STELLAR TECHNOLOGIES, INC.
Units
Comprised of
Series
B Convertible Preferred Stock and
Warrants
CONFIDENTIAL
CONFIDENTIAL
INFORMATION
The
Offeree, by
accepting the Securities Purchase Agreement and the exhibits hereto relating
to
the proposed offering of Units by Stellar Technologies, Inc. (the “Company”),
comprised of shares of its Series B Convertible Preferred Stock and warrants
to
acquire shares of its common stock,
acknowledges
and agrees that: (i) the
offering documents have
been
furnished to the Offeree on a confidential basis solely for the purpose of
enabling the Offeree to evaluate the offering; (ii)
that
the Offeree may not further distribute the offering documents without the prior
written consent of the Company, except to the
Offeree’s legal, financial or other personal advisors, if any, who will use the
offering documents on the Offeree’s behalf solely for purposes of evaluating the
offering; (iii) any reproduction or distribution of the offering documents,
in
whole or in part, or the direct or indirect disclosure of the contents of the
offering documents for any other purpose without the prior written consent
of
the Company is prohibited; and (iv)
the
offeree shall
be
bound by all terms and conditions specified in the offering
documents.
NOTICE
TO OFFEREES
THE
SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF
1933, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER THE APPLICABLE SECURITIES
LAWS OF ANY STATE OR OTHER JURISDICTION. THIS SECURITIES PURCHASE AGREEMENT
AND
THE OTHER OFFERING DOCUMENTS DO NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION
OF AN OFFER TO BUY THE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL.
THE
SECURITIES ARE BEING SOLD FOR INVESTMENT PURPOSES ONLY, WITHOUT A VIEW TO RESALE
OR DISTRIBUTION THEREOF, AND MAY NOT BE TRANSFERRED, RESOLD OR OFFERED FOR
RESALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND EFFECTIVE REGISTRATION OR QUALIFICATION UNDER THE APPLICABLE
SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION, OR THE AVAILABILITY OF
AN
EXEMPTION THEREFROM.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR THE SECURITIES COMMISSION OR OTHER
REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF
THIS
SECURITIES PURCHASE AGREEMENT OR ANY OF THE OTHER OFFERING DOCUMENTS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
ADDITIONAL
INFORMATION
Stellar
Technologies, Inc. (the “Company”) files annual, quarterly and current reports,
proxy statements and other information with the Securities and Exchange
Commission (the “SEC”) under the Securities Exchange Act of 1934, as amended.
Reports, statements or other information that we file with the SEC are available
to the public at the SEC’s Website at ▇▇▇▇://▇▇▇.▇▇▇.▇▇▇, as well as our Website
at ▇▇▇.▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇. Documents filed with the SEC include, but are
not limited to, the following documents:
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Currents
Reports on Form 8-K dated May 8 and May 19,
2006;
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Quarterly
Report on Form 10-QSB for the fiscal quarter ended March 31, 2006;
and
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Annual
Report on Form 10-KSB for the fiscal year ended June 30,
2005.
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The
Company will provide to each person to whom this agreement is sent, upon the
written or oral request of such person, a copy of any or all of the documents
referred to above. You may make such requests at no cost to you by writing
or
telephoning us at the following address or number:
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The
Company has not authorized anyone to provide you with different information.
You
should not assume that the information in this agreement is accurate as of
any
date other than the date this agreement is sent to you for review or that the
information filed with the SEC is accurate as of any date other than the date
set forth on the front of the document containing such
information.
CONFIDENTIAL
THIS
SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated _______________, 2006,
by and between STELLAR TECHNOLOGIES, INC., a Colorado corporation (the
“Company”), and the purchaser or purchasers identified on the signature page
hereof (“Purchaser”).
RECITALS:
WHEREAS,
Purchaser desires to purchase and the Company desires to sell units comprised
of
shares of Series B Preferred Stock (as defined below) and warrants to acquire
shares of common stock on the terms and conditions set forth
herein.
NOW,
THEREFORE, in consideration of the premises hereof and the agreements set forth
herein below, the parties hereto hereby agree as follows:
1.
The
Offering.
(a)
Private
Offering.
The
securities offered by this Agreement are being offered by the Company in a
private offering (the "Offering") of shares of its Series B Convertible
Preferred Stock, $.001 par value per share (the “Series B Preferred Stock”),
convertible into shares of the Company’s common stock, $.001 par value per share
(the “Common Stock”), and warrants (the “Warrants”) to acquire shares of Common
Stock. The shares of Series B Preferred Stock and Warrants will be sold in
units
(the “Units”) comprised of one (1) share of Series B Preferred Stock and one (1)
Warrant. The Company is offering up to 221,000 Units
for
an aggregate purchase price of $3,315,000; provided,
however,
that in
the event of any over-allotments of Units during the offering period, the
Company reserves the right to sell Units for an aggregate purchase price in
excess of $3,315,000 to
cover
such over-allotments. The Units will be sold on a reasonable “best efforts”
basis at a purchase price of $15.00 per Unit (“Purchase Price”) pursuant to
Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"),
and/or Rule 506 of Regulation D thereunder. The Units are being offered solely
to a limited number of “accredited investors” as that term is defined in Rule
501(a) of the Securities Act during an offering period that will commence on
June 6, 2006 and terminate at the sole discretion of the Company.
(i) Each
share of Series B Preferred Stock may be converted into that number of shares
of
Common Stock equal to the original issue price of the Series B Preferred Stock
($15.00) divided by $0.15 (as same may be adjusted, the “Conversion Price”). The
terms and conditions of the Series B Preferred Stock are set forth in the
Certificate of Designation of Series B Convertible Preferred Stock attached
hereto and made a part hereof as Exhibit
A.
(ii) Each
Warrant is initially exercisable into 50 shares of Common Stock at an initial
exercise price of $0.40 per share. The terms of the Warrant are set forth in
the
Form of Warrant, attached hereto and made a part hereof as Exhibit
B.
The
shares of Series B Preferred Stock, the Warrants and shares of Common Stock
issuable upon conversion of the shares of Series B Preferred Stock or exercise
of the Warrants are hereinafter referred to collectively as the
“Securities.”
(b)
Use
of
Proceeds.
Assuming all 221,000 Units are sold, the net proceeds to the Company are
estimated to be approximately $3,029,800 (after deducting offering expenses
payable by the Company estimated at $20,000 and assuming payment of the maximum
amount of placement agent and finders’ fees of up to $265,200). The Company
intends to use the net proceeds for general working capital purposes and other
general corporate purposes which may include repayment of
indebtedness.
(c)
Placement
Agent and Finders Fees.
The
Company reserves the right to pay cash fees to agents, brokers, dealers and
finders in connection with the sale of the Securities in an amount equal to
up
to eight percent (8%) of the Purchase Price of such Securities and to issue
warrants to such persons to purchase shares of Common Stock equal to up to
eight
percent (8%) of the number of shares of Common Stock issuable upon conversion
of
the shares of Series B Preferred Stock included in the Units issued hereunder
at
an exercise price of $0.40 per share which terminate three years after the
date
of issuance.
(d) Status
of Concurrent Offering.
Between
May 1 and June 2, 2006, the Company has sold 79,000 Units for aggregate gross
proceeds of $1,185,000 in an offering to a limited number of accredited
investors who are not “US Persons” (the “Reg S Offering”). The Company intends
to offer 221,000 Units in this Offering and the Reg S Offering until the
offerings are terminated.
2.
Sale
and Purchase of Securities.
(a)
Sale
and Purchase of Securities.
Subject
to the terms and conditions hereof, the Company agrees to sell, and Purchaser
irrevocably subscribes for and agrees to purchase, the number of Units set
forth
on the signature page of this Agreement at a purchase price of
$15.00 per
Unit.
The aggregate purchase price for the Units shall be as set forth on the
signature page hereto and shall be payable upon execution hereof by check or
wire transfer of immediately available funds.
(b)
Subscription
Procedure.
In
order to purchase Units, Purchaser shall deliver to the Company, at its
principal executive office identified below: (i) one completed and duly executed
copy of this Agreement; and (ii) immediately available funds, or a certified
check or bank check in an amount equal to the Purchase Price. Execution and
delivery of this Agreement shall constitute an irrevocable subscription for
that
number of Units set forth on the signature page hereto. The minimum investment
that may be made by a Purchaser is $45,000, although the Company may, in its
sole discretion, accept subscriptions for a lesser amount. Payment for the
Securities may be made by wire transfer to:
AmSouth
Bank
Birmingham,
AL
S.W.I.F.T.,
TID: AMSBUS44
TELEX:
682719
AMSOBHM
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For
Credit to:
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Customer
Name:
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Customer
Address:
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Customer
Account:
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0046696598
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AmSouth
Branch:
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Vanderbilt
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or
by
check made payable to: Stellar Technologies, Inc., ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇,
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Receipt
by the Company of funds wired, or deposit and collection by the Company of
the
check tendered herewith, will not constitute acceptance of this Agreement by
the
Company. The Units subscribed for will not be deemed to be issued to, or owned
by, Purchaser until the Company has executed this Agreement. All funds tendered
by Purchaser will be held by the Company pending acceptance or rejection of
this
Agreement by the Company and the closing of Purchaser’s purchase of Units. This
Agreement will either be accepted by the Company, in whole or in part, in its
sole discretion, or rejected by the Company as promptly as practicable. If
this
Agreement is accepted only in part, Purchaser agrees to purchase such smaller
number of Units as the Company determines to sell to Purchaser. If this
Agreement is rejected for any reason, including the termination of the Offering
by the Company, this Agreement and all funds tendered herewith will be promptly
returned to Purchaser, without interest or deduction of any kind, and this
Agreement will be void and of no further force or effect.
(c)
Closing.
Subscriptions will be accepted by the Company in its sole discretion. Upon
the
Company’s execution of this Agreement, the subscription evidenced hereby, if not
previously rejected by the Company, will, in reliance upon Purchaser’s
representations and warranties contained herein, be accepted, in whole or in
part, by the Company. If Purchaser’s subscription is accepted only in part, this
Agreement will be marked to indicate such fact, and the Company will return
to
Purchaser the portion of the funds tendered by Purchaser representing the
unaccepted portion of Purchaser’s subscription, without interest or deduction of
any kind. Upon acceptance of this Agreement in whole or in part by the Company,
the Company will issue certificates evidencing the Series B Preferred Stock
registered in the name of Purchaser, together with a copy of Purchaser’s
executed Agreement countersigned by the Company and a Warrant (“Warrant
Certificate”) executed by the Company.
3.
Representations
and Warranties of Purchaser.
Purchaser represents and warrants to the Company as follows:
(a)
Organization
and Qualification.
(i)
If
Purchaser is an entity, Purchaser is duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization, with the
corporate or other entity power and authority to own and operate its business
as
presently conducted, except where the failure to be or have any of the foregoing
would not have a material adverse effect on Purchaser, and Purchaser is duly
qualified as a foreign corporation or other entity to do business and is in
good
standing in each jurisdiction where the character of its properties owned or
held under lease or the nature of their activities makes such qualification
necessary, except for such failures to be so qualified or in good standing
as
would not have a material adverse effect on it.
3
(ii)
If
Purchaser is an entity, the address of its principal place of business is as
set
forth on the signature page hereto, and if Purchaser is an individual, the
address of its principal residence is as set forth on the signature page
hereto.
(b)
Authority;
Validity and Effect of Agreement.
(i)
If
Purchaser is an entity, Purchaser has the requisite corporate or other entity
power and authority to execute and deliver this Agreement and perform its
obligations under this Agreement. The execution and delivery of this Agreement
by Purchaser, the performance by Purchaser of its obligations hereunder and
all
other necessary corporate or other entity action on the part of Purchaser have
been duly authorized by its board of directors or similar governing body, and
no
other corporate or other entity proceedings on the part of Purchaser is
necessary for Purchaser to execute and deliver this Agreement and perform its
obligations hereunder.
(ii)
This
Agreement has been duly and validly authorized, executed and delivered by
Purchaser and, assuming it has been duly and validly executed and delivered
by
the Company, constitutes a legal, valid and binding obligation of Purchaser,
in
accordance with its terms.
(c)
No
Conflict; Required Filings and Consents.
Neither
the execution and delivery of this Agreement by Purchaser nor the performance
by
Purchaser of its obligations hereunder will: (i) if Purchaser is an entity,
conflict with Purchaser’s articles of incorporation or bylaws, or other similar
organizational documents; (ii) violate any statute, law, ordinance, rule or
regulation, applicable to Purchaser or any of the properties or assets of
Purchaser; or (iii) violate, breach, be in conflict with or constitute a default
(or an event which, with notice or lapse of time or both, would constitute
a
default) under, or permit the termination of any provision of, or result in
the
termination of, the acceleration of the maturity of, or the acceleration of
the
performance of any obligation of Purchaser under, or result in the creation
or
imposition of any lien upon any properties, assets or business of Purchaser
under, any material contract or any order, judgment or decree to which Purchaser
is a party or by which it or any of its assets or properties is bound or
encumbered except, in the case of clauses (ii) and (iii), for such violations,
breaches, conflicts, defaults or other occurrences which, individually or in
the
aggregate, would not have a material adverse effect on its obligation to perform
its covenants under this Agreement.
(d)
Accredited
Investor.
Purchaser
is an “accredited investor” as that term is defined in Rule 501(a) of Regulation
D under the Securities Act. If Purchaser is an entity, Purchaser was not formed
for the specific purpose of acquiring the Securities, and, if it was, all of
Purchaser’s equity owners are “accredited investors” as defined
above.
4
(e)
No
Government Review.
Purchaser understands that neither the United States Securities and Exchange
Commission (“SEC”) nor any securities commission or other governmental authority
of any state, country or other jurisdiction has approved the issuance of the
Securities or passed upon or endorsed the merits of the Securities, this
Agreement or the Warrant Certificate (collectively, the “Offering Documents”),
or confirmed the accuracy of, determined the adequacy of, or reviewed this
Agreement or the Warrant Certificate.
(f)
Investment
Intent.
The
Securities are being acquired for the Purchaser’s own account for investment
purposes only, not as a nominee or agent and not with a view to the resale
or
distribution of any part thereof, and Purchaser has no present intention of
selling, granting any participation in or otherwise distributing the same.
By
executing this Agreement, Purchaser further represents that Purchaser does
not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participation to such person or third person with
respect to any of the Securities.
(g)
Restrictions
on Transfer.
Purchaser understands that the Securities are “restricted securities” as such
term is defined in Rule 144 under the Securities Act and have not been
registered under the Securities Act or registered or qualified under any state
securities law, and may not be, directly or indirectly, sold, transferred,
offered for sale, pledged, hypothecated or otherwise disposed of without
registration under the Securities Act and registration or qualification under
applicable state securities laws or the availability of an exemption therefrom.
In any case where such an exemption is relied upon by Purchaser from the
registration requirements of the Securities Act and the registration or
qualification requirements of such state securities laws, Purchaser shall
furnish the Company with an opinion of counsel stating that the proposed sale
or
other disposition of such securities may be effected without registration under
the Securities Act and will not result in any violation of any applicable state
securities laws relating to the registration or qualification of securities
for
sale, such counsel and opinion to be satisfactory to the Company. Purchaser
acknowledges that it is able to bear the economic risks of an investment in
the
Securities for an indefinite period of time, and that its overall commitment
to
investments that are not readily marketable is not disproportionate to its
net
worth.
(h)
Investment
Experience.
Purchaser has such knowledge, sophistication and experience in financial, tax
and business matters in general, and investments in securities in particular,
that it is capable of evaluating the merits and risks of this investment in
the
Securities, and Purchaser has made such investigations in connection herewith
as
it deemed necessary or desirable so as to make an informed investment decision
without relying upon the Company for legal or tax advice related to this
investment. In making its decision to acquire the Securities, Purchaser has
not
relied upon any information other than information provided to Purchaser by
the
Company or its representatives and contained herein and in the other Offering
Documents.
(i)
Access
to Information.
Purchaser acknowledges that it has had access to and has reviewed all documents
and records relating to the Company, including, but not limited to, the
Company’s Quarterly Report on Form 10-QSB for the fiscal quarter ended March 31,
2005 and the Company’s Annual Report on Form 10-KSB for the fiscal year ended
June 30, 2005, that it has deemed necessary in order to make an informed
investment decision with respect to an investment in the Securities; that it
has
had the opportunity to ask representatives of the Company certain questions
and
request certain additional information regarding the terms and conditions of
such investment and the finances, operations, business and prospects of the
Company and has had any and all such questions and requests answered to its
satisfaction; and that it understands the risks and other considerations
relating to such investment.
5
(j)
Reliance
on Representations.
Purchaser
understands that the Securities are being offered and sold to it in reliance
on
specific exemptions from the registration requirements of the federal and state
securities laws and that the Company is relying in part upon the truth and
accuracy of, and such Purchaser’s compliance with, the representations,
warranties, agreements, acknowledgments and understandings of such Purchaser
set
forth herein in order to determine the availability of such exemptions and
the
eligibility of such Purchaser to acquire the Securities. Purchaser
represents and warrants to the Company that any information that Purchaser
has
heretofore furnished or furnishes herewith to the Company is complete and
accurate, and further represents and warrants that it will notify and supply
corrective information to the Company immediately upon the occurrence of any
change therein occurring prior to the Company's issuance of the Securities.
Within five (5) days after receipt of a request from the Company, Purchaser
will
provide such information and deliver such documents as may reasonably be
necessary to comply with any and all laws and regulations to which the Company
is subject.
(k)
No
General Solicitation.
Purchaser is unaware of, and in deciding to participate in the Offering is
in no
way relying upon, and did not become aware of the Offering through or as a
result of, any form of general solicitation or general advertising including,
without limitation, any article, notice, advertisement or other communication
published in any newspaper, magazine or similar media, or broadcast over
television or radio or the internet, in connection with the
Offering.
(l)
Placement
and Finder’s Fees.
No
agent, broker, investment banker, finder, financial advisor or other person
acting on behalf of Purchaser or under its authority is or will be entitled
to
any broker’s or finder’s fee or any other commission or similar fee, directly or
indirectly, in connection with the Offering, and no person is entitled to any
fee or commission or like payment in respect thereof based in any way on
agreements, arrangements or understanding made by or on behalf of
Purchaser.
(m)
Investment
Risks.
Purchaser understands that purchasing Securities in the Offering will subject
Purchaser to certain risks, including, but not limited to, those set forth
under
the caption “Risk Factors” and elsewhere in the Company’s Annual Report on Form
10-KSB and other periodic reports filed with the SEC, as well as each of the
following:
(i)
The
offering price of the Securities offered hereby has been determined solely
by
the Company and does not necessarily bear any relationship to the value of
the
Company’s assets, current or potential earnings of the Company, or any other
recognized criteria used for measuring value, and therefore, there can be no
assurance that the offering price of the Units is representative of the actual
value of the underlying Securities.
(ii)
The
Company has experienced net losses in each fiscal quarter since its inception
and expects to continue to incur significant net losses for the foreseeable
future. While the Company is unable to predict accurately its future operating
expenses, it currently expects these expenses to increase substantially as
it
implements its business plan.
6
(iii)
In
order
to fund its future operations, attract and retain employees, consultants and
other service providers, and satisfy other obligations, the Company may be
required to issue additional shares of Common Stock, securities exercisable
or
convertible into shares of Common Stock, or debt. Such securities may be issued
for a purchase price consisting of cash, services or other consideration that
may be materially different than the purchase price of the Units. The issuance
of any such securities may result in substantial dilution to the relative
ownership interests of the Company’s existing shareholders and substantial
reduction in net book value per share. Additional equity securities may have
rights, preferences and privileges senior to those of the holders of Common
Stock, and any debt financing may involve restrictive covenants that may limit
the Company’s operating flexibility.
(iv)
The
Company has provided herein that it intends to use most of the
net
proceeds from the Offering for general working capital purposes and other
general corporate purposes which may include repayment of indebtedness. Thus,
Purchaser is making its investment in the Securities based in part upon very
limited information regarding the specific uses to which the net proceeds will
be applied.
(v)
An
investment in the Securities may involve certain material legal, accounting
and
federal and state tax consequences. Purchaser should consult with its legal
counsel, accountant and/or business adviser as to the legal, accounting, tax
and
related matters accompanying such an investment.
(vi) Funds
received in payment for the Units will be released to the Company upon its
execution of this Agreement. The Company is not required to raise any minimum
amount of proceeds prior to obtaining such funds. Because there is no minimum
amount of Units the Company must sell before accepting funds in the Offering,
investors participating in the Offering will not be assured that the Company
will have sufficient funds to execute its business plan, satisfy expected
expenditures, repay indebtedness as it becomes due, and support operations
over
the next 12 months and will bear the risk that the Company will be unable to
secure the funds necessary to meet its current and anticipated financial
obligations.
(n)
Exclusive
Offering Documents. In
making
its decision to purchase the Securities hereunder, Purchaser has not relied
on
any representations, warranties or information other than those set forth in
this Agreement which Purchaser has independently investigated and verified
to
its satisfaction and neither the Company nor any person acting on its behalf
has
made any representation or warranty regarding the Company or the Securities
except as set forth herein.
(o)
Legends.
The
certificates and agreements evidencing the Securities shall have endorsed
thereon the following legend (and appropriate notations thereof will be made
in
the Company's stock transfer books), and
stop
transfer instructions reflecting these restrictions on transfer will be placed
with the transfer agent of the Securities:
7
THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT
OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES
REPRESENTED HEREBY HAVE BEEN TAKEN BY THE REGISTERED OWNER FOR INVESTMENT,
AND
WITHOUT A VIEW TO RESALE OR DISTRIBUTION THEREOF, AND MAY NOT BE SOLD,
TRANSFERRED OR DISPOSED OF WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER THAT SUCH TRANSFER OR DISPOSITION DOES NOT VIOLATE THE SECURITIES ACT
OF
1933, AS AMENDED, THE RULES AND REGULATIONS THEREUNDER OR OTHER APPLICABLE
SECURITIES LAWS.
4.
Representations
and Warranties of the Company.
The
Company represents and warrants to Purchaser as follows:
(a)
Organization
and Qualification.
The
Company is duly organized, validly existing and in good standing under the
laws
of its jurisdiction of organization, with the corporate power and authority
to
own and operate its business as presently conducted, except where the failure
to
be or have any of the foregoing would not have a material adverse effect on
the
Company. The Company is duly qualified as a foreign corporation or other entity
to do business and is in good standing in each jurisdiction where the character
of its properties owned or held under lease or the nature of their activities
makes such qualification necessary, except for such failures to be so qualified
or in good standing as would not have a material adverse effect on the
Company.
(b)
Authority;
Validity and Effect of Agreement.
(i) The
Company has the requisite corporate power and authority to execute and deliver
this Agreement, perform its obligations under this Agreement, and conduct the
Offering. The execution and delivery of this Agreement by the Company, the
performance by the Company of its obligations hereunder, the Offering and all
other necessary corporate action on the part of the Company have been duly
authorized by its board of directors, and no other corporate proceedings on
the
part of the Company are necessary to authorize this Agreement or the Offering.
This Agreement has been duly and validly executed and delivered by the Company
and, assuming that it has been duly authorized, executed and delivered by
Purchaser, constitutes a legal, valid and binding obligation of the Company,
in
accordance with its terms, subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors’ rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
(ii) The
Securities have been duly authorized and will be free and clear of all liens,
charges, restrictions, claims and encumbrances imposed by or through the
Company. The shares of Common Stock issuable upon conversion of the Series
B
Preferred Stock or exercise of the Warrants when issued and paid for in
accordance with the Series B Preferred Stock or Warrants, as applicable, will
be
duly authorized, validly issued, fully paid and non-assessable shares of Common
Stock with no personal liability resulting solely from the ownership of such
shares and will be free and clear of all liens, charges, restrictions, claims
and in encumbrances imposed by or through the Company.
8
(c)
No
Conflict; Required Filings and Consents.
Neither
the execution and delivery of this Agreement by the Company nor the performance
by the Company of its obligations hereunder will: (i) conflict with the
Company’s certificate of incorporation or bylaws; (ii) violate any statute, law,
ordinance, rule or regulation, applicable to the Company or any of the
properties or assets of the Company; or (iii) violate, breach, be in conflict
with or constitute a default (or an event which, with notice or lapse of time
or
both, would constitute a default) under, or permit the termination of any
provision of, or result in the termination of, the acceleration of the maturity
of, or the acceleration of the performance of any obligation of the Company,
or
result in the creation or imposition of any lien upon any properties, assets
or
business of the Company under, any material contract or any order, judgment
or
decree to which the Company is a party or by which it or any of its assets
or
properties is bound or encumbered except, in the case of clauses (ii) and (iii),
for such violations, breaches, conflicts, defaults or other occurrences which,
individually or in the aggregate, would not have a material adverse effect
on
its obligation to perform its covenants under this Agreement.
(d)
Placement
and Finder’s Fees.
Except
as provided in Section 1(c), neither the Company nor any of its respective
officers, directors, employees or managers, has employed any broker, dealer,
finder, advisor or consultant, or incurred any liability for any investment
banking fees, brokerage fees, commissions or finders’ fees, advisory fees or
consulting fees in connection with the Offering for which the Company has or
could have any liability.
5.
Indemnification.
Purchaser agrees to indemnify, defend and hold harmless the Company and its
respective affiliates and agents from and against any and all demands, claims,
actions or causes of action, judgments, assessments, losses, liabilities,
damages or penalties and reasonable attorneys' fees and related disbursements
incurred by the Company that arise out of or result from a breach of any
representations or warranties made by Purchaser herein, and Purchaser agrees
that in the event of any breach of any representations or warranties made by
Purchaser herein, the Company may, at its option, forthwith rescind the sale
of
the Units to Purchaser.
6.
Registration
Rights.
The
Company covenants and agrees as follows:
6.1 For
the
purpose of this Section 6, the following definitions shall apply:
(a)
“Exchange
Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules
and regulations of the SEC thereunder, all as the same shall be in effect at
the
time.
(b)
“Person”
shall mean an individual, partnership (general or limited), corporation, limited
liability company, joint venture, business trust, cooperative, association
or
other form of business organization, whether or not regarded as a legal entity
under applicable law, a trust (inter vivos or testamentary), an estate of a
deceased, insane or incompetent person, a quasi-governmental entity, a
government or any agency, authority, political subdivision or other
instrumentality thereof, or any other entity.
9
(c)
“Register,”
“registered,” and “registration” shall refer to a registration effected by
preparing and filing a registration statement in compliance with the Securities
Act, and the declaration or order of effectiveness of such registration
statement or document by the SEC.
(d)
“Registration
Statement” shall mean any registration statement of the Company filed with the
SEC pursuant to the provisions of Section 6.2 of this Agreement, which covers
the resale of the Restricted Stock on an appropriate form then permitted by
the
SEC to be used for such registration and the sales contemplated to be made
thereby under the Securities Act, or any similar rule that may be adopted by
the
SEC, and all amendments and supplements to such registration statement,
including any pre- and post- effective amendments thereto, in each case
including the prospectus contained therein, all exhibits thereto and all
materials incorporated by reference therein.
(e)
“Restricted
Stock” shall mean (i) the shares of Common Stock issuable upon conversion of the
Series B Preferred Stock; (ii) the shares of Common Stock issuable upon exercise
of the Warrants; and (iii) any additional shares of Common Stock of the Company
issued or issuable after the date hereof in respect of any of the foregoing
securities, by way of a stock dividend or stock split; provided that as to
any
particular shares of Restricted Stock, such securities shall cease to constitute
Restricted Stock when (x) a Registration Statement with respect to the sale
of
such securities shall have become effective under the Securities Act and such
securities shall have been disposed of thereunder, (y) such securities are
permitted to be transferred pursuant to Rule 144(k) (or any successor provision
to such rule) under the Securities Act or (z) such securities are otherwise
freely transferable to the public without further registration under the
Securities Act.
(f)
“Selling
Stockholders” shall mean Purchaser and any other purchaser of Units in the
Offering, and their respective successors and assigns.
6.2. Registration
of the Securities.
(a) The
Company shall notify all Selling Stockholders in writing at least ten
(10) days
prior to the filing of any registration statement under the Securities Act
for
the purpose of registering securities of the Company, excluding registration
statements on SEC Forms ▇-▇, ▇-▇ or any similar or successor forms, and will
afford each such Selling Stockholder an opportunity to include in such
registration statement all or part of such Restricted Stock held by such Selling
Stockholder. Each Selling Stockholder desiring to include in any such
registration statement all or any part of the Restricted Stock held by it shall,
within five (5) days after the above-described notice from the Company, so
notify the Company in writing. Such notice shall state the intended method
of
disposition of the Restricted Stock by such Selling Stockholder. If a Selling
Stockholder decides not to include all of its Restricted Stock in any
registration statement thereafter filed by the Company, such Selling Stockholder
shall nevertheless continue to have the right to include any Restricted Stock
in
any subsequent registration statement or registration statements as may be
filed
by the Company with respect to offerings of its securities, all upon the terms
and conditions set forth herein. The Company may, without the consent of the
Selling Stockholders, withdraw such registration statement prior to its becoming
effective if the proposal to register the securities proposed to be registered
thereby is abandoned.
10
(b)
In
the
event that any registration pursuant to Section 6.2(a) shall be, in whole or
in
part, an underwritten public offering of Common Stock on behalf of the Company,
all Purchasers proposing to distribute their Restricted Stock through such
underwriting shall enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for such underwriting by the Company.
If the managing underwriter thereof advises the Company in writing that in
its
opinion the number of securities requested to be included in such registration
exceeds the number which can be sold in an orderly manner in such offering
within a price range acceptable to the Company, the Company shall include in
such registration (i) first, the securities the Company proposes to sell, and
(ii) second, the Restricted Stock and any other registrable securities eligible
and requested to be included in such registration to the extent that the number
of shares to be registered under this clause (ii) will not, in the opinion
of
the managing underwriter, adversely affect the offering of the securities
pursuant to clause (i). In such a case, shares shall be registered pro rata
among the holders of such Restricted Stock and registrable securities on the
basis of the number of shares eligible for registration that are owned by all
such holders and requested to be included in such registration.
(c) Notwithstanding
anything to the contrary contained herein, the Company's obligation in Sections
6.2(a) and 6.2(b) above shall extend only to the inclusion of the Restricted
Stock in a Registration Statement. The Company shall have no obligation to
assure the terms and conditions of distribution, to obtain a commitment from
an
underwriter relative to the sale of the Restricted Stock or to otherwise assume
any responsibility for the manner, price or terms of the distribution of the
Restricted Stock.
(d) The
Company shall have the right to terminate or withdraw any registration initiated
by it under this Section 6.2 prior to the effectiveness of such registration
without thereby incurring liability to the holders of the Restricted Stock,
regardless of whether any holder has elected to include securities in such
registration. The Registration Expenses (as defined in Section 6.5) of such
withdrawn registration shall be borne by the Company in accordance with
Section 6.4 hereof.
6.3. Registration
Procedures.
Whenever it is obligated to register any Restricted Stock pursuant to this
Agreement, the Company shall:
(a) prepare
and file with the SEC a Registration Statement with respect to the Restricted
Stock in the manner set forth in Section 6.2 hereof and use its reasonable
best
efforts to cause such Registration Statement to become effective as promptly
as
possible and to remain effective until the earlier of: (i) the sale of all
shares of Restricted Stock covered thereby, (ii) the availability under Rule
144
for the Selling Stockholder to freely resell without restriction all Restricted
Stock covered thereby, or (iii) two (2) years from the date of this
Agreement;
(b) prepare
and file with the SEC such amendments (including post-effective amendments)
and
supplements to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective
for
the period specified in Section 6.3(a) above and to comply with the provisions
of the Act with respect to the disposition of all Restricted Stock covered
by
such Registration Statement in accordance with the intended method of
disposition set forth in such Registration Statement for such
period;
11
(c) furnish
to the Selling Stockholders such number of copies of the Registration Statement
and the prospectus included therein (including each preliminary prospectus)
as
such person may reasonably request in order to facilitate the public sale or
other disposition of the Restricted Stock covered by such Registration
Statement;
(d) use
its
reasonable best efforts to register or qualify the Restricted Stock covered
by
such Registration Statement under the state securities laws of such
jurisdictions as any Selling Stockholder shall reasonably request; provided,
however,
that
the Company shall not for any such purpose be required to qualify generally
to
transact business as a foreign corporation in any jurisdiction where it is
not
so qualified or to consent to general service of process in any such
jurisdiction;
(e) in
the
event of any underwritten public offering, enter into and perform its
obligations under an underwriting agreement, in usual and customary form, with
the managing underwriter(s) of such offering. Each Purchaser participating
in
such underwriting shall also enter into and perform its obligations under such
an agreement, as described in Section 6.2(b);
(f) immediately
notify each Selling Stockholder at any time when a prospectus relating thereto
is required to be delivered under the Act, of the happening of any event as
a
result of which the prospectus contained in such Registration Statement, as
then
in effect, includes an untrue statement of a material fact or omits to state
a
material fact required or necessary to be stated therein in order to make the
statements contained therein not misleading in light of the circumstances under
which they were made. The Company will use reasonable efforts to amend or
supplement such prospectus in order to cause such prospectus not to include
any
untrue statement of a material fact or omit to state a material fact required
to
be stated therein or necessary to make the statements therein not misleading
in
the light of the circumstances under which they were made;
(g) prepare
and file with the SEC such amendments and supplements to such Registration
Statement and the prospectus used in connection with such Registration
Statements as may be necessary to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
Registration Statement;
(h) use
its
reasonable best efforts to list the Restricted Stock covered by such
Registration Statement on each exchange or automated quotation system on which
similar securities issued by the Company are then listed (with the listing
application being made at the time of the filing of such Registration Statement
or as soon thereafter as is reasonably practicable);
(i) notify
each Selling Stockholder of any threat by the SEC or state securities commission
to undertake a stop order with respect to sales under the Registration
Statement; and
12
(j) cooperate
in the timely removal of any restrictive legends from the shares of Restricted
Stock in connection with the resale of such shares covered by an effective
Registration Statement.
6.4. Delay
of Registration.
No
Selling Stockholder shall have any right to obtain or seek an injunction
restraining or otherwise delaying any such registration as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Section 6.
6.5 Expenses.
(a) For
the
purposes of this Section 6.5, the term “Registration Expenses” shall mean: all
expenses incurred by the Company in complying with Section 6.2 of this
Agreement, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees under state securities laws, fees of the
National Association of Securities Dealers, Inc. (“NASD”), fees and expenses of
listing shares of Restricted Stock on any securities exchange or automated
quotation system on which the Company's shares are listed and fees of transfer
agents and registrars. The term “Selling Expenses” shall mean: all underwriting
discounts and selling commissions applicable to the sale of Restricted Stock
and
all accountable or non-accountable expenses paid to any underwriter in respect
of such sale.
(b) Except
as
otherwise provided herein, the Company will pay all Registration Expenses in
connection with the Registration Statements filed pursuant to Section 6.2 of
this Agreement. All Selling Expenses in connection with any Registration
Statements filed pursuant to Section 6.2 of this Agreement shall be borne by
the
Selling Stockholders pro rata on the basis of the number of shares registered
by
each Selling Stockholder whose shares of Restricted Stock are covered by such
Registration Statement, or by such persons other than the Company (except to
the
extent the Company may be a seller) as they may agree.
6.6. Obligations
of the Selling Stockholders.
(a) In
connection with each registration hereunder, each Selling Stockholder will
furnish to the Company in writing such information with respect to it and the
securities held by it and the proposed distribution by it, as shall be
reasonably requested by the Company in order to assure compliance with
applicable federal and state securities laws as a condition precedent to
including the Selling Stockholder's Restricted Stock in the Registration
Statement. Each Selling Stockholder shall also promptly notify the Company
of
any changes in such information included in the Registration Statement or
prospectus as a result of which there is an untrue statement of material fact
or
an omission to state any material fact required or necessary to be stated
therein in order to make the statements contained therein not misleading in
light of the circumstances under which they were made.
(b) In
connection with the filing of the Registration Statement, each Selling
Stockholder shall furnish to the Company in writing such information and
affidavits as the Company reasonably requests for use in connection with such
Registration Statement or prospectus.
13
(c) In
connection with each registration pursuant to this Agreement, each Selling
Stockholder agrees that it will not effect sales of any Restricted Stock until
notified by the Company of the effectiveness of the Registration Statement,
and
thereafter will suspend such sales after receipt of telegraphic or written
notice from the Company to suspend sales to permit the Company to correct or
update a Registration Statement or prospectus. At the end of any period during
which the Company is obligated to keep a Registration Statement current, each
Selling Stockholder shall discontinue sales of Restricted Stock pursuant to
such
Registration Statement upon receipt of notice from the Company of its intention
to remove from registration the Restricted Stock covered by such Registration
Statement that remains unsold, and each Selling Stockholder shall notify the
Company of the number of shares registered which remain unsold immediately
upon
receipt of such notice from the Company.
6.7. Information
Blackout and Holdbacks.
(a) At
any
time when a Registration Statement effected pursuant to Section 6.2 is
effective, upon written notice from the Company to Purchaser that the Company
has determined in good faith that the sale of Restricted Stock pursuant to
the
Registration Statement would require disclosure of non-public material
information, Purchaser shall suspend sales of Restricted Stock pursuant to
such
Registration Statement until such time as the Company notifies Purchaser that
such material information has been disclosed to the public or has ceased to
be
material, or that sales pursuant to such Registration Statement may otherwise
be
resumed.
(b) Notwithstanding
any other provision of this Agreement, Purchaser shall not effect any public
sale or distribution (including sales pursuant to Rule 144 under the Securities
Act), if and when available, of equity securities of the Company, or any
securities convertible into or exchangeable or exercisable for such securities,
during the thirty (30) days prior to the commencement of any primary offering
to
be undertaken by the Company of shares of its unissued Common Stock (“Primary
Offering”), which may also include other securities, and ending one hundred
twenty (120) days after completion of any such Primary Offering, unless the
Company, in the case of a non-underwritten Primary Offering, or the managing
underwriter, in the case of an underwritten Primary Offering, otherwise
agree.
14
6.8. Indemnification.
(a) The
Company agrees to indemnify, to the extent permitted by law, each Selling
Stockholder, such Selling Stockholder’s respective partners, officers,
directors, underwriters and each Person who controls any Selling Stockholder
(within the meaning of the Securities Act) against all losses, claims, damages,
liabilities and expenses caused by (i) any untrue statement of or alleged untrue
statement of material fact contained in the Registration Statement, prospectus
or preliminary prospectus or any amendment or supplement thereto, (ii) any
omission of or alleged omission of a material fact required to be stated therein
or necessary to make the statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the Securities Act, the
Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law in
connection with the offering covered by such Registration Statement
(“Violations”); provided,
however,
that
the indemnity agreement contained in this Section 6.8(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company, which consent
shall not be unreasonably withheld, nor shall the Company be liable in for
any
loss, claim, damage, liability or action to the extent that it arises out of
or
is based upon a Violation which occurs in reliance upon and in conformity with
information furnished to the Company by such Selling Stockholder, partner,
officer, director, underwriter or controlling person of such Selling
Stockholder.
(b) To
the
extent permitted by law, each Selling Stockholder shall indemnify and hold
harmless the Company, each of its directors, its officers and each person,
if
any, who controls the Company within the meaning of the Securities Act, any
underwriter and any other Selling Stockholder selling securities under such
registration statement or any of such other Selling Stockholder’s partners,
directors or officers or any person who controls such Selling Stockholder,
against any losses, claims, damages or liabilities (joint or several) to which
the Company or any such director, officer, controlling person, underwriter
or
other such Selling Stockholder, or partner, director, officer or controlling
person of such other Selling Stockholder, may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar as
such
losses, claims, damages or liabilities (or actions in respect thereto) arise
out
of or are based upon any Violation, in each case to the extent (and only to
the
extent) that such Violation occurs (i) in reliance upon and in conformity with
information furnished by such Selling Stockholder to the Company, (ii) as a
result of any failure to deliver a copy of the prospectus relating to such
Registration Statement, or (iii) as a result of any disposition of the
Restricted Stock in a manner that fails to comply with the permitted methods
of
distribution identified within the Registration Statement.
(c) Any
Person entitled to indemnification hereunder shall (i) give prompt written
notice to the indemnifying party of any claim with respect to which it seeks
indemnification (provided that the failure to give prompt notice shall not
impair any Person's right to indemnification hereunder to the extent such
failure has not prejudiced the indemnifying party), and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is assumed,
the indemnifying party shall not be subject to any liability for any settlement
made by the indemnified party without its consent (but such consent shall not
be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim shall not be obligated to pay the fees
and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to
such
claim.
15
(d) If
the
indemnification provided for in this Section 6.8 is held by a court of
competent jurisdiction to be unavailable to an indemnified party with respect
to
any losses, claims, damages or liabilities referred to herein, the indemnifying
party, in lieu of indemnifying such indemnified party thereunder, shall to
the
extent permitted by applicable law contribute to the amount paid or payable
by
such indemnified party as a result of such loss, claim, damage or liability
in
such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other
in
connection with the violation(s) described in Section 6.8(a) that resulted
in
such loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to, among
other things, whether the untrue or alleged untrue statement of a material
fact
or the omission to state a material fact relates to information supplied by
the
indemnifying party or by the indemnified party and the parties’ relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided,
that in
no event shall any contribution by a Selling Stockholder hereunder exceed the
net proceeds from the offering received by such Selling
Stockholder.
(e) The
indemnification provided for under this Agreement shall remain in full force
and
effect regardless of any investigation made by or on behalf of the indemnified
party or any officer, director or controlling Person of such indemnified party
and shall survive the transfer of securities. The Company also agrees to make
such provisions as are reasonably requested by any indemnified party for
contribution to such party in the event the Company's indemnification is
unavailable for any reason.
7.
Confidentiality.
Purchaser acknowledges and agrees that:
(a)
All
of
the information contained herein is of a confidential nature and may be regarded
as material non-public information under Regulation FD of the Securities
Act.
(b)
This
Agreement has been furnished to Purchaser by the Company for the sole purpose
of
enabling Purchaser to consider and evaluate an investment in the Company, and
will be kept confidential by Purchaser and not used for any other
purpose.
(c)
The
existence of this Agreement and the information contained herein shall not,
without the prior written consent of the Company, be disclosed by Purchaser
to
any person or entity, other than Purchaser’s personal financial and legal
advisors for the sole purpose of evaluating an investment in the Company, and
Purchaser will not, directly or indirectly, disclose or permit Purchaser’s
personal financial and legal advisors to disclose, any of such information
without the prior written consent of the Company.
16
(d)
Purchaser
shall make its representatives aware of the terms of this section and to be
responsible for any breach of this Agreement by such representatives.
(e)
Purchaser
shall not, without the prior written consent of the Company, directly or
indirectly, make any statements, public announcements or release to trade
publications or the press with respect to the subject matter of this Agreement
and the other Offering Documents.
(f)
If
Purchaser decides to not pursue further investigation of the Company or to
not
participate in the Offering, Purchaser will promptly return this Agreement,
the
other Offering Documents and any accompanying documentation to the
Company.
8.
Non-Public
Information.
Purchaser acknowledges that information concerning the matters that are the
subject matter of this Agreement may constitute material non-public information
under United States federal securities laws, and that United States federal
securities laws prohibit any person who has received material non-public
information relating to the Company from purchasing or selling securities of
the
Company, or from communicating such information to any person under
circumstances in which it is reasonably foreseeable that such person is likely
to purchase or sell securities of the Company. Accordingly, until such time
as
any such non-public information has been adequately disseminated to the public,
Purchaser shall not purchase or sell any securities of the Company, or
communicate such information to any other person.
9.
Entire
Agreement.
This
Agreement contains the entire agreement between the parties and supersedes
all
prior agreements and understandings, both written and oral, between the parties
with respect to the subject matter hereto, and no party shall be liable or
bound
to any other party in any manner by any warranties, representations, guarantees
or covenants except as specifically set forth in this Agreement. Nothing in
this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
10.
Amendment
and Modification.
This
Agreement may not be amended, modified or supplemented except by an instrument
or instruments in writing signed by the party against whom enforcement of any
such amendment, modification or supplement is sought.
11.
Extensions
and Waivers.
At any
time prior to the Closing, the parties hereto entitled to the benefits of a
term
or provision may (a) extend the time for the performance of any of the
obligations or other acts of the parties hereto, (b) waive any inaccuracies
in
the representations and warranties contained herein or in any document,
certificate or writing delivered pursuant hereto, or (c) waive compliance with
any obligation, covenant, agreement or condition contained herein. Any agreement
on the part of a party to any such extension or waiver shall be valid only
if
set forth in an instrument or instruments in writing signed by the party against
whom enforcement of any such extension or waiver is sought. No failure or delay
on the part of any party hereto in the exercise of any right hereunder shall
impair such right or be construed to be a waiver of, or acquiescence in, any
breach of any representation, warranty, covenant or agreement.
17
12.
Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, provided, however, that no party
hereto may assign its rights or delegate its obligations under this Agreement
without the express prior written consent of the other party hereto. Except
as
provided in Sections 5 and 6, nothing in this Agreement is intended to confer
upon any person not a party hereto (and their successors and assigns) any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
13.
Survival
of Representations, Warranties and Covenants.
The
representations and warranties contained herein shall survive the Closing and
shall thereupon terminate two years from the Closing, except that the
representations contained in Sections 3(a), 3(b), 4(a), and 4(b) shall survive
indefinitely. All covenants and agreements contained herein which by their
terms
contemplate actions following the Closing shall survive the Closing and remain
in full force and effect in accordance with their terms. All other covenants
and
agreements contained herein shall not survive the Closing and shall thereupon
terminate.
14.
Headings;
Definitions.
The
Section headings contained in this Agreement are inserted for convenience of
reference only and will not affect the meaning or interpretation of this
Agreement. All references to Sections contained herein mean Sections of this
Agreement unless otherwise stated. All capitalized terms defined herein are
equally applicable to both the singular and plural forms of such
terms
15.
Severability.
If any
provision of this Agreement or the application thereof to any person or
circumstance is held to be invalid or unenforceable to any extent, the remainder
of this Agreement shall remain in full force and effect and shall be reformed
to
render the Agreement valid and enforceable while reflecting to the greatest
extent permissible the intent of the parties.
16.
Notices.
All
notices hereunder shall be sufficiently given for all purposes hereunder if
in
writing and delivered personally, sent by documented overnight delivery service
or, to the extent receipt is confirmed, telecopy, telefax or other electronic
transmission service to the appropriate address or number as set forth
below:
If
to
the Company:
▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇
▇▇▇
▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Attention:
Chief Executive Officer
with
a
copy to:
Fox
Rothschild LLP
▇▇▇
▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇
▇▇▇▇▇▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Attention:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esquire
18
If
to
Purchaser:
To
that
address indicated on the signature page hereof.
17.
Governing
Law.
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of Florida, without regard to the laws that might otherwise govern under
applicable principles of conflicts of laws thereof, except to the extent that
the General Corporation Law of the State of Colorado shall apply to the internal
corporate governance of the Company.
18.
Arbitration.
If
a
dispute arises as to the interpretation of this Agreement, it shall be decided
in an arbitration proceeding conforming to the Rules of the American Arbitration
Association applicable to commercial arbitration then in effect at the time
of
the dispute. The arbitration shall take place in Miami, Florida. The decision
of
the arbitrators shall be conclusively binding upon the parties and final, and
such decision shall be enforceable as a judgment in any court of competent
jurisdiction. The parties shall share equally the costs of the
arbitration.
19.
Counterparts.
This
Agreement may be executed and delivered by facsimile in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same agreement.
[Signature
page follows]
19
IN
WITNESS WHEREOF, intending to be legally bound, the parties hereto have caused
this Agreement to be executed as of the date set forth below.
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20
Exhibit
A
Form
of
Certificate
of Designation
of
Series
B
Convertible Preferred Stock
of
Pursuant
to Section ▇-▇▇▇-▇▇▇ of the
Colorado
Business Corporation Act
Stellar
Technologies, Inc., a Colorado corporation (the "Corporation"), does
hereby
certify that, pursuant to the authority contained in its Articles
of
Incorporation, as amended, and in accordance with the provisions
of Section
▇-▇▇▇-▇▇▇ of the Colorado Business Corporation Act, the Corporation’s Board of
Directors has duly adopted the following resolutions creating a series
of
Preferred Stock designated as Series B Convertible Preferred Stock:
RESOLVED,
that
the Corporation hereby designates and creates a series of the authorized
Preferred Stock of the Corporation, designated as Series B Convertible
Preferred
Stock, as follows:
FIRST:
that,
of the 10,000,000 shares of Preferred Stock, par value $0.001 per
share,
authorized to be issued by the Corporation, 400,000 shares are hereby
designated
as "Series B Convertible Preferred Stock." The rights, preference,
privileges
and restrictions granted to and imposed upon the Series B Convertible
Preferred
Stock are as set forth below:
1. Definitions. For
purposes of this resolution, the following definitions shall apply:
(a) "Board"
shall
mean the Board of Directors of the Corporation.
(b) "Common
Stock"
shall
mean the Common Stock, $0.001 par value per share, of the
Corporation.
(c) “Conversion
Price”
shall
mean $0.15 per share, as adjusted.
(d) "Original
Issue Price"
shall
mean $15.00 per share for the Series B Preferred Stock.
(e)
"Series
B Preferred Stock"
shall
mean the Series B Preferred Convertible Stock, $0.001 par value per
share, of
the Corporation.
2. Dividends
and Distributions.
(a) The
holders of the then outstanding shares of Series B Preferred Stock
shall be
entitled to receive, in preference to the holders of Junior Securities
(as
defined in Section 2(d) below), cumulative dividends (the “Series B
Payment-in-Kind Dividends”) when and as if they may be declared by the Board out
of funds legally available therefore, at a per share equal to eight
percent (8%)
per annum of the Original Issue Price (based on a 365 day year).
The Series B
Payment-in-Kind Dividends shall accrue on the Series B Preferred
Stock
commencing on the date of original issuance thereof.
(b) All
Series B Payment-in-Kind Dividends shall be cumulative, whether or
not earned or
declared and whether or not there are profits, surplus or other funds
of the
Corporation legally available for the payment of dividends. All Series
B
Payment-in-Kind Dividends payable by the Corporation on the Series
B Preferred
Stock pursuant to this Section 2 shall be paid in shares of Common
Stock valued
for this purpose in accordance with the formula set forth in Section
2(c) below.
In conjunction with the payment of any Series B Payment-in-Kind Dividend,
the
Corporation shall promptly issue and deliver to the holders of the
shares of
Series B Preferred Stock, a certificate or certificates for the number
of
additional shares of Common Stock to be so issued. Any shares of
Common Stock
issued to the holders of Series B Preferred Stock on account of any
Series B
Payment-in-Kind Dividend shall be deemed to be issued on the Dividend
Payment
Date (as defined in Section 2(c) below). All numbers relating to
the calculation
of dividends pursuant to this Section 2 shall be subject to appropriate
adjustment whenever there shall occur a stock split, combination,
reclassification or other similar event involving or affecting a
change in the
Corporation’s capital structure to provide to the holders of shares of Series
B
Preferred Stock the same economic return with respect to Series B
Payment-in-Kind Dividends as they would have received in the absence
of such
event.
(c) If
the
Corporation declares Series B Payment-in-Kind Dividends to the holders
of shares
of Series B Preferred Stock, such payment shall be equal to the number
of shares
of Common Stock that the dividend payment would purchase for a purchase
price
equal to average daily Closing Price (as defined in Section 2(e)
below) for the
five (5) consecutive Trading Days (as defined in Section 2(e) below)
immediately
preceding the date on which such Series B Payment-in-Kind Dividends
are to be
paid (each, a “Dividend Payment Date”), and the Corporation shall pay such
dividend, including all shares (and any cash adjustment), within
three (3)
business days of the Dividend Payment Date for which such payment
in shares of
Common Stock applies. In lieu of any fractional share of Common Stock
which
would otherwise be issued in payment of a dividend on a Dividend
Payment Date,
the Corporation shall pay a cash adjustment in respect of such fractional
interest in an amount in cash (computed to the nearest cent) equal
to the
Closing Price multiplied by the fractional interest to the nearest
1/100th of a
percent that otherwise would have been issued in payment of such
dividend. On
each Dividend Payment Date, all dividends that shall have accrued
on each share
of Series B Convertible Preferred Stock outstanding on such Dividend
Payment
Date shall accumulate and be deemed to become "due" whether or not
there shall
be funds legally available for payment thereof. Dividends paid on
shares of
Series B Convertible Preferred Stock in an amount less than the total
amount of
such dividends at the time accumulated and payable on such shares
shall be
allocated pro rata on a share-by-share basis among all such shares
at the time
outstanding.
2
(d) Unless
full cumulative dividends on the Series B Convertible Preferred Stock
have been
paid, or declared and sums set aside for the payment thereof, dividends,
other
than in Common Stock or other securities of a class or series of stock
of the
Corporation the terms of which do not expressly provide that it ranks
senior to
or on a parity with the Series B Convertible Preferred Stock as to
dividend
distributions and distributions upon the liquidation, winding-up and
dissolution
of the Corporation (collectively, “Junior Securities”), may not be paid, or
declared and sums set aside for payment thereof, and other distributions
may not
be made upon the Common Stock or other Junior Securities.
(e) “Closing
Price” for any day, means: (i) the last reported sales price regular way of
the
Common Stock on such
day on
the principal securities exchange on which the Common Stock is then
listed or
admitted to trading or on Nasdaq, as applicable, (ii) if no sale takes
place on
such day on any such securities exchange or system, the average of
the closing
bid and asked prices, regular way, on such day for the Common Stock
as
officially quoted on any such securities exchange or system, (iii)
if
on such day such shares of Common Stock are not
then
listed or admitted to trading on any securities exchange or system,
the last
reported sale price, regular way, on such day for the Common Stock
in
the
domestic over-the-counter market as reported by the National Quotation
Bureau,
Incorporated, or any other successor organization,
(iv) if
no sale takes place on such day,
the
average of the high and low bid price of the Common Stock on such day
in the
domestic over-the-counter market as reported by the National Quotation
Bureau,
Incorporated, or any other successor organization, or
(v) if
no bid and asked prices are reported for the Common Stock by the National
Quotation Bureau, Incorporated or any other successor organization
for such day,
the average of the high and low bid and asked price of any of the market
makers
for the Common Stock as reported in the “pink sheets” by the Pink Sheets
LLC.
If at
any time such shares of Common Stock are not listed on any domestic
exchange or
quoted in the NASDAQ System or the domestic over-the-counter market
or reported
in the "pink sheets," the Closing Price shall be the fair market value
thereof
determined by the Board of Directors of the Corporation in good faith.
“Trading
Day” means a day on which the securities exchange, association, or quotation
system on which shares of Common Stock are listed for trading shall
be open for
business or, if the shares of Common Stock shall not be listed on such
exchange,
association, or quotation system for such day, a day with respect to
which
trades in the United States domestic over-the-counter market shall
be reported.
Any reference to "distribution" contained in this Section 2 shall not
be deemed
to include any distribution made in connection with any liquidation,
winding-up
or dissolution of the Corporation, as to which Section 3 shall
apply.
3. Liquidation
Rights. In
the
event of any liquidation, dissolution or winding up of the Corporation,
whether
voluntary or involuntary, the funds and assets of the Corporation that
may be
legally distributed to the Corporation's stockholders (the "Available
Funds and
Assets"), shall be distributed to stockholders in the following
manner:
(a) Liquidation
Preference.
Subject
to the rights of holders of any series of preferred stock which by
its terms is
senior to the Series B Preferred Stock with respect to liquidation,
the holders
of each share of Series B Preferred Stock then outstanding shall be
entitled to
be paid, out of the Available Funds and Assets, and prior and in preference
to
any payment or distribution (or any setting apart of any payment or
distribution) of any Available Funds and Assets on any Junior Securities,
an
amount per share equal to the Original Issue Price of the Series B
Preferred
Stock plus
all
accrued but unpaid dividends; provided,
however,
that in
the event that the Available Funds and Assets are insufficient to permit
each
holder of Series B Preferred Stock to receive an amount per share equal
to the
Original Issue Price of the Series B Preferred Stock, then, and in
that event,
the amount so distributable shall be distributed among the holders
of the Series
B Preferred Stock, pro rata, based on the number of shares of Series
B Preferred
Stock held by each; and further,
provided,
that
any such payments or distributions shall be made on parity with any
payments or
distributions made to the holders of any other series of preferred
stock which
by its terms is pari
passu with
the
Series B Preferred Stock.
3
(b) Non-Cash
Consideration.
If any
assets of the Corporation distributed to stockholders in connection
with any
liquidation, dissolution, or winding up of the Corporation are other
than cash,
then the value of such assets shall be their fair market value as reasonably
determined by the Board in good faith, except that
any
securities to be distributed to stockholders in a liquidation, dissolution,
or
winding up of the Corporation shall be valued as follows:
(1) The
method of valuation of securities not subject to investment letter
or other
similar restrictions on free marketability shall be as follows:
(i) if
the
securities are then traded on a national securities exchange or the
NASDAQ
National Market System (or a similar national quotation system), then
the value
shall be deemed to be the average of the closing prices of the securities
on
such exchange or system over the 30-day period ending three (3) days
prior to
the distribution;
(ii)
if
actively traded over-the-counter, then the value shall be deemed to
be the
average of the closing bid prices over the 30-day period ending three
(3) days
prior to the closing of such merger, consolidation or sale; and
(iii) if
there
is no active public market, then the value shall be the fair market
value
thereof, as determined in good faith by the Board.
(2) The
method of valuation of securities subject to investment letter or other
restrictions on free marketability shall be to make an appropriate
discount from
the market value determined as above in Section 3(b)(1)(i), (ii) or
(iii) to
reflect the approximate fair market value thereof, as reasonably determined
in
good faith by the Board.
4. Voting
Rights. Each
holder of Series B Preferred Stock shall be entitled to vote together
with the
Common Stock and all other series and classes of stock permitted to
vote with
the Common Stock on all matters submitted to a vote of the holders
of the Common
Stock (including election of directors) in accordance with the provisions
of
this Section 4, except with respect to matters in respect of which
one or more
other classes of Preferred Stock or Common Stock is entitled to vote
as a
separate class under the Colorado Business Corporation Act or the provisions
of
this Certificate. Each holder of Series B Preferred Stock shall be
entitled to
notice of any stockholders’ meeting in accordance with the bylaws of the
Corporation at the same time and in the same manner as notice is given
to all
other stockholders entitled to vote at such meetings. For each vote
in which
holders of Series B Preferred Stock are entitled to participate, the
holder of
each share of Series B Preferred Stock shall be entitled to that number
of votes
per share to which such holder would have been entitled had such share
of Series
B Preferred Stock then been converted into shares of Common Stock pursuant
to
the provisions of Section 5 hereof, at the record date for the determination
of
those holders entitled to vote on such matters or, if no such record
date is
established, at the date such vote is taken or any written consent
of
stockholders is solicited.
4
5. Conversion.
(a) Subject
to the provisions of this Section 5, each share of Series B Preferred
Stock
shall be convertible into that number of fully paid and nonassessable
shares of
Common Stock determined by dividing the Original Issue Price by the Conversion
Price in effect on the date of the conversion.
(b) The
Conversion Price and the number of shares of stock or other securities
or
property into which the Series B Preferred Stock is convertible are subject
to
adjustment from time to time as follows:
(1) Reorganization,
Merger or Sale of Assets.
If at
any time while the Series B Preferred Stock is outstanding there shall
be (i) a
reorganization (other than a combination, reclassification, exchange
or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation with or into another corporation in which the Corporation
is not
the surviving entity, or a reverse triangular merger in which the Corporation
is
the surviving entity but the shares of the Corporation’s capital stock
outstanding immediately prior to the merger are converted by virtue of
the
merger into other property, whether in the form of securities, cash or
otherwise, or (iii) a sale or transfer of the Corporation’s properties and
assets as, or substantially as, an entirety to any other person, then,
as a part
of such reorganization, merger, consolidation, sale or transfer, lawful
provision shall be made so that a holder of Series B Preferred Stock
shall
thereafter be entitled to receive upon conversion of the Series B Preferred
Stock the number of shares of stock or other securities or property of
the
successor corporation resulting from such reorganization, merger, consolidation,
sale or transfer that a holder of the shares deliverable upon conversion
of the
Series B Preferred Stock would have been entitled to receive in such
reorganization, consolidation, merger, sale or transfer if the Series
B
Preferred Stock had been converted immediately before such reorganization,
merger, consolidation, sale or transfer, all subject to further adjustment
as
provided in this Section 5. The foregoing provisions of this Section
5(b)(1)
shall similarly apply to successive reorganizations, consolidations,
mergers,
sales and transfers and to the stock or securities of any other corporation
that
are at the time receivable upon the conversion of the Series B Preferred
Stock.
If the per-share consideration payable to the Corporation for shares
in
connection with any such transaction is in a form other than cash or
marketable
securities, then the value of such consideration shall be determined
in good
faith by the Board. In all events, appropriate adjustment (as determined
in good
faith by the Board) shall be made in the application of the provisions
of the
Series B Preferred Stock with respect to the rights and interests of
the
Corporation after the transaction, to the end that the provisions of
the Series
B Preferred Stock shall be applicable after that event, as near as reasonably
may be, in relation to any shares or other property deliverable after
that event
upon conversion of the Series B Preferred Stock.
(2) Reclassification.
If the
Corporation, at any time while the Series B Preferred Stock, or any portion
thereof, remains outstanding, by reclassification of securities or otherwise,
shall change any of the securities as to which conversion rights under
the
Series B Preferred Stock exist into the same or a different number of
securities
of any other class or classes, the Series B Preferred Stock shall thereafter
represent the right to acquire such number and kind of securities as
would have
been issuable as the result of such change with respect to the securities
that
were subject to the conversion rights under the Series B Preferred Stock
immediately prior to such reclassification or other change and number
of shares
received upon such conversion shall be appropriately adjusted, all subject
to
further adjustment as provided in this Section 5.
5
(3) Split,
Subdivision or Combination of Shares.
If the
Corporation at any time while the Series B Preferred Stock, or any portion
thereof, remains outstanding shall split, subdivide or combine the securities
as
to which conversion rights under the Series B Preferred Stock exist, into
a
different number of securities of the same class, the Conversion Price
shall be
proportionately decreased in the case of a split or subdivision or
proportionately increased in the case of a combination.
(4) Adjustments
for Dividends in Stock or Other Securities or Property.
If
while the Series B Preferred Stock, or any portion hereof, remains outstanding
the holders of the securities as to which conversion rights under the Series
B
Preferred Stock exist at the time shall have received, or, on or after
the
record date fixed for the determination of eligible stockholders, shall
have
become entitled to receive, without payment therefor, other or additional
stock
or other securities or property (other than cash) of the Corporation by
way of
dividend, then and in each case, the Series B Preferred Stock shall represent
the right to acquire upon conversion, in addition to the number of shares
of the
security receivable upon conversion of the Series B Preferred Stock, and
without
payment of any additional consideration therefor, the amount of such other
or
additional stock or other securities or property (other than cash) of the
Corporation that such holder would hold on the date of such conversion
had it
been the holder of record of the security receivable upon conversion of
the
Series B Preferred Stock on the date hereof and had thereafter, during
the
period from the date hereof to and including the date of such conversion,
retained such shares and/or all other additional stock, other securities
or
property as aforesaid during such period, giving effect to all adjustments
called for during such period by the provisions of this Section 5.
(c)
Each
share of Series B Convertible Preferred Stock outstanding on the Mandatory
Conversion Date (as defined herein) shall automatically and without any
action
on the part of the holder thereof, convert into that number of fully paid
and
nonassessable shares of Common Stock determined by dividing the Original
Issue
Price by the Conversion Price in effect at the time of conversion. The
term
"Mandatory Conversion Date" is the date, if any, on which (i) the average
of the
Closing Prices of the Corporation’s Common Stock over 20 consecutive trading
days equals or exceeds $0.75 per share; and (ii) the shares of Common Stock
issuable upon conversion of the Series B Preferred Stock are either subject
to an effective registration statement permitting the public resale of
such
shares under the Securities Act of 1933, as amended (the “Act”),
or
transferable pursuant to Rule 144(k) promulgated under the Act. On the
Mandatory
Conversion Date, the outstanding shares of Series B Convertible Preferred
Stock
shall be converted automatically without any further action by the holders
of
such shares and whether or not the certificates representing such shares
are
surrendered to the Corporation or its transfer agent; provided,
however,
that
the Corporation shall not be obligated to issue certificates evidencing
the
shares of Common Stock issuable upon conversion of any shares of Series
B
Convertible Preferred Stock unless certificates evidencing such shares
of Series
B Convertible Preferred Stock are either delivered to the Corporation or
the
holder notifies the Corporation that such certificates have been lost,
stolen,
or destroyed, and executes an agreement satisfactory to the Corporation
to
indemnify the Corporation from any loss incurred by it in connection therewith.
Upon the occurrence of the automatic conversion of the Series B Convertible
Preferred Stock pursuant to this Section 5(c), the holders of the Series
B
Convertible Preferred Stock shall surrender the certificates representing
the
Series B Convertible Preferred Stock for which the Mandatory Conversion
Date has
occurred to the Corporation and the Corporation shall deliver the shares
of
Common Stock issuable upon such conversion as soon as practicable following
the
holder's delivery of the applicable certificates for the Series B Convertible
Preferred Stock within three (3) business days following the date on which
the
Corporation receives the applicable certificates for the Series B Convertible
Preferred Stock from the holder.
6
6. Reports
as to Adjustments.
Whenever the Conversion Price or the kind of securities or other property
into
which each share of Series B Preferred Stock is convertible is adjusted
as
provided in Section 5 hereof, the Corporation shall promptly mail to the
holders
of record of the outstanding shares of Series B Preferred Stock at their
respective addresses as the same shall appear in the Corporation's stock
records
a notice stating that the Conversion Price has been adjusted and setting
forth
the new Conversion Price (or describing the new securities, cash or other
property into which each share of Series B Preferred Stock is convertible
as a
result of such adjustment), a brief statement of the facts requiring such
adjustment and the computation thereof, and when such adjustment became
effective.
7. No
Re-issuance of Preferred Stock.
No
share or shares of Series B Preferred Stock acquired by the Corporation
by
reason of redemption, purchase, conversion or otherwise shall be reissued,
and
all such shares shall be canceled, retired and eliminated from the shares
which
the Corporation shall be authorized to issue.
SECOND:
That
such determination of the designation, preferences and the relative,
participating, optional or other rights, and the qualifications, limitations
or
restrictions thereof, relating to the Series B Preferred Stock, was duly
made by
the Board of Directors pursuant to the provisions of the Articles of
Incorporation of the Corporation, and in accordance with the provisions
of
Section ▇-▇▇▇-▇▇▇ of the Colorado Business Corporation Act.
IN
WITNESS WHEREOF, the
Corporation has caused this Designation to be executed this ______ day
of April,
2006.
| STELLAR TECHNOLOGIES, INC. | ||
| |
|
|
| By: | ||
|
Name:
▇▇▇▇ ▇▇▇▇▇▇▇
Title:
President
|
||
7
Exhibit
B
WARRANT
NO.: 2006 UNIT- [_________]
FORM
OF WARRANT TO PURCHASE COMMON STOCK
OF
STELLAR TECHNOLOGIES, INC.
THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT
OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES
REPRESENTED HEREBY HAVE BEEN TAKEN BY THE REGISTERED OWNER FOR INVESTMENT,
AND
WITHOUT A VIEW TO RESALE OR DISTRIBUTION THEREOF, AND MAY NOT BE SOLD,
TRANSFERRED OR DISPOSED OF WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO
THE
ISSUER THAT SUCH TRANSFER OR DISPOSITION DOES NOT VIOLATE THE SECURITIES
ACT OF
1933, AS AMENDED, THE RULES AND REGULATIONS THEREUNDER OR OTHER APPLICABLE
SECURITIES LAWS.
This
WARRANT (“Warrant”) is to verify that, FOR VALUE RECEIVED, [_____________________________]
(“Holder”)
is entitled to purchase, subject to the terms and conditions hereof, from
STELLAR TECHNOLOGIES, INC., a Colorado corporation (the “Company”),
[_____________]
shares of common stock, $.001 par value per share, of the Company (the “Common
Stock”), at any time during the period commencing at 9:00 a.m., Eastern
Standard Time on the date hereof (the “Commencement Date”) and
ending at 5:00 p.m. Eastern Standard Time on the third (3rd)
anniversary of the Commencement Date (the “Termination Date”),
at an exercise price (the “Exercise Price”) of $.40 per share
of Common Stock. The number of shares of Common Stock purchasable upon exercise
of this Warrant and the Exercise Price per share shall be subject to adjustment
from time to time upon the occurrence of certain events as set forth below.
The
shares of Common Stock or any other shares or other units of stock or other
securities or property, or any combination thereof, then receivable upon
exercise of this Warrant, as adjusted from time to time, are sometimes referred
to hereinafter as “Exercise Shares.” The exercise price per share as from time
to time in effect is referred to hereinafter as the “Exercise
Price.”
1. Exercise
of Warrant; Issuance of Exercise Shares.
(a) Exercise
of Warrant.
Subject
to the terms hereof, the purchase rights represented by this Warrant are
exercisable by the Holder in whole or in part, at any time, or from time
to
time, by the surrender of this Warrant and the Notice of Exercise annexed
hereto
duly completed and executed on behalf of the Holder, at the office of the
Company (or such other office or agency of the Company as it may designate
by
notice in writing to the Holder at the address of the Holder appearing on
the
books of the Company) accompanied by payment of the Exercise Price in full
either: (i) in cash or by bank or certified check for the Exercise Shares
with
respect to which this Warrant is exercised; (ii) by delivery to the Company
of
shares of the Company's Common Stock having a Fair Market Value (as defined
below) equal to the aggregate Exercise Price of the Exercise Shares being
purchased that Holder is the record and beneficial owner of and that have
been
held by the Holder for at least six (6) months; (iii) provided that the sale
of
the Exercise Shares are covered by an effective registration statement, by
delivering to the Company a Notice of Exercise together with an irrevocable
direction to a broker-dealer registered under the Securities Exchange Act
of
1934, as amended (the “Exchange Act”), to sell a sufficient portion of the
Exercise Shares and deliver the sales proceeds directly to the Company to
pay
the Exercise Price; or (iv) by any combination of the procedures set forth
in
subsections (i), (ii) and (iii) of this Section 1(a). For the purposes of
this
Section 1(a), “Fair Market Value” shall be an amount equal to the average of the
Current Market Value (as defined below) for the ten (10) days preceding the
Company’s receipt of the duly executed Notice of Exercise form attached hereto
as Appendix
A.
In
the
event that this Warrant shall be duly exercised in part prior to the Termination
Date, the Company shall issue a new Warrant or Warrants of like tenor evidencing
the rights of the Holder thereof to purchase the balance of the Exercise
Shares
purchasable under the Warrant so surrendered that shall not have been
purchased.
(b) Issuance
of Exercise Shares: Delivery of Warrant Certificate.
The
Company shall, within ten (10) business days or as soon thereafter as is
practicable of the exercise of this Warrant, issue in the name of and cause
to
be delivered to the Holder one or more certificates representing the Exercise
Shares to which the Holder shall be entitled upon such exercise under the
terms
hereof. Such certificate or certificates shall be deemed to have been issued
and
the Holder shall be deemed to have become the record holder of the Exercise
Shares as of the date of the due exercise of this Warrant.
(c) Exercise
Shares Fully Paid and Non-assessable.
The
Company agrees and covenants that all Exercise Shares issuable upon the due
exercise of the Warrant represented by this Warrant certificate (“Warrant
Certificate”) will, upon issuance and payment therefor in accordance with the
terms hereof, be duly authorized, validly issued, fully paid and non-assessable
and free and clear of all taxes (other than taxes which, pursuant to Section
2
hereof, the Company shall not be obligated to pay) or liens, charges, and
security interests created by the Company with respect to the issuance
thereof.
(d) Reservation
of Exercise Shares.
The
Company covenants that during the term that this Warrant is exercisable,
the
Company will reserve from its authorized and unissued Common Stock a sufficient
number of shares to provide for the issuance of the Exercise Shares upon
the
exercise of this Warrant, and from time to time will take all steps necessary
to
amend its certificate of incorporation to provide sufficient reserves of
shares
of Common Stock issuable upon the exercise of the Warrant.
(e) Fractional
Shares.
The
Company shall not be required to issue fractional shares of capital stock
upon
the exercise of this Warrant or to deliver Warrant Certificates that evidence
fractional shares of capital stock. In the event that any fraction of an
Exercise Share would, except for the provisions of this subsection (e), be
issuable upon the exercise of this Warrant, the Company shall pay to the
Holder
exercising the Warrant an amount in cash equal to such fraction multiplied
by
the Current Market Value of the Exercise Share on the last business day prior
to
the date on which this Warrant is exercised. For purposes of this subsection
(e), the “Current Market Value” for any day shall be determined as
follows:
2
(i) if
the
Exercise Shares are traded in the over-the-counter market and not on any
national securities exchange and not on the NASDAQ National Market System
or
NASDAQ Small Cap Market (together, the “NASDAQ Reporting System”), the average
of the mean between the last bid and asked prices per share, as reported
by the
National Quotation Bureau, Inc., or an equivalent generally accepted reporting
service, or if not so reported, the average of the closing bid and asked
prices
for an Exercise Share as furnished to the Company by any member of the National
Association of Securities Dealers, Inc., selected by the Company for that
purpose; or
(ii) if
the
Exercise Shares are listed or traded on a national securities exchange or
the
NASDAQ Reporting System, the closing price on the principal national securities
exchange on which they are so listed or traded, on the NASDAQ Reporting System,
as the case may be, on the last business day prior to the date of the exercise
of this Warrant. The closing price referred to in this clause (ii) shall
be the
last reported sales price or, in case no such reported sale takes place on
such
day, the average of the reported closing bid and asked prices, in either
case on
the national securities exchange on which the Exercise Shares are then listed
or
in the NASDAQ Reporting System; or
(iii) if
no
such closing price or closing bid and asked prices are available, as determined
in any reasonable manner as may be prescribed by the Board of Directors of
the
Company.
2. Payment
of Taxes.
(a) Stamp
Taxes.
The
Company will pay all documentary stamp taxes, if any, attributable to the
initial issuance of Exercise Shares upon the exercise of this Warrant; provided,
however, that the Company shall not be required to pay any tax or taxes which
may be payable in respect of any transfer involved in the issue of any Warrant
Certificates or any certificates for Exercise Shares in a name other than
that
of the Holder of a Warrant Certificate surrendered upon the exercise of a
Warrant, and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been
paid.
(b) Withholding.
The
Holder shall pay to the Company, or make arrangements satisfactory to the
Company regarding payment of, any federal, state, local and/or payroll taxes
of
any kind required by law to be withheld with respect to the grant of this
Warrant or the issuance of the Exercise Shares. The Company may, to the extent
permitted by law, deduct any such taxes from any payment of any kind otherwise
due to the Holder whether or not pursuant to this Warrant. The Holder may
elect,
with the consent of the Company, to have such tax withholding obligation
satisfied, in whole or in part, by: (i) authorizing the Company to withhold
from
the Exercise Shares a number of shares of Common Stock having an aggregate
Fair
Market Value that would satisfy the minimum withholding amount due, or (ii)
delivering to the Company a number of shares of Common Stock of which the
Holder
is the record and beneficial owner and that have been held by the Holder
for at
least six (6) months with an aggregate Fair Market Value that would satisfy
the
minimum withholding amount due. The Company may require that any fractional
share amount be settled in cash. For the purposes of this Section 2, Fair
Market
Value shall be determined as of the date on which the amount of tax to be
withheld is determined.
3
3. Mutilated
or Missing Warrant Certificates.
In case
any Warrant shall be mutilated, lost, stolen or destroyed, the Company may
in
its discretion issue, in exchange and substitution for and upon cancellation
of
the mutilated Warrant, or in lieu of and in substitution for the Warrant
lost,
stolen or destroyed, a new Warrant or Warrants of like tenor and in the same
aggregate denomination, but only (i) in the case of loss, theft or destruction,
upon receipt of evidence satisfactory to the Company of such loss, theft
or
destruction of such Warrant and indemnity or bond, if requested, also
satisfactory to them and (ii) in the case of mutilation, upon surrender of
the
mutilated Warrant. Applicants for such substitute Warrants shall also comply
with such other reasonable regulations and pay such other reasonable charges
as
the Company or its counsel may prescribe.
4. Rights
of Holder.
The
Holder shall not, by virtue of anything contained in this Warrant or otherwise,
be entitled to any right whatsoever, either in law or equity, of a stockholder
of the Company, including without limitation, the right to receive dividends
or
to vote or to consent or to receive notice as a shareholder in respect of
the
meetings of shareholders or the election of directors of the Company or any
other matter.
5. Registration
of Transfers and Exchanges.
The
Warrant shall be transferable, subject to the provisions of Section 7 hereof,
only upon the books of the Company, if any, to be maintained by it for that
purpose, upon surrender of the Warrant Certificate to the Company at its
principal office accompanied (if so required by the Company) by a written
instrument or instruments of transfer in form satisfactory to the Company
and
duly executed by the Holder thereof or by the duly appointed legal
representative thereof or by a duly authorized attorney and upon payment
of any
necessary transfer tax or other governmental charge imposed upon such transfer.
In all cases of transfer by an attorney, the original letter of attorney,
duly
approved, or an official copy thereof, duly certified, shall be deposited
and
remain with the Company. In case of transfer by executors, administrators,
guardians or other legal representatives, duly authenticated evidence of
their
authority shall be produced, and may be required to be deposited and remain
with
the Company in its discretion. Upon any such registration of transfer, a
new
Warrant shall be issued to the transferee named in such instrument of transfer,
and the surrendered Warrant shall be canceled by the Company.
Any
Warrant may be exchanged, at the option of the Holder thereof and without
change, when surrendered to the Company at its principal office, or at the
office of its transfer agent, if any, for another Warrant or other Warrants
of
like tenor and representing in the aggregate the right to purchase from the
Company a like number and kind of Exercise Shares as the Warrant surrendered
for
exchange or transfer, and the Warrant so surrendered shall be canceled by
the
Company or transfer agent, as the case may be.
6. Adjustment
of Exercise Shares and Exercise Price.
The
Exercise Price and the number and kind of Exercise Shares purchasable upon
the
exercise of this Warrant shall be subject to adjustment from time to time
upon
the happening of certain events as hereinafter provided. The Exercise Price
in
effect at any time and the number and kind of securities purchasable upon
exercise of each Warrant shall be subject to adjustment as
follows:
4
(a) In
case of any consolidation or merger of the Company with another corporation
(other than a merger with another corporation in which the Company is the
surviving corporation and which does not result in any reclassification or
change — other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision
or combination — of outstanding Common Stock issuable upon such exercise),
the rights of the Holder of this Warrant shall be adjusted in the manner described
below:
(i) In
the
event that the Company is the surviving corporation or is merged into a wholly
owned subsidiary for the purpose of incorporating the Company in a different
jurisdiction, this Warrant shall, without payment of additional consideration
therefor, be deemed modified so as to provide that the Holder of this Warrant,
upon the exercise thereof, shall procure, in lieu of each share of Common
Stock
theretofore issuable upon such exercise, the kind and amount of shares of
stock,
other securities, money and property receivable upon such reclassification,
change, consolidation or merger by the holder of each share of Common Stock,
had
exercise of this Warrant occurred immediately prior to such reclassification,
change, consolidation or merger. This Warrant (as adjusted) shall be deemed
to
provide for further adjustments that shall be as nearly equivalent as may
be
practicable to the adjustments provided for in this Section 6. The provisions
of
this clause (i) shall similarly apply to successive reclassifications, changes,
consolidations and mergers.
(ii) In
the
event that the Company is not the surviving corporation (except in the case
of a
merger of the Company into a wholly owned subsidiary for the purpose of
incorporating the Company in a different jurisdiction), Holder shall be given
at
least fifteen (15) days prior written notice of such transaction and shall
be
permitted to exercise this Warrant, to the extent it is exercisable as of
the
date of such notice, during this fifteen (15) day period. Upon expiration
of
such fifteen (15) day period, this Warrant and all of Holder's rights hereunder
shall terminate.
(b)
If
the Company, at any time while this Warrant, or any portion thereof, remains
outstanding and unexpired, by reclassification of securities or otherwise,
shall
change any of the securities as to which purchase rights under this Warrant
exist into the same or a different number of securities of any other class
or
classes, this Warrant shall thereafter represent the right to acquire such
number and kind of securities as would have been issuable as the result of
such
change with respect to the securities that were subject to the purchase rights
under this Warrant immediately prior to such reclassification or other change
and the Exercise Price therefor shall be appropriately adjusted, all subject
to
further adjustment as provided in this Section 6.
(c) In
case
the Company shall (i) pay a dividend or make a distribution on its shares
of
Common Stock in shares of Common Stock, (ii) subdivide or classify its
outstanding Common Stock into a greater number of shares, or (iii) combine
or
reclassify its outstanding Common Stock into a smaller number of shares,
the
Exercise Price in effect at the time of the record date for such dividend
or
distribution or of the effective date of such subdivision, combination or
reclassification, shall be proportionally adjusted so that the Holder of
this
Warrant exercised after such date shall be entitled to receive the aggregate
number and kind of shares that, if this Warrant had been exercised by such
Holder immediately prior to such date, he would have owned upon such exercise
and been entitled to receive upon such dividend, subdivision, combination
or
reclassification. For example, if the Company declares a 2 for 1 stock dividend
or stock split and the Exercise Price immediately prior to such event was
$2.00
per share, the adjusted Exercise Price immediately after such event would
be
$1.00 per share. Such adjustment shall be made successively whenever any
event
listed above shall occur. Whenever the Exercise Price payable upon exercise
of
each Warrant is adjusted pursuant to this subsection (c), the number of Exercise
Shares purchasable upon exercise of this Warrant shall simultaneously be
adjusted by multiplying the number of Exercise Shares initially issuable
upon
exercise of this Warrant by the Exercise Price in effect on the date hereof
and
dividing the product so obtained by the Exercise Price, as adjusted.
5
(d) In
the
event that at any time, as a result of an adjustment made pursuant to subsection
(a), (b) or (c) above, the Holder of this Warrant thereafter shall become
entitled to receive any Exercise Shares of the Company, other than Common
Stock,
thereafter the number of such other shares so receivable upon exercise of
this
Warrant shall be subject to adjustment from time to time in a manner and
on
terms as nearly equivalent as practicable to the provisions with respect
to the
Common Stock contained in subsections (a), (b) or (c) above.
(e) Irrespective
of any adjustments in the Exercise Price or the number or kind of Exercise
Shares purchasable upon exercise of this Warrant, Warrants theretofore or
thereafter issued may continue to express the same price and number and kind
of
shares as are stated in the similar Warrants initially issuable pursuant
to this
Warrant.
(f)
Whenever
the Exercise Price shall be adjusted as required by the provisions of the
foregoing Section 6, the Company shall forthwith file in the custody of its
Secretary or an Assistant Secretary at its principal office and with its
stock
transfer agent, if any, an officer's certificate showing the adjusted Exercise
Price determined as herein provided, setting forth in reasonable detail the
facts requiring such adjustment, including a statement of the number of
additional shares of Common Stock, if any, and such other facts as shall
be
necessary to show the reason for and the manner of computing such adjustment.
Each such officer's certificate shall be made available at all reasonable
times
for inspection by the holder and the Company shall, forthwith after each
such
adjustment, mail a copy by certified mail of such certificate to the
Holder.
(g) All
calculations under this Section 6 shall be made to the nearest cent or to
the
nearest one one-hundredth (1/100th) of a share, as the case may be.
7. Investment
Intent, Exercise Restrictions and Transfer Restrictions.
(a) Neither
this Warrant nor any Exercise Share may be offered for sale or sold, or
otherwise transferred or sold in any transaction which would constitute a
sale
thereof within the meaning of the Securities Act of 1933, as amended (the
"1933
Act"), unless (i) such security has been registered for sale under the 1933
Act
and registered or qualified under applicable state securities laws relating
to
the offer and sale of securities, or (ii) exemptions from the registration
requirements of the 1933 Act and the registration or qualification requirements
of all such state securities laws are available and the Company shall have
received an opinion of counsel satisfactory to the Company that the proposed
sale or other disposition of such securities may be effected without
registration under the 1933 Act and would not result in any violation of
any
applicable state securities laws relating to the registration or qualification
of securities for sale, such counsel and such opinion to be satisfactory
to the
Company.
6
The
Holder agrees to indemnify and hold harmless the Company against any loss,
damage, claim or liability arising from the disposition of this Warrant or
any
Exercise Share held by such holder or any interest therein in violation of
the
provisions of this Section 7.
(b) The
certificates evidencing any Exercise Shares issued upon the exercise of this
Warrant shall have endorsed thereon (except to the extent that the restrictions
described in any such legend are no longer applicable) the following legend,
appropriate notations thereof will be made in the Company's stock transfer
books, and
stop
transfer instructions reflecting these restrictions on transfer will be placed
with the transfer agent of the Exercise Shares.
THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT
OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES
REPRESENTED HEREBY HAVE BEEN TAKEN BY THE REGISTERED OWNER FOR INVESTMENT,
AND
WITHOUT A VIEW TO RESALE OR DISTRIBUTION THEREOF, AND MAY NOT BE SOLD,
TRANSFERRED OR DISPOSED OF WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO
THE
ISSUER THAT SUCH TRANSFER OR DISPOSITION DOES NOT VIOLATE THE SECURITIES
ACT OF
1933, AS AMENDED, THE RULES AND REGULATIONS THEREUNDER OR OTHER APPLICABLE
SECURITIES LAWS.
8. Indemnification.
Holder
agrees to indemnify, defend and hold harmless the Company and its respective
affiliates and agents from and against any and all demands, claims, actions
or
causes of action, judgments, assessments, losses, liabilities, damages or
penalties and reasonable attorneys' fees and related disbursements incurred
by
the Company that arise out of or result from a breach of any representations,
warranties, covenants or agreements made by Holder herein, and Holder agrees
that in the event of any breach of any representations, warranties, covenants
or
agreements made by Holder herein, the Company may, at its option, forthwith
rescind the issuance of this Warrant to Holder.
9. Registration
Rights.
The
Holder shall be entitled to the rights and subject to the obligations set
forth
in Section 6 of that certain Securities Purchase Agreement dated on or about
the
date hereof
by and
between the Company and the Holder.
10. Notices.
All
notices or other communications under this Warrant shall be in writing and
shall
be deemed to have been given on the day of delivery if delivered by hand,
on the
fifth day after deposit in the mail if mailed by certified mail, postage
prepaid, return receipt requested, or on the next business day after mailing
if
sent by a nationally recognized overnight courier such as federal express,
addressed as follows:
7
If
to
the Company:
Stellar
Technologies, Inc.
▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇
▇▇▇
▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Attention:
Chief Executive Officer
with
a
copy to:
Fox
Rothschild LLP
▇▇▇
▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇
▇▇▇▇▇▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Attention:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esquire
and
to
the Holder at the address of the Holder appearing on the books of the Company
or
the Company's transfer agent, if any.
Either
of
the Company or the Holder may from time to time change the address to which
notices to it are to be mailed hereunder by notice in accordance with the
provisions of this Section 10.
11. Supplements
and Amendments.
The
Company may from time to time supplement or amend this Warrant without the
approval of any holders of Warrants in order to cure any ambiguity or to
correct
or supplement any provision contained herein which may be defective or
inconsistent with any other provision, or to make any other provisions in
regard
to matters or questions herein arising hereunder which the Company may deem
necessary or desirable and which shall not materially adversely affect the
interests of the Holder.
12. Successors
and Assigns.
This
Warrant shall inure to the benefit of and be binding on the respective
successors, assigns and legal representatives of the Holder and the
Company.
13. Severability.
If for
any reason any provision, paragraph or terms of this Warrant is held to be
invalid or unenforceable, all other valid provisions herein shall remain
in full
force and effect and all terms, provisions and paragraphs of this Warrant
shall
be deemed to be severable.
14. Governing
Law.
This
Agreement shall be governed by and construed in accordance with the laws
of the
State of Florida, without regard to the laws that might otherwise govern
under
applicable principles of conflicts of laws thereof, except to the extent
that
the General Corporation Law of the State of Colorado shall apply to the internal
corporate governance of the Company.
8
15. Headings.
Section
and subsection headings used herein are included herein for convenience of
reference only and shall not affect the construction of this Warrant nor
constitute a part of this Warrant for any other purpose.
IN
WITNESS WHEREOF, the Company has caused these presents to be duly executed
as of
the ___ day of ______________, 2006.
| STELLAR TECHNOLOGIES, INC. | ||
| |
|
|
| By: | ||
|
Name:
Title:
|
||
9
APPENDIX
A
NOTICE
OF EXERCISE
| To: |
Stellar
Technologies, Inc.
|
▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇
▇▇▇
▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Attention:
Chief Executive Officer
(1) The
undersigned hereby elects to purchase ____________ shares of Common Stock
of
Stellar Technologies, Inc., a Colorado corporation, pursuant to the terms
of the
attached Warrant, and tenders herewith payment of the Exercise Price for
such
shares in full in accordance with the terms of the Warrant in the following
manner (please check one or more of the following choices):
 |
In
cash;
|
|
Cashless
exercise through a broker; or
|
|
Delivery
of previously owned shares of Common
Stock.
|
(2) In
exercising this Warrant, the undersigned hereby confirms and acknowledges
that
the shares of Common Stock to be issued upon conversion hereof are being
acquired solely for the account of the undersigned, not as a nominee for
any
other party, and for investment purposes only (unless such shares are subject
to
resale pursuant to an effective prospectus), and that the undersigned will
not
offer, sell or otherwise dispose of any such shares of Common Stock except
under
circumstances that will not result in a violation of the Securities Act of
1933,
as amended, or any state securities laws.
(3) Terms
not
otherwise defined in this Notice of Exercise shall have the meanings ascribed
to
such terms in the attached Warrant
(4) Please
issue a certificate or certificates representing said shares of Common Stock
in
the name of the undersigned.
| HOLDER | ||
|
(Date)
|
(Signature)
|