Exhibit 10.2
CREATIVE VISTAS, INC.
SECURITIES PURCHASE AGREEMENT
SEPTEMBER 30, 2004
TABLE OF CONTENTS
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1. Agreement to Sell and Purchase........................................1
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2. Fees and Warrant......................................................2
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3. Closing, Delivery and Payment.........................................2
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3.1 Closing....................................................3
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3.2 Delivery...................................................3
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4. Representations and Warranties of the Company.........................3
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4.1 Organization, Good Standing and Qualification..............3
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4.2 Subsidiaries...............................................4
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4.3 Capitalization; Voting Rights..............................4
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4.4 Authorization; Binding Obligations.........................5
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4.5 Liabilities................................................5
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4.6 Agreements; Action.........................................6
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4.7 Obligations to Related Parties.............................6
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4.8 Changes....................................................7
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4.9 Title to Properties and Assets; Liens, Etc.................8
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4.10 Intellectual Property......................................8
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4.11 Compliance with Other Instruments..........................9
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4.12 Litigation.................................................9
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4.13 Tax Returns and Payments..................................10
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4.14 Employees.................................................10
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4.15 Registration Rights and Voting Rights.....................11
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4.16 Compliance with Laws; Permits.............................11
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4.17 Environmental and Safety Laws.............................11
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4.18 Valid Offering............................................12
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4.19 Full Disclosure...........................................12
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4.20 Insurance.................................................12
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4.21 SEC Reports; Financial Statements
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4.22 Listing...................................................13
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4.23 No Integrated Offering....................................13
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4.24 Stop Transfer.............................................13
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4.25 Dilution..................................................13
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4.26 Patriot Act ..............................................12
5. Representations and Warranties of the Purchaser......................14
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5.1 No Shorting...............................................14
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5.2 Requisite Power and Authority.............................14
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5.3 Investment Representations................................14
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5.4 Purchaser Bears Economic Risk.............................15
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5.5 Acquisition for Own Account...............................15
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5.6 Purchaser Can Protect Its Interest........................15
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5.7 Accredited Investor.......................................15
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5.8 Legends...................................................15
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6. Covenants of the Company.............................................16
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6.1 Stop-Orders...............................................16
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6.2 Listing...................................................16
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6.3 Market Regulations........................................17
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6.4 Reporting Requirements....................................17
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6.5 Use of Funds..............................................17
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6.6 Access to Facilities......................................17
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6.7 Taxes.....................................................17
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6.8 Insurance.................................................18
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6.9 Intellectual Property.....................................20
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6.10 Properties................................................20
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6.11 Confidentiality...........................................20
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6.12 Required Approvals........................................20
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6.13 Reissuance of Securities..................................21
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6.14 Opinion...................................................22
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6.15 Margin Stock.............................................19
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6.16 Restricted Cash Disclosure...............................19
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6.17 Financing Right of First Refusal.........................19
7. Covenants of the Purchaser...........................................23
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7.1 Confidentiality...........................................23
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7.2 Non-Public Information....................................23
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8. Covenants of the Company and Purchaser Regarding Indemnification.....23
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8.1 Company Indemnification...................................23
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8.2 Purchaser's Indemnification...............................24
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9. Conversion of Convertible Note.......................................24
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9.1 Mechanics of Conversion...................................24
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10. Registration Rights..................................................25
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10.1 Registration Rights Granted...............................25
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10.2 Offering Restrictions.......................................
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11. Miscellaneous........................................................25
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11.1 Governing Law.............................................26
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11.2 Survival..................................................26
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11.3 Successors................................................26
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11.4 Entire Agreement..........................................26
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11.5 Severability..............................................27
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11.6 Amendment and Waiver......................................27
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11.7 Delays or Omissions.......................................27
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11.8 Notices...................................................27
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11.9 Attorneys' Fees...........................................28
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11.10 Titles and Subtitles......................................29
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11.11 Facsimile Signatures; Counterparts........................29
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11.12 Broker's Fees.............................................29
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11.13 Construction..............................................29
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LIST OF EXHIBITS
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Form of Convertible Term Note......................................... Exhibit A
Form of Warrant....................................................... Exhibit B
Form of Opinion....................................................... Exhibit C
Form of Escrow Agreement.............................................. Exhibit D
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SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of September 30, 2004, by and between CREATIVE VISTAS, INC., an Arizona
corporation (the "Company"), and Laurus Master Fund, Ltd., a Cayman Islands
company (the "Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale to the Purchaser of a
Convertible Term Note in the aggregate principal amount of Four Million Five
Hundred Thousand Dollars ($4,500,000) (as amended, modified or supplemented from
time to time, the "Note"), which Note is convertible into shares of the
Company's common stock, $0.01 par value per share (the "Common Stock") at an
initial fixed conversion price of $3.00 per share of Common Stock ("Fixed
Conversion Price");
WHEREAS, the Company wishes to issue (x) a warrant to the Purchaser to
purchase up to 750,000 shares of the Company's Common Stock (subject to
adjustment as set forth therein) and (y) an option to purchase up to 499,999
shares of the Company's Common Stock (subject to adjustment as set forth
therein) , in each case, in connection with Purchaser's purchase of the Note and
the Notes referred to in that certain Security Agreement, dated as of the date
hereof, among the Purchaser, the Company and certain Subsidiaries of the Company
(as amended, modified or supplemented from time to time, the "Security
Agreement");
WHEREAS, Purchaser desires to purchase the Note, the Option and the
Warrant (as defined in Section 2) on the terms and conditions set forth herein;
and
WHEREAS, the Company desires to issue and sell the Note, the Option and
Warrant to Purchaser on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Agreement to Sell and Purchase. Pursuant to the terms and conditions
set forth in this Agreement, on the Closing Date (as defined in Section 3), the
Company agrees to sell to the Purchaser, and the Purchaser hereby agrees to
purchase from the Company, a Note in the aggregate principal amount of
$4,500,000 convertible in accordance with the terms thereof into shares of the
Company's Common Stock in accordance with the terms of the Note and this
Agreement. The offer and sale of the Note purchased on the Closing Date shall be
known as the "Offering." A form of the Note is annexed hereto as Exhibit A. The
Note will mature on the Maturity Date (as defined in the Note). Collectively,
the Note, the Option and Warrant and Common Stock issuable in payment of the
Note, upon conversion of the Note and upon exercise of the Option and Warrant
are referred to as the "Securities."
2. Fees, Option and Warrant. On the Closing Date:
(a) The Company will issue and deliver to the Purchaser a Warrant to
purchase up to 750,000 shares of Common Stock in connection with the Offering
(as amended, modified or supplemented from time to time, the "Warrant") pursuant
to Section 1 hereof. The Warrant must be delivered on the Closing Date. A form
of Warrant is annexed hereto as Exhibit B. All the representations, covenants,
warranties, undertakings, and indemnification, and other rights made or granted
to or for the benefit of the Purchaser by the Company are hereby also made and
granted in respect of the Warrant and shares of the Company's Common Stock
issuable upon exercise of the Warrant (the "Warrant Shares").
(b) The Company will issue and deliver to the Purchaser an Option to
purchase up to 499,999 shares of Common Stock in connection with the Offering
(as amended, modified or supplemented from time to time, the "Option") pursuant
to Section 1 hereof. The Option must be delivered on the Closing Date. A form of
the Option is annexed hereto as Exhibit B-2. All the representations, covenants,
warranties, undertakings, and indemnification, and other rights made or granted
to or for the benefit of the Purchaser by the Company are hereby also made and
granted in respect of the Option and shares of the Company's Common Stock
issuable upon exercise of the Option (the "Option Shares").
(c) Subject to the terms of Section 2(d) below, the Company shall pay to
Laurus Capital Management, LLC, the manager of the Purchaser, a closing payment
in an amount equal to three and one-half percent (3.50%) of the aggregate
principal amount of the Note. The foregoing fee is referred to herein as the
"Closing Payment."
(d) The Company shall reimburse the Purchaser for its reasonable expenses
(including legal fees and expenses) incurred in connection with the preparation
and negotiation of this Agreement and the Related Agreements (as hereinafter
defined), and expenses incurred in connection with the Purchaser's due diligence
review of the Company and its Subsidiaries (as defined in Section 6.8) and all
related matters. Amounts required to be paid under this Section 2(c), together
with amounts required to be paid pursuant to Section 5(b)(v) of the Security
Agreement, will be paid on the Closing Date and shall be $52,500 (plus any
amounts related to (x) fees and expenses in respect of local Canadian counsel
for the Purchaser and (y) registration and filing expenses in connection with
the granting and perfection of the Purchaser's security interests) for such
expenses referred to in this Section 2(c) (less $20,000 previously paid to the
Purchaser).
(e) The Closing Payment and the expenses referred to in the preceding
clause (c) (net of deposits previously paid by the Company) shall be paid at
Closing (as defined below) out of funds held pursuant to the Escrow Agreement
(as defined below) and a disbursement letter (the "Disbursement Letter").
3. Closing, Delivery and Payment.
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3.1 Closing. Subject to the terms and conditions herein, the closing
of the transactions contemplated hereby (the "Closing"), shall take place on the
date hereof, at such time or place as the Company and Purchaser may mutually
agree (such date is hereinafter referred to as the "Closing Date").
3.2 Delivery. Pursuant to the Escrow Agreement, at the Closing on
the Closing Date, the Company will deliver to the Purchaser, among other things,
a Note in the form attached as Exhibit A representing an aggregate principal
amount of $4,500,000, an Option in the form attached as Exhibit B-1 in the
Purchaser's name representing 499,999 Option Shares and a Warrant in the form
attached as Exhibit B-2 in the Purchaser's name representing 750,000 Warrant
Shares and the Purchaser will deliver to the Company, among other things, the
amounts set forth in the Disbursement Letter by certified funds or wire transfer
(it being understood that $1,250,000 of the proceeds of the Note shall be placed
in the Restricted Account (as defined in the Restricted Account Agreement
referred to below)).
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchaser as follows (which representations and
warranties are supplemented by the Company's filings under the Securities
Exchange Act of 1934 (collectively, the "Exchange Act Filings"), copies of which
have been provided to the Purchaser):
4.1 Organization, Good Standing and Qualification. Each of the
Company and each of its Subsidiaries is a corporation, partnership or limited
liability company, as the case may be, duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization. Each of the
Company and each of its Subsidiaries has the power (corporate and otherwise) and
authority to own and operate its properties and assets, to execute and deliver
(i) this Agreement, (ii) the Note, the Option and the Warrant to be issued in
connection with this Agreement, (iii) the Master Security Agreement dated as of
the date hereof between the Company and the Purchaser (as amended, modified or
supplemented from time to time, the "Master Security Agreement"), (iv) the
Registration Rights Agreement relating to the Securities dated as of the date
hereof between the Company and the Purchaser (as amended, modified or
supplemented from time to time, the "Registration Rights Agreement"), (v) the
Guaranty dated as of the date hereof made by certain Subsidiaries of the Company
(as amended, modified or supplemented from time to time, the "Subsidiary
Guaranty"), (vi) the Stock Pledge Agreement dated as of the date hereof among
the Company, certain Subsidiaries of the Company and the Purchaser (as amended,
modified or supplemented from time to time, the "Stock Pledge Agreement"), (vii)
the Escrow Agreement dated as of the date hereof among the Company, the
Purchaser and the escrow agent referred to therein, substantially in the form of
Exhibit D hereto (as amended, modified or supplemented from time to time, the
"Escrow Agreement"), (viii) the Restricted Account Agreement dated as of the
date hereof among the Company, the Purchaser and North Fork Bank (as amended,
modified or supplemented from time to time, the "Restricted Account Agreement"),
(ix) the Restricted Account Side Letter related to the Restricted Account
Agreement dated as of the date hereof between the Company and the Purchaser (as
amended, modified or supplemented from time to time, the "Restricted Account
Side Letter"), (x) a Debenture, dated as of the date hereof, given by A.C.
Technical Systems Ltd. in favour of the Purchaser, (xi) a Guaranty, dated as of
the date hereof, given by ▇▇▇▇▇ ▇▇▇▇▇▇▇ in favour of the Purchaser, (xii) a
Share Pledge Agreement, dated as of the date hereof, among A.C. Acquisition
Corp., A.C. Technical Systems Ltd. and ▇▇▇▇▇ ▇▇▇▇▇▇▇ in favour of the Purchaser,
(xiii) a Blocked Accounts Agreement, dated as of the date hereof, among A.C.
Technical Systems Ltd., the Purchaser and the Royal Bank of Canada, (xiv) a
Subordination Agreement, dated as of the date hereof, made by A.C. Technical
Acquisition Corp., A.C. Technical Systems Ltd., The Navaratnam Trust, The ▇▇▇▇▇
Trust, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇ and certain other parties, in favour of
the Purchaser. and (xv) all other agreements related to this Agreement and the
Note and referred to herein (the preceding clauses (ii) through (xv),
collectively, the "Related Agreements"), to issue and sell the Note and the
shares of Common Stock issuable upon conversion of the Note (the "Note Shares"),
to issue and sell the Option and the Option Shares and the Warrant and the
Warrant Shares, and to carry out the provisions of this Agreement and the
Related Agreements and to carry on its business as presently conducted. Each of
the Company and each of its Subsidiaries is duly qualified and is authorized to
do business and is in good standing as a foreign corporation, partnership or
limited liability company, as the case may be, in all jurisdictions in which the
nature of its activities and of its properties (both owned and leased) makes
such qualification necessary, except for those jurisdictions in which failure to
do so has not, or could not reasonably be expected to have, individually or in
the aggregate, a material adverse effect on the business, assets, liabilities,
condition (financial or otherwise), properties, operations or prospects of the
Company and the Company and its Subsidiaries, taken as a whole (a "Material
Adverse Effect").
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4.2 Subsidiaries. Each direct and indirect Subsidiary of the
Company, the direct owner of such Subsidiary and its percentage ownership
thereof, is set forth on Schedule 4.2. For the purpose of this Agreement, a
"Subsidiary" of any person or entity means (i) a corporation or other entity
whose shares of stock or other ownership interests having ordinary voting power
(other than stock or other ownership interests having such power only by reason
of the happening of a contingency) to elect a majority of the directors of such
corporation, or other persons or entities performing similar functions for such
person or entity, are owned, directly or indirectly, by such person or entity or
(ii) a corporation or other entity in which such person or entity owns, directly
or indirectly, more than 50% of the equity interests at such time.
4.3 Capitalization; Voting Rights.
(a) The authorized capital stock of the Company, as of the date
hereof consists of 100,050,000 shares, of which 100,000,000are shares of
Common Stock, no par value per share, 10,000,000shares of which are issued
and outstanding, and 50,000,000are shares of preferred stock, no par value
per share of which 0 shares of preferred stock are issued and outstanding.
The authorized capital stock of each Subsidiary of the Company is set
forth on Schedule 4.3(a).
(b) Except as disclosed on Schedule 4.3(b), other than: (i) the
shares reserved for issuance under the Company's stock option plans; and
(ii) shares which may be granted pursuant to this Agreement and the
Related Agreements, there are no outstanding options, warrants, rights
(including conversion or preemptive rights and rights of first refusal),
proxy or stockholder agreements, or arrangements or agreements of any kind
for the purchase or acquisition from the Company of any of its securities.
Except as disclosed on Schedule 4.3(b), neither the offer, issuance or
sale of any of the Note, the Option or the Warrant, or the issuance of any
of the Note Shares, the Option Shares or Warrant Shares, nor the
consummation of any transaction contemplated hereby will result in a
change in the price or number of any securities of the Company
outstanding, under anti-dilution or other similar provisions contained in
or affecting any such securities.
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(c) All issued and outstanding shares of the Company's Common Stock:
(i) have been duly authorized and validly issued and are fully paid and
nonassessable; and (ii) were issued in compliance with all applicable
state and federal laws concerning the issuance of securities.
(d) The rights, preferences, privileges and restrictions of the
shares of the Common Stock are as stated in the Company's Certificate of
Incorporation (the "Charter"). The Note Shares, the Option Shares and
Warrant Shares have been duly and validly reserved for issuance. When
issued in compliance with the provisions of this Agreement and the
Company's Charter, the Securities will be validly issued, fully paid and
nonassessable, and will be free of any liens or encumbrances; provided,
however, that the Securities may be subject to restrictions on transfer
under state and/or federal securities laws as set forth herein or as
otherwise required by such laws at the time a transfer is proposed.
4.4 Authorization; Binding Obligations. All corporate, partnership
or limited liability company, as the case may be, action on the part of the
Company and each of its Subsidiaries (including the respective officers and
directors) necessary for the authorization of this Agreement and the Related
Agreements, the performance of all obligations of the Company and its
Subsidiaries hereunder and under the other Related Agreements at the Closing
and, the authorization, sale, issuance and delivery of the Note, the Option and
Warrant has been taken or will be taken prior to the Closing. This Agreement and
the Related Agreements, when executed and delivered and to the extent it is a
party thereto, will be valid and binding obligations of each of the Company and
each of its Subsidiaries, enforceable against each such person in accordance
with their terms, except:
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; and
(b) general principles of equity that restrict the availability of
equitable or legal remedies.
The sale of the Note and the subsequent conversion of the Note into Note Shares
are not and will not be subject to any preemptive rights or rights of first
refusal that have not been properly waived or complied with. The issuance of the
Warrant and the subsequent exercise of the Warrant for Warrant Shares and the
issuance of the Option and the subsequent exercise of the Option for the Option
Shares are not and will not be subject to any preemptive rights or rights of
first refusal that have not been properly waived or complied with.
4.5 Liabilities. Neither the Company nor any of its Subsidiaries has
any contingent liabilities, except current liabilities incurred in the ordinary
course of business, liabilities disclosed in the Financial Statements (as
defined below) and liabilities set forth on Schedule 4.5.
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4.6 Agreements; Action. Except as set forth on Schedule 4.6 or as
disclosed in any Exchange Act Filings:
(a) there are no agreements, understandings, instruments, contracts,
proposed transactions, judgments, orders, writs or decrees to which the
Company or any of its Subsidiaries is a party or by which it is bound
which may involve: (i) obligations (contingent or otherwise) of, or
payments to, the Company in excess of $100,000 (other than obligations of,
or payments to, the Company arising from purchase or sale agreements
entered into in the ordinary course of business); or (ii) the transfer or
license of any patent, copyright, trade secret or other proprietary right
to or from the Company (other than licenses arising from the purchase of
"off the shelf" or other standard products); or (iii) provisions
restricting the development, manufacture or distribution of the Company's
products or services; or (iv) indemnification by the Company with respect
to infringements of proprietary rights.
(b) Since December 31, 2003, neither the Company nor any of its
Subsidiaries has: (i) declared or paid any dividends, or authorized or
made any distribution upon or with respect to any class or series of its
capital stock; (ii) incurred any indebtedness for money borrowed or any
other liabilities (other than ordinary course obligations) individually in
excess of $100,000 or, in the case of indebtedness and/or liabilities
individually less than $100,000, in excess of $200,000 in the aggregate;
(iii) made any loans or advances to any person not in excess, individually
or in the aggregate, of $100,000, other than ordinary course advances for
travel expenses; or (iv) sold, exchanged or otherwise disposed of any of
its assets or rights, other than the sale of its inventory in the ordinary
course of business except for a certain note payable for the purchase of
shares of A.C. Technical Systems Ltd. to The Nararatnam Trust and The
▇▇▇▇▇ Trust issued on the date hereof.
(c) For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same person or entity
(including persons or entities the Company has reason to believe are
affiliated therewith) shall be aggregated for the purpose of meeting the
individual minimum dollar amounts of such subsections.
4.7 Obligations to Related Parties. Except as set forth on Schedule
4.7, there are no obligations of the Company or any of its Subsidiaries to
officers, directors, stockholders or employees of the Company or any of its
Subsidiaries other than:
(a) for payment of salary for services rendered and for bonus
payments;
(b) reimbursement for reasonable expenses incurred on behalf of the
Company and its Subsidiaries;
(c) for other standard employee benefits made generally available to
all employees (including stock option agreements outstanding under any
stock option plan approved by the Board of Directors of the Company); and
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(d) obligations listed in the Company's Financial Statements or
disclosed in any of its Exchange Act Filings.
Except as described above or set forth on Schedule 4.7, to the best of the
Company's knowledge, none of the officers, directors, key employees or
stockholders of the Company or any members of their immediate families, are
indebted to the Company, individually or in the aggregate, in excess of $50,000
or have any direct or indirect ownership interest in any firm or corporation
with which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation which competes with the Company, other
than passive investments in publicly traded companies (representing less than
one percent (1%) of such company) which may compete with the Company. Except as
described above, no officer, director or stockholder, or any member of their
immediate families, is, directly or indirectly, interested in any material
contract with the Company and no agreements, understandings or proposed
transactions are contemplated between the Company and any such person. Except as
set forth on Schedule 4.7, the Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
4.8 Changes. Since December 31, 2003, except as disclosed in any
Exchange Act Filing or in any Schedule to this Agreement or to any of the
Related Agreements, there has not been:
(a) any change in the business, assets, liabilities, condition
(financial or otherwise), properties, operations or prospects of the
Company or any of its Subsidiaries, which individually or in the aggregate
has had, or could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect;
(b) any resignation or termination of any officer, key employee or
group of employees of the Company or any of its Subsidiaries;
(c) any material change, except in the ordinary course of business,
in the contingent obligations of the Company or any of its Subsidiaries by
way of guaranty, endorsement, indemnity, warranty or otherwise;
(d) any damage, destruction or loss, whether or not covered by
insurance, has had, or could reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect;
(e) any waiver by the Company or any of its Subsidiaries of a
valuable right or of a material debt owed to it;
(f) any direct or indirect loans made by the Company or any of its
Subsidiaries to any stockholder, employee, officer or director of the
Company or any of its Subsidiaries, other than advances made in the
ordinary course of business;
(g) any material change in any compensation arrangement or agreement
with any key employee, officer, director or stockholder of the Company or
any of its Subsidiaries;
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(h) any declaration or payment of any dividend or other distribution
of the assets of the Company or any of its Subsidiaries;
(i) any labor organization activity related to the Company or any of
its Subsidiaries;
(j) any debt, obligation or liability incurred, assumed or
guaranteed by the Company or any of its Subsidiaries in excess of a
principal amount of $300,000 in the aggregate, except those for immaterial
amounts and for current liabilities incurred in the ordinary course of
business;
(k) any sale, assignment or transfer of any material patents,
trademarks, copyrights, trade secrets or other intangible assets owned by
the Company or any of its Subsidiaries other than in the ordinary course
of business;
(l) any change in any material agreement to which the Company or any
of its Subsidiaries is a party or by which either the Company or any of
its Subsidiaries is bound which either individually or in the aggregate
has had, or could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect;
(m) any other event or condition of any character that, either
individually or in the aggregate, has had, or could reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect; or
(n) any arrangement or commitment by the Company or any of its
Subsidiaries to do any of the acts described in subsection (a) through (m)
above.
4.9 Title to Properties and Assets; Liens, Etc. Except as set forth
on Schedule 4.9, each of the Company and each of its Subsidiaries has good and
marketable title to its properties and assets, and good title to its leasehold
estates, in each case subject to no mortgage, pledge, lien, lease, encumbrance
or charge, other than:
(a) those resulting from taxes which have not yet become delinquent;
(b) minor liens and encumbrances which do not materially detract
from the value of the property subject thereto or materially impair the
operations of the Company or any of its Subsidiaries; and
(c) those that have otherwise arisen in the ordinary course of
business.
All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company and its Subsidiaries are in operating
condition and repair and are reasonably fit and usable for the purposes for
which they are being used. Except as set forth on Schedule 4.9, the Company and
its Subsidiaries are in material compliance with all material terms of each
lease to which it is a party or is otherwise bound.
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4.10 Intellectual Property.
(a) Each of the Company and each of its Subsidiaries owns or
possesses sufficient legal rights to all patents, trademarks, service
marks, trade names, copyrights, trade secrets, licenses, information and
other proprietary rights and processes necessary for its business as now
conducted and to the Company's knowledge, as presently proposed to be
conducted (the "Intellectual Property"), without any known infringement of
the rights of others. Except as set forth on Schedule 4.10(a), there are
no outstanding options, licenses or agreements of any kind relating to the
foregoing proprietary rights, nor is the Company or any of its
Subsidiaries bound by or a party to any options, licenses or agreements of
any kind with respect to the patents, trademarks, service marks, trade
names, copyrights, trade secrets, licenses, information and other
proprietary rights and processes of any other person or entity other than
such licenses or agreements arising from the purchase of "off the shelf"
or standard products.
(b) Neither the Company nor any of its Subsidiaries has received any
communications alleging that the Company or any of its Subsidiaries has
violated any of the patents, trademarks, service marks, trade names,
copyrights or trade secrets or other proprietary rights of any other
person or entity, nor is the Company or any of its Subsidiaries aware of
any basis therefor.
(c) The Company does not believe it is or will be necessary to
utilize any inventions, trade secrets or proprietary information of any of
its employees made prior to their employment by the Company or any of its
Subsidiaries, except for inventions, trade secrets or proprietary
information that have been rightfully assigned to the Company or any of
its Subsidiaries.
4.11 Compliance with Other Instruments. Neither the Company nor any
of its Subsidiaries is in violation or default of (x) any term of its Charter or
Bylaws, or (y) of any provision of any indebtedness, mortgage, indenture,
contract, agreement or instrument to which it is party or by which it is bound
or of any judgment, decree, order or writ, which violation or default, in the
case of this clause (y), has had, or could reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect. The
execution, delivery and performance of and compliance with this Agreement and
the Related Agreements to which it is a party, and the issuance and sale of the
Note by the Company and the other Securities by the Company each pursuant hereto
and thereto, will not, with or without the passage of time or giving of notice,
result in any such violation, or be in conflict with or constitute a default
under any such term or provision, or result in the creation of any mortgage,
pledge, lien, encumbrance or charge upon any of the properties or assets of the
Company or any of its Subsidiaries or the suspension, revocation, impairment,
forfeiture or nonrenewal of any permit, license, authorization or approval
applicable to the Company, its business or operations or any of its assets or
properties that could reasonably be expected to have, either individually or in
the aggregate, a Material Adverse Effect.
4.12 Litigation. Except as set forth on Schedule 4.12 hereto, there
is no action, suit, proceeding or investigation pending or, to the Company's
knowledge, currently threatened against the Company or any of its Subsidiaries
that prevents the Company or any of its Subsidiaries from entering into this
Agreement or the other Related Agreements, or from consummating the transactions
contemplated hereby or thereby, or which has had, or could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect or any change in the current equity ownership of the Company or any of
its Subsidiaries, nor is the Company aware that there is any basis to assert any
of the foregoing. Neither the Company nor any of its Subsidiaries is a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company or any of its Subsidiaries currently
pending or which the Company or any of its Subsidiaries intends to initiate.
9
4.13 Tax Returns and Payments. Each of the Company and each of its
Subsidiaries has timely filed or received an extension to file all tax returns
(federal, state and local) required to be filed by it. All taxes shown to be due
and payable on such returns, any assessments imposed, and all other taxes due
and payable by the Company or any of its Subsidiaries on or before the Closing,
have been paid or will be paid prior to the time they become delinquent unless
the Company or such Subsidiary is contesting such taxes in good faith and has
allocated sufficient reserves. Except as set forth on Schedule 4.13, neither the
Company nor any of its Subsidiaries has been advised:
(a) that any of its returns, federal, state, provincial or other,
have been or are being audited as of the date hereof; or
(b) of any deficiency in assessment or proposed judgment to its
federal, state, provincial or other taxes.
The Company has no knowledge of any liability of any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.
4.14 Employees. Except as set forth on Schedule 4.14, neither the
Company nor any of its Subsidiaries has any collective bargaining agreements
with any of its employees. There is no labor union organizing activity pending
or, to the Company's knowledge, threatened with respect to the Company or any of
its Subsidiaries. Except as disclosed in the Exchange Act Filings or on Schedule
4.14, neither the Company nor any of its Subsidiaries is a party to or bound by
any currently effective employment contract, deferred compensation arrangement,
bonus plan, incentive plan, profit sharing plan, retirement agreement or other
employee compensation plan or agreement. To the Company's knowledge, no employee
of the Company or any of its Subsidiaries, nor any consultant with whom the
Company or any of its Subsidiaries has contracted, is in violation of any term
of any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or to
contract with, the Company or any of its Subsidiaries because of the nature of
the business to be conducted by the Company or any of its Subsidiaries; and to
the Company's knowledge the continued employment by the Company or any of its
Subsidiaries of its present employees, and the performance of the Company's and
its Subsidiaries' contracts with its independent contractors, will not result in
any such violation. Neither the Company nor any of its Subsidiaries is aware
that any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with their duties to the Company or any of its Subsidiaries. Neither
the Company nor any of its Subsidiaries has received any notice alleging that
any such violation has occurred. Except for employees who have a current
effective employment agreement with the Company or any of its Subsidiaries, no
employee of the Company or any of its Subsidiaries has been granted the right to
continued employment by the Company or any of its Subsidiaries or to any
material compensation following termination of employment with the Company or
any of its Subsidiaries. Except as set forth on Schedule 4.14, the Company is
not aware that any officer, key employee or group of employees intends to
terminate his, her or their employment with the Company or any of its
Subsidiaries, nor does the Company or any of its Subsidiaries have a present
intention to terminate the employment of any officer, key employee or group of
employees.
10
4.15 Registration Rights and Voting Rights. Except (i) in connection
with this Agreement and the Related Agreements, (ii) as set forth on Schedule
4.15 and (iii) as disclosed in Exchange Act Filings, neither the Company nor any
of its Subsidiaries is presently under any obligation, and neither the Company
nor any of its Subsidiaries has granted any rights, to register any of the
Company's or its Subsidiaries' presently outstanding securities or any of its
securities that may hereafter be issued. Except as set forth on Schedule 4.15
and except as disclosed in Exchange Act Filings, to the Company's knowledge, no
stockholder of the Company or any of its Subsidiaries has entered into any
agreement with respect to the voting of equity securities of the Company or any
of its Subsidiaries.
4.16 Compliance with Laws; Permits. Neither the Company nor any of
its Subsidiaries is in violation of any applicable statute, rule, regulation,
order or restriction of any domestic or foreign government or any
instrumentality or agency thereof in respect of the conduct of its business or
the ownership of its properties which has had, or could reasonably be expected
to have, either individually or in the aggregate, a Material Adverse Effect. No
governmental orders, permissions, consents, approvals or authorizations are
required to be obtained and no registrations or declarations are required to be
filed in connection with the execution and delivery of this Agreement or any
other Related Agreement and the issuance of any of the Securities, except such
as has been duly and validly obtained or filed, or with respect to any filings
that must be made after the Closing, as will be filed in a timely manner. Each
of the Company and its Subsidiaries has all material franchises, permits,
licenses and any similar authority necessary for the conduct of its business as
now being conducted by it, the lack of which could, either individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect.
4.17 Environmental and Safety Laws. Neither the Company nor any of
its Subsidiaries is in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to its
knowledge, no material expenditures are or will be required in order to comply
with any such existing statute, law or regulation. Except as set forth on
Schedule 4.17, no Hazardous Materials (as defined below) are used or have been
used, stored, or disposed of by the Company or any of its Subsidiaries or, to
the Company's knowledge, by any other person or entity on any property owned,
leased or used by the Company or any of its Subsidiaries. For the purposes of
the preceding sentence, "Hazardous Materials" shall mean:
(a) materials which are listed or otherwise defined as "hazardous"
or "toxic" under any applicable local, state, provincial, federal and/or
foreign laws and regulations that govern the existence and/or remedy of
contamination on property, the protection of the environment from
contamination, the control of hazardous wastes, or other activities
involving hazardous substances, including building materials; or
(b) any petroleum products or nuclear materials.
11
4.18 Valid Offering. Assuming the accuracy of the representations
and warranties of the Purchaser contained in this Agreement, the offer, sale and
issuance of the Securities will be exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"), and will have
been registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws.
4.19 Full Disclosure. Each of the Company and each of its
Subsidiaries has provided the Purchaser with all information requested by the
Purchaser in connection with its decision to purchase the Note, the Option and
Warrant, including all information the Company and its Subsidiaries believe is
reasonably necessary to make such investment decision. Neither this Agreement,
the Related Agreements, the exhibits and schedules hereto and thereto nor any
other document delivered by the Company or any of its Subsidiaries to Purchaser
or its attorneys or agents in connection herewith or therewith or with the
transactions contemplated hereby or thereby, contain any untrue statement of a
material fact nor omit to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances in which
they are made, not misleading. Any financial projections and other estimates
provided to the Purchaser by the Company or any of its Subsidiaries were based
on the Company's and its Subsidiaries' experience in the industry and on
assumptions of fact and opinion as to future events which the Company or any of
its Subsidiaries, at the date of the issuance of such projections or estimates,
believed to be reasonable.
4.20 Insurance. Each of the Company and each of its Subsidiaries has
general commercial, product liability, fire and casualty insurance policies with
coverages which the Company believes are customary for companies similarly
situated to the Company and its Subsidiaries in the same or similar business.
4.21 SEC Reports; Financial Statements. Company and each of its
Subsidiaries has filed all proxy statements, reports and other documents
required to be filed by it under the Exchange Act since May 2001. A.C. Technical
Systems Ltd. ("AC Tech") has furnished the Purchaser with copies of: AC Tech's
audited balance sheet, statement of retained earnings, statement of operations
and statement of cash flows for the fiscal years ended December 31, 2002 and
December 31, 2003 (collectively, the "Financial Statements"). Each Financial
Statement was, at the time of its filing, in substantial compliance with the
requirements of its respective form and none of the Financial Statements, nor
the financial statements (and the notes thereto) included in the Financial
Statements, as of their respective filing dates, contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Such Financial
Statements have been prepared in accordance with generally accepted accounting
principles (x) in the case of the period ended December 31, 2002, as in effect
in Canada and (y) in the case of the period ended December 31, 2003, as in
effect in the United States of America, in each case, applied on a consistent
basis during the periods involved (except (i) as may be otherwise indicated in
such financial statements or the notes thereto or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed) and fairly present in all material respects the financial condition,
the results of operations, the retained earnings and the cash flows of AC Tech,
as of, and for, the periods presented in each such Financial Statements.
12
4.22 Listing. The Company's Common Stock is listed for trading on
the National Association of Securities Dealers Over the Counter Bulletin Board
("NASD OTCBB") and satisfies all requirements for the continuation of such
trading. The Company has not received any notice that its Common Stock will not
be eligible to be traded on the NASD OTCBB or that its Common Stock does not
meet all requirements for such trading.
4.23 No Integrated Offering. Neither the Company, nor any of its
Subsidiaries or 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 (other than a concurrent offering pursuant to the
Security Agreement) under circumstances that would cause the offering of the
Securities pursuant to this Agreement or any of the Related Agreements to be
integrated with prior offerings by the Company for purposes of the Securities
Act which would prevent the Company from selling the Securities pursuant to Rule
506 under the Securities Act, or any applicable exchange-related stockholder
approval provisions, nor will the Company or any of its affiliates or
Subsidiaries take any action or steps that would cause the offering of the
Securities to be integrated with other offerings.
4.24 Stop Transfer. The Securities are restricted securities as of
the date of this Agreement. Neither the Company nor any of its Subsidiaries will
issue any stop transfer order or other order impeding the sale and delivery of
any of the Securities at such time as the Securities are registered for public
sale or an exemption from registration is available, except as required by state
and federal securities laws.
4.25 Dilution. The Company specifically acknowledges that its
obligation to issue the shares of Common Stock upon conversion of the Note and
exercise of the Warrant and the Option is binding upon the Company and
enforceable regardless of the dilution such issuance may have on the ownership
interests of other shareholders of the Company.
4.26 Patriot Act. The Company certifies that, to the best of
Company's knowledge, neither the Company nor any of its Subsidiaries has been
designated, and is not owned or controlled, by a "suspected terrorist" as
defined in Executive Order 13224. The Company hereby acknowledges that the
Purchaser seeks to comply with all applicable laws concerning money laundering
and related activities. In furtherance of those efforts, the Company hereby
represents, warrants and agrees that: (i) none of the cash or property that the
Company or any of its Subsidiaries will pay or will contribute to the Purchaser
has been or shall be derived from, or related to, any activity that is deemed
criminal under United States law; and (ii) no contribution or payment by the
Company or any of its Subsidiaries to the Purchaser, to the extent that they are
within the Company's and/or its Subsidiaries' control shall cause the Purchaser
to be in violation of the United States Bank Secrecy Act, the United States
International Money Laundering Control Act of 1986 or the United States
International Money Laundering Abatement and Anti-Terrorist Financing Act of
2001. The Company shall promptly notify the Purchaser if any of these
representations ceases to be true and accurate regarding the Company or any of
its Subsidiaries. The Company agrees to provide the Purchaser any additional
information regarding the Company or any of its Subsidiaries that the Purchaser
deems necessary or convenient to ensure compliance with all applicable laws
concerning money laundering and similar activities. The Company understands and
agrees that if at any time it is discovered that any of the foregoing
representations are incorrect, or if otherwise required by applicable law or
regulation related to money laundering similar activities, the Purchaser may
undertake appropriate actions to ensure compliance with applicable law or
regulation, including but not limited to segregation and/or redemption of the
Purchaser's investment in the Company. The Company further understands that the
Purchaser may release confidential information about the Company and its
Subsidiaries and, if applicable, any underlying beneficial owners, to proper
authorities if the Purchaser, in its sole discretion, determines that it is in
the best interests of the Purchaser in light of relevant rules and regulations
under the laws set forth in subsection (ii) above.
13
5. Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants to the Company as follows (such representations and
warranties do not lessen or obviate the representations and warranties of the
Company set forth in this Agreement):
5.1 No Shorting. The Purchaser or any of its affiliates and
investment partners has not, will not and will not cause any person or entity to
directly engage in "short sales" of the Company's Common Stock as long as the
Note shall be outstanding.
5.2 Requisite Power and Authority. The Purchaser has all necessary
power and authority under all applicable provisions of law to execute and
deliver this Agreement and the Related Agreements and to carry out their
provisions. All corporate action on Purchaser's part required for the lawful
execution and delivery of this Agreement and the Related Agreements have been or
will be effectively taken prior to the Closing. Upon their execution and
delivery, this Agreement and the Related Agreements will be valid and binding
obligations of Purchaser, enforceable in accordance with their terms, except:
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; and
(b) as limited by general principles of equity that restrict the
availability of equitable and legal remedies.
5.3 Investment Representations. Purchaser understands that the
Securities are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon Purchaser's representations
contained in the Agreement, including, without limitation, that the Purchaser is
an "accredited investor" within the meaning of Regulation D under the Securities
Act of 1933, as amended (the "Securities Act"). The Purchaser confirms that it
has received or has had full access to all the information it considers
necessary or appropriate to make an informed investment decision with respect to
the Note, the Option and the Warrant to be purchased by it under this Agreement
and the Note Shares, the Option Shares and the Warrant Shares acquired by it
upon the conversion of the Note and the exercise of the Warrant and the Option,
respectively. The Purchaser further confirms that it has had an opportunity to
ask questions and receive answers from the Company regarding the Company's and
its Subsidiaries' business, management and financial affairs and the terms and
conditions of the Offering, the Note, the Option, the Warrant and the Securities
and to obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify any information furnished to the Purchaser or to which the
Purchaser had access.
14
5.4 Purchaser Bears Economic Risk. The Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. The Purchaser must bear the economic risk
of this investment until the Securities are sold pursuant to: (i) an effective
registration statement under the Securities Act; or (ii) an exemption from
registration is available with respect to such sale.
5.5 Acquisition for Own Account. The Purchaser is acquiring the
Note, the Option and Warrant and the Note Shares, the Option Share and the
Warrant Shares for the Purchaser's own account for investment only, and not as a
nominee or agent and not with a view towards or for resale in connection with
their distribution.
5.6 Purchaser Can Protect Its Interest. The Purchaser represents
that by reason of its, or of its management's, business and financial
experience, the Purchaser has the capacity to evaluate the merits and risks of
its investment in the Note, the Warrant, the Option and the Securities and to
protect its own interests in connection with the transactions contemplated in
this Agreement and the Related Agreements. Further, Purchaser is aware of no
publication of any advertisement in connection with the transactions
contemplated in the Agreement or the Related Agreements.
5.7 Accredited Investor. Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
5.8 Legends.
(a) The Note shall bear substantially the following legend:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS
NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE, STATE SECURITIES LAWS. THIS NOTE AND THE
COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH SHARES
UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO CREATIVE VISTAS, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
15
(b) The Note Shares and the Warrant Shares, if not issued by DWAC
system (as hereinafter defined), shall bear a legend which shall be in
substantially the following form until such shares are covered by an
effective registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE
STATE LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
CREATIVE VISTAS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) The Warrant shall bear substantially the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT
AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR THE
UNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO CREATIVE VISTAS, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."
6. Covenants of the Company. The Company covenants and agrees with the
Purchaser as follows:
6.1 Stop-Orders. The Company will advise the Purchaser, promptly
after it receives notice of issuance by the Securities and Exchange Commission
(the "SEC"), any state securities commission or any other regulatory authority
of any stop order or of any order preventing or suspending any offering of any
securities of the Company, or of the suspension of the qualification of the
Common Stock of the Company for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.
6.2 Listing. The Company's shares of Common Stock issuable upon
conversion of the Note and upon the exercise of the Warrant are listed on the
NASD OTCBB (the "Principal Market") as of the date hereof and, the Company shall
maintain such on a Principal Market so long as any other shares of Common Stock
shall be so listed. The Company will maintain the listing of its Common Stock on
a Principal Market, and will comply in all material respects with the Parent's
reporting, filing and other obligations under the bylaws or rules of the
National Association of Securities Dealers ("NASD") and such exchanges, as
applicable.
16
6.3 Market Regulations. The Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to the
Purchaser and promptly provide copies thereof to the Purchaser.
6.4 Reporting Requirements. The Company will timely file with the
SEC all reports required to be filed pursuant to the Exchange Act and refrain
from terminating its status as an issuer required by the Exchange Act to file
reports thereunder even if the Exchange Act or the rules or regulations
thereunder would permit such termination.
6.5 Use of Funds. The Company agrees that it will use the proceeds
of the sale of the Note, the Option and the Warrant as set forth on Schedule 6.5
hereto and for general working capital purposes (it being understood that
$1,250,000 of the proceeds of the Note will be deposited in the Restricted
Account on the Closing Date and shall be subject to the terms and conditions of
the Restricted Account Agreement and the Restricted Account Side Letter).
6.6 Access to Facilities. To the extent permitted by applicable
securities laws and regulations, each of the Company and each of its
Subsidiaries will permit any representatives designated by the Purchaser (or any
successor of the Purchaser), upon reasonable advance notice and during normal
business hours, at such person's expense and accompanied by a representative of
the Company, to:
(a) visit and inspect any of the properties of the Company or any of
its Subsidiaries;
(b) examine the corporate and financial records of the Company or
any of its Subsidiaries (unless such examination is not permitted by
federal, state, provincial or local law or by contract) and make copies
thereof or extracts therefrom; and
(c) discuss the affairs, finances and accounts of the Company or any
of its Subsidiaries with the directors, officers and independent
accountants of the Company or any of its Subsidiaries.
Notwithstanding the foregoing, neither the Company nor any of its Subsidiaries
will provide any material, non-public information to the Purchaser unless the
Purchaser signs a confidentiality agreement and otherwise complies with
Regulation FD, under the federal securities laws.
6.7 Taxes. Each of the Company and each of its Subsidiaries will
promptly pay and discharge, or cause to be paid and discharged, when due and
payable, all lawful taxes, assessments and governmental charges or levies
imposed upon the income, profits, property or business of the Company and its
Subsidiaries; provided, however, that any such tax, assessment, charge or levy
need not be paid if the validity thereof shall currently be contested in good
faith by appropriate proceedings and if the Company and/or such Subsidiary shall
have set aside on its books adequate reserves with respect thereto, and
provided, further, that the Company and its Subsidiaries will pay all such
taxes, assessments, charges or levies forthwith upon the commencement of
proceedings to foreclose any lien which may have attached as security therefor.
17
If Company or any of its Subsidiaries shall be required by law to
deduct or withhold in respect of any and all present or future taxes, levies,
imposts, deductions and other governmental charges or withholdings, and all
interest, penalties and other liabilities with respect thereto, imposed by any
jurisdiction (or any political subdivision thereof) ("Taxes") other than, with
respect to the Purchaser, any Taxes (including income, branch profits or
franchise taxes) imposed on or measured by its net income ("Indemnified Taxes")
from or in respect of any sum payable hereunder to the Purchaser, then:
(a) the sum payable shall be increased by such additional
amount (the "Additional Amount") as necessary so that after making all required
deductions and withholdings (including deductions and withholdings applicable to
such Additional Amount) the Purchaser receives an amount equal to the sum it
would have received had no such deductions or withholdings been made;
(b) the Company or such Subsidiary shall make the appropriate
deductions or withholdings and shall pay the full amount deducted or withheld to
the relevant taxing authority or other authority in accordance with applicable
law;
(c) within thirty (30) days after the date of such payment,
upon the Purchaser's request, the Company or such Subsidiary shall furnish to
the Purchaser the original or a certified copy of a receipt evidencing payment
thereof, or other evidence of payment reasonably satisfactory to the Purchaser;
(d) if the Company or such Subsidiary fails to pay amounts in
accordance with paragraph (b) above, the Company or such Subsidiary shall
indemnify the Purchaser for any incremental Indemnified Taxes that is paid by
the Purchaser as a result of the failure;
(e) the Company will indemnify the Purchaser for the full
amount of any Taxes imposed by any jurisdiction and paid by the Purchaser with
respect to any Additional Amount payable pursuant to paragraph (a) above and any
liability (including penalties, interest and expenses) arising therefrom or with
respect thereto, whether or not such Taxes are correctly asserted; and
(f) the indemnification contemplated in paragraphs (d) and (e)
above shall be made within 30 days from the date the Purchaser makes written
demand therefor (which demand shall identify the nature and amount of Taxes for
which indemnification is being sought and shall include a copy of the relevant
portion of any written assessment from the governmental authority demanding
payment of such Taxes).
6.8 Insurance. Each of the Company and its Subsidiaries will keep
its assets which are of an insurable character insured by financially sound and
reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in similar business similarly situated
as the Company and its Subsidiaries; and the Company and its Subsidiaries will
maintain, with financially sound and reputable insurers, insurance against other
hazards and risks and liability to persons and property to the extent and in the
manner which the Company reasonably believes is customary for companies in
similar business similarly situated as the Company and its Subsidiaries and to
the extent available on commercially reasonable terms. The Company, and each of
its Subsidiaries will jointly and severally bear the full risk of loss from any
loss of any nature whatsoever with respect to the assets pledged to the
Purchaser as security for its obligations hereunder and under the Related
Agreements. At the Company's and each of its Subsidiaries' joint and several
cost and expense in amounts and with carriers reasonably acceptable to
Purchaser, the Company and each of its Subsidiaries shall (i) keep all its
insurable properties and properties in which it has an interest insured against
the hazards of fire, flood, sprinkler leakage, those hazards covered by extended
coverage insurance and such other hazards, and for such amounts, as is customary
in the case of companies engaged in businesses similar to the Company's or the
respective Subsidiary's including business interruption insurance; (ii) maintain
a bond in such amounts as is customary in the case of companies engaged in
businesses similar to the Company's or the respective Subsidiary's insuring
against larceny, embezzlement or other criminal misappropriation of insured's
officers and employees who may either singly or jointly with others at any time
have access to the assets or funds of the Company or any of its Subsidiaries
either directly or through governmental authority to draw upon such funds or to
direct generally the disposition of such assets; (iii) maintain public and
product liability insurance against claims for personal injury, death or
property damage suffered by others; (iv) maintain all such worker's compensation
or similar insurance as may be required under the laws of any state or
jurisdiction in which the Company or the respective Subsidiary is engaged in
business; and (v) furnish Purchaser with (x) copies of all policies and evidence
of the maintenance of such policies at least thirty (30) days before any
expiration date, (y) excepting the Company's workers' compensation policy,
endorsements to such policies naming Purchaser as "co-insured" or "additional
insured" and appropriate loss payable endorsements in form and substance
satisfactory to Purchaser, naming Purchaser as loss payee, and (z) evidence that
as to Purchaser the insurance coverage shall not be impaired or invalidated by
any act or neglect of the Company or any Subsidiary and the insurer will provide
Purchaser with at least thirty (30) days notice prior to cancellation. So long
as the Note remains outstanding, the Company and each Subsidiary shall instruct
the insurance carriers that in the event of any loss thereunder, the carriers
shall make payment for such loss to the Company and/or the Subsidiary and
Purchaser jointly. In the event that as of the date of receipt of each loss
recovery upon any such insurance, the Purchaser has not declared an event of
default with respect to this Agreement or any of the Related Agreements, then
the Company and/or such Subsidiary shall be permitted to direct the application
of such loss recovery proceeds toward investment in property, plant and
equipment that would comprise "Collateral" secured by Purchaser's security
interest pursuant to its security agreement, with any surplus funds to be
applied toward payment of the obligations of the Company to Purchaser. In the
event that Purchaser has properly declared an event of default with respect to
this Agreement or any of the Related Agreements, then all loss recoveries
received by Purchaser upon any such insurance thereafter may be applied to the
obligations of the Company hereunder and under the Related Agreements, in such
order as the Purchaser may determine. Any surplus (following satisfaction of all
Company obligations to Purchaser) shall be paid by Purchaser to the Company or
applied as may be otherwise required by law. Any deficiency thereon shall be
paid by the Company or the Subsidiary, as applicable, to Purchaser, on demand.
Notwithstanding anything herein or in any Related Agreement to the contrary, the
Company shall obtain customary insurance and name the Purchaser as an additional
insured and loss payee thereunder as soon as practicable following the Closing
Date, and in any event within thirty days following the Closing Date.
18
6.9 Intellectual Property. Each of the Company and each of its
Subsidiaries shall maintain in full force and effect its existence, rights and
franchises and all licenses and other rights to use Intellectual Property owned
or possessed by it and reasonably deemed to be necessary to the conduct of its
business.
6.10 Properties. Each of the Company and each of its Subsidiaries
will keep its properties in good repair, working order and condition, reasonable
wear and tear excepted, and from time to time make all needful and proper
repairs, renewals, replacements, additions and improvements thereto; and each of
the Company and each of its Subsidiaries will at all times comply with each
provision of all leases to which it is a party or under which it occupies
property if the breach of such provision could, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
6.11 Confidentiality. The Company on behalf of itself and its
successors, assigns and Affiliates, agrees to use its best efforts to maintain
as confidential all confidential information provided to it by the Purchaser,
including, but not limited to, financial statements, certificates, reports,
agreements and information, financial results, information that may constitute
material non-public information and other information considered by the
Purchaser to be confidential and proprietary and to use such information in
compliance with all applicable laws, solely for the purpose of and as necessary
to fulfill its obligations under this Agreement and will not reveal it to any
third party without the express written consent of the Purchaser. The Company
will take appropriate measures to prevent its agents, employees and
subcontractors from using or disclosing any such confidential information,
except as is expressly permitted under this Agreement. The Company agrees that
it will not disclose, and will not include in any public announcement, the name
of the Purchaser, unless expressly agreed to by the Purchaser or unless and
until such disclosure is required by law or applicable regulation, and then only
to the extent of such requirement and upon notice to the Company.
Notwithstanding the foregoing, the Company may disclose Purchaser's identity and
the terms of this Agreement to its current and prospective debt and equity
financing sources and in its filings with the SEC.
6.12 Required Approvals. For so long as twenty-five percent (25%) of
the principal amount of the Note is outstanding, the Company, without the prior
written consent of the Purchaser, shall not, and shall not permit any of its
Subsidiaries to:
(a) (i) directly or indirectly declare or pay any dividends, other
than dividends paid to the Parent or any of its wholly-owned Subsidiaries,
(ii) issue any preferred stock that is mandatorily redeemable prior to the
one year anniversary of Maturity Date (as defined in the Note) or (iii)
redeem any of its preferred stock or other equity interests
(b) liquidate, dissolve or effect a material reorganization (it
being understood that in no event shall the Company dissolve, liquidate or
merge with any other person or entity (unless the Company is the surviving
entity);
19
(c) become subject to (including, without limitation, by way of
amendment to or modification of) any agreement or instrument which by its
terms would (under any circumstances) restrict the Company's or any of its
Subsidiaries right to perform the provisions of this Agreement, any
Related Agreement or any of the agreements contemplated hereby or thereby;
(d) materially alter or change the scope of the business of the
Company and its Subsidiaries taken as a whole;
(e) (i) create, incur, assume or suffer to exist any indebtedness
(exclusive of trade debt and debt incurred to finance the purchase of
equipment (not in excess of five percent (5%) of the fair market value of
the Company's and its Subsidiaries' assets) whether secured or unsecured
other than (x) the Company's indebtedness to the Purchaser, (y)
indebtedness set forth on Schedule 6.12(e) attached hereto and made a
---------------- part hereof and any refinancings or replacements thereof
on terms no less favorable to the Purchaser than the indebtedness being
refinanced or replaced, and (z) any debt incurred in connection with the
purchase of assets in the ordinary course of business, or any refinancings
or replacements thereof on terms no less favorable to the Purchaser than
the indebtedness being refinanced or replaced; (ii) cancel any debt owing
to it in excess of $100,000 in the aggregate during any 12 month period;
(iii) assume, guarantee, endorse or otherwise become directly or
contingently liable in connection with any obligations of any other
Person, except the endorsement of negotiable instruments by the Company
for deposit or collection or similar transactions in the ordinary course
of business or guarantees of indebtedness otherwise permitted to be
outstanding pursuant to this clause (e); and
(f) create or acquire any Subsidiary after the date hereof unless
(i) such Subsidiary is a wholly-owned Subsidiary of the Company and (ii)
such Subsidiary becomes party to the Master Security Agreement, the Stock
Pledge Agreement and the Subsidiary Guaranty (in each case, either by
executing a counterpart thereof or an assumption or joinder agreement in
respect thereof) and, to the extent reasonably required by the Purchaser,
satisfies each condition of this Agreement and the Related Agreements as
if such Subsidiary were a Subsidiary on the Closing Date.
6.13 Reissuance of Securities. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Section 5.8 above at such time as:
(a) the holder thereof is permitted to dispose of such Securities
pursuant to Rule 144(k) under the Securities Act; or
(b) upon resale subject to an effective registration statement after
such Securities are registered under the Securities Act.
The Company agrees to cooperate with the Purchaser in connection with all
resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions
necessary to allow such resales provided the Company and its counsel receive
reasonably requested representations from the selling Purchaser (and legal
opinions, if customary and requested), and broker, if any.
20
6.14 Opinion. On the Closing Date, the Company will deliver to the
Purchaser an opinion reasonably acceptable to the Purchaser from the Company's
external legal counsel. The Company will provide, at the Company's expense, such
other legal opinions in the future as are deemed reasonably necessary by the
Purchaser (and acceptable to the Purchaser) in connection with the conversion of
the Note and exercise of the Warrant and the Option.
6.15 Margin Stock. The Company will not permit any of the proceeds
of the Note, the Option or the Warrant to be used directly or indirectly to
"purchase" or "carry" "margin stock" or to repay indebtedness incurred to
"purchase" or "carry" "margin stock" within the respective meanings of each of
the quoted terms under Regulation U of the Board of Governors of the Federal
Reserve System as now and from time to time hereafter in effect.
6.16 Restricted Cash Disclosure. The Company agrees that, in
connection with its filing of its 8-K Report with the SEC concerning the
transactions contemplated by this Agreement and the Related Agreements (such
report, the "Laurus Transaction 8-K") in a timely manner after the date hereof,
it will disclose in such Laurus Transaction 8-K the amount of the proceeds of
the Note issued to the Purchaser that has been placed in a restricted cash
account and is subject to the terms and conditions of this Agreement and the
Related Agreements. Furthermore, the Company agrees to disclose in all public
filings required by the Commission (where appropriate) following the filing of
the Laurus Transaction 8-K, the existence of the restricted cash referred to in
the immediately preceding sentence, together with the amount thereof.
6.17 Financing Right of First Refusal. (a) For a period of one
hundred eighty (180) days following the Closing Date, the Company hereby grants
to the Purchaser a right of first refusal to provide any Additional Financing
(as defined below) to be issued by the Company and/or any of its Subsidiaries,
subject to the following terms and conditions. From and after the date hereof,
prior to the incurrence of any additional indebtedness and/or the sale or
issuance of any equity interests of the Company or any of its Subsidiaries
(other than (i) pursuant to options, warrants or other obligations to issue
shares outstanding on the date hereof as disclosed to Purchaser in writing; (ii)
pursuant to options that may be issued under any employee incentive stock option
and/or any qualified stock option plan adopted by the Company; or (iii)
securities issued pursuant to acquisitions or strategic transactions the primary
purpose of which is not raising capital, so long as, in the case of this clause
(iii), such shares of Common Stock so issued (or securities convertible into
Common Stock so issued) are restricted and do not become freely or publicly
traded in any respect prior to the two year anniversary of the issuance thereof)
(each, an "Additional Financing"), the Company and/or any Subsidiary of the
Company, as the case may be, shall notify the Purchaser of its intention to
enter into such Additional Financing. In connection therewith, the Company
and/or the applicable Subsidiary thereof shall submit a fully executed term
sheet (a "Proposed Term Sheet") to the Purchaser setting forth the terms,
conditions and pricing of any such Additional Financing (such financing to be
negotiated on "arm's length" terms and the terms thereof to be negotiated in
good faith) proposed to be entered into by the Company and/or such Subsidiary.
The Purchaser shall have the right, but not the obligation, to deliver its own
proposed term sheet (the "Purchaser Term Sheet") setting forth the terms and
conditions upon which Purchaser would be willing to provide such Additional
Financing to the Company and/or such Subsidiary. The Purchaser Term Sheet shall
contain terms no less favorable to the Company and /or the Subsidiary than those
outlined in Proposed Term Sheet. The Purchaser shall deliver such Purchaser Term
Sheet within ten business days of receipt of each such Proposed Term Sheet. If
the provisions of the Purchaser Term Sheet are at least as favorable to the
Company and/or such Subsidiary, as the case may be, as the provisions of the
Proposed Term Sheet, the Company and/or such Subsidiary shall (a) either enter
into and consummate the Additional Financing transaction outlined in the
Purchaser Term Sheet or (b) choose not to consummate such Additional Financing,
in which case the Company shall be obligated to comply with the provisions of
this Section 6.17 with respect to any future potential financing.
21
(b) The Company will not, and will not permit its Subsidiaries to,
agree, directly or indirectly, to any restriction with any person or entity
which limits the ability of the Purchaser to consummate an Additional Financing
with the Company or any of its Subsidiaries.
7. Covenants of the Purchaser. The Purchaser covenants and agrees with the
Company as follows:
7.1 Confidentiality. The Purchaser on behalf of itself and its
successors, assigns and Affiliates, agrees to use its best efforts to maintain
as confidential all confidential information provided to it by the Company,
including, but not limited to, financial statements, certificates, reports,
agreements and information, financial results, information that may constitute
material non-public information and other information considered by the Company
to be confidential and proprietary and to use such information in compliance
with all applicable laws, solely for the purpose of and as necessary to fulfill
its obligations under this Agreement and will not reveal it to any third party
without the express written consent of the Company. The Purchaser will take
appropriate measures to prevent its agents, employees and subcontractors from
using or disclosing any such confidential information, except as is expressly
permitted under this Agreement. The Purchaser agrees that it will not disclose,
and will not include in any public announcement, the name of the Company, unless
expressly agreed to by the Company or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement and upon notice to the Company .
7.2 Non-Public Information. The Purchaser agrees not to effect any
sales in the shares of the Company's Common Stock while in possession of
material, non-public information regarding the Company if such sales would
violate applicable securities law.
8. Covenants of the Company and Purchaser Regarding Indemnification.
8.1 Company Indemnification. The Company agrees to indemnify, hold
harmless, reimburse and defend the Purchaser, each of the Purchaser's officers,
directors, agents, affiliates, control persons, and principal shareholders,
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Purchaser which results, arises out of or is based upon: (i) any
misrepresentation by the Company or any of its Subsidiaries or breach of any
warranty by the Company or any of its Subsidiaries in this Agreement, any other
Related Agreement or in any exhibits or schedules attached hereto or thereto; or
(ii) any breach or default in performance by Company or any of its Subsidiaries
of any covenant or undertaking to be performed by Company or any of its
Subsidiaries hereunder, under any other Related Agreement or any other agreement
entered into by the Company and/or any of its Subsidiaries and Purchaser
relating hereto or thereto.
22
8.2 Purchaser's Indemnification. Purchaser agrees to indemnify, hold
harmless, reimburse and defend the Company and each of the Company's officers,
directors, agents, affiliates, control persons and principal shareholders, at
all times against any claim, cost, expense, liability, obligation, loss or
damage (including reasonable legal fees) of any nature, incurred by or imposed
upon the Company which results, arises out of or is based upon: (i) any
misrepresentation by Purchaser or breach of any warranty by Purchaser in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement; or (ii) any breach or default in performance by Purchaser of any
covenant or undertaking to be performed by Purchaser hereunder, or any other
agreement entered into by the Company and Purchaser relating hereto.
9. Conversion of Convertible Note.
9.1 Mechanics of Conversion.
(a) Provided the Purchaser has notified the Company of the
Purchaser's intention to sell the Note Shares and the Note Shares are
included in an effective registration statement or are otherwise exempt
from registration when sold and, to the extent required by the Note,
provided that the Purchaser has provided the Company with a properly
executed notice of conversion: (i) upon the conversion of the Note or part
thereof, the Company shall, at its own cost and expense, take all
necessary action (including the issuance of an opinion of counsel
reasonably acceptable to the Purchaser following a request by the
Purchaser) to assure that the Company's transfer agent shall issue shares
of the Company's Common Stock in the name of the Purchaser (or its
nominee) or such other persons as designated by the Purchaser in
accordance with Section 9.1(b) hereof and in such denominations to be
specified representing the number of Note Shares issuable upon such
conversion; and (ii) the Company warrants that no instructions other than
these instructions have been or will be given to the transfer agent of the
Company's Common Stock and that after the Effectiveness Date (as defined
in the Registration Rights Agreement) the Note Shares issued will be
freely transferable subject to the prospectus delivery requirements of the
Securities Act and the provisions of this Agreement, and will not contain
a legend restricting the resale or transferability of the Note Shares.
(b) Purchaser will give notice of its decision to exercise its right
to convert the Note or part thereof by telecopying or otherwise delivering
an executed and completed notice of the number of shares to be converted
to the Company (the "Notice of Conversion"). The Purchaser will not be
required to surrender the Note until the Purchaser receives the Note
Shares or until the Note has been fully satisfied. Each date on which a
Notice of Conversion is telecopied or delivered to the Company in
accordance with the provisions hereof shall be deemed a "Conversion Date."
Pursuant to the terms of the Notice of Conversion, the Company will issue
instructions to the transfer agent accompanied by an opinion of counsel
within three (3) business days of the date of the delivery to the Company
of the Notice of Conversion and shall cause the transfer agent to transmit
the certificates representing the Note Shares to the Purchaser. If
eligible, the Company shall cause its transfer agent to transmit the Note
Shares to the Purchaser by crediting the account of the Purchaser's prime
broker with the Depository Trust Company ("DTC") through its Deposit
Withdrawal Agent Commission ("DWAC") system within three (3) business days
after receipt by the Company of the Notice of Conversion (the "Delivery
Date").
23
(c) The Company understands that a delay in the delivery of the Note
Shares in the form required pursuant to Section 9 hereof beyond the
Delivery Date could result in economic loss to the Purchaser. In the event
that the Company fails to direct its transfer agent to deliver the Note
Shares to the Purchaser via the DWAC system within the time frame set
forth in Section 9.1(b) above (unless the Company's transfer agent does
not participate in the DWAC system) and the Note Shares are not delivered
to the Purchaser by the Delivery Date, as compensation to the Purchaser
for such loss, the Company agrees to pay late payments to the Purchaser
for late issuance of the Note Shares in the form required pursuant to
Section 9 hereof upon conversion of the Note in the amount equal to $250
per business day after the Delivery Date. Notwithstanding the foregoing,
the Company will not owe the Purchaser any late payments if the delay in
the delivery of the Note Shares beyond the Delivery Date is solely out of
the control of the Company and the Company is actively trying to cure the
cause of the delay. The Company shall pay any payments incurred under this
Section in immediately available funds upon demand and, in the case of
actual damages, accompanied by reasonable documentation of the amount of
such damages. Such documentation shall show the number of shares of Common
Stock the Purchaser is forced to purchase (in an open market transaction)
which the Purchaser anticipated receiving upon such conversion, and shall
be calculated as the amount by which (A) the Purchaser's total purchase
price (including customary brokerage commissions, if any) for the shares
of Common Stock so purchased exceeds (B) the aggregate principal and/or
interest amount of the Note, for which such Conversion Notice was not
timely honored.
Nothing contained herein or in any document referred to herein or delivered in
connection herewith shall be deemed to establish or require the payment of a
rate of interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest or dividends required to
be paid or other charges hereunder exceed the maximum amount permitted by such
law, any payments in excess of such maximum shall be credited against amounts
owed by the Company to a Purchaser and thus refunded to the Company.
10. Registration Rights.
10.1 Registration Rights Granted. The Company hereby grants
registration rights to the Purchaser pursuant to a Registration Rights Agreement
dated as of even date herewith between the Company and the Purchaser.
10.2 Offering Restrictions11. . Except as previously disclosed in
the SEC Reports or in the Exchange Act Filings, or stock or stock options
granted to employees or directors of the Company (these exceptions hereinafter
referred to as the "Excepted Issuances"), neither the Company nor any of its
Subsidiaries will issue any securities with a continuously variable/floating
conversion feature which are or could be (by conversion or registration)
free-trading securities (i.e. common stock subject to a registration statement)
prior to the full repayment or conversion of the Note (together with all accrued
and unpaid interest and fees related thereto) (the "Exclusion
Period").Miscellaneous.
24
11.1 Governing Law. THIS AGREEMENT AND EACH RELATED AGREEMENT SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. ANY ACTION BROUGHT BY
EITHER PARTY AGAINST THE OTHER CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT AND EACH RELATED AGREEMENT SHALL BE BROUGHT ONLY IN THE STATE COURTS
OF NEW YORK OR IN THE FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK. BOTH
PARTIES AND THE INDIVIDUALS EXECUTING THIS AGREEMENT AND THE RELATED AGREEMENTS
ON BEHALF OF THE COMPANY AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS AND
WAIVE TRIAL BY JURY. IN THE EVENT THAT ANY PROVISION OF THIS AGREEMENT OR ANY
RELATED AGREEMENT DELIVERED IN CONNECTION HEREWITH 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 SUCH PROVISION WHICH
MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT AFFECT THE VALIDITY
OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS AGREEMENT OR ANY RELATED
AGREEMENT. IF ANY PARTY SHALL COMMENCE AN ACTION OR PROCEEDING TO ENFORCE ANY
PROVISIONS HEREOF, THEN THE PREVAILING PARTY IN SUCH ACTION OR PROCEEDING SHALL
BE REIMBURSED BY THE OTHER PARTY FOR ITS ATTORNEYS FEES AND OTHER COSTS AND
EXPENSES INCURRED WITH THE INVESTIGATION, PREPARATION AND PROSECUTION OF SUCH
ACTION OR PROCEEDING.
11.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Purchaser and
the closing of the transactions contemplated hereby to the extent provided
therein. All statements as to factual matters contained in any certificate or
other instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date of
such certificate or instrument.
11.3 Successors. Except as otherwise expressly provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, heirs, executors and administrators of the parties hereto and shall
inure to the benefit of and be enforceable by each person who shall be a holder
of the Securities from time to time, other than the holders of Common Stock
which has been sold by the Purchaser pursuant to Rule 144 or an effective
registration statement. Purchaser may not assign its rights hereunder to a
competitor of the Company.
11.4 Entire Agreement. This Agreement, the Related Agreements, the
exhibits and schedules hereto and thereto and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and no party shall be
liable or bound to any other in any manner by any representations, warranties,
covenants and agreements except as specifically set forth herein and therein.
25
11.5 Severability. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
11.6 Amendment and Waiver.
(a) This Agreement may be amended or modified only upon the written
consent of the Company and the Purchaser.
(b) The obligations of the Company and the rights of the Purchaser
under this Agreement may be waived only with the written consent of the
Purchaser.
(c) The obligations of the Purchaser and the rights of the Company
under this Agreement may be waived only with the written consent of the
Company.
11.7 Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement or the Related
Agreements, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring. All remedies, either under this Agreement or the Related
Agreements, by law or otherwise afforded to any party, shall be cumulative and
not alternative.
11.8 Notices. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given:
(a) upon personal delivery to the party to be notified;
(b) when sent by confirmed facsimile if sent during normal business
hours of the recipient, if not, then on the next business day;
(c) three (3) business days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or
(d) one (1) day after deposit with a nationally recognized overnight
courier, specifying next day delivery, with written verification of
receipt.
26
All communications shall be sent as follows:
If to the Company, to: Creative Vistas, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇-▇-▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇
▇▇▇▇▇▇
Telephone: ▇▇▇.▇▇▇.▇▇▇▇
Facsimile: 905.666.9795
Attention: Chief Financial Officer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to (which shall not
constitute notice):
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
If to the Purchaser, to: Laurus Master Fund, Ltd.
c/o M&C Corporate Services Limited
▇.▇. ▇▇▇ ▇▇▇ ▇▇
▇▇▇▇▇▇ House
South Church Street
▇▇▇▇▇▇ Town
Grand Cayman, Cayman Islands
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
or at such other address as the Company or the Purchaser may designate by
written notice to the other parties hereto given in accordance herewith.
11.9 Attorneys' Fees. In the event that any suit or action is
instituted to enforce any provision in this Agreement, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including, without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
27
11.10 Titles and Subtitles. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
11.11 Facsimile Signatures; Counterparts. This Agreement may be
executed by facsimile signatures and in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
11.12 Broker's Fees. Except as set forth on Schedule 11.12 hereof,
each party hereto represents and warrants that no agent, broker, investment
banker, person or firm acting on behalf of or under the authority of such party
hereto is or will be entitled to any broker's or finder's fee or any other
commission directly or indirectly in connection with the transactions
contemplated herein. Each party hereto further agrees to indemnify each other
party for any claims, losses or expenses incurred by such other party as a
result of the representation in this Section 11.12 being untrue.
11.13 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Agreement and the Related Agreements
and, therefore, stipulates that the rule of construction that ambiguities are to
be resolved against the drafting party shall not be applied in the
interpretation of this Agreement to favor any party against the other.
11.14 Currency Indemnity. If, for the purposes of obtaining judgment
in any court in any jurisdiction with respect to this Agreement or any of the
Related Agreements, it becomes necessary to convert into the currency of such
jurisdiction (the "Judgment Currency") any amount due under this Agreement or
under any of the Related Agreements in any currency other than the Judgment
Currency (the "Currency Due"), then conversion shall be made at the Exchange
Rate at which the Purchaser is able, on the relevant date, to purchase the
Currency Due with the Judgment Currency prevailing on the Business Day before
the day on which judgment is given. In the event that there is a change in the
rate of Exchange Rate prevailing between the Business Day before the day on
which the judgment is given and the date of receipt by the Purchaser of the
amount due, Company will, on the date of receipt by the Purchaser, pay such
additional amounts, if any, or be entitled to receive reimbursement of such
amount, if any, as may be necessary to ensure that the amount received by the
Purchaser on such date is the amount in the Judgment Currency which when
converted at the rate of exchange prevailing on the date of receipt by the
Purchaser is the amount then due under this Agreement or such of the Related
Agreements in the Currency Due. If the amount of the Currency Due which the
Purchaser is able to purchase is less than the amount of the Currency Due
originally due to it, Company shall indemnify and save the Purchaser harmless
from and against loss or damage arising as a result of such deficiency. The
indemnity contained herein shall constitute an obligation separate and
independent from the other obligations contained in this Agreement and the
Related Agreements, shall give rise to a separate and independent cause of
action, shall apply irrespective of any indulgence granted by the Purchaser from
time to time and shall continue in full force and effect notwithstanding any
judgment or order for a liquidated sum in respect of an amount due under this
Agreement or any of the Related Agreements or under any judgment or order.
28
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29
IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
CREATIVE VISTAS, INC. LAURUS MASTER FUND, LTD.
By: By:
-------------------------------- -------------------------------------
Name: Name:
------------------------------ -----------------------------------
Title: Title:
----------------------------- ----------------------------------
30
EXHIBIT A
FORM OF CONVERTIBLE NOTE
A-1
EXHIBIT B
FORM OF WARRANT
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