NOTE PURCHASE AGREEMENT
BY AND AMONG
SJ ELECTRONICS, INC.
(F/K/A ACHERON, INC.)
AND
THE INVESTORS LISTED ON EXHIBIT A
Dated as of May 15
, 2008
_______________________
15% SENIOR SECURED CONVERTIBLE NOTES DUE
2009
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Page
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DEFINITIONS
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1
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2.
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PURCHASE
AND SALE OF NOTE
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8
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(a)
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Purchase
and Sale of Note
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8
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(b)
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Closing
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9
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3.
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REPRESENTATIONS
AND WARRANTIES CONCERNING THE COMPANY AND ITS
SUBSIDIARIES
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9
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(a)
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Organization
and Standing
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9
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(b)
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Authorization
of Transaction
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9
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(c)
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Noncontravention
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10
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(d)
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Concerning
the Shares and the Common Stock. Capitalization
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10
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(e)
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Subsidiaries
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10
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(f)
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Disclosure
Documents; Common Stock Trading
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11
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(g)
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No
Undisclosed Liabilities; No Guaranties
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12
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(h)
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Absence
of Litigation
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12
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(i)
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Title
to Assets
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12
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(j)
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Legal
Compliance
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12
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(k)
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Contracts
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12
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(l)
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Employees;
Employee Benefits
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12
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(m)
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Intellectual
Property
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13
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(n)
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Notes
and Accounts Receivables
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13
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(o)
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Tax
Matters
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13
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(p)
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Books
and Records
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13
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(r)
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Certain
Business Relationships
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13
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(r)
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Private
Offering
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14
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(s)
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Use
of Proceeds
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14
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(t)
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Brokers’
Fees
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14
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(u)
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Environmental
and Safety Laws
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14
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(v)
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Manufacturing
and Marketing Rights
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14
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TABLE OF CONTENTS
(continued)
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Page
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4.
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REPRESENTATIONS
AND WARRANTIES OF THE INVESTORS |
15
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(a)
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Organization
and Standing. Authorization of Transaction
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15
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(b)
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Circumstances
of Purchase
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15
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(c)
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Brokers’
Fees
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15
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(d)
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No
Registration
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15
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(e)
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Directing
Selling Efforts
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16
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(f)
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Investor
Status
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16
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(g)
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Accredited
Investor Status
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16
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(h)
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Information
Provided
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16
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(i)
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Investment
Experience
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17
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(j)
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Short
Sales and Confidentiality prior to the Date
Hereof
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18
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5.
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REGISTRATION
RIGHTS |
18
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(a)
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Mandatory
Registration
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18
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(b)
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Obligations
of the Company
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19
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(c)
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Obligations
of the Investors
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21
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6.
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POST-CLOSING
COVENANTS |
22
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(a)
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Transfer
Restrictions
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22
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(b)
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Restrictive
Legends
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23
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(c)
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Reporting
Status
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24
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(d)
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Debt
Obligation
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24
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(e)
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Press
Releases
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24
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(f)
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Form
8-K; Limitation on Information and Investor
Obligations
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24
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(g)
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Security
Agreement
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24
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(h)
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Short
Sales and Confidentiality after the Date Hereof
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24
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(i)
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Performance
Adjustment
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25
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7.
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CONDITIONS
TO OBLIGATION TO CLOSE |
25
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(a)
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Conditions
to Obligation of the Investors
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25
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(b)
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Conditions
to Obligation of the Company and the Management
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26
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8.
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INDEMNIFICATION
AND CONTRIBUTION |
27
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(a)
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Indemnification
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27
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TABLE OF CONTENTS
(continued)
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Page
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(b)
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Contribution
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28
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(c)
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Other
Rights
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29
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9.
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MISCELLANEOUS
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29
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(a)
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No
Third Party Beneficiaries
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29
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(b)
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Entire
Agreement
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29
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(c)
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Succession
and Assignment
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29
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(d)
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Counterparts
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29
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(e)
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Headings
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29
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(f)
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Notices
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29
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(g)
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Controlling
Law; Venue
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30
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(h)
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Amendments
and Waivers
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30
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(i)
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Severability
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30
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(j)
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Expenses
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30
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(k)
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Construction
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30
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(l)
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Incorporation
of Exhibits and Schedules
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31
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(m)
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Termination
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31
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(n)
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Investor
Status
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31
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ANNEXES
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Annex
I
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Form
of 15% Senior Secured Convertible Note due 2009
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Annex
II
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Form
of Pledge and Security Agreement
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Annex
III
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Form
of Escrow Agreement
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Annex
IV
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Form
of Legal Opinion of Company Counsel
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Annex
V
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Form
of Guaranty by Agatha Shen
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Annex
VI
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Form
of Lockbox Agreement
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Annex
VII
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Form
of Collateral Agency Agreement
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NOTE PURCHASE AGREEMENT
This
Note Purchase Agreement (this “
Agreement ”)
is entered into as of May 15, 2008, by and between SJ Electronics,
Inc. (f/k/a Acheron, Inc.), a Nevada corporation (the
“
Company ”),
the persons listed on the signature pages hereto as the management
of the Company (the “
Management ”)
and the investors listed on Exhibit A hereto (each an
“Investor” and collectively the “
Investors ”).
The Investors and the Company are also referred to individually
herein as a “
Party ”
and collectively herein as the “
Parties .”
WITNESSETH
:
WHEREAS ,
upon the terms and subject to the conditions of this Agreement, the
Investors wish to purchase from the Company and the Company wishes
to sell to the Investors, the Notes (such capitalized term and all
other capitalized terms used in this Agreement having the meanings
provided in Section 1) of the Company to be issued by the Company
in the principal amount set forth on the signature page of this
Agreement, which Notes will be convertible into shares of Common
Stock;
NOW THEREFORE, in
consideration of the premises and the mutual covenants contained
herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as
follows:
AGREEMENT
The
Parties, intending to be legally bound, agree as
follows:
1.
DEFINITIONS.
The
following terms used in this Agreement shall have the meanings
set forth below, provided that these definitions do not
include terms used in
Section 2(c )
that are otherwise defined in that Section.
“
1933 Act ”
means the Securities Act of 1933, as amended.
“Accounts
Receivable” means
all
rights to payment for goods sold or leased or for services
rendered, whether or not such rights have been earned by
performance, except that all such rights to payment from
Lite-On, Inc. are expressly excluded from Accounts
Receivable.
“
Additional Closing ”
has the meaning set forth in Section 2.
“
Additional Closing Date ”
has the meaning set forth in Section 2.
“
Affiliate ”
has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Exchange Act.
“
Agreement ”
means this Note Purchase Agreement.
“
Blackout Period ”
means the period of up to twenty Trading Days (whether or not
consecutive) during any period of 365 consecutive days after the
date the Company notifies the Investors that they are required,
pursuant to Section 5(c)(4), to suspend offers and sales of
Registrable Securities as a result of an event or circumstance
described in Section 5(b)(5)(A), during which period, by reason of
Section 5(b)(5)(B), the Company is not required to amend a
particular Registration Statement or supplement the related
Prospectus.
“
Business ”
means the business of the Company and its
Subsidiaries.
“
Business Day ”
means any day other than a Saturday, Sunday or a day on which
commercial banks in The City of New York are authorized or required
by law or executive order to remain closed.
“
Claims ”
means any losses, claims, damages, liabilities or expenses,
including, without limitation, reasonable fees and expenses of
legal counsel (joint or several), incurred by a
Person.
“
Closing ”
has the meaning set forth in
Section 2(b) .
“
Closing Date ”
has the meaning set forth in
Section 2(b) .
“
Code ”
means the Internal Revenue Code of 1986, as amended.
“
Collateral ”
shall have the meaning to be provided in this Agreement or in the
Pledge and Security Agreement.
“
Collateral Agent ”
shall have the meaning to be provided in this Agreement or in the
Pledge and Security Agreement.
“
Collateral Agency Agreement ”
means the Collateral Agency Agreement by and among the Collateral
Agent and the parties therein in the form attached as
Annex VII .
“
Common Stock ”
means the Common Stock, par value $.001 per share, of the
Company.
“
Company Intellectual Property ”
means all intellectual property currently used by the Company and
its Subsidiaries that is material to their business.
“
Company Disclosure Schedule ”
has the meaning set forth in
Section 3 .
“
Conversion Price ”
shall have the meaning to be provided in this Agreement or in the
Note.
“
Conversion Shares ”
means the shares of Common Stock or other securities issuable upon
conversion of the Note.
“
Disclosure Documents ”
has the meaning set forth in
Section 3(f) .
“
Encumbrance ”
means any claim, mortgage, servitude, easement, encroachment,
restrictive covenant, right of way, survey defect, equitable
interest, lease or other possessory interest, lien, option, pledge,
security interest, preference, priority, right of first refusal,
environmental use restriction or similar restriction.
“
Entity ”
means any corporation (including any non profit corporation),
general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, association, company
(including any company limited by shares, limited liability company
or joint stock company), firm, society or other enterprise,
association, organization or entity.
“
ERISA ”
means the Employee Retirement Income Security Act of 1974, as
amended.
“
Escrow Agent ”
means Guzov Ofsink, LLC, as the Company’s escrow agent for
the Purchase Price Escrow Agreement.
“
Event of Default ”
shall have the meaning to be provided in this Agreement or in the
Note.
“
Exchange Act ”
means the U.S. Securities Exchange Act of 1934, as
amended.
“
FINRA ”
means the Financial Industry Regulatory Authority.
“
GAAP ”
means United States generally accepted accounting principles as in
effect as of the date of any document purported to be prepared in
accordance with GAAP.
“
Governmental Body ”
means any (i) nation, region, state, province, county,
municipality, city, town, village, district or other jurisdiction,
(ii) federal, state, provincial, local, municipal, foreign or
other government, (iii) governmental or quasi-governmental
authority of any nature (including any governmental agency, branch,
department or other Entity and any court or other tribunal),
(iv) multinational organization, (v) body exercising, or
entitled to exercise, any administrative, executive, judicial,
legislative, policy, regulatory or taxing authority or power of any
nature or (vi) official of any of the foregoing.
“
Guaranty ”
means the guaranty dated of even date herewith executed by Agatha
Shen in favor of the Investors providing for the guaranty of the
Company’s obligations under the Notes, in the form attached
as
Annex V .
“
Indebtedness ”
shall have the meaning to be provided in this Agreement or in the
Note.
“
Indemnified Party ”
means the Company, each of its directors, each of its officers who
signs the Registration Statement, each Person, if any, who controls
the Company within the meaning of the 1933 Act or the Exchange Act,
any underwriter and any other stockholder selling securities
pursuant to the Registration Statement or any of its directors or
officers or any Person who controls such stockholder or underwriter
within the meaning of the 1933 Act or the Exchange
Act.
“
Indemnified Person ”
means the Investors, their respective investment advisers and
investment managers, the directors, officers, employees and agents
of the Investors, each Person, if any, who controls an Investor or
any such investment adviser or investment manager within the
meaning of the 1933 Act or the Exchange Act, any underwriter (as
defined in the 1933 Act) acting on behalf of an Investor who
participates in the offering of Registrable Securities by such
Investor in accordance with the plan of distribution contained in
the Prospectus, the directors, if any, of such underwriters and the
officers, if any, of such underwriters, and each Person, if any,
who controls any such underwriter within the meaning of the 1933
Act or the Exchange Act.
“
Initial Closing ”
has the meaning set forth in Section 2.
“
Initial Closing Date ”
means 10:00 a.m., New York City time, on May 15, 2008, or such
other mutually agreed to time.
“
Inspector ”
means any attorney, accountant or other agent retained by an
Investor for the purposes provided in Section 5(b)(7).
“
Insolvent ”
means (i) the present fair saleable value of the Company's assets
is less than the amount required to pay the Company's total
indebtedness, contingent or otherwise, (ii) the Company is unable
to pay its debts and liabilities, subordinated, contingent or
otherwise, as such debts and liabilities become absolute and
matured, (iii) the Company intends to incur debts beyond its
ability to pay as such debts as they mature (taking into account
the timing and amounts of cash to be payable on or in respect of
its debt) or (iv) the Company has unreasonably small capital with
which to conduct the business in which it is engaged for the
current fiscal year as such business is now conducted and is
proposed to be conducted.
“
Investors ”
means the investors listed on Exhibit A.
“
IRS ”
means the Internal Revenue Service or any successor agency and, to
the extent relevant, the Department of Treasury.
“
Law ”
means any foreign, federal, state and local statute, law,
constitution, treaty, rule, regulation, by-law, ordinance, code,
regulation, resolution, order, determination, writ, injunction,
awards (including, without limitation, awards of any arbitrator),
judgment, decree, binding case law, principle of common law or
notice of any Governmental Body (for the avoidance of doubt,
including, but not limited to, the Laws of the United States of
America and the People’s Republic of China).
“
Liabilities ”
includes liabilities or obligations of any nature, whether known or
unknown, whether absolute, accrued, contingent, choate, inchoate or
otherwise, whether due or to become due, and whether or not
required to be reflected on a balance sheet prepared in accordance
with GAAP, including any Liability for Taxes.
“
Liens ”
shall have the meaning to be provided in this Agreement or in the
Note.
“
Lockbox Agreement ”
means the Lockbox Agreement by and among the Company, the
Collateral Agent and the Lockbox Agent in the form attached
as
Annex VI .
“
Management ”
has the meaning set forth in the preface.
“
Material Adverse Effect ”
means (i) a material adverse effect on (A) the business,
properties, operations, condition (financial or other), results of
operations or prospects of the Company and the Subsidiaries, taken
as a whole; (B) the validity or enforceability of, or the ability
of the Company to perform its obligations under, the Transaction
Documents; (C) the existence, validity or priority of the Lien on
and Security Interest in the Collateral granted pursuant to any
Security Agreement; or (D) the rights and remedies of the Investors
under or in connection with the Transaction Documents or (ii) any
event or circumstance that would cause any Registration Statement
or Prospectus to contain any untrue statement of a material fact or
omit to state any material fact necessary to make the statements
made not misleading except if such untrue statement of a material
fact in such Registration Statement or Prospectus or omission to
state a material fact required to be stated in such Registration
Statement or Prospectus in order to make the statements therein not
misleading, results from a misstatement or omission made by the
Investors in written information they furnished to the Company
specifically for inclusion in such Registration Statement or such
Prospectus or in any amendment or supplement thereto, unless the
Company shall have failed timely to amend or supplement such
Registration Statement or Prospectus after such Investors shall
have corrected such misstatement or omission.
“
Material Contracts ”
has the meaning set forth in
Section 3(m) .
“
Note ”
means the 15% Senior Secured Convertible Note due 2009 of the
Company in the form attached as
Annex I .
“
Party ”
and “
Parties ”
have the meanings set forth in the preface.
“
Payment Event ”
means any of the following events:
(i) the
Company fails to file with the SEC any Registration Statement
meeting the requirements of this Agreement on or before the
date by which the Company is required to file such
Registration Statement pursuant to Section 5(a),
(ii) the
SEC Effectiveness Date of the Registration Statement required
by Section 5(a)(1) covering Registrable Securities does not
occur within 180 days following the Closing Date or the SEC
Effectiveness Date of any Registration Statement required by
Section 5(a)(2) covering Registrable Securities does not occur
within 120 days following the date the Company shall become
obligated to commence preparation of such Registration
Statement,
(iii) The
Company fails to file with the SEC a request for acceleration
of effectiveness of a Registration Statement within five
Trading Days after the date the Company learns that no review
of such Registration Statement will be made by the staff of
the SEC or that the staff of the SEC has no further comments
on such Registration Statement, as the case may be, or any
such request for acceleration fails to request acceleration of
such Registration Statement to a time and date not more than
48 hours after the submission of such request,
(iv) after
the SEC Effectiveness Date of any Registration Statement,
sales cannot be made pursuant to such Registration Statement
for any reason (including, without limitation, by reason of a
stop order, any untrue statement of a material fact or
omission of a material fact in such Registration Statement, or
the Company’s failure to update such Registration
Statement), except to the extent permitted pursuant to Section
5(b)(5),
(v) the
Company fails, refuses or is otherwise unable timely to issue
and deliver to or upon the order of the Person entitled
thereto Conversion Shares upon conversion of the Note as and
when required under the Transaction Documents, in any such
case within five (5) Trading Days after the due date thereof
in accordance with the Note, or the Company fails, refuses or
is otherwise unable timely to transfer any Shares as and when
required by the Transaction Documents.
“
Payment Period ”
means any period following the Closing Date during which any
Payment Event occurs and is continuing.
“
Person ”
means an individual or an Entity, including a Governmental Body or
any other body with legal personality separate from its
equityholders or members, including if established by any
Governmental Body.
“
Placement Agent ”
means Primary Capital, LLC.
“
Plan ”
has the meaning specified in ERISA Section 3(3).
“
Pledge and Security Agreement ”
means the Pledge and Security Agreement of the Company and Agatha
Shen in favor of the Collateral Agent in the form attached
as
Annex II .
“
Proceeding ”
means any action, arbitration, audit, examination, investigation,
claim, demand, inquiry, hearing, litigation, suit or appeal
(whether civil, criminal, administrative, judicial or
investigative, whether formal or informal, and whether public or
private) commenced, brought, conducted, heard by or before or
otherwise involving any Governmental Body or
arbitrator.
“
Prospectus ”
means the prospectus forming part of the Registration Statement at
the time the Registration Statement is declared effective and any
amendment or supplement thereto (including any information or
documents incorporated therein by reference).
“
Purchase Price ”
means the amount equal to the principal amount of the Note to be
purchased by the Investor as set forth in Exhibit A.
“
Purchase Price Escrow Agreement ”
has the meaning set forth in
Section 2(b ).
“
register ”,
“
registered ”,
and “
registration ”
refer to a registration effected by preparing and filing a
Registration Statement or Statements in compliance with the 1933
Act and pursuant to Rule 415, and the declaration or ordering of
effectiveness of such Registration Statement by the
SEC.
“
Registrable Securities ”
means (1) the Shares, (2) if the Common Stock is changed, converted
or exchanged by the Company or its successor, as the case may be,
into any other stock or other securities on or after the date
hereof, such other stock or other securities which are issued or
issuable in respect of or in lieu of the Shares and (3) if any
other securities are issued to holders of Common Stock (or such
other shares or other securities into which or for which the Common
Stock is so changed, converted or exchanged as described in the
immediately preceding clause (2)) upon any reclassification, share
combination, share subdivision, share dividend, merger,
consolidation or similar transaction or event, such other
securities which are issued or issuable in respect of or in lieu of
the Shares.
“
Registration Statement ”
means a registration statement on Form S-1 or such other form as
may be available to the Company to be filed with the SEC under the
1933 Act relating to the Registrable Securities and which names any
Investor as a selling stockholder.
“
Regulation D ”
means Regulation D under the 1933 Act.
“
Regulation S ”
means Regulation S under the 1933 Act.
“
Repurchase Event ”
shall have the meaning to be provided in this Agreement or in the
Note.
“
Rule 144 ”
means Rule 144 promulgated under the 1933 Act or any other similar
rule or regulation of the SEC that may at any time provide a
“safe harbor” exemption from registration under the
1933 Act so as to permit a holder to sell securities of the Company
to the public without registration under the 1933 Act.
“
Rule 144A ”
means Rule 144A under the 1933 Act or any successor rule
thereto.
“
Rule 415 ”
means Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or
any similar rule or regulation hereafter adopted by the Commission
having substantially the same effect as such Rule.
"
Rule 424
" means
Rule 424 promulgated by the Commission pursuant to the Securities
Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
“
SEC ”
means the U.S. Securities and Exchange Commission.
“
SEC Comments ”
means comments sent by the SEC to the Company in respect of a
Registration Statement.
“
SEC Effectiveness Date ”
means, with respect to any Registration Statement, the date such
Registration Statement is first declared effective by the
SEC.
“
SEC Filing Date ”
means the date the Registration Statement is first filed with the
SEC pursuant to Section 5 of this Agreement.
“
Securities Act ”
means the Securities Act of 1933, as amended.
“
Securities ”
means, collectively, the Note and the Conversion
Shares.
“
Shares ”
means the Conversion Shares.
“
Short Sales ”
shall have the meaning provided in Regulation SHO under the
Exchange Act as in effect on the date of this Agreement (but shall
not be deemed to include the location and/or reservation of
borrowable shares of Common Stock).
“
Subsidiary ”
means any corporation or other entity of which a majority of the
capital stock or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other
persons performing similar functions are at the time directly or
indirectly owned by the Company.
“
Tax ”
means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, customs duties, capital
stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto,
whether disputed or not.
“
Tax Return ”
means any return, declaration, report, claim for refund, or
information return or statement required to be supplied to any
governmental authority relating to Taxes, including any schedule or
attachment thereto, and including any amendment
thereof.
“
Transaction Documents ”
means, collectively, this Agreement, the Note, the Pledge and
Security Agreement, the Collateral Agency Agreement, the Lockbox
Agreement, the Guaranty, the Purchase Price Escrow Agreement and
the other agreements, instruments and documents contemplated hereby
and thereby.
“
Violation ”
means:
(i) any
untrue statement or alleged untrue statement of a material
fact contained in a Registration Statement or any
post-effective amendment thereof or the omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading,
(ii) any
untrue statement or alleged untrue statement of a material
fact contained in any Prospectus (as amended or supplemented,
if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to
state therein any material fact necessary to make the
statements made therein, in light of the circumstances under
which the statements therein were made, not
misleading,
(iii) any
violation or alleged violation by the Company of the 1933 Act,
the Exchange Act, any state securities law or any rule or
regulation under the 1933 Act, the Exchange Act or any state
securities law, or
(iv) any
breach or alleged breach by the Company of any representation,
warranty, covenant, agreement or other term of any of the
Transaction Documents.
2.
PURCHASE AND SALE OF NOTES.
(a)
Purchase and Sale of Notes
. (i)
Upon
the terms and subject to the conditions of this Agreement, the
Investors hereby agree to purchase from the Company, and the
Company hereby agrees to sell to the Investors, on the Closing
Date, the Notes in the principal amounts set forth in Exhibit A and
having the terms and conditions as set forth in the form of the
Note attached hereto as
Annex I for
the Purchase Price.
(ii)
The
Notes will be secured by (i) a first-priority Lien on certain
Accounts Receivable of the Company, and (ii) a perfected
first-priority Lien on ten million (10,000,000) shares of
Common Stock, owned by Agatha Shen, the Chairman of the
Company, pursuant to the Pledge and Security Agreement to be
dated as of the Closing Date between Tri-State Title &
Escrow, LLC, as the collateral agent, the Company and Agatha
Shen, a form of which is attached hereto as
Annex II .
(iii)
The
Notes will be offered and sold to the Investors pursuant to
Regulation S and/or Regulation D under the 1933 Act. Upon
original issuance of the Notes, and until such time as it is
no longer required under the applicable requirements of the
1933 Act, the Notes and the Conversion Shares shall bear the
legends relating to the offer and the sale of the Notes and
the Conversion Shares as required by (i) Regulation S under
the 1933 Act or (ii) any other applicable laws or regulations
relating to the issuance of the Notes.
(b)
Closing
. The
issuance and sale of the Notes shall occur on the Closing Date at
Guzov Ofsink, LLC, 14
th Floor,
600 Madison Avenue, New York, New York 10022 or at such other
location and time as the parties may agree. At the closing, upon
the terms and subject to the conditions of this Agreement, (1) the
Company shall issue and deliver to the Investors the Notes against
payment by the Investors to the Company of an amount equal to the
Purchase Price, and (2) as payment in full for the Notes, and
against delivery of the Notes, the Investors shall have delivered
to the Escrow Agent the Purchase Price pursuant to that certain
escrow agreement, and all amendments thereto, by and among the
Escrow Agent and the Company, a copy of which is attached as
Annex III (such
agreement, the “
Purchase Price Escrow Agreement ”;
such events, the “
Closing ”
or “
Initial Closing ”).
The release to the Company of the Purchase Price less all
applicable fees shall be effected in accordance with the terms of
this Agreement and the Purchase Price Escrow Agreement. At the
Closing, the Investors and the Company shall deliver to each other
all of the various certificates, instruments, and documents
referred to in Section 7. The Investors and the Company acknowledge
and agree that the Company may consummate the sale of additional
Notes to Investors or other investors, on the terms set forth in
this Agreement and the other Transaction Documents as defined
herein, at a closing or additional closings (each, an
“
Additional Closing ”;
the Initial Closing and any Additional Closing are also
sometimes referred to herein as a “
Closing ”),
all of which Additional Closings shall occur not later than July
31, 2008 (the date of any Additional Closing is hereinafter
referred to as an
Additional Closing Date ”
and the Initial Closing Date and any Additional Closing Date are
also sometimes referred to herein as a “
Closing Date ”).
3.
REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY AND ITS
SUBSIDIARIES.
The
Company represents and warrants to the Investors that the
statements contained in this
Section 3 are
correct and complete as of the date of this Agreement except as set
forth in the disclosure schedule delivered by the Company to the
Investor on the date hereof and initialed by the Parties (the
“
Company Disclosure Schedule ”).
The Company Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in
this
Section 3 .
(a)
Organization and Standing.
The
Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Nevada, with full and
unrestricted corporate power and authority to own, operate and
lease its assets, to carry on the Business (and any other business)
as currently conducted (and proposed to be conducted), to execute
and deliver this Agreement and the Transaction Documents and to
carry out the transactions contemplated hereby and thereby. The
Company is duly qualified to do business and is in good standing
(to the extent such concept is applicable in the relevant
jurisdiction) in all jurisdictions in which either the ownership or
use of the properties owned or used by it, or the nature of the
activities conducted by it, requires such qualification, except
where the failure to so qualify will not have a material adverse
effect on the Business or financial condition of the Company and
its Subsidiaries, taken as a whole.
(b)
Authorization of Transaction.
The
Company has full corporate power and authority to execute and
deliver this Agreement, each of the Transaction Documents, and any
applicable ancillary agreement and to perform its obligations
hereunder and thereunder. The execution and delivery of this
Agreement and any Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate
action on the part of the Company. This Agreement constitutes the
valid and legally binding obligation of the Company, enforceable in
accordance with its terms and conditions, except to the extent that
such enforcement may be limited by bankruptcy, reorganization,
insolvency and other similar Laws and court decisions relating to
or affecting the enforcement of creditors rights generally and by
the application of general equitable principles..
(c)
Noncontravention.
The
execution, delivery and performance by the Company of this
Agreement and any Transaction Documents, the fulfillment of and
compliance with the respective terms and provisions hereof and
thereof, and the consummation by the Company and any of its
Subsidiaries of the transactions contemplated hereby and thereby,
do not and will not: (i) conflict with, or violate any provision
of, any Law having applicability to the Company or its
Subsidiaries, or any of their assets, or any provision of the
charter or bylaws of the Company or any of its Subsidiaries ; (ii)
conflict with, or result in any breach of, or constitute a default
under any agreement,
contract or other arrangement (whether written or oral)
to
which the Company or any Subsidiary is a party or by which the
Company or its Subsidiaries or any of their assets may be bound; or
(iii) result in or require the creation or imposition of or result
in the acceleration of any indebtedness, or of any Encumbrance of
any nature upon, or with respect to any of the assets (including
the Shares) of the Company or any Subsidiary .
(d)
Concerning the Shares and the Common Stock.
Capitalization. The
Shares have been duly authorized and the Conversion Shares, when
issued upon conversion of the Notes, will be duly and validly
issued, fully paid and non-assessable and will not subject the
holder thereof to personal liability by reason of being such
holder. There are no unwaived preemptive or similar rights of any
stockholder of the Company or any other Person to acquire any of
the Securities issued or to be issued to the Investor. The Company
has duly reserved 5,400,000 shares of Common Stock exclusively for
issuance upon conversion of the Notes, and such shares shall remain
so reserved, and the Company shall from time to time reserve such
additional shares of Common Stock as shall be required to be
reserved pursuant to the Notes, so long as the Notes are
outstanding. The Company acknowledges that the Securities may be
pledged in connection with a bona fide margin account or other loan
or financing arrangement secured by the Securities and such pledge
of Securities shall not be deemed to be a transfer, sale or
assignment of the Securities hereunder, and the Investor shall not
be required to provide the Company with any notice thereof or
otherwise make any delivery to the Company pursuant to this
Agreement or any other Transaction Document;
provided, however ,
that in order to make any sale, transfer or assignment of
Securities in connection with a foreclosure or realization on such
pledge, the Investor or its pledgee shall make such disposition in
accordance with, or pursuant to an effective registration statement
or an available exemption under, the 1933 Act. The authorized and
outstanding capital stock of the Company as of the date of this
Agreement and the Closing Date (not including the Securities) are
set forth on Schedule 3(d). Except as set forth on Schedule 3(d),
there are no options, warrants, or rights to subscribe to,
securities, rights or obligations convertible into or exchangeable
for or giving any right to subscribe for any shares of capital
stock of the Company or any of its Subsidiaries. All of the
outstanding shares of Common Stock of the Company have been duly
and validly authorized and issued and are fully paid and
nonassessable.
(e)
Subsidiaries.
All
shares of capital stock of Subsidiaries directly or indirectly held
by the Company have been duly authorized, are validly issued and
fully paid and nonassessable. All of the issued and outstanding
shares (or other securities) of each Subsidiary were issued in
compliance with all applicable federal and state securities Laws
and any other applicable Laws. The Company directly, or indirectly
through wholly owned Subsidiaries, holds of record and beneficially
owns all such shares of capital stock of the direct or indirect
Subsidiaries free and clear of all Encumbrances. Each Subsidiary is
an Entity duly organized, validly existing and in good standing (to
the extent such concept is applicable in the relevant jurisdiction)
under the Laws of its state or jurisdiction of incorporation (as
listed in Section 3(e) of the Company Disclosure Schedule) and in
all jurisdictions in which either the ownership or use of the
properties owned or used by it, or the nature of the activities
conducted by it, requires such qualification. Each Subsidiary has
the full and unrestricted power and authority to own, operate and
lease its assets and to carry on the Business
(and any other business) as
currently conducted (and proposed to be conducted). There are no
outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights or other
contracts or commitments that could require any Subsidiary to
issue, sell or otherwise cause to become outstanding any of its
capital stock. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation or similar rights
with respect to any Subsidiary. There are no voting trusts,
proxies, or other agreements or understandings with respect to the
voting of the capital stock of any Subsidiary. Neither the Company
nor any of its Subsidiaries controls directly or indirectly or has
any direct or indirect equity participation in any corporation,
partnership, trust, or other business association which is not a
Subsidiary.
(f)
Disclosure Documents; Common Stock Trading.
(i)
The
Company has timely filed with, or furnished to, the SEC each
form, proxy statement or report required to be filed with, or
furnished to, the SEC by the Company pursuant to the Exchange
Act since February 14, 2008 (collectively, the “
Disclosure Documents ”).
To the knowledge of the Company, the Disclosure Documents complied,
as of the date of their filing with the SEC, in all respects with
the requirements of the Securities Act, the Exchange Act and the
Sarbanes-Oxley Act of 2002 and the rules and regulations
promulgated thereunder. The information contained or incorporated
by reference in the Disclosure Documents was true, complete and
correct in all material respects as of the respective dates of the
filing thereof with the SEC and, as of such respective dates, the
Disclosure Documents did not contain any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading, except to the extent updated or superseded by any
Disclosure Document subsequently filed by the Company with the SEC
prior to the date hereof. To the knowledge of the officers of the
Company, there is no event, fact or circumstance that would cause
any certification signed by any such officer in connection with any
Disclosure Document pursuant to the requirements of the Sarbanes
Oxley-Act of 2002 to be untrue, inaccurate or incorrect in any
respect.
(ii)
The
financial statements of the Company included in the Disclosure
Documents have been prepared in accordance with the published
rules and regulations of the SEC and in conformity with GAAP
applied on a consistent basis throughout the periods indicated
therein, except as may be indicated therein or in the notes
thereto, and presented fairly, in all material respects, the
consolidated financial position of the Company and its
Subsidiaries as of the dates indicated, and the consolidated
results of the operations and cash flows of the Company and
its Subsidiaries for the periods therein specified (except in
the case of quarterly financial statements for the absence of
footnote disclosure and subject, in the case of interim
periods, to normal year-end adjustments).
(iii)
The
Common Stock is validly, properly and effectively registered
under the Exchange Act in accordance with all applicable
federal securities laws and is quoted on the OTC Bulletin
Board. The Company is currently in compliance with all
applicable FINRA and OTC Bulletin
Board requirements and standards. There is no revocation
order, suspension order, injunction or other Proceeding or Law
(whether issued by the SEC, the FINRA or other Governmental
Body) affecting the effectiveness of the Company’s
Exchange Act registration or the trading of the Common Stock.
The consummation of the transactions contemplated by this
Agreement and the Transaction Documents do not conflict with,
and will not result in any violation of, any FINRA or OTC
Bulletin Board trading requirement or standard applicable to
the Company or its Common Stock.
(g)
No Undisclosed Liabilities; No Guaranties
. Except
as set forth on Section 3(g) of the Company Disclosure Schedule, in
the financial statements of the Company included in the Disclosure
Documents, the Company and its Subsidiaries do not have any
material Liabilities. Except as set forth on Section 3(g) of the
Company Disclosure Schedule, none of the Company nor
any
of its Subsidiaries is
a guarantor or otherwise liable for any Liability (including
indebtedness) of any other Person. Neither the Company nor any of
its Subsidiaries is a party to, or has any commitment to become a
party to, any agreement, contract or other arrangement associated
with off balance sheet financing.
(h)
Absence of Litigation. Except
as set forth in the Disclosure Documents and to the Company’s
knowledge, there is no Proceeding pending or threatened by or
before any Governmental Body against the Company or any of its
Subsidiaries. As of the date hereof, to the Company’s
knowledge, there is no Proceeding pending or, to the
Company’s knowledge, threatened by or before any Governmental
Body (i) seeking to prevent, hinder, modify or challenge any of the
transactions contemplated by this Agreement or any of the
Transaction Documents, or (ii) that would cause any of the
transactions contemplated by this Agreement or any of the
Transaction Documents to be illegal, invalid, voidable or otherwise
rescinded.
(i)
Title to Assets
. Except
as set forth in Section 3(i) of the Company Disclosure Schedule,
the Company or any of its Subsidiaries have good and marketable
title to, or a valid leasehold interest in, free and clear of all
Encumbrances, all properties and assets material to the Business.
All facilities, machinery, equipment, fixtures, vehicles and other
assets and properties owned, leased or used by the Company or any
of its Subsidiaries are in good operating condition and repair
(subject to ordinary wear and tear) and are reasonably fit and
usable for the purposes for which they are being used.
(j)
Legal Compliance
. Each
of the Company and its Subsidiaries and their respective
predecessors and Affiliates is currently in compliance and, except
to the extent that noncompliance will not and could not reasonably
be expected to have a material adverse effect upon the Business or
the financial condition of the Company and any of its Subsidiaries
as currently conducted or proposed to be conducted, has been in
compliance with all applicable Laws, and no Proceeding has been
filed or commenced against any of them alleging any failure so to
comply.
(k)
Contracts
. Section
3(k) of the Company Disclosure Schedule lists all contracts and
other agreements (whether written or oral) to which any of the
Company or its Subsidiaries is a party pursuant to which the
Company or any of its Subsidiaries is to receive, or is obligated
to pay, more than $1,000,000 (“
Material Contracts ”),
specifying for each the parties thereto, all of which are listed on
Section 3(k) of the Company Disclosure Schedule.
(l)
Employees; Employee Benefits.
Except
as set forth in Section 3(l) of the Company Disclosure
Schedule ,
neither the Company nor any of its Subsidiaries maintain any
Plans (as defined in ERISA Section 3(3)) or any obligation,
arrangement or customary practice, whether or not legally
enforceable, to provide benefits, other than salary, as
compensation for services rendered, to present or former
directors, officers, employees or agents.
(m)
Intellectual Property.
The
Company and its Subsidiaries own or have a right to use all
Company Intellectual Property material to the Business, free
and clear of any and all Encumbrances of any kind, except
where the failure to own or have a right to use such property
or such lien or encumbrance would not have a material adverse
effect upon the Business or the financial condition of the
Company and any of its Subsidiaries. The use of the Company
Intellectual Property by the Company and its Subsidiaries does
not conflict with, infringe upon, violate or interfere with or
constitute an appropriation of any right, title, interest or
goodwill, including, without limitation, any intellectual
property right, trademark, trade name, domain name, patent,
service mark, brand mark, brand name, database, industrial
design, trade secrets, technology, software, customer lists,
copyright or any pending application therefor of any other
Person, and the Company and the directors and officers (and
employees with responsibility for intellectual property
matters) of the Company and its Subsidiaries do not have
knowledge of any claims thereof. The use of all Company
Intellectual Property will not be adversely affected by the
transactions contemplated in this Agreement.
(n)
Notes and Accounts Receivable. All
notes and accounts receivable of the Company and its Subsidiaries
are reflected properly on the financial statements of the Company
(“Financial Statements”) and are valid receivables
subject to no setoffs or counterclaims, are current and collectible
within 180 days after the Closing, subject only to the reserve for
bad debts set forth on the face of the balance sheet included in
the Financial Statements (rather than in any notes thereto) as
adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company and its
Subsidiaries.
(o)
Tax Matters. The
Company and each of its Subsidiaries has made or filed all federal,
state and foreign income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject
(unless and only to the extent that the Company and each of its
Subsidiaries has set aside on its books provisions reasonably
adequate for the payment of all unpaid and unreported taxes) and
has paid all taxes and other governmental assessments and charges
that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in
good faith and has set aside on its books provisions reasonably
adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There
are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim. The Company has not
executed a waiver with respect to the statute of limitations
relating to the assessment or collection of any foreign, federal,
statute or local tax. None
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