NOTE AND WARRANT
PURCHASE
AGREEMENT
Dated as of December 7,
2006
by and among
MERCHANDISE CREATIONS,
INC.
and
THE PURCHASERS LISTED ON EXHIBIT
A
TABLE OF CONTENTS
Page
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ARTICLE I PURCHASE
AND SALE OF NOTES AND WARRANTS
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1
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Section
1.1 Purchase and Sale of
Notes and Warrants.
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1
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Section
1.2 Purchase Price and
Closing
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2
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Section
1.3 Conversion Shares /
Warrant Shares
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2
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ARTICLE
II REPRESENTATIONS AND WARRANTIES
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2
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Section
2.1 Representations and
Warranties of the Company
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2
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Section
2.2 Representations and
Warranties of the Purchasers
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13
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ARTICLE III COVENANTS
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15
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Section
3.1 Securities
Compliance
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15
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Section
3.2 Registration and
Listing
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15
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Section
3.3 Inspection
Rights
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16
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Section
3.4 Compliance with
Laws
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16
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Section
3.5 Keeping of Records and
Books of Account
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16
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Section
3.6 Reporting
Requirements
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16
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Section
3.7 Other
Agreements
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17
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Section
3.8 Use of
Proceeds
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17
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Section
3.9 Reporting
Status
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17
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Section 3.10 Disclosure
of Transaction
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17
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Section 3.11 Disclosure
of Material Information
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17
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Section 3.12 Pledge of
Securities
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18
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Section
3.13 Amendments
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18
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Section
3.14 Distributions
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18
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Section 3.15 Reservation
of Shares
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18
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Section 3.16 Transfer
Agent Instructions
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19
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Section 3.17 Lock-Up
Agreement
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19
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Section 3.18 Disposition
of Assets19
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Section 3.19 Form SB-2
Eligibility.
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19
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Section 3.20 Subsequent
Registration Statements
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19
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ARTICLE IV CONDITIONS
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19
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Section
4.1 Conditions Precedent
to the Obligation of the Company to Close and to Sell the
Securities
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19
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Section
4.2 Conditions Precedent
to the Obligation of the Purchasers to Close and to Purchase the
Securities
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20
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ARTICLE V CERTIFICATE
LEGEND
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22
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Section
5.1 Legend
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22
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TABLE OF CONTENTS
(continued)
Page
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ARTICLE VI INDEMNIFICATION
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23
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Section
6.1 Company
Indemnity
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23
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Section
6.2 Indemnification
Procedure
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24
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ARTICLE VIIMISCELLANEOUS
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25
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Section
7.1 Fees and
Expenses
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25
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Section
7.2 Specific Performance;
Consent to Jurisdiction; Venue.
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25
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Section
7.3 Entire Agreement;
Amendment
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26
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Section
7.4 Notices
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26
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Section
7.5 Waivers
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27
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Section
7.6 Headings
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27
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Section
7.7 Successors and
Assigns
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27
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Section
7.8 No Third Party
Beneficiaries
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27
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Section
7.9 Governing
Law
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27
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Section
7.10 Survival
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27
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Section
7.11 Counterparts
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28
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Section
7.12 Publicity
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28
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Section
7.13 Severability
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28
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Section 7.14 Further
Assurances
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28
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NOTE AND WARRANT PURCHASE
AGREEMENT
This NOTE AND WARRANT PURCHASE
AGREEMENT dated as of December 7, 2006 (this “
Agreement ”) by and among Merchandise Creations, Inc.,
a Nevada corporation (the “ Company ”), and each
of the purchasers of the secured convertible demand promissory
notes of the Company whose names are set forth on Exhibit A
attached hereto (each a “ Purchaser ” and
collectively, the “ Purchasers ”).
The parties hereto agree as
follows:
ARTICLE I
PURCHASE AND SALE OF NOTES AND
WARRANTS
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Section 1.1
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Purchase and Sale of Notes and
Warrants .
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(a) Upon
the following terms and conditions, the Company shall issue and
sell to the Purchasers, and the Purchasers shall purchase (in the
amounts set forth as Exhibit A hereto) from the Company,
secured convertible demand promissory notes in the aggregate
principal amount of up to Eight Million Dollars ($8,000,000),
convertible into shares of the Company’s common stock, par
value $0.001 per share (the “ Common Stock ”),
in substantially the form attached hereto as Exhibit B (the
“ Notes ”). 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 Section 4(2) of the U.S. Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder (the “
Securities Act ”), including Regulation D (“
Regulation D ”), and/or upon such other exemption from
the registration requirements of the Securities Act as may be
available with respect to any or all of the investments to be made
hereunder.
(b) Upon
the following terms and conditions and for no additional
consideration, each of the Purchasers shall be issued (i) Series A
Warrants, in substantially the form attached hereto as Exhibit
C-1 (the “ Series A Warrants ”), to purchase
the number of shares of Common Stock equal to fifty percent (50%)
of the number of Conversion Shares (as defined in Section 1.3
below) issuable upon conversion of the Notes purchased by each
Purchaser pursuant to the terms of this Agreement, as set forth
opposite such Purchaser’s name on Exhibit A hereto,
(ii) Series J Warrants, in substantially the form attached hereto
as Exhibit C-2 (the “ Series J Warrants
”), to purchase the number of shares of Common Stock equal to
one hundred percent (100%) of the number of Conversion Shares
issuable upon conversion of the Notes purchased by each Purchaser,
provided that such Purchaser purchases Notes for a purchase price
equal to or greater than Two Million Dollars ($2,000,000) pursuant
to the terms of this Agreement, as set forth opposite such
Purchaser’s name on Exhibit A hereto, and (iii) Series
B Warrants, in substantially the form attached hereto as Exhibit
C-3 (the “ Series B Warrants ” and, together
with the Series A Warrants and the Series J Warrants, the “
Warrants ”), to purchase the number of shares of
Common Stock equal to fifty percent (50%) of the number of
Conversion Shares issuable upon conversion of the Notes purchased
by each Purchaser pursuant to the terms of this Agreement, as set
forth opposite such Purchaser’s name on Exhibit A
hereto. The Warrants shall expire five (5) years following the
Closing Date, except for the Series J Warrants,
which shall expire nine (9) months
following the Closing Date. Each of the Warrants shall have an
exercise price per share equal to the Warrant Price (as defined in
the applicable Warrant).
Section
1.2 Purchase
Price and Closing . Subject to the terms and conditions hereof,
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 Warrants for an aggregate purchase price of up to Eight Dollars
($8,000,000) (the “ Purchase Price ”). The
closing of the purchase and sale of the Notes and Warrants to be
acquired by the Purchasers from the Company under this Agreement
shall take place at the offices of Kramer Levin Naftalis &
Frankel LLP, 1177 Avenue of the Americas, New York, New York 10036
(the “ Closing ”) at 10:00 a.m., New York time
(i) on or before December 8, 2006; provided , that all of
the conditions set forth in Article IV hereof and applicable to the
Closing shall have been fulfilled or waived in accordance herewith,
or (ii) at such other time and place or on such date as the
Purchasers and the Company may agree upon (the “ Closing
Date ”). Subject to the terms and conditions of this
Agreement, at the Closing the Company shall deliver or cause to be
delivered to each Purchaser (x) its Notes for the principal amount
set forth opposite the name of such Purchaser on Exhibit A
hereto, (y) its Warrants to purchase such number of shares of
Common Stock as is set forth opposite the name of such Purchaser on
Exhibit A attached hereto and (z) any other documents
required to be delivered pursuant to Article IV hereof. At the
Closing, each Purchaser shall deliver its Purchase Price by wire
transfer to an escrow account designated by the escrow
agent.
Section
1.3 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 one hundred fifty percent (150%) of the aggregate number of
shares of Common Stock to effect the conversion of the Notes and
exercise of the Warrants as of the Closing Date. Any shares of
Common Stock issuable upon conversion of the Notes are herein
referred to as the “ Conversion Shares ”. Any
shares of Common Stock issuable upon exercise of the Warrants (and
such shares when issued) are herein referred to as the “
Warrant Shares ”. The Notes, the Warrants, the
Conversion Shares and the Warrant Shares are sometimes collectively
referred to herein as the “ Securities
”.
ARTICLE II
REPRESENTATIONS AND
WARRANTIES
Section
2.1
Representations and Warranties of the Company . The Company
hereby represents and warrants to the Purchasers, as of the date
hereof and the Closing Date (except as set forth on the Schedule of
Exceptions attached hereto with each numbered Schedule
corresponding to the section number herein), 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 Nevada 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
(as defined in Section 2.1(g)) or
own securities of any kind in any other entity except as set forth
on Schedule 2.1(g) hereto. The Company and each such
Subsidiary (as defined in Section 2.1(g)) 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.
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.
(b)
Authorization; Enforcement . The Company has the requisite
corporate power and authority to enter into and perform its
obligations under this Agreement, the Notes, the Warrants, the
Registration Rights Agreement by and among the Company and the
Purchasers, dated as of the date hereof, substantially in the form
of Exhibit D attached hereto (the “ Registration
Rights Agreement ”), the Security Agreement by and among
the Company and the Purchasers, dated as of the date hereof,
substantially in the form of Exhibit E attached hereto (the
“ Security Agreement ”), the Lock-Up Agreement
(as defined in Section 3.17 hereof) in the form attached hereto as
Exhibit F , the Escrow Agreement by and among the Company,
the Purchasers and the escrow agent, dated as of the date hereof,
substantially in the form of Exhibit G attached hereto (the
“ Escrow Agreement ”), and the Irrevocable
Transfer Agent Instructions (as defined in Section 3.16 hereof)
(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 thereby have been duly and validly
authorized by all necessary corporate action, and, except as set
forth on Schedule 2.1(b) , no further consent or
authorization of the Company, its Board of Directors or
stockholders is required. When executed and delivered by the
Company, each of the Transaction Documents shall constitute 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, 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
as of the date hereof is set forth on Schedule 2.1(c)
hereto. All of the outstanding shares of the Common Stock and any
other outstanding security of the Company have been duly and
validly authorized and validly issued, fully paid and nonassessable
and were issued in accordance with the registration or
qualification provisions of the Securities Act, or pursuant to
valid exemptions therefrom. Except as set forth in this Agreement
and as set forth on Schedule 2.1(c) hereto, no shares of
Common Stock or any other security of the Company are entitled to
preemptive rights, registration rights, rights of first refusal or
similar 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 and as set forth on Schedule
2.1(c) hereto, 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 provided on
Schedule 2.1(c) hereto, the Company is not a party to or
bound by any agreement or understanding granting registration or
anti-dilution rights to any person with respect to any of its
equity or debt securities. Except as set forth on Schedule
2.1(c) , the Company is not a party to, and it has no knowledge
of, any agreement or understanding restricting the voting or
transfer of any shares of the capital stock of the Company. Except
as disclosed on Schedule 2.1(c) , (i) there are no
outstanding debt securities, or other form of material debt of the
Company or any of its Subsidiaries, (ii) there are no contracts,
commitments, understandings, agreements or arrangements under which
the Company or any of its Subsidiaries is required to register the
sale of any of their securities under the Securities Act, (iii)
there are no outstanding securities of the Company or any of its
Subsidiaries which contain any redemption or similar provisions,
and there are no contracts, commitments, understandings, agreements
or arrangements by which the Company or any of its Subsidiaries is
or may become bound to redeem a security of the Company or any of
its Subsidiaries, (iv) there are no securities or instruments
containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities, (v) the Company does
not have any stock appreciation rights or “phantom
stock” plans or agreements, or any similar plan or agreement
and (vi) as of the date of this Agreement, except as disclosed on
Schedule 2.1(c) , to the Company’s and each of its
Subsidiaries’ knowledge, no Person (as defined below) or
group of related Persons beneficially owns (as determined pursuant
to Rule 13d-3 promulgated under the Exchange Act) or has the right
to acquire by agreement with or by obligation binding upon the
Company, beneficial ownership of in excess of 5% of the Common
Stock. Any Person with any right to purchase securities of the
Company that would be triggered as a result of the transactions
contemplated hereby or by any of the other Transaction Documents
has waived such rights or the time for the exercise of such rights
has passed, except where failure of the Company to receive such
waiver would not have a Material Adverse Effect. Except as set
forth on Schedule 2.1(c) , there are no options, warrants or
other outstanding securities of the Company (including, without
limitation, any equity securities issued pursuant to any Company
Plan) the vesting of which will be accelerated by the transactions
contemplated hereby or by any of the other Transaction Documents.
Except as set forth in Schedule 2.1(c) , none of the
transactions contemplated by this Agreement or by any of the other
Transaction Documents shall cause, directly or indirectly, the
acceleration of vesting of any options issued pursuant the
Company’s stock option plans.
(d)
Issuance of Securities . The Notes and the Warrants to be
issued at the 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 hereby and
thereby,
(including the issuance of the
Securities as contemplated hereby) do not and will not (i) violate
or conflict with any provision of the Company’s Articles of
Incorporation (the “ Articles ”) or Bylaws (the
“ Bylaws ”), each as amended to date, or any
Subsidiary’s comparable charter documents, (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 or any of its Subsidiaries is a party or by which
the Company or any of its Subsidiaries’ respective properties
or assets are bound, or (iii) 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, with respect to clauses
(ii) and (iii) above for such conflicts, defaults, terminations,
amendments, acceleration, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse
Effect (excluding with respect to federal and state securities
laws)). Neither the Company nor any of its Subsidiaries is required
under federal, state, foreign 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 (other than any filings, consents
and approvals which may be required to be made by the Company under
applicable state and federal securities laws, rules or regulations
or any registration provisions provided in the Registration Rights
Agreement).
(f)
Commission Documents, Financial Statements . The Common
Stock of the Company is registered pursuant to Section 12(b) or
12(g) of the Securities Exchange Act of 1934, as amended (the
“ Exchange Act ”), and the Company has timely
filed all reports, schedules, forms, statements and other documents
required to be filed by it with the Commission pursuant to the
reporting requirements of the Exchange Act (all of the foregoing
including filings incorporated by reference therein being referred
to herein as the “ Commission Documents ”). At
the times of their respective filings, the Form 10-QSB for the
fiscal quarters ended June 30, 2006, March 31, 2006 and September
30, 2005 (collectively, the “ Form 10-QSB ”) and
the Form 10-KSB for the fiscal year ended December 31, 2005 (the
“ Form 10-KSB ”) complied in all material
respects with the requirements of the Exchange Act and the rules
and regulations of the Commission promulgated thereunder, and the
Form 10-QSB and Form 10-KSB did not contain any untrue statement of
a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made,
not misleading. As of their respective dates, the financial
statements of the Company included in the Commission Documents
complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of
the Commission. Such financial statements have been prepared in
accordance with 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 of the outstanding stock or other
interests of such Subsidiary. 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. Except as set forth on Schedule 2.1(g)
hereto, 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 except as set forth on Schedule
2.1(g) hereto. 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.
(h)
No Material Adverse Change . Since December 31, 2005, the
Company has not experienced or suffered any Material Adverse
Effect, except as disclosed on Schedule 2.1(h) hereto and as
disclosed in its Commission Documents.
(i)
No Undisclosed Liabilities . Except as disclosed on
Schedule 2.1(i) hereto, neither the Company nor any of its
Subsidiaries has incurred 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 or which, individually or in the
aggregate, are not reasonably likely to have a Material Adverse
Effect.
(j)
No Undisclosed Events or Circumstances . Since December 31,
2005, except as disclosed 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 . Schedule 2.1(k) hereto sets forth as
of the date hereof all outstanding secured and unsecured
Indebtedness of the Company or any Subsidiary, or Indebtedness 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. 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 valid 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 indicated on Schedule 2.1(l)
hereto or such that, individually or in the aggregate, do not cause
a Material Adverse Effect. Any 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 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 any of 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 or on Schedule
2.1(m) hereto, there is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or other
proceeding pending or, to the knowledge of the Company, threatened
against or involving the Company, any Subsidiary or any of their
respective properties or assets, which individually or in the
aggregate, would reasonably be expected, if adversely determined,
to have a Material Adverse Effect. 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, which individually or in
the aggregate, could reasonably be expected to have a Material
Adverse Effect.
(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 Commission Documents or on Schedule 2.1(n)
hereto or such that, individually or in the aggregate, the
noncompliance therewith could not reasonably be expected to have 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 . 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. Except as disclosed on Schedule 2.1(o)
hereto or in the Commission Documents, 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 on Schedule 2.1(p)
hereto, the Company has not employed any broker or finder or
incurred any liability for any brokerage or investment banking
fees, commissions, finders’ structuring fees, financial
advisory fees or other similar fees in connection with the
Transaction Documents.
(q)
Disclosure . Except for the transactions contemplated by
this Agreement, the Company confirms that neither it nor any other
person acting on its behalf has provided any of the Purchasers or
their agents or counsel with any information that constitutes or
might constitute material, nonpublic information. To the
Company’s knowledge, neither the representations and
warranties contained in Section 2.1 of 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 . Except as set forth on Schedule
2.1(r) hereto, the Company and each of the Subsidiaries owns or
possesses the rights to 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 which are necessary for the
conduct of its business as now conducted without any conflict with
the rights of others.
(s)
Environmental Compliance . Except as set forth on
Schedule 2.1(s) hereto or in the Commission Documents, 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. “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. To the Company’s
knowledge, the Company has all necessary governmental approvals
required under all Environmental Laws as necessary for the
Company’s business or the business of any of its
subsidiaries. Except for such instances as would not individually
or in the aggregate have a Material Adverse Effect and to the
knowledge of the Company, 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 Records; Internal Accounting Controls . The
records and documents 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 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’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 generally accepted
accounting principles 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 are taken
with respect to any differences.
(u)
Material Agreements . Except for the Transaction Documents
(with respect to clause (i) only), as disclosed in the Commission
Documents or as set forth on Schedule 2.1(u) hereto, or as
would not be reasonably likely to have a Material Adverse Effect,
(i) the Company and each of its Subsidiaries have performed all
obligations required to be performed by them to date under any
written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement, filed or required to be filed with
the Commission (the “ Material Agreements ”),
(ii) neither the Company nor any of its Subsidiaries has received
any notice of default under any Material Agreement and, (iii) to
the Company’s knowledge, neither the Company nor any of its
Subsidiaries is in default under any Material Agreement now in
effect.
(v)
Transactions with Affiliates . Except as set forth on
Schedule 2.1(v) hereto and in the Commission Documents,
there are no loans, leases, agreements, contracts, royalty
agreements, management contracts or arrangements or other
continuing transactions between (a) the Company, any Subsidiary or
any of their respective customers or suppliers 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 at least 5% of the outstanding 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 which, in each case, is required to be disclosed in the
Commission Documents or in the Company’s most recently filed
definitive proxy statement on Schedule 14A, that is not so
disclosed in the Commission Documents or in such proxy
statement.
(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 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. 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)
Employees . Neither the Company nor any Subsidiary has any
collective bargaining arrangements or agreements covering any of
its employees, except as set forth on Schedule 2.1(x)
hereto. Except as set forth on Schedule 2.1(x) 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 required to be disclosed
in the Commission Documents that is not so disclosed. No officer,
consultant or key employee of the Company or any Subsidiary whose
termination, either individually or in the aggregate, would be
reasonably likely to 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.
(y)
Absence of Certain Developments . Except as set forth in the
Commission Documents or provided on Schedule 2.1(y) hereto,
since December 31, 2005, neither the Company nor any Subsidiary
has:
(i) issued
any stock, bonds or other corporate securities or any right,
options or warrants with respect thereto;
(ii) borrowed
any amount in excess of $100,000 or incurred or become subject to
any other liabilities in excess of $100,000 (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 business of the
Company and its Subsidiaries;
(iii) discharged
or satisfied any lien or encumbrance in excess of $100,000 or paid
any obligation or liability (absolute or contingent) in excess of
$100,000, 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, in each case in excess of $50,000 individually or
$100,000 in the aggregate;
(v) sold,
assigned or transferred any other tangible assets, or canceled any
debts or claims, in each case in excess of $100,000, 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 in excess of $100,000, 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 material 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;
(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 material transaction, whether or not in the ordinary
course of business which has not been disclosed in the Commission
Documents;
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(xi)
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made charitable contributions or pledges in
excess of $10,000;
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(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; or
(xiv) entered
into an agreement, written or otherwise, to take any of the
foregoing actions.
(z)
Investment Company Act Status . 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.
(aa)
ERISA . No liability to the Pension Benefit Guaranty
Corporation has been incurred with respect to any Plan (as defined
below) 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 Securities will not involve any transaction which is subject
to the prohibitions of Section 406 of the Employee Retirement
Income Security Act of 1974, as amended (“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(aa), 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.
(bb)
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.
(cc)
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 in a manner that would prevent the
Company from selling the Securities pursuant to Regulation D and
Rule 506 thereof under the Securities Act, nor will the Company or
any of its affiliates or subsidiaries take any action or steps that
would cause the offering of the Securities to be integrated with
other offerings. The Company does not have any registration
statement pending before the Commission or currently under the
Commission’s review. Except as set forth on Schedule
2.1(cc) hereto, since April 1, 2006, the Company has not
offered or sold any of its equity securities or debt securities
convertible into shares of Common Stock.
(dd)
Sarbanes-Oxley Act . The Company is in compliance with the
applicable provisions of the Sarbanes-Oxley Act of 2002 (the
“ Sarbanes-Oxley Act ”), and the rules
and
regulations promulgated thereunder,
that are effective and presently applicable to the Company and
intends to comp
