Exhibit 99.1 - SECURITIES PURCHASE AGREEMENT
IT&E INTERNATIONAL GROUP, INC.
SECURITIES PURCHASE AGREEMENT
OCTOBER 18, 2004
TABLE OF CONTENTS
PAGE
1. Agreement to Sell and Purchase.........................................1
2. Fees and Warrant.......................................................1
3. Closing, Delivery and Payment..........................................2
3.1 Closing.........................................................2
3.2 Delivery........................................................2
4. Representations and Warranties of the Company..........................3
4.1 Organization, Good Standing and Qualification...................3
4.2 Subsidiaries....................................................3
4.3 Capitalization; Voting Rights...................................3
4.4 Authorization; Binding Obligations..............................4
4.5 Liabilities.....................................................5
4.6 Agreements; Action..............................................5
4.7 Obligations to Related Parties..................................5
4.8 Changes.........................................................6
4.9 Title to Properties and Assets; Liens, Etc......................7
4.10 Intellectual Property...........................................7
4.11 Compliance with Other Instruments...............................8
4.12 Litigation......................................................8
4.13 Tax Returns and Payments........................................9
4.14 Employees.......................................................9
4.15 Registration Rights and Voting Rights...........................9
4.16 Compliance with Laws; Permits..................................10
4.17 Environmental and Safety Laws..................................10
4.18 Valid Offering.................................................10
4.19 Full Disclosure................................................10
4.20 Insurance......................................................11
4.21 SEC Reports....................................................11
4.22 Listing........................................................11
4.23 No Integrated Offering.........................................11
4.24 Stop Transfer..................................................11
4.25 Dilution.......................................................12
5. Representations and Warranties of the Purchaser.......................12
5.1 No Shorting....................................................12
5.2 Requisite Power and Authority..................................12
5.3 Investment Representations.....................................13
5.4 Purchaser Bears Economic Risk..................................13
5.5 Acquisition for Own Account....................................13
5.6 Purchaser Can Protect Its Interest.............................13
5.7 Accredited Investor............................................13
5.8 Legends........................................................14
6. Covenants of the Company..............................................15
6.1 Stop-Orders....................................................15
6.2 Listing........................................................15
6.3 Market Regulations.............................................15
6.4 Reporting Requirements.........................................15
6.5 Use of Funds...................................................15
6.6 Access to Facilities...........................................15
6.7 Taxes..........................................................16
6.8 Insurance......................................................16
6.9 Intellectual Property..........................................17
6.10 Properties.....................................................17
6.11 Confidentiality................................................17
6.12 Required Approvals.............................................17
6.13 Reissuance of Securities.......................................18
6.14 Opinion........................................................18
6.15 Margin Stock...................................................18
6.16 Restricted Cash Disclosure.....................................18
6.17 Financing Right of First Refusal...............................18
7. Covenants of the Purchaser............................................20
7.1 Confidentiality................................................20
7.2 Non-Public Information.........................................20
8. Covenants of the Company and Purchaser Regarding Indemnification......20
8.1 Company Indemnification........................................20
8.2 Purchaser's Indemnification....................................20
9. Conversion of Convertible Note........................................20
9.1 Mechanics of Conversion........................................20
10. Registration Rights...................................................22
10.1 Registration Rights Granted....................................22
10.2 Offering Restrictions..........................................22
11. Miscellaneous.........................................................22
11.1 Governing Law..................................................22
11.2 Survival.......................................................23
11.3 Successors.....................................................23
11.4 Entire Agreement...............................................23
11.5 Severability...................................................23
11.6 Amendment and Waiver...........................................23
11.7 Delays or Omissions............................................24
11.8 Notices........................................................24
11.9 Attorneys' Fees................................................25
11.10 Titles and Subtitles...........................................25
11.11 Facsimile Signatures; Counterparts.............................25
11.12 Broker's Fees..................................................25
11.13 Construction...................................................25
LIST OF EXHIBITS
Form of Convertible Term Note........................................Exhibit A
Form of Warrant......................................................Exhibit B
Form of Opinion......................................................Exhibit C
Form of Escrow Agreement.............................................Exhibit D
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of October 18, 2004, by and between IT&E INTERNATIONAL GROUP, INC., a
Nevada corporation (the "Company"), and Laurus Master Fund, Ltd., a Cayman
Islands company (the "Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale to the Purchaser of a
Secured Convertible Term Note in the aggregate principal amount of Five Million
Dollars ($5,000,000) (as amended, modified or supplemented from time to time,
the "Note"), which Note is convertible into shares of the Company's common
stock, $0.01 par value per share (the "Common Stock") at an initial fixed
conversion price of $ .75 per share of Common Stock ("Fixed Conversion Price");
WHEREAS, the Company wishes to issue a warrant to the Purchaser to
purchase up to 1,924,000 shares of the Company's Common Stock (subject to
adjustment as set forth therein) in connection with Purchaser's purchase of
the Note;
WHEREAS, Purchaser desires to purchase the Note and the Warrant (as
defined in Section 2) on the terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Note and Warrant to
Purchaser on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Agreement to Sell and Purchase
. Pursuant to the terms and conditions set forth in this Agreement, on
the Closing Date (as defined in Section 3), the Company agrees to sell to the
Purchaser, and the Purchaser hereby agrees to purchase from the Company a Note
in the aggregate principal amount of $5,000,000 convertible in accordance with
the terms thereof into shares of the Company's Common Stock in accordance with
the terms of the Note and this Agreement. The sale of the Note purchased on the
Closing Date shall be known as the "Offering." A form of the Note is annexed
hereto as Exhibit A. The Note will mature on the Maturity Date (as defined in
the Note). Collectively, the Note and Warrant and Common Stock issuable in
payment of the Note, upon conversion of the Note and upon exercise of the
Warrant are referred to as the "Securities."
2. Fees and Warrant.
On the Closing Date:
(a) The Company will issue and deliver to the Purchaser a Warrant
to purchase up to 1,924,000 shares of Common Stock in
connection with the Offering (as amended, modified or
supplemented from time to time, the "Warrant") pursuant to
Section 1 hereof. The Warrant must be delivered on the
Closing Date. A form of Warrant is annexed hereto as Exhibit
B. All the representations, covenants, warranties,
undertakings, and indemnification, and other rights made or
granted to or for the benefit of the Purchaser by the Company
are hereby also made and granted in respect of the Warrant
and, upon issuance thereof, in respect of shares of the
Company's Common Stock issuable upon exercise of the Warrant
(the "Warrant Shares").
(b) Subject to the terms of Section 2(d) below, the Company shall
pay to Laurus Capital Management, LLC, manager of Purchaser,
a closing payment in an amount equal to three and one-half
percent (3.50%) of the aggregate principal amount of the
Note. The foregoing fee is referred to herein as the "Closing
Payment."
(c) The Company shall reimburse the Purchaser for its reasonable
expenses (including legal fees and expenses not to exceed
$27,000) incurred in connection with the preparation and
negotiation of this Agreement and the Related Agreements (as
hereinafter defined), and expenses not to exceed $17,500
incurred in connection with the Purchaser's due diligence
review of the Company and its Subsidiaries (as defined in
Section 6.8) and all related matters. Amounts required to be
paid under this Section 2(c) will be paid on the Closing Date
and shall be no more than $39,500 for such expenses referred
to in this Section 2(c).
(d) The Closing Payment and the expenses referred to in the
preceding clause (c) (net of deposits previously paid by the
Company) shall be paid at closing out of funds held pursuant
to the Escrow Agreement (as defined below) and a disbursement
letter (the "Disbursement Letter").
3. Closing, Delivery and Payment.
3.1 Closing.
Subject to the terms and conditions herein, the closing of the
transactions contemplated hereby (the "Closing"), shall take place on the date
hereof, at such time or place as the Company and Purchaser may mutually agree
(such date is hereinafter referred to as the "Closing Date").
3.2 Delivery.
Pursuant to the Escrow Agreement, at the Closing on the Closing
Date, the Company will deliver to the Purchaser, among other things, a Note in
the form attached as Exhibit A representing the principal amount of $5,000,000
and a Warrant in the form attached as Exhibit B in the Purchaser's name
representing 1,924,000 Warrant Shares and the Purchaser will deliver to the
Company, among other things, the amounts set forth in the Disbursement Letter
by certified funds or wire transfer (it being understood that $2,500,000 of the
proceeds of the Note shall be placed in the Restricted Account (as defined in
the Restricted Account Agreement referred to below)).
4. Representations and Warranties of the Company.
The Company hereby represents and warrants to the Purchaser as follows
(which representations and warranties are supplemented by, and subject to, the
Company's filings under the Securities Exchange Act of 1934 made prior to the
date of this Agreement (collectively, the "Exchange Act Filings"), copies of
which have been provided to the Purchaser:
4.1 Organization, Good Standing and Qualification.
The Company is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization. The
Company has the corporate power and authority to own and operate its properties
and assets, to execute and deliver this (i) this Agreement, (ii) the Note and
the Warrant to be issued in connection with this Agreement, (iii) the Master
Security Agreement dated as of the date hereof between the Company and the
Purchaser (as amended, modified or supplemented from time to time, the "Master
Security Agreement"), (iv) the Registration Rights Agreement relating to the
Securities dated as of the date hereof between the Company and the Purchaser
(as amended, modified or supplemented from time to time, the "Registration
Rights Agreement"), (v) the Funds Escrow Agreement dated as of the date hereof
among the Company, the Purchaser and the escrow agent referred to therein,
substantially in the form of Exhibit D hereto (as amended, modified or
supplemented from time to time, the "Escrow Agreement"), (vi) the Restricted
Account Agreement dated as of the date hereof among the Company, the Purchaser
and North Fork Bank (as amended, modified or supplemented from time to time,
the "Restricted Account Agreement"), (vii) the Restricted Account Side Letter
related to the Restricted Account Agreement dated as of the date hereof between
the Company and the Purchaser (as amended, modified or supplemented from time
to time, the "Restricted Account Side Letter") and (viii) all other agreements
related to this Agreement and the Note and referred to herein (the preceding
clauses (ii) through (viii), collectively, the "Related Agreements"), to issue
and sell the Note and the shares of Common Stock issuable upon conversion of
the Note (the "Note Shares"), to issue and sell the Warrant and the Warrant
Shares, and to carry out the provisions of this Agreement and the Related
Agreements and to carry on its business as presently conducted. The Company is
duly qualified and is authorized to do business and is in good standing as a
foreign corporation in all jurisdictions, except for those jurisdictions in
which the failure to do so has not had, or could not reasonably be expected to
have, individually or in the aggregate, a material adverse effect on the
business, assets, liabilities, condition (financial or otherwise), properties,
operations or prospects of the Company (a "Material Adverse Effect").
4.2 Subsidiaries.
Each direct and indirect Subsidiary of the Company, the direct
owner of such Subsidiary and its percentage ownership thereof, is set forth on
Schedule 4.2. For the purpose of this Agreement, a "Subsidiary" of any person
or entity means (i) a corporation or other entity whose shares of stock or
other ownership interests having ordinary voting power (other than stock or
other ownership interests having such power only by reason of the happening of
a contingency) to elect a majority of the directors of such corporation, or
other persons or entities performing similar functions for such person or
entity, are owned, directly or indirectly, by such person or entity or (ii) a
corporation or other entity in which such person or entity owns, directly or
indirectly, more than 50% of the equity interests at such time.
4.3 Capitalization; Voting Rights.
(a) The authorized capital stock of the Company, as of the date
hereof, consists of 75,000,000 shares, of which 70,000,000
are shares of Common Stock, par value $0.01 per share,
21,000,000 shares of which are issued and outstanding, [and
5,000,000_are shares of preferred stock, par value $0.01 per
share, of which 2,820,000 shares of preferred stock are
issued and outstanding].
(b) Except as disclosed on Schedule 4.3, other than: (i) the
shares reserved for issuance under the Company's stock option
plans; and (ii) shares which may be issued pursuant to this
Agreement and the Related Agreements, there are no
outstanding options, warrants, rights (including conversion
or preemptive rights and rights of first refusal), proxy or
stockholder agreements, or arrangements or agreements of any
kind for the purchase or acquisition from the Company of any
of its securities. Except as disclosed on Schedule 4.3,
neither the offer, issuance or sale of any of the Note or
Warrant, or the issuance of any of the Note Shares or Warrant
Shares, nor the consummation of any transaction contemplated
hereby will result in a change in the price or number of any
securities of the Company outstanding, under anti-dilution or
other similar provisions contained in or affecting any such
securities.
(c) All issued and outstanding shares of the Company's Common
Stock: (i) have been duly authorized and validly issued and
are fully paid and nonassessable; and (ii) were issued in
compliance with all applicable state and federal laws
concerning the issuance of securities.
(d) The rights, preferences, privileges and restrictions of the
shares of the Common Stock are as stated in the Company's
Certificate of Incorporation (the "Charter"). The Note
Shares and Warrant Shares have been duly and validly reserved
for issuance. When issued in compliance with the provisions
of this Agreement and the Company's Charter, the Securities
will be validly issued, fully paid and nonassessable, and
will be free of any liens or encumbrances; provided, however,
that the Securities may be subject to restrictions on
transfer under state and/or federal securities laws as set
forth herein or as otherwise required by such laws at the
time a transfer is proposed.
4.4 Authorization; Binding Obligations.
All corporate action on the part of the Company, its officers
and directors necessary for the authorization of this Agreement and the Related
Agreements, the performance of all obligations of the Company hereunder and
under the Related Agreements at the Closing and, the authorization, sale,
issuance and delivery of the Note and Warrant has been taken or will be taken
prior to the Closing. This Agreement and the Related Agreements, when executed
and delivered and to the extent it is a party thereto, will be valid and
binding obligations of the Company enforceable in accordance with their terms,
except:
(a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights; and
(b) general principles of equity that restrict the availability
of equitable or legal remedies.
The sale of the Note and the subsequent conversion of the Note into Note Shares
are not and will not be subject to any preemptive rights or rights of first
refusal that have not been properly waived or complied with. The issuance of
the Warrant and the subsequent exercise of the Warrant for Warrant Shares are
not and will not be subject to any preemptive rights or rights of first refusal
that have not been properly waived or complied with.
4.5 Liabilities.
The Company does not have any contingent liabilities, except
current liabilities incurred in the ordinary course of business and liabilities
disclosed in any Exchange Act Filings.
4.6 Agreements; Action.
Except as set forth on Schedule 4.6 or as disclosed in any
Exchange Act Filings:
(a) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or
decrees to which the Company is a party or to its knowledge
by which it is bound which involve: (i) obligations
(contingent or otherwise) of, or payments to, the Company in
excess of $50,000 (other than obligations of, or payments to,
the Company arising from purchase or sale agreements entered
into in the ordinary course of business); or (ii) the
transfer or license of any patent, copyright, trade secret or
other proprietary right to or from the Company (other than
licenses arising from the purchase of "off the shelf" or
other standard products); or (iii) provisions restricting the
development, manufacture or distribution of the Company's
products or services; or (iv) indemnification by the Company
with respect to infringements of proprietary rights.
(b) Since June 30, 2004, the Company has not: (i) declared or
paid any dividends, or authorized or made any distribution
upon or with respect to any class or series of its capital
stock; (ii) incurred any indebtedness for money borrowed or
any other liabilities (other than ordinary course
obligations) individually in excess of $50,000 or, in the
case of indebtedness and/or liabilities individually less
than $50,000, in excess of $100,000 in the aggregate; (iii)
made any loans or advances to any person not in excess,
individually or in the aggregate, of $100,000, other than
ordinary advances for travel expenses; or (iv) sold,
exchanged or otherwise disposed of any of its assets or
rights, other than the sale of its inventory in the ordinary
course of business.
(c) For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings,
instruments, contracts and proposed transactions involving
the same person or entity (including persons or entities the
Company has reason to believe are affiliated therewith) shall
be aggregated for the purpose of meeting the individual
minimum dollar amounts of such subsections.
4.7 Obligations to Related Parties.
Except as set forth on Schedule 4.7, there are no obligations of
the Company to officers, directors, stockholders or employees of the Company
other than:
(a) for payment of salary for services rendered and for bonus
payments;
(b) reimbursement for reasonable expenses incurred on behalf of
the Company;
(c) for other standard employee benefits made generally available
to all employees (including stock option agreements
outstanding under any stock option plan approved by the Board
of Directors of the Company); and
(d) obligations listed in the Company's financial statements or
disclosed in any of its Exchange Act Filings.
Except as described above or set forth on Schedule 4.7, none of the officers,
directors or, to the best of the Company's knowledge, key employees or
stockholders of the Company or any members of their immediate families, are
indebted to the Company, individually or in the aggregate, in excess of $50,000
or have any direct or indirect ownership interest in any firm or corporation
with which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation which competes with the Company, other
than passive investments in publicly traded companies (representing less than
one percent (1%) of such company) which may compete with the Company. Except as
described above, no officer, director or stockholder, or any member of their
immediate families, is, directly or indirectly, interested in any material
contract with the Company and no agreements, understandings or proposed
transactions are contemplated between the Company and any such person. Except
as set forth on Schedule 4.7, the Company is not a guarantor or indemnitor of
any indebtedness of any other person, firm or corporation.
4.8 Changes.
Since June 30, 2004, except as disclosed in any Exchange Act
Filing or in any Schedule to this Agreement or to any of the Related
Agreements, there has not been:
(a) any change in the business, assets, liabilities, condition
(financial or otherwise), properties, operations or prospects
of the Company, which, individually or in the aggregate, has
had or could reasonably be expected to have, a Material
Adverse Effect;
(b) any resignation or termination of any officer, key employee
or group of employees of the Company;
(c) any material change, except in the ordinary course of
business, in the contingent obligations of the Company by way
of guaranty, endorsement, indemnity, warranty or otherwise;
(d) any damage, destruction or loss, whether or not covered by
insurance, which has had, or could reasonably be expected to
have, individually or in the aggregate, a Material Adverse
Effect;
(e) any waiver by the Company of a valuable right or of a
material debt owed to it;
(f) any direct or indirect material loans made by the Company to
any stockholder, employee, officer or director of the
Company, other than advances made in the ordinary course of
business;
(g) any change in any compensation arrangement or agreement with
any employee, officer, director or stockholder that could
reasonably be expected to have a Material Adverse Effect;
(h) any declaration or payment of any dividend or other
distribution of the assets of the Company;
(i) to the best of the Company's knowledge, any labor
organization activity related to the Company;
(j) any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial
amounts and for current liabilities incurred in the ordinary
course of business;
(k) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets.
(l) any change in any material agreement to which the Company is
a party or by which it is bound which, either individually or
in the aggregate, has had, or could reasonably be expected to
have, a Material Adverse Effect;
(m) any other event or condition of any character that, either
individually or in the aggregate, has had, or could
reasonably be expected to have, a Material Adverse Effect;
or
(n) any arrangement or commitment by the Company to do any of the
acts described in subsection (a) through (m) above.
4.9 Title to Properties and Assets; Liens, Etc.
Except as set forth on Schedule 4.9, the Company has good and
marketable title to its properties and assets, and good title to its leasehold
estates, in each case subject to no mortgage, pledge, lien, lease, encumbrance
or charge, other than:
(a) those resulting from taxes which have not yet become
delinquent;
(b) minor liens and encumbrances which do not materially detract
from the value of the property subject thereto or materially
impair the operations of the Company; and
(c) those that have otherwise arisen in the ordinary course of
business.
All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company are in good operating condition and repair
and are reasonably fit and usable for the purposes for which they are being
used. Except as set forth on Schedule 4.9, the Company is in compliance with
all material terms of each lease to which it is a party or is otherwise bound.
4.10 Intellectual Property.
(a) The Company owns or possesses sufficient legal rights to all
patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information and other proprietary
rights and processes necessary for its business as now
conducted and to the Company's knowledge as presently
proposed to be conducted (the "Intellectual Property"),
without any known infringement of the rights of others.
There are no outstanding options, licenses or agreements of
any kind relating to the foregoing proprietary rights, nor is
the Company bound by or a party to any options, licenses or
agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade
secrets, licenses, information and other proprietary rights
and processes of any other person or entity other than such
licenses or agreements arising from the purchase of "off the
shelf" or standard products.
(b) The Company has not received any communications alleging that
the Company has violated any of the patents, trademarks,
service marks, trade names, copyrights or trade secrets or
other proprietary rights of any other person or entity, nor
is the Company aware of any basis therefor.
(c) The Company does not believe it is or will be necessary to
utilize any inventions, trade secrets or proprietary
information of any of its employees made prior to their
employment by the Company, except for inventions, trade
secrets or proprietary information that have been rightfully
assigned to the Company.
4.11 Compliance with Other Instruments.
The Company is not in violation or default of (x) any term of
its Charter or Bylaws, or (y) of any provision of any indebtedness, mortgage
,indenture, contract, agreement or instrument to which it is party or by which
it is bound or of any judgment, decree, order or writ, which violation or
default, in the case of this clause (y), has had, or could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect. The execution, delivery and performance of and compliance with this
Agreement and the Related Agreements to which it is a party, and the issuance
and sale of the Note by the Company and the other Securities by the Company
each pursuant hereto and thereto, will not, with or without the passage of time
or giving of notice, result in any such material violation, or be in conflict
with or constitute a default under any such term or provision, or result in the
creation of any mortgage, pledge, lien, encumbrance or charge upon any of the
properties or assets of the Company or the suspension, revocation, impairment,
forfeiture or nonrenewal of any permit, license, authorization or approval
applicable to the Company, its business or operations or any of its assets or
properties.
4.12 Litigation.
Except as set forth on Schedule 4.12 hereto, there is no action,
suit, proceeding or investigation pending or, to the Company's knowledge,
currently threatened against the Company that prevents the Company from
entering into this Agreement or the Related Agreements, or from consummating
the transactions contemplated hereby or thereby, or which has had, or could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect or could result in any change in the current equity
ownership of the Company, nor is the Company aware that there is any basis to
assert any of the foregoing. The Company is not a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. There is no action, suit, proceeding or
investigation by the Company currently pending or which the Company intends to
initiate.
4.13 Tax Returns and Payments.
The Company has timely filed all tax returns (federal, state and
local) required to be filed by it. All taxes shown to be due and payable on
such returns, any assessments imposed, and all other taxes due and payable by
the Company on or before the Closing, have been paid or will be paid prior to
the time they become delinquent. Except as set forth on Schedule 4.13, the
Company has not been advised:
(a) that any of its returns, federal, state or other, have been
or are being audited as of the date hereof; or
(b) of any deficiency in assessment or proposed judgment to its
federal, state or other taxes.
The Company has no knowledge of any liability of any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.
4.14 Employees.
Except as set forth on Schedule 4.14, the Company has no
collective bargaining agreements with any of its employees. There is no labor
union organizing activity pending or, to the Company's knowledge, threatened
with respect to the Company. Except as disclosed in the Exchange Act Filings
or on Schedule 4.14, the Company is not a party to or bound by any currently
effective employment contract, deferred compensation arrangement, bonus plan,
incentive plan, profit sharing plan, retirement agreement or other employee
compensation plan or agreement. To the Company's knowledge, no employee of the
Company, nor any consultant with whom the Company has contracted, is in
violation of any term of any employment contract, proprietary information
agreement or any other agreement relating to the right of any such individual
to be employed by, or to contract with, the Company because of the nature of
the business to be conducted by the Company; and to the Company's knowledge the
continued employment by the Company of its present employees, and the
performance of the Company's contracts with its independent contractors, will
not result in any such violation. The Company is not aware that any of its
employees is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere
with their duties to the Company. The Company has not received any notice
alleging that any such violation has occurred. Except for employees who have a
current effective employment agreement with the Company, no employee of the
Company has been granted the right to continued employment by the Company or to
any material compensation following termination of employment with the Company.
Except as set forth on Schedule 4.14, the Company is not aware that any
officer, key employee or group of employees intends to terminate his, her or
their employment with the Company, nor does the Company have a present
intention to terminate the employment of any officer, key employee or group of
employees.
4.15 Registration Rights and Voting Rights.
Except as set forth on Schedule 4.15 and except as disclosed in
Exchange Act Filings, the Company is presently not under any obligation, and
has not granted any rights, to register any of the Company's presently
outstanding securities or any of its securities that may hereafter be issued.
Except as set forth on Schedule 4.15 and except as disclosed in Exchange Act
Filings, to the Company's knowledge, no stockholder of the Company has entered
into any agreement with respect to the voting of equity securities of the
Company.
4.16 Compliance with Laws; Permits.
The Company is not in violation of any applicable statute, rule,
regulation, order or restriction of any domestic or foreign government or any
instrumentality or agency thereof in respect of the conduct of its business or
the ownership of its properties which has had, or could reasonably be expected
to have, either individually or in the aggregate, a Material Adverse Effect.
No governmental orders, permissions, consents, approvals or authorizations are
required to be obtained and no registrations or declarations are required to be
filed in connection with the execution and delivery of this Agreement or any
Related Agreement and the issuance of any of the Securities, except such as has
been duly and validly obtained or filed, or with respect to any filings that
must be made after the Closing, as will be filed in a timely manner. The
Company has all material franchises, permits, licenses and any similar
authority necessary for the conduct of its business as now being conducted by
it, the lack of which could, either individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
4.17 Environmental and Safety Laws.
The Company is not in violation of any applicable statute, law
or regulation relating to the environment or occupational health and safety,
and to its knowledge, no material expenditures are or will be required in order
to comply with any such existing statute, law or regulation. Except as set
forth on Schedule 4.17, no Hazardous Materials (as defined below) are used or
have been used, stored, or disposed of by the Company or, to the Company's
knowledge, by any other person or entity on any property owned, leased or used
by the Company. For the purposes of the preceding sentence, "Hazardous
Materials" shall mean:
(a) materials which are listed or otherwise defined as
"hazardous" or "toxic" under any applicable local, state,
federal and/or foreign laws and regulations that govern the
existence and/or remedy of contamination on property, the
protection of the environment from contamination, the control
of hazardous wastes, or other activities involving hazardous
substances, including building materials; or
(b) any petroleum products or nuclear materials.
4.18 Valid Offering.
Assuming the accuracy of the representations and warranties of
the Purchaser contained in this Agreement, the offer, sale and issuance of the
Securities will be exempt from the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act"), and will have been registered
or qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all applicable state
securities laws.
4.19 Full Disclosure.
The Company has provided the Purchaser with all information
requested by the Purchaser in connection with its decision to purchase the Note
and Warrant, including all information the Company believes is reasonably
necessary to make such investment decision. Neither this Agreement, the
Related Agreements nor the exhibits and schedules hereto and thereto nor any
other document delivered by the Company to Purchaser or its attorneys or agents
in connection herewith or therewith or with the transactions contemplated
hereby or thereby, contain any untrue statement of a material fact nor omit to
state a material fact necessary in order to make the statements contained
herein or therein, in light of the circumstances in which they are made, not
misleading. Any financial projections and other estimates provided to the
Purchaser by the Company were based on the Company's experience in the industry
and on assumptions of fact and opinion as to future events which the Company,
at the date of the issuance of such projections or estimates, believed to be
reasonable.
4.20 Insurance.
The Company has general commercial, product liability, fire and
casualty insurance policies with coverages which the Company believes are
customary for companies similarly situated to the Company in the same or
similar business.
4.21 SEC Reports.
Except as set forth on Schedule 4.21, the Company has filed all
proxy statements, reports and other documents required to be filed by it under
the Securities Xxxxxxxx Xxx 0000, as amended (the "Exchange Act"). The Company
has furnished the Purchaser with copies of: (i) its Annual Report on Form 10-
KSB for the fiscal year ended December 31, 2003; and (ii) its Quarterly Reports
on Form 10-QSB for the fiscal quarters ended March 31, 2004 and June 30, 2004,
and the Form 8-K filings which it has made during the fiscal year 2003 to date
(collectively, the "SEC Reports"). Except as set forth on Schedule 4.21, each
SEC Report was, at the time of its filing, in substantial compliance with the
requirements of its respective form and none of the SEC Reports, nor the
financial statements (and the notes thereto) included in the SEC Reports, as of
their respective filing dates, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
4.22 Listing.
The Company's Common Stock is traded on the NASD Over the
Counter Bulletin Board ("OTCBB") and satisfies all requirements for the
continuation of such trading. The Company has not received any notice that its
Common Stock will be ineligible to trade on the OTCBB or that its Common Stock
does not meet all requirements for such trading.
4.23 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 cause the offering of the Securities pursuant to this
Agreement or any Related Agreement to be integrated with prior offerings by the
Company for purposes of the Securities Act which would prevent the Company from
selling the Securities pursuant to Rule 506 under the Securities Act, or any
applicable exchange-related stockholder approval provisions, nor will the
Company or any of its affiliates or subsidiaries take any action or steps that
would cause the offering of the Securities to be integrated with other
offerings.
4.24 Stop Transfer.
The Securities are restricted securities as of the date of this
Agreement. The Company will not issue any stop transfer order or other order
impeding the sale and delivery of any of the Securities at such time as the
Securities are registered for public sale or an exemption from registration is
available, except as required by state and federal securities laws.
4.25 Dilution. The Company specifically acknowledges that its
obligation to issue the shares of Common Stock upon conversion of
the Note and exercise of the Warrant is binding upon the Company
and enforceable regardless of the dilution such issuance may have
on the ownership interests of other shareholders of the Company.
4.26 Patriot Act.The Company certifies that, to the best of Company's
knowledge, the Company has not been designated, and is not owned or
controlled, by a "suspected terrorist" as defined in Executive
Order 13224. The Company hereby acknowledges that the Purchaser
seeks to comply with all applicable laws concerning money
laundering and related activities. In furtherance of those
efforts, the Company hereby represents, warrants and agrees that:
(i) none of the cash or property that the Company will pay or will
contribute to the Purchaser has been or shall be derived from, or
related to, any activity that is deemed criminal under United
States law; and (ii) no contribution or payment by the Company to
the Purchaser, to the extent that they are within the Company's
control shall cause the Purchaser to be in violation of the United
States Bank Secrecy Act, the United States International Money
Laundering Control Act of 1986 or the United States International
Money Laundering Abatement and Anti-Terrorist Financing Act of
2001. The Company shall promptly notify the Purchaser if any of
these representations ceases to be true and accurate regarding the
Company. The Company agrees to provide the Purchaser any
additional information regarding the Company that the Purchaser
deems necessary or convenient to ensure compliance with all
applicable laws concerning money laundering and similar activities.
The Company understands and agrees that if at any time it is
discovered that any of the foregoing representations are incorrect,
or if otherwise required by applicable law or regulation related to
money laundering similar activities, the Purchaser may undertake
appropriate actions to ensure compliance with applicable law or
regulation, including but not limited to segregation and/or
redemption of the Purchaser's investment in the Company. The
Company further understands that the Purchaser may release
confidential information about the Company and, if applicable, any
underlying beneficial owners, to proper authorities if the
Purchaser, in its sole discretion, determines that it is in the
best interests of the Purchaser in light of relevant rules and
regulations under the laws set forth in subsection (ii) above.
5. Representations and Warranties of the Purchaser.
The Purchaser hereby represents and warrants to the Company as follows
(such representations and warranties do not lessen or obviate the
representations and warranties of the Company set forth in this Agreement)
5.1 No Shorting.
The Purchaser or any of its affiliates and investment partners
has not, will not and will not cause any person or entity, to directly engage
in "short sales" of the Company's Common Stock as long as the Note shall be
outstanding.
5.2 Requisite Power and Authority.
The Purchaser has all necessary power and authority under all
applicable provisions of law to execute and deliver this Agreement and the
Related Agreements and to carry out their provisions. All corporate action on
Purchaser's part required for the lawful execution and delivery of this
Agreement and the Related Agreements have been or will be effectively taken
prior to the Closing. Upon their execution and delivery, this Agreement and the
Related Agreements will be valid and binding obligations of Purchaser,
enforceable in accordance with their terms, except:
(a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights; and
(b) as limited by general principles of equity that restrict the
availability of equitable and legal remedies.
5.3 Investment Representations.
Purchaser understands that the Securities are being offered and
sold pursuant to an exemption from registration contained in the Securities Act
based in part upon Purchaser's representations contained in the Agreement,
including, without limitation, that the Purchaser is an "accredited investor"
within the meaning of Regulation D under the Securities Act of 1933, as amended
(the "Securities Act"). The Purchaser confirms that it has received or has had
full access to all the information it considers necessary or appropriate to
make an informed investment decision with respect to the Note and the Warrant
to be purchased by it under this Agreement and the Note Shares and the Warrant
Shares acquired by it upon the conversion of the Note and the exercise of the
Warrant, respectively. The Purchaser further confirms that it has had an
opportunity to ask questions and receive answers from the Company regarding the
Company's business, management and financial affairs and the terms and
conditions of the Offering, the Note, the Warrant and the Securities and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify any information furnished to the Purchaser or to which the
Purchaser had access.
5.4 Purchaser Bears Economic Risk.
The Purchaser has substantial experience in evaluating and
investing in private placement transactions of securities in companies similar
to the Company so that it is capable of evaluating the merits and risks of its
investment in the Company and has the capacity to protect its own interests.
The Purchaser must bear the economic risk of this investment until the
Securities are sold pursuant to: (i) an effective registration statement under
the Securities Act; or (ii) an exemption from registration is available with
respect to such sale.
5.5 Acquisition for Own Account.
The Purchaser is acquiring the Securities, including without
limitation, the Note and Warrant and the Note Shares and the Warrant Shares for
the Purchaser's own account for investment only, and not as a nominee or agent
and not with a view towards or for resale in connection with their
distribution.
5.6 Purchaser Can Protect Its Interest.
The Purchaser represents that by reason of its, or of its
management's, business and financial experience, the Purchaser has the capacity
to evaluate the merits and risks of its investment in the Note, the Warrant and
the other Securities and to protect its own interests in connection with the
transactions contemplated in this Agreement, and the Related Agreements.
Further, the Purchaser is aware of no publication of any advertisement in
connection with the transactions contemplated in the Agreement or the Related
Agreements.
5.7 Accredited Investor.
Purchaser represents that it is an accredited investor within
the meaning of Regulation D under the Securities Act.
5.8 Legends.
(a) The Note shall bear substantially the following legend:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE, STATE SECURITIES
LAWS. THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION
OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE OR SUCH SHARES UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO IT&E INTERNATIONAL GROUP, INC.
THAT SUCH REGISTRATION IS NOT REQUIRED."
(b) The Note Shares and the Warrant Shares, if not issued by DWAC
system (as hereinafter defined), shall bear a legend which
shall be in substantially the following form until such
shares are covered by an effective registration statement
filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE, STATE SECURITIES LAWS. THESE SHARES MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
SECURITIES ACT AND APPLICABLE STATE LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO IT&E INTERNATIONAL GROUP,
INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) The Warrant shall bear substantially the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON
EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT OR THE UNDERLYING
SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO IT&E INTERNATIONAL GROUP, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
6. Covenants of the Company.
The Company covenants and agrees with the Purchaser as follows:
6.1 Stop-Orders.
The Company will advise the Purchaser, promptly after it
receives notice of issuance by the Securities and Exchange Commission (the
"SEC"), any state securities commission or any other regulatory authority of
any stop order or of any order preventing or suspending any offering of any
securities of the Company, or of the suspension of the qualification of the
Common Stock of the Company for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.
6.2 Listing.
The Company shall promptly secure the trading of the Note
Shares and Warrant Shares on the OTCBB (the "Principal Market") upon which
shares of Common Stock are listed (subject to official notice of issuance) and
shall maintain such listing so long as any other shares of Common Stock shall
be so listed. The Company will maintain the listing of its Common Stock on the
Principal Market, and will comply in all material respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
National Association of Securities Dealers ("NASD") and such exchanges, as
applicable.
6.3 Market Regulations.
The Company shall notify the SEC, NASD and applicable state
authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to the Purchaser
and promptly provide copies thereof to the Purchaser.
6.4 Reporting Requirements.
The Company will timely file with the SEC all reports required
to be filed pursuant to the Exchange Act and refrain from terminating its
status as an issuer required by the Exchange Act to file reports thereunder
even if the Exchange Act or the rules or regulations thereunder would permit
such termination.
6.5 Use of Funds.
The Company agrees that it will use the proceeds of the sale of
the Note and Warrant as follows: (i) $1,500,000 will be used to repay and
terminate the Company's existing line of credit with Bank of Walnut Creek and
(ii) for general working capital and subsidiary acquisition purposes only (it
being understood, however, that $2,500,000 of the proceeds of the Note will be
deposited in the Restricted Account on the Closing Date and shall be subject to
the terms and conditions of the Restricted Account Agreement and the Restricted
Account Side Letter).
6.6 Access to Facilities.
The Company will permit any representatives designated by the
Purchaser (or any successor of the Purchaser), upon reasonable notice of at
least 24 hours and during normal business hours, at such person's expense and
accompanied by a representative of the Company, to:
(a) visit and inspect any of the properties of the Company;
(b) examine the corporate and financial records of the Company
(unless such examination is not permitted by federal, state
or local law or by contract) and make copies thereof or
extracts therefrom; and
(c) discuss the affairs, finances and accounts of the Company
with the directors, officers and independent accountants of
the Company.
Notwithstanding the foregoing, the Company will not provide any material, non-
public information to the Purchaser unless the Purchaser signs a
confidentiality agreement and otherwise complies with Regulation FD, under the
federal securities laws.
6.7 Taxes.
The Company will promptly pay and discharge, or cause to be paid
and discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall
have set aside on its books adequate reserves with respect thereto, and
provided, further, that the Company will pay all such taxes, assessments,
charges or levies forthwith upon the commencement of proceedings to foreclose
any lien which may have attached as security therefor.
6.8 Insurance.
The Company will keep its assets which are of an insurable
character insured by financially sound and reputable insurers against loss or
damage by fire, explosion and other risks customarily insured against by
companies in similar business similarly situated as the Company; and the
Company will maintain, with financially sound and reputable insurers, insurance
against other hazards and risks and liability to persons and property to the
extent and in the manner which the Company reasonably believes is customary for
companies in similar business similarly situated as the Company and to the
extent available on commercially reasonable terms. The Company and each of its
Subsidiaries will jointly and severally bear the full risk of loss from any
loss of any nature whatsoever with respect to the assets pledged to the
Purchaser as security for its obligations hereunder and under the Related
Agreements. At the Company's own cost and expense in amounts and with carriers
reasonably acceptable to Purchaser, the Company and each of the Subsidiaries
shall (i) keep all its insurable properties and properties in which it has an
interest insured against the hazards of fire, flood, sprinkler leakage, those
hazards covered by extended coverage insurance and such other hazards, and for
such amounts, as is customary in the case of companies engaged in businesses
similar to the Company's or the respective Subsidiary's including business
interruption insurance; (ii) maintain a bond in such amounts as is customary in
the case of companies engaged in businesses similar to the Company's or the
Subsidiary's insuring against larceny, embezzlement or other criminal
misappropriation of insured's officers and employees who may either singly or
jointly with others at any time have access to the assets or funds of the
Company either directly or through governmental authority to draw upon such
funds or to direct generally the disposition of such assets; (iii) maintain
public and product liability insurance against claims for personal injury,
death or property damage suffered by others; (iv) maintain all such worker's
compensation or similar insurance as may be required under the laws of any
state or jurisdiction in which the Company or the Subsidiary is engaged in
business; and (v) furnish Purchaser with (x) copies of all policies and
evidence of the maintenance of such policies at least thirty (30) days before
any expiration date, (y) excepting the Company's workers' compensation policy,
endorsements to such policies naming Purchaser as "co-insured" or "additional
insured" and appropriate loss payable endorsements in form and substance
satisfactory to Purchaser, naming Purchaser as loss payee, and (z) evidence
that as to Purchaser the insurance coverage shall not be impaired or
invalidated by any act or neglect of the Company or any Subsidiary and the
insurer will provide Purchaser with at least thirty (30) days notice prior to
cancellation. The Company and each Subsidiary shall instruct the insurance
carriers that in the event of any loss thereunder, the carriers shall make
payment for such loss to the Company and/or the Subsidiary and Purchaser
jointly. In the event that as of the date of receipt of each loss recovery
upon any such insurance, the Purchaser has not declared an event of default
with respect to this Agreement or any of the Related Agreements, then the
Company shall be permitted to direct the application of such loss recovery
proceeds toward investment in property, plant and equipment that would comprise
"Collateral" secured by Purchaser's security interest pursuant to its security
agreement, with any surplus funds to be applied toward payment of the
obligations of the Company to Purchaser. In the event that Purchaser has
properly declared an event of default with respect to this Agreement or any of
the Related Agreements, then all loss recoveries received by Purchaser upon any
such insurance thereafter may be applied to the obligations of the Company
hereunder and under the Related Agreements, in such order as the Purchaser may
determine. Any surplus (following satisfaction of all Company obligations to
Purchaser) shall be paid by Purchaser to the Company or applied as may be
otherwise required by law. Any deficiency thereon shall be paid by the Company
or the Subsidiary, as applicable, to Purchaser, on demand.
6.9 Intellectual Property.
The Company shall maintain in full force and effect its
corporate existence, rights and franchises and all licenses and other rights to
use Intellectual Property owned or possessed by it and reasonably deemed to be
necessary to the conduct of its business.
6.10 Properties.
The Company will keep its properties in good repair, working
order and condition, reasonable wear and tear excepted, and from time to time
make all needful and proper repairs, renewals, replacements, additions and
improvements thereto; and the Company will at all times comply with each
provision of all leases to which it is a party or under which it occupies
property if the breach of such provision could reasonably be expected to have a
Material Adverse Effect.
6.11 Confidentiality.
The Company agrees that it will not disclose, and will not
include in any public announcement, the name of the Purchaser, unless expressly
agreed to by the Purchaser or unless and until such disclosure is required by
law or applicable regulation, and then only to the extent of such requirement.
The Company may disclose Purchaser's identity and the terms of this Agreement
to its current and prospective debt and equity financing sources.
6.12 Required Approvals.
For so long as twenty-five percent (25%) of the principal amount
of the Note is outstanding, the Company, without the prior written consent of
the Purchaser, shall not:
(a) (i) directly or indirectly declare or pay any dividends,
other than (x) dividends paid to any of its wholly-owned
Subsidiaries and (y) dividends paid to the Purchaser with
respect to the Common Stock, (ii) issue any preferred stock
that is manditorily redeemable prior to the one year
anniversary of Maturity Date (as defined in the Note) or
(iii) redeem any of its preferred stock or other equity
interests;
(b) liquidate, dissolve or effect a material reorganization (it
being understood that in no event shall the Company dissolve,
liquidate or merge with any other person or entity (unless
the Company is the surviving entity);
(c) become subject to (including, without limitation, by way of
amendment to or modification of) any agreement or instrument
which by its terms would (under any circumstances) restrict
the Company's right to perform the provisions of this
Agreement or any of the agreements contemplated thereby;
(d) materially alter or change the scope of the business of the
Company;
(e) create, incur, assume or suffer to exist any indebtedness
(exclusive of trade debt and debt incurred to finance the
purchase of equipment (not in excess of five percent (5%) per
annum of the fair market value of the Company's assets)
whether secured or unsecured other than (x) the Company's
indebtedness to the Purchaser, (y) indebtedness set forth on
Schedule 6.12(e) attached hereto and made a part hereof and
any refinancings or replacements thereof on terms no less
favorable to the Purchaser than the debt being refinanced or
replaced, and (z) any indebtedness incurred in connection
with the purchase of assets in the ordinary course of
business, and any refinancings or replacements thereof on
terms no less favorable to the Purchaser than the
indebtedness being refinanced or replaced; (ii) cancel any
indebtedness owing to it in excess of $50,000 in the
aggregate during any 12 month period; (iii) assume,
guarantee, endorse or otherwise become directly or
contingently liable in connection with any obligations of any
other Person, except the endorsement of negotiable
instruments by the Company for deposit or collection or
similar transactions in the ordinary course of business; and
(f) make investments in, make any loans or advances to, or
transfer assets to, any of its Subsidiaries, other than any
immaterial investments, loans, advances and/or asset
transfers made in the ordinary course of business.
6.13 Reissuance of Securities.
The Company agrees to reissue certificates representing the
Securities without the legends set forth in Section 5.8 above at such time as:
(a) the holder thereof is permitted to dispose of such Securities
pursuant to Rule 144(k) under the Securities Act and are
registered or qualified or exempt from registration or
qualification under the registration, permit or qualification
requirements of all applicable state securities laws; or
(b) upon resale subject to an effective registration statement
after such Securities are registered under the Securities
Act.
The Company agrees to cooperate with the Purchaser in connection with all
resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions
necessary to allow such resales provided the Company and its counsel receive
reasonably requested representations from the selling Purchaser and broker, if
any.
6.14 Opinion.
On the Closing Date, the Company will deliver to the Purchaser
an opinion acceptable to the Purchaser from the Company's legal counsel. The
Company will provide, at the Company's expense, such other legal opinions in
the future as are reasonably necessary for the conversion of the Note and
exercise of the Warrant.
6.15 Margin Stock.
The Company will not permit any of the proceeds of the Note or
the Warrant to be used directly or indirectly to "purchase" or "carry" "margin
stock" or to repay indebtedness incurred to "purchase" or "carry" "margin
stock" within the respective meanings of each of the quoted terms under
Regulation U of the Board of Governors of the Federal Reserve System as
now and from time to time hereafter in effect.
6.16 Restricted Cash Disclosure.
The Company agrees that, in connection with its filing of its 8-K
Report with the SEC concerning the transactions contemplated by this
Agreement and the Related Agreements (such report, the "Laurus Transaction
8-K") in a timely manner after the date hereof, it will disclose in such
Laurus Transaction 8-K the amount of the proceeds of the Note issued to the
Purchaser that has been placed in a restricted cash account and is subject to
the terms and conditions of this Agreement and the Related Agreements.
Furthermore, the Company agrees to disclose in all public filings required by
the Commission (where appropriate) following the filing of the Laurus
Transaction 8-K, the existence of the restricted cash referred to in the
immediately preceding sentence, together with the amount thereof.
6.17 Financing Right of First Refusal. (a) The Company hereby
grants to the Purchaser a right of first refusal to provide any Additional
Financing (as defined below) to be issued by the Company and/or any of its
Subsidiaries, subject to the following terms and conditions. From and after the
date hereof, prior to the incurrence of any additional indebtedness and/or the
sale or issuance of any equity interests of the Company or any of its
Subsidiaries (an "Additional Financing"), the Company and/or any Subsidiary of
the Company, as the case may be, shall notify the Purchaser of its intention to
enter into such Additional Financing. In connection therewith, the Company
and/or the applicable Subsidiary thereof shall submit a fully executed term
sheet (a "Proposed Term Sheet") to the Purchaser setting forth the terms,
conditions and pricing of any such Additional Financing (such financing to be
negotiated on "arm's length" terms and the terms thereof to be negotiated in
good faith) proposed to be entered into by the Company and/or such Subsidiary.
The Purchaser shall have the right, but not the obligation, to deliver its own
proposed term sheet (the "Purchaser Term Sheet") setting forth the terms and
conditions upon which Purchaser would be willing to provide such Additional
Financing to the Company and/or such Subsidiary. The Purchaser Term Sheet shall
contain terms no less favorable to the Company and/or such Subsidiary than
those outlined in Proposed Term Sheet. The Purchaser shall deliver such
Purchaser Term Sheet within ten business days of receipt of each such Proposed
Term Sheet. If the provisions of the Purchaser Term Sheet are at least as
favorable to the Company and/or such Subsidiary, as the case may be, as the
provisions of the Proposed Term Sheet, the Company and/or such Subsidiary shall
enter into and consummate the Additional Financing transaction outlined in the
Purchaser Term Sheet.
(b) The Company will not, and will not permit its Subsidiaries to,
agree, directly or indirectly, to any restriction with any person or entity
which limits the ability of the Purchaser to consummate an Additional Financing
with the Company or any of its Subsidiaries.
6.18 Additional Investment. The Company agrees that the Purchaser
shall have the right (at its sole option), on or prior to the date which is 270
days following the Closing Date, to issue an additional note to the Company in
an aggregate principal amount of up to $2,000,000 on the same terms and
conditions (including, without limitation, the same interest rate, the Fixed
Conversion Price (as defined in the Note) then in effect, proportionate warrant
coverage (at the same exercise prices), a proportionate amortization schedule,
etc.) set forth in, and pursuant to substantially similar documentation as,
this Agreement and the Related Agreements.
7. Covenants of the Purchaser.
The Purchaser covenants and agrees with the Company as follows:
7.1 Confidentiality.
The Purchaser agrees that it will not disclose, and will not
include in any public announcement, the name of the Company, unless expressly
agreed to by the Company or unless and until such disclosure is required by law
or applicable regulation, and then only to the extent of such requirement.
7.2 Non-Public Information.
The Purchaser agrees not to effect any sales in the shares of
the Company's Common Stock while in possession of material, non-public
information regarding the Company if such sales would violate applicable
securities law.
8. Covenants of the Company and Purchaser Regarding Indemnification.
8.1 Company Indemnification.
The Company agrees to indemnify, hold harmless, reimburse and
defend Purchaser, each of Purchaser's officers, directors, agents, affiliates,
control persons, and principal shareholders, against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of any
nature, incurred by or imposed upon the Purchaser which results, arises out of
or is based upon: (i) any misrepresentation by Company or breach of any
warranty by Company in this Agreement, any Related Agreement or in any exhibits
or schedules attached hereto or thereto; or (ii) any breach or default in
performance by Company of any covenant or undertaking to be performed by
Company hereunder, or any other agreement entered into by the Company and
Purchaser relating hereto.
8.2 Purchaser's Indemnification.
Purchaser agrees to indemnify, hold harmless, reimburse and
defend the Company and each of the Company's officers, directors, agents,
affiliates, control persons and principal shareholders, at all times against
any claim, cost, expense, liability, obligation, loss or damage (including
reasonable legal fees) of any nature, incurred by or imposed upon the Company
which results, arises out of or is based upon: (i) any misrepresentation by
Purchaser or breach of any warranty by Purchaser in this Agreement or in any
exhibits or schedules attached hereto or any Related Agreement; or (ii) any
breach or default in performance by Purchaser of any covenant or undertaking to
be performed by Purchaser hereunder, or any other agreement entered into by the
Company and Purchaser relating hereto.
9. Conversion of Convertible Note.
9.1 Mechanics of Conversion.
(a) Provided the Purchaser has notified the Company of the
Purchaser's intention to sell the Note Shares and the Note
Shares are (i) included in an effective registration
statement or (ii) are otherwise exempt from such federal
registration and are registered or qualified or exempt from
registration or qualification under the registration, permit
or qualification requirements of all applicable state
securities laws when sold: (A) upon the conversion of the
Note or part thereof, the Company shall, at its own cost and
expense, take all necessary action (including the issuance of
an opinion of counsel reasonably acceptable to the Purchaser
following a request by the Purchaser) to assure that the
Company's transfer agent shall issue shares of the Company's
Common Stock in the name of the Purchaser (or its nominee) or
such other persons as designated by the Purchaser in
accordance with Section 9.1(b) hereof and in such
denominations to be specified representing the number of Note
Shares issuable upon such conversion; and (B) the Company
warrants that no instructions other than these instructions
have been or will be given to the transfer agent of the
Company's Common Stock regarding the issuance of the Note
Shares and that after the Effectiveness Date (as defined in
the Registration Rights Agreement) the Note Shares issued
will be freely transferable subject to the prospectus
delivery requirements of the Securities Act and the
provisions of this Agreement, and will not contain a legend
restricting the resale or transferability of the Note Shares.
(b) Purchaser will give notice of its decision to exercise its
right to convert the Note or part thereof by telecopying or
otherwise delivering an executed and completed notice of the
number of shares to be converted to the Company (the "Notice
of Conversion"). The Purchaser will not be required to
surrender the Note until the Purchaser receives a credit to
the account of the Purchaser's prime broker through the DWAC
system (as defined below), representing the Note Shares or
until the Note has been fully satisfied. Each date on which
a Notice of Conversion is telecopied or delivered to the
Company in accordance with the provisions hereof shall be
deemed a "Conversion Date." Pursuant to the terms of the
Notice of Conversion, the Company will issue instructions to
the transfer agent accompanied by an opinion of counsel
within one (1) business day of the date of the delivery to
the Company of the Notice of Conversion and shall cause the
transfer agent to transmit the certificates representing the
Note Shares to the Purchaser by crediting the account of the
Purchaser's prime broker with the Depository Trust Company
("DTC") through its Deposit Withdrawal Agent Commission
("DWAC") system within three (3) business days after receipt
by the Company of the Notice of Conversion (the "Delivery
Date").
(c) The Company understands that a delay in the delivery of the
Note Shares in the form required pursuant to Section 9 hereof
beyond the Delivery Date could result in economic loss to the
Purchaser. In the event that the Company fails to direct its
transfer agent to deliver the Note Shares to the Purchaser
via the DWAC system within the time frame set forth in
Section 9.1(b) above and the Note Shares are not delivered to
the Purchaser by the Delivery Date, as compensation to the
Purchaser for such loss, the Company agrees to pay late
payments to the Purchaser for late issuance of the Note
Shares in the form required pursuant to Section 9 hereof upon
conversion of the Note in the amount equal to the greater of:
(i) $500 per business day after the Delivery Date; or (ii)
the Purchaser's actual damages from such delayed delivery.
Notwithstanding the foregoing, the Company will not owe the
Purchaser any late payments if the delay in the delivery of
the Note Shares beyond the Delivery Date is solely out of the
control of the Company and the Company is actively trying to
cure the cause of the delay. The Company shall pay any
payments incurred under this Section in immediately available
funds upon demand and, in the case of actual damages,
accompanied by reasonable documentation of the amount of such
damages. Such documentation shall show the number of shares
of Common Stock the Purchaser is forced to purchase (in an
open market transaction) which the Purchaser anticipated
receiving upon such conversion, and shall be calculated as
the amount by which (A) the Purchaser's total purchase price
(including customary brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (B) the aggregate
principal and/or interest amount of the Note, for which such
Conversion Notice was not timely honored.
Nothing contained herein or in any document referred to herein or delivered in
connection herewith shall be deemed to establish or require the payment of a
rate of interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest or dividends required
to be paid or other charges hereunder exceed the maximum amount permitted by
such law, any payments in excess of such maximum shall be credited against
amounts owed by the Company to a Purchaser and thus refunded to the Company.
10. Registration Rights.
10.1 Registration Rights Granted.
The Company hereby grants registration rights to the Purchaser
pursuant to a Registration Rights Agreement dated as of even date herewith
between the Company and the Purchaser.
10.2 Offering Restrictions.
Except as previously disclosed in the SEC Reports or in the
Exchange Act Filings, or stock or stock options granted to employees,
consultants or directors of the Company (these exceptions hereinafter referred
to as the "Excepted Issuances"), the Company will not issue any securities with
a continuously variable/floating conversion feature which are or could be (by
conversion or registration) free-trading securities (i.e. common stock subject
to a registration statement) prior to the full repayment or conversion of the
Note (together with all accrued and unpaid interest and fees related thereto
(the "Exclusion Period"); provided, however, adjustments in conversion features
as a result of stock splits, reorganizations, reclassification or pursuant to
any other anti-dilution provisions shall not be deemed a variable/floating
conversion feature.
11. Miscellaneous.
11.1 Governing Law.
THIS AGREEMENT AND EACH RELATED AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. ANY ACTION BROUGHT BY EITHER PARTY
AGAINST THE OTHER CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT
AND EACH RELATED AGREEMENT SHALL BE BROUGHT ONLY IN THE STATE COURTS OF NEW
YORK OR IN THE FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK. BOTH PARTIES
AND THE INDIVIDUALS EXECUTING THIS AGREEMENT AND THE RELATED AGREEMENTS ON
BEHALF OF THE COMPANY AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS AND
WAIVE TRIAL BY JURY. IN THE EVENT THAT ANY PROVISION OF THIS AGREEMENT OR ANY
RELATED AGREEMENT DELIVERED IN CONNECTION HEREWITH IS INVALID OR UNENFORCEABLE
UNDER ANY APPLICABLE STATUTE OR RULE OF LAW, THEN SUCH PROVISION SHALL BE
DEEMED INOPERATIVE TO THE EXTENT THAT IT MAY CONFLICT THEREWITH AND SHALL BE
DEEMED MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF LAW. ANY SUCH
PROVISION WHICH MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT
AFFECT THE VALIDITY OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS AGREEMENT
OR ANY RELATED AGREEMENT.
11.2 Survival.
The representations, warranties, covenants and agreements made
herein shall survive any investigation made by the Purchaser and the closing of
the transactions contemplated hereby to the extent provided therein. All
statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date
of such certificate or instrument.
11.3 Successors.
Except as otherwise expressly provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors,
heirs, executors and administrators of the parties hereto and shall inure to
the benefit of and be enforceable by each person who shall be a holder of the
Securities from time to time, other than the holders of Common Stock which has
been sold by the Purchaser pursuant to Rule 144 or an effective registration
statement. Purchaser may not assign its rights hereunder to a competitor of the
Company.
11.4 Entire Agreement.
This Agreement, the Related Agreements, the exhibits and
schedules hereto and thereto and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and
agreements except as specifically set forth herein and therein.
11.5 Severability.
In case any provision of the Agreement shall be invalid, illegal
or unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
11.6 Amendment and Waiver.
(a) This Agreement may be amended or modified only upon the
written consent of the Company and the Purchaser.
(b) The obligations of the Company and the rights of the
Purchaser under this Agreement may be waived only with the
written consent of the Purchaser.
(c) The obligations of the Purchaser and the rights of the
Company under this Agreement may be waived only with the
written consent of the Company.
11.7 Delays or Omissions
. It is agreed that no delay or omission to exercise any right,
power or remedy accruing to any party, upon any breach, default or
noncompliance by another party under this Agreement or the Related Agreements,
shall impair any such right, power or remedy, nor shall it be construed to be a
waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of or in any similar breach, default or noncompliance thereafter
occurring. All remedies, either under this Agreement, or the Related
Agreements, by law or otherwise afforded to any party, shall be cumulative and
not alternative.
11.8 Notices
. All notices required or permitted hereunder shall be in writing
and shall be deemed effectively given:
(a) upon personal delivery to the party to be notified;
(b) when sent by confirmed facsimile if sent during normal
business hours of the recipient, if not, then on the next
business day;
(c) three (3) business days after having been sent by registered
or certified mail, return receipt requested, postage prepaid;
or
(d) one (1) day after deposit with a nationally recognized
overnight courier, specifying next day delivery, with written
verification of receipt.
All communications shall be sent as follows:
If to the Company, to: IT&E International Group, Inc.
000 Xxxxx Xxxxx Xx Xxxxx
Xxxxx 000
Xxxxxx Xxxxx, XX 00000
Attention: Chief Financial Officer
Facsimile: 000-000-0000
with a copy to:
Pillsbury Winthrop LLP
0000 Xxxxxxx Xxxxxx
Xxxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxx, Esq.
Facsimile: (000) 000-0000
If to the Purchaser, to:Laurus Master Fund, Ltd.
c/o M&C Corporate Services Limited
X.X. Xxx 000 XX
Xxxxxx Xxxxx, Xxxxxx Xxxx
South Church Street
Grand Cayman, Cayman Islands
Facsimile: 000-000-0000
with a copy to:
Xxxx X. Xxxxxx , Esq.
000 Xxxxx Xxxxxx 00xx Xxxxx
Xxx Xxxx, XX 00000
Facsimile: 000-000-0000
or at such other address as the Company or the Purchaser may designate by
written notice to the other parties hereto given in accordance herewith.
11.9 Attorneys' Fees.
In the event that any suit or action is instituted to enforce
any provision in this Agreement, the prevailing party in such dispute shall be
entitled to recover from the losing party all fees, costs and expenses of
enforcing any right of such prevailing party under or with respect to this
Agreement, including, without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
11.10 Titles and Subtitles.
The titles of the sections and subsections of the Agreement are
for convenience of reference only and are not to be considered in construing
this Agreement.
11.11 Facsimile Signatures; Counterparts.
This Agreement may be executed by facsimile signatures and in
any number of counterparts, each of which shall be an original, but all of
which together shall constitute one instrument.
11.12 Broker's Fees.
Except as set forth on Schedule 11.12 hereof, Each party hereto
represents and warrants that no agent, broker, investment banker, person or
firm acting on behalf of or under the authority of such party hereto is or will
be entitled to any broker's or finder's fee or any other commission directly or
indirectly in connection with the transactions contemplated herein. Each party
hereto further agrees to indemnify each other party for any claims, losses or
expenses incurred by such other party as a result of the representation in this
Section 11.12 being untrue.
11.13 Construction.
Each party acknowledges that its legal counsel participated in
the preparation of this Agreement and the Related Agreements and, therefore,
stipulates that the rule of construction that ambiguities are to be resolved
against the drafting party shall not be applied in the interpretation of this
Agreement to favor any party against the other.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
IT&E INTERNATIONAL GROUP, INC. LAURUS MASTER FUND, LTD.
By: /s/ Xxxxx X. Xxxxxxxx By:
------------------------------ -------------------------------
Name: Xxxxx X. Xxxxxxxx Name:
Title: Chief Executive Officer Title:
EXHIBIT A
FORM OF NOTE
A-#
EXHIBIT B
FORM OF WARRANT
B-#
EXHIBIT C
FORM OF OPINION
C-#
EXHIBIT D
FORM OF ESCROW AGREEMENT
D-#
