SECURITIES PURCHASE AGREEMENT
This
Securities Purchase Agreement (this “Agreement”) is dated as of July 31,
2007 between Guangzhou Global Telecom, Inc., a Florida corporation (the
“Company”), and each purchaser identified on the signature pages hereto
(each, including its successors and assigns, a “Purchaser” and
collectively the “Purchasers”).
WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant
to
Section 4(2) of the Securities Act of 1933, as amended (the “Securities
Act”), and Rule 506 promulgated thereunder, the Company desires to issue
and
sell to each Purchaser, and each Purchaser, severally and not jointly, desires
to purchase from the Company, securities of the Company as more fully described
in this Agreement.
NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration, the receipt and adequacy of
which
are hereby acknowledged, the Company and each Purchaser agree as
follows:
ARTICLE
I.
DEFINITIONS
1.1 Definitions. In
addition to the terms defined elsewhere in this Agreement: (a) capitalized
terms
that are not otherwise defined herein have the meanings given to such terms
in
the Debentures (as defined herein), and (b) the following terms have the
meanings set forth in this Section 1.1:
“Action”
shall have the meaning ascribed to such term in Section 3.1(j).
“Affiliate”
means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with
a
Person, as such terms are used in and construed under Rule 405 under the
Securities Act. With respect to a Purchaser, any investment fund or
managed account that is managed on a discretionary basis by the same investment
manager as such Purchaser will be deemed to be an Affiliate of such
Purchaser.
“Board
of Directors” means the board of directors of the Company.
“Business
Day” means any day except any Saturday, any Sunday, any day which is a
federal legal holiday in the United States or any day on which banking
institutions in the State of New York are authorized or required by law or
other
governmental action to close.
“Closing
Dates” means, collectively, the dates of the First Closing and the Second
Closing.
“Closing(s)”
means the closing(s) of the purchase and sale of the Securities pursuant
to
Section 2.1.
“Commission”
means the Securities and Exchange Commission.
“Common
Stock” means the common stock of the Company, par value $0.01 per share, and
any other class of securities into which such securities may hereafter be
reclassified or changed into.
“Common
Stock Equivalents” means any securities of the Company or the Subsidiaries
which would entitle the holder thereof to acquire at any time Common Stock,
including, without limitation, any debt, preferred stock, rights, options,
warrants or other instrument that is at any time convertible into or exercisable
or exchangeable for, or otherwise entitles the holder thereof to receive,
Common
Stock.
“Company
Counsel” means Xxxxxx & Xxxxxx, LLP, with offices located at 000 Xxxxx 0
Xxxxx, Xxxxx 000, Xxxxxxxxx, Xxx Xxxxxx 00000.
“Conversion
Price” shall have the meaning ascribed to such term in the
Debentures.
“Debentures”
means the 8% Senior Secured Convertible Debentures due, subject to the terms
therein, 2 years from their date of issuance, issued by the Company to the
Purchasers hereunder, in the form of Exhibit A attached
hereto.
“Disclosure
Schedules” shall have the meaning ascribed to such term in Section
3.1.
“Effective
Date” means the date that the initial Registration Statement filed by the
Company pursuant to the Registration Rights Agreement is first declared
effective by the Commission.
“Evaluation
Date” shall have the meaning ascribed to such term in Section
3.1(r).
“Exchange
Act” means the Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder.
“Exempt
Issuance” means the issuance of (a) shares of Common Stock or options to
employees, officers or directors of the Company pursuant to any stock or
option
plan duly adopted for such purpose by a majority of the non-employee members
of
the Board of Directors or a majority of the members of a committee of
non-employee directors established for such purpose, (b) securities upon
the
exercise or exchange of or conversion of any Securities issued hereunder
and/or
other securities exercisable or exchangeable for or convertible into shares
of
Common Stock issued and outstanding on the date of this Agreement, provided
that
such securities have not been amended since the date of this Agreement to
increase the number of such securities or to decrease the exercise, exchange
or
conversion price of such securities, and
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(c)
securities issued pursuant to acquisitions or strategic transactions approved
by
a majority of the disinterested directors of the Company, provided that any
such
issuance shall only be to a Person which is, itself or through its subsidiaries,
an operating company in a business synergistic with the business of the Company
and in which the Company receives benefits in addition to the investment
of
funds, but shall not include a transaction in which the Company is issuing
securities primarily for the purpose of raising capital or to an entity whose
primary business is investing in securities.
“FWS”
means Xxxxxxx Xxxxxxxxx & Xxxxx LLP with offices located at 000 Xxxxxxxxx
Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000-0000.
“GAAP”
shall have the meaning ascribed to such term in Section 3.1(h).
“Indebtedness”
shall have the meaning ascribed to such term in Section 3.1(aa).
“Intellectual
Property Rights” shall have the meaning ascribed to such term in Section
3.1(o).
“Legend
Removal Date” shall have the meaning ascribed to such term in Section
4.1(c).
“Liens”
means a lien, charge, security interest, encumbrance, right of first refusal,
preemptive right or other restriction.
“Material
Adverse Effect” shall have the meaning assigned to such term in Section
3.1(b).
“Material
Permits” shall have the meaning ascribed to such term in Section
3.1(m).
“Maximum
Rate” shall have the meaning ascribed to such term in Section
5.17.
“Participation
Maximum” shall have the meaning ascribed to such term in Section
4.12.
“Person”
means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other
entity
of any kind.
“Placement
Agent” shall mean Midtown Partners & Co., LLC.
“Pre-Notice”
shall have the meaning ascribed to such term in Section 4.12.
“Principal
Amount” shall mean, as to each Purchaser, the amounts set forth below such
Purchaser’s signature block on the signature pages hereto and next to the
heading “Principal Amount,” in United States Dollars, which shall equal such
Purchaser’s Subscription amount multiplied by 1.142857.
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“Proceeding”
means an action, claim, suit, investigation or proceeding (including, without
limitation, an informal investigation or partial proceeding, such as a
deposition), whether commenced or threatened.
“Purchaser
Party” shall have the meaning ascribed to such term in Section
4.10.
“Registration
Rights Agreement” means the Registration Rights Agreement, dated the date
hereof, among the Company and the Purchasers, in the form of Exhibit B
attached hereto.
“Registration
Statement” means a registration statement meeting the requirements set forth
in the Registration Rights Agreement and covering the resale of the Underlying
Shares by each Purchaser as provided for in the Registration Rights
Agreement.
“Required
Approvals” shall have the meaning ascribed to such term in Section
3.1(e).
“Required
Minimum” means, as of any date, the maximum aggregate number of shares of
Common Stock then issued or potentially issuable in the future pursuant to
the
Transaction Documents, including any Underlying Shares issuable upon exercise
or
conversion in full of all Warrants and Debentures (including Underlying Shares
issuable as payment of interest), ignoring any conversion or exercise limits
set
forth therein, and assuming that the Conversion Price is at all times on
and
after the date of determination 75% of the then Conversion Price on the Trading
Day immediately prior to the date of determination.
“Rule
144” means Rule 144 promulgated by the Commission pursuant to the Securities
Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same
effect as such Rule.
“SEC
Reports” shall have the meaning ascribed to such term in Section
3.1(h).
“Securities”
means the Debentures, the Warrants, the Warrant Shares and the Underlying
Shares.
“Securities
Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
“Security
Agreement” means the Security Agreement, dated the date hereof, among the
Company and the Purchasers, in the form of Exhibit E attached
hereto.
“Security
Documents” shall mean the Security Agreement, the Subsidiary Guarantees and
any other documents and filing required thereunder in order to grant the
Purchasers a first priority security interest in the assets of the Company
and
the Subsidiaries as provided in the Security Agreement, including all UCC-1
filing receipts.
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“Short
Sales” means all “short sales” as defined in Rule 200 of Regulation SHO
under the Exchange Act (but shall not be deemed to include the location and/or
reservation of borrowable shares of Common Stock).
“Subscription
Amount” means, as to each Purchaser, the aggregate amount to be paid for
Debentures and Warrants purchased hereunder as specified below such Purchaser’s
name on the signature page of this Agreement and next to the heading
“Subscription Amount,” in United States dollars and in immediately available
funds.
“Subsequent
Financing” shall have the meaning ascribed to such term in Section
4.12.
“Subsequent
Financing Notice” shall have the meaning ascribed to such term in Section
4.12.
“Subsidiary”
means any subsidiary of the Company as set forth on Schedule 3.1(a) and
shall, where applicable, include any direct or indirect subsidiary of the
Company formed or acquired after the date hereof.
“Subsidiary
Guarantee” means the Subsidiary Guarantee, dated the date hereof, by each
Subsidiary in favor of the Purchasers, in the form of Exhibit F attached
hereto.
“Trading
Day” means a day on which the New York Stock Exchange is open for
trading.
“Trading
Market” means the following markets or exchanges on which the Common Stock
is listed or quoted for trading on the date in question: the American Stock
Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq
Global
Select Market, the New York Stock Exchange or the OTC Bulletin
Board.
“Transaction
Documents” means this Agreement, the Debentures, the Warrants, the
Registration Rights Agreement, the Security Agreement, the Subsidiary
Guarantee, all exhibits and schedules thereto and hereto and any
other documents or agreements executed in connection with the transactions
contemplated hereunder.
“Transfer
Agent” means Interwest Transfer Co., Inc., the current transfer agent of the
Company with a mailing address of 0000 Xxxx 0000 Xxxxx, Xxxxx 000, Xxxx Xxxx
Xxxx, Xxxx 00000 and a facsimile number of (000) 000-0000, and any successor
transfer agent of the Company.
“Underlying
Shares” means the shares of Common Stock issued and issuable upon conversion
or redemption of the Debentures and upon exercise of the Warrants and issued
and
issuable in lieu of the cash payment of interest on the Debentures in accordance
with the terms of the Debentures.
“Variable
Rate Transaction” shall have the meaning ascribed to such term in Section
4.13(b).
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“VWAP”
means, for any date, the price determined by the first of the following clauses
that applies: (a) if the Common Stock is then listed or quoted on a Trading
Market, the daily volume weighted average price of the Common Stock for such
date (or the nearest preceding date) on the Trading Market on which the Common
Stock is then listed or quoted as reported by Bloomberg L.P. (based on a
Trading
Day from 9:30 a.m. New York City time to 4:02 p.m. New York City time);
(b) if the OTC Bulletin Board is not a Trading Market, the volume weighted
average price of the Common Stock for such date (or the nearest preceding
date)
on the OTC Bulletin Board; (c) if the Common Stock is not then listed or
quoted
on the OTC Bulletin Board and if prices for the Common Stock are then reported
in the “Pink Sheets” published by Pink Sheets, LLC (or a similar organization or
agency succeeding to its functions of reporting prices), the most recent
bid
price per share of the Common Stock so reported; or (d) in all other cases,
the fair market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Purchasers of a majority in interest
of
the Securities then outstanding and reasonably acceptable to the Company,
the
fees and expenses of which shall be paid by the Company.
“Warrants”
means, collectively, the Common Stock purchase warrants delivered to the
Purchasers at the First Closing in accordance with Section 2.2(a) hereof,
which
Warrants shall be exercisable immediately and have a term of exercise equal
to 5
years, in the form of Exhibit C attached hereto.
“Warrant
Shares” means the shares of Common Stock issuable upon exercise of the
Warrants.
ARTICLE
II.
PURCHASE
AND SALE
2.1 Closings. On
each Closing Date, upon the terms and subject to the conditions set forth
herein, substantially concurrent with the execution and delivery of this
Agreement by the parties hereto, the Company agrees to sell, and each Purchaser,
severally and not jointly, agrees to purchase, the Principal Amount of the
Debentures set forth on such Purchaser’s signature page hereto and corresponding
to the applicable Closing. Each Purchaser shall deliver to the
Company, via wire transfer or a certified check, immediately available funds
equal to the Subscription Amount applicable to such Closing and the Company
shall deliver to each Purchaser its respective Debenture, as determined pursuant
to Section 2.2(a), and the Company and each Purchaser shall deliver the other
items set forth in Section 2.2 deliverable at the applicable
Closing. Upon satisfaction of the conditions set forth in Sections
2.2 and 2.3, each Closing shall occur at the offices of FWS or such other
location as the parties shall mutually agree as follows:
(a) First
Closing. The First Closing shall be for up to, in the aggregate,
$2,285,714 Principal Amount of Debentures and shall occur on, or as soon
as
reasonably practicable following, the date hereof (the “First Closing”);
and
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(b) Second
Closing. The Second Closing shall be for up to, in the aggregate,
$1,142,857 Principal Amount of Debentures and shall occur on, or as soon
as
reasonably practicable following the Effective Date (the “Second
Closing”).
2.2 Deliveries
(a) On
each
Closing Date (except as otherwise specified below), the Company shall deliver
or
cause to be delivered to each Purchaser the following:
(i) as
to the
First Closing, this Agreement duly executed by the Company;
(ii) as
to the
First Closing, a legal opinion of Company Counsel, in substantially the form
of
Exhibit D attached hereto;
(iii) a
Debenture with a principal amount equal to such Purchaser’s Principal Amount as
to such Closing, registered in the name of such Purchaser;
(iv) a
Warrant
registered in the name of such Purchaser to purchase up to a number of shares
of
Common Stock equal to 50% of such Purchaser’s Principal Amount at the First and
Second Closings, divided by the initial Conversion Price, with an exercise
price
equal to $1.12,
subject to adjustment
therein;
(v) as
to the
First Closing only, the Security Agreement, duly executed by the Company
and
each Subsidiary, along with all of the Security Documents, including the
Subsidiary Guarantee, duly executed by the parties thereto; and
(vi) as
to the
First Closing only, the Registration Rights Agreement duly executed by the
Company.
(b) On
each
Closing Date (except as otherwise specified below), each Purchaser shall
deliver
or cause to be delivered to the Company the following:
(i) as
to the
First Closing only, this Agreement duly executed by such
Purchaser;
(ii) such
Purchaser’s Subscription Amount as to the applicable Closing by wire transfer to
the account as specified in writing by the Company;
(iii) as
to the
First Closing only, the Security Agreement duly executed by such Purchaser;
and
(iv) as
to the
First Closing only, the Registration Rights Agreement duly executed by such
Purchaser.
2.3 Closing
Conditions.
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(a) The
obligations of the Company hereunder in connection with applicable Closing
are
subject to the following conditions being met:
(i) the
accuracy in all material respects on the applicable Closing Date of the
representations and warranties of the Purchasers contained herein;
(ii) all
obligations, covenants and agreements of each Purchaser required to be performed
at or prior to the applicable Closing Date shall have been performed;
and
(iii) the
delivery by each Purchaser of the items set forth in Section 2.2(b) of this
Agreement.
(b) The
respective obligations of the Purchasers hereunder in connection with applicable
Closing are subject to the following conditions being met:
(i) the
accuracy in all material respects when made and on applicable Closing Date
of
the representations and warranties of the Company contained herein;
(ii) all
obligations, covenants and agreements of the Company required to be performed
at
or prior to applicable Closing Date shall have been performed;
(iii) the
delivery by the Company of the items set forth in Section 2.2(a) of this
Agreement;
(iv) there
shall have been no Material Adverse Effect with respect to the Company since
the
date hereof;
(v) as
to the
Second Closing only, the Company shall have filed with the Commission a
Registration Statement registering 130% of the Registrable Securities (as
defined in the Registration Rights Agreement) and such Registration Statement
shall have been declared effective by the Commission as to all such Registrable
Securities on or before February 1, 2008 and shall have thereafter remained
effective (for avoidance of doubt, in the event of a cutback as a result
of SEC
Guidance, this condition shall not be met until such time as all Conversion
Shares underlying all Debentures are then subject to an effective Registration
Statement); and
(vi) from
the
date hereof to applicable Closing Date, trading in the Common Stock shall
not
have been suspended by the Commission or the Company’s principal
Trading Market (except for any suspension of trading of limited duration
agreed
to by the Company, which suspension shall be terminated prior to applicable
Closing), and, at any time prior to applicable Closing Date, trading in
securities generally as reported by Bloomberg L.P. shall not have been suspended
or limited, or minimum prices shall not have been established on securities
whose trades are reported by such service, or on any Trading Market, nor
shall a
banking moratorium have been declared either by the United States or New
York
State authorities nor shall there have occurred any material outbreak or
escalation of hostilities or other national or international calamity of
such
magnitude in its effect on, or any material adverse change in, any financial
market which, in each case, in the reasonable judgment of each Purchaser,
makes
it impracticable or inadvisable to purchase the Securities at applicable
Closing.
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ARTICLE
III.
REPRESENTATIONS
AND WARRANTIES
3.1 Representations
and Warranties of the Company.
Except
as set forth under the corresponding section of the disclosure schedules
delivered to the Purchasers concurrently herewith (the “Disclosure Schedules”)
which Disclosure Schedules shall be deemed a part hereof, the Company hereby
makes the representations and warranties set forth below to each
PurchaserExcept as set forth in the Disclosure Schedules, which Disclosure
Schedules shall be deemed a part hereof and shall qualify any representation
or
otherwise made herein to the extent of the disclosure contained in the
corresponding section of the Disclosure Schedules, the Company hereby makes
the
following representations and warranties to each Purchaser:
(a) Subsidiaries. All
of the direct and indirect subsidiaries of the Company are set forth on
Schedule 3.1(a). The Company owns, directly or indirectly, all
of the capital stock or other equity interests of each Subsidiary free and
clear
of any Liens, and all of the issued and outstanding shares of capital stock
of
each Subsidiary are validly issued and are fully paid, non-assessable and
free
of preemptive and similar rights to subscribe for or purchase
securities. If the Company has no subsidiaries, all other references
to the Subsidiaries or any of them in the Transaction Documents shall be
disregarded.
(b) Organization
and Qualification. The Company and each of the Subsidiaries is an
entity duly incorporated or otherwise organized, validly existing and in
good
standing under the laws of the jurisdiction of its incorporation or organization
(as applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently
conducted. Neither the Company nor any Subsidiary is in violation or
default of any of the provisions of its respective certificate or articles
of
incorporation, bylaws or other organizational or charter
documents. Each of the Company and the Subsidiaries is duly qualified
to conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted
or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, could
not
have or reasonably be expected to result in (i) a material adverse effect
on the
legality, validity or enforceability of any Transaction Document, (ii) a
material adverse effect on the results of operations, assets, business,
prospects or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (iii) a material adverse effect on the
Company’s ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a
“Material Adverse Effect”) and no Proceeding has been instituted in any
such jurisdiction revoking, limiting or curtailing or seeking to revoke,
limit
or curtail such power and authority or qualification.
9
(c) Authorization;
Enforcement. The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by
each
of the Transaction Documents and otherwise to carry out its obligations
hereunder and thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by
all
necessary action on the part of the Company and no further action is required
by
the Company, the Board of Directors or the Company’s stockholders in connection
therewith other than in connection with the Required Approvals. Each
Transaction Document has been (or upon delivery will have been) duly executed
by
the Company and, when delivered in accordance with the terms hereof and thereof,
will constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except (i) as limited by
general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions
may be
limited by applicable law.
(d) No
Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company
of the
other transactions contemplated hereby and thereby do not and will not: (i)
conflict with or violate any provision of the Company’s or any Subsidiary’s
certificate or articles of incorporation, bylaws or other organizational
or
charter documents, or (ii) conflict with, or constitute a default (or an
event
that with notice or lapse of time or both would become a default) under,
result
in the creation of any Lien upon any of the properties or assets of the Company
or any Subsidiary, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both)
of,
any agreement, credit facility, debt or other instrument (evidencing a Company
or Subsidiary debt or otherwise) or other understanding to which the Company
or
any Subsidiary is a party or by which any property or asset of the Company
or
any Subsidiary is bound or affected, or (iii) subject to the Required Approvals,
conflict with or result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including federal
and
state securities laws and regulations), or by which any property or asset
of the
Company or a Subsidiary is bound or affected; except in the case of each
of
clauses (ii) and (iii), such as could not have or reasonably be expected
to
result in a Material Adverse Effect.
(e) Filings,
Consents and Approvals. The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or
other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other
than
(i) filings required pursuant to Section 4.6, (ii) the filing with the
Commission of the Registration Statement, (iii) the notice and/or application(s)
to each applicable Trading Market for the issuance and sale of the Securities
and the listing of the Underlying Shares for trading thereon in the time
and
manner required thereby and (iv) the filing of Form D with the Commission
and
such filings as are required to be made under applicable state securities
laws
(collectively, the “Required Approvals”).
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(f) Issuance
of the Securities. The Securities are duly authorized and, when
issued and paid for in accordance with the applicable Transaction Documents,
will be duly and validly issued, fully paid and nonassessable, free and clear
of
all Liens imposed by the Company other than restrictions on transfer provided
for in the Transaction Documents. The Underlying Shares, when issued
in accordance with the terms of the Transaction Documents, will be validly
issued, fully paid and nonassessable, free and clear of all Liens imposed
by the
Company other than restrictions on transfer provided for in the Transaction
Documents. The Company has reserved from its duly authorized capital
stock a number of shares of Common Stock for issuance of the Underlying Shares
at least equal to the Required Minimum on the date hereof.
(g) Capitalization. The
capitalization of the Company is as set forth on Schedule 3.1(g), which
Schedule 3.1(g) shall also include the number of shares of Common Stock
owned beneficially, and of record, by Affiliates of the Company as of the
date
hereof. The Company has not issued any capital stock since its most recently
filed periodic report under the Exchange Act, other than pursuant to the
exercise of employee stock options under the Company’s stock option plans, the
issuance of shares of Common Stock to employees pursuant to the Company’s
employee stock purchase plans and pursuant to the conversion or exercise
of
Common Stock Equivalents outstanding as of the date of the most recently
filed
periodic report under the Exchange Act. No Person has any right of
first refusal, preemptive right, right of participation, or any similar right
to
participate in the transactions contemplated by the Transaction
Documents. Except as a result of the purchase and sale of the
Securities, there are no outstanding options, warrants, scrip rights to
subscribe to, calls or commitments of any character whatsoever relating to,
or
securities, rights or obligations convertible into or exercisable or
exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound
to
issue additional shares of Common Stock or Common Stock Equivalents. The
issuance and sale of the Securities will not obligate the Company to issue
shares of Common Stock or other securities to any Person (other than the
Purchasers) and will not result in a right of any holder of Company securities
to adjust the exercise, conversion, exchange or reset price under any of
such
securities. All of the outstanding shares of capital stock of the Company
are
validly issued, fully paid and nonassessable, have been issued in compliance
with all federal and state securities laws, and none of such outstanding
shares
was issued in violation of any preemptive rights or similar rights to subscribe
for or purchase securities. No further approval or authorization of
any stockholder, the Board of Directors or others is required for the issuance
and sale of the Securities. There are no stockholders agreements,
voting agreements or other similar agreements with respect to the Company’s
capital stock to which the Company is a party or, to the knowledge of the
Company, between or among any of the Company’s stockholders.
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(h) SEC
Reports; Financial Statements. The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by
the
Company under the Securities Act and the Exchange Act, including pursuant
to
Section 13(a) or 15(d) thereof, for the two years preceding the date hereof
(or
such shorter period as the Company was required by law or regulation to file
such material) (the foregoing materials, including the exhibits thereto and
documents incorporated by reference therein, being collectively referred
to
herein as the “SEC Reports”) on a timely basis or has received a valid
extension of such time of filing and has filed any such SEC Reports prior
to the
expiration of any such extension. As of their respective dates, the
SEC Reports complied in all material respects with the requirements of the
Securities Act and the Exchange Act, as applicable, and none of the SEC Reports,
when filed, contained any untrue statement of a material fact or omitted
to
state a material fact required to be stated therein or necessary in order
to
make the statements therein, in the light of the circumstances under which
they
were made, not misleading. The financial statements of the Company
included in the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the Commission with
respect thereto as in effect at the time of filing. Such financial
statements have been prepared in accordance with United States generally
accepted accounting principles applied on a consistent basis during the periods
involved (“GAAP”), except as may be otherwise specified in such financial
statements or the notes thereto and except that unaudited financial statements
may not contain all footnotes required by GAAP, and fairly present in all
material respects the financial position of the Company and its consolidated
Subsidiaries as of and for the dates thereof and the results of operations
and
cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments.
(i) Material
Changes. Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically disclosed
in
a subsequent SEC Report filed prior to the date hereof, (i) there has been
no
event, occurrence or development that has had or that could reasonably be
expected to result in a Material Adverse Effect, (ii) the Company has not
incurred any liabilities (contingent or otherwise) other than (A) trade payables
and accrued expenses incurred in the ordinary course of business consistent
with
past practice and (B) liabilities not required to be reflected in the Company’s
financial statements pursuant to GAAP or disclosed in filings made with the
Commission, (iii) the Company has not altered its method of accounting, (iv)
the
Company has not declared or made any dividend or distribution of cash or
other
property to its stockholders or purchased, redeemed or made any agreements
to
purchase or redeem any shares of its capital stock and (v) the Company has
not
issued any equity securities to any officer, director or Affiliate, except
pursuant to existing Company stock option plans. The Company does not have
pending before the Commission any request for confidential treatment of
information. Except for the issuance of the Securities contemplated
by this Agreement or as set forth on Schedule 3.1(i), no event, liability
or development has occurred or exists with respect to the Company or its
Subsidiaries or their respective business, properties, operations or financial
condition, that would be required to be disclosed by the Company under
applicable securities laws at the time this representation is made or deemed
made that has not been publicly disclosed at least one Trading Day prior
to the
date that this representation is made.
12
(j) Litigation. There
is no action, suit, inquiry, notice of violation, proceeding or investigation
pending or, to the knowledge of the Company, threatened against or affecting
the
Company, any Subsidiary or any of their respective properties before or by
any
court, arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “Action”)
which (i) adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the Securities or (ii)
could, if there were an unfavorable decision, have or reasonably be expected
to
result in a Material Adverse Effect. Neither the Company nor any
Subsidiary, nor any director or officer thereof, is or has been the subject
of
any Action involving a claim of violation of or liability under federal or
state
securities laws or a claim of breach of fiduciary duty. There has not
been, and to the knowledge of the Company, there is not pending or contemplated,
any investigation by the Commission involving the Company or any current
or
former director or officer of the Company. The Commission has not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the Exchange
Act or the Securities Act.
(k) Labor
Relations. No material labor dispute exists or, to the knowledge
of the Company, is imminent with respect to any of the employees of the Company
which could reasonably be expected to result in a Material Adverse
Effect. None of the Company’s or its Subsidiaries’ employees is a
member of a union that relates to such employee’s relationship with the Company
or such Subsidiary, and neither the Company nor any of its Subsidiaries is
a
party to a collective bargaining agreement, and the Company and its Subsidiaries
believe that their relationships with their employees are good. No
executive officer, to the knowledge of the Company, is, or is now expected
to
be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement or
non-competition agreement, or any other contract or agreement or any restrictive
covenant in favor of any third party, and the continued employment of each
such
executive officer does not subject the Company or any of its Subsidiaries
to any
liability with respect to any of the foregoing matters. The Company
and its Subsidiaries are in compliance with all U.S. federal, state, local
and
foreign laws and regulations relating to employment and employment practices,
terms and conditions of employment and wages and hours, except where the
failure
to be in compliance could not, individually or in the aggregate, reasonably
be
expected to have a Material Adverse Effect.
(l) Compliance. Neither
the Company nor any Subsidiary (i) is in default under or in violation of
(and
no event has occurred that has not been waived that, with notice or lapse
of
time or both, would result in a default by the Company or any Subsidiary
under),
nor has the Company or any Subsidiary received notice of a claim that it
is in
default under or that it is in violation of, any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or
by
which it or any of its properties is bound (whether or not such default or
violation has been waived),
13
(ii)
is
in violation of any order of any court, arbitrator or governmental body,
or
(iii) is or has been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal,
state
and local laws applicable to its business and all such laws that affect the
environment, except in each case as could not have or reasonably be expected
to
result in a Material Adverse Effect.
(m) Regulatory
Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not reasonably be expected to result in a Material
Adverse Effect (“Material Permits”), and neither the Company nor any
Subsidiary has received any notice of proceedings relating to the revocation
or
modification of any Material Permit.
(n) Title
to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them and good
and
marketable title in all personal property owned by them that is material
to the
business of the Company and the Subsidiaries, in each case free and clear
of all
Liens, except for Liens as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made
of
such property by the Company and the Subsidiaries and Liens for the payment
of
federal, state or other taxes, the payment of which is neither delinquent
nor
subject to penalties. Any real property and facilities held under
lease by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases with which the Company and the Subsidiaries
are in compliance.
(o) Patents
and Trademarks. The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, trade secrets, inventions, copyrights,
licenses and other intellectual property rights and similar rights necessary
or
material for use in connection with their respective businesses as described
in
the SEC Reports and which the failure to so have could have a Material Adverse
Effect (collectively, the “Intellectual Property
Rights”). Neither the Company nor any Subsidiary has received a
notice (written or otherwise) that any of the Intellectual Property Rights
used
by the Company or any Subsidiary violates or infringes upon the rights of
any
Person. To the knowledge of the Company, all such Intellectual Property Rights
are enforceable and there is no existing infringement by another Person of
any
of the Intellectual Property Rights. The Company and its Subsidiaries
have taken reasonable security measures to protect the secrecy, confidentiality
and value of all of their intellectual properties, except where failure to
do so
could not, individually or in the aggregate, reasonably be expected to have
a
Material Adverse Effect.
(p) Insurance. The
Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which the Company and the Subsidiaries
are
engaged, including, but not limited to, directors and officers insurance
coverage at least equal to the aggregate Subscription
Amount.
14
Neither
the Company nor any Subsidiary has any reason to believe that it will not
be
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its business without a significant increase in cost.
(q) Transactions
with Affiliates and Employees. Except as set forth in the SEC
Reports, none of the officers or directors of the Company and, to the knowledge
of the Company, none of the employees of the Company is presently a party
to any
transaction with the Company or any Subsidiary (other than for services as
employees, officers and directors), including any contract, agreement or
other
arrangement providing for the furnishing of services to or by, providing
for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of
the
Company, any entity in which any officer, director, or any such employee
has a
substantial interest or is an officer, director, trustee or partner, in each
case in excess of $60,000 other than for (i) payment of salary or consulting
fees for services rendered, (ii) reimbursement for expenses incurred on behalf
of the Company and (iii) other employee benefits, including stock option
agreements under any stock option plan of the Company.
(r) Xxxxxxxx-Xxxxx;
Internal Accounting Controls. The Company is in material
compliance with all provisions of the Xxxxxxxx-Xxxxx Act of 2002 which are
applicable to it as of applicable Closing Date. The Company and the
Subsidiaries maintain a system of internal accounting controls sufficient
to
provide reasonable assurance that (i) transactions are executed in accordance
with management’s general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management’s general or specific
authorization, and (iv) the recorded accountability for assets is compared
with
the existing assets at reasonable intervals and appropriate action is taken
with
respect to any differences. The Company has established disclosure controls
and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for
the
Company and designed such disclosure controls and procedures to ensure that
information required to be disclosed by the Company in the reports it files
or
submits under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the Commission’s rules and
forms. The Company’s certifying officers have evaluated the
effectiveness of the Company’s disclosure controls and procedures as of the end
of the period covered by the Company’s most recently filed periodic report under
the Exchange Act (such date, the “Evaluation Date”). The
Company presented in its most recently filed periodic report under the Exchange
Act the conclusions of the certifying officers about the effectiveness of
the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no
changes in the Company’s internal control over financial reporting (as such term
is defined in the Exchange Act) that has materially affected, or is reasonably
likely to materially affect, the Company’s internal control over financial
reporting.
15
(s) Certain
Fees. No brokerage or finder’s fees or commissions are or will be
payable by the Company to any broker, financial advisor or consultant, finder,
placement agent, investment banker, bank or other Person with respect to
the
transactions contemplated by the Transaction Documents. The
Purchasers shall have no obligation with respect to any fees or with respect
to
any claims made by or on behalf of other Persons for fees of a type contemplated
in this Section that may be due in connection with the transactions contemplated
by the Transaction Documents.
(t) Private
Placement. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, no registration
under
the Securities Act is required for the offer and sale of the Securities by
the
Company to the Purchasers as contemplated hereby. The issuance and sale of
the
Securities hereunder does not contravene the rules and regulations of the
Trading Market.
(u) Investment
Company. The Company is not, and is not an Affiliate of, and immediately
after receipt of payment for the Securities, will not be or be an Affiliate
of,
an “investment company” within the meaning of the Investment Company Act of
1940, as amended. The Company shall conduct its business in a manner
so that it will not become subject to the Investment Company Act of 1940,
as
amended.
(v) Registration
Rights. Other than each of the Purchasers, no Person has any
right to cause the Company to effect the registration under the Securities
Act
of any securities of the Company.
(w) Listing
and Maintenance Requirements. The Common Stock is registered
pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has
taken no action designed to, or which to its knowledge is likely to have
the
effect of, terminating the registration of the Common Stock under the Exchange
Act nor has the Company received any notification that the Commission is
contemplating terminating such registration. The Company has not, in
the 12 months preceding the date hereof, received notice from any Trading
Market
on which the Common Stock is or has been listed or quoted to the effect that
the
Company is not in compliance with the listing or maintenance requirements
of
such Trading Market. The Company is, and has no reason to believe that it
will
not in the foreseeable future continue to be, in compliance with all such
listing and maintenance requirements.
(x) Application
of Takeover Protections. The Company and the Board of Directors
have taken all necessary action, if any, in order to render inapplicable
any
control share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar anti-takeover provision
under the Company’s certificate of incorporation (or similar charter documents)
or the laws of its state of incorporation that is or could become applicable
to
the Purchasers as a result of the Purchasers and the Company fulfilling their
obligations or exercising their rights under the Transaction Documents,
including without limitation as a result of the Company’s issuance of the
Securities and the Purchasers’ ownership of the Securities.
16
(y) Disclosure. Except
with respect to the material terms and conditions of the transactions
contemplated by the Transaction Documents, the Company confirms that neither
it
nor any other Person acting on its behalf has provided any of the Purchasers
or
their agents or counsel with any information that it believes constitutes
or
might constitute material, nonpublic information. The Company
understands and confirms that the Purchasers will rely on the foregoing
representation in effecting transactions in securities of the
Company. All disclosure furnished by or on behalf of the Company to
the Purchasers regarding the Company, its business and the transactions
contemplated hereby, including the Disclosure Schedules to this Agreement,
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 light of the circumstances under which they were made, not
misleading. The press releases disseminated by the Company
during the twelve months preceding the date of this Agreement taken as a
whole
do not 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 light of the circumstances under which they were made
and
when made, not misleading. The Company acknowledges and agrees that
no Purchaser makes or has made any representations or warranties with respect
to
the transactions contemplated hereby other than those specifically set forth
in
Section 3.2 hereof.
(z) No
Integrated Offering. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, neither the
Company,
nor any of its Affiliates, nor any Person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would cause this
offering of the Securities to be integrated with prior offerings by the Company
for purposes of (i) the Securities Act which would require the registration
of
any such securities under the Securities Act, or (ii) any applicable shareholder
approval provisions of any Trading Market on which any of the securities
of the
Company are listed or designated.
(aa) Solvency. Based
on the consolidated financial condition of the Company as of applicable Closing
Date after giving effect to the receipt by the Company of the proceeds from
the
sale of the Securities hereunder, (i) the fair saleable value of the Company’s
assets exceeds the amount that will be required to be paid on or in respect
of
the Company’s existing debts and other liabilities (including known contingent
liabilities) as they mature, (ii) the Company’s assets do not constitute
unreasonably small capital to carry on its business as now conducted and
as
proposed to be conducted including its capital needs taking into account
the
particular capital requirements of the business conducted by the Company,
and
projected capital requirements and capital availability thereof, and (iii)
the
current cash flow of the Company, together with the proceeds the Company
would
receive, were it to liquidate all of its assets, after taking into account
all
anticipated uses of the cash, would be sufficient to pay all amounts on or
in
respect of its liabilities when such amounts are required to be
paid. The Company does not intend to incur debts beyond its ability
to pay such debts as they mature (taking into account the timing and amounts
of
cash to be payable on or in respect of its debt).
17
The
Company has no knowledge of any facts or circumstances which lead it to believe
that it will file for reorganization or liquidation under the bankruptcy
or
reorganization laws of any jurisdiction within one year from applicable Closing
Date. Schedule 3.1(aa) sets forth as of the date hereof all
outstanding secured and unsecured Indebtedness of the Company or any Subsidiary,
or for which the Company or any Subsidiary has commitments. For the
purposes of this Agreement, “Indebtedness” means (a) any liabilities for
borrowed money or amounts owed in excess of $50,000 (other than trade accounts
payable incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of indebtedness
of
others, whether or not the same are or should be reflected in the Company’s
balance sheet (or the notes thereto), except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions
in the
ordinary course of business; and (c) the present value of any lease payments
in
excess of $50,000 due under leases required to be capitalized in accordance
with
GAAP. Neither the Company nor any Subsidiary is in default with
respect to any Indebtedness.
(bb) Tax
Status. Except for matters that would not, individually or
in the aggregate, have or reasonably be expected to result in a Material
Adverse
Effect, the Company and each Subsidiary has filed all necessary federal,
state
and foreign income and franchise tax returns and has paid or accrued all
taxes
shown as due thereon, and the Company has no knowledge of a tax deficiency
which
has been asserted or threatened against the Company or any
Subsidiary.
(cc) No
General Solicitation. Neither the Company nor any person acting on behalf of
the Company has offered or sold any of the Securities by any form of general
solicitation or general advertising. The Company has offered the
Securities for sale only to the Purchasers and certain other “accredited
investors” within the meaning of Rule 501 under the Securities Act.
(dd) Foreign
Corrupt Practices. Neither the Company, nor to the knowledge of
the Company, any agent or other person acting on behalf of the Company, has
(i)
directly or indirectly, used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully
any
contribution made by the Company (or made by any person acting on its behalf
of
which the Company is aware) which is in violation of law, or (iv)
violated in any material respect any provision of the Foreign Corrupt Practices
Act of 1977, as amended.
(ee) Accountants. The
Company’s accounting firm is set forth on Schedule 3.1(ee) of the
Disclosure Schedule. To the knowledge and belief of the Company, such
accounting firm (i) is a registered public accounting firm as required by
the
Exchange Act and (ii) shall express its opinion with respect to the financial
statements to be included in the Company’s Annual Report on Form 10-KSB for the
year ending December 31, 2007.
(ff) Seniority. As
of applicable Closing Date, no Indebtedness or other claim against the Company
is senior to the Debentures in right of payment, whether with respect to
interest or upon liquidation or dissolution, or otherwise, other than
indebtedness secured by purchase money security interests (which is senior
only
as to underlying assets covered thereby) and capital lease obligations (which
is
senior only as to the property covered thereby).
18
(gg) No
Disagreements with Accountants and Lawyers. There are no
disagreements of any kind presently existing, or reasonably anticipated by
the
Company to arise, between the Company and the accountants and lawyers formerly
or presently employed by the Company and the Company is current with respect
to
any fees owed to its accountants and lawyers which could affect the Company’s
ability to perform any of its obligations under any of the Transaction
Documents.
(hh) Acknowledgment
Regarding Purchasers’ Purchase of Securities. The Company
acknowledges and agrees that each of the Purchasers is acting solely in the
capacity of an arm’s length purchaser with respect to the Transaction Documents
and the transactions contemplated thereby. The Company further
acknowledges that no Purchaser is acting as a financial advisor or fiduciary
of
the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated thereby and any advice given
by any
Purchaser or any of their respective representatives or agents in connection
with the Transaction Documents and the transactions contemplated thereby
is
merely incidental to the Purchasers’ purchase of the Securities. The
Company further represents to each Purchaser that the Company’s decision to
enter into this Agreement and the other Transaction Documents has been based
solely on the independent evaluation of the transactions contemplated hereby
by
the Company and its representatives.
(ii) Acknowledgment
Regarding Purchasers’ Trading Activity. Notwithstanding anything
in this Agreement or elsewhere herein to the contrary (except for
Sections 3.2(f) and 4.15 hereof), it is understood and acknowledged by the
Company that (i) none of the Purchasers has been asked to agree by the Company,
nor has any Purchaser agreed, to desist from purchasing or selling, long
and/or
short, securities of the Company, or “derivative” securities based on securities
issued by the Company or to hold the Securities for any specified term, (ii)
past or future open market or other transactions by any Purchaser, specifically
including, without limitation, Short Sales or “derivative” transactions, before
or after the closing of this or future private placement transactions, may
negatively impact the market price of the Company’s publicly-traded securities,
(iii) any Purchaser, and counter-parties in “derivative” transactions to which
any such Purchaser is a party, directly or indirectly, may presently have
a
“short” position in the Common Stock, and (iv) each Purchaser shall not be
deemed to have any affiliation with or control over any arm’s length
counter-party in any “derivative” transaction. The Company further
understands and acknowledges that (a) one or more Purchasers may engage in
hedging activities at various times during the period that the Securities
are
outstanding, including, without limitation, during the periods that the value
of
the Underlying Shares deliverable with respect to Securities are being
determined and (b) such hedging activities (if any) could reduce the value
of
the existing stockholders' equity interests in the Company at and after the
time
that the hedging activities are being conducted. The Company acknowledges
that such aforementioned hedging activities do not constitute a breach of
any of
the Transaction Documents.
19
(jj) Regulation
M Compliance. The Company has not, and to its knowledge no one acting
on its behalf has, (i) taken, directly or indirectly, any action designed
to
cause or to result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the securities of the Company or (iii) paid
or
agreed to pay to any Person any compensation for soliciting another to purchase
any other securities of the Company, other than, in the case of clauses (ii)
and
(iii), compensation paid to the Company’s placement agent in connection with the
placement of the Securities.
3.2 Representations
and Warranties of the Purchasers. Each Purchaser, for
itself and for no other Purchaser hereby, represents and warrants as of the
date
hereof and as of applicable Closing Date to the Company as follows:
(a) Organization;
Authority. Such Purchaser is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization with full right, corporate or partnership power and authority
to
enter into and to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations hereunder and thereunder.
The execution and delivery of the Transaction Documents and performance by
such
Purchaser of the transactions contemplated by the Transaction Documents have
been duly authorized by all necessary corporate or similar action on the
part of
such Purchaser. Each Transaction Document to which it is a party has
been duly executed by such Purchaser, and when delivered by such Purchaser
in
accordance with the terms hereof, will constitute the valid and legally binding
obligation of such Purchaser, enforceable against it in accordance with its
terms, except (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
(b) Own
Account. Such Purchaser understands that the Securities are
“restricted securities” and have not been registered under the Securities Act or
any applicable state securities law and is acquiring the Securities as principal
for its own account and not with a view to or for distributing or reselling
such
Securities or any part thereof in violation of the Securities Act or any
applicable state securities law, has no present intention of distributing
any of
such Securities in violation of the Securities Act or any applicable state
securities law and has no direct or indirect arrangement or understandings
with
any other persons to distribute or regarding the distribution of such Securities
(this representation and warranty not limiting such Purchaser’s right to sell
the Securities pursuant to the Registration Statement or otherwise in compliance
with applicable federal and state securities laws) in violation of the
Securities Act or any applicable state securities law. Such Purchaser
is acquiring the Securities hereunder in the ordinary course of its
business.
20
(c) Purchaser
Status. At the time such Purchaser was offered the Securities, it
was, and at the date hereof it is, and on each date on which it exercises
any
Warrants or converts any Debentures it will be either: (i) an “accredited
investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under
the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule
144A(a) under the Securities Act. Such Purchaser is not required to
be registered as a broker-dealer under Section 15 of the Exchange
Act.
(d) Experience
of Such Purchaser. Such Purchaser, either alone or together with
its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits
and
risks of the prospective investment in the Securities, and has so evaluated
the
merits and risks of such investment. Such Purchaser is able to bear
the economic risk of an investment in the Securities and, at the present
time,
is able to afford a complete loss of such investment.
(e) General
Solicitation. Such Purchaser is not purchasing the Securities as
a result of any advertisement, article, notice or other communication regarding
the Securities published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.
(f) Short
Sales and Confidentiality Prior To The Date Hereof. Other
than consummating the transactions contemplated hereunder, such Purchaser
has
not directly or indirectly, nor has any Person acting on behalf of or pursuant
to any understanding with such Purchaser, executed any purchases or sales,
including Short Sales, of the securities of the Company during the period
commencing from the time that such Purchaser first received a term sheet
(written or oral) from the Company or any other Person representing the Company
setting forth the material terms of the transactions contemplated hereunder
until the date hereof (“Discussion Time”). Notwithstanding the
foregoing, in the case of a Purchaser that is a multi-managed investment
vehicle
whereby separate portfolio managers manage separate portions of such Purchaser's
assets and the portfolio managers have no direct knowledge of the investment
decisions made by the portfolio managers managing other portions of such
Purchaser's assets, the representation set forth above shall only apply with
respect to the portion of assets managed by the portfolio manager that made
the
investment decision to purchase the Securities covered by this
Agreement. Other than to other Persons party to this Agreement, such
Purchaser has maintained the confidentiality of all disclosures made to it
in
connection with this transaction (including the existence and terms of this
transaction).
ARTICLE
IV.
OTHER
AGREEMENTS OF THE PARTIES
4.1 Transfer
Restrictions.
21
(a) The
Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Securities other
than pursuant to an effective registration statement or Rule 144, to the
Company
or to an Affiliate of a Purchaser or in connection with a pledge as contemplated
in Section 4.1(b), the Company may require the transferor thereof to provide
to
the Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion shall
be
reasonably satisfactory to the Company, to the effect that such transfer
does
not require registration of such transferred Securities under the Securities
Act. As a condition of transfer, any such transferee shall agree in
writing to be bound by the terms of this Agreement and shall have the rights
of
a Purchaser under this Agreement and the Registration Rights
Agreement.
(b) The
Purchasers agree to the imprinting, so long as is required by this Section
4.1,
of a legend on any of the Securities in the following form:
[NEITHER]
THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE]
[CONVERTIBLE]] HAS [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL
TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THIS SECURITY [AND THE SECURITIES ISSUABLE
UPON [EXERCISE] [CONVERSION] OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION
WITH
A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.
The
Company acknowledges and agrees that a Purchaser may from time to time pledge
pursuant to a bona fide margin agreement with a registered broker-dealer
or
grant a security interest in some or all of the Securities to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this Agreement
and the Registration Rights Agreement and, if required under the terms of
such
arrangement, such Purchaser may transfer pledged or secured Securities to
the
pledgees or secured parties. Such a pledge or transfer would not be
subject to approval of the Company and no legal opinion of legal counsel
of the
pledgee, secured party or pledgor shall be required in connection
therewith. Further, no notice shall be required of such
pledge.
22
At
the
appropriate Purchaser’s expense, the Company will execute and deliver such
reasonable documentation as a pledgee or secured party of Securities may
reasonably request in connection with a pledge or transfer of the Securities,
including, if the Securities are subject to registration pursuant to the
Registration Rights Agreement, the preparation and filing of any required
prospectus supplement under Rule 424(b)(3) under the Securities Act or other
applicable provision of the Securities Act to appropriately amend the list
of
Selling Stockholders thereunder.
(c) Certificates
evidencing the Underlying Shares shall not contain any legend (including
the
legend set forth in Section 4.1(b) hereof): (i) while a registration statement
(including the Registration Statement) covering the resale of such security
is
effective under the Securities Act, or (ii) following any sale of such
Underlying Shares pursuant to Rule 144, or (iii) if such Underlying Shares
are
eligible for sale under Rule 144(k), or (iv) if such legend is not required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission).
The
Company shall cause its counsel to issue a legal opinion to the Transfer
Agent
promptly after the Effective Date if required by the Transfer Agent to effect
the removal of the legend hereunder. If all or any portion of a
Debenture or Warrant is converted or exercised (as applicable) at a time
when
there is an effective registration statement to cover the resale of the
Underlying Shares, or if such Underlying Shares may be sold under Rule 144(k)
or
if such legend is not otherwise required under applicable requirements of
the
Securities Act (including judicial interpretations and pronouncements issued
by
the staff of the Commission) then such Underlying Shares shall be issued
free of
all legends. The Company agrees that following the Effective Date or
at such time as such legend is no longer required under this Section 4.1(c),
it
will, no later than three Trading Days following the delivery by a Purchaser
to
the Company or the Transfer Agent of a certificate representing Underlying
Shares, as applicable, issued with a restrictive legend (such third Trading
Day,
the “Legend Removal Date”), deliver or cause to be delivered to such
Purchaser a certificate representing such shares that is free from all
restrictive and other legends. The Company may not make any notation
on its records or give instructions to the Transfer Agent that enlarge the
restrictions on transfer set forth in this Section. Certificates for
Underlying Shares subject to legend removal hereunder shall be transmitted
by
the Transfer Agent to the Purchaser by crediting the account of the Purchaser’s
prime broker with the Depository Trust Company System as directed by such
Purchaser.
(d) In
addition to such Purchaser’s other available remedies, the Company shall pay to
a Purchaser, in cash, as partial liquidated damages and not as a penalty,
for
each $1,000 of Underlying Shares (based on the VWAP of the Common Stock on
the
date such Securities are submitted to the Transfer Agent) delivered for removal
of the restrictive legend and subject to Section 4.1(c), $10 per Trading
Day
(increasing to $20 per Trading Day 5 Trading Days after such damages have
begun
to accrue) for each Trading Day after the Legend Removal Date until such
certificate is delivered without a legend. Nothing herein shall limit
such Purchaser’s right to pursue actual damages for the Company’s failure to
deliver certificates representing any Securities as required by the Transaction
Documents, and such Purchaser shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a decree
of
specific performance and/or injunctive relief.
23
(e) Each
Purchaser, severally and not jointly with the other Purchasers, agrees that
such
Purchaser will sell any Securities pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom, and that if Securities are sold
pursuant to a Registration Statement, they will be sold in compliance with
the
plan of distribution set forth therein, and acknowledges that the removal
of the
restrictive legend from certificates representing Securities as set forth
in
this Section 4.1 is predicated upon the Company’s reliance upon this
understanding.
4.2 Acknowledgment
of Dilution. The Company acknowledges that the issuance of the
Securities may result in dilution of the outstanding shares of Common Stock,
which dilution may be substantial under certain market
conditions. The Company further acknowledges that its obligations
under the Transaction Documents, including without limitation its obligation
to
issue the Underlying Shares pursuant to the Transaction Documents, are
unconditional and absolute and not subject to any right of set off,
counterclaim, delay or reduction, regardless of the effect of any such dilution
or any claim the Company may have against any Purchaser and regardless of
the
dilutive effect that such issuance may have on the ownership of the other
stockholders of the Company.
4.3 Furnishing
of Information. Until the earliest of the time that (i) no
Purchaser owns Securities, the Company covenants to timely file (or obtain
extensions in respect thereof and file within the applicable grace period)
all
reports required to be filed by the Company after the date hereof pursuant
to
the Exchange Act even if the Company is not then subject to the reporting
requirements of the Exchange Act. As long as any
Purchaser owns Securities, if the Company is not required to file reports
pursuant to the Exchange Act, it will prepare and furnish to the Purchasers
and
make publicly available in accordance with Rule 144(c) such information as
is
required for the Purchasers to sell the Securities under Rule
144. The Company further covenants that it will take such further
action as any holder of Securities may reasonably request, to the extent
required from time to time to enable such Person to sell such Securities
without
registration under the Securities Act within the requirements of the exemption
provided by Rule 144.
4.4 Integration. The
Company shall not sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Securities to
the
Purchasers in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Purchasers or that would be integrated
with the offer or sale of the Securities for purposes of the rules and
regulations of any Trading Market.
4.5 Conversion
and Exercise Procedures. The form of Notice of Exercise included
in the Warrants and the form of Notice of Conversion included in the
Debentures set forth the totality of the procedures
required of the Purchasers in order to exercise the Warrants or convert the
Debentures. No additional legal opinion or other information or
instructions shall be required of the Purchasers to exercise their Warrants
or
convert their Debentures. The Company shall honor exercises of the
Warrants and conversions of the Debentures and shall deliver Underlying Shares
in accordance with the terms, conditions and time periods set forth in the
Transaction Documents.
24
4.6 Securities
Laws Disclosure; Publicity. The Company shall, by 8:30 a.m. (New
York City time) on the Trading Day following the date hereof, issue a Current
Report on Form 8-K disclosing the material terms of the transactions
contemplated hereby and attaching the Transaction Documents as exhibits
thereto. The Company and each Purchaser shall consult with each other
in issuing any other press releases with respect to the transactions
contemplated hereby, and neither the Company nor any Purchaser shall issue
any
such press release or otherwise make any such public statement without the
prior
consent of the Company, with respect to any press release of any Purchaser,
or
without the prior consent of each Purchaser, with respect to any press release
of the Company, which consent shall not unreasonably be withheld or delayed,
except if such disclosure is required by law, in which case the disclosing
party
shall promptly provide the other party with prior notice of such public
statement or communication. Notwithstanding the foregoing, the
Company shall not publicly disclose the name of any Purchaser, or include
the
name of any Purchaser in any filing with the Commission or any regulatory
agency
or Trading Market, without the prior written consent of such Purchaser, except
(i) as required by federal securities law in connection with (A) any
registration statement contemplated by the Registration Rights Agreement
and (B)
the filing of final Transaction Documents (including signature pages thereto)
with the Commission and (ii) to the extent such disclosure is required by
law or
Trading Market regulations, in which case the Company shall provide the
Purchasers with prior notice of such disclosure permitted under this clause
(ii).
4.7 Shareholder
Rights Plan. No claim will be made or enforced by the Company or,
with the consent of the Company, any other Person, that any Purchaser is
an
“Acquiring Person” under any control share acquisition, business combination,
poison pill (including any distribution under a rights agreement) or similar
anti-takeover plan or arrangement in effect or hereafter adopted by the Company,
or that any Purchaser could be deemed to trigger the provisions of any such
plan
or arrangement, by virtue of receiving Securities under the Transaction
Documents or under any other agreement between the Company and the
Purchasers.
4.8 Non-Public
Information. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents,
the
Company covenants and agrees that neither it nor any other Person acting
on its
behalf will provide any Purchaser or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto such Purchaser shall have executed a written agreement regarding
the confidentiality and use of such information. The Company
understands and confirms that each Purchaser shall be relying on the foregoing
covenant in effecting transactions in securities of the Company.
4.9 Use
of
Proceeds. Except as set forth on Schedule 4.9 attached
hereto, the Company shall use the net proceeds from the sale of the Securities
hereunder for working capital purposes and shall not use such proceeds for
(a)
the satisfaction of any portion of the Company’s debt (other than payment of
trade payables in the ordinary course of the Company’s business and prior
practices), (b) the redemption of any Common Stock or Common Stock Equivalents
or (c) the settlement of any outstanding litigation.
25
4.10 Indemnification
of Purchasers. Subject to the provisions of this Section
4.10, the Company will indemnify and hold each Purchaser and its directors,
officers, shareholders, members, partners, employees and agents (and any
other
Persons with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities
Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding
a
lack of such title or any other title) of such controlling person (each,
a
“Purchaser Party”) harmless from any and all losses, liabilities,
obligations, claims, contingencies, damages, costs and expenses, including
all
judgments, amounts paid in settlements, court costs and reasonable attorneys’
fees and costs of investigation that any such Purchaser Party may suffer
or
incur as a result of or relating to (a) any breach of any of the
representations, warranties, covenants or agreements made by the Company
in this
Agreement or in the other Transaction Documents or (b) any action instituted
against a Purchaser in any capacity, or any of them or their respective
Affiliates, by any stockholder of the Company who is not an Affiliate of
such
Purchaser, with respect to any of the transactions contemplated by the
Transaction Documents (unless such action is based upon a breach of such
Purchaser’s representations, warranties or covenants under the Transaction
Documents or any agreements or understandings such Purchaser may have with
any
such stockholder or any violations by the Purchaser of state or federal
securities laws or any conduct by such Purchaser which constitutes fraud,
gross
negligence, willful misconduct or malfeasance). If any action shall
be brought against any Purchaser Party in respect of which indemnity may
be
sought pursuant to this Agreement, such Purchaser Party shall promptly notify
the Company in writing, and the Company shall have the right to assume the
defense thereof with counsel of its own choosing reasonably acceptable to
the
Purchaser Party. Any Purchaser Party shall have the right to employ
separate counsel in any such action and participate in the defense thereof,
but
the fees and expenses of such counsel shall be at the expense of such Purchaser
Party except to the extent that (i) the employment thereof has been specifically
authorized by the Company in writing, (ii) the Company has failed after a
reasonable period of time to assume such defense and to employ counsel or
(iii)
in such action there is, in the reasonable opinion of such separate counsel,
a
material conflict on any material issue between the position of the Company
and
the position of such Purchaser Party, in which case the Company shall be
responsible for the reasonable fees and expenses of no more than one such
separate counsel. The Company will not be liable to any Purchaser
Party under this Agreement (i) for any settlement by a Purchaser Party effected
without the Company’s prior written consent, which shall not be unreasonably
withheld or delayed; or (ii) to the extent, but only to the extent that a
loss,
claim, damage or liability is attributable to any Purchaser Party’s breach of
any of the representations, warranties, covenants or agreements made by such
Purchaser Party in this Agreement or in the other Transaction
Documents.
4.11 Reservation
and Listing of Securities.
(a) The
Company shall maintain a reserve from its duly authorized shares of Common
Stock
for issuance pursuant to the Transaction Documents in such amount as may
be
required to fulfill its obligations in full under the Transaction
Documents.
26
(b) If,
on
any date, the number of authorized but unissued (and otherwise unreserved)
shares of Common Stock is less than the Required Minimum on such date, then
the
Board of Directors shall use commercially reasonable efforts to amend the
Company’s certificate or articles of incorporation to increase the number of
authorized but unissued shares of Common Stock to at least the Required Minimum
at such time, as soon as possible and in any event not later than the 75th
day
after such date.
(c) The
Company shall, if applicable: (i) in the time and manner required by the
principal Trading Market, prepare and file with such Trading Market an
additional shares listing application covering a number of shares of Common
Stock at least equal to the Required Minimum on the date of such application,
(ii) take all steps necessary to cause such shares of Common Stock to be
approved for listing on such Trading Market as soon as possible thereafter,
(iii) provide to the Purchasers evidence of such listing, and (iv) maintain
the
listing of such Common Stock on any date at least equal to the Required Minimum
on such date on such Trading Market or another Trading Market.
4.12 Participation
in Future Financing.
(a) From
the
date hereof until the date that is the 12 month anniversary of the Effective
Date, upon any issuance by the Company or any of its Subsidiaries of Common
Stock or Common Stock Equivalents (a “Subsequent Financing”), each
Purchaser shall have the right to participate in up to an amount of the
Subsequent Financing equal to 100% of the Subsequent Financing (the
“Participation Maximum”) on the same terms, conditions and price provided
for in the Subsequent Financing.
(b) At
least
5 Trading Days prior to the closing of the Subsequent Financing, the Company
shall deliver to each Purchaser a written notice of its intention to effect
a
Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask such
Purchaser if it wants to review the details of such financing (such additional
notice, a “Subsequent Financing Notice”). Upon the request of
a Purchaser, and only upon a request by such Purchaser, for a Subsequent
Financing Notice, the Company shall promptly, but no later than 1 Trading
Day
after such request, deliver a Subsequent Financing Notice to such
Purchaser. The Subsequent Financing Notice shall describe in
reasonable detail the proposed terms of such Subsequent Financing, the amount
of
proceeds intended to be raised thereunder and the Person or Persons through
or
with whom such Subsequent Financing is proposed to be effected and shall
include
a term sheet or similar document relating thereto as an attachment.
(c) Any
Purchaser desiring to participate in such Subsequent Financing must provide
written notice to the Company by not later than 5:30 p.m. (New York City
time)
on the 5th
Trading Day after all of the Purchasers have received the Pre-Notice that
the
Purchaser is willing to participate in the Subsequent Financing, the amount
of
the Purchaser’s participation, and that the Purchaser has such funds ready,
willing, and available for investment on the terms set forth in the Subsequent
Financing Notice. If the Company receives no notice from a Purchaser
as of such 5th
Trading Day, such Purchaser shall be deemed to have notified the Company
that it
does not elect to participate.
27
(d) If
by
5:30 p.m. (New York City time) on the 5th Trading
Day after
all of the Purchasers have received the Pre-Notice, notifications by the
Purchasers of their willingness to participate in the Subsequent Financing
(or
to cause their designees to participate) is, in the aggregate, less than
the
total amount of the Subsequent Financing, then the Company may effect the
remaining portion of such Subsequent Financing on the terms and with the
Persons
set forth in the Subsequent Financing Notice.
(e) If
by
5:30 p.m. (New York City time) on the 5th Trading
Day after
all of the Purchasers have received the Pre-Notice, the Company receives
responses to a Subsequent Financing Notice from Purchasers seeking to purchase
more than the aggregate amount of the Participation Maximum, each such Purchaser
shall have the right to purchase its Pro Rata Portion (as defined below)
of the
Participation Maximum. “Pro Rata Portion” means the ratio of (x)
the Subscription Amount of Securities purchased on the First Closing Date
by a
Purchaser participating under this Section 4.12 and (y) the sum of the aggregate
Subscription Amounts of Securities purchased on the First Closing Date by
all
Purchasers participating under this Section 4.12.
(f) The
Company must provide the Purchasers with a second Subsequent Financing Notice,
and the Purchasers will again have the right of participation set forth above
in
this Section 4.12, if the Subsequent Financing subject to the initial Subsequent
Financing Notice is not consummated for any reason on the terms set forth
in
such Subsequent Financing Notice within 60 Trading Days after the date of
the
initial Subsequent Financing Notice.
(g) Notwithstanding
the foregoing, this Section 4.12 shall not apply in respect of (i) an Exempt
Issuance or (ii) an underwritten public offering of Common Stock.
4.13 Subsequent
Equity Sales.
(a) From
the
date hereof until 90 days after the Effective Date, neither the Company nor
any
Subsidiary shall issue shares of Common Stock or Common Stock Equivalents;
provided, however, the 90 day period set forth in this Section
4.13 shall be extended for the number of Trading Days during such period
in
which (i) trading in the Common Stock is suspended by any Trading Market,
or
(ii) following the Effective Date, the Registration Statement is not effective
or the prospectus included in the Registration Statement may not be used
by the
Purchasers for the resale of the Underlying Shares.
(b) From
the
date hereof until such time as no Purchaser holds any of the Securities,
the
Company shall be prohibited from effecting or entering into an agreement
to
effect any Subsequent Financing involving a Variable Rate Transaction.
“Variable Rate Transaction” means a transaction in which the Company
issues or sells (i) any debt or equity securities that are convertible into,
exchangeable or exercisable for, or include the right to receive additional
shares of Common Stock either (A) at a conversion, exercise or exchange rate
or
other price that is based upon and/or varies with the trading prices of or
quotations for the shares of Common Stock at any time after the initial issuance
of such debt or equity securities, or (B) with a conversion, exercise or
exchange price that is subject to being reset at some future date after the
initial issuance of such debt or equity security or upon the occurrence of
specified or contingent events directly or indirectly related to the business
of
the Company or the market for the Common Stock or (ii) enters into any
agreement, including, but not limited to, an equity line of credit, whereby
the
Company may sell securities at a future determined price.
28
(c) Notwithstanding
the foregoing, this Section 4.13 shall not apply in respect of an Exempt
Issuance, except that no Variable Rate Transaction shall be an Exempt
Issuance.
4.14 Equal
Treatment of Purchasers. No consideration shall be offered or
paid to any Person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration
is
also offered to all of the parties to the Transaction Documents. Further,
the
Company shall not make any payment of principal or interest on the Debentures
in
amounts which are disproportionate to the respective principal amounts
outstanding on the Debentures at any applicable time. For
clarification purposes, this provision constitutes a separate right granted
to
each Purchaser by the Company and negotiated separately by each Purchaser,
and
is intended for the Company to treat the Purchasers as a class and shall
not in
any way be construed as the Purchasers acting in concert or as a group with
respect to the purchase, disposition or voting of Securities or
otherwise.
4.15 Short
Sales and Confidentiality After The Date Hereof. Each Purchaser, severally
and not jointly with the other Purchasers, covenants that neither it nor
any
Affiliate acting on its behalf or pursuant to any understanding with it will
execute any Short Sales during the period commencing at the Discussion Time
and
ending at the time that the transactions contemplated by this Agreement are
first publicly announced as described in Section 4.6. Each Purchaser,
severally and not jointly with the other Purchasers, covenants that until
such
time as the transactions contemplated by this Agreement are publicly disclosed
by the Company as described in Section 4.6, such Purchaser will maintain
the
confidentiality of the existence and terms of this transaction and the
information included in the Disclosure Schedules. Each Purchaser severally
and not jointly with any other Purchaser understands and acknowledges, and
agrees, to act in a manner that will not violate the positions of the Commission
as set forth in Item 65, Section A, of the Manual of Publicly Available
Telephone Interpretations, dated July 1997, compiled by the Office of Chief
Counsel, Division of Corporation Finance. Notwithstanding the foregoing,
no
Purchaser makes any representation, warranty or covenant hereby that it will
not
engage in Short Sales in the securities of the Company after the time that
the
transactions contemplated by this Agreement are first publicly announced
as
described in Section 4.6. Notwithstanding the foregoing, in the case of a
Purchaser that is a multi-managed investment vehicle whereby separate portfolio
managers manage separate portions of such Purchaser’s assets and the portfolio
managers have no direct knowledge of the investment decisions made by the
portfolio managers managing other portions of such Purchaser’s assets, the
covenant set forth above shall only apply with respect to the portion of
assets
managed by the portfolio manager that made the investment decision to purchase
the Securities covered by this Agreement.
29
4.16 Form
D; Blue Sky Filings. The Company agrees to timely file a Form D
with respect to the Securities as required under Regulation D and to provide
a
copy thereof, promptly upon request of any Purchaser. The Company shall take
such action as the Company shall reasonably determine is necessary in order
to
obtain an exemption for, or to qualify the Securities for, sale to the
Purchasers at applicable Closing under applicable securities or “Blue Sky” laws
of the states of the United States, and shall provide evidence of such actions
promptly upon request of any Purchaser.
4.18 Capital
Changes. Until the one year anniversary of the Effective Date,
the Company shall not undertake a reverse or forward stock split or
reclassification of the Common Stock without the prior written consent of
the
Purchasers holding a majority in principal amount outstanding of the
Debentures.
ARTICLE
V.
MISCELLANEOUS
5.1 Termination.
This Agreement may be terminated by any Purchaser, as to such Purchaser’s
obligations hereunder only and without any effect whatsoever on the obligations
between the Company and the other Purchasers, by written notice to the other
parties, if the First Closing has not been consummated on or before August
2,
2007; provided, however, that such termination will not affect the
right of any party to xxx for any breach by the other party (or
parties).
5.2 Fees
and Expenses. At the First Closing, the Company has agreed to
reimburse Enable Capital Management, LLC (“Enable”) the non-accountable
sum of $40,000 for its legal fees and expenses, $10,000 of which has been
paid
prior to the First Closing. The Company shall deliver to each
Purchaser, prior to the Closing, a completed and executed copy of the Closing
Statement attached hereto as Annex A. Except as
expressly set forth in the Transaction Documents to the contrary, each party
shall pay the fees and expenses of its advisers, counsel, accountants and
other
experts, if any, and all other expenses incurred by such party incident to
the
negotiation, preparation, execution, delivery and performance of this
Agreement. The Company shall pay all transfer agent fees, stamp taxes
and other taxes and duties levied in connection with the delivery of any
Securities to the Purchasers.
5.3 Entire
Agreement. The Transaction Documents, together with the exhibits
and schedules thereto, contain the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the
parties
acknowledge have been merged into such documents, exhibits and
schedules.
5.4 Notices. Any
and all notices or other communications or deliveries required or permitted
to
be provided hereunder shall be in writing and shall be deemed given and
effective on the earliest of (a) the date of transmission, if such notice
or
communication is delivered via facsimile at the facsimile number set forth
on
the signature pages attached hereto prior to 5:30 p.m. (New York City time)
on a
Trading Day, (b) the next Trading Day after the date of transmission, if
such
notice or communication is delivered via facsimile at the facsimile number
set
forth on the signature pages attached hereto on a day that is not a Trading
Day
or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the
second
Trading Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service, or (d) upon actual receipt by the party to whom
such
notice is required to be given.
30
The
address for such notices and communications shall be as set forth on the
signature pages attached hereto.
5.5 Amendments;
Waivers. No provision of this Agreement may be waived, modified,
supplemented or amended except in a written instrument signed, in the case
of an
amendment, by the Company and the Purchasers of at least 75% in interest
of the
Securities still held by Purchasers or, in the case of a waiver, by the party
against whom enforcement of any such waived provision is sought. No
waiver of any default with respect to any provision, condition or requirement
of
this Agreement shall be deemed to be a continuing waiver in the future or
a
waiver of any subsequent default or a waiver of any other provision, condition
or requirement hereof, nor shall any delay or omission of any party to exercise
any right hereunder in any manner impair the exercise of any such
right.
5.6 Headings. The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof.
5.7 Successors
and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or
obligations hereunder without the prior written consent of each Purchaser
(other
than by merger). Any Purchaser may assign any or all of its rights
under this Agreement to any Person to whom such Purchaser assigns or transfers
any Securities, provided that such transferee agrees in writing to be bound,
with respect to the transferred Securities, by the provisions of the Transaction
Documents that apply to the “Purchasers.”
5.8 No
Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section
4.10.
5.9 Governing
Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed
by
and construed and enforced in accordance with the internal laws of the State
of
New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated
by
this Agreement and any other Transaction Documents (whether brought against
a
party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York. Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting
in
the City of New York, borough of Manhattan for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated
hereby
or discussed herein (including with respect to the enforcement of any of
the
Transaction Documents), and hereby irrevocably waives, and agrees not to
assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding
is
improper or is an inconvenient venue for such
proceeding.
31
Each
party hereby irrevocably waives personal service of process and consents
to
process being served in any such suit, action or proceeding by mailing a
copy
thereof via registered or certified mail or overnight delivery (with evidence
of
delivery) to such party at the address in effect for notices to it under
this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall
be deemed to limit in any way any right to serve process in any other manner
permitted by law. If either party shall commence an action or
proceeding to enforce any provisions of the Transaction Documents, then the
prevailing party in such action or proceeding shall be reimbursed by the
other
party for its reasonable attorneys’ fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such action or
proceeding.
5.10 Survival. The
representations and warranties shall survive the Closings and the delivery
of
the Securities for the applicable statue of limitations.
5.11 Execution. This
Agreement may be executed in two or more counterparts, all of which when
taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered
to the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a “.pdf” format data file, such
signature shall create a valid and binding obligation of the party executing
(or
on whose behalf such signature is executed) with the same force and effect
as if
such facsimile or “.pdf” signature page were an original thereof.
5.12 Severability.
If any term, provision, covenant or restriction of this Agreement is held
by a
court of competent jurisdiction to be invalid, illegal, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their commercially
reasonable efforts to find and employ an alternative means to achieve the
same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that
may be
hereafter declared invalid, illegal, void or unenforceable.
5.13 Rescission
and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) any of the
other
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then
such
Purchaser may rescind or withdraw, in its sole discretion from time to time
upon
written notice to the Company, any relevant notice, demand or election in
whole
or in part without prejudice to its future actions and rights; provided,
however, in the case of a rescission of a conversion of a Debenture
or
exercise of a Warrant, the Purchaser shall be required to return any shares
of
Common Stock delivered in connection with any such rescinded conversion or
exercise notice.
32
5.14 Replacement
of Securities. If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue
or
cause to be issued in exchange and substitution for and upon cancellation
thereof (in the case of mutilation), or in lieu of and substitution therefor,
a
new certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction. The
applicant for a new certificate or instrument under such circumstances shall
also pay any reasonable third-party costs (including customary indemnity)
associated with the issuance of such replacement Securities.
5.15 Remedies. In
addition to being entitled to exercise all rights provided herein or granted
by
law, including recovery of damages, each of the Purchasers and the Company
will
be entitled to specific performance under the Transaction
Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations contained in the Transaction Documents and hereby agrees to waive
and not to assert in any action for specific performance of any such obligation
the defense that a remedy at law would be adequate.
5.16 Payment
Set Aside. To the extent that the Company makes a payment or payments to any
Purchaser pursuant to any Transaction Document or a Purchaser enforces or
exercises its rights thereunder, and such payment or payments or the proceeds
of
such enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
a trustee, receiver or any other person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation
or
part thereof originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.
5.17 Usury. To
the extent it may lawfully do so, the Company hereby agrees not to insist
upon
or plead or in any manner whatsoever claim, and will resist any and all efforts
to be compelled to take the benefit or advantage of, usury laws wherever
enacted, now or at any time hereafter in force, in connection with any claim,
action or proceeding that may be brought by any Purchaser in order to enforce
any right or remedy under any Transaction Document. Notwithstanding
any provision to the contrary contained in any Transaction Document, it is
expressly agreed and provided that the total liability of the Company under
the
Transaction Documents for payments in the nature of interest shall not exceed
the maximum lawful rate authorized under applicable law (the “Maximum
Rate”), and, without limiting the foregoing, in no event shall any rate of
interest or default interest, or both of them, when aggregated with any other
sums in the nature of interest that the Company may be obligated to pay under
the Transaction Documents exceed such Maximum Rate. It is agreed that
if the maximum contract rate of interest allowed by law and applicable to
the
Transaction Documents is increased or decreased by statute or any official
governmental action subsequent to the date hereof, the new maximum contract
rate
of interest allowed by law will be the Maximum Rate applicable to the
Transaction Documents from the effective date forward, unless such application
is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company
to any
Purchaser with respect to indebtedness evidenced by the Transaction Documents,
such excess shall be applied by such Purchaser to the unpaid principal balance
of any such indebtedness or be refunded to the Company, the manner of handling
such excess to be at such Purchaser’s election.
33
5.18 Independent
Nature of Purchasers’ Obligations and Rights. The obligations of
each Purchaser under any Transaction Document are several and not joint with
the
obligations of any other Purchaser, and no Purchaser shall be responsible
in any
way for the performance or non-performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or
in any other Transaction Document, and no action taken by any Purchaser pursuant
thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a
group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Purchaser shall be entitled to
independently protect and enforce its rights, including without limitation
the
rights arising out of this Agreement or out of the other Transaction Documents,
and it shall not be necessary for any other Purchaser to be joined as an
additional party in any proceeding for such purpose. Each Purchaser
has been represented by its own separate legal counsel in their review and
negotiation of the Transaction Documents. For reasons of
administrative convenience only, Purchasers and their respective counsel
have
chosen to communicate with the Company through FWS. FWS does not
represent all of the Purchasers but only Enable. The Company has
elected to provide all Purchasers with the same terms and Transaction Documents
for the convenience of the Company and not because it was required or requested
to do so by the Purchasers.
5.19 Liquidated
Damages. The Company’s obligations to pay any partial liquidated
damages or other amounts owing under the Transaction Documents is a continuing
obligation of the Company and shall not terminate until all unpaid partial
liquidated damages and other amounts have been paid notwithstanding the fact
that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been
canceled.
5.20 Saturdays,
Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall not be a Business Day, then such action may be taken or such
right
may be exercised on the next succeeding Business Day.
5.21 Construction.
The parties agree that each of them and/or their respective counsel has reviewed
and had an opportunity to revise the Transaction Documents and, therefore,
the
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of the Transaction Documents or any amendments hereto.
5.22 Waiver
of Jury Trial. In any action, suit or proceeding in any
jurisdiction brought by any party against any other party, the parties each
knowingly and intentionally, to the greatest extent permitted by applicable
law,
hereby absolutely, unconditionally, irrevocably and expressly waives forever
trial by jury.
(Signature
Pages Follow)
34
IN
WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories
as of
the date first indicated above.
|
GUANGZHOU
GLOBAL TELECOM, INC.
|
Address
for Notice:
APT
29D, Block E
No.11
Hao Jing Street, Zhu Jiang Di Xxxx Xxxx
XxXxxx
Xxxx, XxxXxx Xxxxxxxx,
Xxxxxxxxx
Xxxxx, 000000
|
|
By:/s/
Li Yanquan
Name:
Li Yankuan
Title:
Chief Executive Officer
|
Fax:
Attn:
Li Yankuan
Tel:
(000) 00 00 00000000
e-mail:
xxx0000@000.xxx
|
|
With
a copy to (which shall not constitute notice):
Xxxxxx
& Jaclin, LLP
000
Xxxxx 0 Xxxxx, Xxxxx 000
Xxxxxxxxx,
Xxx Xxxxxx 00000
Attn:
Xxxxxxx X. Xxxxxx, Esq.
FAX:
(000) 000-0000
|
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE
PAGE FOR PURCHASER FOLLOWS]
35
[PURCHASER
SIGNATURE PAGES TO GZGT SECURITIES PURCHASE AGREEMENT]
IN
WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement
to be duly executed by their respective authorized signatories as of the
date
first indicated above.
Name
of
Purchaser: ________________________________________________________
Signature
of Authorized Signatory of Purchaser:
__________________________________
Name
of
Authorized Signatory:
____________________________________________________
Title
of
Authorized Signatory:
_____________________________________________________
Email
Address of Purchaser:
________________________________________________
Facsimile
Number of Purchaser:
________________________________________________
Address
for Notice of Purchaser:
Address
for Delivery of Securities for Purchaser (if not same as address for
notice):
Subscription
Amount:
First
Closing:
_____________
Second
Closing: ______________
Principal
Amount (Subscription Amount x 1.142857):
First
Closing:
_____________
Second
Closing: ______________
Warrant
Shares: _________________
EIN
Number:
[SIGNATURE
PAGES CONTINUE]
36
Annex
A
CLOSING
STATEMENT
Pursuant
to the attached Securities Purchase Agreement, dated as of the date hereto,
the
purchasers shall purchase up to $3,000,000 of Debentures and Warrants from
Guangzhou Global Telecom, Inc. (the “Company”). All funds will
be wired into an account maintained by the Company. All funds will be
disbursed in accordance with this Closing Statement.
|
Disbursement
Date:
|
August
___, 2007
|
|
I. PURCHASE
PRICE
|
||||
|
Gross
Proceeds to be Received
|
$ | |||
|
II. DISBURSEMENTS
|
||||
|
Enable
Capital
|
$ |
30,000
|
||
|
Midtown
Partners
|
$ | |||
| $ | ||||
| $ | ||||
| $ | ||||
|
Total
Amount Disbursed:
|
$ | |||
|
WIRE
INSTRUCTIONS:
|
||||
|
To:
_____________________________________
|
||||
EXECUTED
THIS ___ DAY OF AUGUST, 2007
|
GUANGZHOU
GLOBAL TELECOM, INC.
|
|
By:/s/
Li Yanquan
Name:
Li Yankuan
Title:
Chief Executive Officer
|
37
