WHERIFY
WIRELESS, INC.
SECURITIES
PURCHASE AND OPTION AGREEMENT
As
of February _, 2007
THIS SECURITIES PURCHASE AND OPTION AGREEMENT
,
dated as of this ______ day of February, 2007 (this “
Agreement ”),
is between Wherify Wireless, Inc., a Delaware corporation (the
“
Company ”),
and GPS Associates, LLC, a Delaware limited liability company (the
“
Purchaser ”).
WITNESSETH:
WHEREAS ,
the Company desires to issue to the Purchaser, and the Purchaser
desire to purchase from the Company, the Securities (as such term
is defined below) as set forth below (the “
Offering ”);
WHEREAS ,
in addition to purchasing the Securities, the Company desires to
provide to the Purchaser and the Purchaser desires to acquire the
Option; and
WHEREAS ,
certain capitalized terms used in this Agreement are defined
in
Section 9.1 hereof.
NOW, THEREFORE ,
in consideration of the promises and mutual covenants and
agreements hereinafter contained, and for good and valuable
consideration the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as
follows:
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1. |
Sale and Purchase of Securities; the Option.
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1.1
Sale and Purchase of Securities .
Subject to the terms and conditions of this Agreement, on the
Closing Date (as defined in
Section 3.1 hereof),
the Company shall issue, sell and deliver to the Purchasers, and
the Purchasers shall purchase from the Company for the Purchase
Price (as defined in
Section 2.1 hereof)
(i) a 10% Senior Convertible Promissory Note in the aggregate
principal amount of $1,200,000 (the “
Note ”)
and (ii) a five year warrant (the “
Warrant ”)
to purchase Three Million (3,000,000) shares at an exercise price
of $0.10 per share (subject to adjustment as described therein), of
the Company’s common stock, par value $0.01 per share. (the
“
Common Stock ”).
The Note and Warrant shall hereinafter sometimes be collectively
referred to as the “
Securities .”
The principal amount of Note purchased and Warrant received by the
Purchaser shall be set forth on
Schedule 1.1 hereto.
1.2
Option to Purchase Series A Convertible Preferred Stock
.
By execution of this Agreement, the Company hereby grants to the
Purchaser the right to purchase (the “
Option ”)
an aggregate of up to $7.5 million stated value of the
Company’s Series A Convertible Preferred Stock (the
“
A Shares ”),
which A Shares shall have the terms set forth on
Schedule 1.2 hereto.
The Option may be exercised at a 20% discount price to the face
amount of A Shares purchased by either:
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Exercise in Full: GPS
may exercise the Option in full by electing to: (1) exchange some,
all or none of the Note for the Preferred Stock and (2) delivering
to Wherify before expiry of the Option that amount of gross cash
proceeds which, when added to the face amount of the Note which is
exchanged, equals $6,000,000; or
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Partial Option Exercise: GPS
may partially exercise the Option by delivering to Wherify before
expiry of the Option (1) a minimum amount of $4,500,000 in gross
cash proceeds plus (2) some, all or none of the Note in an exchange
ratio of $1.25 principal amount of Preferred for every $1.00 of
Notes exchanged.
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The
Option may be exercised at any time or from time to time
commencing on the Closing Date until and including the later
to occur of ninety (90) days following the Closing Date Or
June 2, 2007.
2.1
Purchase Price .
The aggregate gross purchase price of the Securities to be
purchased pursuant to
Section 1.1 shall
be $1,200,000 (the “
Purchase Price ”).
2.2
Payment of the Purchase Price .
At the Closing (as defined in
Section 3.1 hereof),
the Purchaser shall pay the Purchase Price from the Escrow Account,
as defined in
Section 4.2 hereof
(less all fees and expenses owed to Laidlaw & Company (UK) Ltd.
(“
Laidlaw ”),
the placement agent of the Offering and its counsel), by wire
transfer of immediately available funds to such account of the
Company as shall have been designated in advance to the Purchaser
by the Company.
3.1
Closing Date .
The closing of the sale and purchase of the Securities (the
“
Closing ”)
shall take place on or before February 28, 2007, at such other
time, date or place as the parties hereto may mutually
agree;
provided ,
that all conditions to the Closing set forth in this Agreement have
been satisfied or waived by such date. The date on which the
Closing is held is referred to in this Agreement as the
“
Closing Date .”
At the Closing (i) the Company shall deliver, or cause to be
delivered, the Note and Warrant, each executed by the Company and
(ii) the documents referred to in
Section 8 hereof.
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4. |
Representations and Warranties of the Company
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.
The Company hereby represents, covenants and warrants as of
the date hereof and as of the Closing Date to the Purchasers,
acknowledging that the Purchasers are relying upon the
accuracy and completeness of the representations and
warranties set forth herein to, among other things, ensure
that registration under Section 5 of the Securities Act is not
required in connection with the sale of the Securities hereby,
as follows:
4.1
Organization and Good Standing; Capitalization
.
(a)
The Company and each Subsidiary is duly organized, validly existing
and in good standing under the laws of the state of Delaware and
has the corporate power and authority to own, lease and operate its
properties and assets and to carry on its business as now conducted
and as it is proposed to be conducted. The Company is duly
qualified or authorized to do business as a foreign corporation and
is in good standing under the laws of each jurisdiction in which
the conduct of its business or the ownership of its properties or
assets requires such qualification or authorization.
(b)
All the outstanding shares of capital stock of the Company have
been duly authorized, and are validly issued, fully paid and
non-assessable. Except for the Option and as disclosed in the SEC
Reports (as defined in
Section 4.9 hereof)
or on
Schedule 4.1(b) (i)
there is no option, warrant, call, right, commitment or other
agreement of any character to which the Company is a party, (ii)
there are no securities of the Company outstanding which upon
conversion or exchange, and (iii) there are no share appreciation
rights, or other similar rights based on securities of the Company
which, in the case of clause (i), (ii) or (iii), would require the
issuance, sale or transfer of any additional shares of capital
stock or other equity securities of the Company or other securities
convertible into, exchangeable for or evidencing the right to
subscribe for or purchase share capital or other equity securities
of the Company. Other than as disclosed in the SEC Reports and
contemplated by this Agreement or Transaction Documents (as defined
in
Section 4.2 ),
the Company is not a party to, nor is it aware of, any voting trust
or other voting, stockholders or similar agreement with respect to
any of the securities of the Company or of any agreement relating
to the issuance, sale, redemption, transfer or other disposition of
the shares of capital stock on other securities of the
Company.
4.2
Authorization of Agreement; Enforceability
.
The Company has all requisite corporate power and authority to
execute and deliver this Agreement and each other agreement,
document, instrument and certificate, including, but not limited
to, the Note, the Warrant, the Laidlaw Warrant, the Escrow
Agreement by and among Signature Bank, the Purchaser and the
Company, dated February 8, 2007 (the “
Escrow Agreement ”),
and the Registration Rights Agreement, to be executed by the
Company in connection with the consummation of the transactions
contemplated by this Agreement (collectively, the “
Transaction Documents ”),
and to perform fully its obligations hereunder and thereunder
(including, but not limited to, granting the Option). The
execution, delivery and performance by the Company of this
Agreement (including, but not limited to, granting the Option) and
the Transaction Documents have been duly authorized by all
necessary corporate action on the part of the Company and its
stockholders. This Agreement and each of the Transaction Documents
have been duly and validly executed and delivered by the Company
and, assuming the due authorization, execution and delivery thereof
by the Purchaser, this Agreement and each of the Transaction
Documents constitutes the legal, valid and binding obligations of
the Company, enforceable against the Company in accordance with its
respective terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting
creditors’ rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of
whether enforcement is sought in a proceeding at law or in
equity).
4.3
No Conflicts .
The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the
transactions contemplated thereby (including, but not limited to,
granting the Option), do not and will not (i) conflict with or
violate any provision of the Company’s and/or any
Subsidiary’s Articles of Incorporation or by-laws and any and
all amendments thereto (collectively, the “
Internal Documents ”),
(ii) conflict with, or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration
or cancellation (with or without notice, lapse of time or both) of,
any agreement, credit facility, debt or other instrument
(evidencing a Company or Subsidiary debt or otherwise), or other
understanding to which the Company or any Subsidiary is a party or
by which any property or asset of the Company or any Subsidiary is
bound or affected, or (iii) result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the
Company or a Subsidiary is subject (including federal and state
securities laws and regulations), or by which any property or asset
of the Company or a Subsidiary is bound or affected.
4.4
Subsidiaries, Joint Ventures, Partnerships, Etc
.
(a)
As of the Closing Date, (i) Wherify California, Inc., a California
corporation (ii) IQ Biometrix Operations, Inc., a Delaware
corporation and (iii) Wherify Wireless, Inc., a Canadian
corporation (collectively the “
Subsidiaries ”)
are the only subsidiaries of the Company. Each Subsidiary is wholly
owned by the Company, is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its
incorporation with corporate power and corporate authority under
such laws to own, lease and operate its properties and conduct its
business as currently conducted; and is duly qualified to transact
business as a foreign corporation and is in good standing (if
applicable) in each other jurisdiction in which it owns or leases
property of a nature, or transacts business of a type, that would
make such qualification necessary other than such qualifications
which the failure to have would not reasonably be expected to have
a Material Adverse Effect.
(b)
Neither the Company nor its Subsidiaries is a party to any joint
venture, partnership or similar arrangement or
agreement.
4.5
Consents of Third Parties .
None of the execution and delivery by the Company of this Agreement
and the Transaction Documents, the consummation of the transactions
contemplated hereby or thereby, or compliance by the Company with
any of the provisions hereof or thereof will (a) conflict with, or
result in the breach of, any provision of the Certificate of
Incorporation or Bylaws of the Company (or any Subsidiary), (b)
conflict with, violate, result in the breach or termination of, or
constitute a default or give rise to any right of termination or
acceleration or right to increase the obligations or otherwise
modify the terms thereof under any Permit or Order to which the
Company (or any Subsidiary) is a party or any Contract to which the
Company or its Subsidiaries is bound or by which the Company or any
of its properties or assets is bound, other than such conflicts,
violations, breaches, defaults, termination or accelerations that
would not reasonably be expected to have a Material Adverse Effect,
(c) constitute a violation of any Law applicable to the Company (or
any Subsidiary) or (d) result in the creation of any Lien upon the
properties or assets of the Company (or any Subsidiary). No
consent, waiver, approval, Order, Permit or authorization of, or
declaration or filing with, or notification to, any Person or
Governmental Body is required on the part of the Company and/or its
Subsidiaries in connection with the execution and delivery of this
Agreement (including, but not limited to, the granting of the
Option) and/or the Transaction Documents, or the compliance by the
Company with any of the provisions hereof or thereof.
4.6
Authorization of Securities .
(a)
On the Closing Date, the issuance, sale, and delivery of the Option
and the Securities to be purchased pursuant to
Section 1.1 will
have been duly authorized by all requisite action of the Company,
and, when issued, sold, delivered and paid for in accordance with
this Agreement, the Securities will be validly issued and
outstanding, with no personal liability attaching to the ownership
thereof.
(b)
On the Closing Date, the issuance and delivery of the shares of
Common Stock to be delivered upon conversion of the Notes (the
“
Conversion Shares ”)
and upon exercise of the Warrants (the “
Warrant Shares ”)
in accordance with the terms thereof (collectively, the Conversion
Shares and the Warrants Shares, the “
Underlying Shares ”)
will have been duly authorized by all requisite action of the
Company and, when issued and delivered in accordance with the terms
of the Securities, the Underlying Shares will be validly issued and
outstanding, fully paid and non-assessable, with no personal
liability attaching to the ownership thereof, and not subject to
preemptive or any other similar rights of the stockholders of the
Company or others.
4.7
Capitalization .
Other than the Option and as disclosed in the SEC Reports, (i)
there are no outstanding securities of the Company or any of its
Subsidiaries which contain any preemptive, redemption or similar
provisions, nor is any holder of securities of the Company or any
Subsidiary entitled to preemptive or similar rights arising out of
any agreement or understanding with the Company or any Subsidiary
by virtue of any of the Transaction Documents, and there are no
contracts, commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is or may become bound to redeem
a security of the Company or any of its Subsidiaries; (ii) the
Company does not have any stock appreciation rights or
“phantom stock” plans or agreements or any similar plan
or agreement; and (iii) there are no outstanding options, warrants,
script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, except as a result
of the purchase and sale of the Transaction Securities, or rights
or obligations convertible into or exchangeable for, or giving any
Person any right to subscribe for or acquire, any shares of Common
Stock, or contracts, commitments, understandings, or arrangements
by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock, or securities or rights
convertible or exchangeable into shares of Common
Stock.
4.8
SEC Reports; Financial Statements .
The Company has filed all reports required to be filed by it under
the Securities Act and the Exchange Act, including pursuant to
Section 13(a) or Section 15(d) of the Exchange Act, for the one (1)
year preceding the date hereof (or such shorter period as the
Company was required by law to file such material) (the foregoing
materials, including the exhibits thereto, being collectively
referred to herein as the “
SEC Reports ”).
As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Securities Act and
the Exchange Act and the rules and regulations of the Commission
promulgated thereunder, as applicable, and none of the SEC Reports,
when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. All
material agreements to which the Company is a party or to which the
property or assets of the Company are subject have been filed as
exhibits to the SEC Reports to the extent required. The financial
statements of the Company included in the SEC Reports comply in all
material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in
effect at the time of filing. Such financial statements have been
prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods
involved (“
GAAP ”),
except as may be otherwise specified in such financial statements
or the notes thereto and except that unaudited financial statements
may not contain all footnotes required by GAAP, and fairly present
in all material respects the financial position of the Company and
its consolidated subsidiaries as of and for the dates thereof and
the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments. Additionally, since the
adoption of the Sarbanes-Oxley Act of 2002 (the “
New Act ”)
and to the extent that the Company is subject to the New Act, the
Company has complied in all material respects with the laws, rules
and regulation under the New Act.
4.9
Material Changes .
Since September 30, 2006 and other than as disclosed in the SEC
Reports (i) there has been no event, occurrence or development that
has had or that could reasonably be expected to result in a
Material Adverse Effect, (ii) the Company has not incurred any
material liabilities (contingent or otherwise) other than (A) trade
payables and accrued expenses incurred in the ordinary course of
business consistent with past practice and (B) liabilities not
required to be reflected in the Company’s financial
statements pursuant to GAAP or required to be disclosed in filings
made with the Commission, (iii) the Company has not altered its
method of accounting or the identity of its auditors, (iv) the
Company has not declared or made payment or distribution of any
dividend or distribution of cash or other property to its holders
of Common Stock or purchased, redeemed or made any agreements to
purchase or redeem any shares of its capital stock and (v) the
Company has not issued any equity securities to any officer,
director or Affiliate, except pursuant to existing Company stock
option plans.
4.10
Intentionally not used.
4.11
No Undisclosed Liabilities .
Other than as disclosed in the SEC Reports, neither the Company nor
its Subsidiaries has any liabilities (whether accrued, absolute,
contingent or otherwise, and whether due or to become due or
asserted or unasserted), except (a) liabilities provided for in the
Financial Statements (other than liabilities which, in accordance
with GAAP, need not be disclosed), (b) liabilities disclosed
on
Schedule 4.11 hereto
and (c) liabilities incurred in the ordinary course of business
which do not materially exceed historic levels.
4.12
Absence of Certain Developments .
Since September 30, 2006, other than as disclosed in the SEC
Reports, in the ordinary course of business or in the context of
the Transactions contemplated in this Agreement and the Transaction
Documents:
(a)
there has not been any Material Adverse Change nor has any event
occurred which could result in any Material Adverse Change other
than those matters as disclosed in the SEC Reports;
(b)
there has not been any declaration, setting a record date, setting
aside or authorizing the payment of, any dividend or other
distribution in respect of any shares of capital stock of the
Company or its Subsidiaries or any repurchase, redemption or other
acquisition by the Company or its Subsidiaries, of any of the
outstanding shares of capital stock or other securities of, or
other ownership interest in, the Company or its
Subsidiaries;
(c)
there has not been any transfer, issue, sale or other disposition
by the Company of any shares of capital stock or other securities
of the Company or its Subsidiaries or any grant of options,
warrants, calls or other rights to purchase or otherwise acquire
shares of such capital stock or such other securities other than
those matters as disclosed in the SEC Reports;
(d)
neither the Company nor its Subsidiaries has (i) awarded or paid
any bonuses to employees or representatives of the Company, (ii)
entered into any employment, deferred compensation, severance or
similar agreements (nor amended any such agreement), other than in
the ordinary course of business other than those matters as
disclosed in the SEC Reports;
(e)
neither the Company nor its Subsidiaries has made any loans,
advances (other than advances to officers and employees of the
Company or its Subsidiaries which advances are made in the ordinary
course of business), or capital contributions to, or investments
in, any Person or paid any fees or expenses to any Affiliate of the
Company other than its Subsidiaries;
(f)
neither the Company nor its Subsidiaries has transferred or granted
any rights under any Contracts or licenses, used by the Company in
its business other than those matters as disclosed in the SEC
Reports;
(g)
there has not been any damage, destruction or loss, whether or not
covered by insurance, with respect to the property or assets of the
Company or its Subsidiaries having a replacement cost of more than
$10,000 for any single loss or $20,000 for all such
losses;
(h)
neither the Company nor its Subsidiaries has mortgaged, pledged or
subjected to any Lien any of its assets, or acquired any assets for
a purchase price in excess of $50,000 in the aggregate or sold,
assigned, transferred, conveyed, leased or otherwise disposed of
any assets of the Company or its Subsidiaries for a sale price in
excess of $50,000 in the aggregate except for assets acquired or
sold, assigned, transferred, conveyed, leased or otherwise disposed
of in the ordinary course of business other than those matters as
disclosed in the SEC Reports;
(i)
neither the Company nor its Subsidiaries has canceled or
compromised any debt or claim, or amended, canceled, terminated,
relinquished, waived or released any Contract or right, except in
the ordinary course of business consistent with past practice and
which, individually or in the aggregate, would not be material to
the Company or its Subsidiaries other than those matters as
disclosed in the SEC Reports;
(j)
neither the Company nor its Subsidiaries has made any binding
commitment to make any capital expenditures or capital additions or
betterments in excess of $20,000 individually or $50,000 in the
aggregate;
(k)
neither the Company nor its Subsidiaries has incurred any debts,
obligations or liabilities, whether due or to become due, except
current liabilities incurred in the ordinary course of business,
none of which current liabilities (individually or in the
aggregate) could result in a Material Adverse Change other than
those matters as disclosed in the SEC Reports;
(l)
neither the Company nor its Subsidiaries has entered into any
transaction other than in the ordinary course of business except
for (in the case of the Company) this Agreement other than those
matters as disclosed in the SEC Reports;
(m)
neither the Company nor its Subsidiaries has encountered any labor
difficulties or labor union organizing activities;
(n)
neither the Company nor its Subsidiaries has made any change in the
accounting principles, methods or practices followed by it or
depreciation or amortization policies or rates theretofore
adopted;
(o)
neither the Company nor its Subsidiaries has disclosed to any
Person any material trade secrets except for disclosures made to
Persons subject to valid and enforceable confidentiality
agreements;
(p)
neither the Company nor its Subsidiaries has suffered or
experienced any change in the relationship or course of dealings
between the Company and/or its Subsidiaries and any of their
suppliers or customers which supply goods or services to the
Company or its Subsidiaries or purchase goods or services from the
Company and or its Subsidiaries other than those matters as
disclosed in the SEC Reports; and
(q)
neither the Company nor its Subsidiaries has made any payment to,
or received any payment from, or made or received any investment
in, or entered into any transaction or series of related
transactions (including without limitation, the purchase, sale,
exchange or lease of assets, property or services, or the making of
a loan or guarantee) with any Affiliate in each case, in excess of
$50,000 or its equivalent (other than any transactions between or
among the Company and its Subsidiaries) (each, an “
Affiliate Transaction ”)
other than those matters as disclosed in the SEC
Reports.
4.13
Tax Status .
The Company and its Subsidiaries have 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. To the
best of the Company’s knowledge, 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.
4.14
Real Property .
The Company currently has leased certain locations for office space
and all material leases, all of which leases are disclosed
(including the terms of such leases) in the SEC
Reports.
4.15
Tangible Personal Property; Assets .
All material items of personal property and assets owned or leased
by the Company and its Subsidiaries are in good operating
condition, normal wear and tear excepted.
4.16
Intangible Property .
The Company and its Subsidiaries own, or possess adequate rights or
licenses to use all trademarks, trade names, service marks, service
mark registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their
respective businesses as now conducted, the lack of which could
reasonably be expected to have a Material Adverse Effect. The
Company and its Subsidiaries do not have any knowledge of any
infringement by the Company or its Subsidiaries of trademarks,
trade name rights, patents, patent rights, copyrights, inventions,
licenses, service names, service marks, service mark registrations,
trade secrets or other similar rights of others, or of any such
development of similar or identical trade secrets or technical
information by others and no claim, action or proceeding has been
made or brought against, or to the Company’s knowledge, has
been threatened against, the Company or its Subsidiaries regarding
trademarks, trade name rights, patents, patent rights, inventions,
copyrights, licenses, service names, service marks, service mark
registrations, trade secrets or other infringement, except where
such infringement, claim, action or proceeding would not reasonably
be expected to have either individually or in the aggregate a
Material Adverse Effect. None of the Company’s employees,
officers, or consultants are obligated under any contract
(including licenses, covenants, or commitments of any nature) or
other agreement, or subject to any judgment, decree, or order of
any court or administrative agency, that would interfere with the
use of such employee’s, officer’s, or
consultant’s commercially reasonable efforts to promote the
interests of the Company or that would conflict with the
Company’s business as conducted. Neither the execution nor
delivery of the Transaction Documents, nor the carrying on of the
Company’s business by the employees of the Company, nor the
conduct of the Company’s business, will, to the
Company’s knowledge, conflict with or result in a breach of
the terms, conditions, or provisions of, or constitute a default
under, any contract, covenant, or instrument under which any of
such employees, officers or consultants are now
obligated.
4.17
Material Contracts .
Other
than as disclosed in the SEC Reports or set forth on
Schedule 4.17 ,
(a)
neither
the Company nor its Subsidiaries nor any of their respective
properties or assets is a party to or bound by any (i) Contract not
made in the ordinary course of business, or involving a commitment
or payment by the Company or any Subsidiary in excess of $50,000
or, in the Company’s belief, otherwise material to the
business of the Company or its Subsidiaries, (ii) Contract among
members or granting a right of first refusal or for a partnership
or a joint venture or for the acquisition, sale or lease of any
assets or share capital of the Company or any other Person or
involving a sharing of profits, (iii) mortgage, pledge, conditional
sales contract, security agreement, factoring agreement or other
similar Contract with respect to any real or tangible personal
property of the Company or its Subsidiaries, (iv) loan agreement,
credit agreement, promissory note, guarantee, subordination
agreement, letter of credit or any other similar type of Contract,
(v) Contract with any Governmental Body outside the ordinary course
of business, (vi) Contract with respect to the discharge, storage
or removal of hazardous materials or (vii) binding commitment or
agreement to enter into any of the foregoing.
(b)
(i) Each of the Contracts disclosed in the SEC Reports and listed
on
Schedule 4.17 is
valid and enforceable against the Company or its Subsidiaries in
accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting
creditors’ rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of
whether enforcement is sought in a proceeding at law or in equity),
and, except as disclosed in the SEC Reports or on
Schedule 4.17 ,
there is no default under any Contract disclosed in the SEC Reports
and listed on
Schedule 4.17 by
the Company or any of its Subsidiaries or, to the knowledge of the
Company, by any other party thereto, which is likely to have a
Material Adverse Effect, and no event has occurred that with the
lapse of time or the giving of notice or both would constitute a
default by the Company thereunder which is likely to have a
Material Adverse Effect.
(ii)
No previous or current party to any Contract has given written
notice to the Company or any Subsidiary of, or made a claim, verbal
or written, with respect to any breach or default thereunder and
the Company has no knowledge of any notice of or claim with respect
to any such breach or default other than such notices or claims
with respect to any such breaches or defaults that would not,
either individually or in the aggregate, be reasonably expected to
have a Material Adverse Effect other than those matters as
disclosed in the SEC Reports.
(c)
With respect to the Contracts disclosed in the SEC Reports and
listed on
Schedule 4.17 that
were assigned to the Company or any Subsidiary by a third party,
all necessary consents to such assignment have been obtained other
than such contents which the failure to obtain would not be
reasonably expected to have a Material Adverse Effect.
4.18
Employee Benefits .
Except as disclosed in the SEC Reports or set forth on
Schedule 4.18 ,
neither the Company nor any of its Subsidiaries has in effect any
employment agreements, consulting agreements, deferred
compensation, pension or retirement agreements or arrangements,
bonus, incentive or profit-sharing plans or arrangements, or labor
or collective bargaining agreements, written or oral. The Company
and its Subsidiaries are in compliance in all material respects
with all applicable Laws relating to labor, employment, fair
employment practices, terms and conditions of employment, and wages
and hours.
4.19
Employees .
(a)
No key executive Employee, group of Employees nor independent
contractors of the Company or its Subsidiaries has announced or in
any other manner communicated to the Company any plans to terminate
his or her employment or relationship as an Employee or independent
contractor with the Company or its Subsidiaries.
(b)
To the best of the Company’s knowledge, no key executive
Employee or any other Employee of the Company or its Subsidiaries
is a party to or is otherwise bound by any agreement or arrangement
(including, without limitation, confidentiality agreements, non-
competition agreements, licenses, covenants, or commitments of any
nature), or subject to any judgment, decree, or Order of any court
or Governmental Body, (i) that would conflict with such
employee’s obligation diligently to promote and further the
interest of the Company or its Subsidiaries or (ii) that would
conflict with the Company’s (or its Subsidiaries) business as
now conducted or as proposed to be conducted.
(c)
Schedule 4.19(c) sets
forth a list of each of the key executive Employees of the Company
who have entered into an employment and/or confidentiality
agreement with the Company. It is understood that all employees of
the Company are covered by employment agreements or employment
contracts, as appropriate, which contain signed confidentiality
agreements with the Company.
4.20
Litigation .
Other than is disclosed in the SEC Reports or is set forth
on
Schedule 4.20 ,
there is no action, suit, inquiry, notice of violation, proceeding
or investigation pending or, to the knowledge of the Company,
currently threatened against or affecting the Company, any
Subsidiary or any of their respective properties before or by any
court, arbitrator, governmental or administrative agency and/or
regulatory authority (federal, state, county, local or foreign),
(collectively, an “
Action ”)
which does and/or could (i) adversely affects or challenges the
legality, validity or enforceability of any of the Transaction
Documents and/or the Transaction Securities or to consummate the
transactions contemplated hereby or thereby or (ii) could, if there
were an unfavorable decision, have or reasonably be expected to
result in, either individually or in the aggregate, a Material
Adverse Effect. The Commission has not issued any stop order or
other order suspending the effectiveness of any registration
statement filed by the Company or any Subsidiary under the Exchange
Act or the Securities Act. The foregoing includes, without
limitation, actions, pending or threatened (or any basis therefor
known to the Company), involving the prior employment of any of the
Company’s employees, their use in connection with the
Company’s business of any information or techniques allegedly
proprietary to any of their former employers, or their obligations
under any agreements with prior employers. The Company is not a
party or subject to the provisions of any order, writ, injunction,
judgment, or decree of any court or government agency or
instrumentality.
4.21
Compliance with Laws; Permits .
Other than as disclosed in the SEC Reports, neither the Company nor
any Subsidiary (i) is in default under or in violation of (and no
event has occurred that has not been waived that, with notice or
lapse of time or both, would result in a default by the Company or
any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is in default under or that it
is in violation of, any indenture, mortgage, decree, lease,
license, loan or credit agreement or any other agreement or
instrument to which it is a party or by which it or any of its
properties is bound (whether or not such default or violation has
been waived), (ii) is in violation of any order of any court,
arbitrator or governmental body, or (iii) is or has been in
violation of any statute, rule or regulation of any governmental
authority, including without limitation all foreign, federal, state
and local laws applicable to its business, except in the case of
clauses (i), (ii) and (iii) as would not result in a Material
Adverse Effect. Neither the Company nor any of the Subsidiaries has
received any written notice of any violation of or noncompliance
with, any federal, state, local or foreign laws, ordinances,
regulations and orders (including, without limitation, those
relating to environmental protection, occupational safety and
health, federal securities laws, equal employment opportunity,
consumer protection, credit reporting,
“truth-in-lending”, and warranties and trade practices)
applicable to its business or to the business of any Subsidiary,
the violation of, or noncompliance with, which would have a
materially adverse effect on either the Company’s business or
operations, or that of any Subsidiary, and the Company knows of no
facts or set of circumstances which would give rise to such a
notice. The execution, delivery, and performance of the Transaction
Documents and the consummation of the transactions contemplated
thereby will not result in any such violation or be in conflict
with or constitute, with or without the passage of time and giving
of notice, either a default under any such provision, instrument,
judgment, order, writ, decree or contract, or an event which
results in the creation of any lien, charge, or encumbrance upon
any assets of the Company or the suspension, revocation,
impairment, forfeiture, or nonrenewal of any material permit,
license, authorization, or approval applicable to the Company, its
business or operations, or any of its assets or properties, except
as would not reasonably be expected to have a Material Adverse
Effect.
4.22
Environmental and Safety Laws .
Neither the Company nor its Subsidiaries are in violation of any
applicable Laws relating to the environment or occupational health
and safety where the failure to so comply could have a Material
Adverse Effect and no material expenditures are or will be required
in order to comply with any such existing Laws.
4.23
Investment Company Act .
The Company is not, nor is it directly or indirectly controlled by
or acting on behalf of, any Person that is an investment company
within the meaning of the Investment Company Act of 1940, as
amended.
4.24
Financial Advisors .
Except for Laidlaw, no agent, broker, investment banker, finder,
financial advisor or other Person is or will be entitled to any
broker’s or finder’s fee or any other commission or
similar fee from the Company, directly or indirectly, in connection
with the transactions contemplated by this Agreement or any
Transaction Document and no Person is entitled to any fee or
commission or like payment from the Company in respect thereof
based in any way on agreements, arrangements or understandings made
by or on behalf of the Company.
4.25
Condition of Properties .
All facilities, machinery, equipment, fixtures, vehicles and other
properties owned, leased or used by the Company and its
Subsidiaries are in good operating condition and repair, are
reasonably fit and usable for the purposes for which they are being
used, are adequate and sufficient for the Company and its
Subsidiaries respective businesses and conform in all material
respects with all applicable Laws.
4.26
Pending Changes .
The Company has no knowledge of any development which might
reasonably be expected to result in a Material Adverse Affect on
the operations or financial condition of the Company or its
Subsidiaries.
4.27
Securities Laws .
The Company has complied in all material respects with all
applicable U.S. federal and state securities laws in connection
with (i) all offers, issuances and sales of its securities prior to
the date hereof and (ii) the offer, issuance and sale of the
Securities. All sales and issuances of currently outstanding
securities by the Company have been to accredited investors within
the meaning of Rule 501 of Regulation D under the Securities Act.
Prior to the Closing, neither the Company nor anyone acting on its
behalf has sold, offered to sell or solicited offers to buy the
Securities or similar securities to, or solicit offers with respect
thereto from, or entered into any preliminary conversations or
negotiations relating thereto with, any Person, so as to bring the
issuance and sale of the Securities under the registration
provisions of the Securities Act, and applicable state securities
laws. Neither the Company nor any Person acting on its behalf has
offered the Securities to any Person by means of general or public
solicitation or general or public advertising, such as by newspaper
or magazine advertisements, by broadcast media, or at any seminar
or meeting whose attendees were solicited by such
means.
4.28
Registration Rights .
Except for any rights granted under the Transaction Documents, no
Person has demand or other rights to cause the Company to file any
registration statement under the Securities Act relating to any
securities of the Company or any right to participate in any such
registration statement other than those matters as disclosed in the
SEC Reports.
4.29
Disclosure; Survival .
There is no fact which has not been disclosed in the SEC Reports or
otherwise disclosed to the Purchasers of which the Company has
knowledge and which has had or could reasonably be anticipated to
result in a Material Adverse Change. All representations and
warranties set forth in this Agreement or in any of the Transaction
Documents or in any writing or certificate delivered in connection
with this Agreement shall survive the execution and delivery of
this Agreement and the consummation of the transactions
contemplated hereby for a period of one (1) year (the
“
Survival Period ”)
and shall not be affected by any examination made for or on behalf
of the Purchaser, the knowledge of the Purchaser, or the acceptance
by the Purchaser of any certificate or opinion.
4.30
No General Solicitation .
Neither the Company, its Subsidiaries, any of their affiliates nor
any person acting on their behalf, has engaged in any form of
general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer
or sale of the Notes and the Warrants.
4.31
Insurance .
The Company has in full force and effect fire and casualty
insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of
its properties that might be damaged or destroyed, and the Company
has insurance against other hazards, risks, and liabilities to
persons and property to the extent and in the manner customary for
companies in similar businesses similarly situated. To the extent
that any premium payments are not currently paid-up, the Company
will endeavor to remedy such past due instances promptly following
the Closing Date.
4.32
Regulatory Permits .
The Company and the Subsidiaries possess all licenses,
certificates, authorizations and permits issued by the appropriate
federal, state, local or foreign regulatory authorities necessary
to conduct their respective businesses, except where the failure to
possess such permits would not have or reasonably be expected to
result in a Material Adverse Effect (“
Material Permits ”),
and believes it can obtain, without undue burden or expense, any
similar authority for the conduct of its business as planned to be
conducted, and neither the Company nor any Subsidiary has received
any notice of proceedings relating to the revocation or
modification of any Material Permit.
4.33
Title to Property and Assets .
The Company (and each Subsidiary) owns its property and assets free
and clear of all mortgages, liens, loans, pledges, security
interests, claims, equitable interests, charges, and encumbrances,
except (1) such encumbrances and liens which arise in the ordinary
course of business and do not materially impair the Company’s
(and each Subsidiary’s) ownership or use of such property or
assets and (2) the security pledge to Cornell Capital Partners
under the convertible debenture agreements of March 2006, and any
other matters as disclosed in the SEC Reports. With respect to the
property and assets it leases, the Company (and each Subsidiary) is
in compliance with such leases and, to its knowledge, holds a valid
leasehold interest free of any material liens, claims, or
encumbrances.
4.34
Foreign Assets Control Legislation .
Neither the sale of the Notes nor the Warrants by the Company
hereunder nor its use of the proceeds thereof will violate the
Trading with the Enemy Act, as amended, or any of the foreign
assets control regulations of the United States Treasury Department
(31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto. Without limiting
the foregoing, neither the Company nor any of its Subsidiaries (a)
is a person whose property or interests in property are blocked
pursuant to Section 1 of Executive Order 13224 of September 23,
2001 Blocking Property and Prohibiting Transactions With Persons
Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg.
49079 (2001)) or (b) engages in any dealings or transactions, or be
otherwise associated, with any such person. The Company and its
Subsidiaries, to their full knowledge, are in compliance with the
USA Patriot Act of 2001 (signed into law October 26,
2001).
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5. |
Representations and Warranties of the Purchaser .
The
Purchaser hereby represents and warrants as of the date hereof and
as of the Closing Date to the Company, acknowledging that the
Company is relying upon the accuracy and completeness of the
representations and warranties set forth herein to, among other
things, ensure that registration under Section 5 of the Securities
Act is not required in connection with the sale of the Securities
and the granting of the Option hereby, as
follows
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5.1
Organization; Authority .
The Purchaser is an entity duly organized, validly existing and in
good standing under the laws of the jurisdiction of its
organization with full right, corporate or limited liability
company power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and
otherwise to carry out its obligations thereunder. The execution,
delivery and performance by such Purchaser of the transactions
contemplated by this Agreement has been duly authorized by all
necessary corporate or similar action on the part of such
Purchaser. Each Transaction Document to which it is a party has
been duly executed by such Purchaser, and when delivered by such
Purchaser in accordance with the terms hereof, will constitute the
valid and legally binding obligation of such Purchaser, enforceable
against it in accordance with its terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws of general application affecting enforcement of
creditors’ rights generally and (ii) as limited by laws
relating to the availability of specific performance, injunctive
relief, or other equitable remedies.
5.2
Investment Intent .
The Purchaser represents and warrants to the Company that it is (a)
an “accredited investor” as defined in Rule 501 of
Regulation D of the Securities Act; and (b) acquiring the
Securities and the Option to be purchased by it pursuant to this
Agreement for investment and not with a view to the distribution
thereof.
5.3
Investment Purposes .
(a) The Purchaser is acquiring the Securities and the Option for
investment purposes only, for its own account, and not as nominee
or agent for any other Person, and not with a view to, or for
resale in connection with, any distribution thereof within the
meaning of the Securities Act, (b) it understands and acknowledges
that the Securities have not been registered under the Securities
Act or any other securities laws, (c) it is not an
“affiliate” (as defined in Rule 144 under the
Securities Act) of the Company, (d) it has such knowledge and
experience in financial and business matters as to be capable of
evaluating the merits and risks of its investment, (e) each is an
“accredited investor” within the meaning of Rule 501 of
Regulation D under the Securities Act, (f) the Company has made
available to it the opportunity to ask questions and to receive
answers, and to obtain information necessary to evaluate the merits
and risks of this investment, and (g) the Purchaser understands,
acknowledges and agrees that the Securities have not been
registered under (and that the Company has no present intention to
register the Securities under) the Securities Act or applicable
state securities laws, and may not be sold or otherwise transferred
by the Purchaser to a United States person unless the Securities
have been registered under the Securities Act and applicable U.S.
state securities laws or are sold or transferred in a transaction
exempt therefrom.
5.4
Class A Members of
Purchaser. Each Class A Member of the Purchaser (the
“Member”) is an “accredited investor” as
defined in Rule 501 of Regulation D of the Securities Act and each
member has represented and warranted to the Purchaser those certain
Representations and Warranties set forth in Section 5 of that
certain Subscription Agreement entered into between the Purchaser
and the Class A Members in connection with the
Offering.
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6. |
Further Agreements of the Parties.
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6.1
Reserved Shares .
For so long as the Securities
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