SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of August ___,
2005, by and among Globetel Communications Corp., a Delaware corporation (the
"Company"), and the subscribers identified on the signature page hereto (each a
"Subscriber" and collectively "Subscribers").
WHEREAS, the Company and the Subscribers are executing and delivering
this Agreement in reliance upon an exemption from securities registration
afforded by the provisions of Section 4(2), Section 4(6) and/or Regulation D
("Regulation D") as promulgated by the United States Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"1933 Act").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the
Subscribers, as provided herein, and the Subscribers, in the aggregate, shall
purchase up to Four Million Five Hundred Thousand Dollars ($4,500,000) (the
"Purchase Price") of principal amount of promissory notes of the Company ("Note"
or "Notes") convertible into shares of the Company's common stock, $.00001 par
value (the "Common Stock") at a per share conversion price of $1.65 per share,
and share purchase warrants (the "Warrants") in the form attached hereto as
Exhibit A, to purchase shares of Common Stock (the "Warrant Shares") (the
"Offering"). The Notes, shares of Common Stock issuable upon conversion of the
Notes (the "Shares"), the Warrants and the Warrant Shares are collectively
referred to herein as the "Securities"; and
WHEREAS, the company has entered into a Placement Agency Agreement with
Westor Capital Group, Inc. (the "Placement Agency Agreement") dated August __,
2005.
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Subscribers hereby
agree as follows:
1. Conditions to Closing. Subject to the satisfaction or
waiver of the terms and conditions of this Agreement, on the "Closing Date" (as
defined in Section 2 below), each Subscriber shall purchase and the Company
shall sell to each Subscriber a Note in the principal amount designated on the
signature page hereto and the amount of Warrants determined pursuant to Section
3 below. The aggregate principal amount of the Notes to be purchased by the
Subscribers on the Closing Date shall, in the aggregate, be equal to the
Purchase Price.
2. Closing. The consummation of the transactions contemplated
herein shall take place at the offices of Xxxxx & Associates LLC, 00 Xxxxxxxx,
Xxxxx 0000, Xxx Xxxx, XX 00000, upon the satisfaction of all conditions to
Closing set forth in this Agreement ("Closing Date"). At the Closing, the
Company shall deliver to each Subscriber this Agreement, a Note in a principal
amount equal to such Subscriber's investment amount and a Warrant, all duly
executed by the Company, as well as a legal opinion form counsel to the Company,
in a form acceptable to the Subscribers. At the Closing, each Subscriber shall
deliver to the Company its investment amount in immediately available funds.
3. Warrants. On the Closing Date, the Company will issue and
deliver Class A Warrants to the Subscribers. For each Share which would be
issued on the Closing Date assuming the complete conversion of the Notes issued
on the Closing Date at the Conversion Price in effect on the Closing Date, the
Subscriber shall receive 1 Class A Warrant. The per Warrant Share exercise price
to acquire a Warrant Share upon exercise of a Class A Warrant shall be 125% of
the VWAP for the five days immediately preceding the Closing Date but not less
than $2.50. The Class A Warrants shall be exercisable for three years from the
Closing Date.
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4. Subscriber's Representations and Warranties. Each Subscriber
hereby represents and warrants to and agrees with the Company only as to such
Subscriber that:
(a) Organization and Standing of the Subscribers. If the
Subscriber is an entity, such Subscriber is a corporation, partnership or other
entity duly incorporated or organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization.
(b) Authorization and Power. Each Subscriber has the
requisite power and authority to enter into and perform this Agreement and to
purchase the Securities being sold to it hereunder. The execution, delivery and
performance of this Agreement by such Subscriber and the consummation by it of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate or partnership action, and no further consent or
authorization of such Subscriber or its Board of Directors, stockholders,
partners, members, as the case may be, is required.
(c) No Conflicts. The execution, delivery and performance
of this Agreement and the consummation by such Subscriber of the transactions
contemplated hereby do not (i) conflict with such Subscriber's charter documents
or bylaws or other organizational documents or (ii) violate law, rule, or
regulation, or any order, judgment or decree of any court or governmental agency
applicable to such Subscriber or its properties, except for such conflicts and
violations would not, individually or in the aggregate, have a material adverse
effect on such Subscriber. Such Subscriber is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under this Agreement or to purchase the Notes or acquire the
Warrants in accordance with the terms hereof, provided that for purposes of the
representation made in this sentence, such Subscriber is assuming and relying
upon the accuracy of the relevant representations and agreements of the Company
herein.
(d) Information on Company. Such Subscriber has reviewed
the Reports and has been afforded (i) the opportunity to ask such questions as
it has deemed necessary of, and to receive answers from, representatives of the
Company concerning the terms and conditions of the offering of the Securities
and the merits and risks of investing in the Securities; (ii) access to
information about the Company and the Subsidiaries and their respective
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information that the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment. Neither such
inquiries nor any other investigation conducted by or on behalf of such
Subscriber or its representatives or counsel shall modify, amend or affect such
Subscriber's right to rely on the truth, accuracy and completeness of the
Reports and the Company's representations and warranties contained in this
Agreement. Such Subscriber understands that its investment in the Securities
involves a high degree of risk. Each Subscriber is able to bear the risk of an
investment in the Securities including, without limitation, the risk of total
loss of its investment. Such Subscriber has sought such accounting, legal and
tax advice as it has considered necessary to make an informed investment
decision with respect to its acquisition of the Securities.
(e) Information on Subscriber. The Subscriber is, and will
be at the time of the exercise of the Warrants, an "accredited investor", as
such term is defined in Regulation D promulgated by the Commission under the
1933 Act, is experienced in investments and business matters, has made
investments of a speculative nature and has purchased securities of United
States publicly-owned companies in private placements in the past and, with its
representatives, has such knowledge and experience in financial, tax and other
business matters as to enable the Subscriber to utilize the information made
available by the Company to evaluate the merits and risks of and to make an
informed investment decision with respect to the proposed purchase, which
represents a speculative investment. The information set forth on the signature
page hereto regarding the Subscriber is accurate. Such Subscriber is not a
registered broker-dealer under Section 15 of the Securities Exchange Act of
1934, as amended (the "1934 Act"). Such Subscriber does not have any agreement
or understanding, directly or indirectly, with any Person to distribute any of
the Securities
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(f) Investment Intent: Such Subscriber is acquiring the
Securities as principal for its own account for investment purposes only and not
with a view to or for distributing or reselling such Securities or any part
thereof, without prejudice, however, to such Subscriber's right at all times to
sell or otherwise dispose of all or any part of such Securities in compliance
with applicable federal and state securities laws. Subject to the immediately
preceding sentence, nothing contained herein shall be deemed a representation or
warranty by such Subscriber to hold the Securities for any period of time. Such
Subscriber is acquiring the Securities hereunder in the ordinary course of its
business.
(g) Shares Legend. The Shares and the Warrant Shares shall
bear the following or similar legend for as long as is required pursuant to this
Agreement:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT OR ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO GLOBETEL COMMUNICATIONS CORP. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(h) Warrants Legend. The Warrants shall bear the following
or similar 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. 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 UNDER SAID
ACT OR ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO GLOBETEL COMMUNICATIONS
CORP. THAT SUCH REGISTRATION IS NOT REQUIRED."
(i) Note Legend. The Note shall bear the following legend:
"THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THIS NOTE AND THE COMMON SHARES 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 UNDER SAID ACT OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO GLOBETEL
COMMUNICATIONS CORP. THAT SUCH REGISTRATION IS NOT REQUIRED.
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(j) Communication of Offer. The offer to sell the
Securities was directly communicated to such Subscriber by the Company and/or
its agents. At no time was such Subscriber presented with or solicited by any
leaflet, newspaper or magazine article, radio or television advertisement, or
any other form of general advertising or solicited or invited to attend a
promotional meeting otherwise than in connection and concurrently with such
communicated offer.
(k) Enforceability. This Agreement has been duly authorized
and executed by such Subscriber and, when delivered by the Subscriber, will
become Subscriber's valid and binding agreement enforceable against Subscriber
in accordance with their terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights generally and to general principles
of equity.
(l) Restricted Securities. Such Subscriber understands that
the Securities have not been registered under the 1933 Act and such Subscriber
will not sell, offer to sell, assign, pledge, hypothecate or otherwise transfer
any of the Securities unless pursuant to an effective registration statement
under the 1933 Act or under an exemption from such registration requirements.
Accordingly, Securities must be held indefinitely unless a subsequent
disposition is registered under the 1933 Act or any applicable state securities
laws or is exempt from such registration. Notwithstanding anything to the
contrary contained in this Agreement, such Subscriber may transfer (without
restriction and without the need for an opinion of counsel) the Securities to
its Affiliates (as defined below) provided that each such Affiliate is an
"accredited Subscriber" under Regulation D and such Affiliate agrees to be bound
by the terms and conditions of this Agreement. For the purposes of this
Agreement, an "Affiliate" of any person or entity means any other person or
entity directly or indirectly controlling, controlled by or under direct or
indirect common control with such person or entity. Affiliate includes each
subsidiary of the Company. For purposes of this definition, "control" means the
power to direct the management and policies of such person or firm, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise.
(m) Limited Ownership. The purchase by such Subscriber of
the Note and Warrant issuable to it at the Closing will not result in such
Subscriber (individually or together with other Person with whom such Subscriber
has identified, or will have identified, itself as part of a "group" in a public
filing made with the Commission involving the Company's securities) acquiring,
or obtaining the right to acquire, in excess of 19.999% of the outstanding
shares of Common Stock or the voting power of the Company on a post transaction
basis that assumes that the Closing shall have occurred. Such Subscriber does
not presently intend to, alone or together with others, make a public filing
with the Commission to disclose that it has (or that it together with such other
persons have) acquired, or obtained the right to acquire, as a result of the
Closing (when added to any other securities of the Company that it or they then
own or have the right to acquire), in excess of 19.999% of the outstanding
shares of Common Stock or the voting power of the Company on a post transaction
basis that assumes that the Closing shall have occurred.
(n) No Governmental Review. Each Subscriber understands
that no United States federal or state agency or any other governmental or state
agency has passed on or made recommendations or endorsement of the Securities or
the suitability of the investment in the Securities nor have such authorities
passed upon or endorsed the merits of the offering of the Securities.
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(o) Correctness of Representations. The foregoing
representations and warranties of such Subscriber are true and correct as of the
date hereof and, unless such Subscriber otherwise notifies the Company prior to
the Closing Date shall be true and correct as of the Closing Date.
(p) Survival. The foregoing representations and warranties
shall survive the Closing Date.
The Company acknowledges and agrees that no Subscriber has made or makes any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 4.
5. Company Representations and Warranties. Except as set forth
in the Disclosure Schedule (attached hereto as Attachment 1) (the parties
understand and agree that an item disclosed under a particular schedule shall
only qualify the Section referenced in the heading to such particular schedule,
and shall not modify or qualify any other schedule not referenced in such
schedule heading), the Company represents and warrants to and agrees with each
Subscriber that:
(a) Due Incorporation. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the requisite corporate power to own
its properties and to carry on its business is disclosed in the Reports . The
Company is duly qualified as a foreign corporation to do business and is in good
standing in each jurisdiction where the nature of the business conducted or
property owned by it makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify would not have a Material
Adverse Effect. For purpose of this Agreement, a "Material Adverse Effect" shall
mean any of (i) a material and adverse effect on the legality, validity or
enforceability of any of this Agreement, any Note, Warrant, Share or Warrant
Share (collectively, the "Transaction Documents"), (ii) a material and adverse
effect on the results of operations, assets, prospects, business or condition
(financial or otherwise) of the Company and the Subsidiaries, taken as a whole,
or (iii) an adverse impairment to the Company's ability to perform on a timely
basis its obligations under any Transaction Document.
(b) Outstanding Stock. All issued and outstanding shares of
capital stock of the Company has been duly authorized and validly issued and are
fully paid and nonassessable.
(c) Authority; Enforceability. This Agreement, the Note,
the Warrants, and the Escrow Agreement, and any other agreements delivered
together with this Agreement or in connection herewith (collectively
"Transaction Documents") have been duly authorized, executed and delivered by
the Company and are valid and binding agreements enforceable in accordance with
their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights generally and to general principles of equity.
The Company has full corporate power and authority necessary to enter into and
deliver the Transaction Documents and to perform its obligations thereunder.
(d) Additional Issuances. There are no outstanding
agreements or preemptive or similar rights affecting the Company's common stock
or equity and no outstanding rights, warrants or options to acquire, or
instruments convertible into or exchangeable for, or agreements or
understandings with respect to the sale or issuance of any shares of common
stock or equity of the Company or other equity interest in the Company except as
described on Schedule 5(d).
(e) Consents. No consent, approval, authorization or order
of any court, governmental agency or body or arbitrator having jurisdiction over
the Company, or any of its Affiliates, the American Stock Exchange ("The Amex")
nor the Company's shareholders is required for the execution by the Company of
the Transaction Documents and compliance and performance by the Company of its
obligations under the Transaction Documents, including, without limitation, the
issuance and sale of the Securities.
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(f) No Violation or Conflict. Assuming the representations
and warranties of the Subscribers in Section 4 are true and correct, neither the
issuance and sale of the Securities nor the performance of the Company's
obligations under this Agreement and all other agreements entered into by the
Company relating thereto by the Company will:
(i) violate, conflict with, result in a breach of, or
constitute a default (or an event which with the giving of notice or the lapse
of time or both would be reasonably likely to constitute a default) under (A)
the articles or certificate of incorporation, charter or bylaws of the Company,
(B) to the Company's knowledge, any decree, judgment, order, law, treaty, rule,
regulation or determination applicable to the Company of any court, governmental
agency or body, or arbitrator having jurisdiction over the Company or over the
properties or assets of the Company or any of its Affiliates, (C) the terms of
any bond, debenture, note or any other evidence of indebtedness, or any
agreement, stock option or other similar plan, indenture, lease, mortgage, deed
of trust or other instrument to which the Company or any of its Affiliates is a
party, by which the Company or any of its Affiliates is bound, or to which any
of the properties of the Company or any of its Affiliates is subject, or (D) the
terms of any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company, or any of its Affiliates is a party except the
violation, conflict, breach, or default of which would not have a Material
Adverse Effect; or
(ii) result in the creation or imposition of any lien,
charge or encumbrance upon the Securities or any of the assets of the Company or
any of its Affiliates; or
(iii) result in the activation of any anti-dilution
rights or a reset or repricing of any debt or security instrument of any other
creditor or equity holder of the Company, nor result in the acceleration of the
due date of any obligation of the Company; or
(iv) result in the activation of any piggy-back
registration rights of any person or entity holding securities of the Company or
having the right to receive securities of the Company.
(g) The Securities. The Securities upon issuance:
(i) are, or will be, free and clear of any security
interests, liens, claims or other encumbrances, subject to restrictions upon
transfer under the 1933 Act and any applicable state securities laws;
(ii) have been, or will be, duly and validly authorized
and on the date of issuance of the Shares and upon exercise of the Warrants, the
Shares and Warrant Shares will be duly and validly issued, fully paid and
nonassessable or if registered pursuant to the 1933 Act, and resold pursuant to
an effective registration statement will be free trading and unrestricted);
(iii) will not have been issued or sold in violation of
any preemptive or other similar rights of the holders of any securities of the
Company; and
(iv) will not subject the holders thereof to personal
liability by reason of being such holders.
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(h) Litigation. There is no pending or, to the best
knowledge of the Company, threatened action, suit, proceeding or investigation
before any court, governmental agency or body, or arbitrator having jurisdiction
over the Company, or any of its Affiliates that would affect the execution by
the Company or the performance by the Company of its obligations under the
Transaction Documents. Except as disclosed on the Disclosure Schedule or in the
Reports, there is no pending or, to the best knowledge of the Company, basis for
or threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the Company,
or any of its Affiliates which litigation if adversely determined would have a
Material Adverse Effect.
(i) Reporting Company. The Company is eligible to register
the resale of its Common Stock for resale by the Subscribers under Form S-3
promulgated under the 0000 Xxx. The Company is a publicly-held company subject
to reporting obligations pursuant to Section 13 of the 1934 Act and has a class
of common shares registered pursuant to Section 12(g) of the 1934 Act. Pursuant
to the provisions of the 1934 Act, the Company has timely filed with the
Commission all reports and other materials required to be filed thereunder
during the preceding twelve months (collectively, the "Reports").
(j) No Market Manipulation. The Company has not taken, and
will not take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Securities
or affect the price at which the Securities may be issued or resold.
(k) Information Concerning Company. The Subscribers have
not been provided with any material non-public information concerning the
Company, except as the terms and conditions of the transactions contemplated
hereby may constitute such information. The Company understands and confirms
that the Subscribers will rely on the representations and covenants herein
effecting transactions in securities of the Company. All disclosure provided to
the Subscribers regarding the Company, its business and the transactions
contemplated hereby, furnished by or on behalf of the Company (including the
Company's representations and warranties set forth in this Agreement) 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. The Reports contain all material information relating to the Company
and its operations and financial condition as of their respective dates which
information is required to be disclosed therein. Since the date of the financial
statements included in the Reports, and except as modified in other Reports
filed prior to the date of this Agreement, there has been no event or occurrence
that may have or result in a Material Adverse Event relating to the Company's
business, financial condition or affairs. The Reports do not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances when made.
(l) Stop Transfer. The Securities, when issued, will be
restricted securities. The Company will not issue any stop transfer order or
other order impeding the sale, resale or delivery of any of the Securities,
except as may be required by any applicable federal or state securities laws and
unless contemporaneous notice of such instruction is given to the Subscriber.
(m) Defaults. The Company is not in violation of its
articles of incorporation or bylaws. The Company is (i) not in default under or
in violation of any agreement or instrument to which it is a party or by which
it or any of its properties are bound or affected, which default or violation
would have a Material Adverse Effect, (ii) not in default with respect to any
order of any court, arbitrator or governmental body or subject to or party to
any order of any court or governmental authority arising out of any action, suit
or proceeding under any statute or other law respecting antitrust, monopoly,
restraint of trade, unfair competition or similar matters, or (iii) not in
violation of any statute, rule or regulation of any governmental authority which
violation would have a Material Adverse Effect.
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(n) 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 offer of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
the Bulletin Board. Nor will the Company or any of its Affiliates take any
action or steps that would cause the offer or issuance of the Securities to be
integrated with other offerings. The Company will not conduct any offering other
than the transactions contemplated hereby that will be integrated with the offer
or issuance of the Securities.
(o) No General Solicitation; Private Placement. Neither the
Company, nor any of its Affiliates, nor to its knowledge, any person acting on
its or their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the 0000 Xxx) in
connection with the offer or sale of the Securities. Assuming the accuracy of
the Subscribers' representations and warranties set forth in Sections 4(d)-(f),
no registration under the 1933 Act is required for the offer and sale of the
Shares and Warrant Shares by the Company to the Subscribers under the
Transaction Documents.
(p) Listing. The Company's common stock is listed on the
American Stock Exchange. The Company has not received any oral or written notice
that its common stock is not eligible nor will become ineligible for quotation
on the Amex nor that its common stock does not meet all requirements for the
continuation of such quotation and the Company satisfies all the requirements
for the continued listing of its common stock on the Amex.
(q) No Undisclosed Liabilities. The Company has no
liabilities or obligations which are material, individually or in the aggregate,
which are not disclosed in the Reports and Other Written Information, other than
those incurred in the ordinary course of the Company's businesses since December
31, 2004 and which, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect.
(r) No Undisclosed Events or Circumstances. Since December
31, 2004, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the Reports.
(s) Capitalization. The authorized and outstanding capital
stock of the Company as of the date of this Agreement and the Closing Date (not
including the Securities) are set forth on Schedule 5(s). Except as set forth on
Schedule 5(s), there are no options, warrants, or rights to subscribe to,
securities, rights or obligations convertible into or exchangeable for or giving
any right to subscribe for any shares of capital stock of the Company or any of
its Subsidiaries. All of the outstanding shares of Common Stock of the Company
have been duly and validly authorized and issued and are fully paid and
nonassessable.
(t) Dilution; Hedging. The Company acknowlegdes and agrees
that the issuance of the Securities will have a potential dilutive effect on the
equity holdings of other holders of the Company's equity or rights to receive
equity of the Company. The board of directors of the Company has concluded, in
its good faith business judgment that the issuance of the Securities is in the
best interests of the Company. The Company specifically acknowledges that its
obligation to issue the Shares upon conversion of the Notes, and the Warrant
Shares upon exercise of the Warrants is absolute regardless of the dilution such
issuance may have on the ownership interests of other shareholders of the
Company or parties entitled to receive equity of the Company. Subject to
compliance with applicable securities laws, the Subscribers may enter into
lawful hedging transactions with third parties, which may in turn engage in
short sales of the Securities in the course of hedging the position they assume
and the Subscribers may also enter into short positions or other derivative
transactions relating to the Securities, or interests in the Securities, and
deliver the Securities, or interests in the Securities, to close out their short
or other positions or otherwise settle short sales or other transactions, or
loan or pledge the Securities, or interests in the Securities, to third parties
that in turn may dispose of these Securities.
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(u) No Disagreements with Accountants and Lawyers. There
are no disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the Company and the accountants and lawyers
formerly or presently employed by the Company, including but not limited to
disputes or conflicts over payment owed to such accountants and lawyers.
(v) DTC Status. The Company's transfer agent is a
participant in and the Common Stock is eligible for transfer pursuant to the
Depository Trust Company Automated Securities Transfer Program.
(w) Investment Company. The Company is not an Affiliate of
an "investment company" within the meaning of the Investment Company Act of
1940, as amended.
(x) Subsidiary Represents. The Company makes each of the
representations contained in Sections 5(a), (b), (d), (f), (h), (k), (m), (q)
through (s), (u) and (w) of this Agreement, as same relate to each Subsidiary of
the Company. For purposes of this Agreement, "Subsidiary" means, with respect to
any entity at any date, any corporation, limited or general partnership, limited
liability company, trust, estate, association, joint venture or other business
entity) of which more than 50% of (i) the outstanding capital stock having (in
the absence of contingencies) ordinary voting power to elect a majority of the
board of directors or other managing body of such entity, (ii) in the case of a
partnership or limited liability company, the interest in the capital or profits
of such partnership or limited liability company or (iii) in the case of a
trust, estate, association, joint venture or other entity, the beneficial
interest in such trust, estate, association or other entity business is, at the
time of determination, owned or controlled directly or indirectly through one or
more intermediaries, by such entity.
(y) Correctness of Representations. The Company represents
that the foregoing representations and warranties are true and correct as of the
date hereof in all material respects, and, unless the Company otherwise notifies
the Subscribers prior to each Closing Date, shall be true and correct in all
material respects as of each Closing Date.
(z) Title to Assets. The Company and its subsidiaries have
good and marketable title in fee simple to all real property owned by them that
is material to their respective businesses and good and marketable title in all
personal property owned by them that is material to their respective businesses,
in each case free and clear of all liens, except for liens as do not materially
affect the value of such property and do not materially interfere with the use
made and proposed to be made of such property by the Company and 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 of which the Company and its subsidiaries are in compliance, except as
could not, individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect.
(aa) Patents and Trademarks. The Company and its
subsidiaries have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names, copyrights,
licenses and other similar rights that are necessary or material for use in
connection with their respective businesses as described in the Reports and
which the failure to so have could, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect (collectively, the
"Intellectual Property Rights"). Neither the Company nor any subsidiary has
received a written notice that the Intellectual Property Rights used by the
Company or any subsidiary violates or infringes upon the rights of any person.
Except as set forth in the Reports, to the knowledge of the Company, all such
Intellectual Property Rights are enforceable and there is no existing
infringement by another person of any of the Intellectual Property Rights.
9
(bb) Insurance. The Company and its subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as are prudent and customary in the businesses in
which the Company and its subsidiaries are engaged. The Company has no reason to
believe that it will not be able to renew its and its subsidiaries' existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business on
terms consistent with market for the Company's and such subsidiaries' respective
lines of business.
(cc) Internal Accounting Controls. The Company and its
subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with United States generally accepted accounting principles and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures (as
defined in 1934 Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed
such disclosure controls and procedures to ensure that material information
relating to the Company, including its subsidiaries, is made known to the
certifying officers by others within those entities, particularly during the
period in which the Company's Form 10-K or 10-Q, as the case may be, is being
prepared. The Company's certifying officers have evaluated the effectiveness of
the Company's controls and procedures in accordance with Item 307 of Regulation
S-K under the 1934 Act for the Company's most recently ended fiscal quarter or
fiscal year-end (such date, the "Evaluation Date"). The Company presented in its
most recently filed Form 10-K or Form 10-Q the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures based
on their evaluations as of the Evaluation Date. Since the Evaluation Date, there
have been no significant changes in the Company's internal controls (as such
term is defined in Item 308(c) of Regulation S-K under the 0000 Xxx) or, to the
Company's knowledge, in other factors that could significantly affect the
Company's internal controls.
(dd) Solvency. Based on the financial condition of the
Company as of the Closing Date (and assuming that the Closing shall have
occurred), (i) the Company's fair saleable value of its assets exceeds the
amount that will be required to be paid on or in respect of the Company's
existing debts and other liabilities (including known contingent liabilities) as
they mature, (ii) the Company's assets do not constitute unreasonably small
capital to carry on its business for the current fiscal year as now conducted
and as proposed to be conducted including its capital needs taking into account
the particular capital requirements of the business conducted by the Company,
and projected capital requirements and capital availability thereof, and (iii)
the current cash flow of the Company, together with the proceeds the Company
would receive, were it to liquidate all of its assets, after taking into account
all anticipated uses of the cash, would be sufficient to pay all amounts on or
in respect of its debt when such amounts are required to be paid. The Company
does not intend to incur debts beyond its ability to pay such debts as they
mature (taking into account the timing and amounts of cash to be payable on or
in respect of its debt).
(ee) Survival. The foregoing representations and warranties
shall survive the Closing.
10
6. Regulation D Offering. The offer and issuance of the
Securities to the Subscribers is being made pursuant to the exemption from the
registration provisions of the 1933 Act afforded by Section 4(2) or Section 4(6)
of the 1933 Act and/or Rule 506 of Regulation D promulgated thereunder. On the
Closing Date, the Company will provide an opinion reasonably acceptable to
Subscriber from the Company's legal counsel opining on the availability of an
exemption from registration under the 1933 Act as it relates to the offer and
issuance of the Securities and other matters reasonably requested by
Subscribers. A form of the legal opinion is annexed hereto as Exhibit C. The
Company will provide, at the Company's expense, such other legal opinions in the
future as are reasonably necessary for the issuance and resale of the Common
Stock issuable upon conversion of the Notes and exercise of the Warrants
pursuant to an effective registration statement.
7.1 Adjustments. The Conversion Price, Warrant exercise price
and amount of Shares issuable upon conversion of the Notes and exercise of the
Warrants shall be adjusted as described in this Agreement, the Notes and
Warrants.
7.2. Redemption. The Note and Warrants shall not be redeemable
or callable except as described in the Note.
8. Broker/Legal Fees.
(a) Broker's Fee. The Company on the one hand, and each
Subscriber (for itself only) on the other hand, agree to indemnify the other
against and hold the other harmless from any and all liabilities to any persons
claiming brokerage commissions or finder's fees on account of services purported
to have been rendered on behalf of the indemnifying party in connection with
this Agreement or the transactions contemplated hereby and arising out of such
party's actions. The Company represents that there are no parties entitled to
receive fees, commissions, or similar payments from the Company in connection
with the transactions described in this Agreement except Westor On-Line, Inc.
("Broker"), which the Company is obligated to compensate pursuant to a separate
agreement.
(b) Legal Fees. The Company shall pay to Xxxxx and
Associates a fee of $5,000 as reimbursement for services rendered in connection
with the Offering. The Company shall reimburse Steelhead Investments Ltd. (a
Subscriber) for its legal expenses incurred in connection with the Offering in
the amount of $10,000, which amount shall be withheld by such Subscriber from
its Purchase Price at the Closing.
9.1. Covenants of the Company. The Company covenants and agrees
with the Subscribers as follows:
(a) Stop Orders. The Company will advise the Subscribers,
promptly after it receives notice of issuance by the Commission, 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.
(b) Listing. The Company shall promptly secure the listing
of the shares of Common Stock and the Warrant Shares upon each national
securities exchange, or automated quotation system upon which they are or become
eligible for listing (subject to official notice of issuance) and shall maintain
such listing so long as any Warrants are outstanding. The Company will maintain
the listing of its Common Stock on the American Stock Exchange, Nasdaq SmallCap
Market, Nasdaq National Market System, Bulletin Board, or New York Stock
Exchange whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock (the "Principal Market"), and will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market, as applicable.
The Company will provide the Subscribers copies of all notices it receives
notifying the Company of the threatened and actual delisting of the Common Stock
from any Principal Market, but not any information that is material, non-public
information unless such information is also promptly publicly disclosed. As of
the date of this Agreement and the Closing Date, the Bulletin Board is and will
be the Principal Market.
11
(c) Market Regulations. The Company shall notify the
Commission, the Principal Market 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 Subscribers and promptly provide copies
thereof to Subscriber.
(d) Reporting Requirements. From the date of this Agreement
and until the sooner of (i) two (2) years after the Closing Date, or (ii) until
all the Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitation, the Company will (A) cause its Common Stock
to continue to be registered under Section 12(b) or 12(g) of the 1934 Act, (B)
comply in all respects with its reporting and filing obligations under the 1934
Act, (C) comply with all reporting requirements that are applicable to an issuer
with a class of shares registered pursuant to Section 12(b) or 12(g) of the 1934
Act, as applicable, and (D) comply with all requirements related to any
registration statement filed pursuant to this Agreement. The Company will not
take any action or file any document (whether or not permitted by the 1933 Act
or the 1934 Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under said acts until two (2) years after the Closing Date. Until the earlier of
the resale of the Common Stock and the Warrant Shares by each Subscriber or two
(2) years after the Warrants have been exercised, the Company will continue the
listing or quotation of the Common Stock on a Principal Market and will comply
in all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the Principal Market. The Company agrees to timely file a
Form D with respect to the Securities if required under Regulation D and to
provide a copy thereof to each Subscriber promptly after such filing.
(e) Use of Proceeds. The proceeds of the Offering will be
employed by the Company for the purposes set forth on Schedule 9.1(e) hereto. A
deviation of more than 10% of any single stated use of proceeds or a deviation
in the aggregate of more than 25% will be an Event of Default under the Note.
Except as set forth on Schedule 9.1(e), the Purchase Price may not and will not
be used for accrued and unpaid officer and director salaries, payment of
financing related debt, redemption of outstanding notes or equity instruments of
the Company nor non-trade obligations outstanding on a Closing Date.
(f) Reservation. Prior to the Closing Date, the Company
undertakes to reserve, pro rata, on behalf of each holder of a Note or Warrant,
from its authorized but unissued common stock, a number of common shares equal
to 175% of the amount of Common Stock necessary to allow each holder of a Note
to be able to convert all such outstanding Notes and interest and reserve the
amount of Warrant Shares issuable upon exercise of the Warrants. Failure to have
sufficient shares reserved pursuant to this Section 9.1(f) for three (3)
consecutive business days or ten (10) days in the aggregate shall be a material
default of the Company's obligations under this Agreement.
(g) Taxes. From the date of this Agreement and until the
sooner of (i) two (2) years after the Closing Date, or (ii) until all the Shares
and Warrant Shares have been resold or transferred by all the Subscribers
pursuant to the Registration Statement or pursuant to Rule 144, without regard
to volume limitations, 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 therefore.
12
(h) Insurance. From the date of this Agreement and until
the sooner of (i) two (2) years after the Closing Date, or (ii) until all the
Shares and Warrant Shares have been resold or transferred by all the Subscribers
pursuant to the Registration Statement or pursuant to Rule 144, without regard
to volume limitations, 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 the Company's line of business, in amounts sufficient to prevent
the Company from becoming a co-insurer and not in any event less than one
hundred percent (100%) of the insurable value of the property insured; 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 customary for companies in similar businesses similarly
situated and to the extent available on commercially reasonable terms.
(i) Books and Records. From the date of this Agreement and
until the sooner of (i) two (2) years after the Closing Date, or (ii) until all
the Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company will keep true records and
books of account in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and affairs in accordance
with generally accepted accounting principles applied on a consistent basis.
(j) Governmental Authorities. From the date of this
Agreement and until the sooner of (i) two (2) years after the Closing Date, or
(ii) until all the Shares and Warrant Shares have been resold or transferred by
all the Subscribers pursuant to the Registration Statement or pursuant to Rule
144, without regard to volume limitations, the Company shall duly observe and
conform in all material respects to all valid requirements of governmental
authorities relating to the conduct of its business or to its properties or
assets.
(k) Intellectual Property. From the date of this Agreement
and until the sooner of (i) two (2) years after the Closing Date, or (ii) until
all the Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, 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.
(l) Properties. From the date of this Agreement and until
the sooner of (i) two (2) years after the Closing Date, or (ii) until all the
Shares and Warrant Shares have been resold or transferred by all the Subscribers
pursuant to the Registration Statement (as defined in Section 11.1(iv) hereof)
or pursuant to Rule 144, without regard to volume limitations, 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 necessary 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.
(m) Confidentiality/Public Announcement. From the date of
this Agreement and until the sooner of (i) two (2) years after the Closing Date,
or (ii) until all the Shares and Warrant Shares have been resold or transferred
by all the Subscribers pursuant to the Registration Statement or pursuant to
Rule 144, without regard to volume limitations, the Company agrees that except
in connection with a Form 8-K or the Registration Statement, it will not
disclose publicly or privately the identity of the Subscribers unless expressly
agreed to in writing by a Subscriber or only to the extent required by law and
then only upon five days prior notice to Subscriber. In any event and subject to
the foregoing, the Company shall file a Form 8-K (and attach thereto the
Transaction Documents) and issue a press release describing the Offering no
later than the Closing Date. In the Form 8-K or press release, the Company will
specifically disclose the amount of common stock outstanding immediately after
the Closing. A form of the proposed Form 8-K or press release to be employed in
connection with the Offering is annexed hereto as Exhibit D.
13
(n) Further Registration Statements. Except for a
registration statement filed on behalf of the Subscribers pursuant to Section 11
of this Agreement and the entity identified on Schedule 9.1(n) hereto, the
Company will not file any registration statements or amend any already filed
registration statement, including but not limited to Form S-8, with the
Commission or with state regulatory authorities without the consent of the
Subscriber until the Registration Statement shall have been current and
available for use in connection with the public resale of the Shares and Warrant
Shares for 60 days ("Exclusion Period"). The Exclusion Period will be tolled
during the pendency of an Event of Default as defined in the Note and for any
period of time as the Registration Statement is not available to the Subscribers
for the resale of Shares and Warrant Shares.
(o) Blackout. The Company undertakes and covenants that
until the end of the Exclusion Period, the Company will not enter into any
acquisition, merger, exchange or sale or other transaction that could have the
effect of delaying the effectiveness of any pending registration statement or
causing an already effective registration statement to no longer be effective or
current for a period twenty (20) or more days.
(p) Non-Public Information. The Company covenants and
agrees that neither it nor any other person acting on its behalf will provide
any Subscriber or its agents or counsel with any information that the Company
believes constitutes material non-public information, unless prior thereto such
Subscriber shall have agreed in writing to receive such information. The Company
understands and confirms that each Subscriber shall be relying on the foregoing
representations in effecting transactions in securities of the Company.
10. Covenants of the Company and Subscriber Regarding
Indemnification.
(a) The Company agrees to indemnify, hold harmless,
reimburse and defend the Subscribers, the Subscribers' 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 Subscriber
or any such person which results, arises out of or is based upon (i) any
material misrepresentation by Company or breach of any warranty by Company in
this Agreement or in any Exhibits or Schedules attached hereto, or other
agreement delivered pursuant hereto; or (ii) after any applicable notice and/or
cure periods, any breach or default in performance by the Company of any
covenant or undertaking to be performed by the Company hereunder, or any other
agreement entered into by the Company and Subscriber relating hereto.
(b) Each Subscriber agrees to indemnify, hold harmless,
reimburse and defend the Company and each of the Company's officers, directors,
agents, Affiliates, control persons against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company or any such person which results, arises
out of or is based upon (i) any material misrepresentation by such Subscriber in
this Agreement or in any Exhibits or Schedules attached hereto, or other
agreement delivered pursuant hereto; or (ii) after any applicable notice and/or
cure periods, any breach or default in performance by such Subscriber of any
covenant or undertaking to be performed by such Subscriber hereunder, or any
other agreement entered into by the Company and Subscribers relating hereto.
14
(c) In no event shall the liability of any Subscriber or
permitted successor hereunder or under any Transaction Document or other
agreement delivered in connection herewith be greater in amount than the dollar
amount of the net proceeds actually received by such Subscriber upon the sale of
Registrable Securities (as defined herein).
(d) The procedures set forth in Section 11.6 shall apply to
the indemnification set forth in Sections 10(a) and 10(b) above.
11.1. Registration Rights. The Company hereby grants the
following registration rights to holders of the Securities.
(i) On one occasion, for a period commencing one hundred
and twenty-one (121) days after the Closing Date, but not later than two (2)
years after the Closing Date ("Request Date"), upon a written request therefor
from any record holder or holders of more than 50% of the Shares issued and
issuable upon conversion of the Notes and Warrant Shares actually issued upon
exercise of the Warrants, the Company shall prepare and file with the Commission
a registration statement under the 1933 Act registering the Shares, Warrant
Shares issuable upon exercise of the Warrants (collectively "Registrable
Securities") which are the subject of such request for unrestricted public
resale by the holder thereof. For purposes of Sections 11.1(i) and 11.1(ii),
Registrable Securities shall not include (A) Securities which are registered for
resale in an effective registration statement, (B) included for registration in
a pending registration statement, or (C) which have been issued without further
transfer restrictions after a sale or transfer pursuant to Rule 144 under the
1933 Act. Upon the receipt of such request, the Company shall promptly give
written notice to all other record holders of the Registrable Securities that
such registration statement is to be filed and shall include in such
registration statement Registrable Securities for which it has received written
requests within ten (10) days after the Company gives such written notice. Such
other requesting record holders shall be deemed to have exercised their demand
registration right under this Section 11.1(i).
(ii) If the Company at any time proposes to register any of
its securities under the 1933 Act for sale to the public, whether for its own
account or for the account of other security holders or both, except with
respect to registration statements on Forms X-0, X-0 or another form not
available for registering the Registrable Securities for sale to the public,
provided the Registrable Securities are not otherwise registered for resale by
the Subscribers or Holder pursuant to an effective registration statement, each
such time it will give at least fifteen (15) days' prior written notice to the
record holder of the Registrable Securities of its intention so to do. Upon the
written request of the holder, received by the Company within ten (10) days
after the giving of any such notice by the Company, to register any of the
Registrable Securities not previously registered, the Company will cause such
Registrable Securities as to which registration shall have been so requested to
be included with the securities to be covered by the registration statement
proposed to be filed by the Company, all to the extent required to permit the
sale or other disposition of the Registrable Securities so registered by the
holder of such Registrable Securities (the "Seller" or "Sellers"). In the event
that any registration pursuant to this Section 11.1(ii) shall be, in whole or in
part, an underwritten public offering of common stock of the Company, the number
of shares of Registrable Securities to be included in such an underwriting may
be reduced by the managing underwriter if and to the extent that the Company and
the underwriter shall reasonably be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold by the Company
therein; provided, however, that the Company shall notify the Seller in writing
of any such reduction. Notwithstanding the foregoing provisions, or Section 11.4
hereof, the Company may withdraw or delay or suffer a delay of any registration
statement referred to in this Section 11.1(ii) without thereby incurring any
liability to the Seller.
15
(iii) If, at the time any written request for registration
is received by the Company pursuant to Section 11.1(i), the Company has
determined to proceed with the actual preparation and filing of a registration
statement under the 1933 Act in connection with the proposed offer and sale for
cash of any of its securities for the Company's own account and the Company
actually does file such other registration statement, such written request shall
be deemed to have been given pursuant to Section 11.1(ii) rather than Section
11.1(i), and the rights of the holders of Registrable Securities covered by such
written request shall be governed by Section 11.1(ii).
(iv) The Company shall file with the Commission a Form S-3
registration statement (the "Registration Statement") (or such other form that
it is eligible to use) in order to register the Registrable Securities for
resale and distribution under the 1933 Act not later than) sixty (60) days after
the Closing Date (the "Filing Date"), and cause to be declared effective not
later than one hundred and twenty (120) days after the Closing Date (the
"Effective Date"). The Company will register not less than a number of shares of
common stock in the aforedescribed registration statement that is equal to 175%
of the Shares issuable upon conversion of the Notes and all of the Warrant
Shares issuable pursuant to this Agreement upon exercise of the Warrants. The
Registrable Securities shall be reserved and set aside exclusively for the
benefit of each Subscriber and Warrant holder, pro rata, and not issued,
employed or reserved for anyone other than each such Subscriber and Warrant
holder. The Registration Statement will immediately be amended or additional
registration statements will be immediately filed by the Company as necessary to
register additional shares of Common Stock to allow the public resale of all
Common Stock included in and issuable by virtue of the Registrable Securities.
Without the written consent of the Subscriber, no securities of the Company
other than the Registrable Securities will be included in the Registration
Statement except as described on Schedule 11.1 hereto. It shall be deemed a
Non-Registration Event if at any time after the date the Registration Statement
is declared effective by the Commission ("Actual Effective Date") the Company
has registered for unrestricted resale on behalf of the Subscriber less than
125% of the amount of Common Shares issuable upon full conversion of all sums
due under the Notes and 100% of the Warrant Shares issuable upon exercise of the
Warrants.
11.2. Registration Procedures. If and whenever the Company is
required by the provisions of Section 11.1(i), 11.1(ii), or (iv) to effect the
registration of any Registrable Securities under the 1933 Act, the Company will,
as expeditiously as possible:
(a) subject to the timelines provided in this Agreement,
prepare and file with the Commission a registration statement required by
Section 11, with respect to such securities and use its best efforts to cause
such registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as herein provided), promptly
provide to the holders of the Registrable Securities copies of all filings and
Commission letters of comment (but not any information that is material,
non-public information unless such information is also promptly publicly
disclosed) and notify Subscribers (by telecopier and by e-mail addresses
provided by Subscribers) on or before 6 pm ET on the same business day that the
Company receives notice that (i) the Commission has no comments or no further
comments on the Registration Statement, and (ii) the registration statement has
been declared effective (failure to timely provide notice as required by this
Section 11.2(a) shall be a material breach of the Company's obligation and an
Event of Default as defined in the Notes and a Non-Registration Event as defined
in Section 10.4 of this Agreement);
(b) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective until such registration statement has been effective for a period of
two (2) years, and comply with the provisions of the 1933 Act with respect to
the disposition of all of the Registrable Securities covered by such
registration statement in accordance with the Sellers' intended method of
disposition set forth in such registration statement for such period;
16
(c) furnish to the Sellers, at the Company's expense, such
number of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons reasonably may
request in order to facilitate the public sale or their disposition of the
securities covered by such registration statement;
(d) use its commercially reasonable best efforts to
register or qualify the Registrable Securities covered by such registration
statement under the securities or "blue sky" laws of such jurisdictions as the
Sellers shall request in writing, provided, however, that the Company shall not
for any such purpose be required to qualify generally to transact business as a
foreign corporation in any jurisdiction where it is not so qualified or to
consent to general service of process in any such jurisdiction;
(e) if applicable, list the Registrable Securities covered
by such registration statement with any securities exchange on which the Common
Stock of the Company is then listed;
(f) immediately notify the Sellers when a prospectus
relating thereto is required to be delivered under the 1933 Act, of the
happening of any event of which the Company has knowledge as a result of which
the prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing; and
(g) provided same would not be in violation of the
provision of Regulation FD under the 1934 Act, make available for inspection by
the Sellers, and any attorney, accountant or other agent retained by the Seller
or underwriter, all publicly available, non-confidential financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all publicly
available, non-confidential information reasonably requested by the seller,
attorney, accountant or agent in connection with such registration statement.
11.3. Provision of Documents. In connection with each
registration described in this Section 11, each Seller will furnish to the
Company in writing such information and representation letters with respect to
itself and the proposed distribution by it as reasonably shall be necessary in
order to assure compliance with federal and applicable state securities laws.
11.4. Non-Registration Events. The Company and the Subscribers
agree that the Sellers will suffer damages if the Registration Statement is not
filed by the Filing Date and not declared effective by the Commission by the
Effective Date, and any registration statement required under Section 11.1(i) or
11.1(ii) is not filed within 60 days after written request and declared
effective by the Commission within 120 days after such request, and maintained
in the manner and within the time periods contemplated by Section 11 hereof, and
it would not be feasible to ascertain the extent of such damages with precision.
Accordingly, if (A) the Registration Statement is not filed on or before the
Filing Date, (B) is not declared effective on or before the Effective Date, (C)
the Registration Statement is not declared effective within three (3) business
days after receipt by the Company or its attorneys of a written or oral
communication from the Commission that the Registration Statement will not be
reviewed or that the Commission has no further comments, (D) if the registration
statement described in Sections 11.1(i) or 11.1(ii) is not filed within 60 days
after such written request, or is not declared effective within 120 days after
such written request, or (E) any registration statement described in Sections
11.1(i), 11.1(ii) or 11.1(iv) is filed and declared effective but shall
thereafter cease to be effective (without being succeeded within fifteen (15)
business days by an effective replacement or amended registration statement) for
a period of time which shall exceed 30 days in the aggregate per year (defined
as a period of 365 days commencing on the date the Registration Statement is
declared effective) or more than 20 consecutive days (each such event referred
to in clauses A through E of this Section 11.4 is referred to herein as a
"Non-Registration Event"), then the Company shall deliver to the holder of
Registrable Securities, as Liquidated Damages, an amount equal to one percent
(1%) for each forty-five (45) days or part thereof, thereafter of the Purchase
Price of the Notes acquired by such holder hereunder. The Company must pay the
Liquidated Damages in cash or an amount equal to one hundred and fifty percent
(150%) of such cash Liquidated Damages if paid in additional shares of
registered unlegended free-trading shares of Common Stock. Such Common Stock
shall be valued at a per share value equal to the average of the five (5) lowest
closing bid prices of the Common Stock as reported by Bloomberg L.P. for the
twenty (20) trading days preceding the first day of each forty-five (45) day or
shorter period for which Liquidated Damages are payable. The Liquidated Damages
must be paid within ten (10) days after the end of each forty-five (45) day
period or shorter part thereof for which Liquidated Damages are payable. In the
event a Registration Statement is filed by the Filing Date but is withdrawn
prior to being declared effective by the Commission, then such Registration
Statement will be deemed to have not been filed. All oral or written and
accounting comments received from the Commission relating to the Registration
Statement must be responded to within ten (10) business days. Failure to timely
respond to Commission comments is a Non-Registration Event for which Liquidated
Damages shall accrue and be payable by the Company to the holders of Registrable
Securities at the same rate set forth above. Notwithstanding the foregoing, the
Company shall not be liable to the Subscriber under this Section 11.4 for any
events or delays occurring as a consequence of the acts or omissions of the
Subscribers contrary to the obligations undertaken by Subscribers in this
Agreement. Liquidated Damages will not accrue nor be payable pursuant to this
Section 11.4 nor will a Non-Registration Event be deemed to have occurred for
times during which Registrable Securities are transferable by the holder of
Registrable Securities pursuant to Rule 144(k) under the 1933 Act.
17
11.5. Expenses. All expenses incurred by the Company in
complying with Section 11, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
reasonable counsel fees) incurred in connection with complying with state
securities or "blue sky" laws, fees of the National Association of Securities
Dealers, Inc., transfer taxes, fees of transfer agents and registrars, costs of
insurance and fee of one counsel for all Sellers are called "Registration
Expenses." All underwriting discounts and selling commissions applicable to the
sale of Registrable Securities, including any fees and disbursements of one
counsel to the Seller, are called "Selling Expenses." The Company will pay all
Registration Expenses in connection with the registration statement under
Section 11. Selling Expenses in connection with each registration statement
under Section 11 shall be borne by the Seller and may be apportioned among the
Sellers in proportion to the number of shares sold by the Seller relative to the
number of shares sold under such registration statement or as all Sellers
thereunder may agree.
11.6. Indemnification and Contribution.
(a) In the event of a registration of any Registrable
Securities under the 1933 Act pursuant to Section 11, the Company will, to the
extent permitted by law, indemnify and hold harmless the Seller, each officer of
the Seller, each director of the Seller, each underwriter of such Registrable
Securities thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities was registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances when made, and will subject to the provisions of
Section 11.6(c) reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable to
the Seller to the extent that any such damages arise out of or are based upon an
untrue statement or omission made in any preliminary prospectus if (i) the
Seller failed to send or deliver a copy of the final prospectus delivered by the
Company to the Seller with or prior to the delivery of written confirmation of
the sale by the Seller to the person asserting the claim from which such damages
arise, (ii) the final prospectus would have corrected such untrue statement or
alleged untrue statement or such omission or alleged omission, or (iii) to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by any such Seller, or
any such controlling person in writing specifically for use in such registration
statement or prospectus.
18
(b) In the event of a registration of any of the
Registrable Securities under the 1933 Act pursuant to Section 11, each Seller
severally but not jointly will, to the extent permitted by law, indemnify and
hold harmless the Company, and each person, if any, who controls the Company
within the meaning of the 1933 Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the 1933 Act, against
all losses, claims, damages or liabilities, joint or several, to which the
Company or such officer, director, underwriter or controlling person may become
subject under the 1933 Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in the registration statement under which such Registrable Securities were
registered under the 1933 Act pursuant to Section 11, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each such
officer, director, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
that the Seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information pertaining to
such Seller, as such, furnished in writing to the Company by such Seller
specifically for use in such registration statement or prospectus, and provided,
further, however, that the liability of the Seller hereunder shall be limited to
the net proceeds actually received by the Seller from the sale of Registrable
Securities covered by such registration statement.
(c) Promptly after receipt by an indemnified party
hereunder of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party hereunder, notify the indemnifying party in writing thereof, but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to such indemnified party other than under this
Section 11.6(c) and shall only relieve it from any liability which it may have
to such indemnified party under this Section 11.6(c), except and only if and to
the extent the indemnifying party is prejudiced by such omission. In case any
such action shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel satisfactory to such indemnified
party, and, after notice from the indemnifying party to such indemnified party
of its election so to assume and undertake the defense thereof, the indemnifying
party shall not be liable to such indemnified party under this Section 11.6(c)
for any legal expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of investigation
and of liaison with counsel so selected, provided, however, that, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be reasonable defenses available to it which are different from
or additional to those available to the indemnifying party or if the interests
of the indemnified party reasonably may be deemed to conflict with the interests
of the indemnifying party, the indemnified parties, as a group, shall have the
right to select one separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the reasonable
expenses and fees of such separate counsel and other expenses related to such
participation to be reimbursed by the indemnifying party as incurred.
19
(d) In order to provide for just and equitable contribution
in the event of joint liability under the 1933 Act in any case in which either
(i) a Seller, or any controlling person of a Seller, makes a claim for
indemnification pursuant to this Section 11.6 but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding the
fact that this Section 11.6 provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of the Seller or
controlling person of the Seller in circumstances for which indemnification is
not provided under this Section 11.6; then, and in each such case, the Company
and the Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (y) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities sold by it pursuant
to such registration statement; and (z) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 0000 Xxx) will be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
11.7. Delivery of Unlegended Shares.
(a) Neither the Shares nor the Warrant Shares shall contain
any legend, including the legend set forth in Section 4(g), provided (i) a
registration statement (including the Registration Statement) covering the
resale of such security is effective under the Securities Act, or (ii) following
any sale of such Shares or Warrant Shares pursuant to Rule 144, or (iii) if such
Shares or Warrant Shares are eligible for sale under Rule 144(k), or (iv) if
such legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the Staff of
the Commission). A holder of Shares or Warrant Shares may, by notice to the
Company, require the Company to reissue any Shares or Warrant Shares previously
issued, so that new Shares or Warrant Shares do not contain any legends. Within
three (3) business days (such third (3rd) business day being the "Unlegended
Shares Delivery Date") after the business day on which the Company has received
such holder's request to remove legends, the Company shall deliver, and shall
cause legal counsel selected by the Company to deliver to its transfer agent
(with copies to Subscriber) an appropriate instruction and opinion of such
counsel, directing the delivery of shares of Common Stock without any legends,
including the legend set forth in Section 4(g) above, reissuable pursuant to any
effective and current Registration Statement described in Section 11 of this
Agreement or pursuant to Rule 144 under the 1933 Act (the "Unlegended Shares");
and the Company shall cause the transmission of the certificates representing
the Unlegended Shares together with a legended certificate representing the
balance of the submitted Shares certificate, if any, to the Subscriber at the
address specified in the notice of sale, via express courier, by electronic
transfer or otherwise on or before the Unlegended Shares Delivery Date. Transfer
fees shall be the responsibility of the Seller.
(b) In lieu of delivering physical certificates
representing the Unlegended Shares, if the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer program, upon request of a Subscriber, so long as the certificates
therefor do not bear a legend and the Subscriber is not obligated to return such
certificate for the placement of a legend thereon, the Company shall cause its
transfer agent to electronically transmit the Unlegended Shares by crediting the
account of Subscriber's prime Broker with DTC through its Deposit Withdrawal
Agent Commission system. Such delivery must be made on or before the Unlegended
Shares Delivery Date.
20
(c) The Company understands that a delay in the delivery of
the Unlegended Shares pursuant to Section 11 hereof later than two business days
after the Unlegended Shares Delivery Date could result in economic loss to a
Subscriber. As compensation to a Subscriber for such loss, the Company agrees to
pay late payment fees (as liquidated damages and not as a penalty) to the
Subscriber for late delivery of Unlegended Shares in the amount of $20 per
business day after the Delivery Date for each $10,000 of purchase price of the
Unlegended Shares subject to the delivery default. If during any 365 day period,
the Company fails to deliver Unlegended Shares as required by this Section 11.7
for an aggregate of thirty (30) days, then each Subscriber or assignee holding
Securities subject to such default may, at its option, require the Company to
redeem all or any portion of the Shares and Warrant Shares subject to such
default at a price per share equal to 120% of the Purchase Price of such Common
Stock and Warrant Shares ("Unlegended Redemption Amount"). The amount of the
liquidated damages described above that have accrued or paid for the twenty day
period prior to the receipt by the Subscriber of the Unlegended Redemption
Amount shall be credited against the Unlegended Redemption Amount. The Company
shall pay any payments incurred under this Section in immediately available
funds upon demand.
(d) In addition to any other rights available to a
Subscriber, if the Company fails to deliver to a Subscriber Unlegended Shares as
required pursuant to this Agreement, and after the Unlegended Shares Delivery
Date the Subscriber purchases (in an open market transaction or otherwise)
shares of common stock to deliver in satisfaction of a sale by such Subscriber
of the shares of Common Stock which the Subscriber was entitled to receive from
the Company (a "Buy-In"), then the Company shall pay in cash to the Subscriber
(in addition to any remedies available to or elected by the Subscriber) the
amount by which (A) the Subscriber's total purchase price (including brokerage
commissions, if any) for the shares of common stock so purchased exceeds (B) the
aggregate purchase price of the shares of Common Stock delivered to the Company
for reissuance as Unlegended Shares together with interest thereon at a rate of
15% per annum, accruing until such amount and any accrued interest thereon is
paid in full (which amount shall be paid as liquidated damages and not as a
penalty). For example, if a Subscriber purchases shares of Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to $10,000 of
purchase price of shares of Common Stock delivered to the Company for reissuance
as Unlegended Shares, the Company shall be required to pay the Subscriber
$1,000, plus interest. The Subscriber shall provide the Company written notice
indicating the amounts payable to the Subscriber in respect of the Buy-In.
(e) In the event a Subscriber shall request delivery of
Unlegended Shares as described in Section 11.7 and the Company is required to
deliver such Unlegended Shares pursuant to Section 11.7, the Company may not
refuse to deliver Unlegended Shares based on any claim that such Subscriber or
any one associated or affiliated with such Subscriber has been engaged in any
violation of law, or for any other reason, unless, an injunction or temporary
restraining order from a court, on notice, restraining and or enjoining delivery
of such Unlegended Shares or exercise of all or part of said Warrant shall have
been sought and obtained and the Company has posted a surety bond for the
benefit of such Subscriber in the amount of 120% of the amount of the aggregate
purchase price of the Common Stock and Warrant Shares which are subject to the
injunction or temporary restraining order, which bond shall remain in effect
until the completion of arbitration/litigation of the dispute and the proceeds
of which shall be payable to such Subscriber to the extent Subscriber obtains
judgment in Subscriber's favor.
21
12. (a) Right of First Refusal. Until the later of 365 days
after (i) the date that the Registration Statement has been effective for the
resale of all the Registrable Securities and (ii) the date that the right of
first refusal provided in Section 12(a) of that certain Subscription Agreement,
dated as of January 25, 2005, among the Company and the Subscribers party
thereto (the "Longview ROFR") shall be of no further effect, the Subscribers
shall be given not less than seven (7) business days prior written notice of any
proposed sale by the Company of its common stock or other securities or debt
obligations, except in connection with (i) full or partial consideration in
connection with a strategic merger, consolidation or purchase of substantially
all of the securities or assets of corporation or other entity, and (ii) the
Company's issuance of securities in connection with strategic license agreements
and other partnering arrangements so long as such issuances are not for the
purpose of raising capital, (iii) the Company's issuance of Common Stock or the
issuance or grants of options to purchase Common Stock pursuant to the Company's
stock option plans and employee stock purchase plans as they now exist, which
copies of such plans have been delivered to the Subscribers (iv) as a result of
the exercise of options or warrants or conversion of convertible notes or
preferred stock which are granted or issued pursuant to this Agreement, (v) the
payment of any interest on the Notes and (vi) as has been described in the
Reports or Other Written Information filed with the Commission or delivered to
the Subscribers prior to the Closing Date (collectively the foregoing are
"Excepted Issuances"). The Subscribers who exercise their rights pursuant to
this Section 12(a) shall have the right during the seven (7) business days
following receipt of the notice to purchase such offered common stock, debt or
other securities in accordance with the terms and conditions set forth in the
notice of sale in the same proportion to each other as their purchase of Notes
in the Offering. In the event such terms and conditions are modified during the
notice period, the Subscribers shall be given prompt notice of such modification
and shall have the right during the seven (7) business days following the notice
of modification, whichever is longer, to exercise such right. After the
expiration of such seven (7) business day period, should the Subscriber choose
not to exercise its right pursuant to this Section 12(a), the Company shall,
within twenty-one (21) days, publicly announce either the entering into of
definitive agreements (and attach such agreements along with such public filing)
with respect to such proposed sale of Common Stock (or equivalents thereof or
securities convertible into Common Stock) by the Company or the termination of
such transaction. Notwithstanding anything to the contrary herein, the terms of
this Section 12(a) shall in no way limit the Longview ROFR.
(b) Offering Restrictions. Until the Registration Statement
has been effective for the resale of all the Registrable Securities for a period
of 60 days, except for the Excepted Issuances, the Company will not enter into
an agreement to nor issue any equity, convertible debt or other securities
convertible into common stock or equity of the Company nor modify any of the
foregoing which may be outstanding at anytime, without the prior written consent
of the Subscriber, which may be withheld for any reason. For so long as the
Notes are outstanding, except for the Excepted Issuances, the Company will not
enter into any equity line of credit or similar agreement, nor issue or agree to
issue any floating or variable priced equity linked instruments nor any of the
foregoing or other equity or debt with price reset rights.
(c) Additional Registration Statements. In the event,
whether due to anti-dilution provisions or otherwise, Common Stock becomes
issuable pursuant to a Note, which is not then registered pursuant to a
Registration Statement, the Company shall then file an additional Registration
Statement registering such Common Stock for resale by the Subscribers. The
liquidated damages referenced in Section 11.4 herein shall apply with respect to
the Company's obligations to register such Common Stock.
(d) Option Plan Restrictions. The only officer, director,
employee and consultant stock option or stock incentive plan currently in effect
or contemplated by the Company has been submitted to the Subscribers. No other
plan will be adopted nor may any options or equity not included in such plan be
issued for so long as any sum is outstanding under the Note.
(e) Maximum Exercise of Rights. In the event the exercise
of the right described in Section 12(a) would result in the issuance of an
amount of common stock of the Company that would exceed the maximum amount that
may be issued to a Subscriber calculated in the manner described in Section 2.3
of the Note, then the issuance of such additional shares of common stock of the
Company to such Subscriber will be deferred in whole or in part until such time
as such Subscriber is able to beneficially own such common stock without
exceeding the maximum amount set forth calculated in the manner described in
Section 2.3 of the Note. The determination of when such common stock may be
issued shall be made by each Subscriber as to only such Subscriber.
22
13. Miscellaneous.
(a) Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be: (i) if to the Company, to: Globetel Communications
Corp., 0000 Xxxxx Xxxx., Xxxxx 000, Xxxxxxxx Xxxxx, XX 00000, Attn: Xxxxxxx
Xxxx, CEO, telecopier number: (000) 000-0000, with a copy by telecopier only to:
Xxxxxxxx X. Xxxxxxxx, P.A., 00000 Xxxxxxxx Xxxx., Xxxxx 000, Xxxxx Xxxxx, XX
00000, telecopier number: (000) 000-0000, (ii) if to the Subscribers, to: the
one or more addresses and telecopier numbers indicated on the signature pages
hereto, with an additional copy by telecopier only to:, and (iii) if to the
Broker, to: Westor Capital, Inc., 000 Xxxxxxx Xxxxxx, Xxxxx 000, Xxxxx, XX
00000, Attn: Xxxxxxx X. Xxxx, President, telecopier number: (000) 000-0000, with
an additional copy to Xxxxx & Associates, LLC, 00 Xxxxxxxx, Xxxxx 0000, XX,XX
00000, telecopier number (000) 000-0000.
(b) Entire Agreement; Assignment. This Agreement and other
documents delivered in connection herewith represent the entire agreement
between the parties hereto with respect to the subject matter hereof. No right
or obligation of the Company shall be assigned without prior notice to and the
written consent of the Subscribers.
(c) Amendments; Waivers; No Additional Consideration. No
provision of this Agreement may be waived or amended except in a written
instrument signed by the Company and the Subscribers holding a majority of the
Shares. No waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any subsequent default or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of either party
to exercise any right hereunder in any manner impair the exercise of any such
right. No consideration shall be offered or paid to any Investor to amend or
consent to a waiver or modification of any provision of any Transaction Document
unless the same consideration is also offered to all Subscribers who then hold
Shares.
(d) Counterparts/Execution. This Agreement may be executed
in any number of counterparts and by the different signatories hereto on
separate counterparts, each of which, when so executed, shall be deemed an
original, but all such counterparts shall constitute but one and the same
instrument. This Agreement may be executed by facsimile signature and delivered
by facsimile transmission.
(e) Law Governing this Agreement. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
without regard to conflicts of laws principles that would result in the
application of the substantive laws of another jurisdiction. Any action brought
by either party against the other concerning the transactions contemplated by
this Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. The parties and the individuals
executing this Agreement and other agreements referred to herein or delivered in
connection herewith on behalf of the Company agree to submit to the jurisdiction
of such courts and waive trial by jury. The prevailing party shall be entitled
to recover from the other party its reasonable attorney's fees and costs. In the
event that any provision of this Agreement or any other 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 any agreement.
23
(f) Specific Enforcement, Consent to Jurisdiction. The
Company and Subscriber acknowledge and agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to one or more preliminary
and final injunctions to prevent or cure breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which any of them may be entitled by
law or equity. Subject to Section 13(d) hereof, each of the Company, Subscriber
and any signator hereto in his personal capacity hereby waives, and agrees not
to assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction in New York of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. Nothing in this Section shall affect
or limit any right to serve process in any other manner permitted by law.
(g) Independent Nature of Subscribers. The Company
acknowledges that the obligations of each Subscriber under the Transaction
Documents are several and not joint with the obligations of any other
Subscriber, and no Subscriber shall be responsible in any way for the
performance of the obligations of any other Subscriber under the Transaction
Documents. The Company acknowledges that each Subscriber has represented that
the decision of each Subscriber to purchase Securities has been made by such
Subscriber independently of any other Subscriber and independently of any
information, materials, statements or opinions as to the business, affairs,
operations, assets, properties, liabilities, results of operations, condition
(financial or otherwise) or prospects of the Company which may have been made or
given by any other Subscriber or by any agent or employee of any other
Subscriber, and no Subscriber or any of its agents or employees shall have any
liability to any Subscriber (or any other person) relating to or arising from
any such information, materials, statements or opinions. The Company
acknowledges that nothing contained in any Transaction Document, and no action
taken by any Subscriber pursuant hereto or thereto (including, but not limited
to, the (i) inclusion of a Subscriber in the Registration Statement and (ii)
review by, and consent to, such Registration Statement by a Subscriber) shall be
deemed to constitute the Subscribers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the
Subscribers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. The
Company acknowledges that each Subscriber shall be entitled to independently
protect and enforce its rights, including without limitation, the rights arising
out of the Transaction Documents, and it shall not be necessary for any other
Subscriber to be joined as an additional party in any proceeding for such
purpose. The Company acknowledges that it has elected to provide all Subscribers
with the same terms and Transaction Documents for the convenience of the Company
and not because Company was required or requested to do so by the Subscribers.
The Company acknowledges that such procedure with respect to the Transaction
Documents in no way creates a presumption that the Subscribers are in any way
acting in concert or as a group with respect to the Transaction Documents or the
transactions contemplated thereby.
24
(h) Business/Calendar Days. Unless otherwise indicated,
references to days in the Transaction Documents will refer to calendar days.
(i) Liquidated Damages. Wherever liquidated damages are due
and payable pursuant to this Agreement, the parties agree that such liquidated
damages are: (i) not a penalty and (ii) not the sole remedy of such Subscriber,
and that such Subscriber is entitled to pursue such damages as it may be
entitled to at law, including specific performance, provided the amount of any
such liquidated damages that have been paid shall be offset against any such
other damages that may be awarded. The Company and each Subscriber agree that
monetary damages would not provide adequate compensation for any losses incurred
by reason of a breach by it of any of the provisions of this Agreement and
hereby further agrees that, in the event of any action for specific performance
in respect of such breach, it shall waive the defense that a remedy at law would
be adequate.
[THIS SPACE INTENTIONALLY LEFT BLANK]
25
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
GLOBETEL COMMUNICATIONS CORP.
a Delaware corporation
By: /s/ Xxxxxxx Xxxx
----------------------------
Name: Xxxxxxx Xxxx
Title: CEO
Dated: August 31, 2005
SUBSCRIBER:
STEELHEAD INVESTMENTS LTD.
By: HBK Investments LP, Investment Advisor
By: /s/ Xxxxxx Xxxxxx
------------------
Name: Xxxxxx Xxxxxx
Title: Authorized Signatory
Note Principal: $3,500,000
Class A Warrants: 2,121,212
LIST OF EXHIBITS AND SCHEDULES
Attachment 1 Disclosure Schedule
Exhibit A Form of Class A Warrant
Exhibit B Form of Legal Opinion
Exhibit C Form of Public Announcement and Form 8-K
Schedule 5(d) Capitalization/Additional Issuances
Schedule 9.1(e) Use of Proceeds
Schedule 11.1 Additional Securities to be Registered
ATTACHMENT 1
DISCLOSURE SCHEDULE
SCHEDULE 5(d)
Pref A Shares: 18,000 issued and outstanding
Convertible, into a number fully paid and nonassessable shares of the Company's
Common Stock determined by dividing the number of shares of Common Stock
outstanding as of the date of conversion by three, and dividing the result of
that calculation by 250,000
Pref B Shares: 23,333 issued and outstanding exchangeable into 8,608,573 common
shares
Pref C Shares: 750 issued and outstanding 1,500,000 common shares subject to a
one year holding period.
Pref D Shares: 500 issued and outstanding exchangeable into 1,166,666 common
shares subject to a two year holding period.
SCHEDULE 5(s)
Common Stock: 77,108,788 issued and outstanding
Pref A Shares: 18,000 issued and outstanding
Convertible, into a number fully paid and nonassessable shares of the Company's
Common Stock determined by dividing the number of shares of Common Stock
outstanding as of the date of conversion by three, and dividing the result of
that calculation by 250,000
Pref B Shares: 23,333 issued and outstanding
Pref C Shares: 750 issued and outstanding
Pref D Shares: 500 issued and outstanding
SCHEDULE 9.1(e)
USE OF PROCEEDS: The proceeds of the financing are for working capital.
SCHEDULE 9.1(n)
None
EXHIBIT A
FORM OF CLASS A WARRANT
EXHIBIT B
FORM OF LEGAL OPINION(1)
1. The Company is organized in the United States and is a corporation, duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, 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 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.
2. 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. Each of the
Transaction Documents has been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application.
3. No shares of Common Stock are entitled to preemptive or similar rights.
Except as specifically disclosed in the Subscription Agreement or as a result of
the purchase and sale of the Shares and Warrant Shares, there are no outstanding
options, warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, securities, rights or obligations convertible
into or exchangeable for, or giving any person any right to subscribe for or
acquire any shares of Common Stock, or contracts, commitments, understandings,
or arrangements by which the Company or any subsidiary is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock.
4. The Notes, Shares, Warrants and Warrant Shares have been duly authorized and,
when paid for and issued in accordance with the terms of the Subscription
Agreement shall have been validly issued, fully paid and nonassessable. The
Company has duly authorized and reserved for issuance such number of shares of
Common Stock as are issuable upon conversion of the Notes and exercise of the
Warrants as are required pursuant to the terms of the Transaction Documents.
When issued by the Company in accordance with the terms of the Subscription
Agreement, the Notes, Shares, Warrants and Warrant Shares will be validly
issued, fully paid and nonassessable.
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(1) Capitalized terms used and not otherwise defined herein which are defined
in the Subscription Agreement shall have the respective meanings set forth in
the Subscription Agreement.
5. The execution, delivery and performance of the Transaction Documents by the
Company and the consummation by the Company of the transactions contemplated by
such agreements do not and will not (i) conflict with or violate any provision
of its or any of its subsidiary's Certificates of Incorporation or Bylaws, (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of: (A) any agreement,
indenture or other written instrument of the Company or a subsidiary thereof or
other written agreement or understanding to which the Company or a subsidiary
thereof is a party attached as an exhibit to the Reports and (B) to our
knowledge, any other agreement, indenture or other written instrument of the
Company or a subsidiary thereof or instrument or other written agreement or
understanding to which the Company or a subsidiary thereof is a party, (iii)
result in a violation of any law, rule or regulation of any governmental
authority, regulatory body, stock market or trading facility to which the
Company is subject, or by which any property or asset of the Company is bound or
affected, or (iv) result in any violation of any order, judgment, injunction,
decree or other restriction of which we have knowledge of any court or
governmental authority.
6. Other than as provided in the Subscription Agreement, neither the Company nor
any subsidiary is required to obtain any consent, waiver, authorization or order
of, or make any filing or registration with, any court or other federal, state,
local or other governmental authority in connection with the execution, delivery
and performance by the Company of the Transaction Documents.
7. Assuming the accuracy of the representations and warranties of the Company
set forth in Section 5 of the Purchase Agreement and of the Subscribers set
forth in Section 4(d)-(f) of the Subscription Agreement, the offer, issuance and
sale of the Notes, Shares, Warrants and Warrant Shares to the Subscribers
pursuant to the applicable Transaction Documents are exempt from the
registration requirements of the 1933 Act.
EXHIBIT C
FORM OF PUBLIC ANNOUNCEMENT AND FORM 8-K
