SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE
AGREEMENT (this “ Agreement ”), dated as of
November 23, 2005, by and among XINHUA CHINA LTD, 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 (i) up to Four Million Dollars ($4,000,000) of
secured convertible debentures (the “ Convertible
Debentures ”), which shall be convertible into shares of
the Company’s common stock, par value $.00001 (the “
Common Stock ”) (as converted, the “
Conversion Shares ”). Of such total principal
amount, subject to the deduction of any and all fees, One Million
Two Hundred Fifty Thousand Dollars ($1,250,000) shall be funded on
the fifth (5 th ) business day following the date hereof
(the “ First Closing ”); Two Million Dollars
($2,000,000) shall be funded upon the filing of the registration
statement (the “ Registration Statement ”)
pursuant to the Investor Registration Rights Agreement dated the
date hereof with the SEC (the “ Second Closing
”); and Seven Hundred Fifty Thousand Dollars ($750,000) shall
be funded upon the effectiveness of the Registration Statement (the
“ Third Closing ”) (individually referred to as
a “ Closing ” and collectively referred to as
the “ Closings ”), and (ii) warrants to purchase
1,035,000 shares of Common Stock (the “ Warrants
”) at the First Closing. The total purchase price for
the Convertible Debentures and the Warrants shall be up to Four
Million Dollars ($4,000,000) (the “ Purchase Price
”) which Purchase Price shall be allocated among the Buyer(s)
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
and the Warrants contemplated hereby shall be held in escrow
pursuant to the terms of an escrow agreement substantially in the
form of the Escrow Agreement among the Company, the Buyer(s) and
the Escrow Agent (as defined below) attached hereto as Exhibit
B (the “ Escrow Agreement ”).
WHEREAS
, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a
Security Agreement substantially in the form
attached hereto as Exhibit C (the “ Security
Agreement ”) pursuant to which the Company has agreed to
provide the Buyer a security interest in Pledged Collateral (as
this term is defined in the Security Agreement) to secure the
Company’s obligations under this Agreement, the Convertible
Debenture, the Investor Registration Rights Agreement, the
Irrevocable Transfer Agent Instructions, as defined below, the
Security Agreement, the Escrow Agreement, the Escrow Shares Escrow
Agreement, as defined below, 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 an
Escrow Shares Escrow Agreement substantially in the form attached
hereto as Exhibit D (the “ Escrow Shares Escrow
Agreement ”) pursuant to which the Company shall issue
and deliver to the Escrow Agent 20,000,000 shares of Common Stock
or “security stock” (the “ Escrow Shares
”) and if there is an Event of Default under the Convertible
Debentures, the Escrow Agent shall distribute the Escrow Shares to
the Buyer(s) upon receipt of a Conversion Notice (as defined
herein);
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 ”); and
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 Closing, Convertible
Debentures in amounts corresponding with the Subscription Amount
set forth opposite each Buyer’s name on Schedule I hereto and
the Warrants 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
“Gottbetter & Partners, LLP, as Escrow Agent for
XHUA”, 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
or before the fifth (5 th ) business day following the
date hereof, subject to notification of satisfaction of the
conditions to the First Closing set forth herein and in Sections 7
and 8 below (or such later date as is mutually agreed to by the
Company and the Buyer(s)) (the “ First Closing Date
”), 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 7 and 8 below (or such
later date as is mutually agreed to by the Company and the
Buyer(s)) (the “ Second Closing Date ”) and the
Third Closing of the purchase and sale of the Convertible Debenture
shall take place at 10:00 a.m. Eastern Standard Time within two
(2)
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business days after the Registration Statement is declared
effective, subject to notification of satisfaction of the
conditions to the Third Closing set forth herein and in Sections 7
and 8 below (or such later date as is mutually agreed to by the
Company and the Buyer(s)) (collectively referred to a the “
Closing Dates ”). The Closing shall occur on the
respective Closing Dates at the offices of Gottbetter &
Partners, LLP, 488 Madison Avenue, New York, New York 10022 (or
such other place as is mutually agreed to by the Company and the
Buyer(s)).
(c) Escrow Arrangements;
Form of Payment . Upon execution hereof by Buyer(s) and
pending the Closings, $1,250,000 shall be deposited in a
non-interest bearing escrow account with Gottbetter & Partners,
LLP as escrow agent (the “ Escrow Agent ”),
pursuant to the terms of the Escrow Agreement. If the
conditions in Sections 7 and 8 and as set forth herein for the
Second Closing are satisfied, an additional $2,000,000 shall be
deposited in a non-interest bearing account with the Escrow Agent
one business day prior to the Second Closing Date. If the
conditions in Sections 7 and 8 and as set forth herein for the
Third Closing are satisfied, an additional $750,000 shall be
deposited in a non-interest bearing account with the Escrow Agent
one business day prior to the Third Closing Date. 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 and Warrants to
be issued and sold to such Buyer(s) minus the unpaid origination
fee owed to the Buyer(s), and (ii) the Company shall deliver
to each Buyer, Convertible Debentures which such Buyer(s) is
purchasing in amounts indicated opposite such Buyer’s name on
Schedule I, duly executed on behalf of the Company and the Warrants
which such Buyer(s) is purchasing in numbers indicated opposite
such Buyer’s name on Schedule I.
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, the
Warrants and, upon conversion of Convertible Debentures and/or the
exercise of the Warrants, the Buyer will acquire the Conversion
Shares and/or Warrant Shares, as defined below, then issuable, and
if there is an Event of Default under the Convertible Debentures
the Buyer may also receive the Escrow Shares, 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, the
Warrants, the Warrant Shares and the Escrow Shares, if applicable,
at any time in accordance with or pursuant to an effective
registration statement covering such Conversion Shares, the
Warrants, the Warrant Shares and the Escrow 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 and the Warrants 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
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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, the Warrants, the Warrant Shares, the
Conversion Shares and the Escrow Shares if there is an Event of
Default under the Convertible Debentures, 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 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, the
Warrants, the Warrant Shares, the Conversion Shares and the Escrow
Shares, if applicable, 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, the Warrants, the Warrant Shares, the
Conversion Shares and the Escrow Shares, if applicable.
(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, the Warrants, the Escrow Shares, the
Warrant Shares or the Conversion Shares, or the fairness or
suitability of the investment in the Convertible Debentures, the
Warrants, the Warrant Shares, the Conversion Shares, or the Escrow
Shares, if applicable, nor have such authorities passed upon or
endorsed the merits of the offering of the Convertible Debentures,
the Warrants, the Escrow Shares, the Warrant Shares 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 and the Warrants 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
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such securities under the Securities Act or any state securities
laws or to comply with the terms and conditions of any exemption
thereunder.
(g) Legends . Each
Buyer understands that the certificates or other instruments
representing the Convertible Debentures, the Warrants, the Escrow
Shares, the Warrant Shares 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 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 Escrow Shares, Warrants, the Warrant
Shares and Conversion Shares upon which it is stamped, if, unless
otherwise required by state securities laws, (i) in connection with
a sale transaction, provided the Escrow Shares, Warrants, Warrant
Shares and 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 Escrow Shares,
Warrants, Warrant Shares and 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.
5
(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
Escrow Shares 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 June 30,
2004; (iv) the Company’s Form 10-QSB for the fiscal quarter
ended March 31, 2005 and (v) it has received 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 Warrants 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, the transactions contemplated by this Agreement or the
securities laws of any jurisdiction.
(l) No Group
Participation . Each Buyer and its affiliates
is not a member of any group, nor is any Buyer acting in concert
with any other person, including any other Buyer, with respect to
its acquisition of the Convertible Debentures, Warrants, Warrant
Shares, Conversion Shares, or Escrow Shares if there is an Event of
Default under the Convertible Debentures.
(m) Company Registration Statement
. No Buyer makes any representation or warranty regarding the
Company’s ability to successfully become a public company or
to have any registration statement filed by the Company pursuant to
the Investor Registration Rights Agreement or otherwise declared
effective by the SEC. The Company has the sole obligation to
make any and all such filings as may be necessary to become a
public company and to have any registration statement declared
effective by the SEC.
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
6
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, as defined below, 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 Instructions, the Escrow
Agreement, the Escrow Shares Escrow Agreement, and any related
agreements (collectively the “ Transaction Documents
”) and to issue the Convertible Debentures, the Escrow
Shares, the Warrants, the Warrant Shares 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 Escrow Shares, the Warrants, the
Warrant Shares and 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, and prior to
the issuance of any shares in connection with this Agreement, the
authorized capital stock of the Company consists of 500,000,000
Common Shares, $.00001 par value per share. As of the Closing
Date hereof, the Company has 61,779,765 common shares 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 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
7
comment letters from the SEC or any other regulatory agency.
There are no securities or instruments containing anti-dilution or
similar provisions that will be triggered by the issuance of the
Convertible Debentures and Warrants as described in this
Agreement. The Convertible Debentures, Warrants, Warrant
Shares, Conversion Shares and Escrow Shares when issued, will be
free and clear of all pledges, liens, encumbrances and other
restrictions (other than those arising under federal or state
securities laws as a result of the private placement of the
Debentures and Warrants). No co-sale right, right of first
refusal or other similar right exists with respect to the
Debentures, Warrants, Warrant Shares, Escrow Shares and the
Conversion Shares or the issuance and sale thereof. The issue
and sale of the Debentures, Warrants, Warrant Shares, Escrow Shares
and the Conversion Shares will not result in a right of any holder
of Company securities to adjust the exercise, conversion, exchange
or reset price under such securities. 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 non-assessable, are
free from all taxes, liens and charges with respect to the issue
thereof. The Conversion Shares, the Warrant Shares and the
Escrow Shares have been duly authorized and reserved for
issuance. Upon conversion or exercise in accordance with the
Transaction Documents, the Conversion Shares and the Warrant Shares
will be duly issued, fully paid and nonassessable. In
addition, if there is an Event of Default under the Convertible
Debentures and the Buyer(s) deliver a
Conversion Notice to the Escrow Agent to deliver the Escrow
Shares to the Buyer(s), then at the time of release of the Escrow
Shares such Escrow Shares will be considered fully-paid and
non-assessable.
(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 Certificate of Incorporation, 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 National
Association of Securities Dealers Inc.’s OTC Bulletin Board
on which the Common Stock is quoted) applicable to the Company or
any of its subsidiaries or by which any property or asset of the
Company or any of its subsidiaries is bound or affected.
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 Company
and its subsidiaries is not being conducted, and shall not be
conducted in violation of any material law, ordinance, or
regulation of any governmental entity. Except as
specifically
8
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, which 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 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
9
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 each Buyer 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 each Buyer 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 such Buyer or any of such Buyer’s
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, the Warrants, the Warrant Shares, the Conversion
Shares, or the Escrow Shares if there is an Event of Default under
the Convertible Debentures and the Buyer(s) deliver a Conversion
Notice to the Escrow Agent to deliver the Escrow Shares to the
Buyer(s). The Company further represents to the Buyers 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, the Warrants, the Warrant Shares, the
Conversion Shares, or the Escrow Shares, if applicable.
(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, the Escrow Shares, the Warrants, the Warrant Shares or
the Conversion Shares under the Securities Act or cause this
offering of the Convertible Debentures, the Escrow Shares, the
Warrants, the Warrant Shares 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. 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
10
Company’s knowledge, being threatened against, the Company or
its subsidiaries regarding trademark, trade 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 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 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 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
11
judgment of the Company’s officers has or is expected in the
future to have a Material Adverse Effect. 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.
(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.
(w)
Reliance . The Company acknowledges that the Buyers
are relying on the representations and warranties made by the
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