Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of August
10, 2005, by and among CITY NETWORK, INC., a Nevada corporation (the "COMPANY"),
and the Buyers listed on Schedule I attached hereto (individually, a "BUYER" or
collectively "BUYERS").
WITNESSETH:
WHEREAS, the Company and the Buyer(s) are executing and delivering this
Agreement in reliance upon an exemption from securities registration pursuant to
Section 4(2) and/or Rule 506 of Regulation D ("REGULATION D") as promulgated by
the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "SECURITIES ACT");
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Buyer(s),
as provided herein, and the Buyer(s) shall purchase Two Hundred Fifty Thousand
Dollars ($250,000) of secured convertible debentures (the "CONVERTIBLE
DEBENTURES"), which shall be convertible into shares of the Company's common
stock, par value $0.001 (the "COMMON STOCK") (as converted, the "CONVERSION
SHARES") of which One Hundred Twenty Five Thousand Dollars ($125,000) shall be
funded on the fifth (5th) business day following the date hereof (the "FIRST
CLOSING") and One Hundred Twenty Five Thousand Dollars ($125,000) shall be
funded two (2) business days prior to the date the registration statement (the
"REGISTRATION STATEMENT") is filed, pursuant to the Investor Registration Rights
Agreement dated the date hereof, with the United States Securities and Exchange
Commission (the "SEC") (the "SECOND CLOSING") (individually referred to as a
"CLOSING" collectively referred to as the "CLOSINGS"), for a total purchase
price of Two Hundred Fifty Thousand Dollars ($250,000), (the "PURCHASE PRICE")
in the respective amounts set forth opposite each Buyer(s) name on Schedule I
(the "SUBSCRIPTION AMOUNT"); and
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement substantially in the form attached hereto as EXHIBIT A (the "INVESTOR
REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company has agreed to
provide certain registration rights under the Securities Act and the rules and
regulations promulgated there under, and applicable state securities laws; and
WHEREAS, the aggregate proceeds of the sale of the Convertible Debentures
contemplated hereby shall be held in escrow pursuant to the terms of an escrow
agreement substantially in the form of the Escrow Agreement attached hereto as
EXHIBIT B.
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering Security Agreements
substantially in the form attached hereto as EXHIBIT C (the "SECURITY
AGREEMENTS") pursuant to which the Company and its wholly owned subsidiaries
have agreed to provide the Buyer a security interest in Pledged Collateral (as
this term is defined in the Security Agreements) to secure the Company's
obligations under this Agreement, the Convertible Debenture, the Investor
Registration Rights Agreement, the Irrevocable Transfer Agent Instructions, the
Security Agreement, the Pledge and Escrow Agreement or any other obligations of
the Company to the Buyer;
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Pledge and Escrow
Agreement substantially in the form attached hereto as EXHIBIT D (the "PLEDGE
AND ESCROW AGREEMENT") pursuant to which the Company has agreed to provide the
Buyer a security interest in the Pledged Shares (as this term is defined in the
Pledge and Escrow Agreement) to secure the Company's obligations under this
Agreement, the Convertible Debenture, the Investor Registration Rights
Agreement, the Irrevocable Transfer Agent Instructions, the Security Agreement,
the Pledge and Escrow Agreement or any other obligations of the Company to the
Buyer; and
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering Irrevocable Transfer
Agent Instructions substantially in the form attached hereto as EXHIBIT E (the
"IRREVOCABLE TRANSFER AGENT INSTRUCTIONS")
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Buyer(s) hereby agree
as follows:
1. PURCHASE AND SALE OF CONVERTIBLE DEBENTURES.
(a) PURCHASE OF CONVERTIBLE DEBENTURES. Subject to the satisfaction (or
waiver) of the terms and conditions of this Agreement, each Buyer agrees,
severally and not jointly, to purchase at Closing (as defined herein below) and
the Company agrees to sell and issue to each Buyer, severally and not jointly,
at each Closing, Convertible Debentures in amounts corresponding with the
Subscription Amount set forth opposite each Buyer's name on Schedule I hereto.
Upon execution hereof by a Buyer, the Buyer shall wire transfer the Subscription
Amount set forth opposite his name on Schedule I in same-day funds or a check
payable to "David Gonzalez, Esq., as Escrow Agent for City Network, Inc./Cornell
Capital Partners, LP", which Subscription Amount shall be held in escrow
pursuant to the terms of the Escrow Agreement (as hereinafter defined) and
disbursed in accordance therewith.
(b) CLOSING DATE. The First Closing of the purchase and sale of the
Convertible Debentures shall take place at 10:00 a.m. Eastern Standard Time on
the fifth (5th) business day following the date hereof, subject to notification
of satisfaction of the conditions to the First Closing set forth herein and in
Sections 6 and 7 below (or such later date as is mutually agreed to by the
Company and the Buyer(s)) (the "FIRST CLOSING DATE") and the Second Closing of
the purchase and sale of the Convertible Debentures shall take place at 10:00
a.m. Eastern Standard Time two (2) business days prior to the date the
Registration Statement is filed with the SEC, subject to notification of
satisfaction of the conditions to the Second Closing set forth herein and in
Sections 6 and 7 below (or such later date as is mutually agreed to by the
Company and the Buyer(s)) (the "SECOND CLOSING DATE") (collectively referred to
a the "CLOSING DATES"). The Closing shall occur on the respective Closing Dates
at the offices of Yorkville Advisors, LLC, 3700 Hudson Street, Suite 3700,
Jersey City, New Jersey 07302 (or such other place as is mutually agreed to by
the Company and the Buyer(s)).
2
(c) ESCROW ARRANGEMENTS; FORM OF PAYMENT. Upon execution hereof by Buyer(s)
and pending the Closings, the aggregate proceeds of the sale of the Convertible
Debentures to Buyer(s) pursuant hereto shall be deposited in a non-interest
bearing escrow account with David Gonzalez, Esq., as escrow agent (the "ESCROW
AGENT"), pursuant to the terms of an escrow agreement between the Company, the
Buyer(s) and the Escrow Agent in the form attached hereto as EXHIBIT B (the
"ESCROW AGREEMENT"). Subject to the satisfaction of the terms and conditions of
this Agreement, on the Closing Dates, (i) the Escrow Agent shall deliver to the
Company in accordance with the terms of the Escrow Agreement such aggregate
proceeds for the Convertible Debentures to be issued and sold to such Buyer(s),
minus the unpaid structuring fees and expenses of Yorkville Advisors Management,
LLC not to exceed Ten Thousand Dollars ($10,000), the due diligence fee not to
exceed Two Thousand Five Hundred Dollars ($2,500), and the legal fees, expenses,
and legal retainer to Loeb & Loeb LLP of Fifty Thousand Dollars ($50,000), which
shall be paid directly from the gross proceeds held in escrow of the First
Closing and (ii) the Company shall deliver to each Buyer, Convertible Debentures
which such Buyer(s) is purchasing at the First and Second Closings in amounts
indicated opposite such Buyer's name on Schedule I, duly executed on behalf of
the Company.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants, severally and not jointly, that:
(a) INVESTMENT PURPOSE. Each Buyer is acquiring the Convertible Debentures
and, upon conversion of Convertible Debentures, the Buyer will acquire the
Conversion Shares then issuable, for its own account for investment only and not
with a view towards, or for resale in connection with, the public sale or
distribution thereof, except pursuant to sales registered or exempted under the
Securities Act; provided, however, that by making the representations herein,
such Buyer reserves the right to dispose of the Conversion Shares at any time in
accordance with or pursuant to an effective registration statement covering such
Conversion Shares or an available exemption under the Securities Act.
(b) ACCREDITED INVESTOR STATUS. Each Buyer is an "ACCREDITED INVESTOR" as
that term is defined in Rule 501(a)(3) of Regulation D.
(c) RELIANCE ON EXEMPTIONS. Each Buyer understands that the Convertible
Debentures are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire such securities.
(d) INFORMATION. Each Buyer and its advisors (and his or, its counsel), if
any, have been furnished with all materials relating to the business, finances
and operations of the Company and information he deemed material to making an
informed investment decision regarding his purchase of the Convertible
Debentures and the Conversion Shares, which have been requested by such Buyer.
Each Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company and its management. Neither such inquiries nor any
3
other due diligence investigations conducted by such Buyer or its advisors, if
any, or its representatives shall modify, amend or affect such Buyer's right to
rely on the Company's representations and warranties contained in Section 3
below. Each Buyer understands that its investment in the Convertible Debentures
and the Conversion Shares involves a high degree of risk. Each Buyer is in a
position regarding the Company, which, based upon employment, family
relationship or economic bargaining power, enabled and enables such Buyer to
obtain information from the Company in order to evaluate the merits and risks of
this investment. Each Buyer has sought such accounting, legal and tax advice, as
it has considered necessary to make an informed investment decision with respect
to its acquisition of the Convertible Debentures and the Conversion Shares.
(e) NO GOVERNMENTAL REVIEW. Each Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Convertible
Debentures or the Conversion Shares, or the fairness or suitability of the
investment in the Convertible Debentures or the Conversion Shares, nor have such
authorities passed upon or endorsed the merits of the offering of the
Convertible Debentures or the Conversion Shares.
(f) TRANSFER OR RESALE. Each Buyer understands that except as provided in
the Investor Registration Rights Agreement: (i) the Convertible Debentures have
not been and are not being registered under the Securities Act or any state
securities laws, and may not be offered for sale, sold, assigned or transferred
unless (A) subsequently registered thereunder, or (B) such Buyer shall have
delivered to the Company an opinion of counsel, in a generally acceptable form,
to the effect that such securities to be sold, assigned or transferred may be
sold, assigned or transferred pursuant to an exemption from such registration
requirements; (ii) any sale of such securities made in reliance on Rule 144
under the Securities Act (or a successor rule thereto) ("RULE 144") may be made
only in accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of such securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the Securities Act) may require
compliance with some other exemption under the Securities Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such securities under the Securities
Act or any state securities laws or to comply with the terms and conditions of
any exemption thereunder. The Company reserves the right to place stop transfer
instructions against the shares and certificates for the Conversion Shares.
(g) LEGENDS. Each Buyer understands that the certificates or other
instruments representing the Convertible Debentures and or the Conversion Shares
shall bear a restrictive legend in substantially the following form (and a stop
transfer order may be placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN
ACQUIRED SOLELY FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
4
TOWARD RESALE AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN
A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS.
The legend set forth above shall be removed and the Company within two (2)
business days shall issue a certificate without such legend to the holder of the
Conversion Shares upon which it is stamped, if, unless otherwise required by
state securities laws, (i) in connection with a sale transaction, provided the
Conversion Shares are registered under the Securities Act or (ii) in connection
with a sale transaction, after such holder provides the Company with an opinion
of counsel, which opinion shall be in form, substance and scope customary for
opinions of counsel in comparable transactions, to the effect that a public
sale, assignment or transfer of the Conversion Shares may be made without
registration under the Securities Act.
(h) AUTHORIZATION, ENFORCEMENT. This Agreement has been duly and validly
authorized, executed and delivered on behalf of such Buyer and is a valid and
binding agreement of such Buyer enforceable in accordance with its terms, except
as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
(i) RECEIPT OF DOCUMENTS. Each Buyer and his or its counsel has received
and read in their entirety: (i) this Agreement and each representation, warranty
and covenant set forth herein, the Security Agreement, the Investor Registration
Rights Agreement, the Escrow Agreement, the Irrevocable Transfer Agent
Agreement, and the Pledge and Escrow Agreement; (ii) all due diligence and other
information necessary to verify the accuracy and completeness of such
representations, warranties and covenants; (iii) the Company's Form 10-KSB for
the fiscal year ended December 31, 2004; (iv) the Company's Form 10-QSB for the
fiscal quarter ended March 31, 2005 and (v) answers to all questions each Buyer
submitted to the Company regarding an investment in the Company; and each Buyer
has relied on the information contained therein and has not been furnished any
other documents, literature, memorandum or prospectus.
(j) DUE FORMATION OF CORPORATE AND OTHER BUYERS. If the Buyer(s) is a
corporation, trust, partnership or other entity that is not an individual
person, it has been formed and validly exists and has not been organized for the
specific purpose of purchasing the Convertible Debentures and is not prohibited
from doing so.
(k) NO LEGAL ADVICE FROM THE COMPANY. Each Buyer acknowledges, that it had
the opportunity to review this Agreement and the transactions contemplated by
this Agreement with his or its own legal counsel and investment and tax
advisors. Each Buyer is relying solely on such counsel and advisors and not on
any statements or representations of the Company or any of its representatives
or agents for legal, tax or investment advice with respect to this investment,
5
the transactions contemplated by this Agreement or the securities laws of any
jurisdiction.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that, except as
set forth in the SEC Documents (as defined herein):
(a) ORGANIZATION AND QUALIFICATION. The Company and its subsidiaries are
corporations duly organized and validly existing in good standing under the laws
of the jurisdiction in which they are incorporated, and have the requisite
corporate power to own their properties and to carry on their business as now
being conducted. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company and its
subsidiaries taken as a whole.
(b) AUTHORIZATION, ENFORCEMENT, COMPLIANCE WITH OTHER INSTRUMENTS. (i) The
Company has the requisite corporate power and authority to enter into and
perform this Agreement, the Security Agreement, the Investor Registration Rights
Agreement, the Irrevocable Transfer Agent Agreement, the Escrow Agreement, the
Pledge and Escrow Agreement, and any related agreements (collectively the
"TRANSACTION DOCUMENTS") and to issue the Convertible Debentures and the
Conversion Shares in accordance with the terms hereof and thereof, (ii) the
execution and delivery of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby,
including, without limitation, the issuance of the Convertible Debentures the
Conversion Shares and the reservation for issuance and the issuance of the
Conversion Shares issuable upon conversion or exercise thereof, have been duly
authorized by the Company's Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors or its
stockholders, (iii) the Transaction Documents have been duly executed and
delivered by the Company, (iv) the Transaction Documents constitute the valid
and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies. The
authorized officer of the Company executing the Transaction Documents knows of
no reason why the Company cannot file the registration statement as required
under the Investor Registration Rights Agreement or perform any of the Company's
other obligations under such documents.
(c) CAPITALIZATION. As of the date hereof the authorized capital stock of
the Company consists of 100,000,000 shares of Common Stock and 50,000 shares of
preferred stock, par value $0.001 per share, of the Company (the "PREFERRED
STOCK") of which 27,500,000 shares of Common Stock and zero shares of Preferred
Stock are issued and outstanding. All of such outstanding shares have been
validly issued and are fully paid and nonassessable. Except as disclosed in the
SEC Documents (as defined in Section 3(f)), no shares of Common Stock are
subject to preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company. Except as disclosed in the
6
SEC Documents, as of the date of this Agreement, (i) 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 or any of its subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its subsidiaries or 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 or any of its subsidiaries, (ii) there are no outstanding debt
securities and (iii) there are no agreements or arrangements under which the
Company or any of its subsidiaries is obligated to register the sale of any of
their securities under the Securities Act (except pursuant to the Registration
Rights Agreement) and (iv) there are no outstanding registration statements and
there are no outstanding comment letters from the SEC or any other regulatory
agency other than on Form S-8 or as contemplated by this Agreement. There are no
securities or instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of the Convertible Debentures as described in
this Agreement. The Company has furnished to the Buyer true and correct copies
of the Company's Articles of Incorporation, as amended and as in effect on the
date hereof (the "ARTICLES OF INCORPORATION"), and the Company's By-laws, as in
effect on the date hereof (the "BY-LAWS"), and the terms of all securities
convertible into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto other than stock options issued to employees
and consultants.
(d) ISSUANCE OF SECURITIES. The Convertible Debentures are duly authorized
and, upon issuance in accordance with the terms hereof, shall be duly issued,
fully paid and nonassessable, are free from all taxes, liens and charges with
respect to the issue thereof. The Conversion Shares issuable upon conversion of
the Convertible Debentures have been duly authorized and reserved for issuance.
Upon conversion or exercise in accordance with the Convertible Debentures the
Conversion Shares will be duly issued, fully paid and nonassessable.
(e) NO CONFLICTS. Except as disclosed in the SEC Documents, the execution,
delivery and performance of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby will not (i)
result in a violation of the Articles of Incorporation, any certificate of
designations of any outstanding series of preferred stock of the Company or the
By-laws 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 Company or any of its
subsidiaries is a party, or result in a violation of any law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations and the rules and regulations of the American Stock Exchange
("AMEX") on which the Common Stock is quoted) applicable to the Company or any
of its subsidiaries or by which any material property or asset of the Company or
any of its subsidiaries is bound or affected which would interfere with the
ability of the Company to perform its obligations under this Agreement in any
material respect. Except as disclosed in the SEC Documents, neither the Company
nor its subsidiaries is in violation of any term of or in default under its
Articles of Incorporation or By-laws or their organizational charter or by-laws,
respectively, or any material contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its subsidiaries. The business of the
7
Company and its subsidiaries is not being conducted, and shall not be conducted
in material violation of any law, ordinance, or regulation of any governmental
entity. Except as specifically contemplated by this Agreement and as required
under the Securities Act and any applicable state securities laws, the Company
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 or contemplated by this
Agreement or the Registration Rights Agreement in accordance with the terms
hereof or thereof. Except as disclosed in the SEC Documents, all consents,
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof. The Company and its subsidiaries are unaware of any
facts or circumstance that might give rise to any of the foregoing.
(f) SEC DOCUMENTS: FINANCIAL STATEMENTS. Since January 1, 2002, the Company
has filed all reports, schedules, forms, statements and other documents required
to be filed by it with the SEC under of the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT") (all of the foregoing filed prior to the date
hereof or amended after the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein, being hereinafter referred to as the "SEC DOCUMENTS"). The
Company has delivered to the Buyers or their representatives, or made available
through the SEC's website at http://www.sec.gov., true and complete copies of
the SEC Documents. As of their respective dates, the financial statements of the
Company disclosed in the SEC Documents (the "FINANCIAL STATEMENTS") complied as
to form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as may
be otherwise indicated in such Financial Statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and, fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Buyer which is not included in the SEC Documents, including, without
limitation, information referred to in this Agreement, contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(g) 10(B)-5. The SEC Documents do not include any untrue statements of
material fact, nor do they omit to state any material fact required to be stated
therein necessary to make the statements made, in light of the circumstances
under which they were made, not misleading.
(h) ABSENCE OF LITIGATION. Except as disclosed in the SEC Documents, there
is no action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or body pending
against or affecting the Company, the Common Stock or any of the Company's
subsidiaries, wherein an unfavorable decision, ruling or finding would (i) have
a material adverse effect on the transactions contemplated hereby (ii) adversely
8
affect the validity or enforceability of, or the authority or ability of the
Company to perform its obligations under, this Agreement or any of the documents
contemplated herein, or (iii) except as expressly disclosed in the SEC
Documents, have a material adverse effect on the business, operations,
properties, financial condition or results of operations of the Company and its
subsidiaries taken as a whole.
(i) ACKNOWLEDGMENT REGARDING BUYER'S PURCHASE OF THE CONVERTIBLE
DEBENTURES. The Company acknowledges and agrees that the Buyer(s) is acting
solely in the capacity of an arm's length purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that the Buyer(s) 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 hereby and any advice given by the Buyer(s) or any
of their respective representatives or agents in connection with this Agreement
and the transactions contemplated hereby is merely incidental to such Buyer's
purchase of the Convertible Debentures or the Conversion Shares. The Company
further represents to the Buyer that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation by the Company and
its representatives.
(j) NO GENERAL SOLICITATION. 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 Convertible Debentures or the Conversion Shares.
(k) 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 require registration of the Convertible
Debentures or the Conversion Shares under the Securities Act or cause this
offering of the Convertible Debentures or the Conversion Shares to be integrated
with prior offerings by the Company for purposes of the Securities Act.
(l) EMPLOYEE RELATIONS. Neither the Company nor any of its subsidiaries is
involved in any labor dispute nor, to the knowledge of the Company or any of its
subsidiaries, is any such dispute threatened. None of the Company's or its
subsidiaries' employees is a member of a union and the Company and its
subsidiaries believe that their relations with their employees are good.
(m) INTELLECTUAL PROPERTY RIGHTS. The Company and its subsidiaries own or
possess adequate rights or licenses to use all trademarks, trade names, service
marks, service mark registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental authorizations, trade
secrets and rights necessary to conduct their respective businesses as now
conducted, except where would not have a material adverse effect on the
Company's business. The Company and its subsidiaries do not have any knowledge
of any infringement by the Company or its subsidiaries of trademark, trade name
rights, patents, patent rights, copyrights, inventions, licenses, service names,
service marks, service mark registrations, trade secret or other similar rights
of others, and, to the knowledge of the Company there is no claim, action or
proceeding being made or brought against, or to the Company's knowledge, being
threatened against, the Company or its subsidiaries regarding trademark, trade
9
name, patents, patent rights, invention, copyright, license, service names,
service marks, service mark registrations, trade secret or other infringement;
and the Company and its subsidiaries are unaware of any facts or circumstances
which might give rise to any of the foregoing.
(n) ENVIRONMENTAL LAWS. The Company and its subsidiaries are (i) in
material compliance with any and all applicable foreign, federal, state and
local laws and regulations relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes, pollutants
or contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all material permits,
licenses or other approvals required of them under applicable Environmental Laws
to conduct their respective businesses and (iii) are in compliance with all
terms and conditions of any such permit, license or approval.
(o) TITLE. Any real property and facilities held under lease by the Company
and its subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with the
use made and proposed to be made of such property and buildings by the Company
and its subsidiaries.
(p) INSURANCE. The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its subsidiaries are
engaged. Neither the Company nor any such subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its subsidiaries, taken as a whole.
(q) REGULATORY PERMITS. The Company and its subsidiaries possess all
material certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such material certificate, authorization or permit.
(r) INTERNAL ACCOUNTING CONTROLS. The Company and each of its subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
and (iii) the recorded amounts for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to any
differences.
(s) NO MATERIAL ADVERSE BREACHES, ETC. Except as set forth in the SEC
Documents, neither the Company nor any of its subsidiaries is subject to any
charter, corporate or other legal restriction, or any judgment, decree, order,
rule or regulation which in the judgment of the Company's officers has or is
expected in the future to have a material adverse effect on the business,
properties, operations, financial condition, results of operations or prospects
10
of the Company or its subsidiaries. Except as set forth in the SEC Documents,
neither the Company nor any of its subsidiaries is in breach of any contract or
agreement which breach, in the judgment of the Company's officers, has or is
expected to have a material adverse effect on the business, properties,
operations, financial condition, results of operations or prospects of the
Company or its subsidiaries.
(t) TAX STATUS. Except as set forth in the SEC Documents, the Company and
each of its subsidiaries has made and filed all federal and state income and all
other tax returns, reports and declarations required by any jurisdiction to
which it is subject and (unless and only to the extent that the Company and each
of its subsidiaries has set aside on its books provisions reasonably adequate
for the payment of all unpaid and unreported taxes) has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim.
(u) CERTAIN TRANSACTIONS. Except as set forth in the SEC Documents, and
except for arm's length transactions pursuant to which the Company makes
payments in the ordinary course of business upon terms no less favorable than
the Company could obtain from third parties and other than the grant of stock
options disclosed in the SEC Documents, none of the officers, directors, or
employees of the Company is presently a party to any transaction with the
Company (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
(v) FEES AND RIGHTS OF FIRST REFUSAL. The Company is not obligated to offer
the securities offered hereunder on a right of first refusal basis or otherwise
to any third parties including, but not limited to, current or former
shareholders of the Company, underwriters, brokers, agents or other third
parties.
4. COVENANTS.
(a) BEST EFFORTS. Each party shall use commercially reasonable efforts to
timely satisfy each of the conditions to be satisfied by it as provided in
Sections 6 and 7 of this Agreement.
(b) FORM D. The Company agrees to file a Form D with respect to the
Conversion Shares as required under Regulation D and to provide a copy thereof
to each Buyer promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary to qualify the Conversion Shares, or obtain an exemption for the
Conversion Shares for sale to the Buyers at the Closing pursuant to this
Agreement under applicable securities or "Blue Sky" laws of the states of the
11
United States, and shall provide evidence of any such action so taken to the
Buyers on or prior to the Closing Date.
(c) REPORTING STATUS. Until the earlier of (i) the date as of which the
Buyer(s) may sell all of the Conversion Shares without restriction pursuant to
Rule 144(k) promulgated under the Securities Act (or successor thereto), or (ii)
the date on which (A) the Buyer(s) shall have sold all the Conversion Shares and
(B) none of the Convertible Debentures are outstanding (the "REGISTRATION
PERIOD"), the Company shall file in a timely manner all reports required to be
filed with the SEC pursuant to the Exchange Act and the regulations of the SEC
thereunder, and the Company shall not terminate its status as an issuer required
to file reports under the Exchange Act even if the Exchange Act or the rules and
regulations thereunder would otherwise permit such termination.
(d) USE OF PROCEEDS. The Company will use the proceeds from the sale of the
Convertible Debentures for general corporate and working capital purposes.
(e) RESERVATION OF SHARES. The Company shall take all action reasonably
necessary to at all times have authorized, and reserved for the purpose of
issuance, such number of shares of Common Stock as shall be necessary to effect
the issuance of the Conversion Shares. If at any time the Company does not have
available such shares of Common Stock as shall from time to time be sufficient
to effect the conversion of all of the Conversion Shares, the Company shall call
and hold a special meeting of the shareholders within sixty (60) days of such
occurrence, for the sole purpose of increasing the number of shares authorized.
The Company's management shall recommend to the shareholders to vote in favor of
increasing the number of shares of Common Stock authorized. Management shall
also vote all of its shares in favor of increasing the number of authorized
shares of Common Stock.
(f) LISTINGS OR QUOTATION. The Company shall promptly secure the listing or
quotation of the Conversion Shares upon the AMEX, or other market, if any, upon
which shares of Common Stock are then listed or quoted (subject to official
notice of issuance) and shall use commercially reasonable efforts to maintain,
so long as any other shares of Common Stock shall be so listed, such listing of
all Conversion Shares from time to time issuable under the terms of this
Agreement. The Company shall maintain the Common Stock's eligibility for listing
on the AMEX.
(g) FEES AND EXPENSES. Each of the Company and the Buyer(s) shall pay all
costs and expenses incurred by such party in connection with the negotiation,
investigation, preparation, execution and delivery of the Transaction Documents,
except:
(i) The Company shall pay Yorkville Advisors Management LLC a fee equal
to an amount not to exceed ten percent (10%) of the Purchase Price.
(ii) The Company shall pay a structuring fee to Yorkville Advisors
Management, LLC, in an amount not to exceed Ten Thousand Dollars ($10,000),
which shall be paid directly from the proceeds of the First Closing.
12
(iii) The Company shall pay the Buyers a non-refundable due diligence
fee, in an amount not to exceed Two Thousand Five Hundred Dollars ($2,500) which
shall be paid directly from the proceeds of the First Closing.
(iv) The Company shall issue to the Buyer a warrant to purchase Twenty
Five Thousand (25,000) shares of the Company's Common Stock (the "WARRANT
SHARES") for a period of three (3) years at an exercise price of $0.001 per
share. The Warrant Shares shall have "piggy-back" and demand registration
rights.
(h) CORPORATE EXISTENCE. So long as any of the Convertible Debentures
remain outstanding, the Company shall not directly or indirectly consummate any
merger, reorganization, restructuring, reverse stock split consolidation, sale
of all or substantially all of the Company's assets or any similar transaction
or related transactions (each such transaction, an "ORGANIZATIONAL CHANGE")
unless the Company makes appropriate provisions with respect to such holders'
rights and interests to insure that the provisions of this Section 4(h) will
thereafter be applicable to the Convertible Debentures.
(i) TRANSACTIONS WITH AFFILIATES. So long as any Convertible Debentures are
outstanding, the Company shall not, and shall cause each of its subsidiaries not
to, enter into, amend, modify or supplement, or permit any subsidiary to enter
into, amend, modify or supplement any agreement, transaction, commitment, or
arrangement with any of its or any subsidiary's officers, directors, person who
were officers or directors at any time during the previous two (2) years,
stockholders who beneficially own five percent (5%) or more of the Common Stock,
or Affiliates (as defined below) or with any individual related by blood,
marriage, or adoption to any such individual or with any entity in which any
such entity or individual owns a five percent (5%) or more beneficial interest
(each a "RELATED PARTY"), except for (a) customary employment arrangements and
benefit programs on reasonable terms, (b) any investment in an Affiliate of the
Company, (c) any agreement, transaction, commitment, or arrangement on an
arms-length basis on terms no less favorable than terms which would have been
obtainable from a person other than such Related Party, (d) any agreement,
transaction, commitment, or arrangement which is approved by a majority of the
disinterested directors of the Company; for purposes hereof, any director who is
also an officer of the Company or any subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment, or arrangement. "AFFILIATE" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or indirectly,
(i) has a ten percent (10%) or more equity interest in that person or entity,
(ii) has ten percent (10%) or more common ownership with that person or entity,
(iii) controls that person or entity, or (iv) shares common control with that
person or entity. "CONTROL" or "CONTROLS" for purposes hereof means that a
person or entity has the power, direct or indirect, to conduct or govern the
policies of another person or entity.
(j) TRANSFER AGENT. The Company covenants and agrees that, in the event
that the Company's agency relationship with the transfer agent should be
terminated for any reason prior to a date which is two (2) years after the
Closing Date, the Company shall immediately appoint a new transfer agent and
shall require that the new transfer agent execute and agree to be bound by the
terms of the Irrevocable Transfer Agent Instructions (as defined herein).
13
(k) RESTRICTION ON ISSUANCE OF THE CAPITAL STOCK. So long as any
Convertible Debentures are outstanding, the Company shall not, without the prior
written consent of the Buyer(s), (i) issue or sell shares of Common Stock or
Preferred Stock without consideration or for a consideration per share less than
the bid price of the Common Stock determined immediately prior to its issuance,
(ii) issue any warrant, option, right, contract, call, or other security
instrument granting the holder thereof, the right to acquire Common Stock
without consideration or for a consideration less than such Common Stock's bid
price determined immediately prior to it's issuance, (iii) enter into any
security instrument granting the holder a security interest in any and all
assets of the Company, or (iv) file any registration statement on Form S-8
except to register up to 4,000,000 shares of Common Stock to be issued to
employees under a bona fide employee stock incentive plan.
(l) Neither the Buyer(s) nor any of its affiliates have an open short
position in the Common Stock of the Company, and the Buyer(s) agrees that it
shall not, and that it will cause its affiliates not to, engage in any short
sales of or hedging transactions with respect to any securities of the Company
as long as any Convertible Debenture or warrants to purchase the Warrant Shares
shall remain outstanding.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue the Irrevocable Transfer Agent Instructions to its
transfer agent irrevocably appointing David Gonzalez, Esq. as the Company's
agent for purpose of having certificates issued, registered in the name of the
Buyer(s) or its respective nominee(s), for the Conversion Shares representing
such amounts of Convertible Debentures as specified from time to time by the
Buyer(s) to the Company upon conversion of the Convertible Debentures, for
interest owed pursuant to the Convertible Debenture, and for any and all
Liquidated Damages (as this term is defined in the Investor Registration Rights
Agreement). David Gonzalez, Esq. shall be paid a cash fee of Fifty Dollars ($50)
for every occasion they act pursuant to the Irrevocable Transfer Agent
Instructions. The Company shall not change its transfer agent unless the
subsequent transfer agent agrees to be bound by the Irrevocable Transfer Agent
Instructions. Prior to registration of the Conversion Shares under the
Securities Act, all such certificates shall bear the restrictive legend
specified in Section 2(g) of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 5, and stop transfer instructions to give effect to Section 2(g)
hereof (in the case of the Conversion Shares prior to registration of such
shares under the Securities Act) will be given by the Company to its transfer
agent and that the Conversion Shares shall otherwise be freely transferable on
the books and records of the Company as and to the extent provided in this
Agreement and the Investor Registration Rights Agreement. Nothing in this
Section 5 shall affect in any way the Buyer's obligations and agreement to
comply with all applicable securities laws upon resale of Conversion Shares. If
the Buyer(s) provides the Company with an opinion of counsel, in form, scope and
substance customary for opinions of counsel in comparable transactions to the
effect that registration of a resale by the Buyer(s) of any of the Conversion
Shares is not required under the Securities Act, the Company shall within two
(2) business days instruct its transfer agent to issue one or more certificates
in such name and in such denominations as specified by the Buyer. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Buyer by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
14
remedy at law for a breach of its obligations under this Section 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5, that the Buyer(s) shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Convertible
Debentures to the Buyer(s) at the Closings is subject to the satisfaction, at or
before the Closing Dates, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion:
(a) Each Buyer shall have executed the Transaction Documents and delivered
them to the Company.
(b) The Buyer(s) shall have delivered to the Escrow Agent the Purchase
Price for Convertible Debentures in respective amounts as set forth next to each
Buyer as outlined on Schedule I attached hereto and the Escrow Agent shall have
delivered the net proceeds to the Company by wire transfer of immediately
available U.S. funds pursuant to the wire instructions provided by the Company.
(c) The representations and warranties of the Buyer(s) shall be true and
correct in all material respects as of the date when made and as of the Closing
Dates as though made at that time (except for representations and warranties
that speak as of a specific date), and the Buyer(s) shall have performed,
satisfied and complied in all material respects with the covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Buyer(s) at or prior to the Closing Dates.
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
(a) The obligation of the Buyer(s) hereunder to Purchase the Convertible
Debentures at the First Closing is subject to the satisfaction, at or before the
First Closing Date, of each of the following conditions:
(i) The Company shall have executed the Transaction Documents and
delivered the same to the Buyer(s).
(ii) The Common Stock and the Conversion Shares issuable upon the
conversion of the Convertible Debentures shall be approved and eligible for
quotation on the AMEX and trading in the Common Stock shall not have been
suspended for any reason
(iii) The representations and warranties of the Company shall be true
and correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in Section
3 above, in which case, such representations and warranties shall be true and
correct without further qualification) as of the date when made and as of the
First Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
15
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the First Closing Date. If
requested by the Buyer(s), the Buyer(s) shall have received a certificate,
executed by the President of the Company, dated as of the First Closing Date, to
the foregoing effect and as to such other matters as may be reasonably requested
by the Buyer(s) including, without limitation an update as of the First Closing
Date regarding the representation contained in Section 3(c) above.
(iv) The Company shall have executed and delivered to the Buyer(s) the
Convertible Debentures in the respective amounts set forth opposite each
Buyer(s) name on Schedule I attached hereto with respect to the First Closing.
(v) The Buyer(s) shall have received an opinion of counsel from Loeb &
Loeb, LLP in a form satisfactory to the Buyer(s).
(vi) The Company shall have provided to the Buyer(s) a certificate of
good standing from the secretary of state from the state in which the company is
incorporated.
(vii) The Company shall have filed a form UCC-1 or such other forms as
may be required to perfect the Buyer's interest in the Pledged Property as
detailed in the Security Agreement dated the date hereof and provided proof of
such filing to the Buyer(s).
(viii) The Company shall have delivered to the Escrow Agent the Pledged
Shares as well executed and medallion guaranteed stock powers as required
pursuant to the Pledge and Escrow Agreement.
(ix) The Company shall have provided to the Buyer an acknowledgement,
to the satisfaction of the Buyer, from the Company's certified public accountant
as to its ability to provide all consents required in order to file a
registration statement in connection with this transaction.
(x) The Company shall have reserved out of its authorized and unissued
Common Stock, solely for the purpose of effecting the conversion of the
Convertible Debentures, shares of Common Stock to effect the conversion of all
of the Conversion Shares then outstanding.
(xi) The Irrevocable Transfer Agent Instructions, in form and substance
satisfactory to the Buyer, shall have been delivered to and acknowledged in
writing by the Company's transfer agent.
(b) The obligation of the Buyer(s) hereunder to accept the Convertible
Debentures at the Second Closing is subject to the satisfaction, at or before
the Second Closing Date, of each of the following conditions:
(i) The Common Stock and all the Conversion Shares issuable upon the
conversion of the Convertible Debentures shall be approved and authorized for
16
quotation on the AMEX and trading in the Common Stock shall not have been
suspended for any reason.
(ii) The representations and warranties of the Company shall be true
and correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in Section
3 above, in which case, such representations and warranties shall be true and
correct without further qualification) as of the date when made and as of the
Second Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Second Closing Date. If
requested by the Buyer(s), the Buyer(s) shall have received a certificate,
executed by two officers of the Company, dated as of the Second Closing Date, to
the foregoing effect and as to such other matters as may be reasonably requested
by the Buyer(s) including, without limitation an update as of the Second Closing
Date regarding the representation contained in Section 3(c) above.
(iii) The Company shall have executed and delivered to the Buyer(s) the
Note in the respective amounts set forth opposite each Buyer(s) name on Schedule
I attached hereto with respect to the Second Closing.
(iv) The Company shall have certified that all conditions to the Second
Closing have been satisfied and that the Company will file the Registration
Statement with the SEC in compliance with the rules and regulations promulgated
by the SEC for filing thereof two (2) business days after the Second Closing. If
requested by the Buyer(s), the Buyer(s) shall have received a certificate,
executed by the two officers of the Company, dated as of the Second Closing
Date, to the foregoing effect. The Buyers have no obligation to fund at the
Second Closing if the Company has filed the Registration Statement.
8. INDEMNIFICATION.
(a) In consideration of the Buyer's execution and delivery of this
Agreement and acquiring the Convertible Debentures and the Conversion Shares
hereunder, and in addition to all of the Company's other obligations under this
Agreement, the Company shall defend, protect, indemnify and hold harmless the
Buyer(s), and all of their officers, directors, employees and agents (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "BUYER INDEMNITEES") from and
against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Buyer Indemnitee is a party to the action for
which indemnification hereunder is sought), and including reasonable attorneys'
fees and disbursements (the "INDEMNIFIED LIABILITIES"), incurred by the Buyer
Indemnitees or any of them as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in this Agreement, the Convertible Debentures or the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
17
obligation of the Company contained in this Agreement, or the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, or (c) any cause of action, suit or claim
brought or made against such Buyer Indemnitee based on material
misrepresentations of the Company or due to a material breach of the Company and
arising out of or resulting from the execution, delivery, performance or
enforcement of this Agreement or any other instrument, document or agreement
executed pursuant hereto by the parties hereto. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities, which is permissible under applicable law.
(b) In consideration of the Company's execution and delivery of this
Agreement, and in addition to all of the Buyer's other obligations under this
Agreement, the Buyer shall defend, protect, indemnify and hold harmless the
Company and all of its officers, directors, employees and agents (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "COMPANY INDEMNITEES") from
and against any and all Indemnified Liabilities incurred by the Company
Indemnitees or any of them as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Buyer(s) in this Agreement, instrument or document contemplated hereby or
thereby executed by the Buyer, (b) any breach of any covenant, agreement or
obligation of the Buyer(s) contained in this Agreement, the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby executed by the Buyer, or (c) any cause of
action, suit or claim brought or made against such Company Indemnitee based on
material misrepresentations of the Buyer or due to a material breach of the
Buyer and arising out of or resulting from the execution, delivery, performance
or enforcement of this Agreement, the Investor Registration Rights Agreement or
any other instrument, document or agreement executed pursuant hereto by any of
the parties hereto. To the extent that the foregoing undertaking by each Buyer
may be unenforceable for any reason, each Buyer shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities, which is permissible under applicable law.
9. GOVERNING LAW: MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New Jersey without regard to the
principles of conflict of laws. The parties further agree that any action
between them shall be heard in Hudson County, New Jersey, and expressly consent
to the jurisdiction and venue of the Superior Court of New Jersey, sitting in
Hudson County and the United States District Court for the District of New
Jersey sitting in Newark, New Jersey for the adjudication of any civil action
asserted pursuant to this Paragraph.
(b) COUNTERPARTS. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. In the event any signature page is delivered by
facsimile transmission, the party using such means of delivery shall cause four
(4) additional original executed signature pages to be physically delivered to
the other party within five (5) days of the execution and delivery hereof.
18
(c) HEADINGS. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) SEVERABILITY. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
(e) ENTIRE AGREEMENT, AMENDMENTS. This Agreement supersedes all other prior
oral or written agreements between the Buyer(s), the Company, their affiliates
and persons acting on their behalf with respect to the matters discussed herein,
and this Agreement and the instruments referenced herein contain the entire
understanding of the parties with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, neither the
Company nor any Buyer makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may be
waived or amended other than by an instrument in writing signed by the party to
be charged with enforcement.
(f) NOTICES. Any notices, consents, waivers, or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally or by a nationally recognized overnight or world wide
courier; (ii) upon confirmation of receipt, when sent by facsimile; or (iii) ten
(10) days after being sent by U.S. certified mail, return receipt requested, in
each case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
If to the Company, to: City Network, Inc
6F-3, No.16, Jian Ba Road
Jhonghe City, Taipei County, 235
Taiwan, ROC F5 235
Attention: Mr Tiao-Tsan Lai
Telephone: 886-2-8226-5566
Facsimile: 886-2-8226-8585
With a copy to: Loeb & Loeb, LLP
345 Park Avenue
New York, NY 10154-0037
Attention: Mitchell Nussbaum, Esq.
Telephone: (212) 407-4159
Facsimile: (212) 407.4990
If to the Buyer(s), to its address and facsimile number on Schedule I, with
copies to the Buyer's counsel as set forth on Schedule I. Each party shall
provide five (5) days' prior written notice to the other party of any change in
address or facsimile number.
(g) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and assigns.
Neither the Company nor any Buyer shall assign this Agreement or any rights or
19
obligations hereunder without the prior written consent of the other party
hereto.
(h) 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.
(i) SURVIVAL. Unless this Agreement is terminated under Section 9(l), the
representations and warranties of the Company and the Buyer(s) contained in
Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9,
and the indemnification provisions set forth in Section 8, shall survive the
Closing for a period of two (2) years following the date on which the
Convertible Debentures are converted in full. The Buyer(s) shall be responsible
only for its own representations, warranties, agreements and covenants
hereunder.
(j) PUBLICITY. The Company and the Buyer(s) shall have the right to
approve, before issuance any press release or any other public statement with
respect to the transactions contemplated hereby made by any party; provided,
however, that the Company shall be entitled, without the prior approval of the
Buyer(s), to issue any press release or other public disclosure with respect to
such transactions required under applicable securities or other laws or
regulations (the Company shall use its best efforts to consult the Buyer(s) in
connection with any such press release or other public disclosure prior to its
release and Buyer(s) shall be provided with a copy thereof upon release
thereof).
(k) FURTHER ASSURANCES. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(l) TERMINATION. In the event that the Closing shall not have occurred with
respect to the Buyers on or before five (5) business days from the date hereof
due to the Company's or the Buyer's failure to satisfy the conditions set forth
in Sections 6 and 7 above (and the non-breaching party's failure to waive such
unsatisfied condition(s)), the non-breaching party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date without liability of any party to any other party;
provided, however, that if this Agreement is terminated by the Company pursuant
to this Section 9(l), the Company shall remain obligated to reimburse the
Buyer(s) for the fees and expenses of Yorkville Advisors Management, LLC
described in Section 4(g) above.
(m) NO STRICT CONSTRUCTION. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
[REMAINDER PAGE INTENTIONALLY LEFT BLANK]
20
IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.
COMPANY:
CITY NETWORK, INC.
By: /s/ Tiao-Tsan Lai
---------------------------------
Name: Mr Tiao-Tsan Lai
Title: Chief Executive Officer
BUYER
HIGHGATE HOUSE FUNDS, LTD.
By: Yorkville Advisors, LLC
Its: General Partner
By: /s/ Mark Angelo
---------------------------------
Name: Mark Angelo
Its: Portfolio Manager
21
EXHIBIT A
FORM OF INVESTOR REGISTRATION RIGHTS AGREEMENT
EXHIBIT B
FORM OF ESCROW AGREEMENT
EXHIBIT C
SECURITY AGREEMENT
EXHIBIT D
PLEDGE AND ESCROW AGREEMENT
EXHIBIT E
IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
SCHEDULE I
SCHEDULE OF BUYERS
Address/Facsimile Amount of
Name Number of Buyer Subscription
---- --------------- ------------
Highgate House Funds, Ltd. 101 Hudson Street - Suite 3700 First Closing: $125,000
Jersey City, NJ 07303 Second Closing: $125,000
--------
Facsimile: (201) 985-8266 Total $250,000
With a copy to: 101 Hudson Street - Suite 3700
Jersey City, NJ 07302
Facsimile: (201) 985-8266
Attention: David Gonzalez, Esq.