SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
August [-], 2005, by and among iMedia International, Inc., a Delaware
corporation (the "Company"), and the purchasers identified on the signature
pages hereto (each, including its successors and assigns, a "Purchaser" and
collectively the "Purchasers").
WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act") and Rule 506 promulgated thereunder, the Company desires to
issue and sell to each Purchaser, and each Purchaser, severally and not
jointly, desires to purchase from the Company, securities of the Company as
more fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser
agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have
the meanings given to such terms in the Certificate of Designation (as defined
herein), and (b) the following terms have the meanings indicated in this
Section 1.1:
"Action" shall have the meaning ascribed to such term in Section
3.1(j).
"Actual Minimum" means, as of any date, the maximum aggregate number
of shares of Common Stock then issued or potentially issuable in the future
pursuant to the Transaction Documents, including any Underlying Shares
issuable upon exercise or conversion in full of all Warrants and shares of
Preferred Stock, ignoring any conversion or exercise limits set forth therein,
and assuming that any previously unconverted shares of Preferred Stock are
held until the second anniversary of the Closing Date and all dividends are
paid in shares of Common Stock until such second anniversary.
"Affiliate" means any Person that, directly or indirectly through one
or more intermediaries, controls or is controlled by or is under common
control with a Person, as such terms are used in and construed under Rule 144
under the Securities Act. With respect to a Purchaser, any investment fund or
managed account that is managed on a discretionary basis by the same
investment manager as such Purchaser will be deemed to be an Affiliate of such
Purchaser.
"Certificate of Designation" means the Certificate of Designation to
be filed prior to the Closing by the Company with the Secretary of State of
Delaware, in the form of Exhibit A attached hereto.
"Closing" means the closing of the purchase and sale of the
Securities pursuant to Section 2.1.
"Closing Date" means the Trading Day when all of the Transaction
Documents have been executed and delivered by the applicable parties thereto,
and all conditions precedent to (i) the Purchasers' obligations to pay the
Subscription Amount and (ii) the Company's obligations to deliver the
Securities have been satisfied or waived.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par value
$0.001 per share, and any other class of securities into which such securities
may hereafter have been reclassified or changed into.
"Common Stock Equivalents" means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.
"Company Counsel" means Xxxxxxxxxx & Xxxxx LLP, with an address of
00000 Xxxxxxxx Xxxxxxxxx, Xxxxx 000, Xxx Xxxxxxx, XX 00000, Attention: Xxxxxx
Xxxxx, Esq.
"Conversion Price" shall have the meaning ascribed to such term in
the Certificate of Designation.
"Directors Insurance" shall have the meaning ascribed to such term in
Section 4.18.
"Disclosure Schedules" shall have the meaning ascribed to such term
in Section 3.1.
"Effective Date" means the date that the initial Registration
Statement filed by the Company pursuant to the Registration Rights Agreement
is first declared effective by the Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Exempt Issuance" means the issuance or grant of (a) shares of Common
Stock or Common Stock Equivalents to employees, consultants, officers or
directors of the Company pursuant to any stock or option plan duly adopted by
a majority of the non-employee members of the Board of Directors of the
Company or a majority of the members of a committee of non-employee directors
established for such purpose, (b) securities upon the exercise of or
conversion of any Securities issued hereunder, or convertible securities,
options or warrants issued and outstanding on the date of this Agreement,
provided that such securities have not been amended since the date of this
Agreement to increase the number of such securities or to decrease the
exercise or conversion price of any such securities, (c) securities issued
pursuant to acquisitions or strategic transactions, provided any such issuance
shall only be to a Person which is, itself or through its subsidiaries, an
operating company in a business synergistic with the business of the Company
and in which the Company receives benefits in addition to the investment of
funds, but shall not include a transaction in which the Company is issuing
securities primarily for the purpose of raising capital or to an entity whose
primary business is investing in securities, (d) securities issued upon
conversion of or exercise of outstanding Common Stock Equivalents, and (e)
from the Original Issue Date until 24 months thereafter, issuance of up to
2,000,000 shares of Common Stock or Common Stock Equivalents in any 12 month
period, as approved in each case by the Board of Directors, and (f) from any
date after 24 months after the Original Issue Date, up to 1,000,000 shares of
Common Stock or Common Stock Equivalents, as approved in each case by the
Board of Directors.
"FW" means Xxxxxxx Xxxxxxxxx LLP with offices located at 000
Xxxxxxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000-0000.
"GAAP" shall have the meaning ascribed to such term in Section
3.1(h).
"Intellectual Property Rights" shall have the meaning ascribed to
such term in Section 3.1(o).
"Legend Removal Date" shall have the meaning ascribed to such term in
Section 4.1(c).
"Liens" means a lien, charge, security interest or encumbrance.
"Material Adverse Effect" shall have the meaning assigned to such
term in Section 3.1(b).
"Material Permits" shall have the meaning ascribed to such term in
Section 3.1(m).
"Maximum Rate" shall have the meaning ascribed to such term in
Section 5.17.
"Participation Maximum" shall have the meaning ascribed to such term
in Section 4.13.
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.
"Preferred Stock" means the 6,000 shares of the Company's 6% Series B
Convertible Preferred Stock issued hereunder having the rights, preferences
and privileges set forth in the Certificate of Designation.
"Pre-Notice" shall have the meaning ascribed to such term in Section
4.13.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Purchaser Party" shall have the meaning ascribed to such term in
Section 4.11.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the date hereof, among the Company and the Purchasers, in the
form of Exhibit B attached hereto.
"Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering the
resale of the Underlying Shares by each Purchaser as provided for in the
Registration Rights Agreement.
"Required Approvals" shall have the meaning ascribed to such term in
Section 3.1(e).
"Rule 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"SEC Reports" shall have the meaning ascribed to such term in Section
3.1(h).
"Securities" means the Preferred Stock, the Warrants and the
Underlying Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Short Sales" shall include all "short sales" as defined in Rule 200
of Regulation SHO under the Exchange Act.
"Stated Value" means $1,000 per share of Preferred Stock.
"Subscription Amount" shall mean, as to each Purchaser, the amount to
be paid for the Preferred Stock purchased hereunder as specified below such
Purchaser's name on the signature page of this Agreement and next to the
heading "Subscription Amount", in United States Dollars and in immediately
available funds.
"Subsequent Financing" shall have the meaning ascribed to such term
in Section 4.13.
"Subsequent Financing Notice" shall have the meaning ascribed to such
term in Section 4.13.
"Subsidiary" means any subsidiary of the Company as set forth on
Schedule 3.1(a).
"Trading Day" means a day on which the Common Stock is traded on a
Trading Market.
"Trading Market" means the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in question: the
Nasdaq SmallCap Market, the American Stock Exchange, the New York Stock
Exchange, the Nasdaq National Market or the OTC Bulletin Board.
"Transaction Documents" means this Agreement, the Certificate of
Designation, the Warrants, the Registration Rights Agreement and any other
documents or agreements executed in connection with the transactions
contemplated hereunder.
"Underlying Shares" means the shares of Common Stock issuable upon
conversion of the Preferred Stock, upon exercise of the Warrant and issued and
issuable in lieu of the cash payment of dividends on the Preferred Stock.
"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or
quoted on a Trading Market, the daily volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the primary
Trading Market on which the Common Stock is then listed or quoted as reported
by Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. EST to 4:02
p.m. Eastern Time) using the VAP function; (b) if the Common Stock is not then
listed or quoted on the Trading Market and if prices for the Common Stock are
then reported in the "Pink Sheets" published by the Pink Sheets, LLC (or a
similar organization or agency succeeding to its functions of reporting
prices), the most recent bid price per share of the Common Stock so reported;
or (c) in all other cases, the fair market value of a share of Common Stock as
determined by a nationally recognized-independent appraiser selected in good
faith by Purchasers holding a majority of the Stated Value of the shares of
Preferred Stock then outstanding.
"Warrant" means the Common Stock purchase warrants, in the form of
Exhibit C delivered to the Purchasers at the Closing in accordance with
Section 2.2(a)(iii) hereof.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
ARTICLE II
PURCHASE AND SALE
2.1 Closing. On the Closing Date, upon the terms and subject to the
conditions set forth herein, concurrent with the execution and delivery of
this Agreement by the parties hereto, the Company agrees to sell, and each
Purchaser agrees to purchase in the aggregate, severally and not jointly,
6,000 shares of Preferred Stock at a price of $1,000 per share with an
aggregated Stated Value equal to such Purchaser's Subscription Amount and
Warrants as determined by pursuant to Sections 2.2(a)(ii) - (iii). Each
Purchaser shall deliver to the Company via wire transfer or a certified check
of immediately available funds equal to their Subscription Amount and the
Company shall deliver to each Purchaser their respective shares of Preferred
Stock and Warrants as determined pursuant to Section 2.2(a) and the other
items set forth in Section 2.2 issuable at the Closing. Upon satisfaction of
the conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at
the offices of the Company, or such other location as the parties shall
mutually agree.
2.2 Deliveries.
a) On the Closing Date, the Company shall deliver or cause to be
delivered to each Purchaser the following:
(i) this Agreement duly executed by the Company;
(ii) a certificate evidencing a number of shares of Preferred
Stock equal to such Purchaser's Subscription Amount divided by the Stated
Value, registered in the name of such Purchaser;
(iii) a Warrant registered in the name of such Purchaser to
purchase up to a number of shares of Common Stock equal to 120% of such
Purchaser's Subscription Amount divided by the Conversion Price, with an
exercise price equal to $0.60, subject to adjustment therein which Warrant
shall be exercisable immediately and have a term of exercise equal to five
years;
(iv) the Registration Rights Agreement duly executed by the
Company; and
(v) a legal opinion of Company Counsel, in the form of Exhibit D
attached hereto.
b) On the Closing Date, each Purchaser shall deliver or cause to be
delivered to the Company the following:
(i) this Agreement duly executed by such Purchaser;
(ii) such Purchaser's Subscription Amount by wire transfer to the
account as specified in writing by the Company; and
(iii) the Registration Rights Agreement duly executed by such
Purchaser.
2.3 Closing Conditions.
a) The obligations of the Company hereunder in connection with the
Closing are subject to the following conditions being met:
(i) the accuracy in all material respects when made and on the
Closing Date of the representations and warranties of the Purchasers contained
herein;
(ii) all obligations, covenants and agreements of the Purchasers
required to be performed at or prior to the Closing Date shall have been
performed; and
(iii) the delivery by the Purchasers of the items set forth in
Section 2.2(b) of this Agreement, with the Subscription Amounts totaling up to
$6,000,000.
b) The respective obligations of the Purchasers hereunder in
connection with the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects on the Closing Date of
the representations and warranties of the Company contained herein;
(ii) all obligations, covenants and agreements of the Company
required to be performed at or prior to the Closing Date shall have been
performed;
(iii) the delivery by the Company of the items set forth in
Section 2.2(a) of this Agreement;
(iv) there shall have been no Material Adverse Effect with
respect to the Company since the date hereof; and
(v) from the date hereof to the Closing Date, trading in the
Common Stock shall not have been suspended by the Commission (except for any
suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the Closing), and, at any time prior
to the Closing Date, trading in securities generally as reported by Bloomberg
Financial Markets shall not have been suspended or limited, or minimum prices
shall not have been established on securities whose trades are reported by
such service, or on any Trading Market, nor shall a banking moratorium have
been declared either by the United States or New York State authorities nor
shall there have occurred any material outbreak or escalation of hostilities
or other national or international calamity of such magnitude in its effect
on, or any material adverse change in, any financial market which, in each
case, in the reasonable judgment of each Purchaser, makes it impracticable or
inadvisable to purchase the Preferred Stock at the Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set
forth under the corresponding section of the disclosure schedules delivered to
the Purchasers concurrently herewith (the "Disclosure Schedules") which
Disclosure Schedules shall be deemed a part hereof, the Company hereby makes
the representations and warranties set forth below to each Purchaser.
(a) Subsidiaries. All of the direct and indirect subsidiaries of the
Company are set forth on Schedule 3.1(a). The Company owns, directly or
indirectly, all of the capital stock or other equity interests of each
Subsidiary free and clear of any Liens, and all the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and are fully
paid, non-assessable and free of preemptive and similar rights to subscribe
for or purchase securities. If the Company has no subsidiaries, then
references in the Transaction Documents to the Subsidiaries will be
disregarded.
(b) Organization and Qualification. The Company and each of the
Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite power and
authority to own and use its properties and assets and to carry on its
business as currently conducted. Neither the Company nor any Subsidiary is in
violation or default of any of the provisions of its respective certificate or
articles of incorporation, bylaws or other organizational or charter
documents. Each of the Company and the Subsidiaries is duly qualified to
conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, could not
have or reasonably be expected to result in (i) a material adverse effect on
the legality, validity or enforceability of any Transaction Document, (ii) a
material adverse effect on the results of operations, assets, business,
prospects or financial condition of the Company and the Subsidiaries, taken as
a whole, or (iii) a material adverse effect on the Company's ability to
perform in any material respect on a timely basis its obligations under any
Transaction Document (any of (i), (ii) or (iii), a "Material Adverse Effect")
and no Proceeding has been instituted in any such jurisdiction revoking,
limiting or curtailing or seeking to revoke, limit or curtail such power and
authority or qualification.
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out
its obligations thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly authorized by all necessary
action on the part of the Company and no further action is required by the
Company in connection therewith other than in connection with the Required
Approvals. Each Transaction Document has been (or upon delivery will have
been) duly executed by the Company and, when delivered in accordance with the
terms hereof, will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors' rights
generally and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies.
(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of
the other transactions contemplated thereby do not and will not: (i) conflict
with or violate any provision of the Company's or any Subsidiary's certificate
or articles of incorporation, bylaws or other organizational or charter
documents, or (ii) conflict with, or constitute a default (or an event that
with notice or lapse of time or both would become a default) under, result in
the creation of any Lien upon any of the properties or assets of the Company
or any Subsidiary, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both)
of, any agreement, credit facility, debt or other instrument (evidencing a
Company or Subsidiary debt or otherwise) or other understanding to which the
Company or any Subsidiary is a party or by which any property or asset of the
Company or any Subsidiary is bound or affected, or (iii) subject to the
Required Approvals, conflict with or result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of any
court or governmental authority to which the Company or a Subsidiary is
subject (including federal and state securities laws and regulations), or by
which any property or asset of the Company or a Subsidiary is bound or
affected; except in the case of each of clauses (ii) and (iii), such as could
not have or reasonably be expected to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal, state, local
or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction
Documents, other than (i) filings required pursuant to Section 4.6, (ii) the
filing with the Commission of the Registration Statement, (iii) the notice
and/or application(s) to each applicable Trading Market for the issuance and
sale of the Preferred Stock and Warrants and the listing of the Underlying
Shares for trading thereon in the time and manner required thereby and (iv)
the filing of Form D with the Commission and such filings as are required to
be made under applicable state securities laws (collectively, the "Required
Approvals").
(f) Issuance of the Securities. The Securities are duly authorized
and, when issued and paid for in accordance with the applicable Transaction
Documents, will be duly and validly issued, fully paid and nonassessable, free
and clear of all Liens imposed by the Company other than restrictions on
transfer provided for in the Transaction Documents or any federal or state
securities laws. The Underlying Shares, when issued in accordance with the
terms of the Transaction Documents, will be validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company. The
Company has reserved from its duly authorized capital stock a number of shares
of Common Stock for issuance of the Underlying Shares at least equal to the
Actual Minimum on the date hereof.
(g) Capitalization. The capitalization of the Company is as set
forth on Schedule 3.1(g). The Company has not issued any capital stock since
its most recently filed periodic report under the Exchange Act, other than
pursuant to the exercise of employee or consultant stock options under the
Company's stock option plans, the issuance of shares of Common Stock to
employees or consultants pursuant to the Company's employee and consultant
stock purchase plan and pursuant to the conversion or exercise of outstanding
Common Stock Equivalents. No Person has any right of first refusal,
preemptive right, right of participation, or any similar right to participate
in the transactions contemplated by the Transaction Documents. Except as a
result of the purchase and sale of the Securities, there are no outstanding
options, warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock
or Common Stock Equivalents. The issuance and sale of the Securities will not
obligate the Company to issue shares of Common Stock or other securities to
any Person (other than the Purchasers) and will not result in a right of any
holder of Company securities to adjust the exercise, conversion, exchange or
reset price under such securities. All of the outstanding shares of capital
stock of the Company are validly issued, fully paid and nonassessable, have
been issued in compliance with all federal and state securities laws, and none
of such outstanding shares was issued in violation of any preemptive rights or
similar rights to subscribe for or purchase securities. No further approval
or authorization of any stockholder, the Board of Directors of the Company or
others is required for the issuance and sale of the shares of Preferred Stock.
There are no stockholders agreements, voting agreements or other similar
agreements with respect to the Company's capital stock to which the Company is
a party or, to the knowledge of the Company, between or among any of the
Company's stockholders.
(h) SEC Reports; Financial Statements. The Company has filed all
periodic reports, current reports, schedules, forms, statements and other
documents required to be filed by it under the Exchange Act, including
pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the
date hereof (or such shorter period as the Company was required by law to file
such material) (the foregoing materials, including the exhibits thereto and
documents incorporated by reference therein, being collectively referred to
herein as the "SEC Reports") on a timely basis or has received a valid
extension of such time of filing and has filed any such SEC Reports prior to
the expiration of any such extension. As of their respective dates, the SEC
Reports complied in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the SEC
Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing. Such financial statements have
been prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods involved ("GAAP"),
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.
(i) Material Changes. Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically disclosed
in the SEC Reports, (i) there has been no event, occurrence or development
that has had or that could reasonably be expected to result in a Material
Adverse Effect, (ii) the Company has not incurred any liabilities (contingent
or otherwise) other than (A) trade payables and accrued expenses incurred in
the ordinary course of business consistent with past practice and (B)
liabilities not required to be reflected in the Company's financial statements
pursuant to GAAP or required to be disclosed in filings made with the
Commission, (iii) the Company has not altered its method of accounting, (iv)
the Company has not declared or made any dividend or distribution of cash or
other property to its stockholders or purchased, redeemed or made any
agreements to purchase or redeem any shares of its capital stock and (v) the
Company has not issued any equity securities to any officer, director or
Affiliate, except pursuant to existing Company stock option plans. The
Company does not have pending before the Commission any request for
confidential treatment of information.
(j) Litigation. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, any Subsidiary or any of
their respective properties before or by any court, arbitrator, governmental
or administrative agency or regulatory authority (federal, state, county,
local or foreign) (collectively, an "Action") which (i) adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Securities or (ii) could, if there were an unfavorable
decision, have or reasonably be expected to result in a Material Adverse
Effect. Neither the Company nor any Subsidiary, nor any director or officer
thereof, is or has been the subject of any Action involving a claim of
violation of or liability under federal or state securities laws or a claim of
breach of fiduciary duty. There has not been, and to the knowledge of the
Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or officer
of the Company. The Commission has not issued any stop order or other order
suspending the effectiveness of any registration statement filed by the
Company or any Subsidiary under the Exchange Act or the Securities Act.
(k) Labor Relations. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company which could reasonably be expected to result in a Material Adverse
Effect.
(l) Compliance. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default
by the Company or any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other agreement
or instrument to which it is a party or by which it or any of its properties
is bound (whether or not such default or violation has been waived), (ii) is
in violation of any order of any court, arbitrator or governmental body, or
(iii) is or has been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal,
state and local laws applicable to its business except in each case as could
not have a Material Adverse Effect.
(m) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the
failure to possess such permits could not have or reasonably be expected to
result in a Material Adverse Effect ("Material Permits"), and neither the
Company nor any Subsidiary has received any notice of proceedings relating to
the revocation or modification of any Material Permit.
(n) Title to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them that is
material to the business of the Company and the Subsidiaries and good and
marketable title in all personal property owned by them that is material to
the business of the Company and the Subsidiaries, in each case free and clear
of all Liens, except for Liens as do not materially affect the value of such
property and do not materially interfere with the use made and proposed to be
made of such property by the Company and the Subsidiaries and Liens for the
payment of federal, state or other taxes, the payment of which is neither
delinquent nor subject to penalties. Any real property and facilities held
under lease by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases of which the Company and the Subsidiaries
are in compliance.
(o) Patents and Trademarks. The Company and the Subsidiaries have,
or have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and other
similar rights that are necessary or material for use in connection with their
respective businesses as described in the SEC Reports and which the failure to
so have could have a Material Adverse Effect (collectively, the "Intellectual
Property Rights"). Neither the Company nor any Subsidiary has received a
written notice that the Intellectual Property Rights used by the Company or
any Subsidiary violates or infringes upon the rights of any Person. To the
knowledge of the Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of any of
the Intellectual Property Rights of others.
(p) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which
the Company and the Subsidiaries are engaged. Neither the Company nor the
Subsidiaries maintain directors and officers insurance coverage. To the best
of Company's knowledge, such insurance contracts and policies are accurate and
complete. Neither the Company nor any Subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as
may be necessary to continue its business without a significant increase in
cost.
(q) Transactions With Affiliates and Employees. Except as set forth
in the SEC Reports, none of the officers or directors of the Company and, to
the knowledge of the Company, none of the employees of the Company is
presently a party to any transaction with the Company or any Subsidiary (other
than for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or
from, or otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any entity in which any officer,
director, or any such employee has a substantial interest or is an officer,
director, trustee or partner, in each case in excess of $60,000 other than (i)
for payment of salary or consulting fees for services rendered, (ii)
reimbursement for expenses incurred on behalf of the Company and (iii) for
other employee benefits, including stock option agreements under any stock
option plan of the Company.
(r) Xxxxxxxx-Xxxxx; Internal Accounting Controls. The Company is in
material compliance with all provisions of the Xxxxxxxx-Xxxxx Act of 2002
which are applicable to it as of the Closing Date. The Company and the
Subsidiaries maintain 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 GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(s) Certain Fees. No brokerage or finder's fees or commissions are
or will be payable by the Company to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other Person
with respect to the transactions contemplated by this Agreement. The
Purchasers shall have no obligation with respect to any fees or with respect
to any claims made by or on behalf of other Persons for fees of a type
contemplated in this Section that may be due in connection with the
transactions contemplated by this Agreement.
(t) Private Placement. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, no registration under
the Securities Act is required for the offer and sale of the Securities by the
Company to the Purchasers as contemplated hereby. The issuance and sale of the
Securities hereunder does not contravene the rules and regulations of the
Trading Market.
(u) Investment Company. The Company is not, and is not an Affiliate
of, and immediately after receipt of payment for the shares of Preferred
Stock, will not be or be an Affiliate of, an "investment company" within the
meaning of the Investment Company Act of 1940, as amended. The Company shall
conduct its business in a manner so that it will not become subject to the
Investment Company Act.
(v) Registration Rights. Other than each of the Purchasers, no
Person has any right to cause the Company to effect the registration under the
Securities Act of any securities of the Company.
(w) Listing and Maintenance Requirements. The Company's Common Stock
is registered pursuant to Section 12(g) of the Exchange Act, and the Company
has taken no action designed to, or which to its knowledge is likely to have
the effect of, terminating the registration of the Common Stock under the
Exchange Act nor has the Company received any notification that the Commission
is contemplating terminating such registration. The Company has not, in the
12 months preceding the date hereof, received notice from any Trading Market
on which the Common Stock is or has been listed or quoted to the effect that
the Company is not in compliance with the listing or maintenance requirements
of such Trading Market. The Company is, and has no reason to believe that it
will not in the foreseeable future continue to be, in compliance with all such
listing and maintenance requirements.
(x) Application of Takeover Protections. The Company and its Board
of Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company's Certificate of Incorporation (or
similar charter documents) or the laws of its state of incorporation that is
or could become applicable to the Purchasers as a result of the Purchasers and
the Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation the Company's issuance of
the Securities and the Purchasers' ownership of the Securities.
(y) Disclosure. The Company confirms that neither it nor any other
Person acting on its behalf has provided any of the Purchasers or their agents
or counsel with any information that constitutes or might constitute material,
nonpublic information. The Company understands and confirms that the
Purchasers will rely on the foregoing representations and covenants in
effecting transactions in securities of the Company. All disclosure provided
to the Purchasers regarding the Company, its business and the transactions
contemplated hereby, including the Disclosure Schedules to this Agreement,
furnished by or on behalf of the Company with respect to the representations
and warranties made herein are true and correct with respect to such
representations and warranties and do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make
the statements made therein, in light of the circumstances under which they
were made, not misleading. The Company acknowledges and agrees that no
Purchaser makes or has made any representations or warranties with respect to
the transactions contemplated hereby other than those specifically set forth
in Section 3.2 hereof.
(z) No Integrated Offering. Assuming the accuracy of the Purchasers'
representations and warranties set forth in Section 3.2, neither the Company,
nor any of its affiliates, nor any Person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would cause this
offering of the Securities to be integrated with prior offerings by the
Company for purposes of the Securities Act or any applicable shareholder
approval provisions, including, without limitation, under the rules and
regulations of any Trading Market on which any of the securities of the
Company are listed or designated.
(aa) Solvency. Based on the financial condition of the Company as of
the Closing Date after giving effect to the receipt by the Company of the
proceeds from the sale of the Securities hereunder, (i) the Company's fair
saleable value of its assets exceeds the amount that will be required to be
paid on or in respect of the Company's existing debts and other liabilities
(including known contingent liabilities) as they mature; (ii) the Company's
assets do not constitute unreasonably small capital to carry on its business
for the current fiscal year as now conducted and as proposed to be conducted
including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected capital
requirements and capital availability thereof; and (iii) the current cash flow
of the Company, together with the proceeds the Company would receive, were it
to liquidate all of its assets, after taking into account all anticipated uses
of the cash, would be sufficient to pay all amounts on or in respect of its
debt when such amounts are required to be paid. The Company does not intend
to incur debts beyond its ability to pay such debts as they mature (taking
into account the timing and amounts of cash to be payable on or in respect of
its debt). The Company has no knowledge of any facts or circumstances which
lead it to believe that it will file for reorganization or liquidation under
the bankruptcy or reorganization laws of any jurisdiction within one year from
the Closing Date. The SEC Reports set forth as of the dates thereof all
outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has commitments. For
the purposes of this Agreement, "Indebtedness" shall mean (a) any liabilities
for borrowed money or amounts owed in excess of $50,000 (other than trade
accounts payable incurred in the ordinary course of business), (b) all
guaranties, endorsements and other contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be reflected in
the Company's balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value of
any lease payments in excess of $50,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any Subsidiary
is in default with respect to any Indebtedness.
(bb) Tax Status. Except for matters that would not, individually or
in the aggregate, have or reasonably be expected to result in a Material
Adverse Effect, the Company and each Subsidiary has filed all necessary
federal, state and foreign income and franchise tax returns and has paid or
accrued all taxes shown as due thereon, and the Company has no knowledge of a
tax deficiency which has been asserted or threatened against the Company or
any Subsidiary.
(cc) No General Solicitation. Neither the Company nor any person
acting on behalf of the Company has offered or sold any of the Securities by
any form of general solicitation or general advertising. The Company has
offered the Securities for sale only to the Purchasers and certain other
"accredited investors" within the meaning of Rule 501 under the Securities
Act.
(dd) Foreign Corrupt Practices. Neither the Company, nor to the
knowledge of the Company, any agent or other person acting on behalf of the
Company, has (i) directly or indirectly, used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
foreign or domestic political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to any foreign or
domestic political parties or campaigns from corporate funds, (iii) failed to
disclose fully any contribution made by the Company (or made by any person
acting on its behalf of which the Company is aware) which is in violation of
law, or (iv) violated in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended.
(ee) Accountants. The Company's accountants are set forth on
Schedule 3.1(ee) of the Disclosure Schedule. To the Company's knowledge, such
accountants, who the Company expects will express their opinion with respect
to the financial statements to be included in the Company's Annual Report on
Form 10-KSB for the year ending December 31, 2005 are a registered public
accounting firm as required by the Securities Act.
(ff) Seniority. As of the Closing Date, no indebtedness or other
equity of the Company is senior to the Preferred Stock in right of payment,
whether with respect to interest or upon liquidation or dissolution, or
otherwise, other than indebtedness secured by purchase money security
interests (which is senior only as to underlying assets covered thereby) and
capital lease obligations (which is senior only as to the property covered
thereby).
(gg) No Disagreements with Accountants and Lawyers. There are no
disagreements of any kind presently existing, or reasonably anticipated by the
Company to arise, between the accountants and lawyers formerly or presently
employed by the Company and the Company is current with respect to any fees
owed to its accountants and lawyers.
(hh) Acknowledgment Regarding Purchasers' Purchase of Securities.
The Company acknowledges and agrees that each of the Purchasers is acting
solely in the capacity of an arm's length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby. The Company
further acknowledges that no Purchaser is acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to this
Agreement and the transactions contemplated hereby and any advice given by any
Purchaser or any of their respective representatives or agents in connection
with this Agreement and the transactions contemplated hereby is merely
incidental to the Purchasers' purchase of the Securities. The Company further
represents to each Purchaser that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its representatives.
(ii) Acknowledgement Regarding Purchasers' Trading Activity.
Anything in this Agreement or elsewhere herein to the contrary notwithstanding
(except for Section 4.16 hereof), it is understood and agreed by the Company
(i) that none of the Purchasers have been asked to agree, nor has any
Purchaser agreed, to desist from purchasing or selling, long and/or short,
securities of the Company, or "derivative" securities based on securities
issued by the Company or to hold the Securities for any specified term; (ii)
that past or future open market or other transactions by any Purchaser,
including Short Sales, and specifically including, without limitation, Short
Sales or "derivative" transactions, before or after the closing of this or
future private placement transactions, may negatively impact the market price
of the Company's publicly-traded securities; (iii) that any Purchaser, and
counter parties in "derivative" transactions to which any such Purchaser is a
party, directly or indirectly, presently may have a "short" position in the
Common Stock, and (iv) that each Purchaser shall not be deemed to have any
affiliation with or control over any arm's length counter-party in any
"derivative" transaction. The Company further understands and acknowledges
that (a) one or more Purchasers may engage in hedging activities at various
times during the period that the Securities are outstanding, including,
without limitation, during the periods that the value of the Underlying Shares
deliverable with respect to Securities are being determined and (b) such
hedging activities (if any) could reduce the value of the existing
stockholders' equity interests in the Company at and after the time that the
hedging activities are being conducted. The Company acknowledges that such
aforementioned hedging activities do not constitute a breach of any of the
Transaction Documents.
(jj) 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) sold, bid for, purchased, or, paid any
compensation for soliciting purchases of, any of the Securities (other than
for the placement agent's placement of the Securities), or (iii) paid or
agreed to pay to any person any compensation for soliciting another to
purchase any other securities of the Company. Each Purchaser acknowledges and
agrees that the Company does not make any representations or warranties with
respect to the transactions contemplated hereby other than those specifically
set for the in this Section 3.1, but such acknowledgement does not exclude the
Purchasers' entitlement to rely on any statement contained in any SEC Report.
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of
the date hereof and as of the Closing Date to the Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution, delivery and performance by such
Purchaser of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate or similar action on the part of such
Purchaser. Each Transaction Document to which it is a party has been duly
executed by such Purchaser, and when delivered by such Purchaser in accordance
with the terms hereof, will constitute the valid and legally binding
obligation of such Purchaser, enforceable against it in accordance with its
terms, except (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable law.
(b) Own Account. Such Purchaser understands that the Securities
are "restricted securities" and have not been registered under the Securities
Act or any applicable state securities law and is acquiring the Securities as
principal for its own account and not with a view to or for distributing or
reselling such Securities or any part thereof in violation of the Securities
Act or any applicable state securities law, has no present intention of
distributing any of such Securities in violation of the Securities Act or any
applicable state securities law and has no arrangement or understanding with
any other persons regarding the distribution of such Securities (this
representation and warranty not limiting such Purchaser's right to sell the
Securities pursuant to the Registration Statement or otherwise in compliance
with applicable federal and state securities laws) in violation of the
Securities Act or any applicable state securities law. Such Purchaser is
acquiring the Securities hereunder in the ordinary course of its business.
Such Purchaser does not have any agreement or understanding, directly or
indirectly, with any Person to distribute any of the Securities.
(c) Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, and on each date on which it
exercises any Warrants, it will be either: (i) an "accredited investor" as
defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the
Securities Act or (ii) a "qualified institutional buyer" as defined in Rule
144A(a) under the Securities Act. Such Purchaser is not required to be
registered as a broker-dealer under Section 15 of the Exchange Act.
(d) Experience of Such Purchaser. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has
so evaluated the merits and risks of such investment. Such Purchaser is able
to bear the economic risk of an investment in the Securities and, at the
present time, is able to afford a complete loss of such investment.
(e) General Solicitation. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper, magazine or
similar media or broadcast over television or radio or presented at any
seminar or any other general solicitation or general advertisement.
(f) Short Sales and Confidentiality Prior To The Date Hereof. Other
than the transaction contemplated hereunder, such Purchaser has not directly
or indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Purchaser, executed any disposition, including Short
Sales (but not including the location and/or reservation of borrowable shares
of Common Stock), in the securities of the Company during the period
commencing from the time that such Purchaser first received a term sheet from
the Company or any other Person setting forth the material terms of the
transactions contemplated hereunder until the date hereof ("Discussion Time").
Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser's assets and the portfolio managers have
no direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Purchaser's assets, the representation set
forth above shall only apply with respect to the portion of assets managed by
the portfolio manager that made the investment decision to purchase the
Securities covered by this Agreement. Other than to other Persons party to
this Agreement, such Purchaser has maintained the confidentiality of all
disclosures made to it in connection with this transaction (including the
existence and terms of this transaction).
(g) No Tax or Legal Advice. Such Purchaser understands that nothing
in this Agreement, any other Transaction Document or any other materials
presented to such Purchaser in connection with the purchase and sale of the
Securities constitutes legal, tax or investment advice. Such Purchaser has
consulted such legal, tax and investment advisors as it, in its sole
discretion, has deemed necessary or appropriate in connection with its
purchase of Securities.
(h) Disclosure of Information. Such Purchaser believes it has
received all the information it considers necessary or appropriate for
deciding whether to purchase the Shares. Such Purchaser further represents
that it has had an opportunity to ask questions and receive answers from the
Company regarding the terms and conditions of the offering of the Shares and
the business, properties, prospects and financial condition of the Company,
and has had the opportunity to review any of the Company's SEC Reports. The
foregoing, however, does not limit or modify the representations and
warranties of the Company in Section 3 of this Agreement or the right of the
Purchasers to rely thereon.
(i) Registration Required. Such Purchaser hereby covenants with the
Company not to make any sale of the Shares without complying with the
provisions hereof and of the Registration Rights Agreement, and without
effectively causing the prospectus delivery requirement under the Securities
Act to be satisfied (unless such Purchaser is selling such Shares in a
transaction not subject to the prospectus delivery requirement), and such
Purchaser acknowledges that the certificates evidencing the Shares will be
imprinted with a legend that prohibits their transfer except in accordance
therewith.
The Company acknowledges and agrees that each Purchaser does not make or
has not made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in
this Section 3.2.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of in compliance with state
and federal securities laws. In connection with any transfer of Securities
other than pursuant to an effective registration statement or Rule 144, to the
Company or to an affiliate of a Purchaser or in connection with a pledge as
contemplated in Section 4.1(b), the Company may require the transferor thereof
to provide to the Company an opinion of counsel selected by the transferor and
reasonably acceptable to the Company, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred Securities under
the Securities Act. As a condition of transfer, any such transferee shall
agree in writing to be bound by the terms of this Agreement and shall have the
rights of a Purchaser under this Agreement and the Registration Rights
Agreement.
(b) The Purchasers agree to the imprinting, so long as is required
by this Section 4.1(b), of a legend on any of the Securities substantially in
the following form:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION
OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH
SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND
THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED
BY SUCH SECURITIES.
The Company acknowledges and agrees that a Purchaser may from time to time
pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the Securities to
a financial institution that is an "accredited investor" as defined in Rule
501(a) under the Securities Act and who agrees to be bound by the provisions
of this Agreement and the Registration Rights Agreement and, if required under
the terms of such arrangement, such Purchaser may transfer pledged or secured
Securities to the pledgees or secured parties. Such a pledge or transfer
would not be subject to approval of the Company and no legal opinion of legal
counsel of the pledgee, secured party or pledgor shall be required in
connection therewith. Further, no notice shall be required of such pledge.
At the appropriate Purchaser's expense, the Company will execute and deliver
such reasonable documentation as a pledgee or secured party of Securities may
reasonably request in connection with a pledge or transfer of the Securities,
including, if the Securities are subject to registration pursuant to the
Registration Rights Agreement, the preparation and filing of any required
prospectus supplement under Rule 424(b)(3) under the Securities Act or other
applicable provision of the Securities Act to appropriately amend the list of
Selling Stockholders thereunder.
(c) Certificates evidencing the Underlying Shares shall not contain
any legend (including the legend set forth in Section 4.1(b) hereof): (i)
while a registration statement (including the Registration Statement) covering
the resale of such security is effective under the Securities Act, or (ii)
following any sale of such Underlying Shares pursuant to Rule 144, or (iii) if
such Underlying Shares are eligible for sale under Rule 144(k), or (iv) if
such legend is not required under applicable requirements of the Securities
Act (including judicial interpretations and pronouncements issued by the staff
of the Commission). The Company shall cause its counsel to issue a legal
opinion to the Company's transfer agent promptly after the Effective Date if
required by the Company's transfer agent to effect the removal of the legend
hereunder. If all or any shares of Preferred Stock or any portion of a Warrant
is converted or exercised (as applicable) at a time when there is an effective
registration statement to cover the resale of the Underlying Shares, or if
such Underlying Shares may be sold under Rule 144(k) or if such legend is not
otherwise required under applicable requirements of the Securities Act
(including judicial interpretations thereof) then such Underlying Shares shall
be issued free of all legends. The Company agrees that following the
Effective Date or at such time as such legend is no longer required under this
Section 4.1(c), it will, no later than three Trading Days following the
delivery by a Purchaser to the Company or the Company's transfer agent of a
certificate representing Underlying Shares, as applicable, issued with a
restrictive legend (such third Trading Day, the "Legend Removal Date"),
deliver or cause to be delivered to such Purchaser a certificate representing
such shares that is free from all restrictive and other legends. The Company
may not make any notation on its records or give instructions to any transfer
agent of the Company that enlarge the restrictions on transfer set forth in
this Section. Certificates for Securities subject to legend removal hereunder
shall be transmitted by the transfer agent of the Company to the Purchasers by
crediting the account of the Purchaser's prime broker with the Depository
Trust Company System.
(d) In addition to such Purchaser's other available remedies, the
Company shall pay to a Purchaser, in cash, as partial liquidated damages and
not as a penalty, for each $1,000 of Underlying Shares (based on the VWAP of
the Common Stock on the date such Securities are submitted to the Company's
transfer agent) delivered for removal of the restrictive legend and subject to
Section 4.1(c), $10 per Trading Day (increasing to $20 per Trading Day 5
Trading Days after such damages have begun to accrue) for each Trading Day
after the Legend Removal Date until such certificate is delivered without a
legend. Nothing herein shall limit such Purchaser's right to pursue actual
damages for the Company's failure to deliver certificates representing any
Securities as required by the Transaction Documents, and such Purchaser shall
have the right to pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief.
(e) Each Purchaser, severally and not jointly with the other
Purchasers, agrees that the removal of the restrictive legend from
certificates representing Securities as set forth in this Section 4.1 is
predicated upon the Company's reliance that the Purchaser will sell any
Securities pursuant to either the registration requirements of the Securities
Act, including any applicable prospectus delivery requirements, or an
exemption therefrom.
(f) Until the one year anniversary of the Effective Date, the
Company shall not undertake a reverse or forward stock split or
reclassification of the Common Stock without the prior written consent of the
Purchasers holding a majority in interest of the shares of Preferred Stock.
4.2 Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Securities may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market
conditions. The Company further acknowledges that its obligations under the
Transaction Documents, including without limitation its obligation to issue
the Underlying Shares pursuant to the Transaction Documents, are unconditional
and absolute and not subject to any right of set off, counterclaim, delay or
reduction, regardless of the effect of any such dilution or any claim the
Company may have against any Purchaser and regardless of the dilutive effect
that such issuance may have on the ownership of the other stockholders of the
Company.
4.3 Furnishing of Information. As long as any Purchaser owns
Securities, if the Company is not required to file reports pursuant to the
Exchange Act, it will prepare and furnish to the Purchasers and make publicly
available in accordance with Rule 144(c) such information as is required for
the Purchasers to sell the Securities under Rule 144. The Company further
covenants that it will take such further action as any holder of Securities
may reasonably request, all to the extent required from time to time to enable
such Person to sell such Securities without registration under the Securities
Act within the limitation of the exemptions provided by Rule 144.
4.4 Integration. The Company shall not sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the
registration under the Securities Act of the sale of the Securities to the
Purchasers or that would be integrated with the offer or sale of the
Securities for purposes of the rules and regulations of any Trading Market.
4.5 Conversion and Exercise Procedures. The form of Notice of
Exercise included in the Warrants and the Notice of Conversion included in the
Certificate of Designation set forth the totality of the procedures required
of the Purchasers in order to exercise the Warrants or convert the Preferred
Stock. No additional legal opinion or other information or instructions shall
be required of the Purchasers to exercise their Warrants or convert their
Preferred Stock. The Company shall honor exercises of the Warrants and
conversions of the Preferred Stock and shall deliver Underlying Shares in
accordance with the terms, conditions and time periods set forth in the
Transaction Documents.
4.6 Securities Laws Disclosure; Publicity. The Company shall, by 8:30
a.m. Eastern time on the Trading Day following the Closing Date, issue a press
release disclosing the material terms of the transactions contemplated hereby,
and shall file a Current Report on Form 8-K, reasonably acceptable to each
Purchaser, attaching the Transaction Documents thereto as exhibits, within the
time required by the Exchange Act. The Company and each Purchaser shall
consult with each other in issuing any other press releases with respect to
the transactions contemplated hereby, and neither the Company nor any
Purchaser shall issue any such press release or otherwise make any such public
statement without the prior consent of the Company, with respect to any press
release of any Purchaser, or without the prior consent of each Purchaser, with
respect to any press release of the Company, which consent shall not
unreasonably be withheld, except if such disclosure is required by law, in
which case the disclosing party shall promptly provide the other party with
prior notice of such public statement or communication. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of any Purchaser,
or include the name of any Purchaser in any filing with the Commission or any
regulatory agency or Trading Market, without the prior written consent of such
Purchaser, except (i) as required by federal securities law in connection with
the registration statement contemplated by the Registration Rights Agreement
and (ii) to the extent such disclosure is required by law or Trading Market
regulations, in which case the Company shall provide the Purchasers with prior
notice of such disclosure permitted under subclause (i) or (ii).
4.7 Shareholder Rights Plan. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other Person that any
Purchaser is an "Acquiring Person" under any shareholder rights plan or
similar plan or arrangement in effect or hereafter adopted by the Company, or
that any Purchaser could be deemed to trigger the provisions of any such plan
or arrangement, by virtue of receiving Securities under the Transaction
Documents or under any other agreement between the Company and the Purchasers.
The Company shall conduct its business in a manner so that it will not become
subject to the Investment Company Act.
4.8 Non-Public Information. The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide any
Purchaser or its agents or counsel with any information that the Company
believes constitutes material non-public information, unless prior thereto
such Purchaser shall have executed a written agreement regarding the
confidentiality and use of such information. The Company understands and
confirms that each Purchaser shall be relying on the foregoing representations
in effecting transactions in securities of the Company.
4.9 Use of Proceeds. Except as set forth on Schedule 4.9 attached
hereto, the Company shall use the net proceeds from the sale of the Securities
hereunder for working capital purposes and not for the satisfaction of any
portion of the Company's debt (other than payment of trade payables in the
ordinary course of the Company's business and prior practices), to redeem
Common Stock or Common Stock Equivalents or to settle any outstanding
litigation.
4.10 Reserved.
4.11 Indemnification of Purchasers. Subject to the provisions of
this Section 4.11, the Company will indemnify and hold the Purchasers and
their directors, officers, shareholders, partners, employees and agents (each,
a "Purchaser Party") harmless from any and all losses, liabilities,
obligations, claims, contingencies, damages, costs and expenses, including all
judgments, amounts paid in settlements, court costs and reasonable attorneys'
fees and costs of investigation that any such Purchaser Party may suffer or
incur as a result of or relating to (a) any breach of any of the
representations, warranties, covenants or agreements made by the Company in
this Agreement or in the other Transaction Documents or (b) any action
instituted against a Purchaser, or any of them or their respective Affiliates,
by any stockholder of the Company who is not an Affiliate of such Purchaser,
with respect to any of the transactions contemplated by the Transaction
Documents (unless such action is based upon a breach of such Purchaser's
representation, warranties or covenants under the Transaction Documents or any
agreements or understandings such Purchaser may have with any such stockholder
or any violations by the Purchaser of state or federal securities laws or any
conduct by such Purchaser which constitutes fraud, gross negligence, willful
misconduct or malfeasance). If any action shall be brought against any
Purchaser Party in respect of which indemnity may be sought pursuant to this
Agreement, such Purchaser Party shall promptly notify the Company in writing,
and the Company shall have the right to assume the defense thereof with
counsel of its own choosing. Any Purchaser Party shall have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Purchaser Party except to the extent that (i) the employment thereof has
been specifically authorized by the Company in writing, (ii) the Company has
failed after a reasonable period of time to assume such defense and to employ
counsel or (iii) in such action there is, in the reasonable opinion of such
separate counsel, a material conflict on any material issue between the
position of the Company and the position of such Purchaser Party. The Company
will not be liable to any Purchaser Party under this Agreement (i) for any
settlement by a Purchaser Party effected without the Company's prior written
consent, which shall not be unreasonably withheld or delayed; or (ii) to the
extent, but only to the extent that a loss, claim, damage or liability is
attributable to any Purchaser Party's breach of any of the representations,
warranties, covenants or agreements made by the Purchasers in this Agreement
or in the other Transaction Documents.
4.12 Reservation and Listing of Securities.
(a) The Company shall maintain a reserve from its duly authorized
shares of Common Stock for issuance pursuant to the Transaction Documents in
such amount as may be required to fulfill its obligations in full under the
Transaction Documents.
(b) If, on any date, the number of authorized but unissued (and
otherwise unreserved) shares of Common Stock is less than 130% of (i) the
Actual Minimum on such date, minus (ii) the number of shares of Common Stock
previously issued pursuant to the Transaction Documents, then the Board of
Directors of the Company shall use commercially reasonable efforts to amend
the Company's certificate or articles of incorporation to increase the number
of authorized but unissued shares of Common Stock to at least the Actual
Minimum at such time (minus the number of shares of Common Stock previously
issued pursuant to the Transaction Documents), as soon as possible and in any
event not later than the 75th day after such date; provided that the Company
will not be required at any time to authorize a number of shares of Common
Stock greater than the maximum remaining number of shares of Common Stock that
could possibly be issued after such time pursuant to the Transaction
Documents.
(c) The Company shall, if applicable: (i) in the time and manner
required by the Trading Market, prepare and file with such Trading Market an
additional shares listing application covering a number of shares of Common
Stock at least equal to the Actual Minimum on the date of such application,
(ii) take all steps necessary to cause such shares of Common Stock to be
approved for listing on the Trading Market as soon as possible thereafter,
(iii) provide to the Purchasers evidence of such listing, and (iv) maintain
the listing of such Common Stock on any date at least equal to the Actual
Minimum on such date on such Trading Market or another Trading Market.
4.13 Participation in Future Financing.
(a) From the date hereof until the date that is the Preferred Stock
is no longer outstanding, upon any financing by the Company or any of its
Subsidiaries of Common Stock or Common Stock Equivalents (a "Subsequent
Financing"), each Purchaser shall have the right to participate in up to an
amount of the Subsequent Financing equal to a percentage equal to the ratio of
the aggregate Stated Value of all Preferred Stock sold at the Closing to the
dollar amount proposed to be raised in the Subsequent Financing of the
Subsequent Financing (the "Participation Maximum").
(b) At least 5 Trading Days prior to the closing of the Subsequent
Financing, the Company shall deliver to each Purchaser a written notice of its
intention to effect a Subsequent Financing ("Pre-Notice"), which Pre-Notice
shall ask such Purchaser if it wants to review the details of such financing
(such additional notice, a "Subsequent Financing Notice"). Upon the request
of a Purchaser, and only upon a request by such Purchaser, for a Subsequent
Financing Notice, the Company shall promptly, but no later than 1 Trading Day
after such request, deliver a Subsequent Financing Notice to such Purchaser.
The Subsequent Financing Notice shall describe in reasonable detail the
proposed terms of such Subsequent Financing, the amount of proceeds intended
to be raised thereunder, the Person with whom such Subsequent Financing is
proposed to be effected, and attached to which shall be a term sheet or
similar document relating thereto.
(c) Any Purchaser desiring to participate in such Subsequent
Financing must provide written notice to the Company by not later than 5:30
p.m. (New York City time) on the fifth Trading Day after the Purchasers have
received the Pre-Notice that the Purchaser is willing to participate in the
Subsequent Financing, the amount of the Purchaser's participation, and that
the Purchaser has such funds ready, willing, and available for investment on
the terms set forth in the Subsequent Financing Notice. If the Company
receives no notice from a Purchaser as of such 5th Trading Day, such Purchaser
shall be deemed to have notified the Company that it does not elect to
participate.
(d) If by 5:30 p.m. (New York City time) on the fifth Trading Day
after the Purchasers have received the Pre-Notice, notifications by the
Purchasers of their willingness to participate in the Subsequent Financing (or
to cause their designees to participate) is, in the aggregate, less than the
total amount of the Subsequent Financing, then the Company may effect the
remaining portion of such Subsequent Financing on the terms and to the Persons
set forth in the Subsequent Financing Notice.
(e) If by 5:30 p.m. (New York City time) on the fifth Trading Day
after all of the Purchasers have received the Pre-Notice, the Company receives
responses to a Subsequent Financing Notice from Purchasers seeking to purchase
more than the aggregate amount of the Participation Maximum, each such
Purchaser shall have the right to purchase the greater of (a) their Pro Rata
Portion (as defined below) of the Participation Maximum and (b) the difference
between the Participation Maximum and the aggregate amount of participation by
all other Purchasers. "Pro Rata Portion" is the ratio of (x) the Subscription
Amount of Securities purchased on the Closing Date by a Purchaser
participating under this Section 4.13 and (y) the sum of the aggregate
Subscription Amounts of Securities purchased on the Closing Date by all
Purchasers participating under this Section 4.13.
(f) The Company must provide the Purchasers with a second Subsequent
Financing Notice, and the Purchasers will again have the right of
participation set forth above in this Section 4.13, if the Subsequent
Financing subject to the initial Subsequent Financing Notice is not
consummated for any reason on the terms set forth in such Subsequent Financing
Notice within 60 Trading Days after the date of the initial Subsequent
Financing Notice.
(g) Notwithstanding the foregoing, this Section 4.13 shall not apply
in respect of an Exempt Issuance.
4.14 Subsequent Equity Sales.
(a) From the date hereof until 90 days after the Effective Date,
neither the Company nor any Subsidiary shall issue shares of Common Stock or
Common Stock Equivalents; provided, however, the 90 day period set forth in
this Section 4.14 shall be extended for the number of Trading Days during such
period in which (i) trading in the Common Stock is suspended by any Trading
Market, or (ii) following the Effective Date, the Registration Statement is
not effective or the prospectus included in the Registration Statement may not
be used by the Purchasers for the resale of the Underlying Shares.
(b) From the date hereof until such time as no Purchaser holds any of
the Securities, the Company shall be prohibited from effecting or entering
into an agreement to effect any Subsequent Financing involving a "Variable
Rate Transaction" that does not include a hard or definitive floor conversion
price. The term "Variable Rate Transaction" shall mean a transaction in which
the Company issues or sells (i) any debt or equity securities that are
convertible into, exchangeable or exercisable for, or include the right to
receive additional shares of Common Stock either (A) at a conversion, exercise
or exchange rate or other price that is based upon and/or varies with the
trading prices of or quotations for the shares of Common Stock at any time
after the initial issuance of such debt or equity securities, or (B) with a
conversion, exercise or exchange price that is subject to being reset at some
future date after the initial issuance of such debt or equity security or upon
the occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common Stock or
(ii) enters into any agreement, including, but not limited to, an equity line
of credit, whereby the Company may sell securities at a future determined
price.
(c) Notwithstanding the foregoing, this Section 4.14 shall not apply
in respect of an Exempt Issuance, except that no Variable Rate Transaction
shall be an Exempt Issuance.
4.15 Equal Treatment of Purchasers. 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 is
also offered to all of the parties to the Transaction Documents. For
clarification purposes, this provision constitutes a separate right granted to
each Purchaser by the Company and negotiated separately by each Purchaser, and
is intended to treat for the Company the Purchasers as a class and shall not
in any way be construed as the Purchasers acting in concert or as a group with
respect to the purchase, disposition or voting of Securities or otherwise.
4.16 Short Sales and Confidentiality After The Date Hereof. Each
Purchaser severally and not jointly with the other Purchasers covenants that
neither it nor any affiliates acting on its behalf or pursuant to any
understanding with it will execute any Short Sales during the period after the
Discussion Time and ending on the 90th day after the Closing Date. Each
Purchaser, severally and not jointly with the other Purchasers, covenants that
until such time as the transactions contemplated by this Agreement are
publicly disclosed by the Company as described in Section 4.6, such Purchaser
will maintain, the confidentiality of all disclosures made to it in connection
with this transaction (including the existence and terms of this transaction).
Each Purchaser understands and acknowledges, severally and not jointly with
any other Purchaser, that the Commission currently takes the position that
coverage of short sales of shares of the Common Stock "against the box" prior
to the Effective Date of the Registration Statement with the Securities is a
violation of Section 5 of the Securities Act, as set forth in Item 65, Section
5 under Section A, of the Manual of Publicly Available Telephone
Interpretations, dated July 1997, compiled by the Office of Chief Counsel,
Division of Corporation Finance. Notwithstanding the foregoing, no Purchaser
makes any representation, warranty or covenant hereby that it will not engage
in Short Sales in the securities of the Company after the time that the
transactions contemplated by this Agreement are first publicly announced as
described in Section 4.6. Notwithstanding the foregoing, in the case of a
Purchaser that is a multi-managed investment vehicle whereby separate
portfolio managers manage separate portions of such Purchaser's assets and the
portfolio managers have no direct knowledge of the investment decisions made
by the portfolio managers managing other portions of such Purchaser's assets,
the covenant set forth above shall only apply with respect to the portion of
assets managed by the portfolio manager that made the investment decision to
purchase the Securities covered by this Agreement.
4.17 Appointment of New Chief Financial Officer. On or prior to the
90 day anniversary of the date hereof, the Company covenants to hire a new
Chief Financial Officer, which Chief Financial Officer shall be qualified to
be the Chief Financial Officer for a company that is subject to the reporting
requirements of the Exchange Act (the "New CFO") and which New CFO shall be
subject to the reasonable approval of each Purchaser. If the Company cannot
find a New CFO by the 90 day anniversary of the date hereof, (i) the Company
shall hire a search firm, which search firm shall be subject to the reasonable
approval of each Purchaser, to continue the search for the New CFO until the
Company finds the New CFO and (ii) the dividend rate on the Preferred Stock
shall be adjusted as set forth in the Certificate of Designation.
4.18 Directors and Officers Insurance. On or prior to the 180 day
anniversary of the date hereof, the Company covenants to acquire directors and
officers insurance for each director of the Company which coverage shall be at
least equal to the aggregate Subscription Amount (the "Directors Insurance").
Immediately upon the acquisition of the Directors Insurance, the Company shall
notify each Purchaser, in writing, of such acquisition and, within 20 calendar
days following the acquisition of the Directors Insurance, the Company shall
provide a copy of the Directors Insurance to each Purchaser. If the Company
does not acquire Directors Insurance by the 180 day anniversary of the date
hereof the dividend rate on the Preferred Stock shall be adjusted as set forth
in the Certificate of Designation. The Company shall maintain the full
coverage of the Directors Insurance until all of the shares of the Preferred
Stock are no longer outstanding.
ARTICLE V
MISCELLANEOUS
5.1 Termination. This Agreement may be terminated by any Purchaser,
as to such Purchaser's obligations hereunder only and without any effect
whatsoever on the obligations between the Company and the other Purchasers, by
written notice to the other parties, if the Closing has not been consummated
on or before August 30, 2005; provided, however, that no such termination will
affect the right of any party to xxx for any breach by the other party (or
parties).
5.2 Fees and Expenses. At the Closing, the Company has agreed to
reimburse Midsummer Capital, LLC ("Midsummer") non-accountable sum of $15,000,
for its actual, reasonable, out-of-pocket legal fees and expenses. The
Company shall deliver, prior to the Closing, a completed and executed copy of
the Closing Statement, attached hereto as Annex A. Except as expressly set
forth in the Transaction Documents to the contrary, each party shall pay the
fees and expenses of its advisers, counsel, accountants and other experts, if
any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this
Agreement. The Company shall pay all transfer agent fees, stamp taxes and
other taxes and duties levied in connection with the delivery of any
Securities.
5.3 Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to such matters,
which the parties acknowledge have been merged into such documents, exhibits
and schedules.
5.4 Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (a) the date of
transmission, if such notice or communication is delivered via facsimile at
the facsimile number set forth on the signature pages attached hereto prior to
5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day
after the date of transmission, if such notice or communication is delivered
via facsimile at the facsimile number set forth on the signature pages
attached hereto on a day that is not a Trading Day or later than 5:30 p.m.
(New York City time) on any Trading Day, (c) the second Trading Day following
the date of mailing, if sent by U.S. nationally recognized overnight courier
service, or (d) upon actual receipt by the party to whom such notice is
required to be given. The address for such notices and communications shall
be as set forth on the signature pages attached hereto.
5.5 Amendments; Waivers. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and each Purchaser with a Subscription Amount equal to or
greater than $1,000,000 or, in the case of a waiver, by the party against whom
enforcement of any such waiver is sought. No waiver of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof,
nor shall any delay or omission of either party to exercise any right
hereunder in any manner impair the exercise of any such right.
5.6 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. 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.
5.7 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or
obligations hereunder without the prior written consent of each Purchaser.
Any Purchaser may assign any or all of its rights under this Agreement to any
Person to whom such Purchaser assigns or transfers any Securities, provided
such transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions hereof that apply to the "Purchasers".
5.8 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other Person, except as otherwise set forth in Section 4.11.
5.9 Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of the Transaction Documents shall be
governed by and construed and enforced in accordance with the internal laws of
the State of New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York. Each party hereby irrevocably submits
to the exclusive jurisdiction of the state and 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 (including with respect to the enforcement of any
of the Transaction Documents), 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 improper or inconvenient venue for such proceeding.
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 via registered or certified mail or overnight delivery (with
evidence of delivery) to such party at the address in effect for 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. The parties hereby waive all rights to a trial by jury. If
either party shall commence an action or proceeding to enforce any provisions
of the Transaction Documents, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys' fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.
5.10 Survival. The representations and warranties contained herein
shall survive the Closing and the delivery, exercise and/or conversion of the
Securities, as applicable for the applicable statue of limitations.
5.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together 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, it being understood that both
parties need not sign the same counterpart. In the event that any signature
is delivered by facsimile transmission, such signature shall create a valid
and binding obligation of the party executing (or on whose behalf such
signature is executed) with the same force and effect as if such facsimile
signature page were an original thereof.
5.12 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of
the remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a
valid and enforceable provision that is a reasonable substitute therefor, and
upon so agreeing, shall incorporate such substitute provision in this
Agreement.
5.13 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time
upon written notice to the Company, any relevant notice, demand or election in
whole or in part without prejudice to its future actions and rights; provided,
however, in the case of a rescission of a conversion of the Preferred Stock or
exercise of a Warrant, the Purchaser shall be required to return any shares of
Common Stock subject to any such rescinded conversion or exercise notice.
5.14 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new
certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary
and reasonable indemnity, if requested. The applicants for a new certificate
or instrument under such circumstances shall also pay any reasonable
third-party costs associated with the issuance of such replacement Securities.
5.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
5.16 Payment Set Aside. To the extent that the Company makes a payment
or payments to any Purchaser pursuant to any Transaction Document or a
Purchaser enforces or exercises its rights 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, state or
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.
5.17 Usury. To the extent it may lawfully do so, the Company hereby
agrees not to insist upon or plead or in any manner whatsoever claim, and will
resist any and all efforts to be compelled to take the benefit or advantage
of, usury laws wherever enacted, now or at any time hereafter in force, in
connection with any claim, action or proceeding that may be brought by any
Purchaser in order to enforce any right or remedy under any Transaction
Document. Notwithstanding any provision to the contrary contained in any
Transaction Document, it is expressly agreed and provided that the total
liability of the Company under the Transaction Documents for payments in the
nature of interest shall not exceed the maximum lawful rate authorized under
applicable law (the "Maximum Rate"), and, without limiting the foregoing, in
no event shall any rate of interest or default interest, or both of them, when
aggregated with any other sums in the nature of interest that the Company may
be obligated to pay under the Transaction Documents exceed such Maximum Rate.
It is agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute
or any official governmental action subsequent to the date hereof, the new
maximum contract rate of interest allowed by law will be the Maximum Rate
applicable to the Transaction Documents from the effective date forward,
unless such application is precluded by applicable law. If under any
circumstances whatsoever, interest in excess of the Maximum Rate is paid by
the Company to any Purchaser with respect to indebtedness evidenced by the
Transaction Documents, such excess shall be applied by such Purchaser to the
unpaid principal balance of any such indebtedness or be refunded to the
Company, the manner of handling such excess to be at such Purchaser's
election.
5.18 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and
not joint with the obligations of any other Purchaser, and no Purchaser shall
be responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association,
a joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents.
Each Purchaser shall be entitled to independently protect and enforce its
rights, including without limitation, the rights arising out of this Agreement
or out of the other Transaction Documents, and it shall not be necessary for
any other Purchaser to be joined as an additional party in any proceeding for
such purpose. Each Purchaser has been represented by its own separate legal
counsel in their review and negotiation of the Transaction Documents. For
reasons of administrative convenience only, Purchasers and their respective
counsel have chosen to communicate with the Company through FW. FW does not
represent all of the Purchasers but only Midsummer. The Company has elected
to provide all Purchasers with the same terms and Transaction Documents for
the convenience of the Company and not because it was required or requested to
do so by the Purchasers.
5.19 Liquidated Damages. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding
the fact that the instrument or security pursuant to which such partial
liquidated damages or other amounts are due and payable shall have been
canceled.
5.20 Construction. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise the
Transaction Documents and, therefore, the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of the Transaction Documents or
any amendments hereto.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
IMEDIA INTERNATIONAL, INC.
Address for Notice:
By:___________________________________
Name: Xxxxx XxxXxxxxxx
Title: Chief Executive Officer
With a copy to (which shall not constitute notice):
Xxxxxxxxxx & Xxxxx LLP
00000 Xxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxx Xxxxxxx, XX 00000
Fax: 000-000-0000
Attn: Xxxxxx Xxxxx, Esq.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
[PURCHASER SIGNATURE PAGES TO IMNL SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Purchaser: __________________________
Signature of Authorized Signatory of Purchaser: __________________________
Name of Authorized Signatory: _________________________
Title of Authorized Signatory: __________________________
Email Address of Purchaser:________________________________
Address for Notice of Purchaser:
Address for Delivery of Securities for Purchaser (if not same as above):
Subscription Amount:
Shares of Preferred Stock:
Warrant Shares:
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
Annex A
CLOSING STATEMENT
Pursuant to the attached Securities Purchase Agreement, dated as of the date
hereto, the purchasers shall purchase up to $6,000,000 of Preferred Stock and
Warrants from iMedia International, Inc., a Delaware corporation (the
"Company"). All funds will be wired into a trust account maintained by
____________, counsel to the Company. All funds will be disbursed in
accordance with this Closing Statement.
Disbursement Date: August ___, 2005
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I. PURCHASE PRICE
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Gross Proceeds to be Received in Trust $___________
II. DISBURSEMENTS
-------------
$___________
$___________
$___________
$___________
$___________
$___________
Total Amount Disbursed: $___________
WIRE INSTRUCTIONS:
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To: _____________________________________
To: _____________________________________
Exhibit A
DISCLOSURE SCHEDULES TO SECTION 3 OF THE
SECURITIES PURCHASE AGREEMENT
This Disclosure Schedule modifies, amends, supplements, discloses, and states
exceptions to, the representations, warranties and covenants of iMedia
International, Inc., a Delaware corporation (the "Company"), set forth in
Section 3.1 of the Securities Purchase Agreement (this "Agreement") dated as
of August 12, 2005, by and among the Company and each purchaser identified on
the signature pages thereto (the "Purchaser"). Each disclosure herein,
including but not limited to, those which are contained on any sub schedules
or exhibits included herein, is made for the sake of convenience as to all
sections of the Agreement, even if such disclosure is specified for a single
section of the Agreement, without the need for identification of specific
additional sections or repetition. Any terms not defined herein, shall have
the meaning set forth in the Agreement.
3.1 (a) Subsidiaries.
The Company has formed and is doing business under the following wholly-owned
operating subsidiaries:
Hollywood Previews, Inc., a California Corporation
iMedia US LLC, a California Limited Liability Company
iMedia Nevada LLC, a Nevada Limited Liability Company
There are no other active subsidiary operations.
(e) Filings, Consent and Approvals
The Company has the obligations to give to notice to purchasers of its Series
A Preferred shares. The Company has fulfilled its obligations of notification
there under.
3.1 (g) Capitalization
Common Stock: As of June 30, 2005 the Company as authorized the issuance of
500,000,000 shares of common stock, par value $0.001 per shares, and has
issued and outstanding the total of 72,375,677 common shares.
Preferred Shares: The Company has authorized the issuance of up to 20,000,000
preferred shares in classes to be determined from time-to-time by the Board of
Directors. As of August 1, 2005, there are 3,040 Series A preferred shares
issued or outstanding. The Series A Preferred Shares are convertible in to
Common Stock at the conversion price of $0.40 per share. The Series A
Preferred matures on May 23, 2007, at which time any unconverted shares must
be redeemed by the Company. The Company has not issued any other preferred
shares.
Participation Rights: Per the terms of a Securities Purchase Agreement,
MicroCaptial Funds has certain participation rights proportionate to the
number of shares convertible per the terms of their note. The Company has
notified MicroCaptial Funds of its intent to sell additional securities and
MicroCapital has declined participating in this offering. Purchasers of the
Company's Series A Preferred Shares also enjoy certain participation rights.
The Company has informed these purchasers of its intent to sell additional
Series B preferred as per its obligation. The Company is not aware of any
Series A purchasers that will be participating in this Series B offering.
3.1 (g) continued
Warrants, Options and Derivative Securities: The Company has issued the
following derivative securities:
Type Quantity Strike Price Expiration Date Registration Rights
------------- ----------- ------------- ---------------- --------------------
Warrants 25,000 $1.00 5/07/2006 None
Warrants 25,000 $1.00 4/14/2006 None
Warrants 41,667 $0.10 2/01/2006 Piggy Back
Warrants 41,667 $0.10 3/03/2006 Piggy Back
Warrants 41,667 $0.10 4/03/2006 Piggy Back
Warrants 41,667 $0.10 5/04/2006 Piggy Back
Warrants 41,667 $0.10 6/04/2006 None
Warrants 3,906 $3.15 11/13/2005 None
Warrants 130,000 $0.50 8/01/2006 Piggy-Back
Warrants 50,000 $1.00 10/01/2005 None
Warrants 10,866 $1.00 6/30/2006 None
Warrants 40,000 $1.00 9/29/2006 Piggy-Back
Warrants 43,289 $1.00 9/29/2006 Piggy-Back
Warrants 16,809 $1.00 12/30/2006 Piggy-Back
Warrants 300,000 $1.00 7/20/2005 Piggy-Back
Warrants 44,150 $1.00 6/30/2009 Piggy Back
Warrants 50,000 $1.75 12/31/2007 Piggy-Back
Warrants 675,000 $1.00 8/30/2007 None
Warrants 456,750 $1.00 12/08/2007 None
Warrants 54,325 $1.00 11/03/2007 None
Warrants 25,000 $1.00 9/09/2007 Piggy-Back
Warrants 25,000 $1.00 9/22/2007 Piggy-Back
Warrants 60,000 $1.00 8/23/2007 Piggy-Back
Warrants 25,000 $1.00 9/03/2007 Piggy-back
Warrants 105,100 $1.00 5/24/2008 Piggy-Back
Warrants 30,000 $0.90 8/31/2009 Piggy-Back
Warrants 2,984,617 $1.00 2/01/2006 None
Warrants 2,984,617 $1.25 2/01/2006 None
Warrants 85,332 $1.00 3/25/2008 None
Warrants 555,556 $0.40 8/31/2009 Piggy-Back
Warrants 100,000 $0.40 3/28/2008 Piggy-Back
Warrants 836,000 $0.40 3/28/2010 Piggy-Back
Warrants 7,600,000 $0.60 5/23/2010 Piggy-Back
Warrants 2,225,000 $1.00 6/02/2006 Piggy-Back
Weighted
Total: 19,774,652 Avg. SP $0.81
As a result of this offering, the Company has the obligation to reset the
exercise price on 7,600,000 warrants previously issued in conjunction with the
sale of Units of the Company's Series A convertible Preferred Shares. The
Long Term Warrant Agreement specified a full-ratchet anti-dilution provision,
the effect of which will force the Company to reduce the exercise price of
these warrant from $0.60 to $0.40 per share.
3.1 (i) Material Changes
On May 23, 2005 the Company closed on $3,040,000 in Units of Series A
Convertible Preferred Shares in a private placement to a limited number of
accredited investors. The Series A Convertible Preferred Shares mature on May
23, 2007, and the Company is obligated to redeem any unconverted shares at
that time. The Series A Preferred pay a 6% preferred dividend, payable
quarterly in cash or stock at Company's option, and are convertible into
7,600,000 shares of common stock at a conversion price of $0.40 per share. As
part of the Unit purchased, investors received a long term warrant to purchase
7,600,000 additional common shares at the price of $0.60 per share. A
complete description of the transaction, along with a form of the offering
documents can be found in the Company's public filings as evidenced on Form 8K
dated May 23, 2005.
3.1 (s) Certain Fees.
The Company intends upon paying certain fess, both in cash and in warrants to
various investment bankers and NASD registered brokers in conjunction with
this offering. The fee structure is as follows:
For any investment made in the offering that originates solely and exclusively
with the Company's lead placement agent, Axiom Capital, the Company will pay a
performance fee of 10% in cash and an additional fee in placement agent
warrants to purchase up to 10% of the underlying common shares convertible by
Axiom's introduced investors.
For any investment made in the offering that originates solely and exclusively
with the Company's co-placement agent, Atlas Capital, the Company will pay a
performance fee of 10% in cash and an additional fee in placement agent
warrants to purchase up to 10% of the underlying common shares convertible by
Atlas's introduced investors.
The Company shall not pay a finders fee or commission to any placement agent
for investments made by any existing shareholder of the Company, unless that
shareholder was (1) introduced by the placement agent, and (2) the Company has
a contractual obligation to pay aa fee or commission.
The Company shall not pay more than 10% in cash and 10% in placement agents
warrants for any investor introduced in this offering.
The Company reserves the right to pay other placement agents, other than those
listed above, a fee or commission for introduced investors, provided that the
Company shall not at any time pay more than 10% in cash and 10% in placement
agent warrants as total fees.
3.1 (v) Registration Rights.
The Company has certain obligations to register securities previously issued
to various investors, consultants and service providers as provided herein:
The Company entered into a formal Registration Rights Agreement with Augustine
Fund L.P. wherein we have the obligation to piggy-back the 50,000 underlying
shares for remaining warrants exercisable for common stock.
The Company entered into a formal Registration Rights Agreement with
MicroCapital Funds wherein it has the obligation to piggy-back warrants
convertible to 1,111,000 shares of common stock. In addition, the agreement
grants MicroCapital Funds certain Demand Rights if the Company has not filed a
registration statement by August 31, 2005 covering the shares underlying the
MicroCapital warrants.
The Company has the obligation to register up to 4,352,788 shares sold to
subscribers of the Company's prior offerings.
The Company has the obligation to register up to 2,300,000 shares, or shares
underlying warrants issued to various consultants for services.
The Company has the obligation to register 7,600,000 shares underlying the
Company's outstanding Series A Convertible Preferred Shares.
The Company has the obligation to register an additional 18,613,652 shares
underlying various outstanding warrants, which are exercisable into common
shares.
The Company has the obligation to use its good faith efforts to include and
register 43,253 shares of restricted common stock pursuant to a Settlement and
Mutual Release Agreement between the Company and the Shemano Group.
3.1 (y) Disclosure.
As condition precedent for specific due-diligence by certain institutional
investors, and subject to certain non-disclosure agreements, the Company or
its representatives have made limited disclosure of the existence of certain
pending contracts, letters of intent, and/or limited financial projections
models and assumptions that have not been publicly announced.
3.1 (aa) Solvency.
Going Concern. The Company's reports on Form 10KSB for the periods ending
December 31, 2003 and 2004 respectively, include "going-concern" statements by
the Company independent auditors. The Statement of Going Concern were due to
the limited operating capital reserves, cash burn and limited revenue from
sales during these periods. It is anticipated that due to the closing of this
financing and the escalation of revenues from sales, the Statement of Going
Concern will be removed from the Company's financial statements.
The Company maintains that it has the following Indebtedness:
As of August 1, 2005, the Company has account payables incurred in the normal
course of business totaling $674,171.
The Company has the obligation to redeem $3,040,000 in convertible Series A
preferred shares which will mature on May 23, 2007. Although the Company
believes that these Series A preferred shares will be converted by the holders
into common stock prior to the maturity date, the Company can give no
assurances that holders will voluntarily convert, or that the public market
for the Company's shares shall perform in such a manner as to allow the
Company to forcibly convert these Series A shares into common stock.
3.1 (cc) Tax Status.
The Company has filed an extension with the Internal Revenue Service and State
of Delaware to file its 2004 tax returns. In our 2004 Annual Report on Form
10-KSB, we disclosed that the Company has an accumulated deficit of
$8,551,816. We thus anticipate having no current tax liabilities.
3.1 (ff) Accountants.
The Company has recently engaged Xxxxxxxx and Company P.A. as its independent
auditor. The contact information is: Mr. Xxxxx Xxxxxxx (000) 000-0000.
3.1 (gg) Seniority.
Presently, there are 19 holders of 3,040 Series A preferred shares which have
seniority over the Series B shares that are being sold under this offering.
There are no other senior securities or debentures currently outstanding.
