SECURITIES PURCHASE AGREEMENT
EXECUTION
COPY
This
Securities Purchase Agreement (this “Agreement”)
is
dated as of April 6, 2007, among Vistula Communications Services, Inc., a
Delaware 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: (a) capitalized
terms
that are not otherwise defined herein have the meanings given to such terms
in
the Notes (as defined herein), and (b) 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 405 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.
“Bonus
Shares”
means
the 5 million shares of Common Stock, in the aggregate, to be transferred
from
Executive Management Services Limited (“EMS”)
to
each Purchaser within 15 Trading Days following the Closing Date.
“Business
Day”
means
any day except Saturday, Sunday and any day which shall be a federal legal
holiday in the United States or a day on which banking institutions in the
State
of New York are authorized or required by law or other government action
to
close.
“Closing”
means
the closing of the purchase and sale of the Securities pursuant to Section
2.1.
“Closing
Date”
means
the date of the Closing.
“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 be 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
Xxxxx Xxxx LLP.
“Conversion
Price”
shall
have the meaning ascribed to such term in the Notes.
“Disclosure
Schedules”
shall
have the meaning ascribed to such term in Section 3.1 hereof.
“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
E
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.
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“Exempt
Issuance”
means
the issuance of (a) shares of Common Stock or options to employees, consultants,
officers or directors of the Company pursuant to any stock or option plan
duly
adopted for such purpose by a majority of the non-employee members of the
Board
of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose, (b) securities issued
hereunder or upon the exercise or exchange of or conversion of any securities
issued hereunder, convertible securities, options or warrants issued and
outstanding on 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 or conversion price of any such
securities, (c) warrants issued to an institutional lender licensed as such
by a
governmental agency in direct connection to a loan for money borrowed or
as
otherwise permitted by this Agreement and the Transaction Documents, provided
such warrant is issued with a strike price at least equal to the market price
of
the Common Stock on the date of such issuance and is not subject to further
price adjustment in respect of subsequent issuances of Common Stock or Common
Stock Equivalents at a price below such strike price and the issuance of
Common
Stock upon exercise of such warrants and such issuance does not result in
an
adjustment to the conversion, exchange or exercise price of any other securities
of the Company; (d) Common Stock issued in connection with the settlement
of
claims or litigation first arising after the Closing Date up to an aggregate
maximum of 500,000 shares (subject to adjustment for reverse and forward
stock
splits and the like) and such issuance does not result in an adjustment to
the
conversion, exchange or exercise price of any other securities of the Company;
(e) securities issued pursuant to acquisitions, joint ventures or other
strategic transactions, including, without limitation, technology transfer
and
licensing transactions, 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, (f) securities
issued
under agreements executed by the Company prior to the date of this Agreement
and
disclosed in the SEC Reports; and (g) warrants to be issued to the Placement
Agent pursuant to an agreement, dated as of March 16, 2007, between the
Placement Agent and the Company and any warrants to be issued to Persons
that
are disclosed in Schedule 3.1(s) to this Agreement and the issuance of Common
Stock upon exercise of such warrants.
“GAAP”
shall
have the meaning ascribed to such term in Section 3.1(h) hereof.
“Indebtedness”
shall
have the meaning ascribed to such term in Section 3.1(ii) hereof.
“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 other than rights of first refusal, preemptive
rights
or restrictions arising under the Transaction Documents or under applicable
securities laws.
“Material
Adverse Effect”
shall
have the meaning assigned to such term in Section 3.1(b) hereof.
“Material
Permits”
shall
have the meaning ascribed to such term in Section 3.1(m).
“Maximum
Rate”
shall
have the meaning ascribed to such term in Section 5.17.
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“Notes”
means,
the 12% Subordinated Convertible Notes, in the form of Exhibit
A,
due,
subject to the terms therein, two years from their date of issuance, issued
by
the Company to the Purchasers hereunder.
“Participation
Maximum”
shall
have the meaning ascribed to such term in Section 4.13.
“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.
“Placement
Agent”
shall
mean Oceana Partners, LLC.
“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 4.11.
“Registration
Rights Agreement”
means
the Registration Rights Agreement, dated the date hereof, among the Company
and
the Purchasers, in the form of Exhibit
B
attached
hereto.
“Registration
Statement”
means
a
registration statement meeting the requirements set forth in the Registration
Rights Agreement and covering the resale of the Bonus Shares and Underlying
Shares by each Purchaser as provided for in the Registration Rights
Agreement.
“Required
Approvals”
shall
have the meaning ascribed to such term in Section 3.1(e).
“Required
Minimum”
means,
as of any date, the maximum aggregate number of shares of Common Stock then
issued or potentially issuable in the future pursuant to the Transaction
Documents, including any Underlying Shares issuable upon exercise or conversion
in full of all Warrants and Notes, ignoring any conversion or exercise limits
set forth therein.
“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 Notes, the Warrants, the Warrant Shares and the Underlying
Shares.
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“Securities
Act”
means
the Securities Act of 1933, as amended.
“Subscription
Amount”
means,
as
to each Purchaser, the amounts set forth below such Purchaser’s signature block
on the signature pages
hereto
and next to the heading “Closing Subscription Amount”, in United States Dollars
and in immediately available funds, which shall not be less than $100,000
for
any Purchaser unless the Company otherwise consents.
“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)
and
shall, where applicable, include any direct or indirect subsidiary of the
Company formed or acquired after the date hereof.
“Trading
Day”
means
a
day on which the Trading Market is open for business.
“Trading
Market”
means,
as applicable, the following markets or exchanges on which the Common Stock
is
listed or quoted for trading on the date in question: the American Stock
Exchange, the New York Stock Exchange, the Nasdaq Capital Market, the Nasdaq
Global Market, the Nasdaq Global Select Market or the OTC Bulletin
Board.
“Transaction
Documents”
means
this Agreement, the Notes, the Warrants, the Registration Rights Agreement,
the
Escrow Agreement, all exhibits and schedules thereto and hereto and any other
documents or agreements executed in connection with the transactions
contemplated hereunder.
“Underlying
Shares”
means
the shares of Common Stock issuable upon conversion of the Notes and upon
exercise of the Warrants.
“VWAP”
means,
for any date, the price determined by the first of the following clauses
that
applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
the daily volume weighted average price of the Common Stock for such date
(or
the nearest preceding date) on the Trading Market on which the Common Stock
is
then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day
from
9:30 a.m. New York City time to 4:02 p.m. New York City time); (b) if the
Common Stock is not then listed or quoted on a Trading Market and if prices
for
the Common Stock are then reported in the “Pink Sheets” published by Pink
Sheets, LLC (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 (c) in all other cases, the fair market value of a share of
Common Stock as determined by an independent appraiser selected in good faith
by
the Purchasers of a majority in interest of the Securities then outstanding
and
reasonably acceptable to the Company, the fees and expenses of which shall
be
paid by the Company.
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“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
hereof
and the warrants issued to Oceana Partners, LLC (“Oceana”)
pursuant to the terms of the Placement Agent Agreement entered into by the
Company and Oceana, 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 the Purchasers agree to purchase
in the
aggregate, severally and not jointly, a minimum of $2,500,000 principal amount
of the Notes and Warrants. The parties hereto agree that for United States
Federal income tax purposes, the issue price of each Note shall be not less
than
99.26% of its principal amount. 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. The Closing
shall occur within 5 Trading Days of the date hereof.
2.2
Deliveries.
a) At
or
prior to the Closing, unless otherwise indicated below, the Company shall
deliver or cause to be delivered to the Escrow Agent with respect to each
Purchaser at the Closing the following:
(i) this
Agreement duly executed by the Company;
(ii) a
Note
with a principal amount equal to such Purchaser’s Subscription Amount,
registered in the name of such Purchaser;
(iii) a
Warrant
registered in the name of such Purchaser to purchase up to a number of shares
of
Common Stock equal to 100% of such Purchaser’s Subscription Amount divided by
$1.00, with an exercise price equal to $1.00, subject to adjustment
therein;
(iv) the
Registration Rights Agreement duly executed by the Company;
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(v) a
legal
opinion of Company Counsel, in the form of Exhibit
D
attached
hereto; and
(vi) the
Escrow Agreement duly executed by the Company.
b) At
or
prior to the Closing, unless otherwise indicated below, each Purchaser at
the
Closing 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 Subscription Amount, for the applicable Closing, by wire transfer to
the account of the Escrow Agent;
(iii) the
Escrow Agreement duly executed by such Purchaser; and
(iv) 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 is 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;
(iii) the
Company shall have received executed Agreements from Purchasers with
Subscription Amounts aggregating at least $2,500,000; and
(iv) 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 when made and on the Closing Date of the
representations and warranties of the Company contained herein;
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(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; and
(v) at
any
time prior to the Closing Date, trading in securities generally as reported
by
Bloomberg L.P. 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 Notes 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 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. If the Company has no subsidiaries,
then
references in the Transaction Documents to the Subsidiaries will be
disregarded.
(b) Organization
and Qualification.
Each of
the Company and each Subsidiary 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,
prospects or financial condition 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.
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(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 hereby and 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 applicable bankruptcy, insolvency, reorganization, moratorium
and
other laws of general application affecting enforcement of creditors’ rights
generally, (ii) the exercise of judicial or administrative discretion in
accordance with general equitable principles or public policy, (iii) as limited
by laws relating to the availability of specific performance, injunctive
relief
or other equitable remedies and (iv) 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
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.
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(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 4.6, (ii) the filing with the
Commission of the Registration Statement, (iii) the notice and/or application(s)
to each applicable Trading Market for the issuance and sale of the Notes,
Bonus
Shares and Warrants and the listing of the Underlying 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
Company has reserved from its duly authorized capital stock a number of shares
of Common Stock for issuance of the Underlying Shares at least equal to the
Required Minimum on the date hereof.
(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 such filing 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 or as set forth
on
Schedule
3.1(g),
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.
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(h) SEC
Reports; Financial Statements.
Since
January 1, 2006, the Company has filed all reports required to be filed by
it
under the Securities Act and the Exchange Act, including pursuant to Section
13(a) or 15(d) thereof (the foregoing materials, as amended to date, including
the exhibits to each thereof, 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 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 or option
plans. The Company does not have pending before the Commission any request
for
confidential treatment of information.
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(j) Litigation.
Except
as set forth in the SEC Reports, 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. Except as set forth in the SEC Reports, neither the Company
nor
any Subsidiary, nor to the knowledge of the Company, 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 or reasonable
expectation 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 threatened
with respect to any of the employees of the Company which could reasonably
be
expected to result in a Material Adverse Effect. Neither
the Company nor any of its Subsidiaries is a party to a collective bargaining
agreement.
(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.
-12-
(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. To the
Company’s knowledge, 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
where the failure to have such rights 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 and reasonable
expectation 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. The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and
value
of all of their intellectual properties, except where failure to do so could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(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 with
coverage amount set forth on Schedule
3.1(p).
To the
best of Company’s knowledge, 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 or reasonable expectation 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 or reasonable expectation
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 $100,000 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.
-13-
(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 it as of each 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 (as such term is defined in Item
307(b) of Regulation S-K under the Exchange Act) or, to the Company’s knowledge,
in other factors that could significantly affect the Company’s internal
controls.
(s) Certain
Fees.
Except
as set forth on Schedule
3.1(s),
no
brokerage or finder’s fees or commissions are or will be payable by the Company
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by this Agreement. 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 this Agreement.
(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.
-14-
(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) 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.
(w) 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.
(x) Disclosure.
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, nonpublic 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.
(y) Registration
Rights.
Other
than each of the Purchasers and except as set forth on Schedule
3.1(y),
no
Person has any right to cause the Company to effect the registration under
the
Securities Act of any securities of the Company.
(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
would
trigger any applicable shareholder approval provisions, including, without
limitation, under the rules and regulations of any exchange or automated
quotation system on which any of the securities of the Company are listed
or
designated.
-15-
(aa) 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 which are true, complete and accurate in all respects
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.
(bb) No
General Solicitation.
Neither
the Company nor, to the knowledge of the Company, any Person acting on behalf
of
the Company has offered or sold any of the Securities by any form of general
solicitation (as that term is used in Rule 501(c) under the Securities Act)
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.
(cc) 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
corrupt 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
(dd) Accountants.
The
Company’s accountants are set forth on Schedule
3.1(dd)
of the
Disclosure Schedule. To the Company’s knowledge, 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 ended December 31, 2006, are a registered public accounting firm as
required by the Securities Act.
(ee) Seniority.
As of
the Closing Date, no indebtedness or other equity of the Company is senior
to
the Notes in right of payment, whether with respect to interest or upon
liquidation or dissolution, or otherwise, other than indebtedness evidenced
by
the Company’s outstanding 8% convertible debentures due February and March 2008
(collectively, the “Debentures”),
purchase money security interests (which is senior only as to underlying
assets
covered thereby) and capital lease obligations (which is senior only as to
the
property covered thereby).
(ff) No
Disagreements with Accountants and Lawyers.
There
are no disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the accountants and lawyers formerly or
presently employed by the Company and, except as set forth in Schedule
3.1(ff),
the
Company is current with respect to any fees owed to its accountants and
lawyers.
-16-
(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) Environmental
Laws.
The
Company and its Subsidiaries (i) are to the Company’s knowledge in compliance
with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants (“Environmental
Laws”),
(ii)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and
(iii)
are in compliance with all terms and conditions of any such permit, license
or
approval; except where such noncompliance or failure to receive permits,
licenses or approvals referred to in clauses (i), (ii) or (iii) above could
not
have, or reasonably be expected to have, individually or in the aggregate,
a
Material Adverse Effect.
(ii) Regulation
M Compliance.
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 of the Company or (iii) paid or agreed to pay to any Person any
compensation for soliciting another to purchase any other securities of the
Company, other than, in the case of clauses (ii) and (iii), compensation
paid to
the Company’s placement agent in connection with the placement of the
Securities.
(jj) Solvency.
Schedule
3.1(jj)
sets
forth as of the date hereof 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”
means
(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.
-17-
(kk) Employee
Benefit Plans; ERISA.
(i) Schedule
3.1(kk)(i) sets forth a true, correct and complete list of all employee benefit
plans, programs, policies and arrangements, whether written or unwritten
(the
“Company
Plans”),
that
the Company, any Subsidiary or any other corporation or business which is
now or
at the relevant time was a member of a controlled group of companies or trades
or businesses including the Company or any Subsidiary, within the meaning
of
Section 414 of the Internal Revenue Code of 1986, as amended (the “Code”),
maintain or have maintained on behalf of current or former members, partners,
principals, directors, officers, managers, employees, consultants or other
personnel.
(ii) There
has
been no prohibited transaction within the meaning of Section 406 of the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”),
or
Section 4975 of the Code, with respect to any of the Company Plans; (ii)
none of
the Company Plans is or was subject to Section 412 of the Code or Section
302 or
Title IV of ERISA; and (iv) each of the Company Plans has been operated and
administered in all material respects in accordance with all applicable laws,
including ERISA. There are no actions, suits or claims pending or threatened
(other than routine claims for benefits), whether by participants, the Internal
Revenue Service, the Department of Labor or otherwise, with respect to any
Company Plan and no facts exist under which any such actions, suits or claims
are likely to be brought or under which the Company or any Subsidiary could
incur any liability with respect to a Company Plan other than in the ordinary
course. None of the Company Plans is or was a multiemployer plan within the
meaning of Section 3(37) of ERISA.
(iii) Neither
the Company nor any Subsidiary has announced, proposed or agreed to any change
in benefits under any Company Plan or the establishment of any new Company
Plan.
There have been no changes in the operation or interpretation of any Company
Plan since the most recent annual report, which would have any material effect
on the cost of operating, maintaining or providing benefits under such Company
Plan.
(iv) Neither
the Company nor any Subsidiary has incurred any liability for the
misclassification of employees as leased employees or independent
contractors.
(v) Except
as
provided for in this Agreement and in the Transaction Documents, the
consummation of the transactions contemplated by this Agreement, either alone
or
in combination with another event, will not (i) result in any individual
becoming entitled to any increase in the amount of compensation or benefits
or
any additional payment from the Company or any Subsidiary (including, without
limitation, severance, golden parachute or bonus payments or otherwise),
or (ii)
accelerate the vesting or timing of payment of any benefits or compensation
payable in respect of any individual.
-18-
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 each 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 and delivery
of the
Transaction Documents and the performance by such Purchaser of the transactions
contemplated by the Transaction Documents 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 distributing or reselling such Securities or any part thereof,
has no present intention of distributing any of such Securities 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 a Registration Statement or
otherwise in compliance with applicable federal and state securities laws).
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 or converts any
Notes
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.
-19-
(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.
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.
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:
[NEITHER]
THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE] [CONVERTIBLE] HAVE 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 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 REASONABLY SATISFACTORY TO THE COMPANY TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE
SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES
MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED
BY
SUCH SECURITIES.
-20-
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 Underlying Shares shall not contain any legend (including
the
legend set forth in Section 4.1(b) hereof): (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
Underlying Shares pursuant to Rule 144, or (iii) if such Underlying 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 Note or Warrant is converted or exercised (as applicable) at
a time
when there is an effective registration statement to cover the resale of
the
Underlying Shares, or if such Underlying Shares may be sold under Rule 144(k)
or
if such legend is not otherwise required under applicable requirements of
the
Securities Act (including judicial interpretations thereof) then such Underlying
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 five Business Days following
the
delivery by a Purchaser to the Company or the Company’s transfer agent of a
certificate representing Underlying Shares, as applicable, issued with a
restrictive legend (such fifth Business 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.
-21-
(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 Underlying Shares (based on the VWAP of the Common Stock on
the
date such Securities are submitted to the 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 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 Acknowledgment
of Dilution.
The
Company acknowledges that the issuance of the Securities may result in dilution
of the outstanding shares of Common Stock, which dilution may be substantial
under certain market conditions. The Company further acknowledges that its
obligations under the Transaction Documents, including without limitation
its
obligation to issue the Underlying Shares pursuant to the Transaction Documents,
are unconditional and absolute and not subject to any right of set off,
counterclaim, delay or reduction, regardless of the effect of any such dilution
or any claim the Company may have against any Purchaser and regardless of
the
dilutive effect that such issuance may have on the ownership of the other
stockholders of the Company.
4.3 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.
-22-
4.4 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.
4.5 Conversion
and Exercise Procedures.
The
form of Notice of Exercise included in the Warrants and the form of Notice
of
Conversion included in the Notes set forth the totality of the procedures
required of the Purchasers in order to exercise the Warrants or convert the
Notes. No additional legal opinion or other information or instructions shall
be
required of the Purchasers to exercise their Warrants or convert their Notes.
The Company shall honor exercises of the Warrants and conversions of the
Notes
and shall deliver Underlying Shares in accordance with the terms, conditions
and
time periods set forth in the Transaction Documents.
4.6 Securities
Laws Disclosure; Publicity.
The
Company shall, by 5:30 p.m. Eastern time on the second Business Day following
the date hereof, issue a Current Report on Form 8-K, disclosing the material
terms of the transactions contemplated hereby, and shall attach the Transaction
Documents thereto. The Company and the Placement Agent shall consult with
each
other in issuing any other press releases with respect to the transactions
contemplated hereby, and neither the Company nor the Placement Agent shall
issue
any such press release or otherwise make any such public statement in connection
with the transactions contemplated hereby without the prior consent of the
Company, with respect to any such press release of the Placement Agent, or
without
the prior consent of each Purchaser, with respect to any such 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 the Placement Agent, 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).
4.7 Shareholders
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
shareholders 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.
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4.8 Non-Public
Information.
The
Company covenants and agrees that it will not and will instruct any other
Person
acting on its behalf to not 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.
4.9 Use
of
Proceeds.
The
Company shall use the net proceeds from the sale of the Securities hereunder
substantially as set forth in Schedule 4.9 and not for the satisfaction of
any
portion of the Company’s debt (other than payment of trade payables or accrued
expenses 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.
4.10 Reimbursement.
If any
Purchaser becomes involved in any capacity in any Proceeding by or against
any
Person who is a stockholder of the Company (except as a result of sales,
pledges, margin sales and similar transactions by such Purchaser to or with
any
current stockholder), solely as a result of such Purchaser’s acquisition of the
Securities under this Agreement (unless such action is based upon a breach
of
such Purchaser’s representation, warranties or covenants under the Transaction
Documents or any agreements or understandings such Purchaser may have with
any
such claimant 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), the Company will reimburse
such
Purchaser for its reasonable legal and other expenses (including the cost
of any
investigation preparation and travel in connection therewith) incurred in
connection therewith, as such expenses are incurred. The reimbursement
obligations of the Company under this paragraph shall be in addition to any
liability which the Company may otherwise have, shall extend upon the same
terms
and conditions to any Affiliates of the Purchasers who are actually named
in
such action, proceeding or investigation, and partners, directors, agents,
employees and controlling persons (if any), as the case may be, of the
Purchasers and any such Affiliate, and shall be binding upon and inure to
the
benefit of any successors, assigns, heirs and personal representatives of
the
Company, the Purchasers and any such Affiliate and any such Person. The Company
also agrees that neither the Purchasers nor any such Affiliates, partners,
directors, agents, employees or controlling persons shall have any liability
to
the Company or any Person asserting claims on behalf of or in right of the
Company solely as a result of acquiring the Securities under this Agreement
except to the extent any covenant or warranty owing to the Company is
breached.
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4.11 Indemnification
of Purchasers.
Subject
to the provisions of this Section 4.10, the Company will indemnify and hold
each
Purchaser and its directors, officers, shareholders, members, partners,
employees and agents (and any other Persons with a functionally equivalent
role
of a Person holding such titles notwithstanding a lack of such title or any
other title), each Person who controls such Purchaser (within the meaning
of
Section 15 of the Securities Act and Section 20 of the Exchange Act), and
the
directors, officers, shareholders, agents, members, partners or employees
(and
any other Persons with a functionally equivalent role of a Person holding
such
titles notwithstanding a lack of such title or any other title) of such
controlling person (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 representation, warranties or covenants under the
Transaction Documents or any agreements or understandings such Purchaser
may
have with any such claimant 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.
4.12 Reservation
and Listing of Securities.
(a) The
Company shall maintain a reserve from its duly authorized shares of Common
Stock
for issuance pursuant to the Transaction Documents in such amount as may
be
required to fulfill its obligations in full under the Transaction
Documents.
(b) If,
on
any date, the number of authorized but unissued (and otherwise unreserved)
shares of Common Stock is less than the Required Minimum on such date, then
the
Board of Directors of the Company shall use commercially reasonable efforts
to
amend the Company’s certificate or articles of incorporation to increase the
number of authorized but unissued shares of Common Stock to at least the
Required Minimum at such time, as soon as possible and in any event not later
than the 90th day after such date.
-25-
(c) The
Company shall, if then applicable: (i) in the time and manner required by
the
Trading Market or if the Common Stock is listed on another Trading Market,
promptly prepare and file with such Trading Market an additional shares listing
application covering a number of shares of Common Stock at least equal to
the
Required Minimum on the date of such application, (ii) take all steps necessary
to cause such shares of Common Stock to be approved for listing on the Trading
Market as soon as possible thereafter, (iii) provide to the Purchasers evidence
of such listing, and (iv) maintain the listing of such Common Stock on any
date
at least equal to the Required Minimum on such date on such Trading Market
or
another Trading Market.
4.13 Participation
in Future Financing.
(a) From
the
date hereof until the date that is the 12 month anniversary of the Closing
Date,
upon any issuance 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”)
on the
same terms, conditions and price provided for in the Subsequent
Financing.
(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 and the Person or Persons through or with whom such
Subsequent Financing is proposed to be effected and shall include a term
sheet
or similar document relating thereto as an attachment.
(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 with the
Persons
set forth in the Subsequent Financing Notice.
-26-
(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 its Pro Rata Portion (as defined
below) of the Participation Maximum. “Pro
Rata Portion”
means
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) Notwithstanding
the foregoing, this Section 4.13 shall not apply in respect of (i) an Exempt
Issuance or (ii) an underwritten public offering of Common Stock.
4.14 Subsequent
Equity Sales.
(a) From
the
date hereof until 45 days after the Effective Date, neither the Company nor
any
Subsidiary shall issue shares of Common Stock or Common Stock Equivalents
except
pursuant to conversion of the Company’s currently outstanding convertible
securities or exercise of currently outstanding rights to acquire Common
Stock.
(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.
“Variable
Rate Transaction”
means
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.
(c) Notwithstanding
the foregoing, this Section 4.14 shall not apply in respect of an Exempt
Issuance, except that no Variable Rate Transaction shall be an Exempt
Issuance.
4.15 Most
Favored Nation Provision.
From
the date hereof until the one year anniversary of the Closing Date, any time
the
Company effects a Subsequent Financing, each Purchaser may elect, in its
sole
discretion, to exchange all or some of the Notes then held by it for any
securities issued in a Subsequent Financing based on the outstanding principal
amount of the Note plus accrued but unpaid interest and other fees owed and
the
effective price at which such securities were sold in such Subsequent
Placement.
-27-
4.16 Equal
Treatment of Purchasers.
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. Further, the Company shall not make any payment of
principal or interest on the Notes in amounts which are disproportionate
to the
respective principal amounts outstanding on the Notes at any applicable time.
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 Note holders 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.
4.17 Bonus
Shares.
The
Company shall take any and all action requested by a Purchaser, including
providing any legal opinions, in order to cause the transfer of the Bonus
Shares
to such Purchaser.
ARTICLE
V.
MISCELLANEOUS
5.1 Termination.
This
Agreement may be terminated by any Purchaser, by written notice to the other
parties, if the Closing has not been consummated on or before April 15, 2007;
provided 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 Little Wing LP (“Little
Wing”)
for
its 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 Business
Day,
(b) the next Business 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 Business Day or
later
than 5:30 p.m. (New York City time) on any Business Day, (c) the second Business
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.
-28-
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 the
Purchasers (or their permitted transferees) holding at least 75% of the
principal amount of the Notes then outstanding in the aggregate 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 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 hereof 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 4.11.
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 HERETO EACH 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.
-29-
5.10 Survival.
The
representations and warranties contained herein shall survive each Closing
and
the delivery, exercise and/or conversion of the Securities, as applicable
for
the applicable statute of limitations.
5.11 Execution.
This
Agreement may be executed in two or more counterparts, all of which when
taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered
to the
other party, it being understood that 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, if any Purchaser exercises
a
right, election, demand or option under a Transaction Documents and the Company
does not timely perform its related obligations within the periods therein
provided, 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;
provided,
however,
in the
case of a rescission of a conversion of a Note or exercise of a Warrant,
the
Purchaser shall be required to return any shares of Common Stock subject
to any
such rescinded conversion or exercise notice.
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.
-30-
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 Documents 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 Usury.
To the
extent it may lawfully do so, the Company hereby agrees not to insist upon
or
plead or in any manner whatsoever claim, and will resist any and all efforts
to
be compelled to take the benefit or advantage of, usury laws wherever enacted,
now or at any time hereafter in force, in connection with any claim, action
or
proceeding that may be brought by any Purchaser in order to enforce any right
or
remedy under any Transaction Documents. Notwithstanding any provision to
the
contrary contained in any Transaction Documents, it is expressly agreed and
provided that the total liability of the Company under the Transaction Documents
for payments in the nature of interest shall not exceed the maximum lawful
rate
authorized under applicable law (the “Maximum
Rate”),
and,
without limiting the foregoing, in no event shall any rate of interest or
default interest, or both of them, when aggregated with any other sums in
the
nature of interest that the Company may be obligated to pay under the
Transaction Documents exceed such Maximum Rate. It is agreed that if the
maximum
contract rate of interest allowed by law and applicable to the Transaction
Documents is increased or decreased by statute or any official governmental
action subsequent to the date hereof, the new maximum contract rate of interest
allowed by law will be the Maximum Rate applicable to the Transaction Documents
from the effective date forward, unless such application is precluded by
applicable law. If under any circumstances whatsoever, interest in excess
of the
Maximum Rate is paid by the Company to any Purchaser with respect to
indebtedness evidenced by the Transaction Documents, such excess shall be
applied by such Purchaser to the unpaid principal balance of any such
indebtedness or be refunded to the Company, the manner of handling such excess
to be at such Purchaser’s election.
-31-
5.18 Independent
Nature of Purchasers’ Obligations and Rights.
The
obligations of each Purchaser under any Transaction Documents 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 Documents. Nothing contained herein or in
any
Transaction Documents, 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. 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.
5.19 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.
5.20 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)
-32-
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.
| VISTULA COMMUNICATIONS SERVICES, INC. |
Address
for Notice:
|
||
| By: |
/s/
Xxxxxx Xxxxxxxx-Xxxxx
|
|
|
|
Name:
Xxxxxx Xxxxxxxx-Pratt Title:
President and Chief Executive Officer |
000
Xxxx Xxxxxx, Xxxxx 000
Xxx
Xxxx, XX 00000
ATTN:
Chief Executive Officer
Fax:
|
||
| With a copy to (which shall not constitute notice): | |||
|
Xxxxx
Xxxx LLP
000
Xxxxxxx Xxxxxxxxx
Xxxxxx,
XX 00000
Attn:
Xxxx Xxxx, Esq.
Fax:
000.000.0000
|
|||
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE
PAGE FOR PURCHASER FOLLOWS]
-33-
[PURCHASER
SIGNATURE PAGES TO VISTULA 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: JMG
Capital Partners, LP
Signature
of Authorized Signatory of Purchaser: /s/
Xxxxxxxx Xxxxxx
Name
of
Authorized Signatory: Xxxxxxxx
Xxxxxx
Title
of
Authorized Signatory: Member
Manager of the General Partner
Email
Address of Purchaser: ________________________________________________________________
Address
for Notice of Purchaser:
00000
Xxxxxxxx Xxxx. Xxx 0000
Xxx
Xxxxxxx, XX 00000
Address
for Delivery of Securities for Purchaser (if not same as
above):
Closing
Subscription Amount: $400,000
Warrant
Shares: 400,000
EIN
Number:
Blocker
Provision Election: Please choose from one of the two options
below:
(check
one)
o My
Warrant and Note shall contain a 4.99% blocker provision.
x My
Warrant and Note shall contain a 9.99% blocker provision.
-34-
[PURCHASER
SIGNATURE PAGES TO VISTULA 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: JMG
Triton Offshore Fund, Ltd.
Signature
of Authorized Signatory of Purchaser: /s/
Xxxxxxxx Xxxxxx
Name
of
Authorized Signatory: Xxxxxxxx
Xxxxxx
Title
of
Authorized Signatory: Member
Manager of the Investment Manager
Email
Address of Purchaser: ________________________________________________________________
Address
for Notice of Purchaser:
00000
Xxxxxxxx Xxxx. Xxx 0000
Xxx
Xxxxxxx, XX 00000
Address
for Delivery of Securities for Purchaser (if not same as above):
Closing
Subscription Amount: $400,000
Warrant
Shares: 400,000
EIN
Number:
Blocker
Provision Election: Please choose from one of the two options
below:
(check
one)
o My
Warrant and Note shall contain a 4.99% blocker provision.
x My
Warrant and Note shall contain a 9.99% blocker provision.
-35-
[PURCHASER
SIGNATURE PAGES TO VISTULA 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: Bushido
Capital Master Fund, LP
Signature
of Authorized Signatory of Purchaser: /s/
Xxxxxx X. Xxxxx
Name
of
Authorized Signatory: Xxxxxx
X.
Xxxxx
Title
of
Authorized Signatory: Director
Email
Address of Purchaser: ________________________________________________________________
Address
for Notice of Purchaser:
000
Xxxx
00xx
Xxxxxx,
00xx
Xxxxx
Xxx
Xxxx,
XX 00000
Address
for Delivery of Securities for Purchaser (if not same as above):
Closing
Subscription Amount: $50,000
Warrant
Shares: 50,000
EIN
Number:
Blocker
Provision Election: Please choose from one of the two options
below:
(check
one)
x My
Warrant and Note shall contain a 4.99% blocker provision.
o My
Warrant and Note shall contain a 9.99% blocker provision.
-36-
[PURCHASER
SIGNATURE PAGES TO VISTULA 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: XXXX
Piranha Master Fund, Ltd.
Signature
of Authorized Signatory of Purchaser: /s/
Xxxx
Xxxxxxx
Name
of
Authorized Signatory: Xxxx
Xxxxxxx
Title
of
Authorized Signatory: Partner,
XXXX Partners LLC
Email
Address of Purchaser: ________________________________________________________________
Address
for Notice of Purchaser:
c/o
XXXX
Partners LLC
000
Xxxx
Xxx, Xxxxx 0000
Xxx
Xxxx,
XX 00000
Attention:
Xxxx Xxxxxxx
Address
for Delivery of Securities for Purchaser (if not same as above):
Xxxxxxx
Xxxxx, fbo XXXX Partners
Xxx
Xxx
Xxxx Xxxxx
Xxx
Xxxx,
XX 00000
Attention:
Xxxxx Xxxx, 44th
Floor
Closing
Subscription Amount: $650,000
Warrant
Shares: 650,000
EIN
Number:
Blocker
Provision Election: Please choose from one of the two options
below:
(check
one)
o My
Warrant and Note shall contain a 4.99% blocker provision.
x My
Warrant and Note shall contain a 9.99% blocker provision.
-37-
[PURCHASER
SIGNATURE PAGES TO VISTULA 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: Little
Wing LP
Signature
of Authorized Signatory of Purchaser: /s/
Xxxxxx X. Xxxxxxx
Name
of
Authorized Signatory: Xxxxxx
X.
Xxxxxxx
Title
of
Authorized Signatory: Sole
Managing Member, Quilcap Mgmt., LLC,
Quilcap
Mgmt. LLC as Investment Manager
Email
Address of Purchaser: ________________________________________________________________
Address
for Notice of Purchaser:
000
Xxxx
00xx
Xxxxxx,
00xx
Xxxxx
Xxx
Xxxx,
XX 00000
Address
for Delivery of Securities for Purchaser (if not same as above):
Closing
Subscription Amount: $595,500
Warrant
Shares: 595,500
EIN
Number:
Blocker
Provision Election: Please choose from one of the two options
below:
(check
one)
o My
Warrant and Note shall contain a 4.99% blocker provision.
x My
Warrant and Note shall contain a 9.99% blocker provision.
-38-
[PURCHASER
SIGNATURE PAGES TO VISTULA 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: Tradewinds
Fund Ltd.
Signature
of Authorized Signatory of Purchaser: /s/
Xxxxxx X. Xxxxxxx
Name
of
Authorized Signatory: Xxxxxx
X.
Xxxxxxx
Title
of
Authorized Signatory: Sole
Managing Member, Quilcap Mgmt., LLC
Email
Address of Purchaser: ________________________________________________________________
Address
for Notice of Purchaser:
000
Xxxx
00xx
Xxxxxx,
00xx
Xxxxx
Xxx
Xxxx,
XX 00000
Address
for Delivery of Securities for Purchaser (if not same as above):
Closing
Subscription Amount: $104,500
Warrant
Shares: 104,500
EIN
Number:
Blocker
Provision Election: Please choose from one of the two options
below:
(check
one)
o My
Warrant and Note shall contain a 4.99% blocker provision.
x My
Warrant and Note shall contain a
9.99% blocker provision.
-39-
[PURCHASER
SIGNATURE PAGES TO VISTULA 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: Xxxxx
X.
Xxxxx
Signature
of Authorized Signatory of Purchaser: /s/
Xxxxx
X. Xxxxx by Xxxxxxx X. Xxxxxxx
her
attorney in fact
Name
of
Authorized Signatory: Xxxxxxx
X. Xxxxxxx
Title
of
Authorized Signatory: Power
of
Attorney (attorney in fact)
Email
Address of Purchaser: ________________________________________________________________
Address
for Notice of Purchaser:
000
Xxxx
00xx
Xxxxxx,
00xx
Xxxxx
Xxx
Xxxx,
XX 00000
Address
for Delivery of Securities for Purchaser (if not same as above):
Closing
Subscription Amount: $50,000
Warrant
Shares: 50,000
EIN
Number:
Blocker
Provision Election: Please choose from one of the two options
below:
(check
one)
x My
Warrant and Note shall contain a 4.99% blocker provision.
o My
Warrant and Note shall contain a
9.99% blocker provision.
-40-
[PURCHASER
SIGNATURE PAGES TO VISTULA 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: GSSF
Master Fund, LP
Signature
of Authorized Signatory of Purchaser: /s/
X. X.
Xxxx XX
Name
of
Authorized Signatory: X.
X.
Xxxx XX
Title
of
Authorized Signatory: Authorized
Agent
Email
Address of Purchaser: ________________________________________________________________
Address
for Notice of Purchaser:
000
Xxxxxxxx Xxxxx, Xxxxx 000
Xxxxxx,
Xxxxx 00000
Address
for Delivery of Securities for Purchaser (if not same as above):
Closing
Subscription Amount: $100,000.00
Warrant
Shares: 100,000
EIN
Number:
Blocker
Provision Election: Please choose from one of the two options
below:
(check
one)
o My
Warrant and Note shall contain a
4.99% blocker provision.
x My
Warrant and Note shall contain a
9.99% blocker provision.
-41-
[PURCHASER
SIGNATURE PAGES TO VISTULA 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: Stratford
Partners, LP
Signature
of Authorized Signatory of Purchaser: /s/
Xxxx
Xxxxxxxx
Name
of
Authorized Signatory: Xxxx
Xxxxxxxx
Title
of
Authorized Signatory: General
Partner
Email
Address of Purchaser: ________________________________________________________________
Address
for Notice of Purchaser:
000
Xxxx
Xxxxxx
Xxxxx
000
Xxx
Xxxx,
XX 00000
Address
for Delivery of Securities for Purchaser (if not same as above):
Closing
Subscription Amount: $150,000
Warrant
Shares: 150,000
EIN
Number:
Blocker
Provision Election: Please choose from one of the two options
below:
(check
one)
o My
Warrant and Note shall contain a 4.99% blocker provision.
o My
Warrant and Note shall contain a 9.99% blocker provision.
-42-
Exhibit
A
Form
of 12% Convertible Note
[See
Exhibit 4.1 of this filing.]
-43-
Exhibit
B
Form
of Registration Rights Agreement
[See
Exhibit 10.2 of this filing.]
-44-
Exhibit
C
Form
of Warrant
[See
Exhibit 4.2 of this filing.]
-45-
Exhibit
D
Form
of Legal Opinion
XXXXX
XXXX LLP
ATTORNEYS
AT LAW
April
6,
2007
To:
Each
of
the Purchasers under the Securities Purchase Agreement
Re: Securities
Purchase Agreement
Ladies
and Gentlemen:
We
have
acted as counsel for Vistula Communications Services, Inc., a Delaware
corporation (the “Company”),
in
connection with the negotiation of the Securities Purchase Agreement by and
among the purchasers signatory thereto (the “Purchasers”)
and
the Company dated as of even date herewith (the “Purchase
Agreement”),
the
Registration Rights Agreement between the Purchasers and the Company dated
as of
even date herewith (the “Registration
Rights Agreement”),
and
the Escrow Agreement between the Purchasers, the escrow agent and the Company
dated as of even date herewith (the “Escrow
Agreement”).
The
Purchase Agreement provides for the issuance and sale by the Company of up
to
$2,500,000 in aggregate principal amount of convertible notes (the “Notes”)
and
warrants to purchase up to 2,500,000 shares of the Common Stock, $.001 par
value
per share (the “Common
Stock”),
of
the Company (the “Warrants”)
(the
shares of Common Stock issued or issuable pursuant to the exercise of the
Warrants and conversion of the Notes are collectively referred to herein
as the
“Underlying
Shares”)
(the
Escrow Agreement, Purchase Agreement, Registration Rights Agreement, Notes
and
Warrants are collectively referred to herein as the “Agreements”).
All
terms used herein have the meanings defined for them in the Purchase Agreement
unless otherwise defined herein.
This
opinion is furnished to you pursuant to the Purchase Agreement. In rendering
the
opinions expressed below, we have examined originals or copies of: (i) the
Agreements, (ii) the Company’s Certificate of Incorporation, as amended through
the date hereof (“Certificate
of Incorporation”),
and
(iii) the Company’s By-laws, as in effect on the date hereof (the “By-laws”),
and
we have examined and considered such corporate records, certificates and
matters
of law as we have deemed appropriate as a basis for our opinions set forth
below. In rendering the opinions expressed below, we have relied, as to factual
matters, upon the representations and warranties of the Company contained
in the
Agreements.
Based
upon and subject to the foregoing, we are of the opinion that:
1. The
Company is a corporation duly organized and validly existing under the laws
of
the State of Delaware and has all requisite corporate power and authority
to
carry on its business and to own, lease and operate its properties and assets,
in each case, as described in the SEC Reports. Vistula USA, Inc. is a
corporation duly organized and validly existing under the laws of the State
of
Delaware and has all requisite corporate power and authority to carry on
its
business and to own, lease and operate its properties and assets. As disclosed
in the Schedules to the Purchase Agreement, neither the Company nor Vistula
USA,
Inc. is in good standing in Delaware.
-46-
2. The
Company has the requisite corporate power and authority to enter into and
perform its obligations under the Agreements and to issue the Notes, the
Warrants and the Underlying Shares. The execution and delivery of the Agreements
by the Company and the consummation by it of the transactions contemplated
thereby have been duly authorized by all necessary corporate action and no
further consent or authorization of the Company or its Board of Directors
or
stockholders is required. Each of the Agreements has been duly executed and
delivered by the Company, and the Notes and Warrants have been duly executed,
issued and delivered by the Company and each of the Agreements constitutes
valid
and binding obligations of the Company enforceable against the Company in
accordance with their respective terms.
3. The
execution, delivery and performance of the Agreements by the Company and
the
consummation by the Company of the transactions contemplated thereby, including,
without limitation, the issuance of the Notes, the Warrants and the Underlying
Shares, do not and will not (i) result in a violation of the Company’s
Certificate of Incorporation or By-Laws; (ii) except as disclosed in the
Disclosure Schedules, conflict with, or constitute a material default (or
an
event that with notice or lapse of time or both would become a material default)
under, any material agreement, indenture or instrument listed as exhibits
in the
SEC Reports to which the Company is a party, except for such conflicts and
defaults, as would not, individually or in the aggregate, have a Material
Adverse Effect or for which a consent and waiver have been obtained; or (iii)
result in a violation of the Delaware General Corporation Law or any federal
or
Massachusetts law, rule or regulation applicable to the Company or by which
any
property or asset of the Company is bound or affected, except for such
violations as would not, individually or in the aggregate, have a Material
Adverse Effect. To our knowledge, the Company is not in violation of any
terms
of its Certificate of Incorporation or By-laws.
4. Assuming
the accuracy of the representations and warranties made by the Purchasers
in the
Purchase Agreement, the
issuance of the Notes, the Warrants and the Underlying Shares in accordance
with
the Purchase Agreement will be exempt from registration under the Securities
Act
of 1933, as amended. Upon conversion of the Notes or exercise of the Warrants
in
accordance with their respective terms, the Underlying Shares, will be duly
and
validly issued, fully paid and nonassessable, and free of any liens,
encumbrances and preemptive or similar rights contained in the Company’s
Certificate of Incorporation or By-laws or, to our knowledge, in any agreement
to which the Company is a party.
5. We
have
not been engaged to devote substantive attention to any actions, suits,
proceedings or investigations that are pending against the Company or its
properties. To our knowledge, except as disclosed in the SEC Reports or the
Schedules to the Purchase Agreement, the Company is not a party to or subject
to
the provisions of any order, writ, injunction, judgment or decree of any
court
or government agency or instrumentality.
-47-
6. As
of the
date hereof, the authorized capital stock of the Company consists of 200,000,000
shares of Common Stock of which shares 66,964,898 are outstanding and 10,000,000
shares of undesignated Preferred Stock of which none are outstanding. The
Bonus
Shares have been duly authorized and are fully paid and non-assessable.
7. Assuming
the accuracy of the representations and warranties made by the Purchasers
in the
Purchase Agreement, the transfer of the Bonus Shares in accordance with the
Purchase Agreement will be exempt from registration with the Securities Act.
The
opinions expressed herein are subject to the following assumptions, limitations,
qualifications and exceptions:
(a) We
have
made such legal and factual examinations and inquiries as we have deemed
advisable or necessary for the purpose of rendering this opinion.
(b) We
have
examined, among other things, originals or copies of such corporate records
of
the Company, certificates of public officials and such other documents and
questions of law that we consider necessary or advisable for the purpose
of
rendering this opinion. In such examination we have assumed the genuineness
of
all signatures or original documents, the authenticity and completeness of
all
documents submitted to us as originals, the conformity to original documents
of
all copies submitted to us as copies thereof, the legal capacity of natural
persons, and the due execution and delivery of all documents (except as to
due
execution and delivery by the Company) where due execution and delivery are
a
prerequisite to the effectiveness thereof.
(c) As
used
in this opinion, the expression “to our knowledge” refers to the current actual
knowledge of the attorneys of this firm who have worked on matters for the
Company solely in connection with the Agreements and the transactions
contemplated thereby.
(d)
For
purposes of this opinion, we have assumed that you have all requisite power
and
authority, and have taken any and all necessary corporate action, to execute
and
deliver the Agreements, and we are assuming that the representations and
warranties made by the Purchasers in the Agreements and pursuant thereto
are
true and correct.
(e) Our
opinion is based upon our knowledge of the facts as of the date hereof and
assumes no event will take place in the future which would affect the opinions
set forth herein other than future events contemplated by the Agreements.
We
assume no duty to communicate with you with respect to any change in law
or
facts which comes to our attention hereafter.
(f) In
rendering the opinion in paragraph 1 with respect to legal existence of the
Company in the State of Delaware, we have relied solely upon a certificate
of
the Secretary of State of Delaware and we express such opinion as of the
date of
such certificate. In rendering the opinion in paragraph 1 with respect to
legal
existence of Vistula USA, Inc. in the State of Delaware, we have relied solely
upon a certificate of the Secretary of State of Delaware and we express such
opinion as of the date of such certificate. We express no opinion as to the
tax
good standing of the Company or any of its subsidiaries.
-48-
(g)
In
rendering the opinion in paragraph 5, we have relied upon a certificate of
the
Chief Financial Officer and Chairman of the Board of the Company (the
“Certificate”)
without further investigation. In particular, we have not searched the dockets
of the courts or government agencies or instrumentalities of any
jurisdictions.
(h) In
rendering the opinion expressed in paragraph 6 with respect to capitalization,
we have relied upon the Certificate without further investigation.
We
have
made such examination of Massachusetts law, federal law, and the Delaware
General Corporation Law as we have deemed necessary for the purpose of this
opinion. In rendering opinions concerning the Delaware General Corporation
Law,
we have, with your consent, relied exclusively upon a review of published
statutes. In rendering opinions respecting the enforceability of the Agreements,
we have assumed, with your consent and without any research or other
confirmation, that the laws of the State of New York are identical in all
respects to the laws of The Commonwealth of Massachusetts. We express no
opinion
herein as to the laws of any jurisdiction other than The Commonwealth of
Massachusetts, the federal laws of the United States of America and the Delaware
General Corporation Law.
The
opinions expressed herein are qualified to the extent that (1) the
enforceability of any provisions of the Agreements or any instrument or of
any
right granted thereunder may be subject to or affected by any bankruptcy,
reorganization, insolvency, fraudulent conveyance, moratorium or other similar
law of general application relating to or affecting the rights or remedies
of
creditors generally, which law may be in effect from time to time, (2) the
remedy of specific performance or any other equitable remedy may be unavailable
or may be withheld as a matter of judicial discretion, (3) equitable principles
and principles of public policy may be applied in construing or enforcing
the
provisions of the Agreements or of any other agreement, instrument or document,
and (4) the enforceability, validity or binding effect of any remedial provision
of the Agreements may be limited by applicable law which may limit particular
rights and remedies but not so as to interfere materially with the practical
realization of the benefits intended to be provided to you by the Agreements.
In
addition, the opinions expressed herein are subject to the qualification
that
the enforcement of any of your rights are in all cases subject to the your
implied duty of good faith and fair dealing.
We
express no opinion herein as to the validity or enforceability of any provision
of the Agreements or any other instrument or document to the extent that
such
provision purports to (1) constitute a waiver by the Company of any statutory
right except where advance waiver is expressly permitted by the relevant
statute; (2) require the Company to indemnify or to hold harmless you or
any
other person or entity from the consequences of any negligent or other wrongful
act or omission of you or such other person or entity; (3) provide for
indemnification or contribution by the Company in connection with the
Agreements, the transactions contemplated thereby or otherwise to the extent
such indemnification or contribution may be limited by applicable laws or
as a
matter of public policy; or (4) constitute a waiver of any right to a hearing
on
or adjudication of any issue or the right to trial by jury. We express no
opinion with respect to whether any of the provisions of the Agreements or
the
transactions contemplated by the Agreements comply with the usury laws of
any
jurisdiction.
-49-
This
opinion shall be interpreted in accordance with the Legal Opinions Principles
issued by the Committee on Legal Opinions of the American Bar Association’s
Business Law Section as published in 53 Business Lawyer 831 (May
1998).
This
opinion is furnished to the Purchasers solely for their benefit in connection
with the transactions described above and, except as otherwise expressly
set
forth herein, may not be relied upon by any other person or for any other
purpose without our prior written consent, except that the opinions expressed
in
paragraph (4) and (7) above may be relied upon by Continental Stock Transfer
& Trust Company as Transfer Agent.
|
Very
truly yours,
|
||
|
XXXXX
XXXX LLP
|
||
| |
|
|
| By: | ||
|
A Partner |
||
-50-
Exhibit
E
Form
of Escrow Agreement
[See
Exhibit 10.5 of this filing.]
-51-
Disclosure
Schedules
Delivered
Pursuant to
Securities
Purchase Agreement
By
and Among
Vistula
Communications Services, Inc. and the Purchasers Named
Therein
April
6, 2007
-52-
The
following are the Disclosure Schedules of Vistula Communications Services,
Inc.,
a Delaware corporation, (the “Company”) to the Securities Purchase Agreement by
and between the Company and the Purchasers named therein, dated of even date
herewith (the “Agreement”). Unless otherwise stated, capitalized terms used but
not otherwise defined herein shall have the meanings given them in the
Agreement.
These
Disclosure Schedules are arranged in sections and paragraphs corresponding
to
the number and lettered sections and paragraphs contained in Section 3.1
of the
Agreement and the disclosure in any section or paragraph shall qualify other
sections and paragraphs in Section 3.1 of the Agreement.
These
Disclosure Schedules and the information and disclosures contained in these
Disclosure Schedules are intended only to qualify and limit the representations
and warranties of the Company contained in the Agreement and shall not be
deemed
to expand in any way the scope or effect of any such representations or
warranties.
The
headings contained in the Disclosure Schedules are included for convenience
only
and are not intended to limit the effect of the disclosures contained in
the
Disclosure Schedules or to expand the scope of the information required to
be
disclosed in the Disclosure Schedules.
Any
reference to or listing, description, disclosure or other inclusion of any
item
or other matter in the Disclosure Schedules shall not be construed to mean
that
such item or other matter is required to be referred to, listed, described,
disclosed or otherwise so included in the Disclosure Schedules, nor shall
it be
deemed to be an admission or acknowledgement, in and of itself, that such
information is material or that such information has or would have a Material
Adverse Effect.
-53-
Schedule
3.1(a)
Subsidiaries
The
Company has the following wholly-owned subsidiaries:
Vistula
Limited, a company incorporated under the laws of England and Wales
Xxxxxxx
Blue Limited, a company incorporated under the laws of England and
Wales
Cardlink
Services Limited, a company incorporated under the laws of Scotland
Vistula
Telecom Limited, a company incorporated under the laws of England and
Wales
Vistula
USA, Inc., a company incorporated under the laws of the State of
Delaware
The
Company has one subsidiary which is partially owned at 60% ownership which
is
listed below:
Vistula
Communications SA (Pty) Ltd., a company incorporated under the laws of South
Africa
-54-
Schedule
3.1(b)
Organization
and Qualification
Vistula
Limited is not in good standing with Companies House in the United Kingdom.
Vistula Limited failed to file accounts for the 2005 fiscal year due to the
preparer holding the accounts for payment of at least a meaningful portion
of
amounts owed to them for these preparations and other services. The Company
expects that the delinquent accounts will be finalized and filed with Companies
House by June 30, 2007. No taxes are due and a small late penalty fee may
be
due.
Both
Vistula Limited and Xxxxxxx Blue are not in good standing with the Inland
Revenue in the United Kingdom. Both entities owe past taxes for PAYE (Pay
As You
Earn) which is the equivalent to the IRS’s FICA, Unemployment, and other taxes
withheld from employee paychecks and is the part of an employee’s salary that
represents their withholdings and should be paid directly to the government
at
the same time staff is paid. Vistula Limited is approximately £10,000 (USD
20,000) behind and Xxxxxxx Blue is approximately £35,000 (USD 70,000) behind. If
the respective entities do not pay their respective delinquencies by Tuesday,
April 3, 2007, Inland Revenue bailiffs may come to the offices of Vistula
Limited and Xxxxxxx Blue to seize assets to secure the outstanding debts.
This
means that desks, chairs and PC’s may be seized; however the value of these
assets may be less than the amounts owed.
Vistula
Communications Services, Inc. has not filed its Delaware Franchise Tax Return,
has not paid its 2006 Delaware Franchise Tax and is not in good standing
with
the State of Delaware. The Company expects that the filing will be made and
the
amounts and penalties due in respect of this filing of approximately $15,000
will be paid within two weeks of the Closing Date.
Vistula
Communications Services, Inc. and Vistula USA, Inc. have not filed extensions
for their 2006 Federal and State Corporate Income Tax returns, are not in
good
standing with the states of New York and Massachusetts and are not in good
standing with the IRS. The Company expects to file the respective extensions,
pay amounts due and penalties due in respect of these filings, and estimates
that approximately $2,500 will be paid within two weeks of the Closing Date
for
the required filings to bring the Company into good standing.
-55-
Schedule
3.1(d)
No
Conflicts
On
October 11, 2006, the Company entered into a Purchase Agreement for all ordinary
shares of Xxxxxxx Blue Limited, a UK company, from the sole shareholder,
Xxxxx
Xxx Xxxxxxx (“Xxxxxxx”), for 2,500,000 common shares subject to an option (or
“Put”) held by Xxxxxxx to require the Company to repurchase the shares for $1.00
each or $2,500,000. The Put was extended to March 21, 2007 for 1,400,000
shares
(“First Put Option”) at $1.00 each and extended to August 31, 2007 for 1,100,000
shares (“Second Put Option”) at $1.00 each. The Put option for March 21, 2007
was not exercised; however the Company has verbally agreed to consider an
alternate solution for both the First Put Option and the Second Put
Option.
-56-
Schedule
3.1(g)
Capitalization
The
authorized capital stock of the Company consists of 200,000,000 shares of
Common
Stock, $.001 par value per share, and 10,000 shares of undesignated Preferred
Stock, $.001 par value per share. There are currently issued and outstanding
66,964,898 shares of Common Stock. Included in the list of issued and
outstanding stock is the 2,500,000 shares of common stock issued to Xxxxx
Xxx
Xxxxxxx that are described in Schedule 3.1(d). The common stock listed below
was
issued and outstanding to the following stockholders as of December 31,
2006*:
|
XXXXXXX
BADI
|
50,000
|
|||
|
BALTIC
ASSET MANAGEMENT
|
680,000
|
|||
|
XXXX
XXXXX
|
100,000
|
|||
|
WENSLEY
XXXXXX III
|
25,000
|
|||
|
XXXXXX
INTERNATIONAL HOLDING LIMITED
|
1,350,000
|
|||
|
XXXXXX
INTERNATIONAL HOLDING LTD
|
2,000,000
|
|||
|
BERGGRUEN
HOLDINGS NORTH AMERICAN LTD
|
1,499,000
|
|||
|
XXXX
XXXXXX
|
500,000
|
|||
|
XXXXXXXX
XXXXXX
|
6,000
|
|||
|
BLS
FUTURES LIMITED
|
400,000
|
|||
|
BRANTRIDGE
ESTATES LIMITED
|
2,500,000
|
|||
|
XXXXXX
XXXXXXXXX-XXXXX
|
15,000
|
|||
|
XXXXXX
XXXXX LIMITED
|
250,000
|
|||
|
CEDE
& CO (FAST)
|
11,864,208
|
|||
|
CITIGROUP
GLOBAL MARKETS INC
|
2,000
|
|||
|
XXXX
XXXXXXX
|
50,000
|
|||
|
COULOMB
LTD
|
150,000
|
|||
|
CRT
CAPITAL GROUP LLC
|
1,100,000
|
|||
|
DIALECTIC
ANTITHESIS PARTNERS LP
|
125,000
|
|||
|
DIALECTIC
CAPITAL PARTNERS LP
|
125,000
|
|||
|
X
X
XXXXXXX & SONS INC
|
8,840
|
|||
|
EXECUTIVE
MANAGEMENT SERVICES LIMITED
|
5,250,000
|
|||
|
XXXXXXXXX
XXXXXXXX-XXXXX
|
1,080,000
|
|||
|
XXXXXXXXX
XXXXXXXX-XXXXX
|
900,000
|
|||
|
XXXXXX
XXXXXXXX-XXXXX
|
1,350,000
|
|||
|
XXXXXXXX
XXXXXXXX-XXXXX
|
450,000
|
|||
|
XXXXXX
XXXXXXXX-XXXXX
|
630,000
|
|||
|
XXXXXXX
& CO
|
22,500
|
|||
|
XXXXXXX
SACHS & CO
|
970,000
|
|||
|
XXXXX
XXX XXXXXXX *
|
2,500,000
|
|||
|
XXXXXXX
XXXXX
|
250,000
|
|||
|
XXXXXXXX
XXXXX
|
100,000
|
|||
|
J
XXXXXXX XXXXXX
|
25,000
|
|||
|
HERMITAGE
CAPITAL CORP
|
100,000
|
|||
|
XXXXXXXXX
XXXXXXX
|
15,000
|
|||
|
INDIGO
VENTURES LLC
|
1,500,000
|
|||
|
XXXX
PIRANHA MASTER FUND LTD
|
2,000,000
|
|||
|
JMG
CAPITAL PARTNERS LP
|
1,000,000
|
|||
|
JMG
TRITON OFFSHORE FUND LTD
|
1,000,000
|
|||
|
XXXXXX
XXXXXXX
|
5,000
|
|||
|
XXXXXXX
XXXXXX
|
200
|
|||
|
LITTLE
WING LP
|
196,500
|
|||
|
LOEB
PARTNERS CORPORATION
|
2,000,000
|
|||
|
XXXXXXX
XXXXXX
|
15,000
|
|||
|
MAURETANIA
PARTNERS L P
|
250,000
|
|||
|
XXXXXX
XXXXXXX & CO INCORPORATED
|
1,000
|
|||
|
MRS
PARTNERS LLC
|
125,000
|
|||
|
NARRAGANSETT
OFFSHORE LTD
|
1,040,000
|
|||
|
NARRAGANSETT
I LP
|
960,000
|
|||
|
NATIONAL
INVESTOR SERVICES
|
600
|
|||
|
NETYANTRA
INC
|
14,550,000
|
|||
|
OLYMPIC
CORPORATE HOLDINGS LIMITED
|
175,000
|
|||
|
XXXXX
ASSOCIATES INC
|
2,620,000
|
|||
|
XXXXXXXXXXX
& CO INC
|
35,500
|
|||
|
XXXXXX
FINANCIAL SERVICES INC
|
50
|
|||
|
RUSH
& CO
|
10,000
|
|||
|
SANDLER
CAPITAL STRUCTURE
|
250,000
|
|||
|
SDS
CAPITAL GROUP SPC LTD
|
100,000
|
|||
|
SF
CAPITAL PARTNERS LTD
|
1,000,000
|
|||
|
XXXXXXXX
XXXXX
|
150,000
|
|||
|
XXXXXXX
TENANT
|
45,000
|
|||
|
XXXX
XXXXXX
|
35,000
|
|||
|
TRADEWINDS
FUND LTD
|
53,500
|
|||
|
TRIBECA
GLOBAL CONVERTIBLE
|
800,000
|
|||
|
XXXXXXX
XXXXXXXXX
|
160,000
|
|||
|
XXXXX
XXXX
|
100,000
|
|||
|
XXXXXX
XXXXX
|
345,000
|
|||
|
TOTAL
|
66,964,898
|
*
Shares
issued to Xxxxx Xxx Xxxxxxx may be required to be repurchased by the Company
under an option held by Xxxxx Xxx Xxxxxxx pursuant to the Purchase Agreement
for
the acquisition of Xxxxxxx Blue Limited. This is further described in Schedule
3.1(d).
-57-
No
shares
of Preferred Stock are issued and outstanding.
There
are
currently options issued and outstanding to purchase a total of 11,826,050
shares of Common Stock as follows:
|
Unexercised
Options Granted to:
|
#
of Options
|
Strike
Price
|
Expiration
Date
|
|||||||
|
Xxxx
Xxxxxx
|
500,000
|
$
|
0.45
|
07/07/15
|
||||||
|
Xxxx
Xxxxxx
|
750,000
|
$
|
1.50
|
12/23/15
|
||||||
|
Xxxx
Xxxxxx
|
150,000
|
$
|
1.25
|
04/12/16
|
||||||
|
Xxxxxxx
Xxxxxxxxx
|
15,000
|
$
|
0.05
|
05/05/09
|
||||||
|
Xxxxxxx
Xxxxxxxxx
|
225,000
|
$
|
0.45
|
07/07/15
|
||||||
|
Xxxxxxx
Xxxxxxxxx
|
250,000
|
$
|
1.50
|
12/23/15
|
||||||
|
Xxxxxxx
Xxxxxxxxx
|
50,000
|
$
|
1.25
|
04/12/16
|
||||||
|
Auris
Consulting Ltd.
|
95,000
|
$
|
1.30
|
12/07/15
|
||||||
|
Xxxxxxx
Xxxxx-Xxxxxxx
|
250,000
|
$
|
1.19
|
02/15/16
|
||||||
|
Executive
Management Services Limited(1)
|
650,000
|
$
|
0.45
|
07/07/15
|
||||||
|
Executive
Management Services Limited(1)
|
4,000,000
|
$
|
1.50
|
12/23/15
|
||||||
|
Executive
Management Services Limited(1)
|
800,000
|
$
|
1.25
|
04/12/16
|
||||||
|
Xxxxxxxx
Xxxxxxxx
|
90,000
|
$
|
1.19
|
02/15/16
|
||||||
|
Xxxxxx
X. Xxxxxx
|
50,000
|
$
|
0.45
|
07/07/15
|
||||||
|
Xxxxxx
X. Xxxxxx
|
100,000
|
$
|
1.50
|
12/23/15
|
||||||
|
Xxxxxx
X. Xxxxxx
|
20,000
|
$
|
1.25
|
04/12/16
|
||||||
|
Xxx
Xxxx
|
250,000
|
$
|
1.42
|
01/05/16
|
||||||
|
Xxx
Xxxx
|
250,000
|
$
|
1.50
|
12/23/15
|
||||||
|
Xxx
Xxxx
|
50,000
|
$
|
1.25
|
04/12/16
|
||||||
|
Xxx
Xxxx
|
20,000
|
$
|
0.32
|
02/05/17
|
||||||
|
J.
Xxxxx Xxxxxxx
|
778,050
|
$
|
1.18
|
04/11/16
|
||||||
|
J.
Xxxxxx Xxxxx
|
150,000
|
$
|
0.45
|
07/07/15
|
||||||
|
J.
Xxxxxx Xxxxx
|
250,000
|
$
|
1.50
|
12/23/15
|
||||||
|
J.
Xxxxxx Xxxxx
|
50,000
|
$
|
1.25
|
04/12/16
|
||||||
|
Xxxx
Xxxxx
|
250,000
|
$
|
1.18
|
04/11/16
|
||||||
|
Xxxxx
X. Xxxxxx
|
8,000
|
$
|
0.45
|
07/14/15
|
||||||
|
Xxxxx
X. Xxxxxx
|
200,000
|
$
|
0.65
|
07/27/16
|
||||||
|
Xxxxx
X. Xxxxxx
|
50,000
|
$
|
0.32
|
02/05/17
|
||||||
|
Xxxxxx
Xxxxxx
|
50,000
|
$
|
0.45
|
07/07/15
|
||||||
|
Xxxx
Xxxxxx
|
30,000
|
$
|
0.42
|
12/04/16
|
||||||
|
Xxxx
Xxxx
|
10,000
|
$
|
0.32
|
02/05/17
|
||||||
|
Xxxxxxxx
Xxxxxx
|
250,000
|
$
|
1.30
|
12/14/15
|
||||||
|
Xxxxxxxx
Xxxxxx
|
250,000
|
$
|
1.50
|
12/23/15
|
||||||
|
Xxxxxxxx
Xxxxxx
|
50,000
|
$
|
1.25
|
04/12/16
|
||||||
|
Xxxxxxxx
Xxxxxx
|
25,000
|
$
|
0.32
|
02/05/17
|
||||||
|
Xxxxxxxx
Xxxxxx
|
100,000
|
$
|
0.45
|
07/07/15
|
||||||
|
Xxxxx
Xxxxxxx
|
10,000
|
$
|
0.45
|
07/07/15
|
||||||
|
Olympic
Corporate Holdings Limited(2)
|
500,000
|
$
|
1.50
|
12/23/15
|
||||||
|
Olympic
Corporate Holdings Limited(2)
|
100,000
|
$
|
1.25
|
04/12/16
|
||||||
|
Xxxxx
Xxxxx
|
95,000
|
$
|
0.45
|
07/15/15
|
||||||
|
Xxx
Xxxxx
|
10,000
|
$
|
0.32
|
02/05/17
|
||||||
|
Xxxxxxxx
Xxxxx
|
45,000
|
$
|
0.42
|
12/04/16
|
||||||
|
Total
Options Unexercised
|
11,826,050
|
|||||||||
|
(1)
|
Xxxxxx
Xxxxxxxx-Xxxxx,
the Company’s Chairman, President and Chief Executive Officer, holds
indirect voting and investment control over shares held by Executive
Management Services Limited.
|
|
(2)
|
J.
Xxxxxx Xxxxx, one of the Company’s directors, is a director of
Olympic
Corporate Holdings Limited.
|
-58-
These
options were issued under the Company’s Amended and Restated 2004 Stock
Incentive Plan.
The
Company has issued the following convertible promissory notes (collectively,
the
“Rothschild Notes”) to the X. Xxxxxxxxxx Assurance Self Invested Personal
Pension Plan No. 2 (the “Pension Plan”), the sole beneficiary of which is the
Company’s Chairman, Xxxxxx Xxxxxxxx-Xxxxx:
1.
Principal amount of $125,000 issued on July 12, 2004
2.
Principal amount of $150,000 issued on August 11, 2004
The
Rothschild Notes have a one year term, accrue interest at the rate of 7%
per
annum and are convertible into shares of the Company’s common stock at the price
of $1.50 per share. Interest accrued on the Rothschild Notes is also convertible
into shares of common stock at $1.50 per share.
The
Pension Plan has agreed to extend the maturity dates of the Rothschild Notes
until June 30, 2007. As of December 31, 006 the balance due on the Rothschild
Notes (including accrued interest) was $204,943. This amount is convertible
into
shares of common stock at a price of $1.50 per share.
On
December 13, 2005, the Company entered into a Consultant, Representative
and
Professional Services Agreement with Quest Telecommunications, Inc. (“Quest”)
pursuant to which the Company agreed to pay certain amounts and issue shares
of
the Company’s common stock upon the signing of a definitive agreement with
Saigon Post and Telecommunications Services Corporation (“SPT”). The
Company entered into a distribution and marketing agreement with SPT with
respect to the V-Cube™ on July 3, 2006. Upon signing this agreement, the Company
was obligated to issue to Quest 300,000 shares of the Company’s common stock and
to pay to Quest $150,000 in cash, plus a continuing commission of thirty
percent
of the license fees received from SPT in connection with the licensing and
distribution of the V-Cube™ in certain geographic areas (net of sales, use and
value added taxes, if any, payable by us in connection with such license
fees).
Although an agreement with SPT has been signed, the Company does not expect
to
pay the $150,000 in cash or the continuing commission of thirty percent of
the
license fees received from SPT, due to SPT’s indication of its intent to enter
into a license purchase and maintenance agreement in lieu of the distribution
and marketing agreement and a reported delay in SPT’s ability to launch the
product due to the local government’s approval process. The Company does expect
to issue the 300,000 shares of common stock to Quest once Quest signs and
delivers an investment representation letter to the Company.
-59-
The
Company has issued the following warrants which are currently exercisable
by the
holder. The list of warrant holders, strike price, the number of warrants
remaining and the expiration of each warrant issued is as follows:
|
Warrant
Holders
|
Price
|
Remaining
Warrants
|
Expiration
Date
|
|||||||
|
Xxxxx
Xxxxxxxxx
|
$
|
1.34
|
7,836
|
03/30/11
|
||||||
|
Axiom
Capital Management, Inc.
|
$
|
1.00
|
65,400
|
03/04/10
|
||||||
|
Axiom
Capital Management, Inc.
|
$
|
1.50
|
3,469
|
10/31/10
|
||||||
|
Bergguen
Holdings North America Ltd.
|
$
|
1.00
|
1,200,000
|
05/22/11
|
||||||
|
BLS
Futures, Ltd.
|
$
|
1.34
|
447,760
|
03/30/11
|
||||||
|
Bushido
Capital Master Fund, L.P.
|
$
|
1.50
|
500,000
|
10/31/10
|
||||||
|
CRT
(for 5/22/2006 financing)
|
$
|
1.00
|
1,467,000
|
05/22/11
|
||||||
|
CRT
(for Financial Advisory Agreement)
|
$
|
1.00
|
250,000
|
02/14/09
|
||||||
|
CRT
Capital Group LLC
|
$
|
1.00
|
1,080,000
|
05/22/11
|
||||||
|
Xxxxx
Xxxxxx
|
$
|
1.00
|
52,125
|
03/04/10
|
||||||
|
Xxxxx
Xxxxxx
|
$
|
1.50
|
1,181
|
10/31/10
|
||||||
|
Xxxxx
Xxxxxxx
|
$
|
1.00
|
20,625
|
03/04/10
|
||||||
|
Dialectic
Antithesis Partners LP
|
$
|
1.00
|
100,000
|
05/22/11
|
||||||
|
Dialectic
Capital Partners LP
|
$
|
1.00
|
100,000
|
05/22/11
|
||||||
|
DKR
Soundshore Oasis Holding Fund Ltd
|
$
|
1.00
|
3,325,000
|
02/18/10
|
||||||
|
DKR
Soundshore Strategic Holding Fund Ltd
|
$
|
1.00
|
175,000
|
02/18/10
|
||||||
|
Xxxxxx
Xxxxxxxxxx
|
$
|
1.00
|
25,000
|
02/18/10
|
||||||
|
Xxxxxx
Xxxxxxxxxx
|
$
|
1.34
|
22,388
|
03/30/11
|
||||||
|
Xxxx
Xxxxx
|
$
|
1.00
|
20,625
|
03/04/10
|
||||||
|
Xxxx
Xxxxxxx
|
$
|
1.00
|
340,000
|
05/22/11
|
||||||
|
Gamma
Opportunity Capital Partners, LP
|
$
|
1.50
|
250,000
|
10/28/10
|
||||||
|
Xxxx
Xxxxx
|
$
|
1.00
|
57,356
|
03/04/10
|
||||||
|
Xxxx
Xxxxx
|
$
|
1.50
|
5,757
|
10/31/10
|
||||||
|
Xxxxxxx,
Xxxxx & Co.
|
$
|
1.00
|
800,000
|
05/22/11
|
||||||
|
Gryphon
Master Fund, L.P.
|
$
|
1.50
|
1,000,000
|
10/03/10
|
||||||
|
GSSF
Master Fund, L.P.
|
$
|
1.50
|
499,999
|
10/03/10
|
||||||
|
Indigo
Securities
|
$
|
1.00
|
536,375
|
03/04/10
|
||||||
|
Indigo
Securities
|
$
|
1.50
|
140,376
|
10/31/10
|
||||||
|
J.
Xxxxxxx Xxxxxx
|
$
|
1.00
|
20,000
|
05/22/11
|
||||||
|
Xxxx
Piranha Master Fund, Ltd.
|
$
|
1.00
|
3,200,000
|
05/22/11
|
||||||
|
JMG
Capital Partners, LP
|
$
|
1.00
|
800,000
|
05/22/11
|
||||||
|
JMG
Triton Offshore Fund, Ltd.
|
$
|
1.00
|
800,000
|
05/22/11
|
||||||
|
Xxxxx
Xxxxxxxxx
|
$
|
1.00
|
25,000
|
02/18/10
|
||||||
|
Xxxxx
Xxxxxxxxx
|
$
|
1.34
|
7,836
|
03/30/11
|
||||||
|
Little
Wing LP
|
$
|
1.50
|
414,400
|
10/07/10
|
||||||
|
Little
Wing LP
|
$
|
1.00
|
157,200
|
05/22/11
|
||||||
|
Xxxxxx
Xxxxxxx
|
$
|
1.50
|
606
|
10/31/10
|
||||||
|
Xxxxxxx
Xxxxxxx
|
$
|
1.00
|
21,369
|
03/04/10
|
||||||
|
Xxxxx
Xxxxxxxxx
|
$
|
1.34
|
7,836
|
03/30/11
|
||||||
|
Mauretania
Partners, LP
|
$
|
1.00
|
200,000
|
05/22/11
|
||||||
|
Xxxxxxx
X Xxxxx & Xxxxxxx Xxxxx
|
$
|
1.00
|
9,500
|
02/18/10
|
||||||
|
Xxxxxxx
X Xxxxx & Xxxxxxx Xxxxx
|
$
|
1.50
|
40,500
|
10/31/10
|
||||||
|
Xxxxxx
Xxxxxxxx
|
$
|
1.50
|
250,000
|
10/31/10
|
||||||
|
Narragansett
I, LP
|
$
|
1.00
|
768,000
|
05/22/11
|
||||||
|
Narragansett
Offshore, Ltd.
|
$
|
1.00
|
832,000
|
05/22/11
|
||||||
|
Oxford
Capital Management, LLC
|
$
|
1.00
|
100,000
|
02/18/10
|
||||||
|
Xxxx
Xxxxxx
|
$
|
1.34
|
22,388
|
03/30/11
|
||||||
|
Xxxxxx
Xxxxxxxxx
|
$
|
1.34
|
7,836
|
03/30/11
|
||||||
|
Plainfield
Special Situations Master Fund Limited
|
$
|
1.00
|
400,000
|
05/22/11
|
||||||
|
Professional
Traders Fund, LLC
|
$
|
1.50
|
150,000
|
10/31/10
|
||||||
|
Xxxxxxx
& Xxxxxx Xxxx
|
$
|
1.34
|
13,433
|
03/30/11
|
||||||
|
Xxxxxx
Xxxxxxxxx
|
$
|
1.00
|
28,625
|
03/04/10
|
||||||
|
Xxxxxx
Xxxxxxxxx
|
$
|
1.50
|
8,136
|
10/31/10
|
||||||
|
Xxxxxxxxxx
Investor Relations
|
$
|
0.45
|
100,000
|
03/01/10
|
||||||
|
Sandler
Capital Structure Opportunities Mast Fund, Ltd.
|
$
|
1.00
|
300,000
|
05/22/11
|
||||||
|
Xxxxx
Xxxxxx
|
$
|
1.00
|
200,000
|
02/18/10
|
||||||
|
SDS
Capital Group SPC Ltd
|
$
|
1.00
|
80,000
|
05/22/11
|
||||||
|
SF
Capital Partners Ltd.
|
$
|
1.00
|
800,000
|
05/22/11
|
||||||
|
Stratford
Partners, LP
|
$
|
1.00
|
600,000
|
02/18/10
|
||||||
|
Tradewinds
Fund Ltd
|
$
|
1.50
|
85,600
|
10/07/10
|
||||||
|
Tradewinds
Fund Ltd.
|
$
|
1.00
|
42,800
|
05/22/11
|
||||||
|
Tribecca
Global Convertible Investments, Ltd.
|
$
|
1.00
|
1,000,000
|
05/22/11
|
||||||
|
Valor
Capital Management LP
|
$
|
1.00
|
750,000
|
02/18/10
|
||||||
|
Wensley
Xxxxxx III
|
$
|
1.00
|
20,000
|
05/22/11
|
||||||
|
Xxxxxxx
X. Xxxxxxxx
|
$
|
1.34
|
22,388
|
03/30/11
|
||||||
|
Total
Warrants Outstanding
|
24,778,725
|
|||||||||
-60-
The
Company currently has convertible notes on its books of $6,300,000. A detailed
list of the Debenture holders is as follows:
|
Debenture
Holder
|
Convertible
Note Balance
|
Strike
Price
|
#
of Shares
|
Maturity
Date
|
|||||||||
|
Bushido
Capital Master Fund, L.P.
|
500,000.00
|
$
|
0.75
|
666,667
|
02/18/08
|
||||||||
|
Gamma
Opportunity Capital Partners, LP
|
250,000.00
|
$
|
0.75
|
333,333
|
02/18/08
|
||||||||
|
Gryphon
Master Fund, L.P.
|
999,999.75
|
$
|
0.75
|
1,333,333
|
02/18/08
|
||||||||
|
GSSF
Master Fund, L.P.
|
499,999.50
|
$
|
0.75
|
666,666
|
02/18/08
|
||||||||
|
Little
Wing LP
|
414,400.21
|
$
|
0.75
|
552,534
|
02/18/08
|
||||||||
|
Stratford
Partners, LP
|
600,000.00
|
$
|
0.75
|
800,000
|
02/18/08
|
||||||||
|
Tradewinds
Fund Ltd
|
85,600.04
|
$
|
0.75
|
114,133
|
02/18/08
|
||||||||
|
DKR
Soundshore Oasis Holding Fund Ltd
|
2,778,750.00
|
$
|
0.75
|
3,705,000
|
03/04/08
|
||||||||
|
DKR
Soundshore Strategic Holding Fund Ltd
|
146,250.00
|
$
|
0.75
|
195,000
|
03/04/08
|
||||||||
|
Xxxxxx
Xxxxxxxxxx
|
24,999.75
|
$
|
0.75
|
33,333
|
03/04/08
|
||||||||
|
6,299,999.25
|
8,399,999
|
||||||||||||
The
Company will be obligated to pay certain fees and/or issue certain warrants
to
Oceana Partners LLC in connection with the sale of the convertible notes
and
warrants. A cash fee of 8% of the gross purchase price from new investors,
estimated to be $52,000, and a five year warrant to purchase up to 1,300,000
shares of common stock at an exercise price of $1.00 per share.
The
Company will be obligated to pay certain fees and/or issue certain warrants
to
X. Xxxxxxx Securities (“WQS”) in connection with the sale of the convertible
notes and warrants. A cash fee of 8% of the gross purchase price received
from
any investors introduced to the Company by WQS, estimated to be $4,000, and
a
five year warrant to purchase up to 100,000 shares of common stock at an
exercise price of $1.00 per share.
The
Company may be obligated to pay certain fees and/or issue certain warrants
to
Source Capital Group, Inc. (“SCG”) in connection with the sale of the
convertible notes and warrants in accordance with the Source Capital Engagement
Letter. The Company has requested a waiver from SCG of such fees and/or warrants
and SCG has orally agreed to waive any fee in connection with the sale of
the
convertible notes and warrants. The Company expects that a written agreement
regarding this waiver will be obtained from SCG soon.
In
consideration for, and as a condition to, the execution and delivery of a
waiver
by the Company’s Debenture holders, pursuant to which the Debenture holders (i)
waive any late fee(s) associated with any overdue payment of interest, and
(ii)
confirm that an event of default does not exist with respect to the debentures,
the Company may be obligated to reduce the exercise price of replacement
warrants that were issued to the Debenture holders pursuant to a Warrant
Exercise Agreement dated October 3, 2005 from $1.50 per share to $1.00 per
share. The Company has also agreed to include full ratchet anti-dilution
provisions in the $1.00 warrants.
As
a
result of the re-pricing of these warrants, the Company expects the exercise
price of 559,701 existing warrants to be adjusted pursuant to their
weighted-average anti-dilution provisions. These warrants currently have
an
exercise price of $1.34. The actual adjustment will be dependent upon the
size of the offering, and is believed not to be significant in comparison
to the
number of warrants currently outstanding or in comparison to the fully diluted
number of commons shares.
See
Schedule 3.1(d) for a description of a put option held by Xxxxx Xxx
Xxxxxxx.
-61-
Schedule
3.1(i)
Material
Changes
See
Schedule 3.1(g) for a description of the Rothschild Notes.
See
Schedule 3.1(d) for a description of a put option held by Xxxxx Xxx
Xxxxxxx.
-62-
Schedule
3.1(j)
Litigation
The
Company is delinquent in its rent payments for an apartment in London used
by
NetYantra consultants. The landlord of the property has demanded payment
and is
seeking a County Court Judgement. The Company believes it will avoid any
judgement provided it is able to make a payment by Friday, April 6, 2007.
Both
Vistula Limited and Xxxxxxx Blue are not in good standing with the Inland
Revenue in the United Kingdom. Both entities owe past taxes for PAYE (Pay
As You
Earn) which is the equivalent to the IRS’s FICA, Unemployment, and other taxes
withheld from employee paychecks and is the part of an employee’s salary that
represents their withholdings and should be paid directly to the government
at
the same time staff is paid. Vistula Limited is approximately £10,000 (USD
20,000) behind and Xxxxxxx Blue is approximately £35,000 (USD 70,000) behind. If
the respective entities do not pay their respective delinquencies by Tuesday,
April 3, 2007, Inland Revenue bailiffs may come to the offices of Vistula
Limited and Xxxxxxx Blue to seize assets to secure the outstanding debts.
This
means that desks, chairs and PC’s may be seized; however the value of these
assets may be less than the amounts owed.
On
September 8, 2006, the Company sent a letter to Auris Consulting, Ltd. (“Auris”)
and Xxxxxx Xxxxxxxx (“X. Xxxxxxxx”) regarding a Consulting Agreement dated
December 7, 2005 and a separate letter to Global Access Partners, Inc. (“Global
Access”) and Xxxx Xxxxxxxx (“X. Xxxxxxxx”) regarding a Consulting Agreement,
dated December 6, 2005, (together the “Consulting Agreements”) which stated that
the Company considered Auris and Global Access to be in material default
under
the terms of their respective Consulting Agreements. As a result of
non-compliance with numerous requests by the Company for items agreed to
in the
Consulting Agreements, the Company gave notice to Auris and Global Access
that
it was suspending all payments under the respective Consulting Agreements
effective immediately.
In
a
letter dated September 6, 2006, the Law Offices of Xxxxxx and Xxxxxx, P.A.
wrote
on behalf of Xxxxxxxxx (Alex) Xxxxxxxx (“Xxxxxxxx”) with regard to the
possibility of a lawsuit being filed against the Company for its failure
to
compensate Xxxxxxxx according to the Consulting Agreement dated December
6,
2005. The letter demanded that in order to resolve the matter without resorting
to further legal action the Company compensate Xxxxxxxx according to the
terms
of the contract. The Company intends to defend any such lawsuit filed by
Xxxxxxxx. The Company has not had any further communication from the Grimaldis
and is not expecting them to initiate any proceedings.
-63-
Schedule
3.1(k)
Labor
Relations
Due
to
the Company’s cash position, it has become delinquent with respect to several
compensation payments owed to its employees, consultants and officers in
the
United States and in the United Kingdom. The Company has estimated that as
of
March 30, 2007, it owes $511,000 to its employees, consultants and officers,
of
which $380,000 is expected to be paid immediately following the Closing Date.
The estimated amounts owed include overdue PAYE taxes due the UK.
The
Company has previously paid for the services provided by a team of consultants
at NetYantra, the developer of the V-Cube software. Due to non-payment for
services from December 2006 through March 2007 NetYantra has informed the
Company that it has given notice to its employees that operations will cease
in
one month. The Company’s Chairman, Xxxxxx Xxxxxxxx-Xxxxx, and Xxxxx Xxxxxx, a
Director of NetYantra, are in discussions to reduce the number of consultants
from approximately 30 to 10 or fewer, with the objective of maintaining an
adequate number of consultants to support the Northamber distribution
agreement.
Effective
December 15, 2006, J. Xxxxx Xxxxxxx resigned from all positions he held with
the
Company. Upon his resignation, Xx. Xxxxxxx was entitled to payments totalling
$290,000 as per the terms of his employment agreement. The Company has not
discussed this payment with Xx. Xxxxxxx but intends to negotiate delay of
this
payment until January 2008 and has reflected this delay in the Company’s budget
figures disclosed.
-64-
Schedule
3.1(l)
Compliance
Pursuant
to the terms of the Company’s outstanding 8% Convertible Debentures (the
“Debentures”), the Company is required to make quarterly interest payments. The
Company has not made the interest payment that was due on December 31, 2006.
The
Company has not received any notices of default from any of the Debenture
holders. Immediately following the Closing Date the Company will pay
approximately $260,000 to the Debenture holders as payment for the interest
due
on December 31, 2006 and March 31, 2007, for the December interest payment
as
well as an additional $130,000 for interest due on March 31, 2007. The Company
has requested waivers from the Debenture holders whereby the holders (i)
waive
any Late Fee(s) associated with any overdue payment of interest, and (ii)
confirm that the holder has not given the Company a notice of any Event of
Default in respect of the Debentures and that no Event of Default now, or
with
the passage of time, exists with respect to the Debentures.
The
Company’s subsidiary, Xxxxxxx Blue Limited, has a Small Business Loan,
guaranteed by the UK Secretary of State pursuant to Section 8 of the Industrial
Development Act of 1982. A payment made on this loan resulted in an overdraft
of
one of Xxxxxxx Blue’s bank accounts of approximately USD 18,000. Payment to
replenish this overdraft is expected to be made directly following the Closing
Date.
The
Company’s subsidiary Vistula Limited, is overdrawn on one of its bank accounts
by approximately USD 6,000. Payment to replenish this overdraft is expected
to
be made directly following the Closing Date.
The
Company is delinquent with respect to approximately $14,000 in lease payments
for its principal office in New York. The Company is delinquent with
respect to approximately GBP6,000 ($12,000) in lease payments for an apartment
in London that is used by consultants of NetYantra. The full amounts of
these respective delinquencies are expected to be paid immediately following
the
Closing Date. The Company is also delinquent with respect to approximately
$18,000 in lease payments related to the Company's switching facility in
Los
Angeles, of which a portion of this amount is expected to paid immediately
following the Closing Date.
-65-
Schedule
3.1(n)
Title
to Assets
The
Company expects to enter into an Agreement whereby it will sell its UK Lucent
Switch used in the Company’s wholesale voice services business in exchange for
the buyer (i) assuming the Telehouse lease and all associated costs, including,
without limitation the costs of the circuits, power, and running the switching
equipment (ii) operating the Switch, (iii) allowing the Company to use the
switch for three years at no cost to the Company and (iv) assuming any billing
processes previously performed by one of the Company’s employees, who will
continue to be available to the Company. The Agreement is expected to be
effective retroactively as of January 1, 2007.
The
Company’s Sonus switch located in Los Angeles had an equipment failure and has
not been working as of January 31, 2007. Due to the Company’s cash position and
minimal revenue as a result of this switch, the switch has not been repaired.
Any traffic has been re-routed to the UK switching facility in
London.
-66-
Schedule
3.1(o)
Patents
and Trademarks
The
Company has not yet filed a trademark application in the United Status or
in any
other jurisdiction to register the trademark the names V-Cube or Order-to-Cash
(“O2C”) which it is currently using to market and distribute the Company’s
V-Cube VoIP platform.
-67-
Schedule
3.1(p)
Insurance
The
Company is currently carrying Directors and Officers insurance underwritten
by
Navigators, which expires on April 27, 2007, with coverage of $5,000,000
and an
extension of the same policy with coverage for an additional $5,000,000.
The
company has paid the premium in full through the expiration date. The premium
for the renewal of this insurance is due by April 27, 2007 and is expected
to be
approximately $150,000 or more.
The
Company also carries property and casualty insurance underwritten by St.
Xxxx
Travelers for both its US domestic and its foreign operations which expires
on
October 17, 2007. The company is invoiced quarterly and is current with invoices
related to this coverage.
The
recently acquired UK company, Xxxxxxx Blue Limited, had an existing insurance
agreement which expires on August 8, 2007. This policy is paid in full through
the expiration date.
-68-
Schedule
3.1(q)
Transactions
with Affiliates and Employees
See
Schedule 3.1(g) for a description of the Rothschild Notes.
-69-
Schedule
3.1(r)
Xxxxxxxx-Xxxxx;
Internal Accounting Controls
As
the
Company is an S-B (Small Business) filer, it is not yet required to be fully
compliant with the Xxxxxxxx-Xxxxx Act of 2002; however, the Company is compliant
with respect to the areas under which it is presently required to be compliant.
The Company has included in its budget reasonable amounts to fund assistance
from an outside consulting firm with experience in developing and implementing
controls and procedures for companies similar to Vistula and its Subsidiaries,
in order to comply with the current requirements of the Xxxxxxxx-Xxxxx Act
of
2002 as at December 31, 2007 and thereafter, or as otherwise required.
-70-
Schedule
3.1(s)
Certain
Fees
The
Company will be obligated to pay certain fees and/or issue certain warrants
to
Oceana Partners LLC in connection with the sale of the convertible notes
and
warrants in accordance with the Oceana Partners Engagement Letter.
The
Company may be obligated to pay certain fees and/or issue certain warrants
to
Indigo Securities LLC in connection with the sale of the convertible notes
and
warrants in accordance with the Indigo Placement Agreement. The Company intends
to request from Indigo a waiver of such fees and/or warrants, absent which
the
terms of the agreement would require payment of a minimum fee of $300,000
and 6%
cashless warrants on any monies raised.
The
Company may be obligated to pay certain fees and/or issue certain warrants
to
Source Capital Group, Inc. (“SCG”) in connection with the sale of the
convertible notes and warrants in accordance with the Source Capital Engagement
Letter. The Company intends to request from SCG a waiver of such fees and/or
warrants, absent which the terms of the agreement would require payment of
6%
cash, which is to be paid from the proceeds, and 6% warrants.
-71-
Schedule
3.1(x)
Disclosure
Forward-Looking
Statements
This
Schedule 3.1(x) includes certain statements, budgets, estimates, projections
and
other forward-looking statements with respect to the anticipated future
performance of Vistula Communications Services, Inc. The statements,
budgets, estimates, projections and other forward-looking statements, which
have
not been reviewed or examined by the Company’s independent auditors, are based
upon various assumptions by management made on a reasonable basis and in
good
faith that may not prove to be correct. Such assumptions are inherently subject
to significant uncertainties and contingencies, many of which are beyond
the
Company’s control. No assurance is given, that the Company can or will attain
such results. Actual results are likely to vary, perhaps materially, from
the
Company’s projections due, at least in part, to the Risk Factors cited in the
Company’s Form 10K-SB for the year ended December 31, 2005.
|
Consolidated
Budget
|
||||||
|
2007
|
|
2007
|
|
2007
|
|
2007
|
|
YTD
|
|
|||||||
|
|
|
Q1
|
|
Q2
|
|
Q3
|
|
Q4
|
|
2007
|
||||||
|
Revenues
|
290,013
|
1,457,135
|
4,020,758
|
4,248,351
|
10,016,257
|
|||||||||||
|
Cost
of revenues
|
271,950
|
623,486
|
1,116,704
|
1,214,614
|
3,226,755
|
|||||||||||
|
Gross
margin
|
18,063
|
833,649
|
2,904,054
|
3,033,737
|
6,789,503
|
|||||||||||
|
Selling,
general & administrative
|
1,247,527
|
1,292,447
|
1,322,567
|
1,257,457
|
5,119,999
|
|||||||||||
|
Results
from operations (excludes all non-cash items)
|
(1,229,463
|
)
|
(458,799
|
)
|
1,581,486
|
1,776,280
|
1,669,504
|
|||||||||
|
Cash
flow from bridge & other financing (net), (repaid Feb
2009)
|
3,000,000
|
3,000,000
|
||||||||||||||
|
Adjustment
for current creditors and accrue Dec. 2007.
|
(543,188
|
)
|
(351,937
|
)
|
(351,937
|
)
|
98,940
|
(1,148,121
|
)
|
|||||||
|
Capital
expenditures
|
(76,800
|
)
|
-
|
-
|
-
|
(76,800
|
)
|
|||||||||
|
NetYantra
acquisition
|
-
|
-
|
-
|
(350,000
|
)
|
(350,000
|
)
|
|||||||||
|
Budgeted
quarterly cash
|
1,150,549
|
(810,736
|
)
|
1,229,549
|
1,525,220
|
3,094,583
|
||||||||||
|
Budgeted
cumulative cash balance at quarter end
|
1,150,549
|
339,813
|
1,569,363
|
3,094,583
|
3,094,583
|
|||||||||||
|
Results
from operations (excludes all non-cash items)
|
(1,229,463
|
)
|
(458,799
|
)
|
1,581,486
|
1,776,280
|
1,669,504
|
|||||||||
|
Non-cash
expenses
|
2,307,087
|
2,300,961
|
2,228,059
|
2,228,059
|
9,064,165
|
|||||||||||
|
Budget
Net Income (Loss)
|
(3,536,550
|
)
|
(2,759,759
|
)
|
(646,572
|
)
|
(451,779
|
)
|
(7,394,660
|
)
|
||||||
-72-
|
Narrative
assumptions:
|
|
Consolidated
Budget
|
||||||
|
2008
|
2008
|
2008
|
2008
|
YTD
|
||||||||||||
|
Q1
|
Q2
|
Q3
|
Q4
|
2008
|
||||||||||||
|
Revenues
|
6,065,655
|
6,838,838
|
7,391,698
|
8,159,150
|
28,455,340
|
|||||||||||
|
Cost
of revenues
|
1,510,979
|
1,887,795
|
2,216,573
|
2,593,348
|
8,208,695
|
|||||||||||
|
Gross
margin
|
4,554,675
|
4,951,043
|
5,175,125
|
5,565,801
|
20,246,645
|
|||||||||||
|
Selling,
general & administrative
|
2,210,385
|
1,814,285
|
1,689,385
|
1,506,385
|
7,220,440
|
|||||||||||
|
Results
from operations (excludes all non-cash items)
|
2,344,290
|
3,136,758
|
3,485,740
|
4,059,416
|
13,026,205
|
|||||||||||
|
Cash
flow from bridge & other financing (net), (repaid Feb
2009)
|
(225,600
|
)
|
-
|
(225,600
|
)
|
|||||||||||
|
Adjustment
for current creditors and accrue Dec. 2007.
|
(450,877
|
)
|
473,420
|
22,543
|
||||||||||||
|
Capital
expenditures
|
-
|
-
|
-
|
-
|
-
|
|||||||||||
|
NetYantra
acquisition
|
||||||||||||||||
|
Budgeted
quarterly cash
|
1,667,813
|
3,136,758
|
3,485,740
|
4,532,836
|
12,823,148
|
|||||||||||
|
Budgeted
cumulative cash balance at quarter end
|
1,667,813
|
4,804,571
|
8,290,311
|
12,823,148
|
12,823,148
|
|||||||||||
|
|
* |
15,917,731
|
||||||||||||||
|
Results
from operations (excludes all non-cash items)
|
2,344,290
|
3,136,758
|
3,485,740
|
4,059,416
|
13,026,205
|
|||||||||||
|
Non-cash
expenses
|
2,167,059
|
2,045,059
|
2,045,059
|
2,045,059
|
8,302,234
|
|||||||||||
|
Budget
Net Income (Loss)
|
177,232
|
1,091,699
|
1,440,682
|
2,014,358
|
4,723,971
|
|||||||||||
*
Cumulative cash including 2007 ending cash balance.
This
budget was completed March 14, 2007 and is subject to final review by the
Company’s Budget and Finance Committee and approval by its Board of Directors.
The budget assumes that the Company’s 8% Convertible Subordinated Debentures
shall have converted to common stock prior to maturity in February and March
2008.
The
presentation to investors has been posted on the Company’s website.
-73-
Schedule
3.1(y)
Registration
Rights
Pursuant
to the Agreement for the sale and purchase of the whole of the issued share
capital of Xxxxxxx Blue Limited dated October 11, 2006 between the Company
and
Xxxxx Xxx Xxxxxxx, the Company granted piggy back registration rights with
respect to the 2,500,000 shares of common stock issued to Xxxxxxx.
-74-
Schedule
3.1(z)
Tax
Status
See
Schedule 3.1(b) for a description of the Company’s tax status.
-75-
Schedule
3.1(cc)
Accountants
PKF
Certified Public Accountants, A Professional Corporation (“PKF”)
00
Xxxxxxxx
Xxx
Xxxx,
XX 00000
-76-
Schedule
3.1(ee)
No
Disagreements with Accountants or Lawyers
As
of the
date hereof, $106,915 is payable by the Company to PKF for its outstanding
invoiced fees and disbursements for accounting and auditing services provided
to
the Company. The Company intends to pay these outstanding fees and disbursements
out of the proceeds received from the sale of the convertible notes and warrants
under the Agreement.
As
of the
date hereof, $222,283, is payable by the Company to Xxxxx Xxxx LLP for its
outstanding invoiced fees and disbursements in connection with legal services
provided to the Company. The Company plans to negotiate a payment plan with
Xxxxx Xxxx LLP after the proceeds from the sale of the convertible notes
and
warrants under the Agreement have been received.
The
Company also is in arrears to Xxxxxx & Associates and Xxxxxxx Gainsford for
consulting and accounting services provided over the past several months.
The
Company plans to negotiate a payment plan with each of these accounting firms
after the proceeds from the sale of the convertible notes and warrants under
the
Agreement have been received.
-77-
Schedule
3.1(jj)(i)
Employee
Benefit Plans; ERISA
Vistula
Communications Services, Inc. Amended and Restated 2004 Stock Incentive Plan
-78-
Schedule
4.9
Use
of Proceeds
|
Use
|
(rounded)
|
|||
|
Payroll
|
380,000
|
|||
|
NetYantra
|
335,000
|
|||
|
Debenture
interest
|
260,000
|
|||
|
Legal
|
250,000
|
|||
|
PKF
|
110,000
|
|||
|
SG&A
& overdrafts
|
65,000
|
|||
|
Office
Exp.
|
30,000
|
|||
|
Capex
|
30,000
|
|||
|
Rent
|
30,000
|
|||
|
CFO
bonus
|
30,000
|
|||
|
Trade
vendors
|
25,000
|
|||
|
Accounting
|
20,000
|
|||
|
Tax
|
17,000
|
|||
|
Travel
reimbursement
|
13,000
|
|||
|
Subtotal
|
1,595,000
|
|||
|
Financing
(estimate)
|
77,000
|
|||
|
Subtotal
|
1,672,000
|
|||
|
Estimated
balance
|
828,000
|
|||
|
Total
|
2,500,000
|
|||
The
amounts listed for Use are only the outstanding amounts in respect of which
the
Company plans on making immediate payments following the Closing Date of
the
financing. There are additional amounts which are recorded on the books of
the
Company and its subsidiaries either as accounts payable or accrued expenses
which need to be negotiated with each individual creditor.
-79-
The
estimated total accounts payable and accrued expenses expected to be recorded
by
the Company as at March 31, 2007 is approximately $3,410,000 (which excludes
the
$2,500,000 Put-option from Xxxxx Xxxxxxx as described in Schedule 3.1(d)).
The
Use of proceeds detailed above is included in this figure. The details
supporting this figure by category are as follows:
|
Payroll
|
511,000
|
|||
|
Consulting
|
337,000
|
|||
|
NetYantra
|
335,000
|
|||
|
Legal
|
315,000
|
|||
|
Severance
|
299,000
|
|||
|
Debenture
interest
|
259,000
|
|||
|
Trade
vendors
|
224,000
|
|||
|
Audit
|
171,000
|
|||
|
Purchaser
*
|
168,000
|
|||
|
Public/Investor
relations
|
165,000
|
|||
|
Accounting
|
95,000
|
|||
|
SG&A
(various small items)
|
90,000
|
|||
|
To
be written-off
|
84,000
|
|||
|
Capex
|
69,000
|
|||
|
Directors
|
50,000
|
|||
|
Printer
|
39,000
|
|||
|
Travel
|
39,000
|
|||
|
Marketing
|
34,000
|
|||
|
Interest
|
30,000
|
|||
|
CFO
bonus
|
30,000
|
|||
|
Rent
|
29,000
|
|||
|
Small
Business Loan
|
20,000
|
|||
|
Taxes
outstanding
|
17,000
|
|||
|
Total
|
3,410,000
|
*
Purchaser is described below.
On
October 12, 2006, the Company entered into agreements relating to the sale
of
certain customer agreements using Vistula’s Order-to-Cash (“O2C”) Managed Office
software platform and the management of certain customer accounts utilizing
the
O2C software to a Purchaser. Xxxxxxx Blue had been processing the invoice
and collections of cash from the customers whose agreements were sold to
the
Purchaser. As cash was collected in from the customer Xxxxxxx Blue was supposed
to forward on
the
cash to the Purchaser. Xxxxxxx Blue used this cash for its own operations
and
owes the Purchaser approximately GBP 75,000 (USD 147,000) for this activity
and
additional amounts related to other business activity from Vistula Limited.
The
Company intends
to
negotiate the cash owed to the Purchaser and other accounts payable due the
Purchaser from Vistula Limited with the license sale price for the Purchaser’s
use of MyOrder portal the Purchaser is contracted to buy.
-80-
