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AMENDED AND RESTATED COMMON STOCK AND WARRANT PURCHASE AGREEMENT

Warrant Agreement

AMENDED AND RESTATED   COMMON STOCK AND WARRANT  PURCHASE AGREEMENT | Document Parties: ADS MEDIA GROUP INC | Charter Venture Partners L.P | Charter ADS Media, L.P. You are currently viewing:
This Warrant Agreement involves

ADS MEDIA GROUP INC | Charter Venture Partners L.P | Charter ADS Media, L.P.

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Title: AMENDED AND RESTATED COMMON STOCK AND WARRANT PURCHASE AGREEMENT
Governing Law: Texas     Date: 10/31/2006
Industry: Healthcare Facilities     Law Firm: Patton Boggs, LLP; Carrie, Cramer Weatherbie, L.L.P.    

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EXHIBIT 3.1

 

                                                                                                                  

 

AMENDED AND RESTATED

COMMON STOCK AND WARRANT

PURCHASE AGREEMENT

 

 

for the purchase of

31,405,304 Shares of Common Stock

and Warrants to Purchase 6,281,062 Shares of Common Stock

of

 

 

ADS MEDIA GROUP, INC.

 

 

 

June 16, 2006

 

As Amended and Restated on October 25, 2006

 

                                                                                                                  

 

 

 

 

 

TABLE OF CONTENTS

 

 

ARTICLE 1  DEFINITIONS

1

 

1.1  Certain Definitions

1

 

1.2  Accounting Principles

5

 

1.3  Other Definitional Provisions; Construction

6

 

 

 

ARTICLE 2  ISSUE AND SALE OF COMMON STOCK AND WARRANTS

6

 

2.1  Authorization and Issuance of the Common Stock and Warrants

6

 

2.2  Allocation of Purchase Price

6

 

2.3 The Closing

6

 

 

 

ARTICLE 3  CONDITIONS

7

 

3.1  Conditions to Purchase of Securities

7

 

 

 

ARTICLE 4  REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND

 

 

PRINCIPAL SHAREHOLDERS

8

 

4.1  Representations and Warranties of the Company and Principal Shareholders

8

 

4.2  Absolute Reliance on the Representations and Warranties

14

 

 

 

ARTICLE 5  REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

14

 

5.1  Purchase Entirely for Its Own Account

14

 

5.2  Disclosure of Information

14

 

5.3  Accredited and Sophisticated Investor; Investment Experience

15

 

5.4  Restricted Securities

15

 

5.5  Legends

15

 

5.6  Survival of Purchaser Representations

15

 

 

 

ARTICLE 6  COVENANTS

16

 

6.1  Affirmative Covenants

16

 

6.2  Board Provisions

17

 

6.3  Right of First Offer

18

 

6.4  Negative Covenants

19

 

 

 

ARTICLE 7  REGISTRATION RIGHTS

20

 

7.1  Mandatory Registration

20

 

7.2  Piggyback Registration

20

 

7.3  Demand Registration Rights

21

 

7.4  Registration Procedures

22

 

7.5  Registration Expenses

24

 

7.6  Indemnification

24

 

7.7  Participation in Underwritten Registrations

25

 

7.8  Termination of Registration Rights

26

 

 

 

ARTICLE 8  MISCELLANEOUS

26

 

8.1  Successors and Assigns

26

 

8.2  Modifications and Amendments

26

 

8.3  No Implied Waivers; Cumulative Remedies; Writing Required

26

 

8.4  Fees and Expenses

26

 

8.5  Reimbursement of Expenses - Enforcement and Collection

27

 

8.6  Notices

27

 

8.7  Survival

27

 

8.8  Governing Law; Consent to Jurisdiction

27

 

8.9  Jury Trial Waiver

28

 

8.10 Remedies

28

 

8.11 Limitation of Liability

28

 

8.12 Severability

28

 

8.13 Headings

28

 

8.14 Counterparts

28

 

8.15 Integration

29

 

8.16 Independent Nature of Purchaser Obligations and Rights

29

 

 

 

 

 

 

 

 

 

 

 

 

AMENDED AND RESTATED

COMMON STOCK AND WARRANT

PURCHASE AGREEMENT

For the Purchase of

31,405,304 Shares of Common Stock and Warrants to Purchase

up to 6,281,062 Shares of Common Stock

 

THIS AMENDED AND RESTATED COMMON STOCK AND WARRANT PURCHASE AGREEMENT (this " Agreement "), first dated 16 th day of June, 2006, as amended and restated on October 25, 2006, is by and among ADS Media Group, Inc., a Utah corporation (the " Company "), Clark R. "Dub" Doyal and James D. "Jim" Schell (each, a " Principal Shareholder " and collectively, the " ADS Principal Shareholders "), Roaring Fork Capital SBIC, L.P., a Delaware limited partnership (" Roaring Fork "), and Charter ADS Media, L.P. (" Charter "), a Texas limited partnership (each individually a " Purchaser " and collectively, the " Purchasers "). Capitalized terms used and not defined elsewhere in this Agreement are defined in Article 1 hereof.

 

Recitals

 

A.         Roaring Fork entered into this Agreement on June 16, 2006, and closing for its investment pursuant to the Agreement occurred on June 20, 2006. Roaring Fork purchased 15,702,652 shares of Common Stock and Warrants to purchase an additional 3,140,531 shares of Common Stock, for consideration of $2,000,000.

 

B.          Charter has agreed to purchase all of the 15,702,652 shares of Common Stock and Warrants to purchase an additional 3,140,531 shares of Common Stock that remain unsold pursuant to this Agreement after closing of the Roaring Fork investment, for consideration of $2,000,000.

 

C.         The parties have agreed to amend and restate the Agreement as provided herein in order to authorize and facilitate the remaining $2,000,000 investment, provide additional terms related to the Charter investment, update deadlines for the occurrence of certain events, and make minor corrections.

 

The parties hereto, in consideration of the premises and their mutual covenants and agreements herein set forth and intending to be legally bound hereby, covenant and agree as follows:

 

ARTICLE 1

 

DEFINITIONS

 

     1.1   Certain Definitions . In addition to other words and terms defined elsewhere in this Agreement, the following words and terms have the meanings set forth below (and such meanings shall be equally applicable to both the singular and plural form of the terms defined, as the context may require):

 

 

1

 

 

 

     " Affiliate " shall mean with respect to any Person, any other Person that is directly or indirectly controlling, controlled by or under common control with such Person or entity or any of its Subsidiaries, and the term "control" (including the terms "controlled by" and "under common control with") shall mean having, directly or indirectly, the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities or by contract or otherwise. The Principal Shareholders and their Affiliates shall be deemed Affiliates of the Company for purposes of this Agreement. Without limiting the foregoing, (i) the ownership of ten percent (10%) or more of the voting securities of a Person shall be deemed to constitute control and notwithstanding anything to the contrary herein, and (ii) neither the Purchasers nor any of their respective Affiliates shall be deemed to be Affiliates of the Company by virtue of the transactions contemplated in this Agreement.

     " Agreement " shall mean this Common Stock and Warrant Purchase Agreement, as the same may be amended, restated, supplemented or otherwise modified from time to time.

 

     " Board " shall mean the Board of Directors of ADS Media Group, Inc.

 

     " Business " shall mean the principal business of the Company as set forth in Section 4.1(b) hereof and as such shall continue to be conducted following the purchase and sale of the Common Stock and Warrants hereby.

 

     " Business Day " shall mean any day other than a Saturday, Sunday or other day on which banking institutions in Denver, Colorado are authorized or required by law to close.

 

     " Bylaws " shall mean the Bylaws or analogous instrument governing operations, including all amendments and supplements thereto.

 

     " Charter Documents " shall mean the articles of incorporation filed with the appropriate Governmental Authorities, including all amendments and supplements thereto.

 

     " Charter " shall mean Charter ADS Media, L.P., a Texas limited partnership.

 

     " Closing " shall mean the closing of each purchase and sale of the Common Stock and the Warrants pursuant to this Agreement.

 

     " Closing Date " shall mean the Initial Closing Date and any Subsequent Closing Date (defined herein), or any of them.

 

     " Code " shall mean the Internal Revenue Code of 1986, as amended.

 

     " Common Stock " shall mean the common stock, $.001 par value, of the Company. This Agreement contemplates that, after Closing, the Company will execute a reverse stock split of its common stock. All references in this Agreement to a number of shares of Common Stock refer to the number of shares of Common Stock prior to giving effect to the proposed reverse stock split unless otherwise indicated.

 

     " Company " shall have the meaning assigned to such term in the introductory paragraph hereto, except as provided otherwise in this Agreement.

 

2

 

 

     " ERISA " shall mean the Employee Retirement Income Security Act of 1974, as the same may from time to time be amended, and the rules and regulations of any governmental agency or authority, as from time to time in effect, promulgated thereunder.

 

     " Exchange Act " shall mean the Securities Exchange Act of 1934, as amended.

 

     " Final Investment Date " shall mean November 30, 2006, the final date on which any Common Stock or Warrants may be purchased under this Agreement unless the Final Investment Date is extended by the Company with the consent of the Purchaser.

 

      " Fiscal Year " or " fiscal year " shall mean each 12-month period ending on December 31 of each year.

 

      " Fully Diluted Common Stock " shall mean the sum of (i) all Common Stock outstanding immediately following Closing and (ii) all securities convertible into or exercisable for Common Stock, as if exercised and converted to the fullest extent of their terms; but (iii) excluding all Common Stock or securities (including debt securities) convertible into Common Stock that have been issued in breach of Section 6.4.

 

      " Governmental Authorities " shall mean any federal, state or municipal court or other governmental department, commission, board, bureau, agency or instrumentality, governmental or quasi-governmental, domestic or foreign.

 

      " Initial Closing Date " shall mean June 20, 2006, the date of purchase and payment for Common Stock and Warrants by Roaring Fork pursuant to this Agreement.

 

      " Investment Amount " shall mean the amount paid or agreed to be paid for the Common Stock and Warrants, as indicated below each Purchaser's signature.

 

      " IRS " shall mean the Internal Revenue Service and any governmental body or agency succeeding to the functions thereof.

 

      " Laws " shall mean all U.S. and foreign federal, state or local statutes, laws, rules, regulations, ordinances, codes, policies, rules of common law, and the like, now or hereafter in effect, including any judicial or administrative interpretations thereof, and any judicial or administrative orders, consents, decrees or judgments.

 

      " Lien " shall mean any security interest, pledge, bailment, mortgage, hypothecation, deed of trust, conditional sales and title retention agreement (including any lease in the nature thereof), charge, encumbrance or other similar arrangement or interest in real or personal property, whether such interest is based on common law, statute or contract.

 

      " Material Adverse Effect " shall mean a material adverse effect on the business, properties, assets, liabilities or condition (financial or otherwise) of the Company, individually and/or taken as a whole.

 

3

 

 

 

      " Options " shall mean options issued pursuant to the Company's 2006 Stock Option and Incentive Plan, subject to the restriction set forth in Section 6.4(b), and any options outstanding as of the Initial Closing Date.

 

      " Person " shall mean any individual, partnership, limited partnership, corporation, limited liability Company, association, joint stock company, trust, joint venture, unincorporated organization or governmental entity or department, agency or political subdivision thereof.

 

      " Plan " shall mean any employee benefit plan (within the meaning of Section 3(3) of ERISA), established or maintained by the Company or any member of the Controlled Group.

 

      " Properties and Facilities " shall have the meaning assigned to such term in Section 4.1(r) hereof.

 

      " Property " shall mean, as to any Person, all types of real, personal, tangible, intangible or mixed property owned by such Person whether or not included in the most recent balance sheet of such Person and its subsidiaries under GAAP.

 

      " Proprietary Rights " shall mean all patents, trademarks, trade names, service marks, copyrights, inventions, production methods, licenses, formulas, know-how, trade secrets and good will related to any of the foregoing, regardless of whether such are registered with any Governmental Authorities, including applications therefor.

 

      " Purchase Documents " shall mean this Agreement (including all schedules attached to the Agreement) and the Warrants as any or all of the foregoing may be supplemented or amended from time to time.

 

      " Purchaser " shall have the meaning assigned to such term in the introductory paragraph hereto.

 

      " Registrable Securities " shall mean the shares of Common Stock purchased by the Purchasers, the shares of the Underlying Common Stock, and any shares issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event, or any exercise price adjustment with respect to the Underlying Common Stock.

 

      " Roaring Fork " shall mean Roaring Fork Capital SBIC, L.P., a Purchaser, which is managed by Roaring Fork Capital Management, LLC.

 

      " SBA Compliance Agreement " means the SBA Compliance Agreement between the Company and Roaring Fork dated as of May 22, 2006.

 

      " SEC " means the U.S. Securities and Exchange Commission.

 

      " Securities Act " shall mean the Securities Act of 1933, as amended.

 

      " Subsequent Closing Date " shall mean the date of purchase and payment for Common Stock and Warrants by any Purchaser after the Initial Closing Date (but in no event later than the Final

 

4

 

 

 

Investment Date) pursuant to this Agreement; provided, that if no additional investors purchase and pay for the Common Stock and Warrants on Subsequent Closing Date(s) as provided herein, the Initial Closing Date shall be substituted for the Subsequent Closing Date(s) in determining Roaring Fork's rights under this Agreement for all purposes except Section 6.2(d).

 

      " Subsidiary " of any corporation shall mean any other corporation or limited liability company of which the outstanding capital stock possessing a majority of voting power in the election of directors (otherwise than as the result of a default) is owned or controlled by such corporation directly or indirectly through Subsidiaries.

 

     " Trading Day " means (i) a day on which the Common Stock is traded on a Trading Market (other than the OTC Bulletin Board), or (ii) if the Common Stock is not listed on a Trading Market (other than the OTC Bulletin Board), a day on which the Common Stock is traded in the over-the-counter market, as reported by the OTC Bulletin Board, or (iii) if the Common Stock is not quoted on any Trading Market, a day on which the Common Stock is quoted in the over-the-counter market as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding to its functions of reporting prices); provided, that in the event that the Common Stock is not listed or quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business Day.

 

      " Trading Market " means whichever of the New York Stock Exchange, the American Stock Exchange, the NASDAQ National Market, the NASDAQ Capital Market or OTC Bulletin Board on which the Common Stock is listed or quoted for trading on the date in question.

 

      " Transaction Documents " shall have the meaning assigned to such term in Section 4.1(f) hereof.

 

      " Transactions " shall mean the purchase of the Common Stock and the Warrants as contemplated by this Agreement, the Warrants, certificates for the Common Stock and all other agreements contemplated hereby and thereby.

 

      " Underlying Common Stock " shall mean the Common Stock issued or issuable upon exercise of the Warrants (it being understood that exercise of the Warrant shall include exercise pursuant to either Section 1(a) of the Warrant or exercise of the conversion right pursuant to Section 1(b) of the Warrant), and (c) any equity securities issued or issuable with respect to the securities referred to in clauses (a) and (b) above by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization.

 

      " Warrants " shall have the meaning assigned to such term in Section 2.1 hereof.

 

     1.2   Accounting Principles . The character or amount of any asset, liability, capital account or reserve and of any item of income or expense to be determined, and any consolidation or other accounting computation to be made, and the construction of any definition containing a financial term, pursuant to this Agreement shall be determined or made in accordance with generally accepted accounting principles in the United States of America consistently applied (" GAAP ").

 

5

 

 

     1.3   Other Definitional Provisions; Construction . Whenever the context so requires, neuter gender includes the masculine and feminine, the singular number includes the plural and vice versa. The words "hereof" "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not in any particular provision of this agreement, and references to section, article, annex, schedule, exhibit and like references are references to this Agreement unless otherwise specified. References in this Agreement to any Persons shall include such Persons' successors and permitted assigns.

 

ARTICLE 2

 

ISSUE AND SALE OF COMMON STOCK AND WARRANTS

 

     2.1   Authorization and Issuance of the Common Stock and Warrants . The Company has duly authorized an offering of its securities (the " Offering ") of up to 31,405,304 shares of Common Stock and Warrants to purchase up to 6,281,062 shares of Common Stock exercisable at $.16 per share (the " Warrants "), to be substantially in the form of the Warrant attached hereto as Exhibit A for a purchase price of $4,000,000 if the maximum amount is sold. This Agreement was originally entered into on June 16, 2006, for the purpose of Roaring Fork subscribing in the Offering through the Roaring Fork Closing Date in an aggregate amount of $2,000,000 for 15,702,652 shares of common stock and Warrants to purchase an additional 3,140,531 shares at $.16 per share. Subject to the terms and conditions of this Agreement, Charter ADS Media, L.P. (" Charter "), will purchase for $2,000,000 the remaining unsubscribed portion of the offering (comprising 15,702,652 shares of common stock and Warrants to purchase an additional 3,140,531 shares at $.16 per share). It is expressly understood and agreed that Charter's investment made pursuant to this Section 2.1 shall not give rise to any " Right of First Offer " granted to Roaring Fork or any other Purchaser in Section 6.3 of the Agreement. In no event will the aggregate gross proceeds from this Offering exceed $4,000,000 or continue beyond the Final Investment Date, unless the consent of the Purchasers is obtained.

 

     2.2   Allocation of Purchase Price . Subject to the terms and conditions and in reliance upon the representations, warranties and agreements set forth herein, the Company shall (1) sell to Roaring Fork for $2,000,000 invested in the Company, and Roaring Fork shall purchase from the Company, 15,702,652 shares of Common Stock for $1,998,000, and Warrants to purchase up to 1,570,265 shares of Common Stock exercisable at $.16 per share for $2,000, and (2) sell to Charter for $2,000,000 invested in the Company, and Charter shall purchase from the Company, 15,702,652 shares of Common Stock for $1,998,000, and Warrants to purchase up to 1,570,265 shares of Common Stock exercisable at $.16 per share for $2,000.

 

     2.3   The Closing . Delivery of and payment for the Shares of Common Stock and Warrants sold to Roaring Fork was initially made on June 20, 2006. Delivery of and payment for the Shares of Common Stock and Warrants to be sold to additional investors will be made on one or more Subsequent Closing Dates at such place and date as may be mutually agreeable to the Company and each Purchaser, but no later than the Final Investment Date. Delivery of the Common Stock and Warrants shall be made to each Purchaser against payment of the Investment Amount therefor, by check or by wire transfer of immediately available funds in the manner agreed to by the Company and each Purchaser. The Common Stock and the Warrants shall be issued in name of the Purchaser.

 

 

6

 

ARTICLE 3

 

CONDITIONS

 

     3.1   Conditions to Purchase of Securities . The obligation of each Purchaser to purchase and pay for the Common Stock and Warrants is subject to the satisfaction, prior to or at the Closing, of the following conditions at the time of its respective purchase:

 

          (a)   Representations and Warranties True . The representations and warranties contained in Article 4 hereof shall be true and correct in all material respects at and as of each Closing Date as though then made, except to the extent of changes caused by the transactions expressly contemplated herein.

 

          (b)   Material Adverse Change . Except as described in the SEC Reports, there will have been no material adverse change in the business of the Company since December 31, 2005.

 

          (c)   Closing Documents . The Company shall have delivered or ordered to be delivered to the Purchaser all of the following documents in form and substance satisfactory to the Purchaser:

 

               (i)  one or more certificates representing the aggregate number of shares of the Common Stock purchased by each Purchaser, such certificates to bear a restrictive legend in compliance with the Securities Act;

 

               (ii)  one or more Warrants to purchase the aggregate number of shares purchased by each Purchaser, duly completed and executed by the Company;

 

               (iii)  a copy of the Charter Documents and Bylaws of the Company and each of its Subsidiaries, certified by the Secretary of the Company as of each Closing Date;

 

               (iv)  copies of the resolutions duly adopted by the Board authorizing the execution, delivery and performance by the Company of this Agreement and each of the other agreements, instruments and documents contemplated hereby to which the Company is a party, and the consummation of all of the other Transactions, certified as of each Closing Date by the president or secretary of the Company;

 

               (v)  a certificate dated as of each Closing Date from the Principal Shareholders, as officers of the Company, stating that the conditions specified in this Section 4.1 have been fully satisfied or waived by each Purchaser with respect to its respective purchase;

 

               (vi)  with respect to Roaring Fork's purchase, the SBA Compliance Agreement, duly completed and executed by the Company; and

 

               (vii)proxies from the current directors, who together own more than 50% of the currently outstanding Common Stock, irrevocably granting Roaring Fork authority to vote the directors' shares in favor of the reverse stock split provided for in Section 6.2(c); and

 

               (viii)  copies of cancelled promissory notes and other documentation evidencing the conversion of all notes and all accrued salaries listed in Schedule 3.1(c)(viii); and

 

               (ix)  such other documents relating to the Transactions contemplated by this Agreement that a Purchaser may reasonably request.

 

          (b)   Proceedings . All proceedings taken or required to be taken in connection with the transactions contemplated hereby to be consummated at or prior to the Closing and all documents incident thereto will be satisfactory in form and substance to the Purchaser.

 

ARTICLE 4

 

REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND PRINCIPAL
SHAREHOLDERS

 

     4.1   Representations and Warranties of the Company and Principal Shareholders . Unless the context requires otherwise, all references to the "Company" shall include each of the Company's Subsidiaries, unless the context requires otherwise. As a material inducement to the Purchasers to enter into this Agreement and purchase the Common Stock and the Warrants, the Company and each Principal Shareholder, jointly and severally, hereby represent and warrant to the Purchasers (but only with respect to the individual Closing in which that Purchaser makes its investment) as follows:

 

          (a)   Organization and Power . The Company is duly organized, validly existing and in good standing under the laws of its state of organization. The Company has all requisite corporate or other organizational power and authority and all material licenses, permits, approvals and authorizations necessary to own and operate its properties, to carry on its businesses as now conducted and presently proposed to be conducted and to carry out the Transactions, and is qualified to do business in every jurisdiction where the failure to so qualify might reasonably be expected to have a Material Adverse Effect. The Company has its principal place of business in San Antonio, Texas. The copies of the Charter Documents and Bylaws of the Company that have been furnished to the Purchasers reflect all amendments made thereto at any time prior to the date of this Agreement and are correct and complete.

 

          (b)   Principal Business . The Company is primarily engaged in providing turnkey direct marketing support services, with an emphasis on alternate i.e. door to door delivery (the " Business ").

 

          (c)   SEC Reports; Financial Statements . Except as set forth on Schedule 4.1(c), 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 15(d) thereof reports filed on Form 10-KSB, Form 10-QSB, and Form 8-K, for the twelve months preceding the date hereof (or such shorter period as the Company was required by law to file such reports) (the foregoing materials being collectively referred to herein as the " SEC Reports " and, together with the Schedules to this Agreement (if any), the " Disclosure Materials ") on a timely basis or has timely filed a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. Attached as Schedule 4.1(c) is a list of all filings made by the Company with the SEC since January 1, 2002. 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 SEC promulgated thereunder, 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. 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 SEC with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with GAAP applied on a consistent basis during the periods involved, except as may be otherwise specified in such financial statements or the notes thereto, 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. The Company's Common Stock is registered pursuant to Section 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the SEC is contemplating terminating such registration.

 

          (d)   Capitalization and Related Matters . As of each Closing Date and immediately thereafter, the authorized capital stock of the Company and the shares of stock that are issued, outstanding and reserved for issuance upon exercise of warrants and Options and exercise of the Warrants issued hereunder (after giving effect to anti-dilution adjustments) are as set forth on the Capitalization Schedule and Addendum attached hereto. As of each Closing Date, the Company will not have outstanding any capital stock or securities convertible or exchangeable for any shares of its capital stock except as set forth in the Capitalization Schedule, and will not have outstanding any rights or options to subscribe for or to purchase its capital stock or any stock or securities convertible into or exchangeable for its capital stock, except as set forth in the Capitalization Schedule. As of each Closing Date, the Company will not be subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its capital stock, except as set forth herein and the Charter Documents, respectively, as in effect on the date hereof. As of the Closing, all of the outstanding shares of the Company's capital stock will be validly issued, fully paid and nonassessable. Except as set forth on the Capitalization Schedule and Addendum , there are no statutory or contractual stockholders' preemptive rights or notices with respect to the issuance of the Common Stock and Warrants hereunder. Subject to and based on the accuracy of all representations made by all Purchasers in this Offering, the Company has not violated any applicable federal or state securities laws in connection with the offer, sale or issuance of any of its capital stock, and the offer, sale and issuance of the Common Stock and Warrants hereunder do not require registration under the Securities Act or any applicable state securities laws.

 

          (e)   Subsidiaries . Except as set forth on Schedule 4.1(e), the Company does not own, or hold any rights to acquire, any shares of stock or any other security or interest in any other Person. The Company has no Subsidiaries except as set forth on Schedule 4.1(e).

 

          (f)   Authorization; No Breach . The execution, delivery and performance of the Purchase Documents, the proxies from current directors contemplated by subsection 3.1(c)(vii), and the SBA Compliance Agreement (collectively, the " Transaction Documents "), and the consummation of the Transactions have been duly authorized by the Company and the Principal Shareholders. Except as set forth on Schedule 4.1(f), the execution and delivery by the Company of the Transaction Documents and the consummation of the Transactions do not and will not (i) conflict with or result in a breach of the terms, conditions or provisions of, (ii) constitute a default under, (iii) result in the creation of any Lien upon any of the Company's capital stock or assets pursuant to, (iv) give any third party the right to accelerate any obligation under, (v) result in a violation of, or (vi) require any authorization, consent, approval, exemption or other action by or notice to any Governmental Authority or Person pursuant to, the Charter Documents of the Company, or any law, statute, rule or regulation to which the Company is subject, or any agreement, instrument, order, judgment or decree to which the Company is a party or to which it or its assets are subject.

 

          (g)   Enforceability . This Agreement constitutes, and each of the other Transaction Documents when duly executed and delivered by the Company and the Principal Shareholders will constitute, legal, valid and binding obligations of the Company and the Principal Shareholders enforceable in accordance with their respective terms.

 

          (h)   No Material Adverse Change . Except as disclosed in Schedule 4.1(h), since the date of the latest audited financial statements included within the SEC Reports, except as specifically 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 liabilities (contingent or otherwise) other than (A) trade payables, accrued expenses and other liabilities 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 any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock, and (v) except as set forth on Schedule 4.1(h), the Company has not issued any equity securities to any officer, director or Affiliate. The Company does not have pending before the SEC any request for confidential treatment of information.

 

          (i)   Litigation . Except as described in the SEC Reports, the Company has not received notice of the filing of any actions, suits or proceedings at law or in equity or by or before any arbitrator or any Governmental Authority (collectively, " Lawsuits ") now pending nor, to the best knowledge of the Company's management after due inquiry, have any Lawsuits been threatened against or filed by or affecting the Company or against any of its directors or officers or the Principal Shareholders relating to the businesses, assets or rights of the Company.

 

          (j)   Compliance with Laws . The Company is not in violation of any applicable Law in any material respect. The Company is not in default with respect to any judgment, order, writ, injunction, decree, rule or regulation of any Governmental Authority. There is no investigation, enforcement action or regulatory action pending or threatened against or affecting the Company by any Governmental Authority. There is no remedial or other corrective action that the Company is required to take to remain in compliance with any judgment, order, writ, injunction or decree of any Governmental Authority or to maintain any material permits, approvals or licenses granted by any Governmental Authority in full force and effect. During the past five (5) years, none of the officers, directors or management of the Company have been arrested or convicted of any material crime nor have any of them been bankrupt or an officer or director of a bankrupt company.

 

          (k)   Transactions With Affiliates and Employees . Except as set forth in Schedule 4.1(k) , none of the officers or directors of the Company or the Principal Shareholders and, to the knowledge of the Company, none of the employees of the Company is presently a party to any transaction with the Company (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.

 

          (l)   Controls and Procedures . The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls and procedures to ensure that material information relating to the company is made known to the certifying officers by others within those entities, particularly during the period in which the Company's form 10-KSB or 10-QSB, as the case may be, is being prepared. The Company's certifying officers have evaluated the effectiveness of the Company's controls and procedures in accordance with Item 307 of Regulation S-B under the Exchange Act for the Company's most recently ended fiscal quarter or fiscal year-end (such date, the " Evaluation Date "). The Company presented in its most recently filed Form 10-KSB or Form 10-QSB the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date.

 

          (m)   Certain Fees . The Company has an arrangement with First Continental Capital, L.P. for investment banking and other services. Copies of any agreements evidencing this arrangement have been provided to the Purchasers. Except for any payments that may be due to First Continental Capital, L.P. pursuant to that arrangement, no brokerage or finder's fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by this Agreement, including any Subsequent Closings. The Purchasers shall have no obligation with respect to any fees or with respect to any claims (other than such fees or commissions owed by a Purchaser pursuant to written agreements executed by a Purchaser which fees or commissions shall be the sole responsibility of such Purchaser) made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by this Agreement.

 

          (n)   Application of Takeover Protections . The Company has taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company's Charter Documents, or the laws of its state of incorporation that is or could become applicable to the Purchaser as a result of the Purchaser and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation the Company's issuance of the Common Stock, the Warrants and the Underlying Common Stock and the Purchaser's ownership of the Common Stock, the Warrants, and the Underlying Common Stock.

 

          (o)   Taxes . Except as set forth on Schedule 4.1(o) , the Company has filed or caused to be filed all Federal, state and local tax returns that are required to be filed by it, and has paid or caused to be paid all taxes shown to be due and payable on such returns or on any assessments received by it, including payroll taxes.

 

          (p)   Labor and Employment . The Company is and each of its Plans are in compliance in all material respects with those provisions of ERISA, the Code, the Age Discrimination in Employment Act, and the regulations and published interpretations thereunder which are applicable to the Company or any such Plan. The Company is in compliance in all material respects with all labor and employment laws, rules, regulations and requirements of all applicable domestic and foreign jurisdictions. There are no pending or threatened labor disputes, work stoppages or strikes.

 

          (q)   Properties; Security Interests . Except as set forth in Schedule 4.1(q) , the Company has good and marketable title to, or valid leasehold interests in, all of the material assets and properties used or useful by the Company in the Business (collectively, the " Properties and Facilities") . All of the Properties and Facilities are in good repair, working order and condition and all such assets and properties are, except as set forth in the SEC Reports. The Properties and Facilities constitute all of the material assets, properties and rights of any type used in or necessary for the conduct of the Business.

 

          (r)   Intellectual Property . The Company has good title and ownership of, or has sufficient rights to, all trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes and patents, including without limitation the Proprietary Rights (collectively, the " Intellectual Property ") used in or necessary for its business as now conducted or as proposed to be conducted. Schedule 4.1(r) attached hereto contains a complete and accurate list of all outstanding options, licenses, or agreements of any kind r


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