, amend, modify or supplement any agreement,
transaction, commitment, or arrangement with any of its or any subsidiary's
officers, directors, person who were officers or directors at any time during
the previous two (2) years, stockholders who beneficially own five percent (5%)
or more of the Common Stock, or Affiliates (as defined below) or with any
individual related by blood, marriage, or adoption to any such individual or
with any entity in which any such entity or individual owns a five percent (5%)
or more beneficial interest (each a "Related Party"), except for (a) customary
employment arrangements and benefit programs on reasonable terms, (b) any
investment in an Affiliate of the Company, (c) any agreement, transaction,
commitment, or arrangement on an arms-length basis on terms no less favorable
than terms which would have been obtainable from a person other than such
Related Party, (d) any agreement transaction, commitment, or arrangement which
is approved by a majority of the disinterested directors of the Company, for
purposes hereof, any director who is also an officer of the Company or any
subsidiary of the Company shall not be a disinterested director with respect to
any such agreement, transaction, commitment, or arrangement. "Affiliate" for
purposes hereof means, with respect to any person or entity, another person or
entity that, directly or indirectly, (i) has a ten percent (10%) or more equity
interest in that person or entity, (ii) has ten percent (10%) or more common
ownership with that person or entity, (iii) controls that person or entity, or
(iv) shares common control with that person or entity. "Control" or "controls"
for purposes hereof means that a person or entity has the power, direct or
indirect, to conduct or govern the policies of another person or entity.
(k) Transfer Agent. The Company covenants and agrees that, in the
event that the Company's agency relationship with the transfer agent should be
terminated for any reason prior to a date which is two (2) years after the
Closing Date, the Company shall immediately appoint a new transfer agent and
shall require that the transfer agent execute and agree to be bound by the terms
of the Irrevocable Transfer Agent Instructions (as defined herein) to Transfer
Agent.
(l) Restriction on Issuance of the Capital Stock. So long as any
Convertible Debentures are outstanding, the Company shall not, without the prior
written consent of the Buyer(s), issue or sell shares of Common Stock or
Preferred Stock (i) without consideration or for a consideration per share less
than Fair Market Value of the Common Stock determined immediately prior to its
issuance, (ii) any warrant, option, right, contract, call, or other security
instrument granting the holder thereof, the right to acquire Common Stock
without consideration or for a consideration less than such Common Stock's Fair
13
Market value determined immediately prior to it's issuance, (iii) enter into any
security instrument granting the holder a security interest in any and all
assets of the Company, or (iv) file any registration statement on Form S-8.
(m) Restrictions on Short Selling. So long as any Convertible
Debentures are outstanding, the Buyer agrees that it will not initiate nor
maintain any short selling positions of the Company's capital stock, ticker
symbol YTHK.OB, nor will it allow any affiliated or related persons or entities
to initiate or maintain any such short selling position.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue the Irrevocable Transfer Agent Instructions to its
transfer agent irrevocably appointing ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP as its agent for
purpose of having certificates issued, registered in the name of the Buyer(s) or
its respective nominee(s), for the Conversion Shares representing such amounts
of Convertible Debentures as specified from time to time by the Buyer(s) to the
Company upon conversion of the Convertible Debentures, for interest owed
pursuant to the Convertible Debenture, and for any and all Liquidated Damages
(as this term is defined in the Investor Registration Rights Agreement). ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ LLP shall be paid a cash fee of Fifty Dollars ($50) for every occasion
they act pursuant to the Irrevocable Transfer Agent Instructions. The Company
shall not change its transfer agent without the express written consent of the
Buyer(s), which may be withheld by the Buyer(s) in its sole discretion. Prior to
registration of the Conversion Shares under the 1933 Act, all such certificates
shall bear the restrictive legend specified in Section 2(g) of this Agreement.
The Company warrants that no instruction other than the Irrevocable Transfer
Agent Instructions referred to in this Section 5, and stop transfer instructions
to give effect to Section 2(g) hereof (in the case of the Conversion Shares
prior to registration of such shares under the ▇▇▇▇ ▇▇▇) will be given by the
Company to its transfer agent and that the Conversion Shares shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Investor Registration Rights Agreement.
Nothing in this Section 5 shall affect in any way the Buyer's obligations and
agreement to comply with all applicable securities laws upon resale of
Conversion Shares. If the Buyer(s) provides the Company with an opinion of
counsel, in form, scope and substance customary for opinions of counsel in
comparable transactions to the effect that registration of a resale by the
Buyer(s) of any of the Conversion Shares is not required under the 1933 Act, the
Company shall within two (2) business days instruct its transfer agent to issue
one or more certificates in such name and in such denominations as specified by
the Buyer. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Buyer by vitiating the intent and
purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 5 will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Section 5, that the Buyer(s)
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
14
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Convertible
Debentures to the Buyer(s) at the Closings is subject to the satisfaction, at or
before the Closing Dates, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion:
(a) Each Buyer shall have executed this Agreement, the Security
Agreement, the Escrow Agreement and the Investor Registration Rights Agreement
and the Irrevocable Transfer Agent Instructions and delivered the same to the
Company.
(b) The Buyer(s) shall have delivered to the Escrow Agent the
Purchase Price for Convertible Debentures in respective amounts as set forth
next to each Buyer as outlined on Schedule I attached hereto and the Escrow
Agent shall have delivered the net proceeds to the Company by wire transfer of
immediately available U.S. funds pursuant to the wire instructions provided by
the Company.
(c) The representations and warranties of the Buyer(s) shall be true
and correct in all material respects as of the date when made and as of the
Closing Dates as though made at that time (except for representations and
warranties that speak as of a specific date), and the Buyer(s) shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Buyer(s) at or prior to the Closing Dates.
(d) The Company shall promptly file, not later than one day
following the First Closing, a form UCC -1 with regard to the Pledged Property
and Pledged Collateral as detailed in the Security Agreement dated the date
hereof and provided proof of such filing to the Buyer(s).
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The obligation of the Buyer(s) hereunder to purchase the Convertible
Debentures at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that these
conditions are for the Buyer's sole benefit and may be waived by the Buyer(s) at
any time in its sole discretion:
(a) The Company shall have executed this Agreement, the Security
Agreement, the Convertible Debenture, the Escrow Agreement, the Irrevocable
Transfer Instructions and the Investor Registration Rights Agreement, and
delivered the same to the Buyer(s).
(b) The Common Stock shall be authorized for quotation on the OTCBB,
trading in the Common Stock shall not have been suspended for any reason and all
of the Conversion Shares issuable upon conversion of the Convertible Debentures
shall be approved for listing or quotation on the OTCBB.
(c) The representations and warranties of the Company shall be true
and correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in Section
3 above, in which case, such representations and warranties shall be true and
correct without further qualification) as of the date when made and as of the
15
Closing Dates as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Dates. If requested
by the Buyer, the Buyer shall have received a certificate, executed by the
President of the Company, dated as of the Closing Dates, to the foregoing effect
and as to such other matters as may be reasonably requested by the Buyer
including, without limitation an update as of the Closing Dates regarding the
representation contained in Section 3(c) above.
(d) The Company shall have executed and delivered to the Buyer(s)
the Convertible Debentures in the respective amounts set forth opposite each
Buyer(s) name on Schedule I attached hereto.
(e) The Buyer(s) shall have received an opinion of counsel from
▇▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, LLP in a form satisfactory to the Buyer(s).
(f) The Company shall have provided to the Buyer(s) a certificate of
good standing from the secretary of state from the state in which the company is
incorporated.
(g) As of the Closing Date, the Company shall have reserved out of
its authorized and unissued Common Stock, solely for the purpose of effecting
the conversion of the Convertible Debentures, shares of Common Stock to effect
the conversion of all of the Conversion Shares then outstanding.
(h) The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to the Buyer, shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
(i) The Company shall have provided to the Investor an
acknowledgement, to the satisfaction of the Investor, from ___________________,
as to its ability to provide all consents required in order to file a
registration statement in connection with this transaction.
(j) The Company shall promptly file, not more than one day following
the date of the First Closing, a form UCC -1 with regard to the Pledged Property
and Pledged Collateral as detailed in the Security Agreement dated the date
hereof and provided proof of such filing to the Buyer(s).
8. INDEMNIFICATION.
(a) In consideration of the Buyer's execution and delivery of this
Agreement and acquiring the Convertible Debentures and the Conversion Shares
hereunder, and in addition to all of the Company's other obligations under this
Agreement, the Company shall defend, protect, indemnify and hold harmless the
Buyer(s) and each other holder of the Convertible Debentures and the Conversion
Shares, and all of their officers, directors, employees and agents (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "Buyer Indemnitees") from and
16
against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Buyer Indemnitee is a party to the action for
which indemnification hereunder is sought), and including reasonable attorneys'
fees and disbursements (the "Indemnified Liabilities"), incurred by the Buyer
Indemnitees or any of them as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in this Agreement, the Convertible Debentures or the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement, or the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, or (c) any cause of action, suit or claim
brought or made against such Indemnitee and arising out of or resulting from the
execution, delivery, performance or enforcement of this Agreement or any other
instrument, document or agreement executed pursuant hereto by any of the
Indemnities, any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of the issuance of the Convertible
Debentures or the status of the Buyer or holder of the Convertible Debentures
the Conversion Shares, as a Buyer of Convertible Debentures in the Company. To
the extent that the foregoing undertaking by the Company may be unenforceable
for any reason, the Company shall make the maximum contribution to the payment
and satisfaction of each of the Indemnified Liabilities, which is permissible
under applicable law.
(b) In consideration of the Company's execution and delivery of this
Agreement, and in addition to all of the Buyer's other obligations under this
Agreement, the Buyer shall defend, protect, indemnify and hold harmless the
Company and all of its officers, directors, employees and agents (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "Company Indemnitees") from
and against any and all Indemnified Liabilities incurred by the Indemnitees or
any of them as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Buyer(s) in this Agreement, , instrument or document contemplated hereby or
thereby executed by the Buyer, (b) any breach of any covenant, agreement or
obligation of the Buyer(s) contained in this Agreement, the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby executed by the Buyer, or (c) any cause of
action, suit or claim brought or made against such Company Indemnitee based on
material misrepresentations or due to a material breach and arising out of or
resulting from the execution, delivery, performance or enforcement of this
Agreement, the Investor Registration Rights Agreement or any other instrument,
document or agreement executed pursuant hereto by any of the Company
Indemnities. To the extent that the foregoing undertaking by each Buyer may be
unenforceable for any reason, each Buyer shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.
9. GOVERNING LAW: MISCELLANEOUS.
(a) Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Nevada without regard to
the principles of conflict of laws. The parties further agree that any action
between them shall be heard in ▇▇▇▇▇▇ County, New Jersey, and expressly consent
17
to the jurisdiction and venue of the Superior Court of New Jersey, sitting in
▇▇▇▇▇▇ County and the United States District Court for the District of New
Jersey sitting in Newark, New Jersey for the adjudication of any civil action
asserted pursuant to this Paragraph.
(b) Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature pages to be
physically delivered to the other party within five (5) days of the execution
and delivery hereof.
(c) Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
(e) Entire Agreement, Amendments. This Agreement supersedes all
other prior oral or written agreements between the Buyer(s), the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by an instrument in writing signed
by the party to be charged with enforcement.
(f) Notices. Any notices, consents, waivers, or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon confirmation of receipt, when sent by facsimile;
(iii) three (3) days after being sent by U.S. certified mail, return receipt
requested, or (iv) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
18
If to the Company, to: Y3K Secure Enterprise Software Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: King Cole
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ - ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With an additional copy to: Law Office of ▇▇▇▇ ▇. ▇▇▇
▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Phone: ▇▇▇.▇▇▇.▇▇▇▇
Fax: ▇▇▇.▇▇▇.▇▇▇▇
If to the Transfer Agent, to Nevada Agency and Trust Company
▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇
ph. 775-322-0626
fax ▇▇▇-▇▇▇-▇▇▇▇
With Copy to: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇▇ ▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Buyer(s), to its address and facsimile number on Schedule I,
with copies to the Buyer's counsel as set forth on Schedule I. Each party shall
provide five (5) days' prior written notice to the other party of any change in
address or facsimile number.
(g) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns.
Neither the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other party
hereto.
19
(h) No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
(i) Survival. Unless this Agreement is terminated under Section
9(l), the representations and warranties of the Company and the Buyer(s)
contained in Sections 2 and 3, the agreements and covenants set forth in
Sections 4, 5 and 9, and the indemnification provisions set forth in Section 8,
shall survive the Closing for a period of two (2) years following the date on
which the Convertible Debentures are converted in full. The Buyer(s) shall be
responsible only for its own representations, warranties, agreements and
covenants hereunder.
(j) Publicity. The Company and the Buyer(s) shall have the right to
approve, before issuance any press release or any other public statement with
respect to the transactions contemplated hereby made by any party; provided,
however, that the Company shall be entitled, without the prior approval of the
Buyer(s), to issue any press release or other public disclosure with respect to
such transactions required under applicable securities or other laws or
regulations (the Company shall use its best efforts to consult the Buyer(s) in
connection with any such press release or other public disclosure prior to its
release and Buyer(s) shall be provided with a copy thereof upon release
thereof).
(k) Further Assurances. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(l) Termination. In the event that the Closing shall not have
occurred with respect to the Buyers on or before five (5) business days from the
date hereof due to the Company's or the Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the non-breaching party's
failure to waive such unsatisfied condition(s)), the non-breaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of business on such date without liability of any party to any
other party; provided, however, that if this Agreement is terminated by the
Company pursuant to this Section 9(l), the Company shall remain obligated to
reimburse the Buyer(s) for the fees and expenses of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ described in
Section 4(g) above.
(m) No Strict Construction. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
[REMAINDER PAGE INTENTIONALLY LEFT BLANK]
20
IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.
COMPANY:
Y3K SECURE ENTERPRISE SOFTWARE INC.
By: /s/ King Cole
------------------------------------
Name: King Cole
Title: President
EXHIBIT A
FORM OF INVESTOR REGISTRATION RIGHTS AGREEMENT
EXHIBIT B
FORM OF ESCROW AGREEMENT
EXHIBIT C
IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
EXHIBIT D
SECURITY AGREEMENT
SCHEDULE I
SCHEDULE OF BUYERS
Address/Facsimile Amount of
Name Signature Number of Buyer Subscription
----------------------------- ----------------------------- ------------------------------ ------------
Cornell Capital Partners, LP By: Yorkville Advisors, LLC ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇▇ ▇▇▇▇ $ 350,000
Its: General Partner ▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
By:
--------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Its: Portfolio Manager