INVESTMENT AGREEMENT
INVESTMENT AGREEMENT (this "AGREEMENT"), dated as of February 10, 2006 by and
between M-Wise, Inc., a Delaware corporation (the "Company"), and Dutchess
Private Equities Fund, LP, a Delaware limited partnership (the "Investor").
Whereas, the parties desire that, upon the terms and subject to the conditions
contained herein, the Investor shall invest up to Ten Million dollars
($10,000,000) to purchase the Company's Common Stock, $0.0017 par value per
share (the "Common Stock");
Whereas, such investments will be made in reliance upon the provisions of
Section 4(2) under the Securities Act of 1933, as amended (the "1933 Act"), Rule
506 of Regulation D, and the rules and regulations promulgated thereunder,
and/or upon such other exemption from the registration requirements of the 1933
Act as may be available with respect to any or all of the investments in Common
Stock to be made hereunder; and Whereas, contemporaneously with the execution
and delivery of this Agreement, the parties hereto are executing and delivering
a Registration Rights Agreement substantially in the form attached hereto (as
amended from time to time, 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, in consideration of the foregoing recitals, which shall be
considered an integral part of this Agreement, the covenants and agreements set
forth hereafter, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Investor hereby
agree as follows:
SECTION 1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings specified or indicated below, and such meanings shall be equally
applicable to the singular and plural forms of such defined terms.
"1933 Act" shall have the meaning set forth in the preamble of this
agreement.
"1934 Act" shall mean the Securities Exchange Act of 1934, as it may be
amended.
"Affiliate" shall have the meaning specified in Section 5(h), below.
"Agreement" shall mean this Investment Agreement.
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"Best Bid" shall mean the highest posted bid price of the Common Stock.
"Buy In" shall have the meaning specified in Section 6, below.
"Buy In Adjustment Amount" shall have the meaning specified in Section
6.
"By-laws" shall have the meaning specified in Section 4(c).
"Certificate of Incorporation" shall have the meaning specified in
Section 4(c).
"Closing" shall have the meaning specified in Section 2(h).
"Closing Date" shall mean no more than seven (7) Trading Days following
the Put Notice Date.
"Common Stock" shall have the meaning set forth in the preamble of this
Agreement.
"Control" or "Controls" shall have the meaning specified in Section
5(h).
"Covering Shares" shall have the meaning specified in Section 6.
"Effective Date" shall mean the date the SEC declares effective under
the 1933 Act the Registration Statement covering the Securities.
"Environmental Laws" shall have the meaning specified in Section 4(m).
"Execution Date" shall mean the date indicated in the preamble to this
Agreement.
"Indemnities" shall have the meaning specified in Section 11.
"Indemnified Liabilities" shall have the meaning specified in Section
11.
"Ineffective Period" shall mean any period of time that the
Registration Statement or any Supplemental Registration Statement (as defined in
the Registration Rights Agreement) becomes ineffective or unavailable for use
for the sale or resale, as applicable, of any or all of the Registrable
Securities (as defined in the Registration Rights Agreement) for any reason (or
in the event the prospectus under either of the above is not current and
deliverable) during any time period required under the Registration Rights
Agreement.
"Investor" shall have the meaning indicated in the preamble of this
Agreement.
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"Material Adverse Effect" shall have the meaning specified in Section
4(a).
"Maximum Common Stock Issuance" shall have the meaning specified in
Section 2(I).
"Minimum Acceptable Price" with respect to any Put Notice Date shall
mean seventy-five percent (75%) of the lowest closing bid prices for the ten
(10) Trading Day period immediately preceding such Put Notice Date.
"Open Period" shall mean the period beginning on and including the
Trading Day immediately following the Effective Date and ending on the earlier
to occur of (I) the date which is thirty-six (36) months from the Effective
Date; or (II) termination of the Agreement in accordance with Section 9, below.
"Pricing Period" shall mean the period beginning on the Put Notice Date
and ending on and including the date that is five (5) Trading Days after such
Put Notice Date.
"Principal Market" shall mean the American Stock Exchange, Inc., the
National Association of Securities Dealers, Inc. Over-the-Counter Bulletin
Board, the NASDAQ National Market System or the NASDAQ SmallCap Market,
whichever is the principal market on which the Common Stock is listed.
"Prospectus" shall mean the prospectus, preliminary prospectus and
supplemental prospectus used in connection with the Registration Statement.
"Purchase Amount" shall mean the total amount being paid by the
Investor on a particular Closing Date to purchase the Securities.
"Purchase Price" shall mean ninety-three percent (93%) of the lowest
closing Best Bid price of the Common Stock during the Pricing Period.
"Put" shall have the meaning set forth in Section 2(b)(1) hereof.
"Put Amount" shall have the meaning set forth in Section 2(b) hereof.
"Put Notice" shall mean a written notice sent to the Investor by the
Company stating the Put Amount in U.S. dollars, the Company intends to sell to
the Investor pursuant to the terms of the Agreement and stating the current
number of Shares issued and outstanding on such date.
"Put Notice Date" shall mean the Trading Day immediately following the
day on which the Investor receives a Put Notice, however a Put Notice shall be
deemed delivered on (A) the Trading Day it is received by facsimile or otherwise
by the Investor if such notice is received prior to 9:00 am Eastern Time, or (B)
the immediately succeeding Trading Day if it is received by facsimile or
otherwise after 9:00 am Eastern Time on a Trading Day. No Put Notice may be
deemed delivered on a day that is not a Trading Day.
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"Put Restriction" shall mean the days between the beginning of the
Pricing Period and Closing Date. During this time, the Company shall not be
entitled to deliver another Put Notice.
"Registration Period" shall have the meaning specified in Section 5(c),
below.
"Registration Rights Agreement" shall have the meaning set forth in the
recitals, above.
"Registration Statement" means the registration statement of the
Company filed under the 1933 Act covering the Common Stock issuable hereunder.
"Related Party" shall have the meaning specified in Section 5(h).
"Resolution" shall have the meaning specified in Section 8(e).
"SEC" shall mean the U.S. Securities & Exchange Commission.
"SEC Documents" shall have the meaning specified in Section 4(f).
"Securities" shall mean the shares of Common Stock issued pursuant to
the terms of the Agreement.
"Shares" shall mean the shares of the Company's Common Stock.
"Sold Shares" shall have the meaning specified in Section 6.
"Subsidiaries" shall have the meaning specified in Section 4(a).
"Trading Day" shall mean any day on which the Principal Market for the
Common Stock is open for trading, from the hours of 9:30 am until 4:00 pm.
"Transaction Documents" shall mean this Agreement, the Registration
Rights Agreement, and each of the other agreements entered into by the parties
hereto in connection with this Agreement.
SECTION 2. PURCHASE AND SALE OF COMMON STOCK.
(A) PURCHASE AND SALE OF COMMON STOCK.
Subject to the terms and conditions set
forth herein, the Company shall issue and sell to the Investor, and the Investor
shall purchase from the Company, up to that number of Shares having an aggregate
Purchase Price of Ten Million dollars ($10,000,000).
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(B) DELIVERY OF PUT NOTICES.
(I) Subject to the terms and conditions of the Transaction Documents, and from
time to time during the Open Period, the Company may, in its sole discretion,
deliver a Put Notice to the Investor which states the dollar amount (designated
in U.S. Dollars) (the "Put Amount"), which the Company intends to sell to the
Investor on a Closing Date (the "Put"). The Put Notice shall be in the form
attached hereto as Exhibit C and incorporated herein by reference. The amount
that the Company shall be entitled to Put to the Investor (the "Put Amount")
shall be equal to, at the Company's election, either: (A) Two Hundred percent
(200%) of the average daily volume (U.S. market only) of the Common Stock for
the Ten (10) Trading Days prior to the applicable Put Notice Date, multiplied by
the average of the three (3) daily closing bid prices immediately preceding the
Put Date, or (B) three hundred thousand dollars ($300,000). During the Open
Period, the Company shall not be entitled to submit a Put Notice until after the
previous Closing has been completed. The Purchase Price for the Common Stock
identified in the Put Notice shall be equal to ninety-three percent (93%) of the
lowest closing Best Bid price of the Common Stock during the Pricing Period.
(C) The Company shall reserve the right, but not the obligation, to withdraw
that portion of the Put that is below the Minimal Acceptable Price, by
submitting to the Investor, in writing, a notice to cancel that portion of the
Put. Any shares above the Minimal Acceptable price due to the Investor shall be
carried out by the Company under the terms of this Agreement.
(D) Reserved
(E) CONDITIONS TO INVESTOR'S OBLIGATION TO PURCHASE SHARES. Notwithstanding
anything to the contrary in this Agreement, the Company shall not be entitled to
deliver a Put Notice and the Investor shall not be obligated to purchase any
Shares at a Closing (as defined in Section 2(h)) unless each of the following
conditions are satisfied:
(I) a Registration Statement shall have been declared effective and shall remain
effective and available for the resale of all the Registrable Securities (as
defined in the Registration Rights Agreement) at all times until the Closing
with respect to the subject Put Notice;
(II) at all times during the period beginning on the related Put Notice Date and
ending on and including the related Closing Date, the Common Stock shall have
been listed on the Principal Market and shall not have been suspended from
trading thereon for a period of two (2) consecutive Trading Days during the Open
Period and the Company shall not have been notified of any pending or threatened
proceeding or other action to suspend the trading of the Common Stock;
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(III) the Company has complied with its obligations and is otherwise not in
breach of a material provision of, or in default under, this Agreement, the
Registration Rights Agreement or any other agreement executed in connection
herewith which has not been corrected prior to delivery of the Put Notice Date;
(IV) no injunction shall have been issued and remain in force, or action
commenced by a governmental authority which has not been stayed or abandoned,
prohibiting the purchase or the issuance of the Securities; and
(V) the issuance of the Securities will not violate any shareholder approval
requirements of the Principal Market.
If any of the events described in clauses (i) through (v) above occurs during a
Pricing Period, then the Investor shall have no obligation to purchase the Put
Amount of Common Stock set forth in the applicable Put Notice.
(F) RESERVED
(G) MECHANICS OF PURCHASE OF SHARES BY INVESTOR. Subject to the satisfaction of
the conditions set forth in Sections 2(f), 7 and 8, the closing of the purchase
by the Investor of Shares (a "Closing") shall occur on the date which is no
later than seven (7) Trading Days following the applicable Put Notice Date (each
a "Closing Date"). Prior to each Closing Date, (I) the Company shall deliver to
the Investor pursuant to this Agreement, certificates representing the Shares to
be issued to the Investor on such date and registered in the name of the
Investor; and (II) the Investor shall deliver to the Company the Purchase Price
to be paid for such Shares, determined as set forth in Sections 2(b) and 2(d).
In lieu of delivering physical certificates representing the Securities and
provided that the Company's transfer agent then is participating in The
Depository Trust Company ("DTC") Fast Automated Securities Transfer ("FAST")
program, upon request of the Investor, the Company shall use its commercially
reasonable efforts to cause its transfer agent to electronically transmit the
Securities by crediting the account of the Investor's prime broker (which shall
be specified by the Investor a reasonably sufficient time in advance) with DTC
through its Deposit Withdrawal Agent Commission ("DWAC") system.
The Company understands that a delay in the issuance of Securities beyond the
Closing Date could result in economic loss to the Investor. After the Effective
Date, as compensation to the Investor for such loss, the Company agrees to pay
late payments to the Investor for late issuance of Securities (delivery of
Securities after the applicable Closing Date) in accordance with the following
schedule (where "No. of Days Late" is defined as the number of trading days
beyond the Closing Date. The Amounts are cumulative.):
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LATE PAYMENT FOR EACH
NO. OF DAYS LATE $10,000 OF COMMON STOCK
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
Over 10 $1,000 + $200 for each
Business Day late beyond 10 days
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand by the Investor. Nothing herein shall limit the
Investor's right to pursue actual damages for the Company's failure to issue and
deliver the Securities to the Investor, except to the extent that such late
payments shall constitute payment for and offset any such actual damages alleged
by the Investor, and any Buy In Adjustment Amount.
(H) OVERALL LIMIT ON COMMON STOCK ISSUABLE. Notwithstanding anything contained
herein to the contrary, if during the Open Period the Company becomes listed on
an exchange that limits the number of shares of Common Stock that may be issued
without shareholder approval, then the number of Shares issuable by the Company
and purchasable by the Investor, including the shares of Common Stock issuable
to the Investors, shall not exceed that number of the shares of Common Stock
that may be issuable without shareholder approval, subject to appropriate
adjustment for stock splits, stock dividends, combinations or other similar
recapitalization affecting the Common Stock (the "Maximum Common Stock
Issuance"), in excess of the Maximum Common Stock Issuance shall first be
approved by the Company's shareholders in accordance with applicable law and the
By-laws and Amended and Restated Certificate of Incorporation of the Company, if
such issuance of shares of Common Stock could cause a delisting on the Principal
Market. The parties understand and agree that the Company's failure to seek or
obtain such shareholder approval shall in no way adversely affect the validity
and due authorization of the issuance and sale of Securities or the Investor's
obligation in accordance with the terms and conditions hereof to purchase a
number of Shares in the aggregate up to the Maximum Common Stock Issuance
limitation, and that such approval pertains only to the applicability of the
Maximum Common Stock Issuance limitation provided in this Section 2(I).
SECTION 3. INVESTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS.
The Investor represents and warrants to the Company, and covenants, that:
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(A) SOPHISTICATED INVESTOR. The Investor has, by reason of its business and
financial experience, such knowledge, sophistication and experience in financial
and business matters and in making investment decisions of this type that it is
capable of (I) evaluating the merits and risks of an investment in the
Securities and making an informed investment decision; (II) protecting its own
interest; and (III) bearing the economic risk of such investment for an
indefinite period of time.
(B) AUTHORIZATION; ENFORCEMENT. This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Investor and is a valid and
binding agreement of the Investor enforceable against the Investor in accordance
with its terms, subject as to enforceability to general principles of equity and
to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
and other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
(C) SECTION 9 OF THE 1934 ACT. During the term of this Agreement, the Investor
will comply with the provisions of Section 9 of the 1934 Act, and the rules
promulgated thereunder, with respect to transactions involving the Common Stock.
The Investor agrees not to short, either directly or indirectly through its
affiliates, principals or advisors, the Company's common stock during the term
of this Agreement.
(D) ACCREDITED INVESTOR. Investor is an "Accredited Investor" as that term is
defined in Rule 501(a)(3) of Regulation D of the 1933 Act. (E) NO CONFLICTS. The
execution, delivery and performance of the Transaction Documents by the Investor
and the consummation by the Investor of the transactions contemplated hereby and
thereby will not result in a violation of Partnership Agreement or other
organizational documents of the Investor.
(F) OPPORTUNITY TO DISCUSS. The Investor has received all materials relating to
the Company's business, finance and operations which it has requested. The
Investor has had an opportunity to discuss the business, management and
financial affairs of the Company with the Company's management.
(G) INVESTMENT PURPOSES. The Investor is purchasing the Securities for its own
account for investment purposes and not with a view towards distribution and
agrees to resell or otherwise dispose of the Securities solely in accordance
with the registration provisions of the 1933 Act (or pursuant to an exemption
from such registration provisions).
(H) NO REGISTRATION AS A DEALER. The Investor is not and will not be required to
be registered as a "dealer" under the 1934 Act, either as a result of its
execution and performance of its obligations under this Agreement or otherwise.
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(I) GOOD STANDING. The Investor is a Limited Partnership, duly organized,
validly existing and in good standing in the State of Delaware.
(J) TAX LIABILITIES. The Investor understands that it is liable for its own tax
liabilities.
(K) REGULATION M. The Investor will comply with Regulation M under the 1934 Act,
if applicable.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth in the Schedules attached hereto, or as disclosed on the
Company's SEC Documents, the Company represents and warrants to the Investor
that:
(A) ORGANIZATION AND QUALIFICATION. The Company is a corporation duly organized
and validly existing in good standing under the laws of the State of Delaware,
and has the requisite corporate power and authorization to own its properties
and to carry on its business as now being conducted. Both the Company and the
companies it owns or controls, its "Subsidiaries," are duly qualified to do
business and are in good standing in every jurisdiction in which its ownership
of property or the nature of the business conducted by it makes such
qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not have a Material Adverse Effect. As
used in this Agreement, "Material Adverse Effect" means any material adverse
effect on the business, properties, assets, operations, results of operations,
financial condition or prospects of the Company and its Subsidiaries, if any,
taken as a whole, or on the transactions contemplated hereby or by the
agreements and instruments to be entered into in connection herewith, or on the
authority or ability of the Company to perform its obligations under the
Transaction Documents (as defined in Section 1 and 4(b), below).
(B) AUTHORIZATION; ENFORCEMENT; COMPLIANCE WITH OTHER INSTRUMENTS.
(I) The Company has the requisite corporate power and authority to enter into
and perform this Agreement, the Registration Rights Agreement, and each of the
other agreements entered into by the parties hereto in connection with the
transactions contemplated by this Agreement (collectively, the "Transaction
Documents"), and to issue the Securities in accordance with the terms hereof and
thereof.
(II) The execution and delivery of the Transaction Documents by the Company and
the consummation by it, of the transactions contemplated hereby and thereby,
including without limitation the reservation for issuance and the issuance of
the Securities pursuant to this Agreement, have been duly and validly authorized
by the Company's Board of Directors and no further consent or authorization is
required by the Company, its Board of Directors, or its shareholders.
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(III) The Transaction Documents have been duly and validly executed and
delivered by the Company. (IV) The Transaction Documents constitute the valid
and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies.
(C) CAPITALIZATION. As of the date hereof, the authorized capital stock of the
Company consists of (i) 210,000,000 shares of Common Stock, $0.0017 par value
per share, of which as of the date hereof, 113,514,158 shares are issued and
outstanding; 170,000,000 shares of Preferred Stock authorized and 23,876,162
shares reserved for issuance pursuant to options, warrants and other convertible
securities. All of such outstanding shares have been, or upon issuance will be,
validly issued and are fully paid and nonassessable. Except as disclosed in the
Company's publicly available filings with Periodic Filings,
(I) no shares of the Company's capital stock are subject to preemptive rights or
any other similar rights or any liens or encumbrances suffered or permitted by
the Company;
(II) there are no outstanding debt securities;
(III) there are no outstanding shares of capital stock, options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its Subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to issue additional shares of capital stock of the
Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries;
(IV) there are no agreements or arrangements under which the Company or any of
its Subsidiaries is obligated to register the sale of any of their securities
under the 1933 Act (except the Registration Rights Agreement),
(V) there are no outstanding securities of the Company or any of its
Subsidiaries which contain any redemption or similar provisions, and there are
no contracts, commitments, understandings or arrangements by which the Company
or any of its Subsidiaries is or may become bound to redeem a security of the
Company or any of its Subsidiaries;
(VI) there are no securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of the Securities as described
in this Agreement;
(VII) the Company does not have any stock appreciation rights or "phantom stock"
plans or agreements or any similar plan or agreement; and
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(VIII) there is no dispute as to the classification of any shares of the
Company's capital stock. The Company has furnished to the Investor, or the
Investor has had access through XXXXX to, true and correct copies of the
Company's Amended and Restated Certificate of Incorporation, as in effect on the
date hereof (the "Certificate of Incorporation"), and 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 and the material rights of the
holders thereof in respect thereto.
(D) ISSUANCE OF SHARES. The Company has reserved 20,000,000 Shares for issuance
pursuant to this Agreement has been duly authorized and reserved for issuance
(subject to adjustment pursuant to the Company's covenant set forth in Section
5(f) below) pursuant to this Agreement. Upon issuance in accordance with this
Agreement, the Securities will be validly issued, fully paid and non-assessable
and free from all taxes, liens and charges with respect to the issue thereof. In
the event the Company cannot register a sufficient number of Shares for issuance
pursuant to this Agreement, the Company will use its best efforts to authorize
and reserve for issuance the number of Shares required for the Company to
perform its obligations hereunder as soon as reasonably practicable.
(E) NO CONFLICTS. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby will not (I) result in a violation of the
Certificate of Incorporation, any Certificate of Designations, Preferences and
Rights of any outstanding series of preferred stock of the Company or the
By-laws; or (II) conflict with, or constitute a material default (or an event
which with notice or lapse of time or both would become a material default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, contract, indenture mortgage,
indebtedness or instrument to which the Company or any of its Subsidiaries is a
party, or to the Company's knowledge result in a violation of any law, rule,
regulation, order, judgment or decree (including United States federal and state
securities laws and regulations and the rules and regulations of the Principal
Market or principal securities exchange or trading market on which the Common
Stock is traded or listed) 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 as disclosed in Schedule 4(e), neither the Company nor
its Subsidiaries is in violation of any term of, or in default under, the
Certificate of Incorporation, any Certificate of Designations, Preferences and
Rights of any outstanding series of preferred stock of the Company or the
By-laws or their organizational charter or by-laws, respectively, or any
contract, agreement, mortgage, indebtedness, indenture, instrument, judgment,
decree or order or any statute, rule or regulation applicable to the Company or
its Subsidiaries, except for possible conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations that would not
individually or in the aggregate have a Material Adverse Effect. The business of
the Company and its Subsidiaries is not being conducted, and shall not be
conducted, in violation of any law, statute, ordinance, rule, order or
regulation of any governmental authority or agency, regulatory or
self-regulatory agency, or court, except for possible violations the sanctions
for which either individually or in the aggregate would not have a Material
Adverse Effect. Except as specifically contemplated by this Agreement and as
required under the 1933 Act or any securities laws of any states to the
Company's knowledge, the Company is not required to obtain any consent,
authorization, permit or order of, or make any filing or registration (except
the filing of a registration statement) with, any court, governmental authority
or agency, regulatory or self-regulatory agency or other third party in order
for it to execute, deliver or perform any of its obligations under, or
contemplated by, the Transaction Documents in accordance with the terms hereof
or thereof. All consents, authorizations, permits, 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 and are
in full force and effect as of the date hereof. Except as disclosed in Schedule
4(e), the Company and its Subsidiaries are unaware of any facts or circumstances
which might give rise to any of the foregoing. The Company is not, and will not
be, in violation of the listing requirements of the Principal Market as in
effect on the date hereof and on each of the Closing Dates and is not aware of
any facts which would reasonably lead to delisting of the Common Stock by the
Principal Market in the foreseeable future.
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(F) SEC DOCUMENTS; FINANCIAL STATEMENTS. As of the date hereof, the Company has
filed all reports, schedules, forms, statements and other documents required to
be filed by it with the SEC pursuant to the reporting requirements of the 1934
Act (all of the foregoing filed prior to the date hereof and all exhibits
included therein and financial statements and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the "SEC
Documents"). The Company has delivered to the Investor or its representatives,
or they have had access through XXXXX to, true and complete copies of the SEC
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 to make the statements therein,
in light of the circumstances under which they were made, not misleading. As of
their respective dates, the financial statements of the Company included in the
SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, by a firm that is a member of the
Public Companies Accounting Oversight Board ("PCAOB") consistently applied,
during the periods involved (except (I) as may be otherwise indicated in such
financial statements or the notes thereto, or (II) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other written
information provided by or on behalf of the Company to the Investor which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 4(d) of this Agreement, contains any untrue statement of
a material fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstance under which they are or
were made, not misleading. Neither the Company nor any of its Subsidiaries or
any of their officers, directors, employees or agents have provided the Investor
with any material, nonpublic information which was not publicly disclosed prior
to the date hereof and any material, nonpublic information provided to the
Investor by the Company or its Subsidiaries or any of their officers, directors,
employees or agents prior to any Closing Date shall be publicly disclosed by the
Company prior to such Closing Date.
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(G) ABSENCE OF CERTAIN CHANGES. Except as set forth in the SEC Documents, the
Company does not intend to change the business operations of the Company in any
material way. The Company has not taken any steps, and does not currently expect
to take any steps, to seek protection pursuant to any bankruptcy law nor does
the Company or its Subsidiaries have any knowledge or reason to believe that its
creditors intend to initiate involuntary bankruptcy proceedings.
(H) ABSENCE OF LITIGATION. Except as set forth in the SEC Documents, there is no
action, suit, 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 executive officers of Company or any of its
Subsidiaries, threatened against or affecting the Company, the Common Stock or
any of the Company's Subsidiaries or any of the Company's or the Company's
Subsidiaries' officers or directors in their capacities as such, in which an
adverse decision could have a Material Adverse Effect.
(I) ACKNOWLEDGMENT REGARDING INVESTOR'S PURCHASE OF SHARES. The Company
acknowledges and agrees that the Investor is acting solely in the capacity of
arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby. The Company further acknowledges
that the Investor is not acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to the Transaction Documents
and the transactions contemplated hereby and thereby and any advice given by the
Investor or any of its respective representatives or agents in connection with
the Transaction Documents and the transactions contemplated hereby and thereby
is merely incidental to the Investor's purchase of the Securities. The Company
further represents to the Investor that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.
13
(J) NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR CIRCUMSTANCES. Except as
set forth in the SEC Documents, as of the date hereof, no event, liability,
development or circumstance has occurred or exists, or to the Company's
knowledge is contemplated to occur, with respect to the Company or its
Subsidiaries or their respective business, properties, assets, prospects,
operations or financial condition, that would be required to be disclosed by the
Company under applicable securities laws on a registration statement filed with
the SEC relating to an issuance and sale by the Company of its Common Stock and
which has not been publicly announced.
(K) EMPLOYEE RELATIONS. Neither the Company nor any of its Subsidiaries is
involved in any union labor dispute nor, to the knowledge of the Company or any
of its Subsidiaries, is any such dispute threatened. Neither the Company nor any
of its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that relations with their employees are
good. No executive officer (as defined in Rule 501(f) of the 0000 Xxx) has
notified the Company that such officer intends to leave the Company's employ or
otherwise terminate such officer's employment with the Company.
(L) INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries own or
possess adequate rights or licenses to use all trademarks, trade names, service
marks, service xxxx registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental authorizations, trade
secrets and rights necessary to conduct their respective businesses as now
conducted. Except as set forth in the SEC Documents, none of the Company's
trademarks, trade names, service marks, service xxxx registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
government authorizations, trade secrets or other intellectual property rights
necessary to conduct its business as now or as proposed to be conducted have
expired or terminated, or are expected to expire or terminate within two (2)
years from the date of this Agreement. The Company and its Subsidiaries do not
have any knowledge of any infringement by the Company or its Subsidiaries of
trademark, trade name rights, patents, patent rights, copyrights, inventions,
licenses, service names, service marks, service xxxx registrations, trade secret
or other similar rights of others, or of any such development of similar or
identical trade secrets or technical information by others and, except as set
forth in the SEC Documents, there is no claim, action or proceeding being made
or brought against, or to the Company's knowledge, being threatened against, the
Company or its Subsidiaries regarding trademark, trade name, patents, patent
rights, invention, copyright, license, service names, service marks, service
xxxx registrations, trade secret or other infringement; and the Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company and its Subsidiaries have taken commercially
reasonable security measures to protect the secrecy, confidentiality and value
of all of their intellectual properties.
14
(M) ENVIRONMENTAL LAWS. The Company and its Subsidiaries (I) are, to the
knowledge of management of the Company, in compliance with any and all
applicable foreign, federal, state and local laws and regulations relating to
the protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"); (II)
have, to the knowledge of management of the Company, received all permits,
licenses or other approvals required of them under applicable Environmental Laws
to conduct their respective businesses; and (III) are in compliance, to the
knowledge of the Company, with all terms and conditions of any such permit,
license or approval where, in each of the three (3) foregoing cases, the failure
to so comply would have, individually or in the aggregate, a Material Adverse
Effect.
(N) TITLE. The Company and its Subsidiaries have 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 the SEC Documents or
such as do not materially affect the value of such property and do not interfere
with the use made and proposed to be made of such property by the Company or any
of its Subsidiaries. Any real property and facilities held under lease by the
Company or any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
(O) INSURANCE. Each of the Company's Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as management of the Company reasonably believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.
(P) REGULATORY PERMITS. The Company and its Subsidiaries have in full force and
effect all certificates, approvals, authorizations and permits from the
appropriate federal, state, local or foreign regulatory authorities and
comparable foreign regulatory agencies, necessary to own, lease or operate their
respective properties and assets and conduct their respective businesses, and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
approval, authorization or permit, except for such certificates, approvals,
authorizations or permits which if not obtained, or such revocations or
modifications which, would not have a Material Adverse Effect.
15
(Q) INTERNAL ACCOUNTING CONTROLS. The Company and each of its Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (I) transactions are executed in accordance with
management's general or specific authorizations; (II) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles by a firm with membership to the PCAOB
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.
(R) 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.
(S) TAX STATUS. The Company and each of its Subsidiaries has made or filed all
United States federal and state 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 provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
(T) CERTAIN TRANSACTIONS. Except as set forth in the SEC Documents filed at
least ten (10) days prior to the date hereof and except for arm's length
transactions pursuant to which the Company makes payments in the ordinary course
of business upon terms no less favorable than the Company could obtain from
third parties and other than the grant of stock options disclosed in the SEC
Documents, 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.
16
(U) DILUTIVE EFFECT. The Company understands and acknowledges that the number of
shares of Common Stock issuable upon purchases pursuant to this Agreement will
increase in certain circumstances including, but not necessarily limited to, the
circumstance wherein the trading price of the Common Stock declines during the
period between the Effective Date and the end of the Open Period. The Company's
executive officers and directors have studied and fully understand the nature of
the transactions contemplated by this Agreement and recognize that they have a
potential dilutive effect. The Board of Directors of the Company has concluded,
in its good faith business judgment, that such issuance is in the best interests
of the Company. The Company specifically acknowledges that, subject to such
limitations as are expressly set forth in the Transaction Documents, its
obligation to issue shares of Common Stock upon purchases pursuant to this
Agreement is absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other shareholders of the
Company.
(V) LOCK-UP. The Company shall cause its officers, and directors under control
of the Company, to refrain from selling Common Stock during each Pricing Period.
(W) NO GENERAL SOLICITATION. Neither the Company, nor any of its affiliates, nor
any person acting on its behalf, has engaged in any form of general solicitation
or general advertising (within the meaning of Regulation D) in connection with
the offer or sale of the Common Stock offered hereby.
(X) NO BROKERS, FINDERS OR FINANCIAL ADVISORY FEES OR COMMISSIONS. No brokers,
finders or financial advisory fees or commissions will be payable by the Company
with respect to the transactions contemplated by this Agreement, other than
disclosed in this Agreement.
SECTION 5. COVENANTS OF THE COMPANY
(A) BEST EFFORTS. The Company shall use commercially reasonable efforts timely
to satisfy each of the conditions to be satisfied by it as provided in Section 7
of this Agreement.
(B) BLUE SKY. The Company shall, at its sole cost and expense, on or before each
of the Closing Dates, take such action as the Company shall reasonably determine
is necessary to qualify the Securities for, or obtain exemption for the
Securities for, sale to the Investor at each of the Closings pursuant to this
Agreement under applicable securities or "Blue Sky" laws of such states of the
United States, as reasonably specified by Investor, and shall provide evidence
of any such action so taken to the Investor on or prior to the Closing Date.
17
(C) REPORTING STATUS. Until the earlier to occur of (I) the first date which is
after the date this Agreement is terminated pursuant to Section 9 and on which
the Holders (as that term is defined in the Registration Rights Agreement) may
sell all of the Securities without restriction pursuant to Rule 144(k)
promulgated under the 1933 Act (or successor thereto); and (II) the date on
which (A) the Holders shall have sold all the Securities; and (B) this Agreement
has been terminated pursuant to Section 9 (the "Registration Period"), the
Company shall file all reports required to be filed with the SEC pursuant to the
1934 Act, and the Company shall not terminate its status as a reporting company
under the 1934 Act.
(D) USE OF PROCEEDS. The Company will use the proceeds from the sale of the
Shares (excluding amounts paid by the Company for fees as set forth in the
Transaction Documents) for general corporate and working capital purposes and
acquisitions or assets, businesses or operations or for other purposes that the
Board of Directors deem to be in the best interest of the Company.
(E) FINANCIAL INFORMATION. The Company agrees to make available to the Investor
via XXXXX or other electronic means the following to the Investor during the
Registration Period: (I) within five (5) Trading Days after the filing thereof
with the SEC, a copy of its Annual Reports on Form 10-KSB, its Quarterly Reports
on Form 10-QSB, any Current Reports on Form 8-K and any Registration Statements
or amendments filed pursuant to the 1933 Act; (II) on the same day as the
release thereof, facsimile copies of all press releases issued by the Company or
any of its Subsidiaries; (III) copies of any notices and other information made
available or given to the shareholders of the Company generally,
contemporaneously with the making available or giving thereof to the
shareholders; and (IV) within two (2) calendar days of filing or delivery
thereof, copies of all documents filed with, and all correspondence sent to, the
Principal Market, any securities exchange or market, or the National Association
of Securities Dealers, Inc., unless such information is material nonpublic
information.
(F) RESERVATION OF SHARES. Subject to the following sentence, the Company shall
take all action necessary to at all times have authorized, and reserved for the
purpose of issuance, a sufficient number of shares of Common Stock to provide
for the issuance of the Securities hereunder. In the event that the Company
determines that it does not have a sufficient number of authorized shares of
Common Stock to reserve and keep available for issuance as described in this
Section 5(f), the Company shall use its commercially reasonable efforts to
increase the number of authorized shares of Common Stock by seeking shareholder
approval for the authorization of such additional shares.
18
(G) LISTING. The Company shall promptly secure and maintain the listing of all
of the Registrable Securities (as defined in the Registration Rights Agreement)
upon the Principal Market and each other national securities exchange and
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and shall maintain, such listing
of all Registrable Securities from time to time issuable under the terms of the
Transaction Documents. Neither the Company nor any of its Subsidiaries shall
take any action which would be reasonably expected to result in the delisting or
suspension of the Common Stock on the Principal Market (excluding suspensions of
not more than one (1) trading day resulting from business announcements by the
Company). The Company shall promptly provide to the Investor copies of any
notices it receives from the Principal Market regarding the continued
eligibility of the Common Stock for listing on such automated quotation system
or securities exchange. The Company shall pay all fees and expenses in
connection with satisfying its obligations under this Section 5(g).
(H) TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall cause each of
its Subsidiaries not to, enter into, amend, modify or supplement, or permit any
Subsidiary to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any Subsidiary's
officers, directors, persons who were officers or directors at any time during
the previous two (2) years, shareholders who beneficially own 5% or more of the
Common Stock, or Affiliates or with any individual related by blood, marriage or
adoption to any such individual or with any entity in which any such entity or
individual owns a 5% or more beneficial interest (each a "Related Party"),
except for (I) customary employment arrangements and benefit programs on
reasonable terms, (II) any agreement, transaction, commitment or arrangement on
an arms-length basis on terms no less favorable than terms which would have been
obtainable from a person other than such Related Party, or (III) any agreement,
transaction, commitment or arrangement which is approved by a majority of the
disinterested directors of the Company. For purposes hereof, any director who is
also an officer of the Company or any Subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment or arrangement. "Affiliate" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or indirectly,
(I) has a 5% or more equity interest in that person or entity, (II) has 5% or
more common ownership with that person or entity, (III) controls that person or
entity, or (IV) is under common control with that person or entity. "Control" or
"Controls" for purposes hereof means that a person or entity has the power,
direct or indirect, to conduct or govern the policies of another person or
entity.
(I) FILING OF FORM 8-K. On or before the date which is four (4) Trading Days
after the Execution Date, the Company shall file a Current Report on Form 8-K
with the SEC describing the terms of the transaction contemplated by the
Transaction Documents in the form required by the 1934 Act, if such filing is
required.
(J) CORPORATE EXISTENCE. The Company shall use its commercially reasonable
efforts to preserve and continue the corporate existence of the Company.
19
(K) NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION OF RIGHT TO MAKE
A PUT. The Company shall promptly notify Investor upon the occurrence of any of
the following events in respect of a Registration Statement or related
prospectus in respect of an offering of the Securities: (I) receipt of any
request for additional information by the SEC or any other federal or state
governmental authority during the period of effectiveness of the Registration
Statement for amendments or supplements to the Registration Statement or related
prospectus; (II) the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness of any
Registration Statement or the initiation of any proceedings for that purpose;
(III) receipt of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Securities for sale
in any jurisdiction or the initiation or notice of any proceeding for such
purpose; (IV) the happening of any event that makes any statement made in such
Registration Statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of a Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (V) the Company's reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate, and the Company
shall promptly make available to Investor any such supplement or amendment to
the related prospectus. The Company shall not deliver to Investor any Put Notice
during the continuation of any of the foregoing events.
(L) REIMBURSEMENT. If (I) Investor becomes involved in any capacity in any
action, proceeding or investigation brought by any shareholder of the Company,
in connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if Investor is impleaded in any
such action, proceeding or investigation by any person (other than as a result
of a breach of the Investor's representations and warranties set forth in this
Agreement); or (II)Investor becomes involved in any capacity in any action,
proceeding or investigation brought by the SEC against or involving the Company
or in connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents (other than as a result of a breach of
the Investor's representations and warranties set forth in this Agreement), or
if Investor is impleaded in any such action, proceeding or investigation by any
person, then in any such case, the Company will reimburse Investor for its
reasonable legal and other expenses (including the cost of any investigation and
preparation) incurred in connection therewith, as such expenses are incurred. In
addition, other than with respect to any matter in which Investor is a named
party, the Company will pay to Investor the charges, as reasonably determined by
Investor, for the time of any officers or employees of Investor devoted to
appearing and preparing to appear as witnesses, assisting in preparation for
hearings, trials or pretrial matters, or otherwise with respect to inquiries,
hearing, trials, and other proceedings relating to the subject matter of this
Agreement. The reimbursement obligations of the Company under this section shall
be in addition to any liability which the Company may otherwise have, shall
extend upon the same terms and conditions to any affiliates of Investor that are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees, attorneys, accountants, auditors and controlling
persons (if any), as the case may be, of Investor and any such affiliate, and
shall be binding upon and inure to the benefit of any successors of the Company,
Investor and any such affiliate and any such person.
20
(M) TRANSFER AGENT. Upon effectiveness of the Registration Statement, and for so
long as the Registration Statement is effective, the Company shall deliver
instructions to its transfer agent to issue Shares to the Investor that are
covered for resale by the Registration Statement free of restrictive legends.
SECTION 6. COVER.
If the number of Shares represented by any Put Notice (s) become restricted or
such Shares are no longer free trading for any reason, and after the applicable
Closing Date, the Investor purchases, in an open market transaction or
otherwise, the Company's Common Stock (the "Covering Shares") in order to make
delivery in satisfaction of a sale of Common Stock by the Investor (the "Sold
Shares"), which delivery such Investor anticipated to make using the Shares
represented by the Put Notice (a "Buy-In"), the Company shall pay to the
Investor the Buy-In Adjustment Amount (as defined below). The "Buy-In Adjustment
Amount" is the amount equal to the excess, if any, of (A) the Investor's total
purchase price (including brokerage commissions, if any) for the Covering Shares
over (B) the net proceeds (after brokerage commissions, if any) received by the
Investor from the sale of the Sold Shares. The Company shall pay the Buy-In
Adjustment Amount to the Investor in immediately available funds immediately
upon demand by the Investor. By way of illustration and not in limitation of the
foregoing, if the Investor purchases Common Stock having a total purchase price
(including brokerage commissions) of $11,000 to cover a Buy-In with respect to
the Common Stock it sold for net proceeds of $10,000, the Buy-In Adjustment
Amount which the Company will be required to pay to the Investor will be $1,000.
SECTION 7. CONDITIONS OF THE COMPANY'S OBLIGATION TO SELL.
The obligation hereunder of the Company to issue and sell the Securities to the
Investor is further subject to the satisfaction, at or before each Closing Date,
of each of the following conditions set forth below. These conditions are for
the Company's sole benefit and may be waived by the Company at any time in its
sole discretion.
21
(A) The Investor shall have executed each of this Agreement and the Registration
Rights Agreement and delivered the same to the Company.
(B) The Investor shall have delivered to the Company the Purchase Price for the
Securities being purchased by the Investor between the end of the Pricing Period
and the Closing Date via a Put Settlement Sheet (hereto attached as Exhibit D)
After receipt of confirmation of delivery of such Securities to the Investor,
the Investor, by wire transfer of immediately available funds pursuant to the
wire instructions provided by the Company will disburse the funds constituting
the Purchase Amount.
(C) No statute, rule, regulation, executive order, decree, ruling or injunction
shall have been enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.
SECTION 8. FURTHER CONDITIONS OF THE INVESTOR'S OBLIGATION TO PURCHASE.
The obligation of the Investor hereunder to purchase Shares is subject to the
satisfaction, on or before each Closing Date, of each of the following
conditions set forth below.
(A) The Company shall have executed each of the Transaction Documents and
delivered the same to the Investor.
(B) The Common Stock shall be authorized for quotation on the Principal Market
and trading in the Common Stock shall not have been suspended by the Principal
Market or the SEC, at any time beginning on the date hereof and through and
including the respective Closing Date (excluding suspensions of not more than
one (1) Trading Day resulting from business announcements by the Company,
provided that such suspensions occur prior to the Company's delivery of the Put
Notice related to such Closing).
(C) The representations and warranties of the Company shall be true and correct
as of the date when made and as of the applicable Closing Date as though made at
that time (except for (I) representations and warranties that speak as of a
specific date and (II) with respect to the representations made in Sections
4(g), (h) and (j) and the third sentence of Section 4(k) hereof, events which
occur on or after the date of this Agreement and are disclosed in SEC filings
made by the Company at least ten (10) Trading Days prior to the applicable Put
Notice Date) and the Company shall have performed, satisfied and complied with
the covenants, agreements and conditions required by the Transaction Documents
to be performed, satisfied or complied with by the Company on or before such
Closing Date. The Investor may request an update as of such Closing Date
regarding the representation contained in Section 4(c) above.
22
(D) The Company shall have executed and delivered to the Investor the
certificates representing, or have executed electronic book-entry transfer of,
the Securities (in such denominations as such Investor shall request) being
purchased by the Investor at such Closing.
(E) The Board of Directors of the Company shall have adopted resolutions
consistent with Section 4(b)(ii) above (the "Resolutions") and such Resolutions
shall not have been amended or rescinded prior to such Closing Date.
(F) Reserved
(G) No statute, rule, regulation, executive order, decree, ruling or injunction
shall have been enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.
(H) The Registration Statement shall be effective on each Closing Date and no
stop order suspending the effectiveness of the Registration statement shall be
in effect or to the Company's knowledge shall be pending or threatened.
Furthermore, on each Closing Date (I) neither the Company nor Investor shall
have received notice that the SEC has issued or intends to issue a stop order
with respect to such Registration Statement or that the SEC otherwise has
suspended or withdrawn the effectiveness of such Registration Statement, either
temporarily or permanently, or intends or has threatened to do so (unless the
SEC's concerns have been addressed and Investor is reasonably satisfied that the
SEC no longer is considering or intends to take such action), and (II) no other
suspension of the use or withdrawal of the effectiveness of such Registration
Statement or related prospectus shall exist.
(I) At the time of each Closing, the Registration Statement (including
information or documents incorporated by reference therein) and any amendments
or supplements thereto shall not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading or which would require public
disclosure or an update supplement to the prospectus.
(J) If applicable, the shareholders of the Company shall have approved the
issuance of any Shares in excess of the Maximum Common Stock Issuance in
accordance with Section 2(i) or the Company shall have obtained appropriate
approval pursuant to the requirements of Delaware law and the Company's Articles
of Incorporation and By-laws.
(K) The conditions to such Closing set forth in Section 2(f) shall have been
satisfied on or before such Closing Date.
(L) The Company shall have certified to the Investor the number of Shares of
Common Stock outstanding when a Put Notice is given to the Investor.
23
SECTION 9. TERMINATION. This Agreement shall terminate upon any of the following
events:
(I) when the Investor has purchased an aggregate of Ten Million dollars
($10,000,000) in the Common Stock of the Company pursuant to this Agreement; or,
(II) on the date which is thirty-six (36) months after the Effective Date;
SECTION 10. SUSPENSION
This Agreement shall be suspended upon any of the following events, and shall
remain suspended until such event is rectified:
(I) the trading of the Common Stock is suspended by the SEC, the
Principal Market or the NASD for a period of two (2) consecutive Trading Days
during the Open Period; or,
(II) The Common Stock ceases to be registered under the 1934 Act or
listed or traded on the Principal Market. Upon the occurrence of one of the
above-described events, the Company shall send written notice of such event to
the Investor.
SECTION 11. INDEMNIFICATION.
In consideration of the parties mutual obligations set forth In the Transaction
Documents, each of the parties (in such capacity, an "Indemnitor") shall defend,
protect, indemnify and hold harmless the other and all of the other party's
shareholders, officers, directors, employees, counsel, and direct or indirect
investors and any of the foregoing person's agents or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Indemnitees")
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and reasonable expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (I)
any misrepresentation or breach of any representation or warranty made by the
Indemnitor or any other certificate, instrument or document contemplated hereby
or thereby; (II) any breach of any covenant, agreement or obligation of the
Indemnitor contained in the Transaction Documents or any other certificate,
instrument or document contemplated hereby or thereby; or (III) any cause of
action, suit or claim brought or made against such Indemnitee by a third party
and arising out of or resulting from the execution, delivery, performance or
enforcement of the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, except insofar as any such
misrepresentation, breach or any untrue statement, alleged untrue statement,
omission or alleged omission is made in reliance upon and in conformity with
information furnished to Indemnitor which is specifically intended for use in
the preparation of any such Registration Statement, preliminary prospectus,
prospectus or amendments to the prospectus. To the extent that the foregoing
undertaking by the Indemnitor may be unenforceable for any reason, the
Indemnitor shall make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities which is permissible under applicable
law. The indemnity provisions contained herein shall be in addition to any cause
of action or similar rights Indemnitor may have, and any liabilities the
Indemnitor or the Indemnitees may be subject to.
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SECTION 12. GOVERNING LAW; MISCELLANEOUS.
(A) GOVERNING LAW. This Agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts without regard to
the principles of conflict of laws. Each party hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the City of
Boston, County of Suffolk, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.
(i) DISPUTES SUBJECT TO ARBITRATION GOVERNED BY MASSACHUSETTS LAW
All disputes arising under this agreement shall be governed by and
interpreted in accordance with the laws of the Commonwealth of Massachusetts,
without regard to principles of conflict of laws. The parties to this agreement
will submit all disputes arising under this agreement to arbitration in Boston,
Massachusetts before a single arbitrator of the American Arbitration Association
("AAA"). The arbitrator shall be selected by application of the rules of the
AAA, or by mutual agreement of the parties, except that such arbitrator shall be
an attorney admitted to practice law in the Commonwealth of Massachusetts. No
party to this agreement will challenge the jurisdiction or venue provisions as
provided in this section.
25
(ii) Waiver of Jury Trial.
AS A MATERIAL INDUCEMENT FOR EACH PARTY HERETO TO ENTER INTO THIS
AGREEMENT, THE PARTIES HERETO HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING RELATED IN ANY WAY TO THIS AGREEMENT AND/OR ANY AND ALL OF THE
OTHER DOCUMENTS ASSOCIATED WITH THIS TRANSACTION.
(B) LEGAL FEES; AND MISCELLANEOUS FEES. Except as otherwise set forth in the
Transaction Documents, each party shall pay the fees and expenses of its
advisers, counsel, the accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement. Any attorneys' fees and
expenses incurred by either the Company or by the Investor in connection with
the preparation, negotiation, execution and delivery of any amendments to this
Agreement or relating to the enforcement of the rights of any party, after the
occurrence of any breach of the terms of this Agreement by another party or any
default by another party in respect of the transactions contemplated hereunder,
shall be paid on demand by the party which breached the Agreement and/or
defaulted, as the case may be. The Company shall pay all stamp and other taxes
and duties levied in connection with the issuance of any Securities.
(C) COUNTERPARTS. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party; provided that a facsimile signature shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a facsimile
signature.
(D) HEADINGS; SINGULAR/PLURAL. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement. Whenever required by the context of this
Agreement, the singular shall include the plural and masculine shall include the
feminine.
(E) SEVERABILITY. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
(F) ENTIRE AGREEMENT; AMENDMENTS. This Agreement supersedes all other prior oral
or written agreements between the Investor, the Company, their affiliates and
persons acting on their behalf with respect to the matters discussed herein, and
this Agreement and the instruments referenced herein (including the other
Transaction Documents) 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 Investor makes any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be amended other than by an instrument in
writing signed by the Company and the Investor, and no provision hereof may be
waived other than by an instrument in writing signed by the party against whom
enforcement is sought.
26
(G) NOTICES. Any notices or other communications required or permitted to be
given under the terms of this Agreement must be in writing and will be deemed to
have been delivered (I) upon receipt, when delivered personally; (II) upon
receipt, when sent by facsimile (provided confirmation of transmission is
mechanically or electronically generated and kept on file by the sending party);
or (III) one (1) day after deposit with a nationally recognized overnight
delivery service, in each case properly addressed to the party to receive the
same. The addresses and facsimile numbers for such communications shall be:
IF TO THE COMPANY:
Xxxx Xxx-Xxxxxx
0 Xxxxx Xxxxxx
Xxxxxxxxx Xxxxxxx, XXXXXX 00000
Telephone: 000-0-000-0000
Facsimile: 000-0-0000000
IF TO THE INVESTOR:
Dutchess Private Equities Fund, LP,
00 Xxxxxxxxxxxx Xxxxxx, Xxxxx 0
Xxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Each party shall provide five (5) days' prior written notice to the other party
of any change in address or facsimile number.
(H) NO ASSIGNMENT. This Agreement may not be assigned.
(I) NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit of
the parties hereto and is not for the benefit of, nor may any provision hereof
be enforced by, any other person.
27
(J) SURVIVAL. The representations and warranties of the Company and the Investor
contained in Sections 2 and 3, the agreements and covenants set forth in
Sections 4 and 5, and the indemnification provisions set forth in Section 10,
shall survive each of the Closings and the termination of this Agreement.
(K) PUBLICITY. The Company and Investor shall consult with each other in issuing
any press releases or otherwise making public statements with respect to the
transactions contemplated hereby and no party shall issue any such press release
or otherwise make any such public statement without the prior consent of the
other parties, which consent shall not be unreasonably withheld or delayed,
except that no prior consent shall be required if such disclosure is required by
law, in which such case the disclosing party shall provide the other parties
with prior notice of such public statement. Notwithstanding the foregoing, the
Company shall not publicly disclose the name of Investor without the prior
consent of such Investor, except to the extent required by law. Investor
acknowledges that this Agreement and all or part of the Transaction Documents
may be deemed to be "material contracts" as that term is defined by Item
601(b)(10) of Regulation S-B, and that the Company may therefore be required to
file such documents as exhibits to reports or registration statements filed
under the 1933 Act or the 1934 Act. Investor further agrees that the status of
such documents and materials as material contracts shall be determined solely by
the Company, in consultation with its counsel.
(L) 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.
(M) PLACEMENT AGENT. The Company agrees to pay Instream Partners, LLC., a
registered broker dealer one percent (1%) of the Put Amount on each draw toward
the fee. The Investor shall have no obligation with respect to any fees or with
respect to any claims made by or on behalf of other persons or entities for fees
of a type contemplated in this Section that may be due in connection with the
transactions contemplated by the Transaction Documents. The Company shall
indemnify and hold harmless the Investor, their employees, officers, directors,
agents, and partners, and their respective affiliates, from and against all
claims, losses, damages, costs (including the costs of preparation and
attorney's fees) and expenses incurred in respect of any such claimed or
existing fees, as such fees and expenses are incurred.
(N) 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.
28
(O) REMEDIES. The Investor and each holder of the Shares shall have all rights
and remedies set forth in this Agreement and the Registration Rights Agreement
and all rights and remedies which such holders have been granted at any time
under any other agreement or contract and all of the rights which such holders
have under any law. Any person having any rights under any provision of this
Agreement shall be entitled to enforce such rights specifically (without posting
a bond or other security), to recover damages by reason of any default or breach
of any provision of this Agreement, including the recovery of reasonable
attorneys fees and costs, and to exercise all other rights granted by law.
(P) PAYMENT SET ASIDE. To the extent that the Company makes a payment or
payments to the Investor hereunder or under the Registration Rights Agreement or
the Investor enforces or exercises its rights hereunder or thereunder, and such
payment or payments or the proceeds of such enforcement or exercise or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside, recovered from, disgorged by or are required to be refunded, repaid
or otherwise restored to the Company, a trustee, receiver or any other person
under any law (including, without limitation, any bankruptcy law, state or
federal law, common law or equitable cause of action), then to the extent of any
such restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.
(Q) PRICING OF COMMON STOCK. For purposes of this Agreement, the bid price of
the Common Stock in this Agreement shall be as reported on Bloomberg.
SECTION 13. Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose non-public information to the Investor, its
advisors, or its representatives, unless prior to disclosure of such information
the Company identifies such information, in writing, as being non-public
information and provides the Investor, such advisors and representatives with
the opportunity to accept or refuse to accept such non-public information for
review. The Company may, as a condition to disclosing any non-public information
hereunder, require the Investor's advisors and representatives to enter into a
confidentiality agreement in form reasonably satisfactory to the Company and the
Investor.
29
(b) Nothing herein shall require the Company to disclose non-public information
to the Investor or its advisors or representatives, and the Company represents
that it does not disseminate non-public information to any investors who
purchase stock in the Company in a public offering, to money managers or to
securities analysts, provided, however, that notwithstanding anything herein to
the contrary, the Company will, as hereinabove provided, immediately notify the
advisors and representatives of the Investor and, if any, underwriters, of any
event or the existence of any circumstance (without any obligation to disclose
the specific event or circumstance) of which it becomes aware, constituting
non-public information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in the Registration Statement
would cause such prospectus to include a material misstatement or to omit a
material fact required to be stated therein in order to make the statements,
therein, in light of the circumstances in which they were made, not misleading.
Nothing contained in this Section 13 shall be construed to mean that such
persons or entities other than the Investor (without the written consent of the
Investor prior to disclosure of such information) may not obtain non-public
information in the course of conducting due diligence in accordance with the
terms of this Agreement and nothing herein shall prevent any such persons or
entities from notifying the Company of their opinion that based on such due
diligence by such persons or entities, that the Registration Statement contains
an untrue statement of material fact or omits a material fact required to be
stated in the Registration Statement or necessary to make the statements
contained therein, in light of the circumstances in which they were made, not
misleading.
* * *
30
SIGNATURE PAGE OF INVESTMENT AGREEMENT
Your signature on this Signature Page evidences your agreement to be bound by
the terms and conditions of the Investment Agreement and the Registration Rights
Agreement as of the date first written above.
The undersigned signatory hereby certifies that he has read and understands the
Investment Agreement, and the representations made by the undersigned in this
Investment Agreement are true and accurate, and agrees to be bound by its terms.
DUTCHESS PRIVATE EQUITIES FUND, L.P.
BY ITS GENERAL PARTNER,
DUTCHESS CAPITAL MANAGEMENT, LLC
By: /S/ Xxxxxxx Xxxxxxxx
--------------------------------
Xxxxxxx X. Xxxxxxxx, Managing Member
M-WISE, INC.
By: /S/ Xxxx Xxx-Xxxxxx
--------------------------------
Xxxx Xxx-Xxxxxx, Chairman
31
LIST OF EXHIBITS
EXHIBIT A Registration Rights Agreement
EXHIBIT B Opinion of Company's Counsel
EXHIBIT C Put Notice
EXHIBIT D Put Settlement Sheet
32
LIST OF SCHEDULES
SCHEDULE 4(A) SUBSIDIARIES
33
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EXHIBIT A
34
EXHIBIT B
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
Date: __________
[TRANSFER AGENT]
Re: M-Wise, Inc.
Ladies and Gentlemen:
We are counsel to M-Wise, Inc., a Delaware corporation (the "Company"),
and have represented the Company in connection with that certain Subscription
Agreement (the "Subscription Agreement") entered into by and among the Company
and _________________________ (the "Holder") pursuant to which the Company has
agreed to issue to the Holder shares of the Company's common stock, $ 0.0017 par
value per share (the "Common Stock") on the terms and conditions set forth in
the Subscription Agreement. Pursuant to the Subscription Agreement, the Company
also has entered into a Registration Rights Agreement with the Holder (the
"Registration Rights Agreement") pursuant to which the Company agreed, among
other things, to register the Registrable Securities (as defined in the
Registration Rights Agreement), including the shares of Common Stock issued or
issuable under the Subscription Agreement under the Securities Act of 1933, as
amended (the "1933 Act"). In connection with the Company's obligations under the
Registration Rights Agreement, on ____________ ___, 2006, the Company filed a
Registration Statement on Form S- ___ (File No. 333-________) (the "Registration
Statement") with the Securities and Exchange Commission (the "SEC") relating to
the Registrable Securities which names the Holder as a selling shareholder
thereunder.
In connection with the foregoing, we advise you that [a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective] [the Registration Statement has
become effective] under the 1933 Act at [enter the time of effectiveness] on
[enter the date of effectiveness] and to the best of our knowledge, after
telephonic inquiry of a member of the SEC's staff, no stop order suspending its
effectiveness has been issued and no proceedings for that purpose are pending
before, or threatened by, the SEC and the Registrable Securities are available
for resale under the 1933 Act pursuant to the Registration Statement.
Very truly yours,
[Company Counsel]
35
[Company Counsel]
EXHIBIT C
Date:
RE: Put Notice Number __
Dear Xx. Xxxxxxxx,
This is to inform you that as of today, M-Wise, Inc., a Delware corporation (the
"Company"), hereby elects to exercise its right pursuant to the Investment
Agreement to require Dutchess Private Equities Fund, LP to purchase shares of
its common stock. The Company hereby certifies that:
The amount of this put is $__________.
The Pricing Period runs from ________ until _______.
The current number of shares issued and outstanding as of the Company are:
-----------------------
The number of shares currently available on the equity line is:
-----------------------
Regards,
-----------------------
Xxxx Xxx-Xxxxxx
Chairman
M-Wise, Inc.
36
EXHIBIT D
PUT SETTLEMENT SHEET
Date:
Shay,
Pursuant to the Put given by M-Wise, Inc. to Dutchess Private Equities Fund,
L.P. on _________________ 200_, we are now submitting the amount of common
shares for you to issue to Dutchess.
Please have a certificate bearing no
restrictive legend totaling __________ shares issued to Dutchess Private
Equities Fund, LP immediately and send via DWAC to the following account:
XXXXXX
If not DWAC eligible, please send FedEx Priority Overnight to:
XXXXXX
Once these shares are received by us, we will have the funds wired to the
Company.
Regards,
Xxxxxxx X. Xxxxxxxx
37
DATE. . . . . . . . . . . . . . . . . . . . . PRICE
Date of Day 1 . . . . . . . . . . . . . . . . Closing Bid of Day 1
Date of Day 2 . . . . . . . . . . . . . . . . Closing Bid of Day 2
Date of Day 3 . . . . . . . . . . . . . . . . Closing Bid of Day 3
Date of Day 4 . . . . . . . . . . . . . . . . Closing Bid of Day 4
Date of Day 5 . . . . . . . . . . . . . . . . Closing Bid of Day 5
LOWEST 1 (ONE) CLOSING BID IN PRICING PERIOD
------------
PUT AMOUNT
------------
AMOUNT WIRED TO COMPANY
------------
PURCHASE PRICE (93)% (ninety-three PERCENT))
------------
AMOUNT OF SHARES DUE
------------
The undersigned has completed this Put as of this ___th day of _________, 20xx.
M-WISE INC.
------------------------------
XXXX XXX-XXXXXX, CHAIRMAN
38
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SCHEDULE 4(c) CAPITALIZATION
39
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SCHEDULE 4(e) CONFLICTS
40
--------------------------------------------------------------------------------
SCHEDULE 4(g) MATERIAL CHANGES
41
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SCHEDULE 4(h) LITIGATION
42
--------------------------------------------------------------------------------
SCHEDULE 4(l) INTELLECTUAL PROPERTY
43
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SCHEDULE 4(n) LIENS
44
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SCHEDULE 4(t) CERTAIN TRANSACTIONS
45
