SECURITIES PURCHASE AGREEMENT
Exhibit
10.58
This
Securities Purchase Agreement (this “Agreement”)
is
dated as of September 28, 2005, among Xfone, Inc., a Nevada corporation (the
“Company”),
and
each purchaser identified on the signature pages hereto (each, including
its
successors and assigns, a “Purchaser”
and
collectively the “Purchasers”).
WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant
to
Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”)
and Rule 506 promulgated thereunder, the Company desires to issue and sell
to
each Purchaser, and each Purchaser, severally and not jointly, desires to
purchase from the Company, securities of the Company as more fully described
in
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 each Purchaser agree as
follows:
ARTICLE
I.
DEFINITIONS
1.1 Definitions
.
In
addition to the terms defined elsewhere in this Agreement, for all purposes
of
this Agreement, the following terms have the meanings indicated in this Section
1.1:
“Action”
shall
have the meaning ascribed to such term in Section 3.1(j).
“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.
With
respect to a Purchaser, any investment fund or managed account that is managed
on a discretionary basis by the same investment manager as such Purchaser
will
be deemed to be an Affiliate of such Purchaser.
“Closing”
means
the closing of the purchase and sale of the Securities pursuant to Section
2.1.
“Closing
Date”
means
the Trading Day when all of the Transaction Documents have been executed
and
delivered by the applicable parties thereto, and all conditions precedent
to (i)
the Purchasers’ obligations to pay the Subscription Amount and (ii) the
Company’s obligations to deliver the Securities have been satisfied or
waived.
“Closing
Price”
means
on any particular date (a) the last reported closing bid price per
share of
Common Stock on such date on the Trading Market (as reported by Bloomberg
L.P.
at 4:15 PM (New York time)), or (b) if there is no such price on such date,
then
the closing bid price on the Trading Market on the date nearest preceding
such
date (as reported by Bloomberg L.P. at 4:15 PM (New York time)), or (c)
if
the Common Stock is not then listed or quoted on the Trading Market and if
prices for the Common Stock are then reported in the “pink sheets” published by
the National Quotation Bureau Incorporated (or a similar organization or
agency
succeeding to its functions of reporting prices), the most recent bid price
per
share of the Common Stock so reported, or (d) if the shares of Common
Stock
are not then publicly traded the fair market value of a share of Common Stock
as
determined by an appraiser selected in good faith by the Purchasers of a
majority in interest of the Shares then outstanding.
“Commission”
means
the Securities and Exchange Commission.
“Common
Stock”
means
the common stock of the Company, par value $0.001 per share, and any other
class
of securities into which such securities may hereafter have been reclassified
or
changed into.
“Common
Stock Equivalents”
means
any securities of the Company or the Subsidiaries which would entitle the
holder
thereof to acquire at any time Common Stock, including, without limitation,
any
debt, preferred stock, rights, options, warrants or other instrument that
is at
any time convertible into or exercisable or exchangeable for, or otherwise
entitles the holder thereof to receive, Common Stock.
“Company
Counsel”
means
Advocate Xxxxxxx Xxxxxxxxx, Xxxxxxxxx and Co.
“Crestview”
means
Crestview Capital Master, LLC.
“Disclosure
Schedules”
means
the Disclosure Schedules of the Company delivered concurrently herewith.
“Effective
Date”
means
the date that the initial Registration Statement filed by the Company pursuant
to the Registration Rights Agreement is first declared effective by the
Commission.
“Escrow
Agent”
shall
have the meaning set forth in the Escrow Agreement.
“Escrow
Agreement”
shall
mean the Escrow Agreement in substantially the form of Exhibit
D
hereto
executed and delivered contemporaneously with this Agreement.
“Evaluation
Date”
shall
have the meaning ascribed to such term in Section 3.1(r).
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“Exempt
Issuance”
means
the issuance of (a) shares of Common Stock or options to employees, officers
or
directors of the Company pursuant to any stock or option plan duly adopted
by a
majority of the Board of Directors of the Company and a majority of the members
of the audit committee, (b) securities upon the exercise or exchange of or
conversion of any Securities issued hereunder and/or securities exercisable
or
exchangeable for or convertible into shares of Common Stock issued and
outstanding on or prior to the 30th
calendar
day prior to the date of this Agreement, provided that such securities have
not
been amended since the date of this Agreement to increase the number of such
securities or to decrease the exercise, exchange or conversion price of any
such
securities, (c) securities issued pursuant to acquisitions or strategic
transactions, provided any such issuance shall only be to a Person which
is,
itself or through its subsidiaries, an operating company in a business
synergistic with the business of the Company and in which the Company receives
benefits in addition to the investment of funds, but shall not include a
transaction in which the Company is issuing securities primarily for the
purpose
of raising capital or to an entity whose primary business is investing in
securities and (d) a one-time issuance of up to 150,000 shares of Common
Stock
to Taqua Tekelec, Inc. in lieu of cash payments for vendor services previously
rendered to the Company and up to an additional 100,000 shares of Common
Stock
(or warrants or options to purchase Common Stock), subject to adjustment
for
reverse and forward stock splits, stock dividends, stock combinations and
other
similar transactions of the Common Stock that occur after the date of this
Agreement, in any 12 month period to vendors of the Company in lieu of cash
payments for services provided to the Company.
“FW”
means
Xxxxxxx Xxxxxxxxx LLP with offices located at 000 Xxxxxxxxx Xxxxxx, Xxxxx
0000,
Xxx Xxxx, Xxx Xxxx 00000-0000.
“GAAP”
shall
have the meaning ascribed to such term in Section 3.1(h).
“Intellectual
Property Rights”
shall
have the meaning ascribed to such term in Section 3.1(o).
“Legend
Removal Date”
shall
have the meaning ascribed to such term in Section 4.1(c).
“Liens”
means a
lien, charge, security interest, encumbrance, right of first refusal, preemptive
right or other restriction.
“Material
Adverse Effect”
shall
have the meaning assigned to such term in Section 3.1(b).
“Material
Permits”
shall
have the meaning ascribed to such term in Section 3.1(m).
“Participation
Maximum”
shall
have the meaning ascribed to such term in Section 4.13.
“Per
Share Purchase Price”
equals
$2.50, subject to adjustment for reverse and forward stock splits, stock
dividends, stock combinations and other similar transactions of the Common
Stock
that occur after the date of this Agreement.
“Person”
means
an individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.
“Pre-Notice”
shall
have the meaning ascribed to such term in Section 4.13.
“Proceeding”
means
an action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened.
“Purchaser
Party”
shall
have the meaning ascribed to such term in Section 4.9.
“Registration
Rights Agreement”
means
the Registration Rights Agreement, dated the date hereof, among the Company
and
the Purchasers, in the form of Exhibit
A
attached
hereto.
“Registration
Statement”
means a
registration statement meeting the requirements set forth in the Registration
Rights Agreement and covering the resale by the Purchasers of the Shares
and the
Warrant Shares.
“Required
Approvals”
shall
have the meaning ascribed to such term in Section 3.1(e).
“Rule
144”
means
Rule 144 promulgated by the Commission pursuant to the Securities Act, as
such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same effect
as such
Rule.
“SEC
Reports”
shall
have the meaning ascribed to such term in Section 3.1(h).
“Securities”
means
the Shares, the Warrants and the Warrant Shares.
“Securities
Act”
means
the Securities Act of 1933, as amended.
“Shareholder
Approval”
means
such approval as may be required by the applicable rules and regulations
of the
American Stock Exchange (or any successor entity) from the shareholders of
the
Company with respect to the transactions contemplated by the Transaction
Documents, including the issuance of all of the Underlying Shares and shares
of
Common Stock issuable upon exercise of the Warrants in excess of 19.99% of
the
issued and outstanding Common Stock on the Closing Date.
“Shares”
means
the shares of Common Stock issued or issuable to each Purchaser pursuant
to this
Agreement.
“Short
Sales”
shall
include all “short sales” as defined in Rule 200 of Regulation SHO under the
Exchange Act.
“Subscription
Amount”
means,
as to each Purchaser, the aggregate amount to be paid for Shares and Warrants
purchased hereunder as specified below such Purchaser’s name on the signature
page of this Agreement and next to the heading “Subscription Amount”, in United
States Dollars and in immediately available funds.
“Subsequent
Financing”
shall
have the meaning ascribed to such term in Section 4.13.
“Subsequent
Financing Notice”
shall
have the meaning ascribed to such term in Section 4.13.
“Subsidiary”
means
any subsidiary of the Company as set forth on Schedule
3.1(a).
“Trading
Day”
means a
day on which the Common Stock is traded on a Trading Market.
“Trading
Market”
means
the following markets or exchanges on which the Common Stock is listed or
quoted
for trading on the date in question: the Nasdaq SmallCap Market, the American
Stock Exchange, the New York Stock Exchange, the Nasdaq National Market or
the
OTC Bulletin Board.
“Transaction
Documents”
means
this Agreement, the Warrants, the Escrow Agreement and the Registration Rights
Agreement and any other documents or agreements executed in connection with
the
transactions contemplated hereunder.
“Warrants”
means
collectively the Common Stock purchase warrants, in the form of Exhibit
C
delivered to the Purchasers at the Closing in accordance with Section 2.2(a)
hereof, which Warrants shall be exercisable immediately and have a term of
exercise equal to 5 years.
“Warrant
Shares”
means
the shares of Common Stock issuable upon exercise of the Warrants.
ARTICLE
II.
PURCHASE
AND SALE
2.1 Closing.
On the
Closing Date, upon the terms and subject to the conditions set forth herein,
concurrent with the execution and delivery of this Agreement by the parties
hereto, the Company agrees to sell, and each Purchaser agrees to purchase,
severally and not jointly, Common Stock and the Warrants in an amount not
to
exceed 19.99% of the issued and outstanding Common Stock on the Closing Date.
Each Purchaser shall deliver to the Company via wire transfer immediately
available funds equal to their Subscription Amount and the Company shall
deliver
to each Purchaser their respective Shares and Warrants as determined pursuant
to
Section 2.2(a) and the other items set forth in Section 2.2 issuable at the
Closing. Upon satisfaction of the conditions set forth in Sections 2.2 and
2.3,
the Closing shall occur at the offices of the Escrow Agent, or such other
location as the parties shall mutually agree.
2.2 Deliveries
.
(a) On
the
Closing Date, the Company shall deliver or cause to be delivered to the Escrow
Agent the following:
(i) this
Agreement duly executed by the Company;
(ii) a
legal
opinion of Company Counsel, in the form of Exhibit
B
attached
hereto;
(iii) a
certificate evidencing a number of Shares equal to such Purchaser’s Subscription
Amount divided by the Per Share Purchase Price, registered in the name of
such
Purchaser;
(iv) a
Warrant
registered in the name of such Purchaser to purchase up to a number of shares
of
Common Stock equal to 25% of the number of Shares purchased by such Purchaser
at
the Closing, with an exercise price equal to $3.00, subject to adjustment
therein;
(v) a
Warrant
registered in the name of such Purchaser to purchase up to a number of shares
of
Common Stock equal to 25% of the number of Shares purchased by such Purchaser
at
the Closing, with an exercise price equal to $3.25, subject to adjustment
therein;
(vi) the
Escrow Agreement duly executed by the Company; and
(vii) the
Registration Rights Agreement duly executed by the Company.
(b) On
the
Closing Date, each Purchaser shall deliver or cause to be delivered to the
Escrow Agent the following:
(i) this
Agreement duly executed by such Purchaser;
(ii) such
Purchaser’s Accredited Investor Questionnaire in the form of Exhibit
D
attached
hereto;
(iii) such
Purchaser’s Subscription Amount by wire transfer to the account of the Escrow
Agent;
(iv) the
Escrow Agreement duly executed by such Purchaser; and
(v) the
Registration Rights Agreement duly executed by such Purchaser.
2.3 Closing
Conditions.
(a) The
obligations of the Company hereunder in connection with the Closing are subject
to the following conditions being met:
(i) the
accuracy in all material respects when made and on the Closing Date of the
representations and warranties of the Purchasers contained herein;
(ii) all
obligations, covenants and agreements of the Purchasers required to be performed
at or prior to the Closing Date shall have been performed;
and
(iii) the
delivery by the Purchasers of the items set forth in Section 2.2(b) of this
Agreement.
(b) The
respective obligations of the Purchasers hereunder in connection with the
Closing are subject to the following conditions being met:
(i) the
accuracy in all material respects on the Closing Date of the representations
and
warranties of the Company contained herein;
(ii) all
obligations, covenants and agreements of the Company required to be performed
at
or prior to the Closing Date shall have been performed;
(iii) the
delivery by the Company of the items set forth in Section 2.2(a) of this
Agreement;
(iv) there
shall have been no Material Adverse Effect with respect to the Company since
the
date hereof;
(v) either
(A) Shareholder Approval shall have been obtained and deemed effective or
(B)
the American Stock Exchange shall have approved in writing that the Closing
may
occur without Shareholder Approval; and
(vi) from
the
date hereof to the Closing Date, trading in the Common Stock shall not have
been
suspended by the Commission (except for any suspension of trading of limited
duration agreed to by the Company, which suspension shall be terminated prior
to
the Closing), and, at any time prior to the Closing Date, trading in securities
generally as reported by Bloomberg Financial Markets shall not have been
suspended or limited, or minimum prices shall not have been established on
securities whose trades are reported by such service, or on any Trading Market,
nor shall a banking moratorium have been declared either by the United States
or
New York State authorities nor shall there have occurred any material outbreak
or escalation of hostilities or other national or international calamity
of such
magnitude in its effect on, or any material adverse change in, any financial
market which, in each case, in the reasonable judgment of each Purchaser,
makes
it impracticable or inadvisable to purchase the Shares at the
Closing.
ARTICLE
III.
REPRESENTATIONS
AND WARRANTIES
3.1 Representations
and Warranties of the Company.
Except
as set forth under the corresponding section of the disclosure schedules
delivered to the Purchasers concurrently herewith (the “Disclosure Schedules”)
which Disclosure Schedules shall be deemed a part hereof, the Company hereby
makes the representations and warranties set forth below to each
PurchaserExcept
as
set forth under the corresponding section of the Disclosure Schedules which
Disclosure Schedules shall be deemed a part hereof, the Company hereby makes
the
representations and warranties set forth below to each Purchaser:
(a) Subsidiaries.
All of
the direct and indirect subsidiaries of the Company are set forth on
Schedule
3.1(a).
The
Company owns, directly or indirectly, all of the capital stock or other equity
interests of each Subsidiary free and clear of any Liens, and all the issued
and
outstanding shares of capital stock of each Subsidiary are validly issued
and
are fully paid, non-assessable and free of preemptive and similar rights
to
subscribe for or purchase securities.
(b) Organization
and Qualification.
The
Company and each of the Subsidiaries is an entity duly incorporated or otherwise
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with the
requisite power and authority to own and use its properties and assets and
to
carry on its business as currently conducted. Neither the Company nor any
Subsidiary is in violation or default of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational
or
charter documents. Each of the Company and the Subsidiaries is duly qualified
to
conduct 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, could
not
have or reasonably be expected to result in (i) a material adverse effect
on the
legality, validity or enforceability of any Transaction Document, (ii) a
material adverse effect on the results of operations, assets, business or
condition (financial or otherwise) of the Company and the Subsidiaries, taken
as
a whole, or (iii) a material adverse effect on the Company’s ability to perform
in any material respect on a timely basis its obligations under any Transaction
Document (any of (i), (ii) or (iii), a “Material
Adverse Effect”)
and no
Proceeding has been instituted in any such jurisdiction revoking, limiting
or
curtailing or seeking to revoke, limit or curtail such power and authority
or
qualification.
(c) Authorization;
Enforcement.
The
Company has the requisite corporate power and authority to enter into and
to
consummate the transactions contemplated by each of the Transaction Documents
and otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of each of the Transaction Documents by the Company
and
the consummation by it of the transactions contemplated thereby have been
duly
authorized by all necessary action on the part of the Company and no further
action is required by the Company, its board of directors or its stockholders
in
connection therewith other than in connection with the Required Approvals.
Each
Transaction Document has been (or upon delivery will have been) duly executed
by
the Company and, when delivered in accordance with the terms hereof and thereof,
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 affecting
enforcement of creditors’ rights generally, (ii) as limited by laws 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.
(d) No
Conflicts.
The
execution, delivery and performance of the Transaction Documents by the Company,
the issuance and sale of the Shares and the consummation by the Company of
the
other transactions contemplated hereby and thereby do not and will not (i)
conflict with or violate any provision of the Company’s or any Subsidiary’s
certificate or articles of incorporation, bylaws or other organizational
or
charter documents, or (ii) conflict with, or constitute a default (or an
event
that with notice or lapse of time or both would become a default) under,
result
in the creation of any Lien upon any of the properties or assets of the Company
or any Subsidiary, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both)
of,
any agreement, credit facility, debt or other instrument (evidencing a Company
or Subsidiary debt or otherwise) or other understanding to which the Company
or
any Subsidiary is a party or by which any property or asset of the Company
or
any Subsidiary is bound or affected, or (iii) subject to the Required Approvals,
conflict with or result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including federal
and
state securities laws and regulations), or by which any property or asset
of the
Company or a Subsidiary is bound or affected; except in the case of each
of
clauses (ii) and (iii), such as could not have or reasonably be expected
to
result in a Material Adverse Effect.
(e) Filings,
Consents and Approvals.
The
Company is not required to obtain any consent, waiver, authorization or order
of, give any notice to, or make any filing or registration with, any court
or
other federal, state, local or other governmental authority or other Person
in
connection with the execution, delivery and performance by the Company of
the
Transaction Documents, other than (i) filings required pursuant to Section
4.4
of this Agreement, (ii) the filing with the Commission of the Registration
Statement, (iii) application(s) to each applicable Trading Market for the
listing of the Shares and Warrant Shares for trading thereon in the time
and
manner required thereby, and (iv) the filing of Form D with the Commission
and
such filings as are required to be made under applicable state securities
laws
(collectively, the “Required
Approvals”).
(f) Issuance
of the Securities.
The
Securities are duly authorized and, when issued and paid for in accordance
with
the applicable Transaction Documents, will be duly and validly issued, fully
paid and nonassessable, free and clear of all Liens imposed by the Company
other
than restrictions on transfer provided for in the Transaction Documents.
The
Warrant Shares, when issued in accordance with the terms of the Transaction
Documents, will be validly issued, fully paid and nonassessable, free and
clear
of all Liens imposed by the Company. The Company has reserved from its duly
authorized capital stock the maximum number of shares of Common Stock issuable
pursuant to this Agreement and the Warrants.
(g) Capitalization.
The
capitalization of the Company is as set forth on Schedule
3.1(g).
The
Company has not issued any capital stock since its most
recently filed periodic report under the Exchange Act, other
than pursuant to the exercise of employee stock options under the Company’s
stock option plans, the issuance of shares of Common Stock to employees pursuant
to the Company’s employee stock purchase plan and pursuant to the conversion or
exercise of outstanding Common Stock Equivalents. No Person has any right
of
first refusal, preemptive right, right of participation, or any similar right
to
participate in the transactions contemplated by the Transaction Documents.
Except as a result of the purchase and sale of the Securities, there are
no
outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights
or
obligations convertible into or exercisable or exchangeable for, or giving
any
Person any right to subscribe for or acquire, any shares of Common Stock,
or
contracts, commitments, understandings or arrangements by which the Company
or
any Subsidiary is or may become bound to issue additional shares of Common
Stock
or Common Stock Equivalents. The issuance and sale of the Securities will
not
obligate the Company to issue shares of Common Stock or other securities
to any
Person (other than the Purchasers) and will not result in a right of any
holder
of Company securities to adjust the exercise, conversion, exchange or reset
price under such securities. All of the outstanding shares of capital stock
of
the Company are validly issued, fully paid and nonassessable, have been issued
in compliance with all federal and state securities laws, and none of such
outstanding shares was issued in violation of any preemptive rights or similar
rights to subscribe for or purchase securities. No further approval or
authorization of any stockholder, the Board of Directors of the Company or
others is required for the issuance and sale of the Securities. There are
no
stockholders agreements, voting agreements or other similar agreements with
respect to the Company’s capital stock to which the Company is a party or, to
the knowledge of the Company, between or among any of the Company’s
stockholders.
(h) SEC
Reports; Financial Statements.
The
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it under the Securities Act and the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was required
by
law to file such material) (the foregoing materials, including the exhibits
thereto and documents incorporated by reference therein, being collectively
referred to herein as the “SEC
Reports”)
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.
As of
their respective dates, the SEC Reports complied in all material respects
with
the requirements of the Securities Act and the Exchange Act and the rules
and
regulations of the Commission promulgated thereunder, and none of the SEC
Reports, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. The financial statements of the Company
included in the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the Commission with
respect thereto as in effect at the time of 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 or the
notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as of
and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.
(i) Material
Changes.
Since
the date of the latest audited financial statements included within the SEC
Reports, except as specifically disclosed in the SEC Reports, (i) there has
been
no event, occurrence or development that has had or that could reasonably
be
expected to result in a Material Adverse Effect, (ii) the Company has not
incurred any liabilities (contingent or otherwise) other than (A) trade payables
and accrued expenses incurred in the ordinary course of business consistent
with
past practice and (B) liabilities not required to be reflected in the Company’s
financial statements pursuant to GAAP or required to be disclosed in filings
made with the Commission, (iii) the Company has not altered its method of
accounting, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock and (v) the Company has not issued any equity securities to any officer,
director or Affiliate, except pursuant to existing Company stock option plans.
The Company does not have pending before the Commission any request for
confidential treatment of information.
(j) Litigation.
There
is no action, suit, inquiry, notice of violation, proceeding or investigation
pending or, to the knowledge of the Company, threatened against or affecting
the
Company, any Subsidiary or any of their respective properties before or by
any
court, arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “Action”)
which
(i) adversely affects or challenges the legality, validity or enforceability
of
any of the Transaction Documents or the Securities or (ii) could, if there
were
an unfavorable decision, have or reasonably be expected to result in a Material
Adverse Effect. Neither the Company nor any Subsidiary, nor any director
or
officer thereof, is or has been the subject of any Action involving a claim
of
violation of or liability under federal or state securities laws or a claim
of
breach of fiduciary duty. There has not been, and to the knowledge of the
Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or officer
of
the Company. The Commission has not issued any stop order or other order
suspending the effectiveness of any registration statement filed by the Company
or any Subsidiary under the Exchange Act or the Securities Act.
(k) Labor
Relations.
No
material labor dispute exists or, to the knowledge of the Company, is imminent
with respect to any of the employees of the Company which could reasonably
be
expected to result in a Material Adverse Effect.
(l) Compliance.
Neither
the Company nor any Subsidiary (i) is in default under or in violation of
(and
no event has occurred that has not been waived that, with notice or lapse
of
time or both, would result in a default by the Company or any Subsidiary
under),
nor has the Company or any Subsidiary received notice of a claim that it
is in
default under or that it is in violation of, any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or
by
which it or any of its properties is bound (whether or not such default or
violation has been waived), (ii) is in violation of any order of any court,
arbitrator or governmental body, or (iii) is or has been in violation of
any
statute, rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its business
except in each case as could not have a Material Adverse Effect.
(m) Regulatory
Permits.
The
Company and the Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate federal, state, local or foreign regulatory
authorities necessary to conduct their respective businesses as described
in the
SEC Reports, except where the failure to possess such permits could not have
or
reasonably be expected to result in a Material Adverse Effect (“Material
Permits”),
and
neither the Company nor any Subsidiary has received any notice of proceedings
relating to the revocation or modification of any Material Permit.
(n) Title
to Assets.
The
Company and the Subsidiaries have good and marketable title in fee simple
to all
real property owned by them that is material to the business of the Company
and
the Subsidiaries and good and marketable title in all personal property owned
by
them that is material to the business of the Company and the Subsidiaries,
in
each case free and clear of all Liens, except for Liens as do not materially
affect the value of such property and do not materially interfere with the
use
made and proposed to be made of such property by the Company and the
Subsidiaries and Liens for the payment of federal, state or other taxes,
the
payment of which is neither delinquent nor subject to penalties. Any real
property and facilities held under lease by the Company and the Subsidiaries
are
held by them under valid, subsisting and enforceable leases of which the
Company
and the Subsidiaries are in compliance.
(o) Patents
and Trademarks.
The
Company and the Subsidiaries have, or have rights to use, all patents, patent
applications, trademarks, trademark applications, service marks, trade names,
copyrights, licenses and other similar rights necessary or material for use
in
connection with their respective businesses as described in the SEC Reports
and
which the failure to so have could have a Material Adverse Effect (collectively,
the “Intellectual
Property Rights”).
Neither the Company nor any Subsidiary has received a written notice that
the
Intellectual Property Rights used by the Company or any Subsidiary violates
or
infringes upon the rights of any Person. To the knowledge of the Company,
all
such Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights
of
others.
(p) Insurance.
The
Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which the Company and the Subsidiaries
are
engaged, including, but not limited to, directors and officers insurance
coverage at least equal to the aggregate Subscription Amount. To the best
knowledge of the Company, such insurance contracts and policies are accurate
and
complete. Neither the Company nor any Subsidiary has any 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 its business without a significant increase in
cost.
(q) Transactions
With Affiliates and Employees.
Except
as set forth in the SEC Reports, none of the officers or directors of the
Company and, to the knowledge of the Company, none of the employees of the
Company is presently a party to any transaction with the Company or any
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, in each case in excess of $60,000
other than (i) for payment of salary or consulting fees for services rendered,
(ii) reimbursement for expenses incurred on behalf of the Company and (iii)
for
other employee benefits, including stock option agreements under any stock
option plan of the Company.
(r) Xxxxxxxx-Xxxxx;
Internal Accounting Controls.
The
Company is in material compliance with all provisions of the Xxxxxxxx-Xxxxx
Act
of 2002 which are applicable to the Company as of the Closing Date. The
Company and the Subsidiaries maintain 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 GAAP 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. The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Company and designed such disclosure controls and procedures
to ensure that material information relating to the Company, including its
Subsidiaries, is made known to the certifying officers by others within those
entities, particularly during the period in which the Company’s most recently
filed periodic report under the Exchange Act, as the case may be, is being
prepared. The Company’s certifying officers have evaluated the effectiveness of
the Company’s controls and procedures as of the date prior to the filing date of
the most recently filed periodic report under the Exchange Act (such date,
the
“Evaluation
Date”).
The
Company presented in its most recently filed periodic report under the Exchange
Act the conclusions of the certifying officers about the effectiveness of
the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no significant
changes in the Company’s internal controls or, to the knowledge of the Company,
in other factors that could significantly affect the Company’s internal
controls.
(s) Certain
Fees.
No
brokerage or finder’s fees or commissions are or will be payable by the Company
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by the Transaction Documents. The Purchasers shall have no
obligation with respect to any fees or with respect to any claims made by
or on
behalf of other Persons for fees of a type contemplated in this Section that
may
be due in connection with the transactions contemplated by the Transaction
Documents.
(t) Private
Placement.
Assuming the accuracy of the Purchasers representations and warranties 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 Purchasers as
contemplated hereby. The issuance and sale of the Securities hereunder does
not
contravene the rules and regulations of the Trading Market.
(u) Investment
Company.
The
Company is not, and is not an Affiliate of, and immediately after receipt
of
payment for the Securities, will not be or be an Affiliate of, an “investment
company” within the meaning of the Investment Company Act of 1940, as amended.
The Company shall conduct its business in a manner so that it will not become
subject to the Investment Company Act.
(v) Registration
Rights.
Other
than each of the Purchasers, no Person has any right to cause the Company
to
effect the registration under the Securities Act of any securities of the
Company.
(w) Listing
and Maintenance Requirements.
The
Company’s Common Stock is registered pursuant to Section 12(g) of the Exchange
Act, and the Company has taken no action designed to, or which to its knowledge
is likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act nor has the Company received any notification
that
the Commission is contemplating terminating such registration. The Company
has
not, in the 12 months preceding the date hereof, received notice 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
the
best of its knowledge to believe that it will not in the foreseeable future
continue to be, in compliance with all such listing and maintenance
requirements.
(x) Application
of Takeover Protections.
The
Company and its Board of Directors have taken all necessary action, if any,
in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Company’s Certificate of
Incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to the Purchasers as a result
of the Purchasers and the Company fulfilling their obligations or exercising
their rights under the Transaction Documents, including without limitation
as a
result of the Company’s issuance of the Securities and the Purchasers’ ownership
of the Securities.
(y) Disclosure.
Other
than information that shall be made public pursuant to the first sentence
of
Section 4.4, the Company confirms that, neither it nor any other Person acting
on its behalf has provided any of the Purchasers or their agents or counsel
with
any information that constitutes or might constitute material, non-public
information. The Company understands and confirms that the Purchasers will
rely
on the foregoing representations and covenants in effecting transactions
in
securities of the Company. All disclosure provided to the Purchasers regarding
the Company, its business and the transactions contemplated hereby, including
the Disclosure Schedules to this Agreement, furnished by or on behalf of
the
Company with respect to the representations and warranties made herein are
true
and correct with respect to such representations and warranties and do not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in light of
the
circumstances under which they were made, not misleading. The Company
acknowledges and agrees that no Purchaser makes or has made any representations
or warranties with respect to the transactions contemplated hereby other
than
those specifically set forth in Section 3.2 hereof.
(z) No
Integrated Offering.
Assuming
the accuracy of the Purchasers’ representations and warranties set forth in
Section 3.2, neither the Company, nor any of its affiliates, nor any Person
acting on its or their behalf has, directly or indirectly, made any offers
or
sales of any security or solicited any offers to buy any security, under
circumstances that would cause this offering of the Securities to be integrated
with prior offerings by the Company for purposes of the Securities Act or
any
applicable shareholder approval provisions, including, without limitation,
under
the rules and regulations of any Trading Market on which any of the securities
of the Company are listed or designated.
(aa) Solvency.
Based
on the financial condition of the Company as of the Closing Date after giving
effect to the receipt by the Company of the proceeds from the sale of the
Securities hereunder, (i) the Company’s fair saleable value of its assets
exceeds the amount that will be required to be paid on or in respect of the
Company’s existing debts and other liabilities (including known contingent
liabilities) as they mature; (ii) the Company’s assets do not constitute
unreasonably small capital to carry on its business for the current fiscal
year
as now conducted and as proposed to be conducted including its capital needs
taking into account the particular capital requirements of the business
conducted by the Company, and projected capital requirements and capital
availability thereof; and (iii) the current cash flow of the Company, together
with the proceeds the Company would receive, were it to liquidate all of
its
assets, after taking into account all anticipated uses of the cash, would
be
sufficient to pay all amounts on or in respect of its debt when such amounts
are
required to be paid. The Company does not intend to incur debts beyond its
ability to pay such debts as they mature (taking into account the timing
and
amounts of cash to be payable on or in respect of its debt). The Company
has no
knowledge of any facts or circumstances which lead it to believe that it
will
file for reorganization or liquidation under the bankruptcy or reorganization
laws of any jurisdiction within one year from the Closing Date. The SEC Reports
set forth as of the dates thereof all outstanding secured and unsecured
Indebtedness of the Company or any Subsidiary, or for which the Company or
any
Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness”
shall
mean (a) any liabilities for borrowed money or amounts owed in excess of
$50,000
(other than trade accounts payable incurred in the ordinary course of business),
(b) all guaranties, endorsements and other contingent obligations in respect
of
Indebtedness of others, whether or not the same are or should be reflected
in
the Company’s balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value
of
any lease payments
in excess of $50,000 due under leases required to be capitalized in accordance
with GAAP. Neither
the Company nor any Subsidiary is in default with respect to any
Indebtedness.
(bb) Form
SB-2 Eligibility.
The
Company is eligible to register the resale of the Securities for resale by
the
Purchaser on Form SB-2 promulgated under the Securities Act.
(cc) Tax
Status.
Except
for matters that would not, individually or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect, the Company and each
Subsidiary has filed all necessary federal, state and foreign income and
franchise tax returns and has paid or accrued all taxes shown as due thereon,
and the Company has no knowledge of a tax deficiency which has been asserted
or
threatened against the Company or any Subsidiary.
(dd) No
General Solicitation.
Neither
the Company nor any person acting on behalf of the Company has offered or
sold
any of the Securities by any form of general solicitation or general
advertising. The Company has offered the Securities for sale only to the
Purchasers and certain other “accredited investors” within the meaning of Rule
501 under the Securities Act.
(ee) Foreign
Corrupt Practices.
Neither
the Company, nor to the knowledge of the Company, any agent or other person
acting on behalf of the Company, has (i) directly or indirectly, used any
funds
for unlawful contributions, gifts, entertainment or other unlawful expenses
related to foreign or domestic political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to any
foreign or domestic political parties or campaigns from corporate funds,
(iii)
failed to disclose fully any contribution made by the Company (or made by
any
person acting on its behalf of which the Company is aware) which is in violation
of law, or (iv) violated in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended.
(ff) Accountants.
The
Company’s existing accountants are set forth on Schedule
3.1(ff)
of the
Disclosure Schedule. To the knowledge of the Company, such accountants, who
the
Company expects will express their opinion with respect to the financial
statements to be included in the Company’s Annual Report on Form 10-KSB for the
year ending December 31, 2005, are a registered public accounting firm as
required by the Securities Act.
(gg) Acknowledgment
Regarding Purchasers’ Purchase of Securities.
The
Company acknowledges and agrees that each of the Purchasers is acting solely
in
the capacity of an arm’s length purchaser with respect to the Transaction
Documents and the transactions contemplated hereby. The Company further
acknowledges that no Purchaser 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 Purchaser or
any of
their respective representatives or agents in connection with this Agreement
and
the transactions contemplated hereby is merely incidental to the Purchasers’
purchase of the Securities. The Company further represents to each Purchaser
that the Company’s decision to enter into this Agreement has been based solely
on the independent evaluation of the transactions contemplated hereby by
the
Company and its representatives.
(hh) Acknowledgement
Regarding Purchasers’ Trading Activity.
Anything in this Agreement or elsewhere herein to the contrary notwithstanding
(except for Section 4.15 hereof), it is understood and agreed by the Company
(i)
that none of the Purchasers have been asked to agree, nor has any Purchaser
agreed, to desist from purchasing or selling, long and/or short, securities
of
the Company, or “derivative” securities based on securities issued by the
Company or to hold the Securities for any specified term; (ii) that past
or
future open market or other transactions by any Purchaser, including Short
Sales, and specifically including, without limitation, Short Sales or
“derivative” transactions, before or after the closing of this or future private
placement transactions, may negatively impact the market price of the Company’s
publicly-traded securities; (iii) that any Purchaser, and counter parties
in
“derivative” transactions to which any such Purchaser is a party, directly or
indirectly, presently may have a “short” position in the Common Stock, and (iv)
that each Purchaser shall not be deemed to have any affiliation with or control
over any arm’s length counter-party in any “derivative” transaction.
The
Company further understands and acknowledges that (a) one or more Purchasers
may
engage in hedging activities at various times during the period that the
Securities are outstanding, including, without limitation, during the periods
that the value of the Warrant Shares deliverable with respect to Securities
are
being determined and (b) such hedging activities (if any) could reduce the
value
of the existing stockholders' equity interests in the Company at and after
the
time that the hedging activities are being conducted. The Company
acknowledges that such aforementioned hedging activities do not constitute
a
breach of any of the Transaction Documents.
(ii) Manipulation
of Price.
The Company has not, and to its knowledge no one acting on its behalf has,
(i)
taken, directly or indirectly, any action designed to cause or to result
in the
stabilization or manipulation of the price of any security of the Company
to
facilitate the sale or resale of any of the Securities, (ii) sold, bid for,
purchased, or, paid any compensation for soliciting purchases of, any of
the
Securities (other than for the placement agent’s placement of the Securities),
or (iii) paid or agreed to pay to any person any compensation for soliciting
another to purchase any other securities of the Company.
3.2 Representations
and Warranties of the Purchasers
.
Each
Purchaser hereby, for itself and for no other Purchaser, represents and warrants
as of the date hereof and as of the Closing Date to the Company as
follows:
(a) Organization;
Authority.
Such
Purchaser is an entity duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization with full right,
corporate or partnership power and authority to enter into and to consummate
the
transactions contemplated by the Transaction Documents and otherwise to carry
out its obligations hereunder and thereunder. The execution, delivery and
performance by such Purchaser of the transactions contemplated by this Agreement
have been duly authorized by all necessary corporate or similar action on
the
part of such Purchaser. Each Transaction Document to which it is a party
has
been duly executed by such Purchaser, and when delivered by such Purchaser
in
accordance with the terms hereof, will constitute the valid and legally binding
obligation of such Purchaser, enforceable against it in accordance with its
terms, except (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights generally, (ii) as
limited by laws 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.
(b) Own
Account.
Such
Purchaser understands that the Securities are “restricted securities” and have
not been registered under the Securities Act or any applicable state securities
law and is acquiring the Securities as principal for its own account and
not
with a view to or for distributing or reselling such Securities or any part
thereof in violation of the Securities Act or any applicable state securities
law, has no present intention of distributing any of such Securities in
violation of the Securities Act or any applicable state securities law and
has
no arrangement or understanding with any other persons regarding the
distribution of such Securities (this representation and warranty not limiting
such Purchaser’s right to sell the Securities pursuant to the Registration
Statement or otherwise in compliance with applicable federal and state
securities laws) in violation of the Securities Act or any applicable state
securities law. Such Purchaser is acquiring the Securities hereunder in the
ordinary course of its business. Such Purchaser does not have any agreement
or
understanding, directly or indirectly, with any Person to distribute any
of the
Securities.
(c) Purchaser
Status.
At the
time such Purchaser was offered the Securities, it was, and at the date hereof
it is, and on each date on which it exercises any Warrants, it will be either:
(i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3),
(a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional
buyer” as defined in Rule 144A(a) under the Securities Act. Such Purchaser is
not required to be registered as a broker-dealer under Section 15 of the
Exchange Act.
(d) Experience
of Such Purchaser.
Such
Purchaser, 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 Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of
such
investment. Such Purchaser, either alone or together with its representatives,
had the opportunity to ask questions of the Company concerning the investment
contemplated hereby and to obtain any additional information they have deemed
necessary as a condition to making such investment and access to information
filed with the Commission; provided that such access does not relieve the
Company of its obligation to provide complete and accurate Disclosure Schedules
without, except as specifically referenced herein or therein, reliance on
the
SEC Reports.
(e) General
Solicitation.
Such
Purchaser 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 or broadcast over television or radio
or
presented at any seminar or any other general solicitation or general
advertisement.
(f) Short
Sales and Confidentiality Prior To The Date Hereof.
Other
than the transaction contemplated hereunder, such Purchaser has not directly
or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Purchaser, executed any disposition, including Short
Sales (but not including the location and/or reservation of borrowable shares
of
Common Stock), in the securities of the Company during the period
commencing from
the time
that such Purchaser first received a term sheet from the Company or any other
Person setting forth the material terms of the transactions contemplated
hereunder until the date hereof (“Discussion
Time”).
Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser's assets and the portfolio managers have
no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Purchaser's assets, the representation set
forth
above shall only apply with respect to the portion of assets managed by the
portfolio manager that made the investment decision to purchase the Securities
covered by this Agreement. Other than to other Persons party to this Agreement,
such Purchaser has maintained the confidentiality of all disclosures made
to it
in connection with this transaction (including the existence and terms of
this
transaction).
The
Company acknowledges and agrees that each Purchaser does not make or has
not
made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section
3.2
and in the Accredited Investment Questionnaire.
ARTICLE
IV.
OTHER
AGREEMENTS OF THE PARTIES
4.1 Transfer
Restrictions.
(a) The
Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Securities other than
pursuant to an effective registration statement or Rule 144, to the Company
or
to an affiliate of a Purchaser or in connection with a pledge as contemplated
in
Section 4.1(b), the Company may require the transferor thereof to provide
to the
Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion shall
be
reasonably satisfactory to the Company, to the effect that such transfer
does
not require registration of such transferred Securities under the Securities
Act. As a condition of transfer, any such transferee shall agree in writing
to
be bound by the terms of this Agreement and shall have the rights of a Purchaser
under this Agreement and the Registration Rights Agreement.
(b) The
Purchasers agree to the imprinting, so long as is required by this Section
4.1(b), of a legend on any of the Securities in the following form:
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”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD OR TRANSFERRED 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 ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL
TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED
IN
CONNECTION WITH SUCH DISPOSITION. 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.
The
Company acknowledges and agrees that a Purchaser may from time to time pledge
pursuant to 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 the Registration Rights Agreement and, if required under the terms of
such
arrangement, such Purchaser may transfer pledged or secured Securities to
the
pledgees or secured parties. Such a pledge or transfer would not be subject
to
approval of the Company and no legal opinion of legal counsel of the pledgee,
secured party or pledgor shall be required in connection therewith. Further,
no
notice shall be required of such pledge. At the appropriate Purchaser’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, if the Securities are subject
to registration pursuant to the Registration Rights Agreement, the preparation
and filing of any required prospectus supplement under Rule 424(b)(3) under
the
Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of Selling Stockholders thereunder.
(c) Certificates
evidencing the Shares and Warrant Shares shall not contain any legend (including
the legend set forth in Section 4.1(b)), (i) while a registration statement
(including the Registration Statement) covering the resale of such security
is
effective under the Securities Act, or (ii) following any sale of such Shares
or
Warrant Shares pursuant to Rule 144, or (iii) if such Shares or Warrant Shares
are eligible for sale under Rule 144(k), or (iv) if such legend is not required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission).
The
Company shall cause its counsel to issue a legal opinion to the Company’s
transfer agent promptly after the Effective Date if required by the Company’s
transfer agent to effect the removal of the legend hereunder. If all or any
portion of a Warrant is exercised at a time when there is an effective
registration statement to cover the resale of the Warrant Shares, such Warrant
Shares shall be issued free of all legends. The Company agrees that following
the Effective Date or at such time as such legend is no longer required under
this Section 4.1(c), it will, no later than three Trading Days following
the
delivery by a Purchaser and receipt by the Company or the Company’s transfer
agent of a certificate representing Shares or Warrant Shares, as the case
may
be, issued with a restrictive legend (such third Trading Day, the “Legend
Removal Date”),
deliver or cause to be delivered to such Purchaser a certificate representing
such shares that is free from all restrictive and other legends. The Company
may
not make any notation on its records or give instructions to any transfer
agent
of the Company that enlarge the restrictions on transfer set forth in this
Section. Certificates for Securities subject to legend removal hereunder
shall
be transmitted by the transfer agent of the Company to the Purchasers by
crediting the account of the Purchaser’s prime broker with the Depository Trust
Company System.
(d) In
addition to such Purchaser’s other available remedies, the Company shall pay to
a Purchaser, in cash, as partial liquidated damages and not as a penalty,
for
each $1,000 of Shares or Warrant Shares (based on the Closing Price of the
Common Stock on the date such Securities are submitted to the Company’s transfer
agent) delivered for removal of the restrictive legend and subject to Section
4.1(c), $10 per Trading Day (increasing to $20 per Trading Day five (5) Trading
Days after such damages have begun to accrue) for each Trading Day after
the
Legend Removal Date until such certificate is delivered without a legend.
Nothing herein shall limit such Purchaser’s right to pursue actual damages for
the Company’s failure to deliver certificates representing any Securities as
required by the Transaction Documents, and such Purchaser shall have the
right
to pursue all remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive
relief.
(e) Each
Purchaser, severally and not jointly with the other Purchasers, agrees that
the
removal of the restrictive legend from certificates representing Securities
as
set forth in this Section 4.1 is predicated upon the Company’s reliance that the
Purchaser will sell any Securities pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom.
4.2 Furnishing
of Information
.
As long
as any Purchaser owns Securities, the Company covenants 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. As long as any Purchaser owns Securities, if
the
Company is not required to file reports pursuant to the Exchange Act, it
will
prepare and furnish to the Purchasers and make publicly available in accordance
with Rule 144(c) such information as is required for the Purchasers to sell
the
Securities under Rule 144. The Company further covenants that it will take
such
further action as any holder of Securities may reasonably request, all to
the
extent required from time to time to enable such Person to sell such Securities
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144.
4.3 Integration
.
The
Company shall not 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 Purchasers or that would be integrated with the
offer
or sale of the Securities for purposes of the rules and regulations of any
Trading Market such that it would require shareholder approval prior to the
closing of such other transaction unless shareholder approval is obtained
before
the closing of such subsequent transaction.
4.4 Securities
Laws Disclosure; Publicity.
The
Company shall, by 8:30 a.m. Eastern time on the 4th
Trading
Day following the date hereof, issue a Current Report on Form 8-K, reasonably
acceptable to each Purchaser disclosing the material terms of the transactions
contemplated hereby, and shall attach the Transaction Documents thereto.
The
Company and each Purchaser shall consult with each other in issuing any other
press releases with respect to the transactions contemplated hereby, and
neither
the Company nor any Purchaser shall issue any such press release or otherwise
make any such public statement without the prior consent of the Company,
with
respect to any press release of any Purchaser, or without the prior consent
of
each Purchaser, with respect to any press release of the Company, which consent
shall not unreasonably be withheld, except if such disclosure is required
by
law, in which case the disclosing party shall promptly provide the other
party
with prior notice of such public statement or communication. Notwithstanding
the
foregoing, the Company shall not publicly disclose the name of any Purchaser,
or
include the name of any Purchaser in any filing with the Commission or any
regulatory agency or Trading Market, without the prior written consent of
such
Purchaser, except (i) as required by federal securities law in connection
with
the registration statement contemplated by the Registration Rights Agreement
and
(ii) to the extent such disclosure is required by law or Trading Market
regulations, in which case the Company shall provide the Purchasers with
prior
notice of such disclosure permitted under subclause (i) or (ii).
4.5 Shareholder
Rights Plan. No claim will be made or enforced by the Company or, to the
knowledge of the Company, any other Person that any Purchaser is an “Acquiring
Person” under any shareholder rights plan or similar plan or arrangement in
effect or hereafter adopted by the Company, or that any Purchaser could be
deemed to trigger the provisions of any such plan or arrangement, by virtue
of
receiving Securities under the Transaction Documents or under any other
agreement between the Company and the Purchasers. The Company shall conduct
its
business in a manner so that it will not become subject to the Investment
Company Act.
4.6 Non-Public
Information. The Company covenants and agrees that neither it nor any other
Person acting on its behalf will provide any Purchaser or its agents or counsel
with any information that the Company believes constitutes material non-public
information, unless prior thereto such Purchaser shall have executed a written
agreement regarding the confidentiality and use of such information. The
Company
understands and confirms that each Purchaser shall be relying on the foregoing
representations in effecting transactions in securities of the
Company.
4.7 Use
of
Proceeds. Except as set forth on Schedule 4.7 attached hereto, the Company
shall
use the net proceeds from the sale of the Securities hereunder for working
capital purposes and not for the satisfaction of any portion of the Company’s
debt (other than payment of trade payables in the ordinary course of the
Company’s business and prior practices), to redeem any Common Stock or Common
Stock Equivalents or to settle any outstanding litigation.
4.8 [RESERVED]
4.9 Indemnification
of Purchasers. Subject to the provisions of this Section 4.9, the Company
will
indemnify and hold the Purchasers and their directors, officers, shareholders,
members, partners, employees and agents (each, a “Purchaser 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 Purchaser 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 in the other
Transaction Documents or (b) any action instituted against a Purchaser, or
any
of them or their respective Affiliates, by any stockholder of the Company
who is
not an Affiliate of such Purchaser, with respect to any of the transactions
contemplated by the Transaction Documents (unless such action is based upon
a
breach of such Purchaser’s representations, warranties or covenants under the
Transaction Documents or any agreements or understandings such Purchaser
may
have with any such stockholder or any violations by the Purchaser of state
or
federal securities laws or any conduct by such Purchaser which constitutes
fraud, gross negligence, willful misconduct or malfeasance). If any action
shall
be brought against any Purchaser Party in respect of which indemnity may
be
sought pursuant to this Agreement, such Purchaser 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 Purchaser 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 Purchaser 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 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 Purchaser Party. The Company
will not be liable to any Purchaser Party under this Agreement (i) for any
settlement by a Purchaser 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 any Purchaser Party’s breach of any of the representations,
warranties, covenants or agreements made by the Purchasers in this Agreement
or
in the other Transaction Documents.
4.10 Reservation
of Common Stock.
As of
the date hereof, the Company has reserved and the Company shall continue
to
reserve and keep available at all times, free of preemptive rights, a sufficient
number of shares of Common Stock for the purpose of enabling the Company
to
issue Shares pursuant to this Agreement and Warrant Shares pursuant to any
exercise of the Warrants.
4.11 Listing
of
Common Stock.
The
Company hereby agrees to use best efforts to maintain the listing of the
Common
Stock on a Trading Market, and as soon as reasonably practicable following
the
Closing (but not later than the earlier of the Effective Date and the first
anniversary of the Closing Date) to list all of the Shares and Warrant Shares
on
such Trading Market. The Company further agrees, if the Company applies to
have
the Common Stock traded on any other Trading Market, it will include in such
application all of the Shares and Warrant Shares, and will take such other
action as is necessary to cause all of the Shares and Warrant Shares to be
listed on such other Trading Market as promptly as possible. The Company
will
take all action reasonably necessary to continue the listing and trading
of its
Common Stock on a Trading Market and will comply in all respects with the
Company’s reporting, filing and other obligations under the bylaws or rules of
the Trading Market.
4.12 Equal
Treatment of Purchasers. Other than to Crestview, no consideration shall
be
offered or paid to any person to amend or consent to a waiver or modification
of
any provision of any of the Transaction Documents unless the same consideration
is also offered to all of the parties to the Transaction Documents. For
clarification purposes, this provision constitutes a separate right granted
to
each Purchaser by the Company and negotiated separately by each Purchaser,
and
is intended to treat for the Company the Purchasers as a class and shall
not in
any way be construed as the Purchasers acting in concert or as a group with
respect to the purchase, disposition or voting of Securities or
otherwise.
4.13 Participation
in Future Financing.
(a) From
the
date hereof until the date that is the 12 month anniversary of the Effective
Date, upon any financing by the Company or any of its Subsidiaries of Common
Stock or Common Stock Equivalents (a “Subsequent
Financing”),
each
Purchaser shall have the right to participate in up to an amount of the
Subsequent Financing equal to 100% of the Subsequent Financing (the
“Participation
Maximum”);
provided,
however,
if the
new third party willing to undertake the Subsequent Financing will only agree
to
such undertaking on an all or nothing basis without participation by any
other
investors, such right of participation shall be a cumulative right of first
refusal such that, if on an aggregated basis the Purchasers are unwilling
to do
100% of the Subsequent Financing, the Company may consummate such Subsequent
Financing to such third party only on the terms and conditions set fort in
the
Subsequent Financing Notice.
(b) At
least
5 Trading Days prior to the closing of the Subsequent Financing, the Company
shall deliver to each Purchaser a written notice of its intention to effect
a
Subsequent Financing (“Pre-Notice”),
which
Pre-Notice shall ask such Purchaser if it wants to review the details of
such
financing (such additional notice, a “Subsequent
Financing Notice”).
Upon the request of a Purchaser, and only upon a request by such Purchaser,
for
a Subsequent Financing Notice, the Company shall promptly, but no later than
1
Trading Day after such request, deliver a Subsequent Financing Notice to
such
Purchaser. The Subsequent Financing Notice shall describe in reasonable
detail the proposed terms of such Subsequent Financing, the amount of proceeds
intended to be raised thereunder, the Person with whom such Subsequent Financing
is proposed to be effected, and attached to which shall be a term sheet or
similar document relating thereto.
(c) Any
Purchaser desiring to participate in such Subsequent Financing must provide
written notice to the Company by not later than 5:30 p.m. (New York City
time)
on the 5th
Trading
Day after all of the Purchasers have received the Pre-Notice that the Purchaser
is willing to participate in the Subsequent Financing, the amount of the
Purchaser’s participation, and that the Purchaser has such funds ready, willing,
and available for investment on the terms set forth in the Subsequent Financing
Notice. If the Company receives no notice from a Purchaser as of such
5th
Trading
Day, such Purchaser shall be deemed to have notified the Company that it
does
not elect to participate.
(d) If
by
5:30 p.m. (New York City time) on the 5th
Trading
Day after all of the Purchasers have received the Pre-Notice, notifications
by
the Purchasers of their willingness to participate in the Subsequent Financing
(or to cause their designees to participate) is, in the aggregate, less than
the
total amount of the Subsequent Financing, then the Company may effect the
remaining portion of such Subsequent Financing on the terms and to the Persons
set forth in the Subsequent Financing Notice.
(e) If
by
5:30 p.m. (New York City time) on the 5th
Trading
Day after all of the Purchasers have received the Pre-Notice, the Company
receives responses to a Subsequent Financing Notice from Purchasers seeking
to
purchase more than the aggregate amount of the Participation Maximum, each
such
Purchaser shall have the right to purchase the greater of (a) their Pro Rata
Portion (as defined below) of the Participation Maximum and (b) the difference
between the Participation Maximum and the aggregate amount of participation
by
all other Purchasers. “Pro
Rata Portion”
is the
ratio of (x) the Subscription Amount of Securities purchased on the Closing
Date
by a Purchaser participating under this Section 4.13 and (y) the sum of the
aggregate Subscription Amounts of Securities purchased on the Closing Date
by
all Purchasers participating under this Section 4.13.
(f) The
Company must provide the Purchasers with a second Subsequent Financing Notice,
and the Purchasers will again have the right of participation set forth above
in
this Section 4.13, if the Subsequent Financing subject to the initial Subsequent
Financing Notice is not consummated for any reason on the terms set forth
in
such Subsequent Financing Notice within 60 Trading Days after the date of
the
initial Subsequent Financing Notice.
(g) Notwithstanding
the foregoing, this Section 4.13 shall not apply in respect of an Exempt
Issuance or an issuance of up to $7 million of Common Stock or Common Stock
Equivalents on terms and conditions acceptable to Crestview in its sole and
absolute discretion.
4.14 Subsequent
Equity Sales.
(a) From
the
date hereof until 30 days after the Effective Date, neither the Company nor
any
Subsidiary shall issue shares of Common Stock or Common Stock Equivalents;
provided, however, the 30 day period set forth in this Section 4.14 shall
be
extended for the number of Trading Days during such period in which (i) trading
in the Common Stock is suspended by any Trading Market, or (ii) following
the
Effective Date, the Registration Statement is not effective or the prospectus
included in the Registration Statement may not be used by the Purchasers
for the
resale of the Shares and Warrant Shares.
(b) From
the
date hereof until such time as no Purchaser holds any of the Securities,
the
Company shall be prohibited from effecting or entering into an agreement
to
effect any Subsequent Financing involving a “Variable Rate Transaction”. The
term “Variable
Rate Transaction”
shall
mean a transaction in which the Company issues or sells (i) any debt or equity
securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (A)
at a
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the shares of Common
Stock
at any time after the initial issuance of such debt or equity securities,
or (B)
with a conversion, exercise or exchange price that is subject to being reset
at
some future date after the initial issuance of such debt or equity security
or
upon the occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common Stock
or
(ii) enters into any agreement, including, but not limited to, an equity
line of
credit, whereby the Company may sell securities at a future determined price
but
not including customary anti-dilution provisions. Any Purchaser shall be
entitled to obtain injunctive relief against the Company to preclude any
such
issuance, which remedy shall be in addition to any right to collect
damages.
(c) Notwithstanding
the foregoing, this Section 4.14 shall not apply in respect of an Exempt
Issuance or an issuance of up to $7 million of Common Stock or Common Stock
Equivalents on terms and conditions acceptable to Crestview in its sole and
absolute discretion.
4.15 Short
Sales
and
Confidentiality After The Date Hereof. Each
Purchaser severally and not jointly with the other Purchasers covenants that
neither it nor any affiliates acting on its behalf or pursuant to any
understanding with it will execute any Short Sales during the period after
the
Discussion Time and ending at the time that the transactions contemplated
by
this Agreement are first publicly announced as described
in
Section 4.4. Each
Purchaser, severally and not jointly with the other Purchasers, covenants
that
until such time as the transactions contemplated by this Agreement are publicly
disclosed by the Company as described in Section 4.4, such Purchaser will
maintain, the confidentiality of all disclosures made to it in connection
with
this transaction (including the existence and terms of this transaction).
Each
Purchaser understands and acknowledges, severally and not jointly with any
other
Purchaser, that the Commission currently takes the position that coverage
of
short sales of shares of the Common Stock “against the box” prior to the
Effective Date of the Registration Statement with the Securities is a violation
of Section 5 of the Securities Act, as set forth in Item 65, Section 5 under
Section A, of the Manual of Publicly Available Telephone Interpretations,
dated
July 1997, compiled by the Office of Chief Counsel, Division of Corporation
Finance. Notwithstanding
the foregoing, no Purchaser makes any representation, warranty or covenant
hereby that it will not engage in Short Sales in the securities of the Company
after the time that the transactions contemplated by this Agreement are first
publicly announced as described in Section 4.4. Notwithstanding
the foregoing, in the case of a Purchaser that is a multi-managed investment
vehicle whereby separate portfolio managers manage separate portions of such
Purchaser's assets and the portfolio managers have no direct knowledge of
the
investment decisions made by the portfolio managers managing other portions
of
such Purchaser's assets, the covenant set forth above shall only apply with
respect to the portion of assets managed by the portfolio manager that made
the
investment decision to purchase the Securities covered by this
Agreement.
4.16 Delivery
of Securities After Closing. The Company shall deliver, or cause to be
delivered, the respective Securities purchased by each Purchaser to such
Purchaser within 3 Trading Days of the Closing Date.
4.17 Per
Share
Purchase Price Reset. As to each Purchaser, from the date hereof until the
earlier of (a) the date such Purchaser no longer holds any Shares and (b)
only
as to issuances that occurred after the date hereof (specifically excluding
issuances of Common Stock and Common Stock Equivalents issued during the
30 day
period prior to the date hereof and are subsequently adjusted, reset or the
like
pursuant to which this Section 4.17 shall apply for as long as a Purchaser
holds
any Shares), the 12 month anniversary of the Effective Date, if the Company
or
any Subsidiary thereof shall issue any Common Stock or Common Stock Equivalents
entitling any person or entity to acquire shares of Common Stock at an effective
price per share less than the Per Share Purchase Price (the “Discounted Purchase
Price”, as further defined below), within 5 Trading Days of the date thereof the
Company shall issue to such Purchaser that number of additional shares of
Common
Stock equal to (a) the Subscription Amount paid by such Purchaser at the
Closing
divided by the Discounted Purchase Price, less (b) the Shares previously
issued
to such Purchaser pursuant to this Agreement. The term “Discounted Purchase
Price” shall mean the amount actually paid by third parties for a share of
Common Stock. The sale of Common Stock Equivalents shall be deemed to have
occurred at the time of the issuance of the Common Stock Equivalents and
the
Discounted Purchase Price covered thereby shall also include the actual exercise
or conversion price thereof at the time of the conversion or exercise (in
addition to the consideration per share of Common Stock underlying the Common
Stock Equivalents received by the Company upon such sale or issuance of the
Common Stock Equivalents). If shares are issued for a consideration other
than
cash, the per share selling price shall be the fair value of such consideration
as determined in good faith by the Board of Directors of the Company. The
Company may not refuse to issue a Purchaser additional Shares hereunder based
on
any claim that such Purchaser or any one associated or affiliated with such
Purchaser has been engaged in any violation of law, agreement or for any
other
reason, unless, an injunction from a court, on notice, restraining and or
enjoining an issuance hereunder shall have been sought and obtained and the
Company posts a surety bond for the benefit of such Purchaser in the amount
of
150% of the market value of such Shares (based on the Closing Price of the
Common Stock on the date of the event giving rise to the Company’s obligation
hereunder), which is subject to the injunction, which bond shall remain in
effect until the completion of litigation of the dispute and the proceeds
of
which shall be payable to the Purchaser to the extent it obtains judgment.
Nothing herein shall limit a Purchaser’s right to pursue actual damages for the
Company's failure to deliver Shares hereunder and such Purchaser shall have
the
right to pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief.
On the date of closing of any transaction pursuant to which securities are
issued for a Discounted Purchase Price, the Company shall give the Purchasers
written notice thereof. Notwithstanding anything to the contrary herein,
this
Section 4.17 shall not apply to an Exempt Issuance. Following notice of an
issuance to a Purchaser hereunder, such Purchaser, by written notice to the
Company, may irrevocably defer such issuance for continuous periods of at
least
75 days.
ARTICLE
V.
MISCELLANEOUS
5.1 Termination.
This Agreement may be terminated by any Purchaser, as to such Purchaser’s
obligations hereunder only and without any effect whatsoever on the obligations
between the Company and the other Purchasers, by written notice to the other
parties, if the Closing has not been consummated on or before October 31,
2005;
provided, however, that no such termination will affect the right of any
party
to xxx for any breach by the other party (or parties).
5.2 Fees
and
Expenses. At the Closing, the Company has agreed to reimburse Crestview the
non-accountable sum of $30,000, for its actual, reasonable, out-of-pocket
legal
fees and expenses. Except as expressly set forth in the Transaction Documents
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 taxes and duties levied in connection with the delivery
of
any Securities.
5.3 Entire
Agreement. The Transaction Documents, together with the exhibits and schedules
thereto, 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.
5.4 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 at the facsimile number set forth
on
the signature pages attached hereto prior to 5:30 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 at the facsimile number
set
forth on the signature pages attached hereto on a day that is not a Trading
Day
or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the
2nd
Trading
Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service, or (d) upon actual receipt by the party to whom
such
notice is required to be given. The address for such notices and communications
shall be as set forth on the signature pages attached hereto.
5.5 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
Purchaser 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 either party to exercise any right hereunder in any
manner
impair the exercise of any such right.
5.6 Headings.
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.
5.7 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 each Purchaser. Any Purchaser may assign any or all of
its
rights under this Agreement to any Person, with the exclusion of any Person
that
is an operating company and that is a direct competitor of the Company, to
whom
such Purchaser assigns or transfers any Securities, provided such transferee
agrees in writing to be bound, with respect to the transferred Securities,
by
the provisions in this Agreement and the other Transaction Documents that
apply
to the “Purchasers”.
5.8 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, except as otherwise set forth in Section 4.9.
5.9 Governing
Law. All questions concerning the construction, validity, enforcement and
interpretation of the Transaction Documents shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York,
without regard to the principles of conflicts of law thereof. Each party
agrees
that all legal proceedings concerning the interpretations, enforcement and
defense of the transactions contemplated by this Agreement and any other
Transaction Documents (whether brought against a party hereto or its respective
affiliates, directors, officers, shareholders, employees or agents) shall
be
commenced exclusively in the state and federal courts sitting in the City
of New
York. Each party hereby irrevocably submits to the exclusive jurisdiction
of the
state and federal courts sitting in the City of New York, borough of Manhattan
for the adjudication of any dispute hereunder or in connection herewith or
with
any transaction contemplated hereby or discussed herein (including with respect
to the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court,
that
such suit, action or proceeding is improper or inconvenient venue for such
proceeding. 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 parties hereby waive all rights to a trial by jury.
If
either party shall commence an action or proceeding to enforce any provisions
of
the Transaction Documents, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys’ fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.
5.10 Survival.
The representations and warranties contained herein shall survive the Closing
and the delivery of the Shares and Warrant Shares.
5.11 Execution
and Counterparts. 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 both parties need
not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission, 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 signature page
were an original thereof.
5.12 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.
5.13 Rescission
and Withdrawal Right. Notwithstanding anything to the contrary contained
in (and
without limiting any similar provisions of) the Transaction Documents, whenever
any Purchaser exercises a right, election, demand or option under a Transaction
Document and the Company does not timely perform its related obligations
within
the periods therein provided, then such Purchaser 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.
5.14 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 loss,
theft or destruction and customary and reasonable indemnity, if requested.
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.
5.15 Remedies.
In addition to being entitled to exercise all rights provided herein or granted
by law, including recovery of damages, each of the Purchasers and the Company
will be entitled to specific performance under the Transaction Documents.
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 agrees to waive in any action for specific performance
of
any such obligation the defense that a remedy at law would be
adequate.
5.16 Payment
Set Aside. To the extent that the Company makes a payment or payments to
any
Purchaser pursuant to any Transaction Document or a Purchaser enforces or
exercises its rights thereunder, 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,
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.
5.17 Independent
Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser
under any Transaction Document are several and not joint with the obligations
of
any other Purchaser, and no Purchaser shall be responsible in any way for
the
performance of the obligations of any other Purchaser under any Transaction
Document. Nothing contained herein or in any Transaction Document, and no
action
taken by any Purchaser pursuant thereto, shall be deemed to constitute the
Purchasers as a partnership, an association, a joint venture or any other
kind
of entity, or create a presumption that the Purchasers are in any way acting
in
concert or as a group with respect to such obligations or the transactions
contemplated by the Transaction Documents. Each Purchaser shall be entitled
to
independently protect and enforce its rights, including without limitation,
the
rights arising out of this Agreement or out of the other Transaction Documents,
and it shall not be necessary for any other Purchaser to be joined as an
additional party in any proceeding for such purpose. Each Purchaser has been
represented by its own separate legal counsel in their review and negotiation
of
the Transaction Documents. For reasons of administrative convenience only,
Purchasers and their respective counsel have chosen to communicate with the
Company through FW. FW does not represent all of the Purchasers but only
Crestview. The Company has elected to provide all Purchasers with the same
terms
and Transaction Documents for the convenience of the Company and not because
it
was required or requested to do so by the Purchasers.
5.18 Liquidated
Damages. The Company’s obligations to pay any partial liquidated damages or
other amounts owing under the Transaction Documents is a continuing obligation
of the Company and shall not terminate until all unpaid partial liquidated
damages and other amounts have been paid notwithstanding the fact that the
instrument or security pursuant to which such partial liquidated damages
or
other amounts are due and payable shall have been canceled.
5.19 Construction.
The parties agree that each of them and/or their respective counsel has reviewed
and had an opportunity to revise the Transaction Documents and, therefore,
the
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of the Transaction Documents or any amendments hereto.
(Signature
Pages Follow)
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.
|
XFONE,
INC.
|
Address
for Notice:
|
|
By:__________________________________________
Name:
Xxx Xxxxxxxxx
Title:
Presiden & CEO
Address
for Notice:
Attn:
Xxxx Xxxxxx, CFO
X/X
Xxxxx 000 Xxx.
0
Xxxxxx Xxxxxx, 0xx
Xxxxx
Kiryat
Xxxxxxx, Petach Tikva
Israel
Fax:
+ 000-00000000
|
|
|
With
a copy to (which shall not constitute notice):
Attn:
Xxx Xxxxxxxxx, CEO
C/O
Xfone USA, Inc.
0000
Xxxxxxxx Xxxxx Xxxxx 000 Xxxxxxx,
Xxxxxxxxxxx
00000
|
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE
PAGE FOR PURCHASER FOLLOWS]
[PURCHASER
SIGNATURE PAGES TO XFN SECURITIES PURCHASE AGREEMENT]
IN
WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement
to be duly executed by their respective authorized signatories as of the
date
first indicated above.
Name
of
Purchaser: ________________________________________________________
Signature
of Authorized Signatory of Purchaser:
__________________________________
Name
of
Authorized Signatory:
____________________________________________________
Title
of
Authorized Signatory:
_____________________________________________________
Email
Address of
Purchaser:________________________________________________
Address
for Notice of Purchaser:
Address
for Delivery of Securities for Purchaser (if not same as
above):
Subscription
Amount:
Shares:
Warrant
Shares:
[SIGNATURE
PAGES CONTINUE]
Schedule
3.1 (a)
|
The
subsidiary
|
The
Owner
|
Percentage
|
|
Xfone
USA, Inc.
|
Xfone,
Inc.
|
100%
|
|
eXpeTel
Communications, Inc.
|
Xfone
USA, Inc.
|
100%
|
|
Gulf
Coast Utilities, Inc.
|
Xfone
USA, Inc.
|
100%
|
|
Swiftnet
Limited
|
Xfone,
Inc.
|
100%
|
|
Xfone
018 Ltd.
|
Xfone,
Inc.
|
69%
|
Note:
Xfone, Inc. owns directly 40% of Story Telecom, Inc. Xfone, Inc. owns indirectly
47.5% of Auracall Limited, 40% of Story Telecom Limited and 40% of Story
Telecom
(Ireland) Limited. All these entities have been intentionally excluded from
this
Schedule 3.1 (a).
A
Stock
Pledge Agreement dated September 27, 2005, by and among the Company, Xfone
USA,
Inc. and Laurus Master Fund, Ltd. provides for a pledge on the stock of Xfone
USA, eXpeTel Communications, Inc. and Gulf Coast Utilities, Inc.
Schedule
3.1
(g)
1.
Common
Stock:
| (a) |
Authorized
- 25,000,000
|
| (b) |
issued
and outstanding as of September 28, 2005 - 6,887,671
|
2.
Preferred Stock:
| (a) |
Authorized
- 50,000,000
|
| (b) |
issued
and outstanding as of September 28, 2005 -
0
|
3.
Warrants:
| (a) |
Authorized
- 25,000,000
|
| (b) |
Issued
and outstanding as of September 28, 2005 -
1,706,372
|
Each
issued and outstanding warrant is exercisable into one share of common stock
at
an exercise price range of $3.50 - $5.50 per share.
Contractual
rights to receive warrants:
(a)
Oberon Securities LLC - up to 125,000 shares plus up to 750,000 shares
underlying 750,000 warrants in connection with the Finders Agreement and
the
Financial Consulting Agreement between the Company and Oberon Securities,
LLC
(as each may be amended, modified, restated and/or supplemented from time
to
time).
(b)
Elite
Financial Communications Group - up to 125,000 shares underlying 125,000
warrants in connection with the Public Relations Agreement between the Company
and Elite Financial Communications Group, LLC.
(c)
Xxxxxxx Xxxxxxxxx - Shares underlying warrants valued in the aggregate amount
of
up to $50,000 in connection with a Legal Services Agreement between the Company
and Xx. Xxxxxxx Xxxxxxxxx.
4.
2004
Stock Options Plan:
| (a) |
Authorized
- 5,500,000
|
| (b) |
Granted
as of September 28, 2005 - 5,130,000, 4,230,000 of which exercisable
into
one share of common stock at an exercise price of $3.50 and 900,000
of
which are exercisable into one share at an exercise price of 10%
of the
closing price of stock on the date of issue of the Options, which
is the
closing date of the merger of WS Telecom, Inc. with and into Xfone
USA,
Inc.
|
5.
500,000 Options granted to Campbletown Business Ltd. exercisable into 500,000
shares of common stock at an exercise price of $0.40 per share.
Notes
to Section 3.1(g):
The
company has issued 3,150 shares of its common stock since its most recently
filed periodic report under the Exchange Act.
Campbeltown
Business, Ltd. has a first right of refusal on any of the Company's securities
offerings until December 31, 2005, so long as Campbeltown Business owns more
than 4% of the Company's outstanding stock. On August 29, 2005, Campbeltown
Business waived its right with respect to the transactions contemplated by
the
Transaction Documents (as defined in the Securities Purchase
Agreement).
The
Company is and/or may become bound to issue additional shares of Common Stock
or
Common Stock Equivalents in connection with a September 27, 2005 financial
transaction by and among the Company and Laurus Master Fund, Ltd. No additional
shares of Common Stock shall be issued to Laurus Master Fund as a result
of any
provision under the Transaction Documents (as defined in the Securities Purchase
Agreement).
The
Company is and/or may become bound to issue additional shares of Common Stock
in
connection with the acquisitions of I-55 Internet Services, Inc. and I-55
Telecommunications, LLC.
In
the
event such
approval will be required by the American Stock Exchange (or any successor
entity), a Shareholder Approval (as defined in the Securities Purchase
Agreement) shall be required for the issuance and sale of the Securities
(as
defined in the Securities Purchase Agreement).
On
September 28, 2004, Xxxxxxx Xxxxxx, Xxx Xxxxxxxxx and Campbeltown Business,
Ltd.
entered into a Voting Agreement.
SECURITIES
PURCHASE AGREEMENT
Schedule
3.1
(j)
The
Company's wholly-owned UK based subsidiary, Swiftnet Limited ("Swiftnet"),
is in
dispute with MCI Worldcom Limited ("MCI") regarding amounts due to MCI for
telecommunications services provided by MCI to Swiftnet. Swiftnet
alleges that the disputed charges were improperly billed by MCI to its account
and therefore MCI should credit Swiftnet. The parties are currently negotiating
a settlement arrangement regarding the disputed charges. Swiftnet's
financial statements include an appropriate provision for this
credit.
As
of
July 31, 2005 the balance of MCI in Swiftnet's balance sheet is approximately
1.1 million pounds after amount of credit due.
SECURITIES
PURCHASE AGREEMENT
Schedule
3.1
(l)
The
Company's wholly-owned UK based subsidiary, Swiftnet Limited ("Swiftnet"),
is in
dispute with MCI Worldcom Limited ("MCI") regarding amounts due to MCI for
telecommunications services provided by MCI to Swiftnet. Swiftnet
alleges that the disputed charges were improperly billed by MCI to its account
and therefore MCI should credit Swiftnet. The parties are currently negotiating
a settlement arrangement regarding the disputed charges. Swiftnet's
financial statements include an appropriate provision for this
credit.
As
of
July 31, 2005 the balance of MCI in Swiftnet's balance sheet is approximately
1.1 million pounds after amount of credit due.
SECURITIES
PURCHASE AGREEMENT
Schedule
3.1
(n)
Xfone
018 Ltd
Our
Israeli based subsidiary, Xfone 018 Ltd. has received a credit facility from
Bank Hapoalim B.M. in Israel to finance its start-up activities. The credit
facility includes a revolving credit line of 1,000,000 NIS and an on call
short-term credit line of 850,000 NIS. In addition, the bank made available
to
Xfone 018 a long-term facility of 3,150,000 NIS to procure equipment.
The credit facilities are secured with: (a) a floating charge on Xfone 018
assets; (b) a fixed charge on its switches; (c) subordination of a Term Note
of
$800,000 (in favor of Xfone, Inc.); (d) assignment of rights by way
of pledge on the Bezeq and Credit companies contracts with Xfone 018;
(e)
personal collateral by Xxxxxxx Xxxxxx and Xxx Xxxxxxxxx; (f) Xfone, Inc.
and
Swiftnet Limited issued a Letter of Guarantee, unlimited in amount, in favor
of
the bank, guaranteeing all debt
and
indebtedness of Xfone 018 towards the bank.
Xfone
USA, Inc. / eXpeTel Communications, Inc. / Gulf Coast Utilities,
Inc.
Xxx
Xxxx
lien on Shell Landing Plant - up to $130,000.
A
Master
Security Agreement by
and
among the Company, Xfone USA, Inc., eXpeTel Communications, Inc., Gulf Coast
Utilities, Inc. and Laurus Master Fund, Ltd. was entered on September 27,
2005..
AmSouth
Bank (located at Jackson MS) - lien on receivables in connection with line
of
credit extended to Xfone USA (approximately $200,000) - to be removed as
a
result of the financial transaction with Laurus Master Fund, Ltd..
SECURITIES
PURCHASE AGREEMENT
Schedule
3.1
(p)
The
Company and the Subsidiaries have no D&O insurance.
The
Company and its subsidiaries in the UK and Israel, Swiftnet Limited and Xfone
018 Ltd., have no insurance against
losses and risks.
SECURITIES
PURCHASE AGREEMENT
Schedule
3.1
(s)
Oberon
Securities, LLC and/or other Finder as relates to specific Purchasers - a
cash
fee up to 8.0% of the total value of the investment as well as up to 8.0%
of the
total value of the investment made by Investor in warrants priced at 100%
of the
market at closing.
SECURITIES
PURCHASE AGREEMENT
Schedule
3.1
(v)
| · |
1,282,500
shares underlying 1,282,500 options under The Company's 2004
SOP.
|
| · |
Up
to 125,000 shares plus up to 750,000 shares underlying 750,000 warrants
in
connection with the Finders Agreement and the Financial Consulting
Agreement between the Company and Oberon Securities, LLC (as each
may be
amended, modified, restated and/or supplemented from time to
time).
|
| · |
Up
to 125,000 shares underlying 125,000 warrants in connection with
the
Public Relations Agreement between the Company and Elite Financial
Communications Group, LLC.
|
| · |
Shares
underlying warrants valued in the aggregate amount of up to $50,000
in
connection with a Legal Services Agreement between the Company and
Xx.
Xxxxxxx Xxxxxxxxx.
|
| · |
3,150
shares issued to Xx. Xxxxx Xxxxxxxx.
|
| · |
Up
to 2,700,000 shares and/or warrants which will be issued and/or granted
in
connection with that certain Agreement and Plan of Merger by and
among the
Company, Xfone USA, Inc., I-55 Internet Services, Inc. and the Principals
(as defined therein) dated August 18, 2005, as may be amended, modified,
restated or supplemented from time to time (though no more than 2,700,000
shares and/or warrants may be issued and/or granted without prior
written
approval by Purchaser), and the acquisition of I-55 Internet Services,
including any issuance and/or grant of shares and/or warrants to
creditors
and/or debtholders of I-55 Internet Services and/or to MCG Capital
Corporation.
|
| · |
Up
to 900,000 shares and/or warrants which may be issued and/or granted
in
connection with that certain Agreement and Plan of Merger by and
among the
Company, Xfone USA, Inc., I-55 Telecommunications, LLC and the Principal
(as defined therein) dated August 26, 2005, as may be amended, modified,
restated or supplemented from time to time (though no more than 900,000
shares and/or warrants may be issued and/or granted without prior
written
approval by Purchaser), and the acquisition of I-55 Telecommunications,
including any issuance and/or grant of shares and/or warrants to
creditors
and/or debtholders of I-55
Telecommunications.
|
| · |
Shares
and/or warrants which will be issued, issuable and/or granted by
the
Company in connection with financing transactions between the Company
and
investors other than the Purchasers (including Laurus Master Fund,
Ltd.),
in an aggregate amount not to exceed $3,500,000, together with any
additional shares and/or warrants to be issued, issuable and/or granted
to
such investors as a result of conversion of convertible note.
|
SECURITIES
PURCHASE AGREEMENT
Schedule
3.1
(w)
The
Company’s Common Stock is registered pursuant to Section 12(b) of the Exchange
Act.
SECURITIES
PURCHASE AGREEMENT
Schedule
3.1
(ff)
The
Company’s existing accountants are Chaifetz & Xxxxxxxxx, P.C.
SECURITIES
PURCHASE AGREEMENT
Schedule
4.7
| 1. |
Fees
to be paid to Oberon Securities, LLC and/or other Finder/s in connection
with the transactions contemplated by the Transaction Documents.
|
| 2. |
Acquisition
and business development.
|
| 3. |
Investment
in capital equipment.
|
