Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of March
13, 2006, by and among CITY NETWORK, INC., a Nevada corporation (the "COMPANY"),
and the Buyers listed on Schedule I attached hereto (individually, a "BUYER" or
collectively "BUYERS").
WITNESSETH
WHEREAS, the Company and the Buyers are executing and delivering this
Agreement in reliance upon an exemption from securities registration pursuant to
Section 4(2) and/or Rule 506 of Regulation D ("REGULATION D") as promulgated by
the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "SECURITIES ACT");
WHEREAS, on August 10, 2005, the Company and Highgate House Funds, Ltd.
("HIGHGATE") entered into the Securities Purchase Agreement (the "PRIOR
SECURITIES PURCHASE AGREEMENT"), pursuant to which the Company issued the
Amended and Restated Secured Convertible Debenture, dated August 17, 2005, in
favor of Highgate, and the Secured Convertible Debenture, dated as of December
16, 2005, in favor of Highgate, for an aggregate principal amount of $250,000
(the "ORIGINAL NOTES");
WHEREAS, in connection with the Prior Securities Purchase Agreement, the
Company issued a warrant, dated August 17, 2005 (the "PRIOR WARRANT"), in favor
of Highgate;
WHEREAS, contemporaneously with the Prior Securities Purchase Agreement,
the Company and Cornell Capital Partners, LP ("CORNELL CAPITAL") entered into
the Standby Equity Distribution Agreement, dated as of August 10, 2005 (the
"SEDA"), pursuant to which Cornell Capital received nine hundred seventy-seven
thousand, two hundred seventy-three (977,273) shares of the Company's common
stock, par value $0.001 (the "COMMON STOCK");
WHEREAS, in connection with the SEDA, the Company entered into the
Placement Agent Agreement, dated as of August 10, 2005 (the "PLACEMENT AGENT
AGREEMENT"), between the Company and Monitor Capital, Inc., pursuant to which
Monitor Capital, Inc. received 10,000 shares of Common Stock;
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Buyers, as
provided herein, and the Buyers shall purchase up to Six Hundred Fifty Thousand
Dollars ($650,000) of secured convertible debentures, in substantially the form
attached as EXHIBIT A hereto (the "CONVERTIBLE DEBENTURES"), which shall be
convertible into shares of Common Stock (as converted, the "CONVERSION SHARES"),
in the respective amounts set forth opposite each Buyers name on Schedule I (the
"SUBSCRIPTION AMOUNT") for a total purchase price of up to $650,000 (the
"PURCHASE PRICE");
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the Company and the Buyers are executing and delivering an Investor
Registration Rights Agreement, in substantially the form attached as EXHIBIT B
hereto (the "REGISTRATION RIGHTS AGREEMENT"), pursuant to which the Company has
agreed to provide certain registration rights under the Securities Act and the
rules and regulations promulgated there under, and applicable state securities
laws;
WHEREAS, on or before the Closing Date (as defined in Section 1(b)), the
Company and the Buyers are executing an Amended and Restated Security Agreement,
in substantially the form attached as EXHIBIT C-1 hereto; City Technology, Inc.,
a wholly-owned subsidiary of the Company, and the Buyers are executing an
Amended and Restated Security Agreement, in substantially the form attached as
EXHIBIT C-2 hereto; City Network, Inc.--Taiwan, a wholly-owned subsidiary of the
Company, and the Buyers are executing an Amended and Restated Security
Agreement, in substantially the form attached as EXHIBIT C-3 hereto; and City
Construction Co., Ltd., a wholly-owned subsidiary of the Company, and the Buyers
are executing an Amended and Restated Security Agreement, in substantially the
form attached as EXHIBIT C-4 hereto (all such amended and restated security
agreements, the "SECURITY AGREEMENTS"), pursuant to which the Company and its
wholly-owned subsidiaries shall agree to provide the Buyers a security interest
in Pledged Collateral (as this term is defined in each Security Agreement) to
secure the Company's obligations under the Convertible Debentures;
WHEREAS, on or before the Closing Date, the Company, the Buyers and the
Xxxxx Xxxxxxxx, Esq. (the "ESCROW AGENT") are executing and delivering an
Amended and Restated Pledge and Escrow Agreement, in substantially the form
attached as EXHIBIT D hereto (the "PLEDGE AND ESCROW AGREEMENT"), pursuant to
which the Company shall provide the Buyers a security interest in up to
6,445,455 shares of Common Stock (the "PLEDGED SHARES") to secure the Company's
obligations under the Convertible Debentures;
WHEREAS, on or before the Closing Date, the parties hereto and Pacific
Stock Transfer Company, the Company's transfer agent as of the date hereof (the
"TRANSFER AGENT'), are executing and delivering Irrevocable Transfer Agent
Instructions, in substantially the form attached as EXHIBIT E hereto (the
"IRREVOCABLE TRANSFER AGENT INSTRUCTIONS," and collectively with the
Registration Rights Agreement, the Security Agreements, and the Pledge and
Escrow Agreement, and any related agreements contemplated by this Agreement, the
"TRANSACTION Documents"), pursuant to which the Transfer Agent shall agree to
certain obligations in connection with the conversion of the Convertible
Debentures; and
WHEREAS, on or before the Closing Date, Highgate, Cornell Capital and the
Company desire to terminate the Prior Securities Purchase Agreement, the SEDA
and certain other documents previously executed in connection with such
agreements.
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Buyers hereby agree
as follows:
1. PURCHASE AND SALE OF CONVERTIBLE DEBENTURES.
(a) PURCHASE OF CONVERTIBLE DEBENTURES. Subject to the satisfaction (or
waiver) of the terms and conditions of this Agreement, each Buyer agrees,
severally and not jointly, to purchase at the closing of the transactions
contemplated by this Agreement (the "CLOSING") and the Company agrees to sell
and issue to each Buyer, severally and not jointly, at the Closing, Convertible
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Debentures in amounts corresponding with the Subscription Amount set forth
opposite each Buyer's name on Schedule I hereto. Notwithstanding the foregoing,
the Buyers shall have no obligation to purchase over $275,000 in aggregate
principal amount of Convertible Debentures if shareholder approval of the
issuance of Common Stock pursuant to the transactions contemplated in this
Agreement has not been obtained within ninety (90) days of the date hereof;
provided that in the event the Company files a preliminary proxy statement for a
special meeting of stockholders to approve such issuance within 30 days of the
date hereof and the SEC issues comments on the preliminary proxy statement, the
time shall be extended by sixty (60) days.
(b) CLOSING DATE. The closing of the purchase and sale of the Convertible
Debentures shall take place upon the earlier of (a) the date two (2) business
days after the date the Company receives approval from AMEX for the additional
listing on AMEX of shares of Common Stock issuable pursuant to the transactions
contemplated in this Agreement and the Transaction Documents (which application
for additional listing shall be made subject to Section 4(o) herein) or (b)
ninety (90) days from the date hereof, subject to notification of satisfaction
of the conditions to the Closing set forth herein and in Sections 6 and 7 below,
(or such other date as is mutually agreed to by the Company and the Buyers) (the
"CLOSING DATE"). The Closing shall occur at the offices of Yorkville Advisors,
LLC, 0000 Xxxxxx Xxxxxx, Xxxxx 0000, Xxxxxx Xxxx, Xxx Xxxxxx 00000 (or such
other place as is mutually agreed to by the Company and the Buyers).
(c) FORM OF PAYMENT. Subject to the satisfaction of the terms and
conditions of this Agreement, on the Closing Date, (i) the Buyers shall deliver
to the Company in such aggregate proceeds for the Convertible Debentures to be
issued and sold to such Buyers, minus the fees to be paid directly from the
gross proceeds of the Closing as set forth herein, and (ii) the Company shall
deliver to each Buyer, Convertible Debentures which such Buyers are purchasing
in amounts indicated opposite such Buyer's name on Schedule I, duly executed on
behalf of the Company.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants, severally and not jointly, that:
(a) INVESTMENT PURPOSE. Each Buyer is acquiring the Convertible Debentures
and, upon conversion of Convertible Debentures, the Buyer will acquire the
Conversion Shares then issuable, for its own account for investment only and not
with a view towards, or for resale in connection with, the public sale or
distribution thereof, except pursuant to sales registered or exempted under the
Securities Act; provided, however, that by making the representations herein,
such Buyer reserves the right to dispose of the Conversion Shares at any time in
accordance with or pursuant to an effective registration statement covering such
Conversion Shares or an available exemption under the Securities Act.
(b) ACCREDITED INVESTOR STATUS. Each Buyer is an "ACCREDITED INVESTOR" as
that term is defined in Rule 501(a)(3) of Regulation D.
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(c) RELIANCE ON EXEMPTIONS. Each Buyer understands that the Convertible
Debentures are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire such securities.
(d) INFORMATION. Each Buyer and its advisors (and his or, its counsel), if
any, have been furnished with all materials relating to the business, finances
and operations of the Company and information he deemed material to making an
informed investment decision regarding his purchase of the Convertible
Debentures and the Conversion Shares, which have been requested by such Buyer.
Each Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company and its management. Neither such inquiries nor any
other due diligence investigations conducted by such Buyer or its advisors, if
any, or its representatives shall modify, amend or affect such Buyer's right to
rely on the Company's representations and warranties contained in Section 3
below. Each Buyer understands that its investment in the Convertible Debentures
and the Conversion Shares involves a high degree of risk. Each Buyer is in a
position regarding the Company, which, based upon employment, family
relationship or economic bargaining power, enabled and enables such Buyer to
obtain information from the Company in order to evaluate the merits and risks of
this investment. Each Buyer has sought such accounting, legal and tax advice, as
it has considered necessary to make an informed investment decision with respect
to its acquisition of the Convertible Debentures and the Conversion Shares.
(e) NO GOVERNMENTAL REVIEW. Each Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Convertible
Debentures or the Conversion Shares, or the fairness or suitability of the
investment in the Convertible Debentures or the Conversion Shares, nor have such
authorities passed upon or endorsed the merits of the offering of the
Convertible Debentures or the Conversion Shares.
(f) TRANSFER OR RESALE. Each Buyer understands that except as provided in
the Registration Rights Agreement: (i) the Convertible Debentures have not been
and are not being registered under the Securities Act or any state securities
laws, and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, or (B) such Buyer shall have delivered to
the Company an opinion of counsel, in a generally acceptable form, to the effect
that such securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration requirements;
(ii) any sale of such securities made in reliance on Rule 144 under the
Securities Act (or a successor rule thereto) ("RULE 144") may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of such securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the Securities Act) may require
compliance with some other exemption under the Securities Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such securities under the Securities
Act or any state securities laws or to comply with the terms and conditions of
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any exemption thereunder. The Company reserves the right to place stop transfer
instructions against the shares and certificates for the Conversion Shares.
(g) LEGENDS. Each Buyer understands that the certificates or other instruments
representing the Convertible Debentures and or the Conversion Shares shall bear
a restrictive legend in substantially the following form (and a stop transfer
order may be placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT
PURPOSES AND NOT WITH A VIEW TOWARD RESALE AND MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF
COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE
STATE SECURITIES LAWS.
The legend set forth above shall be removed, and the Company shall issue a
certificate without such legend to the holder of the Conversion Shares upon
which it is stamped, within two (2) business days after written request by the
holder of the Conversion Shares, if, unless otherwise required by state
securities laws, (i) in connection with a sale transaction, the Conversion
Shares are registered under the Securities Act, or (ii) in connection with a
sale transaction, such holder provides the Company with an opinion of counsel,
which opinion shall be in form, substance and scope customary for opinions of
counsel in comparable transactions, to the effect that a public sale, assignment
or transfer of the Conversion Shares may be made without registration under the
Securities Act.
(h) AUTHORIZATION, ENFORCEMENT. This Agreement has been duly and validly
authorized, executed and delivered on behalf of such Buyer and is a valid and
binding agreement of such Buyer enforceable in accordance with its terms, except
as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
(i) RECEIPT OF DOCUMENTS. Each Buyer and his or its counsel has received
and read in their entirety: (i) this Agreement, including the exhibits attached
hereto, and each representation, warranty and covenant set forth herein; (ii)
all due diligence and other information necessary to verify the accuracy and
completeness of such representations, warranties and covenants; (iii) the
Company's Form 10-KSB for the fiscal year ended December 31, 2004; (iv) the
Company's Form 10-QSB for the fiscal quarter ended September 30, 2005 and (v)
answers to all questions each Buyer submitted to the Company regarding an
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investment in the Company; and each Buyer has relied on the information
contained therein and has not been furnished any other documents, literature,
memorandum or prospectus.
(j) DUE FORMATION OF CORPORATE AND OTHER BUYERS. If either Buyer is a
corporation, trust, partnership or other entity that is not an individual
person, it has been formed and validly exists and has not been organized for the
specific purpose of purchasing the Convertible Debentures and is not prohibited
from doing so.
(k) NO LEGAL ADVICE FROM THE COMPANY. Each Buyer acknowledges, that it had
the opportunity to review this Agreement and the transactions contemplated by
this Agreement with his or its own legal counsel and investment and tax
advisors. Each Buyer is relying solely on such counsel and advisors and not on
any statements or representations of the Company or any of its representatives
or agents for legal, tax or investment advice with respect to this investment,
the transactions contemplated by this Agreement or the securities laws of any
jurisdiction.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants as of the date hereof to each of the
Buyers that, except as set forth in the SEC Documents (as defined herein) or in
the Disclosure Schedule attached hereto (the "DISCLOSURE SCHEDULE"):
(a) ORGANIZATION AND QUALIFICATION. The Company and its subsidiaries are
corporations duly organized and validly existing in good standing under the laws
of the jurisdiction in which they are incorporated, and have the requisite
corporate power to own their properties and to carry on their business as now
being conducted. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company and its
subsidiaries taken as a whole.
(b) AUTHORIZATION, ENFORCEMENT, COMPLIANCE WITH OTHER INSTRUMENTS. (i) The
Company has the requisite corporate power and authority to enter into and
perform this Agreement and the Transaction Agreements to which it is a party and
to issue the Convertible Debentures and the Conversion Shares in accordance with
the terms hereof and thereof, (ii) the execution and delivery of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including, without limitation, the issuance of
the Convertible Debentures, the Conversion Shares and the reservation for
issuance and the issuance of the Conversion Shares issuable upon conversion or
exercise thereof, have been duly authorized by the Company's Board of Directors
and no further consent or authorization is required by the Company, its Board of
Directors or its stockholders, (iii) the Transaction Documents have been duly
executed and delivered by the Company, (iv) the Transaction Documents constitute
the valid and binding obligations of the Company enforceable against the Company
in accordance with their terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies. The
authorized officer of the Company executing the Transaction Documents knows of
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no reason why the Company cannot file the registration statement as required
under the Registration Rights Agreement or perform any of the Company's other
obligations under such documents.
(c) CAPITALIZATION. The authorized capital stock of the Company consists of
100,000,000 shares of Common Stock and 50,000,000 shares of preferred stock, par
value $0.001 ("PREFERRED STOCK") of which 30,934,366 shares of Common Stock and
zero shares of Preferred Stock are issued and outstanding, and 2,032,817 shares
of Common Stock are held as treasury shares. All of such outstanding shares have
been validly issued and are fully paid and nonassessable. Except as disclosed in
the SEC Documents (as defined in Section 3(f)), no shares of Common Stock are
subject to preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company. Except as disclosed in the
SEC Documents, as of the date of this Agreement, (i) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, (ii) there are no outstanding debt
securities and (iii) there are no agreements or arrangements under which the
Company or any of its subsidiaries is obligated to register the sale of any of
their securities under the Securities Act (except pursuant to the Registration
Rights Agreement) and (iv) there are no outstanding registration statements and
there are no outstanding comment letters from the SEC or any other regulatory
agency other than on Form S-8 or as contemplated by this Agreement. There are no
securities or instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of the Convertible Debentures as described in
this Agreement. The Company has furnished to the Buyer true and correct copies
of the Company's Articles of Incorporation, as amended and as in effect on the
date hereof (the "ARTICLES OF INCORPORATION"), and the Company's By-laws, as in
effect on the date hereof (the "BY-LAWS"), and the terms of all securities
convertible into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto other than stock options issued to employees
and consultants.
(d) ISSUANCE OF SECURITIES. The Convertible Debentures are duly authorized
and, upon issuance in accordance with the terms hereof, shall be duly issued,
fully paid and nonassessable, free from all taxes, liens and charges with
respect to the issue thereof. The Conversion Shares issuable upon conversion of
the Convertible Debentures have been duly authorized and reserved for issuance.
Upon conversion or exercise in accordance with the Convertible Debentures the
Conversion Shares will be duly issued, fully paid and nonassessable.
(e) NO CONFLICTS. Except as disclosed in the SEC Documents, the execution,
delivery and performance of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby will not (i)
result in a violation of the Articles of Incorporation, any certificate of
designations of any outstanding series of preferred stock of the Company or the
By-laws or (ii) conflict with or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
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agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, or result in a violation of any law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations and the rules and regulations of the American Stock Exchange
("AMEX") on which the Common Stock is quoted) applicable to the Company or any
of its subsidiaries or by which any material property or asset of the Company or
any of its subsidiaries is bound or affected which would interfere with the
ability of the Company to perform its obligations under this Agreement in any
material respect. Except as disclosed in the SEC Documents, neither the Company
nor its subsidiaries is in violation of any term of or in default under its
Articles of Incorporation or By-laws or their organizational charter or by-laws,
respectively, or any material contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its subsidiaries. The business of the
Company and its subsidiaries is not being conducted, and shall not be conducted
in material violation of any law, ordinance, or regulation of any governmental
entity. Except as specifically contemplated by this Agreement and as required
under the Securities Act and any applicable state securities laws, the Company
is not required to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under or contemplated by this
Agreement or the Registration Rights Agreement in accordance with the terms
hereof or thereof. Except as disclosed in the SEC Documents, all consents,
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof. The Company and its subsidiaries are unaware of any
facts or circumstance that might give rise to any of the foregoing.
(f) SEC DOCUMENTS: FINANCIAL STATEMENTS. Since January 1, 2003, the Company
has filed all reports, schedules, forms, statements and other documents required
to be filed by it with the SEC under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT") (all of the foregoing filed prior to the date
hereof or amended after the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein, being hereinafter referred to as the "SEC DOCUMENTS"). The
Company has delivered to the Buyers or their representatives, or made available
through the SEC's website at xxxx://xxx.xxx.xxx., true and complete copies of
the SEC Documents. As of their respective dates, the financial statements of the
Company disclosed in the SEC Documents (the "FINANCIAL STATEMENTS") complied as
to form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as may
be otherwise indicated in such Financial Statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and, fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Buyer which is not included in the SEC Documents, including, without
limitation, information referred to in this Agreement, contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
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(g) 10(B)-5. As of their respective dates, the SEC Documents did not
include any untrue statements of material fact, nor do they omit to state any
material fact required to be stated therein necessary to make the statements
made, in light of the circumstances under which they were made, not misleading.
(h) ABSENCE OF LITIGATION. Except as disclosed in the SEC Documents, there
is no action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or body pending
against or affecting the Company, the Common Stock or any of the Company's
subsidiaries, wherein an unfavorable decision, ruling or finding would (i) have
a material adverse effect on the transactions contemplated hereby (ii) adversely
affect the validity or enforceability of, or the authority or ability of the
Company to perform its obligations under, this Agreement or any of the documents
contemplated herein, or (iii) except as expressly disclosed in the SEC
Documents, have a material adverse effect on the business, operations,
properties, financial condition or results of operations of the Company and its
subsidiaries taken as a whole.
(i) ACKNOWLEDGMENT REGARDING BUYER'S PURCHASE OF THE CONVERTIBLE
DEBENTURES. The Company acknowledges and agrees that the Buyers are acting
solely in the capacity of an arm's length purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that the Buyers are 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 the Buyers or any
of their respective representatives or agents in connection with this Agreement
and the transactions contemplated hereby is merely incidental to such Buyer's
purchase of the Convertible Debentures or the Conversion Shares. The Company
further represents to the Buyer that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation by the Company and
its representatives.
(j) NO GENERAL SOLICITATION. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the Convertible Debentures or the Conversion Shares.
(k) NO INTEGRATED OFFERING. 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 require registration of the Convertible
Debentures or the Conversion Shares under the Securities Act or cause this
offering of the Convertible Debentures or the Conversion Shares to be integrated
with prior offerings by the Company for purposes of the Securities Act.
(l) EMPLOYEE RELATIONS. Neither the Company nor any of its subsidiaries is
involved in any labor dispute nor, to the knowledge of the Company or any of its
subsidiaries, is any such dispute threatened. None of the Company's or its
subsidiaries' employees is a member of a union and the Company and its
subsidiaries believe that their relations with their employees are good.
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(m) INTELLECTUAL PROPERTY RIGHTS. The Company and its subsidiaries own or
possess adequate rights or licenses to use all trademarks, trade names, service
marks, service xxxx registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental authorizations, trade
secrets and rights necessary to conduct their respective businesses as now
conducted, except where its failure to would not have a material adverse effect
on the Company's business. The Company and its subsidiaries do not have any
knowledge of any infringement by the Company or its subsidiaries of trademark,
trade name rights, patents, patent rights, copyrights, inventions, licenses,
service names, service marks, service xxxx registrations, trade secret or other
similar rights of others, and, to the knowledge of the Company there is no
claim, action or proceeding being made or brought against, or to the Company's
knowledge, being threatened against, the Company or its subsidiaries regarding
trademark, trade name, patents, patent rights, invention, copyright, license,
service names, service marks, service xxxx registrations, trade secret or other
infringement; and the Company and its subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
(n) ENVIRONMENTAL LAWS. The Company and its subsidiaries are (i) in
material compliance with any and all applicable foreign, federal, state and
local laws and regulations relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes, pollutants
or contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all material permits,
licenses or other approvals required of them under applicable Environmental Laws
to conduct their respective businesses and (iii) are in compliance with all
terms and conditions of any such permit, license or approval.
(o) TITLE. Any real property and facilities held under lease by the Company
and its subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with the
use made and proposed to be made of such property and buildings by the Company
and its subsidiaries.
(p) INSURANCE. The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its subsidiaries are
engaged. Neither the Company nor any such subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its subsidiaries, taken as a whole.
(q) REGULATORY PERMITS. The Company and its subsidiaries possess all
material certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such material certificate, authorization or permit.
10
(r) INTERNAL ACCOUNTING CONTROLS. The Company and each of its subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
and (iii) the recorded amounts for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to any
differences.
(s) NO MATERIAL ADVERSE BREACHES, ETC. Except as set forth in the SEC
Documents, neither the Company nor any of its subsidiaries is subject to any
charter, corporate or other legal restriction, or any judgment, decree, order,
rule or regulation which in the judgment of the Company's officers has or is
expected in the future to have a material adverse effect on the business,
properties, operations, financial condition, results of operations or prospects
of the Company or its subsidiaries. Except as set forth in the SEC Documents,
neither the Company nor any of its subsidiaries is in breach of any contract or
agreement which breach, in the judgment of the Company's officers, has or is
expected to have a material adverse effect on the business, properties,
operations, financial condition, results of operations or prospects of the
Company or its subsidiaries.
(t) TAX STATUS. Except as set forth in the SEC Documents, the Company and
each of its subsidiaries has made and filed all federal and state income and all
other tax returns, reports and declarations required by any jurisdiction to
which it is subject and (unless and only to the extent that the Company and each
of its subsidiaries has set aside on its books provisions reasonably adequate
for the payment of all unpaid and unreported taxes) has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim.
(u) CERTAIN TRANSACTIONS. Except as set forth in the SEC Documents, and
except for arm's length transactions pursuant to which the Company makes
payments in the ordinary course of business upon terms no less favorable than
the Company could obtain from third parties and other than the grant of stock
options disclosed in the SEC Documents, none of the officers, directors, or
employees of the Company is presently a party to any transaction with the
Company (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 corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
(v) FEES AND RIGHTS OF FIRST REFUSAL. The Company is not obligated to offer
the securities offered hereunder on a right of first refusal basis or otherwise
to any third parties including, but not limited to, current or former
shareholders of the Company, underwriters, brokers, agents or other third
parties.
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4. COVENANTS.
(a) COMMERCIALLY REASONABLE EFFORTS. Each party shall use commercially
reasonable efforts to timely satisfy each of the conditions to be satisfied by
it as provided in Sections 6 and 7 of this Agreement.
(b) FORM D. The Company agrees to file a Form D with respect to the
Conversion Shares as required under Regulation D and to provide a copy thereof
to each Buyer promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary to qualify the Conversion Shares, or obtain an exemption for the
Conversion Shares, for sale to the Buyers at the Closing pursuant to this
Agreement under applicable securities or "Blue Sky" laws of the states of the
United States, and shall provide evidence of any such action so taken to the
Buyers on or prior to the Closing Date.
(c) REPORTING STATUS. Until the earlier of (i) the date as of which the
Buyers may sell all of the Conversion Shares without restriction pursuant to
Rule 144(k) promulgated under the Securities Act (or successor thereto), or (ii)
the date on which (A) the Buyers shall have sold all the Conversion Shares and
(B) none of the Convertible Debentures are outstanding (the "REGISTRATION
PERIOD"), the Company shall file in a timely manner all reports required to be
filed with the SEC pursuant to the Exchange Act and the regulations of the SEC
thereunder, and the Company shall not terminate its status as an issuer required
to file reports under the Exchange Act even if the Exchange Act or the rules and
regulations thereunder would otherwise permit such termination.
(d) USE OF PROCEEDS. The Company will use the proceeds from the sale of the
Convertible Debentures for general corporate and working capital purposes, and
to repay the principal amount, plus accrued interest, on the Original Notes.
(e) RESERVATION OF SHARES. The Company shall take all action reasonably
necessary to at all times have authorized, and reserved for the purpose of
issuance, such number of shares of Common Stock as shall be necessary to effect
the issuance of the Conversion Shares. If at any time the Company does not have
available such shares of Common Stock as shall from time to time be sufficient
to effect the conversion of all of the Conversion Shares, the Company shall call
and hold a special meeting of the shareholders within sixty (60) days of such
occurrence, for the sole purpose of increasing the number of shares authorized,
provided that in the event the Company files a preliminary proxy statement for a
special meeting within 30 days of such occurrence and the SEC issues comments on
the preliminary proxy statement, the time shall be extended by sixty (60) days.
The Company's management shall recommend to the shareholders to vote in favor of
increasing the number of shares of Common Stock authorized. Management shall
also vote all of its shares in favor of increasing the number of authorized
shares of Common Stock.
(f) LISTINGS OR QUOTATION. The Company shall promptly secure the listing or
quotation of the Conversion Shares upon the AMEX or other market, if any, upon
which shares of Common Stock are then listed or quoted (subject to official
notice of issuance) and shall use commercially reasonable efforts to maintain,
so long as any other shares of Common Stock shall be so listed, such listing of
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all Conversion Shares from time to time issuable under the terms of this
Agreement. The Company shall maintain the Common Stock's eligibility for listing
on the AMEX.
(g) FEES AND EXPENSES.
(i) Each of the Company and the Buyers shall pay all costs and expenses
incurred by such party in connection with the negotiation, investigation,
preparation, execution and delivery of the Transaction Documents, except the
Company shall pay a structuring fee to Yorkville Advisors LLC of Ten Thousand
Dollars ($10,000) on the date hereof.
(ii) The Company shall pay Yorkville Advisors LLC a fee equal to ten
percent (10%) of the Purchase Price on all amounts funded in excess of $250,000.
This fee shall be paid directly from the gross proceeds of the Closing and shall
not exceed in the aggregate Forty Thousand Dollars ($40,000).
(iii) The Company shall issue to the Buyers warrants ("WARRANTS") to
purchase up to a total of One Million (1,000,000) shares of the Company's Common
Stock for a period of five (5) years at an exercise price of $0.001 per share at
the Closing in the amount set forth next to each Buyer's name on Schedule I. The
shares of Common Stock underlying the Warrants shall be referred to as the
"WARRANT SHARES." The Warrant Shares shall have "piggy-back" and demand
registration rights. The Warrants shall be issued on or prior to the Closing
Date.
(h) CORPORATE EXISTENCE. Beginning on the date of this Agreement and
continuing for so long as any of the Convertible Debentures remain outstanding,
the Company shall not directly or indirectly consummate any merger,
reorganization, restructuring, reverse stock split consolidation, sale of all or
substantially all of the Company's assets or any similar transaction or related
transactions (each such transaction, an "ORGANIZATIONAL CHANGE") unless the
Company makes appropriate provisions with respect to such holders' rights and
interests to insure that the provisions of this Section 4(h) will thereafter be
applicable to the Convertible Debentures.
(i) TRANSACTIONS WITH AFFILIATES. Beginning on the date of this Agreement
and continuing for so long as any Convertible Debentures are outstanding, the
Company shall not, and shall cause each of its subsidiaries not to, enter into,
amend, modify or supplement, or permit any subsidiary to enter into, amend,
modify or supplement any agreement, transaction, commitment, or arrangement with
any of its or any subsidiary's officers, directors, person who were officers or
directors at any time during the previous two (2) years, stockholders who
beneficially own five percent (5%) or more of the Common Stock, or Affiliates
(as defined below) or with any individual related by blood, marriage, or
adoption to any such individual or with any entity in which any such entity or
individual owns a five percent (5%) or more beneficial interest (each a "RELATED
PARTY"), except for (a) customary employment arrangements and benefit programs
on reasonable terms, (b) any investment in an Affiliate of the Company, (c) any
agreement, transaction, commitment, or arrangement on an arms-length basis on
terms no less favorable than terms which would have been obtainable from a
13
person other than such Related Party, (d) any agreement, transaction,
commitment, or arrangement which is approved by a majority of the disinterested
directors of the Company; for purposes hereof, any director who is also an
officer of the Company or any subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment, or arrangement. "AFFILIATE" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or indirectly,
(i) has a ten percent (10%) or more equity interest in that person or entity,
(ii) has ten percent (10%) or more common ownership with that person or entity,
(iii) controls that person or entity, or (iv) shares common control with that
person or entity. "CONTROL" or "CONTROLS" for purposes hereof means that a
person or entity has the power, direct or indirect, to conduct or govern the
policies of another person or entity.
(j) TRANSFER AGENT. The Company covenants and agrees that, in the event
that the Company's agency relationship with the Transfer Agent should be
terminated for any reason prior to a date which is two (2) years after the
Closing Date, the Company shall immediately appoint a new transfer agent and
shall require that the new transfer agent execute and agree to be bound by the
terms of the Irrevocable Transfer Agent Instructions (as defined herein).
(k) RESTRICTION ON ISSUANCE OF THE CAPITAL STOCK. Beginning on the date of
this Agreement and continuing for so long as any Convertible Debentures are
outstanding, the Company shall not, without the prior written consent of the
Buyers, (i) issue or sell shares of Common Stock or Preferred Stock without
consideration or for a consideration per share less than the bid price of the
Common Stock determined immediately prior to its issuance, (ii) issue any
preferred stock, warrant, option, right, contract, call, or other security or
instrument granting the holder thereof the right to acquire Common Stock without
consideration or for a consideration less than such Common Stock's bid price
determined immediately prior to its issuance, (iii) enter into any security
instrument granting the holder a security interest in any and all assets of the
Company, or (iv) file any registration statement on Form S-8 except to register
up to four million (4,000,000) shares of Common Stock issued or to be issued to
employees under a bona fide employee stock incentive plan.
(l) SHORT POSITIONS. Neither the Buyers nor any of its affiliates have an
open short position in any securities of the Company, and each Buyer agrees that
it shall not, and that it will cause its affiliates not to, engage in any short
sales of or hedging transactions with respect to any securities of the Company
as long as any Convertible Debentures or Warrants shall remain outstanding.
(m) RIGHTS OF FIRST REFUSAL. For a period of 18 months from the date
hereof, if the Company intends to raise additional capital by the issuance or
sale of capital stock of the Company, including without limitation shares of any
class of common stock, any class of preferred stock, options, warrants or any
other securities convertible or exercisable into shares of common stock (whether
the offering is conducted by the Company, underwriter, placement agent or any
third party) the Company shall be obligated to offer to the Buyers such issuance
or sale of capital stock, by providing in writing the principal amount of
capital it intends to raise and outline of the material terms of such capital
raise, prior to the offering such issuance or sale of capital stock to any third
parties including, but not limited to, current or former officers or directors,
current or former shareholders and/or investors of the obligor, underwriters,
14
brokers, agents or other third parties; PROVIDED THAT the Company may issue up
to four million (4,000,000) shares of Common Stock to employees under a bona
fide employee stock incentive plan without such issuances being subject to the
right of first refusal proved herein. The Buyers shall have ten (10) business
days from receipt of such notice of the sale or issuance of capital stock to
accept or reject all or a portion of such capital raising offer.
(n) SHAREHOLDER VOTE; LIMITATION ON THE ISSUANCE OF STOCK.
(i) Within ninety (90) days of the date hereof the shareholders of the
Company shall vote on the issuance of all the shares of Common Stock to be
issued pursuant to the transactions contemplated in this Agreement, the
Transaction Documents, the Warrant (as defined in Section 6(g)(iii)), the
Placement Agent Agreement and the Prior Warrant.
(ii) The Total Transaction Shares shall not be equal to or greater than
5,500,000 shares, until the holders of Common Stock approve the issuance of the
Total Transaction Shares. "TOTAL TRANSACTION SHARES" shall mean, in the
aggregate, any shares of Common Stock issuable under the Convertible Debentures,
the Pledge and Escrow Agreement, and the Placement Agent Agreement; as Warrant
Shares (as defined in Section 6(g)(iii)); pursuant to the Prior Warrant; and as
Liquidated Damages (as defined in the Registration Rights Agreement).
(o) AMEX APPROVAL. The Company shall apply for the listing of the
Conversion Shares and the Warrant Shares issued or issuable in connection with
this Agreement and use commercially reasonable efforts to maintain the continued
listing approval of the shares of Common Stock issuable under the Prior Warrant
within five (5) business days following the shareholder vote described in
Section 4(n) and the Company shall use commercially reasonable efforts to obtain
approval for listing of such shares on AMEX within fifteen (15) business days of
the submission of such application.
5. TRANSFER AGENT INSTRUCTIONS.
(a) The Company shall issue the Irrevocable Transfer Agent Instructions to
the Transfer Agent irrevocably appointing Xxxxx Xxxxxxxx, Esq. as the Company's
agent for purpose of providing instruction to the Transfer Agent pursuant to the
terms of the Irrevocable Transfer Agent Instructions in connection with having
certificates issued, registered in the name of the Buyers or their respective
nominee(s), for the Conversion Shares representing such amounts of Convertible
Debentures as specified from time to time by the Buyers to the Company upon
conversion of the Convertible Debentures, for interest owed pursuant to the
Convertible Debenture, and for any and all Liquidated Damages (as this term is
defined in the Registration Rights Agreement). Xxxxx Xxxxxxxx, Esq. shall be
paid a cash fee of Fifty Dollars ($50) for every occasion they act pursuant to
the Irrevocable Transfer Agent Instructions. The Company shall not change its
transfer agent unless the subsequent transfer agent agrees to be bound by the
Irrevocable Transfer Agent Instructions. Prior to registration of the Conversion
Shares under the Securities Act, all such certificates shall bear the
restrictive legend specified in Section 2(g) of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(g) hereof (in the case of the Conversion Shares prior
15
to registration of such shares under the Securities Act) will be given by the
Company to its transfer agent and that the Conversion Shares shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. Nothing in
this Section 5 shall affect in any way the Buyer's obligations and agreement to
comply with all applicable securities laws upon resale of Conversion Shares. If
the Buyers provides the Company with an opinion of counsel, in form, scope and
substance customary for opinions of counsel in comparable transactions to the
effect that registration of a resale by the Buyers of any of the Conversion
Shares is not required under the Securities Act, the Company shall within two
(2) business days instruct its transfer agent to issue one or more certificates
in such name and in such denominations as specified by the Buyer. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Buyer by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5, that the Buyers shall be entitled,
in addition to all other available remedies, to an injunction restraining any
breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Convertible
Debentures to the Buyers at the Closing is subject to the satisfaction, at or
before the Closing Dates, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion:
(a) Each Buyer shall have executed the Transaction Documents to which it is
a party and delivered them to the Company.
(b) The Buyers shall have delivered to the Company the Purchase Price for
Convertible Debentures in respective amounts as set forth next to each Buyer as
outlined on Schedule I attached hereto by wire transfer of immediately available
U.S. funds pursuant to the wire instructions provided by the Company.
(c) Cornell Capital shall have returned to the Company for cancellation the
nine hundred seventy-seven thousand, two hundred seventy-three (977,273) shares
of Common Stock it received from the Company pursuant to the SEDA.
(d) Highgate shall have executed and delivered to the Company a termination
and release, in form and substance reasonably satisfactory to the Company, of
the Securities Purchase Agreement, dated August 10, 2005 (the "PRIOR SECURITIES
PURCHASE AGREEMENT"), by and between the Company and Highgate.
(e) Cornell Capital shall have executed and delivered to the Company a
termination and release, in form and substance reasonably satisfactory to the
Company, of the SEDA and the Registration Rights Agreement, dated as of August
10, 2005, by and between the Company and Cornell Capital (the "SEDA REGISTRATION
RIGHTS AGREEMENT").
16
(f) Cornell Capital shall have executed and delivered to the Company a
termination and release, in form and substance reasonably satisfactory to the
Company, of each lock-up agreement executed by the officers and directors of the
Company in connection with the SEDA.
(g) Subject to the repayment of the entire principal and interest
outstanding under the Original Notes, Highgate shall have returned to the
Company for cancellation the Original Notes
(h) Subject to the repayment of the entire principal and interest
outstanding under the Original Notes, Highgate shall have delivered to the
Company, in form and substance satisfactory to the Company, an irrevocable,
unconditional and complete release and waiver of the payment of the Redemption
Premium (as defined in each of the Original Notes) for the repayment of the
Original Notes.
(i) The representations and warranties of the Buyers shall be true and
correct in all material respects as of the date when made and as of the Closing
Dates as though made at that time (except for representations and warranties
that speak as of a specific date), and the Buyers shall have performed,
satisfied and complied in all material respects with the covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Buyers at or prior to the Closing Dates.
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The obligation of the Buyers hereunder to purchase the Convertible
Debentures at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions:
(a) The Company shall have executed the Transaction Documents and delivered
the same to the Buyers.
(b) Each of City Technology, Inc., City Network, Inc.--Taiwan and City
Construction Co., Ltd. shall have delivered its respective Security Agreement to
the Buyers.
(c) The Conversion Shares shall have been approved and eligible for
quotation on the AMEX and trading in the Common Stock shall not have been
suspended for any reason.
(d) The representations and warranties of the Company shall be true and
correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in Section
3 above, in which case, such representations and warranties shall be true and
correct without further qualification) as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. If requested by
the Buyers, the Buyers shall have received a certificate, executed by the
President of the Company, dated as of the Closing Date, to the foregoing effect
17
and as to such other matters as may be reasonably requested by the Buyers
including, without limitation an update as of the Closing Date regarding the
representation contained in Section 3(c) above.
(e) The Company shall have executed and delivered to the Buyers the
Convertible Debentures in the respective amounts set forth opposite each Buyers
name on Schedule I attached hereto.
(f) The Buyers shall have received an opinion of counsel from Loeb & Loeb
LLP in a form reasonably satisfactory to the Buyers.
(g) The Company shall have provided to the Buyers a certificate of good
standing from the secretary of state from the state in which the Company is
incorporated.
(h) The Company shall have executed and delivered to Cornell Capital a
termination and release, in form and substance reasonably satisfactory to
Cornell Capital, of the SEDA and the SEDA Registration Rights Agreement.
(i) The Company shall have delivered to the Escrow Agent the Pledged Shares
as well as executed and medallion guaranteed stock powers as required pursuant
to the Pledge and Escrow Agreement.
(j) The Company shall have provided to the Buyer an acknowledgement, to the
satisfaction of the Buyer, from the Company's independent certified public
accountants as to its ability to provide all consents required in order to file
a registration statement in connection with this transaction.
(k) The Company shall have reserved out of its authorized and unissued
Common Stock, solely for the purpose of effecting the conversion of the
Convertible Debentures, shares of Common Stock to effect the conversion of all
of the Conversion Shares underlying all the Convertible Debentures then
outstanding.
(l) The Irrevocable Transfer Agent Instructions shall have been delivered
to and acknowledged in writing by the Transfer Agent.
(m) The Company shall have issued the Warrants to the Buyers as set forth
in Section 4(g)(iii) of this Agreement.
8. INDEMNIFICATION.
(a) In consideration of the Buyer's execution and delivery of this
Agreement and acquiring the Convertible Debentures and the Conversion Shares
hereunder, and in addition to all of the Company's other obligations under this
Agreement, the Company shall defend, protect, indemnify and hold harmless the
Buyers, and all of their officers, directors, employees and agents (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "BUYER INDEMNITEES") from and
against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Buyer Indemnitee is a party to the action for
18
which indemnification hereunder is sought), and including reasonable attorneys'
fees and disbursements (the "INDEMNIFIED LIABILITIES"), incurred by the Buyer
Indemnitees or any of them as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in this Agreement, the Convertible Debentures or the Registration Rights
Agreement or any other certificate, instrument or document contemplated hereby
or thereby, (b) any breach of any covenant, agreement or obligation of the
Company contained in this Agreement, or the Registration Rights Agreement or any
other certificate, instrument or document contemplated hereby or thereby, or (c)
any cause of action, suit or claim brought or made against such Buyer Indemnitee
based on material misrepresentations of the Company or due to a material breach
of the Company and arising out of or resulting from the execution, delivery,
performance or enforcement of this Agreement or any other instrument, document
or agreement executed pursuant hereto by the parties hereto. To the extent that
the foregoing undertaking by the Company may be unenforceable for any reason,
the Company shall make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities, which is permissible under applicable
law.
(b) In consideration of the Company's execution and delivery of this
Agreement, and in addition to all of the Buyer's other obligations under this
Agreement, the Buyer shall defend, protect, indemnify and hold harmless the
Company and all of its officers, directors, employees and agents (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "COMPANY INDEMNITEES") from
and against any and all Indemnified Liabilities incurred by the Company
Indemnitees or any of them as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Buyers in this Agreement, instrument or document contemplated hereby or thereby
executed by the Buyer, (b) any breach of any covenant, agreement or obligation
of the Buyers contained in this Agreement, the Registration Rights Agreement or
any other certificate, instrument or document contemplated hereby or thereby
executed by the Buyer, or (c) any cause of action, suit or claim brought or made
against such Company Indemnitee based on material misrepresentations of the
Buyer or due to a material breach of the Buyer and arising out of or resulting
from the execution, delivery, performance or enforcement of this Agreement, the
Registration Rights Agreement or any other instrument, document or agreement
executed pursuant hereto by any of the parties hereto. To the extent that the
foregoing undertaking by each Buyer may be unenforceable for any reason, each
Buyer shall make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities, which is permissible under applicable law.
9. TERMINATION AND RELEASE.
(a) Each of (i) the Investor Registration Rights Agreement, dated as of
August 10, 2005, by and between the Company and Highgate (the "PRIOR
REGISTRATION RIGHTS AGREEMENT"), subject to Section 9(b) below; and (ii) the
Escrow Agreement, dated August 10, 2005, by and among the Company, Cornell
Capital, and the Escrow Agent (collectively, the "TERMINATED AGREEMENTS") shall
be terminated and each party to such agreements shall release the other parties
thereto from any and all obligations under such agreements.
19
(b) In connection with the Prior Registration Rights Agreement, the
Scheduled Fling Deadline and the Scheduled Effective Deadline (each as defined
in the Prior Registration Rights Agreement) shall be tolled effective as of the
date of this Agreement until the date ninety (90) days from the date of this
Agreement. In the event that the Closing Date has not occurred prior to the
expiration of such ninety (90) day period, then the signature of Highgate hereto
with respect to the Prior Registration Rights Agreement shall be null and void
ab initio and have no force and effect to the parties herein and the time for
the Company to comply with the Scheduled Filing Deadline and Scheduled Effective
Deadline shall, unless otherwise agreed by Highgate, continue to run but be
extended by the ninety (90) day tolling period set forth above.
(c) Notwithstanding anything to the contrary in the Terminated Agreements,
the parties hereto agree that after the Closing Date no provision of any
Terminated Agreement shall survive the termination of such Terminated Agreement
and no party hereto shall thereafter have any liabilities, rights, duties or
obligations to the other party under or in connection with any Terminated
Agreement.
(d) Upon the Closing Date, each of the parties hereto shall thereafter
release and indemnify each of the other parties hereto, its past, present and
future agents, representatives, members, principals, attorneys, affiliates,
parent corporations, subsidiaries, officers, directors, employees, predecessors
and successors and assigns (the "RELEASEES") from any and all legal, equitable
or other claims and causes of action from the beginning of the world to the
Closing Date, whether known or unknown, which such party, its predecessors or
successors and assigns ever had, now have or hereafter may have against the
Releasees resulting from or in connection with the Terminated Agreements.
Notwithstanding the foregoing, nothing herein shall be construed to bar any
action or claim for the enforcement of the termination of the Terminated
Agreements.
(e) All agreements, covenants, representations and warranties, express or
implied, oral or written, of the parties to the termination and release
concerning the Terminated Agreements are contained in this Section 9. No other
agreements, covenants, representations or warranties, express or implied, oral
or written, of the parties hereto concerning the termination of the Terminated
Agreements are contained elsewhere. No other agreements, covenants,
representations or warranties, express or implied, oral or written, have been
made by any party to the termination of the Terminated Agreements. All prior and
contemporaneous conversations, negotiations, possible and alleged agreements,
representations, covenants and warranties concerning the termination of the
Terminated Agreements are merged herein.
(f) The parties hereto shall have the right to enforce the termination of
the Terminated Agreements and the provisions of this Section 9 by injunction,
specific performance, or other equitable relief, without bond and without
prejudice to any other rights and remedies that the parties hereto may have for
a breach of this Section 9.
10. GOVERNING LAW: MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New Jersey without regard to the
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principles of conflict of laws. The parties further agree that any action
between them shall be heard in Xxxxxx County, New Jersey, and expressly consent
to the jurisdiction and venue of the Superior Court of New Jersey, sitting in
Xxxxxx County and the United States District Court for the District of New
Jersey sitting in Newark, New Jersey for the adjudication of any civil action
asserted pursuant to this Paragraph.
(b) COUNTERPARTS. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. In the event any signature page is delivered by
facsimile transmission, the party using such means of delivery shall cause four
(4) additional original executed signature pages to be physically delivered to
the other party within five (5) days of the execution and delivery hereof.
(c) HEADINGS. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) SEVERABILITY. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
(e) ENTIRE AGREEMENT, AMENDMENTS. This Agreement supersedes all other prior
oral or written agreements between the Buyers, the Company, their affiliates and
persons acting on their behalf with respect to the matters discussed herein, and
this Agreement and the instruments referenced herein contain the entire
understanding of the parties with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, neither the
Company nor any Buyer makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may be
waived or amended other than by an instrument in writing signed by the party to
be charged with enforcement.
(f) NOTICES. Any notices, consents, waivers, or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon confirmation of receipt, when sent by facsimile;
(iii) ten (10) business days after being sent by U.S. certified mail, return
receipt requested, or (iv) two (2) business days after deposit with a nationally
recognized overnight delivery service or worldwide courier service, in each case
properly addressed to the party to receive the same. The addresses and facsimile
numbers for such communications shall be:
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If to the Company, to: City Network, Inc.
0X-0, Xx.00, Xxxx Xx Xxxx
Xxxxxxx Xxxx, Xxxxxx Xxxxxx, 235
Taiwan, ROC F5 235
Attention: Xx Xxxx-Xxxx Xxx
Telephone: 000-0-0000-0000
Facsimile: 886-2-8226-8585
With a copy to: Loeb & Loeb LLP
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000-0000
Attention: Xxxxxxxx Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Buyers, to its address and facsimile number on Schedule I, with copies
to the Buyer's counsel as set forth on Schedule I.
Each party shall provide five (5) days' prior written notice to the other
party of any change in address or facsimile number.
(g) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and assigns.
Neither the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other party
hereto.
(h) NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
(i) SURVIVAL. Unless this Agreement is terminated under Section 10(l), the
representations and warranties of the Company and the Buyers contained in
Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5, 9 and
10, and the indemnification provisions set forth in Section 8, shall survive the
Closing for a period of two (2) years following the date on which the
Convertible Debentures are converted in full. The Buyers shall be responsible
only for its own representations, warranties, agreements and covenants
hereunder.
(j) PUBLICITY. The Company and the Buyers shall have the right to approve,
before issuance any press release or any other public statement with respect to
the transactions contemplated hereby made by any party; provided, however, that
the Company shall be entitled, without the prior approval of the Buyers, to
issue any press release or other public disclosure with respect to such
transactions required under applicable securities or other laws or regulations
(the Company shall use commercially reasonable efforts to consult the Buyers in
connection with any such press release or other public disclosure prior to its
release and Buyers shall be provided with a copy thereof upon release thereof).
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(k) FURTHER ASSURANCES. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(l) TERMINATION. In the event that the Closing shall not have occurred on
or before ninety (90) days from the date hereof due to the Company's or the
Buyer's failure to satisfy the conditions set forth in Sections 6 and 7 above
(and the non-breaching party's failure to waive such unsatisfied condition(s)),
the non-breaching party shall have the option to terminate this Agreement with
respect to such breaching party at the close of business on such date without
liability of any party to any other party; provided, however, that if this
Agreement is terminated by the Company pursuant to this Section 10(l), the
Company shall remain obligated to reimburse the Buyers for the fees and expenses
of Yorkville Advisors LLC described in Section 4(g)(ii) above.
(m) NO STRICT CONSTRUCTION. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
[REMAINDER PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.
COMPANY:
CITY NETWORK, INC.
By: /s/ Tiao-Xxxx Xxx
---------------------------------
Name: Xx Xxxx-Xxxx Xxx
Title: Chief Executive Officer
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/s/ Xxxxx Xxxxxxxx
---------------------------------
Xxxxx Xxxxxxxx, Esq.
(For purposes of Section 9 only)
Highgate House Funds, Ltd.
By: /s/ Xxxx Xxxxxx
---------------------------------
Name: Xxxx Xxxxxx
Its: Portfolio Manager
(For purposes of Section 9 only)
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SCHEDULE I
SCHEDULE OF BUYERS
Name Address/Facsimile
---- -----------------
Cornell Capital Partners, LP 000 Xxxxxx Xxxxxx - Xxxxx 0000
By: Yorkville Advisors, LLC Xxxxxx Xxxx, XX 00000
Its: General Partner Facsimile: (000) 000-0000
With Copy to:
By: /s/ Xxxx Xxxxxx Xxxx Xxxxx, Esq.
---------------------------- 000 Xxxxxx Xxxxxx - Xxxxx 0000
Name: Xxxx Xxxxxx Xxxxxx Xxxx, XX 00000
Its: Portfolio Manager Facsimile: (000) 000-0000
Subscription Amount $650,000.00 (1)
Warrant 1,000,000 Shares
----------
1. To be reduced to $275,000 if shareholder approval of the issuance of Common
Stock pursuant to the transactions contemplated in this Agreement has not
been obtained in accordance with herwith.
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EXHIBIT INDEX
Exhibit A Form of Convertible Debentures
Exhibit B Form of Registration Rights Agreement
Exhibit C-1 Form of Security Agreement (the Company)
Exhibit C-2 Form of Security Agreement (City Technology, Inc.)
Exhibit C-3 Form of Security Agreement (City Network, Inc.--Taiwan)
Exhibit C-4 Form of Security Agreement (City Construction Co., Ltd.)
Exhibit D Form of Pledge and Escrow Agreement
Exhibit E From of Irrevocable Transfer Agent Instructions
DISCLOSURE SCHEDULES
SECTION 3(B): AUTHORIZATION, ENFORCEMENT, COMPLIANCE WITH OTHER INSTRUMENTS
Pursuant to AMEX Company Guide Rule 713, the Company is required to obtain
stockholders approval for the issuance of Total Transaction Shares equal to or
greater than 5,500,000 shares.
SECTION 3(C): CAPITALIZATION
The Company is subject to the terms of the Prior Securities Purchase Agreement,
SEDA and Prior Warrant.
The Company issued the Prior Warrants, which contain anti-dilution provisions.
SECTION 3(E): NO CONFLICTS
The Company is subject to the terms of the Prior Securities Purchase Agreement,
SEDA and Prior Warrant.
SECTION 3(H): ABSENCE OF LITIGATION
The Company has not formally responded to outstanding comments from the SEC,
dated October 5, 2005, regarding (1) when it intends to refile financial
statements for March 30 and June 30, 2005 and (2) the effect of the adequacy of
its disclosure controls and procedures at the end of the periods covered by its
Form 10-QSBs for the periods ended March 30 and June 30, 2005 in light of the
material error the Company disclosed in its SEC filings.
SECTION 3(V): FEES AND RIGHTS OF FIRST REFUSAL
The Company is subject to the terms of the Prior Securities Purchase Agreement,
SEDA and Prior Warrant.
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