EXIBIT 10.10 Form of Securities Purchase and Loan Agreement dated September 24, 2007

Form of Securities Purchase and Loan Agreement dated September 24, 2007

 

 

THIS SECURITIES PURCHASE AND LOAN AGREEMENT, dated as of September 24, 2007 (this “Agreement”), is by and between MANARIS CORPORATION, a Nevada corporation (the “Company”), and IMPERIUM MASTER FUND, LTD., a Cayman Islands company (“Imperium”).

A. The Company wishes to sell to Imperium, and Imperium wishes to purchase from the Company, upon the terms and subject to the conditions set forth in this Agreement, (i) a 6% Original Issue Discount Senior Secured Convertible Note in the form attached hereto as Exhibit A (the “Convertible Note”) and (ii) a Warrant in the form of Exhibit B hereto (the “Warrant”). The Convertible Note will be convertible into shares of the Company’s common stock, par value $0.00001 per share (the “Common Stock”). The shares of Common Stock into which the Convertible Note is convertible are referred to herein as the “Conversion Shares” and the shares of Common Stock into which the Warrant is exercisable are referred to herein as the “Warrant Shares”.

B. The Company has agreed to effect the registration of the Conversion Shares and the Warrant Shares for resale by the holders thereof under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to a Registration Rights Agreement in the form attached hereto as Exhibit C (the “Registration Rights Agreement”).

C. The sale of the Convertible Notes and the Warrants by the Company to Imperium will be effected in reliance upon the exemption from securities registration afforded by the provisions of Regulation D (“Regulation D”), as promulgated by the Securities and Exchange Commission (the “Commission”) under the Securities Act.

D. The Company has requested from Imperium, and Imperium has agreed to provide to the Company, a working capital drawdown facility in the aggregate amount of up to $2,500,000 (the “Working Capital Facility”), and each loan made under such facility shall be reflected by a Promissory Note in the form attached hereto as Exhibit D (each, a “Working Capital Note”).

E. The Company’s obligations under this Agreement, and all of the other agreements, instruments and other documents contemplated hereby, are to be (i) guaranteed by each of the Company’s material subsidiaries, and (ii) secured by the assets of the Company’s material subsidiaries.

In consideration of the mutual promises made herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Imperium hereby agree as follows:

 

1. TERMINOLOGY AND USAGE.

1.1  Definitions. When used herein, the terms below shall have the respective meanings indicated: 

“Accounts and Inventory Threshold” means $4,000,000.

“Accounts Receivable” means, as to any Person at any time of determination, all accounts receivable of such Person (i) not including prepaid deposits, deferred revenue and offsets, and (ii) excluding (1) all receivables that remain unpaid for over ninety (90) days from the respective invoice dates thereof, (2) if twenty-five percent (25%) or more of all receivables of such Person is payable by any one debtor and its Affiliates, then all receivables payable by such debtor and its Affiliates in excess of twenty-five percent (25%) of the total amount of all receivables of such Person; (3) all receivables payable by any Affiliate of such Person; (4) all receivables generated as a result of pre-billing, progress billing, retention billing, bill and hold accounts, ship in place accounts, contra revenue accounts or cross-aged balances; (5) all receivables of a debtor and its Affiliates if twenty-five percent (25%) or more of all receivables payable by such debtor and its Affiliates remain unpaid for over ninety (90) days from the respective invoice dates thereof; and (6) all receivables payable by debtors whose principal place of business is located outside of the United States, Canada and the member nations of the European Union.

“Acquisition” has the meaning specified in Section 3.2.3 of this Agreement.

“Acquisition Note” means a Working Capital Note issued in order to finance an Acquisition.

“Advisory Fee Warrant” means the warrant to purchase Common Stock issued to Imperium, dated as of August 22, 2007.

“Advisory Fee Warrant Shares” means the shares of Common Stock into which the Advisory Fee Warrant is exercisable.

“Affiliate” means, as to any Person (the “subject Person”), any other Person (a) that directly or indirectly through one or more intermediaries controls or is controlled by, or is under direct or indirect common control with, the subject Person, (b) that directly or indirectly beneficially owns or holds ten percent (10%) or more of any class of voting equity of the subject Person, or (c) ten percent (10%) or more of the voting equity of which is directly or indirectly beneficially owned or held by the subject Person. For the purposes of this definition, “control” when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, through representation on such Person’s board of directors or other management committee or group, by contract or otherwise.

“Bank of Montreal Facility” means the revolving line of credit provided by the Bank of Montreal to Avensys Inc. pursuant to the “Convention se rapportant aux prêts et avances et aux garanties qui les couvrent", dated as of January 11, 2007; provided, that the parties hereto acknowledge that the maximum amount borrowable under such facility shall not exceed $1,450,000.

“Board of Directors” means the Company’s board of directors.

“Business Day” means any day other than a Saturday, a Sunday or a day on which the Principal Market is closed or on which banks in the City of New York are required or authorized by law to be closed.

“Closing” and “Closing Date” have the respective meanings specified in Section 2.1 of this Agreement.

“Commission” has the meaning specified in the recitals to this Agreement.

“Common Stock” has the meaning specified in the recitals to this Agreement.

“Company Subsidiary” means a Person that is a Subsidiary of the Company.

“Consolidated Accounts and Inventory” means, at any time of determination, the total Accounts Receivable plus the total Inventory of the Company and Wholly Owned Subsidiaries less the total Debt outstanding under the Bank of Montreal Facility.

 

“Consolidated Tangible Assets” means, at any time of determination, the total Tangible Assets of the Company and the Wholly Owned Subsidiaries at such time, without duplication.

“Conversion Shares” has the meaning specified in the recitals of this Agreement.

 

“Convertible Note” has the meaning specified in the recitals to this Agreement.

“Debt” means, as to any Person at any time: (a) all indebtedness, liabilities and obligations of such Person for borrowed money; (b) all indebtedness, liabilities and obligations of such Person to pay the deferred purchase price of Property or services, except trade accounts payable of such Person arising in the ordinary course of business that are not past due by more than 90 days; (c) all capital lease obligations of such Person; (d) all Debt of others guaranteed by such Person; (e) all indebtedness, liabilities and obligations secured by a Lien (other than a Permitted Lien) existing on Property owned by such Person, whether or not the indebtedness, liabilities or obligations secured thereby have been assumed by such Person or are non-recourse to such Person; (f) all reimbursement obligations of such Person (whether contingent or otherwise) in respect of letters of credit, bankers’ acceptances, surety or other bonds and similar instruments; and (g) all liabilities and obligations of such Person to redeem or retire shares of capital stock of such Person (other than the Company’s obligation to redeem the Securities or Working Capital Notes under the circumstances specified therein).

“Demand Notes” has the meaning specified in Section 2.3.5 of this Agreement.

“Disclosure Documents” means all SEC Documents filed with the Commission at least three (3) Business Days prior to the Execution Date.

“Dollars” or “$” means U.S. Dollars.

 

“Effective Date” has the meaning specified in the Registration Rights Agreement.

“Embargoed Person” has the meaning specified in Section 5.27 of this Agreement.

“Environmental Law” means any federal, state, provincial, local or foreign law, statute, code or ordinance, principle of common law, rule or regulation, as well as any Permit, order, decree, judgment or injunction issued, promulgated, approved or entered thereunder, relating to pollution or the protection, cleanup or restoration of the environment or natural resources, or to the public health or safety, or otherwise governing the generation, use, handling, collection, treatment, storage, transportation, recovery, recycling, discharge or disposal of hazardous materials.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations and published interpretations thereunder.

“Event of Default” means any event, occurrence or circumstance that constitutes an “Event of Default” under any of the Notes.

“Exchange Act” means the Securities Exchange Act of 1934, as amended (or any successor act), and the rules and regulations thereunder (or respective successors thereto).

“Excluded Securities” means (i) any securities issued upon the conversion or exercise of any options, warrants, convertible securities or any other agreements outstanding as of the Closing Date to the extent disclosed on Schedule 5.5(c) and issued at the exercise or conversion price as set forth on Schedule 5.5(c); (ii) shares of Common Stock issuable or issued to employees, officers, directors of, and consultants to, the Company and/or any Company Subsidiary, from time to time upon the exercise of options granted or to be granted in the discretion of the Board of Directors pursuant to one or more employee stock option plans or stock plans duly adopted by the Board of Directors; (iii) shares of Common Stock issued in connection with any stock split, stock dividend or recapitalization of the Company; or (iv) securities issued pursuant to any acquisition transaction, licensing agreement or other strategic transaction, provided that no issuances shall be made to a Person that is itself, or has any affiliates that are, in the business of providing loans or making equity investments.

 

“Execution Date” means the date of this Agreement.

“GAAP” means generally accepted accounting principles, applied on a consistent basis, as set forth in (i) opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants, (ii) statements of the Financial Accounting Standards Board and (iii) interpretations of the Commission and the staff of the Commission. Accounting principles are applied on a “consistent basis” when the accounting principles applied in a current period are comparable in all material respects to those accounting principles applied in a preceding period.

“Governmental Authority” means any nation or government, any state, provincial or political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including, without limitation, any stock exchange, securities market or self-regulatory organization.

“Governmental Requirement” means any law, statute, code, ordinance, order, rule, regulation, judgment, decree, injunction, franchise, license or other directive or requirement of any federal, state, county, municipal, parish, provincial or other Governmental Authority or any department, commission, board, court, agency or any other instrumentality of any of them.

“Holder” shall initially mean Imperium, provided that any Person that subsequently holds any Securities or Working Capital Notes shall also be deemed a Holder.

“Holder Party” has the meaning specified in Section 6.9 of this Agreement.

“Intellectual Property” means any U.S. or foreign patents, patent rights, patent applications, trademarks, trade names, service marks, brand names, logos and other trade designations (including unregistered names and marks), trademark and service mark registrations and applications, copyrights and copyright registrations and applications, inventions, invention disclosures, protected formulae, formulations, processes, methods, trade secrets, computer software, computer programs and source codes, manufacturing research and similar technical information, engineering know-how, customer and supplier information, assembly and test data drawings or royalty rights.

“Inventory” means, as to any Person at any time of determination, all inventory of such Person, valued at cost and multiplied by 0.90 and excluding the portion of all work in process inventory that is in excess of twenty percent (20%) of the total inventory of such Person.

“Investment Company Act” has the meaning specified in Section 5.24 of this Agreement.

“Key Employee” has the meaning specified in Section 5.16 of this Agreement.

“Liabilities” means, as to any Person at any time of determination, all Debt (including Permitted Debt) of such Person, provided that with respect to any revolving credit line facility of such Person, only (x) that portion of such facility that has actually been drawn under such facility at such time plus (y) any additional amount that such Person is obligated to draw pursuant to the terms of such facility at any time on or after such time, shall be included as a Liability of such Person.

“Lien” means, with respect to any Property, any mortgage, pledge, hypothecation, assignment, deposit arrangement, security interest, tax lien, financing statement, pledge, charge, or other lien, charge, easement, encumbrance, preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever on or with respect to such Property (including, without limitation, any conditional sale or other title retention agreement having substantially the same economic effect as any of the foregoing).

“Material Adverse Effect” means an effect that is material and adverse to (i) the consolidated business, properties, assets, operations, results of operations, financial condition, credit worthiness or prospects of the Company and the Company Subsidiaries taken as a whole, (ii) the ability of the Company or any material Company Subsidiary to perform its obligations under this Agreement or the other Transaction Documents or (iii) the rights and benefits to which a Holder is entitled under this Agreement, the Notes and the other Transaction Documents.

 

“Material Contracts” means, as to the Company and the Company Subsidiaries, any agreement required pursuant to Item 601 of Regulation S-B or Item 601 of Regulation S-K, as applicable, promulgated under the Securities Act to be filed as an exhibit to any report, schedule, registration statement or definitive proxy statement filed or required to be filed by the Company with the Commission under the Exchange Act or any rule or regulation promulgated thereunder, and any and all amendments, modifications, supplements, renewals or restatements thereof.

“NASD” means the National Association of Securities Dealers, Inc.

  

“Notes” means the Convertible Notes and the Working Capital Notes.

“Pension Plan” means an employee benefit plan (as defined in ERISA) maintained by the Company for employees of the Company or any of its Affiliates.

“Permitted Debt” means the following:

(a) the Notes;

(b) Debt outstanding on the Execution Date to the extent disclosed on Schedule 5.5(d) hereto;

(c) Debt consisting of capitalized lease obligations and purchase money indebtedness incurred in connection with acquisition of capital assets and obligations under sale-leaseback or similar arrangements provided in each case that such obligations are not secured by Liens on any assets of the Company or the Company Subsidiaries other than the assets so leased; and

(d) Debt consisting of monies borrowed from the Bank of Montreal Facility; provided, however, that the aggregate amount of such Debt, including any amount outstanding as of the date hereof, shall not exceed $1,450,000.

“Permitted Liens” means each of the following:

(a) Liens in existence on the Execution Date to the extent disclosed on Schedule 5.22 hereto;

(b) encumbrances consisting of easements, rights-of-way, zoning restrictions or other restrictions on the use of real Property or imperfections to title that do not (individually or in the aggregate) materially impair the ability of the Company or any Company Subsidiary to use such Property in its businesses, and none of which is violated in any material respect by existing or proposed structures or land use;

(c) Liens for taxes, assessments or other governmental charges (including without limitation in connection with workers’ compensation and unemployment insurance) that are not delinquent or which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the Property subject to such Liens, and for which adequate reserves (as determined in accordance with GAAP) have been established; and

(d) Liens of mechanics, materialmen, warehousemen, carriers, landlords or other similar statutory Liens securing obligations that are not yet due and are incurred in the ordinary course of business or which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the Property subject to such Liens, for which adequate reserves (as determined in accordance with GAAP) have been established.

“Person” means any individual, corporation, trust, association, company, partnership, joint venture, limited liability company, joint stock company, Governmental Authority or other entity.

“Principal Market” means the principal exchange, market or quotation system on which the Common Stock is listed, traded or quoted.

“Property” means property and/or assets of all kinds, whether real, personal or mixed, tangible or intangible (including, without limitation, all rights relating thereto).

“Pro Rata Share” means, with respect to a Holder, the ratio determined by dividing (x) the principal amount of the Notes held by such Holder by (y) the aggregate principal amount of the Notes held by all of the Holders.

“Purchase Price” has the meaning specified in Section 2.1.

“Registrable Securities” has the meaning specified in the Registration Rights Agreement.

“Registration Rights Agreement” has the meaning specified in the recitals to this Agreement.

“Registration Statement” has the meaning specified in the Registration Rights Agreement.

“Regulation D” has the meaning specified in the recitals to this Agreement.

“Reserved Amount” has the meaning specified in Section 6.6 of this Agreement.

“Restricted Payment” means (a) any dividend or other distribution (whether in cash, Property or obligations), direct or indirect, on account of (or the setting apart of money for a sinking or other analogous fund for the benefit of) any shares of any class of capital stock of the Company or the Company Subsidiaries now or hereafter outstanding, except a dividend payable solely in shares of that class of stock to all of the holders of that class; (b) any redemption, exchange, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of capital stock of the Company or any of its Affiliates now or hereafter outstanding, except the Securities; (c) any prepayment of principal of, premium, if any, or interest on, or any redemption, conversion, exchange, purchase, retirement, sinking fund or defeasance of, any Debt (whether upon acceleration of such Debt or otherwise) other than the Securities or Working Capital Notes; and (d) any loan, advance or payment to any officer, director or stockholder of the Company or any of its Affiliates, exclusive of reasonable compensation and reimbursements paid to officers or directors in the ordinary course of business.

 

“Rule 144” means Rule 144 under the Securities Act or any successor provision.

 

“SEC Documents” means all reports, schedules, registration statements and definitive proxy statements filed by the Company with the Commission.

“Securities” means the Convertible Notes, the Conversion Shares, the Warrants and the Warrant Shares.  

 

“Securities Act” has the meaning specified in the recitals of this Agreement.

“Security Documents” means all agreements, instruments and other documents executed and delivered in connection with or in furtherance of (i) the guarantee by each of the Company Subsidiaries of the Company’s obligations under the Transaction Documents, and/or (ii) the grant of a security interest by the Company and the Company Subsidiaries in their respective assets to secure the Company’s obligations under the Transaction Documents.

“Subsequent Placement” means any issuance, sale or exchange by the Company or any Company Subsidiary at any time after the Closing Date, or any agreement or obligation of the Company or any Company Subsidiary to issue, sell or exchange, at any time after the Closing Date, (i) any shares of common stock of the Company or any Company Subsidiary, (ii) any other equity security, including, without limitation, preferred stock, (iii) any other security of the Company or any Company Subsidiary which by its terms is convertible into or exchangeable or exercisable for any equity security of the Company or any Company Subsidiary, (iv) any option, warrant or other right to subscribe for, purchase or otherwise acquire any such security described in the foregoing clauses (i) through (iii), or (v) any debt instruments or securities, including promissory notes and convertible debt instruments; provided, however, that the term “Subsequent Placement” shall not be deemed to include any issuance, sale or exchange of Excluded Securities.

“Subsidiary” means, with respect to any Person, any corporation or other entity of which at least a majority of the outstanding shares of stock or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors (or Persons performing similar functions) of such corporation or entity (regardless of whether or not at the time, in the case of a corporation, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries.

“Tangible Assets” means, as to any Person at any time of determination, the aggregate value of (i) all cash and cash equivalents of such Person, (ii) all Accounts Receivable of such Person, (iii) all Inventory of such Person, and (iv) all real and personal property and equipment of such Person net of depreciation.

“Tangible Asset Threshold” means, at any time of determination, an amount equal to one hundred fifty percent (150%) of the aggregate principal amount of all of the Notes (other than Acquisition Notes) then outstanding, plus all accrued interest thereon.

“Termination Date” means the first date on which there are no Notes outstanding and none of the Holders has any further obligation to loan any amount to the Company under the Working Capital Facility.

 

“Trading Day” means any day on which shares of Common Stock are purchased and sold on the Principal Market.

“Transaction Documents” means (i) this Agreement, (ii) the Notes, (iii) the Warrant and the Advisory Fee Warrant, (iv) the Registration Rights Agreement, (v) the Security Documents and (vi) all other agreements, documents and other instruments executed and delivered by or on behalf of the Company, the Company Subsidiaries or any of their respective officers at the Closing, on any Working Capital Drawdown Date or otherwise in connection with this Agreement.

“Transfer Agent” has the meaning specified in Section 4.5 of this Agreement.

“Variable Rate Security” means any Option or Convertible Security that is convertible into, exchangeable for or that requires the Company to issue shares of Common Stock at a conversion, exercise or exchange ratio or price that varies with the market price of the Common Stock.

“Warrant” has the meaning specified in the recitals to this Agreement.

“Warrant Shares” has the meaning specified in the recitals to this Agreement.

 

“Wholly Owned Subsidiary” means a Company Subsidiary that is (i) wholly owned by the Company or another Wholly Owned Subsidiary, and (ii) is a party to the Security Documents.

“Working Capital Drawdown” has the meaning specified in Section 3.2 of this Agreement.

“Working Capital Drawdown Amount” has the meaning specified in Section 3.2.1 of this Agreement.

“Working Capital Drawdown Date” has the meaning specified in Section 3.2 of this Agreement.

“Working Capital Drawdown Notice” has the meaning specified in Section 3.2 of this Agreement.

“Working Capital Facility” has the meaning specified in the recitals to this Agreement.

“Working Capital Note” has the meaning specified in the recitals to this Agreement.

1.2 Other Definitional Provisions. All definitions contained in this Agreement are equally applicable to the singular and plural forms of the terms defined. The words “hereof”, “herein” and “hereunder” and words of similar import contained in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement.

2. PURCHASE AND SALE OF CONVERTIBLE NOTE AND WARRANT.

2.1 Purchase Price; Closing. Upon the terms and subject to the satisfaction or waiver of the conditions set forth in Sections 2.2 and 2.3, the Company agrees to sell and Imperium agrees to purchase (i) a Convertible Note with the stated principal amount equal to the amount set forth below Imperium’s name on the signature page hereof and (ii) a Warrant exercisable into the number of shares of Common Stock set forth below Imperium’s name on the signature page hereof. The purchase price for the Convertible Note and Warrant shall be $4,000,000¹  (the “Purchase Price”). The date on which the closing of such purchase and sale occurs (the “Closing”) is hereinafter referred to as the “Closing Date”. The Closing will be deemed to occur at the offices of Mazzeo Song LLP, 708 Third Avenue, 19^th Floor, New York, New York 10017 when each of the conditions to the Closing described in Sections 2.2 and 2.3 has been satisfied or waived as specified therein.

 

2.2 Conditions to Imperium’s Obligations at the Closing. Imperium’s obligations to effect the Closing, including, without limitation, its obligation to purchase the Convertible Note and Warrant at the Closing, are conditioned upon the fulfillment (or waiver by Imperium in its sole and absolute discretion) of each of the following events as of the Closing Date, and the Company shall use commercially reasonable efforts to cause each of such conditions to be satisfied:

2.2.1

the representations and warranties of the Company set forth in this Agreement and in the other Transaction Documents shall be true and correct in all material respects as of such date as if made on such date (except that to the extent that any such representation or warranty relates to a particular date, such representation or warranty shall be true and correct in all material respects as of that particular date);

2.2.2

the Company shall have complied with or performed in all material respects all of the agreements, obligations and conditions set forth in this Agreement and in the other Transaction Documents that are required to be complied with or performed by the Company on or before the Closing;

2.2.4

the Company shall have delivered to Imperium opinions of U.S. and Canadian counsel for the Company, dated as of the Closing Date, in the form and substance satisfactory to Imperium;

2.2.5

the Company shall have executed and delivered to Imperium the Convertible Note and the Warrant being purchased by Imperium, and each of the other Transaction Documents to which the Company and/or a Company Subsidiary is a party;

2.2.6

the Company shall have delivered to Imperium a certificate, signed by the Secretary or an Assistant Secretary of the Company, attaching (i) the articles and by-laws of the Company and (ii) resolutions passed by the board of directors of the Company and each Company Subsidiary party to a Transaction Document, in each case, authorizing the transactions contemplated by the Transaction Documents to which such entity is a party;

 

 

2.2.7

there shall have occurred no material adverse change in the Company’s consolidated business or financial condition since the date of the Company’s most recent financial statements contained in the Disclosure Documents;

2.2.8

the Company shall have authorized and reserved for issuance upon conversion of the Convertible Note and exercise of the Warrant two hundred percent (200%) of the aggregate number of shares of Common Stock issuable upon conversion of the Convertible Note and exercise of the Warrant and the Advisory Fee Warrant in full at the Closing (such number to be determined without regard to any restriction on such conversion or exercise);

2.2.9

there shall be no injunction, restraining order or decree of any nature of any court or Governmental Authority of competent jurisdiction that is in effect that restrains or prohibits the consummation of the transactions contemplated hereby and by the other Transaction Documents; and

2.2.10

the Company shall have paid the expenses described in Section 7.10 of this Agreement.

2.3 Conditions to Company’s Obligations at the Closing. The Company’s obligations to effect the Closing with Imperium are conditioned upon the fulfillment (or waiver by the Company in its sole and absolute discretion) of each of the following events as of the Closing Date:

2.3.1

the representations and warranties of Imperium set forth in this Agreement and in the other Transaction Documents to which it is a party shall be true and correct in all material respects as of such date as if made on such date (except that to the extent that any such representation or warranty relates to a particular date, such representation or warranty shall be true and correct in all material respects as of that date);

2.3.2

Imperium shall have complied with or performed all of the agreements, obligations and conditions set forth in this Agreement that are required to be complied with or performed by Imperium on or before the Closing;

2.3.3

there shall be no injunction, restraining order or decree of any nature of any court or Governmental Authority of competent jurisdiction that is in effect that restrains or prohibits the consummation of the transactions contemplated hereby and by the other Transaction Documents;

 

3. WORKING CAPITAL FACILITY.

3.1 Loan Facility and Commitment. The Company may desire to borrow additional funds from the Holders to finance its working capital requirements and certain acquisitions. In furtherance of the foregoing, the Company has agreed to sell, and the Holders have agreed to purchase, Working Capital Notes, which shall be offered for sale by the Company in accordance with this Section 3. The purchase price for each Working Capital Note shall be equal to the stated principal amount of such note. From and after the Execution Date until the two-year anniversary of the Execution Date, each Holder shall purchase its Pro Rata Share of Working Capital Notes as and when offered by the Company, subject to the satisfaction of the conditions set forth in Section 3.3. With respect to each offering of Working Capital Notes, the Pro Rata Share of a Holder shall be determined as of the date on which the Working Capital Drawdown Notice for such offering is delivered to such Holder. The aggregate principal amount of all Working Capital Notes outstanding at any time shall not exceed $2,500,000. The interest rate, maturity date and other repayment terms, including, without limitation, amortization schedule (if any), of each Working Capital Note shall be subject to mutual agreement between the Company and the Holders on or prior to the applicable Working Capital Drawdown Date.

3.2 Drawdown Request by the Company. If the Company wishes to offer Working Capital Notes (a “Working Capital Drawdown”), the Company shall notify each Holder in writing (a “Working Capital Drawdown Notice”) no later than ten (10) Business Days (or such shorter period as the Holders may agree in their sole discretion) prior to the date on which the Company wishes to effectuate a sale of Working Capital Notes (the “Working Capital Drawdown Date”). The Working Capital Drawdown Notice shall specify in reasonable detail the following information along with any other information that the Company deems relevant:

3.2.1

the aggregate principal amount of Working Capital Notes that the Company desires to sell to the Holders (the “Working Capital Drawdown Amount”);

 

3.2.2

the date on which the Company desires to close such Working Capital Drawdown; and

3.2.3

either (i) confirmation that such Working Capital Drawdown Amount will be used for general working capital purposes or (ii) if such Working Capital Drawdown Amount is to be used to acquire the assets, operations or business of another Person, whether by way of asset or stock purchase, merger, exchange offer or other business combination or similar transaction (any such transaction, an “Acquisition”), the Company shall provide each Holder the information specified on Schedule 3.2.3.

3.3 Conditions to Each Holder’s Obligation to Purchase Working Capital Notes. Each Holder’s obligation to purchase a Working Capital Note is conditioned upon the fulfillment (or waiver by such Holder in its sole and absolute discretion) of each of the following events as of the applicable Working Capital Drawdown Date:

3.3.1

the representations and warranties of the Company set forth in this Agreement and in the other Transaction Documents shall be true and correct in all material respects as of such Working Capital Drawdown Date as if made on such date (except that to the extent that any such representation or warranty relates to a particular date, such representation or warranty shall be true and correct in all material respects as of that particular date);

3.3.2

the Company shall have complied with or performed in all material respects all of the agreements, obligations and conditions set forth in this Agreement and in the other Transaction Documents that are required to be complied with or performed by the Company on or before such Working Capital Drawdown Date;

 

3.3.3

no Event of Default shall have occurred, unless such Event of Default was cured not less than ten Business Days prior to such Working Capital Drawdown Date;

 

3.3.5

the Company shall have executed and delivered to such Holder the Working Capital Note being purchased by such Holder;

3.3.6

there shall have occurred no material adverse change in the Company’s consolidated business or financial condition since the later of (i) the Closing Date and (ii) the most recent prior Working Capital Drawdown Date;

3.3.7

there shall be no injunction, restraining order or decree of any nature of any court or Governmental Authority of competent jurisdiction that is in effect that restrains or prohibits the consummation of such offer and sale of a Working Capital Note;

3.3.8

the Company and the Holders shall have agreed upon the interest rate, maturity date and other repayment terms applicable to the Working Capital Notes being sold on such Working Capital Drawdown Date; and

3.3.9

in the event that the proceeds of the Working Capital Note being purchased by such Holder is to be used in connection with an Acquisition, such Holder shall have completed its review of the information provided to such Holder pursuant to Section 3.2.3 and otherwise with respect to such Acquisition, and such Holder shall be satisfied with its review of all such information in its sole and absolute discretion.

3.4 Conditions to Company’s Obligation to Sell Working Capital Notes. The Company’s obligation to sell a Working Capital Note to a Holder is conditioned upon the fulfillment (or waiver by the Company in its sole and absolute discretion) of each of the following events as of the applicable Working Capital Drawdown Date:

3.4.1

the representations and warranties of such Holder set forth in this Agreement and in the other Transaction Documents to which it is a party shall be true and correct in all material respects as of such Working Capital Drawdown Date as if made on such date (except that to the extent that any such representation or warranty relates to a particular date, such representation or warranty shall be true and correct in all material respects as of that date);

 

 

3.4.2

such Holder shall have complied with or performed all of the agreements, obligations and conditions set forth in this Agreement that are required to be complied with or performed by such Holder on or before such Working Capital Drawdown Date;

3.4.3

there shall be no injunction, restraining order or decree of any nature of any court or Governmental Authority of competent jurisdiction that is in effect that restrains or prohibits the consummation of such sale of a Working Capital Note;

4. REPRESENTATIONS AND WARRANTIES OF IMPERIUM.

Imperium hereby represents and warrants to the Company and agrees with the Company that, as of the Execution Date:

4.1 Authorization; Enforceability. Imperium is duly and validly organized, validly existing and in good standing under the laws of the Cayman Islands with the requisite corporate power and authority to purchase the Notes and Warrants to be purchased by it hereunder and to execute and deliver this Agreement and the other Transaction Documents to which it is a party. This Agreement constitutes, and upon execution and delivery thereof, each other Transaction Document to which Imperium is a party will constitute, Imperium’s valid and legally binding obligation, enforceable in accordance with its terms, subject to (i) applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws of general application relating to or affecting the enforcement of creditors’ rights generally and (ii) general principles of equity.

4.2 Accredited Investor. Imperium (i) is an “accredited investor” as that term is defined in Rule 501 of Regulation D, (ii) was not formed or organized for the specific purpose of making an investment in the Company, and (iii) is acquiring the Securities solely for its own account and not with a present view to the public resale or distribution of all or any part thereof, except pursuant to sales that are registered under, or exempt from the registration requirements of, the Securities Act and/or sales registered under the Securities Act; provided, however, that in making such representation, Imperium does not agree to hold the Securities for any minimum or specific term and reserves the right to sell, transfer or otherwise dispose of the Securities at any time in accordance with the provisions of this Agreement and with Federal and state securities laws applicable to such sale, transfer or disposition. Imperium can bear the economic risk of a total loss of its investment in the Securities and has such knowledge and experience in business and financial matters so as to enable it to understand the risks of and form an investment decision with respect to its investment in the Securities.

4.3 Information. The Company has, prior to the Execution Date, provided Imperium with information regarding the business, operations and financial condition of the Company and has, prior to the Execution Date, granted to Imperium the opportunity to ask questions of and receive answers from representatives of the Company, its officers, directors, employees and agents concerning the Company in order for Imperium to make an informed decision with respect to its investment in the Securities. Neither such information nor any other investigation conducted by Imperium or any of its representatives shall modify, amend or otherwise affect Imperium’s right to rely on the Company’s representations and warranties contained in this Agreement.

4.4 Limitations on Disposition. Imperium acknowledges that, except as provided in the Registration Rights Agreement, the Securities have not been and are not being registered under the Securities Act and may not be transferred or resold without registration under the Securities Act or unless pursuant to an exemption therefrom. 

 

4.5 Legend. Imperium understands that the certificates representing the Securities may bear at issuance a restrictive legend in substantially the following form:

“The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities laws, and may not be offered for sale or sold unless a registration statement under the Securities Act and applicable state securities laws shall have become effective with respect thereto, or an exemption from registration under the Securities Act and applicable state securities laws is available in connection with such offer or sale. These securities and the securities issuable upon conversion or exercise hereof (i) may be pledged or hypothecated in connection with a bona fide margin account or other financing secured by such securities or (ii) may be transferred or assigned to an affiliate of the holder hereof without the necessity of an opinion of counsel or the consent of the issuer hereof.”

Notwithstanding the foregoing, it is agreed that, as long as (A) the resale or transfer (including, without limitation, a pledge) of any of the Securities is registered pursuant to an effective registration statement, (B) such Securities have been sold pursuant to Rule 144, subject to receipt by the Company of customary documentation reasonably acceptable to the Company in connection therewith, or (C) such Securities are eligible for resale under Rule 144(k) or any successor provision, such Securities shall be issued without any legend or other restrictive language and, with respect to Securities upon which such legend is stamped, the Company shall issue new certificates without such legend to the holder upon request. The Company shall execute and deliver written instructions to the transfer agent for its Common Stock (the “Transfer Agent”) as may be necessary to satisfy any request by a Holder for removal of such legends no later than the close of business on the third (3^rd) Business Day following the receipt of the request from a Holder to the extent such legends may be removed in accordance with this Section 4.5.

4.6 Reliance on Exemptions. Imperium understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of U.S. federal and state securities laws and that the Company is relying upon the truth and accuracy of the representations and warranties of Imperium set forth in this Section 4 in order to determine the availability of such exemptions and the eligibility of Imperium to acquire the Securities. Imperium acknowledges that it did not purchase the Securities based upon any advertisement in any publication of general circulation. Imperium is relying on the representations, acknowledgements and agreements made by the Company in Section 5 and elsewhere in this Agreement in making investing, trading and/or other decisions concerning the Company’s securities.

 

4.7 Non-Affiliate Status; Common Stock Ownership. Imperium is not an Affiliate of the Company and is not acting in association or concert with any other Person in regard to its purchase of the Securities or otherwise in respect of the Company. Imperium’s investment in the Securities is not for the purpose of acquiring, directly or indirectly, control of, and it has no intent to acquire or exercise control of, the Company or to influence the decisions or policies of the Board of Directors.

4.8  Fees. Imperium has not agreed to pay any compensation or other fee, cost or related expenditure to any underwriter, broker, agent or other representative in connection with the transactions contemplated hereby.

 

4.9 No Conflicts. The execution and performance of this Agreement and the other Transaction Documents to which Imperium is a party do not conflict in any material respect with any agreement to which Imperium is a party or is bound, any court order or judgment applicable to Imperium, or the constituent documents of Imperium.

 

4.10 No Governmental Review. Imperium understands that no U.S. federal or state agency or any other Governmental Authority has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of an investment in the Securities nor have such authorities passed upon the accuracy of any information provided to Imperium or made any findings or determinations as to the merits of the offering of the Securities.

 

5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants to Imperium and agrees with Imperium that, as of the Execution Date:

5.1 Organization, Good Standing and Qualification. Each of the Company and each Company Subsidiary is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization and has all requisite power and authority to carry on its business as now conducted. The Company and each Company Subsidiary is duly qualified to transact business and is in good standing in each jurisdiction in which it conducts business except where the failure so to qualify has not had or would not reasonably be expected to have a Material Adverse Effect.

5.2 Authorization; Consents. The Company has the requisite corporate power and authority to enter into and perform its obligations under the Transaction Documents, to issue and sell the Notes and the Warrants to Imperium in accordance with the terms hereof and thereof, and to issue the Conversion Shares upon conversion of the Convertible Notes and the Warrant Shares upon exercise of the Warrants. All corporate action on the part of the Company by its officers, directors and shareholders necessary for the authorization, execution and delivery of, and the performance by the Company of its obligations under, the Transaction Documents has been taken, and no further consent or authorization of the Company, the Board of Directors, shareholders, any Governmental Authority (other than such approval as may be required under the Securities Act and applicable state laws in respect of the Registration Rights Agreement) or any other Person is required (pursuant to any rule of the Principal Market or otherwise). The Board of Directors has determined that the sale and issuance of the Convertible Notes and Warrants, and contemplated sale and issuance of the Working Capital Notes, and the consummation of the transactions contemplated hereby and by the other Transaction Documents, are in the best interests of the Company.

5.3  Enforcement. This Agreement has been and, at or prior to the Closing, each other Transaction Document required to be delivered by the terms hereof at the Closing will be, duly executed and delivered by the Company. This Agreement constitutes and, upon the execution and delivery thereof by the Company, each other Transaction Document will constitute the valid and legally binding obligation of the Company, enforceable against the Company in accordance with their respective terms, subject to (i) applicable bankruptcy, insolvency, fraudulent transfer, moratorium, reorganization or other similar laws of general application relating to or affecting the enforcement of creditors’ rights generally and (ii) general principles of equity.

5.4 Disclosure Documents; Agreements; Financial Statements; Other Information. The Company is subject to the reporting requirements of the Exchange Act and, except as described on Schedule 5.4, the Company has filed with the Commission all SEC Documents that the Company was required to file with the Commission on or after December 31, 2005. The Company is not aware of any event occurring or expected to occur on or prior to the Closing Date (other than the transactions effected hereby) that would require the filing of, or with respect to which the Company intends to file, a Form 8-K after the Closing. Each SEC Document filed on or after December 31, 2005, as of the date of the filing thereof with the Commission (or if amended or superseded by a filing prior to the Execution Date, then on the date of such amending or superseding filing), complied in all material respects with the requirements of the Securities Act or Exchange Act, as applicable, and the rules and regulations promulgated thereunder and, as of the date of such filing (or if amended or superseded by a filing prior to the Execution Date, then on the date of such filing), such SEC Document (including all exhibits and schedules thereto and documents incorporated by reference therein) did not contain an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. All documents required to be filed as exhibits to the SEC Documents filed on or after December 31, 2005 have been filed as required. Except as set forth in the Disclosure Documents, the Company has no liabilities, contingent or otherwise, other than liabilities incurred in the ordinary course of business which, under GAAP, are not required to be reflected in the financial statements included in the Disclosure Documents and which, individually or in the aggregate, are not material to the consolidated business or financial condition of the Company. 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 Commission with respect thereto. Such financial statements have been prepared in accordance with GAAP consistently applied at the times and 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 exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end adjustments). The Company will prepare the financial statements to be included in any reports, schedules, registration statements and definitive proxy statements that the Company is required to file or files with the Commission after the date hereof in accordance with GAAP (except in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements).

 

5.5 Capitalization; Subsidiaries; Outstanding Debt.

(a) The capitalization of the Company, including its authorized capital stock, the number of shares issued and outstanding, the number of shares issuable and reserved for issuance pursuant to the Company’s stock option plans and agreements, the number of shares issuable and reserved for issuance pursuant to securities (other than the Convertible Note and Warrant) exercisable for, or convertible into or exchangeable for any shares of Common Stock and the number of shares initially to be reserved for issuance upon conversion of the Convertible Note and exercise of the Warrant, is set forth on Schedule 5.5(a). All outstanding shares of capital stock of the Company have been, or upon issuance will be, validly issued, fully paid and non-assessable.

(b) All of the Company Subsidiaries are disclosed on Schedule 5.5(b). None of the Company Subsidiaries other than C-Chip Technologies Corporation (North America) and Avensys Inc. has any assets or operations. Except as disclosed on Schedule 5.5(b), the Company or a wholly-owned Company Subsidiary owns all of the capital stock of each Company Subsidiary, which capital stock is validly issued, fully paid and non-assessable, and no shares of the capital stock of the Company or any Company Subsidiary are subject to preemptive rights or any other similar rights of the shareholders of the Company or any such Company Subsidiary or any Liens created by or through the Company or any such Company Subsidiary.

(c) Except as disclosed on Schedule 5.5(c) or as contemplated herein, there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exercisable or exchangeable for, any shares of capital stock of the Company or any Company Subsidiary, or arrangements by which the Company or any Company Subsidiary is or may become bound to issue additional shares of capital stock of the Company or any Company Subsidiary (whether pursuant to anti-dilution, “reset” or other similar provisions).

(d) Schedule 5.5(d) identifies all Debt of the Company and/or any Company Subsidiary currently outstanding in excess of $75,000 as of the date hereof.

5.6 Due Authorization; Valid Issuance. The Notes are duly authorized and, when issued, sold and delivered in accordance with the terms of this Agreement, will be duly and validly issued, free and clear of any Liens imposed by or through the Company. The Warrants are duly authorized and, when issued, sold and delivered in accordance with the terms of this Agreement, will be duly and validly issued, free and clear of any Liens imposed by or through the Company. The Conversion Shares issuable under the Convertible Note and the Warrant Shares issuable under the Warrant are duly authorized and reserved for issuance and, when issued and delivered in accordance with the terms of the Convertible Note or the Warrant, as the case may be, will be duly and validly issued, fully paid and nonassessable, free and clear of any Liens imposed by or through the Company. Assuming the accuracy of Imperium’s representations contained herein, the issuance and sale of the Convertible Note and Warrant under this Agreement will be effected in compliance with all applicable Federal and state securities laws.

 

5.7 Form SB-2. The Company is eligible to register the Conversion Shares and Warrant Shares for resale in a secondary offering by each Holder on a registration statement on Form SB-2 under the Securities Act. To the Company’s knowledge, as of the date hereof and as of the Closing Date, there exist no facts or circumstances (including without limitation any required approvals or waivers of any circumstances that may delay or prevent the obtaining of accountant’s consents) that could reasonably be expected to prohibit or delay the preparation, filing or effectiveness of such registration statement on Form SB-2.

5.8 No Conflict. Neither the Company nor any Company Subsidiary is in violation of any provisions of its charter, bylaws or any other governing document. Neither the Company nor any Company Subsidiary is in violation of or in default (and no event has occurred which, with notice or lapse of time or both, would constitute a default) under any provision of any instrument or contract to which it is a party or by which it or any of its Property is bound, or in violation of any provision of any Governmental Requirement applicable to the Company or any Company Subsidiary, except for any violation or default that has not had or would not reasonably be expected to have a Material Adverse Effect. The (i) execution, delivery and performance of this Agreement and the other Transaction Documents and (ii) consummation of the transactions contemplated hereby and thereby will not result in any violation of any provisions of the Company’s or any Company Subsidiary’s charter, bylaws or any other governing document or in a default under any provision of any instrument or contract to which the Company or any Company Subsidiary is a party or by which it or any of its Property is bound, or in violation of any provision of any Governmental Requirement applicable to the Company or any Company Subsidiary or be in conflict with or constitute, with or without the passage of time and giving of notice, a default under any such provision, instrument or contract or the triggering of any preemptive or anti-dilution rights (including without limitation pursuant to any “reset” or similar provisions) or rights of first refusal or first offer, or any other rights that would allow or permit the holders of the Company’s securities or any other Person to purchase shares of Common Stock or other securities of the Company or any Company Subsidiary (whether pursuant to a shareholder rights plan provision or otherwise).

5.9 Financial Condition; Taxes; Litigation.

5.9.1 The financial condition of the Company and each Company Subsidiary is, in all material respects, as described in the Disclosure Documents, except for changes in the ordinary course of business and normal year-end adjustments that are not, in the aggregate, materially adverse to the consolidated business or financial condition of the Company. There has been no (i) material adverse change to the business, operations, properties, financial condition, prospects or results of operations of the Company and any Company Subsidiary since the date of the Company’s most recent financial statements contained in the Disclosure Documents or (ii) change by the Company in its accounting principles, policies and methods except as required by changes in GAAP.

 

5.9.2 The Company and each Company Subsidiary has prepared in good faith and duly and timely filed all tax returns required to be filed by it and such returns are complete and accurate in all material respects and the Company and each Company Subsidiary has paid all taxes required to have been paid by it, except for taxes which it reasonably disputes in good faith or the failure of which to pay has not had or would not reasonably be expected to have a Material Adverse Effect. Neither the Company nor any Company Subsidiary has any liability with respect to taxes that accrued on or before the date of the most recent balance sheet of the Company included in the Disclosure Documents in excess of the amounts accrued with respect thereto that are reflected on such balance sheet.

5.9.3 Except for sales tax audits undertaken by state taxing authorities in the ordinary course of business, neither the Company nor any Company Subsidiary is the subject of any pending or, to the Company’s knowledge, threatened inquiry, investigation or administrative or legal proceeding by the Internal Revenue Service, the taxing authorities of any state or local jurisdiction, the Commission, the NASD, any state securities commission or other Governmental Authority.

5.9.4 Other than as set forth on Schedule 5.9.4, there is no material claim, litigation or administrative proceeding pending, or, to the Company’s knowledge, threatened or contemplated, against the Company or any Company Subsidiary, or against any officer, director or employee of the Company or any such Company Subsidiary in connection with such Person’s employment therewith. Neither the Company nor any Company Subsidiary is a party to or subject to the provisions of, any order, writ, injunction, judgment or decree of any court or Governmental Authority which has had or would reasonably be expected to have a Material Adverse Effect.

5.10  Acknowledgement of Dilution. The Company acknowledges that the issuance of Conversion Shares upon conversion of the Convertible Note and issuance of the Warrant Shares upon exercise of the Warrant may result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that its obligation to issue Conversion Shares upon conversion of the Convertible Note in accordance with the terms of the Convertible Note, and to issue Warrant Shares upon exercise of the Warrant in accordance with the terms of the Warrant, is unconditional (other than with respect to the conditions set forth in the Convertible Note and the Warrant, respectively) regardless of the effect of any such dilution. The Company further acknowledges that, to the extent not otherwise prohibited by applicable law, each Holder may enter into hedging transactions with respect to the Common Stock.

5.11 Intellectual Property.

(a) The Company and each Company Subsidiary own, free and clear of claims or rights or any other Person, with full right to use, sell, license, sublicense, dispose of, and bring actions for infringement of, or, to the knowledge of the Company, has acquired licenses or other rights to use, all Intellectual Property necessary for the conduct of its business as presently conducted (other than with respect to software which is generally commercially available and not used or incorporated into the Company’s or such Company Subsidiary’s products and open source software which may be subject to one or more “general public” licenses). All works that are used or incorporated into the Company’s or any Company Subsidiary’s services, products or services or products actively under development and which is proprietary to the Company or such Company Subsidiary was developed by or for the Company or a Company Subsidiary by the current or former employees, consultants or independent contractors of the Company or a Company Subsidiary or purchased or licensed by the Company or a Company Subsidiary.

(b) The business of the Company and each Company Subsidiary as presently conducted and the production, marketing, licensing, use and servicing of any products or services of the Company and each Company Subsidiary do not, to the knowledge of the Company, infringe or conflict with any patent, trademark, copyright, or trade secret rights of any third parties or any other Intellectual Property of any third parties in any material respect. Neither the Company nor any Company Subsidiary has received written notice from any third party asserting that any Intellectual Property owned or licensed by the Company or a Company Subsidiary, or which the Company or any Company Subsidiary otherwise has the right to use, is invalid or unenforceable by the Company or such Company Subsidiary and, to the Company’s knowledge, there is no valid basis for any such claim (whether or not pending or threatened).

(c) Other than as set forth on Schedule 5.11(c), no claim is pending or, to the Company’s knowledge, threatened against the Company or any Company Subsidiary nor has the Company or any Company Subsidiary received any written notice or other written claim from any Person asserting that the Company’s or any Company Subsidiary’s present or contemplated activities infringe or may infringe in any material respect any Intellectual Property of such Person, and the Company is not aware of any infringement by any other Person of any material rights of the Company or any Company Subsidiary under any Intellectual Property Rights.

(d) All licenses or other agreements under which the Company or any Company Subsidiary is granted Intellectual Property (excluding licenses to use software utilized in the Company’s or such Company Subsidiary’s internal operations and which is generally commercially available) are in full force and effect and, to the Company’s knowledge, there is no material default by any party thereto. The Company has no reason to believe that the licensors under such licenses and other agreements do not have and did not have all requisite power and authority to grant the rights to the Intellectual Property purported to be granted thereby.

(e) All licenses or other agreements under which the Company or any Company Subsidiary has granted rights to Intellectual Property to others (including all end-user agreements) are in full force and effect, there has been no material default by the Company or any Company Subsidiary thereunder and, to the Company’s knowledge, there is no material default of any provision thereof relating to Intellectual Property by any other party thereto.

(f) The Company and each Company Subsidiary have taken all steps required in accordance with commercially reasonable business practice to establish and preserve their ownership in their owned Intellectual Property and to keep confidential all material technical information developed by or belonging to the Company or such Company Subsidiary which has not been patented or copyrighted. To the Company’s knowledge, neither the Company nor any Company Subsidiary is making any unlawful use of any Intellectual Property of any other Person, including, without limitation, any former employer of any past or present employees of the Company or any Company Subsidiary. To the Company’s knowledge, neither the Company, any Company Subsidiary nor any of their respective employees has any agreements or arrangements with former employers of such employees relating to any Intellectual Property of such employers, which materially interfere or conflict with the performance of such employee’s duties for the Company or any Company Subsidiary or result in any former employers of such employees having any rights in, or claims on, the Company’s or any Company Subsidiary’s Intellectual Property. Each current employee of the Company and each Company Subsidiary has executed agreements regarding confidentiality, proprietary information and assignment of inventions and copyrights to the Company or such Company Subsidiary, as the case may be, each independent contractor or consultant of the Company and each Company Subsidiary has executed agreements regarding confidentiality and proprietary information, and neither the Company nor any Company Subsidiary has received written notice that any employee, consultant or independent contractor is in violation of any agreement or in breach of any agreement or arrangement with former or present employers relating to proprietary information or assignment of inventions. Without limiting the foregoing: (i) the Company and each Company Subsidiary has taken reasonable security measures to guard against unauthorized disclosure or use of any of its Intellectual Property that is confidential or proprietary; and (ii) the Company has no reason to believe that any Person (including, without limitation, any former employee or consultant of the Company or any Company Subsidiary) has unauthorized possession of any of its Intellectual Property, or any part thereof, or that any Person has obtained unauthorized access to any of its Intellectual Property. The Company and each Company Subsidiary has complied in all material respects with its respective obligations pursuant to all agreements relating to Intellectual Property rights that are the subject of licenses granted by third parties, except for any non-compliance that has not had or would not reasonably be expected to have a Material Adverse Effect.

5.12 Registration Rights; Rights of Participation. Except as set forth on Schedule 5.12, the Company has not granted or agreed to grant to any person or entity any rights (including “piggy-back” registration rights) to have any securities of the Company registered with the Commission or any other Governmental Authority which has not been satisfied in full or waived on or prior to the date hereof and no person or entity, including, but not limited to, current or former shareholders of the Company, underwriters, brokers, agents or other third parties, has any right of first refusal, preemptive right, right of participation, anti-dilutive right or any similar right to participate in, or to receive securities or other assets of the Company solely as a result of the transactions contemplated by this Agreement or the other Transaction Documents.

5.13 Solicitation; Other Issuances of Securities. Neither the Company nor any of its Affiliates, nor any Person acting on its or their behalf, (i) has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offer or sale of the Securities, or (ii) has, directly or indirectly, made any offers or sales of any security or the right to purchase any security, or solicited any offers to buy any security or any such right, under circumstances that would require registration of the Securities under the Securities Act.

5.14 Fees. Except as set forth on Schedule 5.14, the Company is not obligated to pay any brokers, finders or financial advisory fees or commissions to any underwriter, broker, agent or other representative in connection with the transactions contemplated hereby. The Company will indemnify and hold harmless each Holder from and against any claim by any Person alleging that such Holder is obligated to pay any such compensation, fee, cost or related expenditure in connection with the transactions contemplated hereby.

5.15 Foreign Corrupt Practices. Neither the Company, any Company Subsidiary nor, to the knowledge of the Company, any director, officer, agent, employee or other Person acting on behalf of the Company or any Company Subsidiary, has (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity, (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee, or (iii) violated any provision of the Foreign Corrupt Practices Act of 1977, as amended, or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.

5.16 Key Employees. The Company’s and each Company Subsidiary’s executive officers (as defined in Rule 501(f) of the Securities Act) (each, a “Key Employee”) is currently serving in the capacity described in the Disclosure Documents. The Company has no knowledge of any fact or circumstance (including, without limitation, (i) the terms of any agreement to which such person is a party or any litigation in which such person is or may become involved and (ii) any illness or medical condition that could reasonably be expected to result in the disability or incapacity of such person) that would limit or prevent any such person from serving in such capacity on a full-time basis in the foreseeable future, or of any intention on the part of any such person to limit or terminate his or her employment with the Company or any Company Subsidiary. No Key Employee has borrowed money pursuant to a currently outstanding loan that is secured by Common Stock or any right or option to receive Common Stock.

5.17 Labor Matters. There is no strike, labor dispute or union organization activities pending or, to the knowledge of the Company, threatened between the Company or any Company Subsidiary and their respective employees. No employees of the Company or any Company Subsidiary belong to any union or collective bargaining unit. The Company and each Company Subsidiary has complied in all material respects with all applicable federal and state equal opportunity and other laws related to employment.

5.18 Environment. Neither the Company nor any Company Subsidiary has any liabilities under any Environmental Law, nor, to the Company's knowledge, do any factors exist that are reasonably likely to give rise to any such liability, affecting any of the properties owned or leased by the Company or any Company Subsidiary. Neither the Company nor any Company Subsidiary has violated any Environmental Law applicable to it now or previously in effect, other than minor violations or infringements that are immaterial in nature.

 

5.19 ERISA. The Company does not maintain or contribute to, or have any obligation under, any Pension Plan. The Company is in compliance in all material respects with the presently applicable provisions of ERISA and the United States Internal Revenue Code of 1986, as amended, with respect to each Pension Plan except in any such case for any such matters that, individually or in the aggregate, have not had, and would not reasonably be expected to have, a Material Adverse Effect.

5.20 Disclosure. The representations, warranties and written statements contained in this Agreement and the other Transaction Documents and in the certificates, exhibits and schedules delivered to Imperium pursuant to this Agreement and the other Transaction Documents and in connection with Imperium’s due diligence investigation of the Company, do not contain any untrue statement of a material fact, and do not omit to state a material fact required to be stated therein or necessary in order to make such representations, warranties or statements not misleading in light of the circumstances under which they were made. Neither the Company nor any Person acting on its behalf or at its direction has provided Imperium with material non-public information other than the terms of the transactions contemplated hereby. Following the issuance of a press release in accordance with Section 6.1(c), to the Company’s knowledge, Imperium will not possess any material non-public information concerning the Company that was provided to Imperium by the Company or its agents or representatives. The Company acknowledges that Imperium is relying on the representations, acknowledgments and agreements made by the Company in this Section 5.20 and elsewhere in this Agreement in making trading and other decisions concerning the Company’s securities.

5.21 Insurance. The Company maintains insurance for itself and each material Company Subsidiary in such amounts and covering such losses and risks as are reasonably sufficient and customary in the businesses in which the Company and each such Company Subsidiary are engaged. As of the date hereof and as of the Closing Date, no notice of cancellation has been received for any of such policies and the Company is in compliance in all material respects with all of the terms and conditions thereof. The Company has no reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue to conduct its business as currently conducted without a significant increase in cost. Without limiting the generality of the foregoing, the Company maintains Director’s and Officer’s insurance in an amount not less than $5 million for each covered occurrence.

5.22  Property. The Company and each Company Subsidiary have good and marketable title to all real and personal Property owned by them, in each case free and clear of all Liens, other than the Liens set forth on Schedule 5.22 and the Permitted Liens specified in clauses (b) through (d) in the definition thereof. Any Property held under lease by the Company or a Company Subsidiary is held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made or proposed to be made of such Property by the Company or such Company Subsidiary.

 

5.23  Regulatory Permits. The Company and each Company Subsidiary possess all certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, except where the failure to have any such certificate, authorization or permit would not have a Material Adverse Effect, and neither the Company nor any Company Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit.

5.24 Investment Company Status. The Company is not, and immediately after the Closing will not be, an “investment company” or an entity “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended (the “Investment Company Act”), and shall conduct its business in a manner so that it will not become subject to the Investment Company Act.

5.25 Transfer Taxes. No stock transfer or other taxes (other than income taxes) are required to be paid in connection with the issuance and sale of any of the Securities or Working Capital Notes, other than such taxes for which the Company has established appropriate reserves and intends to pay in full on or before the Closing.

5.26 Sarbanes-Oxley Act; Internal Controls and Procedures. The Company is in material compliance with any and all applicable requirements of the Sarbanes-Oxley Act of 2002, as amended, and any and all applicable rules and regulations promulgated by the Commission thereunder that are effective as of the date hereof. The Company maintains internal accounting controls, policies and procedures, and such books and records as are reasonably designed to provide reasonable assurance that (i) all transactions to which the Company or any Company Subsidiary is a party or by which its properties are bound are effected by a duly authorized employee or agent of the Company, supervised by and acting within the scope of the authority granted by the Company’s senior management; (ii) the recorded accounting of the Company’s consolidated assets is compared with existing assets at regular intervals; and (iii) all transactions to which the Company or any Company Subsidiary is a party, or by which its properties are bound, are recorded (and such records maintained) in accordance with all Governmental Requirements and as may be necessary or appropriate to ensure that the financial statements of the Company are prepared in accordance with GAAP.

5.27 Embargoed Person. None of the funds or other assets of the Company or any Company Subsidiary shall constitute property of, or shall be beneficially owned, directly or indirectly, by any Person subject to trade restrictions under United States law, including, but not limited to, the International Emergency Economic Powers Act, 50 U.S.C. § 1701 et seq., the Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Orders or regulations promulgated under any such United States laws (each, an “Embargoed Person”), with the result that the investments evidenced by the Securities or Working Capital Notes are or would be in violation of any Governmental Requirements. No Embargoed Person shall have any interest of any nature whatsoever in the Company or any Company Subsidiary with the result that the investments evidenced by the Securities or Working Capital Notes are or would be in violation of any Governmental Requirements. None of the funds or other assets of the Company or any Company Subsidiary shall be derived from any unlawful activity with the result that the investments evidenced by the Securities or Working Capital Notes are or would be in violation of any Governmental Requirements.

5.28 Transactions with Interested Persons. No officer, director or employee of the Company or any Company Subsidiary is or has made any arrangements with the Company or any Company Subsidiary to become a party to any transaction with the Company or any Company Subsidiary (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.

5.29 Customers and Suppliers. The relationships of the Company and each Company Subsidiary with their respective customers and suppliers are maintained on commercially reasonable terms. To the Company’s knowledge, no customer or supplier of the Company or any Company Subsidiary has any plan or intention to terminate its agreement with the Company or any Company Subsidiary, which termination would reasonably be expected to have a Material Adverse Effect.

5.30 Accountants. The Company’s accountants, who the Company expects will render their opinion with respect to the financial statements to be included in the Company’s Annual Report on Form 10-KSB for the year ended June 30, 2007, are, to the Company’s knowledge, independent accountants as required by the Securities Act.

5.31 Solvency. (i) The fair saleable value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing Debt; and (ii) the expected cash flows of the Company for future periods, together with the proceeds the Company would receive upon liquidation of its assets and the proceeds from expected debt or equity offerings, after taking into account all anticipated uses of such amounts, would be sufficient to pay all Debt when such Debt is required to be paid. The Company has no knowledge of any facts or circumstances which led it to believe that it will be required to file for reorganization or liquidation under bankruptcy or reorganization laws of any jurisdiction, and has no present intention to so file.

5.32 Tangible Assets; Inventory; Accounts Receivable. (i) The Consolidated Tangible Assets are equal to or greater than the Tangible Asset Threshold and (ii) the Consolidated Accounts and Inventory are equal to or greater than the Accounts and Inventory Threshold.

6. COVENANTS AND AGREEMENTS.

6.1 Filings and Public Disclosure by the Company. The Company shall:

 

(a) file a Form D with respect to the Securities issued at the Closing as and when required under Regulation D and provide a copy thereof to Imperium promptly after such filing;

 

(b) at or prior to the Closing, take such action as the Company reasonably determines upon the advice of counsel is necessary to qualify the Securities for sale under applicable state or “blue-sky” laws or obtain an exemption therefrom, and shall promptly provide evidence of any such action to Imperium at Imperium’s request; and

 

(c) (i) on or prior to 8:30 a.m. (eastern time) on the fourth Business Day following the Execution Date, issue a press release disclosing the material terms of this Agreement and the other Transaction Documents and the transactions contemplated hereby and thereby, and (ii) on or prior to 5:00 p.m. (eastern time) on the fourth Business Day following the Execution Date, file with the Commission a Current Report on Form 8-K disclosing the material terms of and including as exhibits this Agreement and the other Transaction Documents and the transactions contemplated hereby and thereby; provided, however, that each Holder shall have a reasonable opportunity to review and comment on any such press release or Form 8-K prior to the issuance or filing thereof; and provided, further, that if the Company fails to issue a press release disclosing the material terms of this Agreement and the other Transaction Documents within the time frames described herein, any Holder may issue a press release disclosing such information without any notice to or consent by the Company. Thereafter, the Company shall timely file any filings and notices required by the Commission or applicable law with respect to the transactions contemplated hereby.

 

6.2 Use of Proceeds. The Company shall use the proceeds from the sale of the Convertible Notes and Warrant for working capital and general corporate purposes.

 

6.3 Certain Affirmative Covenants of the Company. The Company agrees that, during the period beginning on the Execution Date and ending on the Termination Date, the Company shall, and shall cause each Company Subsidiary to:

 

(a) maintain its corporate existence in good standing;

(b) comply with all Governmental Requirements applicable to the operation of its business, except for instances of noncompliance that would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;

(c) comply with all agreements, documents and instruments binding on it or affecting its Properties or business, including, without limitation, all Material Contracts, except for instances of noncompliance that would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;

(d) provide each Holder with copies of all materials sent to its shareholders at the same time as such materials are delivered to such shareholders;

 

(e) timely file with the Commission all reports required to be filed pursuant to the Exchange Act and refrain from terminating its status as an issuer required by the Exchange Act to file reports thereunder even if the Exchange Act or the rules or regulations thereunder would permit such termination;

 

(f) ensure that the Common Stock is at all times listed or quoted on the OTC Bulletin Board, the New York Stock Exchange, the NASDAQ Capital Market, the American Stock Exchange, or such other exchange or quotation service reasonably satisfactory to the Holders; and

(g) maintain commercially reasonable insurance coverage (including D&O insurance) for the Company and each Company Subsidiary.

 

6.4 Certain Negative Covenants of the Company. The Company agrees that, during the period beginning on the Execution Date and ending on the Termination Date, the Company shall not, and shall cause each Company Subsidiary not to:

(a) enter into any transaction or arrangement with any Affiliate, employee, officer, director or shareholder of the Company or Company Subsidiary, unless such transaction is effectuated on an arms’ length basis and approved by the independent directors of the Company or such Company Subsidiary, as the case may be;

(b) incur (or permit to exist) any Debt other than Permitted Debt;

(c) grant, establish or maintain any Lien on any of its Property other than Permitted Liens;

(d) make any Restricted Payments other than Restricted Payments made by a Company Subsidiary to the Company;

(e) dispose of all or any part of its Property unless (i) such disposition is in the ordinary course of business and for fair market value, and (ii) such Property is not material to the Company’s or any Company Subsidiary’s business, operations or financial condition or performance;

(f) consent to or implement any termination, amendment, modification, supplement or waiver of the certificate or articles of incorporation, articles of organization, bylaws, regulations or other constituent documents of the Company or any Company Subsidiary which could reasonably be expected to adversely affect the rights of the Holders under the Transaction Documents; and

(g) effectuate a Subsequent Placement of (x) any Variable Rate Security or (y) any securities of a Company Subsidiary.

6.5 Use of Holder’s Name. Except as may be required by applicable law and/or this Agreement, the Company shall not use, directly or indirectly, any Holder’s name or the name of any of its Affiliates in any advertisement, announcement, press release or other similar communication unless it has received the prior written consent of such Holder for the specific use contemplated or as otherwise required by applicable law or regulation.

6.6 Reservation of Common Stock. The Company shall, on the Closing Date, have authorized and reserved for issuance to the Holders free from any preemptive rights, and shall keep available at all times during which any Convertible Notes, Warrants, or Advisory Fee Warrants are outstanding, a number of shares of Common Stock (the “Reserved Amount”) that, on the Closing Date, is not less than two hundred percent (200%) of (i) the number of Conversion Shares issuable upon conversion of the Convertible Note to be issued at the Closing in full plus (ii) the number of Warrant Shares issuable upon exercise of the Warrant to be issued at the Closing in full plus (iii) the number of Advisory Fee Warrant Shares issuable upon exercise of the Advisory Fee Warrant, in each case without regard to any limitation or restriction on such conversion or exercise that may be set forth in the Convertible Note, Warrant, or the Advisory Fee Warrant. The Reserved Amount shall be allocated among the Holders in accordance with each Holder’s pro rata share of the outstanding Convertible Notes, Warrants and Advisory Fee Warrants. In the event that a Holder shall sell or otherwise transfer any of such Holder’s Convertible Notes, Warrants or Advisory Fee Warrants, each transferee shall be allocated a pro rata portion of such transferor’s Reserved Amount. Any portion of the Reserved Amount allocated to any Holder or other Person which no longer holds any Convertible Notes, Warrants, or Advisory Fee Warrants shall be reallocated to the remaining Holders pro rata based on the number of the Registrable Securities held by such Holders at such time. In the event that the Reserved Amount is insufficient at any time to cover one hundred twenty five percent (125%) of the Registrable Securities issuable upon the conversion of the Convertible Notes and exercise of the Warrants and Advisory Fee Warrants (without regard to any restriction on such conversion or exercise), the Company shall take such action (including, without limitation, holding a meeting of its shareholders) to increase the Reserved Amount to cover two hundred percent (200%) of such Registrable Securities, such increase to be effective not later than the thirtieth (30th) day (or sixtieth (60th) day, in the event shareholder approval is required for such increase) following the date on which the Reserved Amount became insufficient hereunder. While any Convertible Notes, Warrants or Advisory Fee Warrants are outstanding, the Company shall not reduce the Reserved Amount without obtaining the prior written consent of each Holder then holding a Convertible Note, Warrant or Advisory Fee Warrant.

6.7 Disclosure of Non-Public Information. The Company agrees that it will not at any time following the Execution Date disclose material non-public information to any Holder without first obtaining such Holder’s prior written consent confirming that such Holder is willing to receive material non-public information at such time.

6.8 Guarantee by Company Subsidiaries. During the period beginning on the date hereof and ending on the Termination Date, if the Company creates or acquires any new Company Subsidiary that has, or any existing Company Subsidiary develops or acquires, any business operations or owns any material assets, then the Company shall cause such new or existing Company Subsidiary to, contemporaneously with such creation, acquisition or development, become party to the Security Documents.

6.9 Indemnification of Holders. The Company will indemnify and hold each Holder and its directors, managers, officers, shareholders, members, partners, employees and agents (each, a “Holder Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Holder Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or by the Company or any Company Subsidiary in the other Transaction Documents or (b) any action instituted against a Holder, or any of its Affiliates, by any shareholder of the Company who is not an Affiliate of such Holder, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Holder’s representation, warranties or covenants under the Transaction Documents or any agreements or understandings such Holder may have with any such shareholder or any violations by such Holder of state or federal securities laws or any conduct by such Holder which constitutes fraud, gross negligence, willful misconduct or malfeasance). If any action shall be brought against any Holder Party in respect of which indemnity may be sought pursuant to this Agreement, such Holder Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing. Any Holder Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Holder Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time following such Holder Party’s written request that it do so, to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of such separate counsel, a material conflict on any material issue between the position of the Company and the position of such Holder Party. The Company will not be liable to any Holder Party under this Agreement (i) for any settlement by a Holder Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (ii) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to such Holder Party’s wrongful actions or omissions, or gross negligence or to such Holder Party’s breach of any of the representations, warranties, covenants or agreements made by such Holder in this Agreement or in the other Transaction Documents.

 

6.10 Limitations on Disposition. No Holder shall sell, transfer, assign or dispose of any Securities, unless:

 

(a) there is then in effect an effective registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or

(b) such Holder has notified the Company in writing of any such disposition, and furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such Securities under the Securities Act; provided, however, that no such opinion of counsel will be required (A) if the sale, transfer, assignment or disposition is made to an Affiliate of such Holder, (B) if the sale, transfer, assignment or disposition is made pursuant to Rule 144 and such Holder provides the Company with evidence reasonably satisfactory to the Company that the proposed transaction satisfies the requirements of Rule 144, (C) if such Securities are eligible for resale under Rule 144(k) or any successor provision or (D) if in connection with a bona fide pledge or hypothecation of any Securities under a margin arrangement with a broker-dealer or other financial institution or the sale of any such Securities by such broker-dealer or other financial institution following such Holder’s default under such margin arrangement.

6.11 Consolidated Tangible Assets.  During the period beginning on the date hereof and ending on the Termination Date, the Consolidated Tangible Assets shall on the last Business Day of each calendar month be equal to or exceed the Tangible Asset Threshold. If, at any time or from time to time during the period beginning on the date hereof and ending on the Termination Date, the Consolidated Tangible Assets on the last Business Day of a calendar month are less than the Tangible Asset Threshold on such Business Day, the Holder shall have the option to notify the Company in writing demanding the Company prepay the Notes then outstanding by an amount equal to such shortfall on a pro rata basis in proportion to the outstanding principal of each such Note. In furtherance of the foregoing financial covenant, the Company shall, on or prior to the thirtieth (30^th) day following each calendar month following the date hereof, deliver to Imperium a certificate certified by the Chief Financial Officer of the Company certifying (i) that the Company is in compliance with the foregoing financial covenant as of the last Business Day of such calendar month; or (ii) if the Company is not in compliance with the foregoing financial covenant, the amount of such shortfall.

6.12 Consolidated Accounts and Inventory. During the period beginning on the date hereof and ending on the Termination Date, the Consolidated Accounts and Inventory shall on the last Business Day of each calendar month be equal to or exceed the Accounts and Inventory Threshold. If, at any time or from time to time during the period beginning on the date hereof and ending on the Termination Date, the Consolidated Accounts and Inventory, on the last Business Day of a calendar month are less than the Accounts and Inventory Threshold, the Holder shall have the option to notify the Company in writing demanding the Company prepay the Notes then outstanding by an amount equal to such shortfall on a pro rata basis in proportion to the outstanding principal of each such Note. In furtherance of the foregoing financial covenant, the Company shall, on or prior to the thirtieth (30^th) day following each calendar month following the date hereof, deliver to Imperium a certificate certified by the Chief Financial Officer of the Company certifying (i) that the Company is in compliance with the foregoing financial covenant as of the last Business Day of such calendar month; or (ii) if the Company is not in compliance with the foregoing financial covenant, the amount of such shortfall.

7. MISCELLANEOUS.

7.1 Survival; Severability. The representations, warranties, covenants and indemnities made by the parties herein and in the other Transaction Documents shall survive the Closing notwithstanding any due diligence investigation made by or on behalf of the party seeking to rely thereon. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that in such case the parties shall negotiate in good faith to replace such provision with a new provision which is not illegal, unenforceable or void, as long as such new provision does not materially change the economic benefits of this Agreement to the parties.

7.2 Successors and Assigns. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and permitted assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. A Holder may assign its rights and obligations hereunder in connection with any private sale or transfer of the Securities or any Working Capital Note, as long as, as a condition precedent to such transfer, the transferee executes an acknowledgment agreeing to be bound by the applicable provisions of this Agreement, in which case the term “Holder” shall be deemed to refer to such transferee as though such transferee were an original signatory hereto, and such assignment complies with applicable Governmental Requirements. The Company may not assign its rights or obligations under this Agreement.

 

Sichenzia Ross Friedman Ference LLP

61 Broadway, 32^nd Floor

New York, New York 10006

Attn: Darrin Ocasio, Esq.

Tel:  ###-###-####

Fax:  ###-###-####

and if to any Holder, to such address for such Holder as shall appear on such Holder’s signature page hereto, or as shall be designated by such Holder in writing to the Company in accordance with this Section 7.9. 

7.10 Expenses. The Company and each Holder shall pay all costs and expenses that it incurs in connection with the negotiation, execution, delivery and performance of this Agreement or the other Transaction Documents; provided, however, that the Company shall, at the Closing, pay to Imperium’s counsel the amount of $67,500 in immediately available funds as reimbursement for its out-of-pocket expenses (including, without limitation, legal fees and expenses) incurred or to be incurred by it in connection with its due diligence investigation of the Company and the negotiation, preparation, execution, delivery and performance of this Agreement and the other Transaction Documents. At the Closing, the amount due for such fees and expenses may be netted out of the Purchase Price payable by Imperium.

7.11 Entire Agreement; Amendments. This Agreement and the other Transaction Documents constitute the entire agreement between the parties with regard to the subject matter hereof and thereof, superseding all prior agreements or understandings, whether written or oral, between or among the parties. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended except pursuant to a written instrument executed by the Company and (i) prior to the Termination Date, by the holders of a majority of the aggregate principal of the Notes then outstanding, and (ii) on and after the Termination Date, by the holders of a majority of the aggregate number of the Warrant Shares into which the Warrants then outstanding are exercisable (without regard to any limitation on the exercise of the Warrants). Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

[Signature Pages to Follow]

 

 

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first-above written.

 

MANARIS CORPORATION

By: 

---

Name:

Title:

IMPERIUM MASTER FUND, LTD.

 

ADDRESS:

c/o Imperium Advisers, LLC

153 East 53^rd Street- 29^th Floor

New York, NY 10022

Attn: Maurice Hryshko, Esq.

Tel: (212) 433-1360

Fax: (212) 433-1361

 

 

In addition to any other information requested by the Holders, the following information shall be provided to the Holders in respect of each proposed Acquisition:

1.

the purchase price and all other anticipated transaction costs of such Acquisition;

2.

a description of the assets, business or operations being acquired (including the name of the Acquisition target, if applicable);

3.

the total Debt and other liabilities of such Acquisition target, including a breakdown of the liabilities that will be assumed by the Company versus the liabilities that will be paid off at closing (along with copies of all applicable payoff letters);

4.

a list of all Liens encumbering such Acquisition target or its assets;

5.

the Acquisition target’s existing insurance protection;

6.

the annual revenues of such Acquisition target;

7.

the anticipated annual revenues per dollar of the purchase price of such Acquisition;

8.

the book value of the assets being purchased;

9.

the market value of the assets being purchased;

10.

the net value of the assts being purchased (i.e. the book value of the assets being purchased less the liabilities being assumed);

11.

the net assets per dollar of the purchase price of such Acquisition; and

12.

the annual revenues plus net assets per dollar of the purchase price of such Acquisition.