Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of December
13, 2006, by and among MSGI Security Solutions, Inc., a Nevada corporation, with
headquarters located at 000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 (the
"COMPANY"), and each of the purchasers set forth on the signature pages hereto
(the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the rules and regulations as promulgated by the United States Securities and
Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 Act");
B. Buyers desire to purchase and the Company desires to issue and sell,
upon the terms and conditions set forth in this Agreement (i) 6% secured
convertible notes of the Company, in the form attached hereto as EXHIBIT "A", in
the aggregate principal amount of Two Million Dollars ($2,000,000) (together
with any note(s) issued in replacement thereof or as a dividend thereon or
otherwise with respect thereto in accordance with the terms thereof, the
"NOTES"), convertible into shares of common stock, par value $.01 per share, of
the Company (the "COMMON STOCK"), upon the terms and subject to the limitations
and conditions set forth in such Notes and (ii) warrants, in the form attached
hereto as EXHIBIT "B", to purchase an aggregate of 3,000,000 shares of Common
Stock (the "WARRANTS").
C. Each Buyer wishes to purchase, upon the terms and conditions stated
in this Agreement, such principal amount of Notes and number of Warrants as is
set forth immediately below its name on the signature pages hereto; and
D. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as EXHIBIT "C" (the "REGISTRATION RIGHTS
AGREEMENT"), pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
E. The Company's obligations shall be secured by that certain Security
Agreement and that certain Intellectual Property Security Agreement, each dated
the date hereof.
NOW THEREFORE, the Company and each of the Buyers severally (and not
jointly) hereby agree as follows:
1. PURCHASE AND SALE OF NOTES AND WARRANTS.
A. PURCHASE OF NOTES AND WARRANTS. On the Closing Date (as
defined below), the Company shall issue and sell to each Buyer and each
Buyer severally agrees to purchase from the Company such principal amount of
Notes and number of Warrants as is set forth immediately below such Buyer's name
on the signature pages hereto.
B. FORM OF PAYMENT. On the Closing Date (as defined below),
(i) each Buyer shall pay the purchase price for the Notes and the
Warrants to be issued and sold to it at the Closing (as defined below) (the
"PURCHASE PRICE") by wire transfer of immediately available funds to the
Company, in accordance with the Company's written wiring instructions, against
delivery of the Notes in the principal amount equal to the Purchase Price and
the number of Warrants as is set forth immediately below such Buyer's name on
the signature pages hereto, and (ii) the Company shall deliver such Notes and
Warrants duly executed on behalf of the Company, to such Buyer, against delivery
of such Purchase Price.
C. CLOSING DATE. Subject to the satisfaction (or written
waiver) of the conditions thereto set forth in Section 6 and Section 7
below, the date and time of the issuance and sale of the Notes and the Warrants
pursuant to this Agreement (the "CLOSING DATE") shall be 12:00 noon, Eastern
Standard Time on December 13, 2006, or such other mutually agreed upon time. The
closing of the transactions contemplated by this Agreement (the "CLOSING") shall
occur on the Closing Date at such location as may be agreed to by the parties.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer
severally (and not jointly) represents and warrants to the Company
solely as to such Buyer that:
A. INVESTMENT PURPOSE. As of the date hereof, the Buyer
is purchasing the Notes and the shares of Common Stock issuable upon
conversion of or otherwise pursuant to the Notes (including, without limitation,
such additional shares of Common Stock, if any, as are issuable (i) on account
of interest on the Notes, (ii) as a result of the events described in Sections
1.3 and 1.4(g) of the Notes and Section 2(c) of the Registration Rights
Agreement or (iii) in payment of the Standard Liquidated Damages Amount (as
defined in Section 2(f) below) pursuant to this Agreement, such shares of Common
Stock being collectively referred to herein as the "CONVERSION SHARES") and the
Warrants and the shares of Common Stock issuable upon exercise thereof (the
"WARRANT SHARES" and, collectively with the Notes, Warrants and Conversion
Shares, the "SECURITIES") for its own account and not with a present view
towards the public sale or distribution thereof, except pursuant to sales
registered or exempted from registration under the 1933 Act; provided, however,
that by making the representations herein, the Buyer does not agree to hold any
of the Securities for any minimum or other specific term and reserves the right
to dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.
B. ACCREDITED INVESTOR STATUS. The Buyer is an
"accredited investor" as that term is defined in Rule 501(a) of
Regulation D (an "ACCREDITED INVESTOR").
C. RELIANCE ON EXEMPTIONS. The Buyer understands that
the Securities are being offered and sold to it in reliance upon
specific exemptions from the registration requirements of United States federal
and state securities laws and that the Company is relying upon the truth and
accuracy of, and the Buyer's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of the Buyer set forth herein in
order to determine the availability of such exemptions and the eligibility of
the Buyer to acquire the Securities.
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D. INFORMATION. The Buyer and its advisors, if any,
have been, and for so long as the Notes and Warrants remain outstanding
will continue to be, furnished with all materials relating to the business,
finances and operations of the Company and materials relating to the offer and
sale of the Securities which have been requested by the Buyer or its advisors.
The Buyer and its advisors, if any, have been, and for so long as the Notes and
Warrants remain outstanding will continue to be, afforded the opportunity to ask
questions of the Company. Notwithstanding the foregoing, the Company has not
disclosed to the Buyer any material nonpublic information and will not disclose
such information unless such information is disclosed to the public prior to or
promptly following such disclosure to the Buyer. Neither such inquiries nor any
other due diligence investigation conducted by Buyer or any of its advisors or
representatives shall modify, amend or affect Buyer's right to rely on the
Company's representations and warranties contained in Section 3 below. The Buyer
understands that its investment in the Securities involves a significant degree
of risk.
E. GOVERNMENTAL REVIEW. The Buyer understands that no
United States federal or state agency or any other government or
governmental agency has passed upon or made any recommendation or endorsement of
the Securities.
F. TRANSFER OR RE-SALE. The Buyer understands that
(i) except as provided in the Registration Rights Agreement, the sale
or re-sale of the Securities has not been and is not being registered under the
1933 Act or any applicable state securities laws, and the Securities may not be
transferred unless (a) the Securities are sold pursuant to an effective
registration statement under the 1933 Act, (b) the Buyer shall have delivered to
the Company an opinion of counsel that shall be in form, substance and scope
customary for opinions of counsel in comparable transactions to the effect that
the Securities to be sold or transferred may be sold or transferred pursuant to
an exemption from such registration, which opinion shall be accepted by the
Company, (c) the Securities are sold or transferred to an "affiliate" (as
defined in Rule 144 promulgated under the 1933 Act (or a successor rule) ("RULE
144")) of the Buyer who agrees to sell or otherwise transfer the Securities only
in accordance with this Section 2(f) and who is an Accredited Investor, (d) the
Securities are sold pursuant to Rule 144, or (e) the Securities are sold
pursuant to Regulation S under the 1933 Act (or a successor rule) ("REGULATION
S"), and the Buyer shall have delivered to the Company an opinion of counsel
that shall be in form, substance and scope reasonably acceptable to the
Company's counsel, which opinion shall be accepted by the Company; (ii) any sale
of such Securities made in reliance on Rule 144 may be made only in accordance
with the terms of said Rule and further, if said Rule is not applicable, any
re-sale of such Securities under circumstances in which the seller (or the
person through whom the sale is made) may be deemed to be an underwriter (as
that term is defined in the 0000 Xxx) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC thereunder;
and (iii) neither the Company nor any other person is under any obligation to
register such Securities under the 1933 Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder (in each case,
other than pursuant to the Registration Rights Agreement). Notwithstanding the
foregoing or anything else contained herein to the contrary, the Securities may
be pledged as collateral in connection with a bona fide margin account or other
lending arrangement. In the event that the Company does not accept the opinion
of counsel provided by the Buyer with respect to the transfer of Securities
pursuant to an exemption from registration, such as Rule 144 or Regulation S,
within three (3) business days of delivery of the opinion to the Company, unless
the Company's counsel indicates the need for
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legal analysis of the legal opinion, the Company shall pay to the Buyer
liquidated damages of three percent (3%) of the outstanding amount of the Notes
per month plus accrued and unpaid interest on the Notes, prorated for partial
months, in cash ("STANDARD LIQUIDATED DAMAGES AMOUNT"). If the Company elects to
be pay the Standard Liquidated Damages Amount in shares of Common Stock, such
shares shall be issued at the Conversion Price at the time of payment. The
acceptance of the Standard Liquidated Damages Amount shall not affect the
Buyer's ability to seek actual damages caused by the Company's breach hereunder.
G. LEGENDS. The Buyer understands that the Notes and
the Warrants and, until such time as the Conversion Shares and Warrant
Shares have been registered under the 1933 Act as contemplated by the
Registration Rights Agreement or otherwise may be sold pursuant to Rule 144 or
Regulation S without any restriction as to the number of securities as of a
particular date that can then be immediately sold, the Conversion Shares and
Warrant Shares may bear a restrictive legend in substantially the following form
(and a stop-transfer order may be placed against transfer of the certificates
for such Securities):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities may not be sold, transferred or assigned in the
absence of an effective registration statement for the
securities under said Act, or an opinion of counsel, in form,
substance and scope reasonably acceptable to the Company's
counsel, that registration is not required under said Act or
unless sold pursuant to Rule 144 or Regulation S under said
Act."
The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws, (a)
such Security is registered for sale under an effective registration statement
filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or
Regulation S without any restriction as to the number of securities as of a
particular date that can then be immediately sold, or (b) such holder provides
the Company with an opinion of counsel, in form, substance and scope reasonably
acceptable to the Company's counsel, to the effect that a public sale or
transfer of such Security may be made without registration under the 1933 Act,
which opinion shall be accepted by the Company so that the sale or transfer is
effected or (c) such holder provides the Company with reasonable assurances that
such Security can be sold pursuant to Rule 144 or Regulation S. The Buyer agrees
to sell all Securities, including those represented by a certificate(s) from
which the legend has been removed, in compliance with applicable prospectus
delivery requirements, if any.
H. AUTHORIZATION; ENFORCEMENT. This Agreement and the
Registration Rights Agreement have been duly and validly authorized.
This Agreement has been duly executed and delivered on behalf of the Buyer, and
this Agreement constitutes, and upon execution and delivery by the Buyer of the
Registration Rights Agreement, such agreement will constitute, valid and binding
agreements of the Buyer enforceable in accordance with their terms.
I. RESIDENCY. The Buyer is a resident of the
jurisdiction set forth immediately below such Buyer's name on the
signature pages hereto.
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3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as
otherwise disclosed in the SEC Documents (as defined herein), the
Company represents and warrants to each Buyer that:
A. ORGANIZATION AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is incorporated, with full power and
authority to own, lease, use and operate its properties and to carry on its
business as and where now owned, leased, used, operated and conducted. Each of
its Subsidiaries (as defined below) is a corporation, limited liability company
or Italian legal entity, duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it is formed, with full power and
authority to own, lease, use and operate its properties and to carry on its
business as and where now owned, leased, used, operated and conducted, except as
set forth on SCHEDULE 3(A). SCHEDULE 3(A) sets forth a list of all of the
Subsidiaries of the Company and the jurisdiction in which each is incorporated.
The Company and each of its Subsidiaries is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which its ownership or use of property or the nature of the business conducted
by it makes such qualification necessary except where the failure to be so
qualified or in good standing would not have a Material Adverse Effect.
"MATERIAL ADVERSE EFFECT" means any material adverse effect on the business,
operations, assets, financial condition or prospects of the Company or its
Subsidiaries, if any, taken as a whole, or on the transactions contemplated
hereby or by the agreements or instruments to be entered into in connection
herewith. "SUBSIDIARIES" shall have the meaning ascribed to "subsidiary" under
Rule 1-02(x) of Regulation S-X.
B. AUTHORIZATION; ENFORCEMENT. (i) The Company has all
requisite corporate power and authority to enter into and perform this
Agreement, the Registration Rights Agreement, the Notes, the Warrants, the
Security Agreement and the Intellectual Property Security Agreement
(collectively, the "TRANSACTION DOCUMENTS") and to consummate the transactions
contemplated hereby and thereby and to issue the Securities, in accordance with
the terms hereof and thereof, (ii) the execution and delivery of this Agreement,
the Registration Rights Agreement, the Notes and the Warrants by the Company and
the consummation by it of the transactions contemplated hereby and thereby
(including without limitation, the issuance of the Notes and the Warrants and
the issuance and reservation for issuance of the Conversion Shares and Warrant
Shares issuable upon conversion or exercise thereof) have been duly authorized
by the Company's Board of Directors and no further consent or authorization of
the Company, its Board of Directors, or its shareholders is required, (iii) this
Agreement has been duly executed and delivered by the Company by its authorized
representative, and such authorized representative is the true and official
representative with authority to sign this Agreement and the other documents
executed in connection herewith and bind the Company accordingly, and (iv) this
Agreement constitutes, and upon execution and delivery by the Company of the
Registration Rights Agreement, the Notes and the Warrants, each of such
instruments will constitute, a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms.
C. CAPITALIZATION. As of the date hereof, the
authorized capital stock of the Company consists of (i) 9,375,000
shares of Common Stock, of which 5,281,537 shares are issued and outstanding,
560,000 shares are reserved for issuance pursuant to the Company's
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stock option plans, 3,515,801 shares are reserved for issuance pursuant
to securities (other than the Notes and the Warrants) exercisable for, or
convertible into or exchangeable for shares of Common Stock and 7,000,000
shares will be reserved for issuance upon conversion of the Notes and exercise
of the Warrants (subject to the Stockholder Approval (as defined in Section 4(k)
below) set forth in Section 4(h) below); and (ii) 18,750 shares of preferred
stock, of which no shares are currently issued and outstanding. All of such
outstanding shares of capital stock are, or upon issuance will be, duly
authorized, validly issued, fully paid and nonassessable. No shares of capital
stock of the Company are subject to preemptive rights or any other similar
rights of the shareholders of the Company or any liens or encumbrances imposed
through the actions or failure to act of the Company. Except as disclosed in
SCHEDULE 3(C), as of the effective date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to subscribe for, puts, calls,
rights of first refusal, agreements, understandings, claims or other commitments
or rights of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for any shares of capital stock of the Company
or any of its Subsidiaries, or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries, (ii) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of its or their securities under the 1933 Act (except
the Registration Rights Agreement) and (iii) there are no anti-dilution or price
adjustment provisions contained in any security issued by the Company (or in any
agreement providing rights to security holders) that will be triggered by the
issuance of the Notes, the Warrants, the Conversion Shares or Warrant Shares.
The Company has furnished to the Buyer true and correct copies of the Company's
Articles of Incorporation as in effect on the date hereof ("ARTICLES OF
INCORPORATION"), the Company's By-laws, as in effect on the date hereof (the
"BY-LAWS"), and the terms of all securities convertible into or exercisable for
Common Stock of the Company and the material rights of the holders thereof in
respect thereto. The Company shall provide the Buyer with a written update of
this representation signed by the Company's Chief Executive or Chief Financial
Officer on behalf of the Company as of the Closing Date.
D. ISSUANCE OF SHARES. The Conversion Shares and
Warrant Shares are duly authorized and reserved for issuance and, upon
conversion of the Notes and exercise of the Warrants in accordance with their
respective terms, will be validly issued, fully paid and non-assessable, and
free from all taxes, liens, claims and encumbrances with respect to the issue
thereof and shall not be subject to preemptive rights or other similar rights of
shareholders of the Company and will not impose personal liability upon the
holder thereof.
E. ACKNOWLEDGMENT OF DILUTION. The Company understands
and acknowledges the potentially dilutive effect to the Common Stock
upon the issuance of the Conversion Shares and Warrant Shares upon conversion of
the Note or exercise of the Warrants. The Company further acknowledges that its
obligation to issue Conversion Shares and Warrant Shares upon conversion of the
Notes or exercise of the Warrants in accordance with this Agreement, the Notes
and the Warrants is absolute and unconditional regardless of the dilutive effect
that such issuance may have on the ownership interests of other shareholders of
the Company.
F. NO CONFLICTS. The execution, delivery and
performance of this Agreement and each of the other Transaction
Documents by the Company and the
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consummation by the Company of the transactions contemplated hereby and
thereby (including, without limitation, the issuance and reservation for
issuance of the Conversion Shares and Warrant Shares) will not (i) materially
conflict with or result in a violation of any provision of the Articles of
Incorporation or By-laws or (ii) violate or conflict with, or result in a breach
of any provision of, or constitute a default (or an event which with notice or
lapse of time or both could become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture, patent, patent license or instrument to which the Company
or any of its Subsidiaries is a party, or (iii) materially result in a violation
of any law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations and regulations of any self-regulatory
organizations to which the Company or its securities are subject) applicable to
the Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected (except for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect). Neither the Company nor any of its Subsidiaries is in violation
of its Articles of Incorporation, By-laws or other organizational documents and
neither the Company nor any of its Subsidiaries is in default (and no event has
occurred which with notice or lapse of time or both could put the Company or any
of its Subsidiaries in default) under, and neither the Company nor any of its
Subsidiaries has taken any action or failed to take any action that would give
to others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party or by which any property or assets of the Company or any
of its Subsidiaries is bound or affected, except for possible defaults as would
not, individually or in the aggregate, have a Material Adverse Effect. The
businesses of the Company and its Subsidiaries, if any, are not being conducted,
and shall not be conducted so long as a Buyer owns any of the Securities, in
violation of any law, ordinance or regulation of any governmental entity. Except
as specifically contemplated by this Agreement and as required under the 1933
Act and any applicable state securities laws, the Company is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency, regulatory agency, self
regulatory organization or stock market or any third party in order for it to
execute, deliver or perform any of its obligations under this Agreement, the
Registration Rights Agreement, the Notes or the Warrants in accordance with the
terms hereof or thereof or to issue and sell the Notes and Warrants in
accordance with the terms hereof and to issue the Conversion Shares upon
conversion of the Notes and the Warrant Shares upon exercise of the Warrants.
Except as disclosed in SCHEDULE 3(F), all consents, authorizations, orders,
filings and registrations which the Company is required to obtain pursuant to
the preceding sentence have been obtained or effected on or prior to the date
hereof. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
G. SEC DOCUMENTS; FINANCIAL STATEMENTS. Except as
disclosed in SCHEDULE 3(G), the Company has timely filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "1934 ACT") (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial statements and schedules
thereto and documents (other than exhibits to such documents) incorporated by
reference therein, being hereinafter referred to herein as the "SEC DOCUMENTS").
The Company has delivered to each Buyer true and complete copies of the SEC
Documents, except for such exhibits and
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incorporated documents. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the 1934 Act and the
rules and regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were filed with the
SEC, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. None of the statements made in any such SEC Documents is, or has
been, required to be amended or updated under applicable law (except for such
statements as have been amended or updated in subsequent filings prior the date
hereof). As of their respective dates, the financial statements of the Company
included in the SEC Documents complied in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
United States generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements) and fairly present in all material respects the
consolidated financial position of the Company and its consolidated Subsidiaries
as of the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). Except as set forth in the
financial statements of the Company included in the SEC Documents, the Company
has no liabilities, contingent or otherwise, other than (i) liabilities incurred
in the ordinary course of business subsequent to June 30, 2006 and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in such financial statements, which, individually or in the aggregate,
are not material to the financial condition or operating results of the Company.
H. ABSENCE OF CERTAIN CHANGES. Since June 30, 2006,
there has been no material adverse change and no material adverse
development in the assets, liabilities, business, properties, operations,
financial condition, results of operations or prospects of the Company or any of
its Subsidiaries.
I. ABSENCE OF LITIGATION. There is no action, suit,
claim, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or body pending
or, to the knowledge of the Company or any of its Subsidiaries, threatened
against or affecting the Company or any of its Subsidiaries, or their officers
or directors in their capacity as such, that could have a Material Adverse
Effect. SCHEDULE 3(I) contains a complete list and summary description of any
material pending or threatened proceeding against or affecting the Company or
any of its Subsidiaries. The Company and its Subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing.
J. PATENTS, COPYRIGHTS, ETC. The Company and each of
its Subsidiaries owns or possesses the requisite licenses or rights to
use all patents, patent applications, patent rights, inventions, know-how, trade
secrets, trademarks, trademark applications, service marks, service names, trade
names and copyrights ("INTELLECTUAL PROPERTY") necessary to enable it to conduct
its business as now operated (and, except as set forth in SCHEDULE 3(J) hereof,
to the best of the Company's knowledge, as presently
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contemplated to be operated in the future); there is no claim or action
by any person pertaining to, or proceeding pending, or to the Company's
knowledge threatened, which challenges the right of the Company or of a
Subsidiary with respect to any Intellectual Property necessary to enable it to
conduct its business as now operated (and, except as set forth in SCHEDULE 3(J)
hereof, to the best of the Company's knowledge, as presently contemplated to be
operated in the future); to the best of the Company's knowledge, the Company's
or its Subsidiaries' current and intended products, services and processes do
not infringe on any Intellectual Property or other rights held by any person;
and the Company is unaware of any facts or circumstances which might give rise
to any of the foregoing. The Company and each of its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of their Intellectual Property.
K. NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the
Company nor any of its Subsidiaries is subject to any charter,
corporate or other legal restriction, or any judgment, decree, order, rule or
regulation which in the judgment of the Company's officers has or is expected in
the future to have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is a party to any contract or agreement which in the judgment of
the Company's officers has or is expected to have a Material Adverse Effect.
L. TAX STATUS. Except as set forth on SCHEDULE 3(L),
since December 31, 2002, the Company and each of its Subsidiaries has
made or filed all federal, state and foreign income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject
(unless and only to the extent that the Company and each of its Subsidiaries has
set aside on its books provisions reasonably adequate for the payment of all
unpaid and unreported taxes) and has paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be
due on such returns, reports and declarations, except those being contested in
good faith and has set aside on its books provisions reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company know of no basis for any such claim. The Company
has not executed a waiver with respect to the statute of limitations relating to
the assessment or collection of any foreign, federal, state or local tax. Except
as set forth on SCHEDULE 3(L), none of the Company's tax returns is presently
being audited by any taxing authority.
M. CERTAIN TRANSACTIONS. Except as set forth on
SCHEDULE 3(M) and except for arm's length transactions pursuant to
which the Company or any of its Subsidiaries makes payments in the ordinary
course of business upon terms no less favorable than the Company or any of its
Subsidiaries could obtain from third parties and other than the grant of stock
options disclosed on SCHEDULE 3(C), none of the officers, directors, or
employees of the Company is presently a party to any transaction with the
Company or any of its Subsidiaries (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
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N. DISCLOSURE. All information relating to or
concerning the Company or any of its Subsidiaries set forth in this
Agreement and provided to the Buyers pursuant to Section 2(d) hereof and
otherwise in connection with the transactions contemplated hereby is true and
correct in all material respects and the Company has not omitted to state any
material fact necessary in order to make the statements made herein or therein,
in light of the circumstances under which they were made, not misleading. No
event or circumstance has occurred or exists with respect to the Company or any
of its Subsidiaries or its or their business, properties, prospects, operations
or financial conditions, which, under applicable law, rule or regulation,
requires public disclosure or announcement by the Company but which has not been
so publicly announced or disclosed (assuming for this purpose that the Company's
reports filed under the 1934 Act are being incorporated into an effective
registration statement filed by the Company under the 1933 Act).
O. ACKNOWLEDGMENT REGARDING BUYERS' PURCHASE OF
SECURITIES. The Company acknowledges and agrees that the Buyers are
acting solely in the capacity of arm's length purchasers with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that no Buyer is acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to this Agreement and the
transactions contemplated hereby and any statement made by any Buyer or any of
their respective representatives or agents in connection with this Agreement and
the transactions contemplated hereby is not advice or a recommendation and is
merely incidental to the Buyers' purchase of the Securities. The Company further
represents to each Buyer that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation of the Company and
its representatives.
P. NO INTEGRATED OFFERING. Neither the Company, nor any
of its affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales in any security or solicited any
offers to buy any security under circumstances that would require registration
under the 1933 Act of the issuance of the Securities to the Buyers. The issuance
of the Securities to the Buyers will not be integrated with any other issuance
of the Company's securities (past, current or future) for purposes of any
shareholder approval provisions applicable to the Company or its securities.
Q. NO BROKERS. Except for X.X. Xxxxxxxxxx, the
Company has taken no action which would give rise to any claim by any
person for brokerage commissions, transaction fees or similar payments relating
to this Agreement or the transactions contemplated hereby.
R. PERMITS; COMPLIANCE. The Company and each of its
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents,
certificates, approvals and orders necessary to own, lease and operate its
properties and to carry on its business as it is now being conducted
(collectively, the "COMPANY PERMITS"), and there is no action pending or, to the
knowledge of the Company, threatened regarding suspension or cancellation of any
of the Company Permits. Neither the Company nor any of its Subsidiaries is in
conflict with, or in default or violation of, any of the Company Permits, except
for any such conflicts, defaults or violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect.
Since June 30,
10
2006, neither the Company nor any of its Subsidiaries has received any
notification with respect to possible conflicts, defaults or violations of
applicable laws, except for notices relating to possible conflicts, defaults or
violations, which conflicts, defaults or violations would not have a Material
Adverse Effect.
S. ENVIRONMENTAL MATTERS.
(I) Except as set forth in SCHEDULE 3(S), there are,
to the Company's knowledge, with respect to the Company or any of its
Subsidiaries or any predecessor of the Company, no past or present violations of
Environmental Laws (as defined below), releases of any material into the
environment, actions, activities, circumstances, conditions, events, incidents,
or contractual obligations which may give rise to any common law environmental
liability or any liability under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 or similar federal, state, local or
foreign laws and neither the Company nor any of its Subsidiaries has received
any notice with respect to any of the foregoing, nor is any action pending or,
to the Company's knowledge, threatened in connection with any of the foregoing.
The term "ENVIRONMENTAL LAWS" means all federal, state, local or foreign laws
relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata), including, without limitation, laws relating to
emissions, discharges, releases or threatened releases of chemicals, pollutants
contaminants, or toxic or hazardous substances or wastes (collectively,
"HAZARDOUS MATERIALS") into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials, as well as all authorizations,
codes, decrees, demands or demand letters, injunctions, judgments, licenses,
notices or notice letters, orders, permits, plans or regulations issued,
entered, promulgated or approved thereunder.
(II) Other than those that are or were stored, used
or disposed of in compliance with applicable law, no Hazardous
Materials are contained on or about any real property currently owned, leased or
used by the Company or any of its Subsidiaries, and no Hazardous Materials were
released on or about any real property previously owned, leased or used by the
Company or any of its Subsidiaries during the period the property was owned,
leased or used by the Company or any of its Subsidiaries, except in the normal
course of the Company's or any of its Subsidiaries' business.
(III) Except as set forth in SCHEDULE 3(S), there
are no underground storage tanks on or under any real property owned,
leased or used by the Company or any of its Subsidiaries that are not in
compliance with applicable law.
T. TITLE TO PROPERTY. The Company and its Subsidiaries
have good and marketable title in fee simple to all real property and
good and marketable title to all personal property owned by them which is
material to the business of the Company and its Subsidiaries, in each case free
and clear of all liens, encumbrances and defects except such as are described in
SCHEDULE 3(T) or such as would not have a Material Adverse Effect. Any real
property and facilities held under lease by the Company and its Subsidiaries are
held by them under valid, subsisting and enforceable leases with such exceptions
as would not have a Material Adverse Effect.
11
U. INSURANCE. The Company and each of its Subsidiaries
are insured by insurers of recognized financial responsibility against
such losses and risks and in such amounts as management of the Company believes
to be prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not have a Material Adverse Effect. The Company has provided to Buyer true
and correct copies of all policies relating to directors' and officers'
liability coverage, errors and omissions coverage, and commercial general
liability coverage.
V. INTERNAL ACCOUNTING CONTROLS. The Company and each
of its Subsidiaries maintain a system of internal accounting controls
sufficient, in the judgment of the Company's board of directors, to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's general
or specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
W. FOREIGN CORRUPT PRACTICES. Neither the Company, nor
any of its Subsidiaries, nor any director, officer, agent, employee or
other person acting on behalf of the Company or any Subsidiary has, in the
course of his actions for, or on behalf of, the Company, used any corporate
funds for any unlawful contribution, gift, entertainment or other unlawful
expenses relating to political activity; made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended, or made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.
X. SOLVENCY. The Company (after giving effect to the
transactions contemplated by this Agreement) is solvent (i.e., its
assets have a fair market value in excess of the amount required to pay its
probable liabilities on its existing debts as they become absolute and matured)
and currently the Company has no information that would lead it to reasonably
conclude that the Company would not, after giving effect to the transaction
contemplated by this Agreement, have the ability to, nor does it intend to take
any action that would impair its ability to, pay its debts from time to time
incurred in connection therewith as such debts mature. The Company did not
receive a qualified opinion from its auditors with respect to its most recent
fiscal year end and, after giving effect to the transactions contemplated by
this Agreement, does not anticipate or know of any basis upon which its auditors
might issue a qualified opinion in respect of its current fiscal year.
Y. NO INVESTMENT COMPANY. The Company is not, and upon
the issuance and sale of the Securities as contemplated by this
Agreement will not be an "investment company" required to be registered under
the Investment Company Act of 1940 (an "INVESTMENT COMPANY"). The Company is not
controlled by an Investment Company.
12
Z. BREACH OF REPRESENTATIONS AND WARRANTIES BY THE
COMPANY. If the Company breaches any of the representations or
warranties set forth in this Section 3, and in addition to any other remedies
available to the Buyers pursuant to this Agreement, the Company shall pay to the
Buyer the Standard Liquidated Damages Amount in cash or in shares of Common
Stock at the option of the Company, until such breach is cured. If the Company
elects to pay the Standard Liquidated Damages Amounts in shares of Common Stock,
such shares shall be issued at the Conversion Price at the time of payment.
4. COVENANTS.
A. BEST EFFORTS. The parties shall use their best
efforts to satisfy timely each of the conditions described in Section 6
and 7 of this Agreement.
B. FORM D; BLUE SKY LAWS. The Company agrees to file a
Form D with respect to the Securities as required under Regulation D
and to provide a copy thereof to each Buyer promptly after such filing. The
Company shall, on or before the Closing Date, take such action as the Company
shall reasonably determine is necessary to qualify the Securities for sale to
the Buyers at the applicable closing pursuant to this Agreement under applicable
securities or "blue sky" laws of the states of the United States (or to obtain
an exemption from such qualification), and shall provide evidence of any such
action so taken to each Buyer on or prior to the Closing Date.
C. REPORTING STATUS; ELIGIBILITY TO USE FORM S-3, SB-2
OR FORM S-1. The Company's Common Stock is registered under Section
12(g) of the 1934 Act. The Company may use the form of registration for which it
is eligible as of the Filing Date (as defined in the Registration Rights
Agreement) for registration of the sale by the Buyer of the Registrable
Securities (as defined in the Registration Rights Agreement). So long as the
Buyer beneficially owns any of the Securities, the Company shall timely file all
reports required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would permit such termination. The Company further agrees to file all reports
required to be filed by the Company with the SEC in a timely manner so as to
become eligible, and thereafter to maintain its eligibility, for the use of Form
S-3. The Company shall file a Form 10-K for the year ended June 30, 2006 meeting
the requirements of the federal securities laws as soon as practicable, but in
no event later than December 29, 2006. The Company shall issue a press release
and file a Current Report on Form 8-K describing the materials terms of the
transaction contemplated hereby as soon as practicable following the Closing
Date but in no event more than three (3) business days of the Closing Date,
which press release and Form 8-K shall be subject to prior review by the Buyers.
The Company agrees that such press release and Form 8-K shall not disclose the
name of the Buyers unless expressly consented to in writing by the Buyers or
unless required by applicable law or regulation, and then only to the extent of
such requirement.
D. USE OF PROCEEDS. The Company shall use the proceeds
from the sale of the Notes and the Warrants in the manner set forth in
SCHEDULE 4(D) attached hereto and made a part hereof and shall not, directly or
indirectly, use such proceeds for any loan to or
13
investment in any other corporation, partnership, enterprise or other
person (except in connection with its currently existing direct or indirect
Subsidiaries)
E. FUTURE OFFERINGS. Subject to the exceptions
described below, the Company will not conduct any equity financing
(including debt with an equity component) ("FUTURE OFFERINGS") during the period
beginning on the Closing Date and ending on the one (1) year anniversary of the
Closing Date unless it shall have first delivered to each Buyer, at least ten
(10) business days prior to the closing of such Future Offering, written notice
describing the proposed Future Offering, including the terms and conditions
thereof and proposed definitive documentation to be entered into in connection
therewith, and providing each Buyer an option during the ten (10) day period
following delivery of such notice to purchase its pro rata share (based on the
ratio that the aggregate principal amount of Notes purchased by it hereunder
bears to the aggregate principal amount of Notes purchased hereunder) of the
securities being offered in the Future Offering on the same terms as
contemplated by such Future Offering (the limitations referred to in this
sentence and the preceding sentence are collectively referred to as the "CAPITAL
RAISING LIMITATIONS"). In the event the terms and conditions of a proposed
Future Offering are amended in any respect after delivery of the notice to the
Buyers concerning the proposed Future Offering, the Company shall deliver a new
notice to each Buyer describing the amended terms and conditions of the proposed
Future Offering and each Buyer thereafter shall have an option during the ten
(10) day period following delivery of such new notice to purchase its pro rata
share of the securities being offered on the same terms as contemplated by such
proposed Future Offering, as amended. The foregoing sentence shall apply to
successive amendments to the terms and conditions of any proposed Future
Offering. The Capital Raising Limitations shall not apply to any transaction
involving (i) issuances of securities in a firm commitment underwritten public
offering (excluding a continuous offering pursuant to Rule 415 under the 0000
Xxx) or (ii) issuances of securities as consideration for a merger,
consolidation or purchase of assets, or in connection with any strategic
partnership or joint venture (the primary purpose of which is not to raise
equity capital), or in connection with the disposition or acquisition of a
business, product or license by the Company. The Capital Raising Limitations
also shall not apply to the issuance of securities upon exercise or conversion
of the Company's options, warrants or other convertible securities outstanding
as of the date hereof or to the grant of additional options or warrants, or the
issuance of additional securities, under any Company stock option or restricted
stock plan approved by the shareholders of the Company.
F. EXPENSES. At the Closing, the Company shall
reimburse Buyers for expenses incurred by them in connection with the
negotiation, preparation, execution, delivery and performance of this Agreement
and the other agreements to be executed in connection herewith ("Documents"),
including, without limitation, attorneys' and consultants' fees and expenses,
transfer agent fees, fees for stock quotation services, fees relating to any
amendments or modifications of the Documents or any consents or waivers of
provisions in the Documents, fees for the preparation of opinions of counsel,
escrow fees, and costs of restructuring the transactions contemplated by the
Documents, up to a maximum amount of $25,000. When possible, the Company must
pay these fees directly, otherwise the Company must make immediate payment for
reimbursement to the Buyers for all fees and expenses immediately upon written
notice by the Buyer or the submission of an invoice by the Buyer If the Company
fails to reimburse the Buyer in full within three (3) business days of the
written notice or submission of invoice by the Buyer, the Company shall pay
interest on the total amount of fees to be reimbursed at a rate of 15% per
annum.
14
G. AUTHORIZATION AND RESERVATION OF SHARES. The Company
shall at all times, after the Stockholder Approval has been obtained,
have authorized, and reserved for the purpose of issuance, a sufficient number
of shares of Common Stock to provide for the full conversion or exercise of the
outstanding Notes and Warrants and issuance of the Conversion Shares and Warrant
Shares in connection therewith (based on the Conversion Price of the Notes or
Exercise Price of the Warrants in effect from time to time) and as otherwise
required by the Notes. The Company shall not reduce the number of shares of
Common Stock reserved for issuance upon conversion of Notes and exercise of the
Warrants without the consent of each Buyer. The Company shall at all times,
after the Stockholder Approval has been obtained, maintain the number of shares
of Common Stock so reserved for issuance at an amount ("RESERVED AMOUNT") equal
to the number that is then actually issuable upon full conversion of the Notes
and upon exercise of the Warrants (based on the Conversion Price of the Notes or
the Exercise Price of the Warrants in effect from time to time).
H. LISTING. The Company shall promptly secure the
listing of the Conversion Shares and Warrant Shares upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance) and, so
long as any Buyer owns any of the Securities, shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all Conversion
Shares and Warrant Shares from time to time issuable upon conversion of the
Notes or exercise of the Warrants. The Company will obtain and, so long as any
Buyer owns any of the Securities, maintain the listing and trading of its Common
Stock on the OTCBB or the "pink sheets" or any equivalent replacement exchange,
the Nasdaq Global Market ("NASDAQ"), the Nasdaq Capital Market ("NASDAQ
CAPITAL"), the New York Stock Exchange ("NYSE"), or the American Stock Exchange
("AMEX") and will comply in all respects with the Company's reporting, filing
and other obligations under the bylaws or rules of the National Association of
Securities Dealers ("NASD") and such exchanges, as applicable. The Company will
use its best efforts to become listed on the OTCBB or Nasdaq as soon as
practicable, but in no event later than February 15, 2007. The Company shall
promptly provide to each Buyer copies of any notices it receives from the OTCBB
and any other exchanges or quotation systems on which the Common Stock is then
listed regarding the continued eligibility of the Common Stock for listing on
such exchanges and quotation systems.
I. CORPORATE EXISTENCE. So long as a Buyer beneficially
owns any Notes or Warrants, the Company shall maintain its corporate
existence and shall not sell all or substantially all of the Company's assets,
except in the event of a merger or consolidation or sale of all or substantially
all of the Company's assets, where the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith and (ii) is a
publicly traded corporation whose Common Stock is listed for trading on the
OTCBB, Nasdaq, Nasdaq Capital, NYSE, AMEX or the "pink sheets," provided that
nothing herein shall prohibit the Company from engaging in a merger the sole
purpose of which is to reincorporate as a Delaware corporation, which
reincorporation shall not be subject to the consent of the Buyers, provided that
such action does not abrogate or diminish any rights or preferences of the
Buyers.
15
J. NO INTEGRATION. The Company shall not make any
offers or sales of any security (other than the Securities) under
circumstances that would require registration of the Securities being offered or
sold hereunder under the 1933 Act or cause the offering of the Securities to be
integrated with any other offering of securities by the Company for the purpose
of any stockholder approval provision applicable to the Company or its
securities.
K. STOCKHOLDER APPROVAL. The Company shall file a proxy
statement or information statement with the SEC no later than December
22, 2006 and use its best efforts to obtain, on or before February 15, 2007 such
approvals of the Company's stockholders as may be required to issue all of the
shares of Common Stock issuable upon conversion or exercise of, or otherwise
with respect to, the Notes and the Warrants in accordance with Nevada law and
any applicable rules or regulations of the OTCBB and Nasdaq, through an increase
in authorized capital (the "STOCKHOLDER APPROVAL"). The Company shall furnish to
each Buyer and its legal counsel promptly (but in no event less than two (2)
business days) before the same is filed with the SEC, one copy of the proxy
statement or information statement and any amendment thereto, and shall deliver
to each Buyer promptly each letter written by or on behalf of the Company to the
SEC or the staff of the SEC, and each item of correspondence from the SEC or the
staff of the SEC, in each case relating to such proxy statement or information
statement (other than any portion thereof which contains information for which
the Company has sought confidential treatment). The Company will promptly (but
in no event more than five (5) business days) respond to any and all comments
received from the SEC (which comments shall promptly be made available to each
Buyer). The Company shall comply with the filing and disclosure requirements of
Section 14 under the 1934 Act in connection with the Stockholder Approval. The
Company represents and warrants that its Board of Directors has approved the
proposal contemplated by this Section 4(k) and shall indicate such approval in
the proxy statement or information statement used in connection with the
Stockholder Approval.
L. KEY MAN INSURANCE. The Company shall use its best
efforts to obtain, on or before five (5) business days from the date
hereof, key man life insurance on Xxxxxx Xxxxxxx.
M. RESTRICTION ON SHORT SALES. The Buyers agree that,
so long as any of the Notes remain outstanding, but in no event less
than two (2) years from the date hereof, the Buyers will not enter into or
effect any "short sales" (as such term is defined in Rule 3b-3 of the 0000 Xxx)
of the Common Stock or hedging transaction which establishes a net short
position with respect to the Common Stock.
N. EQUAL TREATMENT OF BUYERS. 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 this Agreement or any of the other
Transaction Documents unless the same consideration is also offered to all of
the parties to this Agreement.
O. BREACH OF COVENANTS. If the Company breaches any of
the covenants set forth in this Section 4, and in addition to any other
remedies available to the Buyers pursuant to this Agreement, the Company shall
pay to the Buyers the Standard Liquidated Damages Amount, in cash or in shares
of Common Stock at the option of the Company, until such breach is cured. If the
Company elects to pay the Standard Liquidated
16
Damages Amount in shares, such shares shall be issued at the Conversion
Price at the time of payment.
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue
irrevocable instructions to its transfer agent to issue certificates,
registered in the name of each Buyer or its nominee, for the Conversion Shares
and Warrant Shares in such amounts as specified from time to time by each Buyer
to the Company upon conversion of the Notes or exercise of the Warrants in
accordance with the terms thereof (the "IRREVOCABLE TRANSFER AGENT
INSTRUCTIONS"). Prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act or the date on which the Conversion Shares and Warrant
Shares may be sold pursuant to Rule 144 without any restriction as to the number
of Securities as of a particular date that can then be immediately sold, all
such certificates shall bear the restrictive legend specified in Section 2(g) of
this Agreement. The Company warrants that no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this Section 5, and stop
transfer instructions to give effect to Section 2(f) hereof (in the case of the
Conversion Shares and Warrant Shares, prior to registration of the Conversion
Shares and Warrant Shares under the 1933 Act or the date on which the Conversion
Shares and Warrant Shares may be sold pursuant to Rule 144 without any
restriction as to the number of Securities as of a particular date that can then
be immediately sold), will be given by the Company to its transfer agent and
that the Securities shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section shall affect in any way
the Buyer's obligations and agreement set forth in Section 2(g) hereof to comply
with all applicable prospectus delivery requirements, if any, upon re-sale of
the Securities. If a Buyer provides the Company with (i) an opinion of counsel
in form, substance and scope acceptable to the Company's counsel, to the effect
that a public sale or transfer of such Securities may be made without
registration under the 1933 Act and such sale or transfer is effected or (ii)
the Buyer provides reasonable assurances that the Securities can be sold
pursuant to Rule 144, the Company shall permit the transfer, and, in the case of
the Conversion Shares and Warrant Shares, promptly instruct its transfer agent
to issue one or more certificates, free from restrictive legend, in such name
and in such denominations as specified by such Buyer. The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable harm to
the Buyers, by vitiating the intent and purpose of the transactions contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5 may be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the provisions of
this Section, that the Buyers shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate transfer, without the necessity of showing economic loss and without
any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The
obligation of the Company hereunder to issue and sell the Notes and
Warrants to a Buyer at the Closing is subject to the satisfaction, at or before
the Closing Date of each of the following conditions thereto, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion:
A. The applicable Buyer shall have executed this
Agreement and the Registration Rights Agreement, and delivered the same
to the Company.
17
B. The applicable Buyer shall have delivered the
Purchase Price in accordance with Section 1(b) above.
C. The representations and warranties of the applicable
Buyer shall be true and correct in all material respects as of the date
when made and as of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and the
applicable Buyer shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the applicable Buyer at
or prior to the Closing Date.
D. No litigation, statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by or in any court or governmental authority of
competent jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The
obligation of each Buyer hereunder to purchase the Notes and Warrants
at the Closing is subject to the satisfaction, at or before the Closing Date of
each of the following conditions, provided that these conditions are for such
Buyer's sole benefit and may be waived by such Buyer at any time in its sole
discretion:
A. The Company shall have executed this Agreement and
the Registration Rights Agreement, and delivered the same to the Buyer.
B. The Company shall have delivered to such Buyer duly
executed Notes (in such denominations as the Buyer shall request) and
Warrants in accordance with Section 1(b) above.
C. The Irrevocable Transfer Agent Instructions, in form
and substance satisfactory to a majority-in-interest of the Buyers,
shall have been delivered to and acknowledged in writing by the Company's
Transfer Agent.
D. The representations and warranties of the Company
shall be true and correct in all material respects as of the date when
made and as of the Closing Date as though made at such time (except for
representations and warranties that speak as of a specific date) and the Company
shall have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the Closing Date. The
Buyer shall have received a certificate or certificates, executed by the chief
executive officer of the Company, dated as of the Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by such Buyer
including, but not limited to certificates with respect to the Company's
Articles of Incorporation, By-laws and Board of Directors' resolutions relating
to the transactions contemplated hereby.
E. No litigation, statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by or in any court or governmental authority of
competent jurisdiction or any self-regulatory organization having
18
authority over the matters contemplated hereby which prohibits the
consummation of any of the transactions contemplated by this Agreement.
F. No event shall have occurred which could reasonably
be expected to have a Material Adverse Effect on the Company.
G. The Buyer shall have received an opinion of the
Company's counsel, dated as of the Closing Date, in form, scope and
substance reasonably satisfactory to the Buyer and in substantially the same
form as EXHIBIT "D" attached hereto.
H. The Buyer shall have received an officer's
certificate described in Section 3(c) above, dated as of the Closing
Date.
8. GOVERNING LAW; MISCELLANEOUS.
A. GOVERNING LAW. THIS AGREEMENT SHALL BE ENFORCED,
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH
STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES HERETO
HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS
LOCATED IN NEW YORK, NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS
AGREEMENT, THE AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE
DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING.
BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST
CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON
THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER
PARTY'S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. BOTH
PARTIES AGREE THAT A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER. THE PARTY WHICH DOES NOT
PREVAIL IN ANY DISPUTE ARISING UNDER THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL
FEES AND EXPENSES, INCLUDING ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY
IN CONNECTION WITH SUCH DISPUTE.
B. COUNTERPARTS; SIGNATURES BY FACSIMILE. This
Agreement may be executed in one or more counterparts, each of which
shall be deemed an original but all of which shall constitute one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party. This Agreement, once executed by a
party, may be delivered to the other party hereto by facsimile transmission of a
copy of this Agreement bearing the signature of the party so delivering this
Agreement.
C. HEADINGS. The headings of this Agreement are for
convenience of reference only and shall not form part of, or affect the
interpretation of, this Agreement.
19
D. SEVERABILITY. In the event that any provision of
this Agreement is invalid or unenforceable under any applicable statute
or rule of law, then such provision shall be deemed inoperative to the extent
that it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any provision hereof which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision hereof.
E. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the
instruments referenced herein contain the entire understanding of the
parties with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the party to be charged with enforcement.
F. NOTICES. Any notices required or permitted to be
given under the terms of this Agreement shall be sent by certified or
registered mail (return receipt requested) or delivered personally or by courier
(including a recognized overnight delivery service) or by facsimile and shall be
effective five days after being placed in the mail, if mailed by regular United
States mail, or upon receipt, if delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile, in each case addressed
to a party. The addresses for such communications shall be:
If to the Company:
MSGI Security Solutions, Inc.
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Chief Executive Officer
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to:
Xxxxxxxxx Xxxxxxx, LLP
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx
Attention: Xxxx X. Annex, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to a Buyer: To the address set forth immediately below such Buyer's
name on the signature pages hereto.
20
With copy to:
Xxxxxxx Xxxxx Xxxxxxx & Xxxxxxxxx, LLP
0000 Xxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
Telephone: 000-000-0000
Facsimile: 000-000-0000
Each party shall provide notice to the other party of any change in
address.
G. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of the parties and their
successors and assigns. Neither the Company nor any Buyer shall assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the other. Notwithstanding the foregoing, subject to Section 2(f),
any Buyer may assign its rights hereunder to any person that purchases
Securities in a private transaction from a Buyer or to any of its "affiliates,"
as that term is defined under the 1934 Act, without the consent of the Company.
H. THIRD PARTY BENEFICIARIES. This Agreement is
intended for the benefit of the parties hereto and their respective
permitted successors and assigns, and is not for the benefit of, nor may any
provision hereof be enforced by, any other person.
I. SURVIVAL. The representations and warranties of the
Company and the agreements and covenants set forth in Sections 3, 4, 5
and 8 shall survive the closing hereunder notwithstanding any due diligence
investigation conducted by or on behalf of the Buyers. The Company agrees to
indemnify and hold harmless each of the Buyers and all their officers,
directors, employees and agents for loss or damage arising as a result of or
related to any breach or alleged breach by the Company of any of its
representations, warranties and covenants set forth in Sections 3 and 4 hereof
or any of its covenants and obligations under this Agreement or the Registration
Rights Agreement, including advancement of expenses as they are incurred.
J. PUBLICITY. The Company and each of the Buyers shall
have the right to review a reasonable period of time before issuance of
any press releases with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of each of the Buyers, to make any press release or SEC, Nasdaq
SmallCap (or other applicable trading market) or NASD filings with respect to
such transactions as is required by applicable law and regulations (although
each of the Buyers shall be consulted by the Company in connection with any such
press release prior to its release and shall be provided with a copy thereof and
be given an opportunity to comment thereon).
K. FURTHER ASSURANCES. Each party shall do and perform,
or cause to be done and performed, all such further acts and things,
and shall execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably request in order to
carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
21
L. NO STRICT CONSTRUCTION. The language used in this
Agreement will be deemed to be the language chosen by the parties to
express their mutual intent, and no rules of strict construction will be applied
against any party.
M. REMEDIES. The Company acknowledges that a breach by
it of its obligations hereunder will cause irreparable harm to the
Buyers by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Agreement will be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the provisions of
this Agreement, that the Buyers shall be entitled, in addition to all other
available remedies at law or in equity, and in addition to the penalties
assessable herein, to an injunction or injunctions restraining, preventing or
curing any breach of this Agreement and to enforce specifically the terms and
provisions hereof, without the necessity of showing economic loss and without
any bond or other security being required.
N. INDEPENDENT NATURE OF BUYERS' OBLIGATIONS AND
RIGHTS. The obligations of the Buyers under this Agreement are several
and not joint with the obligations of any other Buyer, and no Buyer shall be
responsible in any way for the performance of the obligations of any other Buyer
under the Agreements. The decision of each Buyer to purchase Securities pursuant
to the Agreements has been made by such Buyer independently of any other Buyer.
Nothing contained in the Agreements, and no action taken by any Buyer pursuant
thereto, shall be deemed to constitute the Buyers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Buyers are in any way acting in concert or as a group with
respect to such obligations or the transactions contemplated by the Agreements.
Each Buyer acknowledges that no other Buyer has acted as agent for such Buyer in
connection with making its investment hereunder and that no Buyer will be acting
as agent of such Buyer in connection with monitoring its investment in the
Securities or enforcing its rights under this Agreement. Each Buyer shall be
entitled to independently protect and enforce its rights, including without
limitation the rights arising out of this Agreement, and it shall not be
necessary for any other Buyer to be joined as an additional party in any
proceeding for such purpose.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused
this Agreement to be duly executed as of the date first above written.
MSGI SECURITY SOLUTIONS, INC.
------------------------------
Xxxxxx Xxxxxxx
Chief Executive Officer
AJW PARTNERS, LLC
By: SMS Group, LLC
------------------------------
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: Delaware
ADDRESS: 0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes: $_________
Number of Warrants: _________
Aggregate Purchase Price: $_________
23
AJW OFFSHORE, LTD.
By: First Street Manager II, LLC
------------------------------
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: Cayman Islands
ADDRESS: AJW Offshore, Ltd.
X.X. Xxx 00000 XXX
Xxxxx Xxxxxx, Xxxxxx Xxxxxx, B.W.I.
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes: $_________
Number of Warrants: _________
Aggregate Purchase Price: $_________
24
AJW QUALIFIED PARTNERS, LLC
By: AJW Manager, LLC
------------------------------
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: New York
ADDRESS: 0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes: $_________
Number of Warrants: _________
Aggregate Purchase Price: $_________
25
NEW MILLENNIUM CAPITAL PARTNERS II, LLC
By: First Street Manager II, LLP
------------------------------
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: New York
ADDRESS: 0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes: $_________
Number of Warrants: _________
Aggregate Purchase Price: $_________
26
ENABLE GROWTH PARTNERS LP
------------------------------
Name:
Title:
RESIDENCE:
ADDRESS:
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes: $_________
Number of Warrants: _________
Aggregate Purchase Price: $_________
27
ENABLE OPPORTUNITY PARTNERS LP
------------------------------
Name:
Title:
RESIDENCE:
ADDRESS:
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes: $_________
Number of Warrants: _________
Aggregate Purchase Price: $_________
28
XXXXXX DIVERSIFIED STRATEGY
MASTER FUND LLC
------------------------------
Name:
Title:
RESIDENCE:
ADDRESS:
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes: $_________
Number of Warrants: _________
Aggregate Purchase Price: $_________
29
