EXHIBIT 10.6
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of May 15, 2002,
by and among Torbay Holdings, Inc., a Delaware corporation, with headquarters
located at ▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (the "COMPANY"),
and each of the purchasers set forth on the signature pages hereto (the
"BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration
afforded by the rules and regulations as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of
1933, as amended (the "1933 ACT");
B. Buyers desire to purchase and the Company desires to issue and
sell, upon the terms and conditions set forth in this Agreement (i) 12%
convertible debentures of the Company, in the form attached hereto as
EXHIBIT "A", in the aggregate principal amount of Five Hundred Thousand
Dollars ($500,000) (together with any debenture(s) issued in replacement
thereof or as a dividend thereon or otherwise with respect thereto in
accordance with the terms thereof, the "DEBENTURES"), convertible into
shares of common stock, par value $.0001 per share, of the Company (the
"COMMON STOCK"), upon the terms and subject to the limitations and
conditions set forth in such Debentures and (ii) warrants, in the form
attached hereto as EXHIBIT "B", to purchase One Million Five Hundred
Thousand (1,500,000) shares of Common Stock (the "WARRANTS");
C. Each Buyer wishes to purchase, upon the terms and conditions stated
in this Agreement, such principal amount of Debentures and number of
Warrants as is set forth immediately below its name on the signature pages
hereto; and
D. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights
Agreement, in the form attached hereto as EXHIBIT "C" (the "REGISTRATION
RIGHTS AGREEMENT"), pursuant to which the Company has agreed to provide
certain registration rights under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and each of the Buyers severally (and not
jointly) hereby agree as follows:
1. PURCHASE AND SALE OF DEBENTURES AND WARRANTS.
A. PURCHASE OF DEBENTURES AND WARRANTS. On the Closing Date (as
defined below), the Company shall issue and sell to each Buyer and
each Buyer severally agrees to purchase from the Company such
principal amount of Debentures and number of Warrants as is set forth
immediately below such Buyer's name on the signature pages hereto.
B. FORM OF PAYMENT. On the Closing Date (as defined below), (i)
each Buyer shall pay the purchase price for the Debentures and the
Warrants to be issued and sold to it at the Closing (as defined below)
(the "PURCHASE PRICE") by wire transfer of immediately available funds
to the Company, in accordance with the Company's written wiring
instructions, against delivery of the Debentures in the principal
amount equal to the Purchase Price and the number of Warrants as is
set forth immediately below such Buyer's name on the signature pages
hereto, and (ii) the Company shall deliver such Debentures and
Warrants duly executed on behalf of the Company, to such Buyer,
against delivery of such Purchase Price.
C. CLOSING DATE. Subject to the satisfaction (or written waiver)
of the conditions thereto set forth in Section 6 and Section 7 below,
the date and time of the issuance and sale of the Debentures and the
Warrants pursuant to this Agreement (the "CLOSING DATE") shall be
12:00 noon, Eastern Standard Time on May 15, 2002 or such other
mutually agreed upon time. The closing of the transactions
contemplated by this Agreement (the "CLOSING") shall occur on the
Closing Date at such location as may be agreed to by the parties.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer severally (and not
jointly) represents and warrants to the Company solely as to such Buyer that:
A. INVESTMENT PURPOSE. As of the date hereof, the Buyer is
purchasing the Debentures and the shares of Common
Stock issuable upon conversion of or otherwise pursuant to the
Debentures (including, without limitation, such additional shares of
Common Stock, if any, as are issuable (i) on account of interest on
the Debentures, (ii) as a result of the events described in Sections
1.3 and 1.4(g) of the Debentures and Section 2(c) of the Registration
Rights Agreement or (iii) in payment of the Standard Liquidated
Damages Amount (as defined in Section 2(f) below) pursuant to this
Agreement, such shares of Common Stock being collectively referred to
herein as the "CONVERSION SHARES") and the Warrants and the shares of
Common Stock issuable upon exercise thereof (the "WARRANT SHARES" and,
collectively with the Debentures, Warrants and Conversion Shares, the
"SECURITIES") for its own account and not with a present view towards
the public sale or distribution thereof, except pursuant to sales
registered or exempted from registration under the 1933 Act; provided,
however, that by making the representations herein, the Buyer does not
agree to hold any of the Securities for any minimum or other specific
term and reserves the right to dispose of the Securities at any time
in accordance with or pursuant to a registration statement or an
exemption under the 1933 Act.
B. ACCREDITED INVESTOR STATUS. The Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D (an
"ACCREDITED INVESTOR").
C. RELIANCE ON EXEMPTIONS. The Buyer understands that the
Securities are being offered and sold to it in reliance upon specific
exemptions from the registration requirements of United States federal
and state securities laws and that the Company is relying upon the
truth and accuracy of, and the Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and
understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to
acquire the Securities.
D. INFORMATION. The Buyer and its advisors, if any, have been,
and for so long as the Debentures and Warrants remain outstanding will
continue to be, furnished with all materials relating to the business,
finances and operations of the Company and materials relating to the
offer and sale of the Securities which have been requested by the
Buyer or its advisors. The Buyer and its advisors, if any, have been,
and for so long as the Debentures and Warrants remain outstanding will
continue to be, afforded the opportunity to ask questions of the
Company. Notwithstanding the foregoing, the Company has not disclosed
to the Buyer any material nonpublic information and will not disclose
such information unless such information is disclosed to the public
prior to or promptly following such disclosure to the Buyer. Neither
such inquiries nor any other due diligence investigation conducted by
Buyer or any of its advisors or representatives shall modify, amend or
affect Buyer's right to rely on the Company's representations and
warranties contained in Section 3 below. The Buyer understands that
its investment in the Securities involves a significant degree of
risk.
E. GOVERNMENTAL REVIEW. The Buyer understands that no United
States federal or state agency or any other government or governmental
agency has passed upon or made any recommendation or endorsement of
the Securities.
F. TRANSFER OR RE-SALE. The Buyer understands that (i) except as
provided in the Registration Rights Agreement, the sale or re-sale of
the Securities has not been and is not being registered under the 1933
Act or any applicable state securities laws, and the Securities may
not be transferred unless (a) the Securities are sold pursuant to an
effective registration statement under the 1933 Act, (b) the Buyer
shall have delivered to the Company an opinion of counsel that shall
be in form, substance and scope customary for opinions of counsel in
comparable transactions to the effect that the Securities to be sold
or transferred may be sold or transferred pursuant to an exemption
from such registration, which opinion shall be accepted by the
Company, (c) the Securities are sold or transferred to an "affiliate"
(as defined in Rule 144 promulgated under the 1933 Act (or a successor
rule) ("RULE 144")) of the Buyer who agrees to sell or otherwise
transfer the Securities only in accordance with this Section 2(f) and
who is an Accredited Investor, (d) the Securities are sold pursuant to
Rule 144, or (e) the Securities are sold pursuant to Regulation S
under the 1933 Act (or a successor rule) ("REGULATION S"), and the
Buyer shall have delivered to the Company an opinion of counsel that
shall be in form, substance and scope customary for opinions of
counsel in corporate transactions, which opinion shall be accepted by
the Company; (ii) any sale of such Securities made in reliance on Rule
144 may be made only in accordance with the terms of said Rule and
further, if said Rule is not applicable, any re-sale of such
Securities under circumstances in which the seller (or the person
through whom the sale is made) may be deemed to be an underwriter (as
that term is defined in the ▇▇▇▇ ▇▇▇) may require compliance with some
other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other person is
under any obligation to register such Securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions
of any exemption thereunder (in each case, other than pursuant to the
Registration Rights Agreement). Notwithstanding the foregoing or
anything else contained herein to the contrary, the Securities may be
pledged as collateral in connection with a bona fide margin account or
other lending arrangement. In the event that the Company does not
accept the opinion of counsel provided by the Buyer with respect to
the transfer of Securities pursuant to an exemption from registration,
such as Rule 144 or Regulation S, within three (3)
business days of delivery of the opinion to the Company, the Company
shall pay to the Buyer liquidated damages of three percent (3%) of the
outstanding amount of the Debentures per month plus accrued and unpaid
interest on the Debentures, prorated for partial months, in cash or
shares at the option of the Buyer ("STANDARD LIQUIDATED DAMAGES
AMOUNT"). If the Buyer elects to be paid the Standard Liquidated
Damages Amount in shares of Common Stock, such shares shall be issued
at the Conversion Price at the time of payment.
G. LEGENDS. The Buyer understands that the Debentures and the
Warrants and, until such time as the Conversion Shares and Warrant
Shares have been registered under the 1933 Act as contemplated by the
Registration Rights Agreement or otherwise may be sold pursuant to
Rule 144 or Regulation S without any restriction as to the number of
securities as of a particular date that can then be immediately sold,
the Conversion Shares and Warrant Shares may bear a restrictive legend
in substantially the following form (and a stop-transfer order may be
placed against transfer of the certificates for such Securities): "The
securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities may not
be sold, transferred or assigned in the absence of an effective
registration statement for the securities under said Act, or an
opinion of counsel, in form, substance and scope customary for
opinions of counsel in comparable transactions, that registration is
not required under said Act or unless sold pursuant to Rule 144 or
Regulation S under said Act." The legend set forth above shall be
removed and the Company shall issue a certificate without such legend
to the holder of any Security upon which it is stamped, if, unless
otherwise required by applicable state securities laws, (a) such
Security is registered for sale under an effective registration
statement filed under the 1933 Act or otherwise may be sold pursuant
to Rule 144 or Regulation S without any restriction as to the number
of securities as of a particular date that can then be immediately
sold, or (b) such holder provides the Company with an opinion of
counsel, in form, substance and scope customary for opinions of
counsel in comparable transactions, to the effect that a public sale
or transfer of such Security may be made without registration under
the 1933 Act, which opinion shall be accepted by the Company so that
the sale or transfer is effected or (c) such holder provides the
Company with reasonable assurances that such Security can be sold
pursuant to Rule 144 or Regulation S. The Buyer agrees to sell all
Securities, including those represented by a certificate(s) from which
the legend has been removed, in compliance with applicable prospectus
delivery requirements, if any.
H. AUTHORIZATION; ENFORCEMENT. This Agreement and the
Registration Rights Agreement have been duly and validly authorized.
This Agreement has been duly executed and delivered on behalf of the
Buyer, and this Agreement constitutes, and upon execution and delivery
by the Buyer of the Registration Rights Agreement, such agreement will
constitute, valid and binding agreements of the Buyer enforceable in
accordance with their terms.
I. RESIDENCY. The Buyer is a resident of the jurisdiction set
forth immediately below such Buyer's name on the signature pages
hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to each Buyer that:
A. ORGANIZATION AND QUALIFICATION. The Company and each of its
Subsidiaries (as defined below), if any, is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated, with full power and
authority (corporate and other) to own, lease, use and operate its
properties and to carry on its business as and where now owned,
leased, used, operated and conducted. SCHEDULE 3(A) sets forth a list
of all of the Subsidiaries of the Company and the jurisdiction in
which each is incorporated. The Company and each of its Subsidiaries
is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which its ownership or use of
property or the nature of the business conducted by it makes such
qualification necessary except where the failure to be so qualified or
in good standing would not have a Material Adverse Effect. "MATERIAL
ADVERSE EFFECT" means any material adverse effect on the business,
operations, assets, financial condition or prospects of the Company or
its Subsidiaries, if any, taken as a whole, or on the transactions
contemplated hereby or by the agreements or instruments to be entered
into in connection herewith. "SUBSIDIARIES" means any corporation or
other organization, whether incorporated or unincorporated, in which
the Company owns, directly or indirectly, any equity or other
ownership interest.
B. AUTHORIZATION; ENFORCEMENT. (i) The Company has all requisite
corporate power and authority to enter into and perform this
Agreement, the Registration Rights Agreement, the Debentures and the
Warrants and to consummate the transactions contemplated hereby and
thereby and to issue the Securities, in accordance with the terms
hereof and thereof, (ii) the execution and delivery of this Agreement,
the Registration Rights Agreement, the Debentures and the Warrants by
the Company and the consummation by it of the transactions
contemplated hereby and thereby (including without limitation, the
issuance of the Debentures and the Warrants and the issuance and
reservation for issuance of the Conversion Shares and Warrant Shares
issuable upon conversion or exercise thereof) have been duly
authorized by the Company's Board of Directors and no further consent
or authorization of the Company, its Board of Directors, or its
stockholders is required, (iii) this Agreement has been duly executed
and delivered by the Company by its authorized representative, and
such authorized representative is the true and official representative
with authority to sign this Agreement and the other documents executed
in connection herewith and bind the Company accordingly, and (iv) this
Agreement constitutes, and upon execution and delivery by the Company
of the Registration Rights Agreement, the Debentures and the Warrants,
each of such instruments will constitute, a legal, valid and binding
obligation of the Company enforceable against the Company in
accordance with its terms.
C. CAPITALIZATION. As of the date hereof, the authorized capital
stock of the Company consists of (i) 100,000,000 shares of Common
Stock, of which 16,461,000 shares are issued and outstanding and
1,963,729 shares have been authorized for issuance by the Company's
Board of Directors in connection with prior transactions and will be
issued by the Company after the date hereof and 28,000,000 shares are
reserved for issuance upon conversion of the Debentures and the
Additional Debentures (as defined in Section 4(l)) and exercise of the
Warrants and the Additional Warrants (as defined in Section 4(l))
(subject to adjustment pursuant to the Company's covenant set forth in
Section 4(h) below); and (ii) 20,000,000 shares
of preferred stock, $.0001 par value, of which 420,000 shares are
issued and outstanding, which convert 1:10 into Common Stock and the
Company has reserved 4,200,000 shares of Common Stock for issuance
upon such conversion. All of such outstanding shares of capital stock
are, or upon issuance will be, duly authorized, validly issued, fully
paid and nonassessable. No shares of capital stock of the Company are
subject to preemptive rights or any other similar rights of the
stockholders of the Company or any liens or encumbrances imposed
through the actions or failure to act of the Company. Except as
disclosed in SCHEDULE 3(C), as of the effective date of this
Agreement, (i) there are no outstanding options, warrants, scrip,
rights to subscribe for, puts, calls, rights of first refusal,
agreements, understandings, claims or other commitments or rights of
any character whatsoever relating to, or securities or rights
convertible into or exchangeable for any shares of capital stock of
the Company or any of its Subsidiaries, or arrangements by which the
Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its
Subsidiaries, (ii) there are no agreements or arrangements under which
the Company or any of its Subsidiaries is obligated to register the
sale of any of its or their securities under the 1933 Act (except the
Registration Rights Agreement) and (iii) there are no anti-dilution or
price adjustment provisions contained in any security issued by the
Company (or in any agreement providing rights to security holders)
that will be triggered by the issuance of the Debentures, the
Warrants, the Conversion Shares or Warrant Shares. The Company has
furnished to the Buyer true and correct copies of the Company's
Certificate of Incorporation as in effect on the date hereof
("CERTIFICATE OF INCORPORATION"), the Company's By-laws, as in effect
on the date hereof (the "BY-LAWS"), and the terms of all securities
convertible into or exercisable for Common Stock of the Company and
the material rights of the holders thereof in respect thereto. The
Company shall provide the Buyer with a written update of this
representation signed by the Company's Chief Executive or Chief
Financial Officer on behalf of the Company as of the Closing Date.
D. ISSUANCE OF SHARES. The Conversion Shares and Warrant Shares
are duly authorized and reserved for issuance and, upon conversion of
the Debentures and exercise of the Warrants in accordance with their
respective terms, will be validly issued, fully paid and
non-assessable, and free from all taxes, liens, claims and
encumbrances with respect to the issue thereof and shall not be
subject to preemptive rights or other similar rights of stockholders
of the Company and will not impose personal liability upon the holder
thereof.
E. ACKNOWLEDGMENT OF DILUTION. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock upon
the issuance of the Conversion Shares and Warrant Shares upon
conversion of the Debenture or exercise of the Warrants. The Company
further acknowledges that its obligation to issue Conversion Shares
and Warrant Shares upon conversion of the Debentures or exercise of
the Warrants in accordance with this Agreement, the Debentures and the
Warrants is absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interests of other
stockholders of the Company.
F. NO CONFLICTS. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement, the Debentures and the
Warrants by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without
limitation, the issuance and reservation for issuance of the
Conversion Shares and Warrant Shares) will not (i) conflict with or
result in a violation of any
provision of the Certificate of Incorporation or By-laws or (ii)
violate or conflict with, or result in a breach of any provision of,
or constitute a default (or an event which with notice or lapse of
time or both could become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture, patent, patent license or instrument to which
the Company or any of its Subsidiaries is a party, or (iii) result in
a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations and
regulations of any self-regulatory organizations to which the Company
or its securities are subject) applicable to the Company or any of its
Subsidiaries or by which any property or asset of the Company or any
of its Subsidiaries is bound or affected (except for such conflicts,
defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a
Material Adverse Effect). Neither the Company nor any of its
Subsidiaries is in violation of its Certificate of Incorporation,
By-laws or other organizational documents and neither the Company nor
any of its Subsidiaries is in default (and no event has occurred which
with notice or lapse of time or both could put the Company or any of
its Subsidiaries in default) under, and neither the Company nor any of
its Subsidiaries has taken any action or failed to take any action
that would give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party
or by which any property or assets of the Company or any of its
Subsidiaries is bound or affected, except for possible defaults as
would not, individually or in the aggregate, have a Material Adverse
Effect. The businesses of the Company and its Subsidiaries, if any,
are not being conducted, and shall not be conducted so long as a Buyer
owns any of the Securities, in violation of any law, ordinance or
regulation of any governmental entity. Except as specifically
contemplated by this Agreement and as required under the 1933 Act and
any applicable state securities laws, the Company is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency, regulatory agency,
self-regulatory organization or stock market or any third party in
order for it to execute, deliver or perform any of its obligations
under this Agreement, the Registration Rights Agreement, the
Debentures or the Warrants in accordance with the terms hereof or
thereof or to issue and sell the Debentures and Warrants in accordance
with the terms hereof and to issue the Conversion Shares upon
conversion of the Debentures and the Warrant Shares upon exercise of
the Warrants. Except as disclosed in SCHEDULE 3(F), all consents,
authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof. The Company is
not in violation of the listing requirements of the Over-the-Counter
Bulletin Board (the "OTCBB") and does not reasonably anticipate that
the Common Stock will be delisted by the OTCBB in the foreseeable
future. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
G. SEC DOCUMENTS; FINANCIAL STATEMENTS. Except as disclosed in
SCHEDULE 3(G), the Company has timely filed all reports, schedules,
forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "1934 ACT") (all of the
foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents
(other than exhibits to such documents) incorporated by reference
therein, being hereinafter referred to herein as the "SEC DOCUMENTS").
The Company has delivered to each Buyer true and complete copies of
the SEC Documents, except for such exhibits and
incorporated documents. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of
the 1934 Act and the rules and regulations of the SEC promulgated
thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading. None of the statements made in any such SEC
Documents is, or has been, required to be amended or updated under
applicable law (except for such statements as have been amended or
updated in subsequent filings prior the date hereof). As of their
respective dates, the financial statements of the Company included in
the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements
have been prepared in accordance with United States generally accepted
accounting principles, consistently applied, during the periods
involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or
may be condensed or summary statements) and fairly present in all
material respects the consolidated financial position of the Company
and its consolidated Subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). Except as set forth in the
financial statements of the Company included in the SEC Documents, the
Company has no liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent to
December 31, 2001 and (ii) obligations under contracts and commitments
incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in such
financial statements, which, individually or in the aggregate, are not
material to the financial condition or operating results of the
Company.
H. ABSENCE OF CERTAIN CHANGES. Since December 31, 2001, there has
been no material adverse change and no material adverse development in
the assets, liabilities, business, properties, operations, financial
condition, results of operations or prospects of the Company or any of
its Subsidiaries.
I. ABSENCE OF LITIGATION. There is no action, suit, claim,
proceeding, inquiry or investigation before or by any court, public
board, government agency, self-regulatory organization or body pending
or, to the knowledge of the Company or any of its Subsidiaries,
threatened against or affecting the Company or any of its
Subsidiaries, or their officers or directors in their capacity as
such, that could have a Material Adverse Effect. SCHEDULE 3(I)
contains a complete list and summary description of any pending or
threatened proceeding against or affecting the Company or any of its
Subsidiaries, without regard to whether it would have a Material
Adverse Effect. The Company and its Subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing.
J. PATENTS, COPYRIGHTS, ETC.
(I) The Company and each of its Subsidiaries owns or
possesses the requisite licenses or rights to use all patents,
patent applications, patent rights, inventions, know-how, trade
secrets, trademarks, trademark applications, service marks,
service
names, trade names and copyrights ("INTELLECTUAL PROPERTY")
necessary to enable it to conduct its business as now operated
(and, except as set forth in SCHEDULE 3(J) hereof, to the best of
the Company's knowledge, as presently contemplated to be operated
in the future); there is no claim or action by any person
pertaining to, or proceeding pending, or to the Company's
knowledge threatened, which challenges the right of the Company
or of a Subsidiary with respect to any Intellectual Property
necessary to enable it to conduct its business as now operated
(and, except as set forth in SCHEDULE 3(J) hereof, to the best of
the Company's knowledge, as presently contemplated to be operated
in the future); to the best of the Company's knowledge, the
Company's or its Subsidiaries' current and intended products,
services and processes do not infringe on any Intellectual
Property or other rights held by any person; and the Company is
unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company and each of its Subsidiaries
have taken reasonable security measures to protect the secrecy,
confidentiality and value of their Intellectual Property.
(II) All of the Company's computer software and computer
hardware, and other similar or related items of automated,
computerized or software systems that are used or relied on by
the Company in the conduct of its business or that were, or
currently are being, sold or licensed by the Company to customers
(collectively, "INFORMATION TECHNOLOGY"), are Year 2000
Compliant. For purposes of this Agreement, the term "YEAR 2000
COMPLIANT" means, with respect to the Company's Information
Technology, that the Information Technology is designed to be
used prior to, during and after the calendar Year 2000, and the
Information Technology used during each such time period will
accurately receive, provide and process date and time data
(including, but not limited to, calculating, comparing and
sequencing) from, into and between the 20th and 21st centuries,
including the years 1999 and 2000, and leap-year calculations,
and will not malfunction, cease to function, or provide invalid
or incorrect results as a result of the date or time data, to the
extent that other information technology, used in combination
with the Information Technology, properly exchanges date and time
data with it. The Company has delivered to the Buyers true and
correct copies of all analyses, reports, studies and similar
written information, whether prepared by the Company or another
party, relating to whether the Information Technology is Year
2000 Compliant, if any.
K. NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Company nor
any of its Subsidiaries is subject to any charter, corporate or other
legal restriction, or any judgment, decree, order, rule or regulation
which in the judgment of the Company's officers has or is expected in
the future to have a Material Adverse Effect. Neither the Company nor
any of its Subsidiaries is a party to any contract or agreement which
in the judgment of the Company's officers has or is expected to have a
Material Adverse Effect.
L. TAX STATUS. Except as set forth on SCHEDULE 3(L), the Company
and each of its Subsidiaries has made or filed all federal, state and
foreign income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject (unless and only
to the extent that the Company and each of its Subsidiaries has set
aside on its books provisions reasonably adequate for the payment of
all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount,
shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set
aside on its books provisions reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns,
reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by
the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim. The Company has not
executed a waiver with respect to the statute of limitations relating
to the assessment or collection of any foreign, federal, state or
local tax. Except as set forth on SCHEDULE 3(L), none of the Company's
tax returns is presently being audited by any taxing authority.
M. CERTAIN TRANSACTIONS. Except as set forth on SCHEDULE 3(M) and
except for arm's length transactions pursuant to which the Company or
any of its Subsidiaries makes payments in the ordinary course of
business upon terms no less favorable than the Company or any of its
Subsidiaries could obtain from third parties and other than the grant
of stock options disclosed on SCHEDULE 3(C), none of the officers,
directors, or employees of the Company is presently a party to any
transaction with the Company or any of its Subsidiaries (other than
for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing
of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the
Company, any corporation, partnership, trust or other entity in which
any officer, director, or any such employee has a substantial interest
or is an officer, director, trustee or partner.
N. DISCLOSURE. All information relating to or concerning the
Company or any of its Subsidiaries set forth in this Agreement and
provided to the Buyers pursuant to Section 2(d) hereof and otherwise
in connection with the transactions contemplated hereby is true and
correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements made
herein or therein, in light of the circumstances under which they were
made, not misleading. No event or circumstance has occurred or exists
with respect to the Company or any of its Subsidiaries or its or their
business, properties, prospects, operations or financial conditions,
which, under applicable law, rule or regulation, requires public
disclosure or announcement by the Company but which has not been so
publicly announced or disclosed (assuming for this purpose that the
Company's reports filed under the 1934 Act are being incorporated into
an effective registration statement filed by the Company under the
1933 Act).
O. ACKNOWLEDGMENT REGARDING BUYERS' PURCHASE OF SECURITIES. The
Company acknowledges and agrees that the Buyers are acting solely in
the capacity of arm's length purchasers with respect to this Agreement
and the transactions contemplated hereby. The Company further
acknowledges that no Buyer is acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to
this Agreement and the transactions contemplated hereby and any
statement made by any Buyer or any of their respective representatives
or agents in connection with this Agreement and the transactions
contemplated hereby is not advice or a recommendation and is merely
incidental to the Buyers' purchase of the Securities. The Company
further represents to each Buyer that the Company's decision to enter
into this Agreement has been based solely on the independent
evaluation of the Company and its representatives.
P. NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly
or indirectly made any offers
or sales in any security or solicited any offers to buy any security
under circumstances that would require registration under the 1933 Act
of the issuance of the Securities to the Buyers. The issuance of the
Securities to the Buyers will not be integrated with any other
issuance of the Company's securities (past, current or future) for
purposes of any stockholder approval provisions applicable to the
Company or its securities.
Q. NO BROKERS. The Company has taken no action which would give
rise to any claim by any person for brokerage commissions, transaction
fees or similar payments relating to this Agreement or the
transactions contemplated hereby.
R. PERMITS; COMPLIANCE. The Company and each of its Subsidiaries
is in possession of all franchises, grants, authorizations, licenses,
permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its
properties and to carry on its business as it is now being conducted
(collectively, the "COMPANY PERMITS"), and there is no action pending
or, to the knowledge of the Company, threatened regarding suspension
or cancellation of any of the Company Permits. Neither the Company nor
any of its Subsidiaries is in conflict with, or in default or
violation of, any of the Company Permits, except for any such
conflicts, defaults or violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse
Effect. Since December 31, 2001, neither the Company nor any of its
Subsidiaries has received any notification with respect to possible
conflicts, defaults or violations of applicable laws, except for
notices relating to possible conflicts, defaults or violations, which
conflicts, defaults or violations would not have a Material Adverse
Effect.
S. ENVIRONMENTAL MATTERS.
(I) Except as set forth in SCHEDULE 3(S), there are, to the
Company's knowledge, with respect to the Company or any of its
Subsidiaries or any predecessor of the Company, no past or
present violations of Environmental Laws (as defined below),
releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents, or
contractual obligations which may give rise to any common law
environmental liability or any liability under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 or
similar federal, state, local or foreign laws and neither the
Company nor any of its Subsidiaries has received any notice with
respect to any of the foregoing, nor is any action pending or, to
the Company's knowledge, threatened in connection with any of the
foregoing. The term "ENVIRONMENTAL LAWS" means all federal,
state, local or foreign laws relating to pollution or protection
of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface
or subsurface strata), including, without limitation, laws
relating to emissions, discharges, releases or threatened
releases of chemicals, pollutants contaminants, or toxic or
hazardous substances or wastes (collectively, "HAZARDOUS
MATERIALS") into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well
as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters,
orders, permits, plans or regulations issued, entered,
promulgated or approved thereunder.
(II) Other than those that are or were stored, used or
disposed of in compliance with applicable law, no Hazardous
Materials are contained on or about any real property currently
owned, leased or used by the Company or any of its Subsidiaries,
and no Hazardous Materials were released on or about any real
property previously owned, leased or used by the Company or any
of its Subsidiaries during the period the property was owned,
leased or used by the Company or any of its Subsidiaries, except
in the normal course of the Company's or any of its Subsidiaries'
business.
(III) Except as set forth in SCHEDULE 3(S), there are no
underground storage tanks on or under any real property owned,
leased or used by the Company or any of its Subsidiaries that are
not in compliance with applicable law.
T. TITLE TO PROPERTY. The Company and its Subsidiaries have good
and marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them which is
material to the business of the Company and its Subsidiaries, in each
case free and clear of all liens, encumbrances and defects except such
as are described in SCHEDULE 3(T) or such as would not have a Material
Adverse Effect. Any real property and facilities held under lease by
the Company and its Subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as would not
have a Material Adverse Effect.
U. INSURANCE. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against
such losses and risks and in such amounts as management of the Company
believes to be prudent and customary in the businesses in which the
Company and its Subsidiaries are engaged. Neither the Company nor any
such Subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have a
Material Adverse Effect. The Company has provided to Buyer true and
correct copies of all policies relating to directors' and officers'
liability coverage, errors and omissions coverage, and commercial
general liability coverage.
V. INTERNAL ACCOUNTING CONTROLS. The Company and each of its
Subsidiaries maintain a system of internal accounting controls
sufficient, in the judgment of the Company's board of directors, to
provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
W. FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other
person acting on behalf of the Company or any Subsidiary has, in the
course of his actions for, or on behalf of, the Company, used any
corporate funds for any unlawful contribution, gift, entertainment or
other unlawful expenses relating to political activity; made any
direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate
funds; violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended, or made any bribe,
rebate, payoff, influence payment, kickback or other unlawful payment
to any foreign or domestic government official or employee.
X. SOLVENCY. The Company (after giving effect to the transactions
contemplated by this Agreement) is solvent (i.e., its assets have a
fair market value in excess of the amount required to pay its probable
liabilities on its existing debts as they become absolute and matured)
and currently the Company has no information that would lead it to
reasonably conclude that the Company would not, after giving effect to
the transaction contemplated by this Agreement, have the ability to,
nor does it intend to take any action that would impair its ability
to, pay its debts from time to time incurred in connection therewith
as such debts mature. The Company did not receive a qualified opinion
from its auditors with respect to its most recent fiscal year end and,
after giving effect to the transactions contemplated by this
Agreement, does not anticipate or know of any basis upon which its
auditors might issue a qualified opinion in respect of its current
fiscal year.
Y. NO INVESTMENT COMPANY. The Company is not, and upon the
issuance and sale of the Securities as contemplated by this Agreement
will not be an "investment company" required to be registered under
the Investment Company Act of 1940 (an "INVESTMENT COMPANY"). The
Company is not controlled by an Investment Company.
Z. BREACH OF REPRESENTATIONS AND WARRANTIES BY THE COMPANY. If
the Company breaches any of the representations or warranties set
forth in this Section 3, and in addition to any other remedies
available to the Buyers pursuant to this Agreement, the Company shall
pay to the Buyer the Standard Liquidated Damages Amount in cash or in
shares of Common Stock at the option of the Buyer, until such breach
is cured. If the Buyers elect to be paid the Standard Liquidated
Damages Amounts in shares of Common Stock, such shares shall be issued
at the Conversion Price at the time of payment.
4. COVENANTS.
A. BEST EFFORTS. The parties shall use their best efforts to
satisfy timely each of the conditions described in Section 6 and 7 of
this Agreement.
B. FORM D; BLUE SKY LAWS. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D and to
provide a copy thereof to each Buyer promptly after such filing. The
Company shall, on or before the Closing Date, take such action as the
Company shall reasonably determine is necessary to qualify the
Securities for sale to the Buyers at the applicable closing pursuant
to this Agreement under applicable securities or "blue sky" laws of
the states of the United States (or to obtain an exemption from such
qualification), and shall provide evidence of any such action so taken
to each Buyer on or prior to the Closing Date.
C. REPORTING STATUS; ELIGIBILITY TO USE FORM S-3, SB-2 OR FORM
S-1. The Company's Common Stock is registered under Section 12(g) of
the 1934 Act. The Company represents and warrants that it meets the
requirements for the use of Form S-3 (or if the
Company is not eligible for the use of Form S-3 as of the Filing Date
(as defined in the Registration Rights Agreement), the Company may use
the form of registration for which it is eligible at that time) for
registration of the sale by the Buyer of the Registrable Securities
(as defined in the Registration Rights Agreement). So long as the
Buyer beneficially owns any of the Securities, the Company shall
timely file all reports required to be filed with the SEC pursuant to
the 1934 Act, and the Company shall not terminate its status as an
issuer required to file reports under the 1934 Act even if the 1934
Act or the rules and regulations thereunder would permit such
termination. The Company further agrees to file all reports required
to be filed by the Company with the SEC in a timely manner so as to
become eligible, and thereafter to maintain its eligibility, for the
use of Form S-3. The Company shall issue a press release describing
the materials terms of the transaction contemplated hereby as soon as
practicable following the Closing Date but in no event more than two
(2) business days of the Closing Date, which press release shall be
subject to prior review by the Buyers. The Company agrees that such
press release shall not disclose the name of the Buyers unless
expressly consented to in writing by the Buyers or unless required by
applicable law or regulation, and then only to the extent of such
requirement.
D. USE OF PROCEEDS. The Company shall use the proceeds from the
sale of the Debentures and the Warrants in the manner set forth in
SCHEDULE 4(D) attached hereto and made a part hereof and shall not,
directly or indirectly, use such proceeds for any loan to or
investment in any other corporation, partnership, enterprise or other
person (except in connection with its currently existing direct or
indirect Subsidiaries)
E. FUTURE OFFERINGS. Subject to the exceptions described below,
the Company will not, without the prior written consent of a
majority-in-interest of the Buyers, not to be unreasonably withheld,
negotiate or contract with any party to obtain additional equity
financing (including debt financing with an equity component) that
involves (A) the issuance of Common Stock at a discount to the market
price of the Common Stock on the date of issuance (taking into account
the value of any warrants or options to acquire Common Stock issued in
connection therewith) or (B) the issuance of convertible securities
that are convertible into an indeterminate number of shares of Common
Stock or (C) the issuance of warrants during the period (the "LOCK-UP
PERIOD") beginning on the Closing Date and ending on the later of (i)
two hundred seventy (270) days from the Closing Date and (ii) one
hundred eighty (180) days from the date the Registration Statement (as
defined in the Registration Rights Agreement) is declared effective
(plus any days in which sales cannot be made thereunder). In addition,
subject to the exceptions described below, the Company will not
conduct any equity financing (including debt with an equity component)
("FUTURE OFFERINGS") during the period beginning on the Closing Date
and ending two (2) years after the end of the Lock-up Period unless it
shall have first delivered to each Buyer, at least twenty (20)
business days prior to the closing of such Future Offering, written
notice describing the proposed Future Offering, including the terms
and conditions thereof and proposed definitive documentation to be
entered into in connection therewith, and providing each Buyer an
option during the fifteen (15) day period following delivery of such
notice to purchase its pro rata share (based on the ratio that the
aggregate principal amount of Debentures purchased by it hereunder
bears to the aggregate principal amount of Debentures purchased
hereunder) of the securities being offered in the Future Offering on
the same terms as contemplated by such Future Offering (the
limitations referred to
in this sentence and the preceding sentence are collectively referred
to as the "CAPITAL RAISING LIMITATIONS"). In the event the terms and
conditions of a proposed Future Offering are amended in any respect
after delivery of the notice to the Buyers concerning the proposed
Future Offering, the Company shall deliver a new notice to each Buyer
describing the amended terms and conditions of the proposed Future
Offering and each Buyer thereafter shall have an option during the
fifteen (15) day period following delivery of such new notice to
purchase its pro rata share of the securities being offered on the
same terms as contemplated by such proposed Future Offering, as
amended. The foregoing sentence shall apply to successive amendments
to the terms and conditions of any proposed Future Offering. The
Capital Raising Limitations shall not apply to any transaction
involving (i) issuances of securities in a firm commitment
underwritten public offering (excluding a continuous offering pursuant
to Rule 415 under the ▇▇▇▇ ▇▇▇) or (ii) issuances of securities as
consideration for a merger, consolidation or purchase of assets, or in
connection with any strategic partnership or joint venture (the
primary purpose of which is not to raise equity capital), or in
connection with the disposition or acquisition of a business, product
or license by the Company. The Capital Raising Limitations also shall
not apply to the issuance of securities upon exercise or conversion of
the Company's options, warrants or other convertible securities
outstanding as of the date hereof or to the grant of additional
options or warrants, or the issuance of additional securities, under
any Company stock option or restricted stock plan approved by the
stockholders of the Company.
F. EXPENSES. At the Closing, the Company shall reimburse Buyers
for expenses incurred by them in connection with the negotiation,
preparation, execution, delivery and performance of this Agreement and
the other agreements to be executed in connection herewith
("Documents"), including, without limitation, attorneys' and
consultants' fees and expenses, transfer agent fees, fees for stock
quotation services, fees relating to any amendments or modifications
of the Documents or any consents or waivers of provisions in the
Documents, fees for the preparation of opinions of counsel, escrow
fees, and costs of restructuring the transactions contemplated by the
Documents. When possible, the Company must pay these fees directly,
otherwise the Company must make immediate payment for reimbursement to
the Buyers for all fees and expenses immediately upon written notice
by the Buyer or the submission of an invoice by the Buyer. If the
Company fails to reimburse the Buyer in full within three (3) business
days of the written notice or submission of invoice by the Buyer, the
Company shall pay interest on the total amount of fees to be
reimbursed at a rate of 15% per annum.
G. FINANCIAL INFORMATION. The Company agrees to send the
following reports to each Buyer until such Buyer transfers, assigns,
or sells all of the Securities: (i) within ten (10) days after the
filing with the SEC, a copy of its Annual Report on Form 10-KSB, its
Quarterly Reports on Form 10-QSB and any Current Reports on Form 8-K;
(ii) within one (1) day after release, copies of all press releases
issued by the Company or any of its Subsidiaries; and (iii)
contemporaneously with the making available or giving to the
stockholders of the Company, copies of any notices or other
information the Company makes available or gives to such stockholders.
H. AUTHORIZATION AND RESERVATION OF SHARES. The Company shall at
all times have authorized, and reserved for the purpose of issuance, a
sufficient number of shares of Common Stock to provide for the full
conversion or exercise of the outstanding Debentures
and Warrants and issuance of the Conversion Shares and Warrant Shares
in connection therewith (based on the Conversion Price of the
Debentures or Exercise Price of the Warrants in effect from time to
time) and as otherwise required by the Debentures. The Company shall
not reduce the number of shares of Common Stock reserved for issuance
upon conversion of Debentures and exercise of the Warrants without the
consent of each Buyer. The Company shall at all times maintain the
number of shares of Common Stock so reserved for issuance at an amount
("RESERVED AMOUNT") equal to no less than two (2) times the number
that is then actually issuable upon full conversion of the Debentures
and Additional Debentures and upon exercise of the Warrants and the
Additional Warrants (based on the Conversion Price of the Debentures
or the Exercise Price of the Warrants in effect from time to time). If
at any time the number of shares of Common Stock authorized and
reserved for issuance ("AUTHORIZED AND RESERVED SHARES") is below the
Reserved Amount, the Company will promptly take all corporate action
necessary to authorize and reserve a sufficient number of shares,
including, without limitation, calling a special meeting of
stockholders to authorize additional shares to meet the Company's
obligations under this Section 4(h), in the case of an insufficient
number of authorized shares, obtain stockholder approval of an
increase in such authorized number of shares, and voting the
management shares of the Company in favor of an increase in the
authorized shares of the Company to ensure that the number of
authorized shares is sufficient to meet the Reserved Amount. If the
Company fails to obtain such stockholder approval within thirty (30)
days following the date on which the number of Authorized and Reserved
Shares exceeds the Reserved Amount, the Company shall pay to the
Borrower the Standard Liquidated Damages Amount, in cash or in shares
of Common Stock at the option of the Buyer. If the Buyer elects to be
paid the Standard Liquidated Damages Amount in shares of Common Stock,
such shares shall be issued at the Conversion Price at the time of
payment. In order to ensure that the Company has authorized a
sufficient amount of shares to meet the Reserved Amount at all times,
the Company must deliver to the Buyer at the end of every month a list
detailing (1) the current amount of shares authorized by the Company
and reserved for the Buyer; and (2) amount of shares issuable upon
conversion of the Debentures and upon exercise of the Warrants and as
payment of interest accrued on the Debentures for one year. If the
Company fails to provide such list within five (5) business days of
the end of each month, the Company shall pay the Standard Liquidated
Damages Amount, in cash or in shares of Common Stock at the option of
the Buyer, until the list is delivered. If the Buyer elects to be paid
the Standard Liquidated Damages Amount in shares of Common Stock, such
shares shall be issued at the Conversion Price at the time of payment.
I. LISTING. The Company shall promptly secure the listing of the
Conversion Shares and Warrant Shares upon each national securities
exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance)
and, so long as any Buyer owns any of the Securities, shall maintain,
so long as any other shares of Common Stock shall be so listed, such
listing of all Conversion Shares and Warrant Shares from time to time
issuable upon conversion of the Debentures or exercise of the
Warrants. The Company will obtain and, so long as any Buyer owns any
of the Securities, maintain the listing and trading of its Common
Stock on the OTCBB, the Nasdaq National Market ("NASDAQ"), the Nasdaq
SmallCap Market ("NASDAQ SMALLCAP"), the New York Stock Exchange
("NYSE"), or the American Stock Exchange ("AMEX") and will comply in
all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of
the National Association of Securities Dealers ("NASD") and such
exchanges, as applicable. The Company shall promptly provide to each
Buyer copies of any notices it receives from the OTCBB and any other
exchanges or quotation systems on which the Common Stock is then
listed regarding the continued eligibility of the Common Stock for
listing on such exchanges and quotation systems.
J. CORPORATE EXISTENCE. So long as a Buyer beneficially owns any
Debentures or Warrants, the Company shall maintain its corporate
existence and shall not sell all or substantially all of the Company's
assets, except in the event of a merger or consolidation or sale of
all or substantially all of the Company's assets, where the surviving
or successor entity in such transaction (i) assumes the Company's
obligations hereunder and under the agreements and instruments entered
into in connection herewith and (ii) is a publicly traded corporation
whose Common Stock is listed for trading on the OTCBB, Nasdaq, Nasdaq
SmallCap, NYSE or AMEX.
K. NO INTEGRATION. The Company shall not make any offers or sales
of any security (other than the Securities) under circumstances that
would require registration of the Securities being offered or sold
hereunder under the 1933 Act or cause the offering of the Securities
to be integrated with any other offering of securities by the Company
for the purpose of any stockholder approval provision applicable to
the Company or its securities.
L. SUBSEQUENT INVESTMENT. The Company and the Buyers agree that,
upon the declaration of effectiveness of the Registration Statement to
be filed pursuant to the Registration Rights Agreement (the "EFFECTIVE
DATE"), the Buyers shall purchase additional debentures ("ADDITIONAL
DEBENTURES") in the aggregate principal amount of Two Hundred Fifty
Thousand Dollars ($250,000) and additional warrants (the "ADDITIONAL
WARRANTS") to purchase an aggregate of 750,000 shares of Common Stock,
for an aggregate purchase price of Two Hundred Fifty Thousand Dollars
($250,000), with the closing of such purchase to occur within five (5)
business days of the Effective Date; provided, however, that the
obligation of each Buyer to purchase the Additional Debentures and the
Additional Warrants is subject to the satisfaction, at or before the
closing of such purchase and sale, of the conditions set forth in
Section 7; and, provided, further, that there shall not have been a
Material Adverse Effect as of such effective date. The terms of the
Additional Debentures and the Additional Warrants shall be identical
to the terms of the Debentures and Warrants, as the case may be, to be
issued on the Closing Date. The Common Stock underlying the Additional
Debentures and the Additional Warrants shall be Registrable Securities
(as defined in the Registration Rights Agreement) and shall be
included in the Registration Statement to be filed pursuant to the
Registration Rights Agreement.
M. BREACH OF COVENANTS. If the Company breaches any of the
covenants set forth in this Section 4, and in addition to any other
remedies available to the Buyers pursuant to this Agreement, the
Company shall pay to the Buyers the Standard Liquidated Damages
Amount, in cash or in shares of Common Stock at the option of the
Buyer, until such breach is cured. If the Buyers elect to be paid the
Standard Liquidated Damages Amount in shares, such shares shall be
issued at the Conversion Price at the time of payment.
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
instructions to its transfer agent to issue certificates, registered in the name
of
each Buyer or its nominee, for the Conversion Shares and Warrant Shares in such
amounts as specified from time to time by each Buyer to the Company upon
conversion of the Debentures or exercise of the Warrants in accordance with the
terms thereof (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). Prior to
registration of the Conversion Shares and Warrant Shares under the 1933 Act or
the date on which the Conversion Shares and Warrant Shares may be sold pursuant
to Rule 144 without any restriction as to the number of Securities as of a
particular date that can then be immediately sold, all such certificates shall
bear the restrictive legend specified in Section 2(g) of this Agreement. The
Company warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof (in the case of the Conversion Shares and
Warrant Shares, prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act or the date on which the Conversion Shares and Warrant
Shares may be sold pursuant to Rule 144 without any restriction as to the number
of Securities as of a particular date that can then be immediately sold), will
be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Registration Rights Agreement.
Nothing in this Section shall affect in any way the Buyer's obligations and
agreement set forth in Section 2(g) hereof to comply with all applicable
prospectus delivery requirements, if any, upon re-sale of the Securities. If a
Buyer provides the Company with (i) an opinion of counsel in form, substance and
scope customary for opinions in comparable transactions, to the effect that a
public sale or transfer of such Securities may be made without registration
under the 1933 Act and such sale or transfer is effected or (ii) the Buyer
provides reasonable assurances that the Securities can be sold pursuant to Rule
144, the Company shall permit the transfer, and, in the case of the Conversion
Shares and Warrant Shares, promptly instruct its transfer agent to issue one or
more certificates, free from restrictive legend, in such name and in such
denominations as specified by such Buyer. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to the Buyers, by
vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Section 5 may be inadequate and agrees, in the event of a
breach or threatened breach by the Company of the provisions of this Section,
that the Buyers shall be entitled, in addition to all other available remedies,
to an injunction restraining any breach and requiring immediate transfer,
without the necessity of showing economic loss and without any bond or other
security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of
the Company hereunder to issue and sell the Debentures and Warrants to a Buyer
at the Closing is subject to the satisfaction, at or before the Closing Date of
each of the following conditions thereto, provided that these conditions are for
the Company's sole benefit and may be waived by the Company at any time in its
sole discretion:
a. The applicable Buyer shall have executed this Agreement and
the Registration Rights Agreement, and delivered the same to the
Company.
b. The applicable Buyer shall have delivered the Purchase Price
in accordance with Section 1(b) above.
c. The representations and warranties of the applicable Buyer
shall be true and correct in all material respects as of the date when
made and as of the Closing Date as though made at that time (except
for representations and warranties that speak as of a specific date),
and the applicable Buyer shall have performed, satisfied and complied
in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with
by the applicable Buyer at or prior to the Closing Date.
d. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by or in any court or governmental authority
of competent jurisdiction or any self-regulatory organization having
authority over the matters contemplated hereby which prohibits the
consummation of any of the transactions contemplated by this
Agreement.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The obligation
of each Buyer hereunder to purchase the Debentures and Warrants at the Closing
is subject to the satisfaction, at or before the Closing Date of each of the
following conditions, provided that these conditions are for such Buyer's sole
benefit and may be waived by such Buyer at any time in its sole discretion:
a. The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Buyer.
b. The Company shall have delivered to such Buyer duly executed
Debentures (in such denominations as the Buyer shall request) and
Warrants in accordance with Section 1(b) above.
c. The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to a majority-in-interest of the Buyers, shall
have been delivered to and acknowledged in writing by the Company's
Transfer Agent.
d. The representations and warranties of the Company shall be
true and correct in all material respects as of the date when made and
as of the Closing Date as though made at such time (except for
representations and warranties that speak as of a specific date) and
the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with
by the Company at or prior to the Closing Date. The Buyer shall have
received a certificate or certificates, executed by the chief
executive officer of the Company, dated as of the Closing Date, to the
foregoing effect and as to such other matters as may be reasonably
requested by such Buyer including, but not limited to certificates
with respect to the Company's Certificate of Incorporation, By-laws
and Board of Directors' resolutions relating to the transactions
contemplated hereby.
e. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by or in any court or governmental authority
of competent jurisdiction or any self-regulatory organization having
authority over the matters contemplated hereby which prohibits the
consummation of any of the transactions contemplated by this
Agreement.
f. No event shall have occurred which could reasonably be
expected to have a Material Adverse Effect on the Company.
g. The Conversion Shares and Warrant Shares shall have been
authorized for quotation on the OTCBB and trading in the Common Stock
on the OTCBB shall not have been suspended by the SEC or the OTCBB.
h. The Buyer shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance
reasonably satisfactory to the Buyer and in substantially the same
form as EXHIBIT "D" attached hereto.
i. The Buyer shall have received an officer's certificate
described in Section 3(c) above, dated as of the Closing Date.
8. GOVERNING LAW; MISCELLANEOUS.
A. GOVERNING LAW. THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH
STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. THE
PARTIES HERETO HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE
UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK WITH
RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT, THE AGREEMENTS
ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH
PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY MAILED BY
FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF
PROCESS UPON THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN
SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL NON-APPEALABLE
JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY
OTHER LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE
ARISING UNDER THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL FEES AND
EXPENSES, INCLUDING ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY
IN CONNECTION WITH SUCH DISPUTE.
B. COUNTERPARTS; SIGNATURES BY FACSIMILE. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an
original but all of which shall constitute one and the same agreement
and shall become effective when counterparts have been signed by each
party and delivered to the other party. This Agreement, once executed
by
a party, may be delivered to the other party hereto by facsimile
transmission of a copy of this Agreement bearing the signature of the
party so delivering this Agreement.
C. HEADINGS. The headings of this Agreement are for convenience
of reference only and shall not form part of, or affect the
interpretation of, this Agreement.
D. SEVERABILITY. In the event that any provision of this
Agreement is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the
extent that it may conflict therewith and shall be deemed modified to
conform with such statute or rule of law. Any provision hereof which
may prove invalid or unenforceable under any law shall not affect the
validity or enforceability of any other provision hereof.
E. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the
instruments referenced herein contain the entire understanding of the
parties with respect to the matters covered herein and therein and,
except as specifically set forth herein or therein, neither the
Company nor the Buyer makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by an instrument in
writing signed by the party to be charged with enforcement.
F. NOTICES. Any notices required or permitted to be given under
the terms of this Agreement shall be sent by certified or registered
mail (return receipt requested) or delivered personally or by courier
(including a recognized overnight delivery service) or by facsimile
and shall be effective five days after being placed in the mail, if
mailed by regular United States mail, or upon receipt, if delivered
personally or by courier (including a recognized overnight delivery
service) or by facsimile, in each case addressed to a party. The
addresses for such communications shall be:
If to the Company:
Torbay Holdings, Inc.
▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ Large
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇_▇▇▇▇▇@▇▇▇.▇▇▇
With copy to:
▇▇▇▇ ▇. ▇▇▇▇▇▇▇, PC
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▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇▇▇@▇▇▇.▇▇▇
If to a Buyer: To the address set forth immediately below such Buyer's
name on the signature pages hereto.
With copy to:
▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ & Ingersoll, LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
Each party shall provide notice to the other party of any change in
address.
G. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and
assigns. Neither the Company nor any Buyer shall assign this Agreement
or any rights or obligations hereunder without the prior written
consent of the other. Notwithstanding the foregoing, subject to
Section 2(f), any Buyer may assign its rights hereunder to any person
that purchases Securities in a private transaction from a Buyer or to
any of its "affiliates," as that term is defined under the 1934 Act,
without the consent of the Company.
H. THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any
provision hereof be enforced by, any other person.
I. SURVIVAL. The representations and warranties of the Company
and the agreements and covenants set forth in Sections 3, 4, 5 and 8
shall survive the closing hereunder notwithstanding any due diligence
investigation conducted by or on behalf of the Buyers. The Company
agrees to indemnify and hold harmless each of the Buyers and all their
officers, directors, employees and agents for loss or damage arising
as a result of or related to any breach or alleged breach by the
Company of any of its representations, warranties and covenants set
forth in Sections 3 and 4 hereof or any of its covenants and
obligations under this Agreement or the Registration Rights Agreement,
including advancement of expenses as they are incurred.
J. PUBLICITY. The Company and each of the Buyers shall have the
right to review a reasonable period of time before issuance of any
press releases, SEC, OTCBB or NASD filings, or any other public
statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the
prior approval of each of the Buyers, to make any press release or
SEC, OTCBB (or other applicable trading market) or NASD filings with
respect to such transactions as is required by applicable law and
regulations (although each of the Buyers shall be consulted by the
Company in connection with any such press release prior to its release
and shall be provided with a copy thereof and be given an opportunity
to comment thereon).
K. FURTHER ASSURANCES. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably request
in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated
hereby.
L. NO STRICT CONSTRUCTION. The language used in this Agreement
will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be
applied against any party.
M. REMEDIES. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Buyers by
vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law
for a breach of its obligations under this Agreement will be
inadequate and agrees, in the event of a breach or threatened breach
by the Company of the provisions of this Agreement, that the Buyers
shall be entitled, in addition to all other available remedies at law
or in equity, and in addition to the penalties assessable herein, to
an injunction or injunctions restraining, preventing or curing any
breach of this Agreement and to enforce specifically the terms and
provisions hereof, without the necessity of showing economic loss and
without any bond or other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused this
Agreement to be duly executed as of the date first above written.
TORBAY HOLDINGS, INC.
________________________________
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Large
President and Chief Executive Officer
AJW PARTNERS, LLC
By: SMS Group, LLC
______________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Manager
RESIDENCE: Delaware
ADDRESS: ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $ 50,000
Number of Warrants: 150,000
Aggregate Purchase Price: $ 50,000
NEW MILLENNIUM CAPITAL PARTNERS II, LLC
By: First Street Manager II, LLC
______________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Manager
RESIDENCE: New York
ADDRESS: ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $ 50,000
Number of Warrants: 150,000
Aggregate Purchase Price: $ 50,000
AJW/NEW MILLENNIUM OFFSHORE, LTD.
By: First Street Manager II, LLC
______________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Manager
RESIDENCE: Cayman Islands
ADDRESS: AJW/New Millennium Offshore, Ltd.
P.O. Box 32021 SMB
Grand Cayman, Cayman Island, B.W.I.
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $ 75,000
Number of Warrants: 225,000
Aggregate Purchase Price: $ 75,000
PEGASUS CAPITAL PARTNERS, LLC
By: Pegasus Manager, LLC
____________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Manager
RESIDENCE: New York
ADDRESS: Pegasus Capital Partners, LLC
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $ 75,000
Number of Warrants: 225,000
Aggregate Purchase Price: $ 75,000
