SECURITIES PURCHASE AGREEMENT
Securities Purchase Agreement dated as of December __, 2007 (this
"Agreement") by and between Seaway Valley Capital Corporation, a Delaware
corporation, with principal executive offices located at ▇▇-▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (the "Company"), and Golden Gate Investors,
Inc. ("Holder").
WHEREAS, Holder desires to purchase from the Company, and the Company
desires to issue and sell to Holder, upon the terms and subject to the
conditions of this Agreement, a Convertible Debenture of the Company in the
aggregate principal amount of $1,500,000 (the "Debenture"); and
WHEREAS, upon the terms and subject to the conditions set forth in the
Debenture the Debenture is convertible into shares of the Company's Common Stock
(the "Common Stock").
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
I. PURCHASE AND SALE OF DEBENTURE
A. Transaction. Holder hereby agrees to purchase from the Company, and the
Company has offered and hereby agrees to issue and sell to Holder in a
transaction exempt from the registration and prospectus delivery
requirements of the Securities Act of 1933, as amended (the "Securities
Act"), the Debenture.
B. Purchase Price; Form of Payment. The purchase price for the Debenture to be
purchased by Holder hereunder shall be $1,500,000 (the "Purchase Price").
Simultaneously with the execution of this Agreement, Holder shall pay the
Purchase Price by wire transfer of $200,000 in immediately available funds
to the Company and delivery to the Company of a Secured Promissory Note in
the principal amount of $1,300,000, in the form attached hereto as Exhibit
A (the "Promissory Note"). Simultaneously with the execution of this
Agreement, the Company shall deliver the Debenture (which shall have been
duly authorized, issued and executed I/N/O Holder or, if the Company
otherwise has been notified, I/N/O Holder's nominee) to the Holder.
C. Second Debenture. Provided that no Event of Default (as defined in the
Debenture) has occurred under the Debenture (provided that Holder may, in
its sole and absolute discretion waive the occurrence of such Event of
Default with respect to this Section), Holder shall select a date during
the Second Debenture Period (as defined below) (with such date as selected
by Holder referred to herein as the "Second Debenture Date") at which the
Company shall sell and the Holder shall purchase a debenture in the
principal amount of $1,500,000 in exchange for a purchase price of
$1,500,000 (the "Second Debenture"), with such purchase price paid via a
cash payment of $200,000 and the issuance of a promissory note in the
principal amount of $1,300,000 (the "Second Promissory Note"), with the
form of and terms of the Second Debenture and the Second Promissory Note
and payment of the purchase price subject to the same terms and conditions
of this Agreement, the Debenture and the Promissory Note, as applicable,
and when the Second Debenture is issued, the term "Debenture" as used in
this Agreement shall be deemed to include the Second Debenture in all
respects and when the Second Promissory Note is issued, the term
"Promissory Note" as used in this Agreement shall be deemed to include the
Second Promissory Note in all respects. The closing of the purchase and
sale of the Second Debenture and the issuance of the Second Promissory Note
shall occur upon the earlier of (i) ten (10) days from the termination of
the Second Debenture Period, or (ii) the funding of the Second Debenture by
Holder. The exact date during the Second Debenture Period that shall be the
Second Debenture Date shall be selected by Holder in Holder's sole and
absolute discretion. For the purposes of this Agreement, the "Second
Debenture Period" shall mean the period that commences on the date hereof
and terminates upon the date that the remaining Principal Amount of the
Debenture issued on the date hereof is equal to an amount not greater than
$500,000.
D. Third Debenture. Provided that no Event of Default (as defined in the
Debenture) has occurred under the Debenture (provided that Holder may, in
its sole and absolute discretion waive the occurrence of such Event of
Default with respect to this Section), Holder shall select a date during
the Third Debenture Period (as defined below) (with such date as selected
by Holder referred to herein as the "Third Debenture Date") at which the
Company shall sell and the Holder shall purchase a debenture in the
principal amount of $1,500,000 in exchange for a purchase price of
$1,500,000 (the "Third Debenture"), with such purchase price paid via a
cash payment of $200,000 and the issuance of a promissory note in the
principal amount of $1,300,000 (the "Third Promissory Note"), with the form
of and terms of the Third Debenture and the Third Promissory Note and
payment of the purchase price subject to the same terms and conditions of
this Agreement, the Debenture and the Promissory Note, as applicable, and
when the Third Debenture is issued, the term "Debenture" as used in this
Agreement shall be deemed to include the Third Debenture in all respects
and when the Third Promissory Note is issued, the term "Promissory Note" as
used in this Agreement shall be deemed to include the Third Promissory Note
in all respects. The closing of the purchase and sale of the Third
Debenture and the issuance of the Third Promissory Note shall occur upon
the earlier of (i) ten (10) days from the termination of the Third
Debenture Period, or (ii) the funding of the Third Debenture by Holder. The
exact date during the Third Debenture Period that shall be the Third
Debenture Date shall be selected by Holder in Holder's sole and absolute
discretion. For the purposes of this Agreement, the "Third Debenture
Period" shall mean the period that commences on the date of the issuance of
the Second Debenture to Holder and terminates upon the date that the
remaining Principal Amount of the Second Debenture is equal to an amount
not greater than $500,000.
E. Fourth Debenture. Provided that no Event of Default (as defined in the
Debenture) has occurred under the Debenture (provided that Holder may, in
its sole and absolute discretion waive the occurrence of such Event of
Default with respect to this Section), Holder shall select a date during
the Fourth Debenture Period (as defined below) (with such date as selected
by Holder referred to herein as the "Fourth Debenture Date") at which the
Company shall sell and the Holder shall purchase a debenture in the
principal amount of $1,500,000 in exchange for a purchase price of
$1,500,000 (the "Fourth Debenture"), with such purchase price paid via a
cash payment of $200,000 and the issuance of a promissory note in the
principal amount of $1,300,000 (the "Fourth Promissory Note"), with the
form of and terms of the Fourth Debenture and the Fourth Promissory Note
and payment of the purchase price subject to the same terms and conditions
of this Agreement, the Debenture and the Promissory Note, as applicable,
and when the Fourth Debenture is issued, the term "Debenture" as used in
this Agreement shall be deemed to include the Fourth Debenture in all
respects and when the Fourth Promissory Note is issued, the term
"Promissory Note" as used in this Agreement shall be deemed to include the
Fourth Promissory Note in all respects. The closing of the purchase and
sale of the Fourth Debenture and the issuance of the Fourth Promissory Note
shall occur upon the earlier of (i) ten (10) days from the termination of
the Fourth Debenture Period, or (ii) the funding of the Fourth Debenture by
Holder. The exact date during the Fourth Debenture Period that shall be the
Fourth Debenture Date shall be selected by Holder in Holder's sole and
absolute discretion. For the purposes of this Agreement, the "Fourth
Debenture Period" shall mean the period that commences on the date of the
issuance of the Third Debenture to Holder and terminates upon the date that
the remaining Principal Amount of the Third Debenture is equal to an amount
not greater than $500,000.
F. Non-Funding Penalty. Notwithstanding the foregoing requirements of Holder
to purchase each of the Second Debenture, Third Debenture and Fourth
Debenture (each, an "Additional Debenture" and collectively, the
"Additional Debentures"), in the event that Holder does not purchase the
any or all of the Additional Debentures within 10 business days of the date
that the delivery of funds associated with such purchase would otherwise be
due, Holder shall pay an amount equal to $200,000 (the "Non-Funding
Penalty") to the Company. The amount payable by the Holder to the Company
in connection with any damages, losses, claims or other amounts in
connection with the failure of the Holder to purchase any or all of the
Additional Debentures shall not exceed $200,000 in the aggregate. Upon the
payment of the Non-Funding Penalty to the Company, the Holder shall have no
further obligations or duties under this Agreement, the Debenture or any
agreements or debentures entered into in connection with any of the
Additional Debentures, if any, with respect to the purchase of any
Additional Debenture or other duties to deliver any additional funds to the
Company, provided however, that other than with respect to the removal of
the requirement to enter into any Additional Debenture, the Company and the
Holder shall remain obligated and bound by the remaining terms and
conditions of this Agreement, the Debenture, the Promissory Note and any
agreements or debentures previously entered into in connection with any
Additional Debenture. The Company's sole and exclusive remedy in the event
that the Holder fails to purchase any or all of the Additional Debentures
shall be the right of the Company to receive the Non-Funding Penalty from
the Holder.
II. HOLDER'S REPRESENTATIONS AND WARRANTIES
Holder represents and warrants to and covenants and agrees with the
Company as follows:
1. Holder is purchasing the Debenture and the Common Stock issuable upon
conversion or redemption of the Debenture (the "Conversion Shares"
and, collectively with the Debenture, the "Securities") for its own
account, for investment purposes only and not with a view towards or
in connection with the public sale or distribution thereof in
violation of the Securities Act.
2. Holder is (i) an "accredited investor" within the meaning of Rule 501
of Regulation D under the Securities Act, (ii) experienced in making
investments of the kind contemplated by this Agreement, (iii) capable,
by reason of its business and financial experience, of evaluating the
relative merits and risks of an investment in the Securities, and (iv)
able to afford the loss of its investment in the Securities.
3. Holder understands that the Securities are being offered and sold by
the Company in reliance on an exemption from the registration
requirements of the Securities Act and equivalent state securities and
"blue sky" laws, and that the Company is relying upon the accuracy of,
and Holder's compliance with, Holder's representations, warranties and
covenants set forth in this Agreement to determine the availability of
such exemption and the eligibility of Holder to purchase the
Securities;
4. Holder understands that the Securities have not been approved or
disapproved by the Securities and Exchange Commission (the
"Commission") or any state or provincial securities commission.
5. This Agreement has been duly and validly authorized, executed and
delivered by Holder and is a valid and binding agreement of Holder
enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and except as rights to indemnity and
contribution may be limited by federal or state securities laws or the
public policy underlying such laws.
III. THE COMPANY'S REPRESENTATIONS
The Company represents and warrants as of the date hereof to the Holder that,
except as set forth on Schedule III attached hereto, the statements contained in
this Section 3 are complete and accurate as of the date of this Agreement. As
used in this Section 3, the term "Knowledge" shall mean the knowledge of the
members of the board of directors of the Company and/or the officers or
employees of the Company after reasonable investigation. A. Capitalization.
1. The authorized capital stock of the Company consists of 2,500,000
shares of Common Stock and 100,000 shares of Series B Preferred Stock
and 1,600,000 shares of Series C Preferred Stock of which 732,506363
shares, 100,000 shares and 1,458,236 shares, respectively, are issued
and outstanding as of the date hereof and are fully paid and
nonassessable. The amount, exercise, conversion or subscription price
and expiration date for each outstanding option and other security or
agreement to purchase shares of Common Stock is accurately set forth
on Schedule III.A.1.
2. The Conversion Shares have been duly and validly authorized and
reserved for issuance by the Company, and, when issued by the Company
upon conversion of the Debenture, will be duly and validly issued,
fully paid and nonassessable and will not subject the holder thereof
to personal liability by reason of being such holder.
3. Except as disclosed on Schedule III.A.3., there are no preemptive,
subscription, "call," right of first refusal or other similar rights
to acquire any capital stock of the Company or other voting securities
of the Company that have been issued or granted to any person and no
other obligations of the Company to issue, grant, extend or enter into
any security, option, warrant, "call," right, commitment, agreement,
arrangement or undertaking with respect to any of their respective
capital stock.
B. Organization; Reporting Company Status.
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the state or jurisdiction in which it
is incorporated and is duly qualified as a foreign corporation in all
jurisdictions in which the failure so to qualify would reasonably be
expected to have a material adverse effect on the business,
properties, prospects, condition (financial or otherwise) or results
of operations of the Company or on the consummation of any of the
transactions contemplated by this Agreement (a "Material Adverse
Effect").
2. The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Common
Stock is traded on the OTC Bulletin Board service of the National
Association of Securities Dealers, Inc. ("OTCBB") and the Company has
not received any notice regarding, and to its Knowledge there is no
threat of, the termination or discontinuance of the eligibility of the
Common Stock for such trading.
C. Authorization.
The Company (i) has duly and validly authorized and reserved for issuance
shares of Common Stock, which is a number sufficient for the conversion of the
Debenture in full and (ii) at all times from and after the date hereof shall
have a sufficient number of shares of Common Stock duly and validly authorized
and reserved for issuance to satisfy the conversion of the Debenture in full.
The Company understands and acknowledges the potentially dilutive effect on the
Common Stock of the issuance of the Conversion Shares. The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Debenture in accordance with this Agreement is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other stockholders of the Company and notwithstanding the
commencement of any case under 11 U.S.C. ss. 101 et seq. (the "Bankruptcy
Code"). In the event the Company is a debtor under the Bankruptcy Code, the
Company hereby waives to the fullest extent permitted any rights to relief it
may have under 11 U.S.C. ss. 362 in respect of the conversion of the Debenture.
The Company agrees, without cost or expense to Holder, to take or consent to any
and all action necessary to effectuate relief under 11 U.S.C. ss. 362.
D. Authority; Validity and Enforceability. The Company has the requisite
corporate power and authority to enter into the Documents (as such term is
hereinafter defined) and to perform all of its obligations hereunder and
thereunder (including the issuance, sale and delivery to Holder of the
Securities). The execution, delivery and performance by the Company of the
Documents and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the issuance of the Debenture
and the issuance and reservation for issuance of the Conversion Shares) have
been duly and validly authorized by all necessary corporate action on the part
of the Company and no further filing, consent, or authorization is required by
the Company, its board of directors, or its stockholders. Each of the Documents
has been duly and validly executed and delivered by the Company and each
Document constitutes a valid and binding obligation of the Company enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and except as rights to
indemnity and contribution may be limited by federal or state securities laws or
the public policy underlying such laws. The Securities have been duly and
validly authorized for issuance by the Company and, when executed and delivered
by the Company, will be valid and binding obligations of the Company enforceable
against it in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally. For purposes of
this Agreement, the term "Documents" means (i) this Agreement; (ii) the
Debenture; and (iii) the Promissory Note.
E. Validity of Issuance of the Securities. The Debenture and the Conversion
Shares upon their issuance in accordance with the Debenture, will be validly
issued and outstanding, fully paid and nonassessable, and not subject to any
preemptive rights, rights of first refusal, tag-along rights, drag-along rights
or other similar rights.
F. Non-contravention. The execution and delivery by the Company of the
Documents, the issuance of the Securities, and the consummation by the Company
of the other transactions contemplated hereby and thereby do not, and compliance
with the provisions of this Agreement and other Documents will not, conflict
with, or result in any violation of, or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a material benefit under, or result in
the creation of any Lien (as such term is hereinafter defined) upon any of the
properties or assets of the Company or any of its Subsidiaries under, or result
in the termination of, or require that any consent be obtained or any notice be
given with respect to (i) the Articles or Certificate of Incorporation or
By-Laws of the Company or the comparable charter or organizational documents of
any of its Subsidiaries, in each case as amended to the date of this Agreement,
(ii) any loan or credit agreement, debenture, bond, mortgage, indenture, lease,
contract or other agreement, instrument or permit applicable to the Company or
any of its Subsidiaries or their respective properties or assets or (iii) any
statute, law, rule or regulation applicable to, or any judgment, decree or order
of any court or government body having jurisdiction over, the Company or any of
its Subsidiaries or any of their respective properties or assets. A "Lien" means
any assignment, transfer, pledge, mortgage, security interest or other
encumbrance of any nature, or an agreement to do so, or the ownership or
acquisition or agreement to acquire any asset or property of any character
subject to any of the foregoing encumbrances (including any conditional sale
contract or other title retention agreement).
G. Approvals. No authorization, approval or consent of any court or public
or governmental authority is required to be obtained by the Company for the
issuance and sale of the Securities to Holder as contemplated by this Agreement,
except such authorizations, approvals and consents as have been obtained by the
Company prior to the date hereof.
H. Commission Filings. The Company has properly and timely filed with the
Commission all reports, proxy statements, forms and other documents required to
be filed with the Commission under the Securities Act and the Exchange Act since
becoming subject to such Acts (the "Commission Filings"). As of their respective
dates, (i) the Commission Filings complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
the rules and regulations of the Commission promulgated thereunder applicable to
such Commission Filings and (ii) none of the Commission Filings contained at the
time of its filing any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the
Commission Filings, as of the dates of such documents, were true and complete in
all material respects and complied with applicable accounting requirements and
the published rules and regulations of the Commission with respect thereto, were
prepared in accordance with generally accepted accounting principles in the
United States ("GAAP") (except in the case of unaudited statements permitted by
Form 10-QSB under the Exchange Act) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
presented the consolidated financial position of the Company and its
Subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments that in the aggregate
are not material and to any other adjustment described therein).
I. Full Disclosure. There is no fact known to the Company (other than
general economic or industry conditions known to the public generally) that has
not been fully disclosed in the Commission Filings that (i) reasonably could be
expected to have a Material Adverse Effect or (ii) reasonably could be expected
to materially and adversely affect the ability of the Company to perform its
obligations pursuant to the Documents.
J. Absence of Events of Default. No "Event of Default" (as defined in any
agreement or instrument to which the Company is a party) and no event which,
with notice, lapse of time or both, would constitute an Event of Default (as so
defined), has occurred and is continuing.
K. Securities Law Matters. Assuming the accuracy of the representations and
warranties of Holder set forth in Article II, the offer and sale by the Company
of the Securities is exempt from (i) the registration and prospectus delivery
requirements of the Securities Act and the rules and regulations of the
Commission thereunder and (ii) the registration and/or qualification provisions
of all applicable state and provincial securities and "blue sky" laws. The
Company shall not directly or indirectly take, and shall not permit any of its
directors, officers or Affiliates directly or indirectly to take, any action
(including, without limitation, any offering or sale to any person or entity of
any security similar to the Debenture) which will make unavailable the exemption
from Securities Act registration being relied upon by the Company for the offer
and sale to Holder of the Debenture and the Conversion Shares, as contemplated
by this Agreement. No form of general solicitation or advertising has been used
or authorized by the Company or any of its officers, directors or Affiliates in
connection with the offer or sale of the Debenture (and the Conversion Shares),
as contemplated by this Agreement or any other agreement to which the Company is
a party. As used in the Documents, "Affiliate" has the meaning ascribed to such
term in Rule 12b-2 under the Exchange Act.
L. Registration Rights. Except as set forth on Schedule III.L., no Person
has, and as of the Closing (as such term is hereinafter defined), no Person
shall have, any demand, "piggy-back" or other rights to cause the Company to
file any registration statement under the Securities Act relating to any of its
securities or to participate in any such registration statement.
M. Interest. The timely payment of interest on the Debenture is not
prohibited by the Articles or Certificate of Incorporation or By-Laws of the
Company, in each case as amended to the date of this Agreement, or any
agreement, contract, document or other undertaking to which the Company is a
party.
N. No Misrepresentation. No representation or warranty of the Company
contained in this Agreement or any of the other Documents, any schedule, annex
or exhibit hereto or thereto or any agreement, instrument or certificate
furnished by the Company to Holder pursuant to this Agreement contains any
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading.
O. Finder's Fee. There is no finder's fee, brokerage commission or like
payment in connection with the transactions contemplated by this Agreement for
which Holder is liable or responsible.
P. Subsidiaries. Other than the Subsidiaries, the Company does not
presently own or control, directly or indirectly, any interest in any other
corporation, association, or other business entity. The Company is not a
participant in any joint venture, partnership, or similar arrangement.
Q. Litigation. Other than as disclosed in the Commission Filings, there is
no action, suit, proceeding or investigation pending or, to the Company's
knowledge, currently threatened against the Company or its Subsidiaries that
questions the validity of this Agreement, the Documents, or the right of the
Company to enter into such agreements, or to consummate the transactions
contemplated hereby or thereby, or that might result, either individually or in
the aggregate, in any material adverse changes in the business, assets or
condition of the Company and its Subsidiaries, taken as a whole, financially or
otherwise, or any change in the current equity ownership of the Company or its
Subsidiaries. Neither the Company nor its Subsidiaries are parties or subject to
the provisions of any order, writ, injunction, judgment or decree of any court
or government agency or instrumentality. There is no action, suit, proceeding or
investigation by the Company or its Subsidiaries currently pending or that the
Company or its Subsidiaries intends to initiate.
R. Agreements. Except for agreements explicitly contemplated hereby, or
disclosed in the Commission Filings, there are no agreements, understandings or
proposed transactions between the Company and any of its officers, directors,
Affiliates, or any affiliate thereof.
S. Tax Returns. 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.
IV. CERTAIN COVENANTS AND ACKNOWLEDGMENTS
A. Filings. The Company shall make all necessary Commission Filings and
"blue sky" filings required to be made by the Company in connection with the
sale of the Securities to Holder as required by all applicable laws, and shall
provide a copy thereof to Holder promptly after such filing.
B. Reporting Status. So long as Holder beneficially owns any of the
Securities, the Company shall timely file all reports required to be filed by it
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act or
otherwise required by the Exchange Act. On or before the fourth Business Day
following the date hereof, the Company shall file a Current Report on Form 8-K
describing the terms of the transactions contemplated by the Documents in the
form required by the Exchange Act and attaching the material Documents
(including, without limitation, this Agreement and the Debenture) as exhibits to
such filing.
C. Listing. Except to the extent the Company lists its Common Stock on The
New York Stock Exchange, The American Stock Exchange or The Nasdaq Stock Market,
the Company shall use its best efforts to maintain its listing of the Common
Stock on OTCBB. If the Common Stock is delisted from OTCBB, the Company will use
its best efforts to list the Common Stock on the most liquid national securities
exchange or quotation system that the Common Stock is qualified to be listed on.
D. Reserved Conversion Common Stock. The Company at all times from and
after the date hereof shall have such number of shares of Common Stock duly and
validly authorized and reserved for issuance as shall be sufficient for the
conversion in full of the Debenture.
E. Information. Each of the parties hereto acknowledges and agrees that
Holder shall not be provided with, nor be given access to, any material
non-public information relating to the Company.
F. Accounting and Reserves. The Company shall maintain a standard and
uniform system of accounting and shall keep proper books and records and
accounts in which full, true, and correct entries shall be made of its
transactions, all in accordance with GAAP applied on consistent basis through
all periods, and shall set aside on such books for each fiscal year all such
reserves for depreciation, obsolescence, amortization, bad debts and other
purposes in connection with its operations as are required by such principles so
applied.
G. Transactions with Affiliates. So long as the Debenture is outstanding,
neither the Company nor any of its Subsidiaries shall, directly or indirectly,
enter into any material transaction or agreement with any stockholder, officer,
director or Affiliate of the Company or family member of any officer, director
or Affiliate of the Company, unless the transaction or agreement is (i) reviewed
and approved by a majority of Disinterested Directors (as such term is
hereinafter defined) and (ii) on terms no less favorable to the Company or the
applicable Subsidiary than those obtainable from a nonaffiliated person. A
"Subsidiary" means any entity of which securities or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions are owned directly or indirectly by
the Company. A "Disinterested Director" shall mean a director of the Company who
is not and has not been an officer or employee of the Company and who is not a
member of the family of, controlled by or under common control with, any such
officer or employee.
H. Certain Restrictions. So long as the Debenture is outstanding, no
dividends shall be declared or paid or set apart for payment nor shall any other
distribution be declared or made upon any capital stock of the Company, nor
shall any capital stock of the Company be redeemed, purchased or otherwise
acquired (other than a redemption, purchase or other acquisition of shares of
Common Stock made for purposes of an employee incentive or benefit plan
(including a stock option plan) of the Company or pursuant to any of the
security agreements listed on Schedule IV.H) for any consideration by the
Company, directly or indirectly, nor shall any moneys be paid to or made
available for a sinking fund for the redemption of any Common Stock.
I. Short Selling. So long as the Debenture is outstanding, Holder agrees
and covenants on its behalf and on behalf of its affiliates that neither Holder
nor its affiliates shall at any time engage in any short sales with respect to
the Company's Common Stock, or sell put options or similar instruments with
respect to the Company's Common Stock. The parties acknowledge that Holder shall
be entitled to sell the Common Stock from each Debenture conversion immediately
upon submission of the applicable Debenture Conversion Notice, and payment of
the purchase price, to the Company for such Common Stock.
V. ISSUANCE OF COMMON STOCK
A. The Company undertakes and agrees that no instruction other than the
instructions referred to in this Article V shall be given to its transfer agent
for the Conversion Shares 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 applicable law. Nothing contained in this Section
V.A. shall affect in any way Holder's obligations and agreement to comply with
all applicable securities laws upon resale of such Common Stock.
▇. ▇▇▇▇▇▇ shall have the right to convert the Debenture by telecopying an
executed and completed Conversion Notice (as such term is defined in the
Debenture) to the Company. Each date on which a Conversion Notice is telecopied
to and received by the Company in accordance with the provisions hereof shall be
deemed a Conversion Date (as such term is defined in the Debenture). The Company
shall cause the transfer agent to transmit the certificates evidencing the
Common Stock issuable upon conversion of the Debenture (together with a new
debenture, if any, representing the principal amount of the Debenture not being
so converted) to Holder via express courier, or if a Registration Statement
covering the Common Stock has been declared effective by the SEC by electronic
transfer, within two (2) business days after receipt by the Company of the
Conversion Notice, as applicable (the "Delivery Date").
C. Upon the conversion of the Debenture or respective part thereof, the
Company shall, at its own cost and expense, take all necessary action (including
the issuance of an opinion of counsel) to assure that the Company's transfer
agent shall issue stock certificates in the name of Holder (or its nominee) or
such other persons as designated by Holder and in such denominations to be
specified at conversion or exercise representing the number of shares of common
stock issuable upon such conversion or exercise. The Company warrants that the
Conversion Shares will be unlegended, free-trading, and freely transferable, and
will not contain a legend restricting the resale or transferability of the
Company Common Stock provided the Conversion Shares, as applicable, are being
sold pursuant to an effective registration statement covering the Common Stock
to be sold or is otherwise exempt from registration when sold.
D. The Company understands that a delay in the delivery of the Common Stock
in the form required pursuant to this section, or the Mandatory Redemption
Amount described in Section E hereof, beyond the Delivery Date or Mandatory
Redemption Payment Date (as hereinafter defined) could result in economic loss
to the Holder. As compensation to the Holder for such loss, the Company agrees
to pay late payments to the Holder for late issuance of Common Stock in the form
required pursuant to Section E hereof upon Conversion of the Debenture or late
payment of the Mandatory Redemption Amount, in the amount of $100 per business
day after the Delivery Date or Mandatory Redemption Payment Date, as the case
may be, for each $10,000 of Debenture principal amount being converted or
redeemed. The Company shall pay any payments incurred under this Section in
immediately available funds upon demand. Furthermore, in addition to any other
remedies which may be available to the Holder, in the event that the Company
fails for any reason to effect delivery of the Common Stock by the Delivery Date
or make payment by the Mandatory Redemption Payment Date, the Holder will be
entitled to revoke all or part of the relevant Notice of Conversion or rescind
all or part of the notice of Mandatory Redemption by delivery of a notice to
such effect to the Company whereupon the Company and the Holder shall each be
restored to their respective positions immediately prior to the delivery of such
notice, except that late payment charges described above shall be payable
through the date notice of revocation or rescission is given to the Company.
E. Mandatory Redemption. In the event the Company is prohibited from
issuing Common Stock, or fails to timely deliver Common Stock on a Delivery
Date, or upon the occurrence of an Event of Default (as defined in the
Debenture) or for any reason other than pursuant to the limitations set forth
herein, then at the Holder's election, the Company must pay to the Holder ten
(10) business days after request by the Holder or on the Delivery Date (if
requested by the Holder) a sum of money determined by multiplying up to the
outstanding Principal Amount (as defined in the Debenture) of the Debenture
designated by the Holder by 150%, together with accrued but unpaid interest
thereon ("Mandatory Redemption Payment"). The Mandatory Redemption Payment must
be received by the Holder on the same date as the Company Common Stock otherwise
deliverable or within ten (10) business days after request, whichever is sooner
("Mandatory Redemption Payment Date"). Upon receipt of the Mandatory Redemption
Payment, the corresponding Debenture principal and interest will be deemed paid
and no longer outstanding.
F. Buy-In. In addition to any other rights available to the Holder, if the
Company fails to deliver to the Holder such Common Stock issuable upon
conversion of a Debenture by the Delivery Date and if ten (10) days after the
Delivery Date the Holder purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by the Holder of the
Common Stock which the Holder anticipated receiving upon such conversion (a
"Buy-In"), then the Company shall pay in cash to the Holder (in addition to any
remedies available to or elected by the Holder) the amount by which (A) the
Holder's total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (B) the aggregate principal and/or
interest amount of the Debenture for which such conversion was not timely
honored, together with interest thereon at a rate of 15% per annum, accruing
until such amount and any accrued interest thereon is paid in full (which amount
shall be paid as liquidated damages and not as a penalty). For example, if the
Holder purchases shares of Common Stock having a total purchase price of $11,000
to cover a Buy-In with respect to an attempted conversion of $10,000 of
Debenture principal, the Company shall be required to pay the Holder $1,000,
plus interest. The Holder shall provide the Company written notice indicating
the amounts payable to the Holder in respect of the Buy-In.
G. The Securities shall be delivered by the Company to the Holder pursuant
to Section I.B. hereof on a "delivery-against-payment basis" at the Closing.
VI. CLOSING DATE
The "Closing" shall occur by the delivery: (i) to the Holder of the
documents evidencing the Debenture and all other Documents, and (ii) to the
Company the Purchase Price, including the Promissory Note, and the date on which
the Closing occurs shall be referred to herein as the "Closing Date".
VII. CONDITIONS TO THE COMPANY'S OBLIGATIONS
Holder understands that the Company's obligation to sell the Debenture on
the Closing Date to Holder pursuant to this Agreement is conditioned upon:
A. Delivery by Holder to the Company of the Purchase Price, including the
Promissory Note evidencing such applicable portion of the Purchase Price;
B. The accuracy on the Closing Date of the representations and warranties
of Holder contained in this Agreement as if made on the Closing Date (except for
representations and warranties which, by their express terms, speak as of and
relate to a specified date, in which case such accuracy shall be measured as of
such specified date) and the performance by Holder in all material respects on
or before the Closing Date of all covenants and agreements of Holder required to
be performed by it pursuant to this Agreement on or before the Closing Date; and
C. There shall not be in effect any law or order, ruling, judgment or writ
of any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement.
VIII. CONDITIONS TO HOLDER'S OBLIGATIONS
The Company understands that Holder's obligation to purchase the Securities
on the Closing Date pursuant to this Agreement is conditioned upon:
A. Delivery by the Company of the Debenture (I/N/O Holder or I/N/O Holder's
nominee) to Holder;
B. The accuracy on the Closing Date of the representations and warranties
of the Company contained in this Agreement as if made on the Closing Date
(except for representations and warranties which, by their express terms, speak
as of and relate to a specified date, in which case such accuracy shall be
measured as of such specified date) and the performance by the Company in all
respects on or before the Closing Date of all covenants and agreements of the
Company required to be performed by it pursuant to this Agreement on or before
the Closing Date, all of which shall be confirmed to Holder by delivery of the
certificate of the chief executive officer of the Company to that effect;
C. The Company shall have delivered to the Holder a certificate of the
Company executed by an officer of the Company, dated as of the Closing,
certifying the resolutions adopted by the Company's board of directors
authorizing the execution of the Documents, the issuance of the Securities, and
the transactions contemplated hereby, and copies of any required third party
consents, approvals and filings required in connection with the consummation of
the transactions contemplated by this Agreement;
D. There not having occurred (i) any general suspension of trading in, or
limitation on prices listed for, the Common Stock on the OTCBB/Pink Sheet, (ii)
the declaration of a banking moratorium or any suspension of payments in respect
of banks in the United States, (iii) the commencement of a war, armed
hostilities or other international or national calamity directly or indirectly
involving the United States or any of its territories, protectorates or
possessions or (iv) in the case of the foregoing existing at the date of this
Agreement, a material acceleration or worsening thereof;
E. There not having occurred any event or development, and there being in
existence no condition, having or which reasonably and foreseeably could have a
Material Adverse Effect; F. There shall not be in effect any law, order, ruling,
judgment or writ of any court or public or governmental authority restraining,
enjoining or otherwise prohibiting any of the transactions contemplated by this
Agreement;
F. The Company shall have obtained all consents, approvals or waivers from
governmental authorities and third persons necessary for the execution, delivery
and performance of the Documents and the transactions contemplated thereby, all
without material cost to the Company;
▇. ▇▇▇▇▇▇ shall have received such additional documents, certificates,
payment, assignments, transfers and other deliveries as it or its legal counsel
may reasonably request and as are customary to effect a closing of the matters
herein contemplated;
H. Delivery by the Company of an enforceability opinion with respect to
this Agreement and the transactions contemplated hereunder from its outside
counsel in form and substance satisfactory to Holder; and
I. Delivery by the Company of a valid waiver of any preemptive rights held
by the individuals and/or parties listed on Schedule III.A.3 hereto in form and
substance satisfactory to Holder.
IX. SURVIVAL; INDEMNIFICATION
A. The representations, warranties and covenants made by each of the
Company and Holder in this Agreement, the annexes, schedules and exhibits hereto
and in each instrument, agreement and certificate entered into and delivered by
them pursuant to this Agreement shall survive the Closing and the consummation
of the transactions contemplated hereby. In the event of a breach or violation
of any of such representations, warranties or covenants, the party to whom such
representations, warranties or covenants have been made shall have all rights
and remedies for such breach or violation available to it under the provisions
of this Agreement or otherwise, whether at law or in equity, irrespective of any
investigation made by or on behalf of such party on or prior to the Closing
Date.
B. The Company hereby agrees to indemnify and hold harmless Holder, its
affiliates and their respective officers, directors, employees, consultants,
partners, members and attorneys (collectively, the "Holder Indemnitees") from
and against any and all losses, claims, damages, judgments, penalties,
liabilities and deficiencies (collectively, "Losses") and agrees to reimburse
Holder Indemnitees for all reasonable out-of-pocket expenses (including the
reasonable fees and expenses of legal counsel), in each case promptly as
incurred by Holder Indemnitees and to the extent arising out of or in connection
with:
1. any misrepresentation, omission of fact or breach of any of the
Company's representations or warranties contained in this Agreement or
the other Documents, or the annexes, schedules or exhibits hereto or
thereto or any instrument, agreement or certificate entered into or
delivered by the Company pursuant to this Agreement or the other
Documents;
2. any failure by the Company to perform any of its covenants,
agreements, undertakings or obligations set forth in this Agreement or
the other Documents or any instrument, certificate or agreement
entered into or delivered by the Company pursuant to this Agreement or
the other Documents;
3. the purchase of the Debenture, the conversion of the Debenture, the
payment of interest on the Debenture, the consummation of the
transactions contemplated by this Agreement and the other Documents,
the use of any of the proceeds of the Purchase Price by the Company,
the purchase or ownership of any or all of the Securities, the
performance by the parties hereto of their respective obligations
hereunder and under the Documents or any claim, litigation,
investigation, proceedings or governmental action relating to any of
the foregoing, whether or not Holder is a party thereto; and/or
4. resales of the Common Stock by Holder in the manner and as
contemplated by this Agreement and the Documents.
C. Promptly after receipt by a party seeking indemnification pursuant to
this Article VIII (an "Indemnified Party") of written notice of any
investigation, claim, proceeding or other action in respect of which
indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the Company against whom indemnification pursuant to this
Article VIII is being sought (the "Indemnifying Party") of the commencement
thereof, but the omission so to notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party except
to the extent that the Indemnifying Party is materially prejudiced and forfeits
substantive rights or defenses by reason of such failure. In connection with any
Claim as to which both the Indemnifying Party and the Indemnified Party are
parties, the Indemnifying Party shall be entitled to assume the defense thereof.
Notwithstanding the assumption of the defense of any Claim by the Indemnifying
Party, the Indemnified Party shall have the right to employ separate legal
counsel and to participate in the defense of such Claim, and the Indemnifying
Party shall bear the reasonable fees, out-of-pocket costs and expenses of such
separate legal counsel to the Indemnified Party if (and only if): (x) the
Indemnifying Party shall have agreed to pay such fees, out-of-pocket costs and
expenses, (y) the Indemnified Party and the Indemnifying Party reasonably shall
have concluded that representation of the Indemnified Party and the Indemnifying
Party by the same legal counsel would not be appropriate due to actual or, as
reasonably determined by legal counsel to the Indemnified Party, potentially
differing interests between such parties in the conduct of the defense of such
Claim, or if there may be legal defenses available to the Indemnified Party that
are in addition to or disparate from those available to the Indemnifying Party
or (z) the Indemnifying Party shall have failed to employ legal counsel
reasonably satisfactory to the Indemnified Party within a reasonable period of
time after notice of the commencement of such Claim. If the Indemnified Party
employs separate legal counsel in circumstances other than as described in
clauses (x), (y) or (z) above, the fees, costs and expenses of such legal
counsel shall be borne exclusively by the Indemnified Party. Except as provided
above, the Indemnifying Party shall not, in connection with any Claim in the
same jurisdiction, be liable for the fees and expenses of more than one firm of
legal counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnified Party (which consent shall not unreasonably be withheld), settle
or compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
D. In the event one party hereunder should have a claim for indemnification
that does not involve a claim or demand being asserted by a third party, the
Indemnified Party promptly shall deliver notice of such claim to the
Indemnifying Party. If the Indemnified Party disputes the claim, such dispute
shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association. Judgment upon any
award rendered by any arbitrators may be entered in any court having competent
jurisdiction thereof.
X. GOVERNING LAW
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of California, without regard to the conflicts of law
principles of such state.
XI. SUBMISSION TO JURISDICTION
Each of the parties hereto consents to the exclusive jurisdiction of the
federal courts whose districts encompass any part of the City of San Diego or
the state courts of the State of California sitting in the City of San Diego in
connection with any dispute arising under this Agreement and the other
Documents. Each party hereto hereby irrevocably and unconditionally waives, to
the fullest extent it may effectively do so, any defense of an inconvenient
forum or improper venue to the maintenance of such action or proceeding in any
such court and any right of jurisdiction on account of its place of residence or
domicile. Each party hereto irrevocably and unconditionally consents to the
service of any and all process in any such action or proceeding in such courts
by the mailing of copies of such process by registered or certified mail (return
receipt requested), postage prepaid, at its address specified in Article XVII.
Each party hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.
XII. WAIVER OF JURY TRIAL
TO THE FULLEST EXTENT PERMITTED BY LAW, EACH OF THE PARTIES HERETO HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ITS RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR ANY OTHER DOCUMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER OF THIS AGREEMENT AND OTHER DOCUMENTS. EACH PARTY HERETO (i)
CERTIFIES THAT NEITHER OF THEIR RESPECTIVE REPRESENTATIVES, AGENTS OR ATTORNEYS
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH PARTY WOULD NOT, IN THE EVENT
OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (ii) ACKNOWLEDGES THAT
IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS HEREIN. XIII. COUNTERPARTS; EXECUTION
This Agreement may be executed in counterparts, each of which when so
executed and delivered shall be an original, but both of which counterparts
shall together constitute one and the same instrument. A facsimile transmission
of this signed Agreement shall be legal and binding on both parties hereto.
XIV. HEADINGS
The headings of this Agreement are for convenience of reference and shall
not form part of, or affect the interpretation of, this Agreement.
XV. SEVERABILITY
In the event any one or more of the provisions contained in this Agreement
or in the other Documents should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein or therein shall not in any way be affected or
impaired thereby. The parties shall endeavor in good-faith negotiations to
replace the invalid, illegal or unenforceable provisions with valid provisions,
the economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
XVI. ENTIRE AGREEMENT; REMEDIES, AMENDMENTS AND WAIVERS
This Agreement and the Documents constitute the entire agreement between
the parties hereto pertaining to the subject matter hereof and supersede all
prior agreements, understandings, negotiations and discussions, whether oral or
written, of such parties. No supplement, modification or waiver of this
Agreement shall be binding unless executed in writing by both parties. No waiver
of any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provision hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver unless otherwise expressly provided.
XVII. NOTICES
Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally, or sent by telecopier machine or by a
nationally recognized overnight courier service, and shall be deemed given when
so delivered personally, or by telecopier machine or overnight courier service
as follows:
A. If to the Company, to:
Seaway Valley Capital Corporation
▇▇-▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
B. If to Holder, to:
Golden Gate Investors, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
The Company or Holder may change the foregoing address by notice given pursuant
to this Article XVII.
XVIII. CONFIDENTIALITY
Each of the Company and Holder agrees to keep confidential and not to
disclose to or use for the benefit of any third party the terms of this
Agreement or any other information which at any time is communicated by the
other party as being confidential without the prior written approval of the
other party; provide, however, that this provision shall not apply to
information which, at the time of disclosure, is already part of the public
domain (except by breach of this Agreement) and information which is required to
be disclosed by law (including, without limitation, pursuant to Item 601(b)(10)
of Regulation S-K under the Securities Act and the Exchange Act).
XIX. MAXIMUM INTEREST RATE
Notwithstanding anything herein to the contrary, if at any time the
applicable interest rate as provided for herein shall exceed the maximum lawful
rate which may be contracted for, charged, taken or received by the Holder in
accordance with any applicable law (the "Maximum Rate"), the rate of interest
applicable to this Agreement shall be limited to the Maximum Rate. To the
greatest extent permitted under applicable law, the Company hereby waives and
agrees not to allege or claim that any provisions of this Agreement could give
rise to or result in any actual or potential violation of any applicable usury
laws.
XX. ASSIGNMENT
This Agreement shall not be assignable by the Company without the prior
written consent of the Holder. The Holder may assign this Agreement upon 10 days
prior written notice to the Company.
IN WITNESS WHEREOF, the parties hereto have duly caused this Agreement to
be executed and delivered on the date first above written.
SEAWAY VALLEY CAPITAL GOLDEN GATE INVESTORS, INC.
CORPORATION
By: __________________________ By: __________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇
Title: President & CEO Title: Vice President and Portfolio Manager
SCHEDULE III.A.1
None
SCHEDULE III.A.3
PREEMPTIVE RIGHTS
None
SCHEDULE III.L.
REGISTRATION RIGHTS
Name
None
SCHEDULE IV.H.
SECURITY AGREEMENTS
None