Exhibit 10.1
DEBENTURE PURCHASE AND WARRANT AGREEMENT
THIS DEBENTURE PURCHASE AND WARRANT AGREEMENT (this "Agreement"), dated
as of June 30, 2005, by and among China Mobility Solutions, Inc., a Florida
corporation (the "Company"), and the Purchasers identified on the signature page
hereto (each a "Purchaser" and collectively "Purchasers").
WHEREAS, the Company and the Purchasers 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 "SEC") under the Securities Act of 1933, as amended (the "1933
Act", collectively the "Offering Exemption"); and
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell (the "Offering")
to the Purchasers, as provided herein, and the Purchasers, in the aggregate,
shall purchase $2,000,000 principal amount of convertible debentures at a per
unit ("Unit") purchase price ("Purchase Price") of $25,000. The Company and the
Placement Agent (defined below) have the right to accept up to $1,350,000 of
over-subscriptions. Each Unit consists of a $25,000 principal amount of senior
convertible debentures (the "Debentures"), and Class A Warrants and Class B
Warrants (the "Warrants"), to purchase shares of common stock, $0.001 par value
(the "Common Stock") of the Company (the "Warrant Shares"). The Debentures,
Class A Warrants and Class B Warrants are in the forms included as Exhibits B, C
and D to the Private Placement Memorandum. The number of Warrant Shares issuable
upon exercise of both the Class A Warrants and Class B Warrants shall be
determined by dividing the purchase price per Unit of $25,000 by the Conversion
Price (described below) of the Debentures. The Debentures to be purchased
hereunder, the Shares of Common Stock issuable upon conversion of the Debenture
(the "Debenture Shares") the Warrants and the Warrant Shares are collectively
referred to herein as the "Securities."
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Purchasers hereby
agree as follows:
1. Purchase and Sale of Debentures and Warrants. Upon the
terms and subject to the satisfaction (or waiver) of the terms and conditions of
this Agreement, the Company agrees to sell and each Purchaser hereby irrevocably
agrees to purchase the full amount of Securities designated on the signature
page hereto executed by each Purchaser for the Purchase Price indicated on the
signature page hereto at a per Unit price of $25,000. The Purchase price for the
Securities purchased by each Purchaser shall equal the aggregate principal
amount of the Debentures being purchased by such Purchaser.
2. Escrow Arrangements; Form of Payment. Upon the execution of
this Agreement, each Purchaser agrees to make the deliveries required of such
Purchaser as set forth in this Agreement and the Company agrees to make the
deliveries required of the Company as set forth in this Agreement in accordance
with the payment instructions immediately preceding this Agreement.
3. Securities.
(a) Debentures. Each Unit consists of $25,000
principal amount of senior convertible Debentures. Interest on the Debentures
shall accrue interest at the rate of not less than 6% per annum, equal to the
sum of (i) 2% per annum, and (ii) the interest rate (the "Interest") from time
to time published in the "Money Rates" section of The Wall Street Journal as the
one-month London Interbank Offer Rate ("LIBOR"). Interest shall be payable
quarterly in arrears in cash or in kind, at the Holder's option, commencing [ ],
2005. The Maturity Date of the Debentures shall be one year from the Closing
Date. The Debentures shall be convertible in whole or in part, but in not less
than $10,000 increments except for the final conversion which may be for the
remainder, into Common Stock of the Company at a conversion price (the
"Conversion Price") equal to a twenty percent (20%) discount of the average
closing bid price (calculated to the nearest $.0001) of the Company's Common
Stock for the ten (10) consecutive trading dates (the "Average Closing Price")
immediately preceding and including the second trading day immediately prior to
the closing date (the "Closing Date"), but in no event less than $.30 per share.
The Debentures will be senior in priority to the payment of principal and
interest on all existing or future indebtedness. The Debentures shall be subject
to redemption, at 125% of the principal amount plus accrued interest thereon at
the Company's option at any time commencing six months after the effective date
(the "Effective Date") of the Registration Statement described in the
Registration Rights Agreement included as Item IV of the Subscription Booklet.
(b) Warrant Exercise Period and Price. Each Class A
Warrant may be exercised to purchase one Warrant Share at an Exercise Price per
Warrant Share equal to 125% of the Conversion Price of the Debentures. Each
Class B Warrant may be exercised to purchase one Warrant Share at an exercise
price equal to 150% of the Conversion Price. The Class A Warrants shall be
exercisable, commencing at the Closing Date and for two (2) years from the
Effective Date of the Registration Statement but no later than two and a half
years from the Closing Date. The Class B Warrants shall be exercisable,
commencing at the Closing Date and for three (3) years from the Effective Date
of the Registration Statement but no later than three and a half years after the
Closing Date. The Class A Warrants shall be subject to redemption, at the
Company's option, at any time commencing six (6) months from the Effective Date,
until the Expiration Date provided at any time, the average Closing bid price of
the Company's Common Stock equals or exceeds 175% of the Class A Warrant
Exercise Price for 20 consecutive trading days ending no earlier than three days
of the mailing of the notice of redemption. The Class B Warrants shall be
subject to redemption, at the Company's option, at any time, commencing twelve
(12) months from the Effective Date, until the Expiration Date, provided at any
time, the average Closing bid price of the Company's Common Stock equals or
exceeds 175% of the Class B Warrant Exercise Price for 20 consecutive trading
days ending no earlier than three days of the mailing of the notice of
redemption.
4.1 Closing. There shall be one closing of the purchase and
sale of the Units (the "Closing"), including over-subscriptions. The Purchasers
shall purchase, severally and not jointly, and the Company shall sell and issue,
in the aggregate, $2,000,000 principal amount of the Securities with up
to$1,350,000 of over-subscriptions. Each Purchaser shall purchase from the
Company, and the Company shall issue and sell to each Purchaser, such number of
Units equal to such Purchaser's Purchase Amount divided by the per Unit Purchase
Price. The Closing will be deemed to occur at the offices of Xxxxxxxx & Xxxx
LLP, 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, XX 00000, Attn: Xxxxxx X. Xxxxxxx,
or such other time and/or location as the parties shall mutually agree when (A)
this Agreement and the other Transaction Documents (as defined below) have been
executed and delivered by the Company and, to the extent applicable, by each
Purchaser, (B) each of the conditions to the Closing described in Section 4.2
and Section 4.3 hereof has been satisfied or waived by the Company or each
Purchaser, as appropriate, and (C) each Purchaser shall have delivered the
Purchase Price payable by it to the Company by wire transfer of immediately
available funds against physical delivery of duly executed certificates
representing the Debentures and Warrants being purchased by such Purchaser. The
date on which the Closing occurs is referred to herein as the "Closing Date".
4.2 Closing Conditions. Each Purchaser's obligations to effect
the Closing, including without limitation its obligation to purchase the
Debentures and Warrants at the Closing, are conditioned upon the fulfillment (or
waiver by such Purchaser in its sole and absolute discretion) of each of the
following events as of the Closing Date, and the Company shall use commercially
reasonably efforts to cause each of such conditions to be satisfied:
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(a) At Closing, the Company shall deliver or cause to
be delivered to each Purchaser:
(i) a copy of this Agreement and the
Registration Rights Agreement duly executed by the Company;
(ii) a Debenture, duly executed by the
Company, evidencing a principal amount equal to such
Purchaser's Purchase Amount at Closing registered in the name
of such Purchaser;
(iii) a Class A Warrant and a Class B
Warrant, each duly executed by the Company, registered in the
name of such Purchaser, pursuant to which such Purchaser shall
have the right to acquire up to the number of shares of Common
Stock issuable by dividing the Purchaser's Purchase Price by
the Conversion Price;
(iv) a legal opinion of Company Counsel,
dated as of the Closing Date;
(v) copies of its notice to the Principal
Market (as defined in Section 11(b) below), if any, prior to
the Closing of the issuance of the Securities under this
Offering;
(vi) a certificate, signed by the Chief
Executive Officer and Chief Financial Officer of the Company,
certifying that the conditions specified in this paragraph 4.2
have been fulfilled (or waived in writing by such Purchaser) as
of the Closing Date, it being understood that such Purchaser
may rely on such certificate as though it were a representation
and warranty of the Company made herein; and
(vii) a certificate, signed by the Secretary
or an Assistant Secretary of the Company, attaching (i) the
Certificate of Incorporation and By-Laws of the Company, (ii)
certificates of Good Standing for the state of incorporation
and jurisdictions in which it is qualified to do business; and
(iii) resolutions passed by its Board of Directors to authorize
the transactions contemplated hereby and by the other
Transaction Documents, and certifying that such documents are
true and complete copies of the originals and that such
resolutions have not been amended or superseded, it being
understood that such Purchaser may rely on such certificate as
though it were a representation and warranty of the Company
made herein.
(b) the representations and warranties of the Company
set forth in this Agreement and in the other Transaction Agreements shall be
true and correct in all material respects as of the Closing Date as if made on
such date (except that to the extent that any such representation or warranty
relates to a particular date, in which case such representation or warranty
shall be true and correct in all material respects as of that particular date);
(c) the Company shall have complied with or performed
in all material respects all of the agreements, obligations and conditions set
forth in this Agreement or the other Transaction Agreements that are required to
be complied with or performed by the Company on or before such date;
(d) the Closing Date shall occur not later than
August 31, 2005 unless extended for up to an additional 30 days;
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(e) there shall have occurred no material adverse
change in the Company's consolidated business or financial condition since March
31, 2005 as set forth in the Company's most recent financial statements for
March 31, 2005 attached as Exhibit E, to the Private Placement Memorandum;
(f) the Common Stock shall be quoted on the Nasdaq
OTC Bulletin Board or the Nasdaq SmallCap Market or any National Securities
Exchange and from the date hereof to the Closing Date , trading in the Common
Stock shall not have been suspended by the Commission and, at any time prior to
Closing, trading in securities generally as reported by Bloomberg Financial
Markets shall not have been suspended or limited, or minimum prices shall not
have been established on securities whose trades are reported by such service,
or on any Trading Market, nor shall a banking moratorium have been declared
either by the United States or New York State authorities;
(g) the Company shall have authorized and reserved
for issuance not less than the sum of (A) one hundred percent (100%) of the
number of Debenture Shares issuable upon conversion of all of the Debentures
issuable at the Closing based on the initial conversion price thereof, and
shares issuable pursuant to the interest payment option, plus (B) one hundred
percent (100%) of the number of Warrant Shares issuable upon exercise of all of
the Warrants issuable at the Closing, in each case without regard to any
limitation on such conversion or exercise that may otherwise exist;
(h) if required, a majority of the stockholders of
the Company, acting by written consent in accordance with the General
Corporation Law of the State of Florida, shall have approved the transactions
contemplated hereby and by the other Transaction Agreements; and
(i) there shall be no injunction, restraining order
or decree of any nature of any court or government authority of competent
jurisdiction that is in effect that restrains or prohibits the consummation of
the transactions contemplated hereby or by the other Transaction Agreements.
4.3 Conditions to Company's Obligations at the Closing. The
Company's obligations to effect the Closing with each Purchaser are conditioned
upon the fulfillment (or waiver by the Company in its sole and absolute
discretion) of each of the following events as of the Closing Date:
(a) At Closing each Purchaser shall deliver or cause
to be delivered to the Company the following:
(i) this Agreement and the Registration
Rights Agreement, duly executed by such Purchaser;
(ii) such Purchaser's Subscription Amount by
wire transfer to escrow pursuant to the attached wiring
instructions provided to the Purchasers by the Company; and
(iii) an executed and properly completed
copy of the appropriate Confidential Purchaser Questionnaire.
(b) the representations and warranties of such
Purchaser set forth in this Agreement and in the other Transaction Agreements
shall be true and correct in all material respects as of such date as if made on
such date (except that to the extent that any such representation or warranty
relates to a particular date, in which case such representation or warranty
shall be true and correct in all material respects as of that particular date);
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(c) such Purchaser shall have complied with or
performed all of the agreements, obligations and conditions set forth in this
Agreement and in the other Transaction Agreements that are required to be
complied with or performed by such Investor on or before the Closing Date; and
(d) there shall be no injunction, restraining order
or decree of any nature of any court or government authority of competent
jurisdiction that is in effect that restrains or prohibits the consummation of
the transactions contemplated hereby or by the other Transaction Agreements.
5. Purchaser's Representations and Warranties. Each Purchaser
hereby represents and warrants as of the date hereof and as of the Closing, to
and agrees with the Company as to such Purchaser and no other Purchaser that:
(a) Information on Company. The Purchaser has been
furnished, prior to the Closing Date of this Agreement, with information
regarding the business, operations and financial condition of the Company,
including without limitation, the Company's Form 10-KSB for the year ended
December 31, 2004, as filed with the Securities and Exchange Commission (the
"Commission") on May 5, 2005, together with all filed Forms 10-QSB, 8-K, and any
amendments thereto, including any exhibits filed with such Forms 10-QSB, and/or
8-K, and filings made with the Commission available at the XXXXX website
(hereinafter referred to collectively as the "Reports"). In addition, the
Purchaser has received in writing from the Company the Business Plan dated May
2005 attached hereto as Exhibit A to the Private Placement Memorandum and such
other information concerning its operations, financial condition and other
matters as the Purchaser has requested in writing (such other information is
collectively, the "Other Written Information"), and considered all factors the
Purchaser deems material in deciding on the advisability of investing in the
Securities. The Company has, prior to the Closing Date hereof, granted to such
Purchaser the opportunity to ask questions of and receive satisfactory answers
from representatives of the Company, its officers, directors, employees and
agents concerning the Company and materials relating to the terms and conditions
of the purchase and sale of the Securities hereunder, and based thereon believes
it can make an informed decision with respect to its investment in the
Securities. Neither such information nor any other investigation conducted by
such Purchaser or its representatives shall modify, amend or otherwise affect
such Purchaser's right to rely on the Company's representations and warranties
contained in this Agreement.
(b) Accredited Investor. The Purchaser is, and will
be at the time of the Closing, an "accredited investor" as defined in Rule
501(a) of Regulation D promulgated under the 0000 Xxx. Such Purchaser is not
required to be registered as a broker-dealer under Section 15 of the Securities
Exchange Act of 1934, as amended (the "1934 Act"); is experienced in investments
and business matters, has made investments of a speculative nature; understands
that an investment in the Securities involves a high degree of risk, 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
Purchaser 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
Purchaser has the authority and is duly and legally qualified to purchase and
own the Securities. The Purchaser is able to bear the risk of such investment
for an indefinite period and to afford a complete loss thereof. The information
set forth on the signature page hereto regarding the Purchaser is accurate.
(c) Purchase of Debentures and Warrants. At Closing,
the Purchaser will purchase the Debentures and Warrants as principal for its own
account for investment only and not as a nominee or agent and not with a view
towards or for resale in connection with the distribution of the Securities,
except pursuant to sales that are registered under, or are exempt from the
registration requirements of, the Securities Act; provided, however, that, in
making such representation, such Purchaser does not agree to hold the Securities
for any minimum or specific term and reserves the right to sell, transfer or
otherwise dispose of the Securities at any time in accordance with the
provisions of this Agreement and with Federal and state securities laws
applicable to such sale, transfer or disposition.
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(d) Compliance with Securities Act. The Purchaser
understands and agrees that the Securities are "restricted securities" and have
not been registered under the 1933 Act or any applicable state securities laws,
by reason of their issuance in a transaction that does not require registration
under the 1933 Act (based in part on the accuracy of the representations and
warranties of Purchaser contained herein), and that such 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.
(e) Debenture Legend. Such Purchaser understands that
the certificates representing the Debentures may bear at issuance the following
or similar legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SECURITIES 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 CHINA MOBILITY SOLUTIONS, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(f) Warrants Legend. Such Purchaser understands that
the certificates representing the Warrants may bear at issuance 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 CHINA MOBILITY SOLUTIONS,
INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(g) Communication of Offer. The offer to sell the
Securities was directly communicated to the Purchaser by the Company. At no time
was the Purchaser 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.
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(h) Organization; Authority. If an entity, such
Purchaser is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization with full right, corporate or
partnership power and authority to enter into and to consummate the transactions
contemplated by the Offering and otherwise to carry out its obligations
thereunder.
(i) Authority; Enforceability. This Agreement and
other agreements delivered together with this Agreement or in connection
herewith have been duly authorized, executed and delivered by the Purchaser 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; and Purchaser
has full corporate power and authority necessary to enter into this Agreement
and such other agreements and to perform its obligations hereunder and under all
other agreements entered into by the Purchaser relating hereto.
(j) Correctness of Representations. Such Purchaser
understands that the Securities are being offered and sold to it in reliance
upon specific exemptions from the registration requirements of federal and state
securities laws and that the Company is relying upon the truth and accuracy of
the representations and warranties of such Purchaser set forth in this Section 5
in order to determine the availability of such exemptions and the eligibility of
such Investor to acquire the Securities. Each Purchaser represents that the
foregoing representations and warranties are true and correct as of the date
hereof and, unless a Purchaser otherwise notifies the Company prior to the
Closing, shall be true and correct as of Closing. The foregoing representations
and warranties shall survive the Closing Date for a period of three (3) years.
(k) No Tax or Legal Advice. Such Purchaser
understands that nothing in this Agreement, any other agreement or any other
materials presented to such Purchaser in connection with the purchase and sale
of the Units constitutes legal, tax or investment advice. Such Purchaser has
consulted such legal, tax and investment advisors as it, in its sole discretion,
has deemed necessary or appropriate in connection with its purchase of Units.
6. Company Representations and Warranties. The Company
represents and warrants to and agrees with each Purchaser as follows and
acknowledges that such Purchaser is relying on the representations,
acknowledgments and agreements made by the Company in this Article 6 and
elsewhere in this Agreement in making investing, trading and other decisions
concerning the Company's securities:
(a) Due Incorporation. The Company and its material
subsidiaries are corporations duly organized, validly existing and in good
standing under the laws of their respective states of incorporation and have the
requisite corporate power to own their properties and to carry on their business
as now being conducted. The Company and each of its material subsidiaries 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, where the failure to be so
qualified or in good standing, as the case may be, would not have or reasonably
be expected to result in (i) a material adverse effect on the legality, validity
or enforceability of this Agreement or any other document in connection with the
Offering, (ii) a material adverse effect on the results of operations, assets,
business or financial condition of the Company and each subsidiary, taken as a
whole, or (iii) a material adverse effect on the Company's ability to perform in
any material respect on a timely basis its obligations under this Agreement (any
of (i), (ii) or (iii), a "Material Adverse Effect").
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(b) Outstanding Stock. All of the issued and outstanding
shares of capital stock of the Company and each of its subsidiaries have been
duly authorized and validly issued and are fully paid and non-assessable. As of
June 14, 2005, there were 16,921,793 shares of $0.001 par value common stock
outstanding. All outstanding shares of capital stock of the Company have been
validly issued, fully paid and nonassessable and all shares of capital stock and
other ownership interests issued by any Subsidiary have been validly issued,
fully paid and nonassessable, and in each case, free and clear of all Liens. All
outstanding shares of capital stock of the Company were issued, sold and
delivered in full compliance with all applicable Federal and state securities
laws and the similar laws of other foreign jurisdictions as may be applicable.
(c) Due Execution; Enforceability. This Agreement and
the Debentures, Warrants and Registration Rights Agreement and such other
agreements entered into in connection with the Offering (the "Transaction
Agreements") 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; and the Company
has full corporate power and authority necessary to enter into this Agreement
and the other Transaction Agreements and to perform its obligations hereunder
and under all other Transaction Agreements entered into by the Company relating
hereto.
(d) Authorization; Consents. The Company has the
requisite corporate power and authority to enter into and perform its
obligations under this Agreement and the other Transaction Agreements, including
without limitation its obligations to issue and sell the Securities and to issue
the Debenture Shares and Warrant Shares upon conversion of the Debentures or
exercise of the Warrants, as the case may be. All corporate action on the part
of the Company by its officers, directors and stockholders necessary for the
authorization, execution and delivery of, and the performance by the Company of
its obligations under this Agreement and the other Transaction Agreements has
been taken. No further 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 NASD, Inc., Nasdaq,
SmallCap Market, the OTC Bulletin Board nor the Company's Shareholders or Board
of Directors is required for execution of or full performance under this
Agreement and the other Transaction Agreement (other than such approval as may
be required under the Securities Act and applicable state securities laws in
respect of the Registration Rights Agreement), other than if then listed on
Nasdaq fifteen (15) days prior notification to Nasdaq of the Closing and the
Company filing a listing application with Nasdaq and all other agreements
entered into by the Company relating thereto, including, without limitation, the
issuance and sale of the Securities, and the performance of the Company's
obligations hereunder and under all such other Transaction Agreements. The Board
of Directors of the Company has determined, at a duly convened meeting or
pursuant to a unanimous written consent, that the issuance and sale of the
Securities, and the consummation of the transactions contemplated by this
Agreement and the other Transaction Agreements are in the best interests of the
Company, and if required, a majority of the stockholders of the Company, acting
by written consent, have approved such transactions and the issuance of Common
Stock underlying the Securities in excess of 19.999% of the Company's currently
outstanding shares of Common Stock.
(e) No Violation or Conflict. Neither the execution
and delivery of this Agreement nor the issuance and sale of the Securities nor
the performance of the Company's obligations under this Agreement and all other
Transaction Agreements entered into by the Company relating thereto by the
Company will:
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(i) violate, conflict with, result in a
material 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) or gives to others
any rights of termination, amendment, acceleration or
cancellation under (A) the articles of incorporation, charter
or bylaws of the Company, (B) 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 any of its
affiliates (including federal and state securities laws and
regulations) 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 affected, or to which any of the
properties or assets 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 on the Company; 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, its subsidiaries or any of its
affiliates.
(f) The Securities. The Debentures, Debenture
Shares, Warrants and Warrant Shares (collectively 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) assuming the accuracy of each
Purchaser's representations in this Agreement, will be issued,
sold and delivered in compliance with all applicable Federal
and state securities laws;
(iii) have been, or will be, duly and
validly authorized and on the date of issuance, and upon
conversion of the Debentures and/or exercise of the Warrants,
the shares of Common Stock issuable thereunder will be duly and
validly issued, fully paid and nonassessable (and if registered
pursuant to the 1933 Act, and resold pursuant to an effective
registration statement will be free trading and unrestricted,
provided that each Purchaser complies with the prospectus
delivery requirements of the 1933 Act and any state securities
laws);
(iv) 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
(v) will not subject the holders thereof to
personal liability by reason of being such holders.
(g) Litigation. There is not pending against the
Company or any subsidiary, nor, to the best knowledge of the Company, there are
no actions, suits, proceeding inquiries, notices of violation, or investigations
threatened against the Company or any subsidiary by or before any court,
governmental or administrative agency or regulatory body (federal, state,
county, local or foreign), or arbitrator having jurisdiction over the Company,
or any of its affiliates. Except as disclosed in the Reports, 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, its subsidiaries, or any of its
affiliates, which litigation or proceeding, if adversely determined could have a
Material Adverse Effect on the Company and/or its subsidiaries taken as a whole.
Neither the Company nor any of its Subsidiaries is a party to or subject to the
provisions of, any order, writ, injunction, judgment or decree of any court or
governmental authority which has had or would reasonably be expected to have a
Material Adverse Effect.
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(h) Reporting Company. The Company is subject to
reporting obligations pursuant to Sections 15(d) and 13 of the 1934 Act and has
a class of common stock, par value $.001, registered pursuant to Section 12(g)
of the 1934 Act. Pursuant to the provisions of the 1934 Act, the Company has
filed all reports and other materials required to be filed thereunder with the
Commission during the preceding two years. Other than the transactions effected
hereby, the Company is not aware of any event occurring or expected to occur on
or prior to the Closing Date that would require the filing of, or with respect
to which the Company intends to file, a Current Report on Form 8-K after the
Closing. Each Report, as of the date of the filing thereof with the Commission,
complied in all material respects with the requirements of the Securities Act or
Exchange Act, as applicable, and the rules and regulations promulgated
thereunder and, as of the date of such filing (or if amended or superseded by a
filing prior to the Closing Date, then on the date of such amending or
superseding filing). All documents required to be filed as exhibits to the
Reports have been filed as required.
(i) 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 of the Company to facilitate the
sale or resale of the Securities or affect the price at which the Securities may
be issued or resold.
(j) Information Concerning Company; Financial
Statements. 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, there has been no Material Adverse Effect in
the Company's business, financial condition or affairs not disclosed in the
Reports. 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.
The Company has not incurred any liabilities (contingent or otherwise) other
than (A) trade payables and accrued expenses incurred in the ordinary course of
business consistent with past practice and (B) liabilities not required to be
reflected in the Company's financial statements pursuant to GAAP or required to
be disclosed in filings made with the Commission. The Company has not altered
its method of accounting or any policies or practices related thereto. The
Company has not declared or made any dividend or distribution of cash or other
property to its stockholders or purchased, redeemed or made any agreements to
purchase or redeem any shares of its capital stock. The Company does not have
pending before the Commission any request for confidential treatment of
information.
The financial statements attached as Exhibits E and F to the
Private Placement Memorandum (x) have been prepared in accordance with GAAP
consistently applied at the times and during the periods involved (except (i) as
may be otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and (y) fairly present in
all material respects the financial position of the Company as of the dates
thereof and the results of its operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end
adjustments).
(k) SEC Action; Stop Transfers. There has not been,
and to the Company's best knowledge there has not been, there is not pending or
contemplated, any investigation by the Commission involving the Company. The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
subsidiary under the 1933 Act or the 1934 Act. 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.
Except as described in this Agreement, the Company will not issue any stop
transfer or other order impeding the sale, resale or delivery of the Securities
unless contemporaneous notice of such instruction is given to the Purchaser.
10
(l) Defaults; Permits. The Company is not in
violation of its Articles of Incorporation or ByLaws. The Company is (i) not in
default (including the occurrence of any event that with the passage of time
will become a default) under or in violation of any other material 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 on the Company, (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) to its
knowledge in violation of any statute, rule or regulation of any governmental
authority which violation would have a material adverse effect on the Company.
The Company and its Subsidiaries possess all material certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective businesses other
than where the failure to possess such certificates, authorizations or permits,
individually or in the aggregate, has not had and would not reasonably be
expected to have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries has received any notice or otherwise become aware of any
proceedings, inquiries or investigations relating to the revocation or
modification of any such certificate, authorization or permit.
(m) No Integration or General Solicitation. Neither
the Company, nor any of its affiliates, nor to the Company's knowledge, 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 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. The Company or any of its affiliates
or subsidiaries will not take any action or steps that would cause the offer of
the Securities to be integrated with other offerings if such integration would
eliminate the Offering Exemption. 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, unless otherwise advised by Nasdaq or the
Commission. Neither the Company nor any of its Subsidiaries or Affiliates, nor
to the Company's 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) in connection with the offer or sale of the Securities.
(n) Listing. The Company's common stock is listed for
trading on the NASD OTC Bulletin Board ("OTCBB"). Except for prior notices
which, as of the date hereof, have been satisfied and as provided for in Section
11(b) below, the Company has not received any oral or written notice that its
common stock will be delisted from the OTCBB nor that its common stock does not
meet all requirements for the continuation of such quotation and the Company
satisfies the requirements for the continued listing of its common stock on the
OTCBB. The Company has taken no action designed to, or which, to the knowledge
of the Company, may have the effect of, terminating the Company's reporting
obligation under the Exchange Act or the removal of the Common Stock from the
OTCBB.
(o) No Undisclosed Liabilities. The Company has no
liabilities, debt or other obligations which are material, individually or in
the aggregate, which are not disclosed in the Reports and/or Other Written
Information (and in which case have been publicly announced), other than (i)
those incurred in the ordinary course of the Company's businesses since March
31, 2005 and which, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on the Company's financial condition.
11
(p) No Undisclosed Events or Circumstances. Since
March 31, 2005, no event or circumstance has occurred or exists with respect to
the Company or its businesses, properties, operations or financial condition,
that may have a Material Adverse Effect or, 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.
(q) Capitalization. The capitalization of the Company
as of the date hereof, including its authorized capital stock, the number of
shares issued and outstanding, the number of shares issuable and reserved for
issuance pursuant to the Company's stock option plans and agreements, the number
of shares issuable and reserved for issuance pursuant to securities (other than
the Debentures and Warrants) exercisable for, or convertible into or
exchangeable for any shares of Common Stock and the number of shares initially
to be reserved for issuance upon conversion of the Debentures and exercise of
the Warrants is set forth on Schedule 6(q) hereto. No Person has any right of
first refusal, preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by this Offering or otherwise.
Except as a result of the purchase and sale of the Securities and except for
employee stock options under the Company's stock option plans and except for
employee rights under the Company's employee stock purchase plan (as described
on Schedule 6(q)), there are no outstanding options, warrants, script rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
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. The issue and sale of the Units will not obligate the Company to
issue shares of Common Stock or other securities to any person (other than the
Purchasers) and will not result in a right of any holder of Company securities
to adjust the exercise, conversion, exchange or reset price under such
securities.
(r) 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. The foregoing
representations and warranties shall survive until three years after the Closing
Date.
(s) Title to Assets. Except as disclosed in the
Reports, the Company and each of its Subsidiaries has good and marketable title
in fee simple to all real property owned by them that is material to the
business of the Company and each subsidiary, taken as a whole, and good and
marketable title in all personal property owned by them that is material to the
business of the Company and each subsidiary, taken as a whole, in each case free
and clear of all liens, charges, security interests, encumbrances, rights of
first refusal, or other restrictions (collectively "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 each subsidiary and Liens for the payment of federal, state or other
taxes, the payment of which is neither delinquent nor subject to penalties. Any
real property and facilities held under lease by the Company and each subsidiary
are held by them under valid, subsisting and enforceable leases with which the
Company and each subsidiary is in material compliance.
(t) Application of Takeover Protections. The Company
and its Board of Directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company's Articles of Incorporation (or
similar charter documents) or the laws of its state of incorporation that is or
could become applicable to the Purchasers as a result of the Purchasers and the
Company fulfilling their obligations or exercising their rights under the
Offering, including without limitation the Company's issuance of the Units and
the Purchasers' ownership of the underlying securities.
12
(u) Disclosure. The Company confirms that, neither
the Company nor any other person acting on its behalf has provided any of the
Purchasers or their agents or counsel with any information that constitutes or
might constitute material, non-public information. The Company understands and
confirms that the Purchasers will rely on the foregoing representations and
covenants in effecting transactions in securities of the Company. All disclosure
provided to the Purchasers regarding the Company, its business and the
transactions contemplated hereby, including the Disclosure Schedules to this
Agreement, furnished by or on behalf of the Company are true and correct and do
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading. Following the
issuance of the press release and filing of the Current Report on Form 8-K in
accordance with Section 11(n) hereof, to the Company's knowledge, such Purchaser
will not possess any material non-public information concerning the Company.
(v) 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 GAAP 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 the 1934 Act Rules 13a-14 and 15d-14) for the Company
and designed such disclosure controls and procedures to ensure that material
information relating to the Company, and each subsidiary, is made known to the
certifying officers by others within those entities, particularly during the
period in which the Company's Form 10-KSB or 10-QSB, as the case may be, is
being prepared.
(w) Registration Rights. Except as set forth in the
Reports and but for the Placement Agent Warrants (as described in the Private
Placement Memorandum), no person has any right to cause the Company to effect
the registration under the 1933 Act of any securities of the Company and the
Company has not granted or agreed to grant to any person or entity any rights
(including "piggy-back" registration rights) to have any securities of the
Company registered with the Commission or any other governmental authority which
has not been satisfied in full prior to the date hereof.
(x) 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 any of the
subsidiaries of the Company.
(y) Intellectual Property.
(i) The Company and/or its Subsidiaries own,
free and clear of claims or rights of any other Person, with
full right to use, sell, license, sublicense, dispose of, and
bring actions for infringement of, or has acquired licenses
or other rights to use, all Intellectual Property necessary
for the conduct of its business as presently conducted (other
than with respect to "off-the-shelf" software which is
generally commercially available and open source software
which may be subject to one or more "general public"
licenses). All works that are used or incorporated into the
Company's or its Subsidiaries' services, products or services
or products actively under development and which is
proprietary to the Company or its Subsidiaries was developed
by or for the Company or its Subsidiaries by the current or
former employees, consultants or independent contractors of
the Company or its Subsidiaries or purchased by the Company
or its Subsidiaries and are owned by the Company or its
Subsidiaries, free and clear of claims and rights of any
other Person.
13
(ii) The business of the Company and its
Subsidiaries as presently conducted and the production,
marketing, licensing, use and servicing of any products or
services of the Company and its Subsidiaries do not, to the
Company's knowledge, infringe or conflict with any patent,
trademark, copyright, or trade secret rights of any third
parties or any other Intellectual Property of any third
parties. Neither the Company nor any of its Subsidiaries has
received written notice from any third party asserting that
any Intellectual Property owned or licensed by the Company or
its Subsidiaries, or which the Company or its Subsidiaries
otherwise has the right to use, is invalid or unenforceable
by the Company or its Subsidiaries, as the case may be, and,
to the Company's knowledge, there is no valid basis for any
such claim (whether or not pending or threatened). No claim
is pending or, to the Company's knowledge, threatened against
the Company or any of its Subsidiaries nor has the Company or
any of its Subsidiaries received any written notice or other
written claim from any Person asserting that any of the
Company's or its Subsidiaries' present or contemplated
activities infringe or may infringe in any material respect
any Intellectual Property of such Person, and the Company is
not aware of any infringement by any other Person of any
material rights of the Company or any of its Subsidiaries
under any Intellectual Property Rights.
(iii) All unexpired and in force licenses
or other agreements under which the Company or any of its
Subsidiaries is granted Intellectual Property (excluding
licenses to use "off-the-shelf" software utilized in the
Company's or its Subsidiaries' internal operations and which
is generally commercially available) are in full force and
effect and, to the Company's knowledge, there is no material
default by any party thereto. The Company has no reason to
believe that the licensors under such licenses and other
agreements do not have and did not have all requisite power
and authority to grant the rights to the Intellectual
Property purported to be granted thereby. All unexpired
licenses or other agreements under which the Company or any
of its Subsidiaries has granted rights to Intellectual
Property to others (including all end-user agreements) are in
full force and effect, there has been no material default by
the Company or its Subsidiaries thereunder and, to the
Company's knowledge, there is no material default by any
other party thereto.
(iv) Each of the Company and its
Subsidiaries have taken all steps required in accordance with
commercially reasonable business practice to establish and
preserve its respective ownership in its owned Intellectual
Property and to keep confidential all material technical
information developed by or belonging to the Company or its
Subsidiaries which has not been patented or copyrighted. To
the Company's knowledge, neither the Company nor any of its
Subsidiaries is making unlawful use of any Intellectual
Property of any other Person, including, without limitation,
any former employer of any past or present employees of the
Company or any of its Subsidiaries. Current and former
employees, independent contractors or consultants of the
Company and its Subsidiaries have executed agreements
regarding confidentiality, proprietary information and
assignment of inventions and copyrights to the Company or its
Subsidiaries (as the case may be), and neither the Company
nor any of its Subsidiaries has received written notice that
any employee, consultant or independent contractor is in
violation of any agreement or in breach of any agreement or
14
arrangement with former or present employers relating to
proprietary information or assignment of inventions. Without
limiting the foregoing: (i) the Company and each of its
Subsidiaries have taken reasonable security measures to guard
against unauthorized disclosure or use of any of its
Intellectual Property; and (ii) the Company has no reason to
believe that any Person (including, without limitation, any
former employee or consultant of the Company or its
Subsidiaries) has unauthorized possession of any of its
Intellectual Property, or any part thereof, or that any
Person has obtained unauthorized access to any of its
Intellectual Property. The consummation of the transactions
contemplated by this Agreement and the other Transaction
Agreements will not materially alter or impair, individually
or in the aggregate, any of such rights of the Company or its
Subsidiaries.
(z) Foreign Corrupt Practices. Neither the Company,
any of its Subsidiaries nor, to the Company's knowledge, any director, officer,
agent, employee or other person acting on behalf of the Company or any
Subsidiary, has (i) used any corporate funds for any unlawful contribution,
gift, entertainment or other unlawful expenses relating to political activity,
(ii) made any direct or indirect unlawful payment to any foreign or domestic
government official or employee (including without limitation any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment), or (iii)
violated any provision of the Foreign Corrupt Practices Act of 1977, as amended.
(aa) Employee Matters. There is no strike, labor
dispute or union organization activities pending or, to the knowledge of the
Company, threatened between it and its employees (or between any of its
Subsidiaries and such Subsidiary's employees). No employees of the Company
belong to any union or collective bargaining unit. The Company has complied in
all material respects with all applicable federal and state equal opportunity
and other laws related to employment.
(bb) Environment. To the Company's knowledge, neither
the Company nor any of its Subsidiaries has any current liability under any
Environmental Law, nor, to the knowledge of the Company, do any factors exist
that are reasonably likely to give rise to any such liability that, individually
or in the aggregate, has had or would reasonably be expected to have a Material
Adverse Effect. To the Company's knowledge, neither the Company nor any of its
Subsidiaries has violated any Environmental Law applicable to it now or
previously in effect, other than such violations or infringements that,
individually or in the aggregate, have not had and would not reasonably be
expected to have a Material Adverse Effect.
(cc) Investment Company Status. The Company is not,
and immediately after receipt of the Purchase Price for the Securities issued
under this Agreement will not be, an "investment company" or an entity
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended (the "Investment Company Act"), and the Company
shall conduct its business in a manner so that it will not become subject to the
Investment Company Act.
(dd) Taxes. The Company and each of its Subsidiaries
(i) have prepared in good faith and duly and timely filed all tax returns
required to be filed by it or is on a current extension and such returns are
complete and accurate in all material respects and (ii) have paid all taxes
required to have been paid by it, except for taxes which it reasonably disputes
in good faith or the failure of which to pay has not had or would not reasonably
be expected to have a Material Adverse Effect. Neither the Company nor any of
its Subsidiaries has any liability with respect to accrued taxes in excess of
the amounts that are described as accrued in the most recent financial
statements included in the Reports. No stock transfer or other taxes (other than
income taxes) are required to be paid in connection with the issuance and sale
of any of the Securities, other than such taxes for which the Company has
established appropriate reserves and intends to pay in full on or before the
Closing.
15
(ee) Solvency. (i) The fair saleable value of the
Company's assets exceeds the amount that will be required to be paid on or in
respect of the Company's existing Debt as such Debt matures or is otherwise
payable; (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 taking into account the current and projected capital
requirements of the business conducted by the Company and projected capital
availability; and (iii) the current cash flow of the Company, together with the
proceeds the Company would receive upon liquidation of its assets, after taking
into account all anticipated uses of such amounts, would be sufficient to pay
all Debt when such Debt is required to be paid. The Company has no knowledge of
any facts or circumstances which lead it to believe that it will be required to
file for reorganization or liquidation under the bankruptcy or reorganization
laws of any jurisdiction, and has no present intention to so file.
(ff) Transactions with Interested Person. No
officer, director or employee of the Company or any of its Subsidiaries is or
has taken any steps to become a party to any transaction with the Company or any
Subsidiary (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
(gg) No Other Agreements. The Company has not,
directly or indirectly, entered into any agreement with or granted any right to
any Purchaser relating to the terms or conditions of the transactions
contemplated by this Agreement or the Transaction Agreements except as expressly
set forth therein.
7. Regulation D Offering. This Offering 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 Purchaser 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, exclusive of the issue of
integration with prior offerings of the Company. The Company will provide, at
the Company's expense, such other legal opinions in the future as are reasonably
necessary for the exercise of the Warrants, conversion of the Debentures and
resale of the Underlying Shares.
8. Reissuance of Securities. The Company agrees to reissue
certificates representing the Debenture Shares and the Warrant Shares
(collectively, the "Underlying Shares") without the legends set forth in
Sections 5(e) and 5(f) above at such time as (a) the holder thereof is permitted
to and disposes of the Securities pursuant to Rule 144(d) and/or Rule 144(k)
under the 1933 Act in the opinion of counsel reasonably satisfactory to the
Company, or (b) upon resale subject to an effective registration statement after
the Shares and the Warrant Shares are registered under the 1933 Act. The Company
agrees to cooperate with each Purchaser in connection with all resales pursuant
to Rule 144(d) and Rule 144(k) and provide legal opinions at the Company's
expense necessary to allow such resales provided the Company and its counsel
receive reasonably requested written representations from each Purchaser and
selling broker, if any. Provided each Purchaser provides required certifications
and representation letters, if any, if the Company fails to remove any legend as
required by this Section 8 (a "Legend Removal Failure"), then beginning on the
twentieth (20th) day following the date that each Purchaser has requested the
removal of the legend and delivered all items reasonably required by the Company
to be delivered by each Purchaser, that the Company continues to fail to remove
such legend, the Company shall pay to each Purchaser or assignee holding
Debenture Shares or Warrant Shares,
16
subject to a Legend Removal Failure, as liquidated damages and not a penalty an
amount equal to ten percent (10%) of the purchase price of the Debentures
subject to a Legend Removal Failure for each 15-day period or part thereof that
such failure continues. If during any twelve (12) month period, the Company
fails to remove any legend as required by this Section 8 for an aggregate of
thirty (30) days, each Purchaser or assignee holding Securities subject to a
Legend Removal Failure may, at its option, require the Company to purchase all
or any portion of the Underlying Shares subject to a Legend Removal Failure held
by each Purchaser or assignee, at a price per share equal to 110% of the
purchase price of such Debentures, divided by the number of Underlying Shares
subject to a Legend Removal Failure.
9. Broker's Compensation.
The Company agrees to indemnify the Purchaser against
and hold it harmless from any and all liabilities to any persons claiming
brokerage commissions or Broker's Commission 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 agrees that it will pay Xxxxxx Associates, L.P.
("Broker") upon completion of the Offering, a commission equal to 10% of the
gross proceeds of the Offering ("Broker's Commissions"). The Company shall pay
to Broker a non-accountable expense allowance equal to three (3%) percent of the
gross proceeds of the Offering. The Company represents that there are no other
parties entitled to receive fees, commissions, or similar payments in connection
with the offering described in this Agreement except the Broker, and anyone else
the Company and not the Broker, shall be responsible to pay.
10. Right of Participation.
(a) Offered Securities. For a period of twelve (12) months
from the Effective Date of the Registration Statement, the Company will not,
directly or indirectly, effect a subsequent financing of its securities (whether
structured as debt or equity), unless in each such case the Company shall have
first offered to sell to the Purchasers in this Offering an amount equal to 50%
of the securities being offered in such subsequent financing (the securities
being offered to Purchasers being referred to herein in the "Offered
Securities". The Company shall offer to sell to each Purchaser (A) such
Purchaser's pro rata share of the Offered Securities (the "Basic Amount"), and
(B) such additional portion of the Offered Securities as such Purchaser shall
indicate it will purchase should the other Purchasers subscribe for less than
their Basic Amounts (the "Undersubscription Amount"), at a price and on such
other terms as shall have been specified by the Company in writing delivered to
such Purchaser (the "Offer"), which Offer by its terms shall remain open and
irrevocable for a period of not less than three (3) business days from such
Purchaser's receipt of the terms of the Offer in writing (the "Offer Period").
(b) Notice of Acceptance. Each Purchaser that wishes to accept
the Offer shall deliver written notice thereof (a "Notice of Acceptance") to the
Company prior to the expiration of the Offer Period, specifying the amount of
such Purchaser's Basic Amount that the Purchaser elects to purchase and, if such
Purchaser elects to purchase all of its Basic Amount, the Undersubscription
Amount that Purchaser elects to purchase. If the aggregate of the Basic Amounts
subscribed for by all Purchasers is less than the total Offered Securities, each
Purchaser who has indicated in its Notice of Acceptance that it wishes to
purchase Undersubscription Amounts shall be entitled to purchase all
Undersubscription Amounts it has subscribed for; provided, however, that if the
aggregate of the Undersubscription Amounts subscribed for exceed the difference
between the Offered Securities and the Basic Amounts subscribed for (the
"Available Undersubscription Amount"), each Purchaser who has subscribed for any
Undersubscription Amount shall be entitled to purchase only that portion of the
Available Undersubscription Amount as the Undersubscription Amount subscribed
for by such Purchaser bears to the total Undersubscription Amounts subscribed
for by all Purchasers, subject to rounding by the Board of Directors to the
extent it deems reasonably necessary.
17
(c) Permitted Sales of Refused Securities. In the event that
Notices of Acceptance are not timely delivered by the Purchasers in respect of
some or all of the Offered Securities, the Company shall have thirty (30) days
from the expiration of the Offer Period to close the sale of all or any part of
such Offered Securities as to which a Notice of Acceptance has not been given by
an Purchaser (the "Refused Securities") to the persons or entities specified in
the Offer, but only upon terms and conditions, including, without limitation,
unit price and interest rates (if applicable), which are, in the aggregate, no
more favorable to such other persons or entities or less favorable to the
Company than those set forth in the Offer.
(d) Reduction in Amount of Offered Securities. In the event
that the Company proposes to sell less than all the Refused Securities (any such
sale to be in the manner and on the terms specified in paragraph (c) above),
then each Purchaser may, at its option and in its sole and absolute discretion,
reduce the number or other units of the Offered Securities specified in its
Notice of Acceptance to an amount which shall be not less than the amount of the
Offered Securities which such Purchaser elected to purchase pursuant to
paragraph (b) above multiplied by a fraction, (A) the numerator of which shall
be the amount of Offered Securities which the Company actually proposes to sell,
and (B) the denominator of which shall be the amount of all Offered Securities.
In the event that any Purchaser so elects to reduce the number or amount of
Offered Securities specified in its Notice of Acceptance, the Company may not
sell or otherwise dispose of more than the reduced amount of the Offered
Securities until such securities have been offered to the Purchasers in
accordance herewith.
(e) Closing. Upon the Closing of the purchase and sale of
Offered Securities, the Purchaser shall purchase from the Company, and the
Company shall sell to the Purchaser the number of Offered Securities specified
in the Notices of Acceptance, as reduced pursuant to paragraph (d) above if the
Purchasers have so elected, upon the terms and conditions specified in the
Offer. The purchase by the Purchasers of any Offered Securities is subject in
all cases to the preparation, execution and delivery by the Company and the
Purchasers of a purchase agreement relating to such Offered Securities on the
same terms and conditions applicable to other persons or entities purchasing the
Offered Securities.
(f) Further Sale. In each case, any Offered Securities not
purchased by the Purchasers or other persons or entities in accordance herewith
may not be sold or otherwise disposed of by the Company until they are again
offered to the Purchasers under the procedures specified herein.
11. Covenants of the Company. The Company covenants and agrees
with the Purchasers that from the Closing Date until two years from the Closing
or such later date as is expressly set forth below, as follows:
(a) Stop Orders. The Company will advise the
Purchasers, 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; Bluesky. If applicable, the Company
shall use its reasonable best efforts to promptly secure the listing of the
Underlying Shares upon each national securities exchange, or automated quotation
system, if any, upon which shares of common stock are then listed (subject to
official notice of issuance) and shall use its reasonable best efforts to
maintain such listing so long as any Securities are outstanding. The Company
shall use its reasonable best efforts to maintain the listing of its Common
Stock on the American Stock Exchange, Nasdaq SmallCap Market, Nasdaq National
Market System, OTC 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")),
18
and will comply in all material 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 Purchasers copies of all notices it
receives notifying the Company of the threatened and actual delisting of the
Common Stock from any Principal Market. The Company further agrees with each
Purchaser that the Company will: (a) file a Form D with the Commission and any
applicable state securities department with respect to the Securities issued at
the Closing as and when required under Regulation D and provide a copy thereof
to such Investor promptly after such filing; and (b) take such action as the
Company reasonably determines upon the advice of counsel is necessary to qualify
the Securities for sale under applicable state or "blue-sky" laws or obtain an
exemption therefrom, and shall provide evidence of any such action to such
Purchaser at the Closing.
(c) Market Regulations. If required, the Company
shall notify the Commission, the Principal Market and applicable state
authorities, in accordance with their requirements, if any, 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 Purchasers
and promptly provide copies thereof to Purchaser.
(d) Reporting Requirements. The Company will (i)
cause its Common Stock to continue to be registered under Section 12(b) or 12(g)
of the 1934 Act, (ii) comply in all respects with its reporting and filing
obligations under the 1934 Act, (iii) 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 (iv) 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 the earlier of the resale of the
Underlying Shares by each Purchaser or at least two (2) years after the Warrants
have been exercised, the Company will use its best efforts to continue the
listing or quotation of the Common Stock on 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.
(e) Use of Proceeds. The Purchase Price will be used
by the Company as set forth under "Use of Proceeds" in the Private Placement
Memorandum and not for the purpose of (i) making any debt payments, (ii) paying
any dividends or distribution on any if its securities, or (iii) repaying any
loan made to or incurred by any Key Person or Affiliate of the Company.
(f) Reservation of Common Stock. The Company
undertakes to reserve from its authorized but unissued common stock, at all
times that Debentures and Warrants remain outstanding, a number of common shares
equal to the amount of Underlying Shares issuable upon conversion of the
Debentures or otherwise in accordance with the provisions of the Debentures and
exercise of the Warrants. On or prior to the Closing Date, the Company shall
execute and deliver irrevocable written instructions to the transfer agent for
its Common Stock (the "Transfer Agent"), and provide each Purchaser with a copy
thereof, directing the Transfer Agent (i) to issue certificates representing
Debenture Shares upon conversion of the Debentures in the amount specified in a
valid conversion notice delivered by the Purchaser, in the name of such
Purchaser or its nominee, (ii) to issue certificates representing Warrant Shares
upon exercise of the Warrants and (iii) to deliver such certificates to such
Purchaser no later than the close of business on the third (3rd) business day
following the related date of conversion or exercise, as the case may be.
19
(g) Taxes. The Company will promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company; provided, however, that any such
tax, assessment, charge or levy need not be paid if the validity thereof shall
currently be contested in good faith by appropriate proceedings and if the
Company shall have set aside on its books adequate reserves with respect
thereto, and provided, further, that the Company will pay all such taxes,
assessments, charges or levies forthwith upon the commencement of proceedings to
foreclose any lien which may have attached as security therefore.
(h) Insurance. The Company and each subsidiary is
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 each subsidiary is engaged. Neither the Company nor any
subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business without a significant increase in cost. 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 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. 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. 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) Good Standing; Stockholder Information. The
Company and its Subsidiaries will maintain its corporate existence in good
standing and provide each Purchaser with copies of all materials sent to its
stockholders, in each such case at the same time as such materials are delivered
to such stockholders.
(l) Properties; Operations. The Company will keep its
properties in good repair, working order and condition, reasonable wear and tear
excepted, and from time to time make all needful and proper repairs, renewals,
replacements, additions and improvements thereto; and the Company will at all
times comply with each provision of all leases to which it is a party or under
which it occupies property if the breach of such material provision could
reasonably be expected to have a material adverse effect. The Company will
further comply with all agreements, documents and instruments binding on it or
affecting its business, including, without limitation, all material contracts,
except for instances of noncompliance that would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect. The Company
shall maintain in full force and effect all rights and licenses necessary to
conduct its business and to use Intellectual Property owned or possessed by it
that is reasonably necessary to the conduct of its business. The Company and its
Subsidiaries shall refrain from taking any action or entering into any
arrangement which in any way materially and adversely affects the provisions of
this Agreement or any other Transaction Agreement.
20
(m) Confidentiality. The Company agrees that it will
not disclose publicly or privately the identity of the Purchasers unless
expressly agreed to in writing by a Purchaser or only to the extent required by
law; provided, however, the Purchasers consent to being named in the 8-K filed
by the Company in connection with the sale of the Securities.
(n) Press Release; Form 8-K. The Company shall
promptly issue a press release through a national news service no later than the
day immediately following the date that Transaction Agreements have been
executed by Purchasers subscribing for the entire Offering. Such press release
will be issued in compliance with Rule 135(c) under the 1933 Act. Such press
release, along with all other material information, shall be filed with the
Commission on a Current Report on Form 8-K, no later than the next succeeding
business day, which Form 8-K, shall disclose the material terms of this
Agreement and the other Transaction Agreements, including filing all such
agreements as exhibits. By 3:00 p.m. (New York City time) on the Closing Date,
the Company will issue a press release and file a Current Report on Form 8-K
disclosing the closing of the transactions contemplated hereby. Thereafter, the
Company shall timely file any filings and notices required by the Commission or
applicable law with respect to the transactions contemplated hereby. The Company
agrees that it will not at any time following the Closing Date disclose material
non-public information to any Investor without first obtaining such Investor's
written consent to receive such information.
(o) Transactions with Affiliates. Any transaction or
arrangement between it or any of its Subsidiaries and any Affiliate or employee
of the Company or any of its Subsidiaries shall be effected only on an arms'
length basis and shall be approved by the Board of Directors, including a
majority of the Company's directors not having an interest in such transaction.
(p) Limitation on Debt and Liens. During the period
beginning on the Closing Date and ending on the first anniversary of the Closing
Date unless the Purchasers own less than an aggregate of $200,000 of Debentures,
(i) the Company shall refrain, and shall ensure that each of its Subsidiaries
refrains from granting, establishing or maintaining any Lien on any of its
assets, including without limitation any pledge of securities owned or held by
it (including without limitation any securities issued by any such Subsidiary),
other than Permitted Liens (provided that, upon the imposition of any
mechanic's, tax or similar statutory lien, the Company shall use its best
efforts to remove such lien as soon as practicable (including without limitation
contesting such lien in good faith by appropriate proceedings); and (ii) the
Company shall not issue, sell or exchange, or agree or obligate itself to issue,
sell or exchange or reserve, agree to or set aside for issuance, sale or
exchange, (1) any Senior Securities or Pari Passu Securities, (2) any other
security of the Company which by its terms is convertible into or exchangeable
or exercisable for any Senior Security or Pari Passu Security, or (3) any
option, warrant or other right to subscribe for, purchase or otherwise acquire
any such security described in the foregoing clauses (1) and (2); provided,
however, that the foregoing shall not apply to the issuance of Permitted Debt.
(q) Favored Nations. Other than the issuance of
options to members of the Company's management, if at any time within one year
from the Closing Date, the Company shall offer, issue or agree to issue any
common stock or securities convertible into or exercisable for shares of common
stock (or modify any of the foregoing which may be outstanding at any time prior
to the Closing Date) to any person or entity at a price per share or conversion
or exercise price per share which shall be less than the Conversion Price,
without the consent of each Investor, then the Company shall issue, for each
such occasion, additional shares of Common Stock to each Purchaser so that the
average Per Share Purchase Price of the shares of Common Stock issued to the
Purchaser (of only the Common Stock or Warrant Shares still owned by the
Purchaser) is equal to such other lower price per share.
21
12. Indemnification of Purchasers. The Company will indemnify
and hold each Purchaser and its directors, managers, officers, shareholders,
members, partners, employees and agents (each, a "Purchaser Party") harmless
from any and all losses, liabilities, obligations, claims, contingencies,
damages, costs and expenses, including all judgments, amounts paid in
settlements, court costs and reasonable attorneys' fees and costs of
investigation that any such Purchaser Party may suffer or incur as a result of
or relating to (a) any breach of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or in the other
Transaction Agreements or (b) any action instituted against a Purchaser, or any
of them or their respective Affiliates, by any stockholder of the Company who is
not an Affiliate of such Purchaser, with respect to any of the transactions
contemplated by the Transaction Agreements (unless such action is based upon a
breach by such Purchaser of its representations, warranties or covenants under
the Transaction Agreements or any agreements or understandings such Purchaser
may have with any such stockholder or any violations by such Purchaser of state
or federal securities laws or any conduct by such Purchaser which constitutes
fraud, gross negligence, willful misconduct or malfeasance). If any action shall
be brought against any Purchaser Party in respect of which indemnity may be
sought pursuant to this Agreement, such Purchaser Party shall promptly notify
the Company in writing, and the Company shall have the right to assume the
defense thereof with counsel of its own choosing and to control any settlement
of the claim; provided, however, that the Company will not settle any claim
unless it first obtains the consent of the relevant Purchaser Parties, which
consent shall not be unreasonably withheld if such settlement (i) does not
require the Purchaser Parties to make any payment that is not indemnified under
this Agreement, (ii) does not impose any non-financial obligations on the
Purchaser Parties and (iii) does not require an acknowledgment of wrongdoing on
the part of the Purchaser Parties. Any Purchaser Party shall have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Purchaser Party except to the extent that (i) the employment thereof has
been specifically authorized by the Company in writing, (ii) the Company has
failed after a reasonable period of time to assume such defense and to employ
counsel or (iii) in such action there is, in the reasonable opinion of such
separate counsel, a material conflict on any material issue between the position
of the Company and the position of such Purchaser Party. The Company will not be
liable to any Purchaser Party under this Agreement (i) for any settlement by an
Purchaser Party effected without the Company's prior written consent, which
shall not be unreasonably withheld or delayed (it being agreed that it shall not
be unreasonable for the Company to withhold or delay such consent if the Company
(x) has acknowledged in writing its obligation to indemnify such Purchaser Party
with respect to such matter, (y) the Company has assumed and is actively and in
good faith pursuing the defense of such matter as herein provided, and (z)
provided to such Purchaser Party reasonably acceptable evidence that the Company
is able to comply with its indemnification obligations hereunder); or (ii) to
the extent, but only to the extent that a loss, claim, damage or liability is
attributable to such Purchaser Party's wrongful actions or omissions, or gross
negligence or to such Purchaser Party's breach of any of the representations,
warranties, covenants or agreements made by such Purchaser in this Agreement or
in the other Transaction Agreements.
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
22
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: China
Mobility Solutions, Inc., 000-000 Xxxx Xxxxxx Xxxxxx, Xxxxxxxxx, X.X. Xxxxxx X0X
0X0 Attn: Xiao-Qing (Xxxxxx) Du, President, telecopier: (000) 000-0000, with a
copy by telecopier only to: Xxxxxxxx & Xxxx LLP, 000 Xxxxx Xxxxxx, Xxxxx 0000,
Xxx Xxxx, XX 00000-0000, telecopier number: (000) 000-0000, Attn: Xxxxxx
Xxxxxxx, (ii) if to the Purchasers, to: the address and telecopier number
indicated on the signature page hereto and (iii) if to the Broker, to: Xxxxxx
Associates, L.P., 00 Xxxxxxxx, 0xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, telecopier:
(000) 000-0000, with a copy by telecopier only to: Xxxxxxxxx & XxXxxxx, LLP, 00
Xxxxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, telecopier number: (212)
557-0295, Attn: Xxxxxxx X. Xxxxxxxxx.
(b) Entire Agreement; Amendment; Waivers; Assignment.
This Agreement and other Transaction Agreements delivered in connection herewith
represent the entire agreement between the parties hereto with respect to the
subject matter hereof and may be amended only by a writing executed by the
Company and the Purchaser holding a majority of the Underlying Shares. No
provision hereof may be waived other than by a written instrument signed by the
party against whom enforcement of any such waiver is sought. Any waver or
consent shall be effective only in the specific instance and for the specific
purpose for which given. Neither the Company nor the Purchasers have relied on
any representations not contained or referred to in this Agreement and the
documents delivered herewith. No right or obligation of either party shall be
assigned by that party without prior notice to and the written consent of the
other party; however, each Purchaser may assign its rights and obligations
hereunder, in connection with any private sale or transfer of Debentures or
Warrants in accordance with the terms hereof, as long as, as a condition
precedent to such transfer, the transferee executes an acknowledgment agreeing
to be bound by the applicable provisions of this Agreement, in which case the
term "Purchaser" shall be deemed to refer to such transferee as though such
transferee were an original signatory hereto. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and permitted assigns of the parties.
(c) Execution. This Agreement may be executed by
facsimile transmission, and in counterparts, each of which will be deemed an
original.
(d) 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 principles of conflicts of laws. 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. Both parties and the
individuals executing this Agreement and other agreements on behalf of the
Company agree to submit to the jurisdiction of such courts and waive trial by
jury. In the event that any provision of this Agreement or any 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.
(e) Specific Enforcement, Consent to Jurisdiction.
The Company and Purchaser 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 an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof or thereof, this being
in addition to any other remedy to which any of them may be entitled by law or
equity. Subject to this Section 13(e) hereof, each of the Company and Purchaser
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 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.
23
(f) Fees and Expenses. Each Purchaser and the Company
shall pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement
and the Transaction Agreements.
(g) Survival; Severability. The representations,
warranties, covenants and indemnities made by the parties herein and in the
other Transaction Agreements shall survive the Closing notwithstanding any due
diligence investigation made by or on behalf of the party seeking to rely
thereon. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided, that in such case the parties shall negotiate in good faith
to replace such provision with a new provision which is not illegal,
unenforceable or void, as long as such new provision does not materially change
the economic benefits of this Agreement to the parties.
(h) Independent Nature of Purchaser's Obligations and
Rights. The obligations of each Purchaser hereunder are several and not joint
with the obligations of the other Purchasers hereunder, and no Purchaser shall
be responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other Transaction
Agreement, and no action taken by any Purchaser pursuant hereto or thereto,
shall be deemed to constitute any Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or a "group" as described in Section
13(d) of the Exchange Act, or create a presumption that any Investors are in any
way acting in concert with respect to such obligations or the transactions
contemplated by this Agreement. Each Purchaser has been represented by its own
separate counsel in connection with the transactions contemplated hereby, shall
be entitled to protect and enforce its rights, including without limitation
rights arising out of this Agreement or the other Transaction Agreements,
individually, and shall not be required to join any other Purchaser as an
additional party in any proceeding for such purpose.
(i) Limited Liability. Notwithstanding anything
herein to the contrary, the Company acknowledges and agrees that the liability
of a Purchaser rising directly or indirectly, under any Transaction Agreement of
any and every nature whatsoever shall be satisfied solely out of the assets of
such Purchaser, and that no trustee, officer, other investment vehicle or any
other Affiliate of such Purchaser or any investor, shareholder or holder of
shares of beneficial interest of such a Purchaser shall be personally liable for
any liabilities of such Purchaser.
14. Certain Definitions. When used herein, the following terms
shall have the respective meanings indicated:
"Affiliate" means any Person that, directly or indirectly through one
or more intermediaries, controls or is controlled by or is under common control
with a Person, as such terms are used in and construed under Rule 144.
"Business Day" means any day other than a Saturday, a Sunday or a day
on which the New York Stock Exchange or commercial banks located in New York
City are authorized or permitted by law to close.
24
"Debt" means, as to any Person at any time: (a) all indebtedness,
liabilities and obligations of such Person for borrowed money; (b) all
indebtedness, liabilities and obligations of such Person to pay the deferred
purchase price of Property or services, except trade accounts payable of such
Person arising in the ordinary course of business that are not past due by more
than 60 days; (c) all capital lease obligations of such Person; (d) all
indebtedness, liabilities and obligations of others guaranteed by such Person;
(e) all indebtedness, liabilities and obligations secured by a Lien existing on
Property owned by such Person, whether or not the indebtedness, liabilities or
obligations secured thereby have been assumed by such Person or are non-recourse
to such Person; (f) all reimbursement obligations of such Person (whether
contingent or otherwise) in respect of letters of credit, bankers' acceptances,
surety or other bonds and similar instruments; and (g) all indebtedness,
liabilities and obligations of such Person to redeem or retire shares of capital
stock of such Person.
"Environmental Law" means any federal, state, provincial, local or
foreign law, statute, code or ordinance, principle of common law, rule or
regulation, as well as any Permit, order, decree, judgment or injunction issued,
promulgated, approved or entered thereunder, relating to pollution or the
protection, cleanup or restoration of the environment or natural resources, or
to the public health or safety, or otherwise governing the generation, use,
handling, collection, treatment, storage, transportation, recovery, recycling,
discharge or disposal of hazardous materials.
"Intellectual Property" means any U.S. or foreign patents, patent
rights, patent applications, trademarks, trade names, service marks, brand
names, logos and other trade designations (including unregistered names and
marks), trademark and service xxxx registrations and applications, copyrights
and copyright registrations and applications, inventions, invention disclosures,
protected formulae, formulations, processes, methods, trade secrets, computer
software, computer programs and source codes, manufacturing research and similar
technical information, engineering know-how, customer and supplier information,
assembly and test data drawings or royalty rights.
"Key Person" means the executive officers of the Company.
"Lien" means any lien, charge, encumbrance, security interest, right of
first refusal or other restrictions of any kind.
"Pari Passu Securities" means any securities ranking by their terms
pari passu with the Debentures in respect of payment of dividends, redemption or
distribution upon liquidation.
"Permitted Debt" means the following:
(a) Debt that is outstanding on the Closing Date and disclosed
in the Reports;
(b) Non-convertible Debt consisting of revolving working
capital credit facilities obtained from commercial lending institutions on
commercially reasonable terms and secured only by the Company's and/or its
Subsidiaries' accounts receivable and/or inventory; or
(c) Debt consisting of capitalized lease obligations and
purchase money indebtedness incurred in connection with acquisition of capital
assets and obligations under sale-leaseback or similar arrangements provided in
each case that such obligations are not secured by Liens on any assets of the
Company or its Subsidiaries other than the assets so leased.
"Permitted Liens" means the following:
(a) encumbrances consisting of easements, rights-of-way,
zoning restrictions or other restrictions on the use of real property or
imperfections to title that do not (individually or in the aggregate) materially
impair the ability of the Company or any of its Subsidiaries to use such
Property in its businesses, and none of which is violated in any material
respect by existing or proposed structures or land use;
25
(b) Liens for taxes, assessments or other governmental charges
that are not delinquent or which are being contested in good faith by
appropriate proceedings, which proceedings have the effect of preventing the
forfeiture or sale of the Property subject to such Liens, and for which adequate
reserves (as determined in accordance with GAAP) have been established; and
(c) Liens of mechanics, materialmen, warehousemen, carriers,
landlords or other similar statutory Liens securing obligations that are not yet
due and are incurred in the ordinary course of business or which are being
contested in good faith by appropriate proceedings, which proceedings have the
effect of preventing the forfeiture or sale of the Property subject to such
Liens, for which adequate reserves (as determined in accordance with GAAP) have
been established;
(d) any interest or title of a lessor under any capitalized
lease obligation provided that such Liens do not extend to any property or
assets which is not leased property subject to such capitalized lease
obligation;
(e) purchase money Liens to finance property or assets of the
Company or any Subsidiary of the Company acquired in the ordinary course of
business; provided, however, that (A) the related purchase money Debt shall not
exceed the cost of such property or assets and (B) the Lien securing such
purchase money Debt shall be created within ten (10) days of such acquisition,
construction or improvement; and
(f) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate the
purchase, shipment or storage of such inventory or other goods.
"Person" means any individual, corporation, trust, association,
company, partnership, joint venture, limited liability company, joint stock
company, Governmental Authority or other entity.
"Senior Securities" means (i) any Debt issued or assumed by the Company
and (ii) any securities of the Company which by their terms have a preference
over the Debentures in respect of payment of dividends, redemption or
distribution upon liquidation.
"Subsidiary" means, with respect to the Company, any "significant
subsidiary" as defined in Rule 1-02(w) of the Regulation S-X promulgated by the
Commission under the Exchange Act.
26
ITEM III
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (A)
--------------------------------------------
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.
CHINA MOBILITY SOLUTIONS, INC.
A Florida corporation
By: ______________________________________________
Name: Xiao-Qing (Xxxxxx) Du
Title: President, Director and Principal
Accounting Officer
Dated: July __, 2005
PURCHASER PURCHASE PRICE DEBENTURES WARRANTS
------------------------- -------------- ---------- --------
$ $ A-
_________________________ B-
(Signature)
Name and Address
SCHEDULE 6(q)
CAPITALIZATION
1. Pro Forma Capitalization as of June 14, 2005
AUTHORIZED OUTSTANDING
COMMON STOCK 50,000,000 16,921,793
OPTIONS 660,000 660,000
WARRANTS 0 0
OTHER DERIVATIVE SECURITIES 0 0
