EXHIBIT 4.2
NOTE AND WARRANT PURCHASE
AGREEMENT
DATED AS OF AUGUST 31, 2004
AMONG
SYSTEMS EVOLUTION INC.
AND
THE PURCHASERS LISTED ON EXHIBIT A
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TABLE OF CONTENTS
PAGE
ARTICLE I Purchase and Sale of Notes and
Warrants..............................1
Section 1.1
Purchase and Sale of Notes..............................1
Section 1.2
Conversion Shares / Warrant Shares......................1
Section 1.3
Purchase Price
and Closing..............................2
Section 1.4
Warrants................................................2
ARTICLE II Representations and
Warranties......................................2
Section 2.1
Representations and Warranties of the Company...........2
Section 2.2
Representations and Warranties of the Purchasers........3
ARTICLE III Covenants
........................................................15
Section 3.1
Securities Compliance..................................15
Section 3.2
Registration and Listing...............................15
Section 3.3
Inspection Rights......................................15
Section 3.4
Compliance with Laws...................................16
Section 3.5
Keeping of Records and Books of Account................16
Section 3.6
Reporting Requirements.................................16
Section 3.7
Other Agreements.......................................16
Section 3.8 Use
of Proceeds........................................17
Section 3.9
Disposition of Assets..................................17
Section 3.10 Reporting
Status.......................................18
Section 3.11
Reservation of Shares..................................18
Section 3.12 Future
Financings; Right of First Offer and Refusal....19
Section 3.13
Disclosure of Material Information.....................18
Section 3.14 Transfer
Agent Instructions............................20
Section 3.15
Disclosure of Transaction .............................20
Section 3.16 Pledge of
Securities...................................21
Section 3.17 Insiders
Lock-Up.......................................21
ARTICLE IV Conditions
........................................................20
Section 4.1
Conditions Precedent to the Obligation of the
Company to Sell the Securities.........................20
Section 4.2
Conditions Precedent to the Obligation of the
Purchasers to Purchase the Securities..................20
ARTICLE V Stock Certificate
Legend............................................22
Section 5.1
Legend.................................................22
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ARTICLE VI
Indemnification....................................................23
Section 6.1
General Indemnity......................................23
Section 6.2
Indemnification Procedure..............................24
ARTICLE VII
Miscellaneous.....................................................25
Section 7.1 Fees
and Expenses......................................25
Section 7.2
Specific Enforcement, Consent to Jurisdiction..........25
Section 7.3
Entire Agreement; Amendment............................26
Section 7.4
Notices................................................26
Section 7.5
Waivers................................................27
Section 7.6
Headings...............................................27
Section 7.7
Successors and Assigns.................................27
Section 7.8 No
Third Party Beneficiaries...........................27
Section 7.9
Governing Law..........................................27
Section 7.10
Survival...............................................27
Section 7.11
Counterparts...........................................28
Section 7.12
Publicity..............................................28
Section 7.13
Severability...........................................28
Section 7.14 Further
Assurances.....................................28
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NOTE AND WARRANT PURCHASE AGREEMENT
This NOTE AND WARRANT PURCHASE AGREEMENT (the "Agreement") is
dated as
of August 31, 2004 by and among Systems
Evolution Inc., an Idaho corporation
(the "Company"), and each of the Purchasers of the
convertible promissory notes
of the Company whose names are set forth on Exhibit A attached hereto
(individually, a "Purchaser" and
collectively, the "Purchasers").
The parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF NOTES AND WARRANTS
Section 1.1 Purchase and Sale of Notes. Upon the following terms and
conditions, the Company shall issue and sell
to the Purchasers and
each of the
Purchasers shall purchase from the Company,
convertible promissory
notes in the
aggregate principal amount of up to Two Million Five
Hundred Thousand
Dollars
($2,500,000), bearing interest at the rate of eight percent (8%) per annum,
convertible into shares of the Company's
common stock, no par value (the "Common
Stock"), in substantially the form attached hereto as
Exhibit B (the "Notes").
Upon the following terms and conditions,
each of the Purchasers
shall be issued
Series A Warrants, in substantially the form attached hereto as
Exhibit C (the
"Series A Warrants"), Series B Warrants, in substantially the form attached
hereto as Exhibit D (the "Series B Warrants"), Series C Warrants, in
substantially the form attached hereto as Exhibit E (the "Series C
Warrants"),
and Series D Warrants, in substantially the form attached hereto as
Exhibit F
(the "Series D Warrants" and, together with
the Series A Warrants,
the Series B
Warrants and the Series C Warrants,
the "Warrants"),
to purchase the number
of
shares of Common Stock, set forth opposite such
Purchaser's
name on Exhibit A
hereto. The Company and the Purchasers are executing and delivering this
Agreement in accordance with and in reliance upon the
exemption from securities
registration afforded by Rule 506 of Regulation D ("Regulation D") as
promulgated by the United States Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act") or Section 4(2) of the Securities
Act.
Section 1.2
Conversion
Shares / Warrant Shares. The Company has
authorized and has reserved and covenants to continue to reserve, free of
preemptive rights and other similar
contractual rights of stockholders, a number
of its authorized but unissued shares of Common Stock equal to
the aggregate
number of shares of Common Stock to effect
the conversion
of the Notes and
any
interest accrued and outstanding thereon and exercise of the Warrants. Any
shares of Common Stock issuable upon conversion of the Notes and any
interest
accrued and outstanding thereon and exercise of the
Warrants (and such
shares
when issued) are herein referred to as the
"Conversion Shares"
and the "Warrant
Shares," respectively. The Notes, the Warrants,
the Conversion Shares
and the
Warrant Shares are sometimes collectively referred to herein as the
"Securities".
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Section 1.3 Purchase Price and Closing. The Company agrees to issue
and
sell to the Purchasers and, in
consideration of and in express reliance upon the
representations, warranties, covenants, terms and
conditions of this Agreement,
the Purchasers, severally but not jointly,
agree to purchase the
Notes and the
Warrants. The aggregate purchase price of
the Notes and Warrants being acquired
by each Purchaser is set forth opposite
such Purchaser's name
on Exhibit A (for
each such Purchaser, the "Purchase Price" and
collectively
referred to as the
"Purchase Prices"). The Notes and Warrants shall be
sold and funded in multiple
closings (each, a "Closing"); provided, that the final Closing under this
Agreement occurs no later than the day
immediately preceding
the filing of the
registration statement providing for the
resale of the Conversion Shares and the
Warrant Shares pursuant to the Registration Rights Agreement (as defined in
Section 2.1(b) hereof). Each Closing shall take place at
the offices of Jenkens
& Gilchrist Parker Chapin LLP, The
Chrysler Building, 405
Lexington Avenue, New
York, New York 10174 at 1:00 p.m. (eastern
time) or at such other time and place
as the Purchasers and the Company may agree
upon, upon the
satisfaction of each
of the conditions set forth in Article IV hereof (each, a "Closing Date").
Funding with respect to each Closing shall take place by wire transfer of
immediately available funds on or prior to
the applicable Closing Date.
Section 1.4 Warrants.
Upon the following
terms and conditions, the
Purchasers shall be issued Series A Warrants, Series B Warrants, Series C
Warrants and Series D Warrants. Pursuant to each series of Warrant, each
Purchaser shall be entitled to receive the number of shares of Common
Stock
equal to twenty-five percent (25%) of the number of shares of Common Stock
issuable upon conversion of the Notes
purchased pursuant to the terms hereof.
The Warrants shall have an exercise price equal
to Warrant Price (as defined in
the respective Warrant) and shall be
exercisable as stated therein.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Company.
The Company
hereby makes the following representations and warranties to the Purchasers,
except as set forth in the Company's
disclosure
schedule delivered with this
Agreement as follows:
(a) Organization, Good Standing and Power. The Company is a
corporation
duly incorporated, validly existing and in good
standing under the laws of the
State of Idaho and has the requisite
corporate power to own, lease and
operate
its properties and assets and to conduct its business as it is now being
conducted. The Company does not have any
subsidiaries except as set forth in the
Commission Documents (as hereafter
defined) or in the
Company's Form 8-K filed
on September 10, 2003, as amended on December 19, 2003, including the
accompanying financial statements (the "Form 8-K"), or in the Company's Form
10-QSB for the fiscal quarters ended February 29, 2004 and November 30, 2003
(collectively, the "Form 10-QSB"), or on
Schedule 2.1(a) hereto. The Company and
each such subsidiary is duly qualified as a
foreign corporation to
do business
and is in good standing in every jurisdiction in which the nature of the
business conducted or property owned by it
makes such
qualification
necessary
except for any jurisdiction(s) (alone or in the aggregate) in
which the failure
to be so qualified will not have a Material Adverse Effect (as defined in
Section 2.1(c) hereof) on the Company's
financial condition.
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(b) Authorization; Enforcement. The Company has the requisite
corporate
power and authority to enter into and
perform this Agreement, the Registration
Rights Agreement attached hereto as Exhibit G (the "Registration Rights
Agreement"), the Lock-Up Agreement (as defined
in Section 3.17 hereof) attached
hereto as Exhibit H, the Irrevocable
Transfer Agent
Instructions (as defined in
Section 3.14) and the Warrants
(collectively, the
"Transaction
Documents") and
to issue and sell the Securities in accordance with the terms hereof. The
execution, delivery and performance of the
Transaction Documents by the Company
and the consummation by it of the
transactions
contemplated hereby
and thereby
have been duly and validly authorized by
all necessary
corporate action, and no
further consent or authorization of the Company or its Board of
Directors or
stockholders is required. This Agreement
has been duly executed and delivered by
the Company. The other Transaction Documents will have been duly
executed and
delivered by the Company at each
Closing. Each of the Transaction Documents
constitutes, or shall constitute when executed and delivered, a valid and
binding obligation of the Company
enforceable against
the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency,
reorganization, moratorium,
liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditor's rights and remedies or by other
equitable principles of general
application.
(c) Capitalization. The authorized capital stock of the Company and
the
shares thereof currently issued and outstanding as of August 31, 2004
are set
forth on Schedule 2.1(c) hereto.
All of the outstanding
shares of the Company's
Common Stock and any other outstanding security of the Company have been
duly
and validly authorized. Except as set forth in this
Agreement and as set forth
on Schedule 2.1(c) hereto, no shares of Common Stock are
entitled to preemptive
rights or registration rights and there are no
outstanding options,
warrants,
scrip, rights to subscribe to, call or
commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company. Furthermore, except as set forth in this
Agreement or on
Schedule 2.1(c), there are no contracts, commitments, understandings, or
arrangements by which the Company is or may become
bound to issue
additional
shares of the capital stock of the Company or
options, securities or rights
convertible into shares of capital
stock of the Company.
Except for
customary
transfer restrictions contained in agreements entered into by the Company in
order to sell restricted securities or as set forth on
Schedule 2.1(c) hereto,
the Company is not a party to any agreement granting registration or
anti-dilution rights to any person with respect to any of its equity or
debt
securities. The Company is not a party to, and it has no knowledge of, any
agreement restricting the voting or transfer
of any shares of the capital stock
of the Company. Except as set forth on Schedule
2.1(c) hereto, the offer and
sale of all capital stock, convertible
securities, rights,
warrants, or options
of the Company issued prior to the Closing
complied with all applicable Federal
and state securities laws, and no
stockholder has a right of rescission or claim
for damages with respect thereto which
would have a Material
Adverse Effect (as
defined below) on the Company's
financial condition or operating results.
The
Company has furnished or made available to the Purchasers true and correct
copies of the Company's Articles of Incorporation as in effect on the date
hereof (the "Articles"), and the Company's Bylaws as in effect on the date
hereof (the "Bylaws"). For the purposes of this
Agreement, "Material
Adverse
Effect" means any material adverse effect on the business, operations,
properties, prospects, or financial condition of the Company and its
subsidiaries and/or any condition, circumstance, or situation that would
prohibit or otherwise materially interfere with the ability of the Company
to
perform any of its obligations under this
Agreement in any material respect.
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(d) Issuance of Securities. The Notes and the Warrants to be
issued at
each Closing have been duly authorized by all necessary
corporate action and,
when paid for or issued in accordance with
the terms hereof, the
Notes shall be
validly issued and outstanding, free and clear of all liens,
encumbrances and
rights of refusal of any kind. When the
Conversion Shares and Warrant Shares are
issued and paid for in accordance with the terms of this
Agreement and as
set
forth in the Notes and Warrants, such shares will be duly authorized by all
necessary corporate action and validly
issued and
outstanding, fully
paid and
nonassessable, free and clear of all liens,
encumbrances and
rights of refusal
of any kind and the holders shall be
entitled to all rights accorded to a holder
of Common Stock.
(e) No Conflicts.
The execution, delivery and performance of the
Transaction Documents by the Company, the performance by the Company of its
obligations under the Notes and the consummation by the Company of the
transactions contemplated herein and
therein do not and will not (i) violate any
provision of the Company's Articles or
Bylaws, (ii) conflict with, or constitute
a default (or an event which with notice or
lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, mortgage, deed of trust,
indenture, note, bond, license, lease agreement, instrument or obligation to
which the Company is a party or by which it or its
properties
or assets are
bound, (iii) create or impose a lien,
mortgage, security interest, charge or
encumbrance of any nature on any property of
the Company under any agreement or
any commitment to which the Company is
a party or by which the Company is bound
or by which any of its respective
properties or assets are bound, or (iv) result
in a violation of any federal, state, local or foreign statute, rule,
regulation, order, judgment or decree (including
Federal and state
securities
laws and regulations) applicable to the
Company or any of its subsidiaries or by
which any property or asset of the Company
or any of its
subsidiaries are bound
or affected, except, in all cases other than
violations pursuant to clauses (i)
and (iv) above, for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations
as would not, individually or in the
aggregate, have a Material Adverse Effect.
The business of the
Company and its
subsidiaries is not being conducted in violation
of any laws,
ordinances
or
regulations of any governmental entity, except for possible violations which
singularly or in the aggregate do not and will not have a Material Adverse
Effect. The Company is not required under
Federal, state or
local law, rule or
regulation to obtain any consent,
authorization or order
of, or make any filing
or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under the Transaction
Documents, or issue and sell the Securities
in accordance with the terms hereof
or thereof (other than any filings which may be required to be made by the
Company with the Commission or state
securities administrators subsequent to the
Closing and the registration statement which may be filed pursuant hereto);
provided that, for purposes of the representation made in this sentence,
the
Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the
Purchasers herein.
(f) Commission
Documents, Financial
Statements.
The Common Stock
is
registered pursuant to Section 12(b) or 12(g)
of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and,
since September 9, 2003, the Company
has timely filed all reports, schedules, forms, statements and other
documents
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required to be filed by it with the Commission pursuant to the reporting
requirements of the Exchange Act,
including material filed pursuant to
Section
13(a) or 15(d) of the Exchange Act (all of the foregoing including filings
incorporated by reference therein being referred to herein
as the "Commission
Documents"). The Company has delivered or made available to each of the
Purchasers true and complete copies of the Commission
Documents filed with
the
Commission since September 9, 2003. The Company has not provided to the
Purchasers any material non-public information or other information which,
according to applicable law, rule or regulation, was required to have been
disclosed publicly by the Company
but which has not been
so disclosed,
other
than with respect to the transactions contemplated by this Agreement. At the
times of their respective filings,
the Form 8-K and the
Form 10-QSB complied in
all material respects with the requirements of the Exchange Act and the
rules
and regulations of the Commission promulgated thereunder and other federal,
state and local laws, rules and regulations
applicable to such
documents, and,
as of their respective dates, none of the
Form 8-K and the Form 10-QSB contained
any untrue statement of a material fact or omitted to state a
material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included
in the Commission
Documents comply as to form in all material
respects with applicable accounting
requirements and the published rules and
regulations of the Commission or other
applicable rules and regulations with
respect thereto. Such financial statements
have been prepared in accordance with United States generally accepted
accounting principles ("GAAP") applied on a
consistent basis during the periods
involved (except (i) as may be otherwise
indicated in such financial statements
or the notes thereto or (ii) in the case of
unaudited interim statements, to the
extent they may not include footnotes or may be condensed or summary
statements), and fairly present in all material
respects the financial position
of the Company and its subsidiaries as of the dates thereof and the
results of
operations and cash flows for the periods
then ended (subject,
in the case of
unaudited statements, to normal year-end
audit adjustments).
(g) Subsidiaries.
Schedule 2.1(g) hereto sets forth each subsidiary of
the Company, showing the jurisdiction of its
incorporation or
organization and
showing the percentage of each person's ownership. For the purposes of this
Agreement, "subsidiary" shall mean any corporation or
other entity of which at
least a majority of the securities or other
ownership interest having ordinary
voting power (absolutely or contingently)
for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other subsidiaries. All of the
outstanding shares of capital stock of each
subsidiary have been duly authorized
and validly issued, and are fully paid and nonassessable. There are no
outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding
upon any subsidiary for the purchase
or acquisition of any shares of capital
stock of any
subsidiary or any
other
securities convertible into, exchangeable for or evidencing the rights to
subscribe for any shares of such
capital stock. Neither the Company nor any
subsidiary is subject to any obligation
(contingent or
otherwise) to repurchase
or otherwise acquire or retire any shares
of the capital stock of any subsidiary
or any convertible securities, rights,
warrants or options of the type described
in the preceding sentence. Neither the Company nor any
subsidiary is party to,
nor has any knowledge of, any agreement restricting the voting or transfer of
any shares of the capital stock of any
subsidiary.
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(h) No Material
Adverse Change.
Since September 9,
2003, the Company
has not experienced or suffered any
Material Adverse Effect, except as disclosed
on Schedule 2.1(h) hereto.
(i) No Undisclosed Liabilities. Except as set forth on Schedule
2.1(i)
hereto, neither the Company nor any of its
subsidiaries
has any liabilities,
obligations, claims or losses (whether
liquidated or
unliquidated, secured
or
unsecured, absolute, accrued, contingent or
otherwise) other than those incurred
in the ordinary course of the Company's or its subsidiaries respective
businesses since September 9, 2003 and
which, individually or
in the aggregate,
do not or would not have a Material Adverse Effect on the Company or its
subsidiaries.
(j) No Undisclosed
Events or Circumstances. Except as set forth on
Schedule 2.1(j) hereto, no event or circumstance has occurred or exists with
respect to the Company or its subsidiaries or their respective businesses,
properties, prospects, operations or financial condition, which, under
applicable law, rule or regulation,
requires public
disclosure or
announcement
by the Company but which has not been so
publicly announced or disclosed.
(k) Indebtedness.
The Form 8-K, Form
10-QSB or Schedule 2.1(k) hereto
sets forth as of a recent date all outstanding secured and unsecured
Indebtedness of the Company or any
subsidiary,
or for which the
Company or any
subsidiary has commitments. For the purposes of this
Agreement,
"Indebtedness"
shall mean (a) any liabilities for borrowed money or amounts owed
in excess of
$100,000 (other than trade accounts
payable incurred in the ordinary course
of
business), (b) all guaranties, endorsements and other contingent
obligations in
respect of Indebtedness of others, whether or not the same are or
should be
reflected in the Company's balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable
instruments for deposit or collection or
similar transactions in the ordinary course of business; and (c) the present
value of any lease payments in excess of
$25,000 due under leases required to be
capitalized in accordance with GAAP. Except as set forth on Schedule
2.1(k),
neither the Company nor any subsidiary is in default with respect to any
Indebtedness.
(l) Title to Assets.
Each of the Company and the subsidiaries has good
and marketable title to all of its real and
personal property
reflected in the
Commission Documents , free and clear of
any mortgages, pledges, charges, liens,
security interests or other encumbrances, except for those disclosed in the
Commission Documents or on Schedule 2.1(l)
hereto or such that,
individually or
in the aggregate, do not cause a Material Adverse Effect on the Company's
financial condition or operating results. All said leases of the Company
and
each of its subsidiaries are valid and
subsisting and in full force and effect.
(m) Actions Pending.
There is no action,
suit, claim,
investigation,
arbitration, alternate dispute resolution proceeding or any other
proceeding
pending or, to the knowledge of the
Company, threatened
against the Company
or
any subsidiary which questions the validity of this Agreement or any of the
other Transaction Documents or the transactions
contemplated hereby or
thereby
or any action taken or to be taken pursuant hereto or thereto. Except as set
forth in the Commission Documents, the Form 8-K, Form 10-QSB or on Schedule
2.1(m) hereto, there is no action, suit, claim, investigation, arbitration,
alternate dispute resolution proceeding or any other proceeding
pending or, to
the knowledge of the Company, threatened,
against or involving
the Company, any
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subsidiary or any of their respective
properties or assets.
Except as set forth
in the Form 8-K, Form 10-QSB or Schedule
2.1(m) hereto, there are no outstanding
orders, judgments, injunctions, awards or decrees of any court,
arbitrator or
governmental or regulatory body against the Company or any
subsidiary or any
officers or directors of the Company or
subsidiary in their capacities as such.
(n) Compliance
with
Law. The business of the Company and the
subsidiaries has been and is presently
being conducted in accordance with
all
applicable federal, state and local governmental laws,
rules, regulations
and
ordinances, except as set forth in the Form
8-K, Form 10-QSB, or such that,
individually or in the aggregate,
do not cause a
Material Adverse
Effect. The
Company and each of its subsidiaries have all franchises, permits, licenses,
consents and other governmental or regulatory authorizations and approvals
necessary for the conduct of its
business as now being
conducted by it
unless
the failure to possess such franchises,
permits, licenses, consents and other
governmental or regulatory authorizations
and approvals,
individually or in the
aggregate, could not reasonably be expected
to have a Material Adverse Effect.
(o) Taxes. Except as
set forth in the Form 8-K or in the Form 10-QSB,
the Company and each of the subsidiaries
has accurately
prepared and filed
all
federal, state and other tax returns
required by law to be filed by it, has paid
or made provisions for the payment of all taxes shown to be due and all
additional assessments, and adequate provisions have been
and are reflected in
the financial statements of the Company and the
subsidiaries
for all current
taxes and other charges to which the Company or
any subsidiary
is subject and
which are not currently due and payable.
None of the federal
income tax returns
of the Company or any subsidiary have been audited by the Internal Revenue
Service. The Company has no knowledge of
any additional assessments, adjustments
or contingent tax liability (whether
federal or state) of any nature whatsoever,
whether pending or threatened against the Company or any
subsidiary
for any
period, nor of any basis for any such
assessment, adjustment or contingency.
(p) Certain Fees.
Except as set forth in this Agreement or on Schedule
2.1(p) hereto, no brokers, finders or financial advisory fees or commissions
will be payable by the Company or any
subsidiary or any
Purchaser with
respect
to the transactions contemplated by this
Agreement.
(q) Disclosure. To the
best of the Company's
knowledge, neither
this
Agreement or the Schedules hereto nor any other documents, certificates or
instruments furnished to the Purchasers by or on behalf of the Company or
any
subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material
fact or omit to state a material fact
necessary in order to make the statements
made herein or
therein, in the
light
of the circumstances under which they were made herein or therein, not
misleading.
(r) Operation
of Business.
The Company and each
of the
subsidiaries
owns or possesses all patents, trademarks, domain names (whether or not
registered) and any patentable improvements or copyrightable derivative works
thereof, websites and intellectual
property rights
relating thereto,
service
marks, trade names, copyrights,
licenses and
authorizations as set forth in the
Commission Documents, the Form 8-K, Form 10-QSB and on
Schedule 2.1(r) hereto,
and all rights with respect to the foregoing, which are necessary for the
conduct of its business as now conducted
without any conflict with the rights of
others.
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(s) Environmental Compliance. The Company and each of its
subsidiaries
have obtained all material approvals, authorization, certificates, consents,
licenses, orders and permits or other
similar authorizations of all governmental
authorities, or from any other person, that
are required under any Environmental
Laws. The Form 8-K or Form 10-QSB describes
all material permits,
licenses and
other authorizations issued under any Environmental
Laws to the Company or its
subsidiaries. "Environmental Laws" shall mean all applicable
laws relating to
the protection of the environment including, without limitation, all
requirements pertaining to reporting, licensing, permitting, controlling,
investigating or remediating emissions, discharges, releases or threatened
releases of hazardous substances, chemical
substances, pollutants, contaminants
or toxic substances, materials or wastes, whether solid, liquid or gaseous in
nature, into the air, surface water, groundwater or land, or relating
to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of hazardous
substances, chemical substances, pollutants,
contaminants or toxic substances,
material or wastes,
whether solid, liquid
or
gaseous in nature. The Company has all
necessary governmental approvals required
under all Environmental Laws and used in its business or
in the business of any
of its subsidiaries. The Company and each of its subsidiaries are also in
compliance with all other limitations, restrictions, conditions, standards,
requirements, schedules and timetables required or imposed under all
Environmental Laws. Except for such instances as would
not individually or
in
the aggregate have a Material Adverse Effect, there are no past or present
events, conditions, circumstances, incidents, actions or omissions
relating to
or in any way affecting the Company or its subsidiaries that violate or may
violate any Environmental Law after the Closing Date or that may give rise to
any environmental liability, or otherwise form the basis of any
claim, action,
demand, suit, proceeding, hearing, study or investigation (i) under any
Environmental Law, or (ii) based on or related
to the manufacture,
processing,
distribution, use, treatment, storage (including
without limitation underground
storage tanks), disposal, transport or handling,
or the emission,
discharge,
release or threatened release of any
hazardous substance.
(t) Books and Record Internal Accounting Controls. The books and
records of the Company and its subsidiaries
accurately
reflect in all
material
respects the information relating to the business of the Company and the
subsidiaries, the location and collection
of their assets, and the nature of all
transactions giving rise to the obligations or accounts receivable of the
Company or any subsidiary. The Company and each of its
subsidiaries maintain
a
system of internal accounting controls sufficient, in the judgment of the
Company, 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
actions is taken with respect to any
differences.
(u) Material
Agreements.
Except as set forth in the Commission
Documents, the Form 8-K, Form 10-QSB or on
Schedule 2.1(u) hereto, neither the
Company nor any subsidiary is a party to any written or oral contract,
instrument, agreement, commitment, obligation, plan or arrangement, a
copy of
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which would be required to be filed with the Commission as an exhibit to a
registration statement on Form S-3 or
applicable form (collectively, "Material
Agreements") if the Company or any
subsidiary were registering securities under
the Securities Act. Except as set forth on
Schedule 2.1(u) or in the Commission
Documents, the Company and each of its
subsidiaries has in all material respects
performed all the obligations required to
be performed by them to date under the
foregoing agreements, have received no
notice of default and, to the best of the
Company's knowledge are not in default under any Material Agreement now in
effect, the result of which could cause a
Material Adverse Effect. Except as set
forth on Schedule 2.1(u) or in the Commission Documents, no written or oral
contract, instrument, agreement,
commitment,
obligation, plan or arrangement of
the Company or of any subsidiary
limits or shall limit
the payment of dividends
on the Company's preferred stock, if any, or the
Common Stock.
(v) Transactions with Affiliates. Except as set forth in the
Commission
Documents, the Form 8-K, Form 10-QSB or on
Schedule 2.1(v) hereto, there are no
loans, leases, agreements, contracts, royalty agreements,
management
contracts
or arrangements or other continuing
transactions between
(a) the Company or any
subsidiary on the one hand, and (b) on the other hand,
any officer,
employee,
consultant or director of the Company, or
any of its subsidiaries, or any person
owning any capital stock of the Company or any
subsidiary or any
member of the
immediate family of such officer, employee,
consultant, director
or stockholder
or any corporation or other entity controlled by such officer, employee,
consultant, director or stockholder, or a
member of the immediate family of such
officer, employee, consultant, director or
stockholder.
(w) Securities
Act of 1933. Based in material part upon the
representations herein of the Purchasers, the Company has complied and will
comply with all applicable federal and state securities laws
in connection with
the offer, issuance and sale of the
Securities hereunder.
Neither the
Company
nor anyone acting on its behalf, directly
or indirectly, has or will sell, offer
to sell or solicit offers to buy any of the
Securities or similar securities to,
or solicit offers with respect thereto from, or enter into any preliminary
conversations or negotiations relating
thereto with, any person, or has taken or
will take any action so as to bring the issuance and sale of any of the
Securities under the registration provisions of the Securities Act and
applicable state securities laws, and neither the Company nor any of its
affiliates, nor any person acting on its or their
behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities
Act) in connection
with the offer or sale
of
any of the Securities.
(x) Governmental Approvals. Except as set forth in the Form 8-K or
Form
10-QSB, and except for the filing of any
notice prior or subsequent to the
Closing Date that may be required under applicable state and/or Federal
securities laws (which if required, shall
be filed on a timely basis), including
the filing of a Form D and a registration statement or statements
pursuant to
the Registration Rights Agreement, no
authorization, consent, approval, license,
exemption of, filing or registration with
any court or governmental department,
commission, board, bureau, agency or
instrumentality, domestic or foreign, is or
will be necessary for, or in connection with, the execution or delivery of
the
Notes and the Warrants, or for the
performance by the Company of its obligations
under the Transaction Documents.
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<PAGE>
(y) Employees.
Neither
the Company nor any subsidiary has any
collective bargaining arrangements or agreements
covering any of its employees,
except as set forth in the Form 8-K, Form
10-QSB or on Schedule
2.1(y) hereto.
Except as set forth in the Form 8-K, Form
10-QSB or on Schedule
2.1(y) hereto,
neither the Company nor any subsidiary has
any employment
contract, agreement
regarding proprietary information,
non-competition
agreement,
non-solicitation
agreement, confidentiality agreement, or any other similar contract or
restrictive covenant, relating to the right of any officer, employee or
consultant to be employed or engaged by the
Company or such
subsidiary. Since
September 9, 2003, no officer, consultant or key employee of the
Company or any
subsidiary whose termination, either individually or in the aggregate,
could
have a Material Adverse Effect, has terminated or, to the knowledge of the
Company, has any present intention of terminating his or her employment or
engagement with the Company or any
subsidiary.
(z) Absence
of Certain Developments. Except as disclosed in the
Commission Documents or as provided on
Schedule 2.1(z) hereto, since September
9, 2003, neither the Company nor any
subsidiary has:
(i) issued any stock,
bonds or other
corporate securities
or any
rights, options or warrants with respect
thereto;
(ii) borrowed
any amount or incurred or become subject to any
liabilities (absolute or contingent) except
current liabilities incurred in the
ordinary course of business which are comparable in nature and amount to the
current liabilities incurred in the ordinary course of business during the
comparable portion of its prior fiscal year,
as adjusted to reflect the current
nature and volume of the Company's or such
subsidiary's business;
(iii) discharged or
satisfied any lien or
encumbrance or paid any
obligation or liability (absolute or
contingent), other than current liabilities
paid in the ordinary course of
business;
(iv) declared or made any payment or distribution of cash or other
property to stockholders with respect to
its stock, or purchased or redeemed, or
made any agreements so to purchase or
redeem, any shares of its capital stock;
(v) sold, assigned or
transferred any other
tangible assets,
or
canceled any debts or claims, except in the
ordinary course of business;
(vi) sold, assigned or
transferred any patent rights, trademarks,
trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights, or disclosed any proprietary confidential
information to any person except to
customers in the ordinary course of business
or to the Purchasers or their
representatives;
(vii) suffered
any substantial losses or waived any rights of
material value, whether or not in the ordinary
course of business, or
suffered
the loss of any material amount of
prospective business;
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<PAGE>
(viii) made any
changes in
employee compensation except in the
ordinary course of business and consistent
with past practices;
(ix) made capital expenditures or commitments therefor that
aggregate in excess of $100,000;
(x) entered into any other transaction other than in the ordinary
course of business, or entered into any
other material
transaction, whether
or
not in the ordinary course of business;
(xi) made charitable contributions or pledges in excess of
$25,000;
(xii) suffered any material damage, destruction or casualty loss,
whether or not covered by insurance;
(xiii) experienced any
material problems with
labor or management
in connection with the terms and conditions
of their employment;
(xiv) effected any two
or more events of the foregoing kind which
in the aggregate would be material to the
Company or its subsidiaries; or
(xv) entered into an agreement, written or otherwise, to take any
of the foregoing actions.
(aa) Public Utility
Holding Company Act and Investment Company Act
Status. The Company is not a "holding
company" or a "public utility company" as
such terms are defined in the Public
Utility Holding Company Act of 1935, as
amended. The Company is not, and as a
result of and immediately upon the Closing
will not be, an "investment company" or a
company "controlled" by an "investment
company," within the meaning of the
Investment Company Act of 1940, as amended.
(bb) ERISA. No
liability to the Pension Benefit Guaranty Corporation
has been incurred with respect to any Plan by the Company or any of its
subsidiaries which is or would be materially adverse to the Company and its
subsidiaries. The execution and delivery of this
Agreement and the issuance and
sale of the Notes will not involve any transaction which is subject to the
prohibitions of Section 406 of ERISA or in
connection with which a tax could be
imposed pursuant to Section 4975 of the Internal Revenue Code of 1986, as
amended, provided that, if any of the
Purchasers, or any
person or entity that
owns a beneficial interest in any of the
Purchasers,
is an "employee
pension
benefit plan" (within the meaning of Section
3(2) of ERISA) with
respect to
which the Company is a "party in interest"
(within the meaning of
Section 3(14)
of ERISA), the requirements of Sections 407(d)(5) and 408(e) of ERISA, if
applicable, are met. As used in this
Section 2.1(ac), the term "Plan" shall mean
an "employee pension benefit plan" (as defined in
Section 3 of ERISA) which is
or has been established or maintained,
or to which
contributions
are or have
been made, by the Company or any subsidiary
or by any trade or business, whether
or not incorporated, which, together with the Company or any
subsidiary,
is
under common control, as described in
Section 414(b) or (c) of the Code.
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<PAGE>
(cc) Dilutive Effect. The Company understands and acknowledges that
the
number of Conversion Shares issuable upon conversion of the Notes and the
Warrant Shares issuable upon exercise of the
Warrants will increase in certain
circumstances. The Company further acknowledges that its obligation to issue
Conversion Shares upon conversion of the
Notes in accordance with this Agreement
and the Notes and its obligations to issue the Warrant
Shares upon the exercise
of the Warrants in accordance with this
Agreement and the Warrants, is, in each
case, absolute and unconditional regardless of the dilutive
effect that such
issuance may have on the ownership interest of other stockholders of the
Company.
(dd) Independent
Nature of Purchasers.
The Company
acknowledges that
the obligations of each Purchaser
under the Transaction Documents are several
and not joint with the obligations of any other Purchaser, and no Purchaser
shall be responsible in any way for the
performance of the
obligations of any
other Purchaser under the Transaction
Documents.
The Company
acknowledges that
the decision of each Purchaser to purchase
Securities pursuant to this Agreement
has been made by such Purchaser independently of any other purchase and
independently of any information, materials, statements or opinions as to
the
business, affairs, operations, assets, properties, liabilities, results of
operations, condition (financial or
otherwise) or prospects of the Company or of
its Subsidiaries which may have made or given by
any other Purchaser or by any
agent or employee of any other Purchaser,
and no Purchaser or
any of its agents
or employees shall have any liability to any Purchaser (or any other person)
relating to or arising from any such information, materials, statements or
opinions. The Company acknowledges that nothing contained herein, or in any
Transaction Document, and no action taken by any
Purchaser pursuant
hereto or
thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting
in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. The Company acknowledges that each Purchaser shall be
entitled to independently protect and enforce its rights, including without
limitation, the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for
any other Purchaser to
be joined as an additional party in any
proceeding for such purpose. The Company
acknowledges that for reasons of administrative convenience only, the
Transaction Documents have been prepared by counsel for
one of the
Purchasers
and such counsel does not represent all of the Purchasers but only such
Purchaser and the other Purchasers have retained their own individual
counsel
with respect to the transactions
contemplated
hereby. The Company
acknowledges
that it has elected to provide all Purchasers with the same terms and
Transaction Documents for the convenience of
the Company and not because it was
required or requested to do so by the
Purchasers. The
Company acknowledges that
such procedure with respect to the Transaction Documents in no way creates a
presumption that the Purchasers are in any way acting
in concert or as a group
with respect to the Transaction Documents or the transactions contemplated
hereby or thereby.
(ee) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their
behalf, has directly or
indirectly made any offers or sales of any
security or solicited
any offers to
buy any security under circumstances that would cause the offering of the
Securities pursuant to this Agreement to be
integrated with prior
offerings by
the Company for purposes of the
Securities
Act which would
prevent the Company
from selling the Securities pursuant to Rule 506 under the
Securities
Act, or
any applicable exchange-related stockholder approval provisions,
nor
