SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of
October 4, 2010, is by and among Imaging3, Inc., a California corporation with
headquarters located at 3200 W. Valhalla Drive, Burbank, California 91505 (the
"COMPANY"), and each of the investors listed on the Schedule of Buyers attached
hereto (individually, a "BUYER" and collectively, the "BUYERS").
RECITALS
A. The Company and each Buyer is executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) of the Securities Act of 1933, as amended (the "1933 ACT"), and
Rule 506 of Regulation D ("REGULATION D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the 1933 Act.
B. Each Buyer wishes to purchase, and the Company wishes to sell, upon
the terms and conditions stated in this Agreement, (i) the aggregate number of
shares of common stock, no par value, of the Company (the "COMMON STOCK"), set
forth opposite such Buyer's name in column (3) on the Schedule of Buyers (which
aggregate amount for all Buyers shall be 4,587,157 shares of Common Stock and
shall collectively be referred to herein as the "COMMON SHARES"), (ii) a warrant
to initially acquire up to the aggregate number of shares of Common Stock set
forth opposite such Buyer's name in column (4) on the Schedule of Buyers, in the
form attached hereto as EXHIBIT A (the "SERIES A WARRANTS") (as exercised,
collectively, the "SERIES A WARRANT SHARES"), (iii) a warrant to initially
acquire up to the aggregate number of shares of Common Stock set forth opposite
such Buyer's name in column (5) on the Schedule of Buyers, in the form attached
hereto as EXHIBIT B (the "SERIES B WARRANTS") (as exercised, collectively, the
"SERIES B WARRANT SHARES") and (iv) a warrant to initially acquire up to the
aggregate number of shares of Common Stock set forth opposite such Buyer's name
in column (6) on the Schedule of Buyers, in the form attached hereto as EXHIBIT
C (the "SERIES C WARRANTS") (as exercised, collectively, the "SERIES C WARRANT
SHARES"). The Series A Warrants, the Series B Warrants and the Series C Warrants
are collectively referred to herein as the "WARRANTS." The Series A Warrant
Shares, the Series B Warrant Shares and the Series C Warrant Shares are
collectively referred to herein as the "WARRANT SHARES."
C. At the Closing, the parties hereto shall execute and deliver a
Registration Rights Agreement, in the form attached hereto as EXHIBIT D (the
"REGISTRATION RIGHTS AGREEMENT"), pursuant to which the Company has agreed to
provide certain registration rights with respect to the Registrable Securities
(as defined in the Registration Rights Agreement), under the 1933 Act and the
rules and regulations promulgated thereunder, and applicable state securities
laws.
D. The Common Shares, the Warrants and the Warrant Shares are
collectively referred to herein as the "SECURITIES."
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
Buyer hereby agree as follows:
1. PURCHASE AND SALE OF COMMON SHARES AND WARRANTS.
- --------------------------------------------------
(a) COMMON SHARES AND WARRANTS. Subject to the satisfaction (or waiver)
of the conditions set forth in Sections 6 and 7 below, the Company shall issue
and sell to each Buyer, and each Buyer severally, but not jointly, shall
purchase from the Company on the Closing Date (as defined below), the aggregate
number of Common Shares, as is set forth opposite such Buyer's name in column
(3) on the Schedule of Buyers, along with (i) Series A Warrants to initially
acquire up to the aggregate number of Series A Warrant Shares as is set forth
opposite such Buyer's name in column (4) on the Schedule of Buyers, (ii) Series
B Warrants to initially acquire up to the aggregate number of Series B Warrant
Shares as is set forth opposite such Buyer's name in column (5) on the Schedule
of Buyers and (iii) Series C Warrants to initially acquire up to the aggregate
number of Series C Warrant Shares as is set forth opposite such Buyer's name in
column (6) on the Schedule of Buyers.
(b) CLOSING. The closing (the "CLOSING") of the purchase of the Common
Shares and the Warrants by the Buyers shall occur at the offices of Greenberg
Traurig, LLP, 77 W. Wacker Drive, Suite 3100, Chicago, Illinois 60601. The date
and time of the Closing (the "CLOSING DATE") shall be 10:00 a.m., New York time,
on the first (1st) Business Day on which the conditions to the Closing set forth
in Sections 6 and 7 below are satisfied or waived (or such later date as is
mutually agreed to by the Company and each Buyer). As used herein "BUSINESS DAY"
means any day other than a Saturday, Sunday or other day on which commercial
banks in New York, New York are authorized or required by law to remain closed.
(c) PURCHASE PRICE. The aggregate purchase price for the Common Shares
and the Warrants to be purchased by each Buyer (the "PURCHASE PRICE") shall be
the amount set forth opposite such Buyer's name in column (7) on the Schedule of
Buyers.
(d) PAYMENT OF PURCHASE PRICE; DELIVERIES. On the Closing Date, (i)
each Buyer shall pay its respective Purchase Price to the Company for the Common
Shares and the Warrants to be issued and sold to such Buyer at the Closing, by
wire transfer of immediately available funds in accordance with the Company's
written wire instructions (less, in the case of Cranshire (as defined below),
the amounts withheld pursuant to Section 4(g)) and (ii) the Company shall
deliver to each Buyer (A) one or more stock certificates, free and clear of all
restrictive and other legends (except as expressly provided in Section 5(c)
hereof), evidencing the number of Common Shares such Buyer is purchasing as is
set forth opposite such Buyer's name in column (3) of the Schedule of Buyers,
and (B) (i) Series A Warrants to initially acquire up to the aggregate number of
Series A Warrant Shares as is set forth opposite such Buyer's name in column (4)
on the Schedule of Buyers, (ii) Series B Warrants to initially acquire up to the
aggregate number of Series B Warrant Shares as is set forth opposite such
Buyer's name in column (5) on the Schedule of Buyers and (iii) Series C Warrants
to initially acquire up to the aggregate number of Series C Warrant Shares as is
set forth opposite such Buyer's name in column (6) on the Schedule of Buyers, in
all cases, duly executed on behalf of the Company and registered in the name of
such Buyer or its designee.
-2-
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
- -----------------------------------------
Each Buyer, severally and not jointly, represents and warrants to the
Company with respect to only itself that:
(a) ORGANIZATION; AUTHORITY. Such Buyer is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with the requisite power and authority to enter into and to
consummate the transactions contemplated by the Transaction Documents (as
defined below) to which it is a party and otherwise to carry out its obligations
hereunder and thereunder.
(b) NO PUBLIC SALE OR DISTRIBUTION. Such Buyer (i) is acquiring its
Common Shares and Warrants and (ii) upon exercise of its Warrants, will acquire
the Warrant Shares issuable upon exercise thereof, in each case, for its own
account and not with a view towards, or for resale in connection with, the
public sale or distribution thereof in violation of applicable securities laws,
except pursuant to sales registered or exempted under the 1933 Act; provided,
however, by making the representations herein, such Buyer does not agree, or
make any representation or warranty, 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. Such Buyer is acquiring the
Securities hereunder in the ordinary course of its business. Such Buyer does not
presently have any agreement or understanding, directly or indirectly, with any
Person to distribute any of the Securities in violation of applicable securities
laws.
(c) ACCREDITED INVESTOR STATUS. Such Buyer is an "accredited investor"
as that term is defined in Rule 501(a) of Regulation D.
(d) RELIANCE ON EXEMPTIONS. Such Buyer understands that the Securities
are being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and such
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.
(e) INFORMATION. Such Buyer 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 such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Such Buyer
understands that its investment in the Securities involves a high degree of
risk. Such Buyer has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with respect to its
acquisition of the Securities.
(f) NO GOVERNMENTAL REVIEW. Such Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
-3-
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
(g) TRANSFER OR RESALE. Such Buyer understands that except as provided
in the Registration Rights Agreement and Section 4(h) hereof: (i) the Securities
have not been and are not being registered under the 1933 Act or any state
securities laws, and may not be offered for sale, sold, assigned or transferred
unless (A) subsequently registered thereunder, (B) such Buyer shall have
delivered to the Company (if requested by the Company) an opinion of counsel to
such Buyer, in a form reasonably acceptable to the Company, to the effect that
such Securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, or (C) such Buyer
provides the Company with reasonable assurance that such Securities can be sold,
assigned or transferred pursuant to Rule 144 or Rule 144A promulgated under the
1933 Act (or a successor rule thereto) (collectively, "RULE 144"); (ii) any sale
of the Securities made in reliance on Rule 144 may be made only in accordance
with the terms of Rule 144, and further, if Rule 144 is not applicable, any
resale of the Securities under circumstances in which the seller (or the Person
(as defined below) 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 promulgated thereunder; and (iii) neither the Company nor any other Person
is under any obligation to register the Securities under the 1933 Act or any
state securities laws or to comply with the terms and conditions of any
exemption thereunder.
(h) VALIDITY; ENFORCEMENT. This Agreement has been duly and validly
authorized, executed and delivered on behalf of such Buyer and constitutes the
legal, valid and binding obligations of such Buyer enforceable against such
Buyer in accordance with its terms, except as such enforceability may be limited
by general principles of equity or to applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors' rights and
remedies.
(i) NO CONFLICTS. The execution, delivery and performance by such Buyer
of this Agreement and the consummation by such Buyer of the transactions
contemplated hereby will not (i) result in a violation of the organizational
documents of such Buyer, (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which such Buyer is a
party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws) applicable to
such Buyer, except in the case of clauses (ii) and (iii) above, for such
conflicts, defaults, rights or violations which would not, individually or in
the aggregate, reasonably be expected to have a material adverse effect on the
ability of such Buyer to perform its obligations hereunder.
(j) CERTAIN TRADING ACTIVITIES. Such Buyer has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Buyer, engaged in any transactions in the securities of
the Company (including, without limitation, any Short Sales (as defined below)
involving the Company's securities) during the period commencing as of the time
that such Buyer was first contacted by the Placement Agent (as defined below)
-4-
regarding the specific investment in the Company contemplated by this Agreement
and ending immediately prior to the execution of this Agreement by such Buyer.
"SHORT SALES" means all "short sales" as defined in Rule 200 promulgated under
Regulation SHO under the Securities Exchange Act of 1934, as amended (the "1934
ACT") (but shall not be deemed to include the location and/or reservation of
borrowable shares of Common Stock).
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
- ------------------------------------------------
The Company represents and warrants to each of the Buyers that:
(a) ORGANIZATION AND QUALIFICATION. Each of the Company and each of its
Subsidiaries are entities duly organized and validly existing and in good
standing under the laws of the jurisdiction in which they are formed, and have
the requisite power and authorization to own their properties and to carry on
their business as now being conducted and as presently proposed to be conducted.
Each of the Company and each of its Subsidiaries is duly qualified as a foreign
entity to do business and is 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 (i) the business, properties, assets, liabilities, operations
(including results thereof), condition (financial or otherwise) or prospects of
the Company or any Subsidiary, either individually or taken as a whole, (ii) the
transactions contemplated hereby or in any of the other Transaction Documents or
(iii) the authority or ability of the Company to perform any of its obligations
under any of the Transaction Documents. Other than the Persons (as defined
below) set forth on Schedule 3(a), the Company has no Subsidiaries.
"SUBSIDIARIES" means any Person in which the Company, directly or indirectly,
(I) owns any of the outstanding capital stock or holds any equity or similar
interest of such Person or (II) controls or operates all or any part of the
business, operations or administration of such Person, and each of the
foregoing, is individually referred to herein as a "SUBSIDIARY."
(b) AUTHORIZATION; ENFORCEMENT; VALIDITY. The Company has the requisite
power and authority to enter into and perform its obligations under this
Agreement and the other Transaction Documents and to issue the Securities in
accordance with the terms hereof and thereof. 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 Common Shares, the issuance
of the Warrants and the reservation for issuance and issuance of the Warrant
Shares issuable upon exercise of the Warrants) have been duly authorized by the
Company's board of directors and (other than the filing with the SEC of one or
more Registration Statements in accordance with the requirements of the
Registration Rights Agreement, a Form D with the SEC and any other filings as
may be required by any state securities agencies) no further filing, consent or
authorization is required by the Company, its board of directors or its
stockholders or other governing body. This Agreement has been, and the other
Transaction Documents will be prior to the Closing, duly executed and delivered
by the Company, and each constitutes the legal, valid and binding obligations of
the Company, enforceable against the Company in accordance with its respective
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
-5-
of applicable creditors' rights and remedies and except as rights to
indemnification and to contribution may be limited by federal or state
securities law. "TRANSACTION DOCUMENTS" means, collectively, this Agreement, the
Warrants, the Registration Rights Agreement, the Irrevocable Transfer Agent
Instructions (as defined below) and each of the other agreements and instruments
entered into or delivered by any of the parties hereto in connection with the
transactions contemplated hereby and thereby, as may be amended from time to
time.
(c) ISSUANCE OF SECURITIES. The issuance of the Common Shares and the
Warrants are duly authorized and, upon issuance in accordance with the terms of
the Transaction Documents, will be validly issued, fully paid and non-assessable
and free from all preemptive or similar rights, taxes, liens, charges and other
encumbrances with respect to the issue thereof. As of the Closing, the Company
shall have reserved from its duly authorized capital stock not less than 133% of
the maximum number of shares of Common Stock issuable upon exercise of the
Warrants (without taking into account any limitations on the exercise of the
Warrants set forth therein). The issuance of the Warrant Shares is duly
authorized, and upon exercise in accordance with the Warrants, the Warrant
Shares, when issued, will be validly issued, fully paid and non-assessable and
free from all preemptive or similar rights, taxes, liens, charges and other
encumbrances with respect to the issue thereof, with the holders being entitled
to all rights accorded to a holder of Common Stock. Subject to the accuracy of
the representations and warranties of the Buyers in this Agreement, the offer
and issuance by the Company of the Securities is exempt from registration under
the 1933 Act.
(d) 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 (including, without limitation, the
issuance of the Common Shares, the Warrants and Warrant Shares and the
reservation for issuance of the Warrant Shares) will not (i) result in a
violation of the Articles of Incorporation (as defined below) (including,
without limitation, any certificates of designation contained therein) or other
organizational documents of the Company or any of its Subsidiaries, any capital
stock of the Company, or Bylaws (as defined below), (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or 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 (iii)
result in a violation of any law, rule, regulation, order, judgment or decree
(including, without limitation, foreign, federal and state securities laws and
regulations and the rules and regulations of the OTC Bulletin Board (the
"PRINCIPAL MARKET")) 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, in the case of clause (ii) or (iii) above, to the extent
such violations that could not reasonably be expected to have a Material Adverse
Effect.
(e) CONSENTS. The Company is not required to obtain any consent from,
authorization or order of, or make any filing or registration with (other than
the filing with the SEC of one or more Registration Statements in accordance
with the requirements of the Registration Rights Agreement, a Form D with the
SEC and any other filings as may be required by any state securities agencies),
any court, governmental agency or any regulatory or self-regulatory agency or
any other Person in order for it to execute, deliver or perform any of its
-6-
obligations under, or contemplated by, the Transaction Documents, in each case,
in accordance with the terms hereof or thereof. All consents, authorizations,
orders, filings and registrations which the Company is required to obtain at or
prior to the Closing have been obtained or effected on or prior to the Closing
Date, and neither the Company nor any of its Subsidiaries are aware of any facts
or circumstances which might prevent the Company from obtaining or effecting any
of the registration, application or filings contemplated by the Transaction
Documents. The Company is not in violation of the requirements of the Principal
Market and has no knowledge of any facts or circumstances which could reasonably
lead to delisting or suspension of the Common Stock in the foreseeable future.
(f) ACKNOWLEDGMENT REGARDING BUYER'S PURCHASE OF SECURITIES. The
Company acknowledges and agrees that each Buyer is acting solely in the capacity
of an arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that no Buyer is (i) an officer
or director of the Company or any of its Subsidiaries, (ii) an "affiliate" (as
defined in Rule 144) of the Company or any of its Subsidiaries or (iii) to its
knowledge, a "beneficial owner" of more than 10% of the shares of Common Stock
(as defined for purposes of Rule 13d-3 of the 1934 Act). The Company further
acknowledges that no Buyer is acting as a financial advisor or fiduciary of the
Company or any of its Subsidiaries (or in any similar capacity) with respect to
the Transaction Documents and the transactions contemplated hereby and thereby,
and any advice given by a Buyer or any of its representatives or agents in
connection with the Transaction Documents and the transactions contemplated
hereby and thereby is merely incidental to such Buyer's purchase of the
Securities. The Company further represents to each Buyer 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.
(g) NO GENERAL SOLICITATION; PLACEMENT AGENT'S FEES. Neither the
Company, nor any of its Subsidiaries or affiliates, nor any Person acting on its
or their 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 Securities. The Company shall be responsible for the payment of any
placement agent's fees, financial advisory fees, or brokers' commissions (other
than for Persons engaged by any Buyer or its investment advisor) relating to or
arising out of the transactions contemplated hereby. Other than Wharton Capital
Partners LTD. (the "PLACEMENT AGENT"), neither the Company nor any of its
Subsidiaries has engaged any placement agent or other agent in connection with
the offer or sale of the Securities.
(h) NO INTEGRATED OFFERING. None of the Company, its Subsidiaries or
any of their affiliates, nor any Person acting on their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
issuance of any of the Securities under the 1933 Act, whether through
integration with prior offerings or otherwise, or cause this offering of the
Securities to require approval of stockholders of the Company under any
applicable stockholder approval provisions, including, without limitation, under
the rules and regulations of any exchange or automated quotation system on which
any of the securities of the Company are listed or designated for quotation.
None of the Company, its Subsidiaries, their affiliates nor any Person acting on
their behalf will take any action or steps that would require registration of
the issuance of any of the Securities under the 1933 Act or cause the offering
of any of the Securities to be integrated with other offerings of securities of
the Company.
-7-
(i) DILUTIVE EFFECT. The Company understands and acknowledges that the
number of Warrant Shares will increase in certain circumstances. The Company
further acknowledges that its obligation to issue the Warrant Shares upon
exercise of the Warrants in accordance with this Agreement 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.
(j) APPLICATION OF TAKEOVER PROTECTIONS; RIGHTS AGREEMENT. The Company
and its board of directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, interested stockholder,
business combination, poison pill (including, without limitation, any
distribution under a rights agreement) or other similar anti-takeover provision
under the Articles of Incorporation, Bylaws or other organizational documents or
the laws of the jurisdiction of its incorporation or otherwise which is or could
become applicable to any Buyer as a result of the transactions contemplated by
this Agreement, including, without limitation, the Company's issuance of the
Securities and any Buyer's ownership of the Securities. The Company and its
board of directors have taken all necessary action, if any, in order to render
inapplicable any stockholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of shares of Common Stock or a change in
control of the Company or any of its Subsidiaries.
(k) SEC DOCUMENTS; FINANCIAL STATEMENTS. During the two (2) years prior
to the date hereof, 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 1934 Act (all of the foregoing filed prior
to the date hereof and all exhibits included therein and financial statements,
notes and schedules thereto and documents incorporated by reference therein
being hereinafter referred to as the "SEC DOCUMENTS"). The Company has delivered
to the Buyers or their respective representatives true, correct and complete
copies of each of the SEC Documents not available on the 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 the
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 as in effect as of the time of filing. Such financial statements
have been prepared in accordance with 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 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 which will not be material, either individually or in the
aggregate). No other information provided by or on behalf of the Company to any
of the Buyers which is not included in the SEC Documents (including, without
-8-
limitation, information referred to in Section 2(e) of this Agreement) contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein not misleading, in the light
of the circumstance under which they are or were made.
(l) ABSENCE OF CERTAIN CHANGES. Since the date of the Company's most
recent audited financial statements contained in a Form 10-K, except as
disclosed in the SEC Documents filed subsequent to such Form 10-K, there has
been no material adverse change and no material adverse development in the
business, assets, liabilities, properties, operations (including results
thereof), condition (financial or otherwise) or prospects of the Company or any
of its Subsidiaries. Since the date of the Company's most recent audited
financial statements contained in a Form 10-K, neither the Company nor any of
its Subsidiaries has (i) declared or paid any dividends, (ii) sold any assets
outside of the ordinary course of business or (iii) made any material capital
expenditures, individually or in the aggregate. Neither the Company nor any of
its Subsidiaries has taken any steps to seek protection pursuant to any law or
statute relating to bankruptcy, insolvency, reorganization, receivership,
liquidation or winding up, nor does the Company or any Subsidiary have any
knowledge or reason to believe that any of their respective creditors intend to
initiate involuntary bankruptcy proceedings or any actual knowledge of any fact
which would reasonably lead a creditor to do so. The Company and its
Subsidiaries, individually and on a consolidated basis, are not as of the date
hereof, and after giving effect to the transactions contemplated hereby to occur
at the Closing, will not be Insolvent (as defined below). For purposes of this
Section 3(l), "INSOLVENT" means, (I) with respect to the Company and its
Subsidiaries, on a consolidated basis, (i) the present fair saleable value of
the Company's and its Subsidiaries' assets is less than the amount required to
pay the Company's and its Subsidiaries' total Indebtedness (as defined below),
(ii) the Company and its Subsidiaries are unable to pay their debts and
liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured or (iii) the Company and its
Subsidiaries intend to incur or believe that they will incur debts that would be
beyond their ability to pay as such debts mature; and (II) with respect to the
Company and each Subsidiary, individually, (i) the present fair saleable value
of the Company's or such Subsidiary's (as the case may be) assets is less than
the amount required to pay its respective total Indebtedness, (ii) the Company
or such Subsidiary (as the case may be) is unable to pay its respective debts
and liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured or (iii) the Company or such Subsidiary
(as the case may be) intends to incur or believes that it will incur debts that
would be beyond its respective ability to pay as such debts mature. Neither the
Company nor any of its Subsidiaries has engaged in any business or in any
transaction, and is not about to engage in any business or in any transaction,
for which the Company's or such Subsidiary's remaining assets constitute
unreasonably small capital.
(m) NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR CIRCUMSTANCES.
No event, liability, development or circumstance has occurred or exists, or is
reasonably expected to occur or exist, with respect to the Company, any of its
Subsidiaries or any of their respective businesses, properties, liabilities,
prospects, operations (including results thereof) or condition (financial or
otherwise) that (i) would be required to be disclosed by the Company under
applicable securities laws on a registration statement on Form S-1 filed with
the SEC relating to an issuance and sale by the Company of its Common Stock and
which has not been publicly announced, (ii) could have a material adverse effect
on any Buyer's investment hereunder or (iii) could have a Material Adverse
Effect.
-9-
(n) CONDUCT OF BUSINESS; REGULATORY PERMITS. Neither the Company nor
any of its Subsidiaries is in violation of any term of or in default under its
Articles of Incorporation, any certificate of designation, preferences or rights
of any other outstanding series of preferred stock of the Company or any of its
Subsidiaries or Bylaws or their organizational charter, certificate of formation
or certificate of incorporation or bylaws, respectively. Neither the Company nor
any of its Subsidiaries is in violation of any judgment, decree or order or any
statute, ordinance, rule or regulation applicable to the Company or any of its
Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct
its business in violation of any of the foregoing, except in all cases for
possible violations which could not, individually or in the aggregate, have a
Material Adverse Effect. Without limiting the generality of the foregoing, the
Company is not in violation of any of the rules, regulations or requirements of
the Principal Market and has no knowledge of any facts or circumstances that
could reasonably lead to delisting or suspension of the Common Stock by the
Principal Market in the foreseeable future. Since January 1, 2008, (i) the
Common Stock has been listed or designated for quotation on the Principal
Market, (ii) trading in the Common Stock has not been suspended by the SEC or
the Principal Market and (iii) the Company has received no communication,
written or oral, from the SEC or the Principal Market regarding the suspension
or delisting of the Common Stock from the Principal Market. The Company and each
of its Subsidiaries possess all certificates, authorizations and permits issued
by the appropriate regulatory authorities necessary to conduct their respective
businesses, except where the failure to possess such certificates,
authorizations or permits would not have, individually or in the aggregate, a
Material Adverse Effect, and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.
(o) FOREIGN CORRUPT PRACTICES. Neither the Company nor any of its
Subsidiaries nor any director, officer, agent, employee or other Person acting
on behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company or any of its Subsidiaries (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 unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or employee.
(p) SARBANES-OXLEY ACT. Except as disclosed in the SEC Documents, the
Company and each Subsidiary is in compliance with all applicable requirements of
the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and all
applicable rules and regulations promulgated by the SEC thereunder that are
effective as of the date hereof.
(q) TRANSACTIONS WITH AFFILIATES. Except as disclosed in the SEC
Documents, none of the officers, directors or employees of the Company or any of
its Subsidiaries is presently a party to any transaction with the Company or any
of its Subsidiaries (other than for ordinary course services as employees,
officers or 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
such officer, director or employee or, to the knowledge of the Company or any of
-10-
its Subsidiaries, any corporation, partnership, trust or other Person in which
any such officer, director, or employee has a substantial interest or is an
employee, officer, director, trustee or partner.
(r) EQUITY CAPITALIZATION. As of the date hereof, the authorized
capital stock of the Company consists of (i) 500,000,000 shares of Common Stock,
of which 375,790,811 are issued and outstanding and no shares are reserved for
issuance pursuant to securities (other than the Common Shares and the Warrants)
exercisable or exchangeable for, or convertible into, shares of Common Stock and
(ii) no shares of preferred stock. No shares of Common Stock are held in
treasury. All of such outstanding shares are duly authorized and have been, or
upon issuance will be, validly issued and are fully paid and non-assessable.
82,776,328 shares of the Company's issued and outstanding Common Stock on the
date hereof are owned by Persons who are "affiliates" (as defined in Rule 405 of
the 1933 Act and calculated based on the assumption that only officers,
directors and holders of at least 10% of the Company's issued and outstanding
Common Stock are "affiliates" without conceding that any such Persons are
"affiliates" for purposes of federal securities laws) of the Company or any of
its Subsidiaries. To the Company's knowledge, except as disclosed in the SEC
Documents, no Person owns 10% or more of the Company's issued and outstanding
shares of Common Stock (calculated based on the assumption that all Convertible
Securities (as defined below), whether or not presently exercisable or
convertible, have been fully exercised or converted (as the case may be) taking
account of any limitations on exercise or conversion (including "blockers")
contained therein without conceding that such identified Person is a 10%
stockholder for purposes of federal securities laws). (i) None of the Company's
or any Subsidiary's capital stock is subject to preemptive rights or any other
similar rights or any liens or encumbrances suffered or permitted by the Company
or any Subsidiary; (ii) there are no outstanding options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any 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 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, or exercisable or
exchangeable for, any capital stock of the Company or any of its Subsidiaries;
(iii) except as disclosed in the SEC Documents, there are no outstanding debt
securities, notes, credit agreements, credit facilities or other agreements,
documents or instruments evidencing Indebtedness of the Company or any of its
Subsidiaries or by which the Company or any of its Subsidiaries is or may become
bound; (iv) there are no financing statements securing obligations in any
amounts filed in connection with the Company or any of its Subsidiaries; (v)
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 pursuant to the Registration Rights Agreement); (vi) there
are no outstanding securities or instruments 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; (vii) there are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Securities; (viii) neither the Company nor any Subsidiary has
any stock appreciation rights or "phantom stock" plans or agreements or any
similar plan or agreement; and (ix) neither the Company nor any of its
Subsidiaries have any liabilities or obligations required to be disclosed in the
-11-
SEC Documents which are not so disclosed in the SEC Documents, other than those
incurred in the ordinary course of the Company's or its Subsidiaries' respective
businesses and which, individually or in the aggregate, do not or could not have
a Material Adverse Effect. The Company has furnished to the Buyers true, correct
and complete copies of the Company's Certificate of Incorporation, as amended
and as in effect on the date hereof (the "ARTICLES OF INCORPORATION"), and the
Company's bylaws, as amended and as in effect on the date hereof (the "BYLAWS"),
and the terms of all securities convertible into, or exercisable or exchangeable
for, shares of Common Stock and the material rights of the holders thereof in
respect thereto.
(s) INDEBTEDNESS AND OTHER CONTRACTS. Neither the Company nor any of
its Subsidiaries (i) except as disclosed in the SEC Documents, has any
outstanding Indebtedness (as defined below), (ii) is a party to any contract,
agreement or instrument, the violation of which, or default under which, by the
other party(ies) to such contract, agreement or instrument could reasonably be
expected to result in a Material Adverse Effect, (iii) is in violation of any
term of or in default under any contract, agreement or instrument relating to
any Indebtedness, except where such violations and defaults would not result,
individually or in the aggregate, in a Material Adverse Effect, or (iv) is a
party to any contract, agreement or instrument relating to any Indebtedness, the
performance of which, in the judgment of the Company's officers, has or is
expected to have a Material Adverse Effect. For purposes of this Agreement: (x)
"INDEBTEDNESS" of any Person means, without duplication (A) all indebtedness for
borrowed money, (B) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services (including, without limitation,
"capital leases" in accordance with generally accepted accounting principles)
(other than trade payables entered into in the ordinary course of business), (C)
all reimbursement or payment obligations with respect to letters of credit,
surety bonds and other similar instruments, (D) all obligations evidenced by
notes, bonds, debentures or similar instruments, including obligations so
evidenced incurred in connection with the acquisition of property, assets or
businesses, (E) all indebtedness created or arising under any conditional sale
or other title retention agreement, or incurred as financing, in either case
with respect to any property or assets acquired with the proceeds of such
indebtedness (even though the rights and remedies of the seller or bank under
such agreement in the event of default are limited to repossession or sale of
such property), (F) all monetary obligations under any leasing or similar
arrangement which, in connection with generally accepted accounting principles,
consistently applied for the periods covered thereby, is classified as a capital
lease, (G) all indebtedness referred to in clauses (A) through (F) above secured
by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge,
security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by any Person, even though the
Person which owns such assets or property has not assumed or become liable for
the payment of such indebtedness, and (H) all Contingent Obligations in respect
of indebtedness or obligations of others of the kinds referred to in clauses (A)
through (G) above; (y) "CONTINGENT OBLIGATION" means, as to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to any indebtedness, lease, dividend or other obligation of another
Person if the primary purpose or intent of the Person incurring such liability,
or the primary effect thereof, is to provide assurance to the obligee of such
liability that such liability will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of such liability
will be protected (in whole or in part) against loss with respect thereto; and
-12-
(z) "PERSON" means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization, any other
entity and a government or any department or agency thereof.
(t) ABSENCE OF LITIGATION. Except as disclosed in the SEC Documents,
there is no action, suit, proceeding, inquiry or investigation before or by the
Principal Market, any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries, the Common Stock or
any of the Company's or its Subsidiaries' officers or directors which is outside
of the ordinary course of business or individually or in the aggregate material
to the Company or any of its Subsidiaries. There has not been, and to the
knowledge of the Company, there is not pending or contemplated, any
investigation by the SEC involving the Company, any of its Subsidiaries or any
current of former director or officer of the Company or any of its Subsidiaries.
The SEC has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company under the 1933
Act or the 1934 Act.
(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 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 be unable 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.
(v) EMPLOYEE RELATIONS. Neither the Company nor any of its Subsidiaries
is a party to any collective bargaining agreement or employs any member of a
union. The Company believes that its and its Subsidiaries' relations with their
respective employees are good. No executive officer (as defined in Rule 501(f)
promulgated under the 1933 Act) or other key employee of the Company or any of
its Subsidiaries has notified the Company or any such Subsidiary that such
officer intends to leave the Company or any such Subsidiary or otherwise
terminate such officer's employment with the Company or any such Subsidiary. No
executive officer or other key employee of the Company or any of its
Subsidiaries is, or is now expected to be, in violation of any material term of
any employment contract, confidentiality, disclosure or proprietary information
agreement, non-competition agreement, or any other contract or agreement or any
restrictive covenant, and the continued employment of each such executive
officer or other key employee (as the case may be) does not subject the Company
or any of its Subsidiaries to any liability with respect to any of the foregoing
matters. The Company and its Subsidiaries are in compliance with all federal,
state, local and foreign laws and regulations respecting labor, employment and
employment practices and benefits, terms and conditions of employment and wages
and hours, except where failure to be in compliance would not, either
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect.
(w) TITLE. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property, and 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,
-13-
encumbrances and defects except 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 and 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 or any of its Subsidiaries.
(x) INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries own
or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, original works, inventions, licenses, approvals,
governmental authorizations, trade secrets and other intellectual property
rights and all applications and registrations therefor ("INTELLECTUAL PROPERTY
RIGHTS") necessary to conduct their respective businesses as now conducted and
as presently proposed to be conducted. None of the Company's or its
Subsidiaries' Intellectual Property Rights have expired, terminated or been
abandoned, or are expected to expire, terminate or be abandoned, within three
years from the date of this Agreement. The Company has no knowledge of any
infringement by the Company or any of its Subsidiaries of Intellectual Property
Rights of others. There is no claim, action or proceeding being made or brought,
or to the knowledge of the Company or any of its Subsidiaries, being threatened,
against the Company or any of its Subsidiaries regarding their Intellectual
Property Rights. The Company is not aware of any facts or circumstances which
might give rise to any of the foregoing infringements or claims, actions or
proceedings. The Company and each of its Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of all of
their Intellectual Property Rights.
(y) ENVIRONMENTAL LAWS. The Company and its Subsidiaries (i) are in
compliance with all Environmental Laws (as defined below), (ii) have received
all permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are in
compliance with all terms and conditions of any such permit, license or approval
where, in each of the foregoing clauses (i), (ii) and (iii), the failure to so
comply could be reasonably expected to have, individually or in the aggregate, a
Material Adverse Effect. "ENVIRONMENTAL LAWS" means all federal, state, local or
foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes
(collectively, "HAZARDOUS MATERIALS") into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
(z) SUBSIDIARY RIGHTS. The Company or one of its Subsidiaries has the
unrestricted right to vote, and (subject to limitations imposed by applicable
law) to receive dividends and distributions on, all capital securities of its
Subsidiaries as owned by the Company or such Subsidiary.
-14-
(aa) TAX STATUS. The Company and each of its Subsidiaries (i) has
timely made or filed all foreign, federal and state income and all other tax
returns, reports and declarations required by any jurisdiction to which it is
subject, (ii) has timely 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 (iii) 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 and its Subsidiaries know of no basis for any
such claim. The Company is not operated in such a manner as to qualify as a
passive foreign investment company, as defined in Section 1297 of the U.S.
Internal Revenue Code of 1986, as amended.
(bb) INTERNAL ACCOUNTING AND DISCLOSURE CONTROLS. Except as disclosed
in the SEC Documents, the Company and each of its Subsidiaries maintains
internal control over financial reporting (as such term is defined in Rule
13a-15(f) under the 1934 Act) that is effective to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles, including that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset and liability accountability, (iii) access to assets or
incurrence of liabilities is permitted only in accordance with management's
general or specific authorization and (iv) the recorded accountability for
assets and liabilities is compared with the existing assets and liabilities at
reasonable intervals and appropriate action is taken with respect to any
difference. Except as disclosed in the SEC Documents, the Company maintains
disclosure controls and procedures (as such term is defined in Rule 13a-15(e)
under the 1934 Act) that are effective in ensuring that information required to
be disclosed by the Company in the reports that it files or submits under the
1934 Act is recorded, processed, summarized and reported, within the time
periods specified in the rules and forms of the SEC, including, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by the Company in the reports that it files or submits under the
1934 Act is accumulated and communicated to the Company's management, including
its principal executive officer or officers and its principal financial officer
or officers, as appropriate, to allow timely decisions regarding required
disclosure. Except as disclosed in the SEC Documents, neither the Company nor
any of its Subsidiaries has received any notice or correspondence from any
accountant or other Person relating to any potential material weakness or
significant deficiency in any part of the internal controls over financial
reporting of the Company or any of its Subsidiaries.
(cc) OFF BALANCE SHEET ARRANGEMENTS. There is no transaction,
arrangement, or other relationship between the Company or any of its
Subsidiaries and an unconsolidated or other off balance sheet entity that is
required to be disclosed by the Company in its 1934 Act filings and is not so
disclosed or that otherwise could be reasonably likely to have a Material
Adverse Effect.
(dd) INVESTMENT COMPANY STATUS. The Company is not, and upon
consummation of the sale of the Securities will not be, an "investment company,"
an affiliate of an "investment company," a company controlled by an "investment
company" or an "affiliated person" of, or "promoter" or "principal underwriter"
-15-
for, an "investment company" as such terms are defined in the Investment Company
Act of 1940, as amended.
(ee) ACKNOWLEDGEMENT REGARDING BUYERS' TRADING ACTIVITY. It is
understood and acknowledged by the Company that (i) following the public
disclosure of the transactions contemplated by the Transaction Documents in
accordance with the terms thereof, none of the Buyers have been asked by the
Company or any of its Subsidiaries to agree, nor has any Buyer agreed with the
Company or any of its Subsidiaries, to desist from effecting any transactions in
or with respect to (including, without limitation, purchasing or selling, long
and/or short) any securities of the Company, or "derivative" securities based on
securities issued by the Company or to hold any of the Securities for any
specified term; (ii) any Buyer, and counterparties in "derivative" transactions
to which any such Buyer is a party, directly or indirectly, presently may have a
"short" position in the Common Stock which was established prior to such Buyer's
knowledge of the transactions contemplated by the Transaction Documents; and
(iii) each Buyer shall not be deemed to have any affiliation with or control
over any arm's length counterparty in any "derivative" transaction. The Company
further understands and acknowledges that following the public disclosure of the
transactions contemplated by the Transaction Documents pursuant to the Press
Release (as defined below) one or more Buyers may engage in hedging and/or
trading activities at various times during the period that the Securities are
outstanding, including, without limitation, during the periods that the value
and/or number of the Warrant Shares deliverable with respect to the Securities
are being determined and (b) such hedging and/or trading activities, if any, can
reduce the value of the existing stockholders' equity interest in the Company
both at and after the time the hedging and/or trading activities are being
conducted. The Company acknowledges that such aforementioned hedging and/or
trading activities do not constitute a breach of this Agreement or any other
Transaction Document or any of the documents executed in connection herewith or
therewith.
(ff) MANIPULATION OF PRICE. Neither the Company nor any of its
Subsidiaries has, and, to the knowledge of the Company, no Person acting on
their behalf has, directly or indirectly, (i) taken any action designed to cause
or to result in the stabilization or manipulation of the price of any security
of the Company or any of its Subsidiaries to facilitate the sale or resale of
any of the Securities, (ii) sold, bid for, purchased, or paid any compensation
for soliciting purchases of, any of the Securities (other than the Placement
Agent), or (iii) paid or agreed to pay to any Person any compensation for
soliciting another to purchase any other securities of the Company or any of its
Subsidiaries.
(gg) U.S. REAL PROPERTY HOLDING CORPORATION. Neither the Company nor
any of its Subsidiaries is, or has ever been, and so long as any of the
Securities are held by any of the Buyers, shall become, a U.S. real property
holding corporation within the meaning of Section 897 of the Internal Revenue
Code of 1986, as amended, and the Company and each Subsidiary shall so certify
upon any Buyer's request.
(hh) REGISTRATION ELIGIBILITY. The Company is eligible to register the
Registrable Securities for resale by the Buyers using Form S-3 promulgated under
the 1933 Act.
(ii) TRANSFER TAXES. On the Closing Date, all stock transfer or other
taxes (other than income or similar taxes) which are required to be paid in
connection with the issuance, sale and transfer of the Securities to be sold to
-16-
each Buyer hereunder will be, or will have been, fully paid or provided for by
the Company, and all laws imposing such taxes will be or will have been complied
with.
(jj) BANK HOLDING COMPANY ACT. Neither the Company nor any of its
Subsidiaries is subject to the Bank Holding Company Act of 1956, as amended (the
"BHCA") and to regulation by the Board of Governors of the Federal Reserve
System (the "FEDERAL RESERVE"). Neither the Company nor any of its Subsidiaries
or affiliates owns or controls, directly or indirectly, five percent (5%) or
more of the outstanding shares of any class of voting securities or twenty-five
percent (25%) or more of the total equity of a bank or any equity that is
subject to the BHCA and to regulation by the Federal Reserve. Neither the
Company nor any of its Subsidiaries or affiliates exercises a controlling
influence over the management or policies of a bank or any entity that is
subject to the BHCA and to regulation by the Federal Reserve.
(kk) SHELL COMPANY STATUS. The Company is not, and has never been, an
issuer identified in, or subject to, Rule 144(i).
(ll) PUBLIC UTILITY HOLDING ACT. None of the Company nor any of its
Subsidiaries is a "holding company," or an "affiliate" of a "holding company,"
as such terms are defined in the Public Utility Holding Act of 2005.
(mm) FEDERAL POWER ACT. None of the Company nor any of its Subsidiaries
is subject to regulation as a "public utility" under the Federal Power Act, as
amended.
(nn) NO ADDITIONAL AGREEMENTS. The Company does not have any agreement
or understanding with any Buyer with respect to the transactions contemplated by
the Transaction Documents other than as specified in the Transaction Documents.
(oo) ILLEGAL OR UNAUTHORIZED PAYMENTS; POLITICAL CONTRIBUTIONS. Neither
the Company nor any of its Subsidiaries nor, to the best of the Company's
knowledge (after reasonable inquiry of its officers and directors), any of the
officers, directors, employees, agents or other representatives of the Company
or any of its Subsidiaries or any other business entity or enterprise with which
the Company or any Subsidiary is or has been affiliated or associated, has,
directly or indirectly, made or authorized any payment, contribution or gift of
money, property, or services, whether or not in contravention of applicable law,
(a) as a kickback or bribe to any Person or (b) to any political organization,
or the holder of or any aspirant to any elective or appointive public office
except for personal political contributions not involving the direct or indirect
use of funds of the Company or any of its Subsidiaries.
(pp) MONEY LAUNDERING. The Company and its Subsidiaries are in
compliance with, and have not previously violated, the USA Patriot Act of 2001
and all other applicable U.S. and non-U.S. anti-money laundering laws and
regulations, including, without limitation, the laws, regulations and Executive
Orders and sanctions programs administered by the U.S. Office of Foreign Assets
Control, including, without limitation, (i) Executive Order 13224 of September
23, 2001 entitled, "Blocking Property and Prohibiting Transactions With Persons
Who Commit, Threaten to Commit, or Support Terrorism" (66 Fed. Reg. 49079
(2001)); and (ii) any regulations contained in 31 CFR, Subtitle B, Chapter V.
-17-
(qq) FDA. As to each product subject to the jurisdiction of the U.S.
Food and Drug Administration (the "FDA") under the Federal Food, Drug and
Cosmetic Act, as amended, and the regulations thereunder (the "FDCA") that is
manufactured, packaged, labeled, tested, distributed, sold, and/or marketed by
the Company or any of its Subsidiaries (each such product, a "PHARMACEUTICAL
PRODUCT"), such Pharmaceutical Product is being manufactured, packaged, labeled,
tested, distributed, sold and/or marketed by the Company or such Subsidiary (as
the case may be) in compliance with all applicable requirements under FDCA and
similar laws, rules and regulations relating to registration, investigational
use, pre-market clearance, licensure, or application approval, good
manufacturing practices, good laboratory practices, good clinical practices,
product listing, quotas, labeling, advertising, record keeping and filing of
reports, except where the failure to be in compliance would not have a Material
Adverse Effect. There is no pending, completed or, to the Company's knowledge,
threatened, action (including, without limitation, any lawsuit, arbitration, or
legal or administrative or regulatory proceeding, charge, complaint, or
investigation) against the Company or any of its Subsidiaries, and none of the
Company or any of its Subsidiaries has received any notice, warning letter or
other communication from the FDA or any other governmental entity, which (i)
contests the pre-market clearance, licensure, registration, or approval of, the
uses of, the distribution of, the manufacturing or packaging of, the testing of,
the sale of, or the labeling and promotion of any Pharmaceutical Product, (ii)
withdraws its approval of, requests the recall, suspension, or seizure of, or
withdraws or orders the withdrawal of advertising or sales promotional materials
relating to, any Pharmaceutical Product, (iii) imposes a clinical hold on any
clinical investigation by the Company or any of its Subsidiaries, (iv) enjoins
production at any facility of the Company or any of its Subsidiaries, (v) enters
or proposes to enter into a consent decree of permanent injunction with the
Company or any of its Subsidiaries or (vi) otherwise alleges any violation of
any laws, rules or regulations by the Company or any of its Subsidiaries. The
properties, business and operations of the Company subject to the jurisdiction
of the FDA have been and are being conducted in all material respects in
accordance with all applicable laws, rules and regulations of the FDA. Neither
the Company nor any of its Subsidiaries has been informed by the FDA that the
FDA will prohibit the marketing, sale, license or use in the United States of
any product proposed to be developed, produced or marketed by the Company or any
of its Subsidiaries nor has the FDA expressed any concern as to approving or
clearing for marketing any product being developed or proposed to be developed
by the Company or any of its Subsidiaries.
(rr) DISCLOSURE. The Company confirms that neither it nor any other
Person acting on its behalf has provided any of the Buyers or their agents or
counsel with any information that constitutes or could reasonably be expected to
constitute material, non-public information concerning the Company or any of its
Subsidiaries, other than the existence of the transactions contemplated by this
Agreement and the other Transaction Documents. The Company understands and
confirms that each of the Buyers will rely on the foregoing representations in
effecting transactions in securities of the Company. All disclosure provided to
the Buyers regarding the Company and its Subsidiaries, their businesses and the
transactions contemplated hereby, including the schedules to this Agreement,
furnished by or on behalf of the Company or any of its Subsidiaries is true and
correct and does not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
Each press release issued by the Company or any of its Subsidiaries during the
twelve (12) months preceding the date of this Agreement did not at the time of
release contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they are made,
not misleading. No event or circumstance has occurred or information exists with
-18-
respect to the Company or any of its Subsidiaries or its or their business,
properties, liabilities, prospects, operations (including results thereof) or
conditions (financial or otherwise), which, under applicable law, rule or
regulation, requires public disclosure at or before the date hereof or
announcement by the Company but which has not been so publicly disclosed. The
Company acknowledges and agrees that no Buyer makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 2.
4. COVENANTS.
- ------------
(a) BEST EFFORTS. Each Buyer shall use its best efforts to timely
satisfy each of the conditions to be satisfied by it as provided in Section 6 of
this Agreement. The Company shall use its best efforts to timely satisfy each of
the conditions to be satisfied by it as provided in Section 7 of this Agreement.
(b) FORM D AND BLUE SKY. The Company shall file a Form D with respect
to the Securities as required under Regulation D and to provide a copy thereof
to each Buyer promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary in order to obtain an exemption for, or to, qualify the Securities for
sale to the Buyers at the 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 the Buyers on or prior to the Closing Date. Without limiting
any other obligation of the Company under this Agreement, the Company shall
timely make all filings and reports relating to the offer and sale of the
Securities required under all applicable securities laws (including, without
limitation, all applicable federal securities laws and all applicable "Blue Sky"
laws), and the Company shall comply with all applicable federal, state and local
laws, statutes, rules, regulations and the like relating to the offering and
sale of the Securities to the Buyers.
(c) REPORTING STATUS. Until the date on which the Buyers shall have
sold all of the Registrable Securities (the "REPORTING PERIOD"), the Company
shall timely file all reports required to be filed with the SEC pursuant to the
1934 Act, and the Company shall not terminate its status as an issuer required
to file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would no longer require or otherwise permit such
termination.
(d) USE OF PROCEEDS. The Company shall use the proceeds from the sale
of the Securities hereunder solely for general working capital purposes. Without
limiting the foregoing, none of such proceeds shall be used, directly or
indirectly, (i) for the satisfaction of any debt of the Company or any of its
Subsidiaries (other than payment of trade payables incurred after the date
hereof in the ordinary course of business of the Company and its Subsidiaries
and consistent with prior practices), (ii) for the redemption of any securities
of the Company or (iii) with respect to any litigation involving the Company or
any of its Subsidiaries (including, without limitation, (x) any litigation
disclosed in the SEC Documents or the settlement thereof or (y) the payment of
any costs or expenses related thereto).
-19-
(e) FINANCIAL INFORMATION. The Company agrees to send the following to
each Investor (as defined in the Registration Rights Agreement) during the
Reporting Period (i) unless the following are filed with the SEC through EDGAR
and are available to the public through the EDGAR system, within one (1)
Business Day after the filing thereof with the SEC, a copy of its Annual Reports
on Form 10-K and Quarterly Reports on Form 10-Q, any interim reports or any
consolidated balance sheets, income statements, stockholders' equity statements
and/or cash flow statements for any period other than annual, any Current
Reports on Form 8-K and any registration statements (other than on Form S-8) 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 and (iii) copies of any notices and other information made
available or given to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the
stockholders.
(f) LISTING. The Company shall promptly secure the listing or
designation for quotation (as the case may be) of all of the Registrable
Securities upon each national securities exchange and automated quotation
system, if any, upon which the Common Stock is then listed or designated for
quotation (as the case may be) (subject to official notice of issuance) (but in
no event later than the Closing Date) and shall maintain such listing or
designation for quotation (as the case may be) of all Registrable Securities
from time to time issuable under the terms of the Transaction Documents on such
national securities exchange or automated quotation system. The Company shall
maintain the Common Stock's listing or designation for quotation (as the case
may be) on the Principal Market, The New York Stock Exchange, the NYSE Amex, the
Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq Capital
Market (each, an "ELIGIBLE MARKET"). Neither the Company nor any of its
Subsidiaries shall take any action which could be reasonably expected to result
in the delisting or suspension of the Common Stock on an Eligible Market. The
Company shall pay all fees and expenses in connection with satisfying its
obligations under this Section 4(f).
(g) FEES. The Company shall reimburse Cranshire Capital, L.P.
("CRANSHIRE") or its designee(s) for all costs and expenses incurred by it or
its affiliates in connection with the transactions contemplated by the
Transaction Documents (including, without limitation, all legal fees and
disbursements in connection therewith, structuring, documentation and
implementation of the transactions contemplated by the Transaction Documents and
due diligence and regulatory filings in connection therewith) in a
non-accountable amount equal to $35,000, which amount shall be withheld by
Cranshire from its Purchase Price at the Closing or paid by the Company upon
termination of this Agreement on demand by Cranshire so long as such termination
did not occur as a result of a material breach by Cranshire of any of its
obligations hereunder (as the case may be). The Company shall be responsible for
the payment of any placement agent's fees, financial advisory fees, or broker's
commissions (other than for Persons engaged by any Buyer) relating to or arising
out of the transactions contemplated hereby (including, without limitation, any
fees payable to the Placement Agent, who is the Company's sole placement agent
in connection with the transactions contemplated by this Agreement). The Company
shall pay, and hold each Buyer harmless against, any liability, loss or expense
(including, without limitation, reasonable attorneys' fees and out-of-pocket
expenses) arising in connection with any claim relating to any such payment.
Except as otherwise set forth in the Transaction Documents, each party to this
Agreement shall bear its own expenses in connection with the sale of the
Securities to the Buyers.
-20-
(h) PLEDGE OF SECURITIES. Notwithstanding anything to the contrary
contained in this Agreement, the Company acknowledges and agrees that the
Securities may be pledged by a Buyer in connection with a bona fide margin
agreement or other loan or financing arrangement that is secured by the
Securities. The pledge of Securities shall not be deemed to be a transfer, sale
or assignment of the Securities hereunder, and no Buyer effecting a pledge of
Securities shall be required to provide the Company with any notice thereof or
otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document. The Company hereby agrees to execute and deliver
such documentation as a pledgee of the Securities may reasonably request in
connection with a pledge of the Securities to such pledgee by a Buyer.
(i) DISCLOSURE OF TRANSACTIONS AND OTHER MATERIAL INFORMATION. The
Company shall, on or before 9:30 a.m., New York time, (but in no event prior to
9:15 a.m., New York time) on the first (1st) Business Day after the date of this
Agreement, issue a press release (the "PRESS RELEASE") reasonably acceptable to
the Buyers disclosing all the material terms of the transactions contemplated by
the Transaction Documents. On or before 9:30 a.m., New York time, (but in no
event prior to 9:15 a.m., New York time) on the first (1st) Business Day after
the date of this Agreement, the Company shall file a Current Report on Form 8-K
describing all the material terms of the transactions contemplated by the
Transaction Documents in the form required by the 1934 Act and attaching all the
material Transaction Documents (including, without limitation, this Agreement
(and all schedules to this Agreement), the form of Warrants and the form of the
Registration Rights Agreement) (including all attachments, the "8-K FILING").
From and after the issuance of the Press Release, the Company shall have
disclosed all material, non-public information (if any) delivered to any of the
Buyers by the Company or any of its Subsidiaries, or any of their respective
officers, directors, employees or agents in connection with the transactions
contemplated by the Transaction Documents. The Company shall not, and the
Company shall cause each of its Subsidiaries and each of its and their
respective officers, directors, employees and agents, not to, provide any Buyer
with any material, non-public information regarding the Company or any of its
Subsidiaries from and after the issuance of the Press Release without the
express prior written consent of such Buyer. In the event of a breach of any of
the foregoing covenants or any of the covenants contained in Section 4(o) by the
Company, any of its Subsidiaries, or any of its or their respective officers,
directors, employees and agents (as determined in the reasonable good faith
judgment of such Buyer), in addition to any other remedy provided herein or in
the Transaction Documents, such Buyer shall have the right to make a public
disclosure, in the form of a press release, public advertisement or otherwise,
of such material, non-public information without the prior approval by the
Company, any of its Subsidiaries, or any of its or their respective officers,
directors, employees or agents. No Buyer shall have any liability to the
Company, any of its Subsidiaries, or any of its or their respective officers,
directors, employees, stockholders or agents, for any such disclosure. Subject
to the foregoing, neither the Company, its Subsidiaries nor any Buyer shall
issue any press releases or any other public statements with respect to the
transactions contemplated hereby; provided, however, the Company shall be
entitled, without the prior approval of any Buyer, to make any press release or
other public disclosure with respect to such transactions (i) in substantial
conformity with the 8-K Filing and contemporaneously therewith and (ii) as is
required by applicable law and regulations (provided that in the case of clause
(i) each Buyer shall be consulted by the Company in connection with any such
press release or other public disclosure prior to its release). Without the
prior written consent of the applicable Buyer, the Company shall not (and shall
-21-
cause each of its Subsidiaries and affiliates to not) disclose the name of such
Buyer in any filing (other than the 8-K Filing), announcement, release or
otherwise. Notwithstanding anything contained in this Agreement to the contrary
and without implication that the contrary would otherwise be true, the Company
expressly acknowledges and agrees that no Buyer has had, and no Buyer shall have
(unless expressly agreed to by a particular Buyer after the date hereof in a
written definitive and binding agreement executed by the Company and such
particular Buyer), any duty of confidentiality with respect to, or a duty not to
trade on the basis of, any material, non-public information regarding the
Company or any of it Subsidiaries.
(j) ADDITIONAL REGISTRATION STATEMENTS. Until the Applicable Date (as
defined below) and at any time thereafter while any Registration Statement is
not effective or the prospectus contained therein is not available for use, the
Company shall not file a registration statement under the 1933 Act relating to
securities that are not the Registrable Securities. "APPLICABLE DATE" means the
first date on which the resale by the Buyers of all Registrable Securities is
covered by one or more effective Registration Statements (as defined in the
Registration Rights Agreement) (and each prospectus contained therein is
available for use on such date).
(k) ADDITIONAL ISSUANCE OF SECURITIES. The Company agrees that for the
period commencing on the date hereof and ending on the date immediately
following the one hundred eighty (180) Trading Day (as defined in the Warrants)
anniversary of the Applicable Date (provided that such period shall be extended
by the number of days during such period and any extension thereof contemplated
by this proviso on which the Registration Statement is not effective or any
prospectus contained therein is not available for use) (the "RESTRICTED
PERIOD"), neither the Company nor any of its Subsidiaries shall directly or
indirectly issue, offer, sell, grant any option or right to purchase, or
otherwise dispose of (or announce any issuance, offer, sale, grant of any option
or right to purchase or other disposition of) any equity security or any
equity-linked or related security (including, without limitation, any "equity
security" (as that term is defined under Rule 405 promulgated under the 1933
Act), any Convertible Securities, any debt, any preferred stock or any purchase
rights (any such issuance, offer, sale, grant, disposition or announcement
(whether occurring during the Restricted Period or at any time thereafter) is
referred to as a "SUBSEQUENT PLACEMENT"). Notwithstanding the foregoing, this
Section 4(k) shall not apply in respect of the issuance of (i) (A) shares of
Common Stock or standard options to purchase Common Stock to directors, officers
or employees of the Company in their capacity as such pursuant to an Approved
Share Plan (as defined below), provided that (1) all such issuances (taking into
account the shares of Common Stock issuable upon exercise of such options) after
the date hereof pursuant to this clause (A) do not, in the aggregate, exceed
more than 18,789,540 shares of Common Stock (adjusted for stock splits, stock
combinations and other similar transactions) and (2) the exercise price of any
such options is not lowered, none of such options are amended to increase the
number of shares issuable thereunder and none of the terms or conditions of any
such options are otherwise materially changed in any manner that adversely
affects any of the Buyers; (B) shares of Common Stock issued upon the conversion
or exercise of Convertible Securities (other than standard options to purchase
Common Stock issued pursuant to an Approved Share Plan that are covered by
clause (A) above) issued prior to the date hereof, provided that the conversion
or exercise price of any such Convertible Securities (other than standard
options to purchase Common Stock issued pursuant to an Approved Share Plan that
are covered by clause (A) above) is not lowered, none of such Convertible
Securities (other than standard options to purchase Common Stock issued pursuant
to an Approved Share Plan that are covered by clause (A) above) are amended to
increase the number of shares issuable thereunder and none of the terms or
conditions of any such Convertible Securities (other than standard options to
purchase Common Stock issued pursuant to an Approved Share Plan that are covered
-22-
by clause (A) above) are otherwise materially changed in any manner that
adversely affects any of the Buyers; (C) the Common Shares and (D) the Warrant
Shares (each of the foregoing in clauses (A) through (D), collectively the
"EXCLUDED SECURITIES") or (ii) shares of unregistered Common Stock issued to
Richard Farkas in full satisfaction of all accrued and unpaid fees and amounts
owed by the Company and/or its Subsidiaries through the Closing Date to Richard
Farkas and his employees, partners and affiliates (the "COUNSEL SHARES").
"APPROVED SHARE PLAN" means any employee benefit plan which has been approved by
the board of directors of the Company prior to or subsequent to the date hereof
pursuant to which shares of Common Stock and standard options to purchase Common
Stock may be issued to any employee, officer or director for services provided
to the Company in their capacity as such. "CONVERTIBLE SECURITIES" means any
capital stock or other security of the Company or any of its Subsidiaries that
is at any time and under any circumstances directly or indirectly convertible
into, exercisable or exchangeable for, or which otherwise entitles the holder
thereof to acquire, any capital stock or other security of the Company
(including, without limitation, Common Stock) or any of its Subsidiaries.
(l) RESERVATION OF SHARES. So long as any of the Warrants remain
outstanding, the Company shall take all action necessary to at all times have
authorized, and reserved for the purpose of issuance, no less than 133% of the
maximum number of shares of Common Stock issuable upon exercise of all the
Warrants (without regard to any limitations on the exercise of the Warrants set
forth therein).
(m) CONDUCT OF BUSINESS. The business of the Company and its
Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any governmental entity, except where such violations would not
result, either individually or in the aggregate, in a Material Adverse Effect.
(n) VARIABLE RATE TRANSACTION. Until none of the Warrants are
outstanding, the Company and each Subsidiary shall be prohibited from effecting
or entering into an agreement to effect any Subsequent Placement involving a
Variable Rate Transaction. "VARIABLE RATE TRANSACTION" means a transaction in
which the Company or any Subsidiary (i) issues or sells any Convertible
Securities either (A) at a conversion, exercise or exchange rate or other price
that is based upon and/or varies with the trading prices of, or quotations for,
the shares of Common Stock at any time after the initial issuance of such
Convertible Securities, or (B) with a conversion, exercise or exchange price
that is subject to being reset at some future date after the initial issuance of
such Convertible Securities or upon the occurrence of specified or contingent
events directly or indirectly related to the business of the Company or the
market for the Common Stock, other than pursuant to a customary "weighted
average" anti-dilution provision or (ii) enters into any agreement (including,
without limitation, an "equity line of credit" or an "at-the-market offering")
whereby the Company or any Subsidiary may sell securities at a future determined
price (other than standard and customary "preemptive" or "participation"
rights). Each Buyer shall be entitled to obtain injunctive relief against the
Company and its Subsidiaries to preclude any such issuance, which remedy shall
be in addition to any right to collect damages.
-23-
(o) PARTICIPATION RIGHT. From the date hereof through the twelve (12)
month anniversary of the Applicable Date, neither the Company nor any of its
Subsidiaries shall, directly or indirectly, effect any Subsequent Placement
unless the Company shall have first complied with this Section 4(o). The Company
acknowledges and agrees that the right set forth in this Section 4(o) is a right
granted by the Company, separately, to each Buyer.
(i) At least five (5) Trading Days prior to any proposed or
intended Subsequent Placement, the Company shall deliver to each Buyer
a written notice of its proposal or intention to effect a Subsequent
Placement (each such notice, a "PRE-NOTICE"), which Pre-Notice shall
not contain any information (including, without limitation, material,
non-public information) other than: (i) a statement that the Company
proposes or intends to effect a Subsequent Placement, (ii) a statement
that the statement in clause (i) above does not constitute material,
non-public information and (iii) a statement informing such Buyer that
it is entitled to receive an Offer Notice (as defined below) with
respect to such Subsequent Placement upon its written request. Upon the
written request of a Buyer within three (3) Trading Days after the
Company's delivery to such Buyer of such Pre-Notice, and only upon a
written request by such Buyer, the Company shall promptly, but no later
than one (1) Trading Day after such request, deliver to such Buyer an
irrevocable written notice (the "OFFER NOTICE") of any proposed or
intended issuance or sale or exchange (the "OFFER") of the securities
being offered (the "OFFERED SECURITIES") in a Subsequent Placement,
which Offer Notice shall (w) identify and describe the Offered
Securities, (x) describe the price and other terms upon which they are
to be issued, sold or exchanged, and the number or amount of the
Offered Securities to be issued, sold or exchanged, (y) identify the
Persons (if known) to which or with which the Offered Securities are to
be offered, issued, sold or exchanged and (z) offer to issue and sell
to or exchange with such Buyer in accordance with the terms of the
Offer 100% of the Offered Securities, provided that the number of
Offered Securities which such Buyer shall have the right to subscribe
for under this Section 4(o) shall be (a) based on such Buyer's pro rata
portion of the aggregate number of Common Shares purchased hereunder by
all Buyers (the "BASIC AMOUNT"), and (b) with respect to each Buyer
that elects to purchase its Basic Amount, any additional portion of the
Offered Securities attributable to the Basic Amounts of other Buyers as
such Buyer shall indicate it will purchase or acquire should the other
Buyers subscribe for less than their Basic Amounts (the
"UNDERSUBSCRIPTION AMOUNT").
(ii) To accept an Offer, in whole or in part, such Buyer must
deliver a written notice to the Company prior to the end of the fifth
(5th) Business Day after such Buyer's receipt of the Offer Notice (the
"OFFER PERIOD"), setting forth the portion of such Buyer's Basic Amount
that such Buyer elects to purchase and, if such Buyer shall elect to
purchase all of its Basic Amount, the Undersubscription Amount, if any,
that such Buyer elects to purchase (in either case, the "NOTICE OF
ACCEPTANCE"). If the Basic Amounts subscribed for by all Buyers are
less than the total of all of the Basic Amounts, then such Buyer who
has set forth an Undersubscription Amount in its Notice of Acceptance
shall be entitled to purchase, in addition to the Basic Amounts
subscribed for, the Undersubscription Amount it has subscribed for;
provided, however, if the Undersubscription Amounts subscribed for
exceed the difference between the total of all the Basic Amounts and
the Basic Amounts subscribed for (the "AVAILABLE UNDERSUBSCRIPTION
-24-
AMOUNT"), such Buyer who has subscribed for any Undersubscription
Amount shall be entitled to purchase only that portion of the Available
Undersubscription Amount as the Basic Amount of such Buyer bears to the
total Basic Amounts of all Buyers that have subscribed for
Undersubscription Amounts, subject to rounding by the Company to the
extent it deems reasonably necessary. Notwithstanding the foregoing, if
the Company desires to modify or amend the terms and conditions of the
Offer prior to the expiration of the Offer Period, the Company may
deliver to each Buyer a new Offer Notice and the Offer Period shall
expire on the fifth (5th) Business Day after such Buyer's receipt of
such new Offer Notice.
(iii) The Company shall have five (5) days from the expiration
of the Offer Period above (i) to offer, issue, sell or exchange all or
any part of such Offered Securities as to which a Notice of Acceptance
has not been given by a Buyer (the "REFUSED SECURITIES") pursuant to a
definitive agreement(s) (the "SUBSEQUENT PLACEMENT AGREEMENT"), but
only to the offerees described in the Offer Notice (if so described
therein) and only upon terms and conditions (including, without
limitation, unit prices and interest rates) that are not more favorable
to the acquiring Person or Persons or less favorable to the Company
than those set forth in the Offer Notice and (ii) to publicly announce
(a) the execution of such Subsequent Placement Agreement, and (b)
either (x) the consummation of the transactions contemplated by such
Subsequent Placement Agreement or (y) the termination of such
Subsequent Placement Agreement, which shall be filed with the SEC on a
Current Report on Form 8-K with such Subsequent Placement Agreement and
any documents contemplated therein filed as exhibits thereto.
(iv) In the event the Company shall propose to sell less than
all the Refused Securities (any such sale to be in the manner and on
the terms specified in Section 4(o)(iii) above), then such Buyer may,
at its sole option and in its sole discretion, reduce the number or
amount of the Offered Securities specified in its Notice of Acceptance
to an amount that shall be not less than the number or amount of the
Offered Securities that such Buyer elected to purchase pursuant to
Section 4(o)(ii) above multiplied by a fraction, (i) the numerator of
which shall be the number or amount of Offered Securities the Company
actually proposes to issue, sell or exchange (including Offered
Securities to be issued or sold to Buyers pursuant to this Section 4(o)
prior to such reduction) and (ii) the denominator of which shall be the
original amount of the Offered Securities. In the event that any Buyer
so elects to reduce the number or amount of Offered Securities
specified in its Notice of Acceptance, the Company may not issue, sell
or exchange more than the reduced number or amount of the Offered
Securities unless and until such securities have again been offered to
the Buyers in accordance with Section 4(o)(i) above.
(v) Upon the closing of the issuance, sale or exchange of all
or less than all of the Refused Securities, such Buyer shall acquire
from the Company, and the Company shall issue to such Buyer, the number
or amount of Offered Securities specified in its Notice of Acceptance.
The purchase by such Buyer of any Offered Securities is subject in all
cases to the preparation, execution and delivery by the Company and
-25-
such Buyer of a separate purchase agreement relating to such Offered
Securities reasonably satisfactory in form and substance to such Buyer
and its counsel.
(vi) Any Offered Securities not acquired by a Buyer or other
Persons in accordance with this Section 4(o) may not be issued, sold or
exchanged until they are again offered to such Buyer under the
procedures specified in this Agreement.
(vii) The Company and each Buyer agree that if any Buyer
elects to participate in the Offer, neither the Subsequent Placement
Agreement with respect to such Offer nor any other transaction
documents related thereto (collectively, the "SUBSEQUENT PLACEMENT
DOCUMENTS") shall include any term or provision whereby such Buyer
shall be required to agree to any restrictions on trading as to any
securities of the Company or be required to consent to any amendment to
or termination of, or grant any waiver, release or the like under or in
connection with, any agreement previously entered into with the Company
or any instrument received from the Company.
(viii) Notwithstanding anything to the contrary in this
Section 4(o) and unless otherwise agreed to by such Buyer, the Company
shall either confirm in writing to such Buyer that the transaction with
respect to the Subsequent Placement has been abandoned or shall
publicly disclose its intention to issue the Offered Securities, in
either case in such a manner such that such Buyer will not be in
possession of any material, non-public information, by the fifth (5th)
Business Day following delivery of the Offer Notice. If by such fifth
(5th) Business Day, no public disclosure regarding a transaction with
respect to the Offered Securities has been made, and no notice
regarding the abandonment of such transaction has been received by such
Buyer, such transaction shall be deemed to have been abandoned and such
Buyer shall not be in possession of any material, non-public
information with respect to the Company or any of its Subsidiaries.
Should the Company decide to pursue such transaction with respect to
the Offered Securities, the Company shall provide such Buyer with
another Offer Notice in accordance with, and subject to, the terms of
this Section 4(o) and such Buyer will again have the right of
participation set forth in this Section 4(o). The Company shall not be
permitted to deliver more than one Offer Notice to such Buyer in any
sixty (60) day period, except as expressly contemplated by the last
sentence of Section 4(o)(ii).
(ix) The restrictions contained in this Section 4(o) shall not
apply in connection with the issuance of any (x) Excluded Securities or
(y) Counsel Shares. The Company shall not circumvent the provisions of
this Section 4(o) by providing terms or conditions to one Buyer that
are not provided to all.
(p) PASSIVE FOREIGN INVESTMENT COMPANY. The Company shall conduct its
business in such a manner as will ensure that the Company will not be deemed to
constitute a passive foreign investment company within the meaning of Section
1297 of the U.S. Internal Revenue Code of 1986, as amended.
(q) CORPORATE EXISTENCE. So long as any Buyer owns any Warrants, the
Company shall not be party to any Fundamental Transaction (as defined in the
Warrants) unless the Company is in compliance with the applicable provisions
-26-
governing Fundamental Transactions set forth in the Warrants.
(r) OUTSTANDING LEGAL FEES. The Company shall only issue Counsel Shares
to Richard Farkas in full satisfaction of all accrued and unpaid fees and
amounts owed by the Company and/or its Subsidiaries through the Closing Date to
Richard Farkas and his employees, partners and affiliates, provided that no
Counsel Shares shall be issued prior to the ninety (90) day anniversary of the
Closing Date. Without limiting any other provision of this Agreement, no cash
shall be used by the Company or any of its Subsidiaries to pay any of such fees
or amounts.
5. REGISTER; TRANSFER AGENT INSTRUCTIONS; LEGEND.
- ------------------------------------------------
(a) REGISTER. The Company shall maintain at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to each holder of Securities), a register for the Common Shares and the
Warrants in which the Company shall record the name and address of the Person in
whose name the Common Shares and the Warrants have been issued (including the
name and address of each transferee), the number of Common Shares held by such
Person and the number of Warrant Shares issuable upon exercise of the Warrants
held by such Person. The Company shall keep the register open and available at
all times during business hours for inspection of any Buyer or its legal
representatives.
(b) TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
instructions to its transfer agent and any subsequent transfer agent in a form
acceptable to each of the Buyers (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS")
to issue certificates or credit shares to the applicable balance accounts at The
Depository Trust Company ("DTC"), registered in the name of each Buyer or its
respective nominee(s), for the Common Shares and the Warrant Shares in such
amounts as specified from time to time by each Buyer to the Company upon
delivery of the Common Shares or the exercise of the Warrants (as the case may
be). The Company represents and warrants that no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this Section 5(b), and
stop transfer instructions to give effect to Section 2(g) hereof, will be given
by the Company to its transfer agent with respect to the Securities, and that
the Securities shall otherwise be freely transferable on the books and records
of the Company, as applicable, to the extent provided in this Agreement and the
other Transaction Documents. If a Buyer effects a sale, assignment or transfer
of the Securities in accordance with Section 2(g), the Company shall permit the
transfer and shall promptly instruct its transfer agent to issue one or more
certificates or credit shares to the applicable balance accounts at DTC in such
name and in such denominations as specified by such Buyer to effect such sale,
transfer or assignment. In the event that such sale, assignment or transfer
involves Common Shares or Warrant Shares sold, assigned or transferred pursuant
to an effective registration statement or in compliance with Rule 144, the
transfer agent shall issue such shares to such Buyer, assignee or transferee (as
the case may be) without any restrictive legend in accordance with Section 5(d)
below. The Company acknowledges that a breach by it of its obligations hereunder
will cause irreparable harm to each Buyer. Accordingly, the Company acknowledges
that the remedy at law for a breach of its obligations under this Section 5(b)
will be inadequate and agrees, in the event of a breach or threatened breach by
the Company of the provisions of this Section 5(b), that each Buyer shall be
entitled, in addition to all other available remedies, to an order and/or
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required. The Company shall cause its counsel to issue the legal
opinion referred to in the Irrevocable Transfer Agent Instructions to the
-27-
Company's transfer agent on each Effective Date (as defined in the Registration
Rights Agreement). Any fees (with respect to the transfer agent, counsel to the
Company or otherwise) associated with the issuance of such opinion or the
removal of any legends on any of the Securities shall be borne by the Company.
(c) LEGENDS. Each Buyer understands that the Securities have been
issued (or will be issued in the case of the Warrant Shares) pursuant to an
exemption from registration or qualification under the 1933 Act and applicable
state securities laws, and except as set forth below, the Securities shall bear
any legend as required by the "blue sky" laws of any state and a restrictive
legend in substantially the following form (and a stop-transfer order may be
placed against transfer of such stock certificates):
[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
[EXERCISABLE] HAVE BEEN][THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN] REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE
HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE
TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
(II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN
OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
(d) REMOVAL OF LEGENDS. Certificates evidencing Securities shall not be
required to contain the legend set forth in Section 5(c) above or any other
legend (i) while a registration statement (including a Registration Statement)
covering the resale of such Securities is effective under the 1933 Act, (ii)
following any sale of such Securities pursuant to Rule 144 (assuming the
transferor is not an affiliate of the Company), (iii) if such Securities are
eligible to be sold, assigned or transferred under Rule 144 (provided that a
Buyer provides the Company with reasonable assurances that such Securities are
eligible for sale, assignment or transfer under Rule 144 which shall not include
an opinion of counsel), (iv) in connection with a sale, assignment or other
transfer (other than under Rule 144), provided that such Buyer provides the
Company with an opinion of counsel to such Buyer, in a generally acceptable
form, to the effect that such sale, assignment or transfer of the Securities may
be made without registration under the applicable requirements of the 1933 Act
or (v) if such legend is not required under applicable requirements of the 1933
Act (including, without limitation, controlling judicial interpretations and
pronouncements issued by the SEC). If a legend is not required pursuant to the
foregoing, the Company shall no later than two (2) Trading Days following the
delivery by a Buyer to the Company or the transfer agent (with notice to the
Company) of a legended certificate representing such Securities (endorsed or
with stock powers attached, signatures guaranteed, and otherwise in form
-28-
necessary to affect the reissuance and/or transfer, if applicable), together
with any other deliveries from such Buyer as may be required above in this
Section 5(d), as directed by such Buyer, either: (A) provided that the Company's
transfer agent is participating in the DTC Fast Automated Securities Transfer
Program and such Securities are Common Shares or Warrant Shares, credit the
aggregate number of shares of Common Stock to which such Buyer shall be entitled
to such Buyer's or its designee's balance account with DTC through its
Deposit/Withdrawal at Custodian system or (B) if the Company's transfer agent is
not participating in the DTC Fast Automated Securities Transfer Program, issue
and deliver (via reputable overnight courier) to such Buyer, a certificate
representing such Securities that is free from all restrictive and other
legends, registered in the name of such Buyer or its designee (the date by which
such credit is so required to be made to the balance account of such Buyer's or
such Buyer's nominee with DTC or such certificate is required to be delivered to
such Buyer pursuant to the foregoing is referred to herein as the "REQUIRED
DELIVERY DATE").
(e) FAILURE TO TIMELY DELIVER; BUY-IN. If the Company fails to (i)
issue and deliver (or cause to be delivered) to a Buyer by the Required Delivery
Date a certificate representing the Securities so delivered to the Company by
such Buyer that is free from all restrictive and other legends or (ii) credit
the balance account of such Buyer's or such Buyer's nominee with DTC for such
number of shares of Common Shares or Warrant Shares so delivered to the Company,
then, in addition to all other remedies available to such Buyer, the Company
shall pay in cash to such Buyer on each day after the Required Delivery Date
that the issuance or credit of such shares is not timely effected an amount
equal to 2% of the product of (A) the sum of the number of shares of Common
Shares or Warrant Shares (as the case may be) not issued to such Buyer on a
timely basis and to which such Buyer is entitled and (B) the Closing Sale Price
(as defined in the Warrants) of the Common Stock on the Trading Day immediately
preceding the Required Delivery Date. In addition to the foregoing, if the
Company fails to so properly deliver such unlegended certificates or so properly
credit the balance account of such Buyer's or such Buyer's nominee with DTC by
the Required Delivery Date, and if on or after the Required Delivery Date such
Buyer purchases (in an open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by such Buyer of shares of Common
Stock that such Buyer anticipated receiving from the Company without any
restrictive legend, then, in addition to all other remedies available to such
Buyer, the Company shall, within three (3) Trading Days after such Buyer's
request and in such Buyer's sole discretion, either (i) pay cash to such Buyer
in an amount equal to such Buyer's total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the "BUY-IN
PRICE"), at which point the Company's obligation to deliver such certificate or
credit such Buyer's balance account shall terminate and such shares shall be
cancelled, or (ii) promptly honor its obligation to deliver to such Buyer a
certificate or certificates or credit such Buyer's DTC account representing such
number of shares of Common Stock that would have been issued if the Company
timely complied with its obligations hereunder and pay cash to such Buyer in an
amount equal to the excess (if any) of the Buy-In Price over the product of (A)
such number of shares of Common Shares or Warrant Shares (as the case may be)
that the Company was required to deliver to such Buyer by the Required Delivery
Date times (B) the Closing Sale Price of the Common Stock on the Trading Day
immediately preceding the Required Delivery Date.
-29-
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
- -------------------------------------------------
(a) The obligation of the Company hereunder to issue and sell the
Common Shares and the related Warrants to each Buyer 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 the Company's sole benefit
and may be waived by the Company at any time in its sole discretion by providing
each Buyer with prior written notice thereof:
(i) Such Buyer shall have executed each of the other
Transaction Documents to which it is a party and delivered the same to
the Company.
(ii) Such Buyer and each other Buyer shall have delivered to
the Company the Purchase Price (less, in the case of Cranshire, the
amounts withheld pursuant to Section 4(g)) for the Common Shares and
the related Warrants being purchased by such Buyer at the Closing by
wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.
(iii) The representations and warranties of such Buyer shall
be true and correct in all material respects as of the date when made
and as of the Closing Date as though originally made at that time
(except for representations and warranties that speak as of a specific
date, which shall be true and correct as of such date), and such Buyer
shall have performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by such Buyer at
or prior to the Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
- ----------------------------------------------------
(a) The obligation of each Buyer hereunder to purchase the Common
Shares and the related 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 each Buyer's sole benefit and may be waived by
such Buyer at any time in its sole discretion by providing the Company with
prior written notice thereof:
(i) The Company shall have duly executed and delivered to such
Buyer (A) each of the other Transaction Documents and (B) the Common
Shares (in the number as is set forth across from such Buyer's name in
column (3) of the Schedule of Buyers) and the related Warrants (for the
number of Warrant Shares as is set forth across from such Buyer's name
in columns (4), (5) and (6) of the Schedule of Buyers) being purchased
by such Buyer at the Closing pursuant to this Agreement.
(ii) Such Buyer shall have received the opinion of Richardson
& Associates, the Company's counsel, dated as of the Closing Date, in
the form acceptable to such Buyer.
(iii) The Company shall have delivered to such Buyer a copy of
the Irrevocable Transfer Agent Instructions, in the form acceptable to
such Buyer, which instructions shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
-30-
(iv) The Company shall have delivered to such Buyer a
certificate evidencing the formation and good standing of the Company
and each of its Subsidiaries in each such entity's jurisdiction of
formation issued by the Secretary of State (or comparable office) of
such jurisdiction of formation as of a date within ten (10) days of the
Closing Date.
(v) The Company shall have delivered to such Buyer a
certificate evidencing the Company's qualification as a foreign
corporation and good standing issued by the Secretary of State (or
comparable office) of each jurisdiction in which the Company conducts
business and is required to so qualify, as of a date within ten (10)
days of the Closing Date.
(vi) The Company shall have delivered to such Buyer a
certified copy of the Articles of Incorporation as certified by the
Secretary of State of the Company's state of incorporation within ten
(10) days of the Closing Date.
(vii) The Company shall have delivered to such Buyer a
certificate, in the form acceptable to such Buyer, executed by the
Secretary of the Company and dated as of the Closing Date, as to (i)
the resolutions consistent with Section 3(b) as adopted by the
Company's board of directors in a form reasonably acceptable to such
Buyer, (ii) the Articles of Incorporation and (iii) the Bylaws, each as
in effect at the Closing.
(viii) Each and every representation and warranty of the
Company shall be true and correct as of the date when made and as of
the Closing Date as though originally made at that time (except for
representations and warranties that speak as of a specific date, which
shall be true and correct as of such date) and the Company shall have
performed, satisfied and complied in all respects with the covenants,
agreements and conditions required to be performed, satisfied or
complied with by the Company at or prior to the Closing Date. Such
Buyer shall have received a certificate, executed by the Chief
Executive Officer of the Company, dated as of the Closing Date, to the
foregoing effect and as to such other matters as may be reasonably
requested by such Buyer in the form acceptable to such Buyer.
(ix) The Company shall have delivered to such Buyer a letter
from the Company's transfer agent certifying the number of shares of
Common Stock outstanding on the Closing Date immediately prior to the
Closing.
(x) The Common Stock (I) shall be designated for quotation or
listed on the Principal Market and (II) shall not have been suspended,
as of the Closing Date, by the SEC or the Principal Market from trading
on the Principal Market nor shall suspension by the SEC or the
Principal Market have been threatened, as of the Closing Date, either
(A) in writing by the SEC or the Principal Market or (B) by falling
below the minimum maintenance requirements of the Principal Market.
(xi) The Company shall have obtained all governmental,
regulatory or third party consents and approvals, if any, necessary for
the sale of the Securities, including without limitation, those
required by the Principal Market.
-31-
(xii) 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 that prohibits the consummation of any of the transactions
contemplated by the Transaction Documents.
(xiii) Since the date of execution of this Agreement, no event
or series of events shall have occurred that reasonably would have or
result in a Material Adverse Effect.
(xiv) The Company shall have obtained approval of the
Principal Market to list or designate for quotation (as the case may
be) the Common Shares and the Warrant Shares.
(xv) The Company shall have delivered to such Buyer such other
documents, instruments or certificates relating to the transactions
contemplated by this Agreement as such Buyer or its counsel may
reasonably request.
8. TERMINATION.
- --------------
In the event that the Closing shall not have occurred with respect to a
Buyer within ten (10) days after the date hereof, then such Buyer shall have the
right to terminate its obligations under this Agreement with respect to itself
at any time on or after the close of business on such date without liability of
such Buyer to any other party; provided, however, (i) the right to terminate
this Agreement under this Section 8 shall not be available to such Buyer if the
failure of the transactions contemplated by this Agreement to have been
consummated by such date is the result of such Buyer's breach of this Agreement
and (ii) the abandonment of the sale and purchase of the Common Shares and the
Warrants shall be applicable only to such Buyer providing such written notice,
provided further that no such termination shall affect any obligation of the
Company under this Agreement to reimburse such Buyer for the expenses described
in Section 4(g) above. Nothing contained in this Section 8 shall be deemed to
release any party from any liability for any breach by such party of the terms
and provisions of this Agreement or the other Transaction Documents or to impair
the right of any party to compel specific performance by any other party of its
obligations under this Agreement or the other Transaction Documents.
9. MISCELLANEOUS.
- ----------------
(a) GOVERNING LAW; JURISDICTION; JURY TRIAL. The parties hereby agree
that pursuant to 735 Illinois Compiled Statutes 105/5-5 they have chosen that
all questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by the internal laws of the
State of Illinois, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Illinois or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of Illinois. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in Chicago, Illinois, 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
-32-
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. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE TO, 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 OR ANY TRANSACTION CONTEMPLATED HEREBY.
(b) 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. In the event that any signature is
delivered by facsimile transmission or by an e-mail which contains a portable
document format (.pdf) file of an executed signature page, such signature page
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) with the same force and effect as if such
signature page were an original thereof.
(c) HEADINGS; GENDER. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement. Unless the context clearly indicates
otherwise, each pronoun herein shall be deemed to include the masculine,
feminine, neuter, singular and plural forms thereof. The terms "including,"
"includes," "include" and words of like import shall be construed broadly as if
followed by the words "without limitation." The terms "herein," "hereunder,"
"hereof" and words of like import refer to this entire Agreement instead of just
the provision in which they are found.
(d) SEVERABILITY. If any provision of this Agreement is prohibited by
law or otherwise determined to be invalid or unenforceable by a court of
competent jurisdiction, the provision that would otherwise be prohibited,
invalid or unenforceable shall be deemed amended to apply to the broadest extent
that it would be valid and enforceable, and the invalidity or unenforceability
of such provision shall not affect the validity of the remaining provisions of
this Agreement so long as this Agreement as so modified continues to express,
without material change, the original intentions of the parties as to the
subject matter hereof and the prohibited nature, invalidity or unenforceability
of the provision(s) in question does not substantially impair the respective
expectations or reciprocal obligations of the parties or the practical
realization of the benefits that would otherwise be conferred upon the parties.
The parties will endeavor in good faith negotiations to replace the prohibited,
invalid or unenforceable provision(s) with a valid provision(s), the effect of
which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).
(e) ENTIRE AGREEMENT; AMENDMENTS. This Agreement, the other Transaction
Documents and the schedules and exhibits attached hereto and thereto and the
instruments referenced herein and therein supersede all other prior oral or
written agreements between the Buyers, the Company, their affiliates and Persons
acting on their behalf solely with respect to the matters contained herein and
therein, and this Agreement, the other Transaction Documents, the schedules and
exhibits attached hereto and thereto and the instruments referenced herein and
therein contain the entire understanding of the parties solely with respect to
the matters covered herein and therein; provided, however, nothing contained in
this Agreement or any other Transaction Document shall (or shall be deemed to)
-33-
(i) have any effect on any agreements any Buyer has entered into with the
Company or any of its Subsidiaries prior to the date hereof with respect to any
prior investment made by such Buyer in the Company or (ii) waive, alter, modify
or amend in any respect any obligations of the Company or any of its
Subsidiaries, or any rights of or benefits to any Buyer or any other Person, in
any agreement entered into prior to the date hereof between or among the Company
and/or any of its Subsidiaries and any Buyer and all such agreements shall
continue in full force and effect. Except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. For clarification
purposes, the Recitals are part of this Agreement. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and each of the Buyers. No waiver shall be effective unless it is in
writing and signed by an authorized representative of the waiving party. No
consideration shall be offered or paid to any Person to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration also is offered to all of the parties to the
Transaction Documents, all holders of Common Shares or all holders of the
Warrants (as the case may be). The Company has not, directly or indirectly, made
any agreements with any Buyers relating to the terms or conditions of the
transactions contemplated by the Transaction Documents except as set forth in
the Transaction Documents. Without limiting the foregoing, the Company confirms
that, except as set forth in this Agreement, no Buyer has made any commitment or
promise or has any other obligation to provide any financing to the Company, any
Subsidiary or otherwise. As a material inducement for each Buyer to enter into
this Agreement, the Company expressly acknowledges and agrees that (i) no due
diligence or other investigation or inquiry conducted by a Buyer, any of its
advisors or any of its representatives shall affect such Buyer's right to rely
on, or shall modify or qualify in any manner or be an exception to any of, the
Company's representations and warranties contained in this Agreement or any
other Transaction Document and (ii) unless a provision of this Agreement or any
other Transaction Document is expressly preceded by the phrase "except as
disclosed in the SEC Documents," nothing contained in any of the SEC Documents
shall affect such Buyer's right to rely on, or shall modify or qualify in any
manner or be an exception to any of, the Company's representations and
warranties contained in this Agreement or any other Transaction Document.
(f) NOTICES. Any notices, consents, waivers 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) Business Day after deposit
with an overnight courier service with next day delivery specified, in each
case, properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
-34-
If to the Company:
3200 W. Valhalla Drive
Burbank, California 91505
Telephone: (800) 900-9729
Facsimile: (818) 260-0445
Attention: Chief Executive Officer
With a copy (for informational purposes only) to:
Richardson & Associates 1453 3rd Street
Promenade #315 Santa Monica, CA 90401-3419
Telephone: (310) 393-9992 Facsimile: (310)
393-2004 Attention: Mark Richardson, Esq.
If to the Transfer Agent:
Mountain Share Transfer Company
1625 Abilene Dr.
Broomfield, Colorado 80020
Telephone: (303) 460-1149
Facsimile: (303) 438-9243
Attention: Beth Powell
If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers, with copies to such Buyer's representatives as set forth on the Schedule
of Buyers,
with a copy (for informational purposes only) to:
Greenberg Traurig, LLP
77 W. Wacker Drive, Suite 3100
Chicago, Illinois 60601
Telephone: (312) 456-8400
Facsimile: (312) 456-8435
Attention: Peter H. Lieberman, Esq.
Todd A. Mazur, Esq.
or to such other address and/or facsimile number and/or to the attention of such
other Person as the recipient party has specified by written notice given to
each other party five (5) days prior to the effectiveness of such change,
provided that Greenberg Traurig, LLP shall only be provided copies of notices
sent to Cranshire. Written confirmation of receipt (A) given by the recipient of
such notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by an overnight courier service shall be rebuttable
evidence of personal service, receipt by facsimile or receipt from an overnight
courier service in accordance with clause (i), (ii) or (iii) above,
respectively.
-35-
(g) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including, as contemplated below, any assignee of any of the Securities. The
Company shall not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each of the Buyers, including, without
limitation, by way of a Fundamental Transaction (as defined in the Warrants)
(unless the Company is in compliance with the applicable provisions governing
Fundamental Transactions set forth in the Warrants). A Buyer may assign some or
all of its rights hereunder in connection with any transfer of any of its
Securities without the consent of the Company, in which event such assignee
shall be deemed to be a Buyer hereunder with respect to such assigned rights.
(h) NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, other than the Indemnitees referred to in Section 9(k).
(i) SURVIVAL. The representations, warranties, agreements and covenants
shall survive the Closing. Each Buyer shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.
(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
any 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) INDEMNIFICATION. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer and each holder of any Securities and all of their stockholders, partners,
members, officers, directors, employees and direct or indirect investors and any
of the foregoing Persons' 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 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 (a) any misrepresentation or breach of any
representation or warranty made by the Company in any of the Transaction
Documents, (b) any breach of any covenant, agreement or obligation of the
Company contained in any of the Transaction Documents or (c) any cause of
action, suit or claim brought or made against such Indemnitee by a third party
(including for these purposes a derivative action brought on behalf of the
Company) and arising out of or resulting from (i) the execution, delivery,
performance or enforcement of any of the Transaction Documents, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, (iii) any
disclosure properly made by such Buyer pursuant to Section 4(i), or (iv) the
-36-
status of such Buyer or holder of the Securities as an investor in the Company
pursuant to the transactions contemplated by the Transaction Documents, except,
solely with respect to clause (c)(iv), to the extent such Indemnified Liability
arises solely from an Indemnitee's gross negligence. To the extent that the
foregoing undertaking by the Company may be unenforceable for any reason, the
Company shall make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities which is permissible under applicable law.
Except as otherwise set forth herein, the mechanics and procedures with respect
to the rights and obligations under this Section 9(k) shall be the same as those
set forth in Section 6 of the Registration Rights Agreement.
(l) 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. No specific
representation or warranty shall limit the generality or applicability of a more
general representation or warranty. Each and every reference to share prices,
shares of Common Stock and any other numbers in this Agreement that relate to
the Common Stock shall be automatically adjusted for stock splits, stock
combinations and other similar transactions that occur with respect to the
Common Stock after the date of this Agreement.
(m) REMEDIES. Each Buyer and each holder of any Securities shall have
all rights and remedies set forth in the Transaction Documents 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 breach of any provision of this
Agreement and to exercise all other rights granted by law. Furthermore, the
Company recognizes that in the event that it fails to perform, observe, or
discharge any or all of its obligations under the Transaction Documents, any
remedy at law may prove to be inadequate relief to the Buyers. The Company
therefore agrees that the Buyers shall be entitled to seek specific performance
and/or temporary, preliminary and permanent injunctive or other equitable relief
from any court of competent jurisdiction in any such case without the necessity
of proving actual damages and without posting a bond or other security.
(n) WITHDRAWAL RIGHT. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) the Transaction
Documents, whenever any Buyer exercises a right, election, demand or option
under a Transaction Document and the Company does not timely perform its related
obligations within the periods therein provided, then such Buyer may rescind or
withdraw, in its sole discretion from time to time upon written notice to the
Company, any relevant notice, demand or election in whole or in part without
prejudice to its future actions and rights.
(o) PAYMENT SET ASIDE; CURRENCY. To the extent that the Company makes a
payment or payments to any Buyer hereunder or pursuant to any of the other
Transaction Documents or any of the Buyers enforce or exercise their 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, foreign, state or federal law, common law or
equitable cause of action), then to the extent of any such restoration the
-37-
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. Until the day immediately following
the ninety (90) day anniversary of the Applicable Date, the Company shall not
effect any stock combination, reverse stock split or other similar transaction
(or make any public announcement or disclosure with respect to any of the
foregoing) without the prior written consent of each of the Buyers. Unless
otherwise expressly indicated, all dollar amounts referred to in this Agreement
and the other Transaction Documents are in United States Dollars ("U.S.
DOLLARS"), and all amounts owing under this Agreement and all other Transaction
Documents shall be paid in U.S. Dollars. All amounts denominated in other
currencies (if any) shall be converted in the U.S. Dollar equivalent amount in
accordance with the Exchange Rate on the date of calculation. "EXCHANGE RATE"
means, in relation to any amount of currency to be converted into U.S. Dollars
pursuant to this Agreement, the U.S. Dollar exchange rate as published in the
Wall Street Journal on the relevant date of calculation.
(p) JUDGMENT CURRENCY.
(i) If for the purpose of obtaining or enforcing judgment
against the Company in any court in any jurisdiction it becomes
necessary to convert into any other currency (such other currency being
hereinafter in this Section 9(p) referred to as the "JUDGMENT
CURRENCY") an amount due in U.S. Dollars under this Agreement or any
other Transaction Document, the conversion shall be made at the
Exchange Rate prevailing on the Trading Day immediately preceding: (1)
the date actual payment of the amount due, in the case of any
proceeding in the courts of Illinois or in the courts of any other
jurisdiction that will give effect to such conversion being made on
such date or (2) the date on which the foreign court determines, in the
case of any proceeding in the courts of any other jurisdiction (the
date as of which such conversion is made pursuant to this Section
9(p)(i) being hereinafter referred to as the "JUDGMENT CONVERSION
DATE").
(ii) If in the case of any proceeding in the court of any
jurisdiction referred to in Section 9(p)(i) above, there is a change in
the Exchange Rate prevailing between the Judgment Conversion Date and
the date of actual payment of the amount due, the applicable party
shall pay such adjusted amount as may be necessary to ensure that the
amount paid in the Judgment Currency, when converted at the Exchange
Rate prevailing on the date of payment, will produce the amount of U.S.
Dollars which could have been purchased with the amount of Judgment
Currency stipulated in the judgment or judicial order at the Exchange
Rate prevailing on the Judgment Conversion Date.
(iii) Any amount due from the Company under this provision
shall be due as a separate debt and shall not be affected by judgment
being obtained for any other amounts due under or in respect of this
Agreement or any other Transaction Document.
(q) INDEPENDENT NATURE OF BUYERS' OBLIGATIONS AND RIGHTS. The
obligations of each Buyer under the Transaction Documents are several and not
joint with the obligations of any other Buyer, and no Buyer shall be responsible
in any way for the performance of the obligations of any other Buyer under any
Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall be
deemed to constitute the Buyers as, and the Company acknowledges that the Buyers
do not so constitute, a partnership, an association, a joint venture or any
other kind of group or entity, or create a presumption that the Buyers are in
any way acting in concert or as a group or entity with respect to such
-38-
obligations or the transactions contemplated by the Transaction Documents or any
matters, and the Company acknowledges that the Buyers are not acting in concert
or as a group, and the Company shall not assert any such claim, with respect to
such obligations or the transactions contemplated by the Transaction Documents.
The decision of each Buyer to purchase Securities pursuant to the Transaction
Documents has been made by such Buyer independently of any other Buyer. Each
Buyer acknowledges that no other Buyer has acted as agent for such Buyer in
connection with such Buyer making its investment hereunder and that no other
Buyer will be acting as agent of such Buyer in connection with monitoring such
Buyer's investment in the Securities or enforcing its rights under the
Transaction Documents. The Company and each Buyer confirms that each Buyer has
independently participated with the Company in the negotiation of the
transaction contemplated hereby with the advice of its own counsel and advisors.
Each Buyer shall be entitled to independently protect and enforce its rights,
including, without limitation, the rights arising out of this Agreement or out
of any other Transaction Documents, and it shall not be necessary for any other
Buyer to be joined as an additional party in any proceeding for such purpose.
The use of a single agreement to effectuate the purchase and sale of the
Securities contemplated hereby was solely in the control of the Company, not the
action or decision of any Buyer, and was done solely for the convenience of the
Company and not because it was required or requested to do so by any Buyer. It
is expressly understood and agreed that each provision contained in this
Agreement and in each other Transaction Document is between the Company and a
Buyer, solely, and not between the Company and the Buyers collectively and not
between and among the Buyers.
[SIGNATURE PAGES FOLLOW]
-39-
IN WITNESS WHEREOF, Buyer and the Company have caused their respective
signature page to this Agreement to be duly executed as of the date first
written above.
COMPANY:
IMAGING3, INC.
By:/s/ Dean Janes
___________________________________
Name: Dean Janes
Title: Chief Executive Officer
-40-
IN WITNESS WHEREOF, Buyer and the Company have caused their respective
signature page to this Agreement to be duly executed as of the date first
written above.
BUYER:
CRANSHIRE CAPITAL, L.P.
By: Downsview Capital, Inc.
Its: General Partner
/s/ Mitchell P. Kopin
------------------------------
By: Mitchell P. Kopin
Its: President
-41-
IN WITNESS WHEREOF, Buyer and the Company have caused their respective
signature page to this Agreement to be duly executed as of the date first
written above.
BUYER:
FREESTONE ADVANTAGE PARTNERS, L.P.
/s/ Keith Goodman
------------------------------
By: Keith Goodman
Its: Common Manager
-42-
SCHEDULE OF BUYERS
(1) (2) (3) (4) (5) (6) (7) (8)
NUMBER NUMBER NUMBER
NUMBER OF OF OF LEGAL
ADDRESS AND FACSIMILE NUMBER OF SERIES A SERIES B SERIES C REPRESENTATIVE'S
COMMON WARRANT WARRANT WARRANT PURCHASE ADDRESS AND
BUYER SHARES SHARES SHARES SHARES PRICE FACSIMILE NUMBER
- ----------------------- ---------------------------- --------- --------- --------- --------- ----------- -----------------------
3100 Dundee Road, Suite 703 4,518,349 4,518,349 4,518,349 4,518,349 $985,000.08 Greenberg Traurig, LLP
Northbrook, Illinois 60062 77 W. Wacker Drive,
Attn: Mitchell P. Kopin Suite 3100
CRANSHIRE CAPITAL, L.P. Facsimile: (847) 562-9031 Chicago, Illinois 60601
Attention:
Peter H. Lieberman
Todd A. Mazur
Facsimile:(312)456-8435
FREESTONE ADVANTAGE 3100 Dundee Road, Suite 703
PARTNERS, LP Northbrook, Illinois 60062 68,808 68,808 68,808 68,808 $15,000.14
Attn: Mitchell P. Kopin
Facsimile: (847) 562-9031 Elected Not To Provide