SECURITIES PURCHASE AGREEMENT
EXHIBIT 10.1
EXECUTION COPY
EXECUTION COPY
SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of June 1, 2007, by and among
StarVox Communications, Inc., a California corporation, with headquarters located at 0000 Xxxxxxx
Xxxxxxx, Xxx Xxxx, Xxxxxxxxxx 00000-0000 (the “Company”), U.S. Wireless Data, Inc., a Delaware
corporation, with headquarters located at 0000 Xxxxxxx Xxxxxxx, Xxx Xxxx, Xxxxxxxxxx 00000-0000
(“Parent”), and the investors listed on the Schedule of Buyers attached hereto (individually, a
“Buyer” and collectively, the “Buyers”);
WHEREAS:
A. The Company is a wholly-owned subsidiary of Parent.
B. Each of the Company, Parent and each Buyer is executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by Section 4(2) of the Securities
Act of 1933, as amended (the “1933 Act”), and Regulation D (“Regulation D”) promulgated by the
United States Securities and Exchange Commission (the “SEC”) under the 1933 Act.
C. The Company has authorized the issuance of senior secured Debentures of the Company (the
“Debentures”). In connection with the sale of the Debentures and as an inducement to the Buyers to
purchase the Securities (as defined below), the Company desires to instruct Parent to issue to the
Buyers, upon the terms and conditions stated in this Agreement, a warrant to purchase the amount of
shares of Parent’s common stock (the “Common Stock”), $0.01 par value per share (as exercised, the
“Warrant Shares”), as set forth opposite such Buyer’s name in column (4) on the Schedule of
Buyers (which aggregate amount for all Buyers shall be 2,520,000 shares), in substantially the
form attached hereto as Exhibit A (the “Warrant”).
D. Each Buyer wishes to purchase, and the Company wishes to sell, upon the terms and
conditions stated in this Agreement, the Debentures, in substantially the form attached hereto as
Exhibit B, in the principal amount as set forth opposite such Buyer’s name in columns (3)
and (5) on the Schedule of Buyers (which aggregate amount for all Buyers shall be
$9,000,000).
G. Contemporaneously with the execution and delivery of this Agreement, Parent and the Buyers
are executing and delivering a joinder to the U.S. Wireless Data, Inc. Registration Rights
Agreement, substantially in the form attached hereto as Exhibit C (the “Registration Rights
Agreement”), making the Buyers party to such agreement and pursuant to which Parent has agreed to
provide certain registration rights with respect to the Registrable Securities (as defined in the
Registration Rights Agreement) under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
H. The Debentures, the Warrant and the Warrant Shares are collectively referred to herein as
the “Securities.”
I. On the Initial Closing Date (as defined below), Parent and Capital Telecommunications,
Inc., a Pennsylvania corporation (“CTI”) (collectively, the “Guarantors”), are executing and
delivering a Guaranty, substantially in the form attached hereto as Exhibit D (the
“Guaranty”), pursuant to which the Guarantors have agreed to guaranty the obligations of the
Company under the Debentures.
J. On the Initial Closing Date, the Guarantors are executing and delivering a Pledge and
Security Agreement, substantially in the form attached hereto as Exhibit E (the “Security
Agreement”), pursuant to which the assets and shares of the Subsidiaries will be pledged as
collateral to secure the Debentures.
K. Contemporaneously with the execution and delivery of this Agreement, Parent, its
Subsidiaries and the Buyers shall execute and deliver a Post-Closing Letter Agreement,
substantially in the form attached hereto as Exhibit F (the “Post-Closing Letter
Agreement”), which will address certain matters to occur after the Initial Closing Date.
L. Contemporaneously with the execution and delivery of this Agreement, Parent, the Company
and the Buyers shall execute and deliver a Letter Agreement, substantially in the form attached
hereto as Exhibit L (the “Maturity Extension Letter Agreement”), which will address certain
matters relating to the maturity of the Debentures.
NOW, THEREFORE, the Company, Parent and each Buyer hereby agree as follows:
(1) PURCHASE AND SALE OF DEBENTURES AND WARRANT.
(a) Initial Closing. Subject to the satisfaction (or waiver) of the conditions set
forth in Sections 6 and 7 below, in consideration for the payment of each Buyer’s payment of its
pro rata share of the Initial Purchase Price (as defined below) (i) the Company shall issue and
sell to each Buyer, and each Buyer agrees to purchase from the Company on the Initial Closing Date
(as defined below), the Debenture in the principal amount set forth opposite such Buyer’s name in
column (3) on the Schedule of Buyers and (ii) the Company shall deliver or cause to be
delivered to each Buyer on the Initial Closing Date the Warrant to purchase the amount of Warrant
Shares as is set forth opposite such Buyer’s name in column (4) on the Schedule of Buyers.
The closing (the “Initial Closing”) of the purchase of the Securities by the Buyers shall occur at
the offices of XxXxxxxxx Will & Xxxxx LLP, 000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000. The date
and time of the Initial Closing (the “Initial Closing Date”) shall be 10:00 a.m., New York City
time, on the date hereof, subject to notification of satisfaction (or waiver) of the conditions to
the Initial Closing set forth in Sections 6 and 7 below (or such later date as is mutually agreed
to by the Company, Parent and the Buyers). The aggregate purchase price (the “Initial Purchase
Price”) of the Debentures and the Warrants to be purchased by the Buyers at the Initial Closing
shall be equal to $6,000,000. On the Initial Closing Date, (i) each Buyer shall pay its pro rata
share of the Initial Purchase Price to the Company for the Debenture and the Warrant to be issued
and sold to such Buyer at the Initial Closing, by wire transfer of immediately available funds in
accordance with Company’s written wire instructions, (ii) the Company shall deliver to the Buyers
(A) the Debenture which such Buyer is then purchasing, duly executed on behalf of the Company and
registered in the name of such Buyer or its designee and (B) the Warrant which such Buyer is then
purchasing, duly executed on behalf of the Parent and registered in the name of such Buyer or its
designee.
(b) Second Closing. Subject to the satisfaction (or waiver) of the conditions set
forth in Sections 6 and 7 below, in consideration for the payment of each Buyer’s payment of its
pro rata share of the Second Purchase Price (as defined below) (i) the Company shall issue and sell
to each Buyer, and each Buyer agrees to purchase from the Company on the Second Closing Date (as
defined below), the Debenture in the principal amount set forth opposite such Buyer’s name in
column (5) on the Schedule of Buyers. The closing (the “Second Closing”) of the purchase
of the Securities by the Buyers shall occur at the offices of XxXxxxxxx Will & Xxxxx LLP, 000
Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000. The date and time of the
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Second Closing (the “Second Closing Date”) shall be 10:00 a.m., New York City time, on the
date hereof, subject to notification of satisfaction (or waiver) of the conditions to the Second
Closing set forth in Sections 6 and 7 below (or such later date as is mutually agreed to by the
Company, Parent and the Buyers). The aggregate purchase price (the “Second Purchase Price”) of the
Debentures to be purchased by the Buyers at the Second Closing shall be equal to $3,000,000. On
the Second Closing Date, (i) each Buyer shall pay its pro rata share of the Second Purchase Price
to the Company for the Debenture to be issued and sold to such Buyer at the Second Closing, by wire
transfer of immediately available funds in accordance with Company’s written wire instructions,
(ii) the Company shall deliver to the Buyers the Debenture which such Buyer is then purchasing,
duly executed on behalf of the Company and registered in the name of such Buyer or its designee.
(2) BUYERS’ REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants, severally as to itself, that:
(a) Authorization; Enforcement; Validity. Buyer has the requisite power and authority
to enter into and perform its obligations under the Transaction Documents (as defined below). The
execution and delivery of the Transaction Documents and the consummation by the Buyer of the
transactions contemplated hereby and thereby have been duly authorized by all necessary corporate
or similar action on the part of the Buyer. This Agreement and the other Transaction Documents of
even date herewith have been duly executed and delivered by the Buyer and constitute the legal,
valid and binding obligations of the Buyer enforceable against the Buyer in accordance with their
respective terms, except as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating
to, or affecting generally, the enforcement of applicable creditors’ rights and remedies.
(b) No Public Sale or Distribution. Buyer is acquiring the Securities for its own
account and not with a view towards, or for resale in connection with, the public sale or
distribution thereof in a manner that would violate the 1933 Act, except pursuant to sales
registered or exempted under the 1933 Act; provided, however, that by making the representations
herein, Buyer does not agree to hold any of the Securities for any minimum or other specific term,
except as specified in the Registration Rights Agreement, and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration statement or an exemption
under the 1933 Act. Buyer is acquiring the Securities hereunder in the ordinary course of its
business. Buyer does not presently have any agreement or understanding, directly or indirectly,
with any Person to distribute any of the Securities.
(c) Investor Status. Buyer is an “accredited investor” as that term is defined in
Rule 501(a) of Regulation D. Buyer 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 the risks of such investment.
Buyer 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.
(d) Reliance on Exemptions. Buyer understands that the Securities are being offered
and sold to it in reliance on specific exemptions from the registration requirements of
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United States federal and state securities laws and that the Company and Parent are relying in
part upon the truth and accuracy of, and Buyer’s compliance with, the representations, warranties,
agreements, acknowledgments and understandings of Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of Buyer to acquire the Securities.
(e) Information. Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and Parent and materials
relating to the offer and sale of the Securities which have been requested by Buyer. Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the Company and Parent.
Neither such inquiries nor any other due diligence investigations conducted by Buyer or its
advisors, if any, or its representatives shall modify, amend or affect Buyer’s right to rely on the
Company’s and Parent’s representations and warranties contained herein. Buyer understands that its
investment in the Securities involves a high degree of risk. Buyer has sought such accounting,
legal and tax advice as it has considered necessary to make an informed investment decision with
respect to its acquisition of the Securities.
(f) No Governmental Review. Buyer understands that no United States federal or state
agency or any other Governmental Authority has passed on or made any recommendation or endorsement
of the Securities or the fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the Securities. As used in this
Agreement, “Governmental Authority” is any nation or government, any state or other political
subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank
or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative
functions of or pertaining to government, any securities exchange and any self-regulatory
organization (including, without limitation, the National Association of Insurance Commissioners,
the Federal Communications Commission and any State public utility commission or other State agency
or department with primary regulatory jurisdiction over common carrier telecommunications and pay
telephone services).
(g) Transfer or Resale. Buyer understands that the Securities have not been and are
not being registered under the 1933 Act or any state securities laws, and may not be offered for
sale, sold, assigned or transferred unless (A) subsequently registered thereunder, (B) Buyer shall
have delivered to the Company and Parent an opinion of counsel, reasonably acceptable to the
Company, to the effect that such Securities to be sold, assigned or transferred may be sold,
assigned or transferred pursuant to an exemption from such registration, or (C) Buyer provides the
Company and Parent with reasonable assurance, which may at the option of the Company include an
opinion of counsel reasonably acceptable to the Company, that such Securities can be sold, assigned
or transferred pursuant to Rule 144 or Rule 144A promulgated under the 1933 Act (or, in each case,
a successor rule thereto); provided, however, that the Securities may be pledged in connection with
a bona fide margin account or other loan or financing arrangement secured by the Securities and
such pledge of Securities shall not be deemed to be a transfer, sale or assignment of the
Securities hereunder, and provided, further, that if Buyer effects a pledge of Securities it shall
not be required to provide the Company or Parent with any notice thereof or otherwise make any
delivery to the Company or Parent
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pursuant to this Agreement or any other Transaction Document (as defined in Section 3(b)),
including, without limitation, this Section 2(f).
(h) Legends. Such Buyer understands that the certificates or other instruments
representing the Debentures and the Warrant and, until removed in accordance with the Registration
Rights Agreement, the stock certificates representing the Warrants Shares, except as set forth
below, shall bear any legend as required by the “blue sky” laws of any state and restrictive
legends in substantially the following form (and a stop-transfer order may be placed against
transfer of such stock certificates):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS PURSUANT TO REGISTRATION OR AN EXEMPTION THEREFROM. THE ISSUER
OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT
SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE, INCLUDING A LOCK-UP PERIOD IN THE EVENT OF A PUBLIC OFFERING, AS SET FORTH IN A
REGISTRATION RIGHTS AGREEMENT, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE
COMPANY.
The legends set forth above shall be removed and the Company or Parent, as applicable, shall issue
a certificate without such legends to the holder of the Securities upon which it is stamped, if (i)
such Securities are registered for resale under the Act, (ii) in connection with a sale, assignment
or other transfer, such holder provides the Company or Parent, as applicable, with an opinion of
counsel, reasonably acceptable to the Company, to the effect that such sale, assignment or transfer
of the Securities may be made without registration under the applicable requirements of the 1933
Act, or (iii) such Securities are sold, assigned or transferred pursuant to Rule 144, or such
holder provides the Company or Parent, as applicable, with reasonable assurance, which may at the
option of the Company include an opinion of counsel reasonably acceptable to the Company, that the
Securities can be sold, assigned or transferred pursuant to Rule 144(k).
(i) Residency. Buyer is a resident of that jurisdiction specified below its address
on the Schedule of Buyers.
(3) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND PARENT.
As an inducement to the Buyers to enter into this Agreement and to consummate the transactions
contemplated hereby, the Company and Parent jointly and severally represent and warrant to the
Buyers that each and all of the following representations and warranties (as modified by the
disclosure schedules delivered to the Buyers contemporaneously with the
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execution and delivery of this Agreement (the “Schedules”)) are true and correct as of Initial
Closing Date and the Second Closing Date (each, a “Closing Date”). The Schedules shall be arranged
by the Company and Parent in paragraphs corresponding to the sections and subsections contained in
this Section 3.
(a) Organization and Qualification. Parent and its “Subsidiaries” (which for purposes
of this Agreement means any entity in which Parent, directly or indirectly, owns capital stock or
holds an equity or similar interest, including the Company) are entities duly organized and validly
existing in good standing under the laws of the jurisdiction in which they are formed, and have the
requisite power and authorization to own their properties and to carry on their business as now
being conducted. Each of Parent and its Subsidiaries is duly qualified as a foreign entity to do
business and is in good standing in every jurisdiction in which its ownership of property or the
nature of the business conducted by it makes such qualification necessary, except to the extent
that the failure to be so qualified or be in good standing would not have a Material Adverse
Effect. As used in this Agreement, “Material Adverse Effect” means any material adverse effect on
the business, properties, assets, operations, results of operations, condition (financial or
otherwise) or prospects of Parent and its Subsidiaries, taken as whole, or on the transactions
contemplated hereby and by the other Transaction Documents, or on the authority or ability of
Parent and/or the Company to perform its obligations under the Transaction Documents. All capital
stock or equity or similar interests of the Subsidiaries is directly or indirectly owned by Parent,
and Parent has no Subsidiaries other than the Company and except as set forth on Schedule
3(a).
(i) The “Non-Material Subsidiaries” are set forth on Schedule 3(a)(i). Such Non-Material
Subsidiaries are not, and have not been, material in any way to the operations or the business of
Parent or the Company. The Non-Material Subsidiaries contain no assets and have conducted no
business or operations and maintained no employees since they were acquired by the Company. The
Non-Material Subsidiaries are not in good standing and may not validly exist under the laws of the
jurisdiction in which they were formed. The Non-Material Subsidiaries may not have made or filed
foreign, federal or state income or other tax returns, reports or declarations required by any
jurisdiction to which they are subject and such Non-Material Subsidiaries may be subject to unpaid
tax liabilities. Deficiencies in the good standing or foreign qualification of the Non-Material
Subsidiaries and any failure to pay taxes will not have a Material Adverse Effect.
(ii) For purposes of this Agreement and the other Transaction Documents, the definition of
Subsidiaries shall exclude the Non-Material Subsidiaries.
(b) Authorization; Enforcement; Validity. Each of Parent and the Company has the
requisite power and authority to enter into and perform its obligations under this Agreement, the
Debentures, the Registration Rights Agreement, the Irrevocable Transfer Agent Instructions (as
defined in Section 5(b)), the Security Agreement, the Guaranty, the Post-Closing Letter Agreement,
the Maturity Extension Letter Agreement and each of the other agreements, documents, certificates
or other instruments entered into or delivered by any of the parties hereto in connection with the
transactions contemplated by this Agreement (collectively, the “Transaction Documents”) and to
issue the Securities in accordance with the terms hereof and thereof. The execution and delivery
of the Transaction Documents by the Company and Parent
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have been duly authorized by each of the Company’s and Parent’s Board of Directors and the
consummation by the Company and Parent of the transactions contemplated hereby and thereby,
including, without limitation, the issuance of the Debentures by the Company and the issuance of
the Warrants and the Warrant Shares by Parent, have been or will be at the time of issuance duly
authorized by Parent’s Board of Directors and (other than the filing with the SEC of a Form D and a
Current Report on Form 8-K and other than filings with “Blue Sky” authorities as required therein)
no further filing, consent, or authorization is required by the Company, its Board of Directors or
its shareholders or Parent, its Board of Directors or its stockholders. This Agreement and the
other Transaction Documents of even date herewith have been duly executed and delivered by each of
the Company and Parent, as applicable, and constitute the legal, valid and binding obligations of
the Company or Parent, as the case may be, enforceable against the Company or Parent, as the case
may be, in accordance with their respective terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally, the enforcement of applicable
creditors’ rights and remedies.
(c) Issuance of Securities. The issuance of the Debentures and the Warrants is duly
authorized and is free from all taxes, liens and charges with respect to the issue thereof except
for restrictions under applicable securities laws and the terms and conditions of the Transaction
Documents. As of the Closing Date, Parent shall have reserved from its duly authorized capital
stock 100% of the maximum number of shares of Common Stock issuable upon exercise of the Warrants
(without taking into account any limitations on the exercise of the Warrant set forth in the
Warrants). Upon exercise in accordance with the Warrants, the Warrant Shares will be validly
issued, fully paid and non-assessable and free from all preemptive or similar rights, taxes, liens
and charges with respect to the issue thereof, except for restrictions under applicable securities
laws and the terms and conditions of the Transaction Documents, with the holders being entitled to
all rights accorded to a holder of Common Stock. Assuming the accuracy of the representations made
by the Buyers in Section 2, the offer and issuance by the Company and Parent of the Securities is
exempt from registration under the 1933 Act.
(d) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and Parent and the consummation by the Company and Parent of the
transactions contemplated hereby and thereby (including, without limitation, the issuance of the
Debentures and the Warrants and the reservation for issuance of the Warrant Shares) will not (i)
result in a violation of Parent’s Certificate of Incorporation, Parent’s Bylaws, the Company’s
Articles of Incorporation or the Company’s Bylaws (each as defined in Section 3(r)) or the
governing documents of any of Parent’s Subsidiaries or the terms of any capital stock of Parent or
any of its Subsidiaries; (ii) conflict with, or constitute a default (or an event which with notice
or lapse of time or both, would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to
which Parent or any of its Subsidiaries is a party; or (iii) result in a violation of any law,
rule, regulation, order, judgment or decree (including federal and state securities laws)
applicable to Parent or any of its Subsidiaries or by which any property or asset of Parent or any
of its Subsidiaries is bound or affected, except with respect to clauses (ii) and (iii) such as
would not have a Material Adverse Effect.
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(e) Consents. Neither the Company nor Parent is required to obtain any consent,
authorization, approval, order, license, franchise, permit, certificate or accreditation, or make
any filing or registration with, or give any notice to, or take any action in respect of, any
Governmental Authority (any, a “Governmental Approval”) or any regulatory or self-regulatory agency
or any other Person in order for it to execute, deliver or perform any of its obligations under or
contemplated by the Transaction Documents, in each case in accordance with the terms hereof or
thereof (other than (w) filing with the SEC of a Form 8-K and Form D , (x) filings with “Blue Sky”
authorities, and (y) filings required by the Security Agreement), except such as would not have a
Material Adverse Effect. All consents, authorizations, orders, filings and registrations which the
Company and Parent are required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the Closing Date, and Parent and its Subsidiaries are unaware of any facts
or circumstances which might prevent the Company or Parent from obtaining or effecting any of the
registration, application or filings pursuant to the preceding sentence), except such as would not
have a Material Adverse Effect.
(f) Acknowledgment Regarding Buyers’ Purchase of Securities. Each of the Company and
Parent acknowledges and agrees that each Buyer is acting solely in the capacity of an arm’s length
purchaser with respect to the Transaction Documents and the transactions contemplated hereby and
thereby and that (i) no Buyer is an officer or director of the Company or Parent, (ii) to the
knowledge of the Company or Parent, except for Xxxxxx Capital Master Fund Ltd., no Buyer is an
“affiliate” of the Company or Parent (as defined in Rule 144) or (iii) to the knowledge of the
Company or Parent, except for Xxxxxx Capital Master Fund Ltd., no Buyer is a “beneficial owner” of
more than 10% of the shares of Common Stock (as defined for purposes of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended (the “1934 Act”)). Each of the Company and Parent
further acknowledges that except for SMH Capital Inc., no Buyer is acting as a financial advisor or
fiduciary of the Company or Parent (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated hereby and thereby, and any advice given by a Buyer or
any of its representatives or agents in connection with the Transaction Documents and the
transactions contemplated hereby and thereby is merely incidental to such Buyer’s purchase of the
Securities. Each of the Company and Parent further represents to each Buyer that the Company’s and
Parent’s decisions to enter into the Transaction Documents have been based solely on the
independent evaluation by the Company and Parent and their respective representatives.
(g) No General Solicitation; Placement Agent’s Fees. None of the Company, Parent, nor
any of their affiliates, nor any Person acting on its or their behalf, has engaged in any form of
general solicitation or general advertising (within the meaning of Regulation D) in connection with
the offer or sale of the Securities. Parent shall be responsible for the payment of any placement
agent’s fees, financial advisory fees, or brokers’ commissions (other than for Persons engaged by
the Buyer or its investment advisors) relating to or arising out of the transactions contemplated
hereby. Parent shall pay, and hold each Buyer harmless against, any liability, loss or expense
(including, without limitation, attorneys’ fees and out-of-pocket expenses) arising in connection
with any such claim. The Company and Parent acknowledge that they have engaged SMH Capital Inc.
(formerly Xxxxxxx Xxxxxx Xxxxxx Inc.) as placement agent (the “Agent”) in connection with the sale
of the Securities, the fees for which are set forth on Schedule 3(g) attached hereto.
Other than the Agent, neither the Company nor Parent has engaged any placement agent or other agent
in connection with the sale of the Securities.
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(h) No Integrated Offering. None of Parent, its Subsidiaries, any of their
affiliates, or any Person acting on 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
require registration of any of the Securities under the 1933 Act or cause this offering of the
Securities to be integrated with prior offerings by Parent or the Company for purposes of any
registration requirement under the 1933 Act or any applicable stockholder approval provisions,
including, without limitation, under the rules and regulations of any exchange or automated
quotation system on which any of the securities of Parent or its Subsidiaries are listed or
designated. None of Parent, its Subsidiaries, their affiliates or any Person acting on their
behalf will take any action or steps referred to in the preceding sentence that would require
registration of any of the Securities under the 1933 Act or cause the offering of the Securities to
be integrated with other offerings for purposes of any registration requirements under the 1933 Act
or any applicable stockholder approval provisions.
(i) U.S. Real Property Holding Corporation. Neither the Company nor Parent is, nor
has it ever been, a U.S. real property holding corporation within the meaning of Section 897 of the
Internal Revenue Code of 1986, as amended, and the Company and Parent will so certify upon the
request of any Buyer.
(j) Application of Takeover Protections; Rights Agreement. Each of the Company and
Parent and its respective board of directors has 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
Articles of Incorporation or Parent’s Certificate of Incorporation or the laws of the jurisdiction
of its formation which is or could become applicable to any Buyer as a result of the transactions
contemplated by this Agreement, including, without limitation, the Company’s issuance of the
Debentures, Parent’s issuance of the Warrants and Warrants Shares and any Buyer’s ownership of the
Securities. Parent has not adopted a stockholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of Common Stock or a change in control of Parent.
(k) SEC Documents; Financial Statements. Parent has filed all reports, schedules,
forms, statements and other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the 1934 Act (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements, notes and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the “SEC Documents”). Parent
has delivered to each Buyer or its representatives true, correct and complete copies of the SEC
Documents not available on the XXXXX system. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they were made, not
misleading. As of their respective dates, the financial statements of Parent included in the SEC
Documents, as amended, complied in all material respects with applicable accounting requirements
and the published rules and regulations of the SEC with respect thereto. Such financial statements
have been prepared in
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accordance with generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial statements or the
notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all material respects
the financial position of Parent as of the dates thereof and the results of its operations and cash
flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments). For the fiscal month April 2007, CTI’s contributory earnings before interest,
taxes, depreciation and amortization (EBITDA) was $400,000, calculated in accordance with the
foregoing.
(l) Absence of Certain Changes. Except as disclosed in Parent’s Quarterly Report on
Form 10-QSB for the period ended February 28, 2007, since February 28, 2007, there has been no
material adverse change and no material adverse development in the business, assets, properties,
operations, condition (financial or otherwise), results of operations or prospects of Parent or its
Subsidiaries. Except as disclosed on Schedule 3(l), since February 28, 2007, Parent has not (i)
declared or paid any dividends, (ii) sold any assets or (iii) had capital expenditures,
individually or in the aggregate, in excess of $100,000, other than in the ordinary course of
business. None of Parent nor any of its Subsidiaries has taken any steps to seek protection
pursuant to any bankruptcy law nor does Parent nor any of its Subsidiaries have any knowledge or
reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings or any
actual knowledge of any fact which would reasonably lead a creditor to do so. Neither the Company
nor Parent is as of the date hereof, and after giving effect to the transactions contemplated
hereby to occur at the Closing, will be Insolvent (as defined below). For purposes of this Section
3(l), “Insolvent” means, with respect to the Company and all Guarantors on a consolidated basis (i)
the present fair saleable value of the Company’s or Parent’s assets, as applicable, is less than
the amount required to pay the Company’s or Parent’s total Indebtedness (as defined in Section
3(s)), as applicable, (ii) the present fair saleable value of the Company’s and Parent’s assets on
a consolidated basis is less than the amount required to pay the Company’s and Parent’s probable
liability on a consolidated basis on its existing debts as they become absolute and matured, (iii)
the Company or Parent, as applicable, intends to incur or believes that it will incur debts that
would be beyond its ability to pay as such debts mature or (iv) the Company or Parent, as
applicable, has unreasonably small capital with which to conduct the business in which it is
engaged as such business is now conducted and is proposed to be conducted.
(m) No Undisclosed Events, Liabilities, Developments or Circumstances. Except for the
transaction contemplated by the Transaction Documents, no event, liability, development or
circumstance has occurred or exists, or is contemplated to occur with respect to Parent, its
Subsidiaries or their respective business, properties, prospects, operations or financial
condition, that would be required to be disclosed by Parent under applicable securities laws on a
registration statement on Form S-1 filed with the SEC relating to an issuance and sale by Parent of
its Common Stock and which has not been publicly announced.
(n) Conduct of Business; Regulatory Permits. Neither Parent nor any of its
Subsidiaries is in violation of any term of or in default under its Certificate of Incorporation or
Articles of Incorporation, as the case may be, or Bylaws or other governing documents. Neither
Parent nor any of its Subsidiaries is in violation of any judgment, decree or order or any statute,
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ordinance, rule or regulation applicable to Parent or its Subsidiaries, or any of the rules,
regulations or requirements of the NASD OTC Bulletin Board (the “Principal Market”) applicable to
the Parent or its Subsidiaries, except such as would not have a Material Adverse Effect. During
the one (1)-year period prior to the date hereof, (i) the Common Stock has been traded on the
Principal Market or quoted on the “pink sheets” (the “Pink Sheets”), (ii) trading in the Common
Stock or quotation on the Pink Sheets has not been suspended by the SEC, the Principal Market or
the Pink Sheets and (iii) Parent has received no communication, written or oral, from the SEC or
the Principal Market regarding the suspension of trading of the Common Stock from the Principal
Market. Parent and its Subsidiaries possess all Governmental Approvals necessary to conduct their
respective businesses, and neither Parent nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate, authorization or
permit which, if revoked or modified, would have a Material Adverse Effect.
(o) Foreign Corrupt Practices. Neither Parent nor any of its Subsidiaries nor any
director, officer, agent, employee or other Person acting on behalf of Parent or any of its
Subsidiaries has, in the course of its actions for, or on behalf of, Parent or any of its
Subsidiaries (i) used any corporate funds for any unlawful contribution, gift, entertainment or
other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from corporate funds; (iii)
violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as
amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or employee.
(p) Xxxxxxxx-Xxxxx Act. Parent is in compliance with any and all applicable
requirements of the Xxxxxxxx-Xxxxx Act of 2002 that are effective as of the date hereof, and any
and all applicable rules and regulations promulgated by the SEC thereunder that are effective as of
the date hereof, except such as would not have a Material Adverse Effect.
(q) Transactions With Affiliates. Except as set forth in the SEC Documents filed at
least ten days prior to the date hereof, none of the officers, directors or employees of Parent or
any of its Subsidiaries is presently a party to any transaction with Parent or any of its
Subsidiaries (other than for ordinary course services as employees, officers or directors),
including any contract, agreement or other arrangement providing for the furnishing of services to
or by, providing for rental of real or personal property to or from, or otherwise requiring
payments to or from any such officer, director or employee or, to the knowledge of Parent or any of
its Subsidiaries, any corporation, partnership, trust or other entity in which any such officer,
director, or employee has a substantial interest or is an officer, director, trustee or partner.
(r) Equity Capitalization. As of the date hereof, the authorized capital stock of
Parent consists of 19,000,000 shares of common stock, $0.01 par value per share, of which, as of
the date hereof, 11,459,730 shares are issued and outstanding, and 1,000,000 shares of preferred
stock, $0.01 par value per share, of which 600,000 shares are designated Series A Preferred Stock,
301,594 of which were issued and outstanding on the date hereof. All of such outstanding shares of
Parent have been validly issued and are fully paid and nonassessable. Except as disclosed on
Schedule 3(r) or reflected in the SEC Documents: (i) none of Parent’s or the Company’s
share capital is subject to preemptive rights or any other similar rights or any
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liens or encumbrances suffered or permitted by Parent or the Company; (ii) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable
for, any share capital of Parent or any of its Subsidiaries, or contracts, commitments,
understandings or arrangements by which Parent or any of its Subsidiaries is or may become bound to
issue additional share capital of Parent or any of its Subsidiaries or options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities
or rights convertible into, or exercisable or exchangeable for, any share capital of Parent or any
of its Subsidiaries; (iii) there are no outstanding debt securities, notes, credit agreements,
credit facilities or other agreements, documents or instruments evidencing Indebtedness of Parent
or any of its Subsidiaries or by which Parent or any of its Subsidiaries is or may become bound;
(iv) there are no financing statements securing obligations in any material amounts, either singly
or in the aggregate, filed in connection with Parent or any of its Subsidiaries; (v) there are no
agreements or arrangements under which Parent or any of its Subsidiaries is obligated to register
the sale of any of its securities under the 1933 Act (except the Registration Rights Agreement);
(vi) there are no outstanding securities or instruments of Parent or any of its Subsidiaries which
contain any redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which Parent or any of its Subsidiaries is or may become bound to
redeem a security of Parent or any of its Subsidiaries; (vii) there are no securities or
instruments containing anti-dilution or similar provisions that will be triggered by the issuance
of the Securities; (viii) neither Parent nor any of its Subsidiaries has any stock appreciation
rights or “phantom stock” plans or agreements or any similar plan or agreement; and (ix) Parent and
its Subsidiaries have no liabilities or obligations required to be disclosed in the SEC Documents
but not so disclosed in the SEC Documents, other than those incurred in the ordinary course of
Parent’s or its Subsidiaries’ respective businesses. Schedule 3(r) contains true, correct
and complete copies of (i) the Company’s Articles of Incorporation, as amended and as in effect on
the date hereof (“Company’s Articles of Incorporation”), (ii) the Company’s Bylaws, as amended and
as in effect on the date hereof (“the Company’s Bylaws”), (iii) Parent’s Certificate of
Incorporation, as amended and as in effect on the date hereof (“Parent’s Certificate of
Incorporation”), and (iv) Parent’s Bylaws, as amended and as in effect on the date hereof
(“Parent’s Bylaws”).
(s) Indebtedness and Other Contracts. Except as disclosed in Schedule 3(s) or
reflected in the SEC Documents, neither Parent nor any of its Subsidiaries (i) has any
outstanding Indebtedness, (ii) is a party to any contract, agreement or instrument, the violation
of which, or default under which, by the other party(ies) to such contract, agreement or instrument
would result in a Material Adverse Effect, (iii) is in violation of any term of or in default under
any contract, agreement or instrument relating to any Indebtedness, or (iv) is a party to any
contract, agreement or instrument relating to any Indebtedness, the performance of which, in the
judgment of Parent’s officers, has or is expected to have a Material Adverse Effect, except as
otherwise disclosed in Schedule 3(s). Schedule 3(s) provides a list of the
outstanding Indebtedness, and the material terms of such Indebtedness are disclosed on the Form 8-K
filed by Parent on March 26, 2006. For purposes of this Agreement: (x) “Indebtedness” of any
Person means, without duplication (A) all indebtedness for borrowed money, (B) all monetary
obligations issued, undertaken or assumed as the deferred purchase price of property or services
(including, without limitation, “capital leases” in accordance with generally accepted accounting
principles) (other than trade payables entered into in the ordinary course of business), (C) all
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reimbursement or payment obligations with respect to letters of credit, surety bonds and other
similar instruments, (D) all monetary obligations evidenced by notes, bonds, Debentures or similar
instruments, including monetary obligations so evidenced incurred in connection with the
acquisition of property, assets or businesses, (E) all indebtedness created or arising under any
conditional sale or other title retention agreement, or incurred as financing, in either case with
respect to any property or assets acquired with the proceeds of such indebtedness (even though the
rights and remedies of the seller or bank under such agreement in the event of default are limited
to repossession or sale of such property), (F) all monetary obligations under any leasing or
similar arrangement which, in connection with generally accepted accounting principles,
consistently applied for the periods covered thereby, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage,
lien, pledge, charge, security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by any Person, even though the Person which owns
such assets or property has not assumed or become liable for the payment of such indebtedness, and
(H) all Contingent Obligations in respect of indebtedness or monetary obligations of others of the
kinds referred to in clauses (A) through (G) above; (y) “Contingent Obligation” means, as to any
Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to
any indebtedness, lease, dividend or other monetary obligation of another Person if the primary
purpose or intent of the Person incurring such liability, or the primary effect thereof, is to
provide assurance to the obligee of such liability that such liability will be paid or discharged,
or that any agreements relating thereto will be complied with, or that the holders of such
liability will be protected (in whole or in part) against loss with respect thereto; and (z)
“Person” means an individual, a limited liability company, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or any department or agency
thereof.
(t) Absence of Litigation. Except as set forth in Schedule 3(t) or reflected in
the SEC Documents, there is no action, suit, proceeding, inquiry or investigation before or by
any court, public board, government agency (including the SEC), self-regulatory organization or
body pending or, to the knowledge of Parent or the Company, threatened against or affecting Parent,
the Company, the Common Stock or any of Parent’s Subsidiaries or any of Parent’s or its
Subsidiaries’ officers or directors, which would be required to be disclosed by Parent in its 1934
Act filings.
(u) Insurance. Parent and each of its Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such amounts as management
of Parent believes to be prudent and customary in the businesses in which the Parent and its
Subsidiaries are engaged. Neither Parent nor any such Subsidiary has been refused any insurance
coverage sought or applied for and neither Parent nor any such 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 at
a cost that would not have a Material Adverse Effect.
(v) Employee Relations. Neither Parent nor any of its Subsidiaries is a party to any
collective bargaining agreement or employs any member of a union. Parent and its Subsidiaries
believe that their relations with their employees are good. No executive officer of
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Parent or any of its Subsidiaries has notified Parent or any such Subsidiary that such officer
intends to leave Parent or any such Subsidiary or otherwise terminate such officer’s employment
with Parent or any such Subsidiary. No executive officer of Parent or any of its Subsidiaries, to
the knowledge of Parent or any such Subsidiary, is in violation of any material term of any
employment contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive covenant. Parent
and its Subsidiaries are in compliance with all federal, state, local and foreign laws and
regulations respecting labor, employment and employment practices and benefits, terms and
conditions of employment and wages and hours, except where failure to be in compliance would not,
either individually or in the aggregate, reasonably be expected to result in a Material Adverse
Effect.
(w) Title. Parent and its Subsidiaries have good and marketable title to all real
property and good and marketable title to all personal property owned by them which is material to
the business of Parent and its Subsidiaries, in each case free and clear of all liens, encumbrances
and defects except Permitted Liens (as defined in the Debentures) and such as do not materially
affect the value of such property and do not interfere with the use made and proposed to be made of
such property by Parent and any of its Subsidiaries. Any real property and facilities held under
lease by Parent and any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and facilities by Parent and its Subsidiaries.
(x) Intellectual Property Rights. Parent and its Subsidiaries own or possess adequate
rights or licenses to use all trademarks, trade names, service marks, service xxxx registrations,
service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and other intellectual property rights (“Intellectual Property
Rights”) necessary to conduct their respective businesses, taken as a whole, as now conducted.
None of Parent’s or any of its Subsidiaries’ Intellectual Property Rights have expired or
terminated, or are expected to expire or terminate, within any tine frame that would materially
affect the conduct of their respective business, taken as a whole. Neither Parent nor the Company
has any knowledge of any infringement by Parent or its Subsidiaries of Intellectual Property Rights
of others. There is no claim, action or proceeding being made or brought, or to the knowledge of
Parent or the Company, being threatened, against Parent or its Subsidiaries regarding its
Intellectual Property Rights. Each of Parent and the Company is unaware of any facts or
circumstances which might give rise to any of the foregoing infringements or claims, actions or
proceedings. Parent and its Subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of all of their intellectual properties.
(y) Environmental Laws. Parent and each of its Subsidiaries (i) are in compliance
with any and all Environmental Laws (as hereinafter defined), (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 where, in each of the foregoing clauses (i), (ii) and (iii), the failure to so
comply could be reasonably expected to have, individually or in the aggregate, a Material Adverse
Effect. The term “Environmental Laws” means all federal, state, local or foreign laws relating to
pollution or protection of human health or the environment (including,
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without limitation, ambient air, surface water, groundwater, land surface or subsurface
strata), including, without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous substances or
wastes (collectively, “Hazardous Materials”) into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations
issued, entered, promulgated or approved thereunder.
(z) Subsidiary Rights. Parent or one of its Subsidiaries has the unrestricted right
to vote, and (subject to limitations imposed by applicable law) to receive dividends and
distributions on, all capital securities of its Subsidiaries as owned by Parent or such Subsidiary.
(aa) Investment Company. Neither the Company nor Parent is, or is an affiliate of, an
“investment company” within the meaning of the Investment Company Act of 1940, as amended.
(bb) Tax Status. Parent and each of its Subsidiaries (i) has made or filed all
foreign, federal and state income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments
and charges that are material in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and (iii) has set aside on its books
provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to
which such returns, reports or declarations apply. There are no unpaid taxes in any material
amount claimed to be due by the taxing authority of any jurisdiction, and the officers of Parent
and the Company know of no basis for any such claim.
(cc) Off Balance Sheet Arrangements. There is no transaction, arrangement, or other
relationship between Parent and an unconsolidated or other off balance sheet entity that is
required to be disclosed by Parent in its 1934 Act filings and is not so disclosed or that
otherwise would be reasonably likely to have a Material Adverse Effect.
(dd) Ranking of Debentures. Except as permitted by the Debentures, no Indebtedness of
the Company will rank senior to or pari passu with the Debentures in right of payment, whether with
respect to payment of redemptions, interest, damages or upon liquidation or dissolution or
otherwise.
(ee) Transfer Taxes. On the Closing Date, all stock transfer or other taxes (other
than income or similar taxes) which are required to be paid in connection with the sale and
transfer of the Securities to be sold to each Buyer hereunder will be, or will have been, fully
paid or provided for by the Company or Parent, as applicable, and all laws imposing such taxes will
be or will have been complied with.
(ff) Manipulation of Price. Neither Parent nor the Company has, 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 Parent or the
Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased,
or
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paid any compensation for soliciting purchases of, any of the Securities (except for customary
placement fees payable in connection with this transaction), or (iii) paid or agreed to pay to any
Person any compensation for soliciting another to purchase any other securities of Parent or the
Company (except for customary placement fees payable in connection with this transaction).
(gg) Disclosure. Each of Parent and the Company understands and confirms that each
Buyer will rely on the foregoing representations in effecting transactions in securities of Parent
and the Company. All disclosure provided to the Buyers regarding Parent, the Company, their
respective businesses and the transactions contemplated hereby, including the Schedules to this
Agreement, furnished by or on behalf of Parent and the Company is true and correct and does not
contain any untrue statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in the light of the circumstances under which they were
made, not misleading. Each press release issued by Parent and the Company did not at the time of
release contain any untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading. No event or circumstance has occurred or
information exists with respect to the Parent or any of its Subsidiaries or its or their business,
properties, prospects, operations or financial conditions, which, under applicable law, rule or
regulation, requires public disclosure or announcement by Parent or any of its Subsidiaries but
which has not been so publicly announced or disclosed, except for information that will be
contained within the Parent’s next due report under the 1934 Act and information relative to this
transaction.
(4) COVENANTS.
(a) Commercially Reasonable Efforts. Each party shall use commercially reasonable
efforts timely to satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.
(b) Form D and Blue Sky. Each of the Company and Parent agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy thereof to each
Buyer promptly after such filing. Each of the Company and Parent shall, on or before the Closing
Date, take such action as the Company and Parent shall reasonably determine is necessary in order
to obtain an exemption for or to qualify the Securities for sale to the Buyers at the Closing
pursuant to this Agreement under applicable securities or “Blue Sky” laws of the states of the
United States (or to obtain an exemption from such qualification), and shall provide evidence of
any such action so taken to the Buyers on or prior to the Closing Date. Each of the Company and
Parent shall make all filings and reports relating to the offer and sale of the Securities required
under applicable securities or “Blue Sky” laws of the states of the United States following the
Closing Date.
(c) Reporting Status. Until the date on which the Buyers shall have sold all the
Warrant Shares and the Debentures are not outstanding (the “Reporting Period”), Parent shall file
all reports required to be filed with the SEC pursuant to the 1934 Act, and Parent shall not
terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act
or the rules and regulations thereunder would otherwise permit such termination.
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(d) Use of Proceeds. The Company and Parent will use the proceeds from the sale of
the Securities for working capital. No proceeds from the sale of the Securities will be used to
repay any Indebtedness.
(e) Financial Information. Parent agrees to send the following to each Buyer during
the Reporting Period: (i) unless filed with the SEC through XXXXX and available to the public
through the XXXXX system, within three business days after the filing thereof with the SEC, a copy
of all Annual Reports on Form 10-K or 10-KSB, any interim reports or any consolidated balance
sheets, income statements, stockholders’ equity statements and/or cash flow statements for any
period other than annual, any Current Reports on Form 8-K and any registration statements (other
than on Form S-8) or amendments filed pursuant to the 1933 Act of Parent, and (ii) copies of any
notices and other information made available or given to the stockholders of Parent generally,
contemporaneously with the making available or giving thereof to the stockholders.
(f) Listing. To the extent the Company’s Registrable Securities (as defined in the
Registration Rights Agreement) are listed upon a national securities exchange or automated
quotation system that provides for the listing of securities, Parent shall promptly secure the
listing of all of the Registrable Securities upon each national securities exchange and automated
quotation system, if any, upon which the Common Stock is then listed (subject to official notice of
issuance) and shall maintain such listing of all Registrable Securities from time to time issuable
under the terms of the Transaction Documents. Parent shall meet its obligations to maintain the
Common Stock’s authorization for quotation on the Principal Market. Parent shall pay all fees and
expenses in connection with satisfying its obligations under this Section 4(f).
(g) Fees. Parent shall reimburse the Buyers or their designee(s) for reasonable and
documented costs and expenses incurred in connection with the transactions contemplated by the
Transaction Documents (including reasonable legal fees and disbursements in connection therewith,
documentation and implementation of the transactions contemplated by the Transaction Documents and
due diligence in connection therewith), which amount shall be withheld by Buyers from the pro rata
portion of the Purchase Price paid by such Buyer on each Closing Date and additional reasonable
legal fees incurred post-closing in connection with perfecting Buyers’ security interest and any
additional filing or recording fees in connection therewith. Parent shall be responsible for the
payment of, and shall pay, any placement agent’s fees, financial advisory fees, or broker’s
commissions (other than for Persons engaged by any Buyers or their investment advisors) relating to
or arising out of the transactions contemplated hereby (including, without limitation, the Summary
of Terms and Conditions), and shall hold each Buyer harmless against, any liability, loss or
expense (including, without limitation, reasonable attorneys’ fees and out-of-pocket expenses)
arising in connection with any claim relating to any such payment.
(h) Pledge of Securities. Each of Parent and the Company acknowledges and agrees that
the Securities may be pledged by Buyer in connection with a bona fide margin agreement or other
loan or financing arrangement that is secured by the Securities. The pledge of Securities shall
not be deemed to be a transfer, sale or assignment of the Securities hereunder, and no Buyer shall
be required to provide Parent or the Company with any notice thereof or otherwise make any delivery
to Parent or the Company pursuant to this Agreement or any other
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Transaction Document, including, without limitation, Section 2(f) hereof unless required in
connection with the registration of the Securities or by applicable law. Each of Parent and the
Company hereby agrees to execute and deliver such documentation as a pledgee of the Securities may
reasonably request in connection with a pledge of the Securities to such pledgee by a Buyer.
(i) Disclosure of Transactions and Other Material Information. On or before 8:30
a.m., New York City time, not later than the fourth business day following the date of this
Agreement, Parent shall file a Current Report on Form 8-K describing the terms of the transactions
contemplated by the Transaction Documents in the form required by the 1934 Act and attaching the
material Transaction Documents, including, without limitation, this Agreement, the form of
Debentures and the Registration Rights Agreement) (including all attachments, the “8-K Filing”).
Any material non-public information provided by Parent and/or the Company to Buyer in connection
with this transaction shall be disclosed by Parent in an 8-K Filing by the earlier of (A) thirty
(30) Business Days of the date hereof, and (B) four (4) Business Days following the consummation of
an equity offering by the Parent. From and after the filing of such 8-K Filing with the SEC,
Parent represents and acknowledges that no Buyer shall be in possession of any material, nonpublic
information received from Parent or any of its Subsidiaries, or any of their respective officers,
directors, employees or agents, that is not disclosed in the 8-K Filing. Parent shall not, and
shall cause each of its Subsidiaries and its and each of their respective officers, directors,
employees and agents not to, provide any Buyer with any material, nonpublic information regarding
Parent or any of its Subsidiaries from and after the filing of the 8-K Filing with the SEC without
the express written consent of such Buyer. In the event of a breach of the foregoing covenant by
Parent, any of its Subsidiaries, or any of its or their respective officers, directors, employees
and agents, in addition to any other remedy provided herein or in the Transaction Documents, a
Buyer may, but shall not be obligated to, notify Parent of such breach and the material, nonpublic
information the receipt of which resulted in such breach. Within two business days of receipt of
such notice, Parent shall either (a) deliver a notice to such Buyer certifying such material,
non-public information has already been publicly disclosed by Parent or (b) make a public
disclosure, in the form of a press release, public advertisement, Form 8-K, or otherwise, of such
material, nonpublic information. Subject to the foregoing, neither Parent, its Subsidiaries nor
any Buyer shall issue any press releases or any other public statements with respect to the
transactions contemplated hereby; provided, however, that Parent shall be entitled, without the
prior approval of any Buyer, to make any press release or other public disclosure with respect to
such transactions (i) in substantial conformity with the 8-K Filing and contemporaneously therewith
and (ii) as is required by applicable law and regulations (provided that in the case of clause (i)
each Buyer shall be consulted by Parent in connection with any such press release or other public
disclosure prior to its release). Without the prior written consent of any applicable Buyer,
neither Parent nor the Company shall disclose the name of any Buyer or its affiliates in any
filing, announcement, release or otherwise except in the 8-K Filing or other required SEC filing or
report, or as otherwise may be required by law.
(j) Corporate Existence. So long as any Buyer beneficially owns any Securities,
Parent and the Company shall not be party to any Fundamental Transaction (as defined in the
Debentures) unless each of Parent and the Company is in compliance with the applicable provisions
governing Fundamental Transactions set forth in the Debentures.
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(k) Conduct of Business. The business of Parent and its Subsidiaries shall not be
conducted in violation of any law, ordinance or regulation of any Governmental Authority, except
where such violations would not result, either individually or in the aggregate, in a Material
Adverse Effect.
(l) Additional Issuances of Securities.
(i) For purposes of this Section 4(o), the following definitions shall apply.
(a) “Convertible Securities” means any stock or securities (other than Options)
convertible into or exercisable or exchangeable for shares of Common Stock.
(b) “Options” means any rights, warrants or options to subscribe for or purchase shares
of Common Stock or Convertible Securities.
(c) “Common Stock Equivalents” means, collectively, Options and Convertible Securities.
(d) “Holders” means the Buyers and any transferee of all or any part of the Debentures.
(ii) As long as any Debentures are outstanding, Parent shall not, directly or indirectly,
offer, sell, grant any option to purchase, or otherwise dispose of (or announce any offer, sale,
grant or any option to purchase or other disposition of) any of its or its Subsidiaries’ equity or
equity equivalent securities, including without limitation any debt, preferred stock or other
instrument or security that is, at any time during its life, and under any circumstance,
convertible into or exchangeable or exercisable for shares of Common Stock or Common Stock
Equivalents or debt securities (any such offer, sale, grant, disposition or announcement being
referred to as a “Subsequent Placement”) unless Parent shall have first complied with this Section
4(o)(ii).
(a) The Parent shall deliver to Holders a written notice (the “Offer Notice”) of any
proposed or intended issuance or sale or exchange (the “Offer”) of the securities being
offered (the “Offered Securities”) in a Subsequent Placement, which Offer Notice shall (w)
identify and describe the Offered Securities, (x) describe the price and other terms upon
which they are to be issued, sold or exchanged, and the number or amount of the Offered
Securities to be issued, sold or exchanged, (y) identify the Persons (if known) to which or
with which the Offered Securities are to be offered, issued, sold or exchanged and (z) offer
to issue and sell to or exchange with Holders the Offered Securities, allocated among such
Holders (a) based on such Holder’s allocable pro rata portion of the aggregate principal
amount of Debentures then held, and (b) with respect to each Holder that elects to purchase
its pro rata portion of such Offered Securities, any additional portion of the Offered
Securities attributable to the pro rata portion of other Holders as such Holder shall
indicate it will purchase or acquire should the other Holders subscribe for less than their
pro rata portions (the “Undersubscription Amount”). The Holders shall have the right to
participate as set forth above in any
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Subsequent Placements to the extent of 100% for any Subsequent Placement. For purposes
of this Agreement, each Holder’s allocable pro rata portion of any Offered Securities shall
be defined as the “Allocable Portion.”
(b) To accept an Offer, in whole or in part, a Holder must deliver a written notice to
the Parent prior to the end of the tenth business day after a Holder’s receipt of the Offer
Notice (the “Offer Period”), setting forth the portion of such Holder’s Allocable Portion
that such Buyer elects to purchase and, if such Holder shall elect to purchase all of its
Allocable Portion, the Undersubscription Amount, if any, that such Holder elects to purchase
(the “Notice of Acceptance”). If the Allocable Portions subscribed for by all Holders are
less than the total of all of the Allocable Portions, then each Holder who has set forth an
Undersubscription Amount in its Notice of Acceptance shall be entitled to purchase, in
addition to the Allocable Portions subscribed for, the Undersubscription Amount it has
subscribed for; provided, however, that if the Undersubscription Amounts subscribed for
exceed the difference between the total of all the Allocable Portions and the Allocable
Portions subscribed for (the “Available Undersubscription Amount”), each Holder who has
subscribed for any Undersubscription Amount shall be entitled to purchase only that portion
of the Available Undersubscription Amount as the Allocable Portion of such Holder bears to
the total Allocable Portions of all Holders that have subscribed for Undersubscription
Amounts, subject to rounding by the Parent to the extent its deems reasonably necessary.
(c) The Parent shall have 90 days from the expiration of the Offer Period above to
offer, issue, sell or exchange all or any part of such Offered Securities as to which a
Notice of Acceptance has not been given by a Holder (the “Refused Securities”), but only to
the offerees described in the Offer Notice (if so described therein) and only upon terms and
conditions (including, without limitation, unit prices and interest rates) that are not more
favorable to the acquiring Person or Persons or less favorable to the Parent than those set
forth in the Offer Notice.
(d) In the event the Parent shall propose to sell less than all the Refused Securities
(any such sale to be in the manner and on the terms specified in Section 4(o)(ii)(3) above),
then a Holder may, at its sole option and in its sole discretion, reduce the number or
amount of the Offered Securities specified in its Notice of Acceptance to an amount that
shall be not less than the number or amount of the Offered Securities that such Holder
elected to purchase pursuant to Section 4(o)(ii)(2) above multiplied by a fraction, (i) the
numerator of which shall be the number or amount of Offered Securities the Parent actually
proposes to issue, sell or exchange (including Offered Securities to be issued or sold to
such Holder pursuant to Section 4(o)(ii)(3) above prior to such reduction) and (ii) the
denominator of which shall be the original number or amount of the Offered Securities. In
the event that a Holder so elects to reduce the number or amount of Offered Securities
specified in its Notice of Acceptance, the Company may not issue, sell or exchange more than
the reduced number or amount of the Offered Securities unless and until such securities have
again been offered to such Holder in accordance with Section 4(o)(ii)(1) above.
- 20 -
(e) Upon the closing of the issuance, sale or exchange of all or less than all of the
Offered Securities, the purchasing Holder’s shall acquire from the Parent, and the Parent
shall issue to the purchasing Holder, the number or amount of Offered Securities specified
in the Notices of Acceptance, as reduced pursuant to Section 4(o)(ii)(4) above if the Holder
has so elected, upon the terms and conditions specified in the Offer Notice. The purchase
by the Holder of any Offered Securities is subject in all cases to the preparation,
execution and delivery by the Company and the purchasing Holder of a purchase agreement
relating to such Offered Securities reasonably satisfactory in form and substance to the
purchasing Holders and their respective counsel.
(iii) Any Offered Securities not acquired by the Holders or other Persons in accordance with
Section 4(p)(ii)(3) above may not be issued, sold or exchanged until they are again offered to the
Holders under the procedures specified in this Agreement.
(iv) The restrictions contained in subsection (ii) of this Section 4(o) shall not apply in
connection with the issuance of: (A) any Common Stock Equivalents issued pursuant to a employee
benefit plan which has been approved by the Board of Directors of Parent, (B) any security issued
in a bona fide underwritten public offering by Parent or any of its Subsidiaries, (C) any security
issued in connection with any acquisition by the Parent, whether through an acquisition of stock or
a merger of any business or assets the primary purpose of which is not to raise equity capital, (D)
any security issued in connection with a private placement to accredited investors the proceeds of
which shall be used to pay all amounts owed under the Debentures, or (E) any Common Stock
Equivalents issued pursuant to a commercial or strategic transaction (that is not a Fundamental
Transaction) the primary purpose of which is not to raise equity capital.
(m) Allocation of Purchase Price for Federal Income Tax Purposes. In accordance with
Treasury regulations section 1.1273-2(h), the Company and Parent shall allocate the Purchase Price
between the Debentures and the Warrants based upon their relative fair market values. In making
such allocation, the parties hereto shall agree, based upon the advice of their financial advisors,
upon the appropriate methodology to be used for determining the relative fair market values of the
Debentures and the Warrants.
(n) U.S. Real Property Holding Corporation. For as long as the Buyers hold any
Securities, and unless otherwise agreed to by the Buyers who own Securities at the relevant time,
the Parent will not cause its shares to be U.S. real property interests within the meaning of
Section 897 of the Internal Revenue Code of 1986, as amended.
(o) Registration Rights. Parent agrees that in the event it completes a financing or
refinancing transaction (or related series thereof) of either debt or equity by the Company and/or
the Parent, it shall not grant to the purchasers of such debt or equity securities (the “Subsequent
Purchasers”) registration rights that are senior to or more favorable than those set forth in the
Registration Rights Agreement unless the Buyers are granted registration rights on parity with the
registration rights conferred upon such Subsequent Purchasers, provided, however, that each Buyer’s
right to be granted such registration rights shall be conditioned on such Buyer’s agreement to
terminate its rights under the Registration Rights Agreement.
- 21 -
(5) REGISTERS; TRANSFER AGENT INSTRUCTIONS.
(a) Registers. The Company shall maintain at its principal executive offices (or such
other office or agency of the Company as it may designate by notice to each holder of Securities),
a register for the Debentures in which the Company shall record the name and address of the Person
in whose name the Debentures has been issued (including the name and address of each transferee)
and the principal amount of the Debentures held by such Person. The Company shall keep the
register open and available at all times during business hours for inspection of any Buyer or its
legal representatives. Parent shall maintain at its principal executive offices (or such other
office or agency of the Company as it may designate by notice to each holder of Securities), a
register for the Warrants in which the Company shall record the name and address of the Person in
whose name the Warrants have been issued (including the name and address of each transferee) and
the number of Warrants held by such Person and the number of Warrant Shares issuable upon exercise
of the Warrants held by such Person. Parent shall keep the register open and available at all
times during business hours for inspection of any Buyer or its legal representatives.
(b) Transfer Agent Instructions. Parent shall issue irrevocable instructions to its
transfer agent, and any subsequent transfer agent, to issue certificates to the applicable balance
accounts at The Depository Trust Company (“DTC”), registered in the name of each Buyer or its
respective nominee(s), for the Warrant Shares, in such amounts as specified from time to time by
each Buyer to the Parent upon exercise of the Warrants in the form of Exhibit G attached
hereto (the “Irrevocable Transfer Agent Instructions”). Parent warrants that no instruction other
than the Irrevocable Transfer Agent Instructions referred to in this Section 5(b), and stop
transfer instructions to give effect to Sections 2(f) and 2(g) hereof, will be given by Parent to
its transfer agent with respect to the Securities, and that the Securities shall otherwise be
freely transferable on the books and records of Parent, as applicable, and to the extent provided
in this Agreement and the other Transaction Documents. If Buyer effects a sale, assignment or
transfer of Securities in accordance with Sections 2(f) and 2(g), Parent shall permit the transfer
and shall promptly instruct its transfer agent to issue one or more certificates to the applicable
balance accounts at DTC in such name and in such denominations as specified by such Buyer to effect
such sale, transfer or assignment to be delivered within three business days. In the event that
such sale, assignment or transfer involves Securities sold, assigned or transferred pursuant to an
effective registration statement or pursuant to Rule 144, the transfer agent shall issue such
Securities to such Buyer, assignee or transferee, as the case may be, without any restrictive
legend. Parent acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to a Buyer. Accordingly, Parent acknowledges that the remedy at law for a breach
of its obligations under this Section 5(b) will be inadequate and agrees, in the event of a breach
or threatened breach by Parent of the provisions of this Section 5(b), that a Buyer shall be
entitled, in addition to all other available remedies, to seek an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.
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(6) CONDITIONS TO THE COMPANY’S AND PARENT’S OBLIGATIONS TO SELL.
(a) The obligations of the Company and Parent hereunder to issue and sell the Debentures and
the Warrant to each Buyer at the Initial Closing or the Second Closing, as the case may be (each, a
“Closing”), is subject to the satisfaction, at or before the Closing Date of each of the following
conditions, provided that these conditions are for the Company’s and Parent’s sole benefit and may
be waived by the Company and Parent at any time in their sole discretion by providing each Buyer
with prior written notice thereof:
(i) Such Buyer shall have executed each of the Transaction Documents to which it is a party
and delivered the same to the Company and Parent.
(ii) Such Buyer shall have delivered to the Company its pro rata portion of the Initial
Purchase Price for the Debenture and Warrants being purchased by such Buyer at the Initial Closing
by wire transfer of immediately available funds pursuant to the wire instructions provided by the
Company.
(iii) Such Buyer shall have delivered to the Company its pro rata portion of the Second
Purchase Price for the Debenture being purchased by such Buyer at the Second Closing by wire
transfer of immediately available funds pursuant to the wire instructions provided by the Company.
(iv) The representations and warranties of such Buyer shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though made at that time
(except for representations and warranties that speak as of a specific date, which shall be true
and correct as of such specific date), and such Buyer shall have performed, satisfied and complied
in all material respects with the covenants, agreements and conditions required by this Agreement
to be performed, satisfied or complied with by such Buyer at or prior to the Closing Date.
(7) CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE.
(a) The obligation of each Buyer hereunder to purchase the Debentures and the Warrants at the
Initial Closing and the Second Closing, as the case may be, is subject to the satisfaction, at or
before the Closing Date, of each of the following conditions, provided that these conditions are
for each Buyer’s sole benefit and may be waived by such Buyer at any time in its sole discretion by
providing the Company and Parent with prior written notice thereof:
(i) The Company and Parent shall have executed and delivered to Buyer (A) each of the
Transaction Documents, (B) the Debentures being purchased by such Buyer at such Closing pursuant to
this Agreement and (C) the Warrants being purchased by such Buyer at such Closing pursuant to this
Agreement.
(ii) Such Buyer shall have received the opinion of Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, P.C., the
Company’s and Parent’s outside counsel, dated as of the Closing Date, in substantially the form of
Exhibit H attached hereto, and, with respect to the Second
- 23 -
Closing, such Buyer shall have received an additional “bring-down” opinion, in a form
reasonably acceptable to such Buyer, dated as of the Second Closing Date.
(iii) Parent shall have delivered to such Buyer a copy of the Irrevocable Transfer Agent
Instructions, in the form of Exhibit G attached hereto, which instructions shall have been
delivered to and acknowledged in writing by Parent’s transfer agent.
(iv) Parent shall have delivered to such Buyer a certificate evidencing the formation and good
standing of Parent and each of its Subsidiaries in such entity’s jurisdiction of formation issued
by the Secretary of State (or comparable office) of such jurisdiction, as of a date reasonably
proximate to the Closing Date.
(v) The Company shall have delivered to such Buyer a certificate evidencing the Company’s
qualification as a foreign corporation and good standing issued by the Secretary of State (or
comparable office) of each jurisdiction in which the Company conducts business, as of a date
reasonably proximate to the Closing Date.
(vi) Parent shall have delivered to such Buyer a certificate evidencing Parent’s qualification
as a foreign corporation and good standing issued by the Secretary of State (or comparable office)
of each jurisdiction in which the Parent conducts business, as of a date reasonably proximate to
the Closing Date.
(vii) The Company shall have delivered to such Buyer a certified copy of the Company’s
Articles of Incorporation as certified by the Secretary of State of the State of California
reasonably proximate to the Closing Date.
(viii) Parent shall have delivered to such Buyer a certified copy of Parent’s Certificate of
Incorporation as certified by the Secretary of State of the State of Delaware reasonably proximate
to the Closing Date.
(ix) The Company shall have delivered to such Buyer a certificate, executed by the Secretary
of the Company and dated as of the Closing Date, as to (i) the resolutions consistent with Section
3(b) as adopted by the Company’s Board of Directors in a form reasonably acceptable to such Buyer,
(ii) the Company’s Articles of Incorporation and (iii) the Company’s Bylaws, each as in effect at
the Closing, in the form attached hereto as Exhibit I.
(x) Parent shall have delivered to such Buyer a certificate, executed by the Secretary of
Parent and dated as of the Closing Date, as to (i) the resolutions consistent with Section 3(b) as
adopted by Parent’s Board of Directors in a form reasonably acceptable to Buyer, (ii) Parent’s
Certificate of Incorporation and (iii) Parent’s Bylaws, each as in effect at the Closing, in the
form attached hereto as Exhibit I.
(xi) The representations and warranties of the Company and Parent shall be true and correct as
of the date when made and as of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date, which shall be true and correct as
of such specific date), and the Company and Parent shall have performed, satisfied and complied in
all respects with the covenants, agreements and conditions required by the Transaction Documents to
be performed, satisfied or complied with by the Company and
- 24 -
Parent at or prior to the Closing Date. Such Buyer shall have received certificates by the
Chief Executive Officers of the Company and Parent, dated as of the Initial Closing Date and the
Second Closing Date, as applicable, to the foregoing effect and as to such other matters as may be
reasonably requested by Buyer in the form attached hereto as Exhibit J.
(xii) Parent shall have delivered to such Buyer a letter from Parent’s transfer agent
certifying the number of shares of Common Stock outstanding as of a date within five days of the
Closing Date.
(xiii) Parent or its Subsidiaries will not be in violation of any of the rules, regulations or
requirements of the Principal Market applicable to the Parent or its Subsidiaries.
(xiv) The Company and Parent shall have obtained all governmental, regulatory or third-party
consents and approvals, if any, necessary for the sale of the Securities.
(xv) Parent shall have obtained and delivered to such Buyer searches of Uniform Commercial
Code filings in the jurisdictions of formation of Parent and its Subsidiaries, the jurisdiction of
the chief executive offices of Parent and its Subsidiaries and each jurisdiction where any
Collateral (as defined in the Security Agreement) is located or where a filing would need to be
made in order to perfect the Buyer’s security interest in the Collateral, copies of the financing
statements on file in such jurisdictions and evidence that no Liens exist other than Permitted
Liens.
(xvi) Parent and its Subsidiaries shall have executed and delivered to such Buyer UCC
financing statements for each appropriate jurisdiction as is necessary, in such Buyer’s sole
discretion, to perfect such Buyer’s security interest in the Collateral.
(xvii) The lenders listed on Schedule 3(s) shall have executed and delivered to such
Buyer a subordination agreement in the form attached hereto as Exhibit K.
(xviii) At the Second Closing, Parent and its Subsidiaries shall have delivered evidence of
the approval by Pennsylvania Public Utility Commission of the execution and delivery of and
performance under the Guaranty and the Security Agreement by Parent and its Subsidiaries,
including, without limitation, of the pledge of the capital stock in the Subsidiaries.
(xix) At the Second Closing, such Buyer shall have received an opinion of the Company’s and
its Subsidiaries’ outside Pennsylvania counsel dated as of such Closing Date, in form and substance
satisfactory to such Buyer in its sole discretion.
(xx) The Company and Parent shall have delivered to such Buyer such other documents relating
to the transactions contemplated by this Agreement as such Buyer or its counsel may reasonably
request.
(8) TERMINATION. In the event that the Initial Closing or the Second Closing, as the
case may be, shall not have occurred with respect to a Buyer on or before five business days from
the Initial Closing Date or Second Closing Date, as the case may be, due to the Company’s
- 25 -
or Parent’s or such Buyer’s failure to satisfy the conditions set forth in Sections 6 and 7
above (and the nonbreaching party’s does not consent to waive such unsatisfied condition(s)), the
nonbreaching party shall have the option to terminate this Agreement with respect to such breaching
party at the close of business on such date without liability of any party to any other party;
provided, however, if this Agreement is terminated pursuant to this Section 8, the Company and
Parent shall remain obligated to reimburse the non-breaching Buyers for the expenses described in
Section 4(g) above.
(9) MISCELLANEOUS.
(a) Governing Law; Jurisdiction; Jury Trial. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of New York, without giving effect to any choice of law or conflict of
law provision or rule (whether of the State of New York or any other jurisdictions) that would
cause the application of the laws of any jurisdictions other than the State 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, 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 brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by mailing a copy thereof
to such party at the address for such 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. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
(b) Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to each other party;
provided that a facsimile signature shall be considered due execution and shall be binding upon the
signatory thereto with the same force and effect as if the signature were an original, not a
facsimile signature.
(c) Headings. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.
(d) Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity
or enforceability of any provision of this Agreement in any other jurisdiction.
- 26 -
(e) Entire Agreement; Amendments. This Agreement and the other Transaction Documents
supersede all other prior oral or written agreements between the Buyers, the Company, Parent, their
affiliates and Persons acting on their behalf with respect to the matters discussed herein, and
this Agreement, the other Transaction Documents and the instruments referenced herein and therein
contain the entire understanding of the parties with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, none of the Company, Parent or any
Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No
provision of this Agreement may be amended other than by an instrument in writing signed by the
Company, Parent and the holders of at least majority of the aggregate principal amount of
Debentures issued hereunder (the “Majority Holders”), and any amendment to this Agreement made in
conformity with the provisions of this Section 9(e) shall be binding on all Buyers and all holders
of Securities, as applicable. No provision hereof may be waived other than by an instrument in
writing signed by the party against whom enforcement is sought. No such amendment shall be
effective to the extent that it applies to less than all of the holders of the applicable
Securities then outstanding. 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 also is offered to all of the parties to the Transaction Documents or holders of
Debentures, as the case may be. Neither the Company nor Parent has, directly or indirectly, made
any agreements with Buyer relating to the terms or conditions of the transactions contemplated by
the Transaction Documents except as set forth in the Transaction Documents. Without limiting the
foregoing, each of the Company and Parent confirms that, except as set forth in this Agreement, no
Buyer has made any commitment or promise or has any other obligation to provide any financing to
the Company or Parent or otherwise.
(f) Notices. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and will be deemed to
have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by
facsimile (provided confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one business day after deposit with an overnight
courier service, in each case properly addressed to the party to receive the same. The addresses
and facsimile numbers for such communications shall be:
If to the Company:
StarVox Communications, Inc.
0000 Xxxxxxx Xxxxxxx
Xxx Xxxx, Xxxxxxxxxx 00000-0000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxx Xxxxxx
0000 Xxxxxxx Xxxxxxx
Xxx Xxxx, Xxxxxxxxxx 00000-0000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxx Xxxxxx
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With a copy (for informational purposes only) to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, Professional Corporation
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000-0000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxx Xxxxxx, Esq.
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000-0000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxx Xxxxxx, Esq.
If to Parent:
U.S. Wireless Data, Inc.
0000 Xxxxxxx Xxxxxxx
Xxx Xxxx, Xxxxxxxxxx 00000-0000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxx Xxxxxx
0000 Xxxxxxx Xxxxxxx
Xxx Xxxx, Xxxxxxxxxx 00000-0000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxx Xxxxxx
With a copy (for informational purposes only) to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, Professional Corporation
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000-0000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxx Xxxxxx, Esq.
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000-0000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxx Xxxxxx, Esq.
If to the Transfer Agent:
American Stock Transfer & Trust Co.
00 Xxxxxx Xxxx
Xxx Xxxx, XX 00000
Telephone:
Facsimile:
Attention:
00 Xxxxxx Xxxx
Xxx Xxxx, XX 00000
Telephone:
Facsimile:
Attention:
If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers, with copies to such Buyer’s representatives as set forth on the Schedule of
Buyers,
or to such other address and/or facsimile number and/or to the attention of such other Person
as the recipient party has specified by written notice given to each other party five days prior to
the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of
such notice, consent, waiver or other communication, (B) mechanically or electronically generated
by the sender’s facsimile machine containing the time, date, recipient facsimile number and an
image of the first page of such transmission or (C) provided by an overnight courier service shall
be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight
courier service in accordance with clause (i), (ii) or (iii) above, respectively.
(g) Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns. Neither the Company
- 28 -
nor Parent shall assign this Agreement or any rights or obligations hereunder without the
prior written consent of the Majority Holders, including by way of a Fundamental Transaction
(unless the Company and Parent are in compliance with the applicable provisions governing
Fundamental Transactions set forth in the Debentures). A Buyer may assign some or all of its
rights hereunder in connection with transfer of any of its Securities with the consent of the
Parent and the Company, in which event such assignee shall be deemed to be a Buyer hereunder with
respect to such assigned rights.
(h) No Third-Party Beneficiaries. This Agreement is intended for the benefit of the
parties hereto and their respective permitted successors and assigns, and is not for the benefit
of, nor may any provision hereof be enforced by, any other Person.
(i) Survival. Unless this Agreement is terminated under Section 8, the
representations and warranties of the Company, Parent and the Buyers contained in Sections 2 and 3
and the agreements and covenants set forth in Sections 4, 5 and 9 shall survive the Closing.
(j) Further Assurances. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as any other party may reasonably request in
order to carry out the intent and accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.
(k) Indemnification. In consideration of each Buyer’s execution and delivery of the
Transaction Documents and acquiring the Securities thereunder and in addition to all of the
Company’s and Parent’s other obligations under the Transaction Documents, the Company and Parent
shall jointly and severally defend, protect, indemnify and hold harmless each Buyer and each other
holder of the Securities and all of their stockholders, partners, members, officers, directors,
employees and direct or indirect investors and any of the foregoing Persons’ agents or other
representatives (including, without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the “Indemnitees”) from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages,
and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the
action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and
disbursements (the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any representation or
warranty made by the Company or Parent in the Transaction Documents or any other certificate,
instrument or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company or Parent contained in the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby or (c) any cause of action, suit
or claim brought or made against such Indemnitee by a third party (including for these purposes a
derivative action brought on behalf of the Company or Parent) and arising out of or resulting from
(i) the execution, delivery, performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any transaction financed
or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of
the Securities, (iii) any disclosure made by such Buyer pursuant to Section 4(i), or (iv) the
status of such Buyer or holder of the Securities as an investor in the Company or Parent pursuant
to the transactions contemplated by the Transaction
- 29 -
Documents. To the extent that the foregoing undertakings by the Company and Parent may be
unenforceable for any reason, the Company and Parent shall make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law. The indemnification provided in this Section 9(k) shall not apply to any
liabilities which are the subject of the indemnification provided for in the Registration Rights
Agreement, as well as shall not apply to those matters covered by the express exceptions to
indemnification provided by the Registration Rights Agreement. Except as otherwise set forth
herein, the mechanics and procedures with respect to the rights and obligations under this Section
9(k) shall be the same as those set forth in the Registration Rights Agreement.
(l) No Strict Construction. 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.
(m) Remedies. Each Buyer and each holder of the Securities shall have all rights and
remedies set forth in the Transaction Documents and all rights and remedies which such holders have
been granted at any time under any other agreement or contract and all of the rights which such
holders have under any law. Any Person having any rights under any provision of this Agreement
shall be entitled to enforce such rights specifically (without posting a bond or other security),
to recover damages by reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law. Furthermore, each of the Company and Parent recognizes that in the
event that it fails to perform, observe, or discharge any or all of its obligations under the
Transaction Documents, any remedy at law may prove to be inadequate relief to the Buyers. Each of
the Company and Parent therefore agrees that the Buyer shall be entitled to seek temporary and
permanent injunctive relief in any such case without the necessity of proving actual damages and
without posting a bond or other security.
(n) Payment Set Aside. To the extent that the Company or Parent makes a payment or
payments to the Buyers hereunder or pursuant to any of the other Transaction Documents or the
Buyers enforce or exercise their rights hereunder or 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, Parent, a trustee, receiver or any
other Person under any law (including, without limitation, any bankruptcy law, foreign, 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.
(o) Independent Nature of Buyers’ Obligations and Rights. The obligations of each
Buyer under any Transaction Document are several and not joint with the obligations of any other
Buyer, and no Buyer shall be responsible in any way for the performance of the obligations of any
other Buyer under any Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall be deemed to
constitute the Buyers as a partnership, an association, a joint venture or any other kind of
entity, or create a presumption that the Buyers are in any way acting in concert or as a group with
respect to such obligations or the transactions contemplated by the Transaction Documents
- 30 -
and each of the Company and Parent acknowledges that the Buyers are not acting in concert or
as a group with respect to such obligations or the transactions contemplated by the Transaction
Documents. Each Buyer confirms that it has independently participated in the negotiation of the
transaction contemplated hereby with the advice of its own counsel and advisors. Each Buyer shall
be entitled to independently protect and enforce its rights, including, without limitation, the
rights arising out of this Agreement or out of any other Transaction Documents, and it shall not be
necessary for any other Buyer to be joined as an additional party in any proceeding for such
purpose.
[Signature Pages Follow]
- 31 -
IN WITNESS WHEREOF, each Buyer, the Company and Parent have caused their respective signature
page to this Securities Purchase Agreement to be duly executed as of the date first written above.
| COMPANY: STARVOX COMMUNICATIONS, INC., a California corporation |
||||
| By: | /s/ Xxxxxx Xxxxxx | |||
| Name: | Xxxxxx Xxxxxx | |||
| Title: | Chief Executive Officer | |||
| PARENT: U.S. WIRELESS DATA, INC., a Delaware corporation |
||||
| By: | /s/ Xxxxxx Xxxxxx | |||
| Name: | Xxxxxx Xxxxxx | |||
| Title: | Chief Executive Officer | |||
[Securities Purchase Agreement Signature Page]
IN WITNESS WHEREOF, each Buyer, the Company and Parent have caused their respective signature
page to this Securities Purchase Agreement to be duly executed as of the date first written above.
| BUYERS: DKR SOUNDSHORE OASIS HOLDING FUND LTD. |
||||
| By: | /s/ Xxxxxxx Xxxxxx | |||
| Name: | Xxxxxxx Xxxxxx | |||
| Title: | Authorized Signatory | |||
[Securities Purchase Agreement Signature Page]
IN WITNESS WHEREOF, each Buyer, the Company and Parent have caused their respective signature
page to this Securities Purchase Agreement to be duly executed as of the date first written above.
| BUYERS: SMH CAPITAL INC. |
||||
| By: | /s/ Xxx X. Xxxxxx | |||
| Name: | Xxx X. Xxxxxx | |||
| Title: | Chief Executive Officer | |||
[Securities Purchase Agreement Signature Page]
IN WITNESS WHEREOF, each Buyer, the Company and Parent have caused their respective signature
page to this Securities Purchase Agreement to be duly executed as of the date first written above.
| BUYERS: XXXXXX CAPITAL MASTER FUND, LTD. |
||||
| By: | /s/ Xxx Xxxx | |||
| Name: | Xxx Xxxx | |||
| Title: | Director | |||
[Securities Purchase Agreement Signature Page]
SCHEDULE OF BUYERS
| (3) | (5) | |||||||||||||||||||||
| Aggregate | (4) | Aggregate | ||||||||||||||||||||
| Principal | Aggregate | Principal | ||||||||||||||||||||
| Amount of | Number of | Amount of | ||||||||||||||||||||
| (1) | (2) | Debenture at | Warrant | Debenture at | Legal Representative’s | |||||||||||||||||
| Buyer | Address and Facsimile Number | Initial Closing | Shares | Second Closing | Address and Facsimile Number | |||||||||||||||||
| DKR Soundshore Oasis Holding Fund Ltd. | c/o DKR Oasis Management
Company L.P. 0000 Xxxx Xxxx Xxxxxx |
$ | 2,000,000 | 1,400,000 | $ | 3,000,000 | XxXxxxxxx Will & Xxxxx LLP 000 Xxxxxxx Xxxxxx |
|||||||||||||||
| Xxxxxxxx, XX 00000 | Xxx Xxxx, Xxx Xxxx, 00000-0000 | |||||||||||||||||||||
| Telephone: | 000-000-0000 | Telephone: | 000-000-0000 | |||||||||||||||||||
| Facsimile: | 000-000-0000 | Facsimile: | 000-000-0000 | |||||||||||||||||||
| Attention: | Xxxxx Xxxxxx, General Counsel |
Attention: E-mail: |
Xxxxxxx X. Older, Esq. xxxxxx@xxx.xxx |
|||||||||||||||||||
| Residence: | Cayman Islands | Attention: | Xxxx X. Xxxxxxxx, Esq. | |||||||||||||||||||
| E-mail: | xxxxxxx@xxxxxxxxxx.xxx | E-mail: | xxxxxxxxx@xxx.xxx | |||||||||||||||||||
| SMH Capital Inc. | SMH Capital, Inc. | $ | 2,000,000 | 560,000 | $ | 0 | Xxxx Xxxxx, Esq. | |||||||||||||||
| 600 Xxxxxx, Suite 3100 | SMH Capital, Inc. | |||||||||||||||||||||
| Xxxxxxx, XX 00000 | 600 Xxxxxx, Suite 3100 | |||||||||||||||||||||
| Telephone: | 000-000-0000 | Xxxxxxx, XX 00000 | ||||||||||||||||||||
| Facsimile: | [ ] | Telephone: | 000-000-0000 | |||||||||||||||||||
| Attention: | Chief Executive Officer | Facsimile: | 000-000-0000 | |||||||||||||||||||
| Residence: | [ ] | E-mail: | xxxx.xxxxx@xxxxxxxx.xxx | |||||||||||||||||||
| E-mail: | xxxx.xxxxx@xxxxxxxxxx.xxx | |||||||||||||||||||||
| Xxxxxx Capital Master Fund, Ltd. | x/x Xxxxxx Xxxxxxx, XX
0000 Avenue of the Stars, Suite 1650 |
$ | 2,000,000 | 560,000 | $ | 0 | Mintz, Levin, Cohn, Ferris, Glovsky
and Popeo, P.C. |
|||||||||||||||
| Xxx Xxxxxxx, XX 00000 | 000 Xxxxx Xxxxxx, 00xx Xxxxx | |||||||||||||||||||||
| Telephone: | 000-000-0000 | Xxx Xxxx, XX 00000 | ||||||||||||||||||||
| Facsimile: | 000-000-0000 | Telephone: | [ ] | |||||||||||||||||||
| Attention: | Xxx Xxxx | Facsimile: | 000-000-0000 | |||||||||||||||||||
| Residence: | [ ] | Attention: | Xxxxxxx X. Xxxx, Esq. | |||||||||||||||||||
| E-mail: | xxxxx@xxxxxxxxxxxxx.xxx | E-mail: | xxxxxx@xxxxx.xxx | |||||||||||||||||||
EXHIBIT A
Form of Common Stock Purchase Warrant
EXHIBIT B
Form of Debenture
EXHIBIT C
Registration Rights Agreement
EXHIBIT D
Form of Guaranty
EXHIBIT E
Form of Security Agreement
EXHIBIT F
Form of Post-Closing Letter Agreement
EXHIBIT G
Irrevocable Transfer Agent Instructions
EXHIBIT H
Form of Outside Company Counsel Opinion
EXHIBIT I
Form of Secretary’s Certificate
EXHIBIT J
Form of Officer’s Certificate
EXHIBIT K
Form of Subordination Agreement
EXHIBIT L
Maturity Extension Letter Agreement
