EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of June 28,
2005, is made and entered into by and between Debt Resolve, Inc., a Delaware
corporation, with its principal executive offices located at 707 Westchester
Avenue, Lobby Level, White Plains, New York 10604 (the "COMPANY"), and each of
the purchasers listed on Schedule A hereto (the "PURCHASERS").
WHEREAS, the Company and the Purchasers 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");
WHEREAS, the Purchasers, severally and not jointly, desire to purchase and
the Company desires to issue and sell to the Purchasers, in each case upon the
terms and subject to the conditions set forth in this Agreement: (i) 7% senior
convertible promissory notes of the Company, in the form attached hereto as
Exhibit A, in the aggregate principal amount of up to Three Million Dollars
($3,000,000) (together with any note(s) issued in replacement thereof or as a
dividend thereon or otherwise with respect thereto in accordance with the terms
thereof, the "NOTES"), convertible into shares of common stock, par value $.001
per share, of the Company (the "COMMON STOCK"), upon the terms and subject to
the limitations and conditions set forth in such Notes and (ii) warrants, in the
form attached hereto as Exhibit B, to purchase shares of Common Stock (the
"WARRANTS");
WHEREAS, each Purchaser wishes to purchase, upon the terms and conditions
stated in this Agreement, such principal amount of Notes and number of Warrants
as is set forth immediately next to such Purchaser's name on Schedule A hereto
(with the number of Warrant Shares (as defined in Section 2(a)) representing 50%
of the number of shares of Common Stock into which each such Purchaser's Notes
are convertible);
WHEREAS, simultaneously 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 to the Purchasers certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws; and
WHEREAS, simultaneously with the execution and delivery of this Agreement,
the Purchasers are executing and delivering a Lock-Up Agreement, in the form
attached hereto as Exhibit D (the "LOCK-UP AGREEMENTS" and, collectively with
this Agreement, the term sheet/risk factor booklet delivered to the Purchasers
by the Company, the Note, the Warrant and the Registration Rights Agreement, the
"TRANSACTION DOCUMENTS").
NOW THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements herein contained, the Company and each of
the Purchasers severally (and not jointly) hereby agree as follows:
1. PURCHASE AND SALE OF NOTES AND WARRANTS.
(a) Purchase of Notes and Warrants. On the Closing Date (as defined
below), the Company shall issue and sell to each Purchaser and each Purchaser
severally agrees to purchase from the Company such principal amount of Notes and
number of Warrants as is set forth next to such Purchaser's name on Schedule A
hereto.
(b) Form of Payment. On the Closing Date: (i) each Purchaser shall pay
the purchase price for the Notes and the Warrants to be issued and sold to it at
the Closing (as defined below) (the "PURCHASE PRICE") by wire transfer of
immediately available funds to the Company, in accordance with the Company's
written wiring instructions, against delivery of the Notes in the principal
amount equal to the Purchase Price and the number of Warrants as is set forth
immediately below such Purchaser's name on the signature pages hereto, and (ii)
the Company shall deliver such Notes and Warrants duly executed on behalf of the
Company, to such Purchaser, against delivery of such Purchase Price.
(c) Closing Date. Subject to the satisfaction (or written waiver) of
the conditions thereto set forth in Section 6 and Section 7 below, the date and
time of the issuance and sale of the Notes and the Warrants pursuant to this
Agreement (the "CLOSING DATE") shall be 12:00 noon, New York City Time on the
date first written above, 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 and may
be undertaken remotely by facsimile or other electronic transmission.
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
severally (and not jointly) represents and warrants to the Company solely as to
such Purchaser that:
(a) Investment Purpose. As of the date hereof, the Purchaser is
purchasing the Notes and the shares of Common Stock issuable upon conversion of
or otherwise pursuant to this Agreement or the other Transaction Documents (such
shares of Common Stock being collectively referred to herein as the "CONVERSION
SHARES") and the Warrants and the shares of Common Stock issuable upon exercise
thereof (the "WARRANT SHARES" and, collectively with the Notes, Warrants and
Conversion Shares, the "SECURITIES") for its own account and not with a present
view towards the public sale or distribution thereof, except pursuant to sales
registered or exempted from registration under the 1933 Act; PROVIDED, HOWEVER,
that by making the representations herein, the Purchaser 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, except as otherwise
provided for in the Lock-Up Agreements.
(b) Accredited Investor Status. The Purchaser is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D promulgated
under the 1933 Act (an "ACCREDITED INVESTOR").
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(c) Reliance on Exemptions. The Purchaser 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
Purchaser's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Purchaser set forth herein in order to
determine the availability of such exemptions and the eligibility of the
Purchaser to acquire the Securities.
(d) Information. The Purchaser and its advisors, if any, have been
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 Purchaser or its advisors. The Purchaser and
its advisors, if any, have been afforded the opportunity to ask questions of the
Company. Notwithstanding the foregoing representations, neither such inquiries
nor any other due diligence investigation conducted by Purchaser or any of its
advisors or representatives shall modify, amend or affect Purchaser's right to
rely on the Company's representations and warranties contained in Section 3
below.
(e) No Governmental Review. The Purchaser 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 Resale. The Purchaser understands that:
(i) Except as provided in the Registration Rights Agreement, the
sale or resale 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 Purchaser shall have delivered to the Company, at
the cost of the Company, a customary opinion of counsel that shall be in
form, substance and scope reasonably acceptable to the Company, to the
effect that the Securities to be sold or transferred may be sold or
transferred pursuant to an exemption from such registration,
(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 Purchaser 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"),
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and, in each case, the Purchaser shall have delivered to the Company, at
the cost of the Company, a customary opinion of counsel, in form, substance
and scope reasonably acceptable to 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 resale 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 1933 Act) 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.
(g) Legends. The Purchaser understands that the Notes and the Warrants
and, until such time as the Conversion Shares and Warrant Shares have been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement or otherwise may be sold pursuant to Rule 144 or Regulation S without
any restriction as to the number of securities as of a particular date that can
then be immediately sold, the Conversion Shares and Warrant Shares may bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of the certificates for such Securities):
"The securities represented by this certificate have not
been registered under the Securities Act of 1933, as
amended. The securities may not be sold, transferred or
assigned in the absence of an effective registration
statement for the securities under said Act, or an opinion
of counsel, in form, substance and scope 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: (i)
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 (ii) such holder provides
the Company with a reasonable and customary opinion of counsel to the effect
that a public sale or transfer of such Security may be made without registration
under the 1933 Act. The Purchaser agrees to sell all
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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. Each Transaction Document to which the
Purchaser is a party: (i) has been duly and validly authorized, (ii) has been
duly executed and delivered on behalf of the Purchaser, and (iii) will
constitute, upon execution and delivery by the Purchaser thereof and the
Company, the valid and binding agreements of the Purchaser enforceable in
accordance with their terms, except to the extent limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights and general principles of
equity that restrict the availability of equitable or legal remedies.
(i) Residency. The Purchaser is a resident of the jurisdiction set
forth immediately below such Purchaser's name on the signature pages hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each Purchaser as of the date hereof (unless the
context specifically indicates otherwise) that:
(a) Organization and Qualification. The Company and each of its
Subsidiaries (as defined below), if any, is a corporation or other entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated or organized, 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) hereto sets forth a complete list of all of the
Subsidiaries of the Company and the jurisdiction in which each is incorporated
or organized. 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. As
used in this Agreement, the term "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 other Transaction Documents. As
used in this Agreement, the term "SUBSIDIARIES" means any corporation or other
entity or organization, whether incorporated or unincorporated, in which the
Company owns, directly or indirectly, any equity or other ownership interest or
otherwise controls through contract or otherwise.
(b) Authorization; Enforcement. (i) The Company has all requisite
corporate power and authority to enter into and perform this Agreement and the
other Transaction Documents and to consummate the transactions contemplated
hereby and thereby and to issue the Securities, in accordance with the terms
hereof and thereof, (ii) the execution and delivery of this Agreement and the
other Transaction Documents by the Company and the consummation by the Company
of the transactions contemplated hereby and thereby (including without
limitation, the issuance of the Notes 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
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Board of Directors, or its stockholders, is required, (iii) each Transaction
Document has been duly executed and delivered by the Company by its authorized
representative, and such authorized representative is a true and official
representative with authority to sign each Transaction Document and the other
documents or certificates executed in connection herewith and bind the Company
accordingly, and (iv) each Transaction Document constitutes, and upon execution
and delivery thereof by the Company will constitute, a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except to the extent limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights and general principles of equity that restrict
the availability of equitable or legal remedies.
(c) Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of: (i) 50,000,000 shares of Common Stock, of
which 29,703,900 shares are issued and outstanding, no shares are reserved for
issuance pursuant to any Company's stock option plans (of which the Company has
none), and 11,756,862 shares are reserved for issuance pursuant to securities
(other than the Notes and the Warrants) exercisable for, or convertible into or
exchangeable for shares of Common Stock; and (ii) 10,000,000 shares of preferred
stock, of which no shares are issued and outstanding. All of such outstanding
shares of capital stock are, or upon issuance will be, duly authorized, validly
issued, fully paid and nonassessable. All Conversion Shares or Warrant Shares
have been duly reserved for future issuance. 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 mortgage, lien, title claim, assignment,
encumbrance, security interest, adverse claim, contract of sale, restriction on
use or transfer or other defect of title of any kind (each, a "LIEN") imposed
through the actions or failure to act of the Company. Except as disclosed in the
SEC Documents: (i) there are no outstanding options, warrants, scrip, rights to
subscribe for, puts, calls, rights of first refusal, agreements, understandings,
claims or other commitments or rights of any character whatsoever relating to,
or securities or rights convertible into or exchangeable for any shares of
capital stock of the Company or any of its Subsidiaries, or arrangements by
which the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries,
(ii) there are no agreements or arrangements under which the Company or any of
its Subsidiaries is obligated to register the sale of any of its or their
securities under the 1933 Act (except the Registration Rights Agreement) and
(iii) there are no anti-dilution or price adjustment provisions contained in any
security issued by the Company (or in any agreement providing rights to security
holders) that will be triggered by the issuance of the Notes, the Warrants, the
Conversion Shares or Warrant Shares, and the Company is not currently
contemplating any issuances of its debt or equity securities which would trigger
the anti-dilution or price adjustment provisions contained in the Notes or the
Warrants. The Certificate of Incorporation of the Company 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 all securities convertible into
or exercisable for Common Stock of the Company and the material rights of the
holders thereof in respect thereto are as described in or filed as exhibits to
the SEC Documents.
(d) Issuance of Shares. The Conversion Shares and Warrant Shares are
duly authorized and reserved for issuance and, upon conversion of the Notes and
exercise of the Warrants in accordance with their respective terms, will be
validly issued, fully paid and non-assessable, and free from all taxes or Liens
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with respect to the issue thereof and shall not be subject to preemptive rights
or other similar rights of stockholders of the Company.
(e) Acknowledgment of Dilution. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock upon the
issuance of the Conversion Shares and Warrant Shares upon conversion of the Note
or exercise of the Warrants. The Company further acknowledges that its
obligation to issue Conversion Shares and Warrant Shares upon conversion of the
Notes or exercise of the Warrants in accordance with this Agreement, the Notes
and the Warrants is absolute and unconditional regardless of the dilutive effect
that such issuance may have on the ownership interests of other stockholders of
the Company.
(f) No Conflicts. The execution, delivery and performance of this
Agreement and the other 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, except for possible violations, conflicts or defaults as would not,
individually or in the aggregate, have a Material Adverse Effect, 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. Neither the Company nor any of its Subsidiaries is in violation of its
Certificate of Incorporation, By-laws or other organizational documents. 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 are not being conducted in
violation of any law, rule ordinance or regulation of any governmental entity,
except for possible violations which would not, individually or in the
aggregate, have a Material Adverse Effect. Except as required under the 1933
Act, the 1934 Act (as defined below) 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 or any Transaction Document in accordance with the terms hereof or
thereof or to issue and sell the Notes and Warrants in accordance with the terms
hereof and to issue the Conversion Shares upon conversion of the Notes and the
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Warrant Shares upon exercise of the Warrants. Except as disclosed on Schedule
3(f) hereto, 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.
(g) SEC Documents; Financial Statements. Except as disclosed on
Schedule 3(g) attached hereto, 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 incorporated by reference therein, being hereinafter
referred to herein as the "SEC DOCUMENTS"). The SEC Documents are in the form
available to the public via the SEC's EDGAR system. 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, 2004 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 set forth in the SEC
Documents or on Schedule 3(h) attached hereto, since December 31, 2004, 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.
Without limiting the foregoing, since December 31, 2004, neither the Company nor
any Subsidiary has, since December 31, 2004:
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(i) issued any stock, bonds or other corporate securities or any
rights, options or warrants with respect thereto, except as contemplated hereby
and in the other Transaction Documents;
(ii) borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except trade payables incurred in the
ordinary course of business;
(iii) discharged or satisfied any Lien or paid any obligation or
liability (absolute or contingent), other than current liabilities paid in the
ordinary course of business consistent with past practices;
(iv) declared or made any payment or distribution of cash or
other property to stockholders with respect to its stock, or purchased or
redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock;
(v) mortgaged or pledged any of its assets, tangible or
intangible, or subjected them to any Lien;
(vi) sold, assigned or transferred any other tangible assets,
(vii) canceled any debts or claims;
(viii) sold, assigned or transferred any intangible property
(including any Intellectual Property, as defined below) or disclosed any
proprietary confidential information to any persons except to potential
customers, investors or corporate partners or collaborators in the ordinary
course of business consistent with past practices (with all of such disclosures
being done in a manner consistent with applicable securities laws);
(ix) suffered any substantial losses or waived any rights of
material value, whether or not in the ordinary course of business, or suffered
the loss of any material amount of prospective business;
(x) made any changes in employee compensation in excess of
$25,000;
(xi) adopted or amended any employee benefits or plan relating
thereto;
(xii) made capital expenditures or commitments therefor that
aggregate in excess of $25,000 for the Company and its Subsidiaries;
(xiii) entered into any other material transaction other than in
the ordinary course of business;
(xiv) made charitable contributions or pledges in excess of
$5,000 in the aggregate;
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(xv) suffered any material damage, destruction or casualty loss,
whether or not covered by insurance;
(xvi) experienced any union organizing effort or strike problems
with labor or management in connection with the terms and conditions of their
employment; or
(xvii) effected or agreed to do any of the foregoing.
(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 would have a Material Adverse Effect. Schedule
3(i) attached hereto 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.
The Company and its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.
(j) Intellectual Property. Schedule 3(j) attached hereto sets forth a
complete and accurate listing of the Company's and each of its Subsidiaries'
patents, patent applications, provisional patents, trademarks, service marks,
trade names, trademark registrations, service mark registrations, copyrights,
licenses, formulae, mask works, customer lists, internet domain names, know-how
and other intellectual property, including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems, procedures
or registrations or applications relating to the same (collectively,
"INTELLECTUAL PROPERTY"). The Company owns valid title, free and clear of any
Liens, or possesses the requisite valid and current licenses or rights, free and
clear of any Liens, to use all Intellectual Property in connection with the
conduct its business as now operated (and, except as set forth in Schedule 3(j)
hereto, 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) hereto, 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 has not received any notice of infringement of, or
conflict with, the asserted rights of others with respect to the Intellectual
Property. 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
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party to any contract or agreement which has or is reasonably expected to have a
Material Adverse Effect.
(l) Tax Matters. Except as set forth on Schedule 3(l) hereto, 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 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) hereto, the Company has
not received notice that any of its tax returns is presently being audited by
any taxing authority.
(m) Certain Transactions. Except as set forth on Schedule 3(m)
attached hereto or in the SEC Documents, there are no loans, leases, royalty
agreements or other transactions between: (i) the Company or any of its
Subsidiaries or any of their respective customers or suppliers, and (ii) any
officer, employee, consultant or director of the Company or any person owning
five percent (5%) or more of the capital stock of the Company or five percent
(5%) or more of the ownership interests of the Company or any of its
Subsidiaries or any member of the immediate family of such officer, employee,
consultant, director, stockholder or owner or any corporation or other entity
controlled by such officer, employee, consultant, director, stockholder or
owner, or a member of the immediate family of such officer, employee,
consultant, director, stockholder or owner.
(n) Disclosure. All information relating to or concerning the Company
or any of its Subsidiaries, officers, directors, employees, customers or clients
(including, without limitation, all information regarding the Company's internal
financial accounting controls and procedures): (i) set forth in this Agreement
or any other Transaction Document and/or (ii) as disclosed in any SEC Document
or exhibit or certification thereto and/or (iii) as provided to the Purchasers
pursuant to Section 2(d) hereof, 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.
(o) No General Solicitation. Neither the Company nor any person
participating on the Company's behalf in the transactions contemplated hereby
has conducted any "general solicitation," as such term is defined in Regulation
D promulgated under the 1933 Act, with respect to any of the Securities being
offered hereby.
(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
11
1933 Act of the issuance of the Securities to the Purchasers. The issuance of
the Securities to the Purchasers will not be integrated with any other issuance
of the Company's securities (past, current or future) for purposes of any
stockholder approval provisions applicable to the Company or its securities.
(q) No Brokers. Except as set forth in Schedule 3(q) hereto, 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, 2004, 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) ERISA. Neither the Company nor any of its Subsidiaries has made or
currently makes any contributions to any employee pension benefit plan for its
employees which plan is subject to the Employee Retirement Income Security Act
of l974, as amended from time to time ("ERISA").
(t) Title to Property. The Company and its Subsidiaries hold no title
in fee simple to any real property. The Company and its Subsidiaries hold 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, except such as are described on Schedule 3(t) attached hereto. Any
real property and facilities held under lease by the Company and its
Subsidiaries are held by them under valid, subsisting and enforceable leases.
(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 Purchaser true and correct copies of
all policies relating to directors' and officers' liability coverage, errors and
omissions coverage, and commercial general liability coverage.
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(v) Internal Accounting Controls. The Company and has not received,
orally or in writing, any adverse notification (including any "management
letters") from its auditors relating to the Company's internal financial
controls and procedures.
(w) Books and Records. The books of account, ledgers, order books,
records and documents of the Company and its subsidiaries accurately and
completely reflect all material information relating to the business of the
Company and its Subsidiaries, the location and collection of their respective
assets, and the nature of all transactions giving rise to the obligations or
accounts receivable of the Company or any of its Subsidiaries.
(x) FCPA Matters. 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 or her actions for, or
on behalf of, the Company: (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity, (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds, (iii)
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended, or (iv) made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
governmental or private official or person.
(y) Seniority of Notes. Upon issuance, the Notes will rank senior to
any current Indebtedness of the Company. The Company currently has no senior or
secured Indebtedness outstanding. As used herein, the term "INDEBTEDNESS" means:
(i) all obligations for borrowed money, (b) all obligations evidenced by bonds,
debentures, notes, or other similar instruments and all reimbursement or other
obligations in respect of letters of credit or other financial products, (c) all
payment obligations (other than trade payables incurred in the ordinary course
of business
(z) Assumptions or Guaranties of Indebtedness of Other Persons. Except
as set forth on Schedule 3(z) attached hereto, neither the Company nor any of
its Subsidiaries has assumed, guaranteed, endorsed, or otherwise become directly
or contingently liable on, any Indebtedness or any other agreement of any other
person.
(aa) Investments in Other Persons. Except as set forth in Schedule
3(z) attached hereto, neither the Company nor any of its Subsidiaries has made
any loan or advance to any person which is outstanding, nor is it committed or
obligated to make any such loan or advance, nor does the Company or any of its
Subsidiaries own any capital stock, assets compromising the business of,
obligations of, or any equity, ownership or other interest in, any person.
(bb) 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.
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4. COVENANTS. In addition to the other agreements and covenants set forth
herein, the applicable parties hereto hereby covenant as follows:
(a) Stop Orders. The Company will advise each Purchaser and Maxim
Group LLC ("MAXIM") promptly after it receives notice of issuance by the SEC,
any state securities commission or any other regulatory authority of any stop
order or of any order preventing or suspending any offering of the Securities,
or of the suspension of the qualification of the Common Stock of the Company for
offering or sale in any jurisdiction, or the initiation of any proceeding for
any such purpose.
(b) Form D; Blue Sky Laws. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Purchaser 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 Purchasers at
the applicable closing pursuant to this Agreement under applicable securities or
"blue sky" laws of the states of the United States (or to obtain an exemption
from such qualification), and shall provide evidence of any such action so taken
to each Purchaser and to Maxim on or prior to the Closing Date.
(c) Reporting Status. So long as any Purchaser beneficially owns any
of the Securities, the Company shall use its best efforts 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. Following the consummation by the Company of any
underwritten public offering of its securities occurring after the date hereof,
the Company shall 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, if any, for the use of Form S-3. The Company shall issue a press
release and file a Form 8-K describing the materials terms of the transaction
contemplated hereby as soon as practicable following the Closing Date but in no
event more than three (3) business days of the Closing Date, which press release
shall be subject to prior review by the Purchasers and Maxim. The Company agrees
that such press release shall not disclose the name of the Purchasers unless
expressly consented to in writing by the Purchasers or unless required by
applicable law or regulation, and then only to the extent of such requirement.
(d) Use of Proceeds. The Company shall use the proceeds from the sale
of the Notes and the Warrants in the manner set forth in Schedule 4(d) attached
hereto and made a part hereof and shall not, directly or indirectly, without the
prior written consent of Maxim, use such proceeds for any loan to or investment
in any other corporation, partnership, enterprise or other person, including any
director or officer of the Company (except in connection with its currently
existing direct or indirect Subsidiaries).
(e) Expenses. At the Closing, the Company shall reimburse Purchasers
and Maxim for reasonable, out-of-pocket expenses incurred by them in connection
with the negotiation, preparation, execution, delivery and performance of the
Transaction Documents, including, without limitation, reasonable attorneys' fees
and expenses and transfer agent fees, and shall also pay to Maxim the
14
commissions or other compensation due and owing to Maxim as set forth on
Schedule 4(e) hereto. The Company shall pay these fees directly out of the
proceeds received at the Closing.
(f) Authorization and Reservation of Shares. The Company shall at all
times have authorized, and reserved for the purpose of issuance, a sufficient
number of shares of Common Stock to provide for the full conversion or exercise
of the outstanding Notes and Warrants and issuance of the Conversion Shares and
Warrant Shares in connection therewith (based on the Conversion Price of the
Notes or Exercise Price of the Warrants in effect from time to time) and as
otherwise required by the Notes (collectively, the "RESERVED AMOUNT"). The
Company shall not reduce the number of shares of Common Stock reserved for
issuance upon conversion of Notes and exercise of the Warrants. 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(f), 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 shares of the Company's officer's and directors
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. The
Company shall use its best efforts to obtain such stockholder approval within
thirty (30) days following the date on which the number of Reserved Amount
exceeds the Authorized and Reserved Shares.
(g) Corporate Existence. So long as a Purchaser beneficially owns any
Notes or Warrants, the Company shall maintain its corporate existence and shall
not sell all or substantially all of the Company's assets, except in the event
of a merger or consolidation or sale of all or substantially all of the
Company's assets, where the surviving or successor entity in such transaction:
(i) assumes the Company's obligations hereunder and under the agreements and
instruments entered into in connection herewith and (ii) is a publicly traded
corporation whose Common Stock is listed for trading on the OTCBB, Nasdaq
National Market, Nasdaq SmallCap Market, New York Stock Exchange or American
Stock Exchange.
(h) Sarbanes-Oxley Matters. When required to do so, the Company will
comply with any and all applicable requirements of the Sarbanes-Oxley Act of
2002 that are effective for the Company, and any and all applicable rules and
regulations promulgated by the SEC thereunder. The Company shall implement such
programs and shall take such steps reasonably necessary to provide for its
future compliance (not later than the relevant statutory and regulatory deadline
therefor) with all provisions of Section 404 of the Sarbanes-Oxley Act that
shall become applicable to the Company.
(i) Accounting Changes. Make, or permit any Subsidiary to make, any
change in their accounting treatment or financial reporting practices except as
required or permitted by generally accepted accounting principles in effect from
time to time
(j) ERISA. (i) Terminate any plan ("PLAN") of a type described in
Section 402l(a) of ERISA in respect of which the Company is an "employer" as
defined in Section 3(5) of ERISA so as to result in any material liability to
the Pension Benefit Guaranty Corporation (the "PBGC") established pursuant to
15
Subtitle A of Title IV of ERISA; (ii) engage in or permit any person to engage
in any "prohibited transaction" (as defined in Section 406 of ERISA or Section
4975 of the Internal Revenue Code of 1954, as amended) involving any Plan which
would subject the Company to any material tax, penalty or other liability; (iii)
incur or suffer to exist any material "accumulated funding deficiency" (as
defined in Section 302 of ERISA), whether or not waived, involving any Plan; or
(iv) allow or suffer to exist any event or condition, which presents a material
risk of incurring a material liability to the PBGC by reason of termination of
any Plan.
(k) Indebtedness. For so long as the Notes remain outstanding and
unpaid, without the prior written approval of a majority in interest of the
Purchasers, the Company and each of its Subsidiaries will not: (i) incur any
Indebtedness (other than purchase money indebtedness and capitalized leases
incurred in the ordinary course of business not to exceed $500,000 in the
aggregate at any one time outstanding) or (ii) (A) prepay any Indebtedness, or
(B) enter into or modify any agreement as a result of which the terms of payment
of any Indebtedness are amended or modified in a manner which would accelerate
its payment.
(l) Redemptions and Dividends. For so long as the Notes remain
outstanding and unpaid, or any other amount is owing to any Purchaser under any
Transaction Document, without the prior written approval of a majority in
interest of the Purchasers, the Company shall not repurchase, redeem, or declare
or pay any cash dividend or distribution on, any shares of capital stock of the
Company.
(m) No Integration. The Company shall not make any offers or sales of
any security (other than the Securities) under circumstances that would require
registration of the Securities being offered or sold hereunder under the 1933
Act or cause the offering of the Securities to be integrated with any other
offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities.
(n) Insurance. Subsequent to the Closing, each of the Company and its
Subsidiaries will keep their respective assets which are of an insurable
character insured by financially sound and reputable institutional insurers
against loss or damage by fire, explosion and other risks customarily insured
against by companies in similar business similarly situated as the Company and
its Subsidiaries, and the Company and its Subsidiaries will maintain, with
financially sound and reputable institutional insurers, insurance against other
hazards and risks and liability to persons and property to the extent and in the
manner which the Company reasonably believes is customary for companies in
similar business similarly situated as the Company and its Subsidiaries.
(o) Key Man Insurance. For so long as any Purchaser holds any of the
Securities, the Company shall maintain in full force and effect its currently
held "key man" life insurance (with the Company as sole beneficiary) on the life
of James D. Burchetta and shall not reduce the amount of such insurance, change
the beneficiary thereof or make any other material changes thereto.
(p) Capital Expenditures; Capitalized Leases. Expend in the aggregate
for the Company and all its Subsidiaries in excess of $1,000,000 in any fiscal
year for Capital Expenditures (as defined below) including payments made on
16
account of Capitalized Leases (as defined below). For purposes of the foregoing,
Capital Expenditures shall include payments made on account of any deferred
purchase price or on account of any indebtedness incurred to finance any such
purchase price. "CAPITAL EXPENDITURES" shall mean for any period, the aggregate
amount of all payments made by any Person directly or indirectly for the purpose
of acquiring, constructing or maintaining fixed assets, real property or
equipment which, in accordance with generally accepted accounting principles,
would be added as a debit to the fixed asset account of the Company or any
Subsidiary, including, without limitation, all amounts paid or payable with
respect to Capitalized Lease Obligations and interest which are required to be
capitalized in accordance with generally accepted accounting principles.
"CAPITALIZED LEASE" shall mean any lease the obligations to pay rent or other
amounts under which constitute Capitalized Lease Obligations. "CAPITALIZED LEASE
OBLIGATIONS" shall mean as to the Company or any Subsidiary, the obligations to
pay rent or other amounts under a lease of (or other agreement conveying the
right to use) real and/or personal property which obligations are required to be
classified and accounted for as a capital lease on a balance sheet of the
Company or any Subsidiary under generally accepted accounting principles and,
for purposes of the Notes, the amount of such obligations shall be the
capitalized amount thereof, determined in accordance with generally accepted
accounting principles.
(q) Lease Payments. Expend in the aggregate for the Company and its
Subsidiaries in excess of $500,000 in any fiscal year for the lease, rental or
hire of real or personal property pursuant to any rental agreement therefor,
whether an operating lease or otherwise, other than with respect to Capitalized
Leases.
(r) Nature of Business. Materially alter the nature of the Company's
business or engage in any business other than the business engaged in or
proposed to be engaged in on the date of this Agreement.
(s) Intellectual Property. Each of the Company and each of its
Subsidiaries shall maintain in full force and effect its existence, rights and
franchises and all licenses and other rights to use Intellectual Property owned
or possessed by it and reasonably deemed to be necessary to the conduct of its
business.
(t) Properties. Each of the Company and each of its Subsidiaries will
keep its owned or leased properties and other assets in good repair, working
order and condition, reasonable wear and tear excepted, and from time to time
make all needful and proper repairs, renewals, replacements, additions and
improvements thereto; and each of the Company and each of its Subsidiaries will
at all times comply with each provision of all leases to which it is a party or
under which it occupies property if the breach of such provision could, either
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(u) Taxes. Duly pay and discharge all taxes or other claims, which
might become a lien upon any of its property except to the extent that any
thereof are being in good faith appropriately contested with adequate reserves
provided therefor.
(v) Notice of Litigation. Promptly notify the Purchasers in writing,
with a reasonably detailed description thereof, of any litigation, legal
proceeding or dispute, other than disputes in the ordinary course of business
17
or, whether or not in the ordinary course of business, involving amounts in
excess of Fifty Thousand ($50,000.00) Dollars, affecting either the Company or
any Subsidiary, whether or not fully covered by insurance, and regardless of the
subject matter thereof.
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
instructions to its transfer agent to issue certificates, registered in the name
of each Purchaser or its nominee, for the Conversion Shares and Warrant Shares
in such amounts as specified from time to time by each Purchaser to the Company
upon conversion of the Notes or exercise of the Warrants in accordance with the
terms thereof (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). Prior to
registration of the Conversion Shares and Warrant Shares under the 1933 Act or
the date on which the Conversion Shares and Warrant Shares may be sold pursuant
to Rule 144 without any restriction as to the number of Securities as of a
particular date that can then be immediately sold, all such certificates shall
bear the restrictive legend specified in Section 2(g) of this Agreement. The
Company warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof (in the case of the Conversion Shares and
Warrant Shares, prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act or the date on which the Conversion Shares and Warrant
Shares may be sold pursuant to Rule 144 without any restriction as to the number
of Securities as of a particular date that can then be immediately sold), will
be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Registration Rights Agreement.
Nothing in this Section shall affect in any way the Purchaser'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
Purchaser provides the Company, at the cost of the Company, with a customary
opinion of counsel, that shall be in form, substance and scope reasonably
acceptable to such counsel, to the effect that a public sale or transfer of such
Securities may be made without registration under the 1933 Act and such sale or
transfer is effected, 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 Purchaser. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Purchasers, by vitiating the intent and purpose of the
transactions contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5 may be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section, that the Purchasers shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate transfer, without the necessity
of showing economic loss and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the
Company hereunder to issue and sell the Notes and Warrants to a Purchaser 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:
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(a) The applicable Purchaser shall have executed this Agreement and
the Registration Rights Agreement, and delivered the same to the Company.
(b) The applicable Purchaser shall have delivered the Purchase Price
in accordance with Section 1(b) above.
(c) The representations and warranties of the applicable Purchaser
shall be true and correct in all material respects, and the applicable Purchaser
shall have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the applicable Purchaser at or prior to the
Closing Date.
(d) No litigation, statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by or in any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
7. CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE. The obligation of
each Purchaser hereunder to purchase the Notes and Warrants at the Closing is
subject to the satisfaction, at or before the Closing Date of each of the
following conditions, provided that these conditions are for such Purchaser's
sole benefit and may be waived by such Purchaser 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 Purchaser.
(b) The Company shall have delivered to such Purchaser duly executed
Notes (in such denominations as the Purchaser shall request) and Warrants in
accordance with Section 1(b) above.
(c) The Irrevocable Transfer Agent Instructions, in form and substance
satisfactory to a majority-in-interest of the Purchasers, shall have been
delivered to and acknowledged in writing by the Company's Transfer Agent.
(d) The representations and warranties of the Company shall be true
and correct in all material respects, 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 Purchaser 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 Purchaser 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.
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(f) No event shall have occurred which would reasonably be expected to
have a Material Adverse Effect on the Company.
(g) The Purchaser shall have received the favorable opinion of the
Company's counsel, dated as of the Closing Date, in the same form as Exhibit E
attached hereto.
8. GOVERNING LAW; JURISDICTION; FEES; WAIVER OF JURY TRIAL.
(a) THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES
OF CONFLICTS OF LAW.
(b) THE PARTIES HERETO HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION OF
THE NEW YORK STATE OR UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK
WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT, ANY OTHER TRANSACTION
DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. THE PARTIES
IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF
SUCH SUIT OR PROCEEDING. THE PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON
A PARTY MAILED BY FIRST CLASS MAIL IN ACCORDANCE WITH SECTION 9(e) HEREOF SHALL
BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY
SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL AFFECT A PARTY'S RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. THE 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.
(c) THE PARTY OR PARTIES WHICH DO NOT PREVAIL IN ANY DISPUTE ARISING
UNDER THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT PRIOR TO THE CONSUMMATION
BY THE COMPANY OF ANY UNDERWRITTEN PUBLIC OFFERING OF ITS SECURITIES SHALL BE
RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING ATTORNEYS' FEES, INCURRED BY
THE PREVAILING PARTY IN CONNECTION WITH SUCH DISPUTE.
(d) EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT, ANY
TRANSACTION DOCUMENT OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY.
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9. MISCELLANEOUS.
(a) Counterparts; Signatures by Facsimile. This Agreement may be
executed in one or more counterparts (with the Purchasers each executing the
counterpart in the form of Annex A hereto. Each of such counterparts shall be
deemed an original, and all of which shall, when taken together, 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 (including in the manner described above), 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.
(b) 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.
(c) 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.
(d) Entire Agreement; Amendments. This Agreement, the other
Transaction Documents and the instruments, documents and schedules 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 any Purchaser 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 Company and a majority in interest of the Purchasers.
(e) 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 transmission 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 transmission, with
printed confirmation of receipt, in each case addressed to a party. The
addresses for such communications shall be:
If to the Company:
Debt Resolve, Inc.
707 Westchester Avenue, Lobby Level
White Plains, NY 10604
Attention: James D. Burchetta
Telephone: (914) 949-5500
Facsimile: (914) 428-3044
21
With a copy to:
Greenberg Traurig LLP
MetLife Building
200 Park Avenue, 15th Floor
New York, NY 10166
Attention: Spencer G. Feldman, Esq.
Telephone: (212) 801-9200
Facsimile: (212) 801-6400
If to a Purchaser: To the address and fax number set forth immediately
below such Purchaser's name on the counterpart signature
pages hereto.
With copy to:
Ellenoff Grossman & Schole LLP
370 Lexington Avenue
New York, NY 10017
Attention: Douglas S. Ellenoff, Esq.
Telephone: (212) 370-1300
Facsimile: (212) 370-7889
Each party shall provide notice to the other party of any change in
address, telephone or facsimile number.
(f) 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 Purchaser shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, but subject to the provisions of Section 2(f)
hereof, any Purchaser may, without the consent of the Company, assign its rights
hereunder to any person that purchases Securities in a private transaction from
a Purchaser or to any of its "affiliates," as that term is defined under the
1934 Act.
(g) Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and, except for Maxim, who is specifically agreed to be and acknowledge
by each party as a third party beneficiary hereof, is not for the benefit of,
nor may any provision hereof be enforced by, any other person.
(h) Survival; Indemnification; Limitation on Liability.
(i) The representations and warranties of the Purchasers and the
Company set forth in Sections 2 and 3 hereof shall survive for 12 months
following the Closing Date notwithstanding any due diligence investigation
conducted by or on behalf of the Purchasers or the Company, as applicable. The
agreements and covenants of the Company set forth in Section 4 shall survive for
so long as any Purchaser beneficially owns any Securities.
(ii) The Company agrees to indemnify and hold harmless each of
the Purchasers and all of their respective officers, directors, employees,
agents and representative from and against any and all claims, costs, expenses,
liabilities, obligations, losses or damages (including reasonable legal fees) of
any nature ("LOSSES"), incurred by or imposed upon any such party arising as a
22
result of or related to any actual or alleged breach by the Company of any of
its representations, warranties and covenants set forth in Sections 3 and 4
hereof or any of its covenants, agreements and obligations under this Agreement
or any other Transaction Document.
(iii) Each Purchaser agrees, severally but not jointly, to
indemnify and hold harmless the Company and its officers, directors, employees
and agents for Losses arising arising as a result of or related to any actual or
alleged breach any breach by such Purchaser of any of its representations or
warranties set forth in Section 2 hereof or any of its covenants, agreements and
obligations under this Agreement or any other Transaction Document.
(iv) Notwithstanding the foregoing: (A) an indemnifying party
shall not be liable for any claim for indemnification or Loss associated
therewith unless and until the aggregate amount of indemnifiable Losses which
may be recovered from the indemnifying party equals or exceeds $50,000, after
which the indemnifying party shall be liable, subject to the provisions hereof,
for all Losses, including the initial $50,000 of Losses, and (ii) in no event
shall the aggregate amount paid by an indemnifying party pursuant to this
Section 9(h) exceed $4,500,000.
(i) Publicity. The Company, Maxim and each of the Purchasers 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 Maxim or the
Purchasers, 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 Maxim 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).
(j) Further Assurances. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
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.
(k) 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.
[Signature Page Follows]
23
IN WITNESS WHEREOF, the undersigned Purchasers and the Company have caused
this Securities Purchase Agreement to be duly executed as of the date first
above written.
DEBT RESOLVE, INC.
By: /s/ James D. Burchetta
---------------------------------
Name: James D. Burchetta
Title: Chief Executive Officer
PURCHASERS:
The Purchasers executing the
Signature Page in the form
attached hereto as Annex A and
delivering the same to the
Company or its agents shall be
deemed to have executed this
Agreement and agreed to the terms
hereof.
24
ANNEX A
SECURITIES PURCHASE AGREEMENT
PURCHASER COUNTERPART SIGNATURE PAGE
The undersigned, desiring to: (i) enter into that certain Securities
Purchase Agreement, dated June 28, 2005 (the "Agreement"), between the
undersigned, Debt Resolve, Inc., a Delaware corporation (the "COMPANY"), and the
other parties thereto, in or substantially in the form furnished to the
undersigned and (ii) purchase the securities of the Company appearing next to
the undersigned's name on Schedule A to the Agreement, hereby agrees to purchase
such securities from the Company as of the Closing and further agrees to join
the Agreement as a party thereto, with all the rights and privileges
appertaining thereto, and to be bound in all respects by the terms and
conditions thereof.
IN WITNESS WHEREOF, the undersigned has executed the Agreement as of June
28, 2005.
PURCHASER:
NAME, ADDRESS, FAX NO. AND SOCIAL
SECURITY NO./EIN OF PURCHASER:
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
Fax No.: _____________________________
Soc. Sec. No./EIN:____________________
IF A PARTNERSHIP, CORPORATION, TRUST
OR OTHER BUSINESS ENTITY:
By:
-----------------------------------
Name:
Title:
IF AN INDIVIDUAL:
--------------------------------------
Signature