Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of March __,
2010, is entered into by and among Cereplast, Inc., a Nevada corporation with
headquarters located at 3421-3411 West El Segundo Boulevard, Hawthorne,
California 90250 (the “Company”), and each investor identified on the signature
pages hereto (individually, an “Investor” and collectively, the “Investors”).
RECITALS
A. The Company and each Investor are executing and delivering this Agreement in
reliance upon the exemption from registration afforded by Section 4(2) of the
Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 of
Regulation D (“Regulation D”) as promulgated by the United States Securities and
Exchange Commission (the “SEC”) under the Securities Act.
B. The Company is offering to sell an amount of post-reverse split shares of the
common stock, par value $0.001 per share, of the Company (the “Common Stock”)
for an aggregate purchase price of up to $1,250,000 (it being understood that
the Company may increase or decrease such amount in its sole discretion, without
the consent of the Investors).
C. Each Investor, severally and not jointly, wishes to purchase, and the Company
wishes to sell, upon the terms and conditions stated in this Agreement, that
aggregate number of shares of post-reverse split Common Stock (the “Common
Shares” or the “Securities”), set forth on such Investor’s signature page to
this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Investors agree
as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this Agreement,
the following terms have the meanings indicated:
“8-K Filing” has the meaning set forth in Section 4.4.
“Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 144 under the
Securities Act.
“Agreement” has the meaning set forth in the preamble to this Agreement.

 

 

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“Business Day” means any day other than Saturday, Sunday, any day which shall be
a federal legal holiday in the United States or any day on which banking
institutions in the State of New York are authorized or required by law or other
governmental action to close.
“Closing” means the closing of the purchase and sale of the Securities pursuant
to Section 2.1.
“Closing Date” means March __, 2010, or such other later date and time as is
determined by the Company as to which each Investor is notified in writing.
“Company” has the meaning set forth in the preamble to this Agreement.
“Company Counsel” means Sichenzia Ross Friedman Ference LLP, special counsel to
the Company.
“Common Shares” has the meaning set forth in the recitals to this Agreement.
“Common Stock” has the meaning set forth in the recitals to this Agreement.
“Convertible Securities” means any stock or securities (other than Options)
convertible into or exercisable or exchangeable for Common Stock.
“Disclosure Materials” has the meaning set forth in Section 3.1(f).
“Eligible Market” means any of the New York Stock Exchange, the American Stock
Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ
Capital Market or OTC Bulletin Board.
“Environmental Laws” has the meaning set forth in Section 3.1(z).
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“GAAP” has the meaning set forth in Section 3.1(f).
“Hazardous Materials” has the meaning set forth in Section 3.1(z).
“Indebtedness” means (i) all indebtedness for borrowed money, (ii) all
obligations issued, undertaken or assumed as the deferred purchase price of
property or services (other than trade payables entered into in the ordinary
course of business), (iii) all reimbursement or payment obligations with respect
to letters of credit, surety bonds and other similar instruments, (iv) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (v) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (vi) all monetary obligations under any
leasing or similar arrangement which, in

 

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connection with generally accepted accounting principles, consistently applied
for the periods covered thereby, is classified as a capital lease, (vii) all
indebtedness referred to in clauses (i) through (vi) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment of
such indebtedness, and (viii) all Contingent Obligations in respect of
indebtedness or obligations of others of the kinds referred to in clauses
(i) through (vii) above.
“Indemnified Party” has the meaning set forth in Section 6.4(c).
“Indemnifying Party” has the meaning set forth in Section 6.4(c).
“Insolvent” has the meaning set forth in Section 3.1(g).
“Intellectual Property Rights” has the meaning set forth in Section 3.1(q).
“Investor” has the meaning set forth in the preamble to this Agreement.
“Lien” means any lien, charge, claim, security interest, encumbrance or right of
first refusal.
“Losses” means any and all losses, claims, damages, liabilities, settlement
costs and expenses, including, without limitation, reasonable attorneys’ fees.
“Material Adverse Effect” means a material adverse effect on the results of
operations, assets, business, or financial condition of the Company, provided,
that none of the following alone shall be deemed, in and of itself, to
constitute a Material Adverse Effect: (i) a change in the market price or
trading volume of the Common Stock or (ii) changes in general economic
conditions or changes affecting the industry in which the Company operates
generally (as opposed to Company-specific changes).
“Material Permits” has the meaning set forth in Section 3.1(s).
“Options” means any outstanding rights, warrants or options to subscribe for or
purchase Common Stock or Convertible Securities.
“Person” means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
“Post-reverse Split” means shares of the Company’s common stock issuable
pursuant to this Agreement, after giving effect to a reverse stock split in a
ratio of 1 for 40 implemented pursuant to the Certificate of Amendment to the
Articles of Incorporation of the Company filed with the Secretary of State of
Nevada on January 6, 2010.

 

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“Proceeding” means an action, claim, suit, investigation or proceeding
(including, without limitation, a deposition), whether commenced or threatened
in writing.
“Purchase Price Per Share” means, $2.00 per share of Common Stock.
“Registrable Securities” means the Common Shares issued or issuable pursuant to
this Agreement, together with any securities issued or issuable upon any stock
split, dividend or other distribution, recapitalization or similar event with
respect to the foregoing, but only until such securities can be resold pursuant
to Rule 144(b) or pursuant to an effective registration statement. No
registration rights are attached to this Agreement.
“Regulation D” has the meaning set forth in the recitals to this Agreement.
“Rule 144,” “Rule 415” and “Rule 424” mean Rule 144, Rule 415 and Rule 424,
respectively, promulgated by the SEC pursuant to the Securities Act, as such
Rules may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC having substantially the same effect as such Rule.
“SEC” has the meaning set forth in the recitals to this Agreement.
“SEC Reports” has the meaning set forth in Section 3.1(f).
“Securities” has the meaning set forth in the recitals to this Agreement.
“Securities Act” has the meaning set forth in the recitals to this Agreement.
“Shares” means shares of the Common Stock.
“Short Sales” has the meaning set forth in Section 3.2(i).
“Trading Day” means (i) a day on which the Common Stock is traded on a Trading
Market (other than the OTC Bulletin Board), or (ii) if the Common Stock is not
listed or quoted on a Trading Market (other than the OTC Bulletin Board), a day
on which the Common Stock is traded in the over-the-counter market, as reported
by the OTC Bulletin Board, or (iii) if the Common Stock is not listed or quoted
on any Trading Market, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the Pink Sheets LLC (or any similar
organization or agency succeeding to its functions of reporting prices);
provided, that in the event that the Common Stock is not listed or quoted as set
forth in clauses (i), (ii) and (iii) hereof, then Trading Day shall mean a
Business Day.
“Trading Market” means whichever of the New York Stock Exchange, the American
Stock Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market, the
NASDAQ Capital Market or OTC Bulletin Board on which the Common Stock is listed
or quoted for trading on the date in question.
“Transaction” has the meaning set forth in Section 3.2(i).

 

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“Transfer Agent” means Computershare, N.A., located at 350 Indiana Street,
Suite 800, Golden, CO 80401, or any successor transfer agent for the Company.
ARTICLE II
PURCHASE AND SALE
2.1 Closing. Subject to the terms and conditions set forth in this Agreement, at
the Closing the Company shall issue and sell to each Investor, and each Investor
shall, severally and not jointly, purchase from the Company, such number of
Common Shares for the price set forth on such Investor’s signature page to this
Agreement (which purchase price shall equal the number of shares purchased
multiplied by the Purchase Price Per Share). The date and time of the Closing
and shall be 11:00 a.m., New York City Time, on the Closing Date. The Closing
shall take place at the offices of the Company’s Counsel.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. The Company hereby represents
and warrants to the Investors on and as of the date hereof as follows, except as
disclosed in the SEC Reports:
(a) Organization and Qualification. The Company is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, with the requisite legal authority to own and use its properties
and assets and to carry on its business as currently conducted. The Company is
not in violation of any of the provisions of its articles of incorporation and
bylaws. The Company is duly qualified to do business and is in good standing as
a foreign corporation or other entity in each jurisdiction in which the nature
of the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, would not, individually or in the aggregate, have or result in
a Material Adverse Effect.
(b) Authorization; Enforcement. The Company has the requisite corporate
authority to enter into and to consummate the transactions contemplated by this
Agreement and otherwise to carry out its obligations hereunder. The execution
and delivery of this Agreement by the Company and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company and no further consent or corporate
action is required by the Company, its Board of Directors or its stockholders.
This Agreement has been (or upon delivery will be) duly executed by the Company
and is, or when delivered in accordance with the terms hereof, will constitute,
the valid and binding obligation of the Company enforceable against the Company
in accordance with its terms, except (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application relating to or affecting the enforcement of
creditors’ rights generally, (ii) as limited by laws or rules of law relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law.

 

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(c) No Conflicts. The execution, delivery and performance by the Company of this
Agreement and the consummation by the Company of the transactions contemplated
hereby do not as of the date hereof, (i) conflict with or violate any provision
of the Company’s articles of incorporation or bylaws, (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of time
or both) of, any agreement, credit facility, debt or other instrument evidencing
a Company debt or other agreement or instrument to which the Company is a party
or by which any property or asset of the Company is bound, or affected, except
to the extent that such conflict, default, termination, amendment, acceleration
or cancellation right would not have a Material Adverse Effect, or (iii) result
in a violation of any law, rule, regulation, order, judgment, injunction, decree
or other restriction of any court or governmental authority to which the Company
is subject (including, assuming the accuracy of the representations and
warranties of the Investors set forth in Section 3.2 hereof, federal and state
securities laws and regulations and the rules and regulations of any
self-regulatory organization to which the Company or its securities are subject,
including all applicable Trading Markets), or by which any property or asset of
the Company is bound or affected, except to the extent that such violation would
not have a Material Adverse Effect.
(d) The Securities. The Securities are duly authorized and, when issued and paid
for in accordance with this Agreement, will be duly and validly issued, fully
paid and nonassessable, free and clear of all Liens and will not be subject to
preemptive or similar rights of stockholders.
(e) Capitalization. The aggregate number of shares and type of all issued and
outstanding classes of capital stock, options and other securities of the
Company (whether or not presently convertible into or exercisable or
exchangeable for shares of capital stock of the Company) is set forth in the SEC
Reports. All outstanding shares of capital stock are duly authorized, validly
issued, fully paid and nonassessable and have been issued in compliance in all
material respects with all applicable securities laws. Except as disclosed in
the SEC Reports, as of the date of this Agreement, the Company did not have
outstanding any other Options or securities, rights or obligations convertible
into or exercisable or exchangeable for, or enter into any agreement giving any
Person any right to subscribe for or acquire, any shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common Stock.
Except as set forth in the SEC reports, and except for customary adjustments as
a result of stock dividends, stock splits, combinations of shares,
reorganizations, recapitalizations, reclassifications or other similar events,
there are no anti-dilution or price adjustment provisions contained in any
security issued by the Company (or in any agreement providing rights to security
holders) and the issuance and sale of the Securities will not result in a right
of any holder of securities to adjust the exercise, conversion, exchange or
reset price under such securities. To the knowledge of the Company, except as
disclosed in the SEC Reports and any Schedules 13D or 13G filed with the SEC
pursuant to Rule 13d-1 of the Exchange Act by reporting persons, no Person or
group of related Persons beneficially owns (as determined pursuant to Rule 13d-3
under the Exchange Act), or has the right to acquire, by agreement with or by
obligation binding upon the Company, beneficial ownership of in excess of 5% of
the outstanding Common Stock.

 

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(f) SEC Reports; Financial Statements. The Company has filed all reports
required to be filed by it under Exchange Act Sections 13(a) or 15(d), for the
12 months preceding the date hereof on a timely basis or has received a valid
extension of such time of filing and has filed any such SEC Reports prior to the
expiration of any such extension. Such reports required to be filed by the
Company under Exchange Act Sections 13(a) or 15(d) thereof, together with any
materials filed by the Company under the Exchange Act, whether or not any such
reports were required, being collectively referred to herein as the “SEC
Reports” and, together with this Agreement, the “Disclosure Materials.” As of
their respective dates (or, if amended or superseded by a filing prior to the
Closing Date, then on the date of such filing), the SEC Reports filed by the
Company complied in all material respects with the requirements of the Exchange
Act and the rules and regulations of the SEC promulgated thereunder, and none of
the SEC Reports, when filed (or, if amended or superseded by a filing prior to
the Closing Date, then on the date of such filing) by the Company, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Reports comply as to
form in all material respects with applicable accounting requirements and the
rules and regulations of the SEC with respect thereto as in effect at the time
of filing (or, if amended or superseded by a filing prior to the Closing Date,
then on the date of such filing). Such financial statements have been prepared
in accordance with United States generally accepted accounting principles
applied on a consistent basis during the periods involved (“GAAP”), except as
may be otherwise specified in such financial statements, the notes thereto, and
except that unaudited financial statements may not contain all footnotes
required by GAAP or may be condensed or summary statements, and fairly present
in all material respects the financial position of the Company as of and for the
dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal, year-end audit
adjustments. All material agreements to which the Company is a party or to which
the property or assets of the Company are subject are included as part of or
identified in the SEC Reports, to the extent such agreements are required to be
included or identified pursuant to the rules and regulations of the SEC.
(g) Material Changes; Undisclosed Events, Liabilities or Developments; Solvency.
Since the date of the latest audited financial statements included within the
SEC Reports, except as disclosed in the SEC Reports, there has been no event,
occurrence or development that, individually or in the aggregate, has had or
that would result in a Material Adverse Effect. The Company has not taken any
steps to seek protection pursuant to any bankruptcy law. To the Company’s
knowledge, none of its creditors intend to initiate involuntary bankruptcy
proceedings against the Company. The Company is not as of the date hereof, and
after giving effect to the transactions contemplated hereby to occur at the
applicable Closing, will not be Insolvent (as defined below). For purposes of
this Section 3.1(g), “Insolvent” means (i) the present fair saleable value of
the Company’s assets is less than the amount required to pay the Company’s total
Indebtedness, (ii) the Company is unable to pay its debts and liabilities,
subordinated, contingent or otherwise, as such debts and liabilities become
absolute and matured or (iii) the Company has unreasonably small capital with
which to conduct the business in which it is engaged as such business is now
conducted and is proposed to be conducted.

 

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(h) Absence of Litigation. Except as disclosed in the SEC Reports, there is no
action, suit, claim, or Proceeding, or, to the Company’s knowledge, inquiry or
investigation, before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the
Company, threatened against or affecting the Company that could, individually or
in the aggregate, to have a Material Adverse Effect.
(i) Compliance. Except as would not, individually or in the aggregate, have or
result in a Material Adverse Effect, (i) the Company is not in default under or
in violation of (and no event has occurred that has not been waived that, with
notice or lapse of time or both, would result in a default by the Company
under), nor has the Company received written notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or by
which it or any of its properties is bound (whether or not such default or
violation has been waived), (ii) the Company is not in violation of any order of
any court, arbitrator or governmental body, or (iii) the Company is not and has
not been in violation of any statute, rule or regulation of any governmental
authority.
(j) Title to Assets. The Company owns no real property. The Company has good and
marketable title in all personal property owned by it that is material to the
business of the Company, in each case free and clear of all Liens, except for
Liens that do not, individually or in the aggregate, have or result in a
Material Adverse Effect.
(k) No General Solicitation. Neither the Company, nor any of its Affiliates, nor
any Person acting on its or their behalf, 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. Except for RF Lafferty &
Co, Inc., the Company has not engaged any placement agent or other agent in
connection with the sale of the Securities. The Company shall be responsible for
the payment of any placement agent’s fees, financial advisory fees, or brokers’
commission (other than for persons engaged by any Investor or its investment
advisor) of any other entity or firm retained by the Company or otherwise
approved in writing by the Company relating to or arising out of the issuance of
the Securities pursuant to this Agreement. The Company shall pay, and hold each
Investor harmless against, any liability, loss or expense (including, without
limitation, reasonable attorney’s fees and out-of-pocket expenses) of any other
entity or firm retained by the Company or otherwise approved in writing by the
Company arising in connection with any such claim for fees arising out of the
issuance of the Securities pursuant to this Agreement.
(l) Private Placement; Investment Company; U.S. Real Property Holding
Corporation. Neither the Company nor any of its Affiliates nor, any Person
acting on the Company’s behalf has, directly or indirectly, at any time within
the past six months, made any offer or sale of any security or solicitation of
any offer to buy any security under circumstances that would eliminate the
availability of the exemption from registration under Regulation D under the
Securities Act in connection with the offer and sale by the Company of the
Securities as contemplated hereby. Assuming the accuracy of the representations
and warranties of the Investors set forth in Section 3.2, no registration under
the Securities Act is required for the offer and sale of the Securities by the
Company to the Investors as contemplated hereby. The sale and issuance of the
Securities hereunder does not contravene the rules and regulations of any
Trading Market on which the Common Stock is listed or quoted. The Company is
not, and after receipt of payment for the Securities will not be, required to be
registered as an “investment company” within the meaning of the Investment
Company Act of 1940, as amended. The Company is not required to be registered as
a United States real property holding corporation within the meaning of the
Foreign Investment in Real Property Tax Act of 1980.

 

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(m) Listing and Maintenance Requirements. The Company has not, in the 12 months
preceding the date hereof, received notice (written or oral) from any Trading
Market on which the Common Stock is or has been listed or quoted to the effect
that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company is, and has no reason to
believe that it will not in the foreseeable future be, in compliance with all
such listing and maintenance requirements.
(n) Registration Rights. Except as described in the SEC Reports, the Company has
not granted or agreed to grant to any Person any rights (including “piggy-back”
registration rights) to have any securities of the Company registered with the
SEC or any other governmental authority that have not expired or been satisfied
or waived.
(o) Disclosure. The Company confirms that neither it nor any officers, directors
or Affiliates, has provided any of the Investors or their agents or counsel with
any information that constitutes material, nonpublic information (other than the
existence and terms of the issuance of Securities, as contemplated by this
Agreement). The Company understands and confirms that each of the Investors will
rely on the foregoing representations in effecting transactions in securities of
the Company. All disclosure provided by the Company to the Investors regarding
the Company, its business and the transactions contemplated hereby, are true and
correct in all material respects and do not contain any untrue statement of a
material fact or, when taken together with the Disclosure Materials, omit to
state any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading. To
the Company’s knowledge, except for the transactions contemplated by this
Agreement, no event or circumstance has occurred and no information exists with
respect to the Company or its business, properties, operations or financial
condition, which, under applicable law, rule or regulation, required public
disclosure or announcement by the Company prior to the date hereof but which has
not been so publicly announced or disclosed. The Company acknowledges and agrees
that no Investor makes or has made any representations or warranties with
respect to the transactions contemplated hereby other than those set forth in
this Agreement.
(p) Acknowledgment Regarding Investors’ Purchase of Securities. Based upon the
assumption that the transactions contemplated by this Agreement are consummated
in conformity with this Agreement, the Company acknowledges and agrees that each
of the Investors is acting solely in the capacity of an arm’s length purchaser
with respect to this Agreement and the transactions contemplated hereby. The
Company further acknowledges that no Investor is acting as a financial advisor
or fiduciary of the Company (or in any similar capacity) with respect to this
Agreement and the transactions contemplated hereby and any advice given by any
Investor or any of their respective representatives or agents in connection with
this Agreement and the transactions contemplated hereby is merely incidental to
the Investors’ purchase of the Securities.

 

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(q) Patents and Trademarks. To the Company’s knowledge, the Company owns, or
possesses adequate rights or licenses to use, all trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and other intellectual property rights
(“Intellectual Property Rights”) necessary to conduct its business as now
conducted in all material respects. None of the Company’s material Intellectual
Property Rights have expired or terminated, or are expected to expire or
terminate within three years from the date of this Agreement. The Company does
not have any knowledge of any material infringement by the Company of
Intellectual Property Rights of others. Except as disclosed in the SEC Reports,
there is no material claim, action or proceeding being made or brought, or to
the knowledge of the Company, being threatened, against the Company regarding
its Intellectual Property Rights.
(r) Insurance. The Company is insured by insurers of national standing against
such losses and risks and in such amounts as are prudent and customary for
businesses such as the Company’s and locations in which the Company has
facilities located.
(s) Regulatory Permits. The Company possesses all certificates, authorizations
and permits issued by the appropriate federal, state, local or foreign
regulatory authorities necessary to conduct its respective business in all
material respects as presently conducted and described in the SEC Reports
(“Material Permits"), except where the failure to possess such permits does not,
individually or in the aggregate, have or result in a Material Adverse Effect,
and the Company has not received any written notice of proceedings relating to
the revocation or modification of any Material Permit.
(t) Transactions With Affiliates and Employees. Except as set forth or
incorporated by reference in the Company’s SEC Reports, none of the officers,
directors or employees of the Company is presently a party to any transaction
with the Company that would be required to be reported on Form 10-K by Item 13
thereof pursuant to Regulation S-K Item 404(a) (other than for ordinary course
services as employees, officers or 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 such officer, director or employee or, to the
Company’s knowledge, any corporation, partnership, trust or other entity in
which any such officer, director, or employee has a substantial interest or is
an officer, director, trustee or partner.
(u) Internal Accounting Controls. The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management’s general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management’s general or specific
authorization, and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(v) Sarbanes-Oxley Act. The Company is in compliance in all material respects
with applicable requirements of the Sarbanes-Oxley Act of 2002 and applicable
rules and regulations promulgated by the SEC thereunder, except where such
noncompliance would not have, individually or in the aggregate, a Material
Adverse Effect.

 

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(w) Foreign Corrupt Practices. Neither the Company nor, to the knowledge of the
Company, any director, officer, agent, employee or other Person acting on behalf
of the Company has, in the course of its actions for, or on behalf of, the
Company (i) used any corporate funds for any unlawful contribution, unlawful
gift, unlawful 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 to any foreign or domestic political
parties or campaigns from corporate funds, (iii) violated or is in violation in
any material respect of any provision of the U.S. Foreign Corrupt Practices Act
of 1977, as amended or (iv) made any unlawful bribe, rebate, payoff, influence
payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
(x) Employee Relations. The Company is not a party to any collective bargaining
agreement or does not, to the Company’s knowledge, employ any member of a union.
Except as disclosed in the SEC Reports, during the period covered by the SEC
Reports, no executive officer of the Company has notified the Company that such
officer intends to leave the Company or otherwise terminate such officer’s
employment with the Company. To the knowledge of the Company, no executive
officer of the Company is in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement with any other
party or any restrictive covenant that is likely to have an Material Adverse
Effect on the Company.
(y) Labor Matters. The Company is in compliance in all material respects with
all federal, state, local and foreign laws and regulations respecting labor,
employment and employment practices and benefits, terms and conditions of
employment and wages and hours, except where failure to be in compliance would
not, either individually or in the aggregate, result in a Material Adverse
Effect.
(z) Environmental Laws. The Company (i) is in compliance in all material
respects with Environmental Laws (as hereinafter defined), (ii) has received all
material permits, licenses or other approvals required of it under applicable
Environmental Laws to conduct its businesses and (iii) is in compliance in all
material respects with all terms and conditions of any such permit, license or
approval where, in each of the foregoing clauses (i), (ii) and (iii), the
failure to so comply would be expected to have, individually or in the
aggregate, a Material Adverse Effect. The term “Environmental Laws” means all
federal, state, local or foreign laws relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, “Hazardous Materials") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.

 

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(aa) Tax Status. The Company (i) has made or filed all foreign, federal and
state income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject, to the extent the final deadlines for which
were on or before the date hereof, (ii) has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and (iii) has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim.
3.2 Representations, Warranties and Covenants of the Investors. Each Investor
hereby, as to itself only and for no other Investor, represents, warrants and
covenants to the Company as follows:
(a) Validity; Enforcement; Residency Organization This Agreement has duly and
validly authorized, executed and delivered on behalf of such Investor and shall
constitute the legal, valid and binding.
(b) Residency; Organization. If such Investor is an entity, (i) such Investor is
a resident of that jurisdiction specified below on the Investor Signature Page
attached hereto and (ii) such Investor is a validly existing corporation,
limited partnership or limited liability company and has all requisite
corporate, partnership or limited liability company power and authority to
invest in the Securities pursuant to this Agreement.
(c) No Public Sale or Distribution. Such Investor is acquiring the Common Shares
for its own account and not with a view towards, or for resale in connection
with, the public sale or distribution thereof, except pursuant to sales
registered under the Securities Act or under an exemption from such registration
and in compliance with applicable federal and state securities laws, and such
Investor does not have a present arrangement to effect any distribution of the
Securities to or through any person or entity; provided, however, that by making
the representations herein, such Investor does not agree to hold any of the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities Act.
(d) Investor Status. At the time such Investor was offered the Securities, it
was, and at the date hereof it is, an “accredited investor” as defined in Rule
501(a) under the Securities Act or a “qualified institutional buyer” as defined
in Rule 144A(a) under the Securities Act. Such Investor is not a registered
broker-dealer registered under Section 15(a) of the Exchange Act, or a member of
the Financial Industry Regulatory Authority (“FINRA”) or an entity engaged in
the business of being a broker dealer. Except as otherwise disclosed in writing
to the Company on Exhibit A attached hereto on or prior to the date of this
Agreement, such Investor is not affiliated with any broker-dealer registered
under Section 15(a) of the Exchange Act, or a member of FINRA or an entity
engaged in the business of being a broker dealer.
(e) General Solicitation. Such Investor is not purchasing the Securities as a
result of any advertisement, article, notice or other communication regarding
the Securities published in any newspaper, magazine or similar media, broadcast
over television or radio, disseminated over the Internet or presented at any
seminar or any other general solicitation or general advertisement.

 

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(f) Experience of Such Investor. Such Investor, either alone or together with
its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so evaluated the
merits and risks of such investment. Such Investor understands that it must bear
the economic risk of this investment in the Securities indefinitely, and is able
to bear such risk and is able to afford a complete loss of such investment.
(g) Access to Information. Such Investor acknowledges that it has had access to
and has reviewed the Disclosure Materials and has been afforded: (i) the
opportunity to ask such questions as it has deemed necessary of, and to receive
answers from, representatives of the Company concerning the terms and conditions
of the offering of the Securities and the merits and risks of investing in the
Securities, (ii) access to information about the Company and its financial
condition, results of operations, business, properties, management and prospects
sufficient to enable it to evaluate its investment and (iii) the opportunity to
obtain such additional information that the Company possesses or can acquire
without unreasonable effort or expense that is necessary to make an informed
investment decision with respect to the investment. Neither such inquiries nor
any other investigation conducted by or on behalf of such Investor or its
representatives or counsel shall modify, amend or affect such Investor’s right
to rely on the truth, accuracy and completeness of the Disclosure Materials and
the Company’s representations and warranties contained in this Agreement.
(h) No Governmental Review. Such Investor understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
(i) No Conflicts. The execution, delivery and performance by such Investor of
this Agreement and the consummation by such Investor of the transactions
contemplated hereby will not (i) result in a violation of the organizational
documents of such Investor or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which such Investor
is a party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws) applicable to
such Investor, except in the case of clauses (ii) and (iii) above, for such that
are not material and do not otherwise affect the ability of such Investor to
consummate the transactions contemplated hereby.
(j) Prohibited Transactions; Confidentiality. No Investor, directly or
indirectly, and no Person acting on behalf of or pursuant to any understanding
with any Investor, has engaged in any purchases or sales in the securities,
including derivatives, of the Company (including, without limitation, any Short
Sales (a “Transaction”) involving any of the Company’s securities) since the
time that such Investor was first contacted by the Company or any other Person
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Securities as contemplated under this Agreement. Such Investor covenants that
neither it nor any Person acting on its behalf or pursuant to any understanding
with such Investor will engage, directly or indirectly, in any Transactions in
the securities of the Company (including Short Sales) prior to the time the
transactions contemplated by this Agreement are publicly disclosed. “Short
Sales” include, without limitation, all “short sales” as defined in Rule 200
promulgated under Regulation SHO under the Exchange Act and all types of direct
and indirect stock pledges, forward sale contracts, options, puts, calls, short
sales, swaps, derivatives and similar arrangements (including on a total return
basis), and sales and other transactions through non-U.S. broker-dealers or
foreign regulated brokers.
(k) Restricted Securities. The Investors understand that the Securities are
characterized as “restricted securities” under the U.S. federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act only
pursuant to an available exemption from such registration requirements.
(l) Legends. It is understood that, except as provided in Section 4.1(b) of this
Agreement, certificates evidencing such Securities may bear the legend set forth
in Section 4.1(b).
(m) No Legal, Tax or Investment Advice. Such Investor understands that nothing
in this Agreement or any other materials presented by or on behalf of the
Company to the Investor in connection with the purchase of the Securities
constitutes legal, tax or investment advice. Such Investor has consulted such
legal, tax and investment advisors as it, in its sole discretion, has deemed
necessary or appropriate in connection with its purchase of the Securities.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Investors covenant that the Securities will only be disposed of pursuant
to an effective registration statement under, and in compliance with the
requirements of, the Securities Act or pursuant to an available exemption from
the registration requirements of the Securities Act, and in compliance with any
applicable state securities laws. In connection with any transfer of Securities
other than pursuant to an effective registration statement or to the Company, or
pursuant to Rule 144, the Company may require the transferor to provide to the
Company an opinion of counsel selected by the transferor, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration under the Securities Act.
Notwithstanding the foregoing, the Company hereby consents to and agrees to
register on the books of the Company and with its Transfer Agent, without any
such legal opinion, except to the extent that the Transfer Agent requests such
legal opinion, any transfer of Securities by an Investor to an Affiliate of such
Investor, provided that the transferee certifies to the Company that it is an
“accredited investor” as defined in Rule 501(a) under the Securities Act and
provided that such Affiliate does not request any removal of any existing
legends on any certificate evidencing the Securities.

 

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(b) The Investors agree to the imprinting, so long as it is required by this
Section 4.1(b), of the following legend on any certificate evidencing any of the
Securities:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR ANY APPLICABLE STATE SECURITIES LAWS AND, ACCORDINGLY, MAY
NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS. THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A
REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN
“ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR
OTHER LOAN SECURED BY SUCH SECURITIES.
Certificates evidencing the Common Shares shall not be required to contain such
legend or any other legend (i) following any sale of such Securities pursuant to
Rule 144 if the holder provides the Company with a legal opinion (and the
documents upon which the legal opinion is based) reasonably acceptable to the
Company to the effect that the Securities can be sold under Rule 144 or (ii) if
the holder provides the Company with a legal opinion (and the documents upon
which the legal opinion is based) reasonably acceptable to the Company to the
effect that the legend is not required under applicable requirements of the
Securities Act (including controlling judicial interpretations and
pronouncements issued by the Staff of the SEC). Provided that a registration
statement is then in effect, or at such earlier time as a legend is no longer
required for certain Securities, the Company will use commercially reasonable
efforts to send to the applicable Investor a certificate representing such
Securities that is free from all restrictive and other legends, no later than
five (5) Trading Days following the delivery by such Investor to the Company or
the Transfer Agent (if delivery is made to the Transfer Agent a copy shall be
contemporaneously delivered to the Company) of (i) a legended certificate
representing such Securities (and, in the case of a requested transfer, endorsed
or with stock powers attached, signatures guaranteed, and otherwise in form
necessary to affect transfer), and (ii) an opinion of counsel to the extent
required by Section 4.1(a). The Company may not make any notation on its records
or give instructions to the Transfer Agent making more restrictive the
restrictions on transfer set forth in this Section.
(c) The Company will not object to and shall permit (except as prohibited by
law) an Investor to pledge or grant a security interest in some or all of the
Securities in connection with a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the Securities to a
financial institution that is an “accredited investor” as defined in Rule 501(a)
under the Securities Act and who agrees to be bound by the provisions of this
Agreement, and if

 

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required under the terms of such arrangement, the Company will not object to and
shall permit (except as prohibited by law) such Investor to transfer pledged or
secured Securities to the pledgees or secured parties. Except as required by
law, such a pledge or transfer would not be subject to approval of the Company,
no legal opinion of the pledgee, secured party or pledgor shall be required in
connection therewith (but such legal opinion shall be required in connection
with a subsequent transfer or foreclosure following default by the Purchaser
transferee of the pledge), and no notice shall be required of such pledge. Each
Investor acknowledges that the Company shall not be responsible for any pledges
relating to, or the grant of any security interest in, any of the Securities or
for any agreement, understanding or arrangement between any Investor and its
pledgee or secured party. At the appropriate Investor’s expense, the Company
will execute and deliver such reasonable documentation as a pledgee or secured
party of Securities may reasonably request in connection with a pledge or
transfer of the Securities, including the preparation and filing of any required
prospectus supplement under Rule 424(b)(3) of the Securities Act or other
applicable provision of the Securities Act to appropriately amend the list of
Selling Stockholders thereunder.
4.2 Furnishing of Information. Until the date that any investor owning Common
Shares may sell them under Rule 144(b) of the Securities Act (or any successor
provision), the Company covenants to use its commercially reasonable efforts to
timely file (or obtain extensions in respect thereof and file within the
applicable grace period) all reports required to be filed by the Company after
the date hereof pursuant to the Exchange Act.
4.3 Integration. The Company shall not, and shall use its commercially
reasonable efforts to ensure that no Affiliate thereof shall, sell, offer for
sale or solicit offers to buy or otherwise negotiate in respect of any security
(as defined in Section 2 of the Securities Act) that would be integrated with
the offer or sale of the Securities in a manner that would require the
registration under the Securities Act of the sale of the Securities to the
Investors or that would be integrated with the offer or sale of the Securities
for purposes of the rules and regulations of any Trading Market.
4.4 Securities Laws Disclosure; Publicity. The Company shall file a Current
Report on Form 8-K with the SEC (the “8-K Filing”) describing the terms of the
transactions contemplated by this Agreement and including as an exhibit to such
Current Report on Form 8-K this Agreement (including, if requested by an
Investor, the name and address of such Investor and the amount of Securities
purchased) in the form and within the time prescribed for filing under the
Exchange Act. Thereafter, the Company shall timely file any filings and notices
required by the SEC or applicable law with respect to the transactions
contemplated hereby. Except as herein provided, the Company shall not publicly
disclose the name of any Investor, or include the name of any Investor in any
press release without the prior written consent of such Investor (which consent
shall not be unreasonably withheld or delayed), unless otherwise required by
law, regulatory authority or Trading Market.
4.5 Reverse Stock Split. The Investors understand that the Company has filed a
Certificate of Amendment to the Articles of Incorporation with the Secretary of
State of Nevada on January 6, 2010 to implement a reverse stock split in a ratio
of 1 for 40. Accordingly, the Purchase Price Per Share reflects the adjusted
price of the Company’s Common Stock to give effect to the implementation of the
Reverse Stock Split. The Investors shall receive shares of the Company’s Common
Stock on a post-reverse split basis.

 

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ARTICLE V
CONDITIONS
5.1 Conditions Precedent to the Obligations of the Investors. The obligation of
each Investor to acquire Securities at the Closing or prior to Closing is
subject to the satisfaction or waiver by such Investor, at or before the
Closing, of each of the following conditions:
(a) Representations and Warranties. The representations and warranties of the
Company contained herein shall be true and correct in all material respects as
of the date when made and as of the Closing as though made on and as of such
date.
(b) Performance. The Company and each other Investor shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by it at or prior to the Closing.
(c) No Suspensions of Trading in Common Stock; Listing. Trading in the Common
Stock shall not have been suspended by the SEC or any Trading Market (except for
any suspensions of trading of not more than one Trading Day solely to permit
dissemination of material information regarding the Company) at any time since
the date of execution of this Agreement, and the Common Stock shall have been at
all times since such date listed for trading on a Trading Market.
(d) Absence of Litigation. No action, suit or proceeding by or before any court
or any governmental body or authority, against the Company and pertaining to the
transactions contemplated by this Agreement or their consummation, shall have
been instituted on or before the Closing Date, which action, suit or proceeding
would, if determined adversely, have a Material Adverse Effect.
5.2 Conditions Precedent to the Obligations of the Company. The obligation of
the Company to sell the Securities at the Closing is subject to the satisfaction
or waiver by the Company, at or before the Closing, of each of the following
conditions:
(a) Receipt of Payment. The Investors shall have delivered payment of the
purchase price for the Securities to the Company for the Securities being issued
hereunder.
(b) Representations and Warranties. The representations and warranties of the
Investors contained herein shall be true and correct in all material respects as
of the date when made and as of the Closing Date as though made on and as of
such date.
(c) Performance. The Investors shall have performed, satisfied and complied in
all material respects with all covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by the Investors at
or prior to the Closing.

 

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ARTICLE VI
MISCELLANEOUS
6.1 Termination. This Agreement may be terminated by the Company or any
Investor, by written notice to the other parties, if the Closing has not been
consummated at the date that the Company will indicate to Investors, provided
that no such termination will affect the right of any party to sue for any
breach by the other party (or parties).
6.2 Fees and Expenses. Except as expressly set forth in this Agreement to the
contrary, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all Transfer Agent fees,
stamp taxes and other transfer taxes and duties levied in connection with the
sale and issuance of the applicable Securities.
6.3 Entire Agreement. This Agreement, together with the Exhibits and Schedules
hereto, contain the entire understanding of the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral or written, with respect to such matters, which the parties acknowledge
have been merged into such documents, exhibits and schedules.
6.4 Notices. Any and all notices or other communications or deliveries required
or permitted to be provided hereunder shall be in writing and shall be deemed
given and effective on the earliest of (a) the date of transmission, if such
notice or communication is delivered via facsimile or email at the facsimile
number or email address specified in this Section prior to 6:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile or
email at the facsimile number or email address specified in this Section on a
day that is not a Trading Day or later than 6:30 p.m. (New York City time) on
any Trading Day, (c) the Trading Day following the date of deposit with a
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The addresses, facsimile
numbers and email addresses for such notices and communications are those set
forth on the signature pages hereof, or such other address or facsimile number
as may be designated in writing hereafter, in the same manner, by any such
Person.
6.5 Amendments; Waivers. No provision of this Agreement may be waived or amended
except in a written instrument signed, in the case of an amendment, by the
Company and each of the investors or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of any party to exercise any right hereunder in any
manner impair the exercise of any such right. Notwithstanding the foregoing, a
waiver or consent to depart from the provisions hereof with respect to a matter
that relates exclusively to the rights of Investors under Article VI may be
given by Investors holding at least a majority of the Registrable Securities to
which such waiver or consent relates.

 

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6.6 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
6.7 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Investors. Any Investor may assign its
rights under this Agreement to any Person to whom such Investor assigns or
transfers any Securities, provided (i) such transferor agrees in writing with
the transferee or assignee to assign such rights, and a copy of such agreement
is furnished to the Company after such assignment, (ii) the Company is furnished
with written notice of (x) the name and address of such transferee or assignee
and (y) the Registrable Securities with respect to which such registration
rights are being transferred or assigned, (iii) following such transfer or
assignment, the further disposition of such securities by the transferee or
assignee is restricted under the Securities Act and applicable state securities
laws, (iv) such transferee agrees in writing to be bound, with respect to the
transferred Securities, by the provisions hereof that apply to the “Investors”
and (v) such transfer shall have been made in accordance with the applicable
requirements of this Agreement and with all laws applicable thereto.
6.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person.
6.9 Governing Law; Venue; Waiver of Jury Trial. THE CORPORATE LAWS OF THE STATE
OF NEW YORK SHALL GOVERN ALL ISSUES CONCERNING THE RELATIVE RIGHTS OF THE
COMPANY AND ITS STOCKHOLDERS. ALL QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE COMPANY
AND INVESTORS HEREBY IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE
STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN
FOR THE ADJUDICATION OF ANY DISPUTE BROUGHT BY THE COMPANY OR ANY INVESTOR
HEREUNDER, IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR
DISCUSSED HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF THIS AGREEMENT),
AND HEREBY IRREVOCABLY WAIVE, AND AGREE NOT TO ASSERT IN ANY SUIT, ACTION OR
PROCEEDING BROUGHT BY THE COMPANY OR ANY INVESTOR, ANY CLAIM THAT IT IS NOT
PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, OR THAT SUCH SUIT,
ACTION OR PROCEEDING IS IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL
SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION
OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR
OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN
EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL
CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING
CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS
IN ANY MANNER PERMITTED BY LAW. THE COMPANY AND INVESTORS HEREBY WAIVE ALL
RIGHTS TO A TRIAL BY JURY.

 

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6.10 Survival. The representations and warranties, agreements and covenants
contained herein shall survive the Closing.
6.11 Execution. This Agreement may be executed in two or more counterparts, all
of which when taken together shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that each party need not sign
the same counterpart. In the event that any signature is delivered by facsimile
transmission or email attachment, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile or email-attached
signature page were an original thereof.
6.12 Severability. If any provision of this Agreement is held to be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Agreement shall not in any way be affected or
impaired thereby and the parties will attempt to agree upon a valid and
enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
6.13 Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) this Agreement,
whenever any Investor exercises a right, election, demand or option owed to such
Investor by the Company under this Agreement and the Company does not timely
perform its related obligations within the periods therein provided, then, prior
to the performance by the Company of the Company’s related obligation, such
Investor may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.
6.14 Replacement of Securities. If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
thereof, or in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such mutilation, loss, theft or destruction and the execution by the
holder thereof of a customary lost certificate affidavit of that fact and an
agreement to indemnify and hold harmless the Company for any losses in
connection therewith. The applicants for a new certificate or instrument under
such circumstances shall also pay any reasonable third-party costs associated
with the issuance of such replacement Securities.
6.15 Remedies. In addition to being entitled to exercise all rights provided
herein or granted by law, including recovery of damages, each of the Investors
and the Company will be entitled to seek specific performance under this
Agreement. The parties agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of obligations
described in the foregoing sentence and hereby agree to waive in any action for
specific performance of any such obligation (other than in connection with any
action for a temporary restraining order) the defense that a remedy at law would
be adequate.

 

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6.16 Payment Set Aside. To the extent that the Company makes a payment or
payments to any Investor hereunder or any Investor enforces or exercises its
rights hereunder, and such payment or payments or the proceeds of such
enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company
by a trustee, receiver or any other person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation or
part thereof originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.
6.17 Independent Nature of Investors’ Obligations and Rights. The obligations of
each Investor under this Agreement are several and not joint with the
obligations of any other Investor, and no Investor shall be responsible in any
way for the performance of the obligations of any other Investor under this
Agreement. The decision of each Investor to purchase Securities pursuant to this
Agreement has been made by such Investor independently of any other Investor and
independently of any information, materials, statements or opinions as to the
business, affairs, operations, assets, properties, liabilities, results of
operations, condition (financial or otherwise) or prospects of the Company which
may have been made or given by any other Investor or by any agent or employee of
any other Investor, and no Investor or any of its agents or employees shall have
any liability to any other Investor (or any other person) relating to or arising
from any such information, materials, statements or opinions. Nothing contained
herein and no action taken by any Investor pursuant hereto, shall be deemed to
constitute the Investors as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Investors are in any
way acting in concert or as a group with respect to such obligations or the
transactions contemplated by this Agreement. Each Investor acknowledges that no
other Investor has acted as agent for such Investor in connection with making
its investment hereunder and that no other Investor will be acting as agent of
such Investor in connection with monitoring its investment hereunder. Each
Investor shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement, and it
shall not be necessary for any other Investor to be joined as an additional
party in any Proceeding for such purpose.
(SIGNATURE PAGES TO FOLLOW)

 

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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

            Cereplast, Inc.
      By:           Name:   Frederic Scheer        Title:   Chief Executive
Officer        Address for Notice:

3421-3411 West El Segundo Boulevard
Hawthorne, California 90250
Facsimile No.: (310) 676-5003
Telephone No.: (310) 676-5000
Attn: Frederic Scheer, Chief Executive Officer

With a copy to:

Sichenzia Ross Friedman Ference LLP
61 Broadway, 32nd Floor
New York, NY 10006
Facsimile: (212) 930-9700
Telephone: (212) 930-9725
Attn: Gregory Sichenzia, Esq.
          Marcelle Balcombe, Esq.
   

COMPANY SIGNATURE PAGE

 

 

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Investor Signature Page
By its execution and delivery of this signature page, the undersigned Investor
hereby joins in and agrees to be bound by the terms and conditions of the
Securities Purchase Agreement dated as of March ___, 2010 (the “Purchase
Agreement”) by and among Cereplast, Inc. and the Investors (as defined therein),
as to the number of shares of Common Stock set forth below, and authorizes this
signature page to be attached to the Purchase Agreement or counterparts thereof.

            Name of Investor:
                    By:           Name:           Title:      

            Address:                                  

            Telephone No.:     

            Facsimile No.:     

            Email Address:      

              Number of Shares:             Aggregate Purchase Price: $   

Delivery Instructions (if different than above):

          c/o:
 
      Address:
 
       
 
      Telephone No.:
 
      Facsimile No.:
 
      Other Special Instructions:
 
   

 

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Exhibits:

     
A
  Stock Certificate Questionnaire
A-1
  Investors Statement Questionnaire
A-2
  Certificate for Corporate, Partnership, Limited Liability Company, Trust,
Foundation and Joint Ventures
A-3
  Accredited Investor Questionnaire
 
   
Annexes:
   
 
   
I
  Schedule of Investors

 

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Exhibit A
Cereplast, Inc.
STOCK CERTIFICATE QUESTIONNAIRE

         
 
  Please provide us with the following information:    
 
       
1.
  The exact name that the Securities are to be registered in (this is the name
that will appear on the stock certificate(s)). You may use a nominee name if
appropriate:  
 
 
       
2.
  The relationship between the Investor in the Securities and the Registered
Holder listed in response to item 1 above:  
 
 
       
3.
  The mailing address, telephone and telecopy number and email address of the
Registered Holder listed in response to item 1 above:  
 
 
       
 
     
 
 
       
 
     
 
 
       
 
     
 
 
       
 
     
 
 
       
4.
  The Tax Identification Number of the Registered Holder listed in response to
item 1 above:  
 

 

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Exhibit A-1
Cereplast, Inc.
INVESTORS STATEMENT QUESTIONNAIRE
In connection with the Securities Purchase Agreement, please provide us with the
following information regarding the Investor.
1. Please state your organization’s name exactly as it should appear on the
Certificate:
 
2. Address of your organization:
 
 
Telephone:                                           
Fax:                                                      
Contact Person:                                    
3. Have you or your organization held any position, office or had any other
material relationship within the past three years with the Company or its
affiliates? (Include any relationships involving you or any of your affiliates,
officers, directors, or principal equity holders (5% or more) that has held any
position or office or has had any other material relationship with the Company
(or its predecessors or affiliates) during the past three years.)
o Yes         o No
If yes, please indicate the nature of any such relationship below:
4. Except as set forth below, you wish that all the shares of the Company’s
common stock beneficially owned by you or that you have the right to acquire
from the Company be listed for your account:
          State any exceptions here:

 

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5. FINRA Matters
(a) State below whether (i) you or any associate or affiliate of yours is a
member of the FINRA, a controlling shareholder of a FINRA member, a person
associated with a member, a direct or indirect affiliate of a member, or an
underwriter or related person with respect to the proposed offering; (ii) you or
any associate or affiliate of yours owns any stock or other securities of any
FINRA member not purchased in the open market; or (iii) you or any associate or
affiliate of yours has made any outstanding subordinated loans to any FINRA
member. If you are a general or limited partnership, a no answer asserts that no
such relationship exists for you as well as for each of your general or limited
partners.

                 
 
  Yes:       No:    
 
               
 
  o       o    

If “yes,” please identify the FINRA member and describe your relationship,
including, in the case of a general or limited partner, the name of the partner:
If you answer “no” to Question 7(a), you need not respond to Question 7(b).
(b) State below whether you or any associate or affiliate of yours has been an
underwriter, or a controlling person or member of any investment banking or
brokerage firm which has been or might be an underwriter for securities of the
Company or any affiliate thereof including, but not limited to, the common stock
now being registered.

                 
 
  Yes:       No:      
 
  o       o    

If “yes,” please identify the FINRA member and describe your relationship,
including, in the case of a general or limited partner, the name of the partner.

 

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ACKNOWLEDGEMENT
The undersigned hereby agrees to notify the Company promptly of any changes in
the foregoing information which should be made as a result of any developments,
including the passage of time. The undersigned also agrees to provide the
Company and the Company’s counsel any and all such further information regarding
the undersigned promptly upon request in connection with the preparation,
filing, amending, and supplementing of the Certificate (or any prospectus
contained therein).
The undersigned understands and acknowledges that the Company will rely on the
information set forth herein for purposes of the preparation of its books &
records.
The undersigned understands that the undersigned may be subject to serious civil
and criminal liabilities if this document contains an untrue statement of a
material fact or omits to state a material fact required to be stated. The
undersigned represents and warrants that all information it provides to the
Company and its counsel is currently accurate and complete and will be accurate
and complete at the time the Certificates are being issued and at all times
subsequent thereto.
Dated:                          

                        Name                  Signature                  Name
and Title of Signatory           

 

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Exhibit A-2
Cereplast, Inc.
CERTIFICATE FOR CORPORATE, PARTNERSHIP, LIMITED LIABILITY COMPANY,
TRUST, FOUNDATION AND JOINT INVESTORS
If the Investor is a corporation, partnership, limited liability company, trust,
pension plan, foundation, joint Investor (other than a married couple) or other
entity, an authorized officer, partner, or trustee must complete, date and sign
this Certificate.
CERTIFICATE
The undersigned certifies that the representations and responses below are true
and accurate:
(a) The Investor has been duly formed and is validly existing and has full power
and authority to invest in the Company. The person signing on behalf of the
undersigned has the authority to execute and deliver the Securities Purchase
Agreement on behalf of the Investor and to take other actions with respect
thereto.
(b) Indicate the form of entity of the undersigned:
o Limited Partnership
o General Partnership
o Limited Liability Company
o Corporation
o Revocable Trust (identify each grantor and indicate under what circumstances
the trust is revocable by the grantor):

 

 
(Continue on a separate piece of paper, if necessary.)
o Other type of Trust (indicate type of trust and, for trusts other than pension
trusts, name the grantors and beneficiaries):   

 
(Continue on a separate piece of paper, if necessary.)
o Other form of organization (indicate form of organization ( 

 ).
(c) Indicate the approximate date the undersigned entity was formed:  .

 

-4-

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(d) Please set forth in the space provided below the (i) states, if any, in the
U.S. in which you maintained your principal office during the past two years and
the dates during which you maintained your office in each state, (ii) state(s),
if any, in which you are incorporated or otherwise organized and (iii) state(s),
if any, in which you pay income taxes.

     
 

 

 

     
Dated:                                                                                     ,
2010
   
 
   
 
   
 
   
Print Name of Investor
   
 
   
 
   
 
   
Name:
   
Title:
   
(Signature and title of authorized officer, partner or trustee)
   

 

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Exhibit A-3
Cereplast, Inc.
ACCREDITED INVESTOR QUESTIONNAIRE
The undersigned is an “accredited investor” as such term is defined in
Regulation D under the Act, as at the time of the sale of the Securities the
undersigned falls within one or more of the following categories (Please initial
one or more, as applicable): 1

  o  
1. A bank as defined in Section 3(a)(2) of the Securities Act, or any savings
and loan association or other institution as defined in Section 3(a)(5)(A) of
the Securities Act whether acting in its individual or fiduciary capacity;
    o  
2. A broker or dealer registered pursuant to Section 15 of the Securities
Exchange Act of 1934;
    o  
3. An insurance company as defined in Section 2(13) of the Securities Act;
    o  
4. An investment company registered under the Investment Company Act of 1940 or
a business development company as defined in Section 2(a)(48) of that Act;
    o  
5. A Small Business Investment Company licensed by the U.S. Small Business
Administration under Section 301(c) or (d) of the Small Business Investment Act
of 1958;
    o  
6. A plan established and maintained by a state, its political subdivisions, or
any agency or instrumentality of a state or its political subdivisions, for the
benefit of its employees, if such plan has total assets in excess of $5,000,000;
    o  
7. An employee benefit plan within the meaning of the Employee Retirement Income
Security Act of 1974, if the investment decision is made by a plan fiduciary, as
defined in Section 3(21) of such Act, which is either a bank, savings and loan
association, insurance company, or registered investment advisor, or if the
employee benefit plan has total assets in excess of $5,000,000 or, if a
self-directed plan, with investment decisions made solely by persons that are
accredited investors;

 

      1  
As used in this Questionnaire, the term “net worth” means the excess of total
assets over total liabilities. In computing net worth for the purpose of
subsection (4), the principal residence of the investor must be valued at cost,
including cost of improvements, or at recently appraised value by an
institutional lender making a secured loan, net of encumbrances. In determining
income, the investor should add to the investor’s adjusted gross income any
amounts attributable to tax exempt income received, losses claimed as a limited
partner in any limited partnership, contributions to an IRA or KEOGH retirement
plan, alimony payments, and any amount by which income from long-term capital
gains has been reduced in arriving at adjusted gross income.

 

-6-

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  o  
8. A private business development company as defined in Section 202(a)(22) of
the Investment Advisers Act of 1940;
    o  
9. Any partnership or corporation or any organization described in Section
501(c)(3) of the Internal Revenue Code or similar business trust, not formed for
the specific purpose of acquiring the Shares, with total assets in excess of
$5,000,000;
    o  
10. A trust, with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the Shares, whose purchase is directed by a
sophisticated person as described in Rule 506(b)(2)(ii) of the Exchange Act;
    o  
11. An entity in which all of the equity owners qualify under any of the above
subparagraphs. If the undersigned belongs to this investor category only, list
the equity owners of the undersigned, and the investor category which each such
equity owner satisfies:
 
(Continue on a separate piece of paper, if necessary.)
    o  
12. A natural person whose individual net worth, or joint net worth with that
person’s spouse, at the time of such person’s purchase of the Securities exceeds
$1,000,000;
    o  
13. A natural person who had an individual income in excess of $200,000 in each
of the two most recent years or joint income with that person’s spouse in excess
of $300,000 in each of those years and has a reasonable expectation of reaching
the same income level in the current year;

     
Dated:                                                                                     ,
2010
   
 
   
 
   
 
   
Print Name of Investor
   
 
   
 
   
 
   
Name:
   
Title:
   
(Signature and title of authorized officer, partner or trustee)
   

 

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ANNEX I
SCHEDULE OF INVESTORS

 

-8-