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SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE
AGREEMENT , dated as of February ___, 2008 (this
“Agreement”), is entered into by and between
AMERICAN
SECURITY RESOURCES CORPORATION, a Nevada corporation
with headquarters located at 9601 Katy Freeway, Suite 220,
Houston, TX 77024 (the “Company”), and the
individual or entity named on the executed counterpart of the
signature page hereto (the “Buyer”).
W I T N E S S E T H :
WHEREAS , the
Company and the Buyer are executing and delivering this
Agreement in reliance upon the exemption from securities
registration for offers and sales to accredited investors
afforded, inter
alia ,
by Rule 506 under Regulation D (“Regulation D”)
as promulgated by the United States Securities and Exchange
Commission (the “SEC”) under the Securities Act
of 1933, as amended (the “1933 Act”), and/or
Section 4(2) of the 1933 Act; and
WHEREAS , the
Buyer wishes to lend to the Company, subject to
and upon the terms and conditions of
this Agreement and acceptance of this Agreement by the
Company, the Debenture Purchase Price (as defined below), the
repayment of which will be represented by
7.75% Convertible Debentures Series 08 of the
Company (the “Convertible Debentures”), which
Convertible Debentures will be convertible into shares of
Common Stock, $0.001 par value per share, of the Company (the
“Common Stock”), upon the terms and subject to
the conditions of such Convertible Debentures, together with
the Warrants (as defined below) exercisable for the purchase
of shares of Common Stock;
WHEREAS, the
Company’s obligations to repay each Convertible
Debenture will be guaranteed under a Personal Guarantee of
Guarantor (the “Guarantee”) by one or more
guarantors named therein (each, a “Pledgor”),
which Guarantee will be secured by a pledge of certain shares
of the Company’s Common Stock (the “Pledged
Shares”), as to which Pledged Shares the Pledgor is the
registered and beneficial owner, pursuant to the terms of a
Security Interest and Pledge Agreement (the “Pledge
Agreement”), executed by each such Pledgor and
acknowledged by the Company;
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:
1. AGREEMENT
TO PURCHASE; PURCHASE PRICE.
a. Purchase.
(i) Subject
to the terms and conditions of this Agreement and the other
Transaction Agreements (as defined below), the undersigned
Buyer hereby agrees to loan to the Company the aggregate
principal amount specified as the “Aggregate Debenture
Purchase Price” on the signature page
hereof. Subject to the terms and conditions
hereof, the Buyer will lend the Aggregate Debenture Purchase
Price in equal installments of $500,000 each (each, a
“Debenture Purchase Price”) on the respective
Closing Dates (as defined below) provided
below. The Debenture Purchase Price on each
Closing Date shall be allocated to the purchase of Debentures
in principal amounts determined by the Buyer, as provided
herein.
(ii) The
obligation to repay each loan from the Buyer shall be
evidenced by the Company’s issuance of one or more
Convertible Debentures to the Buyer each in a principal
amount designated by the Buyer to the Company on or before
the relevant closing date (where the aggregate principal
amount of all such Convertible Debentures issued on a Closing
Date shall be equal to the Debenture Purchase Price being
loaned on the relevant Closing Date). Each
Debenture actually issued to the Buyer is referred to as a
“Debenture.” The principal amount of each
Debenture issued on the relevant Closing Date shall be as
provided in the Allocation of Debentures, Cash Purchase Price
Amount and Purchase Notes for Specified Closing Date attached
hereto as Annex XIV (the
“Allocation Table”). Each Debenture
(a) shall provide for a Conversion Price (as defined below),
which price may be adjusted from time to as provided herein
and therein, (b) shall have the terms and conditions of, and
be substantially in the form attached hereto as, Annex I and (c)
shall be guaranteed by each respective Pledgor pursuant to
the terms of the Guarantee, substantially in the form annexed
hereto as Annex VIII ,
which Guarantee shall be secured pursuant to the terms of the
Pledge Agreement, substantially in the form annexed hereto as
Annex
IX . A schedule of the Pledgors and the
number of shares to be pledged by each of them
is attached hereto as Annex
XIII.
(iii) On
each Closing Date, the Buyer shall pay the Debenture Purchase
Price and the Warrant Purchase Price (as defined below) to
the Company in the manner provided below, and the Company
shall deliver the relevant Certificates (as defined below) to
the Escrow Agent, as provided in Section 1(c)
hereof.
(iv) Each
loan to be made by the Buyer and the issuance of the
Debentures (as defined below) and the Warrants (collectively,
the “Purchased Securities”) to the Buyer are
sometimes referred to herein and in the other Transaction
Agreements as the purchase and sale of the Debentures and the
Warrants.
b.
Certain
Definitions. As used
herein, each of the following terms has the meaning set forth
below, unless the context otherwise requires:
“Additional Closing
Date” means the date of each closing of the purchase
and sale of the Additional Debentures and the Additional
Warrants, as provided herein.
“Additional
Debentures” means the Convertible Debentures issued to
the Buyer on the relevant Additional Closing Date or on one
or more Additional Closing Dates, as the context may
require.
“Additional
Warrants” means the Warrants issued to the Buyer on the
relevant Additional Closing Date or on one or more Additional
Closing Dates, as the context may require.
“Affiliate”
means, with respect to a specific Person referred to in the
relevant provision, another Person who or which controls or
is controlled by or is under common control with such
specified Person.
“Agreement
Amount” means the amount, if any (other than interest
and principal due under the Debentures), due to the Buyer or
the Holder, as the case may be, pursuant to any provision of
the Transaction Agreements.
“Agreement Payment
Date” means the date the Buyer or the Holder, as the
case may be, demands payment of an Agreement
Amount.
“Agreement
Shares” means the shares of Common Stock issuable in
payment of Agreement Amounts , if such Agreement Amounts may
be paid in such shares.
“Authorized Share
Increase” means the approval (in accordance with the
laws of the State of Incorporation and the By-laws) of an
amendment to the Company’s Certificate of
Incorporation, as amended to date, increasing the authorized
shares of the Common Stock to at least 400,000,000 shares and
the filing of a certificate of amendment in the State of
Incorporation reflecting such increase.
“Buyer Control
Person” means the Buyer and each such other Persons as
may be deemed in control of the Buyer pursuant to Rule 405
under the 1933 Act or Section 20 of the 1934 Act (as defined
below).
“By-laws” means
the by-laws of the Company (howsoever denominated), as
amended to date.
“Certificate of
Incorporation” means the certificate of incorporation,
articles of incorporation or other charter document
(howsoever denominated) of the Company, as amended to
date.
“Certificates”
means the (x) the original manually-signed Debentures and (y)
the original manually-signed Warrants, each duly executed by
the Company and issued in the name of the Buyer on the
Closing Date.
“Closing Date”
means the relevant Initial Closing Date or the relevant
Additional Closing Date(s).
“Closing Price”
means the 4:00 P.M. closing bid price of the Common Stock on
the Principal Trading Market on the relevant Trading Day(s),
as reported by the Reporting Service for the relevant
date.
“Company
Control Person” means each director, executive officer,
promoter, and such other Persons as may be deemed in control
of the Company pursuant to Rule 405 under the 1933 Act or
Section 20 of the 1934 Act.
“Company
Counsel” means Jack Chapline Vaughan, Esq.
“Company's SEC
Documents” means the Company’s filings on the
SEC’s EDGAR system which are listed on Annex VI annexed
hereto, to the extent available on EDGAR or otherwise
provided to the Buyer as indicated on said Annex
VI.
“Conversion
Certificates” means certificates representing any one
or more of the following, if any: (i) Conversion Shares, (ii)
Warrant Shares, (iii) Added Warrant Shares (as
defined in Section 4(g) hereof), or (iv) Spin Off Adjustment
Shares (as defined in Section 4(p) hereof).
“Conversion
Date” means the date a Holder submits a Notice of
Conversion, as provided in the Debentures or makes a demand
for an Agreement Amount which is to be paid in Agreement
Shares.
“Conversion
Price” means (i) the VWAP for the three (3) Regular
Trading Days (which need not be consecutive) selected by the
Holder from the twenty (20) Trading Days ending on
the Trading Day immediately before the relevant Conversion
Date, multiplied by (ii) eighty percent (80%).
“Conversion
Shares” means (i) the shares of Common Stock issuable
upon conversion of the Debentures, (ii) the shares of Common
Stock issuable in payment of accrued interest thereon, as
contemplated in the Debentures, (iii) the shares of Common
Stock issuable in payment of an Agreement Amount which is
being paid in Agreement Shares, (iv) the shares of Common
Stock issuable as Spin Off Adjustment Shares, or (v) any or
all of them, as the context may require.
“Converting
Holder” means the Holder of Debentures or Warrants, as
the case may be, who or which has submitted a Notice of
Conversion (as contemplated by the Debentures) or a Notice of
Exercise (as contemplated by the Warrants) or a demand for
Agreement Shares.
“Debenture End
Date” means the Transaction End Date but assumes that
clause (y) of the definition of that term has been
satisfied.
“Debentures”
means the Initial Debentures or the relevant Additional
Debentures, or any or all of them, as the context may
require.
“Delivery Date”
(x) has the meaning ascribed to it, as may be relevant, in
the Debentures (with respect to Conversion Shares) or in the
Warrants (with respect to Warrant Shares), or (y) means the
third Trading Day after the Buyer or the Holder, as the case
may be, makes a demand for an Agreement Amount which is being
paid in Agreement Shares.
“Disclosure
Annex” means Annex IV to this
Agreement; provided, however, that the Disclosure Annex shall
be arranged in sections corresponding to the identified
Sections of this Agreement, but the disclosure in any such
section of the Disclosure Annex shall qualify other
provisions in this Agreement to the extent that it would be
readily apparent to an informed reader from a reading of such
section of the Disclosure Annex that it is also relevant to
other provisions of this Agreement.
“Escrow Agent”
means Krieger & Prager LLP, the escrow agent identified
in the Joint Escrow Instructions attached hereto as
Annex
II (the “Joint Escrow
Instructions”).
“Escrow Funds”
means the relevant Total Cash Amount delivered to the Escrow
Agent in connection with the relevant Closing Date as
contemplated by Sections 1(c) and (d) hereof.
“Escrow
Property” means (i) the relevant Escrow Funds, (ii)
the relevant Purchase Notes (as defined below),
and (iii) the relevant Certificates, each as delivered to the
Escrow Agent, as contemplated by Section 1(c)
hereof.
“Exercise
Price” means the per share exercise price of the
relevant Warrant.
“Filing
Evidence” and “Filing Evidence Date” have
the meanings ascribed to them in Section 4(l)
hereof.
“Holder” means
the Person holding the relevant Securities at the relevant
time.
“Initial Closing
Date” means the date of the closing of the purchase and
sale of the Initial Debentures and Initial
Warrants.
“Initial
Debentures” means the Convertible Debentures issued to
the Buyer on the Initial Closing Date.
“Initial
Warrants” means the Warrants issued to the Buyer on the
Initial Closing Date.
“Issue Date”
means, with respect each Debenture and each Warrant, the
Closing Date on which such instrument was initially issued to
the Buyer.
“Last Audited
Date” means December 31, 2006.
“Majority in Interest
of the Holders” means the Buyer, unless there is more
than one Holder, in which event it means one or more Holders
whose respective outstanding principal amounts of the
Debentures held by each of them, as of the relevant date,
aggregate more than sixty-six and 67/100 percent (66.67%) of
the aggregate outstanding principal amounts of the
outstanding Debentures held by the Holder and all other
Holders on that date.
“Material Adverse
Effect” means an event or combination of events, which
individually or in the aggregate, would reasonably be
expected to (x) adversely affect the legality, validity or
enforceability of the Purchased Securities or any of the
Transaction Agreements, (y) have or result in a
material adverse effect on the results of operations, assets,
or financial condition of the Company and its subsidiaries,
taken as a whole, or (z) adversely impair the Company's
ability to perform fully on a timely basis its material
obligations under any of the Transaction Agreements or the
transactions contemplated thereby.
“Maturity Date”
has the meaning ascribed to it in the relevant
Debentures.
“Meeting Date”
has the meaning ascribed to it in Section 4(l)
hereof.
“New Common
Stock” means shares of Common Stock and/or securities
convertible into, and/or other rights exercisable for, Common
Stock, which are offered or sold in a New
Transaction.
“New Investor”
means the third party investor, purchaser or lender
(howsoever denominated) or, where relevant, an Existing
Securityholder (as defined below) in a New
Transaction.
“New
Transaction” means, unless consented to by a Majority
in Interest of the Holders (which consent is in the sole
discretion of the Holders and may be withheld for any reason
or for no reason whatsoever),
(i)
the sale of New Common Stock by or on behalf of the Company to
a New Investor in connection with a transaction which will
provide funds to the Company (including, but not necessarily
limited to, any such transaction which is an equity, debt,
credit line or equity line transaction), and/or
(ii)
the grant of a security interest in, or the pledge of, shares
of the Company’s Common Stock or securities convertible
into or exercisable for the Company’s Common Stock to
any other party, or the pledge of such shares or securities to
any other party, whether such grant or pledge is made by the
Company or any other holder thereof, in connection with a
transaction in which the Company borrows or is otherwise
obligated to pay funds to a third party, and/or
(iii)
in exchange for the forbearance, modification or
relinquishment of any rights an existing holder of any of the
Company’s securities (each, an “Existing
Securityholder”), (x) the sale or issuance to such
Existing Securityholder of additional New Common Stock and/or
(y) the effectuation by the Company of, or the other agreement
of the Company to provide, more beneficial terms
with respect to any existing securities of the Company held by
an Existing Securityholder, and/or,
(iv)
the effectuation by the Company of, or the other agreement of
the Company to provide, the reduction of the conversion price
of any security convertible into Common Stock and/or the
reduction of the exercise price of any right exercisable for
Common Stock held by an Existing Securityholder
in
a transaction consummated after the date hereof; provided,
however, that it is specifically understood that the term
“New Transaction” (1) unless consented to
otherwise by a Majority in Interest of the Holders (which
consent is in the sole discretion of the Holders and may be
withheld for any reason or for no reason whatsoever),
includes, but is not limited to, a sale of Common Stock or of
a security convertible into Common Stock or an equity or
credit line transaction, but (2) does not include (a) the
issuance of Common Stock upon the exercise or conversion of
options, warrants or convertible securities outstanding on the
date hereof, or in respect of any other financing agreements
as in effect on the date hereof and identified in the
Disclosure Annex (provided the same is not amended after the
date hereof to a per share price below the Conversion Price or
the Exercise Price, as the case may be) or in the
Company’s SEC Documents (provided the same is not
amended after the date hereof to a per share price below the
Conversion Price or the Exercise Price, as the case may be),
(b) the issuance of an Employee Stock Option Plan (an "ESOP")
of the Company, such ESOP having been properly approved by the
shareholders of the Company, (c) the issuance of a
non-employee director stock option plan of the Company, or (d)
the issuance of Common Stock upon the exercise of any options
or warrants referred to in the preceding clauses of this
paragraph (provided the same is not amended after the date
hereof).
“New Transaction
Closing Date” means the date a New Transaction is
consummated.
“Person” means
any living person or any entity, such as, but not necessarily
limited to, a corporation, partnership or
trust.
“Principal Trading
Market” means the Over the Counter Bulletin Board or
such other market on which the Common Stock is principally
traded at the relevant time, but shall not include the
“pink sheets.”
“Qualification
State” means a state, other than the State of
Incorporation, in which the Company is
qualified.
“Regular Trading
Day” means the regular trading hours of a Trading Day
on the Principal Trading Market shall be open for business
(as of the date of this Agreement, such hours are, for most
Trading Days, approximately 9:00 or 9:30AM to approximately
4PM Eastern Time; provided, however, that certain Trading
Days may have shorter regular trading hours; and provided,
further, that the regular trading hours may be subsequently
changed for the Principal Trading Market).
“Reporting
Service” means Bloomberg LP or if that service is not
then reporting the relevant information regarding the Common
Stock, a comparable reporting service of national reputation
selected by a Majority in Interest of the Holders and
reasonably acceptable to the Company.
“Rule 144"
means, as may be in effect from time to time, (i) Rule 144
promulgated under the 1933 Act or (ii) any other similar rule
or regulation of the SEC that may at any time permit Holder
to sell securities of the Company to the public without
registration under the 1933 Act.
“Securities”
means the Purchased Securities and the Shares.
“Shares” means
the shares of Common Stock representing any or all of the
Conversion Shares and the Warrant Shares and, if relevant,
any Spin Off Adjustment Shares..
“State of
Incorporation” means Nevada.
“Subsidiary”
means, as of the relevant date, any subsidiary of the Company
(whether or not included in the Company's SEC Documents)
whether now existing or hereafter acquired or
created.
“Total Cash
Amount” means, with respect to the relevant Closing
Date, the sum of (i) the Cash Debenture Purchase Price Amount
(as defined below) for such Closing Date, plus (ii) the
Warrant Purchase Price.
“Trading Day”
means any day during which the Principal Trading Market shall
be open for business.
“Transaction
Agreements” means this Agreement, each issued
Debenture, the Joint Escrow Instructions, each issued
Warrant, each Guarantee, each Pledge, the Purchase Note
Security Agreement, and the Disclosure Annex and includes all
ancillary documents referred to in those
agreements.
“Transaction End
Date” means the date which is the later of (x) the date
on which all of the Debentures have been converted
or have been paid in full or (y) the date on which all of the
Warrants have been fully exercised or have expired; provided,
however, that solely for purposes of this definition, if the
Buyer remains obligated to purchase any Additional Debentures
and Additional Warrants, it shall be deemed as if such
Debentures and Warrants have been issued but, in the case of
the Debentures, have not been converted or paid in full or,
in the case of the Warrants, have not been fully exercised or
expired.
“Transfer
Agent” means, at any time, the transfer agent for the
Company’s Common Stock.
“VWAP” means
the volume weighted average price of the Common Stock on the
Principal Trading Market for the relevant Regular
Trading Day(s), as reported by the Reporting
Service.
“Warrants”
means (i) the Initial Warrants and the Additional Warrants,
or (ii) any or all of them, as the context may
require.
“Warrant
Shares” means (i) the shares of Common Stock issuable
upon exercise of the Warrants, (ii) the Added Warrant Shares,
if any, or (iii) any or all of them, as the context may
require.
c.
Form of
Payment; Delivery of Certificates.
(i) With
respect to each Closing Date, the Buyer shall pay the
Debenture Purchase Price by delivering to the Escrow Agent,
no later than the date prior to the relevant Closing Date,
(x) (1) immediately available good funds in the amount of the
relevant Cash Debenture Purchase Price Amount (as defined
below), which shall be allocated as payment towards the
purchase price of each of the separate Debentures issued on
that Closing Date as provided in the Allocation Table, and
(2) one or more separate promissory notes (each, a
“Purchase Note”), substantially in the form of
Annex
XI attached hereto, each in the amount of
the balance of a specific Debenture being issued on that
Closing Date (such balance being the excess of the principal
amount of the specific Debenture over the Cash Debenture
Purchase Price Amount allocated to such Debenture as
contemplated by the Allocation Table applicable to the
relevant Closing Date) and (y) immediately available good
funds in the amount of the Warrant Purchase
Price. Payment of all Purchase Notes will be
secured under the terms of a security agreement and pledge
agreement (the “Purchase Note Security
Agreement”) between the Buyer and the Company,
substantially in the form of Annex XII
attached hereto, pursuant to which, but subject to the terms
therof, the Buyer will grant a security interest in certain
specified collateral to secure the payment of each Purchase
Note. The term “Cash Debenture Purchase
Price Amount” means $400,000 for the Initial Closing
Date and $125,000 for each Additional Closing
Date.
(ii) Within
three (3) Trading Days after the Company is notified that the
Escrow Agent has on deposit cleared funds from or on behalf
of the Buyer equal to the Total Cash Amount for that Closing
Date and the one or more relevant Purchase Notes for that
Closing Date, each executed by the Buyer, then, in no event
later than the relevant Closing Date, the Company will
deliver the relevant Certificates to the Escrow
Agent. Such Certificates shall be held in escrow
by the Escrow Agent until released as provided in the Joint
Escrow Instructions.
(iii) By
signing this Agreement, each of the Buyer and the Company,
subject to acceptance by the Escrow Agent, agrees to all of
the terms and conditions of, and becomes a party to, the
Joint Escrow Instructions, all of the provisions of which are
incorporated herein by this reference as if set forth in
full.
d.
Method of
Payment. The Buyer shall deposit the Total
Cash Amount for the relevant Closing Date into escrow in the
manner provided in instructions given by the Escrow Agent to
the Buyer.
2. BUYER
REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
The Buyer represents and
warrants to, and covenants and agrees with, the Company, as
of the date hereof and, except as otherwise noted, as of each
Closing Date, as follows:
a.
Without
limiting Buyer's right to sell the Securities pursuant to an
effective registration statement or otherwise in compliance
with the 1933 Act, the Buyer is purchasing the Securities for
the Buyer’s own account for investment only and not
with a view towards the public sale or distribution thereof
and not with a view to or for sale in connection with any
distribution thereof.
b.
The
Buyer is (i) an “accredited investor” as that
term is defined in Rule 501 of the General Rules and
Regulations under the 1933 Act, (ii) experienced in making
investments of the kind described in this Agreement and the
other Transaction Agreements, (iii) able, by reason of the
business and financial experience of the Buyer and the
Buyer’s professional advisors (who are not affiliated
with or compensated in any way by the Company or any of its
Affiliates or selling agents), to protect the Buyer’s
own interests in connection with the transactions described
in this Agreement and the other Transaction Agreements, and
to evaluate the merits and risks of an investment in the
Securities, and (iv) able to afford the entire loss of its
investment in the Securities.
c.
All
subsequent offers and sales of the Securities by the Buyer
shall be made pursuant to registration of the relevant
Securities under the 1933 Act or pursuant to an exemption
from such registration.
d.
The
Buyer understands that the Securities are being offered and
sold to the Buyer in reliance on specific exemptions from the
registration requirements of the 1933 Act and state
securities laws and that the Company is relying upon the
truth and accuracy of, and the Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and
understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the
eligibility of the Buyer to acquire the
Securities.
e.
[
This
representation is made as of the Initial Closing Date.
] The Buyer and the Buyer’s advisors, if
any, have been furnished with or have been given access to
all materials relating to the business, finances and
operations of the Company and materials relating to the offer
and sale of the Purchased Securities which have been
requested by the Buyer, including those set forth in any
annex attached hereto. The Buyer and the Buyer’s
advisors, if any, have been afforded the opportunity to ask
questions of the Company and its management and have received
complete and satisfactory answers to any such
inquiries. Without limiting the generality of the
foregoing, the Buyer has also had the opportunity to obtain
and to review the Company's SEC Documents.
f.
The
Buyer understands that its investment in the Securities
involves a high degree of risk.
g.
The
Buyer hereby represents that, in connection with the
Buyer’s investment or the Buyer’s decision
to purchase the Securities, the Buyer has not
relied on any statement or representation of any Person,
including any such statement or representation by the Company
or any of their respective controlling
Persons, officers, directors, partners, agents and
employees or any of their respective attorneys, except as
specifically set forth herein.
h.
The
Buyer understands that no United States federal or state
agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the
Securities.
k.
This
Agreement and each of the other Transaction Agreements to
which the Buyer is a party, and the transactions contemplated
hereby and thereby, have been duly and validly authorized by
the Buyer. This Agreement has been executed and
delivered by the Buyer, and this Agreement is, and each of
the other Transaction Agreements to which the Buyer is a
party, when executed and delivered by the Buyer (if
necessary), will be valid and binding obligations of the
Buyer enforceable in accordance with their respective terms,
subject as to enforceability to general principles of equity
and to bankruptcy, insolvency, moratorium and other similar
laws affecting the enforcement of creditors' rights
generally.
3.
COMPANY
REPRESENTATIONS, ETC. The Company represents and
warrants to the Buyer as of the date hereof and as of each Closing
Date that, except as otherwise provided in the Disclosure Annex or
in the Company’s SEC Documents:
a.
Rights of
Others Affecting the Transactions. There
are no preemptive rights of any stockholder of the Company to
acquire the Securities. No other party has a
currently exercisable right of first refusal which would be
applicable to any or all of the transactions contemplated by
the Transaction Agreements. Except as set forth in
the Disclosure Annex, no Person has, and as of the relevant
Closing Date, no Person shall have, any demand,
“piggy-back” or other rights to cause the Company
to file any registration statement under the 1933 Act
relating to any of its securities or to participate in any
such registration statement
b.
Status.
The Company is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Incorporation and has the requisite corporate power
to own its properties and to carry on its business as now
being conducted. The Company is duly qualified as
a foreign corporation to do business and is in good standing
in each jurisdiction where the nature of the business
conducted or property owned by it makes such qualification
necessary, other than those jurisdictions in which the
failure to so qualify would not have or result in a Material
Adverse Effect. The Company has registered its
stock and is obligated to file reports pursuant to Section 12
or Section 15(d) of the Securities Exchange Act of 1934, as
amended (the “1934 Act”). The Common
Stock is quoted on the Principal Trading
Market. The Company has received no notice, either
oral or written, with respect to the continued eligibility of
the Common Stock for quotation on the Principal Trading
Market, and the Company has maintained all requirements on
its part for the continuation of such quotation.
c. Authorized
Shares.
(i) The
authorized capital stock of the Company consists of (x)
200,000,000 shares of Common Stock, $.001 par value per
share, of which approximately 185,000,000 are outstanding as
of February 14, 2008, and (y) 1,000,000 shares of Preferred
Stock, $.001 par value ,
of which no shares are outstanding as of such
date.
(ii) There
are no outstanding securities which are exercisable for,
exchangeable for or convertible into shares of Common Stock
or exercisable for, exchangeable for or convertible into
instruments which are convertible into shares of Common
Stock, whether such exercise, exchange or conversion is
currently exercisable or exercisable only upon some future
date or the occurrence of some event in the
future. If any such securities are listed on the
Disclosure Annex, the number or amount of each such
outstanding convertible security and the conversion terms are
set forth in said Disclosure Annex.
(iii) All
issued and outstanding shares of Common Stock have been duly
authorized and validly issued and are fully paid and
non-assessable. Subject to the provisions of
subparagraph (v) of this Section 3(c), the Company has
sufficient authorized and unissued shares of Common Stock as
may be necessary to effect the issuance of the Shares on the
relevant Closing Date, were the Debentures fully converted
and were the Warrant fully exercised on that
date.
(iv) The
Shares have been duly authorized by all necessary corporate
action on the part of the Company, and, when issued on
conversion of, or in payment of interest on, the Debentures
or upon exercise of the Warrants, in each case in accordance
with their respective terms, will have been 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.
(v) Notwithstanding
any other representation made herein or in any of the other
Transaction Agreements, as of the date hereof and as of the
Initial Closing Date, the Company does not have sufficient
authorized but unissued and unreserved shares to be able to
honor all Notices of Conversion of Debentures and all Notices
of Exercise of Warrants. The Company represents
that the Board of Directors (x) has voted to recommend to the
shareholders that the Company’s Certificate of
Incorporation, as currently in effect, be amended to reflect
the Authorized Share Increase, and (ii) the Company will file
with the SEC and send out to the Company’s shareholders
a notice of and proxy statement for the annual or a special
stockholders meeting (or an information statement in lieu of
a meeting, if appropriate), whichever is to be held first,
but in no event later than the Meeting Date (as
defined below), which meeting (whichever is first held) will
consider shareholder approval of the Authorized Share
Increase (which approval will be recommended by the Board of
Directors of the Company). Upon such shareholder approval the
Company (and, if relevant, the passage of the relevant period
of time after the distribution of an information statement)
will file a certificate of amendment reflecting, among other
things, if relevant, the Authorized Share Increase in the
State of Incorporation and in all Qualification States
(except, with respect to any one or more Qualification
States, where Company Counsel advises the Company that the
filing of such an amendment is not required or the absence of
such filing will not have a material adverse effect on the
Company’s qualification in such state) and will provide
the Filing Evidence to the Buyer by the Filing Evidence Date.
All representations and covenants contained in this Agreement
or the other Transaction Agreements are made subject to the
provisions of this paragraph (v).
d.
Transaction
Agreements and Stock. This Agreement and
each of the other Transaction Agreements, and the
transactions contemplated hereby and thereby, have been duly
and validly authorized by the Company. This
Agreement has been duly executed and delivered by the Company
and this Agreement is, and each of the Debentures, the
Warrants and each of the other Transaction Agreements, when
executed and delivered by the Company (if necessary), will
be, valid and binding obligations of the Company enforceable
in accordance with their respective terms, subject as to
enforceability to general principles of equity and to
bankruptcy, insolvency, moratorium, and other similar laws
affecting the enforcement of creditors' rights
generally.
e.
Non-contravention.
The execution and delivery of this Agreement and each of the
other Transaction Agreements by the Company, the issuance of
the Securities in accordance with the terms hereof, and the
consummation by the Company of the other transactions
contemplated by this Agreement, the Debentures, the Warrants
and the other Transaction Agreements do not and will not
conflict with or result in a breach by the Company of any of
the terms or provisions of, or constitute a default under (i)
the Certificate of Incorporation or By-laws, each as
currently in effect, (ii) any indenture, mortgage, deed of
trust, or other material agreement or instrument to which the
Company is a party or by which it or any of its properties or
assets are bound, including any listing agreement for the
Common Stock except as herein set forth, or (iii) to its
knowledge, any existing applicable law, rule, or regulation
or any applicable decree, judgment, or order of any court,
United States federal or state regulatory body,
administrative agency, or other governmental body having
jurisdiction over the Company or any of its properties or
assets, except such conflict, breach or default which would
not have or result in a Material Adverse
Effect. The timely payment of interest on the
Debentures is not prohibited by the Certificate of
Incorporation or By-Laws, or any agreement, contract,
document or other undertaking to which the Company is a
party.
f.
Securities
Law Matters; Approvals.
(i) No
authorization, approval or consent of any court, governmental
body, regulatory agency, self-regulatory organization, or
stock exchange or market or the stockholders of the Company
is required to be obtained by the Company for the issuance
and sale of the Securities to the Buyer as contemplated by
this Agreement, except such authorizations, approvals and
consents that have been obtained.
(ii) Assuming
the accuracy of the representations and warranties of Holder
set forth in Section 2, the offer and sale by the Company of
the Purchased Securities is exempt from (A) the registration
and prospectus delivery requirements of the 1933 Act and the
rules and regulations of the SEC thereunder and (B) the
registration and/or qualification provisions of all
applicable state and provincial securities and “blue
sky” laws.
g.
Filings.
None of the Company’s SEC Documents
contained, at the time they were filed, any untrue statement
of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under
which they were made, not misleading. Since
February 1, 2007, the Company has filed all annual and
quarterly reports and all proxy statements required to be
filed by the Company with the SEC under Section 13(a) or
15(d) of the 1934 Act. The financial statements of
the Company included in the Commission Filings, as of the
dates of such documents, were true and complete in all
material respects and complied with applicable accounting
requirements and the published rules and regulations of the
Commission with respect thereto, were prepared in accordance
with generally accepted accounting principles in the United
States (“GAAP”) (except in the case of unaudited
statements permitted by Form 10-QSB under the 1934 Act)
applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly
presented the consolidated financial position of the Company
and its Subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for
the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments that in the
aggregate are not material and to any other adjustment
described therein).
h.
Absence of
Certain Changes. Since the Last Audited
Date, there has been no Material Adverse Effect, except as
disclosed in the Company’s SEC Documents. Since the
Last Audited Date, except as provided in the Company’s
SEC Documents, the Company has not (i) incurred or become
subject to any material liabilities (absolute or contingent)
except liabilities incurred in the ordinary course of
business consistent with past practices; (ii) discharged or
satisfied any material lien or encumbrance or paid any
material obligation or liability (absolute or contingent),
other than current liabilities paid in the ordinary course of
business consistent with past practices; (iii) declared or
made any payment or distribution of cash or other property to
stockholders with respect to its capital stock, or purchased
or redeemed, or made any agreements to purchase or redeem,
any shares of its capital stock; (iv) sold, assigned or
transferred any other material tangible assets, or canceled
any material debts owed to the Company by any third
party or material claims of the Company against
any third party, except in the ordinary course of business
consistent with past practices; (v) waived any rights of
material value, whether or not in the ordinary course of
business, or suffered the loss of any material amount of
existing business; (vi) made any increases in employee
compensation, except in the ordinary course of business
consistent with past practices; or (vii) experienced any
material problems with labor or management in connection with
the terms and conditions of their employment.
i.
Full
Disclosure. There is no fact known to the
Company (other than conditions known to the public generally
or as disclosed in the Company’s SEC Documents) that
has not been disclosed in writing to the Buyer that would
reasonably be expected to have or result in a Material
Adverse Effect.
j.
Absence of
Litigation. There is no action, suit,
proceeding, inquiry or investigation before or by any court,
public board or body pending or, to the knowledge of the
Company, threatened against or affecting the Company before
or by any governmental authority or non-governmental
department, commission, board, bureau, agency or
instrumentality or any other person, wherein an unfavorable
decision, ruling or finding would have a Material Adverse
Effect or which would adversely affect the validity or
enforceability of, or the authority or ability of the Company
to perform its obligations under, any of the Transaction
Agreements. The Company is not aware of any valid
basis for any such claim that (either individually or in the
aggregate with all other such events and circumstances) could
reasonably be expected to have a Material Adverse Effect.
There are no outstanding or unsatisfied judgments, orders,
decrees, writs, injunctions or stipulations to which the
Company is a party or by which it or any of its properties is
bound, that involve the transaction contemplated herein or
that, alone or in the aggregate, could reasonably be expect
to have a Material Adverse Effect.
k.
Absence of
Events of Default. Except as set forth in
Section 3(e) hereof, no Event of Default (or its equivalent
term), as defined in the respective agreement to which the
Company or its Subsidiary is a party, and no event which,
with the giving of notice or the passage of time or both,
would become an Event of Default (or its equivalent term) (as
so defined in such agreement), has occurred and is
continuing, which would have a Material Adverse
Effect.
l.
Absence of
Certain Company Control Person Actions or Events.
To the Company’s knowledge, none of the
following has occurred during the past five (5) years with
respect to a Company Control Person:
(1)
A petition under the federal bankruptcy laws or any state
insolvency law was filed by or against, or a receiver, fiscal
agent or similar officer was appointed by a court for the
business or property of such Company Control Person, or any
partnership in which he was a general partner at or within two
years before the time of such filing, or any corporation or
business association of which he was an executive officer at
or within two years before the time of such
filing;
(2)
Such Company Control Person was convicted in a criminal
proceeding or is a named subject of a pending criminal
proceeding (excluding traffic violations and other minor
offenses);
(3)
Such Company Control Person was the subject of any order,
judgment or decree, not subsequently reversed, suspended or
vacated, of any court of competent jurisdiction, permanently
or temporarily enjoining him from, or otherwise limiting, the
following activities:
(i)
acting, as an investment advisor, underwriter, broker or
dealer in securities, or as an affiliated person, director or
employee of any investment company, bank, savings and loan
association or insurance company, as a futures commission
merchant, introducing broker, commodity trading advisor,
commodity pool operator, floor broker, any other Person
regulated by the Commodity Futures Trading Commission
(“CFTC”) or engaging in or continuing any conduct
or practice in connection with such activity;
(ii)
engaging in any type of business practice; or
(iii)
engaging in any activity in connection with the purchase or
sale of any security or commodity or in connection with any
violation of federal or state securities laws or federal
commodities laws;
(4)
Such Company Control Person was the subject of any order,
judgment or decree, not subsequently reversed, suspended or
vacated, of any federal or state authority barring, suspending
or otherwise limiting for more than 60 days the right of such
Company Control Person to engage in any activity described in
paragraph (3) of this item, or to be associated with Persons
engaged in any such activity; or
(5)
Such Company Control Person was found by a court of competent
jurisdiction in a civil action or by the CFTC or SEC to have
violated any federal or state securities law, and the judgment
in such civil action or finding by the CFTC or SEC has not
been subsequently reversed, suspended, or
vacated.
m.
No
Undisclosed Liabilities or Events. The
Company has no liabilities or obligations other than those
disclosed in the Transaction Agreements or the Company's SEC
Documents or those incurred in the ordinary course of the
Company's business since the Last Audited Date, or which
individually or in the aggregate, do not or would not have a
Material Adverse Effect. No event or circumstance
has occurred or exists with respect to the Company or its
properties, business, operations, condition (financial or
otherwise), or results of operations, which, under applicable
law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but
which has not been so publicly announced or
disclosed. There are no proposals currently under
consideration or currently anticipated to be under
consideration by the Board of Directors or the executive
officers of the Company which proposal would (x) change the
Certificate of Incorporation or the By-laws, each as
currently in effect, with or without stockholder approval,
which change would reduce or otherwise adversely affect the
rights and powers of the stockholders of the Common Stock or
(y) materially or substantially change the business, assets
or capital of the Company, including its interests in
subsidiaries.
n.
No
Integrated Offering. Neither the Company
nor any of its Affiliates nor any Person acting on its or
their behalf has, directly or indirectly, at any time since
August 1, 2007, made any offer or sales of any security or
solicited any offers to buy any security under circumstances
that would eliminate the availability of the exemption from
registration under Regulation D in connection with the offer
and sale of the Securities as contemplated
hereby.
o.
Dilution.
Each of the Company and its executive officers
and directors is aware that the number of shares issuable on
conversion of the Debentures, upon exercise of the Warrants
or pursuant to the other terms of the Transaction Agreements
may have a dilutive effect on the ownership interests of the
other stockholders (and Persons having the right to become
stockholders) of the Company. The Company
specifically acknowledges that its obligation to issue the
Conversion Shares upon conversion of the Debentures and the
Warrant Shares upon exercise of the Warrants is binding upon
the Company and enforceable regardless of the dilution such
issuance may have on the ownership interests of other
stockholders of the Company, and the Company will honor such
obligations, including honoring every Notice of Conversion
(as contemplated by the Debentures) and every Notice of
Exercise (as contemplated by the Warrants), unless the
Company is subject to an injunction (which injunction was not
sought by the Company) prohibiting the Company from doing
so.
p.
Fees to
Brokers, Finders and Others. The Company
has taken no action which would give rise to any claim by any
Person for brokerage commission, placement agent or finder's
fees or similar payments by Buyer relating to this Agreement
or the transactions contemplated hereby. Except
for such fees arising as a result of any agreement or
arrangement entered into by the Buyer without the knowledge
of the Company (a “Buyer’s
Fee”), Buyer shall have no obligation with respect to
such fees or with respect to any claims made by or on behalf
of other Persons for fees of a type contemplated in this
paragraph that may be due in connection with the transactions
contemplated hereby. The Company shall indemnify
and hold harmless each of Buyer, its employees, officers,
directors, agents, and partners, and their respective
Affiliates, from and against all claims, losses, damages,
costs (including the costs of preparation and attorney's
fees) and expenses suffered in respect of any such claimed or
existing fees (other than a Buyer’s Fee).
q.
Tax
Returns. The Company and each of its
Subsidiaries has made and filed all federal and state income
and all other tax returns, reports and declarations required
by any jurisdiction to which it is subject and (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)
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 provision reasonably adequate for the payment of all
taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid
taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
r.
Disclosure.
All information relating to or concerning the
Company set forth in the Transaction Agreements or in the
Company’s public filings with the SEC is true and
correct in all material respects and the Company has not
omitted to state any material fact necessary in order to make
the statements made, in light of the circumstances under
which they were made, not misleading. No event or
circumstance has occurred or exists with respect to the
Company or its business, properties, prospects, operations or
financial conditions, which under applicable law, rule or
regulation, requires public disclosure or announcement by the
Company. In furtherance of the foregoing,
and not in limitation thereof, the Company confirms that, any
other representation or provision of this Agreement or any of
the other Transaction Agreements to the contrary
notwithstanding, the Company is in compliance with Regulation
FD promulgated by the SEC or any similar rule or regulation
regarding the dissemination of information regarding the
Company and the Company has not provided, and will not
provide, the Buyer with any non-public material information
regarding the Company prior to the consummation of the
transactions consummated hereunder on the relevant
Closing Date.
s.
Confirmation.
The Company agrees that, if, to the knowledge of
the Company, any events occur or circumstances exist prior to
the release of the Escrow Funds to the Company which would
make any of the Company’s representations or warranties
set forth herein materially untrue or materially inaccurate
as of such date, the Company shall immediately notify the
Buyer and the Escrow Agent in writing prior to such date of
such fact, specifying which representation, warranty or
covenant is affected and the reasons therefor.
4. CERTAIN
COVENANTS AND ACKNOWLEDGMENTS.
a.
Transfer
Restrictions. The Buyer acknowledges that
(1) the Securities have not been and are not being registered
under the provisions of the 1933 Act and the Shares have not
been and are not being registered under the 1933 Act, and may
not be transferred unless (A) subsequently registered
thereunder or (B) the Buyer shall have delivered to the
Company an opinion of counsel, reasonably satisfactory in
form, scope and substance to the Company, to the effect that
the Securities to be sold or transferred may be sold or
transferred pursuant to an exemption from such
re
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