EXECUTION VERSION
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
November __, 2005, by and among IT&E International Group, a Nevada corporation
(the "Company"), ComVest Investment Partners II LLC, a Delaware limited
liability company ("ComVest"), and the purchasers set forth on the signature
pages attached hereto (each a "Purchaser" and collectively with ComVest the
"Purchasers").
WHEREAS, subject to the terms and conditions set forth in this Agreement
and in accordance with and in reliance upon the exemption from securities
registration afforded by Section 4(2) of the Securities Act of 1933, as amended,
and the rules and regulations of the Commission promulgated thereunder (the
"Securities Act"), including Regulation D ("Regulation D"), and/or upon such
other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments to be made hereunder,
the Company desires to issue and sell to each Purchaser, and each Purchaser
desires to purchase from the Company (collectively with the other Purchasers) as
aggregate of (i) up to 11,500 shares of Series D Convertible Preferred Stock,
stated value $1,000 per share (the "Series D Preferred Stock"), or senior
secured convertible notes (the "Senior Secured Notes") in an aggregate principal
amount of up to Eleven Million Five Hundred Thousand Dollars ($11,500,000), (ii)
warrants (the "Warrants") to purchase up to 82,142,788 shares of common stock,
$0.001 par value per share ("Common Stock") and (iii) an option to purchase up
to an additional 5,000 shares of Series D Preferred Stock and Warrants for the
purchase of 35,714,256 shares of common stock for an aggregate purchase price of
an additional Five Million Dollars $5,000,000 within six months of the Initial
Closing (as defined herein) on the same terms as set forth herein;
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 agrees
as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms have the
meanings indicated in this Section 1.1:
(a) "Action" means any claim, action, suit, arbitration, inquiry,
action or investigation by or before any Governmental Authority.
(b) "Affiliate" means, with respect to any specified Person, any
other Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person.
(c) "Agreement" shall have the meaning set forth in the Preamble.
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(d) "Business Day" means any day that is not a Saturday, a Sunday
or other day on which banks are required or authorized by Law to be closed in
The City of New York.
(e) "Certificate of Designation" means the Certificate of
Designation of Rights and Preferences of Series D Convertible Preferred Stock of
the Company to be filed with the Secretary of State of the State of Delaware in
connection with the issuance of the Series D Preferred Stock in the form of
Exhibit A attached hereto.
(f) "Claims" means any and all administrative, regulatory or
judicial actions, suits, petitions, appeals, demands, demand letters, claims,
Encumbrances, notices of noncompliance or violation, investigations, Actions,
consent orders or consent agreements.
(g) "Code" means the Internal Revenue Code of 1986, as amended
through the date hereof.
(h) "Company" shall have the meaning set forth in the Preamble.
(i) "Company Indemnified Party" shall have the meaning set forth
in Section 4.10(b).
(j) "Company Intellectual Property" means Intellectual Property
owned by the Company or any Subsidiary.
(k) "Company IP Agreements" means (a) licenses of Intellectual
Property by the Company or any Subsidiary to any third party, (b) licenses of
Intellectual Property by any third party to the Company or any Subsidiary, (c)
agreements between the Company or any Subsidiary and any third party relating to
the development or use of Intellectual Property, the development of data, or the
modification, framing, linking, or advertisement with respect to Internet web
sites and (d) consents, settlements, decrees, orders, injunctions, judgments or
rulings to which the Company or any Subsidiary is a party, governing the use,
validity or enforceability of Company Intellectual Property.
(l) "Company Software" means all Software (a) material to the
operation of its business or (b) manufactured, distributed, sold, licensed or
marketed by the Company or any Subsidiary.
(m) "Commission" means the Securities and Exchange Commission.
(n) "Common Stock" shall have the meaning set forth in the
Recitals.
(o) "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 exchangeable for, or otherwise entitles the holder thereof to receive,
Common Stock.
(p) "Company Counsel" means Xxxxx & Xxxxxxx, LLP with offices
located at 000 X. Xxxxxxxx, Xxxxx 0000, Xxx Xxxxx, Xxxxxxxxxx 00000-0000.
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(q) "control" (including the terms "controlled by" and "under
common control with"), with respect to the relationship between or among two or
more Persons, means the possession, directly or indirectly or as trustee,
personal representative or executor, of the power to direct or cause the
direction of the affairs or management of a Person, whether through the
ownership of voting securities, as trustee, personal representative or executor,
by contract, credit arrangement or otherwise.
(r) "Conversion Shares" means the shares of Common Stock issuable
upon conversion of the Series D Preferred Stock.
(s) "Copyrights" means mask works, rights of publicity and
privacy, and copyrights in works of authorship of any type, including Software,
registrations and applications for registration thereof throughout the world,
all rights therein provided by international treaties and conventions, all moral
and common law rights thereto, and all other rights associated therewith.
(t) "Disclosure Schedule" means the Disclosure Schedule attached
hereto, dated as of the date hereof, delivered by the Company to Purchasers in
connection with this Agreement.
(u) "Encumbrance" means any security interest, pledge,
hypothecation, mortgage, Encumbrance (including environmental and tax
Encumbrances), violation, charge, lease, license, encumbrance, servient
easement, adverse claim, reversion, reverter, preferential arrangement,
restrictive covenant, condition or restriction of any kind, including any
restriction on the use, voting, transfer, receipt of income or other exercise of
any attributes of ownership.
(v) "Effective Date" means the date that the Registration
Statement is first declared effective by the Commission.
(w) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated thereunder.
(x) "Exempt Issuance" means the issuance of (a) shares of Common
Stock options or shares of Common Stock issued upon the exercise of any such
options to employees, officers or directors of the Company pursuant to any stock
or option plan duly adopted by a majority of the non-employee members of the
Board of Directors (the "Board") of the Company or a majority of the members of
a committee of non-employee directors established for such purpose, (b)
securities upon the exercise of or conversion of any convertible securities,
options or warrants issued and outstanding on the date hereof, provided that
such securities have not been amended since the date of this Agreement, (c) the
Securities issued or issuable hereunder, (d) issuances in connection with
mergers, acquisitions, joint ventures or other transactions with an unrelated
third party in a bona fide transaction the purpose of which is not fundraising,
or (e) issuances at fair market value to the Company's suppliers, consultants
and other providers of services and goods not to exceed $100,000 to any one
Person, and not to exceed an aggregate of $250,000 in any fiscal year without
the prior written consent of Purchasers.
(y) "GAAP" means United States generally accepted accounting
principles and practices in effect from time to time applied consistently
throughout the periods involved.
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(z) "Governmental Authority" means any federal, national,
supranational, state, provincial, local, or similar government, governmental,
regulatory or administrative authority, agency or commission or any court,
tribunal, or judicial or arbitral body.
(aa) "Governmental Order" means any order, writ, judgment,
injunction, decree, stipulation, determination or award entered by or with any
Governmental Authority.
(bb) "GT" means Xxxxxxxxx Traurig, LLP with offices located at The
Met Life Building, 000 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000.
(cc) "Indebtedness" means, with respect to any Person, (a) all
indebtedness of such Person, whether or not contingent, for borrowed money, (b)
all obligations of such Person for the deferred purchase price of property or
services, (c) all obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments, (d) all indebtedness created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such Person (even though the rights and remedies of the
Company or lender under such agreement in the event of default are limited to
repossession or sale of such property), (e) all obligations of such Person as
lessee under leases that have been or should be, in accordance with GAAP,
recorded as capital leases, (f) all obligations, contingent or otherwise, of
such Person under acceptance, letter of credit or similar facilities, (g) all
obligations of such Person to purchase, redeem, retire, defease or otherwise
acquire for value any capital stock of such Person or any warrants, rights or
options to acquire such capital stock, valued, in the case of redeemable
preferred stock, at the greater of its voluntary or involuntary liquidation
preference plus accrued and unpaid dividends, (h) all Indebtedness of others
referred to in clauses (a) through (g) above guaranteed directly or indirectly
in any manner by such Person, or in effect guaranteed directly or indirectly by
such Person through an agreement (i) to pay or purchase such Indebtedness or to
advance or supply funds for the payment or purchase of such Indebtedness, (ii)
to purchase, sell or lease (as lessee or lessor) property, or to purchase or
sell services, primarily for the purpose of enabling the debtor to make payment
of such Indebtedness or to assure the holder of such Indebtedness against loss,
(iii) to supply funds to or in any other manner invest in the debtor (including
any agreement to pay for property or services irrespective of whether such
property is received or such services are rendered) or (iv) otherwise to assure
a creditor against loss, and (i) all Indebtedness referred to in clauses (a)
through (g) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any Encumbrance on
property (including accounts and contract rights) owned by such Person, even
though such Person has not assumed or become liable for the payment of such
Indebtedness.
(dd) "Indemnified Party" shall mean a Company Indemnified Party or
a Purchaser Indemnified Party, as the case may be;
(ee) "Indemnifying Party" shall mean Purchasers pursuant to Section
4.10(a) and the Company pursuant to Section 4.10(b), as the case may be
(ff) "Intellectual Property" means (i) patents, patent applications
and statutory invention registrations, (ii) trademarks, service marks, domain
names, trade dress, logos, trade names, corporate names and other identifiers of
source or goodwill, including registrations and
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applications for registration thereof and including the goodwill of its business
symbolized thereby or associated therewith, (iii) mask works and copyrights,
including copyrights in computer software, and registrations and applications
for registration thereof, and (iv) confidential and proprietary information,
including trade secrets, know how and invention rights.
(gg) "IRS" means the Internal Revenue Service of the United States.
(hh) "Law" means any federal, national, supranational, state,
provincial, local or similar statute, law, ordinance, regulation, rule, code,
order, requirement or rule of law (including common law).
(ii) "Leased Real Property" means the real property leased by the
Company or any Subsidiary as tenant, together with, to the extent leased by the
Company or any Subsidiary, all buildings and other structures, facilities or
improvements currently or hereafter located thereon, all fixtures, systems,
equipment and items of personal property of the Company or any Subsidiary
attached or appurtenant thereto and all easements, licenses, rights and
appurtenances relating to the foregoing.
(jj) "Licensed Intellectual Property" means Intellectual Property
licensed to the Company or any Subsidiary pursuant to the Company IP Agreements.
(kk) "Lock-up Agreements" means the agreements between certain
executives of the Company and the Company in the form of Exhibit B attached
hereto.
(ll) "Material Adverse Effect" means any circumstance, change in or
effect on its business, the Company or any Subsidiary that, individually or in
the aggregate with all other circumstances, changes in or effects on its
business, the Company or any Subsidiary: (a) is or is reasonably likely to be
materially adverse to its business, operations, assets or liabilities (including
contingent liabilities), employee relationships, customer or supplier
relationships, prospects, results of operations or the condition (financial or
otherwise) of its business, the Company or any Subsidiary or (b) is reasonably
likely to materially adversely effect the ability of any Purchaser to operate or
conduct its business in the manner in which it is currently or contemplated to
be operated or conducted by the Company or any Subsidiary.
(mm) "Optional Additional Investment" shall have the meaning set
forth in Section 2.4.
(nn) "Patents" means United States, foreign and international
patents, patent applications and statutory invention registrations, including
reissues, divisions, continuations, continuations-in-part, extensions and
reexaminations thereof, and all rights therein provided by international
treaties and conventions.
(oo) "Person" means any individual, partnership, firm, corporation,
limited liability company, association, trust, unincorporated organization or
other entity, as well as any syndicate or group that would be deemed to be a
person under Section 13(d)(3) of the Exchange Act.
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(pp) "Preferred Shares" means the shares of Series D preferred
Stock issued to Purchasers pursuant to this Agreement.
(qq) "Preferred Stock" means the "blank check" preferred stock
designated by the Company.
(rr) "Purchaser" and "Purchasers" shall have the meanings set forth
in the Preamble.
(ss) "Purchaser Indemnified Party" shall have the meaning set forth
in Section 4.10(a).
(tt) "Real Property" means the Leased Real Property.
(uu) "Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of this Agreement, among the Company and
Purchasers, in the form of Exhibit C attached hereto.
(vv) "Registration Statement" means a registration statement
meeting the requirements set forth in the Registration Rights Agreement and
covering the resale by Purchasers of the Shares and the Warrant Shares.
(ww) "Regulation D" shall have the meaning set forth in the
Recitals.
(xx) "Regulations" means the Treasury Regulations (including
Temporary Regulations) promulgated by the United States Department of Treasury
with respect to the Code or other federal tax statutes.
(yy) "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.
(zz) "SEC Reports" shall have the meaning ascribed to such term in
Section 3.1(g).
(aaa) "Securities" collectively means the Preferred Shares, the
Conversion Shares, the Senior Secured Notes, the Warrants and the Warrant
Shares.
(bbb) "Security Agreements" means the Security Agreements between
the Company and Purchasers in the forms of Exhibit D attached hereto.
(ccc) "Securities Act" shall have the meaning set forth in the
Recitals.
(ddd) "Senior Secured Notes" shall have the meaning set forth in the
Recitals in the form of Exhibit E attached hereto.
(eee) "Series D Preferred Stock" shall have the meaning set forth in
the Recitals.
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(fff) "Software" means computer software, programs and databases in
any form, including Internet web sites, web content and links, source code,
object code, operating systems and specifications, data, databases, database
management code, utilities, graphical user interfaces, menus, images, icons,
forms, methods of processing, software engines, platforms and data formats, all
versions, updates, corrections, enhancements and modifications thereof, and all
related documentation, developer notes, comments and annotations.
(ggg) "Subsidiaries" means any and all corporations, partnerships,
limited liability companies, joint ventures, associations and other entities
controlled by the Company directly or indirectly through one or more
intermediaries.
(hhh) "Tax" or "Taxes" means any and all taxes, fees, levies,
duties, tariffs, imposts, and other charges of any kind (together with any and
all interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any government or taxing authority, including taxes
or other charges on or with respect to income, franchises, windfall or other
profits, gross receipts, property, sales, use, capital stock, payroll,
employment, social security, workers' compensation, unemployment compensation,
or net worth; taxes or other charges in the nature of excise, withholding, ad
valorem, stamp, transfer, value added, or gains taxes; license, registration and
documentation fees; and customs' duties, tariffs, and similar charges.
(iii) "Tax Returns" means any return, declaration, report, election,
claim for refund or information return or other statement or form relating to,
filed or required to be filed with any Tax authority for the Company's fiscal
years ended after April 14, 2004 and thereafter, including any schedule or
attachment thereto or any amendment thereof.
(jjj) "Total Purchase Price" shall be equal to Ten Million Dollars
($10,000,000).
(kkk) "Trade Secrets" means trade secrets, know-how and other
confidential or proprietary technical, business and other information, including
manufacturing and production processes and techniques, research and development
information, technology, drawings, specifications, designs, plans, proposals,
technical data, financial, marketing and business data, pricing and cost
information, business and marketing plans, customer and supplier lists and
information, and all rights in any jurisdiction to limit the use or disclosure
thereof.
(lll) "Trademarks" means trademarks, service marks, trade dress,
logos, trade names, corporate names, URL addresses, domain names and symbols,
slogans and other indicia of source or origin, including the goodwill of its
business symbolized thereby or associated therewith, common law rights thereto,
registrations and applications for registration thereof throughout the world,
all rights therein provided by international treaties and conventions, and all
other rights associated therewith.
(mmm) "Transaction Documents" means this Agreement, the Senior
Secured Notes, the Certificate of Designation, the Warrants, the Security
Agreements and the Registration Rights Agreement and any other documents or
agreements executed in connection with the transactions contemplated hereunder.
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(nnn) "Warrants" shall have the meaning set forth in the Recitals in
the form of Exhibit F attached hereto.
(ooo) "Warrant Shares" means the shares of Common Stock issuable
upon exercise of the Warrants.
1.2 Other Terms. Other terms may be defined elsewhere in the text of
this Agreement and, unless otherwise indicated, shall have such meaning
throughout this Agreement.
1.3 Interpretation and Rules of Construction. In this Agreement, except
to the extent otherwise provided or that the context otherwise requires:
(i) when a reference is made in this Agreement to an
Article, Section, Exhibit or Schedule, such reference is to an Article or
Section of, or a Schedule or Exhibit to, this Agreement unless otherwise
indicated;
(ii) references to the "knowledge" of the Company shall
refer to the actual knowledge of any of the Company's officers or members
of its Board or the knowledge that any such person would reasonably be
expected to have assuming reasonable inquiry;
(iii) references to "due inquiry" shall mean that the Company
shall have inquired of each of the members of the Board of Directors,
members of executive management and any professional advisors;
(iv) the headings for this Agreement are for reference
purposes only and do not affect in any way the meaning or interpretation of
this Agreement;
(v) whenever the words "include," "includes" or "including"
are used in this Agreement, they are deemed to be followed by the words
"without limitation";
(vi) the words "hereof," "herein" and "hereunder" and words
of similar import, when used in this Agreement, refer to this Agreement as
a whole and not to any particular provision of this Agreement;
(vii) all terms defined in this Agreement have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto, unless otherwise defined therein;
(viii) the definitions contained in this Agreement are
applicable to the singular as well as the plural forms of such terms;
(ix) any Law defined or referred to herein or in any
agreement or instrument that is referred to herein means such Law or
statute as from time to time amended, modified or supplemented, including
by succession of comparable successor Laws;
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(x) references to a Person are, in the case of individuals,
also to his or her personal representatives, heirs and permitted assigns
and, in the case of entities, also to its successors and permitted assigns;
and
(xi) the use of "or" is not intended to be exclusive unless
expressly indicated otherwise.
ARTICLE II.
PURCHASE AND SALE
2.1 Purchase and Sale. The Company hereby agrees to sell and the
Purchasers agrees to purchase up to Eleven Thousand Five Hundred (11,500) shares
of Series D Preferred Stock or Senior Secured Notes and Warrants to purchase
Common Stock in the aggregate purchase price of up to $11,500,000 subject to the
provisions of Section 2.2 below. Each of the Purchasers acknowledges and agrees
that if on the date of the Initial Closing, or the Second Closing, as
applicable, the Company's Series D Preferred Stock is not duly authorized, the
Purchasers shall purchase and the Company shall issue Senior Secured Notes and
Warrants.
2.2 Closing.
(a) The consummation of the initial sale of Senior Secured Notes
(or Preferred Shares) and Warrants (the "Initial Closing") shall take place on
or before November __, 2005 (the "Closing Date") and the second closing shall
take place no later than December 31, 2005 ("Second Closing") by telecopy
exchange of signature pages with originals to follow by overnight delivery, or
in such other manner or at such place as the parties hereto may agree. There may
be additional closings in connection with the Optional Investment in accordance
with Section 2.4 (each an "Option Closing" and collectively "Option Closings").
The Initial Closing, the Second Closing and any Additional Closings each
referred to as a "Closing Date" and collectively the "Closing Dates."
(b) At the Initial Closing, the Purchasers shall deliver to the
Company up to Eight Million Five Hundred Thousand Dollars ($8,500,000), such
amount representing the aggregate purchase price for (i) Eight Thousand Five
Hundred (8,500) Preferred Shares or Senior Secured Notes in the principal amount
of Eight Million Five Hundred Thousand Dollars $8,500,000, and (ii) Warrants to
purchase up to 60,714,234 shares of Common Stock, by certified check or wire
transfer.
(c) At the Second Closing, the Purchasers shall deliver to the
Company up to Four Million Five Hundred Thousand Dollars ($4,500,000), such
amount representing the aggregate purchase price for (i) Four Thousand Five
Hundred (4,500) Preferred Shares or Senior Secured Notes in the principal amount
of Four Million Five Hundred Thousand Dollars ($4,500,000) and (ii) Warrants to
purchase up to 32,142,830 shares of Common Stock, by certified check or wire
transfer, provided however that in no event shall the aggregate amounts issued
in the Initial Closing and the Second Closing (a) exceed 11,500 shares of
Preferred Stock or Senior Secured Notes be in the aggregate principal amount
greater than $11,500,000, or (b) exceed 82,142,788 Warrants.
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(d) If ComVest exercises its Option (as defined in Section 2.4),
there shall be Option Closings, at which ComVest shall deliver to the Company up
to an additional $5,000,000, such amount representing the aggregate purchase
price for up to Five Thousand (5,000) Preferred Shares and Warrants to purchase
up to 35,714,25 shares of Common Stock, by certified check or wire transfer.
ComVest may exercise the Option for a lesser investment amount and the number of
Preferred Shares and shares underlying the Warrants shall be reduced
proportionately.
2.3 Closing Conditions; Deliveries.
(a) At the Initial Closing, the Company shall deliver or cause to
be delivered to Purchasers the following:
(i) this Agreement duly executed by the Company;
(ii) the Registration Rights Agreement duly executed by the
Company;
(iii) the Lock Up Agreements;
(iv) the Security Agreements duly executed by the Company
and each of its Subsidiaries;
(v) the written consent of the shareholders holding a
majority of the Common Stock outstanding in accordance with Section 2.3(i)
below, which consent is in full force and effect and has not been modified,
terminated or revoked;
(vi) the consent of the Board of Directors in accordance
with Section 2.3(k) below, which consent is in full force and effect and
has not been modified, terminated or revoked;
(vii) each of the executed Employment Agreements; and
(viii) evidence of cancellation of all Series A Preferred
Stock.
(b) On each of the Closing Dates, the Company shall deliver or
cause to be delivered to the Purchasers the following:
(i) a copy of the irrevocable instructions to the Company's
transfer agent instructing the transfer agent to deliver, on an expedited
basis, a certificate evidencing each of the Preferred Shares, each
registered in the name of such Purchasers or a Senior Secured Promissory
Note registered in the name of such Purchaser;
(ii) Warrants registered in the name of each Purchaser;
(iii) any material updates to the Disclosure Schedules;
(iv)
the certificates referred to in Section 2.3(e)(i) and
2.3(f)(i); and
(v) a legal opinion of Company Counsel, in the form
reasonably acceptable to GT.
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(c) On the Initial Closing, Purchasers shall deliver or cause to
be delivered to the Company the following:
(i) this Agreement duly executed by each Purchaser;
(ii) the Security Agreements duly executed by each
Purchaser; and
(iii) the Registration Rights Agreement duly executed by each
Purchaser.
(d) On each of the Closing Dates, each Purchaser shall deliver or
cause to be delivered to the Company the following:
(i) each Purchasers' respective portion of the Purchase
Price by wire transfer of immediately available funds to the account as
specified in writing by the Company; and
(ii) the certificates referred to in Section 2.3(e)(ii) and
2.3(g)(ii).
(e) Accuracy of Representations and Warranties.
(i) Each representation and warranty contained in Section
3.1 shall be true on and as of each Closing with the same effect as though
such representation and warranty had been made on and as of that date and
the Company has delivered to Purchasers a certificate, executed by the
Chief Executive Officer and the Chief Financial Officer of the Company,
dated each of the Closing Dates, certifying to the fulfillment of the
conditions specified in this Section 2.3(e)(i), and as to such other
matters as may be reasonably requested by the Purchasers including, but not
limited to certificates with respect to the Company's articles of
incorporation, by-laws and Board of Directors' resolutions relating to the
transactions contemplated hereby.
(ii) Each representation and warranty contained in Section
3.2 shall be true on and as of each Closing with the same effect as though
such representation and warranty had been made on and as of that date and
each of the Purchasers have delivered to the Company a certificate,
executed by the Chief Executive Officer, Chief Financial Officer of each
Purchaser (or in each Purchaser's individual capacity as applicable), dated
each of the Closing Dates, certifying to the fulfillment of the conditions
specified in this Section 2.3(e)(ii).
(f) Performance.
(i) The Company shall have performed and complied with all
agreements and conditions contained in this Agreement required to be
performed or complied with by the Company prior to or at each of the
Closings and the Company has delivered to Purchasers a certificate,
executed by the Chief Executive Officer and the Chief Financial Officer of
the Company, dated each of the Closing Dates, certifying to the fulfillment
of the conditions specified in this Section 2.3(f)(i).
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(ii) Each Purchaser shall have performed and complied with
all agreements and conditions contained in this Agreement required to be
performed or complied with by Purchaser prior to or at each of the Closings
and each Purchaser has delivered to the Company a certificate, executed by
the Chief Executive Officer or Chief Financial Officer of Purchaser (or in
each Purchaser's individual capacity as applicable), dated each of the
Closing Dates, certifying to the fulfillment of the conditions specified in
this Section 2.3(f)(ii).
(g) Due Diligence. As of the Initial Closing, each Purchaser
shall, in its sole discretion, have completed its legal and financial due
diligence and the results of such due diligence shall, in its sole discretion,
be acceptable to each Purchaser and its legal counsel. The updates to the
Disclosure Schedule delivered to each Purchaser in accordance with Section
2.3(b)(iii) shall not contain any exceptions that are deemed unacceptable by
each Purchaser in its sole discretion, and such Disclosure Schedule shall be
deemed to be materially accurate at each Closing, unless otherwise updated by
the Company and delivered to such Purchaser at such Closing.
(h) Indebtedness. As of the Closing there shall be no
Indebtedness, other than the Laurus Note as set forth in the SEC Reports and
accounts payable, trade payables and capital lease obligations incurred in the
ordinary course of business.
(i) Shareholder Approval. The shareholders holding a majority of
the Common Stock outstanding of the Company shall have consented to in writing:
(i) the designation and issuance of the Series D Preferred Stock on the terms
set forth in the Certificate of Designation attached hereto, (ii) the increase
in the number of authorized shares of Common Stock to 650,000,000 shares of
Common Stock, (iii) the preparation, filing and mailing of an information
statement in accordance with Schedule 14C of the Exchange Act, (iv) the
reincorporation of the Company into the State of Delaware, (v) a reverse stock
split to be declared by the Board of Directors in its sole discretion provided
that such reverse stock split shall not exceed 1 for 25 and must take place
within twelve (12) months after the date of such written consent, (vi) an
increase in the number of shares reserved for issuance under the 2005 Equity
Incentive Plan to 25,000,000 shares of Common Stock, (vii) the election of the
five (5) Designees and (viii) the amendment to the Bylaws or articles of
incorporation of the Company, as necessary, to reflect the foregoing.
(j) Senior Executives Employment Agreement. The employment
agreements between the Company and each of Xxxxx Xxxxxxxx, Xxxxx Xxxxxxx,
Xxxxxxx Xxxxxxx and Xxxxx Xxxxxxxxx (the "Employment Agreements") shall have
been entered into in the form attached hereto as Exhibit G.
(k) Board of Directors. The Board of the Company shall have
approved and executed a resolution to increase the Board of Directors by three
(3) members to six (6) and three (3) of the Designees (as defined below) shall
have been duly elected and qualified, and the Board of Directors shall have
approved this Agreement and all transactions and actions contemplated hereby,
including but not limited to the preparation, filing and mailing of an
information statement in accordance with Schedule 14C of the Exchange Act.
12
(l) Series A Conversion. All of the Series A Preferred Stock shall
have been converted, such that there are no shares of Series A Preferred Stock
or any other shares of preferred stock of the Company outstanding.
2.4 Optional Purchase
(a) ComVest shall have six-months from the date of the Initial
Closing to invest an additional $5,000,000 (the "Optional Investment") on the
same terms as set forth herein (the "Option") for the purchase of up to Five
Thousand (5,000) Preferred Shares and Warrants for the purchase of up to
35,714,255 shares of Common Stock.
(b) In the event that the Company requires additional cash to fund
the purchase price of an acquisition, then the Company shall have the right to
call that part of the Option needed to pay the cash purchase price upon 30 days
prior written notice. If ComVest elects not to exercise the Option, in whole or
in part, then the amount of the Option called by the Company, as set forth in
the notice, shall be deemed void and of no further force or effect.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company and Subsidiaries.
Except as set forth under the corresponding section of the Disclosure
Schedules which Disclosure Schedules shall be deemed a part hereof, the Company
hereby makes the representations and warranties set forth below to each
Purchaser:
(a) Authority, Organization and Qualification of the Company. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation and has all necessary
power and authority to own, operate or lease the properties and assets now
owned, operated or leased by it and to carry on its business as it has been and
is currently conducted. The Company is duly licensed or qualified to do business
and is in good standing in each jurisdiction in which the properties owned or
leased by it or the operation of its business makes such licensing or
qualification necessary or desirable, except to the extent that the failure to
be so licensed or qualified and in good standing would not (x) adversely affect
the ability of the Company to carry out its obligations under, and to consummate
the transactions contemplated by, this Agreement and the other Transaction
Documents or (y) adversely affect the ability of the Company and the
Subsidiaries to conduct its business, and all such jurisdictions are set forth
in Section 3.1(a) of the Disclosure Schedule. All corporate actions taken by the
Company have been duly authorized, and the Company has not taken any action that
in any respect conflicts with, constitutes a default under or results in a
violation of any provision of its Certificate of Incorporation or By-laws. True
and correct copies of the Certificate of Incorporation and By-laws of the
Company, each as in effect on the date hereof, have been delivered by the
Company to Purchasers.
(b) Subsidiaries. The Company has two non-operating, wholly-owned
subsidiaries, IT&E International, a California corporation and Clinical Trials
Assistance Acquisition Corporation, a Nevada corporation, each of which has no
material assets or liabilities other than as listed in Section 3.1(b) of the
Disclosure Schedule. Each of the agreements listed
13
in Section 3.1(b) of the Disclosure Schedule are valid and in full force and
effect except to the extent they have previously expired in accordance with
their terms or if the failure to be in full force and effect, individually or in
the aggregate, would not reasonably be expected to have a Material Adverse
Effect. Neither the Company nor any Subsidiary has violated any provision of, or
committed or failed to perform any act which with or without notice, lapse of
time or both would constitute a default under the provisions of, any contract
described above, except in each case for those violations and defaults which,
individually or in the aggregate, would not reasonably be expected to result in
a Material Adverse Effect.
(c) Capitalization.
(i) The authorized capital stock of the Company,
immediately prior to the Initial Closing, consists of 250,000,000 shares of
Common Stock, par value $0.001 per share, 49,669,708 shares of which are
issued and outstanding. Under the Company's 2005 Equity Incentive Plan (the
"Plan"), 7,500,000 shares may be issued pursuant to the Plan. Other than
(a) as set forth in Section 3.1(c)(i) of the Disclosure Schedule, (b) the
shares reserved for issuance under the Plan, (c) the shares of Common Stock
issuable upon conversion of the promissory note in principal amount of
$5,000,000 held by Laurus Master Fund, Ltd. and (d) warrants to purchase
1,924,000 shares of Common Stock at an average exercise price of $0.22 per
share, and (e) the Company's obligation to issue to Millennix, Inc. a
number of shares of the Company's Common Stock equal to $2,500,000 divided
by the average closing price per share of the Company's Common Stock as
quoted on the over-the-counter bulletin board for the twenty (20) days
ending on the date immediately prior to the closing date of the acquisition
of assets from Millennix, Inc., and except as may be granted pursuant to
this Agreement, there are no outstanding options, warrants, rights
(including conversion or preemptive rights and rights of first refusal),
proxy or stockholder agreements, or agreements of any kind for the purchase
or acquisition from the Company of any of its securities.
(ii) All issued and outstanding shares of the Company's
Common Stock and Preferred Stock (a) have been duly authorized, validly
issued and are fully paid and nonassessable, and (b) were issued in
compliance with all applicable state and federal laws concerning the
issuance of securities.
(iii) When issued in compliance with the provisions of this
Agreement and registered in the name of each respective Purchaser in the
stock records of the Company, the Warrant Shares will be duly authorized,
validly issued and fully paid and the Preferred Shares and the Conversion
Shares when issued in accordance with the terms of the Company's articles
of incorporation and Certificate of Designations, as the case may be, will
be duly authorized, validly issued, fully paid and nonassessable, and in
each case free of any Encumbrances other than (a) Encumbrances created by
each respective Purchaser and (b) the Preferred Shares, Conversion Shares
and Warrant Shares may be subject to restrictions on transfer under state
and/or federal securities laws as set forth herein or as otherwise required
by such laws at the time a transfer is proposed.
(iv) There are no outstanding contractual obligations of the
Company to repurchase, redeem, otherwise acquire or issue any shares of
Common Stock or
14
Preferred Stock or to provide funds to, or make any investment (in the form
of a loan, capital contribution or otherwise) in, any other Person. There
are no voting trusts, stockholder agreements, proxies or other agreements
or understandings in effect with respect to the voting or transfer of any
of the Warrants or Preferred Stock.
(v) The Company understands and acknowledges the
potentially dilutive effect to the Common Stock upon the issuance of the
Conversion Shares upon conversion of or otherwise pursuant to the Preferred
Shares and upon the issuance of the Warrant Shares upon the exercise of or
otherwise pursuant to the Warrants. The Company further acknowledges that
its obligation to issue Conversion Shares upon conversion of or otherwise
pursuant to the Preferred Shares and Warrant Shares upon the exercise of or
otherwise pursuant to the Warrants in accordance with this Agreement, the
Certificate of Designation and the Warrants is absolute, subject only to
the terms and conditions set forth in this Agreement, the Certificate of
Designation and the Warrants, regardless of the dilutive effect that such
issuance may have on the ownership interests of other stockholders of the
Company.
(vi) The terms, designations, powers, preferences and
relative, participating and optional or special rights, and the
qualifications, limitations and restrictions of each series of Preferred
Stock of the Company (other than the Series D Preferred Stock) are as
stated in the Company's articles of incorporation, filed on or prior to the
date hereof. The terms, designations, powers, preferences and relative,
participating and optional or special rights, and the qualifications,
limitations and restrictions of the Series D Preferred Stock are as stated
in the Certificate of Designation.
(d) Corporate Books and Records. Except as set forth in Section
3.1(d) of the Disclosure Schedule, the minute books of the Company and the
Subsidiaries contain accurate records of all meetings and accurately reflect all
other actions taken by the stockholders, Boards of Directors and all committees
of the Boards of Directors of the Company and the Subsidiaries. To the extent
requested, true and accurate copies of all such minute books and of the stock
register of the Company and the Subsidiaries have been provided by the Company
to Purchasers.
(e) No Conflicts. Assuming that all consents, approvals,
authorizations and other actions set forth in Section 3.1(f) of the Disclosure
Schedule have been obtained and all filings and notifications listed in Section
3.1(e) of the Disclosure Schedule have been made and any applicable waiting
period has expired or been terminated, the execution, delivery and performance
of this Agreement and the other Transaction Documents by the Company do not and
will not (i) violate, conflict with or result in the breach of any provision of
the articles of incorporation or by-laws (or similar organizational documents)
of the Company or the Subsidiary, (ii) conflict with or violate (or cause an
event which could have a Material Adverse Effect as a result of) any Law or
Governmental Order applicable to the Company, any Subsidiary or any of their
assets, properties or businesses, or (iii) except as set forth in Section
3.1(e)(iii) of the Disclosure Schedule, conflict with, result in any breach of,
constitute a default (or event which with the giving of notice or lapse of time,
or both, would become a default) under, require any consent under, or give to
others any rights of termination, amendment, acceleration, suspension,
revocation or cancellation of, or result in the creation of any Encumbrance on
any of the Securities or any of the assets or properties of the Company or any
Subsidiary pursuant to
15
any note, bond, mortgage or indenture, contract, agreement, lease, sublease,
license, permit, franchise or other instrument or arrangement to which the
Company or any Subsidiary is a party or by which any of the Securities or any of
the assets or properties of the Company or any Subsidiary is bound or affected,
except, in the case of clause (c), to the extent that such conflicts, breaches,
defaults or other matters would not (i) adversely affect the ability of the
Company to carry out its obligations under, and to consummate the transactions
contemplated by, this Agreement and the other Transaction Documents or (ii)
adversely affect the ability of the Company and the Subsidiaries to conduct its
business.
(f) Governmental Consents and Approvals. Except as set forth in Section
3.1(f) of the Disclosure Schedule, the execution, delivery and performance of
this Agreement and each Transaction Document by the Company do not and will not
require any consent, approval, authorization or other order of, action by,
filing with or notification to, any Governmental Authority. The Company knows of
no reason why all the consents, approvals and authorizations necessary for the
consummation of the transactions contemplated by this Agreement will not be
received.
(g) SEC Reports; Financial Statements. The Company has filed all reports
required to be filed by it under the Securities Act and the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was required by
law to file such material) (the foregoing materials, including the exhibits
thereto, being collectively referred to herein as the "SEC Reports") on a timely
basis or has received a valid extension of such time of filing and has filed any
such SEC Reports prior to the expiration of any such extension. As of their
respective dates, the SEC Reports complied in all material respects with the
requirements of the Securities Act and the Exchange Act, and none of the SEC
Reports, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the SEC Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing. Such financial statements have been
prepared in accordance with 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.
(h) Material Changes. Since the date of the latest financial statements
included within the SEC Reports, except as specifically disclosed in the SEC
Reports, (i) there has been no event, occurrence or development that has had or
that could reasonably be expected to result in a Material Adverse Effect, (ii)
the Company has not incurred any liabilities (contingent or otherwise) other
than (A) trade payables and accrued expenses incurred in the ordinary course of
business consistent with past practice and (B) liabilities not required to be
reflected in the Company's financial statements pursuant to GAAP or required to
be disclosed in filings made with the Commission, (iii) the Company has not
altered its method of accounting, (iv) the Company has not declared or made any
dividend or distribution of cash or other property
16
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.
(i) Litigation. Except as set forth in Section 3.1(i) of the
Disclosure Schedule (which, with respect to each Action set forth therein, sets
forth the parties, nature of the proceeding, date and method commenced, amount
of charges or other relief sought and, if applicable, paid or granted), there
are no Actions by or against the Company or any Subsidiary (or by or against the
Company or any Affiliate thereof and relating to its business, the Company or
any Subsidiary) or affecting any of the Assets or its business pending before
any Governmental Authority (or, to the best knowledge of the Company after due
inquiry, threatened to be brought by or before any Governmental Authority). None
of the matters set forth in Section 3.1(i) of the Disclosure Schedule has or has
had a Material Adverse Effect or could affect the legality, validity or
enforceability of this Agreement, any Ancillary Agreement or the consummation of
the transactions contemplated hereby or thereby. Except as set forth in Section
3.1(i) of the Disclosure Schedule, none of the Company, the Subsidiaries or any
of their respective assets or properties, including the Assets, is subject to
any Governmental Order (nor, to the best knowledge of the Company after due
inquiry, are there any such Governmental Orders threatened to be imposed by any
Governmental Authority) which has or has had a Material Adverse Effect or could
affect the legality, validity or enforceability of this Agreement, any other
Transaction Document or the consummation of the transactions contemplated hereby
or thereby.
(j) 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.
(k) Compliance.
(i) Except as set forth in Section 3.1(k)(i) of the
Disclosure Schedule and to the best knowledge of the Company, after due
inquiry, the Company and the Subsidiaries have each conducted and continue
to conduct its business in accordance with all Laws and Governmental Orders
applicable to the Company or any Subsidiary or the Assets, and to the
knowledge of the Company, after due inquiry, neither the Company nor any
Subsidiary is in material violation of any such Law or Governmental Order.
(ii) Section 3.1(k)(ii) of the Disclosure Schedule sets
forth a brief description of each Governmental Order applicable to the
Company, any Subsidiary or the Assets, and no such Governmental Order has
or has had a Material Adverse Effect or could affect the legality, validity
or enforceability of this Agreement, any Ancillary Agreement or the
consummation of the transactions contemplated hereby or thereby.
(iii) To the best knowledge of the Company, after due
inquiry, none of the Company, any Subsidiary or any officer, director,
employee, agent or representative of the Company or any Subsidiary has
furthered or supported any foreign boycott in
17
violation of the Anti-Boycott laws and regulations of the United States
promulgated pursuant to the Export Administration Act of 1979 (50 U.S.C.A.
App. ss. 2407, and regulations promulgated thereunder).
(l) Regulatory Permits. The Company and the Subsidiaries possess
all certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not have or reasonably be expected to result in a
Material Adverse Effect ("Material Permits"), and neither the Company nor any
Subsidiary has received any notice of Actions relating to the revocation or
modification of any Material Permit.
(m) Material Contracts. Except as set forth in Section 3.1(m) of
the Disclosure Schedule, neither the Company nor any Subsidiary is a party to or
bound by any "material contracts" (as such term is defined in Item 601(b)(10) of
Regulation S-K of the Commission) with respect to the Company or any Subsidiary.
All contracts described in this Section 3.1(m) are valid and in full force and
effect except to the extent they have previously expired in accordance with
their terms or if the failure to be in full force and effect, individually or in
the aggregate, would not reasonably be expected to have a Material Adverse
Effect. Neither the Company nor any Subsidiary has violated any provision of, or
committed or failed to perform any act which with or without notice, lapse of
time or both would constitute a default under the provisions of, any contract
described above, except in each case for those violations and defaults which,
individually or in the aggregate, would not reasonably be expected to result in
a Material Adverse Effect.
(n) Title to Assets. Neither the Company nor any Subsidiary own
any real property. The Company and the Subsidiaries have good and marketable
title to personal property owned by them that is material to its business of the
Company and the Subsidiaries, in each case free and clear of all Encumbrances,
except for Encumbrances 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 Encumbrances for the
payment of federal, state or other taxes, the payment of which is neither
delinquent nor subject to penalties. Any real property and facilities held under
lease by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases of which the Company and the Subsidiaries are
in material compliance.
(o) Patents and Trademarks. Except as would not, individually or
in the aggregate, have a Material Adverse Effect:
(i) Section 3.1(o)(i) of the Disclosure Schedule sets forth
a true and complete list of (A) all patents and patent applications,
registered trademarks and trademark registration applications, registered
copyrights and copyright registration applications, and domain names
included in the Company Intellectual Property, and (B) all material Company
IP Agreements excluding licenses for the use of Company Software to
customers of the Company or its Subsidiaries in the ordinary course of
business.
18
(ii) To the best knowledge of the Company, after due
inquiry, the operation of its business as currently conducted or as
contemplated to be conducted, the use of the Company Intellectual Property
and Licensed Intellectual Property in connection therewith and the
Company's and the Subsidiaries' transmission, use, linking and other
practices related to the operation of their web sites in connection with
its business, the content thereof and the advertisements contained therein,
do not infringe, misappropriate or otherwise violate the Intellectual
Property or other proprietary rights, including rights of privacy,
publicity and endorsement, of any third party, and no Actions or Claims are
pending or threatened against the Company or any Subsidiary alleging any of
the foregoing.
(iii) To the best knowledge of the Company, after due
inquiry, the Company or a Subsidiary is the exclusive owner of the entire
and unencumbered right, title and interest in and to the Company
Intellectual Property, and the Company or a Subsidiary has a valid right to
use the Company Intellectual Property and Licensed Intellectual Property as
currently conducted or as contemplated to be conducted.
(iv) Except as disclosed in Section 3.1(o)(iv) of the
Disclosure Schedule, no Company Intellectual Property, or to the best
knowledge of the Company after due inquiry, any Licensed Intellectual
Property, is subject to any outstanding decree, order, injunction, judgment
or ruling restricting the use of such Intellectual Property or that would
impair the validity or enforceability of such Intellectual Property.
(v) The Company Intellectual Property and the Licensed
Intellectual Property include all of the Intellectual Property used in the
ordinary day-to-day conduct of the Company's business, and there are no
other items of Intellectual Property that are material to the ordinary
day-to-day conduct of its business. The Company Intellectual Property, or
to the best knowledge of the Company, any Licensed Intellectual Property,
are subsisting, valid and enforceable, and has not been adjudged invalid or
unenforceable in whole or part.
(vi) No Actions or Claims have been asserted or are pending
or, to the best knowledge of the Company after due inquiry, threatened
against the Company or any Subsidiary (i) based upon or challenging or
seeking to deny or restrict the use by the Company or any Subsidiary of any
of the Company Intellectual Property or Licensed Intellectual Property,
(ii) alleging that any services provided by, processes used by, or products
manufactured or sold by the Company or any Subsidiary infringe or
misappropriate any Intellectual Property right of any third party or (iii)
alleging that the Licensed Intellectual Property is being licensed or
sublicensed in conflict with the terms of any license or other agreement.
(vii) To the best knowledge of the Company, no Person is
engaging in any activity that infringes the Company Intellectual Property
or Licensed Intellectual Property. Except as set forth in Section
3.1(o)(vii) of the Disclosure Schedule, neither the Company nor any
Subsidiary has granted any license or other right to any third party with
respect to the Company Intellectual Property or Licensed Intellectual
Property except to the customers of its business to whom the Company or a
Subsidiary has
19
licensed such Company Intellectual Property or Licensed Intellectual
Property in the ordinary course of business. The consummation of the
transactions contemplated by this Agreement and the other Transaction
Documents will not result in the termination or impairment of any of the
Company Intellectual Property.
(viii) To the best knowledge of the Company, after due
inquiry, the Company Software is free of all viruses, worms, trojan horses
and other material known contaminants. The Company Software does not
incorporate any GNU or "open" source code or object code under which the
Company Software is subject to the GNU general public license or GNU lesser
general public license. To the best knowledge of the Company, after due
inquiry, the Company or a Subsidiary has obtained all approvals necessary
for exporting the Company Software outside the United States and importing
the Company Software into any country in which the Company Software is now
sold or licensed for use, and all such export and import approvals in the
United States and throughout the world are valid, current, outstanding and
in full force and effect. No rights in the Company Software have been
transferred to any third party except to the customers of its business to
whom the Company or a Subsidiary has licensed such Company Software in the
ordinary course of business. The Company or a Subsidiary has the right to
use all software development tools, library functions, compilers, and other
third party software that are material to its business or that are required
to operate or modify the Company Software.
(ix) The Company and the Subsidiaries have taken reasonable
steps in accordance with normal industry practice to maintain the
confidentiality of the trade secrets and other confidential Intellectual
Property used in connection with its business. To the best knowledge of the
Company after due inquiry, (i) there has been no misappropriation of any
material trade secrets or other material confidential Intellectual Property
used in connection with its business by any Person; (ii) no employee,
independent contractor or agent of the Company or any Subsidiary has
misappropriated any trade secrets of any other Person in the course of
performance as an employee, independent contractor or agent of its
business; and (iii) no employee, independent contractor or agent of the
Company or any Subsidiary is in default or breach of any term of any
employment agreement, nondisclosure agreement, assignment of invention
agreement or similar agreement or contract relating in any way to the
protection, ownership, development, use or transfer of Intellectual
Property.
(x) To the best knowledge of the Company, after due
inquiry, the Company's or any Subsidiary's operation of any web sites used
in connection with its business, and content thereof and data processed,
collected, stored or disseminated in connection therewith, do not violate
any applicable Law, including European Directive 95/46/EC, and any Person's
right of privacy or publicity. The Company or its Subsidiary (i) has
obtained all necessary permits, approvals, consents, authorizations or
licenses to lawfully operate its web sites and to use its data and (ii) is
operating its web sites and using its data in accordance with the scope of
such permits, approvals, consents, authorizations or licenses. The Company
and its Subsidiaries have taken reasonable steps in accordance with normal
industry practice to secure their web sites and data, and any portion
thereof, from unauthorized access by any Person.
20
(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 its businesses in which the
Company and the Subsidiaries are engaged. To the best of Company's knowledge,
such insurance contracts and policies are accurate and complete. Neither the
Company nor any Subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business without a significant increase in cost.
(q) Employee Benefits.
(i) Section 3.1(q)(i) of the Disclosure Schedule lists (A)
all employee benefit plans, bonus, stock option, stock purchase, restricted
stock, incentive, deferred compensation, retiree medical or life insurance,
supplemental retirement, severance or other benefit plans, programs or
arrangements, and all employment, termination, severance or other contracts
or agreements, to which the Company or any Subsidiary is a party, with
respect to which the Company or any Subsidiary has any obligation or which
are maintained, contributed to or sponsored by the Company or any
Subsidiary for the benefit of any current or former employee, officer or
director of the Company or any Subsidiary and (B) any contracts,
arrangements or understandings between the Company or any of its Affiliates
and any employee of the Company or any Subsidiary (collectively, the
"Plans").
(ii) Each Plan has been operated in all material respects in
accordance with its terms and the requirements of all applicable Laws. The
Company and its Subsidiaries have performed all material obligations
required to be performed by it under, is not in any material respect in
default under or in material violation of, and the Company has no knowledge
of any material default or violation by any party to, any Plan. No action
is pending or, to the knowledge of the Company, threatened with respect to
any Plan (other than claims for benefits in the ordinary course) and, to
the knowledge of the Company, no fact or event exists that could give rise
to any such action.
(r) Taxes.
(i) Except as set forth in Section 3.1(r)(i) of the
Disclosure Schedule, (A) all Tax Returns required to be filed by or with
respect to the Company and each Subsidiary (including the consolidated
federal income Tax Return of the Company and any state, local or other Tax
Return that includes the Company or any Subsidiary on a consolidated,
combined or unitary basis) have been timely filed; (B) all Taxes required
to be shown on such Tax Returns or otherwise due in respect of the Company
or any Subsidiary have been timely paid; (C) all such Tax Returns are true,
correct and complete in all material respects; (D) no adjustment relating
to such Tax Returns has been proposed formally or informally by any
Governmental Authority (insofar as either relates to the activities or
income of the Company or any Subsidiary or could result in liability of the
Company or any Subsidiary on the basis of joint and/or several liability)
and, to the best knowledge of the Company after due inquiry, no basis
exists for any such adjustment; (E) there are no pending Actions or, to the
best knowledge of the Company
21
after due inquiry, Actions threatened for the assessment or collection of
Taxes against the Company or any Subsidiary or (insofar as either relates
to the activities or income of the Company or any Subsidiary or could
result in liability of the Company or any Subsidiary on the basis of joint
and/or several liability) any Person that was included in the filing of a
Tax Return with the Company on a consolidated, combined or unitary basis;
(F) to the best knowledge of the Company, after due inquiry, all sales and
license transactions between the Company and the Company or any Subsidiary,
between the Company and any Subsidiary and between any of the Subsidiaries,
have been conducted on an arm's-length basis; (G) there are no Tax liens on
any assets of the Company or any Subsidiary; (H) neither Seller nor any
Affiliate is a party to any agreement or arrangement that would result,
separately or in the aggregate, in the actual or deemed payment by the
Company or a Subsidiary of any "excess parachute payments" within the
meaning of section 280G of the Code (without regard to Section 280G(b)(4)
of the Code); (I) no acceleration of the vesting schedule for any property
that is substantially unvested within the meaning of the regulations under
Section 83 will occur in connection with the transactions contemplated by
this Agreement; (J) from and after April 14, 2004, the Company and each
Subsidiary have been and continue to be members of the affiliated group
(within the meaning of Section 1504(a)(1) of the Code) for which the
Company files a consolidated return as the common parent, and has not been
includible in any other consolidated return for any taxable period for
which the statute of limitations has not expired; (K) none of the Company
or the Subsidiaries has been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code; (L)
the Company and Subsidiary have each properly and timely withheld,
collected and deposited all Taxes that are required to be withheld,
collected and deposited under applicable Law; (M) none of the Company or
Subsidiaries is doing business in or engaged in a trade or business in any
jurisdiction in which it has not filed all required Tax Returns, and no
notice or inquiry has been received from any jurisdiction in which Tax
Returns have not been filed by the Company or any Subsidiary to the effect
that the filing of Tax Returns may be required; (N) neither the Company nor
any Subsidiary has been at any time a member of any partnership or joint
venture or the holder of a beneficial interest in any trust for any period
for which the statute of limitations for any Tax has not expired and (O)
neither the Company nor any Subsidiary is subject to any accumulated
earnings tax, personal holding company Tax or similar Tax.
(ii) Except as set forth with reasonable specificity in
Section 3.1(r)(ii) of the Disclosure Schedule, (A) there are no outstanding
waivers or agreements extending the statute of limitations for any period
with respect to any Tax to which the Company or any Subsidiary may be
subject; (B) there are no requests for information currently outstanding
that could affect the Taxes of the Company or any Subsidiary; (C) there are
no proposed reassessments of any property owned by the Company or any
Subsidiary or other proposals that could increase the amount of any Tax to
which the Company or any Subsidiary would be subject; (D) no power of
attorney that is currently in force has been granted with respect to any
matter relating to Taxes that could affect the Company or any Subsidiary;
(E) none of the Company or the Subsidiaries (1) has or is projected to have
an amount includible in its income for the current taxable year under
Section 951 of the Code, (2) has been a passive foreign investment company
within the meaning of
22
Section 1296 of the Code, (3) has an unrecaptured overall foreign loss
within the meaning of Section 904(f) of the Code or (4) has participated in
or cooperated with an international boycott within the meaning of section
999 of the Code and (F) none of the Company or the Subsidiaries has, to an
extent that would cause a tax liability to the Company, any (1) income
reportable for a period ending after the Closing but attributable to a
transaction (e.g., an installment sale) occurring in, or a change in ----
accounting method made for, a period ending on or prior to the Closing that
resulted in a deferred reporting of income from such transaction or from
such change in accounting method (other than a deferred intercompany
transaction), or (2) deferred gain or loss arising out of any deferred
intercompany transaction.
(iii) Section 3(r)(iii) of the Disclosure Schedule (A) lists
all income, franchise and similar income-type Tax Returns (federal, state,
local and foreign) filed with respect to each of the Company and the
Subsidiaries for taxable periods ended on or after April 14, 2004, (B)
indicates the most recent income, franchise or similar Tax Return for each
relevant jurisdiction for which an audit has been completed or the statute
of limitations has lapsed and (C) indicates all Tax Returns that currently
are the subject of audit.
(iv) To the extent reasonably requested by any Purchaser,
the Company has delivered to such Purchaser correct and complete copies of
all federal, state and foreign income, franchise and similar Tax Returns,
examination reports and statements of deficiencies assessed against or
agreed to by the Company or any Subsidiary since April 14, 2004.
(v) To the extent reasonably requested by any Purchaser,
the Company has delivered to such Purchaser a true and complete copy of any
tax-sharing or allocation agreement or arrangement involving the Company or
any Subsidiary and a true and complete description of any such unwritten or
informal agreement or arrangement.
(vi) Except as set forth in Section 3.1(r)(vi) of the
Disclosure Schedule, the Company has established reserves and allowances to
satisfy all liabilities for Taxes relating to the Company and the
Subsidiaries for all taxable periods through the Closing (without regard to
the materiality thereof).
(s) Tangible Personal Property. Section 3.1(s) of the Disclosure
Schedule sets forth a list of all material Tangible Personal Property having a
value of over $50,000 as of the date therein specified. All tangible personal
property of the Company is reflected in the balance sheet of the Company. All of
the tangible personal property of the Company is in reasonably serviceable
operating condition and repair (ordinary wear and tear excepted).
(t) Title to Owned and Leased Real Property.
(i) Neither the Company nor any Subsidiary currently, and
in the past, has owned any real property.
23
(ii) As of the date hereof, except as set forth in Section
3.1(t)(ii) of the Disclosure Schedule, the Company and each Subsidiary has
a valid leasehold interest in the Leased Real Property.
(iii) The Leased Real Property has not suffered any material
damage by fire, casualty or otherwise which has not heretofore been
repaired and restored in all material respects.
(iv) Except as set forth in Section 3.1(t)(iv) of the
Disclosure Schedule, there is no default (or event that, with or without
the giving of notice or the lapse of time or both, could constitute a
default) that exists under the leases for the Leased Real Property.
(u) Transactions With Affiliates and Employees. 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
in any twelve (12) month period other than (i) for payment of salary or
consulting fees for services rendered, (ii) reimbursement for expenses incurred
on behalf of the Company and (iii) for other employee benefits, including stock
option agreements under any stock option plan of the Company.
(v) Xxxxxxxx-Xxxxx Act. The Company is in substantial compliance
with the applicable provisions of the Xxxxxxxx-Xxxxx Act of 2002 (the
"Xxxxxxxx-Xxxxx Act"), and the rules and regulations promulgated thereunder,
that are effective and intends to comply substantially with other applicable
provisions of the Xxxxxxxx-Xxxxx Act, and the rules and regulations promulgated
thereunder, upon the effectiveness of such provisions.
(w) 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 this Agreement, except as set
forth in Section 3.1(w) of the Disclosure Schedule. No Purchaser shall have any
obligation with respect to any fees or with respect to any claims made by or on
behalf of other Persons for fees of a type contemplated in this Section that may
be due in connection with the transactions contemplated by this Agreement.
(x) Private Placement. Assuming the accuracy of each respective
Purchaser's 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 such Purchasers as contemplated hereby. The
issuance and sale of the Securities hereunder does not contravene the rules and
regulations of any trading market.
24
(y) Investment Company. The Company is not, and is not an
Affiliate of, and immediately after receipt of payment for the Shares, 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.
(z) Registration Rights. Except as set forth in Section 3.1(z) of
the Disclosure Schedule, no Person has any right to cause the Company to effect
the registration under the Securities Act of any securities of the Company.
(aa) Application of Takeover Protections. The Company and its Board
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 articles of incorporation (or similar charter documents) or the laws
of its state of incorporation that is or could become applicable to Purchasers
as a result of Purchasers and the Company fulfilling their obligations or
exercising their rights under the Transaction Documents, including without
limitation the Company's issuance of the Securities and Purchasers' ownership of
the Securities.
(bb) Disclosure. The Company understands and confirms that
Purchasers will rely on the foregoing representations and covenants in effecting
transactions in securities of the Company. All disclosure provided to Purchasers
regarding the Company, its business and the transactions contemplated hereby,
including the Schedules to this Agreement, furnished by or on behalf of the
Company with respect to the representations and warranties made herein are true
and correct with respect to such representations and warranties and do not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The Company
acknowledges and agrees that no Purchaser makes or has made any representations
or warranties with respect to the transactions contemplated hereby other than
those specifically set forth in Section 3.2 hereof.
(cc) No Integrated Offering. Assuming the accuracy of each
Purchaser's representations and warranties set forth in Section 3.2, neither the
Company, nor any of its affiliates, nor any Person acting on its or their behalf
has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would cause
this offering of the Securities to be integrated with prior offerings by the
Company for purposes of the Securities Act or any applicable shareholder
approval provisions, including, without limitation, under the rules and
regulations of any exchange or automated quotation system on which any of the
securities of the Company are listed or designated.
(dd) 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 Purchasers.
(ee) Foreign Corrupt Practices. Neither the Company, nor to the
knowledge of the Company, any agent or other person acting on behalf of the
Company, has (i) directly or
25
indirectly, used any corrupt funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is in violation of law, or (iv) violated in
any material respect any provision of the Foreign Corrupt Practices Act of 1977,
as amended.
(ff) Accountants. The Company's accountants are set forth in
Section 3.1(ff) of the Disclosure Schedule. Such accountants expressed their
opinion with respect to the financial statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2004, and the Company
expects their opinion with respect to the financial statements for the year
ended December 31, 2005 are independent accountants as required by the
Securities Act.
(gg) Acknowledgment Regarding Purchasers' Purchase of Securities.
The Company acknowledges and agrees that each Purchaser is acting solely in the
capacity of an arm's length purchaser with respect to the Transaction Documents
and the transactions contemplated hereby. The Company further acknowledges that
each Purchaser is not acting as a financial advisor or fiduciary of the Company
(or in any similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any advice given by any Purchaser or any of its
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is merely incidental to such Purchaser's purchase of the
Securities. The Company further represents to each Purchaser that the Company's
decision to enter into this Agreement has been based solely on the independent
evaluation of the transactions contemplated hereby by the Company and its
representatives.
3.2 Representations and Warranties of each Purchaser. Each Purchaser
hereby represents and warrants as of the date hereof and as of the Closing Date
to the Company as follows:
(a) Organization; Authority. 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 thereunder.
The execution, delivery and performance by Purchaser of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate or similar action on the part of Purchaser. Each Transaction Document
to which it is a party has been duly executed by Purchaser, and, assuming this
Agreement constitutes the valid and binding obligation of the Company and when
delivered by Purchaser in accordance with the terms hereof, will constitute the
valid and legally binding obligation of Purchaser, enforceable against it in
accordance with its terms, except as the enforceability thereof may be limited
by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
similar laws relating to or affecting the rights of creditors' generally and by
general equitable principles (regardless of whether such enforceability is
considered in a Action in equity or at law).
26
(b) Investment Intent. 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 for investment purposes only and not with a view
to or for distributing or reselling such Securities or any part thereof, has no
present intention of distributing any of such Securities and has no arrangement
or understanding with any other persons regarding the distribution of such
Securities (this representation and warranty not limiting Purchaser's right to
sell the Securities pursuant to the Registration Statement or otherwise in
compliance with applicable federal and state securities laws). Purchaser is
acquiring the Securities hereunder in the ordinary course of its business.
Purchaser does not have any agreement or understanding, directly or indirectly,
with any Person to distribute any of the Securities.
(c) Rule 144. Purchaser understands that the Securities must be
held indefinitely unless such Securities are registered under the Securities Act
or an exemption from registration is available. Purchaser acknowledges that it
is familiar with Rule 144, and that Purchaser has been advised that Rule 144
permits resales only under certain circumstances. Purchaser understands that to
the extent that Rule 144 is not available, Purchaser will be unable to sell any
Securities without either registration under the Securities Act or the existence
of another exemption from such registration requirement.
(d) Purchaser Status. At the time Purchaser was offered the
Securities, it was, and at the date hereof it is, and on each date on which it
exercises any Warrants, it will be either: (i) an "accredited investor" as
defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities
Act or (ii) a "qualified institutional buyer" as defined in Rule 144A(a) under
the Securities Act. Purchaser is not required to be registered as a
broker-dealer under Section 15 of the Exchange Act.
(e) Experience of Purchaser. 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. 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.
(f) General. Purchaser understands that the Securities are being
offered and sold in reliance on a transactional exemption from the registration
requirements of federal and state securities laws and the Company is relying
upon the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of Purchaser set forth herein in order to
determine the applicability of such exemptions and the suitability of Purchaser
to acquire the Securities. Purchaser understands that no United States federal
or state agency or any government or governmental agency has passed upon or made
any recommendation or endorsement of the Securities.
(g) General Solicitation. 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.
27
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 this Section 3.2.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions. (a) The Securities may only be disposed of in
compliance with state and federal securities laws. In connection with any
transfer of Securities other than pursuant to an effective registration
statement or Rule 144, to the Company or to an Affiliate of a Purchaser or in
connection with a pledge as contemplated in Section 4.1(b), the Company may
require the transferor thereof to provide to the Company an opinion of counsel
selected by the transferor and reasonably acceptable to the Company, the form
and substance of which opinion and 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) Each Purchaser agrees to the imprinting, so long as is
required by this Section 4.1(b), of a legend on any of the Securities in the
following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD 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. THESE SECURITIES ARE SUBJECT TO THE TERMS
AND CONDITIONS OF A CERTAIN SECURITIES PURCHASE AGREEMENT, A CERTAIN
LOCK-UP AGREEMENT AND A CERTAIN REGISTRATION RIGHTS AGREEMENT, ALL OF
WHICH ARE DATED NOVEMBER __, 2005 AND ARE AVAILABLE FOR INSPECTION AT
THE OFFICES OF THE COMPANY.
(c) Certificates evidencing the Preferred Shares, Conversion
Shares and Warrant Shares shall not contain any legend (including the legend set
forth in Section 4.1(b)), (i) following a sale of such Preferred Shares,
Conversion Shares or Warrant Shares pursuant to an effective registration
statement (including the Registration Statement), or (ii) following any sale of
such Preferred Shares, Conversion Shares or Warrant Shares pursuant to Rule 144,
or (iii) if such Preferred Shares, Conversion Shares or Warrant Shares are
eligible for sale under Rule 144(k), or (iv) if such legend is not required
under applicable requirements of the Securities Act
28
(including judicial interpretations and pronouncements issued by the Staff of
the Commission); provided, however, that in each of instances (ii) through (iv)
above, (A) each Purchaser shall have provided representations that such
Purchaser is permitted to dispose of such Preferred Shares, Conversion Shares
and/or Warrant Shares without limitation as to amount or manner of sale pursuant
to Rule 144 under the Securities Act and (B) such certificates evidencing the
Preferred Shares, Conversion Shares and/or Warrant Shares shall have been
surrendered along with a notice requesting removal of any legend and requesting
the issuance of new certificates free of the legend to replace those
surrendered. The Company shall cause its counsel to issue a legal opinion to, or
otherwise instruct, the Company's transfer agent promptly after receipt of a
request for legend removal in accordance with this Section 4.1(c) if required by
the Company's transfer agent to effect the removal of the legend hereunder.
4.2 Integration. Except as otherwise contemplated by this Agreement, the
Company shall not sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Securities in a
manner that would require the registration under the Securities Act of the sale
of the Securities to a Purchaser or that would be integrated with the offer or
sale of the Securities for purposes of the rules and regulations of any exchange
or quotation service on which any of the securities of the Company are listed or
quoted such that it would require shareholder approval prior to the closing of
such other transaction unless shareholder approval is obtained before the
closing of such subsequent transaction.
4.3 Description of the Senior Secured Notes and Security Agreement.
The following summary of the Senior Secured Notes and Security Agreement
is provided for illustrative purposes only. To the extent there are any
inconsistencies between the summary below and the Senior Secured Notes and/or
Security Agreement, such agreements shall control.
(a) Demand Right. At the request of any Purchaser, the Company
shall pay Purchaser the outstanding principal amount of the Senior Secured
Notes, together with all accrued and unpaid interest thereon, in cash or Common
Stock, at the option of such Purchaser (in accordance with Section (b) below) on
the earliest to occur (the "Demand Date") of three (3) months following the
Closing Date, or (ii) a merger or combination of the Company or the sale,
transfer or other disposition of all or substantially all of the assets of the
Company or (iii) the acquisition by a single entity, person or a "group" within
the meaning of Rule 13d-1 of the Exchange Act, of more than fifty percent (50%)
of the voting power or capital stock of the Company (on a fully-diluted basis),
or (iv) the Company issues Common Stock or a security exercisable or convertible
into Common Stock, the Company shall pay such Purchaser up to 50% of the net
proceeds received by the Company form such sale, unless the Note has previously
been converted.
(b) Payment in Common Stock. In accordance with the demand in
Section (a) above, such Purchaser may request that the payment be made in whole
or in part in Common Stock, at a conversion price of $0.07 per share, to the
extent the Company has sufficient Common Stock available for issuance.
29
(c) Interest. The Senior Secured Notes shall bear interest
("Interest") at a rate per annum as follows:
Month 1 of the Senior Secured Notes No interest
Month 2 of the Senior Secured Notes No interest
Month 3 of the Senior Secured Notes No interest
Month 4 of the Senior Secured Notes 12% per annum
Interest shall be payable quarterly in cash. If any Event of Default (as defined
in the Senior Secured Notes) has occurred and is continuing, the Senior Secured
Notes shall bear interest at a rate of the then-applicable Interest plus four
percent (4%) per annum until such time as such Event of Default has been cured.
(d) Automatic Conversion. Each $1,000 of principal amount of the
Notes shall automatically convert into one (1) share of Series D Preferred Stock
as soon as the Company has sufficient Series D Convertible Preferred Shares
available for issuance.
(e) Prepayment. The Senior Secured Notes may be prepaid, in whole
or in part, at any time without penalty or premium, upon ten (10) days' prior
written notice to the Purchasers. In the event the Company issues any Exempt
Issuance of securities during the term of the Senior Secured Notes, the Company
shall use at least fifty percent (50%) of the proceeds therefrom to prepay the
Senior Secured Notes; provided, however, that the Preferred Shares have been
redeemed, in whole, in accordance with its terms.
(f) Security and Ranking. The Senior Secured Notes and all other
obligations of the Company under this Agreement and the other Transaction
Documents shall be secured by substantially all of the assets of the Company, as
described in the Security Agreement (collectively, the "Collateral"), dated as
of even date herewith, by and between each Purchaser and the Company. As an
inducement to each Purchaser to purchase the Senior Secured Notes and the other
Securities described herein and execute and enter into this Agreement, and to
secure prompt payment of the Senior Secured Notes and the discharge in full of
the Company's obligations under this Agreement and under the Senior Secured
Notes, this Agreement and the other Transaction Documents, the Company shall
grant to the Purchasers a first priority perfected lien and security interest in
the Collateral, which security interest shall rank senior in lien priority to
any other existing or future Indebtedness.
4.4 Certain Covenants of the Company.
(a) Affirmative Covenants. The Company covenants that, so long as
any portion of any Senior Secured Note, Warrants or the Preferred Shares is
outstanding, it shall take the following actions:
(i) The Company shall use the proceeds from the sale of the
Preferred Shares, the Senior Secured Notes, and the Warrants to repay the
Laurus Note in full, to consummate certain acquisitions acceptable to the
Purchasers holding a majority of the Series D Preferred Stock (or the
Purchasers holding a majority in principal amount of the Senior Secured
Notes outstanding), and for working capital purposes.
30
(ii) The Company shall have received the written consent of
the shareholders holding a majority of the shares outstanding in accordance
with Section 2.3(i) ("Shareholder Approval") to the following actions: (a)
the designation and issuance of the Series D Preferred Stock on the terms
set forth in the Certificate of Designation attached hereto, (b) the
reincorporation of the Company into the State of Delaware, (c) a reverse
stock split to be declared by the Board of Directors in its sole discretion
provided that such reverse stock split shall not exceed 1 for 25 and must
take place within twelve (12) months after the date of such written
consent, (d) an increase in the number of shares reserved for issuance
under the 2005 Equity Incentive Plan to 25,000,000 shares of Common Stock,
(e) an increase in the number of authorized shares of Common Stock to
650,000,000 shares, (f) the election of the five (5) Designees and (g) the
preparation, filing and mailing of an information statement in accordance
with Schedule 14C of the Exchange Act. Within fourteen (14) days after the
Initial Closing the Company shall file a Preliminary Information Statement
on Schedule 14C informing each of the other stockholders of the Company of
the foregoing actions, and file a Definitive Information Statement within
ten (10) days thereafter. On the date that is twenty-one (21) days after
the date the Definitive Information Statement on Schedule 14C is mailed to
the Company's shareholders, the Company shall effect the reincorporation
into the State of Delaware and file the Certificate of Designations in the
State of Delaware. The parties acknowledge and agree that the Company shall
be merged with and into a Delaware corporation and such Delaware
corporation shall be the successor in interest and successor issuer to the
Company and that all the rights and obligations of the Company under this
Agreement and each of the other Transaction Documents shall become the
rights and obligations of the Delaware corporation by virtue of the
reincorporation and upon the effective date of the reincorporation.
(iii) The Company shall increase the number of members of the
Board of the Company by an additional two (2) members to seven (7) (in
addition to the increase in Section 2.3(k)), and all of the Designees shall
be duly elected and qualified.
(iv) If an Event of Default occurs, the Company shall, if so
requested by any Purchaser, promptly provide the following information:
(A) Annual Financial Statements. Unless filed with
the Commission through XXXXX and publicly available through the XXXXX
system, copies of the consolidated balance sheet of the Company and
its Subsidiaries, as of the end of the immediately preceding fiscal
year and the related consolidated statements of income, stockholders'
equity and cash flows for such fiscal year, prepared in accordance
with generally accepted accounting principles and certified by a firm
of independent public accountants of recognized national standing or
such other independent public accountants, in either case, as
unanimously selected by the Board; provided, however, that, to the
extent the information in this Section 4.4(a)(iv)(A) is requested by
any Purchaser, any Purchaser shall hold and treat all such information
confidential;
(B) Quarterly Financial Statements. Unless filed
with the Commission through XXXXX and publicly available through the
XXXXX system,
31
copies of the consolidated balance sheet of the Company and its
Subsidiaries, and the related consolidated statements of income,
stockholders' equity and cash flows, unaudited but prepared in
accordance with generally accepted accounting principles, such
consolidated balance sheet, consolidated statements of income,
stockholders' equity and cash flows to be as of the end of each
quarter following the end of the immediately preceding fiscal year, in
each case with comparative statements for the prior fiscal year;
provided, however, that, to the extent the information in this Section
4.4(a)(iv)(B) is requested by any Purchaser, any Purchaser shall hold
and treat all such information confidential;
(C) Accountant's Letters. Copies of each accountant's
management letter and other written report submitted to the Company by
its independent public accountants in connection with an annual or
interim audit of the books of the Company or any of its Subsidiaries;
(D) Notices. Copies of notices of all Actions that
could materially and adversely affect the Company or any of its
Subsidiaries; and
(E) Other Information. Any other information
regarding the business, prospects, financial condition, operations,
property or affairs of the Company as any Purchaser may reasonably
request;
(v) The Company shall maintain and cause each of its
Subsidiaries to maintain their respective corporate existence unless the
Board unanimously approves otherwise;
(vi) The Company shall obtain and maintain and cause each of
its Subsidiaries to maintain as to their respective properties and
businesses, with financially sound and reputable insurers, insurance
against such casualties and contingencies and of such types and in such
amounts as is customary for companies similarly situated;
(vii) The Company shall permit and cause each of its
Subsidiaries to permit any Purchaser and such persons as Purchasers may
designate, at such Purchaser's expense, to visit and inspect any of the
properties of the Company and its Subsidiaries, examine their books and
take copies and extracts therefrom, discuss the affairs, finances and
accounts of the Company and its Subsidiaries with their officers, employees
and public accountants (and the Company hereby authorizes said accountants
to discuss with any Purchaser and its designees such affairs, finances and
accounts), and consult with and advise the management of the Company and
its Subsidiaries as to their affairs, finances and accounts, all at
reasonable times and upon reasonable notice during normal business hours
and provided that such Purchaser or its designees have executed a
confidentiality agreement in substance and form reasonably acceptable to
the Company; provided, however, that in no event (other than an Event of
Default) shall the Company be required to provide any Purchaser or its
designees with any information about the Company that is not publicly
available;
32
(viii) The Company shall comply, and cause each Subsidiary to
comply, with all applicable Laws, noncompliance with which could materially
adversely affect its business or condition, financial or otherwise;
(ix) The Company shall keep, and cause each Subsidiary to
keep, adequate records and books of account, in which complete entries will
be made in accordance with generally accepted accounting principles
consistently applied, reflecting all financial transactions of the Company
and such Subsidiary, and in which, for each fiscal year, all proper
reserves for depreciation, depletion, obsolescence, amortization, taxes,
bad debts and other purposes in connection with its business shall be made;
and
(x) Within no more than five (5) days following an Event of
Default (as defined in the Senior Secured Notes), the Company shall notify
Purchasers of such Event of Default, the circumstances causing such default
and the proposed course of action to be taken by the Company to cure such
default.
(b) Negative Covenants. The Company covenants that, so long as any
portion of the Senior Secured Notes or any Preferred Shares is outstanding, it
shall not take any of the following actions without the prior written consent of
the Purchasers holding a majority of the Series D Preferred Stock (or the
Purchasers holding a majority in principal amount the Senior Secured Notes
outstanding), which may not be withheld unreasonably:
(i) Redeem or repurchase any shares of Common Stock
Equivalents of the Company, except for (A) repurchases contemplated by this
Agreement, or (B) repurchases or redemptions from employees, directors or
consultants of the Company in accordance with agreements existing as of the
date hereof or is otherwise approved by the Board of Directors for the
repurchase or redemption of shares of Common Stock Equivalents in
connection with any termination of service to the Company or any of its
Subsidiaries;
(ii) Except to the extent required to comply with its
obligations hereunder or with applicable Law, the Company shall not, nor
shall it permit any of its Subsidiaries to, amend its respective articles
of organization, by-laws or regulations, or similar organic documents;
(iii) the Company shall not, nor shall it permit any of its
Subsidiaries to, incur or guarantee any Indebtedness or enter into any
"keep well" or other agreement to maintain any financial statement
condition of another Person or enter into any arrangement having the
economic effect of any of the foregoing, other than (A) short-term
indebtedness and "keep well" or similar assurances for the benefit of
customers, in each case in the ordinary course of business consistent with
past practice or (B) long-term Indebtedness in connection with the
refunding of existing Indebtedness at a lower cost of funds;
(iv) Declare or pay any dividend on any class of Common
Stock Equivalents of the Company (except dividends payable solely in Common
Stock Equivalents in connection with a stock split or similar transaction
of the Company);
33
(v) Enter into any transactions with Affiliates of the
Company other than in the ordinary course of business;
(vi) Merge or consolidate with any other entity or have a
transaction in which any "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the Exchange Act), becomes the beneficial
owner (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of greater than fifty percent (50%) of the shares of Common
Stock then outstanding of the Company, on a fully diluted basis, ordinarily
entitled to vote in the election of directors;
(vii) Sell all or substantially all of the assets of the
Company;
(viii) Liquidate, dissolve or wind-up the operations of the
Company;
(ix) Apply for, or consent to, the appointment of a
receiver, trustee or liquidator for the Company or any Subsidiary or any of
their respective properties ; and
(x) Enter into any agreement to do any of the foregoing.
4.5 Non-Public Information. The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide any Purchaser
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such Purchaser
shall have executed a written agreement regarding the confidentiality and use of
such information; provided, however, that the parties acknowledge and agree that
any Purchaser may be provided material, non-public information by one or more of
the directors designated by such Purchasers in accordance with Section 4.6 and
that the Company shall not be in breach of this Section 4.5 by virtue of any
such disclosure. The Company understands and confirms that each Purchaser shall
be relying on the foregoing representations in effecting transactions in
securities of the Company.
4.6 Board Composition. Purchasers shall have the right to designate a
total of five (5) representatives (the "Designees") out of seven (7) for
election to the Company's Board, all of whom shall not have been involved in any
of the events set forth in Item 401(f) of Regulation S-K during the preceding
ten (10) year and shall be qualified to serve as directors of a reporting
company under the Exchange Act as determined by a majority of the members of a
committee of non-employee directors established for such purpose and at least
two of whom shall satisfy the Nasdaq National Market requirements for an
"independent director." At least one of such "independent" Designees shall be
appointed to the Company's Compensation Committee, and any future increases in
the compensation of the Chief Executive Officer, or additional grants of options
to the Chief Executive Officer, shall only be approved by unanimous consent of
the Company's Compensation Committee. The remaining two (2) directors shall be
Xxxxx Sollene and Xxxxx Xxxxxxx. The Board of the Company shall have been
increased by a total of four (4) members in accordance with Sections 2.3(l) and
4.4(a)(iii) and the Company shall use its best efforts to have the Designees
nominated and elected to the Board.
4.7 Certain Transactions. Each Purchaser and its Affiliates agree not to
engage in any "going private" transaction (including, without limitation,
selling all or substantially all of the
34
Company's assets, merging the Company, or any other transaction with similar
economic effects) with the Company, without the prior written consent of
ComVest.
4.8 Indemnification.
(a) The Company shall indemnify and hold harmless each Purchaser,
its officers, directors, employees, agents and consultants (each, a "Purchaser
Indemnified Party"), from and against any and all costs, claims, damages,
losses, liabilities and expenses (including reasonable attorneys' fees)
(together, the "Losses") which may be suffered or incurred by such Purchaser
Indemnified Party by reason of (i) any material misrepresentation or breach of
warranty by the Company in this Agreement or the other Transaction Documents or
(ii) any material default of any obligation, agreement or covenant of the
Company under this Agreement or the other Transaction Documents, in each case so
long as such Losses were not caused by the gross negligence or willful
misconduct of such Purchaser Indemnified Party.
(b) Each Purchaser shall indemnify and hold harmless the Company
and its officers, directors, employees, agents and consultants (each, a "Company
Indemnified Party"), from and against any and all Losses which may be suffered
or incurred by such Company Indemnified Party by reason of any material
misrepresentation or breach of warranty by such Purchaser in this Agreement or
the other Transaction Documents, so long as such Losses were not caused by the
gross negligence or willful misconduct of such Company Indemnified Party.
(c) An Indemnified Party shall give the Indemnifying Party notice
of any matter which an Indemnified Party has determined has given or could give
rise to a right of indemnification under this Agreement, within thirty (30) days
of such determination, stating the amount of the Loss, if known, and method of
computation thereof, and containing a reference to the provisions of this
Agreement in respect of which such right of indemnification is claimed or
arises.
(d) If an Indemnified Party shall receive notice of any action,
audit, claim, demand or assessment (each, a "Third Party Claim") against it
which may give rise to a claim for Loss under this Section 4.8, within thirty
(30) days of the receipt of such notice, the Indemnified Party shall give the
Indemnifying Party notice of such Third Party Claim; provided, however, that the
failure to provide such notice shall not release the Indemnifying Party from any
of its obligations under this Section 4.8 except to the extent that such failure
results in a detriment to the Indemnifying Party and shall not relieve the
Indemnifying Party from any other liability that it may have to any Indemnified
Party other than under this Section 4.8. The Indemnifying Party shall be
entitled to assume and control the defense of such Third Party Claim at its
expense and through counsel of its choice if it gives notice of its intention to
do so to the Indemnified Party within ten (10) days of the receipt of such
notice from the Indemnified Party. If the Indemnifying Party elects to undertake
any such defense against a Third Party Claim, the Indemnified Party may
participate in such defense at its own expense. The Indemnified Party shall
cooperate with the Indemnifying Party in such defense and make available to the
Indemnifying Party, at the Indemnifying Party's expense, all witnesses,
pertinent records, materials and information in the Indemnified Party's
possession or under the Indemnified Party's control relating thereto as is
reasonably required by the Indemnifying Party. If the Indemnifying Party elects
to direct the defense of any such claim or proceeding, the Indemnified Party
shall not
35
pay, or permit to be paid, any part of such Third Party Claim unless the
Indemnifying Party consents in writing to such payment or unless the
Indemnifying Party withdraws from the defense of such Third Party Claim
liability or unless a final judgment from which no appeal may be taken by or on
behalf of the Indemnifying Party is entered against the Indemnified Party for
such Third Party Claim. If the Indemnified Party assumes the defense of any such
claims or proceeding pursuant to this Section 4.8(d) and proposes to settle such
claims or proceeding prior to a final judgment thereon or to forgo any appeal
with respect thereto, then the Indemnified Party shall give the Indemnifying
Party prompt written notice thereof and the Indemnifying Party shall have the
right to participate in the settlement or assume or reassume the defense of such
claims or proceeding.
4.9 Reservation of Common Stock. As of the date that the Certificate of
Designations is filed with the governmental agency of the applicable
jurisdiction, the Company will have reserved and the Company shall continue to
reserve and keep available at all times, free of preemptive rights, a sufficient
number of shares of Common Stock for the purpose of enabling the Company to
issue the Conversion Shares pursuant to any conversion of the Preferred Shares
and the Warrant Shares pursuant to any exercise of the Warrants.
ARTICLE V.
MISCELLANEOUS
5.1 Fees and Expenses. On each of the Closing Dates, the Company shall
pay ComVest a closing fee (the "Closing Fee") equal to two and a half percent
(2.5%) of the gross proceeds of the Purchase Price of each Closing, by check or
wire transfer. In addition, the Company shall reimburse ComVest for its actual
out-of-pocket expenses incurred in connection with the this transaction
including, without limitation, the reasonable fees and disbursements of the
ComVest's counsel and due diligence expenses, not to exceed $200,000, and in
addition the Company shall also retain ComVest Advisors LLC as a financial
advisor, as set forth in Section 5.2 below.
5.2
ComVest Advisors LLC Advisory Agreement. The Company shall enter
into a Financial Advisory and Consulting Agreement with ComVest Advisors LLC at
a monthly fee of $22,000, in the form attached hereto as Exhibit H (the "ComVest
Advisory Agreement"). The Company may reduce the monthly fee to $10,000 with 30
days notice, and terminate the ComVest Advisory Agreement once the Purchasers
(or any affiliates or members) cease to own more than 33% of the Common Stock of
the Company purchased in this transaction.
5.3 Rights Upon Termination. So long as the Purchasers have proceeded in
good faith to consummate this Agreement and the transactions contemplated
hereby, in the event the Company elects not to consummate this transaction for
any reason prior to November __, 2005, the Company shall pay to ComVest a
financial advisory and structuring fee (the "Advisory Fee") equal to Three
Hundred Fifty Thousand Dollars ($350,000) which shall, at the sole option of
ComVest, be payable in cash or shares of Common Stock valued at $0.10 per share
of Common Stock. Upon the Company's election to terminate this transaction,
ComVest shall have ten (10) days in which to make an election to receive either
cash or shares of Common Stock from the Company. Any Advisory Fee that becomes
due shall be payable to ComVest within five (5) days following ComVest's receipt
of notice from the Company that the Company has elected not
36
to consummate this transaction. Any Advisory Fee paid pursuant to this Section
5.3 shall be in addition to any expenses and costs payable by the Company to
ComVest in accordance with Section 5.1 hereof. The Company hereby acknowledges
that, in the event the Company is required to pay the Advisory Fee in accordance
with this Section 5.3, the Company shall be deemed to have received advisory
services from ComVest in consideration of such Advisory Fee. In the event the
Purchasers do not consummate the transactions contemplated hereby by November
__, 2005 or otherwise terminate this Agreement prior to such date despite the
Company's good faith attempts to consummate the transactions contemplated
hereby, the terms of this Section 5.3 shall expire and be of no further force or
effect and the Company shall have no further obligation to pay the Advisory Fee.
5.4 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.
5.5 Notices. All notices, requests, consents, and other communications
under this Agreement shall be in writing and shall be delivered by hand, sent
via a reputable nationwide overnight courier service or mailed by first class
certified or registered mail, return receipt requested, postage prepaid:
If to the Company, at 000 Xxxxx Xxxxx Xx Xxxxx, Xxxxx 000, Xxxxxx
Xxxxx, Xxxxxxxxxx 00000, Attention: Chief Financial Officer, or at such other
address or addresses as may have been furnished in writing by the Company to
Purchaser, with copies to Xxxxx & Lardner, 000 X. Xxxxxxxx, Xxxxx 0000, Xxx
Xxxxx, Xxxxxxxxxx 00000, Attention Xxxx X. Xxxxxx; or
If to ComVest, at Xxx Xxxxx Xxxxxxxx Xxxxxx, Xxxxx 000, Xxxx Xxxx
Xxxxx, Xxxxxxx 00000, Attention: Xxxx Xxxxxxxx, or at such other address or
addresses as may have been furnished to the Company in writing by ComVest, with
a copy to Xxxxxxxxx Xxxxxxx, LLP, The MetLife Building, 000 Xxxx Xxxxxx, Xxx
Xxxx, Xxx Xxxx 00000, Attention: Xxxx X. Annex, Esq. If to any other Purchaser,
at the address set forth on the signature page attached hereto.
If to the other Purchasers, to the address set forth on the
signature pages attached hereto.
Notices provided in accordance with this Section 5.5 shall be deemed
delivered upon personal delivery, one business day after being sent via a
reputable nationwide overnight courier service, or three business days after
deposit in the mail.
5.6 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and each Purchaser or, in the case of a waiver, by the party against
whom enforcement of any such waiver is sought. No waiver of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement
37
hereof, nor shall any delay or omission of either party to exercise any right
hereunder in any manner impair the exercise of any such right.
5.7 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
5.8 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. Each Purchaser may assign
any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to such Purchaser.
5.9 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 4.8.
5.10 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 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 Action, any claim that
it is not personally subject to the jurisdiction of any such court or that such
Action is improper or inconvenient venue for such Action. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such Action by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. The parties hereby waive all
rights to a trial by jury. If either party shall commence an Action to enforce
any provisions of the Transaction Documents, then the prevailing party in such
Action shall be reimbursed by the other party for its attorneys' fees and other
costs and expenses reasonably incurred with the investigation, preparation and
prosecution of such Action.
5.11 Survival. All agreements, representations, and warranties contained
herein shall survive the execution and delivery of this Agreement and the
closing of the transactions contemplated hereby until thirty (30) days after the
delivery of the Company's audited financials for the period ended December 31,
2006, except for any agreements, representations, covenants,
38
warranties or otherwise, contained in Article IV, each of which shall remain in
effect until there are no Securities outstanding.
5.12 Execution. This Agreement may be executed in two (2) or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
5.13 Severability. If any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affected or impaired thereby and the parties will attempt to agree
upon a valid, legal and enforceable provision that is a reasonable substitute
therefor, and upon so agreeing, shall incorporate such substitute provision in
this Agreement.
5.14 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.
5.15 Remedies. In addition to being entitled to exercise all rights
provided herein, including without limitation Section 5.3 or granted by law,
including recovery of damages, the Purchasers will be entitled to specific
performance under the Transaction Documents. The parties agree that monetary
damages may not be adequate compensation for any loss incurred by reason of any
breach of obligations described in the foregoing sentence and hereby agrees to
waive in any action for specific performance of any such obligation the defense
that a remedy at law would be adequate.
5.16 Payment Set Aside. To the extent that the Company makes a payment or
payments to the Purchasers 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.
(Signature Page Follows)
39
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
COMPANY:
IT & E INTERNATIONAL GROUP
By:
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Name:
Title:
PURCHASERS:
COMVEST INVESTMENT PARTNERS II LLC
Investment Amount:
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By:
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Name:
Title:
PURCHASERS (continued):
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[entity name]
Investment Amount:
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By:
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Name:
Title:
Address:
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[individual name]
Investment Amount:
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Print Name:
Address:
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