EXHIBIT 10.1
COMMON STOCK AND WARRANT PURCHASE AGREEMENT
THIS COMMON STOCK AND WARRANT PURCHASE AGREEMENT is made as of
September 21, 2005, by and among PowerHouse Technologies Group, Inc. (the
"COMPANY"), a corporation organized under the laws of the State of Delaware,
with its principal offices at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇,
and the purchaser whose name and address is set forth on the signature page
hereof (the "PURCHASER").
IN CONSIDERATION of the mutual covenants contained in this
Agreement, the Company and the Purchaser agree as follows:
SECTION 1. Authorization of Sale of the Shares and Warrants. Subject
to the terms and conditions of this Agreement, the Company has authorized (i)
the sale of up to 23,033,463 shares (the "SHARES") of common stock, par value
$0.0001 per share (the "COMMON STOCK"), of the Company, (ii) the issuance of
warrants in substantially the form attached hereto as Exhibit A to purchase up
to 6,293,799 shares of Common Stock (the "A WARRANTS") and (iii) the issuance of
warrants in substantially the form attached hereto as Exhibit B to purchase up
to 6,293,799 shares of Common Stock (the "B WARRANTS", and together with the A
Warrants, the "WARRANTS", which together with the Shares are the "SECURITIES").
The shares issuable upon exercise of the Warrants are the "WARRANT SHARES".
SECTION 2. Agreement to Sell and Purchase the Shares and Warrants.
At the Closing (as defined herein), the Company will sell to the Purchaser, and
the Purchaser will buy from the Company, upon the terms and conditions
hereinafter set forth, the number of Shares at the purchase price set forth
below (the "PURCHASE PRICE") and Warrants shown below:
Number of Shares to Price Per Share Aggregate
Purchaser Be Purchased In Dollars Price A Warrants B Warrants
------------------------------------------ ------------------- --------------- ----------- ---------- ----------
▇▇▇▇ Diversified Investment, INC 1,189,381.00 $0.32 $380,601.92 328,831 328,831
SRB Greenway Capital 90,625.00 $0.32 $ 29,000.00 22,656 22,656
SRB Greenway Offshore Operating Fund, L.P. 58,750.00 $0.32 $ 18,800.00 14,688 14,688
SRB Greenway Capital (QP), L.P. 631,875.00 $0.32 $202,200.00 157,969 157,969
Cap Partners 1,562,500.00 $0.32 $500,000.00 390,625 390,625
Nite Capital L.P 312,500.00 $0.32 $100,000.00 78,125 78,125
▇▇▇▇ ▇▇▇▇ 408,131.00 $0.32 $130,601.92 133,519 133,519
▇▇▇▇▇▇▇▇▇ ▇▇▇▇ 156,250.00 $0.32 $ 50,000.00 39,063 39,063
▇▇▇▇▇▇ ▇▇▇▇ ACF CUST ▇▇▇▇ ▇▇▇▇ UGMA NY 78,125.00 $0.32 $ 25,000.00 19,531 19,531
▇▇▇▇▇▇ ▇▇▇▇ ACF CUST 78,125.00 $0.32 $ 25,000.00 19,531 19,531
▇
▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇
Iroquois Master Fund Ltd 781,250.00 $0.32 $250,000.00 195,313 195,313
▇▇▇▇ ▇▇▇▇▇▇ 156,250.00 $0.32 $ 50,000.00 39,063 39,063
Cordillera Fund 1,033,131.00 $0.32 $330,601.92 289,769 289,769
▇▇▇▇▇▇▇▇▇▇▇▇ Qualified Associates, LP 1,562,500.00 $0.32 $500,000.00 390,625 390,625
Little Wing LP 1,561,256.00 $0.32 $499,601.92 421,800 421,800
Tradewinds 253,125.00 $0.32 $ 81,000.00 63,281 63,281
SF Capital Partners 1,562,500.00 $0.32 $500,000.00 390,625 390,625
Governing Dynamics Investment Trust 2,187,500.00 $0.32 $700,000.00 546,875 546,875
Software Seed Capital Partners, IV, L.P 3,073,789.00 $0.32 $983,612.48 957,358 957,358
LBI Group, INC 1,562,500.00 $0.32 $500,000.00 390,625 390,625
LH Financial 350,000.00 $0.32 $112,000.00 87,500 87,500
The Company and Purchaser mutually agree, in the event that
Purchaser converts a Company Secured Convertible Promissory Note dated June 9,
2005 (the "NOTE") as payment for all, or a portion of, the Purchase Price for
Purchaser's Securities, such portion of the Purchase Price shall be reduced to
75% of the amount set forth above (i.e. $0.24). Further, such Note holder shall
complete the Note Conversion Election attached hereto as Exhibit C.
The Company proposes to enter into this same form of purchase
agreement with certain other investors (the "OTHER PURCHASERS") and expects to
complete sales of the Securities to them. The Purchaser and the Other Purchasers
are hereinafter sometimes collectively referred to as the "PURCHASERS," and this
Agreement and the agreements executed by the Other Purchasers are hereinafter
sometimes collectively referred to as the "AGREEMENTS." The term "PLACEMENT
AGENT" shall mean ▇.▇. ▇▇▇▇▇▇▇▇▇ Towbin, LLC.
SECTION 3. Closing and Delivery of the Securities.
3.1 Closing. As soon as practicable after the execution of the
Agreements by the Company and the Purchasers and upon satisfaction of all
closing conditions set forth in Section 3.3, including, without limitation, the
Minimum Amount (as defined below), the initial purchase and sale of the
Securities (the "CLOSING") shall occur at the offices of Cadwalader, ▇▇▇▇▇▇▇▇▇▇
& ▇▇▇▇ LLP ("COMPANY COUNSEL") at the time and date (the "CLOSING DATE") as
shall be agreed upon by the Company and the Placement Agent.
3.2 Delivery of the Shares. At the Closing, the Company shall
deliver to the Purchaser (i) one or more stock certificates registered in the
name of the Purchaser, or in such nominee name(s) as designated by the Purchaser
in writing (under circumstances which such nominee would not be considered an
"underwriter" for purposes of the Securities Act of 1933, as
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amended (the "SECURITIES ACT")), representing the number of Shares set forth in
Section 2 above and bearing the legend specified in Section 5.7 hereof referring
to the fact that the Shares were sold in reliance upon the exemption from
registration under the Securities Act provided by Section 4(2) thereof and Rule
506 of Regulation D thereunder and (ii) Warrants exercisable for that number of
Warrant Shares set forth in Section 2 (subject to adjustment as set forth in
such Warrants). The name(s) in which the stock certificates and Warrants are to
be registered are set forth in the Questionnaire attached hereto as Exhibit D.
Upon the written request of Purchaser and surrender of the Shares or Warrant
Shares, as the case may be, the Company will, as promptly as reasonably
practicable, but in no event later then five Business Days (as defined herein)
following receipt of such written notice and certificate(s), substitute one or
more replacement certificates without the legend following such time as the
Registration Statement becomes effective. In the event that the Company breaches
its obligations under this Section 3.2, the Company agrees to pay Purchaser 3%
of the Purchase Price paid for such Shares or Warrant Shares, as the case may
be, for each 30 Business Day period until the Company cures its breach of this
section. This 3% payment will be in addition to any other remedies Purchaser may
have against the Company for breach of this Agreement and paid to the Purchaser
within ten Business Days following the end of each 30 Business Day period as to
which payment is due hereunder. "BUSINESS DAY" means any day except Saturday,
Sunday and any day which shall be a federal legal holiday or a day on which
banking institutions in the State of New York are authorized or required by law
or other governmental action to close.
3.3 Conditions to Closing.
(a) The Company's obligation to complete the purchase and sale of
the Securities and deliver such stock certificate(s) to the Purchaser at the
Closing shall be subject to the following conditions, any one or more of which
may be waived by the Company: (i) receipt of this Agreement (including all
information to be provided by the Purchaser on the signature page hereto) duly
executed by Purchaser; (ii) receipt of the Registration Rights Agreement in the
form attached as Exhibit E (the "REGISTRATION RIGHTS AGREEMENT", together with
the Agreement, the "TRANSACTION DOCUMENTS") duly executed by Purchaser; (iii)
receipt by the Placement Agent, to be held in escrow on behalf of the Company
pending the Closing, of same-day funds, or the Note for surrender, or a
combination thereof, in the full amount of the Purchase Price for the Securities
being purchased hereunder; (iv) the completion of the purchase and sale of at
least an aggregate of 16,783,463 Shares (the "MINIMUM AMOUNT") under this form
of Agreement with all Purchasers; (v) the accuracy in all material respects of
the representations and warranties made by the Purchaser and the fulfillment of
those undertakings of the Purchaser to be fulfilled prior to the Closing; (vi)
receipt by the Company of a completed version of Exhibit C (if Purchaser
surrenders a Note as payment, or partial payment, of the Purchase Price),
Exhibit D, Exhibit F and Exhibit G attached hereto, (vii) all holders of Senior
Preferred (as defined herein) shall have agreed to convert all outstanding
shares of Senior Preferred into Common Stock at a rate of 5.3684 shares of
Common Stock for each share of Senior Preferred so converted, and such
conversion takes place prior to or concurrently with the Closing (the "SENIOR
CONVERSION") and, to the extent necessary, the Company's Certificate of
Incorporation (including that certain Certificate of Designations, Preferences
and Rights of Series A Senior Convertible Preferred Stock dated as of May 21,
2004) shall have been amended as required to effect the Senior Conversion,
(viii) all necessary actions shall have been taken such that the Series A Senior
Preferred Equity Security Agreement dated as of April 23, 2004 shall have been
terminated and
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any and all liens on the intellectual property and assets of the Company and the
Company rights under management employment contracts of the Company shall be
terminated effective as of the Closing, including the execution and delivery of
Uniform Commercial Code termination statements to evidence such termination, to
the extent necessary, (ix) to the extent that all of the Company's outstanding
Notes are not converted into Securities at the Closing, such outstanding Notes
(principle and accrued interest) shall be repaid by the Company concurrently
with the Closing, (x) all of the Company's outstanding Series A Warrants shall
have been exchanged for an aggregate of 700,000 Common Stock Warrants with a
$0.40 per share exercise price, subject to adjustment (the "WARRANT CONVERSION")
and (xi) the Company shall have reserved an aggregate of 9,025,800 shares of
Common Stock for issuance to employees, directors and consultants pursuant to
the Company's 2004 Omnibus Stock Incentive Plan (the "PLAN"), duly adopted by
the Board of Directors and, to the extent necessary, approved by the
stockholders of the Company.
(b) The Purchaser's obligation to accept delivery of such stock
certificate(s), Warrants and to pay for the Securities evidenced thereby shall
be subject to the following conditions: (i) receipt of this Agreement duly
executed by the Company; (ii) receipt of the Registration Rights Agreement duly
executed by the Company; (iii) the accuracy in all material respects of the
representations and warranties made by the Company herein and the fulfillment in
all material respects of those undertakings of the Company to be fulfilled prior
to the Closing, (iv) the completion of the purchase and sale of at least the
Minimum Amount under the Agreements with all Purchasers; (v) the Senior
Conversion shall have occurred, (vi) all necessary actions shall have been taken
such that the Series A Senior Preferred Equity Security Agreement dated as of
April 23, 2004 shall have been terminated and the senior lien on the
intellectual property of the Company and the Company rights under management
employment contracts of the Company shall be terminated effective as of the
Closing, including the execution and delivery of Uniform Commercial Code
termination statements to evidence such termination, to the extent necessary,
(vii) to the extent that all of the Company's outstanding Notes are not
converted into Securities at the Closing, such outstanding Notes (principle and
accrued interest) shall be repaid by the Company concurrently with the Closing,
(viii) the Warrant Conversion shall have occurred, (ix) the Company shall have
reserved an aggregate of 9,025,800 shares of Common Stock for issuance to
employees, directors and consultants pursuant to the Plan, duly adopted by the
Board of Directors and, to the extent necessary, approved by the stockholders of
the Company and (x) the Company shall have delivered to the Purchasers a
certificate executed by the Chairman of the Board and the Chief Executive
Officer of the Company pursuant to Section 4.21 hereof.
SECTION 4. Representations, Warranties and Covenants of the Company.
Except as otherwise described in the Company's periodic reports on Forms 10-QSB
and 10-KSB and in the Company's current reports on Form 8-K as filed by the
Company with the Securities and Exchange Commission (the "SEC") since March 31,
2005 (the "SEC DOCUMENTS" and collectively, including the documents incorporated
by reference therein, the "COMPANY INFORMATION"), and, with respect to Section
4.2(c), 4.2(d) and 4.10 only, except as described in the Company's Disclosure
Schedule, which qualify the following representations and warranties in their
entirety, the Company, and its Subsidiaries as applicable, hereby represents and
warrants to, and covenants with, the Purchaser, as follows:
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4.1 Organization and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and the Company is qualified to do business as a
foreign corporation in each jurisdiction in which qualification is required,
except where failure to so qualify would not have a Material Adverse Effect (as
defined herein) on the Company. All of the subsidiaries of the Company are
listed on Exhibit 21 (the "SUBSIDIARIES") to the Company's Annual Report on Form
10-KSB for the year ended March 31, 2005 (the "FORM 10-KSB") along with the
Company's percentage ownership of each subsidiary and each subsidiary's
jurisdiction of incorporation. Each Subsidiary is duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and is qualified to do business as a foreign corporation in each
jurisdiction in which qualification is required, except where failure to so
qualify would not have a Material Adverse Effect.
4.2 Authorized Capital Stock. The capitalization of the Company
immediately prior to the Closing is as set forth below:
(a) Preferred Stock. Five million (5,000,000) shares of Preferred
Stock, par value $0.0001 (the "Preferred Stock"), four million (4,000,000) of
which have been designated Series A Senior Convertible Preferred Stock (the
"Senior Preferred"), three million eight hundred forty-nine thousand four
hundred thirty-one (3,842,431) of which are issued and outstanding which shall
convert into an aggregate of twenty million six hundred twenty-seven thousand
seven hundred eighty-eight (20,627,788) shares of Common Stock in connection
with the Closing, and one million (1,000,000) shares of which have been
designated Series A Junior Preferred (the "Junior Preferred"), seven hundred
ninety-five thousand, two hundred fifty (795,250) of which are issued and
outstanding. The rights, privileges and preferences of the Senior Preferred and
Junior Preferred are as stated in the Company's Certificate of Incorporation.
(b) Common Stock. Seventy-five million (75,000,000) shares of Common
Stock, of which four million two hundred fifty-eight thousand four hundred ten
(4,258,410) shares are issued and outstanding immediately prior to the Closing.
(c) The Company has reserved twenty one million four hundred
twenty-three thousand thirty-eight (21,423,038) shares of Common Stock for
issuance upon conversion of the Senior Preferred and Junior Preferred. Except
for (i) the conversion privileges of the Senior Preferred and Junior Preferred,
(ii) warrants to purchase nine million seven hundred twenty-six thousand seven
hundred seventy (9,726,770) shares of Common Stock, and (iii) shares of Common
Stock reserved for issuance pursuant to the Plan, there are not outstanding any
options, warrants, rights (including conversion or preemptive rights and rights
of first refusal), or agreements for the purchase or acquisition from the
Company of any shares of its capital stock. The Company has reserved an
aggregate of nine million twenty-five thousand eight hundred (9,025,800) shares
of its Common Stock for issuance to employees, directors and consultants of the
Company pursuant to the Plan. Of such reserve, there are no shares of Common
Stock issued and outstanding as a result of exercises of options granted under
the Plan, outstanding options to purchase an additional five hundred forty seven
thousand five hundred (547,500) shares of Common Stock under the Plan, and eight
million four hundred seventy-eight thousand three hundred (8,478,300) shares of
Common Stock available for future grant under the Plan. The Company is not a
party or subject to any agreement or understanding, and, to the best of the
Company's knowledge, there is no agreement or understanding between any persons
that affects
5
or relates to the voting or giving of written consents with respect to any
security or the voting by a director of the Company. The Company has not
declared or paid any dividends or authorized or made any distribution upon or
with respect to any class or series of its capital stock.
(d) The issued and outstanding shares of the Company's Common Stock,
Senior Preferred and Junior Preferred have been duly authorized and validly
issued, are fully paid and nonassessable, have been issued in compliance with
all federal and state securities laws, were not issued in violation of or
subject to any preemptive rights or other rights to subscribe for or purchase
securities, and conform in all material respects to the description thereof
contained in the SEC Documents. Except as disclosed in or contemplated by the
SEC Documents, the Company does not have outstanding any options to purchase, or
any preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock. The description of the Company's
stock, stock bonus and other stock plans or arrangements and the options or
other rights granted and exercised thereunder, set forth in the SEC Documents,
accurately and fairly presents the information required to be shown with respect
to such plans, arrangements, options and rights. With respect to each
Subsidiary, (i) the Company owns 100% of the Subsidiary's capital stock, (ii)
all the issued and outstanding shares of the Subsidiary's capital stock have
been duly authorized and validly issued, are fully paid and nonassessable, have
been issued in compliance with applicable federal and state securities laws,
were not issued in violation of or subject to any preemptive rights or other
rights to subscribe for or purchase securities, and (iii) there are no
outstanding options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible into, or
any contracts or commitments to issue or sell, shares of the Subsidiary's
capital stock or any such options, rights, convertible securities or
obligations.
(e) Upon the purchase and sale of Securities to the Purchasers
acquiring such shares pursuant to this Agreement, the conversion of the Senior
Preferred to Section 3.2(b) at or prior to the Closing, all Purchasers will, in
the aggregate, have acquired 30.7% (assuming 16,783,463 Shares are sold, the
"Minimum Amount") excluding nine million four hundred fifty six thousand four
hundred thirteen (9,456,413) shares for issuance upon exercise of the Warrants
or 37.3% (assuming 23,025,217 Shares are sold the "Maximum Amount") excluding
twelve million five hundred eighty one thousand four hundred thirteen
(12,581,413) shares for issuance upon exercise of the Warrants of the fully
diluted outstanding Common Stock (the "Purchasers Ownership Percentage"),
assuming for purposes of this Section 4.2(e) the conversion of all securities
convertible at any time into shares of Common Stock and the exercise of all
options or warrants or other rights to purchase or receive shares of the Common
Stock (other than the Warrants). In the event that the aggregate Purchase Price
of Securities sold as of the Closing Date is greater than the Minimum Amount and
less than the Maximum Amount, the Purchasers Ownership Percentage shall be
pro-rated accordingly.
4.3 Issuance, Sale and Delivery of the Securities. The Shares and
Warrant Shares have been duly authorized and, when issued, delivered and paid
for in the manner set forth in this Agreement or the Warrants, as the case may
be, will be duly authorized, validly issued, fully paid and nonassessable. No
preemptive rights or other rights to subscribe for or purchase exist with
respect to the issuance and sale of the Shares and Warrant Shares by the Company
pursuant to this Agreement or the Warrants, as the case may be. No stockholder
of the Company has any
6
right (which has not been waived or has not expired by reason of lapse of time
following notification of the Company's intent to file the registration
statement to be filed by the Company pursuant to the Registration Rights
Agreement (the "REGISTRATION STATEMENT")) to require the Company to register the
sale of any shares owned by such stockholder under the Securities Act (a
"REGISTRATION OBLIGATION") in the Registration Statement and the Company does
not owe any fees or penalties with respect to any Registration Obligations. No
further approval or authority of the stockholders or the Board of Directors of
the Company will be required for the issuance and sale of the Securities to be
sold by the Company as contemplated herein.
4.4 Due Execution, Delivery and Performance of the Transaction
Documents. The Company has full legal right, corporate power and authority to
enter into the Transaction Documents and perform the transactions contemplated
hereby. The Transaction Documents have been duly authorized, executed and
delivered by the Company. The making and performance of the Transaction
Documents by the Company and the consummation of the transactions therein
contemplated will not violate any provision of the organizational documents of
the Company and will not result in the creation of any lien, charge, security
interest or encumbrance upon any assets of the Company pursuant to the terms or
provisions of, or will not conflict with, result in the breach or violation of,
or constitute, either by itself or upon notice or the passage of time or both, a
default under any agreement, mortgage, deed of trust, lease, franchise, license,
indenture, permit or other instrument to which the Company or any Subsidiary is
a party or by which the Company or its properties, or any Subsidiary or such
Subsidiary's properties, may be bound or affected and in each case which would
have a material adverse effect on the condition (financial or otherwise),
properties, business, prospects or results of operations of the Company in the
aggregate (a "MATERIAL ADVERSE EFFECT") or, to the Company's knowledge, any
statute or any authorization, judgment, decree, order, rule or regulation of any
court or any regulatory body, administrative agency or other governmental body
applicable to the Company or any Subsidiary or any of their respective
properties. No consent, approval, authorization or other order of any court,
regulatory body, administrative agency or other governmental body is required
for the execution and delivery of the Transaction Documents or the consummation
of the transactions contemplated therein, except for compliance with the Blue
Sky laws and federal securities laws applicable to the offering of the
Securities. Upon their execution and delivery, and assuming the valid execution
thereof by the respective Purchasers, the Transaction Documents will constitute
valid and binding obligations of the Company, enforceable in accordance with
their respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' and contracting parties' rights generally and except as
enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law)
and except as the indemnification agreements of the Company in the Registration
Rights Agreement may be legally unenforceable.
4.5 Accountants. Both BDO ▇▇▇▇▇▇▇, LLP and ▇▇▇▇ & Associates LLP
have expressed their respective opinions with respect to the consolidated
financial statements to be incorporated by reference from the Form 10-KSB into
the Registration Statement and the Prospectus which forms a part thereof, and
both BDO ▇▇▇▇▇▇▇, LLP and ▇▇▇▇ & Associates LLP are registered public accounting
firms as required by the Securities Act and the rules and regulations
promulgated thereunder (the "RULES AND REGULATIONS").
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4.6 No Defaults. Except as to defaults, violations and breaches
which individually or in the aggregate would not be material to the Company, the
Company is not in violation or default of any provision of its certificate of
incorporation or bylaws, or other organizational documents, or in breach of or
default with respect to any provision of any agreement, judgment, decree, order,
mortgage, deed of trust, lease, franchise, license, indenture, permit or other
instrument to which it is a party or by which it or any of its properties are
bound; and there does not exist any state of fact which, with notice or lapse of
time or both, would constitute an event of default on the part of the Company as
defined in such documents, except such defaults which individually or in the
aggregate would not be material to the Company.
4.7 Contracts. The contracts described in the SEC Documents as being
in effect that are material to the Company, are in full force and effect on the
date hereof; and the Company is not, nor to the Company's knowledge is any other
party, in breach of or default under any of such contracts which would have a
Material Adverse Effect.
4.8 No Actions. There are no legal or governmental actions, suits or
proceedings pending or, to the Company's knowledge, threatened to which the
Company or any Subsidiary is or may be a party or of which property owned or
leased by the Company or any Subsidiary is or may be the subject, or related to
environmental or discrimination matters, or instituted by the SEC, any markets
or exchanges on which the Common Stock has been, or is, listed or quoted for
trading, any state securities commission or other governmental or regulatory
agency, which actions, suits or proceedings, individually or in the aggregate,
might prevent or might reasonably be expected to materially and adversely affect
the transactions contemplated by the Transaction Documents or would, if
successfully resolved against the Company, result in a Material Adverse Effect;
and no labor disturbance by the employees of the Company or any Subsidiary
exists or, to the Company's knowledge, is imminent which might reasonably be
expected to have a Material Adverse Effect. Neither the Company nor any
Subsidiary is a party to or subject to the provisions of any material
injunction, judgment, decree or order of any court, regulatory body,
administrative agency or other governmental body.
4.9 Properties. Each of the Company and its Subsidiaries has good
and marketable title to all the properties and assets reflected as owned by it
in the consolidated financial statements included in the SEC Documents, subject
to no lien, mortgage, pledge, charge or encumbrance of any kind except (i)
those, if any, reflected in such consolidated financial statements (including
the notes thereto), or (ii) those which are not material in amount and do not
adversely affect the use made and proposed to be made of such property by the
Company. Such leased properties are held under valid and binding leases, with
such exceptions as are not materially significant in relation to its business.
The Company or a Subsidiary owns or leases all such properties as are necessary
to its operations as now conducted.
4.10 No Material Change. Since March 31, 2005 (i) neither the
Company nor any Subsidiary has incurred any material liabilities or obligations,
indirect, or contingent, or entered into any material verbal or written
agreement or other transaction which is not in the ordinary course of business
or which could reasonably be expected to result in a material reduction in the
future earnings of the Company; (ii) neither the Company nor any Subsidiary has
sustained any material loss or interference with its respective businesses or
properties from fire, flood, windstorm, accident or other calamity not covered
by insurance; (iii) the Company has not paid or declared any dividends or other
distributions with respect to its capital stock and
8
neither the Company nor any Subsidiary is in default in the payment of principal
or interest on any outstanding debt obligations; (iv) there has not been any
change in the capital stock of the Company other than the sale of the Securities
hereunder and shares or options issued pursuant to employee equity incentive
plans or purchase plans approved by the Company's Board of Directors, or
indebtedness material to the Company (other than in the ordinary course of
business); and (v) there has not been any change to the condition (financial or
otherwise), properties, business, prospects or results of operations of the
Company which would constitute a Material Adverse Effect.
4.11 Intellectual Property. The Company and its Subsidiaries
exclusively own or possess adequate and enforceable rights to use the
inventions, patent applications, patents, patent rights, trademarks (both
registered and unregistered), service marks, tradenames, copyrights, trade
secrets and know-how necessary for the conduct of the Company's and its
Subsidiaries' business as currently conducted and as the SEC Documents indicate
the Company and its Subsidiaries contemplate conducting (collectively, the
"INTELLECTUAL PROPERTY"), except where the failure to currently own or possess
such Intellectual Property would not have a Material Adverse Effect. Neither the
Company nor any of its Subsidiaries has received any notice of, or is aware of
any infringement of or conflict with asserted rights of others with respect to
any Intellectual Property which, singly or in the aggregate, if the subject of
an unfavorable decision, ruling or finding, could reasonably be expected to have
a Material Adverse Effect. To the Company's knowledge, none of the patent
rights, service marks, tradenames and copyrights owned or licensed by the
Company or any of its Subsidiaries are unenforceable or invalid. The Company is
the assignee of record of the Intellectual Property and the Intellectual
Property is free and clear of all mortgages, pledges, charges, liens, equities,
security interests, or other encumbrances or similar agreements. No current or
former employee or consultant of the Company owns any rights in or to any of the
Intellectual Property. The Company is not aware of any violation or infringement
by a third party of any of the Intellectual Property. The Company has taken
reasonable security measures to protect the secrecy, confidentiality and value
of all trade secrets used in the business of the Company (the "COMPANY TRADE
SECRETS"), including, without limitation, requiring all Company employees and
consultants and all other persons with access to Company Trade Secrets to
execute a binding confidentiality agreement and, to the Company's knowledge,
there has not been any breach by any party to such confidentiality agreements.
The Company has not directly or indirectly granted any rights, licenses or
interests in the source code of the Intellectual Property, and since the Company
developed the source code of the Intellectual Property, the Company has not,
other than to its employees and consultants, provided or disclosed the source
code of the Intellectual Property to any person or entity.
4.12 Compliance. The Company has not been advised, and has no reason
to believe, that it is not conducting its business in compliance with all
applicable laws, rules and regulations of the jurisdictions in which it is
conducting business, including, without limitation, all applicable local, state
and federal environmental laws and regulations; except where failure to be so in
compliance would not have a Material Adverse Effect.
4.13 Taxes. The Company has filed all necessary federal, state and
foreign income and franchise tax returns and has paid or accrued all taxes shown
as due thereon, and the
9
Company has no knowledge of a tax deficiency which has been or might be asserted
or threatened against it which could have a Material Adverse Effect.
4.14 Transfer Taxes. On the Closing Date, all stock transfer or
other taxes (other than income taxes) which are required to be paid in
connection with the sale and transfer of the Securities to be sold to the
Purchaser hereunder will be, or will have been, fully paid or provided for by
the Company and all laws imposing such taxes will be or will have been fully
complied with.
4.15 Investment Company. The Company is not an "investment company"
or an "affiliated person" of, or "promoter" or "principal underwriter" for an
investment company, within the meaning of the Investment Company Act of 1940, as
amended.
4.16 Offering Materials. The Company has not distributed and will
not distribute prior to the Closing Date any offering material in connection
with the offering and sale of the Securities. The Company has not in the past
nor will it hereafter take any action independent of the Placement Agent to
sell, offer for sale or solicit offers to buy any securities of the Company
which would bring the offer, issuance or sale of the Securities, as contemplated
by this Agreement, within the provisions of Section 5 of the Securities Act,
unless such offer, issuance or sale was or shall be within the exemptions of
Section 4 of the Securities Act.
4.17 Insurance. The Company maintains insurance of the types and in
the amounts that the Company reasonably believes is adequate for its business,
including, but not limited to, insurance covering all real and personal property
owned or leased by the Company against theft, damage, destruction, acts of
vandalism and all other risks customarily insured against by similarly situated
companies, all of which insurance is in full force and effect.
4.18 Corrupt Practices. Neither the Company nor, to the knowledge of
the Company, any agent or other person acting on behalf of the Company, have (i)
directly or indirectly, used any corporate funds for unlawful contributions,
gifts, entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns from corporate funds, (iii) failed to disclose fully any contribution
made by the Company or made by any person acting on its behalf and of which the
Company is aware in violation of law, or (iv) violated in any material respect
any provision of the Foreign Corrupt Practices Act of 1977, as amended.
4.19 Additional Information. The Company represents and warrants
that the information contained in the following documents, which the Placement
Agent has made available to the Purchaser through the SEC's website
(▇▇▇.▇▇▇.▇▇▇) prior to the date of the Closing, is or will be true and correct
in all material respects as of their respective filing dates:
(a) the Company's Annual Report on Form 10-KSB for the year ended
March 31, 2005;
(b) the Company's Quarterly Report on Form 10-QSB for the fiscal
quarter ended June 30, 2005;
10
(c) the Company's Current Reports on Form 8-K filed April 11, 2005,
June 3, 2005, June 14, 2005 and June 16, 2005; and
(d) all other documents, if any, filed by the Company with the SEC
since March 31, 2005 pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT").
4.20 Legal Opinion. Prior to the Closing, Cadwalader, ▇▇▇▇▇▇▇▇▇▇ &
▇▇▇▇ LLP, counsel to the Company, will deliver its legal opinion to the
Placement Agent, in form and substance reasonably satisfactory to the Placement
Agent and its counsel. The opinion shall also state that each of the Purchasers
may rely thereon as though it were addressed directly to such Purchaser.
4.21 Certificate. At the Closing, the Company will deliver to
Purchaser a certificate executed by the Chairman of the Board and Chief
Executive Officer of the Company, dated the Closing Date, in form and substance
reasonably satisfactory to the Purchasers, to the effect that the
representations and warranties of the Company set forth in this Section 4 are
true and correct in all material respects as of the date of this Agreement and
as of the Closing Date, and the Company has complied with all the agreements and
satisfied all the conditions herein on its part to be performed or satisfied on
or prior to such Closing Date.
4.22 Compliance and Listing. The Company's Common Stock is
registered pursuant to Section 12(g) of the Exchange Act and is designated for
quotation or listed on the Over The Counter Bulletin Board (the "OTCBB") and the
Company has taken no action designed to, or likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act or
delisting the Common Stock from the OTCBB. The Company shall comply with all
requirements of the National Association of Securities Dealers, Inc. with
respect to the issuance of the Shares and Warrant Shares and the listing thereof
on the OTCBB.
4.23 Price of Common Stock. The Company has not taken any action
intended to stabilize or manipulate the price of the Company's shares of the
Common Stock to facilitate the sale or resale of the Shares. The Company has not
repurchased any of its shares of Common Stock since March 31, 2005.
4.24 Accounting and Disclosure Controls. The Company and its
subsidiaries maintain systems of internal accounting controls sufficient to
provide reasonable assurance that (i) the Company makes and keeps accurate books
and records; (ii) transactions are executed in accordance with management's
general or specific authorizations; (iii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iv) access
to assets is permitted only in accordance with management's general or specific
authorization; and (v) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences. The Company has established and maintains disclosure
controls and procedures (as such term is defined in Rule 13a-15(e) under the
Exchange Act) that (i) are designed to ensure that material information relating
to the Company, including its consolidated subsidiaries, is made known to the
Company's principal executive officer and its principal financial officer by
others within those entities in order for timely decisions for required
disclosure in the periodic reports that will be filed by the Company
11
under the Exchange Act; and (ii) are effective in all material respects to
perform the functions for which they were established. Since the date of the
most recent balance sheet of the Company and its consolidated subsidiaries
reviewed or audited by BDO ▇▇▇▇▇▇▇ LLP and the audit committee of the board of
directors of the Company (or persons fulfilling the equivalent function) the
Company has not become aware of (i) any significant deficiencies in the design
or operation of internal controls which could adversely affect the ability of
the Company and each of its subsidiaries to record, process, summarize and
report financial data, or any material weakness in internal controls; and (ii)
any fraud, whether or not material, that involves management or other employees
who have a significant role in the internal controls of the Company and each of
its subsidiaries. Since the date of the most recent evaluation of such
disclosure controls and procedures, there have been no significant changes in
the Company's internal controls or in other factors that would significantly
affect the Company's internal controls, including any corrective actions with
regard to significant deficiencies and material weaknesses.
4.25 ▇▇▇▇▇▇▇, et al. The Superior Court of the State of California
in and for the County of Los Angeles, South West District (the "Superior Court")
issued a judgment in favor of the Company against ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇, the Chief
Executive Officer of MayFair Capital Group Limited, ▇▇▇▇▇▇▇▇▇▇ Capital Venture
Limited, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, and other named defendants therein (collectively the
"▇▇▇▇▇▇▇ Group") relating to litigation engaged between the Company and the
▇▇▇▇▇▇▇ Group since September 15, 2003 as described in the SEC Reports. On
November 10, 2004, the Superior Court issued the judgment in favor of the
Company against the ▇▇▇▇▇▇▇ Group for (i) monetary damages and costs of
$12,805,264 (comprised of $3,790,759 as special damages, $9,000,000 as punitive
damages, and $14,505 as costs), (ii) the return of all corporate books and
records of PowerHouse Studios, its predecessors, subsidiaries and affiliated
companies, and (iii) the cancellation of the stock certificates held by the
▇▇▇▇▇▇▇ Group with respect to approximately 7,000,000 shares of Common Stock
claimed by the ▇▇▇▇▇▇▇ Group, which represented approximately 67% of the total
shares of Common Stock then outstanding (the "▇▇▇▇▇▇▇ Group Shares", 7,250,000
shares of Common Stock of PowerHouse Studios) and a declaration that the ▇▇▇▇▇▇▇
Group Shares, and all legal and beneficial ownership interests therein, were
null and void as of the date of issuance. The defendants' right to appeal
expired on January 17, 2005, and, as of January 18, 2005, no appeal was filed by
any of the defendants.
4.26 Litigation. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, any Subsidiary or any of
their respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an "Action") which (i) adversely affects or challenges
the legality, validity or enforceability of any of the Transaction Documents or
the Securities or (ii) could, if there were an unfavorable decision, have or
reasonably be expected to result in a Material Adverse Effect. There has not
been any material change with respect to any of the Actions described under
"Legal Proceedings" in the Company's Form 10-KSB. Neither the Company nor any
Subsidiary, nor, to the knowledge of the Company, any director or officer
thereof, is or has been the subject of any Action involving a claim of violation
of or liability under federal or state securities laws or a claim of breach of
fiduciary duty. There has not been, and to the knowledge of the Company, there
is not pending or contemplated, any investigation by the Commission involving
the Company or any current or, to the Company's knowledge, former director or
12
officer of the Company. The Commission has not issued any stop order or other
order suspending the effectiveness of any registration statement filed by the
Company or any Subsidiary under the Securities Act.
4.27 The Rescission Offer and the Junior A Units Offering. The
Rescission Offer and the Junior A Units Offering (each as defined in the Form
10-KSB) were made in compliance with federal and state securities laws.
4.28 Disclosure; Securities Laws Disclosure; Publicity. The Company
confirms that, neither the Company nor, to its knowledge, any other person
acting on its behalf has provided any of the Purchasers or their agents or
counsel with any information that constitutes or might constitute material,
non-public information. The Company understands and confirms that the Purchasers
will rely on the foregoing representations and covenants in effecting
transactions in securities of the Company. All written disclosure provided to
the Purchasers regarding the Company, its business and the transactions
contemplated hereby, including the Disclosure Schedules to this Agreement,
furnished by or on behalf of the Company with respect to the representations and
warranties made herein are true and correct with respect to such representations
and warranties and do not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. The Company acknowledges and agrees that no Purchaser makes or has
made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in 5 hereof. The
Company shall, by 8:30 a.m. Eastern time on the first Business Day following the
Closing, issue a Current Report on Form 8-K, reasonably acceptable to the
Placement Agent disclosing the material terms of the transactions contemplated
hereby, and shall include the Transaction Documents as exhibits thereto. The
Company and Placement Agent shall consult with each other in issuing any other
press releases with respect to the transactions contemplated hereby, and neither
the Company nor any Purchaser shall issue any such press release or otherwise
make any such public statement without the prior consent of the Company, with
respect to any press release or statement of any Purchaser, or without the prior
consent of Placement Agent, with respect to any press release or statement of
the Company, which consent shall not unreasonably be withheld, except if such
disclosure is required by law, in which case the Company shall promptly provide
Placement Agent with prior notice of such public statement or communication or
the Purchaser shall promptly provide the Company with prior notice of such
public statement or communication, as the case may be. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of any Purchaser, or
include the name of any Purchaser in any filing with the SEC or any regulatory
agency, without the prior written consent of Placement Agent, except (i) as
required by federal securities law in connection with the Registration Statement
contemplated by the Registration Rights Agreement and (ii) to the extent such
disclosure is required by law, in which case the Company shall provide Placement
Agent with prior notice of such disclosure permitted under subclause (i) or
(ii).
4.29 Securities Act and Exchange Act Reporting. The Company shall
file with the SEC in a timely manner all reports and other documents required of
the Company under the Securities Act and the Exchange Act.
13
4.30 Board of Directors. Following the Closing, the Company's Board
of Directors shall consist of four directors comprised of (i) ▇▇▇ ▇▇▇▇▇▇, (ii)
▇▇▇▇ ▇▇▇▇▇▇, (iii) ▇▇▇▇ ▇▇▇▇▇▇ and (v) ▇▇▇▇ ▇▇▇▇▇▇▇▇▇.
4.31 Use of Proceeds. The Company will utilize the net proceeds from
the sale of the Securities for working capital and general corporate purposes,
including research and development, and the repayment of the Notes, to the
extent that the Notes are not converted at the Closing.
4.32 Preferred Stock Issuances. Until two years following the
Closing, the Company shall not, without the consent of the Purchasers holding a
majority of the Shares issued at the Closing and, to the extent issued and
outstanding, Warrant Shares, issue shares of Preferred Stock.
4.33 Participation in Future Financing. The Company shall not effect
the next equity or debt financing after the date of this Agreement in which it
raises at least, in the aggregate, $1,000,000 in gross proceeds (the "Next
Financing") unless (a) the Company delivers to each Purchaser a written notice
at least 5 Trading Days prior to the closing of such Next Financing (the "Next
Financing Notice") of its intention to effect the Next Financing, which Next
Financing Notice shall describe in reasonable detail the proposed terms of the
Next Financing, the amount of proceeds intended to be raised thereunder, the
Person with whom the Next Financing is proposed to be effected, and attached to
which shall be a term sheet or similar document relating thereto and (b) such
Purchaser shall not have notified the Company by 6:30 p.m. (Pacific time) on the
third (3rd) Trading Day after its receipt of the Next Financing Notice of its
willingness to provide (or to cause its designee to provide), subject to
completion of mutually acceptable documentation and compliance with applicable
securities laws, all or part of such financing to the Company on the same terms
set forth in the Next Financing Notice within 15 calendar days of such
Purchaser's notification of its intent to participate (the "Next Financing
Participation Period"). If one or more Purchasers shall fail to so notify the
Company of their willingness to participate in the Next Financing, the Company
may effect the remaining portion of the Next Financing on the terms and to the
Persons set forth in the Next Financing Notice; provided that, in such event,
the Company must provide the Purchasers with a second Next Financing Notice, and
the Purchasers will again have the participation right as set forth above in
this Section 4.33, if the Next Financing subject to the initial Next Financing
Notice is not consummated for any reason on the terms set forth in the Next
Financing Notice within 60 Trading Days after the date of the initial Next
Financing Notice with the Persons identified in the Next Financing Notice. In
the event the Company receives responses to Next Financing Notices from
Purchasers seeking to purchase more than the financing sought by the Company in
the Next Financing such Purchasers shall have the right to purchase their Pro
Rata Portion (as defined below) of the capital shares or capital shares
equivalents to be issued in such Next Financing. "Pro Rata Portion" is the ratio
of (x) such Purchaser's Shares and (y) the aggregate sum of all of the
Subscription Amounts. If any Purchaser no longer holds any Shares, then the Pro
Rata Portions shall be re-allocated among the remaining Purchasers and such
Purchaser who no longer holds any Shares shall not have any Pro Rata Portion.
Notwithstanding anything to the contrary herein, this Section 4.33 shall not
apply to the following (a) the granting of options or restricted stock to
employees, officers, consultants and directors of the Company pursuant to the
Plan or any other stock option or restricted stock plan or agreement duly
adopted by a majority of the
14
non-employee members of the Board of Directors of the Company or a majority of
the members of a committee of non-employee directors established for such
purpose, or (b) the exercise of any security issued by the Company in connection
with the offer and sale of the Securities pursuant to this Agreement, or (c) the
exercise of or conversion of any convertible securities, options or warrants
issued and outstanding on the date hereof, or (d) acquisitions, collaborations,
licensing transactions or strategic investments, the primary purpose of which is
not to raise capital, or (e) in connection with bank credit agreements and
equipment or land lease lines with a non-equity financing purpose or (f) debt
with banking institutions not to exceed $3,000,000.
4.34 No Security Interests. There are no outstanding security
interests, or financing statements on file in any public office, in favor of
third parties with respect to the Company's assets, including its intellectual
property (such as the Company's patents, registered copyrights, and trademarks,
and all proceeds thereof, by way of example but not by way of limitation,
license royalties and proceeds of infringement suits).
SECTION 5. Representations, Warranties and Covenants of the
Purchaser. The Purchaser hereby represents and warrants to, and covenants with,
the Company, effective as of the Closing Date, as follows:
5.1 Investment Representations and Covenants. The Purchaser
represents and warrants to, and covenants with, the Company that: (i) the
Purchaser is knowledgeable, sophisticated and experienced in making, and is
qualified to make, decisions with respect to investments in shares representing
an investment decision like that involved in the purchase of the Securities,
including investments in securities issued by the Company, and has requested,
received, reviewed and considered all information it deems relevant in making an
informed decision to purchase the Securities; (ii) the Purchaser is acquiring
the Securities set forth in Section 2 above in the ordinary course of its
business and for its own account for investment (as defined for purposes of the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvement Act of 1976 and the regulations
thereunder) only and with no present intention of distributing any of such
Securities or any arrangement or understanding with any other persons regarding
the distribution of such Shares within the meaning of Section 2(11) of the
Securities Act; (iii) the Purchaser will not, directly or indirectly, offer,
sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy,
purchase or otherwise acquire or take a pledge of) any of the Securities except
in compliance with the Securities Act and the Rules and Regulations promulgated
thereunder; (iv) the Purchaser has completed or caused to be completed the
Questionnaire attached hereto as Exhibit D and the Registration Statement
Questionnaire attached hereto as Exhibit F, for use in preparation of the
Registration Statement and the Investor Questionnaire attached hereto as Exhibit
G and the answers thereto are true and correct as of the date hereof and will be
true and correct as of the effective date of the Registration Statement; (v) the
Purchaser will notify the Company immediately of any change in information
which, in order to comply with the provisions of the Securities Act, would
necessitate an amendment or supplement to the Registration Statement and the
prospectus used in connection with such Registration Statement until such time
as the Purchaser has sold all of its Shares and Warrant Shares or until the
Company is no longer required to keep the Registration Statement effective; (vi)
the Purchaser has, in connection with its decision to purchase the Securities
set forth in Section 2 above, relied solely upon the SEC Documents and the
documents included therein and the representations and warranties of the Company
contained herein; and (vi) the Purchaser is an "accredited investor"
15
within the meaning of Rule 501 of Regulation D promulgated under the Securities
Act and has completed the Investor Questionnaire attached hereto as Exhibit G.
5.2 Compliance with Resale Requirements. Unless such sale is
pursuant to an applicable exemption from the Securities Act, the Purchaser
hereby covenants with the Company not to make any sale of the Shares and Warrant
Shares without satisfying the prospectus delivery requirement under the
Securities Act. The Purchaser acknowledges that there may occasionally be times
when the Company must suspend the use of the prospectus forming a part of the
Registration Statement until such time as an amendment or supplement to the
Registration Statement or such prospectus has been filed by the Company and
declared effective by the SEC, or until such time as the Company has filed an
appropriate report with the SEC pursuant to the Exchange Act. The Purchaser
hereby covenants that it will not sell any Shares or Warrant Shares pursuant to
said prospectus during the period commencing at the time at which the Company
gives the Purchaser written notice of the suspension of the use of said
prospectus and ending at the time the Company gives the Purchaser written notice
that the Purchaser may thereafter effect sales pursuant to said prospectus.
5.3 Authorization; Validity of Transaction Documents. The Purchaser
further represents and warrants to, and covenants with, the Company that (i) the
Purchaser has full right, power, authority and capacity to enter into the
Transaction Documents and to consummate the transactions contemplated hereby and
has taken all necessary action to authorize the execution, delivery and
performance of the Transaction Documents, and (ii) upon the execution and
delivery of the Transaction Documents, the Transaction Documents shall
constitute a valid and binding obligation of the Purchaser enforceable in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' and contracting parties' rights generally and except as
enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law)
and except as the indemnification agreements of the Purchaser in the
Registration Rights Agreement may be legally unenforceable.
5.4 Requirements of Foreign Jurisdictions. The Purchaser
acknowledges, represents and agrees that no action has been or will be taken in
any jurisdiction outside the United States by the Company or the Placement Agent
that would permit an offering of the Securities, or possession or distribution
of offering materials in connection with the issue of the Securities, in any
jurisdiction outside the United States where action for that purpose is
required. Each Purchaser outside the United States will comply with all
applicable laws and regulations in each foreign jurisdiction in which it
purchases, offers, sells or delivers Securities or has in its possession or
distributes any offering material, in all cases at its own expense. The
Placement Agent is not authorized to make any representation or use any
information in connection with the issue, placement, purchase and sale of the
Securities.
5.5 Restriction on Short Sales and Hedging. The Purchaser will not,
prior to the 90th calendar day following the Closing Date or if the Registration
Statement receives SEC review, then the one hundred twentieth (120th) calendar
day after the Closing Date, sell, offer to sell, solicit offers to buy, dispose
of, loan, pledge or grant any right with respect to (collectively, a
"DISPOSITION"), the Common Stock, nor will the Purchaser engage in any hedging
or other transaction which is designed to or could reasonably be expected to
lead to or result in a
16
Disposition of Common Stock by the Purchaser or any other person or entity. Such
prohibited hedging or other transactions would include, without limitation,
effecting any short sale or having in effect any short position (whether or not
such sale or position is against the box and regardless of when such position
was entered into) or any purchase, sale or grant of any right (including,
without limitation, any put or call option) with respect to the Common Stock or
with respect to any security (other than a broad-based market basket or index)
that includes, relates to or derives any significant part of its value from the
Common Stock.
5.6 No Legal, Tax or Investment Advice. The Purchaser understands
that nothing in this Agreement or any other materials presented to the Purchaser
in connection with the purchase and sale of the Securities constitutes legal,
tax or investment advice. The Purchaser has consulted such legal, tax and
investment advisors as it, in its sole discretion, has deemed necessary or
appropriate in connection with its purchase of Securities.
5.7 Restrictive Legend. The Purchaser understands that, until such
time as the Registration Statement has been declared effective or the Securities
may be sold pursuant to Rule 144 under the Securities Act without any
restriction as to the number of securities as of a particular date that can then
be immediately sold, the Securities may bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of the certificates for the Shares or Warrant Shares):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID
ACT, OR AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE
REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER
SAID ACT."
SECTION 6. Survival of Representations, Warranties and Agreements.
Notwithstanding any investigation made by any party to this Agreement or by the
Placement Agent, all covenants, agreements, representations and warranties made
by the Company and the Purchaser herein and in the certificates for the Shares
or Warrants delivered pursuant hereto shall survive the execution of this
Agreement, the delivery to the Purchaser of the Securities being purchased and
the payment therefor.
SECTION 7. Broker's Fee. The Company represents and warrants, and
the Purchaser acknowledges, that, subject to the fee reduction in the following
sentence, the Company is obligated to pay the Placement Agent the following fees
(i) cash equal to 3.0% of the proceeds from the sale of the Securities to the
Purchasers and (ii) warrants, in substantially the form attached hereto as
Exhibit H, exercisable for a number of shares of Common Stock equal to 7% of the
total number of Shares sold to the Purchasers. In the event that the Company's
management team introduces the Placement Agent to Purchasers, the Placement
Agent fees referenced in the preceding sentence shall be reduced with respect to
the first $500,000 of proceeds from the sale of Securities to such introduced
Purchasers to cash equal to 5.0% of the proceeds from the sale of Securities to
such Purchasers. Each of the parties hereto
17
hereby represents that, on the basis of any actions and agreements by it, there
are no other brokers or finders entitled to compensation in connection with the
sale of the Securities to the Purchasers.
SECTION 8. Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be mailed by first-class
registered or certified airmail, facsimile (with receipt confirmed by telephone)
or nationally recognized overnight express courier postage prepaid, and shall be
deemed given when so mailed and shall be delivered as addressed as follows:
(a) if to the Company, to:
PowerHouse Technologies Group, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇
with a copy to:
Cadwalader, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
or to such other person at such other place as the Company
shall designate to the Purchaser in writing; and
(b) if to the Purchaser, at its address as set forth on the
signature page of this Agreement, or at such other address or addresses as may
have been furnished by Purchaser to the Company in writing,
with a copy to:
▇.▇. ▇▇▇▇▇▇▇▇▇, Towbin
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
and
Pillsbury ▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
SECTION 9. Changes. This Agreement may not be modified or amended
except pursuant to an instrument in writing signed by the Company and Purchaser
any such waiver or amendment shall be binding upon the Company and all holders
of Shares.
18
SECTION 10. Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.
SECTION 11. Severability. In case any provision contained in this
Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
SECTION 12. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to the principles of conflicts of laws.
SECTION 13. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original, but all of which,
when taken together, shall constitute but one instrument, and shall become
effective when one or more counterparts have been signed by each party hereto
and delivered to the other parties.
SECTION 14. Independent Nature of the Purchaser's Obligations and
Rights. The obligations of the Purchaser under this Agreement are several and
not joint with the obligations of any Other Purchaser of the Company's
securities, and the Purchaser shall not be responsible in any way for the
performance of the obligations of any other third party purchasers of the
Company's securities. Each of the Purchaser and the Company agree and
acknowledge that (i) the decision of the Purchaser to purchase the Securities
pursuant to this Agreement has been made by the Purchaser independently of any
Other Purchasers of the Company's securities and (ii) no Other Purchasers of the
Company's securities have acted as agent for the Purchaser in connection with
the Purchaser making its investment hereunder and that no such Other Purchaser
will be acting as agent of the Purchaser in connection with monitoring its
investment hereunder or enforcing its rights under this Agreement. Nothing
contained herein or in any other document contemplated hereby or any agreement
of any such Other Purchaser, and no action taken by the Purchaser pursuant
hereto or any Other Purchaser pursuant thereto, shall be deemed to constitute
the Purchaser or any such Other Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchaser or any such Other Purchasers are in any way acting in concert or as a
group with respect to any matters. The Purchaser shall be entitled to
independently protect and enforce its rights, including, without limitation, the
rights arising out of this Agreement or our of any of the other documents
contemplated hereby, and it shall not be necessary for any such Other Purchasers
to be joined as an additional party in any proceeding for such purpose. To the
extent that any such Other Purchasers purchase the same or similar securities as
the Purchaser hereunder or on the same or similar terms and conditions or
pursuant to the same or similar documents, all such matters are solely in the
control of the Company, not the action or decision of the Purchaser, and would
be solely for the convenience of the Company and not because it was required or
requested to do so by the Purchaser or any such Other Purchaser.
[Remainder of Page Intentionally Left Blank]
19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives as of the day and year
first above written.
POWERHOUSE TECHNOLOGIES GROUP, INC.
By ________________________________
Name:
Title:
Print or Type:
Name of Purchaser
(Individual or Institution):
__________________________________
Name of Individual representing
Purchaser (if an Institution):
__________________________________
Title of Individual representing
Purchaser (if an Institution):
__________________________________
Signature by:
Individual Purchaser or Individual
representing Purchaser:
__________________________________
Address: _____________________________
Telephone: ___________________________
Telecopier: __________________________
Email Address: _______________________
20
SUMMARY INSTRUCTION SHEET FOR PURCHASER
(to be read in conjunction with the entire Common Stock and
Warrant Purchase Agreement)
A. Complete the following items ON EACH OF THE TWO COPIES of the Common Stock
Purchase Agreement:
1. Signature Page: Provide the information regarding the Purchaser
requested on the signature page. The agreement must be executed by
an individual authorized to bind the Purchaser.
2. Exhibit C - Note Conversion Election: To be completed in the event
Purchaser is surrendering a Note as payment, or partial payment, of
the Purchase Price. The election must be executed by an individual
authorized to bind the Purchaser.
3. Exhibit D - Questionnaire: Provide the information requested by the
Questionnaire.
3. Exhibit E - Signature Page to the Registration Rights Agreement. The
agreement must be executed by an individual authorized to bind the
Purchaser.
4. Exhibit F - Registration Statement Questionnaire: Provide the
information requested by the Registration Statement Questionnaire.
5. Exhibit G - Investor Questionnaire: Provide the information
requested by the Investor Questionnaire.
B. Return the properly completed and signed Common Stock and Warrant Purchase
Agreement and Registration Rights Agreement signature pages and Exhibits C
(if applicable), D, F and G to:
▇.▇. ▇▇▇▇▇▇▇▇▇ Towbin, LLC
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
C. Instructions regarding the transfer of funds for the purchase of
Securities will be sent by facsimile to the Purchaser by the Placement
Agent at a later date.
D. Upon the resale of the Shares or Warrant Shares by the Purchasers after
the Registration Statement covering the Shares and Warrant Shares is
effective, as described in the Agreement, the Purchaser must deliver a
current prospectus of the Company to the buyer (prospectuses must be
obtained from the Company at the Purchaser's request)
21
EXHIBIT A
FORM OF A WARRANT
A-1
EXHIBIT B
FORM OF B WARRANT
B-1
EXHIBIT C
FORM OF NOTE CONVERSION ELECTION
C-1
EXHIBIT D
QUESTIONNAIRE
Pursuant to Section 3.2 of the Common Stock and Warrant Purchase
Agreement, please provide us with the following information:
1. The exact name that your Securities are to be Registered in (this is
the name that will appear on your stock certificate(s) and
warrant(s). You may use a nominee name if appropriate:
____________________________________________________________________
2. The relationship between the Purchaser of the Securities and the
Registered Holder listed in response to item 1 above:
____________________________________________________________________
3. The mailing address of the Registered Holder listed in response to
item 1 above:
____________________________________________________________________
4. The Social Security Number or Tax Identification Number of the
Registered Holder listed in response to item 1 above:
D-1
EXHIBIT E
REGISTRATION RIGHTS AGREEMENT
E-1
EXHIBIT F
REGISTRATION STATEMENT QUESTIONNAIRE
In connection with the preparation of the Registration Statement, please
provide us with the following information:
1. Pursuant to the "Selling Stockholder" section of the Registration
Statement, please state your or your organization's name exactly as
it should appear in the Registration Statement:
____________________________________________________________________
2. Please provide the number of shares of PowerHouse Technologies
Group, Inc. Common Stock that you or your organization will own
immediately after the Closing, including those purchased by you or
your organization pursuant to this Agreement and those shares of
Common Stock purchased by you or your organization through other
transactions:
____________________________________________________________________
3. Have you or your organization had any position, office or other
material relationship within the past three years with the Company
or its affiliates?
_____ Yes _____ No
If yes, please indicate the nature of any such relationships below:
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
F-1
EXHIBIT G
INVESTOR QUESTIONNAIRE
CONFIDENTIAL INVESTOR QUESTIONNAIRE
INVESTOR NAME: ________________________
CO-INVESTOR NAME: _____________________
PowerHouse Technologies Group, Inc. (the "Company") is relying exclusively upon
this questionnaire to determine the suitability of the undersigned (the
"Investor") as a potential investor in securities of the Company.
1.1 INVESTOR CATEGORY The Investor represents and warrants that the Investor
comes within one category MARKED BELOW, and that for any category marked,
the Investor has truthfully set forth, where applicable, the factual basis
or reason the Investor comes within that category. ALL INFORMATION IN
RESPONSE TO THIS SECTION WILL BE KEPT STRICTLY CONFIDENTIAL. The
undersigned shall furnish any additional information which the Company
deems necessary in order to verify the answers set forth below.
(please check the appropriate box)
CATEGORY A [] The undersigned is an individual (not a partnership,
corporation, etc.) whose individual net worth, or joint net
worth with his or her spouse, presently exceeds US$1,000,000.
EXPLANATION. In calculating net worth you may include
equity in personal property and real estate, including your
principal residence, cash, short-term investments, stock and
securities. Equity in personal property and real estate should
be based on the fair market value of such property less debt
secured by such property.
CATEGORY B [] The undersigned is an individual (not a partnership,
corporation, etc.) who had an individual income in excess of
US$200,000 in each of the two most recent years, or joint
income with his or her spouse in excess of US$300,000 in each
of those years (in each case including foreign income, tax
exempt income and full amount of capital gains and losses but
excluding any income of other family members and any
unrealized capital appreciation) and has a reasonable
expectation of reaching the same income level in the current
year.
CATEGORY C [] The undersigned is a director or executive officer of the
Company which is issuing and selling the Common Stock.
CATEGORY D [] The undersigned is a bank; a savings and loan association;
insurance company; registered investment company; registered
business
G-1
development company; licensed small business investment
company ("SBIC"); or employee benefit plan within the meaning
of Title 1 of ERISA and (a) the investment decision is made by
a plan fiduciary which is either a bank, savings and loan
association, insurance company or registered investment
advisor, or (b) the plan has total assets in excess of
US$5,000,000 or is a self directed plan with investment
decisions made solely by persons that are accredited
investors.
______________________________________
(describe entity)
CATEGORY E [] The undersigned is a private business development company as
defined in section 202(a)(22) of the Investment Advisors Act
of 1940.
______________________________________
(describe entity)
CATEGORY F [] The undersigned is either a corporation, partnership,
Massachusetts business trust, or non-profit organization
within the meaning of Section 501(c)(3) of the Internal
Revenue Code, in each case not formed for the specific purpose
of acquiring the Common Stock and with total assets in excess
of US$5,000,000.
______________________________________
(describe entity)
CATEGORY G [] The undersigned is a trust with total assets in excess of
US$5,000,000, not formed for the specific purpose of acquiring
the Common Stock, where the purchase is directed by a
"sophisticated person" as defined in Regulation 506(b)(2)(ii)
under the Act.
CATEGORY H [] The undersigned is an entity (other than a trust) all the
equity owners of which are "accredited investors" within one
or more of the above categories. If relying upon this Category
alone, each equity owner must complete a separate copy of this
Agreement.
______________________________________
(describe entity)
CATEGORY I [] The undersigned is not within any of the categories above and
is therefore NOT AN ACCREDITED INVESTOR.
The undersigned agrees that the undersigned will notify the
Company at any time on or prior to the execution of this
Agreement in the event that the representations and warranties
in this Agreement shall cease to be true, accurate and
complete.
G-2
1.2 SUITABILITY (please answer each question)
(a) For an individual Investor, please describe your current
employment, including the company by which you are
employed and its principal business:
______________________________________________________________
______________________________________________________________
(b) For an individual Investor, please describe any college or
graduate degrees held by you:
______________________________________________________________
______________________________________________________________
(c) For all Investors, please list types of prior investments:
______________________________________________________________
______________________________________________________________
______________________________________________________________
(d) For all Investors, please state whether you have you
participated in other private placements before:
[] YES [] NO
(e) If your answer to question (d) above was "YES", please
indicate frequency of such prior participation in private
placements of:
Public Private
Companies Companies
--------- ---------
Frequently [] []
Occasionally [] []
Never [] []
(f) For individual Investors, do you expect your current level
of income to significantly decrease in the foreseeable future:
[] YES [] NO
If so, please explain:
________________________________________________________
(g) For trust, corporate, partnership and other institutional
Investors, do you expect your total assets to significantly
decrease in the foreseeable
G-3
future:
[] YES [] NO
If so, please explain:
________________________________________________________
(h) For all Investors, do you have any other investments or
contingent liabilities which you reasonably anticipate could
cause you to need sudden cash requirements in excess of cash
readily available to you:
[] YES [] NO
(i) For all Investors, are you familiar with the risk aspects
and the non-liquidity of investments such as the Common Stock
for which you seek to subscribe?
[] YES [] NO
(j) For all Investors, do you understand that there is no
guarantee of financial return on this investment and that you
run the risk of losing your entire investment?
[] YES [] NO
(k) For all Investors, please state whether or not you have
been indicted or convicted of any felony or any criminal
conduct in any foreign, federal, state or local proceeding:
[] YES [] NO
(1) If you answered yes to item (k) above, please
describe such activity and the penalty, if any, imposed upon
you.
______________________________________________________________
______________________________________________________________
(2) You hereby authorize us to perform a background
check upon you and your affiliates, if necessary, in order to
provide to us sufficient information to determine your
suitability as an investor.
[] YES [] NO
1.3 MANNER IN WHICH TITLE IS TO BE HELD (check one)
[] Individual Ownership
G-4
[] Community Property
[] Joint Tenant with Right of
Survivorship
(both parties must sign)
[] Partnership*
[] Tenants in Common
[] Corporation*
[] Trust*
[] Limited Liability Company*
[] Other
*If the Common Stock is being subscribed for by an entity, the
attached Certificate of Signatory must also be completed.
1.4 NASD AFFILIATION
Are you affiliated or associated with an NASD member firm
(please check one):
[] YES [] NO
If Yes, please describe:
______________________________________________________________
______________________________________________________________
*If Investor is a Registered Representative with an NASD
member firm, have the following acknowledgment signed by the
appropriate party:
The undersigned NASD member firm acknowledges receipt of the
notice required by Rule 3050 of the NASD Conduct Rules.
________________________
Name of NASD Member Firm
By: ________________________________
Authorized Officer
Date: ______________________________
1.5 The undersigned has been informed of the significance to the Company of
the foregoing representations and answers contained in the Confidential
Investor Questionnaire contained in this Section and such answers have
been provided under the assumption that the Company will rely on them.
G-5
SIGNATURE PAGE
INVESTOR NAME:__________________
CO-INVESTOR NAME:_______________
INFORMATION IN RESPONSE TO THIS SECTION WILL BE KEPT STRICTLY
CONFIDENTIAL
(1) Address Information
Please complete the following contact information for the address where Investor
wishes to receive all correspondence concerning this matter.
______________________________________ ______________________________________
Address for Correspondence Address for Correspondence
______________________________________ ______________________________________
City, State and Zip Code City, State and Zip Code
E-mailAddress ________________________ E-mail Address _______________________
______________________________________ ______________________________________
Telephone (Business) Telephone (Business)
______________________________________ ______________________________________
Telephone (Residence) Telephone (Residence)
______________________________________ ______________________________________
Facsimile (Business) Facsimile (Business)
______________________________________ ______________________________________
Facsimile (Residence) Facsimile (Residence)
______________________________________ ______________________________________
Tax ID # or Social Security # Tax ID # or Social Security #
AGREED AND SUBSCRIBED AGREED AND SUBSCRIBED
THIS __ DAY OF SEPTEMBER, 2005 THIS __ DAY OF SEPTEMBER, 2005
BY:___________________________________ BY:___________________________________
SIGNATURE OF INVESTOR SIGNATURE OF JOINT INVESTOR (IF ANY)
______________________________________ ______________________________________
INVESTOR NAME (TYPED OR PRINTED) ADDITIONAL INVESTOR NAME (TYPED OR
PRINTED)
G-6
(2) Alternate Legal Address Information
If the address information set forth above is not the Investor's primary legal
residence (in the case of an individual) or primary place of business (in the
case of an entity), please set forth such primary address information below.
________________________________ ______________________________________
Legal Address Legal Address
________________________________ ______________________________________
City, State, and Zip Code City, State, and Zip Code
CERTIFICATE OF SIGNATORY
(TO BE COMPLETED ONLY IF THE COMMON STOCK IS BEING SUBSCRIBED FOR BY AN ENTITY)
I, _________________________________________________, am the
_______________________________ (title) of
_____________________________________________ (the "Entity").
I certify that I am empowered and duly authorized by the Entity to execute
and carry out the terms of the Common Stock And Warrant Purchase Agreement and
to purchase and hold the Common Stock, and certify further that the Common Stock
And Warrant Purchase Agreement has been duly and validly executed on behalf of
the Entity and constitutes a legal and binding obligation of the Entity.
IN WITNESS WHEREOF, I have set my hand this ____ day of _________________,
2005.
______________________________________
(Signature)
G-7
EXHIBIT H
FORM OF PLACEMENT AGENT WARRANT
H-1
