31
NY:159413.3
COMMON STOCK PURCHASE AGREEMENT
This COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of
September 19, 2001 by and between GTC Telecom Corp., a Nevada corporation (the
"Company") and Bluefire Capital, Inc., a Cayman Islands corporation (the
"Purchaser").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall have the right to issue and sell
to Purchaser from time to time as provided herein, and Purchaser shall be
obligated to purchase, up to $20,000,000 of Common Stock and the Warrant subject
to the terms herein; and
WHEREAS, such investments will be made by the Purchaser as statutory
underwriter of a registered indirect primary offering of such Common Stock by
the Company.
NOW, THEREFORE, in consideration of the foregoing premises, and the promises and
covenants herein contained, the receipt and sufficiency of which are hereby
acknowledged by the parties hereto, the parties, intending to be legally bound,
hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF COMMON STOCK
Section 1.1. Purchase and Sale of Stock. Subject to the terms and conditions of
this Agreement, the Company may sell and issue to the Purchaser and the
Purchaser shall be obligated to purchase from the Company, up to an aggregate
of, $10,000,000 of Common Stock (the "Commitment Amount") and the Warrant,
subject to the terms herein; provided, however, that, the Commitment Amount
shall be up to $20,000,000 of Common Stock if at any time beginning one (1) year
after the Effective Date (i) the VWAP equals or exceeds $4 (adjusted for stock
splits and the like) for ten (10) consecutive Trading Days ("Threshold Period"),
(ii) during the Threshold Period and during the 10 consecutive Trading Days
either immediately before or after the Threshold Period the average daily
trading volume equals or exceeds 75,000 shares, and (iii) on the Trading Day
immediately after the Threshold Period the Company's market cap (based on the
average of the VWAPs during the Threshold Period) equals or exceeds $30,000,000.
Section 1.2. Purchase Price and Initial Closing. The Company agrees to issue and
sell to the Purchaser and, in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
the Purchaser agrees to purchase that number of the Shares to be issued in
connection with each Draw Down. The delivery of executed documents under this
Agreement and the other agreements referred to herein and the payment of the
fees set forth in Article I of the Escrow Agreement, attached as Exhibit B
hereto, (the "Initial Closing") shall take place at the offices of Feldman &
Associates, Counselors at Law, P.C., The Bar Building, 36 West 44th Street, New
York, New York 10036-8102 (i) within fifteen (15) days from the date hereof, or
(ii) such other time and place or on such date as the Purchaser and the Company
may agree upon (the "Initial Closing Date"). Each party shall deliver all
documents, instruments and writings required to be delivered by such party
pursuant to this Agreement at or prior to the Initial Closing.
Section 1.3. Liquidated Damages. The parties hereto acknowledge and agree that
the sums payable pursuant to this Agreement for late delivery of the Draw Down
Shares and pursuant to the Registration Rights Agreement for a suspension of the
Registration Statement or suspension of the Purchaser's right to resell the Draw
Down Shares thereunder shall constitute liquidated damages and not penalties.
The parties further acknowledge that (a) the amount of loss or damages likely to
be incurred is incapable or is difficult to precisely estimate, (b) the amount
specified in such provisions bear a reasonable proportion and are not plainly or
grossly disproportionate to the probable loss likely to be incurred by the
Purchaser in connection with the failure of the Company to deliver the Draw Down
Shares in a timely manner or the suspension of the Purchaser's rights to resell
the Draw Down Shares under the Registration Statement, and (c) the parties are
sophisticated businesses and have been represented by sophisticated and able
legal and financial counsel and negotiated this Agreement at arm's length.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
Section 2.1. Representation and Warranties of the Company. The Company hereby
makes the following representations and warranties to the Purchaser except as
set forth in the SEC Documents or on the Disclosure Schedules prepared by the
Company and attached hereto, or as contemplated by this Agreement:
(a) Organization, Good Standing and Power. The Company is a
corporation duly incorporated validly existing and in good standing under the
laws of Nevada and has all requisite corporate authority to own, lease and
operate its properties and assets and to carry on its business as now being
conducted, except as would not have a Material Adverse Effect. The Company is
duly qualified to do business and is in good standing as a foreign corporation
in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify would not have a Material Adverse Effect.
(b) Authorization, Enforcement. (i) The Company has the requisite
corporate power and corporate authority to enter into and perform its
obligations under the Transaction Documents and to issue the Draw Down Shares
pursuant to their respective terms, (ii) the execution and delivery of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action and no further consent or authorization of the
Company or its Board of Directors or stockholders is required, and (iii) the
Transaction Documents have been duly executed and delivered by the Company and
at the Initial Closing shall constitute valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.
(c) Capitalization. The authorized capital stock of the Company
consists of 50,000,000 shares of Common Stock of which 20,371,622 shares are
issued and outstanding and 10,000,000 preferred shares none of which are issued
and outstanding. All of the outstanding shares of the Company's Common Stock
have been duly and validly authorized and are fully paid and non-assessable,
except as set forth in the SEC Documents. No shares of Common Stock are
entitled to preemptive rights or registration rights and there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company. Furthermore,
there are no contracts, commitments, understandings, or arrangements by which
the Company is or may become bound to issue additional shares of the capital
stock of the Company or options, securities or rights convertible into shares of
capital stock of the Company. The Company is not a party to any agreement
granting registration rights to any person with respect to any of its equity or
debt securities. The Company is not a party to, and it has no knowledge of, any
agreement restricting the voting or transfer of any shares of the capital stock
of the Company. The offer and sale of all capital stock, convertible
securities, rights, warrants, or options of the Company issued prior to the
Initial Closing complied in all material respects with all applicable federal
and state securities laws, and no stockholder has a right of rescission or
damages with respect thereto which would have a Material Adverse Effect. The
Company has made available to the Purchaser true and correct copies of the
Company's articles or certificate of incorporation as in effect on the date
hereof (the "Charter"), and the Company's bylaws as in effect on the date hereof
(the "Bylaws"). The Company has not received any notice from the Principal
Market questioning or threatening the continued inclusion of the Common Stock on
such market.
(d) Issuance of Shares. The Warrant Shares to be issued upon exercise
of the Warrant have been duly authorized by all necessary corporate action and,
when paid for and issued in accordance with the terms hereof and the Warrant,
the Warrant Shares shall be validly issued and outstanding, fully paid and
non-assessable, and the Purchaser shall be entitled to all rights accorded to a
holder of Common Stock.
(e) No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated herein do not and will not (i) violate any provision of the
Company's Charter or Bylaws, (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond,
license, lease agreement, instrument or obligation to which the Company is a
party, (iii) create or impose a lien, charge or encumbrance on any property of
the Company under any agreement or any commitment to which the Company is a
party or by which the Company is bound or by which any of its respective
properties or assets are bound, or (iv) result in a violation of any federal,
state, local or other foreign statute, rule, regulation, order, judgment or
decree (including any federal or state securities laws and regulations)
applicable to the Company or any of its subsidiaries or by which any property or
asset of the Company or any of its subsidiaries are bound or affected, except,
in all cases, for such conflicts, defaults, termination, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect. The business of the Company and its
subsidiaries is not being conducted in violation of any laws, ordinances or
regulations of any governmental entity, except for possible violations which
singularly or in the aggregate do not and will not have a Material Adverse
Effect. The Company is not required under any federal, state or local law, rule
or regulation to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement, or
issue and sell the Shares in accordance with the terms hereof (other than any
filings which may be required to be made by the Company with the SEC or state
securities administrators subsequent to the Initial Closing and any registration
statement which may be filed pursuant hereto); provided, however, that for
purpose of the representations made in this sentence, the Company is assuming
and relying upon the accuracy of the relevant representations and agreements of
the Purchaser herein.
(f) SEC Documents, Financial Statements. The Common Stock of the
Company is registered pursuant to Section 12(g) of the Exchange Act, and the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Exchange Act, including material filed pursuant to Section
13(a) or 15(d) of the Exchange Act. The Company has delivered or made available
to the Purchaser, through the EDGAR system or otherwise, true and complete
copies of the SEC Documents filed with the SEC since December 31, 1999. The
Company has not provided to the Purchaser any information which, according to
applicable law, rule or regulation, should have been disclosed publicly by the
Company but which has not been so disclosed, other than with respect to the
transactions contemplated by this Agreement. As of their respective filing
dates, the SEC Documents complied in all material respects with the requirements
of the Exchange Act or the Securities Act, as applicable, and the rules and
regulations of the SEC promulgated thereunder applicable to such documents, and,
as of their respective filing dates, none of the SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Documents comply as to
form in all material respects with applicable accounting requirements under GAAP
and the published rules and regulations of the SEC or other applicable rules and
regulations with respect thereto. Such financial statements have been prepared
in accordance with GAAP applied on a consistent basis during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto or (ii) in the case of unaudited interim statements, to the
extent they may not include footnotes or may be condensed or summary
statements), and fairly present in all material respects the financial position
of the Company and its subsidiaries as of the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).
(g) Subsidiaries. The SEC Documents or the Disclosure Schedule sets
forth each subsidiary of the Company, showing the jurisdiction of its
incorporation or organization and showing the percentage of the Company's
ownership of the outstanding stock or other interests of such subsidiary. For
the purposes of this Agreement, "subsidiary" shall mean any corporation or other
entity of which at least a majority of the securities or other ownership
interests having ordinary voting power (absolutely or contingently) for the
election of directors or other persons performing similar functions are at the
time owned directly or indirectly by the Company and/or any of its other
subsidiaries. All of the issued and outstanding shares of capital stock of each
subsidiary have been duly authorized and validly issued, and are fully paid and
non-assessable. There are no outstanding preemptive, conversion or other
rights, options, warrants or agreements granted or issued by or binding upon any
subsidiary for the purchase or acquisition of any shares of capital stock of any
subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital stock.
Neither the Company nor any subsidiary is subject to any obligation (contingent
or otherwise) to repurchase or otherwise acquire or retire any shares of the
capital stock of any subsidiary or any convertible securities, rights, warrants
or options of the type described in the preceding sentence. Neither the Company
nor any subsidiary is a party to, nor has any knowledge of, any agreement
restricting the voting or transfer of any shares of the capital stock of any
subsidiary.
(h) No Material Adverse Effect. Since the date of the financial
statement contained in the most recently filed Form 10-Q (or 10-QSB) or Form
10-K (or 10-KSB), whichever is most current, no Material Adverse Effect has
occurred or exists with respect to the Company.
(i) No Undisclosed Liabilities. Neither the Company nor any of its
subsidiaries has any liabilities, obligations, claims or losses (whether
liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent
or otherwise) that would be required to be disclosed on a balance sheet of the
Company or any subsidiary (including the notes thereto) in conformity with GAAP
which are not disclosed in the SEC Documents, other than those incurred in the
ordinary course of the Company's or its subsidiaries' respective businesses
since such date and which, individually or in the aggregate, do not or would not
have a Material Adverse Effect on the Company or its subsidiaries.
(j) No Undisclosed Events or Circumstances. Since the date of the
financial statement contained in the most recently filed Form 10- Q (or 10-QSB)
or Form 10-K (or 10-KSB), whichever is most current, no event or circumstance
has occurred or exists with respect to the Company or its businesses,
properties, prospects, operations or financial condition, that, under applicable
law, rule or regulation, requires public disclosure or announcement prior to the
date hereof by the Company but which has not been so publicly announced or
disclosed in the SEC Documents.
(k) Indebtedness. The SEC Documents or the Disclosure Schedule sets
forth as of the date hereof all outstanding secured and unsecured Indebtedness
of the Company or any subsidiary, or for which the Company or any subsidiary has
commitments. For the purposes of this Agreement, "Indebtedness" shall mean (A)
any liabilities for borrowed money or amounts owed in excess of $500,000 (other
than trade accounts payable incurred in the ordinary course of business), (B)
all guaranties, endorsements and contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be reflected in
the Company's balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (C) the present value of
any lease payments in excess of $500,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any subsidiary is
in default with respect to any Indebtedness.
(l) Title to Assets. Each of the Company and the subsidiaries has good
and marketable title to all of its real and personal property reflected in the
SEC Documents, free of any mortgages, pledges, charges, liens, security
interests or other encumbrances, except for those that do not cause a Material
Adverse Effect. All said leases of the Company and each of its subsidiaries are
valid and subsisting and in full force and effect.
(m) Actions Pending. As of the date hereof, there is no action, suit,
claim, investigation or proceeding pending or, to the knowledge of the Company,
threatened against the Company or any subsidiary which questions the validity of
this Agreement or the transactions contemplated hereby or any action taken or to
be taken pursuant hereto or thereto. There is no action, suit, claim,
investigation or proceeding pending or, to the knowledge of the Company,
threatened, against or involving the Company, any subsidiary or any of their
respective properties or assets, except as would not have a Material Adverse
Effect. There are no outstanding orders, judgments, injunctions, awards or
decrees of any court, arbitrator or governmental or regulatory body against the
Company or any subsidiary.
(n) Compliance with Law. The Company and each of its subsidiaries have
all franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals necessary for the conduct of their respective
businesses as now being conducted by them unless the failure to possess such
franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect.
(o) Taxes. The Company and each subsidiary has filed all material Tax
Returns which it is required to file under applicable laws; all such material
Tax Returns are true and accurate and have been prepared in compliance with all
applicable laws; the Company has paid all material Taxes due and owing by it or
any subsidiary (whether or not such material Taxes are required to be shown on a
Tax Return) and has withheld and paid over to the appropriate taxing authorities
all material Taxes which it is required to withhold from amounts paid or owing
to any employee, stockholder, creditor or other third parties; and since
December 31, 2000, the charges, accruals and reserves for material Taxes with
respect to the Company (including any provisions for deferred income taxes)
reflected on the books of the Company are adequate to cover any Tax liabilities
of the Company if its current tax year were treated as ending on the date
hereof.
No material claim has been made by a taxing authority in a jurisdiction
where the Company does not file tax returns that the Company or any subsidiary
is or may be subject to taxation by that jurisdiction. Except as would not have
a Material Adverse Effect, there are no foreign, federal, state or local tax
audits or administrative or judicial proceedings pending or being conducted with
respect to the Company or any subsidiary; no information related to Tax matters
has been requested by any foreign, federal, state or local taxing authority;
and, except as disclosed above, no written notice indicating an intent to open
an audit or other review has been received by the Company or any subsidiary from
any foreign, federal, state or local taxing authority. There are no material
unresolved questions or claims concerning the Company's Tax liability. The
Company (A) has not executed or entered into a closing agreement pursuant to
7121 of the Internal Revenue Code or any predecessor provision thereof or any
similar provision of state, local or foreign law; and (B) has not agreed to or
is required to make any adjustments pursuant to 481 (a) of the Internal
Revenue Code or any similar provision of state, local or foreign law by reason
of a change in accounting method initiated by the Company or any of its
subsidiaries or has any knowledge that the IRS has proposed any such adjustment
or change in accounting method, or has any application pending with any taxing
authority requesting permission for any changes in accounting methods that
relate to the business or operations of the Company. The Company has not been a
United States real property holding corporation within the meaning of
897(c)(2) of the Internal Revenue Code during the applicable period specified in
897(c)(1)(A)(ii) of the Internal Revenue Code.
The Company has not made an election under 341(f) of the Internal Revenue
Code. The Company is not liable for the Taxes of another person that is not a
subsidiary of the Company under (A) Treas. Reg. 1.1502-6 (or comparable
provisions of state, local or foreign law), (B) as a transferee or successor,
(C) by contract or indemnity or (D) otherwise. The Company is not a party to
any tax sharing agreement. The Company has not made any payments, is not
obligated to make payments nor is it a party to an agreement that could obligate
it to make any payments that would not be deductible under 280G of the
Internal Revenue Code.
For purposes of this Section 2.1(o):
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign, or other income,
gross receipts, ad valorem, franchise, profits, sales or use, transfer,
registration, excise, utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"Tax Return" means any return, information report or filing with respect to
Taxes, including any schedules attached thereto and including any amendment
thereof.
(p) Certain Fees. No brokers, finders or financial advisory fees or
commissions will be payable by the Company or any subsidiary with respect to the
transactions contemplated by this Agreement.
(q) Disclosure. To the best of the Company's knowledge, neither this
Agreement or the Schedules hereto nor any other documents, certificates or
instruments furnished to the Purchaser by or on behalf of the Company or any
subsidiary in connection with the transactions contemplated by this Agreement
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements made herein or therein, in the
light of the circumstances under which they were made herein or therein, not
misleading.
(r) Operation of Business. The Company and each of the subsidiaries
owns or possesses all patents, trademarks, service marks, trade names,
copyrights, licenses and authorizations as set forth in the SEC Documents or on
the Disclosure Schedule hereto, and all rights with respect to the foregoing,
which are necessary for the conduct of its business as now conducted without any
conflict with the rights of others.
(s) Insurance. The Company carries or will have the benefit of
insurance in such amounts and covering such risks as is adequate in all material
respects for the conduct of its business and the value of its properties and as
is customary for companies engaging in similar businesses and similar
industries.
(t) Books and Records. The records and documents of the Company and
its subsidiaries accurately reflect in all material respects the information
relating to the business of the Company and the subsidiaries, the location and
collection of their assets, and the nature of all transactions giving rise to
the obligations or accounts receivable of the Company or any subsidiary.
(u) Material Agreements. Neither the Company nor any subsidiary is a
party to any written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement, a copy of which would be required to be filed
with the SEC as an exhibit to a registration statement on Form S-1 or other
applicable form (collectively, "Material Agreements") if the Company or any
subsidiary were registering securities under the Securities Act. The Company
and each of its subsidiaries has in all material respects performed all the
obligations required to be performed by them to date under the foregoing
agreements, have received no notice of default and, to the best of the Company's
knowledge are not in default under any Material Agreement now in effect, the
result of which would cause a Material Adverse Effect. Except as set forth in
the SEC Documents, no written or oral contract, instrument, agreement,
commitment, obligation, plan or arrangement of the Company or of any subsidiary
limits or shall limit the payment of dividends on the Company's Common Stock.
(v) Transactions with Affiliates. There are no loans, leases,
agreements, contracts, royalty agreements, management contracts or arrangements
or other continuing transactions exceeding $100,000 between (A) the Company, any
subsidiary or any of their respective customers or suppliers on the one hand,
and (B) on the other hand, any officer, employee, consultant or director of the
Company, or any of its subsidiaries, or any person owning 5% or more of the
capital stock of the Company or any subsidiary or any member of the immediate
family of such officer, employee, consultant, director or stockholder or any
corporation or other entity controlled by such officer, employee, consultant,
director or stockholder, or a member of the immediate family of such officer,
employee, consultant, director or stockholder.
(w) Securities Laws. The Company has complied and will comply with all
applicable federal and state securities laws in connection with the offer,
issuance and sale of the Shares hereunder. Neither the Company nor anyone
acting on its behalf, directly or indirectly, has or will sell, offer to sell or
solicit offers to buy the Shares or similar securities to, or solicit offers
with respect thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any person (other than the Purchaser), so as
to bring the issuance and sale of the Shares under the registration provisions
of the Securities Act and applicable state securities laws. Neither the Company
nor any of its affiliates, nor any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Securities Act) in connection with the offer
or sale of the Shares.
(x) Employees. Neither the Company nor any subsidiary has any
collective bargaining arrangements or agreements covering any of its employees.
Neither the Company nor any subsidiary is in breach of any employment contract,
agreement regarding proprietary information, noncompetition agreement,
nonsolicitation agreement, confidentiality agreement, or any other similar
contract or restrictive covenant, relating to the right of any officer, employee
or consultant to be employed or engaged by the Company or such subsidiary.
Since the date of the June 30, 2000 Form 10-K (or 10-KSB), no officer,
consultant or key employee of the Company or any subsidiary whose termination,
either individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect, has terminated or, to the knowledge of the Company, has
any present intention of terminating his or her employment or engagement with
the Company or any subsidiary.
(y) Absence of Certain Developments. Except as would not have a Material
Adverse Effect, since the date of the financial statement contained in the most
recently filed Form 10-Q (or 10-QSB) or Form 10-K (or 10KSB), whichever is most
current, neither the Company nor any subsidiary has:
(i) issued any stock, bonds or other corporate securities or any rights,
options or warrants with respect thereto (other than pursuant to equity
incentive plans or arrangements adopted by the Company);
(ii) borrowed any material amount or incurred or become subject to any
material liabilities (absolute or contingent) except current liabilities
incurred in the ordinary course of business which are comparable in nature and
amount to the current liabilities incurred in the ordinary course of business
during the comparable portion of its prior fiscal year, as adjusted to reflect
the current nature and volume of the Company's or such subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance or paid any material
obligation or liability (absolute or contingent), other than current liabilities
paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash or other property
to stockholders with respect to its stock, or purchased or redeemed, or made any
agreements so to purchase or redeem, any shares of its capital stock;
(v) sold, assigned or transferred any other tangible assets, or canceled any
debts or claims, except in the ordinary course of business;
(vi) sold, assigned or transferred any patent rights, trademarks, trade
names, copyrights, trade secrets or other intangible assets or intellectual
property rights, or disclosed any proprietary confidential information to any
person except to customers in the ordinary course of business or to the
Purchaser or its representatives or other parties has in connection with any
proposed debt or equity financing;
(vii) suffered any material losses (except for anticipated losses consistent
with prior quarters) or waived any rights of material value, whether or not in
the ordinary course of business, or suffered the loss of any material amount of
prospective business;
(viii) made any material changes in employee compensation except in the
ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that aggregate in
excess of $500,000;
(x) entered into any other material transaction, whether or not in the
ordinary course of business;
(xi) suffered any material damage, destruction or casualty loss, whether or
not covered by insurance;
(xii) experienced any material problems with labor or management in
connection with the terms and conditions of their employment; or
(xiii) effected any two or more events of the foregoing kind which in the
aggregate would be material to the Company or its subsidiaries.
(z) Governmental Approvals. Except for the filing of any notice prior
or subsequent to any Settlement Date that may be required under applicable
federal or state securities laws (which if required, shall be filed on a timely
basis), including the filing of a registration statement or post-effective
amendment pursuant to this Agreement, no authorization, consent, approval,
license, exemption of, filing or registration with any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, is or will be necessary for, or in connection with, the delivery of the
Shares, or for the performance by the Company of its obligations under this
Agreement.
(aa) Acknowledgment Regarding Purchaser's Purchase of Shares. Company
acknowledges and agrees that Purchaser is acting solely in the capacity of arm's
length purchaser with respect to this Agreement and the transactions
contemplated hereunder. The Company further acknowledges that the Purchaser is
not acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereunder.
Section 2.2. Representations and Warranties of the Purchaser. The Purchaser
hereby makes the following representations and warranties to the Company:
(a) Organization and Standing of the Purchaser. The Purchaser is a
corporation duly incorporated, validly existing and in good standing under the
laws of the Cayman Islands.
(b) Authorization and Power. The Purchaser has the requisite power and
authority and financial resources to enter into and perform the Transaction
Documents and to purchase the Shares being sold to it hereunder. The execution,
delivery and performance of the Transaction Documents by Purchaser and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action and at the Initial Closing shall
constitute valid and binding obligations of the Purchaser enforceable against
the Purchaser in accordance with their terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, receivership or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application
(c) No Conflicts. The execution, delivery and performance of this
Agreement and the consummation by the Purchaser of the transactions contemplated
hereby or relating hereto do not and will not (i) result in a violation of the
Purchaser's charter documents or bylaws or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of any agreement, indenture or instrument to which
the Purchaser is a party, or result in a violation of any law, rule, or
regulation, or any order, judgment or decree of any court or governmental agency
applicable to the Purchaser or its properties (except for such conflicts,
defaults and violations as would not, individually or in the aggregate, have a
material adverse effect on the business, operations, properties or financing
conditions of the Purchaser). The Purchaser is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under this Agreement or to purchase the Shares in accordance
with the terms hereof.
(d) Financial Risks. The Purchaser acknowledges that it is able to
bear the financial risks associated with an investment in the Shares and the
Warrant and that it has been given full access to such records of the Company
and the subsidiaries and to the officers of the Company and the subsidiaries as
it has deemed necessary or appropriate to conduct its due diligence
investigation. The Purchaser is capable of evaluating the risks and merits of
an investment in the Shares and the Warrant by virtue of its experience as an
investor and its knowledge, experience, and sophistication in financial and
business matters and the Purchaser is capable of bearing the entire loss of its
investment in the Shares and the Warrant.
(e) Accredited Investor. The Investor is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act.
(f) General. The Purchaser understands that the Company is relying upon the
truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of the Purchaser set forth herein in order to
determine the suitability of the Purchaser to acquire the Shares.
(g) Litigation; Claims. There are no lawsuits or proceedings pending or, to
the knowledge of the Purchaser, threatened, against the Purchaser or any
subsidiary, nor has the Purchaser received any written or oral notice of any
action, suit, proceeding or investigation. No judgment, order, writ, injunction
or decree or award has been issued by or, to the knowledge of the Purchaser,
requested of any court, arbitrator or governmental agency.
ARTICLE 3
COVENANTS
The Company covenants with the Purchaser as follows:
Section 3.1. The Shares. As of the date of each applicable Draw Down Notice, the
Company will have authorized and reserved, free of preemptive rights and other
similar contractual rights of stockholders, a sufficient number of its
authorized but unissued shares of its Common Stock to cover the Draw Down Shares
to be issued in connection with such Draw Down requested under this Agreement.
The Draw Down Shares to be issued under this Agreement, when paid for and issued
in accordance with the terms hereof, shall be duly and validly issued and
outstanding, fully paid and non-assessable, and the Purchaser shall be entitled
to all rights accorded to a holder of Common Stock. Anything in this Agreement
to the contrary notwithstanding, the Company may not make a Draw Down to the
extent that, after such purchase by the Purchaser, the sum of the number of
shares of Common Stock beneficially owned by the Purchaser and its affiliates
would result in beneficial ownership by the Purchaser and its affiliates of more
than 9.9% of the then outstanding shares of Common Stock. For purposes of the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act.
Section 3.2. Securities Compliance. If applicable, the Company shall notify the
Principal Market, in accordance with its rules and regulations, 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 Shares and the Warrant
to the Purchaser.
Section 3.3. Registration and Listing. The Company will cause its Common Stock
to continue to be registered under Sections 12(b) or 12(g) of the Exchange Act,
will comply in all respects with its reporting and filing obligations under the
Exchange Act, will comply with all requirements related to any registration
statement filed pursuant to this Agreement, and will not to take any action or
file any document (whether or not permitted by the Securities Act or the
Exchange Act or the rules promulgated thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under the Exchange Act or Securities Act, except as permitted herein. The
Company will take all action necessary to continue the listing or trading of its
Common Stock on the Principal Market and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the Principal Market and shall provide the Purchaser with copies of any
correspondence to or from such Principal Market which questions or threatens
delisting of the Common Stock, within three (3) Trading Days of the Company's
receipt thereof, until the Purchaser has disposed of all of the Shares.
Section 3.4. Escrow Arrangement. The Company and the Purchaser shall enter into
an escrow arrangement with New York Escrow Services (the "Escrow Agent") in the
form of Exhibit B hereto respecting payment against delivery of the Shares.
Section 3.5. Registration Rights Agreement. The Company and the Purchaser shall
enter into the Registration Rights Agreement in the Form of Exhibit A hereto.
Before the Purchaser shall be obligated to accept a Draw Down request from the
Company, the Company shall have caused a sufficient number of shares of Common
Stock to be registered to cover the Shares to be issued in connection with such
Draw Down.
Section 3.6. Accuracy of Registration Statement. On each Settlement Date, the
Registration Statement and the prospectus therein shall not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading in light of the circumstances under which they were made; and on such
Settlement Date or date of filing the Registration Statement and the prospectus
therein will not include any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; provided,
however, the Company makes no representations or warranties as to the
information contained in or omitted from the Registration Statement and the
prospectus therein in reliance upon and in conformity with the information
furnished in writing to the Company by the Purchaser specifically for inclusion
in the Registration Statement and the prospectus therein.
Section 3.7. Compliance with Laws. The Company shall comply, and cause each
subsidiary to comply, with all applicable laws, rules, regulations and orders,
noncompliance with which could have a Material Adverse Effect.
Section 3.8. Keeping of Records and Books of Account. The Company shall keep and
cause each subsidiary to keep adequate records and books of account, in which
entries that are complete in all material respects will be made in accordance
with GAAP consistently applied, reflecting all financial transactions of the
Company and its subsidiaries, and in which, for each fiscal year, all proper
reserves for depreciation, depletion, obsolescence, amortization, taxes, bad
debts and other purposes in connection with its business shall be made.
Section 3.9. Notice of Certain Events Affecting Registration; Suspension of
Right to Request a Draw Down. THE COMPANY WILL PROMPTLY NOTIFY THE PURCHASER IN
WRITING UPON THE OCCURRENCE OF ANY OF THE FOLLOWING EVENTS IN RESPECT OF THE
REGISTRATION STATEMENT OR RELATED PROSPECTUS IN RESPECT OF THE SHARES: (i)
receipt of any request for additional information from the SEC or any other
federal or state governmental authority during the period of effectiveness of
the Registration Statement the response to which would require any amendments or
supplements to the Registration Statement or related prospectus; (ii) the
issuance by the SEC or any other federal or state governmental authority of any
stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose; (iii) receipt of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Shares for sale in any jurisdiction in which
the Purchaser is entitled to sell the Shares hereunder or the receipt of notice
with respect to the initiation of any proceeding for such purpose; (iv) becoming
aware that any statement made in the Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in the Registration Statement, related prospectus or documents so that,
in the case of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (v) the filing of
a post-effective amendment or withdrawal to the Registration Statement. The
Company shall not deliver to the Purchaser any Draw Down Notice during the
continuation of any of the foregoing events. The Company shall promptly make
available to the Purchaser any such supplements or amendments to the related
prospectus, at which time, provided that the registration statement and any
supplements and amendments thereto are then effective, the Company may
recommence the delivery of Draw Down Notices.
Section 3.10. Consolidation; Merger. The Company shall not, at any time
prior to the termination of this Agreement, effect any merger or consolidation
of the Company with or into, or a transfer of all or substantially all of the
assets of the Company to, another entity (a "Consolidation Event") unless the
resulting successor or acquiring entity (if not the Company) assumes by written
instrument or by operation of law the obligation of the Company with respect to
the obligations hereunder.
Section 3.11. Limitation on Future Financing. The Company agrees that it
will not enter into any other standby equity-based credit facility during the
term of this Agreement.
Section 3.12. Minimum Commitment Amount. During the Commitment Period, the
Company shall make Draw Downs of at least five hundred thousand dollars
($500,000), in the aggregate, pursuant to this Agreement. In the event that the
Company fails to make Draw Downs of at least five hundred thousand dollars
($500,000), in the aggregate, during the Commitment Period, the Company shall
pay the Purchaser, as liquidated damages, within five (5) days from the end of
the Commitment Period, an amount based on the following formula:
$250,000 - [(Aggregate Draw Downs x $250,000)/$500,000]
Section 3.13. Use of Proceeds. The proceeds from the sale of the Shares
will be used by the Company and its subsidiaries for general corporate purposes.
The Purchaser covenants with the Company as follows:
Section 3.14. Compliance with Law.
The Purchaser agrees that its trading activities with respect to the
Shares, will be in compliance with all applicable state and federal securities
laws, rules and regulations and rules and regulations of the Principal Market on
which the Company's Common Stock is listed. Without limiting the generality of
the foregoing, the Purchaser agrees that it will, whenever required by federal
securities laws, deliver the prospectus included in the Registration Statement
to any purchaser of Shares from the Purchaser.
Section 3.15. No Short Sales.
Section 3.16. The Purchaser and its affiliates shall not engage, directly or
indirectly, in short sales of the Company's Common Stock (as defined in
applicable SEC and the Principal Market rules) during the term of this
Agreement.
ARTICLE 4
CONDITIONS TO INITIAL CLOSING AND DRAW DOWNS
Section 4.1. Conditions Precedent to the Obligation of the Company to Sell the
Shares. The obligation hereunder of the Company to proceed to close this
Agreement and to issue and sell the Shares to the Purchaser is subject to the
satisfaction or waiver, at or before the Initial Closing, and as of each
Settlement Date of each of the conditions set forth below. These conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion.
(a) Accuracy of the Purchaser's Representations and Warranties. The
representations and warranties of the Purchaser shall be true and correct in all
material respects as of the date when made and as of the Initial Closing and as
of each Settlement Date as though made at that time, except for representations
and warranties that speak as of a particular date.
(b) Performance by the Purchaser. The Purchaser shall have performed, satisfied
and complied in all material respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Purchaser at or prior to the Initial Closing and as of each
Settlement Date.
(c) No Injunction. No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.
(d) No Proceedings or Litigation. No action, suit or proceeding before any
arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Purchaser or the Company or any subsidiary, or any of the officers,
directors or affiliates of the Company or any subsidiary seeking to restrain,
prevent or change the transactions contemplated by this Agreement, or seeking
damages in connection with such transactions.
Section 4.2. Conditions Precedent to the Obligation of the Purchaser to Close.
The obligation hereunder of the Purchaser to perform its obligations under this
Agreement and to purchase the Shares is subject to the satisfaction or waiver,
at or before the Initial Closing, of each of the conditions set forth below.
These conditions are for the Purchaser's sole benefit and may be waived by the
Purchaser at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each of
the representations and warranties of the Company shall be true and correct in
all material respects as of the date when made and as of the Initial Closing as
though made at that time (except for representations and warranties that speak
as of a particular date).
(b) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all material covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Initial Closing.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(d) No Proceedings or Litigation. No action, suit or proceeding before
any arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Purchaser or the Company or any subsidiary, or any of the officers,
directors or affiliates of the Company or any subsidiary seeking to restrain,
prevent or change the transactions contemplated by this Agreement, or seeking
damages in connection with such transactions.
(e) Opinion of Counsel, Etc. At the Initial Closing, the Purchaser
shall have received an opinion of counsel to the Company, dated as of the
Initial Closing Date, in the form of Exhibit C hereto.
(f) Warrant. On the Initial Closing Date, the Company shall issue to
the Purchaser a warrant to purchase 150,000 shares of Common Stock. The Warrant
shall be exercisable for the period of 3 years beginning 6 months after the
Initial Closing Date. The exercise price of the Warrant shall be 125% of the
average of the 6 consecutive VWAPs immediately preceding the Initial Closing
Date. The Common Stock underlying the Warrant will be registered in the
Registration Statement referred to in Section 4.3 hereof. The Warrant shall be
in the form of Exhibit E hereto.
Section 4.3. Conditions Precedent to the Obligation of the Purchaser to
Accept a Draw Down and Purchase the Shares. The obligation hereunder of the
Purchaser to accept a Draw Down request and to acquire and pay for the Shares is
subject to the satisfaction at or before each Settlement Date, of each of
the conditions set forth below.
(a) Satisfaction of Conditions to Initial Closing. The Company shall
have satisfied, or the Purchaser shall have waived at the Initial Closing, the
conditions set forth in Section 4.2 hereof
(b) Effective Registration Statement. The Registration Statement
registering the Shares to be delivered in connection with the applicable Draw
Down shall have been declared effective by the SEC and shall remain effective on
the applicable Settlement Date.
(c) No Suspension. Trading in the Company's Common Stock shall not
have been suspended by the SEC or the Principal Market (except for any
suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the delivery of each Draw Down Notice),
and, at any time prior to such Draw Down Notice, trading in securities generally
as reported on the Principal Market shall not have been suspended or limited, or
minimum prices shall not have been established on securities whose trades are
reported on the Principal Market unless the general suspension or limitation
shall have been terminated prior to the delivery of such Draw Down Notice.
(d) Material Adverse Effect. No Material Adverse Effect and no
Consolidation Event where the successor entity has not agreed to perform the
Company's obligations shall have occurred, such occurrences to be determined in
accordance with Section 8.9 herein.
(e) Opinion of Counsel. The Purchaser shall have received (i) a
"down-to-date" letter from the Company's counsel, confirming that there is no
change from the counsel's previously delivered opinion, or else specifying with
particularity the reason for any change and an opinion as to the additional
items specified in Exhibit C hereto, and (ii) any other items set forth in the
Escrow Agreement.
ARTICLE 5
DRAW DOWN TERMS
Section 5.1. Draw Down Terms. Subject to the satisfaction of the conditions set
forth in this Agreement, the parties agree as follows:
(a) The Company may, in its sole discretion, issue and exercise draw
downs against the Commitment Amount (each a "Draw Down") during the Commitment
Period, which Draw Downs the Purchaser shall be obligated to accept, subject to
the terms and conditions herein.
(b) Only one Draw Down shall be allowed in each Draw Down Pricing
Period and the Company may not exercise a Draw Down until the applicable Trading
Cushion has elapsed since the last Settlement Date. The number of shares of
Common Stock purchased by the Purchaser with respect to each Draw Down shall be
determined as set forth in Section 5.1(e) herein and, in the event of a Short
Pricing Period, settled on or before the 2nd Trading Day immediately after the
Short Pricing Period and, in the event of a Long Pricing Period, settled:
(i) as to the 1st through the 10th Trading Day during the Draw Down Pricing
Period, on or before the 12th Trading Day after such Draw Down Pricing Period
commences; and
(ii) as to the 11th through the 20th Trading Day during the Draw Down Pricing
Period commences, on or before the 22nd Trading Day after such Draw Down Pricing
Period (such settlement periods and such settlement dates in the last sentence
of subsection (b) above, subsection (i) and this subsection (ii) each referred
to as a "Settlement Period" and a "Settlement Date", respectively).
(c) In connection with each Long Pricing Period, the Company may set the
Threshold Price in the Draw Down Notice. In connection with each Short Pricing
Period, the Company shall not be permitted to set any Threshold Price in the
Draw Down Notice.
(d) The minimum Investment Amount for any Draw Down shall be $100,000 and the
maximum Investment Amount as to each Draw Down shall be equal to 10% of the EQY
weighted average price field for the Common Stock (as reported by Bloomberg
Financial L.P. using the BLPH function) for the 60 calendar days immediately
prior to the applicable Commencement Date (defined below) multiplied by the
total aggregate trading volume in respect of the Common Stock for such period.
Notwithstanding anything herein to the contrary, in the event the minimum
Investment Amount is greater than the maximum Investment Amount, as to such Draw
Down only, the minimum Investment Amount shall equal the maximum Investment
Amount, but in no event shall the minimum Investment Amount be less than
$25,000, such that if the maximum Investment Amount is less than $25,000, then
the Company shall be precluded from exercising a Draw Down at such time.
(e) The number of Shares of Common Stock to be issued on each Settlement
Date shall be a number of shares equal to, as to the Short Pricing Period, the
Investment Amount divided by 88% of the lowest Bid Price during the Short
Pricing Period, and, as to the Long Pricing Period, the sum of the quotients
(for each Trading Day within the Settlement Period) of (x) 1/20th of the
Investment Amount, and (y) the Purchase Price on each Trading Day within the
Settlement Period, subject to the following adjustments:
(i) as to Long Pricing Periods only, if the VWAP on a given Trading Day is
less than the Threshold Price, then that portion of the Investment Amount to be
paid on the immediately pending Settlement Date shall be reduced by 1/20th of
the Investment Amount and such Trading Day shall be withdrawn from the
Settlement Period;
(ii) if during any Trading Day during the Settlement Period trading of the
Common Stock on the Principal Market is suspended for more than 3 hours, in the
aggregate, or if any Trading Day during the Settlement Period is shortened
because of a public holiday, then, as to a Short Pricing Period, such Draw Down
Pricing Period shall be extended for each such Trading Day for an equal number
of Trading Days and, as to a Long Pricing Period, that portion of the Investment
Amount to be paid on the immediately pending Settlement Date shall be reduced by
1/20th of the Investment Amount for each such suspension and such Trading Days
shall be withdrawn from the Settlement Period; and
(iii) if during any Trading Day during the Settlement Period sales of Draw Down
Shares pursuant to the Registration Statement are suspended by the Company in
accordance with Sections 3(j) or 5(e) of the Registration Rights Agreement for
more than three (3) hours, in the aggregate, during the Settlement Period, then,
as to any Short Pricing Period, such Draw Down Pricing Period shall be extended
for each such Trading Day for an equal number of Trading Days so suspended and,
as to a Long Pricing Period, that portion of the Investment Amount to be paid on
the immediately pending Settlement Date shall be reduced by 1/20th of the
Investment Amount and such Trading Days shall be withdrawn from the Settlement
Period.
(f) The Company must inform the Purchaser by delivering a draw down notice, in
the form of Exhibit D hereto (the "Draw Down Notice"), via facsimile
transmission in accordance with Section 8.4 as to the amount of the Draw Down
(the "Investment Amount") the Company wishes to exercise and whether the Company
elects a Short Pricing Period or a Long Pricing Period. As to a Draw Down Notice
delivered in connection with a Long Pricing Period, Draw Down Notice shall also
inform the Purchaser the first day of the Draw Down Pricing Period (the
"Commencement Date"); provided; however, if the Commencement Date shall be the
date on which the Draw Down Notice is delivered, the Draw Down Notice must
delivered to the Purchaser at least 1 hour before trading commences on such
Trading Day date. At no time shall the Purchaser be required to purchase more
than the maximum Investment Amount for a given Draw Down Pricing Period.
(g) On or before each Settlement Date, the Shares purchased by the Purchaser
shall be delivered to The Depository Trust Company ("DTC") on the Purchaser's
behalf. Upon the Company electronically delivering whole shares of Common Stock
to the Purchaser or its designees via DTC through its Deposit Withdrawal Agent
Commission ("DWAC") system prior to 1:00 p.m. ET, the Purchaser shall wire
transfer immediately available funds to the Company's designated account on such
day, less any fees as set forth in the Escrow Agreement, which fees shall be
wired as directed in the Escrow Agreement. Upon the Company electronically
delivering whole shares of Common Stock to the Purchaser or its designee's DTC
account via DWAC after 1:00 p.m. ET, the Purchaser shall wire transfer next day
available funds to the Company's designated account on such day, less any fees
as set forth in the Escrow Agreement, which fees shall be wired as directed in
the Escrow Agreement. In the event that either party elects to use the Escrow
Agent, the Shares shall be credited by the Company to the DTC account designated
by the Purchaser via DWAC upon receipt by the Escrow Agent of payment for the
Draw Down Shares into the Escrow Agent's master escrow account and notice to the
Company thereof, all as further set forth in the Escrow Agreement. The Escrow
Agent shall be directed to pay the purchase price to the Company, net of $500
per Settlement as escrow expenses to the Escrow Agent and any additional fees as
set forth in the Escrow Agreement.
(h) The Company understands that a delay in the delivery of the Draw Down
Shares into the Purchaser's DTC account beyond 3 Trading Days after the dates
set forth herein or in the Escrow Agreement, as may be applicable, could result
in economic loss to the Purchaser. Notwithstanding anything herein to the
contrary, as compensation to the Purchaser for such loss, the Company agrees to
pay late payments to the Purchaser for late delivery after 3 Trading Days from
such dates in accordance with the following schedule (where "No. Trading Days
Late" is defined as the number of Trading Days beyond 3 Trading Days from the
dates set forth herein or in the Escrow Agreement, as applicable, on which such
Draw Down Shares are to be delivered into the Purchaser's DTC account via the
DWAC system):
Late Payment for Each
$5,000 of Draw Down Shares
No. Trading Days Late Being Purchased
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
More than 10 $1,000 +$200 for each Trading
Day Late beyond 10 Trading Days
The Company shall pay any payments incurred under this Section 5.1(h) in
immediately available funds upon demand. Nothing herein shall limit the
Purchaser's right to pursue injunctive relief and/or actual damages for the
Company's failure to issue and deliver the Draw Down Shares to the Company.
ARTICLE 6
TERMINATION
Section 6.1. Term. The term of this Agreement shall begin on the date hereof and
shall end 36 months from the Effective Date or as otherwise set forth in Section
6.2.
Section 6.2. Other Termination.
(a) This Agreement shall terminate upon one (1) Trading Day's notice if (i) an
event resulting in a Material Adverse Effect has occurred and has not been cured
for a period of thirty (30) days after giving notice thereof, (ii) the Common
Stock is de-listed from the Principal Market unless such de-listing is in
connection with the Company's subsequent listing of the Common Stock on the
Nasdaq National Market, Nasdaq SmallCap Market, the American Stock Exchange or
the New York Stock Exchange, or (iii) the Company files for protection from
creditors under any applicable law.
(b) The Company may terminate this Agreement upon 1 Trading Day's notice if
the Purchaser shall fail to fund more than 1 properly noticed Draw Down within 5
Trading Days of the end of the applicable Settlement Period.
Section 6.3. Effect of Termination.
In the event of termination of this Agreement pursuant to Section 6.2
herein, written notice thereof shall forthwith be given to the other party and
the transactions contemplated by this Agreement shall be terminated without
further action by either party. If this Agreement is terminated as provided in
Section 6.1 or 6.2 herein, this Agreement shall become void and of no further
force and effect, except for Sections 8.1, 8.2 and 8.9, and Article 7 herein,
which shall survive the termination of this Agreement. Nothing in this Section
6.3 shall be deemed to release the Company or the Purchaser from any liability
for any breach under this Agreement, or to impair the rights of the Company or
the Purchaser to compel specific performance by the other party of its
obligations under this Agreement.
ARTICLE 7
INDEMNIFICATION
Section 7.1. General Indemnity.
(a) The Company agrees to indemnify and hold harmless the Purchaser (and its
directors, officers, affiliates, agents, successors and assigns) from and
against any and all losses, liabilities, deficiencies, costs, damages and
expenses (including, without limitation, reasonable attorneys' fees, charges and
disbursements) incurred by the Purchaser as a result of any inaccuracy in or
breach of the representations, warranties or covenants made by the Company
herein.
(b) The Purchaser agrees to indemnify and hold harmless the Company and its
directors, officers, affiliates, agents, successors and assigns from and against
any and all losses, liabilities, deficiencies, costs, damages and expenses
(including, without limitation, reasonable attorneys' fees, charges and
disbursements) incurred by the Company as result of any material inaccuracy in
or breach of the representations, warranties or covenants made by the Purchaser
herein. Notwithstanding anything to the contrary herein, the Purchaser shall be
liable under this Section 7.1(b) for only that amount as does not exceed the
gross proceeds to the Purchaser as a result of the sale of the Shares.
Section 7.2. Indemnification Procedure. Any party entitled to indemnification
under this Article 7 (an "Indemnified Party") will give written notice to the
indemnifying party of any matters giving rise to a claim for indemnification;
provided, that the failure of any party entitled to indemnification hereunder to
give notice as provided herein shall not relieve the indemnifying party of its
obligations under this Article 7 except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. In case any action,
proceeding or claim is brought against an Indemnified Party in respect of which
indemnification is sought hereunder, the indemnifying party shall be entitled to
participate in and, unless in the reasonable judgment of counsel to the
Indemnified Party a conflict of interest between it and the indemnifying party
may exist with respect of such action, proceeding or claim, to assume the
defense thereof with counsel reasonably satisfactory to the Indemnified Party.
In the event that the indemnifying party advises an Indemnified Party that it
will contest such a claim for indemnification hereunder, or fails, within thirty
(30) days of receipt of any indemnification notice to notify, in writing, such
person of its election to defend, settle or compromise, at its sole cost and
expense, any action, proceeding or claim (or discontinues its defense at any
time after it commences such defense), then the Indemnified Party may, at its
option, defend, settle or otherwise compromise or pay such action or claim. In
any event, unless and until the indemnifying party elects in writing to assume
and does so assume the defense of any such claim, proceeding or action, the
Indemnified Party's costs (including reasonable attorneys' fees, charges and
disbursements) and expenses arising out of the defense, settlement or compromise
of any such action, claim or proceeding shall be losses subject to
indemnification hereunder. The Indemnified Party shall cooperate fully with the
indemnifying party in connection with any settlement negotiations or defense of
any such action or claim by the indemnifying party and shall furnish to the
indemnifying party all information reasonably available to the Indemnified
Party, which relates to such action or claim. The indemnifying party shall keep
the Indemnified Party fully apprised at all times as to the status of the
defense or any settlement negotiations with respect thereto. If the indemnifying
party elects to defend any such action or claim, then the Indemnified Party
shall be entitled to participate in such defense with counsel of its choice at
its sole cost and expense. The indemnifying party shall not be liable for any
settlement of any action, claim or proceeding effected without its prior written
consent. Notwithstanding anything in this Article 7 to the contrary, the
indemnifying party shall not, without the Indemnified Party's prior written
consent, settle or compromise any claim or consent to entry of any judgment in
respect thereof which imposes any future obligation on the Indemnified Party or
which does not include, as an unconditional term thereof, the giving by the
claimant or the plaintiff to the Indemnified Party of a release from all
liability in respect of such claim. The indemnification required by this Article
7 shall be made by periodic payments of the amount thereof during the course of
investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred, within ten (10) Trading Days of written notice
thereof to the indemnifying party so long as the Indemnified Party irrevocably
agrees to refund such moneys, with interest, if it is ultimately determined by a
court of competent jurisdiction that such party was not entitled to
indemnification. The indemnity agreements contained herein shall be in addition
to (a) any cause of action or similar rights of the Indemnified Party against
the indemnifying party or others, and (b) any liabilities to which the
indemnifying party may be subject.
ARTICLE 8
MISCELLANEOUS
Section 8.1. Fees and Expenses. Each of the parties to this Agreement shall pay
its own fees and expenses related to the transactions contemplated by this
Agreement; except that, the Company shall pay a non-accountable expense
allowance of, (a) at the Initial Closing, $15,000, and (b) upon the earlier of
the initial filing date of the Registration Statement and the 30th calendar day
after the Initial Closing, $10,000, for the Purchaser's, administrative and due
diligence costs and expenses and, at the Initial Closing, $10,000 for
Purchaser's legal costs and expenses and any other additional fees as set forth
in the Escrow Agreement. The Company shall pay all stamp or other similar taxes
and duties levied in connection with issuance of the Shares pursuant hereto.
Section 8.2. Specific Enforcement. The Company and the Purchaser acknowledge and
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity.
Section 8.3. Entire Agreement; Amendment. The Transaction Documents contain the
entire understanding of the parties with respect to the matters covered in the
Transaction Documents. No provision of this Agreement may be waived or amended
other than by a written instrument signed by the party against whom enforcement
of any such amendment or waiver is sought and no condition to closing any Draw
Down in favor of the Purchaser may be waived by the Purchaser. Section 8.4.
Notices. Any notice, demand, request, waiver or other communication required or
permitted to be given hereunder shall be in writing and shall be effective (a)
upon hand delivery or facsimile at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
If to the Company: 3151 Airway Avenue, Suite P-3
Costa Mesa, California 92626
Attn: Paul Sandhu
Tel: (714) 549-7700
Fax: (714) 549-7707
with copies to: Cutler Law Group
(which shall not constitute 610 Newport Center Dr., Suite 800
notice) Newport Beach, CA 92660
Attn: Vi Bui, Esq.
Tel: (949) 719-1977
Fax: (949) 719-1988
If to Purchaser: 4th Floor
Harbour Centre
P.O. Box 61 GT
George Town
Cayman Islands
Attn: Ian Goodall
Fax: (345) 949-8635
with a copy to: Robert Charron, Esq.
(which shall not constitute Feldman & Associates
notice) Counselors at Law, P.C.
36 West 44th Street
New York, New York 10036
Tel.: (212) 869-7000
Fax: (212) 997-4242
Any party hereto may from time to time change its address for notices by
giving written notice of such changed address to the other party hereto in
accordance herewith.
Section 8.5. Waivers. No waiver by either party of any default with respect to
any provision, condition or requirement of this Agreement shall be deemed to be
a continuing waiver in the future or a waiver of any other provisions, condition
or requirement hereof, nor shall any delay or omission of any party to exercise
any right hereunder in any manner impair the exercise of any such right accruing
to it thereafter.
Section 8.6. Headings. The article, section and subsection headings in this
Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 8.7. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns. The
parties hereto may not amend this Agreement or any rights or obligations
hereunder without the prior written consent of the Company and the Purchaser.
This Agreement may not be assigned by either party without the prior written
consent of the other party.
Section 8.8. No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 8.9. Governing Law/Arbitration. This Agreement shall be governed
by and construed in accordance with the internal laws of the State of New York,
without giving effect to the choice of law provisions. The Company and the
Purchaser agree to exclusively submit themselves to the in personam jurisdiction
of the state and federal courts situated within the Southern District of the
State of New York with regard to any controversy arising out of or relating to
this Agreement. Any dispute under this Agreement or any Exhibit attached hereto
shall be submitted to arbitration under the American Arbitration Association
(the "AAA") in New York City, New York, and shall be finally and conclusively
determined by the decision of a board of arbitration consisting of three (3)
members (hereinafter referred to as the "Board of Arbitration") selected as
according to the rules governing the AAA. The Board of Arbitration shall meet
on consecutive business days in New York City, New York, and shall reach and
render a decision in writing (concurred in by a majority of the members of the
Board of Arbitration) with respect to the amount, if any, which the losing party
is required to pay to the other party in respect of a claim filed. In
connection with rendering its decisions, the Board of Arbitration shall adopt
and follow the laws of the State of New York. To the extent practical,
decisions of the Board of Arbitration shall be rendered no more than thirty (30)
calendar days following commencement of proceedings with respect thereto. The
Board of Arbitration shall cause its written decision to be delivered to all
parties involved in the dispute. The Board of Arbitration shall be authorized
and is directed to enter a default judgment against any party refusing to
participate in the arbitration proceeding within thirty days of any deadline for
such participation. Any decision made by the Board of Arbitration (either prior
to or after the expiration of such thirty (30) calendar day period) shall be
final, binding and conclusive on the parties to the dispute, and entitled to be
enforced to the fullest extent permitted by law and entered in any court of
competent jurisdiction. The prevailing party shall be awarded its costs,
including attorneys' fees, from the non-prevailing party as part of the
arbitration award. Any party shall have the right to seek injunctive relief
from any court of competent jurisdiction in any case where such relief is
available. The prevailing party in such injunctive action shall be awarded its
costs, including reasonable attorneys' fees, from the non-prevailing party.
Section 8.10. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. Execution may be made by delivery
by facsimile.
Section 8.11. Publicity. Neither the Company nor the Purchaser shall issue
any press release or otherwise make any public statement or announcement with
respect to this Agreement or the transactions contemplated hereby or the
existence of this Agreement, except those disclosures legally required, without
the prior written consent of the other party. After the Initial Closing, the
Company may issue a press release or otherwise make a public statement or
announcement with respect to this Agreement or the transactions contemplated
hereby or the existence of this Agreement; provided, however, that prior to
issuing any such press release, making any such public statement or
announcement, the Company obtains the prior consent of the Purchaser, which
consent shall not be unreasonably withheld or delayed.
Section 8.12. Severability. The provisions of this Agreement are severable
and, in the event that The Board of Arbitration or any court or officials of any
regulatory agency of competent jurisdiction shall determine that any one or more
of the provisions or part of the provisions contained in this Agreement shall,
for any reason, be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision or part of a provision of this Agreement and this Agreement shall be
reformed and construed as if such invalid or illegal or unenforceable provision,
or part of such provision, had never been contained herein, so that such
provisions would be valid, legal and enforceable to the maximum extent possible,
so long as such construction does not materially adversely affect the economic
rights of either party hereto.
Section 8.13. Further Assurances. From and after the date of this
Agreement, upon the request of the Purchaser or the Company, each of the Company
and the Purchaser shall execute and deliver such instruments, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement.
Section 8.14. Effectiveness of Agreement. This Agreement shall become
effective only upon satisfaction of the conditions precedent to the Initial
Closing set forth in Article I of the Escrow Agreement.
ARTICLE 9
DEFINITIONS
Section 9.1. Certain Definitions.
(a) "Bid Price"
shall mean the closing bid price (as reported by Bloomberg Financial L.P.)
of the Common Stock on the Principal Market on the date in question.
(b) "Commencement Date" shall have the meaning assigned to such term in
Section 5.1(f) hereof.
(c) "Commitment Amount" shall have the meaning assigned to such term in
Section 1.1 hereof.
(d) "Commitment Period" shall mean the period of 36 consecutive months
commencing immediately after the Effective Date.
(e) "Common Stock" shall mean the Company's common stock, $0.001 par
value per share.
(f) "Consolidation Event" shall mean a sale of all or substantially all of
the Company's assets or a merger pursuant to which the holders of the voting
securities of the Company prior to the merger do not own a majority of the
voting securities of the surviving entity.
(g) "Disclosure Schedule" shall mean the schedules prepared by the Company
and attached hereto.
(h) "Draw Down" shall have the meaning assigned to such term in Section
5.1(a) hereof.
(i) "Draw Down Notice" shall have the meaning assigned to such term in
Section 5.1(f) hereof.
(j) "Draw Down Pricing Period" shall mean, at the election of the Company as
specified in the Draw Down Notice, either (i) a period of 20 consecutive
Trading Days beginning on the date specified in the Draw Down Notice; provided,
however, the Draw Down Pricing Period shall not begin before the day on which
receipt of such notice is confirmed by the Purchaser ("Long Pricing Period"), or
(ii) a period of 6 Trading Days commencing 2 Trading Days immediately prior to
the proper delivery of a Draw Down Notice and ending 3 Trading Days after the
delivery of such Draw Down Notice ("Short Pricing Period").
(k) "DTC" shall have the meaning assigned to such term in Section
5.1(g).
(l) "DWAC" shall have the meaning assigned to such term in Section
5.1(g).
(m) "Effective Date" shall mean the date the Registration Statement of the
Company covering the Shares being subscribed for hereby is declared effective by
the SEC.
(n) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
(o) "GAAP" shall mean the United States Generally Accepted Accounting
Principles as those conventions, rules and procedures are determined by the
Financial Accounting Standards Board and its predecessor agencies.
(p) "Initial Closing" shall have the meaning assigned to such term in
Section 1.2 hereof.
(q) "Initial Closing Date" shall have the meaning assigned to such term
in Section 1.2 hereof.
(r) "Investment Amount" shall have the meaning assigned to such term in
Section 5.1(f) hereof.
(s) "Material Adverse Effect" shall mean any adverse effect on the business,
operations, properties or financial condition of the Company that is material
and adverse to the Company and its subsidiaries and affiliates, taken as a whole
and/or any condition, circumstance, or situation that would prohibit or
otherwise materially interfere with the ability of the Company to perform any of
its material obligations under this Agreement or the Registration Rights
Agreement or to perform its obligations under any other Material Agreement.
(t) "Material Agreement" shall mean any written or oral contract,
instrument, agreement, commitment, obligation, plan or arrangement, a copy of
which is required to be filed with the SEC as an exhibit to any of the SEC
Documents.
(u) "Principal Market" shall mean initially the OTC Bulletin Board and
shall include the Nasdaq National Market, the American Stock Exchange, the
Nasdaq Small-Cap Market and the New York Stock Exchange if the Company becomes
listed and trades on such market or exchange after the date hereof.
(v) "Purchase Price" shall mean, with respect to Shares purchased
during each applicable Settlement Period, if the average of the VWAPs during the
10 Trading Days immediately prior to the applicable Draw Down Notice is less
than $6 per share, 88% of the VWAP on the date in question during such Draw Down
Pricing Period and if the average of the VWAPs during the 10 Trading Days
immediately prior to the applicable Draw Down Notice is greater than $6 per
share, 90% of the VWAP on the date in question during such Draw Down Pricing
Period. Notwithstanding anything herein to the contrary, in the event any Draw
Downs are exercised during any periods the Trading Cushion is reduced because of
a Special Activity, the Purchase Price Percentage, as to such Draw Downs, shall
be reduced by an additional 3% from the amount specified above.
(w) "Registration Statement" shall mean the registration statement
under the Securities Act, to be filed with the Securities and Exchange
Commission for the registration of the Shares pursuant to the Registration
Rights Agreement attached hereto as Exhibit A (the "Registration Rights
Agreement).
(x) "SEC" shall mean the Securities and Exchange Commission.
(y) "SEC Documents" shall mean the Company's latest Form 10-K or Form 10-KSB as
of the time in question, all Forms 10-Q or 10-QSB and 8-K filed thereafter, and
the Proxy Statement for its latest fiscal year as of the time in question until
such time as the Company no longer has an obligation to maintain the
effectiveness of a Registration Statement as set forth in the Registration
Rights Agreement.
(z) "Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
(aa) "Settlement" shall mean the delivery of the Draw Down Shares into the
Purchaser's DTC account via DTC's DWAC system in exchange for payment therefor.
(bb) "Settlement Date" shall have the meaning assigned to such term in
Section 5.1(b).
(cc) "Settlement Period" shall have the meaning assigned to such term in
Section 5.1(b).
(dd) "Shares" shall mean, collectively, the shares of Common Stock of the
Company being subscribed for hereunder (the "Draw Down Shares") and the shares
of Common Stock issuable upon exercise of the Warrant (the "Warrant Shares").
(ee) "Special Activity" shall mean any one-time charge the Company expects
to incur for any reason, including, without limitation, in connection with the
acquisition of another business.
(ff) "Threshold Price" shall mean the price per Share designated by the
Company as the lowest VWAP during any Draw Down Pricing Period at which the
Company shall sell its Common Stock in accordance with this Agreement.
(gg) "Trading Cushion"
(hh) shall mean the mandatory 6 Trading Days between Draw Down Pricing
Periods; except that, in the event the Company gives the Purchaser 10 days
notice of a Special Activity, the Trading Cushion shall be adjusted to 2 Trading
Days for a period of 8 consecutive weeks.
(ii) "Trading Day" shall mean any day on which the Principal Market is
open for business.
(jj) "Transaction Documents" shall mean this Agreement, the
Registration Rights Agreement and the Escrow Agreement.
(kk) "VWAP" shall mean the daily volume weighted average price of the
Company's Common Stock on the Principal Market as reported by Bloomberg
Financial L.P. (based on a trading day from 9:30 a.m. Eastern Time to 4:02 p.m.
Eastern Time) using the VAP function on the date in question.
(ll) "Warrant" shall mean the warrant issued to the Purchaser pursuant
to Section 4.2(f) hereof.
[SIGNATURE PAGE FOLLOWS]
[SIGNATURE PAGE TO EQUITY LINE PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officer as of this 19th day of
September, 2001.
GTC TELECOM CORP.
By: /s/ S. Paul Sandhu
Paul Sandhu, Chief Executive Officer
BLUEFIRE CAPITAL, INC.
By: /s/ I. Goodall
Ian Goodall
Authorized Signatory
7th September 2001