SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of September 20,
2002, by and among SeaView Video Technology, Inc., a Nevada corporation, with
headquarters located at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇ (the
"Company"), and each of the purchasers set forth on the signature pages hereto
(the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by the rules
and regulations as promulgated by the United States Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933
Act");
B. Buyers desire to purchase and the Company desires to issue and sell, upon the
terms and conditions set forth in this Agreement (i) 12% convertible debentures
of the Company, in the form attached hereto as Exhibit "A", in the aggregate
principal amount of One Million Dollars ($1,000,000) (together with any
debenture(s) issued in replacement thereof or as a dividend thereon or otherwise
with respect thereto in accordance with the terms thereof, the "Debentures"),
convertible into shares of common stock, par value $.001 per share, of the
Company (the "Common Stock"), upon the terms and subject to the limitations and
conditions set forth in such Debentures and (ii) warrants, in the form attached
hereto as Exhibit "B", to purchase Three Million (3,000,000) shares of Common
Stock (the "Warrants").
C. Each Buyer wishes to purchase, upon the terms and conditions stated in this
Agreement, such principal amount of Debentures and number of Warrants as is set
forth immediately below its name on the signature pages hereto; and
D. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as Exhibit "C" (the "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 thereunder, and
applicable state securities laws.
NOW THEREFORE, the Company and each of the Buyers severally (and not
jointly) hereby agree as follows:
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1. PURCHASE AND SALE OF DEBENTURES AND WARRANTS.
a. Purchase of Debentures and Warrants. On the Closing Date (as defined
below), the Company shall issue and sell to each Buyer and each Buyer severally
agrees to purchase from the Company such principal amount of Debentures and
number of Warrants as is set forth immediately below such Buyer's name on the
signature pages hereto.
b. Form of Payment. On the Closing Date (as defined below), (i) each Buyer
shall pay the purchase price for the Debentures and the Warrants to be issued
and sold to it at the Closing (as defined below) (the "Purchase Price") by
wire transfer of immediately available funds to the Company, in accordance
with the Company's written wiring instructions, against delivery of the
Debentures in the principal amount equal to the Purchase Price and the number
of Warrants as is set forth immediately below such Buyer's name on the signature
pages hereto, and (ii) the Company shall deliver such Debentures and Warrants
duly executed on behalf of the Company, to such Buyer, against delivery of
such Purchase Price.
c. Closing Date. Subject to the satisfaction (or written waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and
time of the issuance and sale of the Debentures and the Warrants pursuant to
this Agreement (the "Closing Date") shall be 12:00 noon, Eastern Standard
Time on September 20, 2002 or such other mutually agreed upon time. The
closing of the transactions contemplated by this Agreement (the "Closing")
shall occur on the Closing Date at such location as may be agreed to by
the parties.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer severally (and not jointly)
represents and warrants to the Company solely as to such Buyer that:
a. Investment Purpose. As of the date hereof, the Buyer is purchasing the
Debentures and the shares of Common Stock issuable upon conversion of or
otherwise pursuant to the Debentures (including, without limitation, such
additional shares of Common Stock, if any, as are issuable (i) on account of
interest on the Debentures, (ii) as a result of the events described in
Sections 1.3 and 1.4(g) of the Debentures and Section 2(c) of the Registration
Rights Agreement or (iii) in payment of the Standard Liquidated Damages
Amount (as defined in Section 2(f) below) pursuant to this Agreement, such
shares of Common Stock being collectively referred to herein as the "Conversion
Shares") and the Warrants and the shares of Common Stock issuable upon exercise
thereof (the "Warrant Shares" and, collectively with the Debentures, Warrants
and Conversion Shares, the "Securities") for its own account and not with a
present view towards the public sale or distribution thereof, except pursuant
to sales registered or exempted from registration under the 1933 Act; provided,
however, that by making the representations herein, the Buyer does not agree
to hold any of the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in accordance
with or pursuant to a registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status. The Buyer is an "accredited investor" as that
term is defined in Rule 501(a) of Regulation D (an "Accredited Investor").
c. Reliance on Exemptions. The Buyer understands that the Securities are being
offered and sold to it in reliance upon specific exemptions from the
registration requirements of United States federal and state securities laws
and that the Company is relying upon the truth and accuracy of, and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the
Buyer to acquire the Securities.
d. Information. The Buyer and its advisors, if any, have been, and for so
long as the Debentures and Warrants remain outstanding will continue to be,
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by the Buyer or its advisors. The Buyer and its
advisors, if any, have been, and for so long as the Debentures and Warrants
remain outstanding will continue to be, afforded the opportunity to ask
questions of the Company. Notwithstanding the foregoing, the Company has not
disclosed to the Buyer any material nonpublic information and will not disclose
such information unless such information is disclosed to the public prior to
or promptly following such disclosure to the Buyer. Neither such inquiries
nor any other due diligence investigation conducted by Buyer or any of its
advisors or representatives shall modify, amend or affect Buyer's right to
rely on the Company's representations and warranties contained in Section 3
below. The Buyer understands that its investment in the Securities involves
a significant degree of risk.
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e. Governmental Review. The Buyer understands that no United States federal or
state agency or any other government or governmental agency has passed upon
or made any recommendation or endorsement of the Securities.
f. Transfer or Re-sale. The Buyer understands that (i) except as provided
in the Registration Rights Agreement, the sale or re-sale of the Securities
has not been and is not being registered under the 1933 Act or any applicable
state securities laws, and the Securities may not be transferred unless (a)
the Securities are sold pursuant to an effective registration statement under
the 1933 Act, (b) the Buyer shall have delivered to the Company an opinion
of counsel that shall be in form, substance and scope customary for opinions
of counsel in comparable transactions to the effect that the Securities to
be sold or transferred may be sold or transferred pursuant to an exemption
from such registration, which opinion shall be accepted by the Company, (c)
the Securities are sold or transferred to an "affiliate" (as defined in Rule
144 promulgated under the 1933 Act (or a successor rule) ("Rule 144")) of
the Buyer who agrees to sell or otherwise transfer the Securities only in
accordance with this Section 2(f) and who is an Accredited Investor, (d) the
Securities are sold pursuant to Rule 144, or (e) the Securities are sold
pursuant to Regulation S under the 1933 Act (or a successor rule) ("Regulation
S"), and the Buyer shall have delivered to the Company an opinion of counsel
that shall be in form, substance and scope customary for opinions of counsel
in corporate transactions, which opinion shall be accepted by the Company;
(ii) any sale of such Securities made in reliance on Rule 144 may be made
only in accordance with the terms of said Rule and further, if said Rule is
not applicable, any re-sale 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 (in each case, other than pursuant to the Registration
Rights Agreement). Notwithstanding the foregoing or anything else contained
herein to the contrary, the Securities may be pledged as collateral in
connection with a bona fide margin account or other lending arrangement.
In the event that the Company does not accept the opinion of counsel provided
by the Buyer with respect to the transfer of Securities pursuant to an
exemption from registration, such as Rule 144 or Regulation S, within three
(3) business days of delivery of the opinion to the Company, the Company
shall pay to the Buyer liquidated damages of three percent (3%) of the
outstanding amount of the Debentures per month plus accrued and unpaid interest
on the Debentures, prorated for partial months, in cash or shares at the
option of the Buyer ("Standard Liquidated Damages Amount"). If the Buyer
elects to be paid the Standard Liquidated Damages Amount in shares of Common
Stock, such shares shall be issued at the Conversion Price at the time of
payment.
g. Legends. The Buyer understands that the Debentures and the Warrants and,
until such time as the Conversion Shares and Warrant Shares have been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement or otherwise may be sold pursuant to Rule 144 or Regulation S
without any restriction as to the number of securities as of a particular
date that can then be immediately sold, the Conversion Shares and Warrant
Shares may bear a restrictive legend in substantially the following form
(and a stop-transfer order may be placed against transfer of the certificates
for such Securities):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities may not be sold, transferred or assigned in the
absence of an effective registration statement for the securities
under said Act, or an opinion of counsel, in form, substance
and scope customary for opinions of counsel in comparable
transactions, that registration is not required under said Act
or unless sold pursuant to Rule 144 or Regulation S under said
Act."
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it
is stamped, if, unless otherwise required by applicable state securities
laws, (a) such Security is registered for sale under an effective registration
statement filed under the 1933 Act or otherwise may be sold pursuant to Rule
144 or Regulation S without any restriction as to the number of securities
as of a particular date that can then be immediately sold, or (b) such holder
provides the Company with an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions, to the effect
that a public sale or transfer of such Security may be made without
registration under the 1933 Act, which opinion shall be accepted by the
Company so that the sale or transfer is effected or (c) such holder provides
the Company with reasonable assurances that such Security can be sold pursuant
to Rule 144 or Regulation S.The Buyer agrees to sell all Securities, including
those represented by a certificate(s) from which the legend has been removed,
in compliance with applicable prospectus delivery requirements, if any.
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h. Authorization; Enforcement. This Agreement and the Registration Rights
Agreement have been duly and validly authorized. This Agreement has been
duly executed and delivered on behalf of the Buyer, and this Agreement
constitutes, and upon execution and delivery by the Buyer of the Registration
Rights Agreement, such agreement will constitute, valid and binding agreements
of the Buyer enforceable in accordance with their terms.
i. Residency. The Buyer is a resident of the jurisdiction set forth immediately
below such Buyer's name on the signature pages hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to each Buyer that:
a. Organization and Qualification. The Company and each of its Subsidiaries (as
defined below), if any, is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction in which it is
incorporated, with full power and authority (corporate and other) to own,
lease, use and operate its properties and to carry on its business as and
where now owned, leased, used, operated and conducted. Schedule 3(a) sets
forth a list of all of the Subsidiaries of the Company and the jurisdiction
in which each is incorporated. The Company and each of its Subsidiaries is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which its ownership or use of property or the nature
of the business conducted by it makes such qualification necessary except
where the failure to be so qualified or in good standing would not have a
Material Adverse Effect. "Material Adverse Effect" means any material adverse
effect on the business, operations, assets, financial condition or prospects
of the Company or its Subsidiaries, if any, taken as a whole, or on the
transactions contemplated hereby or by the agreements or instruments to be
entered into in connection herewith. "Subsidiaries" means any corporation or
other organization, whether incorporated or unincorporated, in which the
Company owns, directly or indirectly, any equity or other ownership interest.
b. Authorization; Enforcement. (i) The Company has all requisite corporate power
and authority to enter into and perform this Agreement, the Registration
Rights Agreement, the Debentures and the Warrants and to consummate the
transactions contemplated hereby and thereby and to issue the Securities,
in accordance with the terms hereof and thereof, (ii) the execution and
delivery of this Agreement, the Registration Rights Agreement, the Debentures
and the Warrants by the Company and the consummation by it of the transactions
contemplated hereby and thereby (including without limitation, the issuance
of the Debentures and the Warrants and the issuance and reservation for
issuance of the Conversion Shares and Warrant Shares issuable upon conversion
or exercise thereof) have been duly authorized by the Company's Board of
Directors and no further consent or authorization of the Company, its Board
of Directors, or its shareholders is required, (iii) this Agreement has been
duly executed and delivered by the Company by its authorized representative,
and such authorized representative is the true and official representative
with authority to sign this Agreement and the other documents executed in
connection herewith and bind the Company accordingly, and (iv) this Agreement
constitutes, and upon execution and delivery by the Company of the
Registration Rights Agreement, the Debentures and the Warrants, each of such
instruments will constitute, a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms.
c. Capitalization. As of the date hereof, the authorized capital stock of the
Company consists of 100,000,000 shares of Common Stock, of which 36,877,073
shares are issued and outstanding, 1,271,900 shares are reserved for issuance
pursuant to the Company's stock option plans, 6,125,000 shares are reserved
for issuance pursuant to securities (other than the Debentures and the
Warrants) exercisable for, or convertible into or exchangeable for shares of
Common Stock and 38,414,910 shares are reserved for issuance upon conversion
of the Debentures and the Additional Debentures (as defined in Section 4(l))
and exercise of the Warrants and the Additional Warrants (as defined in
Section 4(l)) (subject to adjustment pursuant to the Company's covenant set
forth in Section 4(h) below). All of such outstanding shares of capital stock
are, or upon issuance will be, duly authorized, validly issued, fully paid
and nonassessable. No shares of capital stock of the Company are subject to
preemptive rights or any other similar rights of the shareholders of the
Company or any liens or encumbrances imposed through the actions or failure
to act of the Company. Except as disclosed in Schedule 3(c), as of the
effective date of this Agreement, (i) there are no outstanding options,
warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal,
agreements, understandings, claims or other commitments or rights of any
character whatsoever relating to, or securities or rights convertible into
or exchangeable for any shares of capital stock of the Company or any of its
Subsidiaries, 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, (ii) there are no agreements or arrangements
under which the Company or any of its Subsidiaries is obligated to register
the sale of any of its or their securities under the 1933 Act (except the
Registration Rights Agreement) and (iii) there are no anti-dilution or price
adjustment provisions contained in any security issued by the Company
(or in any agreement providing rights to security holders) that will be
triggered by the issuance of the Debentures, the Warrants, the Conversion
Shares or Warrant Shares. The Company has furnished to the Buyer true and
correct copies of the Company's Articles of Incorporation as in effect on
the date hereof ("Articles of Incorporation"), 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 of the Company and the
material rights of the holders thereof in respect thereto. The Company shall
provide the Buyer with a written update of this representation signed by the
Company's Chief Executive or Chief Financial Officer on behalf of the Company
as of the Closing Date.
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d. Issuance of Shares. The Conversion Shares and Warrant Shares are duly
authorized and reserved for issuance and, upon conversion of the Debentures
and exercise of the Warrants in accordance with their respective terms, will
be validly issued, fully paid and non-assessable, and free from all taxes,
liens, claims and encumbrances with respect to the issue thereof and shall
not be subject to preemptive rights or other similar rights of shareholders
of the Company and will not impose personal liability upon the holder thereof.
e. Acknowledgment of Dilution. The Company understands and acknowledges the
potentially dilutive effect to the Common Stock upon the issuance of the
Conversion Shares and Warrant Shares upon conversion of the Debenture or
exercise of the Warrants. The Company further acknowledges that its obligation
to issue Conversion Shares and Warrant Shares upon conversion of the Debentures
or exercise of the Warrants in accordance with this Agreement, the Debentures
and the Warrants is absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interests of other
shareholders of the Company.
f. No Conflicts. The execution, delivery and performance of this Agreement, the
Registration Rights Agreement, the Debentures and the Warrants by the Company
and the consummation by the Company of the transactions contemplated hereby
and thereby (including, without limitation, the issuance and reservation for
issuance of the Conversion Shares and Warrant Shares) will not (i) conflict
with or result in a violation of any provision of the Articles of Incorporation
or By-laws or (ii) violate or conflict with, or result in a breach of any
provision of, or constitute a default (or an event which with notice or lapse
of time or both could become a default) under, or give to others any rights
of termination, amendment, acceleration or cancellation of, any agreement,
indenture, patent, patent license or instrument to which the Company or any
of its Subsidiaries is a party, or (iii) result in a violation of any law,
rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations and regulations of any self-regulatory
organizations to which the Company or its securities are subject) 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 for
such conflicts, defaults, terminations, amendments, accelerations, cancellations
and violations as would not, individually or in the aggregate, have a Material
Adverse Effect). Neither the Company nor any of its Subsidiaries is in
violation of its Articles of Incorporation, By-laws or other organizational
documents and neither the Company nor any of its Subsidiaries is in default
(and no event has occurred which with notice or lapse of time or both could
put the Company or any of its Subsidiaries in default) under, and neither the
Company nor any of its Subsidiaries has taken any action or failed to take
any action that would 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 by which any
property or assets of the Company or any of its Subsidiaries is bound or
affected, except for possible defaults as would not, individually or in the
aggregate, have a Material Adverse Effect. The businesses of the Company and
its Subsidiaries, if any, are not being conducted, and shall not be conducted
so long as a Buyer owns any of the Securities, in violation of any 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, governmental agency, regulatory agency, self regulatory
organization or stock market or any third party in order for it to execute,
deliver or perform any of its obligations under this Agreement, the Registration
Rights Agreement, the Debentures or the Warrants in accordance with the terms
hereof or thereof or to issue and sell the Debentures and Warrants in accordance
with the terms hereof and to issue the Conversion Shares upon conversion of
the Debentures and the Warrant Shares upon exercise of the Warrants. Except
as disclosed in Schedule 3(f), 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 is not in violation of the listing requirements of the
Over-the-Counter Bulletin Board (the "OTCBB") and does not reasonably anticipate
that the Common Stock will be delisted by the OTCBB in the foreseeable future.
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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g. SEC Documents; Financial Statements. Except as disclosed in Schedule 3(g),
the Company 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 Securities Exchange Act of 1934, as amended
(the "1934 Act") (all of the foregoing filed prior to the date hereof and
all exhibits included therein and financial statements and schedules thereto
and documents (other than exhibits to such documents) incorporated by
reference therein, being hereinafter referred to herein as the "SEC Documents").
The Company has delivered to each Buyer true and complete copies of the SEC
Documents, except for such exhibits and incorporated documents. As of their
respective dates, the SEC Documents complied in all material respects with
the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, 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. None
of the statements made in any such SEC Documents is, or has been, required
to be amended or updated under applicable law (except for such statements
as have been amended or updated in subsequent filings prior the date hereof).
As of their respective dates, the financial statements of the Company
included in the SEC Documents complied as to form in all material respects
with applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto. Such financial statements have been prepared
in accordance with United States 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 not
include footnotes or may be condensed or summary statements) and fairly
present in all material respects the consolidated financial position of the
Company and its consolidated Subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as set forth in the financial statements of the Company
included in the SEC Documents, the Company has no liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to December 31, 2001 and (ii) obligations under contracts
and commitments incurred in the ordinary course of business and not required
under generally accepted accounting principles to be reflected in such
financial statements, which, individually or in the aggregate, are not
material to the financial condition or operating results of the Company.
h. Absence of Certain Changes. Since December 31, 2001, there has been no
material adverse change and no material adverse development in the assets,
liabilities, business, properties, operations, financial condition, results of
operations or prospects of the Company or any of its Subsidiaries.
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i. Absence of Litigation. There is no action, suit, claim, proceeding, inquiry
or investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the
Company or any of its Subsidiaries, threatened against or affecting the
Company or any of its Subsidiaries, or their officers or directors in their
capacity as such, that could have a Material Adverse Effect. Schedule 3(i)
contains a complete list and summary description of any pending or threatened
proceeding against or affecting the Company or any of its Subsidiaries,
without regard to whether it would have a Material Adverse Effect. The
Company and its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.
j. Patents, Copyrights, etc.
(i) The Company and each of its Subsidiaries owns or possesses the requisite
licenses or rights to use all patents, patent applications, patent rights,
inventions, know-how, trade secrets, trademarks, trademark applications,
service marks, service names, trade names and copyrights ("Intellectual
Property") necessary to enable it to conduct its business as now operated
(and, except as set forth in Schedule 3(j) hereof, to the best of the
Company's knowledge, as presently contemplated to be operated in the future);
there is no claim or action by any person pertaining to, or proceeding
pending, or to the Company's knowledge threatened, which challenges the right
of the Company or of a Subsidiary with respect to any Intellectual Property
necessary to enable it to conduct its business as now operated (and, except
as set forth in Schedule 3(j) hereof, to the best of the Company's knowledge,
as presently contemplated to be operated in the future); to the best of the
Company's knowledge, the Company's or its Subsidiaries' current and intended
products, services and processes do not infringe on any Intellectual Property
or other rights held by any person; and the Company is unaware of any facts
or circumstances which might give rise to any of the foregoing. The Company
and each of its Subsidiaries have taken reasonable security measures to
protect the secrecy, confidentiality and value of their Intellectual Property.
(ii) All of the Company's computer software and computer hardware, and other
similar or related items of automated, computerized or software systems that
are used or relied on by the Company in the conduct of its business or that
were, or currently are being, sold or licensed by the Company to customers
(collectively, "Information Technology"), are Year 2000 Compliant. For purposes
of this Agreement, the term "Year 2000 Compliant" means, with respect to the
Company's Information Technology, that the Information Technology is designed
to be used prior to, during and after the calendar Year 2000, and the
Information Technology used during each such time period will accurately
receive, provide and process date and time data (including, but not limited
to, calculating, comparing and sequencing) from, into and between the 20th
and 21st centuries, including the years 1999 and 2000, and leap-year
calculations, and will not malfunction, cease to function, or provide invalid
or incorrect results as a result of the date or time data, to the extent that
other information technology, used in combination with the Information
Technology, properly exchanges date and time data with it. The Company has
delivered to the Buyers true and correct copies of all analyses, reports,
studies and similar written information, whether prepared by the Company or
another party, relating to whether the Information Technology is Year 2000
Compliant, if any.
k. No Materially Adverse Contracts, Etc. 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. Neither the Company nor any of its Subsidiaries is a party
to any contract or agreement which in the judgment of the Company's officers
has or is expected to have a Material Adverse Effect.
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l. Tax Status. Except as set forth on Schedule 3(l), the Company and each of its
Subsidiaries has made or filed all federal, state and foreign income and all
other tax returns, reports and declarations required by any jurisdiction to
which it is subject (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) and 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
provisions 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. The Company has not executed a waiver
with respect to the statute of limitations relating to the assessment or
collection of any foreign, federal, state or local tax. Except as set forth
on Schedule 3(l), none of the Company's tax returns is presently being
audited by any taxing authority.
m. Certain Transactions. Except as set forth on Schedule 3(m) and except for
arm's length transactions pursuant to which the Company or any of its
Subsidiaries makes payments in the ordinary course of business upon terms no
less favorable than the Company or any of its Subsidiaries could obtain from
third parties and other than the grant of stock options disclosed on Schedule
3(c), none of the officers, directors, or employees of the Company is presently
a party to any transaction with the Company or any of its Subsidiaries (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.
n. Disclosure. All information relating to or concerning the Company or any of
its Subsidiaries set forth in this Agreement and provided to the Buyers
pursuant to Section 2(d) hereof and otherwise in connection with the
transactions contemplated hereby is true and correct in all material respects
and the Company has not omitted to state any material fact necessary in order
to make the statements made herein or therein, in light of the circumstances
under which they were made, not misleading. No event or circumstance has
occurred or exists with respect to the Company or any of its Subsidiaries or
its or their business, properties, prospects, operations or financial
conditions, which, under applicable law, rule or regulation, requires public
disclosure or announcement by the Company but which has not been so publicly
announced or disclosed (assuming for this purpose that the Company's reports
filed under the 1934 Act are being incorporated into an effective registration
statement filed by the Company under the 1933 Act).
o. Acknowledgment Regarding Buyers' Purchase of Securities. The Company
acknowledges and agrees that the Buyers are acting solely in the capacity of
arm's length purchasers with respect to this Agreement and the transactions
contemplated hereby. The Company further acknowledges that no Buyer is 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 statement made by any Buyer or any of their respective representatives
or agents in connection with this Agreement and the transactions contemplated
hereby is not advice or a recommendation and is merely incidental to the
Buyers' purchase of the Securities. The Company further represents to each
Buyer that the Company's decision to enter into this Agreement has been based
solely on the independent evaluation of the Company and its representatives.
p. 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 in any security or solicited any offers to buy any
security under circumstances that would require registration under the 1933
Act of the issuance of the Securities to the Buyers. The issuance of the
Securities to the Buyers will not be integrated with any other issuance of
the Company's securities (past, current or future) for purposes of any
shareholder approval provisions applicable to the Company or its securities.
8
q. No Brokers. The Company has taken no action which would give rise to any
claim by any person for brokerage commissions, transaction fees or similar
payments relating to this Agreement or the transactions contemplated hereby.
r. Permits; Compliance. The Company and each of its Subsidiaries is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and
orders necessary to own, lease and operate its properties and to carry on
its business as it is now being conducted (collectively, the "Company
Permits"), and there is no action pending or, to the knowledge of the Company,
threatened regarding suspension or cancellation of any of the Company Permits.
Neither the Company nor any of its Subsidiaries is in conflict with, or in
default or violation of, any of the Company Permits, except for any such
conflicts, defaults or violations which, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect. Since
December 31, 2001, neither the Company nor any of its Subsidiaries has
received any notification with respect to possible conflicts, defaults or
violations of applicable laws, except for notices relating to possible
conflicts, defaults or violations, which conflicts, defaults or violations
would not have a Material Adverse Effect.
s. Environmental Matters. (i) Except as set forth in Schedule 3(s), there are,
to the Company's knowledge, with respect to the Company or any of its
Subsidiaries or any predecessor of the Company, no past or present violations
of Environmental Laws (as defined below), releases of any material into the
environment, actions, activities, circumstances, conditions, events, incidents,
or contractual obligations which may give rise to any common law environmental
liability or any liability under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 or similar federal, state, local or
foreign laws and neither the Company nor any of its Subsidiaries has received
any notice with respect to any of the foregoing, nor is any action pending
or, to the Company's knowledge, threatened in connection with any of the
foregoing. The term "Environmental Laws" means all federal, state, local or
foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants contaminants, or toxic or hazardous substances or
wastes (collectively, "Hazardous Materials") into the environment, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.
(ii) Other than those that are or were stored, used or disposed of in
compliance with applicable law, no Hazardous Materials are contained on or
about any real property currently owned, leased or used by the Company or
any of its Subsidiaries, and no Hazardous Materials were released on or about
any real property previously owned, leased or used by the Company or any of
its Subsidiaries during the period the property was owned, leased or used by
the Company or any of its Subsidiaries, except in the normal course of the
Company's or any of its Subsidiaries' business. (iii) Except as set forth in
Schedule 3(s), there are no underground storage tanks on or under any real
property owned, leased or used by the Company or any of its Subsidiaries that
are not in compliance with applicable law.
t. Title to Property. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the
Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(t) or
such as would not have a Material Adverse Effect. 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
would not have a Material Adverse Effect.
9
u. 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 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 have
a Material Adverse Effect. The Company has provided to Buyer true and correct
copies of all policies relating to directors' and officers' liability
coverage, errors and omissions coverage, and commercial general liability
coverage.
v. Internal Accounting Controls. The Company and each of its Subsidiaries
maintain a system of internal accounting controls sufficient, in the judgment
of the Company's board of directors, 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, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
w. Foreign Corrupt Practices. Neither the Company, nor any of its Subsidiaries,
nor any director, officer, agent, employee or other person acting on behalf
of the Company or any Subsidiary has, in the course of his actions for, or
on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended, or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.
x. Solvency. The Company (after giving effect to the transactions contemplated
by this Agreement) is solvent (i.e., its assets ---- have a fair market
value in excess of the amount required to pay its probable liabilities on
its existing debts as they become absolute and matured) and currently the
Company has no information that would lead it to reasonably conclude that
the Company would not, after giving effect to the transaction contemplated
by this Agreement, have the ability to, nor does it intend to take any action
that would impair its ability to, pay its debts from time to time incurred
in connection therewith as such debts mature. The Company did not receive a
qualified opinion from its auditors with respect to its most recent fiscal
year end and, after giving effect to the transactions contemplated by this
Agreement, does not anticipate or know of any basis upon which its auditors
might issue a qualified opinion in respect of its current fiscal year.
10
y. No Investment Company. The Company is not, and upon the issuance and sale of
the Securities as contemplated by this Agreement will not be an "investment
company" required to be registered under the Investment Company Act of 1940
(an "Investment Company"). The Company is not controlled by an Investment
Company.
z. Breach of Representations and Warranties by the Company. If the Company
breaches any of the representations or warranties set forth in this Section 3,
and in addition to any other remedies available to the Buyers pursuant to
this Agreement, the Company shall pay to the Buyer the Standard Liquidated
Damages Amount in cash or in shares of Common Stock at the option of the
Buyer, until such breach is cured. If the Buyers elect to be paid the
Standard Liquidated Damages Amounts in shares of Common Stock, such shares
shall be issued at the Conversion Price at the time of payment.
4. COVENANTS.
a. Best Efforts. The parties shall use their best efforts to satisfy timely
each of the conditions described in Section 6 and 7 of this Agreement.
b. Form D; Blue Sky Laws. The Company agrees to file a Form D with respect to
the Securities 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 Securities for sale to the Buyers at the
applicable closing pursuant to this Agreement under applicable securities
or "blue sky" laws of the states of the United States (or to obtain an
exemption from such qualification), and shall provide evidence of any such
action so taken to each Buyer on or prior to the Closing Date.
c. Reporting Status; Eligibility to Use Form S-3, SB-2 or Form S-1. The
Company's Common Stock is registered under Section 12(g) of the 1934 Act.
The Company represents and warrants that it meets the requirements for the
use of Form S-3 (or if the Company is not eligible for the use of Form S-3
as of the Filing Date (as defined in the Registration Rights Agreement),
the Company may use the form of registration for which it is eligible at
that time) for registration of the sale by the Buyer of the Registrable
Securities (as defined in the Registration Rights Agreement). So long as the
Buyer beneficially owns any of the Securities, the Company shall timely file
all reports required to be filed with the SEC pursuant to the 1934 Act, 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 permit such termination. The Company further agrees to file
all reports required to be filed by the Company with the SEC in a timely
manner so as to become eligible, and thereafter to maintain its eligibility,
for the use of Form S-3. The Company shall issue a press release describing
the materials terms of the transaction contemplated hereby as soon as
practicable following the Closing Date but in no event more than two (2)
business days of the Closing Date, which press release shall be subject to
prior review by the Buyers. The Company agrees that such press release shall
not disclose the name of the Buyers unless expressly consented to in writing
by the Buyers or unless required by applicable law or regulation, and then
only to the extent of such requirement.
d. Use of Proceeds. The Company shall use the proceeds from the sale of the
Debentures and the Warrants in the manner set forth in Schedule 4(d) attached
hereto and made a part hereof and shall not, directly or indirectly, use such
proceeds for any loan to or investment in any other corporation, partnership,
enterprise or other person (except in connection with its currently existing
direct or indirect Subsidiaries)
11
e. Future Offerings. Subject to the exceptions described below, the Company will
not, without the prior written consent of a majority-in-interest of the Buyers,
not to be unreasonably withheld, negotiate or contract with any party to
obtain additional equity financing (including debt financing with an equity
component) that involves (A) the issuance of Common Stock at a discount to
the market price of the Common Stock on the date of issuance (taking into
account the value of any warrants or options to acquire Common Stock issued
in connection therewith) or (B) the issuance of convertible securities that
are convertible into an indeterminate number of shares of Common Stock or
(C) the issuance of warrants during the period (the "Lock-up Period")
beginning on the Closing Date and ending on the later of (i) two hundred
seventy (270) days from the Closing Date and (ii) one hundred eighty (180)
days from the date the Registration Statement (as defined in the Registration
Rights Agreement) is declared effective (plus any days in which sales cannot
be made thereunder). In addition, subject to the exceptions described below,
the Company will not conduct any equity financing (including debt with an
equity component) ("Future Offerings") during the period beginning on the
Closing Date and ending two (2) years after the end of the Lock-up Period
unless it shall have first delivered to each Buyer, at least twenty (20)
business days prior to the closing of such Future Offering, written notice
describing the proposed Future Offering, including the terms and conditions
thereof and proposed definitive documentation to be entered into in
connection therewith, and providing each Buyer an option during the fifteen
(15) day period following delivery of such notice to purchase its pro rata
share (based on the ratio that the aggregate principal amount of Debentures
purchased by it hereunder bears to the aggregate principal amount of
Debentures purchased hereunder) of the securities being offered in the Future
Offering on the same terms as contemplated by such Future Offering (the
limitations referred to in this sentence and the preceding sentence are
collectively referred to as the "Capital Raising Limitations"). In the event
the terms and conditions of a proposed Future Offering are amended in any
respect after delivery of the notice to the Buyers concerning the proposed
Future Offering, the Company shall deliver a new notice to each Buyer
describing the amended terms and conditions of the proposed Future Offering
and each Buyer thereafter shall have an option during the fifteen (15) day
period following delivery of such new notice to purchase its pro rata share
of the securities being offered on the same terms as contemplated by such
proposed Future Offering, as amended. The foregoing sentence shall apply to
successive amendments to the terms and conditions of any proposed Future
Offering. The Capital Raising Limitations shall not apply to any transaction
involving (i) issuances of securities in a firm commitment underwritten
public offering (excluding a continuous offering pursuant to Rule 415 under
the ▇▇▇▇ ▇▇▇) or (ii) issuances of securities as consideration for a merger,
consolidation or purchase of assets, or in connection with any strategic
partnership or joint venture (the primary purpose of which is not to raise
equity capital), or in connection with the disposition or acquisition of a
business, product or license by the Company. The Capital Raising Limitations
also shall not apply to the issuance of securities upon exercise or conversion
of the Company's options, warrants or other convertible securities outstanding
as of the date hereof or to the grant of additional options or warrants, or
the issuance of additional securities, under any Company stock option or
restricted stock plan approved by the shareholders of the Company.
f. Expenses. At the Closing, the Company shall reimburse Buyers for expenses
incurred by them in connection with the negotiation, preparation, execution,
delivery and performance of this Agreement and the other agreements to be
executed in connection herewith ("Documents"), including, without limitation,
attorneys' and consultants' fees and expenses, transfer agent fees, fees for
stock quotation services, fees relating to any amendments or modifications
of the Documents or any consents or waivers of provisions in the Documents,
fees for the preparation of opinions of counsel, escrow fees, and costs of
restructuring the transactions contemplated by the Documents. When possible,
the Company must pay these fees directly, otherwise the Company must make
immediate payment for reimbursement to the Buyers for all fees and expenses
immediately upon written notice by the Buyer or the submission of an invoice
by the Buyer If the Company fails to reimburse the Buyer in full within three
(3) business days of the written notice or submission of invoice by the Buyer,
the Company shall pay interest on the total amount of fees to be reimbursed
at a rate of 15% per annum.
12
g. Financial Information. The Company agrees to send the following reports to
each Buyer until such Buyer transfers, assigns, or sells all of the Securities:
(i) within ten (10) days after the filing with the SEC, a copy of its Annual
Report on Form 10-K, its Quarterly Reports on Form 10-Q and any Current
Reports on Form 8-K; (ii) within one (1) day after release, copies of all
press releases issued by the Company or any of its Subsidiaries; and (iii)
contemporaneously with the making available or giving to the shareholders of
the Company, copies of any notices or other information the Company makes
available or gives to such shareholders.
h. Authorization and Reservation of Shares. The Company shall at all times have
authorized, and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the full conversion or exercise of the
outstanding Debentures and Warrants and issuance of the Conversion Shares
and Warrant Shares in connection therewith (based on the Conversion Price
of the Debentures or Exercise Price of the Warrants in effect from time to
time) and as otherwise required by the Debentures. The Company shall not
reduce the number of shares of Common Stock reserved for issuance upon
conversion of Debentures and exercise of the Warrants without the consent of
each Buyer. The Company shall at all times maintain the number of shares of
Common Stock so reserved for issuance at an amount ("Reserved Amount") equal
to no less than two (2) times the number that is then actually issuable upon
full conversion of the Debentures and Additional Debentures and upon exercise
of the Warrants and the Additional Warrants (based on the Conversion Price
of the Debentures or the Exercise Price of the Warrants in effect from time
to time). If at any time the number of shares of Common Stock authorized and
reserved for issuance ("Authorized and Reserved Shares") is below the Reserved
Amount, the Company will promptly take all corporate action necessary to
authorize and reserve a sufficient number of shares, including, without
limitation, calling a special meeting of shareholders to authorize additional
shares to meet the Company's obligations under this Section 4(h), in the case
of an insufficient number of authorized shares, obtain shareholder approval
of an increase in such authorized number of shares, and voting the management
shares of the Company in favor of an increase in the authorized shares of the
Company to ensure that the number of authorized shares is sufficient to meet
the Reserved Amount. If the Company fails to obtain such shareholder approval
within thirty (30) days following the date on which the number of Authorized
and Reserved Shares exceeds the Reserved Amount, the Company shall pay to the
Borrower the Standard Liquidated Damages Amount, in cash or in shares of
Common Stock at the option of the Buyer. If the Buyer elects to be paid the
Standard Liquidated Damages Amount in shares of Common Stock, such shares
shall be issued at the Conversion Price at the time of payment. In order to
ensure that the Company has authorized a sufficient amount of shares to meet
the Reserved Amount at all times, the Company must deliver to the Buyer at
the end of every month a list detailing (1) the current amount of shares
authorized by the Company and reserved for the Buyer; and (2) amount of shares
issuable upon conversion of the Debentures and upon exercise of the Warrants
and as payment of interest accrued on the Debentures for one year. If the
Company fails to provide such list within five (5) business days of the end
of each month, the Company shall pay the Standard Liquidated Damages Amount,
in cash or in shares of Common Stock at the option of the Buyer, until the
list is delivered. If the Buyer elects to be paid the Standard Liquidated
Damages Amount in shares of Common Stock, such shares shall be issued at
the Conversion Price at the time of payment.
13
i. Listing. The Company shall promptly secure the listing of the Conversion
Shares and Warrant Shares upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance) and, so long as any Buyer owns any
of the Securities, shall maintain, so long as any other shares of Common
Stock shall be so listed, such listing of all Conversion Shares and Warrant
Shares from time to time issuable upon conversion of the Debentures or
exercise of the Warrants. The Company will obtain and, so long as any Buyer
owns any of the Securities, maintain the listing and trading of its Common
Stock on the OTCBB or any equivalent replacement exchange, the Nasdaq
National Market ("Nasdaq"), the Nasdaq SmallCap Market ("Nasdaq SmallCap"),
the New York Stock Exchange ("NYSE"), or the American Stock Exchange ("AMEX")
and will comply in all respects with the Company's reporting, filing and
other obligations under the bylaws or rules of the National Association of
Securities Dealers ("NASD") and such exchanges, as applicable. The Company
shall promptly provide to each Buyer copies of any notices it receives from
the OTCBB and any other exchanges or quotation systems on which the Common
Stock is then listed regarding the continued eligibility of the Common Stock
for listing on such exchanges and quotation systems.
j. Corporate Existence. So long as a Buyer beneficially owns any Debentures or
Warrants, the Company shall maintain its corporate existence and shall not
sell all or substantially all of the Company's assets, except in the event
of a merger or consolidation or sale of all or substantially all of the
Company's assets, where the surviving or successor entity in such transaction
(i) assumes the Company's obligations hereunder and under the agreements and
instruments entered into in connection herewith and (ii) is a publicly traded
corporation whose Common Stock is listed for trading on the OTCBB, Nasdaq,
Nasdaq SmallCap, NYSE or AMEX.
k. No Integration. The Company shall not make any offers or sales of any
security (other than the Securities) under circumstances that would require
registration of the Securities being offered or sold hereunder under the 1933
Act or cause the offering of the Securities to be integrated with any other
offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities.
l. Subsequent Investment. The Company and the Buyers agree that, upon filing by
the Company of the Registration Statement to be filed pursuant to the
Registration Rights Agreement (the "Filing Date"), the Buyers shall purchase
additional debentures ("Filing Debentures") in the aggregate principal amount
of Three Hundred Fifty Thousand Dollars ($350,000) and additional warrants
(the "Filing Warrants") to purchase an aggregate of 1,050,000 shares of
Common Stock, for an aggregate purchase price of Three Hundred Fifty
Thousand Dollars ($350,000), with the closing of such purchase to occur
within fifteen (15) days of the Filing Date; provided, however, that
the obligation of each Buyer to purchase the Filing Debentures and the Filing
Warrants is subject to the satisfaction, at or before the closing of such
purchase and sale, of the conditions set forth in Section 7. The Company
and the Buyers further agree that, upon the declaration of effectiveness of
the Registration Statement to be filed pursuant to the Registration Rights
Agreement (the "Effective Date"), the Buyers shall purchase additional
debentures (the "Effectiveness Debentures" and, collectively with the Filing
Debentures, the "Additional Debentures") in the aggregate principal amount
of Three Hundred Thousand Dollars ($300,000) and additional warrants (the
"Effectiveness Warrants" and, collectively with the Filing Warrants, the
"Additional Warrants") to purchase an aggregate of 900,000 shares of Common
Stock, for an aggregate purchase price of Three Hundred Thousand Dollars
($300,000), with the closing of such purchase to occur within ten (10) days
of the Effective Date; provided, however, that the obligation of each Buyer
to purchase the Effectiveness Debentures and the Effectiveness Warrants is
subject to the satisfaction, at or before the closing of such purchase and
sale, of the conditions set forth in Section 7; and, provided, further,
that there shall not have been a Material Adverse Effect as of such effective
date. The terms of the Additional Debentures and the Additional Warrants
shall be identical to the terms of the Debentures and Warrants, as the case
may be, to be issued on the Closing Date. The Common Stock underlying the
Additional Debentures and the Additional Warrants shall be Registrable
Securities (as defined in the Registration Rights Agreement) and shall be
included in the Registration Statement to be filed pursuant to the
Registration Rights Agreement.
14
m. Breach of Covenants. If the Company breaches any of the covenants set forth
in this Section 4, and in addition to any other remedies available to the
Buyers pursuant to this Agreement, the Company shall pay to the Buyers the
Standard Liquidated Damages Amount, in cash or in shares of Common Stock at
the option of the Buyer, until such breach is cured. If the Buyers elect to
be paid the Standard Liquidated Damages Amount in shares, such shares shall
be issued at the Conversion Price at the time of payment.
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable instructions
to its transfer agent to issue certificates, registered in the name of each
Buyer or its nominee, for the Conversion Shares and Warrant Shares in such
amounts as specified from time to time by each Buyer to the Company upon
conversion of the Debentures or exercise of the Warrants in accordance with
the terms thereof (the "Irrevocable Transfer Agent Instructions"). Prior to
registration of the Conversion Shares and Warrant Shares under the 1933 Act or
the date on which the Conversion Shares and Warrant Shares may be sold pursuant
to Rule 144 without any restriction as to the number of Securities as of a
particular date that can then be immediately sold, 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(f) hereof (in the case of the Conversion Shares and
Warrant Shares, prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act or the date on which the Conversion Shares and Warrant
Shares may be sold pursuant to Rule 144 without any restriction as to the number
of Securities as of a particular date that can then be immediately sold), will
be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Registration Rights Agreement.
Nothing in this Section shall affect in any way the Buyer's obligations and
agreement set forth in Section 2(g) hereof to comply with all applicable
prospectus delivery requirements, if any, upon re-sale of the Securities. If a
Buyer provides the Company with (i) an opinion of counsel in form, substance
and scope customary for opinions in comparable transactions, to the effect
that a public sale or transfer of such Securities may be made without
registration under the 1933 Act and such sale or transfer is effected or (ii)
the Buyer provides reasonable assurances that the Securities can be sold
pursuant to Rule 144, the Company shall permit the transfer, and, in the case
of the Conversion Shares and Warrant Shares, promptly instruct its transfer
agent to issue one or more certificates, free from restrictive legend, in such
name and in such denominations as specified by such Buyer. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Buyers, by vitiating the intent and purpose of the
transactions contemplated hereby. Accordingly, the Company acknowledges that
the remedy at law for a breach of its obligations under this Section 5 may be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section, that the Buyers shall be entitled,
in addition to all other available remedies, to an injunction restraining any
breach and requiring immediate transfer, without the necessity of showing
economic loss and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the Company
hereunder to issue and sell the Debentures and Warrants to a Buyer at the
Closing is subject to the satisfaction, at or before the Closing Date of each
of the following conditions thereto, 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:
15
a. The applicable Buyer shall have executed this Agreement and the Registration
Rights Agreement, and delivered the same to the Company.
b. The applicable Buyer shall have delivered the Purchase Price in accordance
with Section 1(b) above.
c. The representations and warranties of the applicable Buyer shall be true and
correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and the applicable Buyer 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 applicable Buyer at or prior to
the Closing Date.
d. No litigation, statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by or
in any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The obligation of each
Buyer hereunder to purchase the Debentures and Warrants 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 such Buyer's sole
benefit and may be waived by such Buyer at any time in its sole discretion:
a. The Company shall have executed this Agreement and the Registration Rights
Agreement, and delivered the same to the Buyer.
b. The Company shall have delivered to such Buyer duly executed Debentures (in
such denominations as the Buyer shall request) and Warrants in accordance with
Section 1(b) above.
c. The Irrevocable Transfer Agent Instructions, in form and substance
satisfactory to a majority-in-interest of the Buyers, shall have been
delivered to and acknowledged in writing by the Company's Transfer Agent.
d. The representations and warranties of the Company shall be true and correct
in all material respects as of the date when made and as of the Closing Date
as though made at such 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 Date. The Buyer shall have
received a certificate or certificates, executed by the chief executive
officer of the Company, dated as of the Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by such Buyer
including, but not limited to certificates with respect to the Company's
Articles of Incorporation, By-laws and Board of Directors' resolutions
relating to the transactions contemplated hereby.
e. No litigation, statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by or
in any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
f. No event shall have occurred which could reasonably be expected to have a
Material Adverse Effect on the Company.
16
g. The Conversion Shares and Warrant Shares shall have been authorized for
quotation on the OTCBB and trading in the Common Stock on the OTCBB shall
not have been suspended by the SEC or the OTCBB.
h. The Buyer shall have received an opinion of the Company's counsel, dated as
of the Closing Date, in form, scope and substance reasonably satisfactory
to the Buyer and in substantially the same form as Exhibit "D" attached
hereto.
i. The Buyer shall have received an officer's certificate described in Section
3(c) above, dated as of the Closing Date.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS
MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES HERETO HEREBY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW
YORK, NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT, THE
AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE
OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH
PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST
CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON
THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER
PARTY'S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. BOTH
PARTIES AGREE THAT A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER. THE PARTY WHICH DOES
NOT PREVAIL IN ANY DISPUTE ARISING UNDER THIS AGREEMENT SHALL BE RESPONSIBLE
FOR ALL FEES AND EXPENSES, INCLUDING ATTORNEYS' FEES, INCURRED BY THE
PREVAILING PARTY IN CONNECTION WITH SUCH DISPUTE.
b. Counterparts; Signatures by Facsimile. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original but all of
which shall constitute one and the same agreement and shall become effective
when counterparts have been signed by each party and delivered to the other
party. This Agreement, once executed by a party, may be delivered to the
other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
c. Headings. The headings of this Agreement are for convenience of reference
only and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. In the event that any provision of this Agreement is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any
provision hereof which may prove invalid or unenforceable under any law shall
not affect the validity or enforceability of any other provision hereof.
e. Entire Agreement; Amendments. 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 the 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.
17
f. Notices. Any notices required or permitted to be given under the terms of
this Agreement shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and shall be effective five days
after being placed in the mail, if mailed by regular United States mail, or
upon receipt, if delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile, in each case addressed to a
party. The addresses for such communications shall be:
If to the Company:
SeaView Video Technology, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, III
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇@▇▇▇▇▇▇▇.▇▇▇
With a copy to:
Sichenzia ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ LLP
1065 Avenue of the ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇▇▇▇@▇▇▇▇▇▇.▇▇▇
If to a Buyer: To the address set forth immediately below such Buyer's
name on the signature pages hereto.
With a copy to:
▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
Each party shall provide notice to the other party of any change in address.
g. Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their 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.
Notwithstanding the foregoing, subject to Section 2(f), any Buyer may assign
its rights hereunder to any person that purchases Securities in a private
transaction from a Buyer or to any of its "affiliates," as that term is
defined under the 1934 Act, without the consent of
the Company.
18
h. 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. The representations and warranties of the Company and the
agreements and covenants set forth in Sections 3, 4, 5 and 8 shall survive
the closing hereunder notwithstanding any due diligence investigation
conducted by or on behalf of the Buyers. The Company agrees to indemnify and
hold harmless each of the Buyers and all their officers, directors, employees
and agents for loss or damage arising as a result of or related to any breach
or alleged breach by the Company of any of its representations, warranties
and covenants set forth in Sections 3 and 4 hereof or any of its covenants
and obligations under this Agreement or the Registration Rights Agreement,
including advancement of expenses as they are incurred.
j. Publicity. The Company and each of the Buyers shall have the right to review
a reasonable period of time before issuance of any press releases, SEC,
OTCBB or NASD filings, or any other public statements with respect to the
transactions contemplated hereby; provided, however, that the Company
shall be entitled, without the prior approval of each of the Buyers, to make
any press release or SEC, OTCBB (or other applicable trading market) or NASD
filings with respect to such transactions as is required by applicable law
and regulations (although each of the Buyers shall be consulted by the
Company in connection with any such press release prior to its release and
shall be provided with a copy thereof and be given an opportunity to comment
thereon).
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. 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.
m. Remedies. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Buyers 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 Agreement will be inadequate and agrees, in the event
of a breach or threatened breach by the Company of the provisions of this
Agreement, that the Buyers shall be entitled, in addition to all other
available remedies at law or in equity, and in addition to the penalties
assessable herein, to an injunction or injunctions restraining, preventing
or curing any breach of this Agreement and to enforce specifically the terms
and provisions hereof, without the necessity of showing economic loss and
without any bond or other security being required.
19
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused this
Agreement to be duly executed as of the date first above written.
SEAVIEW VIDEO TECHNOLOGY, INC.
--------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, III
President and Chief Executive Officer
AJW PARTNERS, LLC
By: SMS Group, LLC
--------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Manager
RESIDENCE: Delaware
ADDRESS: ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $150,000
Number of Warrants: 450,000
Aggregate Purchase Price: $150,000
20
AJW OFFSHORE, LTD.
By: First Street Manager II, LLC
--------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Manager
RESIDENCE: Cayman Islands
ADDRESS: ▇.▇. ▇▇▇ ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇, B.W.I.
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $ 100,000
Number of Warrants: 300,000
Aggregate Purchase Price: $ 100,000
21
AJW QUALIFIED PARTNERS, LLC
By: AJW Manager, LLC
------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Manager
RESIDENCE: New York
ADDRESS: ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $ 100,000
Number of Warrants: 300,000
Aggregate Purchase Price: $ 100,000