Note: This exhibit amends exhibit 99.1, as previously filed with the
----- Commission on October 22, 2004, in a Current Report on Form 8-K.
This document contains all of the exhibits pages, not included in
the original filing.
Exhibit 10.5 - SECURITIES PURCHASE AGREEMENT
IT&E INTERNATIONAL GROUP, INC.
SECURITIES PURCHASE AGREEMENT
OCTOBER 18, 2004
TABLE OF CONTENTS
PAGE
1. Agreement to Sell and Purchase.........................................1
2. Fees and Warrant.......................................................1
3. Closing, Delivery and Payment..........................................2
3.1 Closing.........................................................2
3.2 Delivery........................................................2
4. Representations and Warranties of the Company..........................3
4.1 Organization, Good Standing and Qualification...................3
4.2 Subsidiaries....................................................3
4.3 Capitalization; Voting Rights...................................3
4.4 Authorization; Binding Obligations..............................4
4.5 Liabilities.....................................................5
4.6 Agreements; Action..............................................5
4.7 Obligations to Related Parties..................................5
4.8 Changes.........................................................6
4.9 Title to Properties and Assets; Liens, Etc......................7
4.10 Intellectual Property...........................................7
4.11 Compliance with Other Instruments...............................8
4.12 Litigation......................................................8
4.13 Tax Returns and Payments........................................9
4.14 Employees.......................................................9
4.15 Registration Rights and Voting Rights...........................9
4.16 Compliance with Laws; Permits..................................10
4.17 Environmental and Safety Laws..................................10
4.18 Valid Offering.................................................10
4.19 Full Disclosure................................................10
4.20 Insurance......................................................11
4.21 SEC Reports....................................................11
4.22 Listing........................................................11
4.23 No Integrated Offering.........................................11
4.24 Stop Transfer..................................................11
4.25 Dilution.......................................................12
5. Representations and Warranties of the Purchaser.......................12
5.1 No Shorting....................................................12
5.2 Requisite Power and Authority..................................12
5.3 Investment Representations.....................................13
5.4 Purchaser Bears Economic Risk..................................13
5.5 Acquisition for Own Account....................................13
5.6 Purchaser Can Protect Its Interest.............................13
5.7 Accredited Investor............................................13
5.8 Legends........................................................14
6. Covenants of the Company..............................................15
6.1 Stop-Orders....................................................15
6.2 Listing........................................................15
6.3 Market Regulations.............................................15
6.4 Reporting Requirements.........................................15
6.5 Use of Funds...................................................15
6.6 Access to Facilities...........................................15
6.7 Taxes..........................................................16
6.8 Insurance......................................................16
6.9 Intellectual Property..........................................17
6.10 Properties.....................................................17
6.11 Confidentiality................................................17
6.12 Required Approvals.............................................17
6.13 Reissuance of Securities.......................................18
6.14 Opinion........................................................18
6.15 Margin Stock...................................................18
6.16 Restricted Cash Disclosure.....................................18
6.17 Financing Right of First Refusal...............................18
7. Covenants of the Purchaser............................................20
7.1 Confidentiality................................................20
7.2 Non-Public Information.........................................20
8. Covenants of the Company and Purchaser Regarding Indemnification......20
8.1 Company Indemnification........................................20
8.2 Purchaser's Indemnification....................................20
9. Conversion of Convertible Note........................................20
9.1 Mechanics of Conversion........................................20
10. Registration Rights...................................................22
10.1 Registration Rights Granted....................................22
10.2 Offering Restrictions..........................................22
11. Miscellaneous.........................................................22
11.1 Governing Law..................................................22
11.2 Survival.......................................................23
11.3 Successors.....................................................23
11.4 Entire Agreement...............................................23
11.5 Severability...................................................23
11.6 Amendment and Waiver...........................................23
11.7 Delays or Omissions............................................24
11.8 Notices........................................................24
11.9 Attorneys' Fees................................................25
11.10 Titles and Subtitles...........................................25
11.11 Facsimile Signatures; Counterparts.............................25
11.12 Broker's Fees..................................................25
11.13 Construction...................................................25
LIST OF EXHIBITS
Form of Convertible Term Note........................................Exhibit A
Form of Warrant......................................................Exhibit B
Form of Opinion......................................................Exhibit C
Form of Escrow Agreement.............................................Exhibit D
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of October 18, 2004, by and between IT&E INTERNATIONAL GROUP, INC., a
Nevada corporation (the "Company"), and Laurus Master Fund, Ltd., a Cayman
Islands company (the "Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale to the Purchaser of a
Secured Convertible Term Note in the aggregate principal amount of Five Million
Dollars ($5,000,000) (as amended, modified or supplemented from time to time,
the "Note"), which Note is convertible into shares of the Company's common
stock, $0.01 par value per share (the "Common Stock") at an initial fixed
conversion price of $ .75 per share of Common Stock ("Fixed Conversion Price");
WHEREAS, the Company wishes to issue a warrant to the Purchaser to
purchase up to 1,924,000 shares of the Company's Common Stock (subject to
adjustment as set forth therein) in connection with Purchaser's purchase of
the Note;
WHEREAS, Purchaser desires to purchase the Note and the Warrant (as
defined in Section 2) on the terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Note and Warrant to
Purchaser on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Agreement to Sell and Purchase
. Pursuant to the terms and conditions set forth in this Agreement, on
the Closing Date (as defined in Section 3), the Company agrees to sell to the
Purchaser, and the Purchaser hereby agrees to purchase from the Company a Note
in the aggregate principal amount of $5,000,000 convertible in accordance with
the terms thereof into shares of the Company's Common Stock in accordance with
the terms of the Note and this Agreement. The sale of the Note purchased on the
Closing Date shall be known as the "Offering." A form of the Note is annexed
hereto as Exhibit A. The Note will mature on the Maturity Date (as defined in
the Note). Collectively, the Note and Warrant and Common Stock issuable in
payment of the Note, upon conversion of the Note and upon exercise of the
Warrant are referred to as the "Securities."
2. Fees and Warrant.
On the Closing Date:
(a) The Company will issue and deliver to the Purchaser a Warrant
to purchase up to 1,924,000 shares of Common Stock in
connection with the Offering (as amended, modified or
supplemented from time to time, the "Warrant") pursuant to
Section 1 hereof. The Warrant must be delivered on the
Closing Date. A form of Warrant is annexed hereto as Exhibit
B. All the representations, covenants, warranties,
undertakings, and indemnification, and other rights made or
granted to or for the benefit of the Purchaser by the Company
are hereby also made and granted in respect of the Warrant
and, upon issuance thereof, in respect of shares of the
Company's Common Stock issuable upon exercise of the Warrant
(the "Warrant Shares").
(b) Subject to the terms of Section 2(d) below, the Company shall
pay to Laurus Capital Management, LLC, manager of Purchaser,
a closing payment in an amount equal to three and one-half
percent (3.50%) of the aggregate principal amount of the
Note. The foregoing fee is referred to herein as the "Closing
Payment."
(c) The Company shall reimburse the Purchaser for its reasonable
expenses (including legal fees and expenses not to exceed
$27,000) incurred in connection with the preparation and
negotiation of this Agreement and the Related Agreements (as
hereinafter defined), and expenses not to exceed $17,500
incurred in connection with the Purchaser's due diligence
review of the Company and its Subsidiaries (as defined in
Section 6.8) and all related matters. Amounts required to be
paid under this Section 2(c) will be paid on the Closing Date
and shall be no more than $39,500 for such expenses referred
to in this Section 2(c).
(d) The Closing Payment and the expenses referred to in the
preceding clause (c) (net of deposits previously paid by the
Company) shall be paid at closing out of funds held pursuant
to the Escrow Agreement (as defined below) and a disbursement
letter (the "Disbursement Letter").
3. Closing, Delivery and Payment.
3.1 Closing.
Subject to the terms and conditions herein, the closing of the
transactions contemplated hereby (the "Closing"), shall take place on the date
hereof, at such time or place as the Company and Purchaser may mutually agree
(such date is hereinafter referred to as the "Closing Date").
3.2 Delivery.
Pursuant to the Escrow Agreement, at the Closing on the Closing
Date, the Company will deliver to the Purchaser, among other things, a Note in
the form attached as Exhibit A representing the principal amount of $5,000,000
and a Warrant in the form attached as Exhibit B in the Purchaser's name
representing 1,924,000 Warrant Shares and the Purchaser will deliver to the
Company, among other things, the amounts set forth in the Disbursement Letter
by certified funds or wire transfer (it being understood that $2,500,000 of the
proceeds of the Note shall be placed in the Restricted Account (as defined in
the Restricted Account Agreement referred to below)).
4. Representations and Warranties of the Company.
The Company hereby represents and warrants to the Purchaser as follows
(which representations and warranties are supplemented by, and subject to, the
Company's filings under the Securities Exchange Act of 1934 made prior to the
date of this Agreement (collectively, the "Exchange Act Filings"), copies of
which have been provided to the Purchaser:
4.1 Organization, Good Standing and Qualification.
The Company is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization. The
Company has the corporate power and authority to own and operate its properties
and assets, to execute and deliver this (i) this Agreement, (ii) the Note and
the Warrant to be issued in connection with this Agreement, (iii) the Master
Security Agreement dated as of the date hereof between the Company and the
Purchaser (as amended, modified or supplemented from time to time, the "Master
Security Agreement"), (iv) the Registration Rights Agreement relating to the
Securities dated as of the date hereof between the Company and the Purchaser
(as amended, modified or supplemented from time to time, the "Registration
Rights Agreement"), (v) the Funds Escrow Agreement dated as of the date hereof
among the Company, the Purchaser and the escrow agent referred to therein,
substantially in the form of Exhibit D hereto (as amended, modified or
supplemented from time to time, the "Escrow Agreement"), (vi) the Restricted
Account Agreement dated as of the date hereof among the Company, the Purchaser
and North Fork Bank (as amended, modified or supplemented from time to time,
the "Restricted Account Agreement"), (vii) the Restricted Account Side Letter
related to the Restricted Account Agreement dated as of the date hereof between
the Company and the Purchaser (as amended, modified or supplemented from time
to time, the "Restricted Account Side Letter") and (viii) all other agreements
related to this Agreement and the Note and referred to herein (the preceding
clauses (ii) through (viii), collectively, the "Related Agreements"), to issue
and sell the Note and the shares of Common Stock issuable upon conversion of
the Note (the "Note Shares"), to issue and sell the Warrant and the Warrant
Shares, and to carry out the provisions of this Agreement and the Related
Agreements and to carry on its business as presently conducted. The Company is
duly qualified and is authorized to do business and is in good standing as a
foreign corporation in all jurisdictions, except for those jurisdictions in
which the failure to do so has not had, or could not reasonably be expected to
have, individually or in the aggregate, a material adverse effect on the
business, assets, liabilities, condition (financial or otherwise), properties,
operations or prospects of the Company (a "Material Adverse Effect").
4.2 Subsidiaries.
Each direct and indirect Subsidiary of the Company, the direct
owner of such Subsidiary and its percentage ownership thereof, is set forth on
Schedule 4.2. For the purpose of this Agreement, a "Subsidiary" of any person
or entity means (i) a corporation or other entity whose shares of stock or
other ownership interests having ordinary voting power (other than stock or
other ownership interests having such power only by reason of the happening of
a contingency) to elect a majority of the directors of such corporation, or
other persons or entities performing similar functions for such person or
entity, are owned, directly or indirectly, by such person or entity or (ii) a
corporation or other entity in which such person or entity owns, directly or
indirectly, more than 50% of the equity interests at such time.
4.3 Capitalization; Voting Rights.
(a) The authorized capital stock of the Company, as of the date
hereof, consists of 75,000,000 shares, of which 70,000,000
are shares of Common Stock, par value $0.01 per share,
21,000,000 shares of which are issued and outstanding, [and
5,000,000_are shares of preferred stock, par value $0.01 per
share, of which 2,820,000 shares of preferred stock are
issued and outstanding].
(b) Except as disclosed on Schedule 4.3, other than: (i) the
shares reserved for issuance under the Company's stock option
plans; and (ii) shares which may be issued pursuant to this
Agreement and the Related Agreements, there are no
outstanding options, warrants, rights (including conversion
or preemptive rights and rights of first refusal), proxy or
stockholder agreements, or arrangements or agreements of any
kind for the purchase or acquisition from the Company of any
of its securities. Except as disclosed on Schedule 4.3,
neither the offer, issuance or sale of any of the Note or
Warrant, or the issuance of any of the Note Shares or Warrant
Shares, nor the consummation of any transaction contemplated
hereby will result in a change in the price or number of any
securities of the Company outstanding, under anti-dilution or
other similar provisions contained in or affecting any such
securities.
(c) All issued and outstanding shares of the Company's Common
Stock: (i) have been duly authorized and validly issued and
are fully paid and nonassessable; and (ii) were issued in
compliance with all applicable state and federal laws
concerning the issuance of securities.
(d) The rights, preferences, privileges and restrictions of the
shares of the Common Stock are as stated in the Company's
Certificate of Incorporation (the "Charter"). The Note
Shares and Warrant Shares have been duly and validly reserved
for issuance. When issued in compliance with the provisions
of this Agreement and the Company's Charter, the Securities
will be validly issued, fully paid and nonassessable, and
will be free of any liens or encumbrances; provided, however,
that the Securities may be subject to restrictions on
transfer under state and/or federal securities laws as set
forth herein or as otherwise required by such laws at the
time a transfer is proposed.
4.4 Authorization; Binding Obligations.
All corporate action on the part of the Company, its officers
and directors necessary for the authorization of this Agreement and the Related
Agreements, the performance of all obligations of the Company hereunder and
under the Related Agreements at the Closing and, the authorization, sale,
issuance and delivery of the Note and Warrant has been taken or will be taken
prior to the Closing. This Agreement and the Related Agreements, when executed
and delivered and to the extent it is a party thereto, will be valid and
binding obligations of the Company enforceable in accordance with their terms,
except:
(a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights; and
(b) general principles of equity that restrict the availability
of equitable or legal remedies.
The sale of the Note and the subsequent conversion of the Note into Note Shares
are not and will not be subject to any preemptive rights or rights of first
refusal that have not been properly waived or complied with. The issuance of
the Warrant and the subsequent exercise of the Warrant for Warrant Shares are
not and will not be subject to any preemptive rights or rights of first refusal
that have not been properly waived or complied with.
4.5 Liabilities.
The Company does not have any contingent liabilities, except
current liabilities incurred in the ordinary course of business and liabilities
disclosed in any Exchange Act Filings.
4.6 Agreements; Action.
Except as set forth on Schedule 4.6 or as disclosed in any
Exchange Act Filings:
(a) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or
decrees to which the Company is a party or to its knowledge
by which it is bound which involve: (i) obligations
(contingent or otherwise) of, or payments to, the Company in
excess of $50,000 (other than obligations of, or payments to,
the Company arising from purchase or sale agreements entered
into in the ordinary course of business); or (ii) the
transfer or license of any patent, copyright, trade secret or
other proprietary right to or from the Company (other than
licenses arising from the purchase of "off the shelf" or
other standard products); or (iii) provisions restricting the
development, manufacture or distribution of the Company's
products or services; or (iv) indemnification by the Company
with respect to infringements of proprietary rights.
(b) Since June 30, 2004, the Company has not: (i) declared or
paid any dividends, or authorized or made any distribution
upon or with respect to any class or series of its capital
stock; (ii) incurred any indebtedness for money borrowed or
any other liabilities (other than ordinary course
obligations) individually in excess of $50,000 or, in the
case of indebtedness and/or liabilities individually less
than $50,000, in excess of $100,000 in the aggregate; (iii)
made any loans or advances to any person not in excess,
individually or in the aggregate, of $100,000, other than
ordinary advances for travel expenses; or (iv) sold,
exchanged or otherwise disposed of any of its assets or
rights, other than the sale of its inventory in the ordinary
course of business.
(c) For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings,
instruments, contracts and proposed transactions involving
the same person or entity (including persons or entities the
Company has reason to believe are affiliated therewith) shall
be aggregated for the purpose of meeting the individual
minimum dollar amounts of such subsections.
4.7 Obligations to Related Parties.
Except as set forth on Schedule 4.7, there are no obligations of
the Company to officers, directors, stockholders or employees of the Company
other than:
(a) for payment of salary for services rendered and for bonus
payments;
(b) reimbursement for reasonable expenses incurred on behalf of
the Company;
(c) for other standard employee benefits made generally available
to all employees (including stock option agreements
outstanding under any stock option plan approved by the Board
of Directors of the Company); and
(d) obligations listed in the Company's financial statements or
disclosed in any of its Exchange Act Filings.
Except as described above or set forth on Schedule 4.7, none of the officers,
directors or, to the best of the Company's knowledge, key employees or
stockholders of the Company or any members of their immediate families, are
indebted to the Company, individually or in the aggregate, in excess of $50,000
or have any direct or indirect ownership interest in any firm or corporation
with which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation which competes with the Company, other
than passive investments in publicly traded companies (representing less than
one percent (1%) of such company) which may compete with the Company. Except as
described above, no officer, director or stockholder, or any member of their
immediate families, is, directly or indirectly, interested in any material
contract with the Company and no agreements, understandings or proposed
transactions are contemplated between the Company and any such person. Except
as set forth on Schedule 4.7, the Company is not a guarantor or indemnitor of
any indebtedness of any other person, firm or corporation.
4.8 Changes.
Since June 30, 2004, except as disclosed in any Exchange Act
Filing or in any Schedule to this Agreement or to any of the Related
Agreements, there has not been:
(a) any change in the business, assets, liabilities, condition
(financial or otherwise), properties, operations or prospects
of the Company, which, individually or in the aggregate, has
had or could reasonably be expected to have, a Material
Adverse Effect;
(b) any resignation or termination of any officer, key employee
or group of employees of the Company;
(c) any material change, except in the ordinary course of
business, in the contingent obligations of the Company by way
of guaranty, endorsement, indemnity, warranty or otherwise;
(d) any damage, destruction or loss, whether or not covered by
insurance, which has had, or could reasonably be expected to
have, individually or in the aggregate, a Material Adverse
Effect;
(e) any waiver by the Company of a valuable right or of a
material debt owed to it;
(f) any direct or indirect material loans made by the Company to
any stockholder, employee, officer or director of the
Company, other than advances made in the ordinary course of
business;
(g) any change in any compensation arrangement or agreement with
any employee, officer, director or stockholder that could
reasonably be expected to have a Material Adverse Effect;
(h) any declaration or payment of any dividend or other
distribution of the assets of the Company;
(i) to the best of the Company's knowledge, any labor
organization activity related to the Company;
(j) any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial
amounts and for current liabilities incurred in the ordinary
course of business;
(k) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets.
(l) any change in any material agreement to which the Company is
a party or by which it is bound which, either individually or
in the aggregate, has had, or could reasonably be expected to
have, a Material Adverse Effect;
(m) any other event or condition of any character that, either
individually or in the aggregate, has had, or could
reasonably be expected to have, a Material Adverse Effect;
or
(n) any arrangement or commitment by the Company to do any of the
acts described in subsection (a) through (m) above.
4.9 Title to Properties and Assets; Liens, Etc.
Except as set forth on Schedule 4.9, the Company has good and
marketable title to its properties and assets, and good title to its leasehold
estates, in each case subject to no mortgage, pledge, lien, lease, encumbrance
or charge, other than:
(a) those resulting from taxes which have not yet become
delinquent;
(b) minor liens and encumbrances which do not materially detract
from the value of the property subject thereto or materially
impair the operations of the Company; and
(c) those that have otherwise arisen in the ordinary course of
business.
All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company are in good operating condition and repair
and are reasonably fit and usable for the purposes for which they are being
used. Except as set forth on Schedule 4.9, the Company is in compliance with
all material terms of each lease to which it is a party or is otherwise bound.
4.10 Intellectual Property.
(a) The Company owns or possesses sufficient legal rights to all
patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information and other proprietary
rights and processes necessary for its business as now
conducted and to the Company's knowledge as presently
proposed to be conducted (the "Intellectual Property"),
without any known infringement of the rights of others.
There are no outstanding options, licenses or agreements of
any kind relating to the foregoing proprietary rights, nor is
the Company bound by or a party to any options, licenses or
agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade
secrets, licenses, information and other proprietary rights
and processes of any other person or entity other than such
licenses or agreements arising from the purchase of "off the
shelf" or standard products.
(b) The Company has not received any communications alleging that
the Company has violated any of the patents, trademarks,
service marks, trade names, copyrights or trade secrets or
other proprietary rights of any other person or entity, nor
is the Company aware of any basis therefor.
(c) The Company does not believe it is or will be necessary to
utilize any inventions, trade secrets or proprietary
information of any of its employees made prior to their
employment by the Company, except for inventions, trade
secrets or proprietary information that have been rightfully
assigned to the Company.
4.11 Compliance with Other Instruments.
The Company is not in violation or default of (x) any term of
its Charter or Bylaws, or (y) of any provision of any indebtedness, mortgage
,indenture, contract, agreement or instrument to which it is party or by which
it is bound or of any judgment, decree, order or writ, which violation or
default, in the case of this clause (y), has had, or could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect. The execution, delivery and performance of and compliance with this
Agreement and the Related Agreements to which it is a party, and the issuance
and sale of the Note by the Company and the other Securities by the Company
each pursuant hereto and thereto, will not, with or without the passage of time
or giving of notice, result in any such material violation, or be in conflict
with or constitute a default under any such term or provision, or result in the
creation of any mortgage, pledge, lien, encumbrance or charge upon any of the
properties or assets of the Company or the suspension, revocation, impairment,
forfeiture or nonrenewal of any permit, license, authorization or approval
applicable to the Company, its business or operations or any of its assets or
properties.
4.12 Litigation.
Except as set forth on Schedule 4.12 hereto, there is no action,
suit, proceeding or investigation pending or, to the Company's knowledge,
currently threatened against the Company that prevents the Company from
entering into this Agreement or the Related Agreements, or from consummating
the transactions contemplated hereby or thereby, or which has had, or could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect or could result in any change in the current equity
ownership of the Company, nor is the Company aware that there is any basis to
assert any of the foregoing. The Company is not a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. There is no action, suit, proceeding or
investigation by the Company currently pending or which the Company intends to
initiate.
4.13 Tax Returns and Payments.
The Company has timely filed all tax returns (federal, state and
local) required to be filed by it. All taxes shown to be due and payable on
such returns, any assessments imposed, and all other taxes due and payable by
the Company on or before the Closing, have been paid or will be paid prior to
the time they become delinquent. Except as set forth on Schedule 4.13, the
Company has not been advised:
(a) that any of its returns, federal, state or other, have been
or are being audited as of the date hereof; or
(b) of any deficiency in assessment or proposed judgment to its
federal, state or other taxes.
The Company has no knowledge of any liability of any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.
4.14 Employees.
Except as set forth on Schedule 4.14, the Company has no
collective bargaining agreements with any of its employees. There is no labor
union organizing activity pending or, to the Company's knowledge, threatened
with respect to the Company. Except as disclosed in the Exchange Act Filings
or on Schedule 4.14, the Company is not a party to or bound by any currently
effective employment contract, deferred compensation arrangement, bonus plan,
incentive plan, profit sharing plan, retirement agreement or other employee
compensation plan or agreement. To the Company's knowledge, no employee of the
Company, nor any consultant with whom the Company has contracted, is in
violation of any term of any employment contract, proprietary information
agreement or any other agreement relating to the right of any such individual
to be employed by, or to contract with, the Company because of the nature of
the business to be conducted by the Company; and to the Company's knowledge the
continued employment by the Company of its present employees, and the
performance of the Company's contracts with its independent contractors, will
not result in any such violation. The Company is not aware that any of its
employees is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere
with their duties to the Company. The Company has not received any notice
alleging that any such violation has occurred. Except for employees who have a
current effective employment agreement with the Company, no employee of the
Company has been granted the right to continued employment by the Company or to
any material compensation following termination of employment with the Company.
Except as set forth on Schedule 4.14, the Company is not aware that any
officer, key employee or group of employees intends to terminate his, her or
their employment with the Company, nor does the Company have a present
intention to terminate the employment of any officer, key employee or group of
employees.
4.15 Registration Rights and Voting Rights.
Except as set forth on Schedule 4.15 and except as disclosed in
Exchange Act Filings, the Company is presently not under any obligation, and
has not granted any rights, to register any of the Company's presently
outstanding securities or any of its securities that may hereafter be issued.
Except as set forth on Schedule 4.15 and except as disclosed in Exchange Act
Filings, to the Company's knowledge, no stockholder of the Company has entered
into any agreement with respect to the voting of equity securities of the
Company.
4.16 Compliance with Laws; Permits.
The Company is not in violation of any applicable statute, rule,
regulation, order or restriction of any domestic or foreign government or any
instrumentality or agency thereof in respect of the conduct of its business or
the ownership of its properties which has had, or could reasonably be expected
to have, either individually or in the aggregate, a Material Adverse Effect.
No governmental orders, permissions, consents, approvals or authorizations are
required to be obtained and no registrations or declarations are required to be
filed in connection with the execution and delivery of this Agreement or any
Related Agreement and the issuance of any of the Securities, except such as has
been duly and validly obtained or filed, or with respect to any filings that
must be made after the Closing, as will be filed in a timely manner. The
Company has all material franchises, permits, licenses and any similar
authority necessary for the conduct of its business as now being conducted by
it, the lack of which could, either individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
4.17 Environmental and Safety Laws.
The Company is not in violation of any applicable statute, law
or regulation relating to the environment or occupational health and safety,
and to its knowledge, no material expenditures are or will be required in order
to comply with any such existing statute, law or regulation. Except as set
forth on Schedule 4.17, no Hazardous Materials (as defined below) are used or
have been used, stored, or disposed of by the Company or, to the Company's
knowledge, by any other person or entity on any property owned, leased or used
by the Company. For the purposes of the preceding sentence, "Hazardous
Materials" shall mean:
(a) materials which are listed or otherwise defined as
"hazardous" or "toxic" under any applicable local, state,
federal and/or foreign laws and regulations that govern the
existence and/or remedy of contamination on property, the
protection of the environment from contamination, the control
of hazardous wastes, or other activities involving hazardous
substances, including building materials; or
(b) any petroleum products or nuclear materials.
4.18 Valid Offering.
Assuming the accuracy of the representations and warranties of
the Purchaser contained in this Agreement, the offer, sale and issuance of the
Securities will be exempt from the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act"), and will have been registered
or qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all applicable state
securities laws.
4.19 Full Disclosure.
The Company has provided the Purchaser with all information
requested by the Purchaser in connection with its decision to purchase the Note
and Warrant, including all information the Company believes is reasonably
necessary to make such investment decision. Neither this Agreement, the
Related Agreements nor the exhibits and schedules hereto and thereto nor any
other document delivered by the Company to Purchaser or its attorneys or agents
in connection herewith or therewith or with the transactions contemplated
hereby or thereby, contain any untrue statement of a material fact nor omit to
state a material fact necessary in order to make the statements contained
herein or therein, in light of the circumstances in which they are made, not
misleading. Any financial projections and other estimates provided to the
Purchaser by the Company were based on the Company's experience in the industry
and on assumptions of fact and opinion as to future events which the Company,
at the date of the issuance of such projections or estimates, believed to be
reasonable.
4.20 Insurance.
The Company has general commercial, product liability, fire and
casualty insurance policies with coverages which the Company believes are
customary for companies similarly situated to the Company in the same or
similar business.
4.21 SEC Reports.
Except as set forth on Schedule 4.21, the Company has filed all
proxy statements, reports and other documents required to be filed by it under
the Securities Exchange Act 1934, as amended (the "Exchange Act"). The Company
has furnished the Purchaser with copies of: (i) its Annual Report on Form 10-
KSB for the fiscal year ended December 31, 2003; and (ii) its Quarterly Reports
on Form 10-QSB for the fiscal quarters ended March 31, 2004 and June 30, 2004,
and the Form 8-K filings which it has made during the fiscal year 2003 to date
(collectively, the "SEC Reports"). Except as set forth on Schedule 4.21, each
SEC Report was, at the time of its filing, in substantial compliance with the
requirements of its respective form and none of the SEC Reports, nor the
financial statements (and the notes thereto) included in the SEC Reports, as of
their respective filing dates, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
4.22 Listing.
The Company's Common Stock is traded on the NASD Over the
Counter Bulletin Board ("OTCBB") and satisfies all requirements for the
continuation of such trading. The Company has not received any notice that its
Common Stock will be ineligible to trade on the OTCBB or that its Common Stock
does not meet all requirements for such trading.
4.23 No Integrated Offering.
Neither the Company, nor any of its affiliates, nor any person
acting on its or their behalf, has directly or indirectly made any offers or
sales of any security or solicited any offers to buy any security under
circumstances that would cause the offering of the Securities pursuant to this
Agreement or any Related Agreement to be integrated with prior offerings by the
Company for purposes of the Securities Act which would prevent the Company from
selling the Securities pursuant to Rule 506 under the Securities Act, or any
applicable exchange-related stockholder approval provisions, nor will the
Company or any of its affiliates or subsidiaries take any action or steps that
would cause the offering of the Securities to be integrated with other
offerings.
4.24 Stop Transfer.
The Securities are restricted securities as of the date of this
Agreement. The Company will not issue any stop transfer order or other order
impeding the sale and delivery of any of the Securities at such time as the
Securities are registered for public sale or an exemption from registration is
available, except as required by state and federal securities laws.
4.25 Dilution. The Company specifically acknowledges that its
obligation to issue the shares of Common Stock upon conversion of
the Note and exercise of the Warrant is binding upon the Company
and enforceable regardless of the dilution such issuance may have
on the ownership interests of other shareholders of the Company.
4.26 Patriot Act.The Company certifies that, to the best of Company's
knowledge, the Company has not been designated, and is not owned or
controlled, by a "suspected terrorist" as defined in Executive
Order 13224. The Company hereby acknowledges that the Purchaser
seeks to comply with all applicable laws concerning money
laundering and related activities. In furtherance of those
efforts, the Company hereby represents, warrants and agrees that:
(i) none of the cash or property that the Company will pay or will
contribute to the Purchaser has been or shall be derived from, or
related to, any activity that is deemed criminal under United
States law; and (ii) no contribution or payment by the Company to
the Purchaser, to the extent that they are within the Company's
control shall cause the Purchaser to be in violation of the United
States Bank Secrecy Act, the United States International Money
Laundering Control Act of 1986 or the United States International
Money Laundering Abatement and Anti-Terrorist Financing Act of
2001. The Company shall promptly notify the Purchaser if any of
these representations ceases to be true and accurate regarding the
Company. The Company agrees to provide the Purchaser any
additional information regarding the Company that the Purchaser
deems necessary or convenient to ensure compliance with all
applicable laws concerning money laundering and similar activities.
The Company understands and agrees that if at any time it is
discovered that any of the foregoing representations are incorrect,
or if otherwise required by applicable law or regulation related to
money laundering similar activities, the Purchaser may undertake
appropriate actions to ensure compliance with applicable law or
regulation, including but not limited to segregation and/or
redemption of the Purchaser's investment in the Company. The
Company further understands that the Purchaser may release
confidential information about the Company and, if applicable, any
underlying beneficial owners, to proper authorities if the
Purchaser, in its sole discretion, determines that it is in the
best interests of the Purchaser in light of relevant rules and
regulations under the laws set forth in subsection (ii) above.
5. Representations and Warranties of the Purchaser.
The Purchaser hereby represents and warrants to the Company as follows
(such representations and warranties do not lessen or obviate the
representations and warranties of the Company set forth in this Agreement)
5.1 No Shorting.
The Purchaser or any of its affiliates and investment partners
has not, will not and will not cause any person or entity, to directly engage
in "short sales" of the Company's Common Stock as long as the Note shall be
outstanding.
5.2 Requisite Power and Authority.
The Purchaser has all necessary power and authority under all
applicable provisions of law to execute and deliver this Agreement and the
Related Agreements and to carry out their provisions. All corporate action on
Purchaser's part required for the lawful execution and delivery of this
Agreement and the Related Agreements have been or will be effectively taken
prior to the Closing. Upon their execution and delivery, this Agreement and the
Related Agreements will be valid and binding obligations of Purchaser,
enforceable in accordance with their terms, except:
(a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights; and
(b) as limited by general principles of equity that restrict the
availability of equitable and legal remedies.
5.3 Investment Representations.
Purchaser understands that the Securities are being offered and
sold pursuant to an exemption from registration contained in the Securities Act
based in part upon Purchaser's representations contained in the Agreement,
including, without limitation, that the Purchaser is an "accredited investor"
within the meaning of Regulation D under the Securities Act of 1933, as amended
(the "Securities Act"). The Purchaser confirms that it has received or has had
full access to all the information it considers necessary or appropriate to
make an informed investment decision with respect to the Note and the Warrant
to be purchased by it under this Agreement and the Note Shares and the Warrant
Shares acquired by it upon the conversion of the Note and the exercise of the
Warrant, respectively. The Purchaser further confirms that it has had an
opportunity to ask questions and receive answers from the Company regarding the
Company's business, management and financial affairs and the terms and
conditions of the Offering, the Note, the Warrant and the Securities and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify any information furnished to the Purchaser or to which the
Purchaser had access.
5.4 Purchaser Bears Economic Risk.
The Purchaser has substantial experience in evaluating and
investing in private placement transactions of securities in companies similar
to the Company so that it is capable of evaluating the merits and risks of its
investment in the Company and has the capacity to protect its own interests.
The Purchaser must bear the economic risk of this investment until the
Securities are sold pursuant to: (i) an effective registration statement under
the Securities Act; or (ii) an exemption from registration is available with
respect to such sale.
5.5 Acquisition for Own Account.
The Purchaser is acquiring the Securities, including without
limitation, the Note and Warrant and the Note Shares and the Warrant Shares for
the Purchaser's own account for investment only, and not as a nominee or agent
and not with a view towards or for resale in connection with their
distribution.
5.6 Purchaser Can Protect Its Interest.
The Purchaser represents that by reason of its, or of its
management's, business and financial experience, the Purchaser has the capacity
to evaluate the merits and risks of its investment in the Note, the Warrant and
the other Securities and to protect its own interests in connection with the
transactions contemplated in this Agreement, and the Related Agreements.
Further, the Purchaser is aware of no publication of any advertisement in
connection with the transactions contemplated in the Agreement or the Related
Agreements.
5.7 Accredited Investor.
Purchaser represents that it is an accredited investor within
the meaning of Regulation D under the Securities Act.
5.8 Legends.
(a) The Note shall bear substantially the following legend:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE, STATE SECURITIES
LAWS. THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION
OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE OR SUCH SHARES UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO IT&E INTERNATIONAL GROUP, INC.
THAT SUCH REGISTRATION IS NOT REQUIRED."
(b) The Note Shares and the Warrant Shares, if not issued by DWAC
system (as hereinafter defined), shall bear a legend which
shall be in substantially the following form until such
shares are covered by an effective registration statement
filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE, STATE SECURITIES LAWS. THESE SHARES MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
SECURITIES ACT AND APPLICABLE STATE LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO IT&E INTERNATIONAL GROUP,
INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) The Warrant shall bear substantially the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON
EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT OR THE UNDERLYING
SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO IT&E INTERNATIONAL GROUP, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
6. Covenants of the Company.
The Company covenants and agrees with the Purchaser as follows:
6.1 Stop-Orders.
The Company will advise the Purchaser, promptly after it
receives notice of issuance by the Securities and Exchange Commission (the
"SEC"), any state securities commission or any other regulatory authority of
any stop order or of any order preventing or suspending any offering of any
securities of the Company, or of the suspension of the qualification of the
Common Stock of the Company for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.
6.2 Listing.
The Company shall promptly secure the trading of the Note
Shares and Warrant Shares on the OTCBB (the "Principal Market") upon which
shares of Common Stock are listed (subject to official notice of issuance) and
shall maintain such listing so long as any other shares of Common Stock shall
be so listed. The Company will maintain the listing of its Common Stock on the
Principal Market, and will comply in all material respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
National Association of Securities Dealers ("NASD") and such exchanges, as
applicable.
6.3 Market Regulations.
The Company shall notify the SEC, NASD and applicable state
authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to the Purchaser
and promptly provide copies thereof to the Purchaser.
6.4 Reporting Requirements.
The Company will timely file with the SEC all reports required
to be filed pursuant to the Exchange Act and refrain from terminating its
status as an issuer required by the Exchange Act to file reports thereunder
even if the Exchange Act or the rules or regulations thereunder would permit
such termination.
6.5 Use of Funds.
The Company agrees that it will use the proceeds of the sale of
the Note and Warrant as follows: (i) $1,500,000 will be used to repay and
terminate the Company's existing line of credit with Bank of Walnut Creek and
(ii) for general working capital and subsidiary acquisition purposes only (it
being understood, however, that $2,500,000 of the proceeds of the Note will be
deposited in the Restricted Account on the Closing Date and shall be subject to
the terms and conditions of the Restricted Account Agreement and the Restricted
Account Side Letter).
6.6 Access to Facilities.
The Company will permit any representatives designated by the
Purchaser (or any successor of the Purchaser), upon reasonable notice of at
least 24 hours and during normal business hours, at such person's expense and
accompanied by a representative of the Company, to:
(a) visit and inspect any of the properties of the Company;
(b) examine the corporate and financial records of the Company
(unless such examination is not permitted by federal, state
or local law or by contract) and make copies thereof or
extracts therefrom; and
(c) discuss the affairs, finances and accounts of the Company
with the directors, officers and independent accountants of
the Company.
Notwithstanding the foregoing, the Company will not provide any material, non-
public information to the Purchaser unless the Purchaser signs a
confidentiality agreement and otherwise complies with Regulation FD, under the
federal securities laws.
6.7 Taxes.
The Company will promptly pay and discharge, or cause to be paid
and discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall
have set aside on its books adequate reserves with respect thereto, and
provided, further, that the Company will pay all such taxes, assessments,
charges or levies forthwith upon the commencement of proceedings to foreclose
any lien which may have attached as security therefor.
6.8 Insurance.
The Company will keep its assets which are of an insurable
character insured by financially sound and reputable insurers against loss or
damage by fire, explosion and other risks customarily insured against by
companies in similar business similarly situated as the Company; and the
Company will maintain, with financially sound and reputable insurers, insurance
against other hazards and risks and liability to persons and property to the
extent and in the manner which the Company reasonably believes is customary for
companies in similar business similarly situated as the Company and to the
extent available on commercially reasonable terms. The Company and each of its
Subsidiaries will jointly and severally bear the full risk of loss from any
loss of any nature whatsoever with respect to the assets pledged to the
Purchaser as security for its obligations hereunder and under the Related
Agreements. At the Company's own cost and expense in amounts and with carriers
reasonably acceptable to Purchaser, the Company and each of the Subsidiaries
shall (i) keep all its insurable properties and properties in which it has an
interest insured against the hazards of fire, flood, sprinkler leakage, those
hazards covered by extended coverage insurance and such other hazards, and for
such amounts, as is customary in the case of companies engaged in businesses
similar to the Company's or the respective Subsidiary's including business
interruption insurance; (ii) maintain a bond in such amounts as is customary in
the case of companies engaged in businesses similar to the Company's or the
Subsidiary's insuring against larceny, embezzlement or other criminal
misappropriation of insured's officers and employees who may either singly or
jointly with others at any time have access to the assets or funds of the
Company either directly or through governmental authority to draw upon such
funds or to direct generally the disposition of such assets; (iii) maintain
public and product liability insurance against claims for personal injury,
death or property damage suffered by others; (iv) maintain all such worker's
compensation or similar insurance as may be required under the laws of any
state or jurisdiction in which the Company or the Subsidiary is engaged in
business; and (v) furnish Purchaser with (x) copies of all policies and
evidence of the maintenance of such policies at least thirty (30) days before
any expiration date, (y) excepting the Company's workers' compensation policy,
endorsements to such policies naming Purchaser as "co-insured" or "additional
insured" and appropriate loss payable endorsements in form and substance
satisfactory to Purchaser, naming Purchaser as loss payee, and (z) evidence
that as to Purchaser the insurance coverage shall not be impaired or
invalidated by any act or neglect of the Company or any Subsidiary and the
insurer will provide Purchaser with at least thirty (30) days notice prior to
cancellation. The Company and each Subsidiary shall instruct the insurance
carriers that in the event of any loss thereunder, the carriers shall make
payment for such loss to the Company and/or the Subsidiary and Purchaser
jointly. In the event that as of the date of receipt of each loss recovery
upon any such insurance, the Purchaser has not declared an event of default
with respect to this Agreement or any of the Related Agreements, then the
Company shall be permitted to direct the application of such loss recovery
proceeds toward investment in property, plant and equipment that would comprise
"Collateral" secured by Purchaser's security interest pursuant to its security
agreement, with any surplus funds to be applied toward payment of the
obligations of the Company to Purchaser. In the event that Purchaser has
properly declared an event of default with respect to this Agreement or any of
the Related Agreements, then all loss recoveries received by Purchaser upon any
such insurance thereafter may be applied to the obligations of the Company
hereunder and under the Related Agreements, in such order as the Purchaser may
determine. Any surplus (following satisfaction of all Company obligations to
Purchaser) shall be paid by Purchaser to the Company or applied as may be
otherwise required by law. Any deficiency thereon shall be paid by the Company
or the Subsidiary, as applicable, to Purchaser, on demand.
6.9 Intellectual Property.
The Company shall maintain in full force and effect its
corporate existence, rights and franchises and all licenses and other rights to
use Intellectual Property owned or possessed by it and reasonably deemed to be
necessary to the conduct of its business.
6.10 Properties.
The Company will keep its properties in good repair, working
order and condition, reasonable wear and tear excepted, and from time to time
make all needful and proper repairs, renewals, replacements, additions and
improvements thereto; and the Company will at all times comply with each
provision of all leases to which it is a party or under which it occupies
property if the breach of such provision could reasonably be expected to have a
Material Adverse Effect.
6.11 Confidentiality.
The Company agrees that it will not disclose, and will not
include in any public announcement, the name of the Purchaser, unless expressly
agreed to by the Purchaser or unless and until such disclosure is required by
law or applicable regulation, and then only to the extent of such requirement.
The Company may disclose Purchaser's identity and the terms of this Agreement
to its current and prospective debt and equity financing sources.
6.12 Required Approvals.
For so long as twenty-five percent (25%) of the principal amount
of the Note is outstanding, the Company, without the prior written consent of
the Purchaser, shall not:
(a) (i) directly or indirectly declare or pay any dividends,
other than (x) dividends paid to any of its wholly-owned
Subsidiaries and (y) dividends paid to the Purchaser with
respect to the Common Stock, (ii) issue any preferred stock
that is manditorily redeemable prior to the one year
anniversary of Maturity Date (as defined in the Note) or
(iii) redeem any of its preferred stock or other equity
interests;
(b) liquidate, dissolve or effect a material reorganization (it
being understood that in no event shall the Company dissolve,
liquidate or merge with any other person or entity (unless
the Company is the surviving entity);
(c) become subject to (including, without limitation, by way of
amendment to or modification of) any agreement or instrument
which by its terms would (under any circumstances) restrict
the Company's right to perform the provisions of this
Agreement or any of the agreements contemplated thereby;
(d) materially alter or change the scope of the business of the
Company;
(e) create, incur, assume or suffer to exist any indebtedness
(exclusive of trade debt and debt incurred to finance the
purchase of equipment (not in excess of five percent (5%) per
annum of the fair market value of the Company's assets)
whether secured or unsecured other than (x) the Company's
indebtedness to the Purchaser, (y) indebtedness set forth on
Schedule 6.12(e) attached hereto and made a part hereof and
any refinancings or replacements thereof on terms no less
favorable to the Purchaser than the debt being refinanced or
replaced, and (z) any indebtedness incurred in connection
with the purchase of assets in the ordinary course of
business, and any refinancings or replacements thereof on
terms no less favorable to the Purchaser than the
indebtedness being refinanced or replaced; (ii) cancel any
indebtedness owing to it in excess of $50,000 in the
aggregate during any 12 month period; (iii) assume,
guarantee, endorse or otherwise become directly or
contingently liable in connection with any obligations of any
other Person, except the endorsement of negotiable
instruments by the Company for deposit or collection or
similar transactions in the ordinary course of business; and
(f) make investments in, make any loans or advances to, or
transfer assets to, any of its Subsidiaries, other than any
immaterial investments, loans, advances and/or asset
transfers made in the ordinary course of business.
6.13 Reissuance of Securities.
The Company agrees to reissue certificates representing the
Securities without the legends set forth in Section 5.8 above at such time as:
(a) the holder thereof is permitted to dispose of such Securities
pursuant to Rule 144(k) under the Securities Act and are
registered or qualified or exempt from registration or
qualification under the registration, permit or qualification
requirements of all applicable state securities laws; or
(b) upon resale subject to an effective registration statement
after such Securities are registered under the Securities
Act.
The Company agrees to cooperate with the Purchaser in connection with all
resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions
necessary to allow such resales provided the Company and its counsel receive
reasonably requested representations from the selling Purchaser and broker, if
any.
6.14 Opinion.
On the Closing Date, the Company will deliver to the Purchaser
an opinion acceptable to the Purchaser from the Company's legal counsel. The
Company will provide, at the Company's expense, such other legal opinions in
the future as are reasonably necessary for the conversion of the Note and
exercise of the Warrant.
6.15 Margin Stock.
The Company will not permit any of the proceeds of the Note or
the Warrant to be used directly or indirectly to "purchase" or "carry" "margin
stock" or to repay indebtedness incurred to "purchase" or "carry" "margin
stock" within the respective meanings of each of the quoted terms under
Regulation U of the Board of Governors of the Federal Reserve System as
now and from time to time hereafter in effect.
6.16 Restricted Cash Disclosure.
The Company agrees that, in connection with its filing of its 8-K
Report with the SEC concerning the transactions contemplated by this
Agreement and the Related Agreements (such report, the "Laurus Transaction
8-K") in a timely manner after the date hereof, it will disclose in such
Laurus Transaction 8-K the amount of the proceeds of the Note issued to the
Purchaser that has been placed in a restricted cash account and is subject to
the terms and conditions of this Agreement and the Related Agreements.
Furthermore, the Company agrees to disclose in all public filings required by
the Commission (where appropriate) following the filing of the Laurus
Transaction 8-K, the existence of the restricted cash referred to in the
immediately preceding sentence, together with the amount thereof.
6.17 Financing Right of First Refusal. (a) The Company hereby
grants to the Purchaser a right of first refusal to provide any Additional
Financing (as defined below) to be issued by the Company and/or any of its
Subsidiaries, subject to the following terms and conditions. From and after the
date hereof, prior to the incurrence of any additional indebtedness and/or the
sale or issuance of any equity interests of the Company or any of its
Subsidiaries (an "Additional Financing"), the Company and/or any Subsidiary of
the Company, as the case may be, shall notify the Purchaser of its intention to
enter into such Additional Financing. In connection therewith, the Company
and/or the applicable Subsidiary thereof shall submit a fully executed term
sheet (a "Proposed Term Sheet") to the Purchaser setting forth the terms,
conditions and pricing of any such Additional Financing (such financing to be
negotiated on "arm's length" terms and the terms thereof to be negotiated in
good faith) proposed to be entered into by the Company and/or such Subsidiary.
The Purchaser shall have the right, but not the obligation, to deliver its own
proposed term sheet (the "Purchaser Term Sheet") setting forth the terms and
conditions upon which Purchaser would be willing to provide such Additional
Financing to the Company and/or such Subsidiary. The Purchaser Term Sheet shall
contain terms no less favorable to the Company and/or such Subsidiary than
those outlined in Proposed Term Sheet. The Purchaser shall deliver such
Purchaser Term Sheet within ten business days of receipt of each such Proposed
Term Sheet. If the provisions of the Purchaser Term Sheet are at least as
favorable to the Company and/or such Subsidiary, as the case may be, as the
provisions of the Proposed Term Sheet, the Company and/or such Subsidiary shall
enter into and consummate the Additional Financing transaction outlined in the
Purchaser Term Sheet.
(b) The Company will not, and will not permit its Subsidiaries to,
agree, directly or indirectly, to any restriction with any person or entity
which limits the ability of the Purchaser to consummate an Additional Financing
with the Company or any of its Subsidiaries.
6.18 Additional Investment. The Company agrees that the Purchaser
shall have the right (at its sole option), on or prior to the date which is 270
days following the Closing Date, to issue an additional note to the Company in
an aggregate principal amount of up to $2,000,000 on the same terms and
conditions (including, without limitation, the same interest rate, the Fixed
Conversion Price (as defined in the Note) then in effect, proportionate warrant
coverage (at the same exercise prices), a proportionate amortization schedule,
etc.) set forth in, and pursuant to substantially similar documentation as,
this Agreement and the Related Agreements.
7. Covenants of the Purchaser.
The Purchaser covenants and agrees with the Company as follows:
7.1 Confidentiality.
The Purchaser agrees that it will not disclose, and will not
include in any public announcement, the name of the Company, unless expressly
agreed to by the Company or unless and until such disclosure is required by law
or applicable regulation, and then only to the extent of such requirement.
7.2 Non-Public Information.
The Purchaser agrees not to effect any sales in the shares of
the Company's Common Stock while in possession of material, non-public
information regarding the Company if such sales would violate applicable
securities law.
8. Covenants of the Company and Purchaser Regarding Indemnification.
8.1 Company Indemnification.
The Company agrees to indemnify, hold harmless, reimburse and
defend Purchaser, each of Purchaser's officers, directors, agents, affiliates,
control persons, and principal shareholders, against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of any
nature, incurred by or imposed upon the Purchaser which results, arises out of
or is based upon: (i) any misrepresentation by Company or breach of any
warranty by Company in this Agreement, any Related Agreement or in any exhibits
or schedules attached hereto or thereto; or (ii) any breach or default in
performance by Company of any covenant or undertaking to be performed by
Company hereunder, or any other agreement entered into by the Company and
Purchaser relating hereto.
8.2 Purchaser's Indemnification.
Purchaser agrees to indemnify, hold harmless, reimburse and
defend the Company and each of the Company's officers, directors, agents,
affiliates, control persons and principal shareholders, at all times against
any claim, cost, expense, liability, obligation, loss or damage (including
reasonable legal fees) of any nature, incurred by or imposed upon the Company
which results, arises out of or is based upon: (i) any misrepresentation by
Purchaser or breach of any warranty by Purchaser in this Agreement or in any
exhibits or schedules attached hereto or any Related Agreement; or (ii) any
breach or default in performance by Purchaser of any covenant or undertaking to
be performed by Purchaser hereunder, or any other agreement entered into by the
Company and Purchaser relating hereto.
9. Conversion of Convertible Note.
9.1 Mechanics of Conversion.
(a) Provided the Purchaser has notified the Company of the
Purchaser's intention to sell the Note Shares and the Note
Shares are (i) included in an effective registration
statement or (ii) are otherwise exempt from such federal
registration and are registered or qualified or exempt from
registration or qualification under the registration, permit
or qualification requirements of all applicable state
securities laws when sold: (A) upon the conversion of the
Note or part thereof, the Company shall, at its own cost and
expense, take all necessary action (including the issuance of
an opinion of counsel reasonably acceptable to the Purchaser
following a request by the Purchaser) to assure that the
Company's transfer agent shall issue shares of the Company's
Common Stock in the name of the Purchaser (or its nominee) or
such other persons as designated by the Purchaser in
accordance with Section 9.1(b) hereof and in such
denominations to be specified representing the number of Note
Shares issuable upon such conversion; and (B) the Company
warrants that no instructions other than these instructions
have been or will be given to the transfer agent of the
Company's Common Stock regarding the issuance of the Note
Shares and that after the Effectiveness Date (as defined in
the Registration Rights Agreement) the Note Shares issued
will be freely transferable subject to the prospectus
delivery requirements of the Securities Act and the
provisions of this Agreement, and will not contain a legend
restricting the resale or transferability of the Note Shares.
(b) Purchaser will give notice of its decision to exercise its
right to convert the Note or part thereof by telecopying or
otherwise delivering an executed and completed notice of the
number of shares to be converted to the Company (the "Notice
of Conversion"). The Purchaser will not be required to
surrender the Note until the Purchaser receives a credit to
the account of the Purchaser's prime broker through the DWAC
system (as defined below), representing the Note Shares or
until the Note has been fully satisfied. Each date on which
a Notice of Conversion is telecopied or delivered to the
Company in accordance with the provisions hereof shall be
deemed a "Conversion Date." Pursuant to the terms of the
Notice of Conversion, the Company will issue instructions to
the transfer agent accompanied by an opinion of counsel
within one (1) business day of the date of the delivery to
the Company of the Notice of Conversion and shall cause the
transfer agent to transmit the certificates representing the
Note Shares to the Purchaser by crediting the account of the
Purchaser's prime broker with the Depository Trust Company
("DTC") through its Deposit Withdrawal Agent Commission
("DWAC") system within three (3) business days after receipt
by the Company of the Notice of Conversion (the "Delivery
Date").
(c) The Company understands that a delay in the delivery of the
Note Shares in the form required pursuant to Section 9 hereof
beyond the Delivery Date could result in economic loss to the
Purchaser. In the event that the Company fails to direct its
transfer agent to deliver the Note Shares to the Purchaser
via the DWAC system within the time frame set forth in
Section 9.1(b) above and the Note Shares are not delivered to
the Purchaser by the Delivery Date, as compensation to the
Purchaser for such loss, the Company agrees to pay late
payments to the Purchaser for late issuance of the Note
Shares in the form required pursuant to Section 9 hereof upon
conversion of the Note in the amount equal to the greater of:
(i) $500 per business day after the Delivery Date; or (ii)
the Purchaser's actual damages from such delayed delivery.
Notwithstanding the foregoing, the Company will not owe the
Purchaser any late payments if the delay in the delivery of
the Note Shares beyond the Delivery Date is solely out of the
control of the Company and the Company is actively trying to
cure the cause of the delay. The Company shall pay any
payments incurred under this Section in immediately available
funds upon demand and, in the case of actual damages,
accompanied by reasonable documentation of the amount of such
damages. Such documentation shall show the number of shares
of Common Stock the Purchaser is forced to purchase (in an
open market transaction) which the Purchaser anticipated
receiving upon such conversion, and shall be calculated as
the amount by which (A) the Purchaser's total purchase price
(including customary brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (B) the aggregate
principal and/or interest amount of the Note, for which such
Conversion Notice was not timely honored.
Nothing contained herein or in any document referred to herein or delivered in
connection herewith shall be deemed to establish or require the payment of a
rate of interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest or dividends required
to be paid or other charges hereunder exceed the maximum amount permitted by
such law, any payments in excess of such maximum shall be credited against
amounts owed by the Company to a Purchaser and thus refunded to the Company.
10. Registration Rights.
10.1 Registration Rights Granted.
The Company hereby grants registration rights to the Purchaser
pursuant to a Registration Rights Agreement dated as of even date herewith
between the Company and the Purchaser.
10.2 Offering Restrictions.
Except as previously disclosed in the SEC Reports or in the
Exchange Act Filings, or stock or stock options granted to employees,
consultants or directors of the Company (these exceptions hereinafter referred
to as the "Excepted Issuances"), the Company will not issue any securities with
a continuously variable/floating conversion feature which are or could be (by
conversion or registration) free-trading securities (i.e. common stock subject
to a registration statement) prior to the full repayment or conversion of the
Note (together with all accrued and unpaid interest and fees related thereto
(the "Exclusion Period"); provided, however, adjustments in conversion features
as a result of stock splits, reorganizations, reclassification or pursuant to
any other anti-dilution provisions shall not be deemed a variable/floating
conversion feature.
11. Miscellaneous.
11.1 Governing Law.
THIS AGREEMENT AND EACH RELATED AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. ANY ACTION BROUGHT BY EITHER PARTY
AGAINST THE OTHER CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT
AND EACH RELATED AGREEMENT SHALL BE BROUGHT ONLY IN THE STATE COURTS OF NEW
YORK OR IN THE FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK. BOTH PARTIES
AND THE INDIVIDUALS EXECUTING THIS AGREEMENT AND THE RELATED AGREEMENTS ON
BEHALF OF THE COMPANY AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS AND
WAIVE TRIAL BY JURY. IN THE EVENT THAT ANY PROVISION OF THIS AGREEMENT OR ANY
RELATED AGREEMENT DELIVERED IN CONNECTION HEREWITH IS INVALID OR UNENFORCEABLE
UNDER ANY APPLICABLE STATUTE OR RULE OF LAW, THEN SUCH PROVISION SHALL BE
DEEMED INOPERATIVE TO THE EXTENT THAT IT MAY CONFLICT THEREWITH AND SHALL BE
DEEMED MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF LAW. ANY SUCH
PROVISION WHICH MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT
AFFECT THE VALIDITY OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS AGREEMENT
OR ANY RELATED AGREEMENT.
11.2 Survival.
The representations, warranties, covenants and agreements made
herein shall survive any investigation made by the Purchaser and the closing of
the transactions contemplated hereby to the extent provided therein. All
statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date
of such certificate or instrument.
11.3 Successors.
Except as otherwise expressly provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors,
heirs, executors and administrators of the parties hereto and shall inure to
the benefit of and be enforceable by each person who shall be a holder of the
Securities from time to time, other than the holders of Common Stock which has
been sold by the Purchaser pursuant to Rule 144 or an effective registration
statement. Purchaser may not assign its rights hereunder to a competitor of the
Company.
11.4 Entire Agreement.
This Agreement, the Related Agreements, the exhibits and
schedules hereto and thereto and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and
agreements except as specifically set forth herein and therein.
11.5 Severability.
In case any provision of the Agreement shall be invalid, illegal
or unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
11.6 Amendment and Waiver.
(a) This Agreement may be amended or modified only upon the
written consent of the Company and the Purchaser.
(b) The obligations of the Company and the rights of the
Purchaser under this Agreement may be waived only with the
written consent of the Purchaser.
(c) The obligations of the Purchaser and the rights of the
Company under this Agreement may be waived only with the
written consent of the Company.
11.7 Delays or Omissions
. It is agreed that no delay or omission to exercise any right,
power or remedy accruing to any party, upon any breach, default or
noncompliance by another party under this Agreement or the Related Agreements,
shall impair any such right, power or remedy, nor shall it be construed to be a
waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of or in any similar breach, default or noncompliance thereafter
occurring. All remedies, either under this Agreement, or the Related
Agreements, by law or otherwise afforded to any party, shall be cumulative and
not alternative.
11.8 Notices
. All notices required or permitted hereunder shall be in writing
and shall be deemed effectively given:
(a) upon personal delivery to the party to be notified;
(b) when sent by confirmed facsimile if sent during normal
business hours of the recipient, if not, then on the next
business day;
(c) three (3) business days after having been sent by registered
or certified mail, return receipt requested, postage prepaid;
or
(d) one (1) day after deposit with a nationally recognized
overnight courier, specifying next day delivery, with written
verification of receipt.
All communications shall be sent as follows:
If to the Company, to: IT&E International Group, Inc.
000 Xxxxx Xxxxx Xx Xxxxx
Xxxxx 000
Xxxxxx Xxxxx, XX 00000
Attention: Chief Financial Officer
Xxxxxxxxx: 000-000-0000
with a copy to:
Pillsbury Winthrop LLP
0000 Xxxxxxx Xxxxxx
Xxxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxx, Esq.
Facsimile: (000) 000-0000
If to the Purchaser, to:Laurus Master Fund, Ltd.
c/o M&C Corporate Services Limited
P.O. Box 309 XX
Xxxxxx House, Xxxxxx Town
South Church Street
Grand Cayman, Cayman Islands
Facsimile: 000-000-0000
with a copy to:
Xxxx X. Xxxxxx , Esq.
000 Xxxxx Xxxxxx 00xx Xxxxx
Xxx Xxxx, XX 00000
Facsimile: 000-000-0000
or at such other address as the Company or the Purchaser may designate by
written notice to the other parties hereto given in accordance herewith.
11.9 Attorneys' Fees.
In the event that any suit or action is instituted to enforce
any provision in this Agreement, the prevailing party in such dispute shall be
entitled to recover from the losing party all fees, costs and expenses of
enforcing any right of such prevailing party under or with respect to this
Agreement, including, without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
11.10 Titles and Subtitles.
The titles of the sections and subsections of the Agreement are
for convenience of reference only and are not to be considered in construing
this Agreement.
11.11 Facsimile Signatures; Counterparts.
This Agreement may be executed by facsimile signatures and in
any number of counterparts, each of which shall be an original, but all of
which together shall constitute one instrument.
11.12 Xxxxxx's Fees.
Except as set forth on Schedule 11.12 hereof, Each party hereto
represents and warrants that no agent, broker, investment banker, person or
firm acting on behalf of or under the authority of such party hereto is or will
be entitled to any broker's or finder's fee or any other commission directly or
indirectly in connection with the transactions contemplated herein. Each party
hereto further agrees to indemnify each other party for any claims, losses or
expenses incurred by such other party as a result of the representation in this
Section 11.12 being untrue.
11.13 Construction.
Each party acknowledges that its legal counsel participated in
the preparation of this Agreement and the Related Agreements and, therefore,
stipulates that the rule of construction that ambiguities are to be resolved
against the drafting party shall not be applied in the interpretation of this
Agreement to favor any party against the other.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
IT&E INTERNATIONAL GROUP, INC. LAURUS MASTER FUND, LTD.
By: /s/ Xxxxx X. Xxxxxxxx By: Xxxxx Xxxx
------------------------------ -------------------------------
Name: Xxxxx X. Xxxxxxxx Name: Xxxxx Xxxx
Title: Chief Executive Officer Title: Director
EXHIBIT A
FORM OF NOTE
Exhibit 4.1 - SECURED CONVERTIBLE TERM NOTE
THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO IT&E INTERNATIONAL GROUP, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.
SECURED CONVERTIBLE TERM NOTE
FOR VALUE RECEIVED, IT&E INTERNATIONAL GROUP, INC., a California
corporation (the "COMPANY"), hereby promises to pay to LAURUS MASTER FUND,
LTD., M&C Corporate Services Limited, P.O. Box 309 GT, Xxxxxx House, South
Church Street, Xxxxxx Town, Grand Cayman, Cayman Islands, Fax: 000-000-0000
(the "PURCHASER") or its registered assigns or successors in interest, on
order, the sum of Five Million Dollars ($5,000,000), together with any accrued
and unpaid interest hereon, on October 18, 2007 (the "MATURITY DATE") if not
sooner paid. The original principal amount of this Note subject to amortizing
payments pursuant to Section 1.2 hereof is hereinafter referred to as the
"AMORTIZING PRINCIPAL AMOUNT" and the remaining original principal amount of
this Note is hereinafter referred to as the "NON-AMORTIZING PRINCIPAL AMOUNT."
Capitalized terms used herein without definition shall have the meanings
ascribed to such terms in that certain Securities Purchase Agreement dated as
of the date hereof between the Company and the Purchaser (the "PURCHASE
AGREEMENT").
The principal amount of this Note that is contained in the Restricted
Account (as defined in the Restricted Account Agreement referred to in the
Purchase Agreement) on the date of the issuance of this Note is $2,500,000.
The following terms shall apply to this Note:
ARTICLE I
INTEREST & AMORTIZATION
1.1 (a) Interest Rate. Subject to Sections 1.1(b), 4.12 and 5.6
hereof, interest payable on this Note shall accrue at a rate per annum (the
"INTEREST RATE") equal to the "prime rate" published in The Wall Street Journal
from time to time, plus two and one half percent (2.50%). The Interest Rate
shall be increased or decreased as the case may be for each increase or
decrease in the prime rate in an amount equal to such increase or decrease in
the prime rate; each change to be effective as of the day of the change in such
rate. Subject to Section 1.1(b) hereof, the Interest Rate shall not be less
than seven and one quarter percent (7.25%). Interest shall be calculated on
the basis of a 360 day year. Interest on the Amortizing Principal Xxxxxx shall
be payable monthly, in arrears, commencing on November 1, 2004 and on the
first day of each consecutive calendar month thereafter (each, a "REPAYMENT
DATE") and on the Maturity Date, whether by acceleration or otherwise. Accrued
interest on the Non-Amortizing Principal Amount shall be payable only on the
Maturity Date or, in the event of the redemption or conversion of all or any
portion of the Non-Amortizing Principal Amount, accrued interest on the amount
so redeemed or converted shall be paid on the date of redemption or conversion,
as the case may be.
1.1 (b) Interest Rate Adjustment. The Interest Rate shall be subject
to adjustment on the last business day of each month hereafter until the
Maturity Date (each a "DETERMINATION DATE"). If on any Determination Date the
Company shall have registered under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), the shares of Common Stock underlying each of the conversion
of this Note and the exercise of the Warrant issued on a registration statement
declared effective by the Securities and Exchange Commission (the "SEC"), and
the market price (the "MARKET PRICE") of the Common Stock as reported by
Bloomberg, L.P. on the Principal Market (as defined below) for the five (5)
consecutive trading days immediately preceding such Determination Date exceeds
the then applicable Fixed Conversion Price by at least twenty five percent
(25%), the Interest Rate for the succeeding calendar month shall automatically
be reduced by 200 basis points (200 b.p.) (2.0.%) for each incremental twenty
five percent (25%) increase in the Market Price of the Common Stock above the
then applicable Fixed Conversion Price if the Company shall have listed the
shares of Common Stock underlying each of the conversion of this Note and the
exercise of the Warrant on the American Stock Exchange, the Nasdaq SmallCap
Market or the Nasdaq National Market for trading on such any such exchange.
If on any Determination Date the Company shall have registered under the
Securities Act the shares of Common Stock underlying the conversion of this
Note and the exercise of the Warrant on a registration statement declared
effective by the SEC, and the Market Price of the Common Stock as reported by
Bloomberg, L.P. on the NASD Over the Counter Bulletin Board for the five (5)
consecutive trading days immediately preceding such Determination Date exceeds
the then applicable Fixed Conversion Price by at least twenty five percent
(25%), the Interest Rate for the succeeding calendar month shall automatically
be decreased by 100 basis points (100 b.p.) (1.0.%) for each incremental twenty
five percent (25%) increase in the Market Price of the Common Stock above the
then applicable Fixed Conversion Price. Notwithstanding the foregoing (and
anything to the contrary contained in herein), in no event shall the Interest
Rate be less than zero percent (0%).
1.2 Minimum Monthly Principal Payments. Amortizing payments of the
outstanding principal amount of this Note not contained in the Restricted
Account (as defined in the Restricted Account Agreement) shall begin on May 1,
2005 and shall recur on each succeeding Repayment Date thereafter until the
Amortizing Principal Amount has been repaid in full, whether by the payment of
cash or by the conversion of such principal into Common Stock pursuant to the
terms hereof. Subject to Section 2.1 and Article 3 below, on each Repayment
Date, the Company shall make payments to the Purchaser in the amount of
$83,333.33 (the "MONTHLY PRINCIPAL AMOUNT"), together with any accrued and
unpaid interest then due on such portion of the Amortizing Principal Amount
plus any and all other amounts which are then due and owing under this Note
that have not been paid (the Monthly Principal Amount, together with such
accrued and unpaid interest and such other amounts, collectively, the "MONTHLY
AMOUNT"); provided that, following a release of an amount of funds from the
Restricted Account (as defined in the Restricted Account Agreement) for the
purposes set forth in the Restricted Account Side Letter (other than with
respect to a release that occurs as a result of a conversion of any Principal
Amount) (each, a "RELEASE AMOUNT") each Monthly Principal Amount due on any
Repayment Date following any such release shall be increased by an amount equal
to (x) such Release Amount divided by (y) the sum of (I) the number of
Repayment Dates remaining until the Maturity Date plus (II) one (1). Any
Principal Amount that remains outstanding on the Maturity Date shall be due and
payable on the Maturity Date.
ARTICLE II
CONVERSION REPAYMENT
2.1 (a) Payment of Monthly Amount in Cash or Common Stock. If the
Monthly Amount (or a portion thereof of such Monthly Amount if such portion of
the Monthly Amount would have been converted into shares of Common Stock but
for Section 3.2) is required to be paid in cash pursuant to Section 2.1(b),
then the Company shall pay the Purchaser an amount equal to one hundred three
percent (103%) of the Monthly Amount due and owing to the Purchaser on the
Repayment Date in cash. If the Monthly Amount (or a portion of such Monthly
Amount if not all of the Monthly Amount may be converted into shares of Common
Stock pursuant to Section 3.2) is required to be paid in shares of Common Stock
pursuant to Section 2.1(b), the number of such shares to be issued by the
Company to the Purchaser on such Repayment Date (in respect of such portion of
the Monthly Amount converted into in shares of Common Stock pursuant to Section
2.1(b)), shall be the number determined by dividing (x) the portion of the
Monthly Amount converted into shares of Common Stock, by (y) the then
applicable Fixed Conversion Price. For purposes hereof, the initial "FIXED
CONVERSION PRICE" means the lesser of $1.00 or an amount equal to 100% of the
average closing price of the Common Stock for the ten (10) trading days
immediately prior to the date of this Note. Notwithstanding the immediately
foregoing, in no event shall the Fixed Conversion Price set on the date hereof
exceed one hundred five percent (105%) of the closing price of the Common
Stock on the last trading day prior to the date hereof.
(b) Monthly Amount Conversion Guidelines. Subject to Sections
2.1(a), 2.2 and 3.2 hereof, the Purchaser shall convert into shares of Common
Stock all or a portion of the Monthly Amount due on each Repayment according
to the following guidelines (collectively, the "CONVERSION CRITERIA"): (i) the
average closing price of the Common Stock as reported by Bloomberg, L.P. on the
Principal Market for the five (5) consecutive trading days immediately
preceding such Notice Date shall be greater than or equal to 110% of the Fixed
Conversion Price and (ii) the amount of such conversion does not exceed twenty
five percent (25%) of the aggregate dollar trading volume of the Common Stock
for the twenty two (22) day trading period immediately preceding the
applicable Repayment Date. If the Conversion Criteria are not met, the
Purchaser shall convert only such part of the Monthly Amount that meets the
Conversion Criteria. Any part of the Monthly Amount due on a Repayment Date
that the Purchaser has not been able to convert into shares of Common Stock due
to failure to meet the Conversion Criteria, shall be paid by the Company in
cash at the rate of 103% of the Monthly Amount otherwise due on such Repayment
Date, within three (3) business days of the applicable Repayment Date.
(c) Application of Conversion Amounts. Any amounts converted by
the Purchaser pursuant to Section 2.1(b) shall be deemed to constitute payments
of, or applied against, (i) first, outstanding fees, (ii) second, accrued
interest on the Amortizing Principal Xxxxxx, (iii) third, accrued interest on
the Non-Amortizing Principal Xxxxxx and (iv) fourth, the Amortizing Principal
Xxxxxx.
2.2 No Effective Registration. Notwithstanding anything to the
contrary herein, no amount payable hereunder may be converted into Common
Stock unless (a) either (i) an effective current Registration Statement (as
defined in the Registration Rights Agreement) covering the shares of Common
Stock to be issued in satisfaction of such obligations exists, or (ii) an
exemption from registration of the Common Stock is available pursuant to Rule
144 of the Securities Act and under the registration, permit or qualification
requirements of all applicable state securities laws, and (b) no Event of
Default hereunder exists and is continuing, unless such Event of Default is
cured within any applicable cure period or is otherwise waived in writing by
the Purchaser in whole or in part at the Purchaser's option.
2.3 Optional Redemption of Amortizing Principal Amount. The Company
will have the option of prepaying the outstanding Amortizing Principal Amount
("OPTIONAL AMORTIZING REDEMPTION"), in whole or in part, by paying to the
Purchaser a sum of money equal to one hundred twenty five percent (125%) of the
Amortizing Principal Amount to be redeemed, together with accrued but unpaid
interest thereon and any and all other sums due, accrued or payable to the
Purchaser arising under this Note, the Purchase Agreement or any Related
Agreement (the "AMORTIZING REDEMPTION AMOUNT") on the Amortizing Redemption
Payment Date (as defined below). The Company shall deliver to the Purchaser a
notice of redemption (the "NOTICE OF AMORTIZING REDEMPTION") specifying the
date for such Optional Amortizing Redemption (the "AMORTIZING REDEMPTION
PAYMENT DATE"), which date shall be not less than seven (7) business days after
the date of the Notice of Amortizing Redemption (the "REDEMPTION PERIOD"). A
Notice of Amortizing Redemption shall not be effective with respect to any
portion of the Amortizing Principal Amount for which the Purchaser has a
pending election to convert pursuant to Section 3.1, or for conversions
initiated or made by the Purchaser pursuant to Section 3.1 during the
Redemption Period. The Amortizing Redemption Amount shall be determined as if
such Purchaser's conversion elections had been completed immediately prior to
the date of the Notice of Amortizing Redemption. On the Amortizing Redemption
Payment Date, the Amortizing Redemption Amount shall be paid in good funds to
the Purchaser. In the event the Company fails to pay the Amortizing Redemption
Amount on the Amortizing Redemption Payment Date as set forth herein, then
such Notice of Amortizing Redemption will be null and void.
2.4 Optional Redemption of Non-Amortizing Principal Amount. The
Company will have the option of repaying the outstanding Non-Amortizing
Principal Amount ("OPTIONAL NON-AMORTIZING REDEMPTION"), in whole or in part,
by paying the Purchaser a sum of money equal to one hundred fifteen percent
(115%) of the Non-Amortizing Principal Amount to be redeemed, together with
accrued but unpaid interest thereon (the "NON-AMORTIZING REDEMPTION AMOUNT") on
the Non-Amortizing Redemption Date (as defined below). The Company shall
deliver to the Purchaser a written notice of redemption (the "NOTICE OF NON-
AMORTIZING REDEMPTION") specifying the date for such Optional Non-Amortizing
Redemption (the "NON-AMORTIZING REDEMPTION DATE"), which date shall be not less
than seven (7) business days after the date of the Notice of Non-Amortizing
Redemption (the "NON-AMORTIZING REDEMPTION PERIOD"). A Notice of Non-
Amortizing Redemption shall not be effective with respect to any portion of the
Non-Amortizing Principal Amount for which the Purchaser has a pending election
to convert pursuant to Section 3.1, or for conversions initiated or made by the
Purchaser pursuant to Section 3.1 during the Non-Amortizing Redemption Period.
The Non-Amortizing Redemption Amount shall be determined as if the Purchaser's
conversion elections had been completed immediately prior to the date of the
Notice of Non-Amortizing Redemption. On the Non-Amortizing Redemption Date,
the Non-Amortizing Redemption Amount shall be paid (i) in good funds to the
Purchaser, (ii) by furnishing the Purchaser written direction to notify the
bank holding the Restricted Account to release from the Restricted Account and
deliver to the Purchaser a sum of money equal to the Non-Amortizing Redemption
Amount, or (iii) if the amount on deposit in the Restricted Account is less
than the Non-Amortizing Redemption Amount, by furnishing the Purchaser written
direction to notify the bank holding the Restricted Account to release all
amounts on deposit in the Restricted Account to the Purchaser and delivering to
the Purchaser good funds in an amount equal to the balance of the Non-
Amortizing Redemption Amount.
2.5 Mandatory Conversion. Subject to Sections 2.2 and 3.2 hereof, if
(i) the average closing price of the Common Stock as reported by Bloomberg,
L.P. on the Principal Market for the five (5) consecutive trading days and is
greater than or equal to 400% of the Fixed Conversion Price, the Company may
deliver a written notice to the Purchaser (a "Mandatory Conversion Notice")
requiring the conversion into Common Stock of all or a portion of the
outstanding Principal Amount, provided however, that the amount of such
conversion set forth in the Mandatory Conversion Notice does not exceed twenty
percent (20%) of the aggregate dollar trading volume of the Common Stock for
the twenty two (22) day trading period immediately preceding the date of the
applicable Mandatory Conversion Notice (the "Mandatory Conversion Criteria").
If the Mandatory Conversion Criteria are not met, the Purchaser shall convert
only such portion of the outstanding Principal Amount that meets the Mandatory
Conversion Criteria.
ARTICLE III
CONVERSION RIGHTS
3.1. Purchaser's Conversion Rights. Subject to Section 2.2, the
Purchaser shall have the right, but not the obligation, to convert all or any
portion of the then aggregate outstanding principal amount of this Note (the
"Principal Amount"), together with interest and fees due hereon, into shares of
Common Stock, subject to the terms and conditions set forth in this Article
III. The Purchaser may exercise such right by delivery to the Company of a
written Notice of Conversion pursuant to Section 3.3. The shares of Common
Stock to be issued upon such conversion are herein referred to as the
"CONVERSION SHARES."
3.2 Conversion Limitation. Notwithstanding anything contained herein to
the contrary, the Purchaser shall not be entitled to convert pursuant to the
terms of this Note an amount that would be convertible into that number of
Conversion Shares which would exceed the difference between 4.99% of the issued
and outstanding shares of Common Stock and the number of shares of Common Stock
beneficially owned by such Purchaser or issuable upon exercise of Warrants held
by such Purchaser. For the purposes of the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of
the Exchange Act and Regulation 13d-3 thereunder. The Purchaser may void the
Conversion Share limitation described in this Section 3.2 upon 75 days prior
notice to the Company or without any notice requirement upon an Event of
Default.
3.3 Mechanics of Purchaser's Conversion. (a) In the event that the
Purchaser elects to convert any amounts outstanding under this Note into Common
Stock, the Purchaser shall give notice of such election by delivering an
executed and completed notice of conversion (a "NOTICE OF CONVERSION") to the
Company, which Notice of Conversion shall provide a breakdown in reasonable
detail of the Principal Amount, accrued interest and fees being converted. On
each Conversion Date (as hereinafter defined) and in accordance with its Notice
of Conversion, the Purchaser shall make the appropriate reduction to the
Principal Amount, accrued interest and fees as entered in its records and shall
provide written notice thereof to the Company within two (2) business days
after the Conversion Date. Each date on which a Notice of Conversion is
delivered or telecopied to the Company in accordance with the provisions hereof
shall be deemed a "CONVERSION DATE". A form of Notice of Conversion to be
employed by the Purchaser is annexed hereto as Exhibit A.
(b) Pursuant to the terms of a Notice of Conversion, the Company
will issue instructions to the transfer agent accompanied by an opinion of
counsel, if so required by the Company's transfer agent, within one (1)
business day of the date of the delivery to Company of the Notice of Conversion
and shall cause the transfer agent to transmit the certificates representing
the Conversion Shares to the Purchaser by crediting the account of the
Purchaser's designated broker with the Depository Trust Corporation ("DTC")
through its Deposit Withdrawal Agent Commission ("DWAC") system within three
(3) business days after receipt by the Company of the Notice of Conversion (the
"DELIVERY DATE"). In the case of the exercise of the conversion rights set
forth herein the conversion privilege shall be deemed to have been exercised
and the Conversion Shares issuable upon such conversion shall be deemed to have
been issued upon the date of receipt by the Company of the Notice of
Conversion. The Purchaser shall be treated for all purposes as the record
Purchaser of such shares of Common Stock, unless the Purchaser provides the
Company written instructions to the contrary.
3.4 Conversion Mechanics.
(a) The number of shares of Common Stock to be issued upon each
conversion of this Note pursuant to this Article III shall be determined by
dividing that portion of the Principal Amount and interest and fees to be
converted, if any, by the then applicable Fixed Conversion Price. In the event
of any conversions of outstanding obligations under this Note in part pursuant
to this Article III, such conversions shall be deemed to constitute conversions
(i) first, of the Monthly Amount for the current calendar month, (ii) then of
the accrued interest on the Non-Amortizing Principal Xxxxxx, (iii) then of
outstanding Amortizing Principal Amount, by applying the conversion amount to
Monthly Principal Amounts for the remaining Repayment Dates in chronological
order and (iv) then, of outstanding Non-Amortizing Principal Amount.
(b) The Fixed Conversion Price and number and kind of shares or
other securities to be issued upon conversion are subject to adjustment from
time to time upon the occurrence of certain events, as follows:
A. Stock Splits, Combinations and Dividends. If the
shares of Common Stock are subdivided or combined into a greater or
smaller number of shares of Common Stock, or if a dividend is paid on the
Common Stock in shares of Common Stock, the Fixed Conversion Price or the
Conversion Price, as the case may be, shall be proportionately reduced in
case of subdivision of shares or stock dividend or proportionately
increased in the case of combination of shares, in each such case by the
ratio which the total number of shares of Common Stock outstanding
immediately after such event bears to the total number of shares of
Common Stock outstanding immediately prior to such event.
B. During the period the conversion right exists, the
Company will reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of Common Stock
upon the full conversion of this Note. The Company represents that upon
issuance, such shares will be duly and validly issued, fully paid and
non-assessable. The Company agrees that its issuance of this Note shall
constitute full authority to its officers, agents, and transfer agents
who are charged with the duty of executing and issuing stock certificates
to execute and issue the necessary certificates for shares of Common
Stock upon the conversion of this Note.
C. Share Issuances. Subject to the provisions of this
Section 3.4, if the Company shall at any time prior to the conversion or
repayment in full of the Principal Amount issue any shares of Common
Stock or securities convertible into Common Stock to a person other than
the Purchaser (except (i) pursuant to Subsections A or B above; (ii)
pursuant to options, warrants or other obligations to issue shares
outstanding on the date hereof as disclosed to Purchaser in writing; or
(iii) pursuant to options that may be issued under any employee incentive
stock option and/or any qualified stock option plan adopted by the
Company) for a consideration per share (the "OFFER PRICE") less than the
Fixed Conversion Price in effect at the time of such issuance, then the
Fixed Conversion Price shall be immediately reset to such lower Offer
Price. For purposes hereof, the issuance of any security of the Company
convertible into or exercisable or exchangeable for Common Stock shall
result in an adjustment to the Fixed Conversion Price at the time of
issuance of such securities.
D. Reclassification, etc. If the Company at any time
shall, by reclassification or otherwise, change the Common Stock into the
same or a different number of securities of any class or classes, this
Note, as to the unpaid Principal Amount and accrued interest thereon,
shall thereafter be deemed to evidence the right to purchase an adjusted
number of such securities and kind of securities as would have been
issuable as the result of such change with respect to the Common Stock
immediately prior to such reclassification or other change.
3.5 Issuance of Replacement Note. Upon any partial conversion of this
Note, a replacement Note containing the same date and provisions of this Note
shall (in exchange for presentation of the Note for cancellation by the
Company), at the written request of the Purchaser, be issued by the Company to
the Purchaser for the outstanding Principal Amount of this Note and accrued
interest which shall not have been converted or paid. Subject to the provisions
of Article IV, the Company will pay no costs, fees or any other consideration
to the Purchaser for the production and issuance of a replacement Note.
ARTICLE IV
EVENTS OF DEFAULT
Upon the occurrence and continuance of an Event of Default beyond any
applicable cure or grace period, the Purchaser may make all sums of principal,
interest and other fees then remaining unpaid hereon and all other amounts
payable hereunder immediately due and payable. In the event of such an
acceleration, the amount due and owing to the Purchaser shall be the sum of
(i) 125% of the outstanding Amortizing Principal Amount l of the Note and (ii)
115% of the outstanding Non-Amortizing Principal Amount of the Note,
respectively, ( each such amount to include accrued and unpaid interest and
fees, if any) (the "DEFAULT PAYMENT"). The Default Payment shall be applied
first to any fees due and payable to Purchaser pursuant to this Note, the
Purchase Agreement or the Related Agreements, then to accrued and unpaid
interest due on the Note and then to outstanding principal balance of the Note.
The occurrence of any of the following events set forth in Sections 4.1
through 4.10, inclusive, is an "EVENT OF DEFAULT":
4.1 Failure to Pay Principal, Interest or other Fees. (i) The Company
fails to pay when due, any installment of principal, interest or other fees
hereon in accordance herewith , or (ii) the Company fails to pay, when due,
any amount due (in excess of $100,000 in the aggregate at any time outstanding)
under any other promissory note issued by the Company and in any such case,
such failure shall continue for a period of three (3) days following the date
such payment was due .
4.2 Breach of Covenant. The Company breaches any covenant or any other
term or condition of this Note, the Purchase Agreement or any Related Agreement
in any material respect, and, in any such case, such breach, if subject to
cure, continues for a period of thirty (30) days after the occurrence thereof.
4.3 Breach of Representations and Warranties. Any representation or
warranty made by the Company in this Note, the Purchase Agreement or any
Related Agreement, shall, in any such case, be false or misleading in any
material respect on the date that such representation or warranty was made or
deemed made.
4.4 Receiver or Trustee. The Company shall make an assignment for the
benefit of creditors, or apply for or consent to the appointment of a receiver
or trustee for it or for a substantial part of its property or business; or
such a receiver or trustee shall otherwise be appointed.
4.5 Judgments. Any money judgment, writ or similar final process shall
be entered or filed against the Company or any of its property or other assets
for more than $100,000 and shall remain unvacated, unbonded or unstayed for a
period of thirty (30) days.
4.6 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by the Company, or if against the
Company, such proceedings shall not dismissed within thirty (30) days.
4.7 Stop Trade. An SEC stop trade order or Principal Market trading
suspension of the Common Stock shall be in effect for five (5) consecutive days
or five (5) days during a period of ten (10) consecutive days, excluding in all
cases a suspension of all trading on a Principal Market, provided that the
Company shall not have been able to cure such trading suspension within thirty
(30) days of the notice thereof or list the Common Stock on another Principal
Market within sixty (60) days of such notice. The "PRINCIPAL MARKET" for the
Common Stock shall include the NASD OTC Bulletin Board, NASDAQ SmallCap Market,
NASDAQ National Market System, American Stock Exchange, or New York Stock
Exchange (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock).
4.8 Failure to Deliver Common Stock or Replacement Note. The Company
shall fail (i) to timely deliver Common Stock to the Purchaser pursuant to and
in the form required by this Note, and Section 9 of the Purchase Agreement, if
such failure to timely deliver Common Stock shall not be cured within two (2)
business days or (ii) to deliver a replacement Note to Purchaser within seven
(7) business days following the required date of such issuance pursuant to this
Note, the Purchase Agreement or any Related Agreement (to the extent required
under such agreements).
1.1 Default Under Related Agreements or Other Agreements. The
occurrence and continuance of any Event of Default (as defined
in the Purchase Agreement or any Related Agreement) or any
event of default (or similar term) under any other
indebtedness in excess of $100,000 that causes acceleration of
such indebtedness.
1.2 Change in Control. There shall be a change in control in the
record or beneficial ownership of an aggregate of more than
forty percent (40%) of the outstanding Common Stock, in one
or more transactions, compared to the ownership of outstanding
shares of Common Stock on the date hereof, without the prior
written consent of Holder, which consent shall not be
unreasonably withheld (other than the sale of the Borrower's
equity securities in a public offering or to venture capital
or other private equity investors so long as the Borrower
identifies and advises Holder prior to the closing of the
investment or to strategic investors so long as Borrower
identifies the strategic investor prior to the closing of the
investment or issuances to the Holder) unless in the event the
Company shall dissolve, liquidate or merge with any other
person or entity, the Company is the surviving entity or the
successor entity is solvent and expressly assumes all of the
duties and obligations of the Company and its Subsidiaries
under this Agreement and Related Agreements.
DEFAULT RELATED PROVISIONS
4.11 Default Interest Rate. Following the occurrence and during the
continuance of an Event of Default, the Company shall pay additional interest
on this Note in an amount equal to one and one half percent (1.50%) per month
and all outstanding obligations under this Note, including unpaid interest,
shall continue to accrue such additional interest from the date of such Event
of Default until the date such Event of Default is cured or waived.
4.12 Conversion Privileges. The conversion privileges set forth in
Article III shall remain in full force and effect immediately from the date
hereof and until this Note is paid in full.
4.13 Cumulative Remedies. The remedies under this Note shall be
cumulative.
ARTICLE V
MISCELLANEOUS
5.1 Failure or Indulgence Not Waiver. No failure or delay on the part
of the Purchaser hereof in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights and
remedies existing hereunder are cumulative to, and not exclusive of, any rights
or remedies otherwise available.
5.2 Notices. Any notice herein required or permitted to be given shall
be in writing and shall be deemed effectively given: (a) upon personal
delivery to the party notified, (b) when sent by confirmed telex or facsimile
if sent during normal business hours of the recipient, if not, then on the next
business day, (c) five days after having been sent by registered or certified
mail, return receipt requested, postage prepaid, or (d) one day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
Company at the address provided in the Purchase Agreement executed in
connection herewith, and to the Purchaser at the address provided in the
Purchase Agreement for such Purchaser, with a copy to Xxxx X. Xxxxxx, Esq., 000
Xxxxx Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, facsimile number (212) 541-
4434, or at such other address as the Company or the Purchaser may designate by
ten days advance written notice to the other parties hereto. A Notice of
Conversion shall be deemed given when made to the Company pursuant to the
Purchase Agreement.
5.3 Amendment Provision. The term "Note" and all reference thereto, as
used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented, and any successor instrument issued pursuant to Section 3.5
hereof, as it may be amended or supplemented.
5.4 Assignability. This Note shall be binding upon the Company and its
successors and assigns, and shall inure to the benefit of the Purchaser and its
successors and assigns, and may be transferred by the Purchaser only in
accordance with the requirements of the Purchase Agreement and all applicable
federal and state securities laws. This Note shall not be assigned by the
Company without the consent of the Purchaser.
5.5 Governing Law. This Note 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 agree to submit to the jurisdiction of such
courts. The prevailing party shall be entitled to recover from the other party
its reasonable attorney's fees and costs. In the event that any provision of
this Note 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 unenforceability of any other
provision of this Note. Nothing contained herein shall be deemed or operate to
preclude the Purchaser from bringing suit or taking other legal action against
the Company in any other jurisdiction to collect on the Company's obligations
to Purchaser, to realize on any collateral or any other security for such
obligations, or to enforce a judgment or other court in favor of the Purchaser.
5.6 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate
of interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Company to the Purchaser and thus refunded to the
Company.
5.7 Security Interest. The Purchaser of this Note has been granted a
security interest in certain assets of the Company more fully described in a
Master Security Agreement dated as of the date hereof.
0.1 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Note and, therefore,
stipulates that the rule of construction that ambiguities are
to be resolved against the drafting party shall not be
applied in the interpretation of this Note to favor any party
against the other.
0.2 Cost of Collection. If default is made in the payment of
this Note, the Company shall pay to Purchaser reasonable
costs of collection, including reasonable attorney's fees.
[Balance of page intentionally left blank; signature page follows.]
IN WITNESS WHEREOF, the Company has caused this Note to be signed in its
name effective as of this 18th day of October, 2004.
IT&E INTERNATIONAL GROUP, INC.
By: /s/ Xxxxx X. Xxxxxxxx
-------------------------------
Name: Xxxxx X. Xxxxxxxx
Title: Chief Executive Officer
EXHIBIT A
NOTICE OF CONVERSION
(To be executed by the Purchaser in order to convert all or part of the Note
into Common Stock)
[Name and Address of Purchaser]
The Undersigned hereby converts $_________ of the principal due on [specify
applicable Repayment Date] under the Convertible Term Note issued by IT&E
INTERNATIONAL GROUP, INC. dated October __, 2004 by delivery of Shares of
Common Stock of IT&E INTERNATIONAL GROUP, INC. on and subject to the conditions
set forth in Article III of such Note.
1. Date of Conversion _______________________
2. Shares To Be Delivered: _______________________
By:_______________________________
Name:_____________________________
Title:______________________________
EXHIBIT B
FORM OF WARRANT
COMMON STOCK PURCHASE WARRANT
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS WARRANT AND
THE COMMON STOCK 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 AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO IT&E INTERNATIONAL GROUP, INC.
THAT SUCH REGISTRATION IS NOT REQUIRED.
Right to Purchase up to 1,924,000 Shares of Common Stock of
IT&E International Group, Inc.
(subject to adjustment as provided herein)
COMMON STOCK PURCHASE WARRANT
No. _________________Issue Date: October 18, 2004
IT&E INTERNATIONAL GROUP, INC., a corporation organized under the laws of
the State of Nevada ("IT&E International Group, Inc."), hereby certifies that,
for value received, LAURUS MASTER FUND, LTD., or assigns (the "Holder"), is
entitled, subject to the terms set forth below, to purchase from the Company
(as defined herein) from and after the Issue Date of this Warrant and at any
time or from time to time before 5:00 p.m., New York time, through the close of
business October 18, 2011 (the "Expiration Date"), up to 1,924,000 fully paid
and nonassessable shares of Common Stock (as hereinafter defined), $0.01 par
value per share, at the applicable Exercise Price per share (as defined below).
The number and character of such shares of Common Stock and the applicable
Exercise Price per share are subject to adjustment as provided herein.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" shall include IT&E International Group,
Inc. and any corporation which shall succeed, or assume the obligations
of, IT&E International Group, Inc. hereunder.
(b) The term "Common Stock" includes (i) the Company's Common
Stock, par value $0.01 per share; and (ii) any other securities into
which or for which any of the securities described in (i) may be
converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than
Common Stock) and other securities of the Company or any other person
(corporate or otherwise) which the Holder at any time shall be entitled
to receive, or shall have received, on the exercise of the Warrant, in
lieu of or in addition to Common Stock, or which at any time shall be
issuable or shall have been issued in exchange for or in replacement of
Common Stock or Other Securities pursuant to Section 4 or otherwise.
(d) The "Exercise Price" applicable under this Warrant shall be
as follows:
(i) a price of $.94 ,125% of the Fixed Conversion Price (as
defined in the Note) for the first 962,000 shares acquired
hereunder; and
(ii) a price of $1.12 ,150% of the Fixed Conversion Price or
the next 962,000 shares acquired hereunder
1. Exercise of Warrant.
1.1 Number of Shares Issuable upon Exercise. From and after the date
hereof through and including the Expiration Date, the Holder shall
be entitled to receive, upon exercise of this Warrant in whole or
in part, by delivery of an original or fax copy of an exercise
notice in the form attached hereto as Exhibit A (the "Exercise
Notice"), shares of Common Stock of the Company, subject to
adjustment pursuant to Section 4.
1.2 Fair Market Value. For purposes hereof, the "Fair Market Value" of
a share of Common Stock as of a particular date (the "Determination
Date") shall mean:
(a) If the Company's Common Stock is traded on the American Stock
Exchange or another national exchange or is quoted on the
National or SmallCap Market of The Nasdaq Stock Market,
Inc.("Nasdaq"), then the closing or last sale price,
respectively, reported for the last business day immediately
preceding the Determination Date.
(b) If the Company's Common Stock is not traded on the American
Stock Exchange or another national exchange or on the Nasdaq
but is traded on the NASD OTC Bulletin Board, then the mean
of the average of the closing bid and asked prices reported
for the last business day immediately preceding the
Determination Date.
(c) Except as provided in clause (d) below, if the Company's
Common Stock is not publicly traded, then as the Holder and
the Company agree or in the absence of agreement by
arbitration in accordance with the rules then in effect of
the American Arbitration Association, before a single
arbitrator to be chosen from a panel of persons qualified by
education and training to pass on the matter to be decided.
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a
liquidation, dissolution or winding up pursuant to the
Company's charter, then all amounts to be payable per share
to holders of the Common Stock pursuant to the charter in the
event of such liquidation, dissolution or winding up, plus
all other amounts to be payable per share in respect of the
Common Stock in liquidation under the charter, assuming for
the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of the Warrant are
outstanding at the Determination Date.
1.3 Company Acknowledgment. The Company will, at the time of the
exercise of the Warrant, upon the request of the Holder hereof
acknowledge in writing its continuing obligation to afford to such
Holder any rights to which such Holder shall continue to be
entitled after such exercise in accordance with the provisions of
this Warrant. If the Holder shall fail to make any such request,
such failure shall not affect the continuing obligation of the
Company to afford to such Holder any such rights.
1.4 Trustee for Warrant Holders. In the event that a bank or trust
company shall have been appointed as trustee for the Holders
pursuant to Subsection 3.2, such bank or trust company shall have
all the powers and duties of a warrant agent (as hereinafter
described) and shall accept, in its own name for the account of the
Company or such successor person as may be entitled thereto, all
amounts otherwise payable to the Company or such successor, as the
case may be, on exercise of this Warrant pursuant to this Section
1.
2. Procedure for Exercise.
2.1 Delivery of Stock Certificates, Etc., on Exercise. The Company
agrees that the shares of Common Stock purchased upon exercise of
this Warrant shall be deemed to be issued to the Holder as the
record owner of such shares as of the close of business on the date
on which this Warrant shall have been surrendered and payment made
for such shares in accordance herewith. As soon as practicable
after the exercise of this Warrant in full or in part, and in any
event within three (3) business days thereafter, the Company at its
expense (including the payment by it of any applicable issue taxes)
will cause to be issued in the name of and delivered to the Holder,
or as such Holder (upon payment by such Holder of any applicable
transfer taxes) may direct in compliance with applicable federal
and state securities laws, a certificate or certificates for the
number of duly and validly issued, fully paid and nonassessable
shares of Common Stock (or Other Securities) to which such Holder
shall be entitled on such exercise, plus, in lieu of any fractional
share to which such Holder would otherwise be entitled, cash equal
to such fraction multiplied by the then Fair Market Value of one
full share, together with any other stock or other securities and
property (including cash, where applicable) to which such Holder is
entitled upon such exercise pursuant to Section 1 or otherwise.
2.2 Exercise. Payment may be made either in cash or by certified or
official bank check payable to the order of the Company equal to
the applicable aggregate Exercise Price, for the number of shares
of Common Stock specified in such Exercise Notice (as such exercise
number shall be adjusted to reflect any adjustment in the total
number of shares of Common Stock issuable to the Holder per the
terms of this Warrant) and the Holder shall thereupon be entitled
to receive the number of duly authorized, validly issued, fully-
paid and non-assessable shares of Common Stock (or Other
Securities) determined as provided herein.
3. Effect of Reorganization, Etc.; Adjustment of Exercise Price.
3.1 Reorganization, Consolidation, Merger, Etc. In case at any time or
from time to time, the Company shall (a) effect a reorganization,
(b) consolidate with or merge into any other person, or (c)
transfer all or substantially all of its properties or assets to
any other person under any plan or arrangement contemplating the
dissolution of the Company, then, in each such case, as a condition
to the consummation of such a transaction, proper and adequate
provision shall be made by the Company whereby the Holder, on the
exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the
effective date of such dissolution, as the case may be, shall
receive, in lieu of the Common Stock (or Other Securities) issuable
on such exercise prior to such consummation or such effective date,
the stock and other securities and property (including cash) to
which such Holder would have been entitled upon such consummation
or in connection with such dissolution, as the case may be, if such
Holder had so exercised this Warrant, immediately prior thereto,
all subject to further adjustment thereafter as provided in Section
4.
3.2 Dissolution. In the event of any dissolution of the Company
following the transfer of all or substantially all of its
properties or assets, the Company, concurrently with any
distributions made to holders of its Common Stock, shall at its
expense deliver or cause to be delivered to the Holder the stock
and other securities and property (including cash, where
applicable) receivable by the Holder pursuant to Section 3.1, or,
if the Holder shall so instruct the Company, to a bank or trust
company specified by the Holder and having its principal office in
New York, NY as trustee for the Holder (the "Trustee").
3.3 Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer)
referred to in this Section 3, this Warrant shall continue in full
force and effect and the terms hereof shall be applicable to the
shares of stock and other securities and property receivable on the
exercise of this Warrant after the consummation of such
reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and
shall be binding upon the issuer of any such stock or other
securities, including, in the case of any such transfer, the person
acquiring all or substantially all of the properties or assets of
the Company, whether or not such person shall have expressly
assumed the terms of this Warrant as provided in Section 4. In the
event this Warrant does not continue in full force and effect after
the consummation of the transactions described in this Section 3,
then the Company's securities and property (including cash, where
applicable) receivable by the Holders will be delivered to Holder
or the Trustee as contemplated by Section 3.2.
4. Extraordinary Events Regarding Common Stock. In the event that the Company
shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its
outstanding shares of Common Stock, or (c) combine its outstanding shares
of the Common Stock into a smaller number of shares of the Common Stock,
then, in each such event, the Exercise Price shall, simultaneously with
the happening of such event, be adjusted by multiplying the then Exercise
Price by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to such event and the
denominator of which shall be the number of shares of Common Stock
outstanding immediately after such event, and the product so obtained
shall thereafter be the Exercise Price then in effect. The Exercise
Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this
Section 4. The number of shares of Common Stock that the Holder shall
thereafter, on the exercise hereof as provided in Section 1, be entitled
to receive shall be increased to a number determined by multiplying the
number of shares of Common Stock that would otherwise (but for the
provisions of this Section 4) be issuable on such exercise by a fraction
of which (a) the numerator is the Exercise Price that would otherwise
(but for the provisions of this Section 4) be in effect, and (b) the
denominator is the Exercise Price in effect on the date of such exercise.
5. Certificate as to Adjustments. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable
on the exercise of the Warrant, the Company at its expense will promptly
cause its Chief Financial Officer or other appropriate designee to
compute such adjustment or readjustment in accordance with the terms of
the Warrant and prepare a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment
or readjustment is based, including a statement of (a) the consideration
received or receivable by the Company for any additional shares of Common
Stock (or Other Securities) issued or sold or deemed to have been issued
or sold, (b) the number of shares of Common Stock (or Other Securities)
outstanding or deemed to be outstanding, and (c) the Exercise Price and
the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment
and as adjusted or readjusted as provided in this Warrant. The Company
will forthwith mail a copy of each such certificate to the Holder and any
Warrant agent of the Company (appointed pursuant to Section 11 hereof).
6. Reservation of Stock, Etc., Issuable on Exercise of Warrant. The Company
will at all times reserve and keep available, solely for issuance and
delivery on the exercise of the Warrant, shares of Common Stock (or Other
Securities) from time to time issuable on the exercise of the Warrant.
7. Assignment; Exchange of Warrant. Subject to compliance with applicable
securities laws, this Warrant, and the rights evidenced hereby, may be
transferred by any registered Holder hereof (a "Transferor") in whole or
in part. On the surrender for exchange of this Warrant, with the
Transferor's endorsement in the form of Exhibit B attached hereto (the
"Transferor Endorsement Form") and together with evidence reasonably
satisfactory to the Company demonstrating compliance with applicable
securities laws, which shall include, without limitation, the provision
of a legal opinion from the Transferor's counsel (at the Company's
expense) that such transfer is exempt from the registration requirements
of applicable securities laws, and with payment by the Transferor of any
applicable transfer taxes) will issue and deliver to or on the order of
the Transferor thereof a new Warrant of like tenor, in the name of the
Transferor and/or the transferee(s) specified in such Transferor
Endorsement Form (each a "Transferee"), calling in the aggregate on the
face or faces thereof for the number of shares of Common Stock called for
on the face or faces of the Warrant so surrendered by the Transferor.
8. Replacement of Warrant. On receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such loss, theft or destruction of this Warrant,
on delivery of an indemnity agreement or security reasonably satisfactory
in form and amount to the Company or, in the case of any such mutilation,
on surrender and cancellation of this Warrant, the Company at its expense
will execute and deliver, in lieu thereof, a new Warrant of like tenor.
9. Registration Rights. The Holder has been granted certain registration
rights by the Company. These registration rights are set forth in a
Registration Rights Agreement entered into by the Company and Holder
dated as of even date of this Warrant.
10.Maximum Exercise. [The Holder shall not be entitled to exercise this
Warrant on an exercise date, in connection with that number of shares of
Common Stock which would be in excess of the sum of (i) the number of
shares of Common Stock beneficially owned by the Holder and its
affiliates on an exercise date, and (ii) the number of shares of Common
Stock issuable upon the exercise of this Warrant with respect to which
the determination of this proviso is being made on an exercise date,
which would result in beneficial ownership by the Holder and its
affiliates of more than 4.99% of the outstanding shares of Common Stock
of the Company on such date. For the purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined
in accordance with Section 13(d) of the Securities Exchange Act of 1934,
as amended, and Regulation 13d-3 thereunder. Notwithstanding the
foregoing, the restriction described in this paragraph may be revoked
upon 75 days prior notice from the Holder to the Company and is
automatically null and void upon an Event of Default under the Note made
by the Company to the Holder dated the date hereof (as amended, modified
or supplemented from time to time, the "Note").
11.Warrant Agent. The Company may, by written notice to the Holder, appoint an
agent for the purpose of issuing Common Stock (or Other Securities) on
the exercise of this Warrant pursuant to Section 1, exchanging this
Warrant pursuant to Section 7, and replacing this Warrant pursuant to
Section 8, or any of the foregoing, and thereafter any such issuance,
exchange or replacement, as the case may be, shall be made at such office
by such agent.
12.Transfer on the Company's Books. Until this Warrant is transferred on the
books of the Company, the Company may treat the registered Holder hereof
as the absolute owner hereof for all purposes, notwithstanding any notice
to the contrary.
13.Notices, Etc. All notices and other communications from the Company to the
Holder shall be mailed by first class registered or certified mail,
postage prepaid, at such address as may have been furnished to the
Company in writing by such Holder or, until any such Holder furnishes to
the Company an address, then to, and at the address of, the last Holder
who has so furnished an address to the Company.
14.Miscellaneous. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or
termination is sought. This Warrant shall be governed by and construed in
accordance with the laws of State of New York without regard to
principles of conflicts of laws. Any action brought concerning the
transactions contemplated by this Warrant shall be brought only in the
state courts of New York or in the federal courts located in the state of
New York; provided, however, that the Holder may choose to waive this
provision and bring an action outside the state of New York. The
individuals executing this Warrant on behalf of the Company agree to
submit to the jurisdiction of such courts and waive trial by jury. The
prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any provision of
this Warrant is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the
extent that it may conflict therewith and shall be deemed modified to
conform with such statute or rule of law. Any such provision which may
prove invalid or unenforceable under any law shall not affect the
validity or enforceability of any other provision of this Warrant. The
headings in this Warrant are for purposes of reference only, and shall
not limit or otherwise affect any of the terms hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the
validity or enforceability of any other provision hereof. The Company
acknowledges that legal counsel participated in the preparation of this
Warrant and, therefore, stipulates that the rule of construction that
ambiguities are to be resolved against the drafting party shall not be
applied in the interpretation of this Warrant to favor any party against
the other party.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURE PAGE FOLLOWS.]
IN WITNESS WHEREOF, the Company has executed this Warrant as of the date
first written above.
IT&E INTERNATIONAL GROUP, INC.
WITNESS:
By: /s/ Xxxxx X. Xxxxxxxx
-------------------------------
Name: Xxxxx X. Xxxxxxxx
Title: Chief Executive Officer
FORM OF SUBSCRIPTION
(To Be Signed Only On Exercise Of Warrant)
TO: IT&E International Group, Inc.
Attention: Chief Financial Officer
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No.____), hereby irrevocably elects to purchase (check applicable
box):
________ shares of the Common Stock covered by such Warrant; or
the maximum number of shares of Common Stock covered by such Warrant pursuant
to the cashless exercise procedure set forth in Section 2.
The undersigned herewith makes payment in lawful money of the United
States of the full Exercise Price for such shares at the price per share
provided for in such Warrant, which is $___________.
The undersigned requests that the certificates for such shares be issued
in the name of, and delivered to ______________________________________________
whose address is
___________________________________________________________________________.
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant
shall be made pursuant to registration of the Common Stock under the Securities
Act of 1933, as amended (the "Securities Act") or pursuant to an exemption from
registration under the Securities Act and any applicable state securities laws.
Dated:
(Signature must conform to name of Xxxxxx as specified on the face of
the Warrant)
Address:
FORM OF TRANSFEROR ENDORSEMENT
(To Be Signed Only On Transfer Of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto the person(s) named below under the heading "Transferees" the right
represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of IT&E International Group, Inc. into which the within
Warrant relates specified under the headings "Percentage Transferred" and
"Number Transferred," respectively, opposite the name(s) of such person(s) and
appoints each such person Attorney to transfer its respective right on the
books of IT&E International Group, Inc. with full power of substitution in the
premises.
Percentage Number Transferred Transferees Address Transferred
Dated:
(Signature must conform to name of Xxxxxx as specified on the face of
the Warrant)
Address:
SIGNED IN THE PRESENCE OF:
(Name)
ACCEPTED AND AGREED:
[TRANSFEREE]
(Name)
EXHIBIT C
FORM OF OPINION
1. The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Nevada and has all
requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as it is now being conducted.
2. The Company has the requisite corporate power and authority to
execute, deliver and perform its obligations under the Agreement and the
Related Agreements. All corporate action on the part of the Company and its
officers, directors and stockholders necessary has been taken for: (i) the
authorization of the Agreement and the Related Agreements and the performance
of all obligations of the Company thereunder at the Closing; and (ii) the
authorization, sale, issuance and delivery of the Securities pursuant to the
Agreement and the Related Agreements. The Note Shares and the Warrant Shares,
when issued pursuant to and in accordance with the terms of the Agreement and
the Related Agreements and upon delivery shall be validly issued and
outstanding, fully paid and non assessable.
3. The execution, delivery and performance of the Agreement, the
Note or the Related Agreements by the Company and the consummation of the
transactions on its part contemplated by any thereof, will not, with or without
the giving of notice or the passage of time or both:
(a) Violate the provisions of the Charter or bylaws of the
Company;
(b) Violate any judgment, decree, order or award of any court
binding upon the Company; or
(c) Violate any [Insert jurisdictions in which counsel is
qualified] or federal law.
4. The Agreement and the Related Agreements will constitute, valid
and legally binding obligations of the Company, and are enforceable against the
Company in accordance with their respective terms, except:
(a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights;
and
(b) general principles of equity that restrict the availability
of equitable or legal remedies.
5. To such counsel's knowledge, the sale of the Note and the
subsequent conversion of the Note into Note Shares are not subject to any
preemptive rights or rights of first refusal that have not been properly waived
or complied with. To such counsel's knowledge, the sale of the Warrant and the
subsequent exercise of the Warrant for Warrant Shares are not subject to any
preemptive rights or, to such counsel's knowledge, rights of first refusal that
have not been properly waived or complied with.
C-l
6. Assuming the accuracy of the representations and warranties of
the Purchaser contained in the Agreement, the offer, sale and issuance of the
Securities on the Closing Date will be exempt from the registration
requirements of the Securities Act. To such counsel's
knowledge, neither the Company, nor any of its affiliates, nor any person
acting on its or their behalf, has directly or indirectly made any offers or
sales of any security or solicited any offers to buy and security under
circumstances that would cause the offering of the Securities pursuant to this
Agreement to be integrated with prior offerings by the Company for purposes of
the Securities Act which would prevent the Company from selling the Securities
pursuant to Rule 506 under the Securities Act, or any applicable exchange-
related stockholder approval provisions.
7. There is no action, suit, proceeding or investigation pending or,
to such counsel's knowledge, currently threatened against the Company that
prevents the right of the Company to enter into this Agreement or any of the
Related Agreements, or to consummate the transactions contemplated thereby.
The Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality; nor,
to such counsel's knowledge, is there any action, suit, proceeding or
investigation by the Company currently pending or which the Company intends to
initiate.
8. The terms and provisions of the Master Security Agreement create
a valid security interest in favor of the Purchaser, in the respective rights,
title and interests of the Company in and to the Collateral (as defined in the
Master Security Agreement). The UCC-1 Financing
Statement naming the Company as debtor and the Purchaser as secured party are
in proper form for filing and assuming that such UCC-1 Financing Statements
have been filed with the Secretary of State of [Delaware], the security
interest created under the Master Security
Agreement will constitute a perfected security interest under the Uniform
Commercial Code in favor of the Purchaser in respect of the Collateral that can
be perfected by filing a financing statement.
9. Assuming that North Fork Bank is a "bank" (as such term is defined
in Section 9-102(a)(8) of the UCC), and that the Restricted Account (as defined
in the Restricted Account Agreement) constitutes a "deposit account" (as such
term is defined in Section 9-102(a)(29) of
the UCC), under the Uniform Commercial Code, the due execution and delivery of
the Restricted Account Agreement perfects the Purchaser's security interest in
the Restricted Account.
C-2
EXHIBIT D
FORM OF ESCROW AGREEMENT
FUNDS ESCROW AGREEMENT
This Agreement (this "Agreement") is dated as of the day of October 18,
2004 among IT&E International Group, Inc. a Nevada corporation (the "Company"),
Laurus Master Fund, Ltd. (the "Purchaser"), and Loeb & Loeb LLP (the "Escrow
Agent"):
WITNESSETH:
WHEREAS, the Purchaser has advised the Escrow Agent that (a) the Company
and the Purchaser have entered into a Securities Purchase Agreement (the
"Purchase Agreement") for the sale by the Company to the Purchaser of a secured
convertible term note (the "Term Note"), (b) the Company has issued to the
Purchaser a common stock purchase warrant (the "Term Note Warrant") in
connection with the issuance of the Term Note, and (c) the Company and the
Purchaser have entered into a Registration Rights Agreement covering the
registration of the Company's common stock underlying the Term Note and the
Term Note Warrant (the "Term Note Registration Rights Agreement");
WHEREAS, the Company and the Purchaser wish the Purchaser to deliver to
the Escrow Agent copies of the Documents (as hereafter defined) and the
Escrowed Payment (as hereafter defined) to be held and released by Escrow Agent
in accordance with the terms and conditions of this Agreement; and
WHEREAS, the Escrow Agent is willing to serve as escrow agent pursuant
to the terms and conditions of this Agreement;
NOW THEREFORE, the parties agree as follows:
ARTICLE I
INTERPRETATION
1.1. Definitions. Whenever used in this Agreement, the following terms
shall have the meanings set forth below.
(a) "Agreement" means this Agreement, as amended,
modified and/or supplemented from time to time by written
agreement among the parties hereto.
(b) "Closing Payment" means the closing payment to be
paid to Laurus Capital Management, LLC, the fund manager, as set
forth on Schedule A hereto.
(c) "Disbursement Letter" means that certain letter
delivered to the Escrow Agent by each of the Purchaser and the
Company setting forth wire instructions and amounts to be
funded at the Closing.
(d) "Documents" means copies of the Disbursement Letter,
the Purchase Agreement, the Term Note, the Term Note Warrant, and
the Term Note Registration Rights Agreement.
(e) "Escrowed Payment" means $5,000,000.
1.2. Entire Agreement. This Agreement constitutes the entire
agreement among the parties hereto with respect to the matters contained herein
and supersedes all prior agreements, understandings, negotiations and
discussions of the parties, whether oral or written. There are no warranties,
representations and other agreements made by the parties in connection with the
subject matter hereof except as specifically set forth in this Agreement.
1.3. Extended Meanings. In this Agreement words importing the singular
number include the plural and vice versa; words importing the masculine gender
include the feminine and neuter genders. The word "person" includes an
individual, body corporate, partnership, trustee or trust or unincorporated
association, executor, administrator or legal representative.
1.4. Waivers and Amendments. This Agreement may be amended, modified,
superseded, cancelled, renewed or extended, and the terms and conditions hereof
may be waived, in each case only by a written instrument signed by all parties
hereto, or, in the case of a waiver, by the party waiving compliance. Except as
expressly stated herein, no
delay on the part of any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver on the part
of any party of any right, power or privilege hereunder preclude any other or
future exercise of any other right, power or privilege hereunder.
1.5. Headings. The division of this Agreement into articles,
sections, subsections and paragraphs and the insertion of headings are for
convenience of reference only and shall not affect the construction or
interpretation of this Agreement.
1.6. Law Governing this Agreement; Consent to Jurisdiction. 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. With
respect to any suit, action or proceeding relating to this Agreement or to the
transactions contemplated hereby ("Proceedings"), each party hereto irrevocably
submits to the exclusive jurisdiction of the courts of the County of New York,
State of New York and the United States District court located in the county of
New York in the State of New York. Each party hereto hereby irrevocably and
unconditionally (a) waives trial by jury in any Proceeding relating to this
Agreement and for any related counterclaim and (b) waives any objection which
it may have at any time to the laying of venue of any Proceeding brought in any
such court, waives any claim that such Proceedings have been brought in an
inconvenient forum and further waives the right to object, with respect to such
Proceedings, that such court does not have jurisdiction over such party. As
between the Company and the Purchaser, the
2
prevailing party shall be entitled to recover from the other party its
reasonable attorneys' fees and costs. In the event that any provision of this
Agreement is determined by a court of competent jurisdiction to be invalid or
unenforceable, then the remainder of this
Agreement shall not be affected and shall remain in full force and effect.
1.7. Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Agreement and, therefore, stipulates
that the rule of construction that ambiguities are to be resolved against the
drafting party shall not be applied in the interpretation of this Agreement to
favor any party against the other.
ARTICLE II
APPOINTMENT OF AND DELIVERIES TO THE ESCROW AGENT
2.1. Appointment. The Company and the Purchaser hereby irrevocably
designate and appoint the Escrow Agent as their escrow agent for the purposes
set forth herein, and the Escrow Agent by its execution and delivery of this
Agreement hereby accepts such appointment under the terms and conditions set
forth herein.
2.2. Copies of Documents to Escrow Agent. On or about the date hereof,
the Purchaser shall deliver to the Escrow Agent copies of the Documents
executed by the Company to the extent it is a party thereto.
2.3. Delivery of Escrowed Payment to Escrow Agent. On or about the
date hereof, the Purchaser shall deliver to the Escrow Agent the Escrowed
Payment.
2.4. Intention to Create Escrow Over the Escrowed Payment. The
Purchaser and the Company intend that the Escrowed Payment shall be held in
escrow by the Escrow Agent and released from escrow by the Escrow Agent only in
accordance with the terms and conditions of this Agreement.
ARTICLE III
RELEASE OF ESCROW
3.1. Release of Escrow. Subject to the provisions of Section 4.2, the
Escrow Agent shall release the Escrowed Payment from escrow as follows:
(a) Promptly following receipt by the Escrow Agent of (i)
copies of the fully executed Documents and this Agreement, (ii) the
Escrowed Payment in immediately available funds, (iii) joint written
instructions ("Joint Instructions") executed by the Company and the
Purchaser setting forth the payment direction instructions with respect
to the Escrowed Payment and (iv) Escrow Agent's verbal instructions from
Xxxxx Xxxx and/or Xxxxxx Xxxx (each of whom is a director of the
Purchaser) indicating that all closing conditions relating to the
Documents have been satisfied and directing that the Escrowed Payment be
disbursed by the Escrow Agent in accordance with the Joint Instructions,
then the Escrowed Payment shall be deemed released from escrow and shall
be promptly disbursed in accordance with the Joint
3
Instructions. The Joint Instructions shall include, without limitation. Escrow
Agent's authorization to retain from the Escrowed Payment Escrow Agent's fee
for acting as Escrow Agent hereunder and the Closing Payment for delivery to
Laurus Capital Management, LLC in accordance with the Joint Instructions.
(b) Upon receipt by the Escrow Agent of a final and non-
appealable judgment, order, decree or award of a court of competent
jurisdiction (a "Court Order") relating to the Escrowed Payment, the Escrow
Agent shall remit the Escrowed Payment in accordance with the Court Order. Any
Court Order shall be accompanied by an opinion of counsel for the party
presenting the Court Order to the Escrow Agent (which opinion shall be
satisfactory to the Escrow Agent) to the effect that the court issuing the
Court Order is a court of competent jurisdiction and that the Court Order is
final and non-appealable.
3.2. Acknowledgement of Company and Purchaser; Disputes. The Company
and the Purchaser acknowledge that the only terms and conditions upon which the
Escrowed Payment are to be released from escrow are as set forth in Sections 3
and 4 of this Agreement. The Company and the Purchaser reaffirm their agreement
to abide by *the terms and conditions of this Agreement with respect to the
release of the Escrowed Payment. Any dispute with respect to the release of the
Escrowed Payment shall be resolved pursuant to Section 4.2 or by written
agreement between the Company and Purchaser.
ARTICLE IV
CONCERNING THE ESCROW AGENT
4.1. Duties and Responsibilities of the Escrow Agent. The Escrow
Agent's duties and responsibilities shall be subject to the following terms and
conditions:
(a) The Purchaser and the Company acknowledge and agree
that the Escrow Agent (i) shall not be required to inquire into whether
the Purchaser, the Company or any other party is entitled to receipt of
any Document or all or any portion of the Escrowed Payment; (ii) shall
not be called upon to construe or review any Document or any other
document, instrument or agreement entered into in connection therewith;
(iii) shall be obligated only for the performance of such duties as are
specifically assumed by the Escrow Agent pursuant to this Agreement;
(iv) may rely on and shall be protected in acting or refraining from
acting upon any written notice, instruction, instrument, statement,
request or document furnished to it hereunder and believed by the Escrow
Agent in good faith to be genuine and to have been signed or presented
by the proper person or party, without being required to determine the
authenticity or correctness of any fact stated therein or the propriety
or validity or the service thereof; (v) may assume that any person
purporting to give notice or make any statement or execute any document
in connection with the provisions hereof has been duly authorized to do
so; (vi) shall not be responsible for the identity, authority or rights
of any person, firm or company executing or delivering or purporting to
execute or deliver this Agreement or any Document or any funds deposited
hereunder or any endorsement thereon or assignment thereof; (vii) shall
4
not be under any duty to give the property held by Xxxxxx Agent hereunder any
greater degree of care than Escrow Agent gives its own similar property; and
(viii) may consult counsel satisfactory to Escrow Agent (including, without
limitation, Xxxx & Xxxx, LLP or such other counsel of Escrow Agent's choosing);
the opinion of such counsel to be full and complete authorization and
protection in respect of any action taken, suffered or omitted by Escrow Agent
hereunder in good faith and in accordance with the opinion of such counsel.
(b) The Purchaser and the Company acknowledge that the
Escrow Agent is acting solely as a stakeholder at their request and that
the Escrow Agent shall not be liable for any action taken by Escrow
Agent in good faith and believed by Escrow Agent to be authorized or
within the rights or powers conferred upon Escrow Agent by this
Agreement. The Purchaser and the Company hereby, jointly and severally,
indemnify and hold harmless the Escrow Agent and any of Escrow Agent's
partners, employees, agents and representatives from and against any and
all actions taken or omitted to be taken by Escrow Agent or any of them
hereunder and any and all claims, losses, liabilities, costs, damages
and expenses suffered and/or incurred by the Escrow Agent arising in any
manner whatsoever out of the transactions contemplated by this Agreement
and/or any transaction related in any way hereto, including the fees of
outside counsel and other costs and expenses of defending itself against
any claims, losses, liabilities, costs, damages and expenses arising in
any manner whatsoever out the transactions contemplated by this
Agreement and/or any transaction related in any way hereto, except for
such claims, losses, liabilities, costs, damages and expenses incurred
by reason of the Escrow Agent's gross negligence or willful misconduct.
The Escrow Agent shall owe a duty only to the Purchaser and Company
under this Agreement and to no other person.
(c) The Purchaser and the Company shall jointly and
severally reimburse the Escrow Agent for its reasonable out-of-pocket
expenses (including counsel fees (which counsel may be Xxxx & Loeb LLP
or such other counsel of the Escrow Agent's choosing) incurred in
connection with the performance of its duties and responsibilities
hereunder, which shall not (subject to Section 4.1(b)) exceed $2,000.
(d) The Escrow Agent may at any time resign as Escrow
Agent hereunder by giving five (5) business days prior written notice of
resignation to the Purchaser and the Company. Prior to the effective
date of resignation as specified in such notice, the Purchaser and
Company will issue to the Escrow Agent a Joint Instruction authorizing
delivery of the Documents and the Escrowed Payment to a substitute
Escrow Agent selected by the Purchaser and the Company.. If no successor
Xxxxxx Agent is named by the Purchaser and the Company, the Escrow Agent
may apply to a court of competent jurisdiction in the State of New York
for appointment of a successor Xxxxxx Agent, and deposit the Documents
and the Escrowed Payment with the clerk of any such court and/or
otherwise commence an interpleader or similar action for a determination
of where to deposit the same.
5
(e) The Escrow Agent does not have and will not have any
interest in the Documents and the Escrowed Payment, but is serving only
as escrow agent, having only possession thereof.
(f) The Escrow Agent shall not be liable for any action
taken or omitted by it in good faith and reasonably believed by it to be
authorized hereby or within the rights or powers conferred upon it
hereunder, nor for action taken or omitted by it in good faith, and in
accordance with advice of counsel (which counsel may be Loeb & Loeb, LLP
or such other counsel of the Escrow Agent's choosing), and shall not be
liable for any mistake of fact or error of judgment or for any acts or
omissions of any kind except to the extent any such liability arose from
its own willful misconduct or gross negligence.
(g) This Agreement sets forth exclusively the duties of
the Escrow Agent with respect to any and all matters pertinent thereto
and no implied duties or obligations shall be read into this Agreement.
(h) The Escrow Agent shall be permitted to act as counsel
for the Purchaser or the Company, as the case may be, in any dispute as
to the disposition of the Documents and the Escrowed Payment, in any
other dispute between the Purchaser and the Company, whether or not the
Escrow Agent is then holding the Documents and/or the Escrowed Payment
and continues to act as the Escrow Agent hereunder.
(i) The provisions of this Section 4.1 shall survive the
resignation of the Escrow Agent or the termination of this Agreement.
4.2. Dispute Resolution; Judgments. Resolution of disputes arising
under this Agreement shall be subject to the following terms and conditions:
(a) If any dispute shall arise with respect to the
delivery, ownership, right of possession or disposition of the Documents
and/or the Escrowed Payment, or if the Escrow Agent shall in good faith
be uncertain as to its duties or rights hereunder, the Escrow Agent
shall be authorized, without liability to anyone, to (i) refrain from
taking any action other than to continue to hold the Documents and the
Escrowed Payment pending receipt of a Joint Instruction from the
Purchaser and Company, (ii) commence an interpleader or similar action,
suit or proceeding for the resolution of any such dispute; and/or (iii)
deposit the Documents and the Escrowed Payment with any court of
competent jurisdiction in the State of New York, in which event the
Escrow Agent shall give written notice thereof to the Purchaser and the
Company and shall thereupon be relieved and discharged from all further
obligations pursuant to this Agreement. The Escrow Agent may, but shall
be under no duty to, institute or defend any legal proceedings which
relate to the Documents and the Escrowed Payment. The Escrow Agent
shall have the right to retain counsel if it becomes involved in any
disagreement, dispute or litigation on account of this Agreement or
otherwise determines that it is necessary to consult counsel which such
counsel may be Xxxx & Xxxx LLP or such other counsel of the Escrow
Agent's choosing.
6
(b) The Escrow Agent is hereby expressly authorized to
comply with and obey any Court Order. In case the Escrow Agent obeys or
complies with a Court Order, the Escrow Agent shall not be liable to the
Purchaser and Company or to any other person, firm, company or entity by
reason of such compliance.
ARTICLE V
GENERAL MATTERS
5.1. Termination. This escrow shall terminate upon disbursement of the
Escrowed Payment in accordance with the terms of this Agreement or earlier upon
the agreement in writing of the Purchaser and Company or resignation of the
Escrow Agent in accordance with the terms hereof.
5.2. Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given one (1) day after being sent by telecopy (with copy delivered
by overnight courier, regular or certified mail):
If to the Company, to: IT&E International Group, Inc.
000 Xxxxx Xxxxx Xx Xxxxx Xxxxx 000
Xxxxxx Xxxxx, XX 00000
Attention: Chief Financial Officer
Facsimile: 000-000-0000
With a copy to:
(b) If to the Purchaser, to:
LAURUS MASTER FUND, LTD.
M&C Corporate Services Limited, P.O. Box 309 GT, Xxxxxx
House, South Church Street, Xxxxxx Town, Grand Cayman,
Cayman Islands, Fax: 000-000-0000
(c) If to the Escrow Agent, to:
Loeb & Loeb LLP
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax: (000)000-0000
Attention: Xxxxx X. Xxxxxxxx, Esq.
or to such other address as any of them shall give to the others by notice made
pursuant to this Section 5.2.
7
5.3. Interest. The Escrowed Payment shall not be held in an interest
bearing account nor will interest be payable in connection therewith.
5.4. Assignment; Binding Agreement. Neither this Agreement nor any
right or obligation hereunder shall be assignable by any party without the
prior written consent of the other parties hereto. This Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
legal representatives, successors and assigns.
5.5. Invalidity. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal, or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the parties
hereto shall be enforceable to the fullest extent permitted by law.
5.6. Counterparts/Execution. This Agreement may be executed in any
number of counterparts and by different signatories hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same agreement. This
Agreement may be executed by facsimile transmission.
8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date and year first above written.
COMPANY:
IT&E INTERNATIONAL GROUP, INC.
By: /s/ Xxxxx X. Xxxxxxxx
-------------------------
Name: Xxxxx X. Xxxxxxxx
Title: CEO
PURCHASER:
LAURUS MASTER FUND, LTD
By: Xxxxx Xxxx
-------------------------
Name: Xxxxx Xxxx
Title: Director
ESCROW AGENT:
LOEB & LOEB LLP
By:________________________
Name:
Title:
9
SCHEDULE A TO FUNDS ESCROW AGREEMENT
PURCHASER PRINCIPAL NOTE AMOUNT
----------------------------------------------------------------------
LAURUS MASTER FUND, LTD., Term Note in an aggregate
principal amount of
M&C Corporate Services Limited, $5,000,000
P.O. Box 309 GT, Xxxxxx House,
South Church Street, Xxxxxx Town,
Grand Cayman, Cayman Islands
Fax: 000-000-0000
----------------------------------------------------------------------
TOTAL $5,000,000
=======================================================================
FUND MANAGER CLOSING PAYMENT
----------------------------------------------------------------------
LAURUS CAPITAL MANAGEMENT, L.L.C. Closing payment payable in
000 Xxxxx Xxxxxx, 00xx Floor connection with investment by
New York, New York 10022 Laurus Master Fund, Ltd. for
Fax: 000-000-0000 which Laurus Capital
Management, L.L.C. is the
Manager.
----------------------------------------------------------------------
TOTAL $175,000
=======================================================================
WARRANT RECIPIENT WARRANTS IN CONNECTION WITH
OFFERING
----------------------------------------------------------------------
LAURUS MASTER FUND, LTD. Term Note Warrant exercisable
M&C Corporate Services Limited into 1,924,000 shares of
P.O. Box 309 GT, Xxxxxx House, common stock of the
South Church Street, Xxxxxx Company issuable in connection
Grand Cayman, Cayman Islands with the Term Note.
Fax: 000-000-0000
----------------------------------------------------------------------
TOTAL Warrants exercisable into
1,924,000 shares of common
stock of the Company
10
Disbursement Letter
IT&E International Group, Inc.
000 Xxxxx Xxxxx Xx Xxxxx
Xxxxx 000
Xxxxxx Xxxxx, XX 00000
October 18,2004
Xxxxx Xxxxxxxx, Esq.
Xxxx & Xxxx LLP
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Dear Xx. Xxxxxxxx:
RE: IT&E International Group, Inc. (the "Company") - Escrow
Release Gross Escrow Deposit: $5,000,000
These instructions are given to you pursuant to a Funds Escrow Agreement among
the Company, Laurus Master Fund, Ltd., and Loeb & Loeb LLP as Escrow Agent.
Subject to the terms set forth below, you are instructed to disburse or
allocate $5,000,000 of the investor's funds received by you to and on the
Company's behalf as follows:
1. $787,577.26 to the Company pursuant to the following wire
instructions:
Bank Bank of Walnut Creek
0000 Xxx Xxxxxxx, Xxxxx 000, Xxx Xxxx, XX
00000
[wire instructions omitted for this filing]
For Credit to: IT&E International Group, Inc.
2. $2,500,000.00 to North Fork Bank Restricted Account
pursuant to the following wire instructions:
Bank: North Fork Bank
New York, NY 10022
[wire instructions omitted for this filing]
For Credit to: IT&E International Group, Inc.
3. $175,000.00 to Laurus Capital Management, L.L.C. (for
management fees):
Bank: North Fork Bank
New York, NY 10022
[wire instructions omitted for this filing]
For Credit to: Laurus Capital Management, LL.C
4. $34,500.00 to Laurus Capital Management, L.L.C. (for payment
in full for all due diligence and documentation fees owing by
the Company),
Bank: North Fork Bank
New York, NY 10022
[wire instructions omitted for this filing]
For Credit to: Laurus Capital Management, LL.C.
5. $ 1,500,922.74 to Walnut Creek Bank pursuant to the following
wire instructions:
Bank: Bank of Walnut Creek
0000 Xxxxx Xxxxx, Xxxxxx Xxxxx,
XX 00000
[wire instructions omitted for this filing]
For Credit to: IT & E International
6. $2,000.00 to Xxxx & Loeb LLP (for escrow agent fee).
Very truly yours,
IT&E INTERNATIONAL GROUP, INC.
By: /s/ Xxxxx X. Xxxxxxxx
---------------------------------
Xxxxx X. Xxxxxxxx
Chief Executive Officer
Accepted and Agreed:
Laurus Master Fund, Ltd.
By: Xxxxx Xxxx
-------------------------
Name: Xxxxx Xxxx
Title: Director
LAURUS MASTER FUND, LTD.
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
October 18, 2004
IT&E International Group, Inc.
000 Xxxxx Xxxxx Xx Xxxxx
Xxxxx 000
Xxxxxx, XX 00000
Attn: Chief Financial Officer
Re: Restricted Account: Account Number 000-000-0000, Account Name: IT&E
International Group, Inc., maintained at North Fork Bank (the "Restricted
Account").
Reference is made to (i) that certain Securities Purchase Agreement, dated
as of 18th __________, 2004 (as amended, modified or supplemented from time to
time, the "Purchase Agreement"), by and between IT&E International Group, Inc.,
a Nevada corporation (the "Company"), and Laurus Master Fund, Ltd. (the
"Purchaser") and (ii) that certain Restricted Account Agreement, dated as of
October 18, 2004 (as amended, modified or supplemented from time to time, the
"Restricted Account Agreement"), by and among the Company, Laurus and North Fork
Bank (the "Bank"). Capitalized terms used but not defined herein shall have the
meanings ascribed them in the Purchase Agreement or the Restricted Account
Agreement, as applicable. Pursuant to the Section 3.2 of the Purchase Agreement,
the Company is required to place $2,500,000 in the Restricted Account, and,
subject to the provisions of this letter, the Purchase Agreement and any Related
Agreement, maintain the Restricted Account in accordance with such agreements
for as long as the Purchaser shall have any obligations outstanding under the
Note and to assign the Restricted Account for the benefit of the Purchaser as
security for the performance of the Company's Obligations to the Purchaser.
The Purchaser and the Company desire to clarify certain aspects regarding
the use of funds contained in the Restricted Account, and for good
consideration, the receipt and sufficiency of which are here acknowledged, the
Company and the Purchaser agree that, so long as the Amortizing Principal Amount
(as defined in the Note) at such time has been reduced (through conversions or
otherwise) to $0, promptly following any conversion of a Monthly Principal
Amount (as defined in the Note) or such other Principal Amounts into Common
Stock of the Company (such event, a "Conversion"), the Purchaser shall direct
the Bank, pursuant to a Release Notice (as defined in the Restricted Account
Agreement), to wire an amount of funds equal to the corresponding dollar amount
by which the aggregate Principal Amount of the Note has been reduced pursuant to
such a Conversion from the Restricted Account to such bank account as the
Company may direct the Purchaser in writing.
Additionally, the Company may request that the Purchaser direct the Bank to
release all or any portion of the amounts contained in the Restricted Account
following (or in connection with) the consummation of an acquisition by the
Company or any of its Subsidiaries of CRO-SD for a consideration consisting of
cash and stock (the "Acquisition") or the purchase of certain assets. Such a
release referred to in the immediately preceding sentence shall be subject (in
all respects) to the Purchaser's evaluation of all factors that it considers (in
its sole discretion) relevant at the time of such requested release, including
its determination (i) of the relative benefit of such Acquisition or the
purchase of certain assets to the Company and its Subsidiaries and (ii) of the
overall performance (financial or otherwise) of the Company and its Subsidiaries
at such time. The Purchaser shall not be under any obligation to release any
amount pursuant to this paragraph and the release of such amounts shall be in
the Purchaser's sole and absolute discretion. Prior to any such acquisition
referred to in this paragraph, the Purchaser shall comply with Section 6.12(f)
of the Purchase Agreement in all respects.
This letter may not be amended or waived except by an instrument in writing
signed by the Company and the Purchaser. This letter may be executed in any
number of counterparts, each of which shall be an original and all of which,
when taken together, shall constitute one agreement. Delivery of an executed
signature page of this letter by facsimile transmission shall be effective as
delivery of a manually executed counterpart hereof or thereof, as the case may
be. This letter shall be governed by, and construed in accordance with, the laws
of the State of New York. This letter sets forth the entire agreement between
the parties hereto as to the matters set forth herein and supersede all prior
communications, written or oral, with respect to the matters herein.
If the foregoing meets with your approval please signify your acceptance of
the terms hereof by signing below.
Signed,
Laurus Master Fund, Ltd.
By: /s/
----------------------------------
Name:
Title:
Agreed and Accepted this 18th day of October, 2004
IT&E International Group, Inc.
By: /s/ Xxxxx Xxxxxxxx
----------------------------
Name: Xxxxx Xxxxxxxx
Title: CEO
