EXHIBIT 4.19
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of September
__, 2003, by and among Amnis Systems Inc., a Delaware corporation, with
headquarters located at ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (the
"COMPANY"), and the purchaser set forth on the signature pages hereto (the
"BUYER").
WHEREAS:
A. The Company and the Buyer 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) 12% convertible
debentures of the Company, in the form attached hereto as EXHIBIT "A", in the
aggregate principal amount of up to Two Hundred Fifty Thousand Dollars
($250,000) (together with any debenture(s) issued in replacement thereof or as a
dividend thereon or otherwise with respect thereto in accordance with the terms
thereof, the "DEBENTURES"), convertible into shares of common stock, par value
$.0001 per share, of the Company (the "COMMON STOCK"), upon the terms and
subject to the limitations and conditions set forth in such Debentures and (ii)
warrants, in the form attached hereto as EXHIBIT "B", to purchase up to One
Million Two Hundred Fifty Thousand (1,250,000) shares of Common Stock (the
"WARRANTS");
C. Buyer wishes to purchase, upon the terms and conditions stated in
this Agreement, such principal amount of Debentures 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.
NOW THEREFORE, the Company and the Buyer hereby agree as follows:
1. PURCHASE AND SALE OF DEBENTURES AND WARRANTS.
A. PURCHASE OF DEBENTURES AND WARRANTS. On the
Closing Date (as defined below), the Company shall issue and sell to Buyer and
Buyer agrees to purchase from the Company Two Hundred Fifty Thousand Dollars
($250,000) principal amount of Debentures and Warrants to purchase an aggregate
of One Million Two Hundred Fifty Thousand (1,250,000) shares of Common Stock.
B. FORM OF PAYMENT. On the Closing Date (as defined
below), (i) Buyer shall pay the purchase price for the Debentures 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 Debentures in the principal amount equal to the Purchase Price
and the number of Warrants set forth above, and (ii) the Company shall deliver
such Debentures and Warrants duly executed on behalf of the Company, to 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 Debentures and the
Warrants pursuant to this Agreement (the "CLOSING DATE") shall be 12:00 noon,
Eastern Standard Time on September __, 2003 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. BUYER'S REPRESENTATIONS AND WARRANTIES. Buyer severally
(and not jointly) represents and warrants to the Company that:
A. INVESTMENT PURPOSE. As of the date hereof, the
Buyer is purchasing the Debentures and the Warrants for its own account and not
with a present view towards the public sale or distribution thereof, except
pursuant to sale 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.
D. INFORMATION. The Buyer and its advisors, if any,
have been, and for so long as the Debentures 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 Debentures
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
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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 customary for opinions of counsel in corporate transactions,
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 ▇▇▇▇ ▇▇▇) 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 (provided that such opinion is
correct and complies with all applicable rules and regulations), within three
(3) business days of delivery of the opinion to the Company, the Company shall
pay to the Buyer liquidated damages of two percent (2%) for the first month, and
three percent (3%) for each month thereafter, of the outstanding amount of the
Debentures per month plus accrued and unpaid interest on the Debentures,
prorated for partial months, in cash or shares at the option of the Company
("STANDARD LIQUIDATED DAMAGES AMOUNT"). If the Company elects to pay the
Standard Liquidated Damages Amount in shares of Common Stock, such shares shall
be issued at the Conversion Price (as defined in the Debentures) at the time of
payment of the Standard Liquidated Damages Amount to be delivered not later than
three business days after the end of each month or pro rated portion thereof. In
any event, the Buyer may enter into hedging transactions with third parties,
which may in turn engage in short sales of the Securities in the course of
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hedging the position they assume. The Buyer may also enter into short positions
or other derivative transactions relating to the Securities, or interests in the
Securities, and deliver the Securities, or interests in the Securities, to close
out their short or other positions or otherwise settle short sales or other
transactions, or loan or pledge the Securities, or interests in the Securities,
to third parties that in turn may dispose of these Securities.
G. LEGENDS. The Buyer understands that the Debentures
(including, without limitation, such additional shares of Common Stock, if any,
as are issuable (i) on account of interest on the Debentures, (ii) as a result
of the events described in Sections 1.3 and 1.4(g) of the Debentures 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
Debentures, Warrants and Conversion Shares, the "SECURITIES") 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 customary for opinions of counsel in
comparable transactions, 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 customary
for opinions of counsel in comparable transactions, 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, the
Debentures, the Warrants, the Registration Rights Agreement, the Pledge and
Security Agreement, the Funds Escrow Agreement and any and all related
agreements, documents and instruments, each as now existing and as hereafter
amended, modified and supplemented (collectively referred to as the "Transaction
Documents") have been or will be duly and validly authorized. The Transaction
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Documents been duly executed and delivered on behalf of the Buyer, and the
Transaction Documents constitute, and upon execution and delivery by the Buyer
of each of the Transaction Documents 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.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to Buyer that:
A. ORGANIZATION AND QUALIFICATION. The Company and
each of its Subsidiaries (as defined below), if any, 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
(corporate and other) to own, lease, use and operate its properties and to carry
on its business as and where now owned, leased, used, operated and conducted.
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" means any corporation or
other organization, whether incorporated or unincorporated, in which the Company
owns, directly or indirectly, any equity or other ownership interest.
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 Debentures and the Warrants
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
Debentures 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 Debentures 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 stockholders 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 Debentures
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.
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C. CAPITALIZATION. As of the date hereof, the
authorized capital stock of the Company consists Common Stock and preferred
stock. The Company is authorized to issue 20,000,000 shares of preferred stock,
of which no shares are issued and outstanding. The Company is authorized to
issue 400,000,000 share of Common Stock of which 137,161,438 shares are issued
and outstanding, 985,537 shares are reserved for issuance pursuant to the
Company's stock option plans; and 13,387,969 shares are reserved for issuance
pursuant to option agreements issued by the Company. In addition, the Company is
required to reserve an aggregate of 252,315,051 shares of common stock pursuant
to various financing agreements entered with Alpha Capital Aktiengesellschaft
("Alpha"), Bristol Investment Fund, Ltd. ("Bristol") and ▇▇▇▇▇▇▇▇▇▇▇ Limited
Partnership ("▇▇▇▇▇▇▇▇▇▇▇"). Subject to filing the Certificate of Amendment as
set forth in Section 4(l) of this Agreement, the Company will reserve an
aggregate of 10,000,000 shares for issuance upon conversion of the Debentures
and exercise of the Warrants (subject to adjustment pursuant to the Company's
covenant set forth in Section 4(h) below). 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 stockholders 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
Debentures, the Warrants, the Conversion Shares or Warrant Shares. The Company
has furnished to the Buyer true and correct copies, certified by an officer of
the Company (the "Officer's Certificate") and the Secretary of the Company (the
"Secretary's Certificate"), of the Company's Certificate of Incorporation as in
effect on the date hereof ("CERTIFICATE 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.
D. ISSUANCE OF SHARES. Subject to the filing the
Certificate of Amendment (as defined in Section 4(1)), the Conversion Shares and
Warrant Shares are duly authorized and reserved for issuance and, upon
conversion of the Debentures 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 stockholders 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 Debenture or exercise of the Warrants. The Company further acknowledges that
its obligation to issue Conversion Shares and Warrant Shares upon conversion of
the Debentures or exercise of the Warrants in accordance with this Agreement,
the Debentures and the Warrants is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company.
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F. NO CONFLICTS. The execution and delivery and the
performance, subject to filing the Certificate of Amendment (as defined in
Section 4(1)), of the Transaction Documents by the Company and the consummation
by the Company of the transactions contemplated hereby and thereby (including,
without limitation, the issuance and reservation for issuance of the Conversion
Shares and Warrant Shares) will not (i) conflict with or result in a violation
of any provision of the Certificate 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) 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 Certificate 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 Debentures or the Warrants in accordance with the terms hereof or
thereof or to issue and sell the Debentures and Warrants in accordance with the
terms hereof and to issue the Conversion Shares upon conversion of the
Debentures 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. Except
as disclosed in SCHEDULE 3(F), the Company is not in violation of the listing
requirements of the Over-the-Counter Bulletin Board (the "OTCBB") and does not
reasonably anticipate that the Common Stock will be delisted by the OTCBB in the
foreseeable future. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
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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"), and the
Company shall continue to timely file all SEC Documents for at least three (3)
years following the Closing Date. The Company has delivered to each Buyer true
and complete copies of the SEC Documents, except for such exhibits and
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 as to form 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
December 31, 2001 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. Except as disclosed on
SCHEDULE 3(H), since June 30, 2003, 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 pending or
threatened proceeding against or affecting the Company or any of its
Subsidiaries, without regard to whether it would have a Material Adverse Effect.
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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 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),
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.
9
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.
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
stockholder approval provisions or availability from exemption from registration
under the 1933 Act applicable to the Company or its securities.
10
Q. NO BROKERS. Except as disclosed on SCHEDULE 3(Q),
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 December 31,
2001, 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.
11
(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.
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 current
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
12
incurred in connection therewith as such debts mature. Except as disclosed on
SCHEDULE 3(X), 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.
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 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 Buyer 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 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 represents and warrants that it meets the
requirements for the use of Form S-3 (or if the Company is not eligible for the
use of Form S-3 as of the Filing Date (as defined in the Registration Rights
Agreement), the Company may use the form of registration for which it is
eligible at that time) 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 issue a press release describing the
materials terms of the transaction contemplated hereby as soon as practicable
13
following the Closing Date but in no event more than two (2) business days of
the Closing Date, which press release shall be subject to prior review by the
Buyer. The Company agrees that such press release shall not disclose the name of
the Buyer unless expressly consented to in writing by the Buyer or unless
required by applicable law or regulation, and then only to the extent of such
requirement.
D. USE OF PROCEEDS. The proceeds from the sale of the
Debentures and the Warrants will be used by the Company for purposes as
disclosed on SCHEDULE 4(D) and shall not be used, directly or indirectly, to
repay any outstanding indebtedness or any loans to officer, director, affiliate
or insider of the Company, or for any loan to or investment in any other
corporation, partnership, enterprise or other person.
E. FUTURE OFFERINGS. Subject to the exceptions
described below, the Company will not, without the prior written consent of the
Buyer, not to be unreasonably withheld, negotiate or contract with any party to
obtain additional equity financing (including debt financing with an equity
component) that involves (A) the issuance of Common Stock at a discount to the
market price of the Common Stock on the date of issuance (taking into account
the value of any warrants or options to acquire Common Stock issued in
connection therewith) or (B) the issuance of convertible securities that are
convertible into an indeterminate number of shares of Common Stock or (C) the
issuance of warrants during the period (the "LOCK-UP PERIOD") beginning on the
Closing Date and ending on the later of (i) two hundred seventy (270) days from
the Closing Date and (ii) one hundred eighty (180) days from the date the
Registration Statement (as defined in the Registration Rights Agreement) is
declared effective (plus any days in which sales cannot be made thereunder). In
addition, 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 two (2)
years after the end of the Lock-up Period unless it shall have first delivered
to each Buyer, at least twenty (20) 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 Buyer an option during
the fifteen (15) day period following delivery of such notice to purchase 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
Buyer concerning the proposed Future Offering, the Company shall deliver a new
notice to Buyer describing the amended terms and conditions of the proposed
Future Offering and Buyer thereafter shall have an option during the fifteen
(15) day period following delivery of such new notice to purchase 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
14
(excluding a continuous offering pursuant to Rule 415 under the ▇▇▇▇ ▇▇▇) 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. In
the event that the Company completes a Future Offering on terms more favorable
to another investor than the transaction contemplated hereby, the terms of the
Debentures and the Warrants are deemed to be automatically amended to reflect
such more favorable terms and the Company is required to deliver such documents
reflecting the amendment as may be reasonably requested by the Buyer.
F. EXPENSES. At the Closing and any time thereafter,
the Company shall reimburse Buyer for expenses incurred by Buyer 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. When possible, the Company must pay these fees directly,
otherwise the Company must make immediate payment for reimbursement to the Buyer
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 five (5) 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.
G. FINANCIAL INFORMATION. The Company agrees to send
the following reports to Buyer until Buyer transfers, assigns, or sells all of
the Securities: (i) within ten (10) days after the filing with the SEC, a copy
of its Annual Report on Form 10-KSB, its Quarterly Reports on Form 10-QSB and
any Current Reports on Form 8-K; (ii) within one (1) day after release, copies
of all press releases issued by the Company or any of its Subsidiaries; and
(iii) contemporaneously with the making available or giving to the stockholders
of the Company, copies of any notices or other information the Company makes
available or gives to such stockholders.
H. AUTHORIZATION AND RESERVATION OF SHARES. Subject
to filing the Certificate of Amendment (as defined in Section 4(1)), the Company
shall at all times have authorized, and reserved for the purpose of issuance,
two (2) times the number of shares of common stock that is then actually
issuable upon full conversion of the Debentures and upon exercise of the
Warrants (based on the Conversion Price of the Debentures or Exercise Price of
the Warrants in effect from time to time) and as otherwise required by the
Debentures. IF THE COMPANY AT ANY TIME IS ABLE TO RESERVE PART OF THE REQUIRED
RESERVE SHARES PURSUANT TO THIS SECTION 4(H), THEN SUCH SHARES SHALL IMMEDIATELY
BE ALLOCATED TO THE BUYER. UNTIL THE COMPANY FILED THE CERTIFICATE OF AMENDMENT
(AS DEFINED IN SECTION 4(1)), THE BUYER WILL ONLY BE ABLE TO CONVERT THE
DEBENTURES OR EXERCISE THE WARRANTS WITH RESPECT TO THE NUMBER OF SHARES
AVAILABLE FOR SUCH CONVERSION OR EXERCISE. The Company shall not reduce the
number of shares of Common Stock reserved for issuance upon conversion of
Debentures and exercise of the Warrants without the consent of each Buyer. The
Company shall at all times maintain the number of shares of Common Stock so
reserved for issuance at an amount ("RESERVED AMOUNT") equal to no less than two
(2) times the number that is then actually issuable upon full conversion of the
Debentures and upon exercise of the Warrants (based on the Conversion Price of
the Debentures or the Exercise Price of the Warrants in effect from time to
15
time). If at any time the number of shares of Common Stock authorized and
reserved for issuance ("AUTHORIZED AND RESERVED SHARES") is below the Reserved
Amount, the Company will promptly take all corporate action necessary to
authorize and reserve a sufficient number of shares, including, without
limitation, calling a special meeting of stockholders to authorize additional
shares to meet the Company's obligations under this Section 4(h), in the case of
an insufficient number of authorized shares, obtain stockholder approval of an
increase in such authorized number of shares, and voting the management shares
of the Company in favor of an increase in the authorized shares of the Company
to ensure that the number of authorized shares is sufficient to meet the
Reserved Amount. If the Company fails to obtain such stockholder approval within
thirty (30) days following the date on which the number of Authorized and
Reserved Shares exceeds the Reserved Amount, 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. 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. In order to ensure that the
Company has authorized a sufficient amount of shares to meet the Reserved Amount
at all times, the Company must deliver to the Buyer at the end of every month a
list detailing (1) the current amount of shares authorized by the Company and
reserved for the Buyer; and (2) amount of shares issuable upon conversion of the
Debentures and upon exercise of the Warrants and as payment of interest accrued
on the Debentures for one year. If the Company fails to provide such list within
five (5) business days of the end of each month, the Company shall pay the
Standard Liquidated Damages Amount, in cash or in shares of Common Stock at the
option of the Company, until the list is delivered. 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. In the
event the Company fails to file the Certificate of Amendment with the Secretary
of State of the State of Delaware on or beforeOctober 5, 2003, or if the Company
does not reserve 10,000,000 shares referred to in Section 3 of this Agreement on
behalf of the Buyer for the purposes set forth in Section 3.c, then in addition
to any other remedies available to Buyer, at the Buyer's election, the Company
must pay to the Buyer ten (10) business days after request by the Buyer, a sum
of money determined by multiplying up to the outstanding principal amount of the
Debenture designated by the Buyer by 130%, together with accrued but unpaid
interest thereon ("Mandatory Redemption Payment"). Upon receipt of the Mandatory
Redemption Payment, the corresponding Debenture principal and interest will be
deemed paid and no longer outstanding.
I. LISTING. The Company shall promptly secure any
required 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
Debentures or exercise of the Warrants. tThe Company will maintain the listing
and trading of its Common Stock on the OTCBB, the Nasdaq National Market
("NASDAQ"), the Nasdaq SmallCap Market ("NASDAQ SMALLCAP"), 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 shall promptly provide to 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.
16
J. CORPORATE EXISTENCE. So long as a Buyer
beneficially owns any Debentures 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) except as disclosed on SCHEDULE 3(F), is a publicly traded corporation
whose Common Stock is listed for trading on the OTCBB, Nasdaq, Nasdaq SmallCap,
NYSE or AMEX.
K. 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 or availability from exemption from
registration under the 1933 Act applicable to the Company or its securities.
L. CERTIFICATE OF AMENDMENT TO CERTIFICATE OF
INCORPORATION. The Company shall file on or before October 5, 2003 a Certificate
of Amendment with the Secretary of State of the State of Delaware that increases
its authorized capital to enable the Company to issue all of the shares of
Common Stock issuable upon conversion or exercise of the Debentures and the
Warrants in accordance with Delaware law and any applicable rules or regulations
of the OTCBB and Nasdaq and obtain approval for reservation of the shares of
Common Stock underlying the Debentures and Warrants as set forth in Section 4(h)
of this Agreement (the "CERTIFICATE OF AMENDMENT").
M. NO REVERSE SPLIT. The Company shall not effectuate
a reverse split of the Common Stock without the prior written consent of the
Buyer. If the Company breaches this Section 4(m), the Company shall be deemed to
be in default under the Debentures.
N. BANKRUPTCY. The Company has no knowledge of or
reason to believe that it will file for bankruptcy within one year of the
Initial Closing Date.
O. MANAGEMENT AND EMPLOYEE INFORMATION. At the
Closing, the Company shall provide to the Buyers contact information including
the phone number, fax number, address and e-mail address for the following
people: (i) all executives at the Company including but not limited to the Chief
Executive Officer, Chief Financial Officer and in-house counsel, if any; (ii)
corporate counsel, securities counsel (if different from corporate counsel),
accountants for the Company and transfer agent for the Company; and (iii) all
employees of the Company. The Company shall further provide an organizational
chart of employees to the Buyers.
P. 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.
17
Q. SECURITIES LAWS DISCLOSURE; PUBLICITY. The Company
shall, within one business day after the Closing Date, issue a press release or
file a Current Report on Form 8-K reasonably acceptable to the Buyer disclosing
all material terms of the transactions contemplated hereby. The Company and the
Buyer shall consult with each other in issuing any press releases with respect
to the transactions contemplated hereby. Notwithstanding the foregoing, other
than in any registration statement filed pursuant to the Registration Rights
Agreement and filings related thereto and as required by the rules and
regulations of the Commission, the Company shall not publicly disclose the name
of any Buyer, or include the name of any Buyer in any filing with the Commission
or any regulatory agency or Principal Market, without the prior written consent
of such Buyer, except to the extent such disclosure is required by law or
Principal Market regulations, in which case the Company shall provide the Buyer
with prior notice of such disclosure.
R. 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 Buyer 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 be pay the Standard Liquidated 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 Buyer or its nominee, for the Conversion Shares and Warrant
Shares in such amounts as specified from time to time by Buyer to the Company
upon conversion of the Debentures 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 customary for opinions in comparable transactions, 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 Buyer, by
18
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 Buyer 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 Debentures and
Warrants to 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. Buyer shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Company.
B. Buyer shall have delivered the Purchase Price in
accordance with Section 1(b) above.
C. The representations and warranties of 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 Buyer shall have performed,
19
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 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 BUYER'S OBLIGATION TO PURCHASE. The
obligation of Buyer hereunder to purchase the Debentures 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 Buyer's sole
benefit and may be waived by 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 Buyer duly
executed Debenture (in such denominations as the Buyer shall request) and
Warrants in accordance with Section 1(b) above.
C. The Irrevocable Transfer Agent Instructions shall
have been delivered to and acknowledged in writing by the Company's Transfer
Agent.
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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
Certificate 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 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 the Officer's
Certificate and Secretary's Certificate described in Section 3(c) above, dated
as of the Closing Date.
I. The Buyer shall have received an executed Security
Agreement and the Transaction Fee Agreement.
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,
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES HERETO HEREBY
SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE STATE COURTS OR THE UNITED STATES
FEDERAL COURTS LOCATED IN 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
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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.
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:
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to:
Sichenzia ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ LLP
1065 Avenue of the Americas, 21st Floor
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
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If to a Buyer: To the address set forth immediately
below Buyer's name on the signature pages hereto.
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 for a period of one (1) year after the closing hereunder notwithstanding
any due diligence investigation conducted by or on behalf of the Buyer. Each
party hereto agrees to indemnify and hold harmless each of the other parties
hereto 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 such
party of any of its representations, warranties and covenants set forth in
Sections 2, 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 Buyer shall have the right to
review a reasonable period of time before issuance of any press releases, SEC,
OTCBB or NASD filings, or any other public statements 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, OTCBB (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.
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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.
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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.
AMNIS SYSTEMS INC.
--------------------------------
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
Chairman and Chief Executive Officer
▇▇▇▇▇▇▇▇▇▇▇ LIMITED PARTNERSHIP
--------------------------------------
Name:
Title:
RESIDENCE:
ADDRESS:
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $250,000
Number of Warrants: 1,250,000
Aggregate Purchase Price: $250,000
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