SECURITIES PURCHASE AGREEMENT
DATED AS OF
OCTOBER 14, 2002
BY AND AMONG
E-REX, INC.
A NEVADA CORPORATION
AS THE ISSUER,
AND
THE PURCHASERS LISTED ON SCHEDULE I ATTACHED HERETO
SECURITIES PURCHASE AGREEMENT
AGREEMENT, dated as of October 14, 2002, among E-Rex, Inc., a Nevada
corporation (the "Company"), and the Purchasers listed on Schedule I attached
hereto (each a "Purchaser" and collectively, the "Purchasers").
R E C I T A L S:
WHEREAS, the Company desires to sell and issue to the Purchasers, and the
Purchasers desire to purchase from the Company, $500,000 aggregate principal
amount of the Company's 10% Convertible Notes (the "Convertible Notes"), with
terms and conditions as set forth in the form of Convertible Note attached
hereto as Exhibit A; and
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WHEREAS, the Convertible Notes will be convertible into shares of the
Company's common stock, par value $0.001 per share (the "Common Stock"); and
WHEREAS, in order to induce the Purchasers to enter into the transactions
described in this Agreement, the Company desires to issue to the Purchasers
warrants to purchase an aggregate of 5,000,000 shares of Common Stock on the
terms and conditions described in the form of the common stock purchase warrant
attached hereto as Exhibit B ("Warrants"); and
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WHEREAS, the Purchasers will have certain registration rights with respect
to shares of Common Stock issuable (i) as interest under, and upon conversion
of, the Convertible Notes (collectively, the "Conversion Shares"), and (ii) upon
exercise of the Warrants (the "Warrant Shares"), all as set forth in the
Registration Rights Agreement in the form attached hereto as Exhibit C; and
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NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions.
The following terms, as used herein, have the following meanings:
"Affiliate" means, with respect to any Person (the "Subject Person"), (i)
any other Person (a "Controlling Person") that directly, or indirectly through
one or more intermediaries, Controls the Subject Person or (ii) any other Person
(other than the Subject Person) which is Controlled by or is under common
Control with a Controlling Person.
"Agreement" means this Securities Purchase Agreement, as amended, supple-
mented or otherwise modified from time to time in accordance with its terms.
"Balance Sheet Date" has the meaning set forth in Section 4.7.
"Benefit Arrangement" means at any time an employee benefit plan within the
meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and
which is maintained or otherwise contributed to by the Company.
"Benefit Plans" has the meaning set forth in Section 4.9(b).
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized or required by law
to close.
"Capital Reorganization" has the meaning set forth in Section 7.13.
"Closing Bid Price" shall mean for any security as of any date, the highest
closing bid price as reported by Bloomberg, L.P. ("Bloomberg") on the principal
securities exchange or trading market where such security is listed or traded
or, if the foregoing does not apply, the highest closing bid price of such
security in the over-the-counter market on the electronic bulletin board, or, if
no highest trading price is reported for such security by the electronic
bulletin board, then the average of the bid prices of any market makers for such
security as reported in the "pink sheets" by the National Quotation Bureau, Inc.
"Closing Date" has the meaning set forth in Section 2.2(c).
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission or any entity
succeeding to all of its material functions.
"Common Stock" means the common stock, par value $0.001 per share, of the
Company.
"Company" means E-Rex, Inc., a Nevada corporation, and its successors.
"Company Corporate Documents" means the articles of incorporation and
by-laws of the Company.
"Control" (including, with correlative meanings, the terms "Controlling,"
"Controlled by" and under "common Control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that Person, whether
through the ownership of voting securities, by contract or otherwise.
"Conversion Date" shall mean the date of delivery (including delivery via
telecopy) of a Notice of Conversion for all or a portion of a Convertible Note
by the holder thereof to the Company as specified in each Convertible Note.
"Conversion Price" has the meaning set forth in the Convertible Notes.
"Conversion Shares" has the meaning set forth in the Recitals.
"Convertible Notes" means the Company's 10% Convertible Notes in the form
attached hereto as Exhibit A hereto.
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"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments
issued by such Person, (iii) all obligations of such Person as lessee which (x)
are capitalized in accordance with GAAP or (y) arise pursuant to sale-leaseback
transactions, (iv) all reimbursement obligations of such Person in respect of
letters of credit or other similar instruments, (v) all Debt of others secured
by a Lien on any asset of such Person, whether or not such Debt is otherwise an
obligation of such Person and (vi) all Debt of others Guaranteed by such Person.
"Default" means any event or condition which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Default Conversion Price" has the meaning set forth in the Convertible
Notes.
"Directors" means the individuals then serving on the Board of Directors or
similar such management council of the Company.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or other govern-
mental restrictions relating to the environment or to emissions, discharges or
releases of pollutants, contaminants, petroleum or petroleum products, chemicals
or industrial, toxic or hazardous substances or wastes into the environment,
including, without limitation, ambient air, surface water, ground water, or
land, or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants, contaminants,
petroleum or petroleum products, chemicals or industrial, toxic or hazardous
substances or wastes or the cleanup or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Company and all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control that, together with the Company, are treated as a single employer
under the Code.
"Escrow Agent" means The Lebrecht Group, APLC.
"Event of Default" has the meaning set forth in Article XI hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" has the meaning set forth in Section 1.2.
"Guarantee" by any Person means any obligation, contingent or otherwise,
of such Person directly or indirectly guaranteeing (whether by virtue of
partnership arrangements, by agreement to keep well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain a minimum net worth,
financial ratio or similar requirements, or otherwise) any Debt of any other
Person and, without limiting the generality of the foregoing, any obligation,
direct or indirect, contingent or otherwise, of such Person (i) to purchase or
pay (or advance or supply funds for the purchase or payment of) such Debt or
(ii) entered into for the purpose of assuring in any other manner the holder of
such Debt of the payment thereof or to protect such holder against loss in
respect thereof (in whole or in part); provided that the term Guarantee shall
not include endorsements for collection or deposit in the ordinary course of
business. The term Guarantee used as a verb has a corresponding meaning.
"Hazardous Materials" means any hazardous materials, hazardous wastes,
hazardous constituents, hazardous or toxic substances or petroleum products
(including crude oil or any derivative or fraction thereof), defined or
regulated as such in or under any Environmental Laws.
"Holder" or "Holders" has the meaning set forth in the Convertible Notes.
"Intellectual Property" has the meaning set forth in Section 4.18.
"Investment" means any investment in any Person, whether by means of share
purchase, partnership interest, capital contribution, loan, time deposit or
otherwise.
"Lien" means, any lien, mechanic's lien, materialmen's lien, lease,
easement, charge, encumbrance, mortgage, conditional sale agreement, title
retention agreement, agreement to sell or convey, option, claim, title imper-
fection, encroachment or other survey defect, pledge, restriction, security
interest or other adverse claim, whether arising by contract or under law or
otherwise (including, without limitation, any financing lease having sub-
stantially the same economic effect as any of the foregoing, and the filing of
any financing statement under the Uniform Commercial Code or comparable law of
any jurisdiction in respect of any of the foregoing).
"Majority Holders" means (i) as of the Closing Date, the Purchasers and
(ii) at any time thereafter, the holders of more than 50% in aggregate principal
amount of the Convertible Notes outstanding at such time.
"Market Price" shall mean the Closing Bid Price of the Common Stock
preceding the date of determination.
"Material Plan" means at any time a Plan or Plans having aggregate Unfunded
Liabilities in excess of $500,000.
"Maturity Date" shall mean the date of maturity of the Convertible Notes.
"Notice of Conversion" means the form to be delivered by a holder of a
Convertible Note upon conversion of all or a portion thereof to the Company in
the form of Exhibit I to the form of Convertible Note.
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"Notice of Exercise" means the form to be delivered by a holder of a
Warrant upon exercise of all or a portion thereof to the Company in the form of
Exhibit I to the form of Warrant.
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"Officer's Certificate" shall mean a certificate executed by the President,
chief executive officer or chief financial officer of the Company in the form of
Exhibit D attached hereto.
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"Other Taxes" has the meaning set forth in Section 3.6(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permits" means all domestic and foreign licenses, franchises, grants,
authorizations, permits, easements, variances, exemptions, consents, certifi-
cates, orders and approvals necessary to own, lease and operate the properties
of, and to carry on the business of the Company.
"Person" means an individual, corporation, partnership, trust, incorporated
or unincorporated association, joint venture, joint stock company, government
(or any agency or political subdivision thereof) or other entity of any kind.
"Plan" means at any time an employee pension benefit plan which is covered
by Title IV of ERISA or subject to the minimum funding standards under the Code
and either (i) is maintained, or contributed to, by any member of the ERISA
group for employees of any member of the ERISA group or (ii) has at any time
within the preceding five years been maintained, or contributed to, by any
Person which was at such time a member of the ERISA Group for employees of any
Person which was at such time a member of the ERISA group.
"Purchase Price" means the purchase price for the Securities set forth in
Section 2.2(a) hereof.
"Purchasers" means, collectively, those entities listed on the signature
page hereto and their successors and assigns, including holders from time to
time of the Convertible Notes.
"Registrable Securities" has the meaning set forth in Section 10.2(a).
"Registration Statement" has the meaning set forth in Section 10.2(b).
"Registration Rights Agreement" means the agreement between the Company and the
Purchasers dated the date hereof in the form set forth in Exhibit C attached
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hereto.
"SEC Reports" shall have the meaning set forth in Section 4.7.
"Securities" means the Convertible Notes, the Warrants and, as applicable,
the Conversion Shares and the Warrant Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which (x) a majority of the capital stock or other ownership interests
having ordinary voting power to elect a majority of the Board of Directors or
other persons performing similar functions are at the time directly or
indirectly owned by such Person or (y) the results of operations, the assets and
the liabilities of which are consolidated with such Person under GAAP.
"Taxes" has the meaning set forth in Section 3.6.
"Trading Day" shall mean any Business Day on which the automated quotation
system or exchange on which the Common Stock is then traded is open for trading
for at least four (4) hours.
"Transaction Agreements" means this Agreement, the Convertible Notes, the
Warrants, and the Registration Rights Agreement.
"Transfer" means any disposition of Securities that would constitute a sale
thereof under the Securities Act.
"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the present value of all benefits under such Plan
exceeds (ii) the fair market value of all Plan assets allocable to such benefits
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"Warrants" means the Common Stock Purchase Warrants issued to the
Purchasers for 5,000,000 shares of Common Stock in the aggregate on the Closing
Date in the form of Exhibit B attached hereto.
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"Warrant Shares" has the meaning set forth in the Recitals.
SECTION 1.2. Accounting Terms and Determinations.
Unless otherwise specified herein, all accounting terms used herein shall
be interpreted, all accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder shall be prepared, in
accordance with generally accepted accounting principles as in effect from time
to time, applied on a consistent basis (except for changes concurred in by the
Company's independent public accountants) ("GAAP"). All references to "dollars,"
"Dollars" or "$" are to United States dollars unless otherwise indicated.
ARTICLE II
PURCHASE AND SALE OF SECURITIES
SECTION 2.1. Authorization of Securities.
(a) The Company has duly authorized the issuance of its 10% Convertible
Notes in the original aggregate principal amount of up to $500,000, in the form
annexed hereto as Exhibit A.
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(b) The Company has duly authorized the issuance of Warrants to purchase up
to 5,000,000 shares of Common Stock in the form annexed hereto as Exhibit B.
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The Warrants shall be exercisable at any time during the two (2) year period
commencing at the Closing.
SECTION 2.2. Purchase and Sale of Convertible Notes.
(a) Subject to the terms and conditions set forth herein, the Company
agrees to issue and sell to each Purchaser, and each Purchaser severally agrees
to purchase from the Company, on the Closing Date (as hereinafter defined),
Convertible Notes in the principal amount set opposite its name on Schedule I
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for a purchase price of 100% of the principal amount thereof (the "Purchase
Price"). Each Purchaser shall deliver a check in payment of the Purchase Price
to the Escrow Agent according to the schedule set forth in each respective
Convertible Note.
(b) In connection with the Purchasers agreement to purchase the Convertible
Notes, the Company shall issue and deliver to the Purchasers Warrants to
purchase the number of shares of Common Stock set forth opposite its name on
Schedule I. No part of the purchase price of the Convertible Notes shall be
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allocated to the Warrants.
(c) The closing for the purchase and sale of the Convertible Notes shall be
held on such date (the "Closing Date"), not later than October ___, 2002, that
the Escrow Agent receives the Convertible Notes and Warrants registered in the
names of the Purchasers in the principal amounts and numbers, respectively, set
forth on Schedule I, duly executed by the Company.
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SECTION 2.3. Deliveries.
On the Closing Date, subject to the satisfaction of all terms and
conditions set forth herein, the Escrow Agent shall deliver to each Purchaser,
Convertible Notes duly executed on behalf of the Company registered in the name
of such Purchaser in the principal amount set opposite its name on Schedule I
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annexed hereto, together with Warrants duly executed on behalf of the Company to
purchase the number of shares of Common Stock set forth opposite the name of
such Purchaser on Schedule I, registered in the name of such Purchaser.
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ARTICLE III
PAYMENT TERMS OF CONVERTIBLE NOTE
SECTION 3.1. Payment of Principal and Interest.
The Company will pay all amounts due on each Convertible Note by the method
and at the address specified for such purpose by the applicable Purchaser in
writing, without the presentation or surrender of any Convertible Note or the
making of any notation thereon, except that upon written request of the Company
made concurrently with or reasonably promptly after payment or prepayment in
full of the Convertible Note, the holder shall surrender the Convertible Note
for cancellation, reasonably promptly after any such request, to the Company at
its principal executive office. Prior to any sale or other disposition of any
Convertible Note, the holder thereof will, at its election, either endorse
thereon the amount of principal paid thereon and the last date to which interest
has been paid thereon or surrender the Convertible Note to the Company in
exchange for a new Convertible Note or Convertible Notes. The Company will
afford the benefits of this Section 3.1 to any direct or indirect transferee of
the Convertible Note purchased under this Agreement and that has made the same
agreement relating to this Convertible Note as the Purchaser has in this Section
3.1; provided that such transferee is an "accredited investor" under Rule 501 of
the Securities Act.
SECTION 3.2. Payment of Interest.
Interest shall accrue on the outstanding principal amount of each
Convertible Note and shall be payable in the manner set forth in the Convertible
Note.
SECTION 3.3. Voluntary Prepayment.
For so long as no Event of Default shall have occurred and is continuing,
the Company may, at its option, repay, in whole or in part, the Convertible
Notes at 130% of the principal amount thereof, plus accrued but unpaid interest
through the date of prepayment following at least five (5) Business Days prior
written notice to the Purchasers (the expiration of such five (5) Business Day
period being referred to as the "prepayment date"); provided, however, that if
such date is not a Business Day, the prepayment date shall be the next Business
Day thereafter. Partial prepayments shall be in an aggregate principal amount of
at least $50,000 and a principal amount of at least $5,000 or a multiple thereof
for the Convertible Notes purchased from any Holder, unless all of the
Convertible Notes registered in the name of the Holder are to be redeemed.
SECTION 3.4. Mandatory Prepayments.
Upon (i) a transfer of all or substantially all of the assets of the
Company to any Person in a single transaction or series of related transactions,
or (ii) a consolidation, merger or amalgamation of the Company with or into
another Person in which the Company is not the surviving entity (other than a
merger which is effected solely to change the jurisdiction of incorporation of
the Company and results in a reclassification, conversion or exchange of
outstanding shares of Common Stock solely into shares of Common Stock) (each of
items (i) and (ii) being referred to as a "Sale Event"), then, in each case, the
Company shall, upon request of any Holder, redeem the Convertible Notes
registered in the name of such Holder in cash for 130% of the principal amount,
plus accrued but unpaid interest through the date of redemption, or at the
election of the Holder, such Holder may convert the unpaid principal amount of
such Convertible Notes (together with the amount of accrued but unpaid interest)
into shares of Common Stock at the Conversion Price.
SECTION 3.5. Prepayment Procedures.
(a) Any permitted prepayment or redemption of the Convertible Notes
pursuant to Sections 3.3 or 3.4 above shall be deemed to be effective and
consummated (for purposes of determining the time at which the Purchasers shall
thereafter not be entitled to deliver a Notice of Conversion for the Convertible
Notes) as follows:
(i) A prepayment pursuant to Section 3.3, the "prepayment date"
specified therein;
(ii) A redemption pursuant to Section 3.4, the date of consummation of
the applicable Sale Event;
(b) On the Maturity Date and on the effective date of a repayment or
redemption of the Convertible Notes as specified in Section 3.5(a) above, the
Company shall deliver by wire transfer of funds the repayment/redemption price
to each Purchaser of the Convertible Notes subject to redemption. Should any
Purchaser not receive payment of any amounts due on redemption of its
Convertible Notes by reason of the Company's failure to make payment at the
times prescribed above for any reason, the Company shall pay to the applicable
holder on demand (x) interest on the sums not paid when due at an annual rate
equal to the lesser of (i) the maximum lawful rate and (ii) 2% per annum,
compounded at the end of each thirty (30) days, until the applicable holder is
paid in full and (y) all costs of collection, including, but not limited to,
reasonable attorneys' fees and costs, whether or not suit or other formal
proceedings are instituted.
(c) The Company shall select the Convertible Notes to be redeemed in
any redemption in which not all of the Convertible Notes are to be redeemed so
that the ratio of the Convertible Notes of each holder selected for redemption
to the total Convertible Notes owned by that holder shall be the same as the
ratio of all such Convertible Notes selected for redemption bears to the total
of all then outstanding Convertible Notes. Should any Convertible Notes required
to be redeemed under the terms hereof not be redeemed solely by reason of
limitations imposed by law, the applicable Convertible Notes shall be redeemed
on the earliest possible dates thereafter to the maximum extent permitted by
law.
(d) Any Notice of Conversion delivered by any Purchaser (including
delivery via telecopy) to the Company prior to the (x) Maturity Date or (y)
effective date of a voluntary repayment pursuant to Section 3.3 or a mandatory
prepayment pursuant to Section 3.4 as specified in Section 3.5(a) above), shall
be honored by the Company and the conversion of the Convertible Notes shall be
deemed effected on the Conversion Date. In addition, between the effective date
of a voluntary prepayment pursuant to Section 3.3 or a mandatory prepayment
pursuant to Section 3.4 as specified in Section 3.5(a) above and the date the
Company is required to deliver the redemption proceeds in full to the
Purchasers, the Purchasers may deliver a Notice of Conversion to the Company.
Such notice will be (x) of no force or effect if the Company timely pays the
redemption proceeds to the Purchasers when due or (y) honored on or as of the
date the Notice of Conversion if the Company fails to timely pay the redemption
proceeds to the Purchasers when due.
SECTION 3.6. Payment of Additional Amounts.
(a) Any and all payments by the Company hereunder or under the
Convertible Notes to any Purchaser and each "qualified assignee" thereof shall
be made free and clear of and without deduction or withholding for any and all
present or future taxes, levies, imposts, deductions, charges or withholdings,
and all liabilities with respect thereto (all such taxes, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter referred to
as "Taxes") unless such Taxes are required by law or the administration thereof
to be deducted or withheld. If the Company shall be required by law or the
administration thereof to deduct or withhold any Taxes from or in respect of any
sum payable under the Convertible Notes (i) the holders of Convertible Notes
subject to such Taxes shall have the right, but not the obligation, for a period
of thirty (30) days commencing upon the day it shall have received written
notice form the Company that it is required to withhold Taxes to transfer all or
any portion of the Convertible Notes to a qualified assignee to the extent such
transfer can be effected in accordance with the other provisions of this
Agreement and applicable law; (ii) the Company shall make such deductions or
withholdings; (iii) the sum payable shall be increased as may be necessary so
that after making all required deductions or withholdings (including deductions
or withholdings applicable to additional amounts paid under this Section 3.6)
such Purchaser receives an amount equal to the sum it would have received if no
such deduction or withholding had been made; and (iv) the Company shall
forthwith pay the full amount deducted or withheld to the relevant taxation or
other authority in accordance with applicable law. A "qualified assignee" of a
Purchaser is a Person that is (x) organized under the laws of (i) the United
States or (ii) any jurisdiction other than the United States or any political
subdivision thereof and that (y) represents and warrants to the Company that
payments of the Company to such assignee under the laws in existence on the date
of this Agreement would not be subject to any Taxes and (z) from time to time,
as and when requested by the Company, executes and delivers to the Company and
the Internal Revenue Service forms, and provides the Company with any
information necessary to establish such assignee's continued exemption from
Taxes under applicable law.
(b) The Company shall forthwith pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges or similar
levies (all such taxes, charges and levies hereinafter referred to as "Other
Taxes") which arise from any payment made under any of the Transaction
Agreements or from the execution, delivery or registration of, or otherwise with
respect to, this Agreement other than Taxes payable solely as a result of the
transfer from the Purchasers to a Person of any Security.
(c) The Company shall indemnify each Purchaser, or qualified assignee,
for the full amount of Taxes or Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this
Section 3.6) paid by each Purchaser, or qualified assignee, and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto, unless such Taxes or Other Taxes are required by law to be deducted or
withheld. Payment under this indemnification shall be made within thirty (30)
days from the date such Purchaser or assignee makes written demand therefor. A
certificate as to the amount of such Taxes or Other Taxes submitted to the
Company by such Purchaser or assignee shall be conclusive evidence of the amount
due from the Company to such party.
(d) Within thirty (30) days after the date of any payment of Taxes,
the Company will furnish to each Purchaser the original or a certified copy of a
receipt evidencing payment thereof.
(e) Each Purchaser shall provide to the Company a Form W-8, stating
that it is a non-U.S. person, together with any additional tax forms that may be
required under the Code, as amended after the date hereof, to allow interest
payments to be made to it without deduction.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers, and each of them, as
of the Closing Date the following:
SECTION 4.1. Organization and Qualification.
The Company is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, with full power
and authority to own, lease, use and operate its properties and to carry on its
business as and where now owned, leased, used, operated and conducted. The
Company has no Subsidiaries. The Company is duly qualified to conduct business
as a foreign corporation and is in good standing in every jurisdiction in which
the nature of the business conducted by it makes such qualification necessary,
except where such failure would not have a Material Adverse Effect. A "Material
Adverse Effect" means any material adverse effect on the operations, results of
operations, properties, assets or condition (financial or otherwise) of the
Company, or on the transactions contemplated hereby or by the agreements or
instruments to be entered into in connection herewith.
SECTION 4.2. Authorization and Execution.
(a) The Company has all requisite corporate power and authority to
enter into and perform each Transaction Agreement and to consummate the
transactions contemplated hereby and thereby and to issue the Securities in
accordance with the terms hereof and thereof.
(b) The execution, delivery and performance by the Company of each
Transaction Agreement and the issuance by the Company of the Securities have
been duly and validly authorized and no further consent or authorization of the
Company, its Board of Directors or its shareholders is required.
(c) This Agreement has been duly executed and delivered by the Company.
(d) This Agreement constitutes, and upon execution and delivery thereof
by the Company, each of the other Transaction Agreements will constitute, a
valid and binding agreement of the Company, in each case enforceable against the
Company in accordance with its respective terms.
SECTION 4.3. Capitalization.
As of the date hereof, the authorized shares of Common Stock are
250,000,000 shares, and as of October 11, 2002 the issued and outstanding common
stock of the Company is 117,996,471 shares. All of such outstanding shares of
capital stock are, or upon issuance will be, duly authorized, validly issued,
fully paid and non-assessable. No shares of capital stock of the Company are
subject to preemptive rights or similar rights of the stockholders of the
Company or any liens or encumbrances imposed through the actions or failure to
act of the Company. As of the date hereof, and other than as set forth in
Schedule 4.3, (i) there are no outstanding options, warrants, scrip, rights to
subscribe for, puts, calls, rights of first refusal, agreements, understandings,
claims or other commitments or rights of any character whatsoever relating to,
or securities or rights convertible into or exchangeable for any shares of
capital stock of the Company, or arrangements by which the Company is or may
become bound to issue additional shares of capital stock of the Company, and
(ii) there are no agreements or arrangements under which the Company is
obligated to register the sale of any of its securities under the Securities Act
(except pursuant to the Registration Rights Agreement) and (iii) there are no
anti-dilution or price adjustment provisions contained in any security issued by
the Company (or in any agreement providing rights to security holders) that will
be triggered by the issuance of the Convertible Notes, Conversion Shares,
Warrants or Warrant Shares. The Company has furnished to Purchasers true and
correct copies of the Company's Corporate Documents, and the terms of all
securities convertible into or exercisable for Common Stock and the material
rights of the holders thereof in respect thereto.
SECTION 4.4. Governmental Authorization.
The execution and delivery by the Company of the Transaction Agreements
does not and will not, the issuance and sale by the Company of the Securities
does not and will not, and the consummation of the transactions contemplated
hereby and by the other Transaction Agreements will not, require any action by
or in respect of, or filing with, any governmental body, agency or governmental
official except (a) such actions or filings that have been undertaken or made
prior to the date hereof and that will be in full force and effect (or as to
which all applicable waiting periods have expired) on and as of the date hereof
or which are not required to be filed on or prior to the Closing Date, (b) such
actions or filings that, if not obtained, would not result in a Material Adverse
Effect, and (c) the filing of a "Form D" as described in Section 7.12 below.
SECTION 4.5. Issuance of Shares.
Upon conversion in accordance with the terms of the Convertible Notes or
upon exercise in accordance with the terms of the Warrants (assuming the payment
of the exercise price set forth in the Warrants), the Conversion Shares and
Warrant Shares shall be duly and validly issued and outstanding, fully paid and
nonassessable, free and clear of any Taxes, Liens and charges with respect to
issuance except as set forth in Article IX below and shall not be subject to
preemptive rights or similar rights of any other stockholders of the Company.
Assuming the representations and warranties of the Purchasers herein are true
and correct in all material respects, each of the Securities will have been
issued in material compliance with all applicable U.S. federal and state
securities laws. The Company understands and acknowledges that, in certain
circumstances, the issuance of Conversion Shares and Warrant Shares could dilute
the ownership interests of other stockholders of the Company. The Company
further acknowledges that its obligation to issue Conversion Shares upon
conversion of the Convertible Notes, and Warrant Shares upon exercise of 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.
SECTION 4.6. No Conflicts.
The execution and delivery by the Company of the Transaction Agreements to
which it is a party did not and will not, the issuance and sale by the Company
of the Securities did not and will not and the consummation of the transactions
contemplated hereby and by the other Transaction Agreements will not, contravene
or constitute a default under or violation of (i) any provision of applicable
law or regulation, (ii) the Company Corporate Documents, (iii) any agreement,
judgment, injunction, order, decree or other instrument binding upon the Company
or any its assets, or result in the creation or imposition of any Lien on any
asset of the Company. The Company is in compliance with and conforms to
all statutes, laws, ordinances, rules, regulations, orders, restrictions and
all other legal requirements of any domestic or foreign government or any
instrumentality thereof having jurisdiction over the conduct of its businesses
or the ownership of its properties, except where such failure would not have a
Material Adverse Effect.
SECTION 4.7. Financial Information.
The Company has delivered to each Purchaser true and complete copies of its
(i) Annual report on Form 10-KSB for the previous two fiscal years and its
Quarterly Report on Form 10-QSB covering each quarter during the previous two
fiscal years, plus any interim periods ("SEC Reports"); (ii) all other SEC
filings made during the previous two years, along with any comment letters
issued by the SEC or any other regulatory body; and (iii) financial statements
and schedules included therein on a quarterly basis for the previous two years
through and including the most recently ended fiscal quarter ("Financial
Statements"), and such SEC Reports and Financial Statements and schedules do not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading. There have been no material adverse
changes in the Company's business, properties, results of operations, condition
(financial or otherwise) or prospects since the date of the SEC Reports and
Financial Statements that have not been disclosed to the Purchasers in writing.
The SEC Reports and Financial Statements, including the footnotes thereto,
except as indicated therein, (i) complied in all material respects with
applicable accounting requirements and the published rules and regulations of
the Commission with respect thereto and (ii) have been prepared in accordance
with GAAP consistently applied throughout the periods indicated, except that the
unaudited financial statements do not contain notes and may be subject to normal
audit adjustments and normal annual adjustments. Such SEC Reports and Financial
Statements fairly present the financial condition of the Company at the dates
indicated and its results of their operations and cash flows for the periods
then ended and, except as indicated therein, reflect all claims against and all
Debts and liabilities of the Company, fixed or contingent. Since June 30, 2002
(the "Balance Sheet Date"), there has been (x) no Material Adverse Change in the
assets or liabilities, or in the business or condition, financial or otherwise,
or in the results of operations or prospects, of the Company, whether as a
result of any legislative or regulatory change, revocation of any license or
rights to do business, fire, explosion, accident, casualty, labor trouble,
flood, drought, riot, storm, condemnation, act of God, public force or otherwise
and (y) no Material Adverse Change in the assets or liabilities, or in the
business or condition, financial or otherwise, or in the results of operations
or prospects, of the Company, except in the ordinary course of business; and no
fact or condition exists or is contemplated or threatened which might cause such
a change in the future.
SECTION 4.8. Litigation.
Other than as set forth in Schedule 4.8, there is no action, suit or
proceeding pending or, to the knowledge of the Company, threatened against the
Company, before any court or arbitrator or any governmental body, agency or
official in which there is a reasonable possibility of an adverse decision which
could materially adversely affect the business, condition (financial or
otherwise), operations, performance, properties or prospects of the Company or
which challenges the validity of any Transaction Agreements.
SECTION 4.9. Compliance with ERISA and other Benefit Plans.
(a) Each member of the ERISA Group has fulfilled its obligations under
the minimum funding standards of ERISA and the Code with respect to each Plan
and is in compliance in all material respects with the presently applicable
provisions of ERISA and the Code with respect to each Plan. No member of the
ERISA Group has (i) sought a waiver of the minimum funding standard under
Section 412 of the Code in respect of any Plan, (ii) failed to make any required
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which has resulted or could result in the imposition of a Lien or the posting of
a bond or other security under ERISA or the Code or (iii) incurred any liability
under Title IV of ERISA other than a liability to the PBGC for premiums under
Section 4007 of ERISA.
(b) The benefit plans not covered under clause (a) above (including
profit sharing, deferred compensation, stock option, employee stock purchase,
bonus, retirement, health or insurance plans, collectively the "Benefit Plans")
relating to the employees of the Company are duly registered where required by,
and are in good standing in all material respects under, all applicable laws.
All required employer and employee contributions and premiums under the Benefit
Plans to the date hereof have been made, the respective fund or funds
established under the Benefit Plans are funded in accordance with applicable
laws, and no past service funding liabilities exist thereunder.
(c) No Benefit Plans have any unfunded liabilities, either on a
"going concern" or "winding up" basis and determined in accordance with all
applicable laws and actuarial practices and using actuarial assumptions and
methods that are reasonable in the circumstances. No event has occurred and no
condition exists with respect to any Benefit Plans that has resulted or could
reasonably be expected to result in any pension plan having its registration
revoked or wound up (in whole or in part) or refused for the purposes of any
applicable laws or being placed under the administration of any relevant pension
benefits regulatory authority or being required to pay any taxes or penalties
(in any material amounts) under any applicable laws.
SECTION 4.10. Environmental Matters.
The costs and liabilities associated with Environmental Laws (including the
cost of compliance therewith) are unlikely to have a material adverse effect on
the business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company. The Company conducts its businesses in
compliance in all material respects with all applicable Environmental Laws.
SECTION 4.11. Taxes.
All United States federal, state, county, municipality local or foreign
income tax returns and all other material tax returns (including foreign tax
returns) which are required to be filed by or on behalf of the Company have been
filed and all material taxes due pursuant to such returns or pursuant to any
assessment received by the Company have been paid, except those being disputed
in good faith and for which adequate reserves have been established. The
charges, accruals and reserves on the books of the Company in respect of taxes
or other governmental charges have been established in accordance with GAAP.
SECTION 4.12. Investments, Joint Ventures.
The Company does not have a direct or indirect Investment in any Person,
and the Company is not a party to any partnership, management, shareholders' or
joint venture or similar agreement.
SECTION 4.13. Not an Investment Company.
The Company is not an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
SECTION 4.14. Full Disclosure.
The information heretofore furnished by the Company to the Purchasers for
purposes of or in connection with this Agreement or any transaction contemplated
hereby does not, and all such information hereafter furnished by the Company to
the Purchasers will not (in each case taken together and on the date as of which
such information is furnished), contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
contained therein, in the light of the circumstances under which they are made,
not misleading.
SECTION 4.15. No Solicitation; No Integration with Other Offerings.
No form of general solicitation or general advertising was used by the
Company or, to the best of its actual knowledge, any other Person acting on
behalf of the Company, in connection with the offer and sale of the Securities.
Neither the Company, nor, to its knowledge, any Person acting on behalf of the
Company, has, either directly or indirectly, sold or offered for sale to any
Person (other than the Purchasers) any of the Securities or, within the six
months prior to the date hereof, any other similar security of the Company
except as contemplated by this Agreement, and the Company represents that
neither itself nor any Person authorized to act on its behalf (except that the
Company makes no representation as to the Purchasers and their Affiliates) will
sell or offer for sale any such security to, or solicit any offers to buy any
such security from, or otherwise approach or negotiate in respect thereof with,
any Person or Persons so as thereby to cause the issuance or sale of any of the
Securities to be in violation of any of the provisions of Section 5 of the
Securities Act.
SECTION 4.16. Permits.
(a) The Company has all material Permits;
(b) all such Permits are in full force and effect, and the Company
has fulfilled and performed all material obligations with respect to such
Permits;
(c) no event has occurred which allows, or after notice or lapse of
time would allow, revocation or termination by the issuer thereof or which
results in any other material impairment of the rights of the holder of any such
Permit; and
(d) the Company has no reason to believe that any governmental body
or agency is considering limiting, suspending or revoking any such Permit.
SECTION 4.17. Absence of Any Undisclosed Liabilities or Capital Calls.
There are no liabilities of the Company of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, and there
is no existing condition, situation or set of circumstances which could
reasonably be expected to result in such a liability, other than (i) those
liabilities provided for in the financial statements delivered pursuant to
Section 4.7 hereof and (ii) other undisclosed liabilities which, individually or
in the aggregate, would not have a Material Adverse Effect.
SECTION 4.18. Intellectual Property Rights.
The Company owns, or is licensed under, and has the rights to use, all
material patents, trademarks, trade names, copyrights, technology, know-how and
processes (collectively, "Intellectual Property") used in, or necessary for the
conduct of its business; no claims have been asserted by any Person to the use
of any such Intellectual Property or challenging or questioning the validity or
effectiveness of any license or agreement related thereto. To the best of the
Company's knowledge, there is no valid basis for any such claim and the use of
such Intellectual Property by the Company will not infringe upon the rights of
any Person.
SECTION 4.19. Insurance.
The Company maintains, with financially sound and reputable insurance
companies, insurance in at least such amounts and against such risks such that
any uninsured loss would not have a Material Adverse Effect. All insurance
coverages of the Company are in full force and effect and there are no past due
premiums in respect of any such insurance.
SECTION 4.20. Title to Properties.
The Company has good and marketable title to all its properties reflected
on the financial statements referred to in Section 4.7, free and clear of all
Liens, other than Liens set forth on the Financial Statements.
SECTION 4.21. Internal Accounting Controls.
The Company maintains a system of internal accounting controls sufficient,
in the judgment of the Company's Board of Directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
SECTION 4.22. Foreign Practices.
Neither the Company nor, to the Company's knowledge, any employee or agent
of the Company has made any payments of funds of the Company, or received or
retained any funds, in each case (x) in violation of any law, rule or regulation
or (y) of a character required to be disclosed by the Company in any of the SEC
Reports.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
SECTION 5.1. Purchasers.
Each Purchaser severally (and not jointly) hereby represents and warrants
to the Company solely as to such Purchaser that:
(a) the Purchaser is an "accredited investor" within the meaning of
Rule 501(a) under the Securities Act and the Securities to be acquired by it
pursuant to this Agreement are being acquired for its own account and, as of the
date hereof, not with a view toward, or for sale in connection with, any
distribution thereof except in compliance with applicable United States federal
and state securities law; provided that the disposition of the Purchaser's
property shall at all times be and remain within its control;
(b) if the Purchaser is a corporation or partnership, the execution,
delivery and performance of this Agreement and the purchase of the Securities
pursuant hereto are within the Purchaser's corporate or partnership powers, as
applicable, and have been duly and validly authorized by all requisite corporate
or partnership action;
(c) this Agreement has been duly executed and delivered by the
Purchaser.
(d) the execution and delivery by the Purchaser of the Transaction
Agreements to which it is a party does not, and the consummation of the
transactions contemplated hereby and thereby will not, contravene or constitute
a default under or violation of (i) any provision of applicable law or
regulation, or (ii) any agreement, judgment, injunction, order, decree or other
instrument binding upon such Purchaser;
(e) such Purchaser understands that the Securities have not been
registered under the Securities Act and may not be transferred or sold except as
specified in this Agreement or the remaining Transition Agreements;
(f) this Agreement constitutes a valid and binding agreement of the
Purchaser enforceable in accordance with its terms, subject to (i) applicable
bankruptcy, insolvency or similar laws affecting the enforceability of creditors
rights generally and (ii) equitable principles of general applicability;
(g) the Purchaser has such knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of its
investment in the Securities and the Purchaser is capable of bearing the
economic risks of such investment;
(h) the Purchaser is knowledgeable, sophisticated and experienced in
business and financial matters; the Purchaser has previously invested in
securities similar to the Securities and fully understands the limitations on
transfer described herein; the Purchaser has been afforded access to information
about the Company and the financial condition, results of operations, property,
management and prospects of the Company sufficient to enable it to evaluate its
investment in the Securities; the Purchaser has been afforded the opportunity to
ask such questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and the risks of investing in the
Securities; and the Purchaser has been afforded the opportunity to obtain such
additional information which the Company possesses or can acquire that is
necessary to verify the accuracy and completeness of the information given to
the Purchaser concerning the Company. The foregoing does not in any way relieve
the Company of its representations and other undertakings hereunder, and shall
not limit any Purchaser's ability to rely thereon; and
(i) no part of the source of funds used by the Purchaser to acquire the
Securities constitutes assets allocated to any separate account maintained by
the Purchaser in which any employee benefit plan (or its related trust) has any
interest.
ARTICLE VI
CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES
SECTION 6.1. Conditions Precedent to the Purchasers' Obligation to
Purchase.
The obligation of each Purchaser hereunder to purchase the Convertible
Notes at the Closing is subject to the satisfaction, on or before the Closing
Date of each of the following conditions, provided that these conditions are for
such Purchaser's sole benefit and may be waived by such Purchaser at any time in
its sole discretion:
(a) The Company shall have executed this Agreement, the Convertible
Note, Warrant, Officer's Certificate, Escrow Agreement, and the Registration
Rights Agreement and delivered the same to the Purchasers;
(b) The Company shall have delivered to the Escrow Agent duly executed
certificates representing the Convertible Notes and the Warrants in accordance
with Section 2.3 hereof;
(c) The representations and warranties of the Company contained in each
Transaction Agreement shall be true and correct in all material respects as of
the date when made and as of the Closing Date as though made at such time
(except for representations and warranties that speak as of a specified date)
and the Company shall have performed, satisfied and complied with all covenants,
agreements and conditions required by such Transaction Agreements to be
performed, satisfied or complied with by it at or prior to the Closing Date.
The Purchasers' shall have received an Officer's 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
the Purchasers, including but not limited to certificates with respect to
the Company Corporate Documents, resolutions relating to the transactions
contemplated hereby and the incumbencies of certain officers and Directors of
the Company. The form of such certificate is attached hereto as Exhibit D;
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(d) The Company shall have received governmental, Board of Directors,
shareholders and third party consents and approvals necessary or desirable in
connection with the issuance and sale of the Securities;
(e) All applicable waiting periods in respect to the issuance and sale
of the Securities shall have expired without any action having been taken by any
competent authority that could restrain, prevent or impose any materially
adverse conditions thereon or that could seek or threaten any of the foregoing;
(f) No law or regulation shall have been imposed or enacted that, in
the judgment of the Purchasers, could adversely affect the transactions set
forth herein or in the other Transaction Agreements, and no law or regulation
shall have been proposed that in the reasonable judgment of Purchasers could
reasonably have any such effect;
(g) The Company Corporate Documents shall be in full force and effect
and no term or condition thereof shall have been amended, waived or otherwise
modified without the prior written consent of the Purchasers;
(h) There shall have occurred no material adverse change in the
business, condition (financial or otherwise), operations, performance, proper-
ties or prospects of the Company since the date of the Financial Statements;
(i) There shall exist no action, suit, investigation, litigation or
proceeding pending or threatened in any court or before any arbitrator or
governmental instrumentality that challenges the validity of or purports to
affect this Agreement or any other Transaction Agreement, or other transaction
contemplated hereby or thereby or that could reasonably be expected to have a
Material Adverse Effect, or any material adverse effect on the enforceability of
the Transaction Agreements or the Securities or the rights of the holders of the
Securities or the Purchasers hereunder;
(j) The Escrow Agent shall have confirmed receipt of the Convertible
Notes and the Warrants to be issued, duly executed by the Company in the
denominations and registered in the names of the Purchasers specified in or
pursuant to Schedule I;
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(k) There shall not have occurred any disruption or adverse change in
the financial or capital markets generally, or in the market for the Common
Stock (including but not limited to any suspension or delisting), which the
Purchasers reasonably deem material in connection with the purchase of the
Securities;
(l) Immediately before and after the Closing Date, no Default or Event
of Default shall have occurred and be continuing; and
(m) The Purchasers shall have received all other certificates, instru-
ments, agreements or other documents as they shall reasonably request.
SECTION 6.2. Conditions to the Company's Obligations.
The obligations of the Company to issue and sell the Securities to the
Purchasers pursuant to this Agreement are subject to the satisfaction, at or
prior to any Closing Date, of the following conditions:
(a) The representations and warranties of the Purchasers contained
herein shall be true and correct in all material respects on the Closing Date
and the Purchasers shall have performed and complied in all material respects
with all agreements required by this Agreement to be performed or complied with
by the Purchasers at or prior to the Closing Date;
(b) The issue and sale of the Securities by the Company shall not be
prohibited by any applicable law, court order or governmental regulation; and
(c) Receipt by the Company of duly executed counterparts of this
Agreement , the Escrow Agreement, and the Registration Rights Agreement signed
by the Purchasers.
ARTICLE VII
AFFIRMATIVE COVENANTS
The Company hereby agrees that, from and after the date hereof for so long
as any Convertible Notes remain outstanding (except for Sections 7.1, 7.9, 7.10
and 7.11, which shall apply for so long as any Convertible Notes or Warrants
remain outstanding) and for the benefit of the Purchasers:
SECTION 7.1. Information.
The Company will deliver to each holder of the Convertible Notes:
(a) promptly upon the filing thereof, copies of (i) all registration
statements (other than the exhibits thereto and any registration statements on
Form S-8 or its equivalent), and (ii) all reports on Forms 10-K, 10-Q and 8-K
(or their equivalents) which the Company has filed with the Commission; and
(b) promptly upon the mailing thereof to the shareholders of the
Company generally, copies of all financial statements, reports and proxy
statements so mailed and any other document generally distributed to
shareholders.
SECTION 7.2. Payment of Obligations.
The Company will pay and discharge, at or before maturity, all its
liabilities, except where the same may be contested in good faith by appropriate
proceedings and will maintain, in accordance with GAAP, appropriate reserves for
the accrual of any of the same.
SECTION 7.3. Maintenance of Property; Insurance.
The Company will keep all property useful and necessary in its business in
good working order and condition, ordinary wear and tear excepted. In addition,
the Company will maintain insurance in at least such amounts and against such
risks as it has insured against as of the Closing Date.
SECTION 7.4. Maintenance of Existence.
The Company will continue to engage in business of the same general type as
now conducted by it, and will preserve, renew and keep in full force and effect
its corporate existence and its material rights, privileges and franchises
necessary or desirable in the normal conduct of business.
SECTION 7.5. Compliance with Laws.
The Company will comply, in all material respects, with all federal,
state, municipal, local or foreign applicable laws, ordinances, rules, regula-
tions, municipal by-laws, codes and requirements of governmental authorities
(including, without limitation, Environmental Laws and ERISA and the rules and
regulations thereunder) except (i) where compliance therewith is contested in
good faith by appropriate proceedings or (ii) where non-compliance therewith
could not reasonably be expected, in the aggregate, to have a material adverse
effect on the business, condition (financial or otherwise), operations,
properties or prospects of the Company.
SECTION 7.6. Inspection of Property, Books and Records.
The Company will keep proper books of record and account in which full,
true and correct entries shall be made of all dealings and transactions in
relation to its business and activities; and will permit, during normal business
hours, a representative of the Purchasers to visit and inspect any of its
properties, upon reasonable prior notice, to examine and make abstracts from any
of its books and records and to discuss its affairs, finances and accounts with
its executive officers and independent public accountants (and by this provision
the Company authorizes its independent public accountants to disclose and
discuss with the Purchasers the affairs, finances and accounts of the Company),
all at such reasonable times.
SECTION 7.7. Investment Company Act.
The Company will not be or become an open-end investment trust, unit
investment trust or face-amount certificate company that is or is required to be
registered under Section 8 of the Investment Company Act of 1940, as amended.
SECTION 7.8. Use of Proceeds.
The proceeds from the issuance and sale of the Convertible Notes by the
Company shall be used for working capital purposes. None of the proceeds from
the issuance and sale of the Convertible Notes by the Company pursuant to this
Agreement will be used directly or indirectly for the purpose, whether
immediate, incidental or ultimate, of purchasing or carrying any "margin stock"
within the meaning of Regulation G of the Board of Governors of the Federal
Reserve System.
SECTION 7.9. Reserved Shares.
The Company shall at all times have authorized, and reserved for the
purpose of issuance, a sufficient number of shares of Common Stock to provide
for the full conversion of the outstanding Convertible Notes and issuance of the
Conversion Shares and the exercise in full of the Warrants and the issuance of
the Warrant Shares.
SECTION 7.10. Irrevocable Instructions.
Notwithstanding the obligation of the Company to deliver shares of common
stock to the Escrow Agent pursuant to Section 1.01(a)(ii) of the Escrow
Agreement, upon receipt of a Notice of Conversion or Notice of Exercise, as
applicable, the Company shall, within forth eight (48) business hours, issue
irrevocable instructions to its transfer agent to issue certificates, registered
in the name of the Escrow Agent, for the Conversion Shares or Warrant Shares, as
applicable, in such amounts as specified from time to time by each Purchaser to
the Company upon proper conversion of the Convertible Notes or exercise of the
Warrants. Upon conversion of any Convertible Notes in accordance with their
terms and/or exercise of any Warrants in accordance with their terms, the
Company will, and will use its best lawful efforts to cause its transfer agent
to, issue one or more certificates representing shares of Common Stock in such
name or names and in such denominations specified by a Purchaser in a Notice of
Conversion or Notice of Exercise, as the case may be. As long as the
Registration Statement contemplated by the Registration Rights Agreement shall
remain effective, the shares of Common Stock issuable upon conversion of any
Convertible Notes or exercise of any Warrants shall be issued to any transferee
of such shares from a Purchaser without any restrictive legend. The Company
further warrants and agrees that no instructions other than these instructions
have been or will be given to its transfer agent. Nothing in this Section 7.10
shall affect in any way a Purchaser's obligation to comply with all securities
laws applicable to such Purchaser upon resale of such shares of Common Stock,
including any prospectus delivery requirements.
SECTION 7.11. Maintenance of Reporting Status; Supplemental Information.
So long as any of the Securities are outstanding, the Company shall timely
file all reports required to be filed with the Commission pursuant to the
Exchange Act. The Company shall not terminate its status as an issuer required
to file reports under the Exchange Act, even if the Exchange Act or the rules
and regulations thereunder would permit such termination. If at anytime the
Company is not subject to the requirements of Section 13 or 15(d) of the
Exchange Act, the Company will promptly furnish at its expense, upon request,
for the benefit of the holders from time to time of Securities, and prospective
purchasers of Securities, information satisfying the information requirements of
Rule 144 under the Securities Act. The Company will apply to have its Common
Stock traded on the Bulletin Board Exchange ("BBX") within thirty (30) days of
when the BBX first begins to accept listing applications, and the Company's
Common Stock will trade on either the BBX or the Over the Counter Bulletin
Board.
SECTION 7.12. Form D; Blue Sky Laws.
The Company agrees to file a "Form D" with respect to the Securities as
required under Regulation D of the Securities Act and to provide a copy thereof
to each Purchaser promptly after such filing. The Company shall, on or before
the Closing Date, take such action as the Company shall reasonably determine is
necessary to qualify the Securities for sale to the Purchasers at the Closing
pursuant to this Agreement under applicable securities or "blue sky" laws of the
states of the United States (or to obtain an exemption from such qualification),
and shall provide evidence of any such action so taken to each Purchaser on or
prior to the Closing Date.
SECTION 7.13. Capital Reorganization.
If and whenever there shall occur:
(a) a reclassification or redesignation of the shares of Common Stock
or any change of the shares of Common Stock into other shares, or,
(b) a Sale Event (any such event being herein called a "Capital
Reorganization"), then in each such case the holder who exercises the right to
convert Convertible Notes or exercise the Warrants after the effective date of
such Capital Reorganization shall be entitled to receive and shall accept, upon
the exercise of such right, in lieu of the number of shares of Common Stock to
which such holder was theretofore entitled upon the exercise of the conversion
privilege, the aggregate number of shares or other securities or property of the
Company or of the body corporate resulting from such Capital Reorganization that
such holder would have been entitled to receive as a result of such Capital
Reorganization if, on the effective date thereof, such holders had been the
holder of the number of shares of Common Stock to which such holder was
theretofore entitled upon conversion; provided, however, that no such Capital
Reorganization shall be consummated in effect unless all necessary steps shall
have been taken so that such holders shall thereafter be entitled to receive
such number of shares or other securities of the Company or of the body
corporate resulting from such Capital Reorganization, subject to adjustment
thereafter in accordance with provisions the same, as nearly as may be possible,
as those contained above.
SECTION 7.14. Notice to Noteholders.
The Company shall give the registered holders of the Convertible Notes and
Warrants written notice of any record, not less than ten (10) Business Days
prior to such record date or, if no record date is fixed, not less than ten (10)
Business Days prior to the effective date of such event, which notice shall set
forth the particulars of the proposed event or the extent that such particulars
have been determined at the time of giving the notice.
ARTICLE VIII
NEGATIVE COVENANTS
The Company hereby agrees that, from and after the date hereof for so long
as any Convertible Notes, and in the case of Section 8.1, the Warrants remain
outstanding and for the benefit of the Purchasers:
SECTION 8.1. No Reverse Stock Split.
The Company will not consolidate the outstanding shares of Common Stock
into a smaller number of shares unless it is first approved, in writing, by the
Purchasers.
SECTION 8.2. Limitation on Future Financing.
The Company agrees that it will not, without the consent of the registered
holders of the Convertible Notes, enter into any financing at a discount to
Market Price until six months after the effective date of the Registration
Statement; provided, however, anything to the contrary appearing herein
notwithstanding, neither this Section nor any other provision hereof shall be
construed to restrict or prohibit the Company's right to restructure, amend or
modify any facility existing on the date hereof that does not materially impair
the rights of the holders of the Convertible Notes.
ARTICLE IX
RESTRICTIVE LEGENDS
SECTION 9.1. Restrictions on Transfer.
From and after their respective dates of issuance, none of the Securities
shall be transferable except upon the conditions specified in this Article IX,
which conditions are intended to ensure compliance with the provisions of the
Securities Act in respect of the Transfer of any of such Securities or any
interest therein. Each Purchaser will use its best efforts to cause any proposed
transferee of any Securities held by it to agree to take and hold such
Securities subject to the provisions and upon the conditions specified in this
Article IX.
SECTION 9.2. Restrictive Legends.
Each certificate for Securities issued to a Purchaser or to a subsequent
transferee shall (except as contemplated by Section 7.10 and Section 9.1 hereof)
include a legend in substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER
HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE CORPORATION
THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO
THE CORPORATION, (B) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT, OR (C) IF REGISTERED UNDER THE SECURITIES ACT.
SECTION 9.3. Notice of Proposed Transfers.
Prior to any proposed Transfer of the Securities (other than a Transfer (i)
registered or exempt from registration under the Securities Act, (ii) to an
affiliate of a Purchaser which is an "accredited investor" within the meaning of
Rule 501(a) under the Securities Act, provided that any such transferee shall
agree to be bound by the terms of this Agreement and the Registration Rights
Agreement, or (iii) to be made in reliance on Rule 144 under the Securities
Act), the holder thereof shall give written notice to the Company of such
holder's intention to effect such Transfer, setting forth the manner and
circumstances of the proposed Transfer, which shall be accompanied by (A) an
opinion of counsel reasonably acceptable to the Company, confirming that such
transfer does not give rise to a violation of the Securities Act, (B)
representation letters in form and substance reasonably satisfactory to the
Company to ensure compliance with the provisions of the Securities Act and (C)
letters in form and substance reasonably satisfactory to the Company from each
such transferee stating such transferee's agreement to be bound by the terms of
this Agreement and the Registration Rights Agreement. Such proposed Transfer may
be effected only if the Company shall have received such notice of transfer,
opinion of counsel, representation letters and other letters referred to in the
immediately preceding sentence, whereupon the holder of such Securities shall be
entitled to Transfer such Securities in accordance with the terms of the notice
delivered by the holder to the Company.
ARTICLE X
ADDITIONAL AGREEMENTS AMONG THE PARTIES
SECTION 10.1. Conversion Limit.
Notwithstanding the conversion rights under the Convertible Notes and
exercise rights under the Warrants, unless the Purchaser delivers a waiver in
accordance with the immediately following sentence, in no event shall the
Purchaser be entitled to convert any portion of the Convertible Notes or
exercise any portion of the Warrants, in excess of that portion of the
Convertible Notes or Warrants upon conversion and exercise, as applicable, of
which the sum of (i) the number of shares of Common Stock beneficially owned by
the Purchaser and its Affiliates (other than shares of Common Stock which may be
deemed beneficially owned through the ownership of the unconverted portion of
the Convertible Note and unexercised portion of the Warrants, or other
Derivative Securities convertible into or exchangeable for shares of Common
Stock which contain a limitation similar to that set forth in this Section
10.1), and (ii) the number of shares of Common Stock issuable upon the
conversion of the portion of the Convertible Note or issuable upon exercise the
portion of the Warrants with respect to which this determination is being made,
would result in beneficial ownership by the Purchaser and its Affiliates of more
than 4.99% of the outstanding shares of Common Stock. For purposes of this
Section 10.1, beneficial ownership shall be determined in accordance with Rule
13d-3 of the Exchange Act and Regulations 13 D-G thereunder, except as otherwise
provided in this Section 10.1. The foregoing limitation shall not apply and
shall be of no further force or effect (i) immediately preceding and upon the
occurrence of any voluntary or mandatory redemption or repayment transaction
described herein or in the Convertible Notes, (ii) on the Maturity Date or (iii)
following the occurrence of any Event of Default which is not cured within the
greater of the applicable time period specified in either (A) such written
notice of Purchaser or (B) Section 11.1 hereof.
SECTION 10.2. Registration Rights.
(a) The Company shall grant the Purchasers registration rights covering
the Conversion Shares and Warrant Shares (the "Registrable Securities") on the
terms set forth in the Registration Rights Agreement and herein.
(b) The Company shall prepare and file within fourteen (14) days
following the Closing Date a registration statement (the "Registration State-
ment") on Form S-3 (or such other form as is then available for registration)
covering the sale of the Registrable Securities (a minimum of 67,500,000
shares). The Company shall use its best efforts to cause the Registration
Statement to be declared effective by the Commission. The Company shall pay all
expenses of registration, other than underwriting fees and discounts, if any, in
respect of Registrable Securities offered and sold under such Registration
Statement by the Purchasers.
SECTION 10.3. Conditions Precedent to Funding.
The Purchaser's obligation to deliver the principal amount under the
Convertible Notes is subject to conditions precedent as set forth therein. In
the event those conditions precedent are not satisfied during any consecutive
six (6) month period beginning on the Closing Date, then Purchaser may, at its
sole discretion, terminate this Securities Purchase Agreement and the other
Transaction Agreements (except the Warrants, which shall remain in effect for
their term) and Purchaser will have no further obligations hereunder or
thereunder.
SECTION 10.4. Rights of First Refusal.
For any private capital raising transactions which close after the date
hereof and on or prior to the date that is sixty (60) days after the termination
date of this Agreement, not including any warrants issued in conjunction with
this Agreement, the Company agrees to deliver to Purchaser, at least ten (10)
days prior to the closing of such transaction, written notice describing the
proposed transaction, including the terms and conditions thereof, and providing
the Purchaser and its affiliates an option (the "Right of First Refusal") during
the ten (10) day period following delivery of such notice to purchase the
securities being offered in such transaction on the same terms as contemplated
by such transaction.
ARTICLE XI
EVENTS OF DEFAULT
SECTION 11.1. Events of Default.
If one or more of the following events (each an "Event of Default") shall
have occurred and be continuing:
(a) failure by the Company to pay or prepay when due, all or any part
of the principal on any of the Convertible Notes (whether by virtue of the
agreements specified in this Agreement or the Convertible Notes);
(b) failure on the part of the Company to observe or perform in any
material respect any covenant contained in Sections 7.9, 7.10, 7.11 or 8.1 of
this Agreement;
(c) trading in the Common Stock shall have been suspended by the
Commission or by the OTC Bulletin Board or the Bulletin Board Exchange (except
for any suspension of trading of limited duration solely to permit dissemination
of material information regarding the Company and except if, at the time there
is any suspension on the OTC Bulletin Board or the Bulletin Board Exchange, the
Common Stock is then listed and approved for trading on either the Nasdaq Stock
Market's SmallCap Market or the Nasdaq Stock Market's National Market or a stock
exchange within ten (10) Trading Days thereof);
(d) the Company shall have its Common Stock delisted from the OTC
Bulletin Board or Bulletin Board Exchange for at least ten (10) consecutive
Trading Days and is unable to obtain a listing on either the Nasdaq Stock
Market's SmallCap Market or the Nasdaq Stock Market's National Market or a stock
exchange within such ten (10) Trading Days thereof;
(e) the Company has commenced a voluntary case or other proceeding
seeking liquidation, winding-up, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency, moratorium or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or has consented to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or has made a general assignment for
the benefit of creditors, or has failed generally to pay its debts as they
become due, or has taken any corporate action to authorize any of the foregoing;
(f) an involuntary case or other proceeding has been commenced against
the Company seeking liquidation, winding-up, reorganization or other relief with
respect to it or its debts under any bankruptcy, insolvency, moratorium or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of fourteen (14) days, or an
order for relief has been entered against the Company under the federal
bankruptcy laws as now or hereafter in effect;
(g) default in any provision (including payment) of any agreement
governing the terms of any Debt of the Company in excess of $100,000, which has
not been cured within any applicable period of grace associated therewith;
(h) judgments or orders for the payment of money which in the aggregate
at any one time exceed $200,000 and are not covered by insurance have been
rendered against the Company by a court of competent jurisdiction and such
judgments or orders shall continue unsatisfied and unstayed for a period of
fourteen (14) days.
(i) failure of the Company to have the Registration Statement referred
to in Section 10.2(b) of this Agreement filed with the Commission within
fourteen (14) days from the date of this Agreement and declared effective by the
SEC within 120 days of the date of this Agreement.
then, and in every such occurrence, any Purchaser may, with respect to an Event
of Default specified in paragraph (a), and the Majority Holders may, with
respect to any other Event of Default, by notice to the Company, declare the
Convertible Notes to be, and the Convertible Notes shall thereon become
immediately due and payable, and Purchasers shall have no further obligation to
fund monies under the Convertible Notes; provided that in the case of any of the
--------
Events of Default specified in paragraph (e) or (f) above with respect the
Company, then, without any notice to the Company or any other act by any Holder,
the entire amount of the Convertible Notes shall become immediately due and
payable, provided further, if any Event of Default has occurred and is
-------- -------
continuing, and irrespective of whether any Convertible Note has been declared
immediately due and payable hereunder, any Holder of Convertible Notes may
proceed to protect and enforce the rights of such Holder by an action at law,
suit in equity or other appropriate proceeding, whether for the specific
performance of any agreement contained herein or in any Convertible Note, or for
an injunction against a violation of any of the terms hereof or thereof, or in
aid of the exercise of any power granted hereby or thereby or by law or
otherwise, and provided further, in the case of any Event of Default other than
----------------
those specified in paragraphs (e) and (f), the amount declared due and payable
on the Convertible Notes shall be 130% of the principal amount thereof,
including accrued but unpaid interest through the date of payment, except that
any Holder may convert the unpaid principal amount of any Convertible Note
(including the amount of accrued but unpaid interest) into shares of Common
Stock at the Conversion Price.
SECTION 11.2. Powers and Remedies Cumulative.
No right or remedy herein conferred upon or reserved to the Purchasers is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy. Every power and remedy
given by the Convertible Notes or by law may be exercised from time to time, and
as often as shall be deemed expedient, by the Purchasers.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1. Notices.
All notices, demands and other communications to any party hereunder shall
be in writing (including telecopier or similar writing) and shall be given to
such party at its address set forth on the signature pages hereof, or such other
address as such party may hereafter specify for the purpose to the other
parties. Each such notice, demand or other communication shall be effective (i)
if given by telecopy, when such telecopy is transmitted to the telecopy number
specified on the signature page hereof, (ii) if given by mail, four (4) days
after such communication is deposited in the mail with first class postage
prepaid, addressed as aforesaid or (iii) if given by any other means, when
delivered at the address specified in or pursuant to this Section.
SECTION 12.2. No Waivers; Amendments.
(a) No failure or delay on the part of any party in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy.
(b) Any provision of this Agreement may be amended, supplemented or
waived if, but only if, such amendment, supplement or waiver is in writing
and is signed by the Company and the Majority Holders; provided, that without
--------
the consent of each holder of any Convertible Note affected thereby an amendment
or waiver may not (a) reduce the aggregate principal amount of Convertible Notes
whose holders must consent to an amendment or waiver, (b) reduce the rate or
extend the time for payment of interest on any Convertible Note, (c) reduce the
principal amount of or extend the stated maturity of any Convertible Note or (d)
make any Convertible Note payable in money or property other than as stated in
such Convertible Note. In determining whether the holders of the requisite
principal amount of Convertible Notes have concurred in any direction, consent,
or waiver as provided in any Transaction Agreement, Convertible Notes which are
owned by the Company or any other obligor on or guarantor of the Convertible
Notes, or by any Person Controlling, Controlled by, or under common Control with
any of the foregoing, shall be disregarded and deemed not to be outstanding for
the purpose of any such determination; and provided further that no such
-----------------
amendment, supplement or waiver which affects the rights of the Purchasers and
their affiliates otherwise than solely in their capacities as holders of
Convertible Notes shall be effective with respect to them without their prior
written consent.
SECTION 12.3. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Purchaser,
its Affiliates, and each Person, if any, who controls such Purchaser, or any of
its Affiliates, within the meaning of the Securities Act or the Exchange
Act (each, a "Controlling Person"), and the respective partners, agents,
employees, officers and Directors of each Purchaser, their Affiliates and any
such Controlling Person (each an "Indemnified Party" and collectively, the
"Indemnified Parties"), from and against any and all losses, claims, damages,
liabilities and expenses (including, without limitation and as incurred,
reasonable costs of investigating, preparing or defending any such claim or
action, whether or not such Indemnified Party is a party thereto, provided that
the Company shall not be obligated to advance such costs to any Indemnified
Party other than the Purchasers unless it has received from such Indemnified
Party an undertaking to repay to the Company the costs so advanced if it should
be determined by final judgment of a court of competent jurisdiction that such
Indemnified Party was not entitled to indemnification hereunder with respect to
such costs) which may be incurred by such Indemnified Party in connection with
any investigative, administrative or judicial proceeding brought or threatened
that relates to or arises out of, or is in connection with any activities
contemplated by any Transaction Agreement or any other services rendered in
connection herewith; provided that the Company will not be responsible for any
--------
claims, liabilities losses, damages or expenses that are determined by final
judgment of a court of competent jurisdiction to result from such Indemnified
Party's gross negligence, willful misconduct or bad faith.
(b) If any action shall be brought against an Indemnified Party with
respect to which indemnity may be sought against the Company under this
Agreement, such Indemnified Party shall promptly notify the Company in writing
and the Company, at its option, may, assume the defense thereof, including the
employment of counsel reasonably satisfactory to such Indemnified Party and
payment of all reasonable fees and expenses. The failure to so notify the
Company shall not affect any obligations the Company may have to such
Indemnified Party under this Agreement or otherwise unless the Company is
materially adversely affected by such failure. Such Indemnified Party shall have
the right to employ separate counsel in such action and participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Party, unless: (i) the Company has failed to assume
the defense and employ counsel or (ii) the named parties to any such action
(including any impleaded parties) include such Indemnified Party and the
Company, and such Indemnified Party shall have been advised by counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the Company, in which case, if such
Indemnified Party notifies the Company in writing that it elects to employ
separate counsel at the expense of the Company, the Company shall not have the
right to assume the defense of such action or proceeding on behalf of such
Indemnified Party, provided, however, that the Company shall not, in connection
with any one such action or proceeding or separate but substantially similar or
related actions or proceedings in the same jurisdiction arising out of the
same general allegations or circumstances, be responsible hereunder for the
reasonable fees and expenses of more than one such firm of separate counsel, in
addition to any local counsel, which counsel shall be designated by the
Purchasers. The Company shall not be liable for any settlement of any such
action effected without the written consent of the Company (which shall not be
unreasonably withheld) and the Company agrees to indemnify and hold harmless
each Indemnified Party from and against any loss or liability by reason of
settlement of any action effected with the consent of the Company. In addition,
the Company will not, without the prior written consent of the Purchasers,
settle or compromise or consent to the entry of any judgment in or otherwise
seek to terminate any pending or threatened action, claim, suit or proceeding in
respect to which indemnification or contribution may be sought hereunder
(whether or not any Indemnified Party is a party thereto) unless such
settlement, compromise, consent or termination includes an express unconditional
release of the Purchasers and the other Indemnified Parties, satisfactory in
form and substance to the Purchasers, from all liability arising out of such
action, claim, suit or proceeding.
(c) If for any reason the foregoing indemnity is unavailable (otherwise
than pursuant to the express terms of such indemnity) to an Indemnified Party or
insufficient to hold an Indemnified Party harmless, then in lieu of indemnifying
such Indemnified Party, the Company shall contribute to the amount paid or
payable by such Indemnified Party as a result of such claims, liabilities,
losses, damages, or expenses (i) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and by the
Purchasers on the other from the transactions contemplated by this Agreement or
(ii) if the allocation provided by clause (i) is not permitted under applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits received by the Company on the one hand and the Purchasers on the
other, but also the relative fault of the Company and the Purchasers as well as
any other relevant equitable considerations. Notwithstanding the provisions of
this Section 12.3, the aggregate contribution of all Indemnified Parties shall
not exceed the amount of interest and fees actually received by the Purchasers
pursuant to this Agreement. It is hereby further agreed that the relative
benefits to the Company on the one hand and the Purchasers on the other with
respect to the transactions contemplated hereby shall be determined by reference
to, among other things, whether any untrue or alleged untrue statement of
material fact or the omission or alleged omission to state a material fact
related to information supplied by the Company or by the Purchasers and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation
(d) The indemnification, contribution and expense reimbursement obliga-
tions set forth in this Section 12.3 shall (i) be in addition to any liability
the Company may have to any Indemnified Party at common law or otherwise, (ii)
survive the termination of this Agreement and the other Transaction Agreements
and the payment in full of the Convertible Notes and (iii) remain operative and
in full force and effect regardless of any investigation made by or on behalf of
the Purchasers or any other Indemnified Party.
SECTION 12.4. Expenses.
The Company agrees to pay legal fees and expenses as follows: (a) $2,500 to
legal counsel for the preparation of the Transaction Agreements, (b) $12,500 to
legal counsel for preparation of an S-3 registration statement, (c) an
additional $15,000 to legal counsel upon effectiveness of the S-3 registration
statement, and (d) $5,000 to legal counsel for acting as escrow agent. Other
than as set forth herein, the Company and each of the Purchasers agrees to pay
their own expenses in connection with the negotiation and preparation of the
Transaction Agreements.
SECTION 12.5. Successors and Assigns.
This Agreement shall be binding upon the Company and upon the Purchasers
and their respective successors and assigns; provided that the Company shall not
assign or otherwise transfer its rights or obligations under this Agreement to
any other Person without the prior written consent of the Majority Holders.
All provisions hereunder purporting to give rights to Purchasers and their
affiliates or to holders of Securities are for the express benefit of such
Persons and their successors and assigns.
SECTION 12.6. Brokers.
The Company agrees to pay any brokerage, finder's or other fee or
commission payable in connection with the sale of the Securities.
SECTION 12.7. Florida Law; Submission to Jurisdiction; Waiver of Jury
Trial.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF FLORIDA. EACH PARTY HERETO HEREBY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF ANY FLORIDA STATE COURT FOR PURPOSES OF ALL LEGAL PROCEEDINGS
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE
OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY
IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN
THE FOREGOING, AT THE ELECTION OF A HOLDER, ANY DISPUTE BETWEEN THE HOLDER AND
THE COMPANY MAY BE ARBITRATED, RATHER THAN LITIGATED IN THE COURTS, BEFORE AND
IN ACCORDANCE WITH THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION IN FLORIDA.
THE COMPANY AGREES TO SUBMIT TO AND PARTICIPATE IN ANY SUCH ARBITRATION.
SECTION 12.8. Severability.
If any term, provision, covenant or restriction of this Agreement is held
by a court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated unless a failure of consideration would result thereby.
SECTION 12.9. Survival.
All provisions contained in this Agreement (unless specifically noted to
the contrary) shall survive the payment in full of the Convertible Notes and
shall remain operative and in full force and effect.
SECTION 12.10. Counterparts.
This Agreement may be executed by telecopy signature and in any number of
counterparts each of which shall be an original with the same effect as if the
signatures there to and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers, as of the date first
above written.
E-REX, INC.
a Nevada corporation
By: /s/ Carl Dilley
-----------------
Name: Carl Dilley
------------
Title: President
---------
Address: 11645 Biscayne Blvd.
Suite 210
Miami, FL 33181
Fax: 305-895-1400
Attn:
PURCHASER:
Auxiliarius Fortunare, LLC
/s/ Kyle G. Kennedy
- ----------------------
President
EXHIBITS
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Exhibit A - Form of Convertible Note
Exhibit B - Form of Warrant
Exhibit C - Form of Registration Rights Agreement
Exhibit D - Form of Officer's Certificate
SCHEDULE I
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AGGREGATE PRINCIPAL NUMBER OF
NAME AND ADDRESS AMOUNT OF NOTES PURCHASE PRICE WARRANT SHARES
- ------------------ ----------------- --------------- --------------
SCHEDULE 4.3
OUTSTANDING OPTIONS, WARRANTS, ETC.
SCHEDULE 4.8
LITIGATION
1. Carol Gamble Trust 86, et al v. E-Rex, Inc., et al
------------------------------------------------------------
In February 2002, the Company was served with a lawsuit brought by a group
of ten (10) plaintiffs, namely Carol Gamble Trust 86, June L. Blackwell, June L.
Blackwell and Christopher Ford, as joint tenants, Terry Shores, Steve Rigg,
Karl Weinacker, Ressoyia Anderson, Mel Goodman, Slawomir Kownacki, and John
Bussjeager, in the United States District Court, District of Nevada. The
defendants in the action were the Company, its Board of Directors, a former
Director, the Company's legal counsel, and two corporate entities.
At a hearing on July 29, 2002, the Court in the above-referenced case found
that the plaintiff's had not met their pleading standard under the Private
Securities Litigation Reform Act (PSLRA) and dismissed the case, with prejudice,
as to all defendants. The order of dismissal was entered on August 5, 2002. The
Plaintiff's have appealed the Court's decision, and a hearing has been set for
October 21, 2002.
2. Chris Ford, Successor Trustee to the Carol J. Gamble 86 Trust v.
--------------------------------------------------------------------
International Investment Banking, Inc., et al
- --------------------------------------------------
In April 2002, the Company was served with a lawsuit brought by Chris Ford,
Successor Trustee to the Carol J. Gamble Trust 86, in the Circuit Court of
the 11th Judicial Circuit in and for Miami-Dade County, Florida, General
Jurisdictional Division, case number 02-10265CA1S. The defendants in the action
are International Investment Banking, Inc. ("IIBI"), the Company, its Board of
Directors, and a former Director.
The Complaint alleges, among other things, that the plaintiff agreed to
lend money to IIBI for the purpose of development of E-Rex's Dragonfly
electronic device. The Complaint further alleges theft, diversion of the
corporate assets, and breach of fiduciary duties by the defendants in diverting
the loan proceeds for the directors own benefit.
The Complaint requests treble damages in the amount of $750,000 under the
note, plus penalties, interest, and attorneys' fees, and an accounting from all
defendants.
The Company is vigorously defending this lawsuit although the Company
believes that the action lacks merit. The plaintiff in this case is the same
plaintiff as in the case described below. The case is at a stage where no
discovery has been taken and no prediction can be made as to the outcome of this
case.
EXHIBIT A
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FORM OF CONVERTIBLE NOTE
EXHIBIT B
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FORM OF WARRANT
EXHIBIT C
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FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT D
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FORM OF OFFICER'S CERTIFICATE