SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of May 1, 2006, by and
among Sorell Inc., a Nevada corporation, with headquarters located at Buk-ri 00,
Xxxx-Xxxx, Xxxxxx Xxxx, Xxxxx Xxxxx (the "COMPANY"), and the investors listed on
the Schedule of Buyers attached hereto (individually, a "BUYER" and
collectively, the "BUYERS").
WHEREAS:
A. The Company and each Buyer is executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by Section
4(2) of the Securities Act of 1933, as amended (the "1933 ACT"), and Rule 506 of
Regulation D ("REGULATION D") as promulgated by the United States Securities and
Exchange Commission (the "SEC") under the 1933 Act.
B. The Company has authorized a new series of 8% Senior Convertible Notes
(the "NOTES") of the Company, which Notes shall be convertible into the
Company's common stock, $0.001 par value per share (the "COMMON STOCK"), in
accordance with the terms of the Notes.
C. Each Buyer wishes to purchase, and the Company wishes to sell, upon the
terms and conditions stated in this Agreement, (i) that aggregate principal
amount of Notes, in substantially the form attached hereto as Exhibit A, set
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forth opposite such Buyer's name in column (3) on the Schedule of Buyers (which
aggregate amount for all Buyers shall be a minimum of $1,000,000 and up to a
maximum of $2,000,000) (as converted, collectively, the "CONVERSION SHARES") and
(ii) Warrants, in substantially the form attached hereto as Exhibit B
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(collectively, the "WARRANTS"), to acquire that number of shares of Common Stock
(as exercised, collectively, the "WARRANT SHARES") set forth opposite such
Buyer's name in column (4) on the Schedule of Buyers.
D. The Notes bear interest, which, subject to certain conditions, may be
paid in Common Stock ("INTEREST SHARES").
E. Contemporaneously with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement,
substantially in the form attached hereto as Exhibit C (the "REGISTRATION RIGHTS
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AGREEMENT"), pursuant to which the Company has agreed to provide certain
registration rights with respect to the Conversion Shares, Interest Shares and
Warrant Shares under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
F. The Notes, the Conversion Shares, the Interest Shares, the Warrants and
the Warrant Shares, are collectively are referred to herein as the "SECURITIES".
NOW, THEREFORE, the Company and each Buyer hereby agree as follows:
1. PURCHASE AND SALE OF NOTES AND WARRANTS.
(a) Amount. Subject to the satisfaction (or waiver) of the conditions set
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forth
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in Sections 6 and 7 below, the Company shall issue and sell to each Buyer, and
each Buyer severally, but not jointly, agrees to purchase from the Company on
the Closing Date (as defined below), a principal amount of Notes, as is set
forth opposite such Buyer's name in column (3) on the Schedule of Buyers, along
with Warrants to acquire that number of Warrant Shares as is set forth opposite
such Buyer's name in column (4) on the Schedule of Buyers.
(b) Closing. The closing (the "CLOSING") of the purchase of the Notes and
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the Warrants by the Buyers shall occur at the offices of Sichenzia Xxxx Xxxxxxxx
Xxxxxxx LLP, 1065 Avenue of the Xxxxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000.
The date and time of the Closing (the "CLOSING DATE") shall be 10:00 a.m., New
York City Time, on the date hereof, subject to notification of satisfaction (or
waiver) of the conditions to the Closing set forth in Sections 6 and 7 below (or
such later date as is mutually agreed to by the Company and each Buyer).
(c) Purchase Price. The purchase price for each Buyer (the "PURCHASE
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PRICE") of the Notes and related Warrants to be purchased by each Buyer at the
Closing shall be equal to $1.00 for each $1.00 of principal amount of Notes
being purchased by such Buyer at the Closing. The aggregate Purchase Price to
be paid by each Buyer at the Closing is as set forth opposite such Buyer's name
in column (3) on the Schedule of Buyers.
(d) Form of Payment. On the Closing Date, (A) each Buyer shall pay its
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aggregate Purchase Price to the Company for the Notes and the Warrants to be
issued and sold to such Buyer at the Closing, by wire transfer of immediately
available funds to the Company's escrow account (the "ESCROW ACCOUNT") with
Signature Bank as escrow agent in accordance with the below written wire
instructions, and (B) the Company shall deliver to each Buyer the Notes (in
such principal amount as is set forth opposite such Buyer's name in column (3)
on the Schedule of Buyers), along with the Warrants (exercisable for the number
of shares of Common Stock as is set forth opposite such Buyer's name in column
(4) on the Schedule of Buyers), each duly executed on behalf of the Company and
registered in the name of such Buyer or its designee. Wire instructions for the
Escrow Account are as follows:
Name: Continental Stock Transfer & Trust Company AAF SORELL INC
CST&T AAF SORELL INC
Bank: XX Xxxxxx Xxxxx Bank
Account: 530-061406
ABA: 000000000
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself that:
(a) Organization; Authority. Such Buyer, if an entity is duly organized,
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validly existing and in good standing under the laws of the jurisdiction of its
organization. Buyer has the requisite power and authority to enter into and to
consummate the transactions contemplated by the Transaction Documents (as
defined below) to which it is a party and otherwise to carry out its obligations
hereunder and thereunder.
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(b) No Public Sale or Distribution. Such Buyer is (i) acquiring the Notes
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and the Warrants, (ii) upon conversion of the Notes will acquire the Conversion
Shares, and (iii) upon exercise of the Warrants will acquire the Warrant Shares,
in each case, for its own account and not with a view towards, or for resale in
connection with, the public sale or distribution thereof, except pursuant to
sales registered or exempted under the 1933 Act; provided, however, that by
making the representations herein, such Buyer does not agree to hold any of the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act. Such Buyer is
acquiring the Securities hereunder in the ordinary course of its business. Such
Buyer does not presently have any agreement or understanding, directly or
indirectly, with any Person to distribute any of the Securities.
(c) Accredited Investor Status. Such Buyer is an "accredited investor" as
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that term is defined in Rule 501(a) of Regulation D.
(d) Reliance on Exemptions. Such Buyer understands that the Securities are
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being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and such
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.
(e) Information. Such Buyer and its advisors, if any, have been furnished
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with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Securities which
have been requested by such Buyer. Such Buyer and its advisors, if any, have
been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
herein. Such Buyer understands that its investment in the Securities involves a
high degree of risk. Such Buyer has sought such accounting, legal and tax
advice as it has considered necessary to make an informed investment decision
with respect to its acquisition of the Securities.
(f) No Governmental Review. Such Buyer understands that no United States
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federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
(g) Transfer or Resale. Such Buyer understands that except as provided in
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the Registration Rights Agreement: (i) the Securities have not been and are not
being registered under the 1933 Act or any state securities laws, and may not be
offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Buyer shall have delivered to the Company an
opinion of counsel, by counsel reasonably acceptable to the Company and in form
and substance reasonably satisfactory to the Company, to the effect that such
Securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption
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from such registration, or (C) such Buyer provides the Company with reasonable
assurance that such Securities can be sold, assigned or transferred pursuant to
Rule 144 or Rule 144A promulgated under the 1933 Act, as amended, (or a
successor rule thereto) (collectively, "RULE 144"); (ii) any sale of the
Securities made in reliance on Rule 144 may be made only in accordance with the
terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the
Securities under circumstances in which the seller (or the Person (as defined in
Section 3(s)) through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the 0000 Xxx) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC thereunder;
and (iii) neither the Company nor any other Person is under any obligation to
register the Securities under the 1933 Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder. The
Securities may be pledged pursuant to an available exemption from registration
under the 1933 Act in connection with a bona fide margin account or other loan
or financing arrangement secured by the Securities and such pledge of Securities
shall not be deemed to be a transfer, sale or assignment of the Securities
hereunder, and no Buyer effecting a pledge of Securities shall be required to
provide the Company with any notice thereof or otherwise make any delivery to
the Company pursuant to this Agreement or any other Transaction Document (as
defined in Section 3(b)), including, without limitation, this Section 2(g).
(h) Legends. Such Buyer understands that the certificates or other
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instruments representing the Notes and the Warrants and, until such time as the
resale of the Conversion Shares, the Warrant Shares and the Interest Shares, if
any, have been registered under the 1933 Act as contemplated by the Registration
Rights Agreement, the stock certificates representing the Conversion Shares, the
Warrant Shares and the Interest Shares, if any, except as set forth below, shall
bear any legend as required by the "blue sky" laws of any state and a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE][EXERCISABLE]
HAVE BEEN][THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN]
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE
STATE SECURITIES LAWS, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE
FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT AND APPLICABLE STATE
SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144(K) UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED PURSUANT TO AN
AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES.
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The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection with
a sale, assignment or other transfer, such holder provides the Company with an
opinion of counsel, by counsel reasonably acceptable to the Company and in form
and substance reasonably satisfactory to the Company, to the effect that such
sale, assignment or transfer of the Securities may be made without registration
under the applicable requirements of the 1933 Act, or (iii) such holder provides
the Company with reasonable assurance that the Securities can be sold, assigned
or transferred pursuant to Rule 144(k).
(i) Validity; Enforcement. This Agreement and the Registration Rights
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Agreement to which such Buyer is a party have been duly and validly authorized,
executed and delivered on behalf of such Buyer and shall constitute the legal,
valid and binding obligations of such Buyer enforceable against such Buyer in
accordance with their respective terms, except as such enforceability may be
limited by general principles of equity or to applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors' rights and
remedies.
(j) No Conflicts. The execution, delivery and performance by such Buyer of
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this Agreement and the Registration Rights Agreement to which such Buyer is a
party and the consummation by such Buyer of the transactions contemplated hereby
and thereby will not (i) if Buyer is an entity, result in a violation of the
organizational documents of such Buyer or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
such Buyer is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including United States federal and
state securities laws) applicable to such Buyer, except in the case of clauses
(ii) and (iii) above, for such conflicts, defaults, rights or violations which
would not, individually or in the aggregate, reasonably be expected to have a
material adverse effect on the ability of such Buyer to perform its obligations
hereunder.
(k) Residency. Such Buyer is a resident of that jurisdiction specified
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below its address on the Schedule of Buyers.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that:
(a) Organization and Qualification. The Company and its "SUBSIDIARIES"
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(which for purposes of this Agreement means any entity in which the Company,
directly or indirectly, owns capital stock or holds an equity or similar
interest) are entities duly organized and validly existing in good standing
under the laws of the jurisdiction in which they are formed, and have the
requisite power and authorization to own their properties and to carry on their
business as now being conducted. Each of the Company and its Subsidiaries is
duly qualified as a foreign entity to do business and is in good standing in
every jurisdiction in which its
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ownership of property or the nature of the business conducted by it makes such
qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not have a Material Adverse Effect. As
used in this Agreement, "MATERIAL ADVERSE EFFECT" means any material adverse
effect on the business, properties, assets, operations, results of operations,
condition (financial or otherwise) or prospects of the Company and its
Subsidiaries, taken as a whole, or on the transactions contemplated hereby and
by the other Transaction Documents or by the agreements and instruments to be
entered into in connection herewith or therewith, or on the authority or ability
of the Company to perform its obligations under the Transaction Documents (as
defined below). The Company has no Subsidiaries, except as set forth on
Schedule 3(a).
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(b) Authorization; Enforcement; Validity. The Company has the requisite
--------------------------------------
corporate power and authority to enter into and perform its obligations under
this Agreement, the Notes, the Warrants, the Registration Rights Agreement, and
each of the other agreements entered into by the parties hereto in connection
with the transactions contemplated by this Agreement (collectively, the
"TRANSACTION DOCUMENTS") and to issue the Securities in accordance with the
terms hereof and thereof. The execution and delivery of the Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby, including, without limitation, the issuance of
the Notes, the reservation for issuance and the issuance of the Conversion
Shares issuable upon conversion of the Notes, the issuance of the Warrants and
the reservation for issuance and issuance of the Warrant Shares issuable upon
exercise of the Warrants, have been duly authorized by the Company's Board of
Directors and (other than the filing with the SEC of one or more Registration
Statements in accordance with the requirements of the Registration Rights
Agreement and any other filings as may be required by any state securities
agencies) no further filing, consent, or authorization is required by the
Company, its Board of Directors or its stockholders. This Agreement and the
other Transaction Documents of even date herewith have been duly executed and
delivered by the Company, and constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
(c) Issuance of Securities. The issuance of the Notes and the Warrants are
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duly authorized and upon issuance in accordance with the terms of the
Transaction Documents shall be free from all taxes, liens and charges with
respect to the issue thereof. As of the Closing, the Company shall have
reserved from its duly authorized capital stock not less than the sum of (i)
100% of the maximum number of shares of Common Stock issuable upon conversion of
the Notes (assuming for purposes hereof, that the Notes are convertible at the
Conversion Price and without taking into account any limitations on the
conversion of the Notes set forth in the Notes) and (ii) 100% of the maximum
number of shares of Common Stock issuable upon exercise of the Warrants (without
taking into account any limitations on the exercise of the Warrants set forth in
the Warrants). Upon issuance or conversion in accordance with the Notes or
exercise in accordance with the Warrants, as the case may be, the Interest
Shares, the Conversion Shares and the Warrant Shares, respectively, will be
validly issued, fully paid and nonassessable and free from all preemptive or
similar rights, taxes, liens and charges with respect to the issue thereof, with
the holders being entitled to all rights accorded to a holder of Common Stock.
Based on the
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representations and warranties of the Buyers contained in Section 2 hereof, the
offer and issuance by the Company of the Securities is exempt from registration
under the 1933 Act.
(d) No Conflicts. The execution, delivery and performance of the
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Transaction Documents by the Company and the consummation by the Company of the
--
transactions contemplated hereby and thereby (including, without limitation, the
issuance of the Notes, the Warrants, and reservation for issuance of the
Conversion Shares and the Warrant Shares and Interest Shares, if any) will not
(i) result in a violation of the Articles of Incorporation (as defined in
Section 3(r)) of the Company or any of its Subsidiaries, any capital stock of
the Company or Bylaws (as defined in Section 3(r)) of the Company or any of its
Subsidiaries or (ii) conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, except to the extent such conflict, default or
termination right would not reasonably be expected to have a Material Adverse
Effect, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including United States federal and state securities laws or
regulations and the rules and regulations of the OTC Bulletin Board (the
"PRINCIPAL MARKET") applicable to the Company or any of its Subsidiaries or by
which any property or asset of the Company or any of its Subsidiaries is bound
or affected except to the extent such violation would not reasonably be expected
to have a Material Adverse Effect.
(e) Consents. The Company is not required to obtain any consent,
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authorization or order of, or make any filing or registration with, any court,
--
governmental agency or any regulatory or self-regulatory agency or any other
Person in order for it to execute, deliver or perform any of its obligations
under or contemplated by the Transaction Documents, in each case in accordance
with the terms hereof or thereof. All consents, authorizations, orders, filings
and registrations which the Company is required to obtain pursuant to the
preceding sentence have been obtained or effected on or prior to the Closing
Date, and the Company and its Subsidiaries are unaware of any facts or
circumstances which might prevent the Company from obtaining or effecting any of
the registration, application or filings pursuant to the preceding sentence.
The Company is not in violation of the listing requirements of the Principal
Market and has no knowledge of any facts which would reasonably lead to
delisting or suspension of the Common Stock in the foreseeable future.
(f) Acknowledgment Regarding Buyer's Purchase of Securities. The Company
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acknowledges and agrees that each Buyer is acting solely in the capacity of
arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that no Buyer is (i) an officer
or director of the Company, (ii) an "affiliate" of the Company (as defined in
Rule 144) or (iii) to the knowledge of the Company, a "beneficial owner" of more
than 10% of the shares of Common Stock (as defined for purposes of Rule 13d-3 of
the Securities Exchange Act of 1934, as amended (the "1934 ACT")). The Company
further acknowledges that no Buyer is acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated hereby and thereby, and any advice
given by a Buyer or any of its representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby is
merely incidental to such Buyer's purchase of the Securities.
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The Company further represents to each Buyer that the Company's decision to
enter into the Transaction Documents has been based solely on the independent
evaluation by the Company and its representatives.
(g) No General Solicitation; Placement Agent's Fees. Neither the Company,
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nor any of its affiliates, nor any Person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D) in connection with the offer or sale of the Securities.
The Company shall be responsible for the payment of any placement agent's fees,
financial advisory fees, or brokers' commissions (other than for persons engaged
by any Buyer or its investment advisor) relating to or arising out of the
transactions contemplated hereby. The Company shall pay, and hold each Buyer
harmless against, any liability, loss or expense (including, without limitation,
attorney's fees and out-of-pocket expenses) arising in connection with any such
claim. The Company acknowledges that it has engaged New York Global Securities,
Inc. as placement agent (the "AGENT") in connection with the sale of the
Securities. Other than the Agent, the Company has not engaged any placement
agent or other agent in connection with the sale of the Securities.
(h) No Integrated Offering. None of the Company, its Subsidiaries, any of
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their affiliates, and any Person acting on their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system on
which any of the securities of the Company are listed or designated. None of
the Company, its Subsidiaries, their affiliates and any Person acting on their
behalf will take any action or steps referred to in the preceding sentence that
would require registration of any of the Securities under the 1933 Act or cause
the offering of the Securities to be integrated with other offerings.
(i) Dilutive Effect. The Company understands and acknowledges that the
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number of Conversion Shares issuable upon conversion of the Notes, and, the
Warrant Shares issuable upon exercise of the Warrants, will increase in certain
circumstances. The Company further acknowledges that its obligation to issue
Conversion Shares upon conversion of the Notes in accordance with this Agreement
and the Notes and its obligation to issue the Warrant Shares upon exercise of
the Warrants in accordance with this Agreement and the Warrants is, in each
case, absolute and unconditional regardless of the dilutive effect that such
issuance may have on the ownership interests of other stockholders of the
Company.
(j) Application of Takeover Protections; Rights Agreement. The Company and
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its Board of Directors have taken all necessary action, if any, in order to
render inapplicable any poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision which is or could become
applicable to any Buyer as a result of the transactions contemplated by this
Agreement, including, without limitation, the Company's issuance of the
Securities and any Buyer's ownership of the Securities. The Company has not
adopted a stockholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of Common Stock or a change in control of
the Company.
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(k) SEC Documents; Financial Statements. During the two (2) years
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prior to the date hereof, the Company has filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC pursuant
to the reporting requirements of the 1934 Act (all of the foregoing filed prior
to the date hereof and all exhibits included therein and financial statements,
notes and schedules thereto and documents incorporated by reference therein
being hereinafter referred to as the "SEC DOCUMENTS"). The Company has
delivered to the Buyers or their respective representatives true, correct and
complete copies of each of the SEC Documents not available on the XXXXX system
that have been requested by each Buyer. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the 1934
Act and the rules and regulations of the SEC promulgated thereunder applicable
to the SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. As of their respective dates, the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto as in effect as of the
time of filing. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).
(l) Absence of Certain Changes. Except as disclosed in Schedule 3(l), since
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the date of the Company's most recent audited financial statements contained in
a Form 10-KSB, there has been no material adverse change and no material adverse
development in the business, assets, properties, operations, condition
(financial or otherwise), results of operations or prospects of the Company.
Except as disclosed in Schedule 3(l), since the date of the Company's most
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recent audited financials statements contained in a Form 10-KSB, the Company has
not (i) declared or paid any dividends, (ii) sold any assets, individually or in
the aggregate, in excess of $50,000 outside of the ordinary course of business
or (iii) had capital expenditures, individually or in the aggregate, in excess
of $50,000. The Company has not taken any steps to seek protection pursuant to
any bankruptcy law nor does the Company have any knowledge or reason to believe
that its creditors intend to initiate involuntary bankruptcy proceedings or any
actual knowledge of any fact which would reasonably lead a creditor to do so.
(m) No Undisclosed Events, Liabilities, Developments or Circumstances. No
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event, liability, development or circumstance has occurred or exists, or is
contemplated to occur with respect to the Company, its Subsidiaries or their
respective business, properties, prospects, operations or financial condition,
that would be required to be disclosed by the Company under applicable
securities laws on a registration statement on Form S-1 filed with the SEC
relating to an issuance and sale by the Company of its Common Stock and which
has not been publicly announced.
(n) Conduct of Business; Regulatory Permits. Neither the Company nor its
------------------------------------------
9
Subsidiaries is in violation of any term of or in default under its Articles of
Incorporation or Bylaws or their organizational charter or Articles of
Incorporation or bylaws, respectively. Neither the Company nor any of its
Subsidiaries is in violation of any judgment, decree or order or any statute,
ordinance, rule or regulation applicable to the Company or its Subsidiaries, and
neither the Company nor any of its Subsidiaries will conduct its business in
violation of any of the foregoing, except in all cases for possible violations
which would not, individually or in the aggregate, have a Material Adverse
Effect. Without limiting the generality of the foregoing, the Company is not in
violation of any of the rules, regulations or requirements of the Principal
Market and has no knowledge of any facts or circumstances that would reasonably
lead to delisting or suspension of the Common Stock by the Principal Market in
the foreseeable future. During the two (2) years prior to the date hereof, (i)
the Common Stock has been designated for quotation on the Principal Market, (ii)
trading in the Common Stock has not been suspended by the SEC or the Principal
Market and (iii) the Company has received no communication, written or oral,
from the SEC or the Principal Market regarding the suspension or delisting of
the Common Stock from the Principal Market. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
regulatory authorities necessary to conduct their respective businesses, except
where the failure to possess such certificates, authorizations or permits would
not have, individually or in the aggregate, a Material Adverse Effect, and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit.
(o) Foreign Corrupt Practices. Neither the Company nor any of its
---------------------------
Subsidiaries nor any director, officer, agent, employee or other Person acting
-
on behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company (i) used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds; (iii)
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.
(p) Xxxxxxxx-Xxxxx Act. The Company is in compliance with any and all
-------------------
applicable requirements of the Xxxxxxxx-Xxxxx Act of 2002 that are effective as
of the date hereof, and any and all applicable rules and regulations promulgated
by the SEC thereunder that are effective as of the date hereof, except where
such noncompliance would not have, individually or in the aggregate, a Material
Adverse Effect.
(q) Transactions With Affiliates. Except as set forth in the SEC Documents
-----------------------------
filed at least ten days prior to the date hereof and other than the grant of
stock options disclosed on Schedule 3(q), none of the officers, directors or
-------------
employees of the Company is presently a party to any transaction with the
Company or any of its Subsidiaries (other than for ordinary course services as
employees, officers or directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any such officer, director or employee or, to the knowledge of the
Company, any corporation, partnership, trust or other entity in which any such
officer, director, or employee has a substantial interest or is an
10
officer, director, trustee or partner.
(r) Equity Capitalization. As of the date hereof, the authorized capital
----------------------
stock of the Company consists of 100,000,000 shares of Common Stock, of which as
of the date hereof, 34,107,784 are issued and outstanding, and no shares are
reserved for issuance pursuant to securities (other than the Notes and the
Warrants) exercisable or exchangeable for, or convertible into, shares of Common
Stock. All of such outstanding shares have been, or upon issuance will be,
validly issued and are fully paid and nonassessable. Except as disclosed in
Schedule 3(r): (i) none of the Company's share capital is subject to preemptive
-----------
rights or any other similar rights or any liens or encumbrances suffered or
permitted by the Company; (ii) there are no outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any share capital of the Company or any of its Subsidiaries,
or contracts, commitments, understandings or arrangements by which the Company
or any of its Subsidiaries is or may become bound to issue additional share
capital of the Company or any of its Subsidiaries or options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any share capital of the Company or any of its Subsidiaries;
(iii) there are no outstanding debt securities, notes, credit agreements, credit
facilities or other agreements, documents or instruments evidencing Indebtedness
of the Company or any of its Subsidiaries or by which the Company or any of its
Subsidiaries is or may become bound; (iv) there are no financing statements
securing obligations in any material amounts, either singly or in the aggregate,
filed in connection with the Company or any of its Subsidiaries; (v) there are
no agreements or arrangements under which the Company or any of its Subsidiaries
is obligated to register the sale of any of their securities under the 1933 Act
(except the Registration Rights Agreement); (vi) there are no outstanding
securities or instruments of the Company or any of its Subsidiaries which
contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to redeem a security of the Company or any
of its Subsidiaries; (vii) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities; (viii) the Company does not have any stock appreciation rights
or "phantom stock" plans or agreements or any similar plan or agreement; and
(ix) the Company and its Subsidiaries have no liabilities or obligations
required to be disclosed in the SEC Documents but not so disclosed in the SEC
Documents, other than those incurred in the ordinary course of the Company's or
its Subsidiaries' respective businesses and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect. The Company has
furnished to the Buyer true, correct and complete copies of the Company's
Articles of Incorporation, as amended and as in effect on the date hereof (the
"ARTICLES OF INCORPORATION"), and the Company's Bylaws, as amended and as in
effect on the date hereof (the "BYLAWS"), and the terms of all securities
convertible into, or exercisable or exchangeable for, shares of Common Stock and
the material rights of the holders thereof in respect thereto.
(s) Indebtedness and Other Contracts. Neither the Company nor any of its
-----------------------------------
Subsidiaries (i) has any outstanding Indebtedness (as defined below), (ii) is in
violation of any term of or in default under any contract, agreement or
instrument relating to any Indebtedness, except where such violations and
defaults would not result, individually or in the aggregate, in a Material
Adverse Effect, or (iii) is a party to any contract, agreement or instrument
relating to
11
any Indebtedness, the performance of which, in the judgment of the Company's
officers, has or is expected to have a Material Adverse Effect. Schedule 3(s)
-------------
provides a detailed description of the material terms of any such outstanding
Indebtedness. For purposes of this Agreement: (x) "INDEBTEDNESS" of any Person
means, without duplication (A) all indebtedness for borrowed money, (B) all
obligations issued, undertaken or assumed as the deferred purchase price of
property or services (including, without limitation, "capital leases" in
accordance with generally accepted accounting principals) (other than trade
payables entered into in the ordinary course of business), (C) all reimbursement
or payment obligations with respect to letters of credit, surety bonds and other
similar instruments, (D) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (F) all
monetary obligations under any leasing or similar arrangement which, in
connection with generally accepted accounting principles, consistently applied
for the periods covered thereby, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment of
such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (A) through (G)
above; (y) "CONTINGENT OBLIGATION" means, as to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto; and (z)
"PERSON" means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
(t) Absence of Litigation. There is no action, suit, proceeding, inquiry or
---------------------
investigation before or by the Principal Market, any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company, threatened against or affecting the Company, the
Common Stock or any of the Company's Subsidiaries or any of the Company's or its
Subsidiaries' officers or directors, that could, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect.
(u) Insurance. The Company and each of its Subsidiaries are insured by
---------
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers
12
as may be necessary to continue its business at a cost that would not have a
Material Adverse Effect.
(v) Employee Relations. (i) Neither Company nor any of its Subsidiaries is
------------------
a party to any collective bargaining agreement or employs any member of a union.
The Company and its Subsidiaries believe that their relations with their
employees are good. No executive officer of the Company or any of its
Subsidiaries (as defined in Rule 501(f) of the 0000 Xxx) has notified the
Company or any such Subsidiary that such officer intends to leave the Company or
any such Subsidiary or otherwise terminate such officer's employment with the
Company or any such Subsidiary. No executive officer of the Company or any of
its Subsidiaries, to the knowledge of the Company or any such Subsidiary, is, or
is now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does not
subject the Company or any such Subsidiary to any liability with respect to any
of the foregoing matters.
(ii) The Company and its Subsidiaries are in compliance with all applicable
South Korean and United States federal, state, provincial, local and foreign
laws and regulations respecting labor, employment and employment practices and
benefits, terms and conditions of employment and wages and hours, except where
failure to be in compliance would not, either individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
(w) Title. The Company and its Subsidiaries have good and marketable title
-----
in fee simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and any of its Subsidiaries. Any real property and facilities held
under lease by the Company and any of its Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company and its Subsidiaries.
(x) Intellectual Property Rights. The Company and its Subsidiaries own or
------------------------------
possess adequate rights or licenses to use all trademarks, trade names, service
marks, service xxxx registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental authorizations, trade
secrets and other intellectual property rights ("INTELLECTUAL PROPERTY RIGHTS")
necessary to conduct their respective businesses as now conducted except where
the failure to so own or possess would not reasonably be expected to result in a
Material Adverse Effect. None of the Company's Intellectual Property Rights
have expired or terminated, or are expected to expire or terminate, within three
years from the date of this Agreement. The Company does not have any knowledge
of any infringement by the Company or its Subsidiaries of Intellectual Property
Rights of others. There is no claim, action or proceeding being made or
brought, or to the knowledge of the Company, being threatened, against the
Company or its Subsidiaries regarding its Intellectual Property Rights. The
Company is unaware of any facts or circumstances which might give rise to any of
the foregoing
13
infringements or claims, actions or proceedings. The Company and its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties.
(y) Environmental Laws. The Company and its Subsidiaries (i) are in
-------------------
compliance with any and all applicable Environmental Laws (as hereinafter
defined), (ii) have received all permits, licenses or other approvals required
of them under applicable Environmental Laws to conduct their respective
businesses and (iii) are in compliance with all terms and conditions of any such
permit, license or approval where, in each of the foregoing clauses (i), (ii)
and (iii), the failure to so comply could be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect. The term
"ENVIRONMENTAL LAWS" means all applicable South Korean and United States
federal, state, provincial, local or foreign laws relating to pollution or
protection of human health or the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata),
including, without limitation, laws relating to emissions, discharges, releases
or threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, "HAZARDOUS MATERIALS") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.
(z) Subsidiary Rights. The Company or one of its Subsidiaries has the
------------------
unrestricted right to vote, and (subject to limitations imposed by applicable
law) to receive dividends and distributions on, all capital securities of its
Subsidiaries as owned by the Company or such Subsidiary.
(aa) Investment Company. The Company is not, and is not an affiliate of, an
------------------
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
(bb) Tax Status. The Company and each of its Subsidiaries (i) has made or
-----------
filed all foreign, South Korean, United States federal, state and provincial
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject, (ii) has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and (iii) has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim.
(cc) Internal Accounting and Disclosure Controls. The Company maintains a
---------------------------------------------
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset and liability
accountability, (iii) access to assets or incurrence of liabilities is permitted
only in accordance
14
with management's general or specific authorization and (iv) the recorded
accountability for assets and liabilities is compared with the existing assets
and liabilities at reasonable intervals and appropriate action is taken with
respect to any difference. The Company maintains disclosure controls and
procedures (as such term is defined in Rule 13a-14 under the 0000 Xxx) that are
designed to ensure that information required to be disclosed by the Company in
the reports that it files or submits under the 1934 Act is recorded, processed,
summarized and reported, within the time periods specified in the rules and
forms of the SEC, including, without limitation, controls and procedures
designed in to ensure that information required to be disclosed by the Company
in the reports that it files or submits under the 1934 Act is accumulated and
communicated to the Company's management, including its principal executive
officer or officers and its principal financial officer or officers, as
appropriate, to allow timely decisions regarding required disclosure. During
the twelve months prior to the date hereof neither the Company nor any of its
Subsidiaries have received any notice or correspondence from any accountant
relating to any potential material weakness in any part of the system of
internal accounting controls of the Company or any of its Subsidiaries.
(dd) Off Balance Sheet Arrangements. There is no transaction, arrangement,
-------------------------------
or other relationship between the Company and an unconsolidated or other off
balance sheet entity that is required to be disclosed by the Company in its
Exchange Act filings and is not so disclosed or that otherwise would be
reasonably likely to have a Material Adverse Effect.
(ee) Ranking of Notes. No Indebtedness of the Company is senior to or ranks
----------------
pari passu with the Notes in right of payment, whether with respect of payment
of redemptions, interest, damages or upon liquidation or dissolution or
otherwise.
(ff) Registration Eligibility. The Company is eligible to register the
-------------------------
Conversion Shares, the Warrant Shares and the Interest Shares for resale by the
Buyers using Form SB-2 promulgated under the 1933 Act.
(gg) Manipulation of Price. The Company has not, and to its knowledge no
-----------------------
one acting on its behalf has, (i) taken, directly or indirectly, any action
designed to cause or to result in the stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of any of the
Securities, (ii) other than the Agent, sold, bid for, purchased, or paid any
compensation for soliciting purchases of, any of the Securities, or (iii) other
than the Agent, paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company.
(hh) Disclosure. The Company confirms that neither it nor any other Person
----------
acting on its behalf has provided any of the Buyers or their agents or counsel
with any information that constitutes or could reasonably be expected to
constitute material, nonpublic information other than as set forth in the
following sentence. The Company understands and confirms that each of the
Buyers will rely on the foregoing representations in effecting transactions in
securities of the Company. All disclosure provided to the Buyers regarding the
Company, its business and the transactions contemplated hereby, including the
Schedules to this Agreement, furnished by or on behalf of the Company is true
and correct and does 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 the light of the circumstances under which they were made,
15
not misleading. Each press release issued by the Company during the twelve (12)
months preceding the date of this Agreement did not at the time of release
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading. No event or circumstance has occurred or information exists with
respect to the Company or any of its Subsidiaries or its or their business,
properties, prospects, operations or financial conditions, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed.
4. COVENANTS.
(a) Best Efforts. Each party shall use its best efforts timely to satisfy
-------------
each of the conditions to be satisfied by it as provided in Sections 6 and 7 of
this Agreement.
(b) Form D and Blue Sky. The Company agrees to file a Form D with respect
---------------------
to the Securities as required under Regulation D and to provide a copy thereof
to each Buyer promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary in order to obtain an exemption for or to qualify the Securities for
sale to the Buyers at the Closing pursuant to this Agreement under applicable
securities or "Blue Sky" laws of the states of the United States (or to obtain
an exemption from such qualification), and shall provide evidence of any such
action so taken to the Buyers on or prior to the Closing Date. The Company
shall make all filings and reports relating to the offer and sale of the
Securities required under applicable securities or "Blue Sky" laws of the states
of the United States following the Closing Date.
(c) Reporting Status. Until the later of the date on which the Investors
-----------------
(as defined in the Registration Rights Agreement) shall have sold all the
Conversion Shares, Warrant Shares and Interest Shares, if any, and none of the
Notes or Warrants is outstanding or the date which is four years from the date
hereof (the "REPORTING PERIOD"), the Company shall file all reports required to
be filed pursuant to the 1934 Act, and the Company shall not terminate its
status as an issuer required to file reports under the 1934 Act even if the 1934
Act or the rules and regulations thereunder would otherwise permit such
termination.
(d) Use of Proceeds. The Company will use the proceeds from the sale of the
---------------
Securities for raw materials and general working capital, and not for (A)
repayment of any outstanding Indebtedness of the Company or any of its
Subsidiaries or (B) redemption or repurchase of any of its or its Subsidiaries
equity securities.
(e) Financial Information. The Company agrees to send the following to each
---------------------
Investor (as defined in the Registration Rights Agreement) during the Reporting
Period (i) unless the following are filed with the SEC through XXXXX and are
available to the public through the XXXXX system, within one (1) Business Day
after the filing thereof with the SEC, a copy of its Annual Reports on Form 10-K
or 10-KSB, any interim reports or any consolidated balance sheets, income
statements, stockholders' equity statements and/or cash flow statements for any
period other than annual, any Current Reports on Form 8-K and any registration
statements (other than on Form S-8) or amendments filed pursuant to the 1933
Act, and (ii) copies of any
16
notices and other information made available or given to the stockholders of the
Company generally, contemporaneously with the making available or giving thereof
to the stockholders.
(f) Listing. The Company shall promptly secure the listing of all of the
-------
Registrable Securities (as defined in the Registration Rights Agreement) upon
each national securities exchange and automated quotation system, if any, upon
which the Common Stock is then listed (subject to official notice of issuance)
and shall maintain such listing of all Registrable Securities from time to time
issuable under the terms of the Transaction Documents. The Company shall
maintain the Common Stocks' authorization for quotation on the Principal Market.
Neither the Company nor any of its Subsidiaries shall take any action which
would be reasonably expected to result in the delisting or suspension of the
Common Stock on the Principal Market. The Company shall pay all fees and
expenses in connection with satisfying its obligations under this Section 4(f).
(g) Fees. The Company shall be responsible for the payment of any placement
----
agent's fees, financial advisory fees, or broker's commissions (other than for
Persons engaged by any Buyer) relating to or arising out of the transactions
contemplated hereby, including, without limitation, any fees payable to the
Agent. The Company shall pay, and hold each Buyer harmless against, any
liability, loss or expense (including, without limitation, reasonable attorney's
fees and out-of-pocket expenses) arising in connection with any claim relating
to any such payment.
(h) Pledge of Securities. The Company acknowledges and agrees that the
----------------------
Securities may be pledged pursuant to an available exemption from registration
under the 1933 Act by an Investor (as defined in the Registration Rights
Agreement) in connection with a bona fide margin agreement or other loan or
financing arrangement that is secured by the Securities. The pledge of
Securities shall not be deemed to be a transfer, sale or assignment of the
Securities hereunder, and no Investor effecting a pledge of Securities shall be
required to provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement or any other Transaction
Document, including, without limitation, Section 2(g) hereof; provided that an
Investor and its pledgee shall be required to comply with the provisions of
Section 2(g) hereof in order to effect a sale, transfer or assignment of
Securities to such pledgee. The Company hereby agrees to execute and deliver
such documentation as a pledgee of the Securities may reasonably request in
connection with a pledge of the Securities to such pledgee by an Investor.
(i) Disclosure of Transactions and Other Material Information. The Company
----------------------------------------------------------
shall file a Current Report on Form 8-K describing the terms of the transactions
contemplated by the Transaction Documents in the form required by the 1934 Act
and attaching the material Transaction Documents (including, without limitation,
this Agreement (and all schedules to this Agreement), the form of Notes, the
form of Warrant and the Registration Rights Agreement) (including all
attachments, the "8-K FILING"). From and after the filing of the 8-K Filing
with the SEC, the Company shall have disclosed any material nonpublic
information delivered to the Buyers by the Company or any of its Subsidiaries,
or any of their respective officers, directors, employees or agents. The
Company shall not, and shall cause each of its Subsidiaries and its and each of
their respective officers, directors, employees and agents, not to,
17
provide any Buyer with any material, nonpublic information regarding the Company
or any of its Subsidiaries from and after the filing of the 8-K Filing with the
SEC without the express written consent of such Buyer.
(j) Additional Notes. So long as any Buyer beneficially owns any
-----------------
Securities, the Company will not, without the prior written consent of Buyers
--
holding a majority of the principal amount of the Notes, issue any Notes (other
than to the Buyers as contemplated hereby) and the Company shall not issue any
other securities that would cause a breach or default under the Notes.
(k) Conduct of Business. The business of the Company and its Subsidiaries
---------------------
shall not be conducted in violation of any law, ordinance or regulation of any
governmental entity, except where such violations would not result, either
individually or in the aggregate, in a Material Adverse Effect.
(l) Additional Issuances of Securities.
-------------------------------------
(i) For purposes of this Section 4(l), the following definitions shall
apply.
(A) "CONVERTIBLE SECURITIES" means any stock or securities (other than
Options) convertible into or exercisable or exchangeable for shares of Common
Stock.
(B) "OPTIONS" means any rights, warrants or options to subscribe for or
purchase shares of Common Stock or Convertible Securities.
(C) "COMMON STOCK EQUIVALENTS" means, collectively, Options and Convertible
Securities.
(ii) From the date hereof until one hundred eighty (180) days after the
Effective Date (as defined in the Registration Rights Agreement) the Company
will not, directly or indirectly, file any registration statement with the SEC
other than the Registration Statement (as defined in the Registration Rights
Agreement) or a registration statement on Form S-8 pursuant to the 1933 Act.
(iii) From the Closing Date until the date twelve months after the Effective
Date, the Company will not, directly or indirectly, offer, sell, grant any
option to purchase, or otherwise dispose of (or announce any offer, sale, grant
or any option to purchase or other disposition of) any of its or its
Subsidiaries' equity or equity equivalent securities, including without
limitation any debt, preferred stock or other instrument or security that is, at
any time during its life and under any circumstances, convertible into or
exchangeable or exercisable for shares of Common Stock or Common Stock
Equivalents (any such offer, sale, grant, disposition or announcement being
referred to as a "SUBSEQUENT PLACEMENT") unless the Company shall have first
complied with this Section 4(l).
(A) The Company shall deliver to each Buyer a written notice (the "OFFER
NOTICE") of any proposed or intended issuance or sale or exchange
18
(the "OFFER") of the securities being offered (the "OFFERED SECURITIES") in a
Subsequent Placement, which Offer Notice shall (w) identify and describe the
Offered Securities, (x) describe the price and other terms upon which they are
to be issued, sold or exchanged, and the number or amount of the Offered
Securities to be issued, sold or exchanged, and (y) identify the persons or
entities (if known) to which or with which the Offered Securities are to be
offered, issued, sold or exchanged and (z) offer to issue and sell to such
Buyers at least 80% of the Offered Securities, allocated among such Buyers (a)
based on such Buyer's pro rata portion of the aggregate principal amount of
Notes purchased hereunder (the "BASIC AMOUNT"), and (b) with respect to each
Buyer that elects to purchase its Basic Amount, any additional portion of the
Offered Securities attributable to the Basic Amounts of other Buyers as such
Buyer shall indicate it will purchase or acquire should the other Buyers
subscribe for less than their Basic Amounts (the "UNDERSUBSCRIPTION AMOUNT").
(B) To accept an Offer, in whole or in part, such Buyer must deliver a
written notice to the Company prior to the end of the fifth (5th) Business Day
after such Buyer's receipt of the Offer Notice (the "OFFER PERIOD"), setting
forth the portion of such Buyer's Basic Amount that such Buyer elects to
purchase and, if such Buyer shall elect to purchase all of its Basic Amount, the
Undersubscription Amount, if any, that such Buyer elects to purchase (in either
case, the "NOTICE OF ACCEPTANCE"). If the Basic Amounts subscribed for by all
Buyers are less than the total of all of the Basic Amounts, then each Buyer who
has set forth an Undersubscription Amount in its Notice of Acceptance shall be
entitled to purchase, in addition to the Basic Amounts subscribed for, the
Undersubscription Amount it has subscribed for; provided, however, that if the
-------- -------
Undersubscription Amounts subscribed for exceed the difference between the total
of all the Basic Amounts and the Basic Amounts subscribed for (the "AVAILABLE
UNDERSUBSCRIPTION AMOUNT"), each Buyer who has subscribed for any
Undersubscription Amount shall be entitled to purchase only that portion of the
Available Undersubscription Amount as the Basic Amount of such Buyer bears to
the total Basic Amounts of all Buyers that have subscribed for Undersubscription
Amounts, subject to rounding by the Company to the extent its deems reasonably
necessary.
(C) The Company shall have ten (10) Business Days from the expiration of the
Offer Period above to offer, issue, sell or exchange all or any part of such
Offered Securities as to which a Notice of Acceptance has not been given by the
Buyers (the "REFUSED SECURITIES").
(D) In the event the Company shall propose to sell less than all the Refused
Securities (any such sale to be in the manner and on the terms specified in
Section 4(l)(iii)(C) above), then each Buyer may, at its sole option and in its
sole discretion, reduce the number or amount of the Offered Securities specified
in its Notice of Acceptance to an amount that shall be not less than the number
or amount of the Offered Securities that such Buyer elected to purchase pursuant
to Section 4(l)(iii)(B) above multiplied by a fraction, (1) the numerator of
which shall be the number or amount of Offered Securities the Company actually
proposes to issue, sell or exchange (including Offered Securities to be issued
or sold to Buyers pursuant to Section 4(l)(iii)(C) above
19
prior to such reduction) and (2) the denominator of which shall be the original
amount of the Offered Securities.
(E) Upon the closing of the issuance, sale or exchange of all or less than
all of the Refused Securities, the Buyers shall acquire from the Company, and
the Company shall issue to the Buyers, the number or amount of Offered
Securities specified in the Notices of Acceptance, as reduced pursuant to
Section 4(l)(iii)(C) above if the Buyers have so elected, upon the terms and
conditions specified in the Offer. The purchase by the Buyers of any Offered
Securities is subject in all cases to the preparation, execution and delivery by
the Company and the Buyers of a purchase agreement relating to such Offered
Securities reasonably satisfactory in form and substance to the Buyers and their
respective counsel.
(iv) The restrictions contained in subsections (ii) and (iii) of this
Section 4(l) shall not apply in connection with the issuance of any Excluded
Securities (as defined in the Notes) or any security issued in a bona fide
underwritten public offering by the Company or any of its Subsidiaries.
5. REGISTER. The Company shall maintain at its principal executive offices
(or such other office or agency of the Company as it may designate by notice to
each holder of Securities), a register for the Notes and the Warrants in which
the Company shall record the name and address of the Person in whose name the
Notes and the Warrants have been issued (including the name and address of each
transferee), the principal amount of Notes held by such Person, the number of
Conversion Shares issuable upon conversion of the Notes and Warrant Shares
issuable upon exercise of the Warrants held by such Person. The Company shall
keep the register open and available at all times during business hours for
inspection of any Buyer or its legal representatives.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the
Company hereunder to issue and sell the Notes and the related Warrants to each
Buyer at the Closing is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions, provided that these conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion by providing each Buyer with prior written notice thereof:
(a) Such Buyer shall have executed each of the Transaction Documents to
which it is a party and delivered the same to the Company.
(b) Such Buyer and each other Buyer shall have delivered to the Company the
Purchase Price for the Notes and the related Warrants being purchased by such
Buyer at the Closing by wire transfer of immediately available funds pursuant to
the wire instructions provided in Section 1(d) hereof.
(c) The representations and warranties of such Buyer shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made at that time (except for representations and warranties that
speak as of a specific date), and such Buyer shall have performed, satisfied and
complied in all material respects with the covenants,
20
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Buyer at or prior to the Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The obligation of
each Buyer hereunder to purchase the Notes and the related Warrants at the
Closing is subject to the satisfaction, at or before the Closing Date, of each
of the following conditions, provided that these conditions are for each Buyer's
sole benefit and may be waived by such Buyer at any time in its sole discretion
by providing the Company with prior written notice thereof:
(a) The Company shall have executed and delivered to such Buyer (i) each of
the Transaction Documents and (ii) the Notes (in such principal amounts as is
set forth across from such Buyer's name in column (3) of the Schedule of Buyers
and the related Warrants (in such principal amounts as is set forth across from
such Buyer's name in column (4) of the Schedule of Buyers) being purchased by
such Buyer at the Closing pursuant to this Agreement.
(b) The Company shall have delivered to such Buyer a certificate, executed
by the Secretary of the Company and dated as of the Closing Date, as to (i) the
resolutions consistent with Section 3(b) as adopted by the Company's Board of
Directors in a form reasonably acceptable to such Buyer, (ii) the Articles of
Incorporation and (iii) the Bylaws, each as in effect at the Closing, in the
form attached hereto as Exhibit D.
----------
(c) The representations and warranties of the Company shall be true and
correct as of the date when made and as of the Closing Date as though made at
that time (except for representations and warranties that speak as of a specific
date) and the Company shall have performed, satisfied and complied in all
respects with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by the Company
at or prior to the Closing Date. Such Buyer shall have received a certificate,
executed by the Chief Executive Officer of the Company, dated as of the Closing
Date, to the foregoing effect and as to such other matters as may be reasonably
requested by such Buyer in the form attached hereto as Exhibit E.
----------
(d) Each officer and director of the Company shall have delivered to such
Buyer a signed Lock-Up Agreement in the form attached hereto as Exhibit F.
---------
(e) The Common Stock (i) shall be designated for quotation or listed on the
Principal Market and (ii) shall not have been suspended, as of the Closing Date,
by the SEC or the Principal Market from trading on the Principal Market nor
shall suspension by the SEC or the Principal Market have been threatened, as of
the Closing Date, either (A) in writing by the SEC or the Principal Market or
(B) by falling below the minimum listing maintenance requirements of the
Principal Market.
(f) The Company shall have obtained all governmental, regulatory or third
party consents and approvals, if any, necessary for the sale of the Securities.
(g) The Company shall have delivered to such Buyer such other documents
relating to the transactions contemplated by this Agreement as such Buyer or its
counsel may reasonably request.
21
8. TERMINATION. In the event that the Closing shall not have occurred with
respect to a Buyer on or before ten (10) Business Days from the date hereof due
to the Company's or such Buyer's failure to satisfy the conditions set forth in
Sections 6 and 7 above (and the nonbreaching party's failure to waive such
unsatisfied condition(s)), the nonbreaching party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date without liability of any party to any other party.
9. MISCELLANEOUS.
(a) Governing Law; Jurisdiction; Jury Trial. All questions concerning the
-----------------------------------------
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and United States
federal courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
(b) Counterparts. This Agreement may be executed in two or more identical
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party; provided that a facsimile signature shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a facsimile
signature.
(c) Headings. The headings of this Agreement are for convenience of
--------
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) Severability. If any provision of this Agreement shall be invalid or
------------
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
(e) Entire Agreement; Amendments. This Agreement and the other
------------------------------
22
Transaction Documents supersede all other prior oral or written agreements
between the Buyers, the Company, their Affiliates and Persons acting on their
behalf with respect to the matters discussed herein, and this Agreement, the
other Transaction Documents and the instruments referenced herein and therein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of at least a majority of the aggregate number of
Registrable Securities issued and issuable hereunder, and any amendment to this
Agreement made in conformity with the provisions of this Section 9(e) shall be
binding on all Buyers and holders of Securities, as applicable. No provision
hereof may be waived other than by an instrument in writing signed by the party
against whom enforcement is sought. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the applicable
Securities then outstanding. No consideration shall be offered or paid to any
Person to amend or consent to a waiver or modification of any provision of any
of the Transaction Documents unless the same consideration also is offered to
all of the parties to the Transaction Documents, holders of Notes or holders of
the Warrants, as the case may be. The Company has not, directly or indirectly,
made any agreements with any Buyers relating to the terms or conditions of the
transactions contemplated by the Transaction Documents except as set forth in
the Transaction Documents. Without limiting the foregoing, the Company confirms
that, except as set forth in this Agreement, no Buyer has made any commitment or
promise or has any other obligation to provide any financing to the Company or
otherwise.
(f) Notices. Any notices, consents, waivers or other communications
-------
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit with
an overnight courier service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company:
Sorell Inc.
Buk-ri 00
Xxxx-Xxxx
Xxxxxx Xxxx, Xxxxx Xxxxx
Telephone: x00000000000
Facsimile: x00000000000
Attention: Bon Xxxx Xx, Chief Executive Officer
With a copy (for informational purposes only) to:
Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP
1065 Avenue of the Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxx X. Xxxx, Esq.
And to:
Xxxxxx Law Group
0000 Xxxx Xxxxxxxxx Xx
Xxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: M. Xxxxxxx Xxxxxx
If to a Buyer, to its address and facsimile number set forth on the
Schedule of Buyers, with copies to such Buyer's representatives as set forth on
the Schedule of Buyers,
or to such other address and/or facsimile number and/or to the attention of such
other Person as the recipient party has specified by written notice given to
each other party five (5) days prior to the effectiveness of such change.
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender's facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission or (C)
provided by an overnight courier service shall be rebuttable evidence of
personal service, receipt by facsimile or receipt from an overnight courier
service in accordance with clause (i), (ii) or (iii) above, respectively.
(g) Successors and Assigns. This Agreement shall be binding upon and inure
-----------------------
to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Notes or the Warrants. The Company shall not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the holders of at least a majority of the aggregate number of
Registrable Securities issued and issuable hereunder, including by way of a
Fundamental Transaction (unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the Notes and the
Warrants). A Buyer may assign some or all of its rights hereunder in connection
with transfer of any of its Securities without the consent of the Company, in
which event such assignee shall be deemed to be a Buyer hereunder with respect
to such assigned rights.
(h) No Third Party Beneficiaries. This Agreement is intended for the
-------------------------------
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
(i) Survival. Unless this Agreement is terminated under Section 8, the
--------
representations and warranties of the Company and the Buyers contained in
Sections 2 and 3 and the agreements and covenants set forth in Sections 4, 5 and
9 shall survive the Closing. Each Buyer shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.
(j) Further Assurances. Each party shall do and perform, or cause to be
-------------------
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
any other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(k) Indemnification. In consideration of each Buyer's execution and
---------------
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer and each other holder of the Securities and all of their stockholders,
partners, members, officers, directors, employees and direct or indirect
investors and any of the foregoing Persons' agents or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "INDEMNITEES")
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (irrespective of whether any such Indemnitee is a party to the action
for which indemnification hereunder is sought), and including reasonable
attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"), incurred by
any Indemnitee as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby or
(c) any cause of action, suit or claim brought or made against such Indemnitee
by a third party (including for these purposes a derivative action brought on
behalf of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, or (iii) the
status of such Buyer or holder of the Securities as an investor in the Company
pursuant to the transactions contemplated by the Transaction Documents. To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law. Except as otherwise set forth herein, the mechanics and
procedures with respect to the rights and obligations under this Section 9(k)
shall be the same as those set forth in Section 6 of the Registration Rights
Agreement.
(l) No Strict Construction. The language used in this Agreement will be
------------------------
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
(m) Remedies. Each Buyer and each holder of the Securities shall have all
--------
rights and remedies set forth in the Transaction Documents and all rights and
remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any
law. Any Person having any rights under any provision of this Agreement shall
be entitled to enforce such rights specifically (without posting a bond or other
security), to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law. Furthermore, the
Company recognizes that in the event that it fails to perform, observe, or
discharge any or all of its obligations under the Transaction Documents, any
remedy at law may prove to be inadequate relief to the Buyers. The Company
therefore agrees that the Buyers shall be entitled to seek temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages and without posting a bond or other security.
(n) Payment Set Aside. To the extent that the Company makes a payment or
-------------------
payments to the Buyers hereunder or pursuant to any of the other Transaction
Documents or the Buyers enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including, without limitation, any
bankruptcy law, foreign, provincial, state or United States federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
(o) Currency. Unless otherwise indicated, all dollar amounts referred to in
--------
this Agreement are in United States Dollars ("US DOLLARS"). All amounts owing
under this Agreement or any Transaction Document shall be paid in US Dollars.
All amounts denominated in other currencies shall be converted in the US Dollar
equivalent amount in accordance with the Exchange Rate on the date of
calculation. "EXCHANGE RATE" means, in relation to any amount of currency to be
converted into US Dollars pursuant to this Agreement, the US Dollar exchange
rate as published in the Wall Street Journal on the relevant date of
calculation.
(p) Judgment Currency.
------------------
(i) If for the purpose of obtaining or enforcing judgment against the
Company or any Subsidiary, in any court in any jurisdiction it becomes necessary
to convert into any other currency (such other currency being hereinafter in
this Section 9(p) referred to as the "JUDGMENT CURRENCY") an amount due in US
Dollars under this Agreement, the conversion shall be made at the Exchange Rate
prevailing on the Business Day immediately preceding:
(A) the date of actual payment of the amount due, in the case of any
proceeding in the courts of New York or in the courts of any other jurisdiction
that will give effect to such conversion being made on such date: or
(B) the date on which the foreign court determines, in the case of any
proceeding in the courts of any other jurisdiction (the date as of which such
conversion is made pursuant to this Section 9(p) being hereinafter referred to
as the "JUDGMENT CONVERSION DATE").
(ii) If in the case of any proceeding in the court of any jurisdiction
referred to in Section 9(p)(i)(B) above, there is a change in the Exchange Rate
prevailing between the Judgment Conversion Date and the date of actual payment
of the amount due, the applicable party shall pay such adjusted amount as may be
necessary to ensure that the amount paid in the Judgment Currency, when
converted at the Exchange Rate prevailing on the date of payment, will produce
the amount of US Dollars which could have been purchased with the amount of
Judgment Currency stipulated in the judgment or judicial order at the Exchange
Rate prevailing on the Judgment Conversion Date.
(iii) Any amount due from the Company or any Subsidiary, under this
provision shall be due as a separate debt and shall not be affected by judgment
being obtained for any other amounts due under or in respect of this Agreement.
(q) Independent Nature of Buyers' Obligations and Rights. The obligations
------------------------------------------------------
of each Buyer under any Transaction Document are several and not joint with the
obligations of any other Buyer, and no Buyer shall be responsible in any way for
the performance of the obligations of any other Buyer under any Transaction
Document. Nothing contained herein or in any other Transaction Document, and no
action taken by any Buyer pursuant hereto or thereto, shall be deemed to
constitute the Buyers as a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Buyers are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents and the Company
acknowledges that the Buyers are not acting in concert or as a group with
respect to such obligations or the transactions contemplated by the Transaction
Documents. Each Buyer confirms that it has independently participated in the
negotiation of the transaction contemplated hereby with the advice of its own
counsel and advisors. Each Buyer shall be entitled to independently protect and
enforce its rights, including, without limitation, the rights arising out of
this Agreement or out of any other Transaction Documents, and it shall not be
necessary for any other Buyer to be joined as an additional party in any
proceeding for such purpose.
[Signature Pages Follow]
23
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
COMPANY:
SORELL INC.
By: /s/ X. X. Xxx
------------------
Name: Bon Xxxx Xxx
Title: Chief Executive Officer
24
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
BUYERS:
MIDSOUTH INVESTOR FUND LP
By: /s/ Xxxxx X. Xxxxxxx
------------------------
Name: Xxxxx X. Xxxxxxx
Title: General Partner
25
29
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
BUYERS:
SOVGEM LIMITED
By: /s/ Xxxx X. Xxxxxxx
-----------------------
Name: Xxxx X. Xxxxxxx
Title: Director
26
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
BUYERS:
ALPHA CAPITAL AG
By: /s/ Xxxxxx Xxxxxxxx
----------------------
Name: Xxxxxx Xxxxxxxx
Title: Director
27
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
BUYERS: LAKE STREET FUND, L.P.
BY: LAKE STREET MANAGEMENT, LLC, GP
By: /s/ Xxxxx X. Xxxx
---------------------
Name: Xxxxx X. Xxxx
Title: Managing Director
28
SCHEDULE OF BUYERS
(1) (2) (3) (4) (5)
ADDRESS AND AGGREGATE PRINCIPAL AGGREGATE NUMBER LEGAL
BUYER FACSIMILE NUMBER AMOUNT OF NOTES OF WARRANTS REPRESENTATIVE'S ADDRESS
AND FACSIMILE NUMBER
MidSouth Invewtor Fund LP 0000 Xxxxxxxxx Xx. Xxxxx 000 N $ 300,000 600,000 c/o Heidtke & Co., Inc.
Xxxxxxx, XX 00000 000 0xx Xxx. Xxxxx
Xxxxxxxxx, XX 00000
000-000-0000 (tel)
000-000-0000 (fax)
SovGEM LIMITED 0 Xxxxxxxxx Xxxxx $ 250,000 500,000 NYGS
Xxxx Xxxxxx, Xx. Xxxxxx
Xxxxxx XX0 0XX
Tel: + 00 0000 000000
Fax: + 00 0000 000000
Alpha Capital AG Prachfont 7 $ 200,000 400,000 X.X.Xxxxxxxxx
Furstentums 9490
Vaduz Liechtenstein
Lake Street Fund, L.P. 0000 Xxxx Xxxxx Xxxxxx, Xxxxx 000 $ 250,000 400,000
Xxxxxxxx, Xxxxxxxxxx 00000
(000) 000-0000 Telephone
(000) 000-0000 Fax
29
DISCLOSURE SCHEDULES
TO
SECURITIES PURCHASE AGREEMENT
(Prepared in connection with Notes and Warrants sold by the Company to the
Buyers pursuant to the Securities Purchase Agreement dated as of May 1, 2006
(the "May 2006 Purchase Agreement"). Capitalized terms not defined herein
shall have the meaning given to such terms in the May 2006 Purchase Agreement.)
MAY 1, 2006
30
SCHEDULE 3(A)
SUBSIDIARIES
------------
None other than the Company's primary operating subsidiary which is S-CAM
Co., LTD. - a Korean entity. The Company itself is a U.S. holding company.
31
SCHEDULE 3(L)
ABSENCE OF CERTAIN CHANGES
--------------------------
None.
32
SCHEDULE 3(Q)
TRANSACTIONS WITH AFFILIATES
----------------------------
None.
33
SCHEDULE 3(R)
EQUITY CAPITALIZATION
---------------------
All outstanding debt securities, notes, credit agreements, credit facilities or
other agreements, documents or instruments evidencing indebtedness of the
Company or its Subsidiaries or by which the Company or its Subsidiaries are or
may become bound:
TERM BANK BALANCE INTEREST MATURITY SECURED BY
---------- -------- ------- -------- ---------- ------------------
LONG-TERM HANA 349 0.00 2006/11/06 UNDER CONSTRUCTION
---------- -------- ------- -------- ---------- ------------------
KIUP 1,500 3.50 2012/03/15 LAND & BUILDING
-------- ------- -------- ---------- ------------------
KIUP 2,800 4.40 2012/05/19 LAND & BUILDING
-------- ------- -------- ---------- ------------------
4,649
-------
SHORT-TERM HANA 600 5.90 MAR-21 LAND & BUILDING
-------- ------- -------- ---------- ------------------
EXIM 1,900 4.75 MAY-18 *KTCG 975
-------- ------- -------- ---------- -------------------------
CITI 3,815 5.95 MAY-28 *KCG 2,812, DEPOSIT 500
-------- ------- -------- ---------- -------------------------
CHOHEUNG 1,200 6.00 JUNE-24 CREDIT + SAVING
-------- ------- -------- ---------- -------------------------
KIUP 800 5.79 OCT-20 CREDIT (CONNECTED TO L/T)
-------- ------- -------- ------------------ -------------------------
8,315
-------
REVOLVING EXCHANGE 1,759 0.25 FEB-02 CREDIT
-------- ------- -------- ---------- -------------------------
SHINHAN 902 5.60 FEB-04 *KTCG 918
-------- ------- -------- ---------- -------------------------
EXCHANGE 1,100 2.50 MAY-30 *KCG 1,020
-------- ------- -------- ---------- -------------------------
JEIL 93 2.50 MAY-30 *KCG 340
-------- ------- -------- ---------- -------------------------
KIUP 255 2.50 OCT-20 CREDIT (CONNECTED TO L/T)
-------- ------- -------- ------------------ -------------------------
EXCHANGE 1,588 5.37 OCT-21 *KTCG 1,360
-------- ------- -------- ------------------ -------------------------
5,697
-------
TOTAL 18,661
-------
34
SCHEDULE 3(S)
INDEBTEDNESS AND OTHER CONTRACTS
--------------------------------
See Schedule 3(r).
35
------
EXHIBITS
--------
Exhibit A Form of Notes
Exhibit B Form of Warrants
Exhibit C Registration Rights Agreement
Exhibit D Secretary's Certificate
Exhibit E Officer's Certificate
Exhibit F Form of Lock-Up Agreement
