EXHIBIT 4.2
SECURED CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
Among
SITESTAR CORPORATION
and
THE INVESTORS SIGNATORY HERETO
Dated as of May 11, 2000
SECURED CONVERTIBLE DEBENTURE PURCHASE AGREEMENT (this "Agreement"),
dated as of May 11, 2000, among SITESTAR CORPORATION, a Nevada corporation (the
"Company"), and the investors signatory hereto (each such investor is a
"Purchaser" and all such investors are, collectively, the "Purchasers").
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchasers and the
Purchasers, severally and not jointly, desire to purchase from the Company an
aggregate principal amount of $500,000 of the Company's 12% Secured Convertible
Debentures, due May 1, 2001, which shall be in the form of Exhibit A (the
"Debentures") and which are convertible into shares of the Company's Class A
Common Stock, no par value per share (the "Common Stock").
IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration the receipt and adequacy are
hereby acknowledged, the Company and the Purchasers agree as follows:
ARTICLE I
PURCHASE AND SALE
1.1 The Closing.
(a) Subject to the terms and conditions set forth in this
Agreement, the Company shall issue and sell to the Purchasers and the Purchasers
shall, severally and not jointly, purchase from the Company the Debentures for
an aggregate purchase price of $500,000. The closing of the purchase and sale of
the Debentures (the "Closing") shall take place at the offices of ▇▇▇▇
▇▇▇▇▇▇▇▇▇, Esq.("Escrowee"), immediately following the execution hereof or such
later date as the parties shall agree. The date of the Closing is hereinafter
referred to as the "Closing Date."
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(b) Prior to the Closing Date, the parties shall deliver or shall
cause to be delivered the following: (A) the Company shall deliver to Escrowee
for the benefit of the Purchasers (1) the Debentures in the aggregate principal
amount indicated below each Purchaser's name on the signature page to this
Agreement, registered in the name of each such Purchaser, (2) two Common Stock
purchase warrants for every two dollars of principal amount indicated below each
Purchaser's name on the signature page of this Agreement , each in the form of
Exhibit D, registered in the name of the appropriate Purchasers, pursuant to
which the Purchasers shall have the right at any time and from time to time
thereafter through the 3rd anniversary of the Closing Date to acquire an
aggregate of 250,000 shares of Common Stock, at an exercise price per share
(subject to adjustment as provided therein) equal to $.77 (collectively, the
"Warrants"), (3) the legal opinion of Troop, Steuber, Pasich, ▇▇▇▇▇▇▇ & ▇▇▇▇▇,
LLP, outside counsel to the Company, in the form acceptable to the parties
hereto, and (4) all other documents, instruments and writings required to have
been delivered at or prior to the Closing by the Company pursuant to this
Agreement, including (A) an executed Registration Rights Agreement, dated the
date hereof, by and among the Company and the Purchasers, in the form of Exhibit
B (the "Registration Rights Agreement"), (B) an executed Security Agreement,
dated the date hereof, by and among the Company and the Purchasers, in the form
of Exhibit F (the "Security Agreement"), (E) the Irrevocable Transfer Agent
Instructions, in the form of Exhibit E, delivered to and acknowledged by the
Company's transfer agent (the "Transfer Agent Instructions"), and (B) each
Purchaser shall deliver toEscrowee, for delivery to the Company the purchase
price for the Debentures indicated below such Purchaser's name on the signature
page to this Agreement in United States dollars in immediately available funds
by wire transfer to an account designated in writing by the Company for such
purpose, and to Escrowee for delivery upon funding, all documents, instruments
and writings required to have been delivered at or prior to the Closing Date by
such Purchaser pursuant to this Agreement, including, without limitation, an
executed Registration Rights Agreement, Security Agreement.
(c) The Company and the Purchasers agree that, upon the
declaration of effectiveness of the Registration Statement to be filed pursuant
to the Registration Rights Agreement (the "Effective Date "), provided that the
trading price of the Common Stock is at least $1.00 for the ten (10) consecutive
trading days immediately preceding the Effective Date, the Purchasers will be
obligated to purchase, and the Company shall be obligated to sell and issue to
the Purchasers, additional debentures ("Additional Debentures") in the aggregate
principal amount of Five Hundred Thousand ($500,000) and additional warrants
("Additional Warrants") to purchase an aggregate of 250,000 shares of Common
Stock for an aggregate purchase price of Five Hundred Thousand Dollars
($500,000), with the closing of such purchase to occur within thirty (30) days
of the Effective Date. The terms of the Additional Debentures and the Additional
Warrants shall be identical to the terms of the Debentures and the Warrants to
be issued on the Closing Date, provided that the Initial Conversion Price (as
defined in the Debentures) for the Additional Debentures shall be seventy-seven
hundredths of one dollar ($.77). The Common Stock underlying the Additional
Debentures and the Additional Warrants shall be Registrable Securities (as
defined in the Registration Rights Agreement) and shall be included in the
Registration Statement to be filed pursuant to the Registration Rights Agreement
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1.2 Certain Defined Terms. For purposes of this Agreement,
"Conversion Price," "Original Issue Date" and "Trading Day" shall have the
meanings set forth in the Debentures; "Business Day" shall mean any day except
Saturday, Sunday and any day which shall be a federal legal holiday or a day on
which banking institutions in the State of New York or the State of California
are authorized or required by law or other governmental action to close. .2
Certain Defined Terms. For purposes of this Agreement, ConversionPrice,
OriginalIssueDate and TradingDay shall have the meanings set forth in the
Debentures; BusinessDay shall mean any day except Saturday, Sunday and any day
which shall be a federal legal holiday or a day on which banking institutions in
the State of New York or the State of California are authorized or required by
law or other governmental action to close..2 Certain Defined Terms. For purposes
of this Agreement, ConversionPrice, OriginalIssueDate and TradingDay shall have
the meanings set forth in the Debentures; BusinessDay shall mean any day except
Saturday, Sunday and any day which shall be a federal legal holiday or a day on
which banking institutions in the State of New York or the State of California
are authorized or required by law or other governmental action to close..2
Certain Defined Terms. For purposes of this Agreement, ConversionPrice,
OriginalIssueDate and TradingDay shall have the meanings set forth in the
Debentures; BusinessDay shall mean any day except Saturday, Sunday and any day
which shall be a federal legal holiday or a day on which banking institutions in
the State of New York or the State of California are authorized or required by
law or other governmental action to close.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of the Company. The Company hereby
hereby makes the following representations and warranties to the Purchasers:
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(a) Organization and Qualification. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Nevada, with the requisite corporate power and authority to own and use
its properties and assets and to carry on its business as currently conducted.
The Company has no subsidiaries other than as set forth in Schedule 2.1(a)
(collectively the "Subsidiaries"). Each of the Subsidiaries is an entity, duly
incorporated or otherwise organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization (as
applicable), with the full power and authority to own and use its properties and
assets and to carry on its business as currently conducted. Each of the Company
and the Subsidiaries is duly qualified to do business and is in good standing as
a foreign corporation in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
could not, individually or in the aggregate, (x) adversely affect the legality,
validity or enforceability of the Debentures or any of this Agreement, the
Registration Rights Agreement, the Warrants, or the Security Agreement
(collectively, the "Transaction Documents"), (y) have or result in a material
adverse effect on the results of operations, assets, prospects, or condition
(financial or otherwise) of the Company and the Subsidiaries, taken as a whole,
or (z) adversely impair the Company's ability to perform fully on a timely basis
its obligations under any of the Transaction Documents (any of (x), (y) or (z),
a "Material Adverse Effect").
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company and no further action is required by the Company. Each of
the Transaction Documents and the Debentures has been duly executed by the
Company and, when delivered (or filed, as the case may be) in accordance with
the terms hereof, will constitute the valid and binding obligation of the
Company enforceable against the Company in accordance with its terms. Neither
the Company nor any Subsidiary is in violation of any of the provisions of its
respective certificate of incorporation, by-laws or other charter documents.
(c) Capitalization. The number of authorized, issued and
outstanding capital stock of the Company is set forth in Schedule 2.1(c). No
shares of Common Stock are entitled to preemptive or similar rights, nor is any
holder of the Common Stock entitled to preemptive or similar rights arising out
of any agreement or understanding with the Company by virtue of any of the
Transaction Documents. Except as a result of the purchase and sale of the
Debentures and the Warrants and except as disclosed in Schedule 2.1(c), there
are no outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
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obligations convertible into or exchangeable for, or giving any Person (as
defined below) any right to subscribe for or acquire, any shares of Common
Stock, or contracts, commitments, understandings, or arrangements by which the
Company or any Subsidiary is or may become bound to issue additional shares of
Common Stock, or securities or rights convertible or exchangeable into shares of
Common Stock. To the knowledge of the Company, except as specifically disclosed
in the SEC Documents (as defined below) or Schedule 2.1(c), no Person or group
of related Persons beneficially owns (as determined pursuant to Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), or has the right to acquire by agreement with or by obligation binding
upon the Company, in excess of 5% of the Common Stock. A "Person" means an
individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any kind.
(d) Issuance of the Debentures and the Warrants. The Debentures
and the Warrants are duly authorized and, when issued and paid for in accordance
with the terms hereof, will be duly and validly issued, fully paid and
nonassessable, free and clear of all liens, encumbrances and rights of first
refusal of any kind (collectively, "Liens"). The Company has on the date hereof
and will, at all times while the Debentures and the Warrants are outstanding,
maintain an adequate reserve of duly authorized shares of Common Stock, reserved
for issuance to the holders of the Debentures and the Warrants, to enable it to
perform its conversion, exercise and other obligations under this Agreement, the
Debentures and the Warrants. Such number of reserved and available shares of
Common Stock is not less than the sum of (i) 200% of the number of shares of
Common Stock which would be issuable upon conversion in full of the Debentures,
assuming such conversion occurred on the Original Issue Date for the Debentures,
the Filing Date or the Effectiveness Date (each as defined in the Registration
Rights Agreement), whichever yields the lowest Conversion Price, (ii) the number
of shares of Common Stock issuable upon exercise of the Warrants, and (iii) the
number of shares Common Stock which would be issuable upon payment of interest
on the Debentures, assuming the Debentures are outstanding for one year and all
interest is paid in shares of Common Stock (such number of shares of Common
Stock as contemplated in clauses (i)-(iii), the "Initial Minimum"). All such
authorized shares of Common Stock shall be duly reserved for issuance to the
holders of the Debentures and the Warrants. The shares of Common Stock issuable
upon conversion of the Debentures, as payment of interest thereon and upon
exercise of the Warrants are collectively referred to herein as the "Underlying
Shares." The Debentures, the Warrants and the Underlying Shares are collectively
referred to herein as, the "Securities." When issued in accordance with the
Debentures and the Warrants, the Underlying Shares will be duly authorized,
validly issued, fully paid and nonassessable, free and clear of all Liens.
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(e) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its articles of incorporation, bylaws or other charter
documents (each as amended through the date hereof), or (ii) subject to
obtaining the Required Approvals (as defined below), 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 (with or without notice, lapse of time
or both) of, any agreement, credit facility, indenture or instrument (evidencing
a Company debt or otherwise) to which the Company or any Subsidiary is a party
or by which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company is subject (including Federal and state
securities laws and regulations), or by which any property or asset of the
Company is bound or affected, except in the case of each of clauses (ii) and
(iii), as could not, individually or in the aggregate, have or result in a
Material Adverse Effect. The business of the Company is not being conducted in
violation of any law, ordinance or regulation of any governmental authority,
except for violations which, individually or in the aggregate, could not have or
result in a Material Adverse Effect.
(f) Filings, Consents and Approvals. Neither the Company nor
any Subsidiary is required to obtain any consent, waiver, authorization or order
of, give any notice to, or make any filing or registration with, any court or
other Federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filings required pursuant to Section
3.11, (ii) the filing with the Securities and Exchange Commission (the
"Commission") of a registration statement meeting the requirements set forth in
the Registration Rights Agreement and covering the resale of the Underlying
Shares by the Purchasers (the "Underlying Shares Registration Statement"), (iii)
the application(s) to the Nasdaq National Market or OTC Bulletin Board
("NASDAQ") for the listing of the Underlying Shares for trading on the NASDAQ or
OTC Bulletin Board (and with any other national securities exchange or market on
which the Common Stock is then listed), (iv) applicable Blue Sky filings and (v)
in all other cases where the failure to obtain such consent, waiver,
authorization or order, or to give such notice or make such filing or
registration could not have or result in, individually or in the aggregate, a
Material Adverse Effect (collectively, the "Required Approvals").
(g) Litigation; Proceedings. Except as specifically disclosed
in Schedule 2.1(g), there is no action, suit, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of its Subsidiaries or any of their respective
properties before or by any court, governmental or administrative agency or
regulatory authority (Federal, state, county, local or foreign) which (i)
adversely affects or challenges the legality, validity or enforceability of any
of the Transaction Documents or the Securities or (ii) could, individually or in
the aggregate, have or result in a Material Adverse Effect.
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(h) No Default or Violation. Neither the Company nor any
Subsidiary (i) is in default under or in violation of (and no event has occurred
which has not been waived which, with notice or lapse of time or both, would
result in a default by the Company or any Subsidiary under), nor has the Company
or any Subsidiary received notice of a claim that it is in default under or that
it is in violation of, any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its
properties is bound, (ii) is in violation of any order of any court, arbitrator
or governmental body, or (iii) is in violation of any statute, rule or
regulation of any governmental authority, except as could not individually or in
the aggregate, have or result in a Material Adverse Effect. The security
interests granted to the Purchasers pursuant to the Security Agreement will
convey and grant to the Purchasers a first priority security interest in all of
the Collateral (as such terms is defined in such agreements).
(i) Private Offering. Assuming the accuracy of the
representations and warranties of the Purchasers set forth in Sections
2.2(b)-(g), the offer, issuance and sale of the Securities to the Purchasers as
contemplated hereby are exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"). Neither the Company
nor any Person acting on its behalf has taken any action that could subject the
offering, issuance or sale of the Securities to the registration requirements of
the Securities Act.
(j) SEC Documents; Financial Statements. Except as set forth
in Schedule 2.1 (j) attached hereto, the Company has filed all reports required
to be filed by it under the Exchange Act, including pursuant to Section 13(a) or
15(d) thereof, for the three years preceding the date hereof (or such shorter
period as the Company was required by law to file such material) (the foregoing
materials being collectively referred to herein as the "SEC Documents" and,
together with the Schedules to this Agreement as well as due diligence materials
delivered to Purchasers prior to the date hereof, the "Disclosure Materials") on
a timely basis or has received a valid extension of such time of filing and has
filed any such SEC Documents prior to the expiration of any such extension. As
of their respective dates, the SEC Documents complied in all material respects
with the requirements of the Securities Act and the Exchange Act and the rules
and regulations of the Commission promulgated thereunder, and none of the SEC
Documents, 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. All material agreements to which the Company is
a party or to which the property or assets of the Company are subject have been
filed as exhibits to the SEC Documents as required. The financial statements of
the Company included in the SEC Documents 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 generally accepted
accounting principles applied on a consistent basis during the periods involved
("GAAP"), except as may be otherwise specified in such financial statements or
the notes thereto, and 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
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ended, subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments. As of the date hereof, (a) there has been no event,
occurrence or development that has or that could result in a Material Adverse
Effect, (b) the Company has not incurred any liabilities (contingent or
otherwise) other than (x) liabilities incurred in the ordinary course of
business consistent with past practice and (y) 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, (c) the Company has not
altered its method of accounting or the identity of its auditors and (d) the
Company has not declared or made any payment or distribution of cash or other
property to its stockholders or officers or directors (other than in compliance
with existing Company stock option plans) with respect to its capital stock, or
purchased, redeemed (or made any agreements to purchase or redeem) any shares of
its capital stock. The Company last filed audited financial statements with the
Commission on April 19, 2000, and has not received any comments from the
Commission in respect thereof.
(k) Investment Company. The Company is not, and is not an
Affiliate (as defined in Rule 405 under the Securities Act) of, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(l) INTENTIONALLY OMITTED.
(m) Solicitation Materials. Neither the Company nor any Person
acting on the Company's behalf has solicited any offer to buy or sell the
Securities by means of any form of general solicitation or advertising.
(n) INTENTIONALLY OMITTED.
(o) Exclusivity. The Company shall not issue and sell the
Debentures to any Person other than the Purchasers other than with the specific
prior written consent of Majority in Interest of the Purchasers.
(p) Seniority. No indebtedness of the Company is senior to the
Debentures in right of payment, whether with respect to interest or upon
liquidation, dissolution or otherwise.
(q) Listing and Maintenance Requirements Compliance. Except as
specified in Schedule 2.1 (q) hereto, the Company has not, in the two years
preceding the date hereof, received notice (written or oral) from the NASDAQ OTC
Bulletin Board or any other stock exchange, market or trading facility on which
the Common Stock is or has been listed (or on which it has been quoted) to the
effect that the Company is not in compliance with the listing or maintenance
requirements of such exchange or market. The Company is, and has no reason to
believe that it will not in the foreseeable future continue to be, in compliance
with all such maintenance requirements.
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(r) Patents and Trademarks. The Company has, or has rights to
use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses and rights which are necessary
or material for use in connection with its business, and which the failure to so
have would have a Material Adverse Effect (collectively, the "Intellectual
Property Rights"). The patents and trademark specified in the Security Agreement
are the only patent or trademark intellectual property rights (or applications
therefor) held by the Company and the Subsidiaries for which applications for
patents and trademarks have been made or granted in the United States. To the
best knowledge of the Company all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of any of
the Intellectual Property Rights.
(s) Registration Rights; Rights of Participation. Except as set
forth on Schedule 6(b) to the Registration Rights Agreement, the Company has not
granted or agreed to grant to any Person any rights (including "piggy-back"
registration rights) to have any securities of the Company registered with the
Commission or any other governmental authority which has not been satisfied. No
Person, has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents.
(t) Regulatory Permits. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
Federal, state or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Documents, except where the
failure to possess such permits could not, individually or in the aggregate,
have or result in a Material Adverse Effect ("Material Permits"), and neither
the Company nor any such Subsidiary has received any notice of proceedings
relating to the revocation or modification of any Material Permit.
(u) Title. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property and personal property owned
by them which is material to the business of the Company and its Subsidiaries,
in each case free and clear of all Liens, except for Liens granted to the
Purchasers pursuant to the Security Agreement and IP Security Agreement and for
other Liens as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its Subsidiaries. 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.
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(v) Disclosure. The Company confirms that it has not provided any
of the Purchasers or its agents or counsel with any information that constitutes
or might constitute material non-public information. The Company understands and
confirms that the Purchasers shall be relying on the foregoing representations
in effecting transactions in securities of the Company. All disclosure provided
to the 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 are true and correct 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.
2.2 RINTENTIONALLY OMITTED.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions. (a) Securities may only be disposed of
pursuant to an effective registration statement under the Securities Act, to the
Company or pursuant to an available exemption from or in a transaction not
subject to the registration requirements of the Securities Act. In connection
with any transfer of Securities other than pursuant to an effective registration
statement or to the Company, except as otherwise set forth herein, the Company
hereby consents to and agrees to register on the books of the Company and with
any transfer agent for the securities of the Company any transfer of Securities
by a Purchaser to an Affiliate of such Purchaser or to one or more funds or
managed accounts under common management with such Purchaser, and any transfer
among any such Affiliates or one or more funds or managed accounts, provided
that the transferee certifies to the Company that it is an "accredited investor"
as defined in Rule 501(a) under the Securities Act and that it is acquiring the
Securities solely for investment purposes (subject to the qualifications
hereof). Any such transferee shall agree in writing to be bound by the terms of
this Agreement and shall have the rights of a Purchaser under this Agreement and
the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is
required by this Section 3.1(b), of the following legend on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS.
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Underlying Shares shall not contain the legend set forth above
nor any other legend if the conversion of Debentures, the payment of interest
thereon, and exercise of the Warrants or other issuances of Underlying Shares as
contemplated hereby, by the Debentures or the Warrants occurs at any time while
an Underlying Shares Registration Statement is effective under the Securities
Act or, in the event there is not an effective Underlying Shares Registration
Statement, at such time, in the opinion of counsel to the Company, such legend
is not required under applicable requirements of the Securities Act (including
judicial interpretations and pronouncements issued by the staff of the
Commission). The Company shall cause its counsel to issue the legal opinion
included in the Transfer Agent Instructions to the Company's transfer agent on
the day that the Underlying Shares Registration Statement is declared effective
by the Commission. The Company agrees that, in the event any Underlying Shares
are issued with a legend in accordance with this Section 3.1(b), it will, within
three (3) Trading Days after request therefor by a Purchaser, provide such
Purchaser with a certificate or certificates representing such Underlying
Shares, free from such legend at such time as such legend would not have been
required under this Section 3.1(b) had such issuance occurred on the date of
such request. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company which enlarge the restrictions
of transfer set forth in this Section. However, the Company may provide
appropriate instructions to any transfer agent of the Company to enforce the
provisions of this Section 3.1(b) when the Underlying Shares Registration
Statement is not effective.
3.2 Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Underlying Shares upon (i) conversion of the Debentures and
payment of interest thereon in accordance with the terms of the Debentures, and
(ii) exercise of the Warrants in accordance with their terms, will result in
dilution of the outstanding shares of Common Stock, which dilution may be
substantial under certain market conditions. The Company further acknowledges
that its obligation to issue Underlying Shares upon (x) conversion of the
Debentures and payment of interest thereon in accordance with the terms of the
Debentures, and (y) exercise of the Warrants in accordance with their terms, is
unconditional and absolute, subject to the limitations set forth herein in the
Debentures or pursuant to the Warrants, regardless of the effect of any such
dilution.
3.3 Furnishing of Information. As long as the Purchasers own Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act. As long as the Purchasers own Securities, if the Company is not
required to file reports pursuant to such sections, it will prepare and furnish
to the Purchasers and make publicly available in accordance with Rule 144(c)
promulgated under the Securities Act such information as is required for the
Purchasers to sell the Securities under Rule 144 promulgated under the
Securities Act. The Company further covenants that it will take such further
action as any holder of Securities may reasonably request, all to the extent
required from time to time to enable such Person to sell Underlying Shares
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 promulgated under the Securities Act, including
the legal opinion referenced above in this Section. Upon the request of any such
Person, the Company shall deliver to such Person a written certification of a
duly authorized officer as to whether it has complied with such requirements.
11
3.4 Integration. The Company shall not, and shall use its best efforts
to ensure that, no Affiliate of the Company shall, sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers.
3.5 Increase in Authorized Shares. .5 Increase in Authorized Shares. .5
Increase in Authorized Shares. .5 Increase in Authorized Shares. If on any date
the Company would be, if a notice of conversion or exercise (as the case may be)
were to be delivered on such date, precluded from (a) issuing 200% of the number
of Underlying Shares as would then be issuable upon a conversion in full of the
Debentures and as payment of any accrued and unpaid interest in respect thereof
in shares of Common Stock, or (b) issuing the number of Underlying Shares upon
exercise in full of the Warrants (the "Current Required Minimum"), in either
case, due to the unavailability of a sufficient number of authorized but
unissued or reserved shares of Common Stock, then the Board of Directors of the
Company shall promptly (and in any case, within 30 Business Days from such date)
prepare and mail to the stockholders of the Company proxy materials requesting
authorization to amend the Company's Articles of Incorporation to increase the
number of shares of Common Stock which the Company is authorized to issue to at
least such number of shares as reasonably requested by the Purchasers in order
to provide for such number of authorized and unissued shares of Common Stock to
enable the Company to comply with its issuance, conversion exercise and
reservation of shares obligations as set forth in this Agreement, the Debentures
and the Warrants (the sum of (x) the number of shares of Common Stock then
outstanding plus all shares of Common Stock issuable upon exercise of all
outstanding options, warrants and convertible instruments, and (y) the Current
Required Minimum, shall be a reasonable number). In connection therewith, the
Board of Directors shall (a) adopt proper resolutions authorizing such increase,
(b) recommend to and otherwise use its best efforts to promptly and duly obtain
stockholder approval to carry out such resolutions (and hold a special meeting
of the stockholders no later than the 60th day after delivery of the proxy
materials relating to such meeting) and (c) within five (5) Business Days of
obtaining such stockholder authorization, file an appropriate amendment to the
Company's Articles of Incorporation to evidence such increase.
3.6 Reservation and Listing of Underlying Shares3.6 Reservation and
Listing of Underlying Shares.6 Reservation and Listing of Underlying Shares.6
Reservation and Listing of Underlying Shares. (a) The Company shall (i) in the
time and manner required by NASDAQ and such other exchange, market or quotation
system on which the Common Stock is traded, prepare and file with the NASDAQ
(and such other national securities exchange or market or trading or quotation
facility) an additional shares listing application covering a number of shares
of Common Stock which is not less than the Initial Minimum, (ii) take all steps
necessary to cause such shares of Common Stock to be approved for listing in the
OTC Bulletin Board or NASDAQ (as well as on any such other national securities
exchange or market or trading or quotation facility on which the Common Stock is
then listed) as soon as possible thereafter, and (iii) provide to the Purchasers
evidence of such listing, and the Company shall maintain the listing of its
Common Stock thereon. If the number of Underlying Shares issuable upon
conversion in full of the then outstanding Debentures, as payment of interest
thereon, and upon exercise of the then unexercised portion of the Warrants
exceeds 85% of the number of Underlying Shares previously listed on account
thereof with NASDAQ (and any such other required exchanges), then the Company
shall take the necessary actions to immediately list a number of Underlying
Shares as equals no less than the then Current Required Minimum.
12
(b) The Company shall maintain a reserve of shares of Common
Stock for issuance upon conversion of the Debentures and for payment of interest
thereupon in shares of Common Stock and upon exercise in full of the Warrants in
accordance with this Agreement, the Debentures and the Warrants, respectively,
in such amount as may be required to fulfill its obligations in full under the
Transaction Documents, which reserve shall equal no less than the then Current
Required Minimum.
3.7 Conversion and Exercise Procedures. The Transfer Agent
Instructions, Conversion Notice (as defined in Exhibit A) and Form of Election
to Purchase under the Warrants set forth the totality of the procedures with
respect to the conversion of the Debentures and exercise of the Warrants,
including the form of legal opinion, if necessary, that shall be rendered to the
Company's transfer agent and such other information and instructions as may be
reasonably necessary to enable the Purchasers to convert their Debentures and
exercise their Warrants as contemplated in the Debentures and the Warrants (as
applicable). 3.8 Notice of Breaches3.8 Notice of Breaches.8 Notice of Breaches.8
Notice of Breaches. Each of the Company and the Purchasers shall give prompt
written notice to the other of any breach by it of any representation, warranty
or other agreement contained in any Transaction Document, as well as any events
or occurrences arising after the date hereof which would reasonably be likely to
cause any representation or warranty or other agreement of such party, as the
case may be, contained therein to be incorrect or breached as of the Closing
Date. However, no disclosure by either party pursuant to this Section shall be
deemed to cure any breach of any representation, warranty or other agreement
contained in any Transaction Document.
3.9 Conversion and Exercise Obligations of the Company. The Company
shall honor conversions of the Debentures and exercises of the Warrants and
shall deliver Underlying Shares in accordance with the respective terms,
conditions and time periods set forth in the Debentures and the Warrants.
13
3.10 Subsequent Registrations. (a) The Company shall not, directly or
indirectly, without the prior written consent of the Purchasers, offer, sell,
grant any option to purchase, or otherwise dispose of (or announce any offer,
sale, grant or any option to purchase or other disposition) any of its or its
Affiliates' equity or equity-equivalent securities (including the issuance of
any debt or other instrument is at any time over life thereof convertible into
or exchangeable for Common Stock or any other transaction intended to be exempt
or not subject to registration under the Securities Act (a "Subsequent
Placement") for a period of 180 days after the later to occur of the
Effectiveness Date (as defined in the Registration Rights Agreement) and the
date that the Commission first declares effective an Underlying Shares
Registration Statement, except (i) the granting of options or warrants to
employees, consultants, officers and directors, and the issuance of shares upon
exercise of options granted, under any stock option plan heretofore or
hereinafter duly adopted by the Company, (ii) shares of Common Stock issuable
upon exercise of any currently outstanding warrants and upon conversion of any
currently outstanding convertible securities of the Company, in each case only
if such security is disclosed in Schedule 2.1(c), (iii) shares of Common Stock
or Common Stock Equivalents (as defined in the Debentures) permitted to be
issued without giving rise to an Event of Default under Sections 3(a)(xii) or
3(a)(xiii)(a) of the Debentures, and (iv) shares of Common Stock issuable upon
conversion of Debentures, as payment of interest thereon and upon exercise of
the Warrants in accordance with the Debentures or the Warrants
(b) Except for (x) Underlying Shares, (y) other "Registrable
Securities" (as such term is defined in the Registration Rights Agreement) to be
registered, and securities of the Company permitted pursuant to Schedule 6(b) of
the Registration's Rights Agreement to be registered, in the Underlying Shares
Registration Statement in accordance with the Registration Rights Agreement, and
(z) Common Stock permitted to be issued pursuant to paragraph (a)(i), (ii) and
(iv) of Section 3.10(a), the Company shall not, for a period of not less than 90
Trading Days after the date that the Underlying Shares Registration Statement is
declared effective by the Commission, without the prior written consent of the
Purchasers (i) issue or sell any of its or any of its Affiliates' equity or
equity-equivalent securities pursuant to Regulation S promulgated under the
Securities Act, or (ii) register for resale any securities of the Company. Any
days that a Purchaser is not permitted to sell Underlying Shares under the
Underlying Shares Registration Statement shall be added to such 90 Trading Day
period for the purposes of (i) and (ii) above.
3.11 Certain Securities Laws Disclosures; Publicity. The Company shall:
(i) on the Closing Date issue a press release acceptable to the Purchasers
disclosing the transactions contemplated hereby, (ii) file with the Commission a
Report on Form 8-K disclosing the transactions contemplated hereby within ten
(10) Business Days after the Closing Date, and (iii) timely file with the
Commission a Form D promulgated under the Securities Act as required under
Regulation D promulgated under the Securities Act and provide a copy thereof to
the Purchasers promptly after the filing thereof. The Company shall, no less
than two (2) Business Days prior to the filing of any disclosure required by
clauses (ii) and (iii) above, provide a copy thereof to the Purchasers. No such
filing or disclosure may be made that mentions the Purchasers by name without
the prior consent of the Purchasers. Such filings shall be subject to Section
4.11 hereof.
14
3.12 Transfer of Intellectual Property Rights. Except in connection with
the sale of all or substantially all of the assets of the Company or licensing
arrangements in the ordinary course of the Company's business, the Company shall
not transfer, sell or otherwise dispose of any Intellectual Property Rights, or
allow any of the Intellectual Property Rights to become subject to any Liens, or
fail to renew such Intellectual Property Rights (if renewable and it would
otherwise lapse if not renewed), without the prior written consent of the
Purchasers.
3.13 INTENTIONALLY OMITTED.
3.14 Reimbursement. If any Purchaser, other than by reason of its
gross negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by or against any Person, including
stockholders of the Company, in connection with or as a result of the
consummation of the transactions contemplated by Transaction Documents, the
Company will reimburse such Purchaser for its reasonable legal and other
expenses (including the cost of any investigation and preparation) incurred in
connection therewith, as such expenses are incurred. In addition, other than
with respect to any matter in which a Purchaser is a named party, the Company
will pay such Purchaser the charges, as reasonably determined by such Purchaser,
for the time of any officers or employees of such Purchaser devoted to appearing
and preparing to appear as witnesses, assisting in preparation for hearings,
trials or pretrial matters, or otherwise with respect to inquiries, hearings,
trials, and other proceedings relating to the subject matter of this Agreement.
The reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchasers who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchasers and any such Affiliate, and shall be binding upon and
inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company in connection with or as a result of the consummation of
the Transaction Documents except to the extent that any losses, claims, damages,
liabilities or expenses incurred by the Company result from the gross negligence
or willful misconduct of the applicable Purchaser or entity in connection with
the transactions contemplated by this Agreement.
15
ARTICLE IV
MISCELLANEOUS
4.1 Fees and Expenses4.1 Fees and Expenses.1 Fees and Expenses.1
Fees and Expenses. Each party shall pay the fees and expenses of its advisers,
counsel, accountants and other experts, if any, and all other expenses incurred
by such party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all stamp and other taxes
and duties levied in connection with the issuance of the Securities.
4.2 Entire Agreement; Amendments. The Transaction Documents
together with the Exhibits and Schedules thereto, and the Transfer Agent
Instructions 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.
4.3 Notices. Any and all notices or other communications
or deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 6:30 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Agreement later than 6:30 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York City time) on
such date, (iii) the Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as follows:
If to the Company: ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile No.:
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
If to a Purchaser: To the address set forth
under such Purchaser's name on the
signature pages hereto.
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
4.4 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 of the Purchasers 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 other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right accruing to it thereafter.
16
4.5 Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
4.6 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 the Purchasers. Except as set
forth in Section 3.1(a), the Purchasers may not assign this Agreement or any of
the rights or obligations hereunder without the consent of the Company. This
provision shall not limit each Purchaser's right to transfer securities or
transfer or assign rights under the Registration Rights Agreement.
4.7 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.
4.8 Governing Law. The corporate laws of the State of Nevada
shall govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement 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 New York County, New York, 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 the any
of the Transaction Documents), and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or
proceeding is improper. Each party hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law.
4.9 Survival. The representations, warranties, agreements and
covenants contained herein shall survive the Closing and the delivery and
conversion or exercise (as the case may be) of the Debentures and the Warrants.
4.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
17
4.11 Publicity. The Company and the Purchasers shall consult
with each other in issuing any press releases or otherwise making public
statements or filings and other communications with the Commission or any
regulatory agency or stock market or trading facility with respect to the
transactions contemplated hereby and neither party shall issue any such press
release or otherwise make any such public statement, filings or other
communications without the prior written consent of the other, which consent
shall not be unreasonably withheld or delayed, except that no prior consent
shall be required if such disclosure is required by law, in which such case the
disclosing party shall provide the other party with prior notice of such public
statement, filing or other communication. Notwithstanding the foregoing, the
Company shall not publicly disclose the names of the Purchasers, or include the
names of the Purchasers in any filing with the Commission, or any regulatory
agency, trading facility or stock market without the prior written consent of
the Purchasers, except to the extent such disclosure (but not any disclosure as
to the controlling Persons thereof) is required by law, in which case the
Company shall provide the Purchasers with prior notice of such disclosure.
4.12 Severability. In case any one or more of the provisions
of this Agreement shall be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provisions of this Agreement shall
not in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
4.13 Remedies. In addition to being entitled to exercise all
rights provided herein or granted by law, including recovery of damages, each of
the Purchasers will be entitled to specific performance of the obligations of
the Company under the Transaction Documents. The Company and each of the
Purchasers agree that monetary damages may not be adequate compensation for any
loss incurred by reason of any breach of its 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.
4.14 Independent Nature of Purchasers' Obligations and Rights.
The obligations of each Purchaser hereunder is several and not joint with the
obligations of any other Purchaser hereunder, and neither Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement or out of the
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.
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SIGNATURE PAGE FOLLOWS]
18
IN WITNESS WHEREOF, the parties hereto have caused this Secured
Convertible Debenture Purchase Agreement to be duly executed by their respective
authorized signatories as of the date first indicated above.
SITESTAR CORPORATION
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
By:__________________________________
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President & CEO
NEW MILLENNIUM CAPITAL PARTNERS II, LLC
By: FIRST STREET MANAGER II, LLC
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
By:_____________________________________
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Manager
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
Debentures Purchase Price: $350,000
AJW PARTNERS, LLC
By: SMS GROUP, LLC
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
By:_____________________________________
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Manager
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
Debentures Purchase Price: $150,000
