Exhibit 10.2
12% SENIOR SECURED CONVERTIBLE DEBENTURE
AND WARRANT PURCHASE AGREEMENT
April 1, 2002
Americana Publishing, Inc., a Colorado corporation (the "Company") and the
persons listed on Schedule 2 hereto (the "Investors") hereby agree as follows:
1. The Debentures. The Company has authorized the issuance and sale, in
accordance with the terms hereof, of the Company's 12% Senior Secured
Convertible Debentures in the original aggregate principal amount of $200,000
(collectively, the "Debentures" and individually a "Debenture"). Each Debenture
will be substantially in the form set forth in Exhibit A hereto.
2. The Closing. Subject to the execution of this Agreement by the Company and
all Investors, the Company agrees to issue and sell to the Investors, and,
subject to and in reliance upon the representations, warranties, terms and
conditions contained herein, each Investor, severally and not jointly, agrees to
purchase a Debenture in the principal amount set forth opposite such Investor's
name on Schedule 2 hereto under the heading "First Tranche Purchase Price" (it
being agreed that the aggregate principal amount of the Debentures purchased by
the investors shall be $100,000). Such purchase and sale shall take place at a
closing (the "Closing") to be held at 10 A.M. on April 1, 2002. Thereafter, upon
the Securities and Exchange Commission's declaration of effectiveness (the
"Effective Date") of the Company's Registration Statement (as hereinafter
defined), each Investor, severally and not jointly, agrees to purchase a
Debenture in the principal amount set forth opposite such Investor's name on
Schedule 2 hereto under the heading "Second Tranche Purchase Price" (it being
agreed that the aggregate principal amount of the Debentures purchased by the
Investors shall be $100,000). Such purchase and sale shall take place at a
closing (the "Second Closing") to be held at 10 A.M. on the first business day
after the Effective Date. The Closing and the Second Closing shall be held at
the offices of Bondy & Schloss, LLP, 60 East 42nd Street, New York, New York
(or such other place and time as shall be mutually agreed upon). The Investors
have agreed to enter into an escrow agreement with an escrow agent, to govern
the receipt of monies and the issuance of securities at the Closing and Second
Closing, the conversion of the Debentures, and the exercise of Warrants (as that
term is defined herein).
3. Conversion. A holder of any Debenture outstanding may, at its option and
discretion, at any time and from time to time, elect to convert some or all of
the principal, accrued and unpaid interest and penalties due on such Debenture
into shares of the Company's common stock, $.001 par value ("Common Stock") at a
conversion price per share (the "Conversion Price") that shall be equal to 50%
of the lesser of the average of the three lowest closing bid prices per share
for the Common Stock, as reported on the over-the-counter electronic bulletin
board, or such other public market that the Company's Common Stock is then
traded, during either: (i) the 30 trading days prior to the Closing; or (ii) the
30 trading days prior to the date of conversion. The Conversion Price shall be
subject to adjustment for stock splits, stock dividends and the like.
4. Warrants. In consideration of the purchase of the Debentures, the Company
covenants and agrees to issue a Class A warrant and a Class B warrant
(collectively, the "Warrants") to each Investor in the forms attached hereto as
Exhibit B and Exhibit C, respectfully.
5. Registration Rights. In consideration of the purchase of the Debentures, the
Company covenants and agrees to provide for the registration of the shares of
Common Stock issuable upon conversion of the Debentures and upon the exercise of
the Warrants, plus any shares of Common Stock issued as a dividend or other
distribution with respect to, or in exchange for or in replacement of, or in
connection with such securities, and any other shares of Common Stock of the
Company acquired by the Investors (collectively, the "Registrable Securities"),
pursuant to a registration rights agreement in the form attached hereto as
Exhibit D (the "Registration Rights Agreement"). The Registration Rights
Agreement shall, among other things, provide for the terms and conditions upon
which the Company shall file a registration statement on Form SB-2 or similar
form (the "Registration Statement") covering the Registrable Securities with the
Securities and Exchange Commission (the "Commission").
6. Representations and Warranties of the Company. The Company represents and
warrants to the Investors that, except as set forth in the Disclosure Schedule
attached as Schedule 6 (which Disclosure Schedule makes explicit reference to
the particular representation or warranty as to which exception is taken, which
in each case shall constitute the sole representation and warranty as to which
such exception shall apply):
(a) Organization, Qualifications and Corporate Power.
(i) The Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Colorado and is duly licensed or
qualified to transact business as a foreign corporation and is in good standing
in each jurisdiction in which the nature of the business transacted by it or the
character of the properties owned or leased by it requires such licensing or
qualification, the failure of which would have a material adverse effect on the
business, operations, properties or condition (financial or otherwise) of the
Company. The Company has the corporate power and authority to own and hold its
properties and to carry on its business as now conducted and as proposed to be
conducted, to execute, deliver and perform this Agreement, and its obligations
under the Debentures, the Warrants, and the Registration Rights Agreement
(collectively, the "Transaction Documents"), to issue, sell and deliver the
Debentures and Warrants and to issue and deliver the Common Stock issuable upon
conversion of the Debenture and upon exercise of the Warrants (the "Conversion
Shares").
(ii) Except as disclosed on Schedule 6(a)(ii), the Company does not (A) own of
record or beneficially, directly or indirectly, (1) any shares of capital stock
or securities convertible into capital stock of any other corporation, or (2)
any participating interest in any partnership, joint venture or other
non-corporate business enterprise or (B) control, directly or indirectly, any
other entity.
(b) Authorization of Agreements, Etc.
(i) The execution and delivery by the Company of the Transaction Documents, the
performance by the Company of its obligations thereunder, the issuance, sale and
delivery of the Debentures and Warrants and the issuance and delivery of the
Conversion Shares have been duly authorized by all requisite corporate action
and will not violate any provision of law, any order of any court or other
agency of government, the certificate of incorporation of the Company, as
amended (the "Charter") or the by-laws of the Company, (the "By-Laws") as
amended, or any provision of any indenture, agreement or other instrument to
which the Company or any of its properties or assets is bound, or conflict with,
result in a breach of or constitute (with due notice or lapse of time or both) a
default under any such indenture, agreement or other instrument, or result in
the creation or imposition of any lien, charge, restriction, claim or
encumbrance of any nature whatsoever upon any of the properties or assets of the
Company.
(ii) The Debentures and Warrants have been duly authorized and, when issued in
accordance with this Agreement, will be validly issued, fully paid and
nonassessable with no personal liability attaching to the ownership thereof and
will be free and clear of all liens, charges, restrictions, claims and
encumbrances imposed by or through the Company. The Conversion Shares have been
duly reserved for issuance upon conversion of the Debentures and upon the
exercise of the Warrants and, when so issued, will be duly authorized, validly
issued, fully paid and nonassessable shares of Common Stock with no personal
liability attaching to the ownership thereof and will be free and clear of all
liens, charges, restrictions, claims and encumbrances imposed by or through the
Company. Neither the issuance, sale or delivery of the Debentures and Warrants
nor the issuance or delivery of the Conversion Shares is subject to any
preemptive right of stockholders of the Company or to any right of first refusal
or other right in favor of any person.
(c) Validity. This Agreement has been duly executed and delivered by the Company
and constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms. The other Transaction Documents, when
executed and delivered in accordance with this Agreement, will constitute the
legal, valid and binding obligations of the Company, enforceable in accordance
with their respective terms.
(d) Authorized Capital Stock. A complete, correct listing of the authorized and
outstanding capital stock of the Company and all outstanding options, warrants,
convertible securities or other rights to acquire securities of the Company is
attached hereto as Schedule 6(d); The designations, powers, preferences, rights,
qualifications, limitations and restrictions in respect of each class and series
of authorized capital stock of the Company are as set forth in the Charter, and
all such designations, powers, preferences, rights, qualifications, limitations
and restrictions are valid, binding and enforceable and in accordance with all
applicable laws. Except as set forth in the attached Schedule 6(d) (i) no person
owns of record or is known to the Company to own beneficially any share of
Common Stock, (ii) no subscription, warrant, option, convertible security, or
other right (contingent or other) to purchase or otherwise acquire equity
securities of the Company is authorized or outstanding, and (iii) there is no
commitment by the Company to issue shares, subscriptions, warrants, options,
convertible securities, or other such rights or to distribute to holders of any
of its equity securities any evidence of indebtedness or asset. Except as
provided for in the Charter or as set forth in the attached Schedule 6(d), the
Company has no obligation (contingent or other) to purchase, redeem or otherwise
acquire any of its equity securities or any interest therein or to pay any
dividend or make any other distribution in respect thereof. To the best of the
Company's knowledge, there are no voting trusts or agreements, stockholders'
agreements, pledge agreements, buy-sell agreements, rights of first refusal,
preemptive rights or proxies relating to any securities of the Company (whether
or not the Company is a party thereto). All of the outstanding securities of the
Company were issued in substantial compliance with all applicable federal and
state securities laws.
(e) Financial Information. Except as otherwise disclosed in the Company's SEC
Documents (as hereinafter defined), (i) there has been no change in the assets,
liabilities or financial condition of the Company except for changes in the
ordinary course of business which in the aggregate have not been materially
adverse, and (ii) none of the business, prospects, financial condition,
operations, property or affairs of the Company disclosed in writing either in
the Company's SEC Documents or in the business plan or other materials provided
to the Investors has been materially adversely affected by any occurrence or
development, individually or in the aggregate, whether or not insured against.
(f) Subsequent Events. Except as otherwise disclosed in the SEC Documents or
herein, the Company has not (i) issued any stock, bond or other corporate
security, (ii) borrowed any amount or incurred or become subject to any
liability (absolute, accrued or contingent), except current liabilities incurred
and liabilities under contracts entered into in the ordinary course of business,
(iii) discharged or satisfied any lien or encumbrance or incurred or paid any
obligation or liability (absolute, accrued or contingent) other than current
liabilities incurred in the ordinary course of business, (iv) declared or made
any payment or distribution to stockholders or purchased or redeemed any share
of its capital stock or other security, (v) mortgaged, pledged, encumbered or
subjected to lien any of its assets, tangible or intangible, other than liens of
current real property taxes not yet due and payable, (vi) sold, assigned or
transferred any of its tangible assets except in the ordinary course of
business, or cancelled any debt or claim, (vii) sold, assigned, transferred or
granted any exclusive license with respect to any patent, trademark, trade name,
service mark, copyright, trade secret or other intangible asset, (viii) suffered
any loss of property or waived any right of substantial value whether or not in
the ordinary course of business, (ix) made any change in officer compensation
except in the ordinary course of business and consistent with past practice, (x)
made any material change in the manner of business or operations of the Company,
(xi) entered into any transaction except in the ordinary course of business or
as otherwise contemplated hereby, or (xii) entered into any commitment
(contingent or otherwise) to do any of the foregoing.
(g) Litigation; Compliance with Law. Except as disclosed on Schedule 6(g), there
is no (i) action, suit, claim, proceeding or investigation pending or, to the
best of the Company's knowledge, threatened against or affecting the Company, at
law or in equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, (ii) arbitration proceeding relating to the Company pending
under collective bargaining agreements or otherwise or (iii) governmental
inquiry pending or, to the best of the Company's knowledge, threatened against
or affecting the Company (including without limitation any inquiry as to the
qualification of the Company to hold or receive any license or permit), and, to
the best of the Company's knowledge, there is no basis for any of the foregoing.
The Company has not received any opinion or memorandum or legal advice from
legal counsel to the effect that it is exposed, from a legal stand-point, to any
liability or disadvantage which may be material to its business, prospects,
financial condition, operations, property or affairs. The Company is not in
default with respect to any order, writ, injunction or decree known to or served
upon the Company of any court or of any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign. There is no action or suit by the Company pending,
threatened or contemplated against others. The Company has complied in all
material respects with all laws, rules, regulations and orders applicable to its
business, operations, properties, assets, products and services, the Company has
all necessary permits, licenses and other authorizations required to conduct its
business as conducted and as proposed to be conducted, and the Company has been
operating its business pursuant to and in compliance with the terms of all such
permits, licenses and other authorizations. There is no existing law, rule,
regulation or order, and the Company after due inquiry is not aware of any
proposed law, rule, regulation or order, whether federal, state, county or
local, which would prohibit or restrict the Company from, or otherwise
materially adversely affect the Company in, conducting its business in any
jurisdiction in which it is now conducting business or in which it proposes to
conduct business.
(h) Proprietary Information of Third Parties. To the best of the Company's
knowledge, no third party has claimed or has reason to claim that any person
employed by or affiliated with the Company has (a) violated or may be violating
any of the terms or conditions of his employment, non-competition or
non-disclosure agreement with such third party, (b) disclosed or may be
disclosing or utilized or may be utilizing any trade secret or proprietary
information or documentation of such third party or (c) interfered or may be
interfering in the employment relationship between such third party and any of
its present or former employees. No third party has requested information from
the Company which suggests that such a claim might be contemplated. To the best
of the Company's knowledge, no person employed by or affiliated with the Company
has employed or proposes to employ any trade secret or any information or
documentation proprietary to any former employer, and to the best of the
Company's knowledge, no person employed by or affiliated with the Company has
violated any confidential relationship which such person may have had with any
third party, in connection with the development, manufacture or sale of any
product or proposed product or the development or sale of any service or
proposed service of the Company, and the Company has no reason to believe there
will be any such employment or violation. To the best of the Company's
knowledge, none of the execution or delivery of this Agreement, or the carrying
on of the business of the Company as officers, employees or agents by any
officer, director or key employee of the Company, or the conduct or proposed
conduct of the business of the Company, will 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 such person is obligated.
(i) Patents, Trademarks, Etc. Set forth in Schedule 6(i) is a list and brief
description of all domestic and foreign patents, patent rights, patent
applications, trademarks, trademark applications, service marks, service mark
applications, trade names and copyrights, and all applications for such which
are in the process of being prepared, owned by or registered in the name of the
Company, or of which the Company is a licensor or licensee or in which the
Company has any right, and in each case a brief description of the nature of
such right. To the best of the Company's knowledge, the Company owns or
possesses adequate licenses or other rights to use all patents, patent
applications, trademarks, trademark applications, service marks, service mark
applications, trade names, copyrights, manufacturing processes, formulae, trade
secrets, customer lists and know how (collectively, "Intellectual Property")
necessary or desirable to the conduct of its business as conducted and as
proposed to be conducted, and no claim is pending or, to the best of the
Company's knowledge, threatened to the effect that the operations of the Company
infringe upon or conflict with the asserted rights of any other person under any
Intellectual Property, and, to the best of the Company's knowledge, there is no
basis for any such claim (whether or not pending or threatened). No claim is
pending or threatened to the effect that any such Intellectual Property owned or
licensed by the Company, or which the Company otherwise has the right to use, is
invalid or unenforceable by the Company, and, to the best knowledge of the
Company, there is no basis for any such claim (whether or not pending or
threatened). All prior art known to the Company which may be or may have been
pertinent to the examination of any United States patent or patent application
listed in Schedule 6(i) has been cited to the United States Patent and Trademark
Office. To the best of the Company's knowledge, all technical information
developed by and belonging to the Company which has not been patented has been
kept confidential. The Company has not granted or assigned to any other person
or entity any right to manufacture, assemble or sell the products or proposed
products or to provide the services or proposed services of the Company.
(j) Title to Properties. The Company and its subsidiaries have good, clear and
marketable title to their respective properties and assets (other than
properties and assets disposed of in the ordinary course of business), and all
such properties and assets are free and clear of mortgages, pledges, security
interests, liens, charges, claims, restrictions and other encumbrances
(including without limitation, easements and licenses), except for liens for or
current taxes not yet due and payable and minor imperfections of title, if any,
not material in nature or amount and not materially detracting from the value or
impairing the use of the property subject thereto or impairing the operations or
proposed operations of the Company and its subsidiaries, including without
limitation, the ability of the Company and its subsidiaries to secure financing
using such properties and assets as collateral. To the best of the Company's
knowledge after due inquiry, there are no condemnation, environmental, zoning or
other land use regulation proceedings, either instituted or planned to be
instituted, which would adversely affect the use or operation of the Company's
and its subsidiaries' properties and assets for their respective intended uses
and purposes, or the value of such properties, and neither the Company nor any
subsidiary has received notice of any special assessment proceedings which would
affect such properties and assets.
(k) Leasehold Interests. Each lease or agreement to which the Company is a party
under which it is a lessee of any property, real or personal, is a valid and
existing agreement, duly authorized and entered into, without any default of the
Company thereunder and, to the best of the Company's knowledge, without any
default thereunder of any other party thereto. No event has occurred and is
continuing which, with due notice or lapse of time or both, would constitute a
default or event of default by the Company under any such lease or agreement or,
to the best of the Company's knowledge, by any other party thereto. The
Company's possession of such property has not been disturbed and, to the best of
the Company's knowledge after due inquiry, no claim has been asserted against
the Company adverse to its rights in such leasehold interests.
(l) SEC Documents; Financial Statements. Except as disclosed on Schedule 6(l),
the Company has timely filed all reports, schedules, forms statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act")
(all of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents (other than
exhibits to such documents) incorporated by reference therein, being hereinafter
referred to herein as the "SEC Documents"). The Company has made available to
the Investors true and complete copies of the SEC Documents, except for such
exhibits and incorporated documents. To the Company's knowledge, as of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, 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. None of the
statements made in any such SEC Documents is, or has been, required to be
amended or updated under applicable law (except for such statements as have been
amended or updated in subsequent filings prior to the date hereof). As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
United States generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements) and fairly present in all material respects the
consolidated financial position of the Company 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). Except as set forth in the financial statements of the Company
included in the SEC Documents, the Company has no liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to December 31, 2001 and (ii) obligation under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in such financial
statements, which, individually or in the aggregate, are not material to the
financial condition or operating results of the Company.
(m) Taxes. The Company has filed all tax returns, federal, state, county and
local, required to be filed by it, and the Company has paid all taxes shown to
be due by such returns as well as all other taxes, assessments and governmental
charges which have become due or payable whether disputed or not, including
without limitation all taxes which the Company is obligated to withhold from
amounts owing to employees, creditors and third parties. No tax return of the
Company has ever been audited by the Internal Revenue Service or any other
taxing authority. No deficiency assessment with respect to or proposed
adjustment of the Company's federal, state, county or local taxes is pending or,
to the best of the Company's knowledge, threatened. There is no tax lien (other
than for current taxes not yet due and payable), whether imposed by any federal,
state, county or local taxing authority, outstanding against the assets,
properties or business of the Company. Neither the Company nor any of its
present or former stockholders has ever filed an election pursuant to Section
1362 of the Internal Revenue Code of 1986, as amended (the "Code"), that the
Company be taxed as an S corporation. The Company's net operating losses for
federal income tax purposes, if any, are not subject to any limitations imposed
by Section 382 of the Code and the full amount of such net operating losses are
available to offset the taxable income of the Company for the current fiscal
year and, to the extent not so used, succeeding fiscal years. Consummation of
the transactions contemplated by this Agreement or by any other agreement,
understanding or commitment (contingent or otherwise) to which the Company is a
party or by which it is otherwise bound will not have the effect of limiting the
Company's ability to use such net operating losses in full to offset such
taxable income.
(n) Other Agreements. Except as set forth in the attached Schedule 6(n), the
Company is not a party to or otherwise bound by any written or oral agreement,
instrument, commitment or restriction which individually or in the aggregate
could materially adversely affect the business, prospects, financial condition,
operations, property or affairs of the Company or any other written or oral:
(i) distributor, dealer, manufacturer's representative or sales agency agreement
which is not terminable on less than ninety (90) days' notice without cost or
other liability to the Company (except for agreements which, in the aggregate,
are not material to the business of the Company);
(ii) sales agreement which entitles any customer to a rebate or right of
set-off, to return any product to the Company after acceptance thereof or to
delay the acceptance thereof, or which varies in any material respect from the
Company's standard form agreements;
(iii) agreement with any labor union (and, to the knowledge of the Company, no
organizational effort is being made with respect to any of its employees);
(iv) agreement with any supplier containing any provision permitting any party
other than the Company to renegotiate the price or other terms, or containing
any pay-back or other similar provision, upon the occurrence of a failure by the
Company to meet its obligations under the agreement when due or the occurrence
of any other event;
(v) agreement for the future purchase of fixed assets or for the future purchase
of materials, supplies or equipment in excess of its normal operating
requirements;
(vi) agreement for the employment of any officer, employee or other person
(whether of a legally binding nature or in the nature of informal
understandings) on a full-time or consulting basis which is not terminable on
notice without cost or other liability to the Company, except normal severance
arrangements and accrued vacation pay;
(vii) bonus, pension, profit-sharing, retirement, hospitalization, insurance,
stock purchase, stock option or other plan, agreement or understanding pursuant
to which benefits are provided to any employee of the Company (other than group
insurance plans which are not self-insured and are applicable to employees
generally);
(viii) agreement relating to the borrowing of money or to the mortgaging or
pledging of, or otherwise placing a lien or security interest on, any asset of
the Company;
(ix) guaranty of any obligation for borrowed money or otherwise;
(x) voting trust or agreement, stockholders' agreement, pledge agreement,
buy-sell agreement or first refusal or pre-emptive rights agreement relating to
any securities of the Company;
(xi) agreement, or group of related agreements with the same party or any group
of affiliated parties, under which the Company has advanced or agreed to advance
money or has agreed to lease any property as lessee or lessor;
(xii) agreement or obligation (contingent or otherwise) to issue, sell or
otherwise distribute or to repurchase or otherwise acquire or retire any share
of its capital stock or any of its other equity securities;
(xiii) assignment, license or other agreement with respect to any form of
intangible property;
(xiv) agreement under which it has granted any person any registration rights,
other than as contemplated herein;
(xv) agreement under which it has limited or restricted its right to compete
with any person in any respect;
(xvi) other agreement or group of related agreements with the same party
involving more than $25,000 or continuing over a period of more than six months
from the date or dates thereof (including renewals or extensions optional with
another party), which agreement or group of agreements is not terminable by the
Company without penalty upon notice of thirty (30) days or less, but excluding
any agreement or group of agreements with a customer of the Company for the
sale, lease or rental of the Company's products or services if such agreement or
group of agreements was entered into by the Company in the ordinary course of
business; or
(xvii) other agreement, instrument, commitment, plan or arrangement, a copy of
which would be required to be filed with the Commission as an exhibit to a
registration statement on Form SB-2 (or similar form) if the Company were
registering securities under the Securities Act of 1933, as amended (the
"Securities Act").
The Company, and to the best of the Company's knowledge after due inquiry, each
other party thereto have in all material respects performed all the obligations
required to be performed by them to date (or each non-performing party has
received a valid, enforceable and irrevocable written waiver with respect to its
non-performance), have received no notice of default and are not in default
(with due notice or lapse of time or both) under any agreement, instrument,
commitment, plan or arrangement to which the Company is a party or by which it
or its property may be bound. The Company has no expectation or intention of not
fully performing all its obligations under each such agreement, instrument,
commitment, plan or arrangement, and the Company has no knowledge of any breach
or anticipated breach by the other party to any agreement, instrument,
commitment, plan or arrangement to which the Company is a party. The Company is
in full compliance with all of the terms and provisions of its Charter and
By-Laws, as amended.
(o) Loans and Advances. Except for the Debentures, the Company does not have any
outstanding loans or advances to any person and is not obligated to make any
such loans or advances, except, in each case, for advances to employees of the
Company in respect of reimbursable business expenses anticipated to be incurred
by them in connection with their performance of services for the Company.
(p) Assumptions, Guaranties, Etc. of Indebtedness of Other Persons. The Company
has not assumed, guaranteed, endorsed or otherwise become directly or
contingently liable on any indebtedness of any other person (including, without
limitation, liability by way of agreement, contingent or otherwise, to purchase,
to provide funds for payment, to supply funds to or otherwise invest in the
debtor, or otherwise to assure the creditor against loss), except for guaranties
by endorsement of negotiable instruments for deposit or collection in the
ordinary course of business.
(q) Significant Customers and Suppliers. No customer or supplier which was
significant to the Company has terminated, materially reduced or threatened to
terminate or materially reduce its purchases from or provision of products or
services to the Company, as the case may be.
(r) Governmental Approvals. Subject to the accuracy of the representations and
warranties of the Investors set forth herein, no registration or filing with, or
consent or approval of or other action by, any federal, state or other
governmental agency or instrumentality is or will be necessary for the valid
execution, delivery and performance by the Company of the Transaction Documents,
the issuance, sale and delivery of the Debentures and Warrants or the Conversion
Shares, other than (i) filings pursuant to state securities laws (all of which
filings have been made by the Company, other than those which are required to be
made after the Closing and which will be duly made on a timely basis) in
connection with the sale of the Debentures and Warrants and (ii) with respect to
the registration of the Registrable Securities covered hereby with the
Commission and filings pursuant to state securities laws.
(s) Disclosure. Neither this Agreement, nor any Schedule or Exhibit to this
Agreement, nor the SEC Documents, contains an untrue statement of a material
fact or omits a material fact necessary to make the statements contained herein
or therein not misleading. None of the statements, documents, certificates or
other items prepared or supplied by the Company with respect to the transactions
contemplated hereby contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained therein not misleading.
There is no fact which the Company has not disclosed to the Investors and their
counsel in writing and of which the Company is aware which materially and
adversely affects or could materially and adversely affect the business,
prospects, financial condition, operations, property or affairs of the Company
or any of its subsidiaries disclosed in writing either in the Company's SEC
Documents or in the business plan or other materials provided to Investors. The
financial projections and other estimates contained in the SEC Documents were
prepared by the Company based on the Company's experience in the industry and on
assumptions of fact and opinion as to future events which the Company, at the
date of the issuance of the SEC Documents, believed to be reasonable, but which
the Company cannot and does not assure or guarantee the attainment of in any
manner. As of the date hereof no facts have come to the attention of the Company
which would, in its opinion, require the Company to revise or amplify the
assumptions underlying such projections and other estimates or the conclusions
derived there from.
(t) Offering of the Debentures and Warrants. Neither the Company nor any person
authorized or employed by the Company as agent, broker, dealer or otherwise in
connection with the offering or sale of the Debentures and Warrants or any
security of the Company similar to the Debentures and Warrants has offered the
Debentures and Warrants or any such similar security for sale to, or solicited
any offer to buy the Debentures and Warrants or any such similar security from,
or otherwise approached or negotiated with respect thereto with, any person or
persons, and neither the Company nor any person acting on its behalf has taken
or will take any other action (including, without limitation, any offer,
issuance or sale of any security of the Company under circumstances which might
require the integration of such security with the Debentures and Warrants under
the Securities Act or the rules and regulations of the Commission thereunder),
in either case so as to subject the offering, issuance or sale of the Debentures
and Warrants to the registration provisions of the Securities Act.
(u) Brokers. Except as disclosed on Schedule 6(u), the Company has no contract,
arrangement or understanding with any broker, finder or similar agent with
respect to the transactions contemplated by this Agreement.
(v) Officers. Set forth in Schedule 6(v) is a list of the names of the officers
of the Company, together with the title or job classification of each such
person and the total compensation paid to each such person by the Company in
2001. None of such persons has an employment agreement or understanding, whether
oral or written, with the Company, which is not terminable on notice by the
Company without cost or other liability to the Company.
(w) Transactions With Affiliates. No director, officer, employee or stockholder
of the Company, or member of the family of any such person, or any corporation,
partnership, trust or other entity in which any such person, or any member of
the family of any such person, has a substantial interest or is an officer,
director, trustee, partner or holder of more than 5% of the outstanding capital
stock thereof, is a party to any transaction with the Company, including any
contract, agreement or other arrangement providing for the employment of,
furnishing of services by, rental of real or personal property from or otherwise
requiring payments to any such person or firm, other than employment-at-will
arrangements in the ordinary course of business.
(x) Employees. No officer or key employee of the Company has advised the Company
(orally or in writing) that he intends to terminate employment with the Company.
The Company has complied in all material respects with all applicable laws
relating to the employment of labor, including provisions relating to wages,
hours, equal opportunity, collective bargaining and the payment of Social
Security and other taxes.
(y) Benefit Plans.
(i) The Company does not currently, nor at any time in the past did it,
maintain, administer or contribute to any Employee Plan (as hereinafter defined)
that covers any employee of the Company.
(ii) Schedule 6(y)(ii) includes a list of each benefit arrangement of the
Company, copies or descriptions of all of which have been made available or
furnished previously to the Investor.
(iii) Each Benefit Plan has been maintained in substantial compliance with its
terms and with the requirements prescribed by any and all statutes, orders,
rules and regulations which are applicable to such Benefit Plan.
(iv) There is no contract, agreement, plan or arrangement covering any employee
or former employee of the Company that, individually or collectively, could give
rise to the payment of any amount that would not be deductible pursuant to the
terms of Section 280G of the Code.
(v) No employee of the Company will become entitled to any bonus, retirement,
severance or similar benefit or enhanced benefit solely as a result of the
transactions contemplated hereby.
(vi) "Benefit Arrangement" means each employment, severance or other similar
contract, arrangement or policy (written or oral) and each plan or arrangement
(written or oral) providing for severance benefits, insurance coverage
(including any self-insured arrangements), workers' compensation, disability
benefits, supplemental unemployment benefits, vacation benefits, retirement
benefits or for deferred compensation, profit-sharing, bonuses, stock options,
stock appreciation rights or other forms of incentive compensation or
post-retirement insurance, compensation or benefits which (i) is not an Employee
Plan and (ii) covers any employee or former employee of the Company.
(vii) "Employee Plan" means each "employee benefit plan," as such term is
defined in Section 3(3) of ERISA, that (A)(i) is subject to any provision of
ERISA and (ii) is maintained or contributed to by the Company, or (B)(i) is
subject to any provision of Title IV of ERISA and (ii) is maintained or
contributed to by any of the Company's ERISA Affiliates.
(z) Foreign Corrupt Practices Act. The Company has not taken any action which
would cause it to be in violation of the Foreign Corrupt Practices Act of 1977,
as amended, or any rules and regulations thereunder. To the best of the
Company's knowledge after due inquiry, there is not now, and there has never
been, any employment by the Company of, or beneficial ownership in the Company
by, any governmental or political official in any country in the world.
(aa) Federal Reserve Regulations. The Company is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin securities
(within the meaning of Regulation G of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of the Registrable Securities will
be used to purchase or carry any margin security or to extend credit to others
for the purpose of purchasing or carrying any margin security or in any other
manner which would involve a violation of any of the regulations of the Board of
Governors of the Federal Reserve System.
(bb) Legends. The Investor understands that the Debentures and the Warrants and,
until such time as the Registrable Securities (collectively, the "Securities")
have been registered under the Securities Act as contemplated by the
Registration Rights Agreement or otherwise may be sold pursuant to Rule 144 or
Regulation S (if applicable) without any restriction as to the number of
securities as of a particular date that can then be immediately sold, the
Securities may bear a restrictive legend in substantially the following form
(and a stop-transfer order may be placed against transfer of the certificates
for such Securities):
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities may be sold,
transferred or assigned in the absence of an effective registration
statement for the securities under said Act, or an opinion of counsel, in
form, substance and scope customary for opinions of counsel in comparable
transactions, that registration is not requiredunder said Act or unless
sold pursuant to Rule 144 or Regulation S under said Act.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Securities upon which it is
stamped, if, unless otherwise required by applicable state securities laws, (a)
such Securities are registered for sale under an effective registration
statement filed under the Securities Act or otherwise may be sold pursuant to
Rule 144 or Regulation S without any restriction as to the number of securities
as of a particular date that can then be immediately sold, or (b) such holder
provides the Company with an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions, to the effect that
a public sale or transfer of such Securities may be made without registration
under the Securities Act, which opinion shall be accepted by the Company so that
the sale or transfer is effected or (c) such holder provides the Company with
reasonable assurances that such Securities can be sold pursuant to Rule 144 or
Regulation S. The Investors agree to sell all Securities, including those
represented by a certificate(s) from which the legend has been removed, in
compliance with applicable prospectus delivery requirements, if any.
(cc) No Integrated Offering. Neither the Company, nor any of its affiliates, nor
any person acting on its or their behalf, has directly or indirectly made any
offers or sales in any security or solicited any offers to buy any securities
under circumstances that would require registration under the Securities Act of
the issuance of the Securities to the Investors. The issuance of the Securities
to the Investors will not be integrated with any other issuance of the Company's
securities (past, current or future) for purpose of any stockholder approval
provisions applicable to the Company or its securities.
(dd) Solvency. The Company (after giving effect to the transactions contemplated
by this Agreement) is solvent (i.e., its assets have a fair market value in
excess of the amount required to pay its probable liabilities on its existing
debts as they become absolute and matured) and currently the Company has no
information that would lead it to reasonably conclude that the Company would
not, after giving effect to the transaction contemplated by this Agreement, have
the ability to, nor does it intend to take any action that would impair its
ability to, pay its debts from time to time incurred in connection therewith as
such debts mature. The Company did not receive a qualified opinion from its
auditors with respect to its most recent fiscal year end and, after giving
effect to the transactions contemplated by this Agreement, does not anticipate
or know of any basis upon which its auditors might issue a qualified opinion in
respect of its current fiscal year.
(ee) Investment Company. The Company is not, and upon the issuance and sale of
the Securities as contemplated by this Agreement will not be an "investment
company" required to be registered under the Investment Company Act of 1940 as
amended (an "Investment Company"). The Company is not controlled by an
Investment Company.
7. Covenants of the Company.
(a) Reservation of Shares. The Company agrees to use its best efforts to reserve
an adequate number of Conversion Shares for conversion of the Debentures and
exercise of the Warrants, free of any preemptive rights of any present or future
stockholders of the Company, whether or not such securities are currently
authorized.
(b) Additional Indebtedness. The Company agrees not to incur any additional
indebtedness in excess of $25,000, individually or in the aggregate, without the
written consent of the Investors unless such indebtedness is used solely for the
purpose of satisfying the outstanding principal, accumulated interest and
penalties due on the Debentures.
(c) Form D; Blue Sky Laws. The Company agrees to file a Form D with respect to
the Securities as required under Regulation D and to provide a copy thereof to
the Investors promptly after such filing. The Company shall, on or before the
Closing, take such action as the Company shall reasonably determine is necessary
to qualify the Securities for sale to the Investor at the applicable closing
pursuant to this Agreement under applicable securities or "blue sky" laws of the
states of the United States (or to obtain an exemption from such qualification),
and shall provide evidence of any such action so taken to the Investor on or
prior to the Closing.
(d) Reporting Status; Eligibility to Use Form S-2, S-3, SB-2 or Form S-1. The
Company's Common Stock is registered under Section 12(g) of the 1934 Act. The
Company represents and warrants that it meets the requirements for the use of
Form SB-2 (or if Company is not eligible for the use of Form SB-2 as of the
Filing Date (as defined in the Registration Rights Agreement), the Company may
use the form of registration for which it is eligible at that time) for
registration of the sale by the Investors of the Registrable Securities (as
defined in the Registration Rights Agreement). So long as the Investors
beneficially own any of the Securities, the Company shall timely file all
reports required to be filed with the Commission pursuant to the 1934 Act, and
the Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would permit such termination. The Company further agrees hereinafter to file
all reports required to be filed by the Company with the Commission in a timely
manner so as to become eligible, and thereafter to maintain its eligibility, for
the use of Form S-3. The Company shall issue a press release describing the
material terms of the transaction contemplated hereby as soon as practicable
following the Closing, but in no event more than two (2) business days after the
Closing, which press release shall be subject to prior review by the Investors.
The Company agrees that such press release shall not disclose the names of the
Investors unless expressly consented to in writing by the Investors or unless
required by applicable law or regulation, and then only to the extent of such
requirement. For the purposes of this section, a report shall be deemed "timely"
filed if it is filed on the date due, or within any additional time period
provided for in Rule 12b-25 of the rules and regulations promulgated under the
Securities Exchange Act of 1934, as amended.
(e) Use of Proceeds. The Company shall use the proceeds from the sale of the
Debentures and the Warrants for working capital and shall not, directly or
indirectly, use such proceeds for any loan to or investment in any other
corporation, partnership, enterprise or other person.
(f) Future Offerings. Subject to the exceptions described below, the Company
will not conduct any equity financing (including debt with an equity component)
(individually a "Future Offering" and, collectively, "Future Offerings") for six
months after the date of Closing, and thereafter during the period beginning six
months after the date of the Closing and ending on the earlier of (y) the first
date that none of the Debentures are outstanding; or (z) two (2) years after the
Effective Date, unless it shall have first delivered to Investors, at least ten
(10) business days prior to the closing of such a Future Offering, written
notice describing the proposed Future Offering, including the terms and
conditions thereof (the "Term Sheet"), and providing the Investors an option
during the five (5) business day period following delivery of the Term Sheet to
purchase the securities being offered in the Future Offering on the same terms
as contemplated by such Future Offering, following which initial five (5) day
period, the Investors' option shall expire (the limitations referred to in this
sentence and the preceding sentence are collectively referred to as the "Capital
Raising Limitations"). Following delivery of notice by the Investors to the
Company that Investors wish to exercise its option to purchase the securities
being offered in the Future Offering, the Company shall provide definitive
documentation (the "Offering Documents") to the Investors and the Investors
shall be provided five (5) days from delivery of the Offering Documents to the
Investors to execute the documents and close such Future Offering with the
Company. Following this second five (5) business day period, the Investor's
option to purchase the Future Offering shall expire. The second five (5)
business day period shall apply to successive amendments to the terms and
conditions of any proposed Future Offering. The Capital Raising Limitations
shall not apply to any transaction involving (i) issuances of securities in a
firm commitment underwritten public offering yielding gross proceeds greater
than $10,000,000 (excluding a continuous offering pursuant to Rule 415 under the
Securities Act), (ii) issuances of securities as consideration for a merger,
consolidation or purchase of assets, or in connection with any strategic
partnership or joint venture (the primary purpose of which is not to raise
equity capital), or in connection with the disposition or acquisition of a
business, product or license by the Company, or (iii) the issuance of shares to
consultants (other than if registered or to be registered on Form S-8) in the
reasonable judgment of the Company's management pursuant to bona fide consulting
arrangements with the Company. Except as provided on Schedule 7(f), the Capital
Raising Limitations also shall not apply to the issuance of securities upon
exercise or conversion of the Company's options, warrants or other convertible
securities outstanding as of the date hereof or to the grant of additional
options or warrants, or the issuance of additional securities, under any Company
stock option or restricted stock plan approved by the stockholders of the
Company. In the event that the Company completes a Future Offering on terms more
favorable to another investor than the transaction contemplated hereby, the
terms of the Debentures and the Warrants will be amended to reflect such more
favorable terms.
(g) Listing. The Company shall promptly secure the listing of the Registrable
Securities upon each national securities exchange or automated quotation system,
if any, upon which shares of the Company's Common Stock are then listed (subject
to official notice of issuance) and, so long as the Investors own any of the
Registrable Securities, shall maintain, so long as any other shares of Common
Stock shall be so listed, such listing of all Registrable Securities from time
to time issuable upon conversion of the Debentures or exercise of the Warrants.
The Company will obtain and, so long as any Investor owns any of the Registrable
Securities, maintain the listing and trading of its Common Stock on the OTCBB,
the Nasdaq National Market ("Nasdaq"), the Nasdaq SmallCap Market ("Nasdaq
Smallcap"), the New York Stock Exchange ("NYSE"), or the American Stock Exchange
("AMEX") and will comply in all respects with the Company's reporting, filing
and other obligations under the bylaws or rules of the National Association of
Securities Dealers ("NASD") and such exchanges, as applicable. The Company shall
promptly provide to the Investors copies of any notices it receives from the
OTCBB and any other exchanges or quotation systems on which the Common Stock is
then listed regarding the continued eligibility of the Common Stock for listing
on such exchanges and quotation systems.
(h) Corporation Existence. So long as the Investors beneficially own any
Debentures, Warrants or Registrable Securities, the Company shall maintain its
corporate existence and shall not sell all or substantially all of the Company's
assets, except in the event of a merger or consolidation or sale of all or
substantially all of the Company's assets, where the surviving or successor
entity in such transaction (i) assumes the Company's obligations hereunder and
under the agreements and instruments entered into in connection herewith and
(ii) is a publicly traded corporation whose Common Stock is listed for trading
on the OTCBB, Nasdaq, Nasdaq SmallCap, NYSE or AMEX.
(i) Transfer Instructions. The Company shall issue irrevocable instructions to
its transfer agent to issue certificates, registered in the name of the
Investors or its nominee, for the Registrable Securities in such amounts as
specified from time to time by the Investors to the Company upon conversion of
the Debentures or exercise of the Warrants in accordance with the terms thereof
(the "Irrevocable Transfer Agent Instructions"). Prior to registration of the
Registrable Securities under the Securities Act or the date on which the
Registrable Securities may be sold pursuant to Rule 144 or Regulation S without
any restriction as to the number of Registrable Securities as of a particular
date that can then be immediately sold, all such certificates shall bear the
restrictive legend specified in Section 6(bb) of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 7, will be given by the Company to its
transfer agent and that the Registrable Securities shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. Nothing in
this Section shall affect in any way the Investors' obligations and agreement
set forth in Section 7 hereof to comply with all applicable prospectus delivery
requirements, if any, upon re-sale of the Registrable Securities. If the
Investors provide the Company with (i) an opinion of counsel in form substance
and scope customary for opinions in comparable transactions, to the effect that
a public sale or transfer of such Registrable Securities may be made without
registration under the Securities Act and such sale or transfer is effected, or
(ii) the Investors provide reasonable assurances that the Registrable Securities
can be sold pursuant to Rule 144 or Regulation S, the Company shall permit the
transfer and promptly instruct its transfer agent to issue one or more
certificates, free from restrictive legend, in such name and in such
denominations as specified by the Investors. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to the
Investors, by vitiating the intent and purpose of the transactions contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 7 may be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the provisions of
this Section, that the Investors shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate transfer, without the necessity of showing economic loss and without
any bond or other security being required.
The Irrevocable Transfer Agent Instructions, in form and substance
satisfactory to the Investors, shall have been delivered to and acknowledged in
writing by the Company's Transfer Agent.
8. Character of the Warrants. The Company and the Investors, having adverse
interests and as a result of arm's length bargaining, agree that (i) none of the
Investors nor any of their affiliates has rendered or has agreed to render any
services to the Company in connection with this Agreement or the issuance of the
Debentures and Warrants; and (ii) the Warrants, when issued, shall not be issued
as compensation.
9. Representations and Warranties of the Investors. Each of the Investors hereby
severally represents and warrants to the Company that:
(a) The Investors have full power and authority and have each taken all required
action necessary to permit them to execute and deliver and to carry out the
terms of this Agreement and all other documents or instruments required hereby.
(b) Each of the Investor's present intention is to acquire its Securities for
the purpose of investment and not with a view to distribution. Each of the
Investors agrees that it will not sell or transfer any of its Securities without
registration under applicable federal and state securities laws, or the
availability of exemptions therefrom. Each of the Investors agrees that the
documents evidencing the Securities will each bear a restrictive legend stating
that the Securities represented thereby have not been registered under
applicable federal and state securities laws and referring to restrictions on
their transferability and sale.
(c) Each of the Investors acknowledges that it currently has, and had
immediately prior to its receipt of the offer of sale from the Company, such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of this investment. During the course of this
transaction and prior to the sale to the Investors of the Debentures and the
Warrants hereunder, the Investors acknowledge that they each had the opportunity
to ask questions of, and receive answers from, management of the Company
concerning the terms and conditions of this investment and to obtain any
additional information of the same kind that is specified in Rule 502 of
Regulation D of the Securities Act of 1933, as amended, or that is necessary to
verify the accuracy of the other information obtained. The Investors acknowledge
that they each have received such information as they deem necessary to enable
them to make their investment decision.
(d) The Investor acknowledges that the Investor, or the Investor's attorney,
accountant, or adviser(s), has/have had a reasonable opportunity to inspect all
documents and records pertaining to this investment.
(e) The security interest granted to Investors in connection with the issuance
of the Debentures will be a first priority security interest in and lien on the
Collateral (as defined in the Debentures).
(f) The Investor understands that the offering and sale of the Debentures and
Warrants is intended to be exempt from registration under the Securities Act by
virtue of Section 4(2) thereof and the provisions of Regulation D promulgated
thereunder.
(g) The Investor and/or the Investor's adviser(s) has/have had the opportunity
to review the SEC Documents, the Transaction Documents and all other documents
furnished to Investor in connection with this transaction (collectively, the
"Offering Documents").
(h) In making a decision to invest in the Securities, the Investor has not
relied on any information other than information contained in the Offering
Documents.
(i) The Investor is not subscribing for the Securities as a result of or
subsequent to any advertisement, article, notice or other communication
published in any newspaper, magazine, or similar media or broadcast over
television or radio, or presented at any seminar or meeting, or any solicitation
of a subscription by a person other than a representative of the Company.
(j) If the Investor is a natural person, the Investor has reached the age of
majority in the jurisdiction in which the Investor resides; the Investor has
adequate means of providing for the Investor's current financial needs and
contingencies, is able to bear the substantial economic risks of an investment
in the Securities for an indefinite period of time, has no need for liquidity in
such investment, and, at the present time, could afford a complete loss of such
investment.
(k) The Investor is not relying on the Company or any agent of the Company with
respect to any legal, tax or economic advice related to an investment in the
Securities.
(l) The Investor recognizes that investment in the Securities involves
substantial risks, including the risk of loss of the entire amount of such
investment, and has taken full cognizance of and understands all of the risks
related to the purchase of the Securities.
(m) The Investor's overall commitment to investments which are not readily
marketable is reasonable in relation to the Investor's net worth.
(n) The Investor is an "accredited investor" as that term is defined in Rule
501(a) of Regulation D under the Securities Act.
(o) The Investor understands that the Securities are being offered and sold in
reliance on a transactional exemption from the registration requirements of
Federal and state securities laws and that the Company is relying upon the truth
and accuracy of the representations, warranties, agreements, acknowledgements
and understandings of the Investor set forth in this Agreement in order to
determine the applicability of such exemptions and the suitability of the
Investor to acquire the Securities.
(p) The Investor hereby agrees to provide such information and to execute and
deliver such documents as the Company may deem reasonably appropriate with
regard to the Investor's suitability or otherwise in connection with this
Agreement.
(q) The execution, delivery and performance of this Agreement by the Investor
(i) will not constitute a default under or conflict with any agreement or
instrument to which the Investor is a party or by which it or its assets are
bound; (ii) will not conflict with or violate any order, judgment, decree,
statute, ordinance or regulation applicable to the Investor (including, without
limitation, any applicable laws relating to permissible legal investments); and
(iii) does not require the consent of any person or entity, other than those
that will have been obtained prior to the Closing or Second Closing, as the case
may be. This Agreement has been duly authorized, executed and delivered by the
Investor and constitutes the valid and binding agreement of the Investor
enforceable against it in accordance with its terms.
(r) The Investor has not retained, or otherwise entered into any agreement or
understanding with, any broker or finder in connection with the purchase of the
Securities by the Investor, and the Company will not incur any liability for any
fee, commission or other compensation on account of any such retention,
agreement or understanding by the Investor.
(s) The Investor understands, acknowledges and agrees that:
(i) In making an investment decision, the Investor has relied on the Investor's
own examination of the Company and the disclosure in the Offering Documents,
including the merits and risks involved. The Securities have not been
recommended by any federal or state securities commission or regulatory
authority. Furthermore, the foregoing authorities have not confirmed the
accuracy or determined the adequacy of the Offering Documents or this Agreement.
(ii) The Investor, if executing this Agreement in a representative or fiduciary
capacity, has all requisite power and authority to execute and deliver this
Agreement in such capacity and on behalf of the subscribing individual, ward,
partnership, trust, estate, corporation, or other entity for whom the Investor
is executing this Agreement, and such individual, ward, partnership, trust,
estate, corporation, or other entity has all requisite power and authority to
enter into this Agreement and make an investment in the Securities.
10. Conditions To The Obligations Of The Investors. The obligation of each
Investor to purchase and pay for the Debentures and Warrants being purchased by
it at the Closing or the Second Closing, as the case may be, is, at its option,
subject to the satisfaction, on or before such closing date, of the following
conditions:
(a) Opinion of Company's Counsel. The Investors shall have received from counsel
for the Company, an opinion dated the date of the Closing or the Second Closing,
as the case may be, in form and scope satisfactory to the Investors and their
counsel, to the effect that:
(i) The Company is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation. The Company is
duly licensed or qualified to transact business as a foreign corporation and is
in good standing in New Mexico and Tennessee. The Company has the corporate
power and authority to own and hold its properties and to carry on its business
as currently conducted and as proposed to be conducted. The Company has the
corporate power and authority to execute, deliver and perform all of the
Transaction Documents, to issue, sell and deliver the Debentures and Warrants
and, upon conversion thereof, to issue and deliver the Conversion Shares.
(ii) All of the Transaction Documents have been duly authorized, executed and
delivered by the Company and constitute the legal, valid and binding obligations
of the Company, enforceable in accordance with their respective terms (subject,
as to enforcement of remedies, to the discretion of courts in awarding equitable
relief and to applicable bankruptcy, reorganization, insolvency, moratorium and
similar laws affecting the rights of creditors generally), except that such
counsel need not express any opinion as to the validity or enforceability of the
indemnification provisions of the Registration Rights Agreement.
(iii) The execution and delivery by the Company of the Transaction Documents,
the performance by the Company of its obligations thereunder, the issuance, sale
and delivery of the Debentures and the Warrants and, upon conversion thereof,
the issuance and delivery of the Conversion Shares, will not violate any
provision of law, the Charter or by-laws, as amended, of the Company, any
indenture, agreement or other instrument listed as an exhibit to the opinion of
Company's counsel or conflict with, result in a breach of or constitute (with
due notice or lapse of time or both) a default under any such indenture,
agreement or other instrument, or result in the creation or imposition of any
lien, charge, restriction, claim or encumbrance of any nature whatsoever upon
any of the properties or assets of the Company. In rendering the foregoing
opinion, such counsel may assume full disclosure to the Investors of all
material facts and, with respect to performance by the Company of its
obligations under the Registration Rights Agreement, may assume compliance by
the Company at such time with the registration requirements of the Securities
Act and with applicable state securities laws and may disclaim any opinion as to
the validity or enforceability of the indemnification provisions of the
Registration Rights Agreement.
(iv) The authorized capital stock of the Company consists of 20,000,000 shares
of preferred stock, no par value, and 100,000,000 shares of common stock, par
value $.001. Immediately prior to the Closing, 18,857,675 shares of Common Stock
will be validly issued, fully paid and nonassessable with no personal liability
attaching to the ownership thereof and no (-0-) shares of preferred stock will
have been issued. Immediately prior to the Closing, the stockholders of record
and holders of record of subscriptions, warrants, options, convertible
securities, and other rights (contingent or other) to purchase or otherwise
acquire equity securities of the Company, and the number of shares of Common
Stock and the number of such subscriptions, warrants, options, convertible
securities, and other such rights held by each, will be as set forth in Schedule
6(d). The designations, powers, preferences, rights, qualifications, limitations
and restrictions in respect of each class or series of authorized capital stock
of the Company are as set forth in the Charter, and all such designations,
powers, preferences, rights, qualifications, limitations and restrictions are
valid, binding and enforceable and in accordance with all applicable laws
(subject, as to enforcement, to the discretion of courts in awarding equitable
relief and to applicable bankruptcy, reorganization, insolvency, moratorium and
similar laws affecting the rights of creditors generally). Except as set forth
in Schedule 6(d), to the knowledge of such counsel, (1) immediately prior to the
Closing no subscription, warrant, option, convertible security, or other right
(contingent or other) to purchase or acquire equity securities of the Company
will be authorized or outstanding and (2) there will be no commitment by the
Company to issue shares, subscriptions, warrants, options, convertible
securities, or other such rights or to distribute to holders of any of its
equity securities any evidence of indebtedness or asset. Except as set forth in
Schedule 6(d) or as provided for in the Charter, to the knowledge of such
counsel, the Company has no obligation (contingent or other) to purchase, redeem
or otherwise acquire any of its equity securities or any interest therein or to
pay any dividend or make any other distribution in respect thereof.
(v) The Securities have been duly authorized. The issuance, sale and delivery of
the Debentures and Warrants and the issuance and delivery of the Conversion
Shares upon conversion of the Debentures or the exercise of the Warrants have
been duly authorized by all required corporate action; the Debentures and
Warrants have been validly issued, are fully paid and nonassessable with no
personal liability attaching to the ownership thereof and, to the knowledge of
such counsel, are free and clear of all liens, charges, restrictions, claims and
encumbrances imposed by or through the Company; and the Conversion Shares have
been duly reserved for issuance upon conversion of the Debentures or the
exercise of the Warrants and, when so issued, will be validly issued, fully paid
and nonassessable with no personal liability attaching to the ownership thereof
and, to the knowledge of such counsel, will be free and clear of all liens,
charges, restrictions, claims and encumbrances imposed by or through the
Company. Neither the issuance, sale or delivery of the Debentures and Warrants
nor the issuance or delivery of the Conversion Shares is subject to any
preemptive right of stockholders of the Company arising under law or the Charter
or by-laws of the Company, each as amended, or, to the knowledge of such
counsel, to any contractual right of first refusal or other right in favor of
any person.
(vi) Except as described in Schedule 6(g), to the knowledge of such counsel,
there is no (A) action, suit, claim, proceeding or investigation pending or
threatened against or affecting the Company or any of its subsidiaries, at law
or in equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, (B) arbitration proceeding relating to the Company or any
of its subsidiaries pending under collective bargaining agreements or (C)
governmental inquiry pending or threatened against or affecting the Company or
any of its subsidiaries (including, without limitation, any inquiry as to the
qualification of the Company or any of its subsidiaries to hold or receive any
license or permit). To the knowledge of such counsel, neither the Company nor
any of its subsidiaries is in default with respect to any order, writ,
injunction or decree known to such counsel of any court or of any federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign.
(vii) Assuming the accuracy of the representations and warranties of the
Investors set forth herein, no registration or filing with, and no consent or
approval of, or other action by any federal, state or other governmental agency
or instrumentality is or will be necessary for the valid execution, delivery and
performance by the Company of the Transaction Documents, the issuance, sale and
delivery of the Securities, other than filings pursuant to state securities laws
(all of which filings, other than those which are required to be made after the
Closing, have been made by the Company). In rendering the foregoing opinion with
respect to performance by the Company of its obligations under the Registration
Rights Agreement, such counsel may assume compliance by the Company at such time
with the registration requirements of the Securities Act and with applicable
state securities laws and may disclaim any opinion as to the validity or
enforceability of the indemnification provisions of the Registration Rights
Agreement.
(viii) All of the Company's outstanding capital stock has been issued in
compliance with the registration requirements of the Securities Act and all
applicable state securities laws.
(ix) The issuance and sale of the Debentures and Warrants do not, and the shares
of the Conversion Shares will not, require registration under the Securities Act
or qualification under any state securities laws.
(x) Except for taxes and assessments that are being contested in good faith, the
Company has paid all taxes.
(xi) Except as disclosed on Schedule 6(l), the Company has filed all reports and
other documents required to be filed by it with the Securities and Exchange
Commission pursuant to the reporting requirements of the 1934 Act.
(xii) The security interest granted to Investors in connection with the issuance
of the Debentures will be a first priority security interest in and lien on the
Collateral (as defined in the Debentures).
(b) Representations and Warranties to be True and Correct. The representations
and warranties contained herein shall be true, complete and correct on and as of
the Closing or the Second Closing, as the case may be, with the same effect as
though such representations and warranties had been made on and as of such date,
and the President and Chief Financial Officer of the Company shall have
certified to such effect to the Investors in writing.
(c) Performance. The Company shall have performed and complied with all
agreements contained herein required to be performed or complied with by it
prior to or at the Closing or the Second Closing, as the case may be, and the
President and Chief Financial Officer of the Company shall have certified to the
Investors in writing to such effect and to the further effect that all of the
conditions set forth in this Section 10 have been satisfied.
(d) All Proceedings to be Satisfactory. All corporate and other proceedings to
be taken by the Company in connection with the transactions contemplated hereby
and all documents incident thereto shall be satisfactory in form and substance
to the Investors and their counsel, and the Investors and their counsel shall
have received all such counter-part originals or certified or other copies of
such documents as they reasonably may request.
(e) Supporting Documents. Bondy & Schloss, LLP, on behalf of the Investors,
shall have received copies of the following documents:
(i) (A) the Charter, certified as of a recent date by the Secretary of State of
the State of Colorado, and (B) a certificate of said Secretary dated as of a
recent date as to the due incorporation and good standing of the Company, the
payment of all excise taxes by the Company and listing all documents of the
Company on file with said Secretary;
(ii) a certificate of the Secretary or an Assistant Secretary of the Company,
dated the date of the Closing Date and the Second Closing, as the case may be,
and certifying: (A) that attached thereto is a true and complete copy of the
by-laws of the Company as in effect on the date of such certification; (B) that
attached thereto is a true and complete copy of the resolutions adopted by the
Board of Directors or the stockholders of the Company (if necessary) authorizing
the execution, delivery and performance of the Transaction Documents, the
issuance, sale and delivery of Debentures and Warrants and the reservation,
issuance and delivery of the Conversion Shares, and that all such resolutions
are in full force and effect and are all the resolutions adopted in connection
with the transactions contemplated by the Transaction Documents; (C) that the
Charter has not been amended since the date of the last amendment referred to in
the certificate delivered pursuant to clause (B) above; and (D) to the
incumbency and specimen signature of each officer of the Company executing any
of the Transaction Documents, the stock certificates representing the Debentures
and Warrants and any certificate or instrument furnished pursuant hereto, and a
certification by another officer of the Company as to the incumbency and
signature of the officer signing the certificate referred to in this clause
(ii); and
(iii) such additional supporting documents and other information with respect to
the operations and affairs of the Company as Bondy & Schloss, LLP, as counsel
for the Investors, reasonably may request.
(f) Registration Rights Agreement. The Company shall have executed and delivered
the Registration Rights Agreement.
(g) Security Agreement; Financing Statements. On the dates of each of the
Closing and the Second Closing, as the case may be, the Company shall have
executed and delivered the Security Agreement (as defined in the Debentures) and
an appropriate number of financing statements on Form UCC-1 to be filed in each
jurisdiction necessary for the Investors to perfect their security interest in
the Collateral.
(h) Preemptive Rights. All stockholders of the Company having any preemptive,
first refusal or other rights with respect to the issuance of the Debentures and
Warrants or the Conversion Shares shall have irrevocably waived the same in
writing.
(i) Fees of Investors' Counsel. The Company shall have paid in accordance with
Section 15 the fees and disbursements of Bondy & Schloss, LLP, Investors'
counsel, invoiced at the Closing.
All such documents shall be satisfactory in form and substance to the Investors
and their counsel.
11. Notices. Any notices required or permitted to be given under the terms of
this Agreement shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and shall be effective five days
after being placed in the mail, if mailed by regular United States mail, or upon
receipt, if delivered personally or by courier (including a recognized overnight
delivery service) or by facsimile, in each case addressed to a party. The
addresses for such communications shall be:
If to the Company:
Americana Publishing, Inc.
303 San Mateo NE
Suite 104A
Albuquerque, NM 87108
Attention: George Lovato, Jr.
Telephone: 505.265.6121
Facsimile: 505.265.0632
Email: george@americanabooks.com
With copy to:
Pollett and Richardson
10900 Wilshire Blvd., Suite 500
Los Angeles, CA 90024
Attention: Eric Richardson, Esq.
Telephone: 310.208.1182
Facsimile: 310.208.1154
Email: erichardson@pollet.com
If to the Investors: To the address set forth immediately below the
Investors' name on the signature pages hereto.
With copy to:
Bondy & Schloss, LLP
60 East 42nd Street, 37th Floor
New York, NY 10165
Attention: Jeffrey A. Rinde, Esq.
Telephone: (212) 661-3535
Facsimile: (212) 972-1677
Email: Jrinde@BSchloss.com
Each party shall provide notice to the other party of any change in address.
12. Publicity. The Company and the Investors shall have right to review a
reasonable period of time before issuance of any press releases, the Commission,
OTCBB or NASD filings, or any other public statements with respect to the
transactions contemplated hereby; provided, however, that the Company shall be
entitled, without the prior approval of the Investor, to make any press release
or filings with the Commission, OTCBB (or other applicable trading market) or
NASD filings with respect to such transactions as is required by applicable law
and regulations (although the Investors shall be consulted by the Company in
connection with any such press release prior to its release and shall be
provided with a copy thereof and be given an opportunity to comment thereon).
13. Amendments, Waivers, Etc. This Agreement, the Debentures and the Warrants
may be amended as to all Investors with the unanimous written consent of holders
of Debentures.
14. Choice of Law; Consent to Jurisdiction. It is the intention of the parties
that the laws of the State of New York should govern the enforceability and
validity of this Agreement, the construction of its terms and the interpretation
of the rights and duties of the parties pursuant to the relationships among them
contemplated herein, whether or not such rights and duties arise directly under
this Agreement. The Company and the Investors hereby consent to the jurisdiction
of the courts of the State of New York, County of New York, and the United
States District Court situated therein, in connection with any action concerning
the transactions contemplated in the Agreement.
15. Legal Fees. The Company agrees to pay to Bondy & Schloss, LLP, counsel to
the Investors, their fees and out-of-pocket expenses with respect to the
transactions contemplated herein, of which $20,000 shall be payable at the
Closing and thereafter, any remaining amounts shall be payable on demand.
16. Parties in Interest. The terms and provisions of this Agreement shall be
binding upon and inure to the benefit of, and be enforceable by, the respective
successors and assigns of the parties hereto. This Agreement shall not run to
the benefit of or be enforceable by any person other than a party to this
Agreement and its successors and assigns.
17. Headings. The headings of the sections and paragraphs of this Agreement have
been inserted for convenience and reference only and do not constitute a part of
this Agreement.
18. Counterparts. This Agreement may be executed in any number of counterparts
and by different parties hereto in separate counterparts, with the same effect
as if all parties had signed the same document. All such counterparts shall be
deemed an original, shall be construed together and shall constitute one and the
same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
COMPANY:
AMERICANA PUBLISHING, INC.
By: ________________________________
Title:________________________________
INVESTOR:
_______________________________________
Name and Title
Schedule 2
Schedule of Investors
---------------------------------------- -------------------------------------- ----------------------------------------
Name of Investor First Tranche Second Tranche
Purchase Price Purchase Price
---------------------------------------- -------------------------------------- ----------------------------------------
---------------------------------------- -------------------------------------- ----------------------------------------
Gulf Coast Advisors, Ltd. $25,000 $25,000
---------------------------------------- -------------------------------------- ----------------------------------------
---------------------------------------- -------------------------------------- ----------------------------------------
BG Holdings, LLC $75,000 $75,000
---------------------------------------- -------------------------------------- ----------------------------------------
---------------------------------------- -------------------------------------- ----------------------------------------
---------------------------------------- -------------------------------------- ----------------------------------------
---------------------------------------- -------------------------------------- ----------------------------------------
---------------------------------------- -------------------------------------- ----------------------------------------
---------------------------------------- -------------------------------------- ----------------------------------------
---------------------------------------- -------------------------------------- ----------------------------------------
---------------------------------------- -------------------------------------- ----------------------------------------
---------------------------------------- -------------------------------------- ----------------------------------------
---------------------------------------- -------------------------------------- ----------------------------------------
---------------------------------------- -------------------------------------- ----------------------------------------
---------------------------------------- -------------------------------------- ----------------------------------------
---------------------------------------- -------------------------------------- ----------------------------------------
---------------------------------------- -------------------------------------- ----------------------------------------
Total: $100,000 $100,000
---------------------------------------- -------------------------------------- ----------------------------------------
Schedule 6
Exceptions to Representations and Warranties
Schedule 7(f)
Exceptions to Capital Raising Limitations
List of Exhibits
Exhibit A - Form of Debenture
Exhibit B - Form of Class A Warrant
Exhibit C - Form of Class B Warrant
Exhibit D - Form of Registration Rights Agreement
EXHIBIT A
12% SENIOR SECURED CONVERTIBLE DEBENTURE
exhibit B
Form of Class A Warrant
exhibit C
Form of Class B Warrant
exhibit D
registration rights agreement