STOCK PURCHASE AGREEMENT by and between WORLDGATE COMMUNICATIONS, INC. and The Investors Identified on the Signature Pages Hereto

Exhibit 99.1

 

STOCK PURCHASE AGREEMENT

 

by and between

 

WORLDGATE COMMUNICATIONS, INC.

 

and

 

The Investors Identified on the Signature Pages Hereto

 

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TABLE OF CONTENTS

 

ARTICLE 1

DEFINITIONS

 

1.1

Definitions

 

 

 

ARTICLE 2

PURCHASE AND SALE

 

2.1

Closing

 

2.2

Closing Deliveries

 

 

 

ARTICLE 3

REPRESENTATIONS AND WARRANTIES

 

3.1

Representations and Warranties of the Company

 

3.2

Representations and Warranties of the Investors

 

 

 

ARTICLE 4

OTHER AGREEMENTS OF THE PARTIES

 

4.1

Securities Law Restrictions

 

4.2

Furnishing of Information

 

4.3

Integration

 

4.4

Securities Laws Disclosure; Publicity

 

4.5

Indemnification of Investors

 

4.6

Non-Public Information

 

4.7

Listing of Securities

 

4.8

Subsequent Placements

 

 

 

ARTICLE 5

CONDITIONS PRECEDENT TO CLOSING

 

5.1

Conditions Precedent to the Obligations of the Investors to Purchase Securities

 

5.2

Conditions Precedent to the Obligations of the Company to Sell Securities

 

 

 

ARTICLE 6

MISCELLANEOUS

 

6.1

Fees and Expenses

 

6.2

Entire Agreement

 

6.3

Notices

 

6.4

Amendments; Waivers; No Additional Consideration

 

6.5

Termination

 

 

i



 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is dated as of August 3, 2005, among WorldGate Communications, Inc., a Delaware corporation (the “Company”), and the investors identified on the signature pages hereto (each, an “Investor” and collectively, the “Investors”).

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act (as defined below) and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Investor, and each Investor, severally and not jointly, desires to purchase from the Company certain securities of the Company, as more fully described in this Agreement. 

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and the Investors, intending to be legally bound, agree as follows: 

 

ARTICLE 1

 

DEFINITIONS

 

1.1                                 Definitions.  In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms shall have the meanings indicated in this Section 1.1:

 

“Action” means any action, suit, notice of violation, proceeding (including any partial proceeding such as a deposition) or investigation pending or threatened in writing against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency, regulatory authority (federal, state, county, local or foreign), stock market, stock exchange or trading facility. 

 

“Additional Investment Rights” means, collectively, the Additional Investment Rights issued and sold under this Agreement in the form of Exhibit A.

 

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 144. 

 

“Business Day” means any day except Saturday, Sunday and any day which is a federal legal holiday or a day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close. 

 

“Closing” means the closing of the purchase and sale of the Securities pursuant to Article II.  “Closing Date” means the Business Day immediately following the date on which all of the

 

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conditions set forth in Sections 5.1 and 5.2 hereof are satisfied, or such other date as the parties may agree. 

 

“Commission” means the Securities and Exchange Commission. 

 

“Common Stock” means the common stock of the Company, par value $.01 per share, and any securities into which such common stock may hereafter be reclassified. 

 

“Common Stock Equivalents” means any securities of the Company or any Subsidiary which entitle the holder thereof to acquire Common Stock at any time, including without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock or other securities that entitle the holder to receive, directly or indirectly, Common Stock. 

 

“Company Counsel” means Drinker ▇▇▇▇▇▇ & ▇▇▇▇▇ LLP. 

 

“Company Deliverables” has the meaning set forth in Section 2.2(a). 

 

“Disclosure Materials” has the meaning set forth in Section 3.1(h). 

 

“Effective Date” means the date that the Registration Statement required by Section 2(a) of the Registration Rights Agreement is first declared effective by the Commission. 

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended. 

 

“GAAP” means U.S. generally accepted accounting principals. 

 

“Intellectual Property Rights” has the meaning set forth in Section 3.1(p). 

 

“Investment Amount” means, with respect to each Investor, the Investment Amount indicated on such Investor’s signature page to this Agreement (subject to the Company’s right, in its sole discretion, to reduce or cut back such amount). 

 

“Investor Deliverables” has the meaning set forth in Section 2.2(b). 

 

“Investor Party” has the meaning set forth in Section 4.7. 

 

“Lien” means any lien, charge, encumbrance, security interest, right of first refusal or other restrictions of any kind. 

 

“Material Adverse Effect” means any of (i) a material and adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material and adverse effect on the results of operations, assets, business or condition (financial or otherwise) of the Company and

 


 

the Subsidiaries, taken as a whole, or (iii) an adverse impairment to the Company’s ability to perform on a timely basis its obligations under any Transaction Document. 

 

“New York Courts” means the state and federal courts sitting in the City of New York, New York. 

 

“Outside Date” means August 5, 2005. 

 

“Per Share Purchase Price” equals $3.75. 

 

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind. 

 

“Placement Agent” means ▇▇ ▇▇▇▇▇ & Co., LLC. 

 

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened. 

 

“Registration Statement” means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale by the Investors of the Shares. 

 

“Registration Rights Agreement” means the Registration Rights Agreement, dated as of the date of this Agreement, among the Company and the Investors, in the form of Exhibit B hereto. 

 

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. 

 

“SEC Reports” has the meaning set forth in Section 3.1(h). 

 

“Securities” means the Shares, the Additional Investment Rights, the Warrants and the Underlying Shares (as defined in the Registration Rights Agreement) issued or issuable to the Investors pursuant to this Agreement. 

 

“Securities Act” means the Securities Act of 1933, as amended. 

 

“Shares” means an aggregate of      shares of Common Stock, which are being issued and sold to the Investors at the Closing.

 

“Short Sales” include, without limitation, all “short sales” as defined in Rule 200 promulgated under Regulation SHO under the Exchange Act and all types of direct and indirect stock pledges, forward sale contracts, options, puts, calls, short sales, swaps and similar

 


 

arrangements (including on a total return basis), and sales and other transactions through non-US broker dealers or foreign regulated brokers. 

 

“Subsidiary” means any “significant subsidiary” as defined in Rule 1-02(w) of the Regulation S-X promulgated by the Commission under the Exchange Act. 

 

“Trading Day” means any Business Day on which the Common Stock is purchased and sold on the Company’s principal Trading Market.

 

“Trading Market” means whichever of the New York Stock Exchange, the American Stock Exchange, the NASDAQ National Market, the NASDAQ SmallCap Market or OTC Bulletin Board on which the Common Stock is listed or quoted for trading on the date in question. 

 

“Transaction Documents” means this Agreement, the Registration Rights Agreement, and any other documents or agreements executed in connection with the transactions contemplated hereunder. 

 

“Warrants” means, collectively, the Common Stock purchase warrants issued and sold under this Agreement in the form of Exhibit B.

 

“Warrant Shares” means, collectively, the shares of Common Stock issuable upon exercise of the Warrants.

 

ARTICLE 2

PURCHASE AND SALE

 

2.1                                 Closing.  Subject to the terms and conditions set forth in this Agreement, at the Closing the Company shall issue and sell to each Investor, and each Investor shall, severally and not jointly, purchase from the Company, the Shares representing such Investor’s Investment Amount.  The Closing shall take place at the offices of Drinker ▇▇▇▇▇▇ & ▇▇▇▇▇ LLP, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ on the Closing Date or at such other location or time as the parties may agree. 

 

2.2                                 Closing Deliveries. 

 

(a)                                  At the Closing, the Company shall deliver or cause to be delivered to each Investor the following (the “Company Deliverables”): 

 

(i)                                     irrevocable instructions addressed to the Company’s transfer agent instructing it to issue a certificate or to make an appropriate book entry evidencing a number of Shares equal to such Investor’s Investment Amount divided by the Per Share Purchase Price, registered in the name of such Investor;

 


 

(ii)                                  a facsimile copy of a certificate issued to Satellite Strategic Finance Associates, LLC (“Satellite”) representing the number of Shares equal to Satellite’s Investment Amount divided by the Per Share Purchase Price (to be delivered to Satellite only);

 

(iii)                               an Additional Investment Right, registered in the name of such Investor, pursuant to which such Investor shall have the right to acquire one-third of the number of Shares of Common Stock at a price of $4.12 per Share;

 

(iv)                              a Warrant, registered in the name of such Investor, pursuant to which such Investor shall have the right to acquire 35% of the number of Shares of Common Stock at a price of $5.00 per Share;

 

(v)                                 the legal opinion of Company Counsel, in agreed form, addressed to the Investors; and

 

(vi)                              the Registration Rights Agreement, duly executed by the Company. 

 

(b)                                 At the Closing, each Investor shall deliver or cause to be delivered to the Company the following (the “Investor Deliverables”): 

 

(i)                                     its Investment Amount, in United States dollars and in immediately available funds, by wire transfer to an account designated in writing by the Company for such purpose; and

 

(ii)                                  the Registration Rights Agreement, duly executed by such Investor. 

 

ARTICLE 3

REPRESENTATIONS AND WARRANTIES

 

3.1                                 Representations and Warranties of the Company.  The Company hereby makes the following representations and warranties to each Investor: 

 

(a)                                  Subsidiaries.  The Company has no direct or indirect Subsidiaries other than as specified in the SEC Reports.  Except as disclosed in Schedule 3.1(a), the Company owns, directly or indirectly, all of the capital stock of each Subsidiary free and clear of any and all Liens, and all the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights. 

 

(b)                                 Organization and Qualification.  The Company and each Subsidiary are duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted.  Neither the Company nor any Subsidiary is in violation of any of the provisions of

 


 

its respective certificate or articles of incorporation, bylaws or other organizational or charter documents.  The Company and each Subsidiary are duly qualified to conduct its respective businesses and are in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, would not reasonably be expected to result in a Material Adverse Effect. 

 

(c)                                  Authorization; Enforcement.  The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations thereunder.  The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company in connection therewith.  Each Transaction Document has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application. 

 

(d)                                 No Conflicts.  The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated thereby do not and will not (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that 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 (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as would not reasonably be expected to result in a Material Adverse Effect. 

 

(e)                                  Filings, Consents and Approvals.  The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than (i) the filing with the Commission of one or more Registration Statements in accordance with the requirements of the Registration Rights Agreement, (ii) filings required by state securities laws, (iii) the filing of a Notice of Sale of Securities on Form D with the Commission under Regulation D of the Securities Act (iv) the filing of a Notification of Listing of Additional Shares with The Nasdaq Stock Market (v) the

 


 

filings required in accordance with Section 4.5, and (vi) those that have been made or obtained prior to the date of this Agreement. 

 

(f)                                    Issuance of the Securities.  The Securities have been duly authorized and, when issued and paid for in accordance with the Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens. 

 

(g)                                 Capitalization.  The number of shares and type of all authorized, issued and outstanding capital stock of the Company, and all shares of Common Stock reserved for issuance under the Company’s various option and incentive plans, is specified in the SEC Reports as of the date specified therein.  Except as specified in the SEC Reports, no securities of the Company are entitled to preemptive or similar rights, and no Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents.  Except as specified in the SEC Reports, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock, or securities or rights convertible or exchangeable into shares of Common Stock.  The issue and sale of the Securities will not, immediately or with the passage of time, obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Investors) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under such securities. 

 

(h)                                 SEC Reports; Financial Statements.  Except as set forth in Schedule 3.1(h), the Company has filed all reports required to be filed by it under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the twelve months preceding the date hereof (or such shorter period as the Company was required by law to file such reports) (the foregoing materials, plus all other filings made by the Company in accordance with the Exchange Act during the twelve months preceding the date hereof, being collectively referred to herein as the “SEC Reports” and, together with the Schedules to this Agreement (if any), the “Disclosure Materials”) on a timely basis or has timely filed a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension.  Except as set forth in Schedule 3.1(h), as of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.  Except as set forth in Schedule 3.1(h) or as specified in the SEC Reports, the financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing.  Except as set forth in Schedule 3.1(h) or as specified in the SEC Reports, such financial statements have been prepared in accordance with GAAP applied on a consistent basis during the periods involved, except as may be otherwise specified in such financial statements or the notes

 


 

thereto, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments. 

 

(i)                                     Material Changes.  Since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in the SEC Reports or in Schedule 3.1(i), (i) there has been no event, occurrence or development that has had or that would reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables, accrued expenses and other liabilities incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or required to be disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting or the identity of its auditors, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock, and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans.  The Company does not have pending before the Commission any request for confidential treatment of information. 

 

(j)                                     Litigation.  There is no Action which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) except as specifically disclosed in the SEC Reports, is reasonably expected to result in a Material Adverse Effect.  Neither the Company nor any Subsidiary, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws.  There has not been, and to the knowledge of the Company, there is not pending any investigation by the Commission involving the Company.  The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act. 

 

(k)                                  Labor Relations.  No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company. 

 

(l)                                     Compliance.  To the knowledge of the Company, neither the Company nor any Subsidiary (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any court, arbitrator or governmental body, or (iii) is or has been in violation of any statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as would not reasonably be expected to result in a Material Adverse Effect.  To the knowledge of the Company, the Company is in compliance with all effective requirements of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇

 


 

Act of 2002, as amended, and the rules and regulations thereunder, that are applicable to it, except where such noncompliance would not have or reasonably be expected to result in a Material Adverse Effect. 

 

(m)                               Regulatory Permits.  The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits would not reasonably be expected to result in a Material Adverse Effect, and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any such permits. 

 

(n)                                 Title to Assets.  Except as set forth in Schedule 3.1(n), the Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them that is material to their respective businesses and good and marketable title in all personal property owned by them that is material to their respective businesses, in each case free and clear of all Liens, except for Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries.  Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases of which the Company and the Subsidiaries are in compliance, except as would not reasonably be expected to result in a Material Adverse Effect. 

 

(o)                                 Patents and Trademarks.  To the knowledge of the Company, the Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, licenses and other similar rights that are necessary or material for use in connection with their respective businesses as described in the SEC Reports and which the failure to so have would have or reasonably be expected to result in a Material Adverse Effect (collectively, the “Intellectual Property Rights”).  The SEC Reports describe all claims and Actions made or filed by others against the Company deemed material by the Company to the effect that Intellectual Property Rights used by the Company or any Subsidiary violate or infringe upon the rights of such claimant.  Except as set forth in the SEC Reports, to the knowledge of the Company, all of the Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights.

 

(p)                                 Insurance.  The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged.  The Company has no reason to believe that it will not be able to renew its and the Subsidiaries’ 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 on terms consistent with market for the Company’s and such Subsidiaries’ respective lines of business. 

 

(q)                                 Transactions With Affiliates and Employees.  Except as set forth in the SEC Reports, none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company is presently a party to any transaction with the

 


 

Company or any Subsidiary (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 entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner. 

 

(r)                                    Internal Accounting Controls.  Except as disclosed in the SEC Reports, the Company and the 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, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.  Except as disclosed in the SEC Reports, the Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls and procedures to ensure that material information relating to the Company, including its Subsidiaries, is made known to the certifying officers by others within those entities, particularly during the period in which the Company’s Form 10-K or 10-Q, as the case may be, is being prepared.  The Company’s certifying officers have evaluated the effectiveness of the Company’s controls and procedures in accordance with Item 307 of Regulation S-K under the Exchange Act for the Company’s most recently ended fiscal quarter or fiscal year-end (such date, the “Evaluation Date”).  The Company presented in its most recently filed Form 10-K or Form 10-Q the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date.  Except as disclosed in the SEC Reports, since the Evaluation Date, there have been no significant changes in the Company’s internal controls (as such term is defined in Item 308(c) of Regulation S-K under the Exchange Act) or, to the Company’s knowledge, in other factors that could significantly affect the Company’s internal controls. 

 

(s)                                  Solvency.  Based on the financial condition of the Company as of the Closing Date (and assuming that the Closing shall have occurred), to the knowledge of the Company, (i) the Company’s assets do not constitute unreasonably small capital to carry on its business for the current fiscal year as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, and projected capital requirements and capital availability thereof; and (ii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its debt when such amounts are required to be paid.  The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). 

 

(t)                                    Certain Fees.  Except as described in Schedule 3.1(t), no brokerage or finder’s fees or commissions are or will be payable by the Company to any broker, financial

 


 

advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by this Agreement (except ▇▇ ▇▇▇▇▇ & Co., LLC).  The Investors shall have no obligation with respect to any fees or with respect to any claims (other than such fees or commissions owed by an Investor pursuant to written agreements executed by such Investor which fees or commissions shall be the sole responsibility of such Investor) made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by this Agreement. 

 

(u)                                 Certain Registration Matters.  Assuming the accuracy of the Investors’ representations and warranties set forth in Section 3.2(b)-(e), no registration under the Securities Act is required for the offer and sale of the Shares by the Company to the Investors under the Transaction Documents.  The Company is eligible to register the resale of its Common Stock for resale by the Investors under Form S-1 promulgated under the Securities Act.  Except as disclosed in the SEC Reports or as specified in Schedule 3.1(u), the Company has not granted or agreed to grant to any Person any rights (including “piggy-back” registration rights) to have any securities of the Company registered with the Commission or any other governmental authority that have not been satisfied. 

 

(v)                                 Listing and Maintenance Requirements.  Except as specified in the SEC Reports, the Company has not, in the two years preceding the date hereof, received notice from any Trading Market to the effect that the Company is not in compliance with the listing or maintenance requirements thereof.  The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with the listing and maintenance requirements for continued listing of the Common Stock on the Trading Market on which the Common Stock is currently listed or quoted.  The issuance and sale of the Securities under the Transaction Documents does not contravene the rules and regulations of the Trading Market on which the Common Stock is currently listed or quoted, and no approval of the shareholders of the Company thereunder is required for the Company to issue and deliver to the Investors the Securities contemplated by the Transaction Documents. 

 

(w)                               Investment Company.  The Company is not, and is not an Affiliate of, and immediately following the Closing will not have become, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. 

 

(x)                                   Application of Takeover Protections.  The Company has taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s Certificate of Incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Investors as a result of the Investors and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation the Company’s issuance of the Securities and the Investors’ ownership of the Securities. 

 

(y)                                 No Additional Agreements.  The Company does not have any agreement or understanding with any Investor with respect to the transactions contemplated by the Transaction Documents other than as specified in the Transaction Documents. 

 


 

(z)                                   Disclosure.  The Company has not provided any Investor or its respective agents or counsel with any information that the Company believes constitutes material, non-public information except (i) insofar as the existence and terms of the proposed transactions hereunder may constitute such information, and (ii) as to Investors who executed non-disclosure or confidentiality agreements with the Company in connection with the transactions contemplated hereby.  The Company understands and confirms that the Investors will rely on the foregoing representations and covenants in effecting transactions in securities of the Company.  All disclosure provided to the Investors regarding the Company, its business and the transactions contemplated hereby, furnished by or on behalf of the Company (including the Company’s representations and warranties set forth in this Agreement) are true and correct and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. 

 

(aa)                            Dilution.  The Company acknowledges that the issuance of the Shares, the Additional Investment Rights and the Warrants may result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions.  The Company further acknowledges that its obligations under this Agreement, the Additional Investment Rights and the Warrants, including without limitation its obligation to issue the Additional Investment Rights and the Warrants, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Company may have against any Investor and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Company.

 

(bb)                          Acknowledgement Regarding Investors’ Trading Activity.  Anything in this Agreement or elsewhere herein to the contrary notwithstanding (except for Section 3.2(f) hereof), it is understood and agreed by the Company (i) that, to the knowledge of the Company, none of the Investors have been asked to agree, nor has any Investor agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term; (ii) that past or future open market or other transactions by any Investor, including Short Sales, and specifically including, without limitation, Short Sales or “derivative” transactions, before or after the closing of this or future private placement transactions, may negatively impact the market price of the Company’s publicly-traded securities; (iii) that any Investor, and counter parties in “derivative” transactions to which any such Investor is a party, directly or indirectly, presently may have a “short” position in the Common Stock; and (iv) that, to the knowledge of the Company, each Investor shall not be deemed to have any affiliation with or control over any arm’s length counter party in any “derivative” transaction.  The Company further understands and acknowledges that (a) one or more Investors may engage in hedging activities at various times during the period that the Shares, Warrants and/or Warrant Shares are outstanding and (b) such hedging activities (if any) could reduce the value of the existing stockholders’ equity interests in the Company at and after the time that the hedging activities are being conducted.  The Company acknowledges that such aforementioned hedging activities do not constitute a breach of this Agreement, the Warrants or any of the documents executed in connection herewith.

 


 

3.2                                 Representations and Warranties of the Investors.  Each Investor hereby, for itself and for no other Investor, represents and warrants to the Company as follows: 

 

(a)                                  Organization; Authority.  Such Investor is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with the requisite corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the applicable Transaction Documents and otherwise to carry out its obligations thereunder.  The execution, delivery and performance by such Investor of the transactions contemplated by this Agreement has been duly authorized by all necessary corporate or, if such Investor is not a corporation, such partnership, limited liability company or other applicable like action, on the part of such Investor.  Each of this Agreement and the Registration Rights Agreement has been duly executed by such Investor, and when delivered by such Investor in accordance with terms hereof, will constitute the valid and legally binding obligation of such Investor, enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application. 

 

(b)                                 Intent as to Distributions.  Such Investor is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof, without prejudice, however, to such Investor’s right at all times to sell or otherwise dispose of all or any part of such Securities in compliance with applicable federal and state securities laws.  Subject to the immediately preceding sentence, nothing contained herein shall be deemed a representation or warranty by such Investor to hold the Securities for any period of time.  Such Investor is acquiring the Securities hereunder in the ordinary course of its business.  Such Investor does not have any agreement or understanding, directly or indirectly, with any Person to distribute any of the Securities. 

 

(c)                                  Investor Status.  At the time such Investor was offered the Securities, it was an “accredited investor” as defined in Rule 501(a) under the Securities Act.  Such Investor is not a registered broker-dealer under Section 15 of the Exchange Act. 

 

(d)                                 General Solicitation.  Such Investor is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.  Prior to the time that such Investor was first contacted by the Company or a Placement Agent such Investor had a pre-existing relationship with the Company or such Placement Agent. 

 

(e)                                  Access to Information.  Such Investor acknowledges that it has reviewed the Disclosure Materials and has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Shares and the merits and risks of investing in the Securities; (ii) access to information about the Company and the Subsidiaries and their respective financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such

 


 

additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment.  Neither such inquiries nor any other investigation conducted by or on behalf of such Investor or its representatives or counsel shall modify, amend or affect such Investor’s right to rely on the truth, accuracy and completeness of the Disclosure Materials and the Company’s representations and warranties contained in the Transaction Documents.  

 

(f)                                    Certain Trading Activities.  Such Investor has not directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Investor, engaged in any transactions in the securities of the Company (including, without limitations, any Short Sales involving the Company’s securities) since the time that such Investor was first contacted by the Company, a Placement Agent or any other Person regarding an investment in the Company.  Such Investor covenants that neither it nor any Person acting on its behalf or pursuant to any understanding with it will engage in any transactions in the securities of the Company (including Short Sales) prior to the time that the transactions contemplated by this Agreement are publicly disclosed.

 

(g)                                 Limited Ownership.  The purchase by such Investor of the Securities issuable to it at the Closing will not result in such Investor (individually or together with other Person with whom such Investor has identified, or will have identified, itself as part of a “group” in a public filing made with the Commission involving the Company’s securities) acquiring direct or indirect beneficial ownership in excess of 4.999% of the outstanding shares of Common Stock or the voting power of the Company on a post transaction basis that assumes that the Closing shall have occurred.  Such Investor does not presently intend to, alone or together with others, make a public filing with the Commission to disclose that it has (or that it together with such other Persons have) acquired, as a result of the Closing (when added to any other securities of the Company that it or they then own or have the right to acquire), direct or indirect beneficial ownership in excess of 4.999% of the outstanding shares of Common Stock or the voting power of the Company on a post transaction basis that assumes that the Closing shall have occurred. 

 

(h)                                 Independent Investment Decision.  Such Investor has independently evaluated the merits of its decision to purchase Securities pursuant to the Transaction Documents, and such Investor confirms that it has not relied on the advice of any other Investor’s business and/or legal counsel in making such decision.  Such Investor has not relied on the business or legal advice of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ or any of its agents, counsel or Affiliates in making its investment decision hereunder, and confirms that none of such Persons has made any representations or warranties to such Investor in connection with the transactions contemplated by the Transaction Documents. 

 

The Company acknowledges and agrees that no Investor has made or makes any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in this Section 3.2. 

 


 

ARTICLE 4

OTHER AGREEMENTS OF THE PARTIES

 

4.1                                 Securities Law Restrictions.

 

(a)                                  Securities may only be disposed of in compliance with state and federal securities laws.  In connection with any transfer of the Securities other than pursuant to an effective registration statement, to the Company, to an Affiliate of an Investor or in connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. 

 

(b)                                 Certificates evidencing the Securities will contain the following legend, until such time as they are not required under Section 4.1(c): 

 

THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES. 

 

The Company acknowledges and agrees that an Investor may from time to time pledge, and/or grant a security interest in some or all of the Securities pursuant to a bona fide margin agreement in connection with a bona fide margin account and, if required under the terms of such agreement or account, such Investor may transfer pledged or secured Securities to the pledgees or secured parties.  Such a pledge or transfer would not be subject to approval or consent of the Company and no legal opinion of legal counsel to the pledgee, secured party or pledgor shall be required in connection with the pledge, but such legal opinion may be required in connection with a subsequent transfer following default by the Investor transferee of the pledge.  No notice shall be required of such pledge.  At the appropriate Investor’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities including the preparation and filing of any required prospectus supplement under Rule 424(b)(3) of the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of Selling Stockholders thereunder. 

 


 

(c)                                  Certificates evidencing the Shares and the Warrant Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof): (i) while a registration statement (including the Registration Statement) covering the resale of such security is effective under the Securities Act, or (ii) following any sale of such Shares or Warrant Shares pursuant to Rule 144, or (iii) if such Shares or Warrant Shares are eligible for sale under Rule 144(k), or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission).  If all or any portion of a Warrant is converted or exercised (as applicable) at a time when there is an effective registration statement to cover the resale of the Warrant Shares, or if the Shares or Warrant Shares may be sold under Rule 144(k) or if such legend is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations thereof) then such Shares or Warrant Shares, as applicable, shall be issued free of all legends.  The Company agrees that following the effectiveness of the Registration Statement or at such time as such legend is no longer required under this Section 4.1, it will, no later than three business days following the delivery by an Investor to the Company or the Company’s transfer agent of a certificate representing Shares or Warrant Shares, as applicable, issued with a restrictive legend (such third Trading Day, the “Legend Removal Date”) together with a representation that such Shares or Warrant Shares will only be sold by such Investor pursuant to the Registration Statement and in compliance with the prospectus delivery requirements of the Securities Act or pursuant to Rule 144(k), deliver or cause to be delivered to such Investor a certificate representing such shares that is free from all restrictive and other legends.  The Company may not make any notation on its records or give instructions to any transfer agent of the Company that enlarge the restrictions on transfer set forth in this Section.  Certificates for Securities subject to legend removal hereunder shall be transmitted by the transfer agent of the Company to the Investors by crediting the account of the Investor’s prime broker with the Depository Trust Company System.  All costs and expenses related to the removal of the legends and the reissuance of any Securities shall be borne by the Company.

 

4.2                                 Furnishing of Information.  As long as any Investor owns the Securities, the Company covenants to file all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act.  Upon reasonable request of such holder of Securities, the Company shall deliver to such holder a written certification of a duly authorized officer as to whether it has complied with the preceding sentence.  As long as any Investor owns Securities, if the Company is not required to file reports pursuant to such laws, it will prepare and furnish to the Investors and make publicly available in accordance with Rule 144(c) such information as is required for the Investors to sell the Shares under Rule 144.  The Company further covenants that it will take such further action as any holder of Securities may reasonably request, all to the extent required from time to time to enable such Person to sell the Shares without registration under the Securities Act within the limitation of the exemptions provided by Rule 144. 

 

4.3                                 Integration.  The Company shall not, and shall use its best efforts to ensure that no Affiliate of the Company shall, sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the

 


 

offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities to the Investors, or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market in a manner that would require stockholder approval of the sale of the securities to the Investors. 

 

4.4                                 Securities Laws Disclosure; Publicity.  By 8:30 a.m. (Eastern time) on the Trading Day following the execution of this Agreement, the Company shall issue press releases disclosing the material terms of the Transaction Documents and the Closing.  On the Trading Day following the execution of this Agreement the Company will file a Current Report on Form 8-K disclosing the material terms of the Transaction Documents and the Closing.  In addition, the Company will make such other filings and notices in the manner and time required by the Commission and the Trading Market on which the Common Stock is listed. 

 

4.5                                 Indemnification of Investors.  In addition to the indemnity provided in the Registration Rights Agreement, the Company will indemnify and hold the Investors and their directors, officers, shareholders, partners, employees and agents (each, an “Investor Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation (collectively, “Losses”) that any such Investor Party may suffer or incur as a result of or relating to:  (a) any misrepresentation, breach or inaccuracy of any representation, warranty, covenant or agreement made by the Company in any Transaction Document; and/or (b) any cause of action, suit or claim brought or made against such Investor Party and arising solely out of or solely resulting from the Investor’s execution, delivery, performance or enforcement of this Agreement or any of the other Transaction Documents and without causation by any other activity, obligation, condition or liability pertaining to such Investor.  In addition to the indemnity contained herein, the Company will reimburse each Investor Party for its reasonable legal and other expenses (including the cost of any investigation, preparation and travel in connection therewith) incurred in connection therewith, as such expenses are incurred. 

 

4.6                                 Non-Public Information.  The Company covenants and agrees that, from and after the date of this Agreement, neither it nor any other Person acting on its behalf will provide any Investor or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto such Investor shall have executed a written agreement regarding the confidentiality and use of such information.  The Company understands and confirms that each Investor shall be relying on the foregoing representations in effecting transactions in securities of the Company. 

 

4.7                                 Listing of Securities.  The Company hereby agrees to use commercially reasonable efforts to maintain the listing of the Common Stock on the Trading Market, and as soon as reasonably practicable following the Closing (but not later than the Effective Date) to list the applicable Shares on the Trading Market.  The Company further agrees, (i) if the Company applies to have the Common Stock traded on any other Trading Market, it will include in such application the Shares, and will take such other action as is necessary or desirable to cause the Shares to be listed on such other Trading Market as promptly as possible, and (ii) it will take all action reasonably necessary to continue the listing and trading of its Common Stock on a Trading Market and will comply in all material respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Trading Market. 

 


 

4.8                                 Subsequent Placements.  From the date hereof until the Effective Date (the “Blockout Period”), except for Excluded Stock, the Company will not, directly or indirectly, offer, sell, grant any option to purchase, or otherwise dispose of (or announce any offer, sale, grant or any option to purchase or other disposition of) any of its or the Subsidiaries’ equity or equity equivalent securities, including without limitation any debt, preferred stock or other instrument or security that is, at any time during its life and under any circumstances, convertible into or exchangeable or exercisable for Common Stock or Common Stock Equivalents.  “Excluded Stock” means (A) any issuance of Common Stock or grant of Options to employees, officers, directors of or consultants or advisors to the Company; (B) upon exercise, conversion or exchange of any Common Stock Equivalents existing on the date hereof) (provided that such exercise or conversion occurs in accordance with the terms thereof, without amendment or modification); or (C) the issuance of securities, in connection with a joint venture or development agreement or strategic partnership, or similar agreement approved by the Company’s board of directors, a primary purpose of which is not to raise equity capital and to an entity whose primary business is other than investing in other entities.

 

ARTICLE 5

CONDITIONS PRECEDENT TO CLOSING

 

5.1                                 Conditions Precedent to the Obligations of the Investors to Purchase Securities.  The obligation of each Investor to acquire Securities at the Closing is subject to the satisfaction or waiver by such Investor, at or before the Closing, of each of the following conditions: 

 

(a)                                  Representations and Warranties.  The representations and warranties of the Company contained herein shall be true and correct in all material respects as of the date when made and as of the Closing as though made on and as of such date;

 

(b)                                 Performance.  The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by it at or prior to the Closing;

 

(c)                                  No Injunction.  No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by the Transaction Documents;

 

(d)                                 Adverse Changes.  Since the date of execution of this Agreement, no event or series of events shall have occurred that reasonably would result in a Material Adverse Effect;

 

(e)                                  No Suspensions of Trading in Common Stock; Listing.  Trading in the Common Stock shall not have been suspended by the Commission or any Trading Market (except for any suspensions of trading of not more than one Trading Day solely to permit dissemination of material information regarding the Company) at any time since the date of

 


 

execution of this Agreement, and the Common Stock shall have been at all times since such date listed for trading on a Trading Market;

 

(f)                                    Company Deliverables.  The Company shall have delivered the Company Deliverables in accordance with Section 2.2(a); and

 

5.2                                 Conditions Precedent to the Obligations of the Company to Sell Securities.  The obligation of the Company to sell Securities at the Closing is subject to the satisfaction or waiver by the Company, at or before the Closing, of each of the following conditions: 

 

(a)                                  Representations and Warranties.  The representations and warranties of each Investor contained herein shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made on and as of such date; 

 

(b)                                 Performance.  Each Investor shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by such Investor at or prior to the Closing;

 

(c)                                  No Injunction.  No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by the Transaction Documents;

 

(d)                                 Investors Deliverables.  Each Investor shall have delivered its Investors Deliverables in accordance with Section 2.2(b); and

 

ARTICLE 6

 

MISCELLANEOUS

 

6.1                                 Fees and Expenses.  Each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of the Transaction Documents.  The Company shall pay all stamp and other taxes and duties levied in connection with the sale of the Shares.

 

6.2                                 Entire Agreement.  The Transaction Documents, together with the Exhibits and Schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements, understandings, discussions and representations, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

 

6.3                                 Notices.  Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via

 


 

facsimile (provided the sender receives a machine-generated confirmation of successful transmission) at the facsimile number specified in this Section prior to 5:00 p.m.  (Eastern time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 5:00 p.m.  (Eastern time) on any Trading Day, (c) the Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given.  The address for such notices and communications shall be as follows:

 

If to the Company:

 

WorldGate Communications, Inc.

▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇

▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇

Attn:

 

▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.

Tel:

 

(▇▇▇) ▇▇▇-▇▇▇▇

Fax:

 

(▇▇▇) ▇▇▇-▇▇▇▇

 

If to an Investor:  To the address set forth under such Investor’s name on the signature pages hereof; or such other address as may be designated in writing hereafter, in the same manner, by such Person.

 

6.4                                 Amendments; Waivers; No Additional Consideration.  No provision of this Agreement may be waived or amended except in a written instrument signed by the Company and the Investors holding a majority of the Shares.  No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right.  No consideration shall be offered or paid to any Investor to amend or consent to a waiver or modification of any provision of any Transaction Document unless the same consideration is also offered to all Investors who then hold Shares.

 

6.5                                 Termination.  This Agreement may be terminated prior to Closing:

 

(a)                                  by written agreement of the Investors and the Company;

 

(b)                                 by the Company or an Investor (as to itself but no other Investor) upon written notice to the other, if the Closing shall not have taken place by 6:30 p.m.  Eastern time on the Outside Date; provided, that the right to terminate this Agreement under this Section 6.5(b) shall not be available to any Person whose failure to comply with its obligations under this Agreement has been the cause of or resulted in the failure of the Closing to occur on or before such time;

 

(c)                                  by an Investor (as to itself but no other Investor) if it concludes in good faith that any of the conditions precedent contained in Section 5.1 shall have been breached or

 


 

shall not be capable of being satisfied by the Outside Date despite the assumed best efforts of the Company.

 

In the event of a termination pursuant to this Section, the Company shall promptly notify all non-terminating Investors.  Upon a termination in accordance with this Section 6.5, the Company and the terminating Investor(s) shall have no further obligation or liability (including as arising from such termination) to the other and no Investor will have any liability to any other Investor under the Transaction Documents as a result therefrom.

 

6.6                                 Construction.  The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.  The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.  This Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement or any of the Transaction Documents.

 

6.7                                 Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns.  The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Investors.  Any Investor may assign any or all of its rights under this Agreement to any Person to whom such Investor assigns or transfers all of the Securities owned by such Investor, provided such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions hereof that apply to the “Investors.”

 

6.8                                 No Third-Party Beneficiaries.  This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.7 (as to each Investor Party).

 

6.9                                 Governing Law.  All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof.  Each party agrees that all Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective Affiliates, employees or agents) shall be commenced exclusively in the New York Courts.  Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of the any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is not personally subject to the jurisdiction of any such New York Court, or that such Proceeding has been commenced in an improper or inconvenient forum.  Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to

 


 

it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.  If either party shall commence a Proceeding to enforce any provisions of a Transaction Document, then the prevailing party in such Proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Proceeding.

 

6.10                           Survival.  The representations, warranties, agreements and covenants contained herein shall survive the Closing and the delivery of the Securities.

 

6.11                           Execution.  This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart.  In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature page were an original thereof.

 

6.12                           Severability.  If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement.

 

6.13                           Rescission and Withdrawal Right.  Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) the Transaction Documents, whenever any Investor exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Investor may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights.

 

6.14                           Replacement of Securities.  If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity, if requested.  The applicants for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement Securities.  If a replacement certificate or instrument evidencing any Securities is requested due to a mutilation thereof, the Company may require delivery of such mutilated certificate or instrument as a condition precedent to any issuance of a replacement.

 


 

6.15                           Remedies.  In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Investors and the Company will be entitled to specific performance under the Transaction Documents.  The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agrees to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

 

6.16                           Payment Set Aside.  To the extent that the Company makes a payment or payments to any Investor pursuant to any Transaction Document or an Investor enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

 

6.17                           Independent Nature of Investors’ Obligations and Rights.  The obligations of each Investor under any Transaction Document are several and not joint with the obligations of any other Investor, and no Investor shall be responsible in any way for the performance of the obligations of any other Investor under any Transaction Document.  The decision of each Investor to purchase Securities pursuant to the Transaction Documents has been made by such Investor independently of any other Investor.  Nothing contained herein or in any Transaction Document, and no action taken by any Investor pursuant thereto, shall be deemed to constitute the Investors as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Investors are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents.  Each Investor acknowledges that no other Investor has acted as agent for such Investor in connection with making its investment hereunder and that no Investor will be acting as agent of such Investor in connection with monitoring its investment in the Securities or enforcing its rights under the Transaction Documents.  Each Investor shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Investor to be joined as an additional party in any proceeding for such purpose.  The Company acknowledges that each of the Investors has been provided with the same Transaction Documents for the purpose of closing a transaction with multiple Investors and not because it was required or requested to do so by any Investor.

 

6.18                           Limitation of Liability.  Notwithstanding anything herein to the contrary, the Company acknowledges and agrees that the liability of an Investor arising directly or indirectly, under any Transaction Document of any and every nature whatsoever shall be satisfied solely out of the assets of such Investor, and that no trustee, officer, other investment vehicle or any other Affiliate of such Investor or any investor, shareholder or holder of shares of beneficial interest of such a Investor shall be personally liable for any liabilities of such Investor.

 


 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK -- SIGNATURE PAGES FOLLOW]

 


 

IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

 

 

WORLDGATE COMMUNICATIONS, INC.

 

 

 

 

 

By:

/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇

 

 

 

Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇

 

 

Title: CFO

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK — SIGNATURE PAGES FOR INVESTORS FOLLOW]

 


 

NAME OF INVESTOR:

 

Satellite Strategic Finance Associates, LLC

 

By: Satellite Asset Management, L.P., its investment manager

 

 

By:

/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇

 

 

 

Name:

▇▇▇▇▇ ▇▇▇▇▇▇▇

 

 

Title:

General Counsel

 

Investment Amount $1,908,037.50 [508,810x3.75]

(SUBJECT TO THE COMPANY’S RIGHT, IN ITS SOLE DISCRETION, TO CUT-BACK OR REDUCE, SUCH AMOUNT)

 

Tax ID No.:  ▇▇-▇▇▇▇▇▇▇

 

ADDRESS FOR NOTICE (include telephone, fax and e-mail):

▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇

▇▇▇ ▇▇▇▇, ▇▇  ▇▇▇▇▇

(Tel):

(▇▇▇) ▇▇▇-▇▇▇▇

(Fax):

(▇▇▇) ▇▇▇-▇▇▇▇

(Email):

▇▇▇▇▇▇▇.▇▇▇▇▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇-▇▇.▇▇▇

 

DELIVERY INSTRUCTIONS (if different from above):

 

 

Allocation

 

 

 

Common stock @3.75

 

508,810

 

33.3% greenshoe

 

169,434

 

35% 5 yr wrnt

 

178,083

 

 


 

NAME OF INVESTOR:

 

Satellite Strategic Finance Partners, Ltd.

 

By: Satellite Asset Management, L.P., its investment manager

 

 

By:

/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇

 

 

 

Name:

▇▇▇▇▇ ▇▇▇▇▇▇▇

 

 

Title:

General Counsel

 

Investment Amount $3,591,960 [957,856x3.75]

(SUBJECT TO THE COMPANY’S RIGHT, IN ITS SOLE DISCRETION, TO CUT-BACK OR REDUCE, SUCH AMOUNT)

 

Tax ID No.:  N/A

 

ADDRESS FOR NOTICE (include telephone, fax and e-mail):

▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇

▇▇▇ ▇▇▇▇, ▇▇  ▇▇▇▇▇

(Tel):

(▇▇▇) ▇▇▇-▇▇▇▇

(Fax):

(▇▇▇) ▇▇▇-▇▇▇▇

(Email):

▇▇▇▇▇▇▇.▇▇▇▇▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇-▇▇.▇▇▇

 

DELIVERY INSTRUCTIONS (if different from above):

 

 

Allocation

 

 

 

Common stock @3.75

 

957,856

 

33.3% greenshoe

 

318,966

 

35% 5 yr wrnt

 

335,250

 

 


 

NAME OF INVESTOR:

 

Bonanza Master Fund Ltd.

 

By:

/s/ ▇▇▇▇▇ ▇▇▇▇▇

 

 

  Name:

▇▇▇▇▇ ▇▇▇▇▇

 

  Title:

Managing Director

 

Investment Amount:  $3,000,000.00

(SUBJECT TO THE COMPANY’S RIGHT, IN ITS SOLE DISCRETION, TO CUT-BACK OR REDUCE, SUCH AMOUNT)

 

Tax ID No.:  ▇▇-▇▇▇▇▇▇▇

 

ADDRESS FOR NOTICE (include telephone, fax and e-mail):

▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇

▇▇▇▇▇▇, ▇▇  ▇▇▇▇▇

(Tel):

(▇▇▇) ▇▇▇-▇▇▇▇

(Fax):

(▇▇▇) ▇▇▇-▇▇▇▇

(Email):

▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇

 

 

DELIVERY INSTRUCTIONS (if different from above):

 


 

NAME OF INVESTOR:

 

Cranshire Capital, L.P.

 

By:

/s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇

 

 

  Name:

▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇

 

  Title:

President – Downsview Capital
The General Partner

 

Investment Amount:  $1,750,000

(SUBJECT TO THE COMPANY’S RIGHT, IN ITS SOLE DISCRETION, TO CUT-BACK OR REDUCE, SUCH AMOUNT)

 

Tax ID No.:  ▇▇-▇▇▇▇▇▇▇

 

ADDRESS FOR NOTICE (include telephone, fax and e-mail):

▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇

▇▇▇▇▇▇▇▇▇▇, ▇▇  ▇▇▇▇▇

(Tel):

(▇▇▇) ▇▇▇ ▇▇▇▇

(Fax):

(▇▇▇) ▇▇▇ ▇▇▇▇

(Email):

▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇

 

 

DELIVERY INSTRUCTIONS (if different from above):

 


 

NAME OF INVESTOR:

 

Iroquois Master Fund Ltd.

 

By:

/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇

 

 

  Name:

▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇

 

  Title:

Authorized Signatory

 

Investment Amount:  $1,750,000

(SUBJECT TO THE COMPANY’S RIGHT, IN ITS SOLE DISCRETION, TO CUT-BACK OR REDUCE, SUCH AMOUNT)

 

Tax ID No.:  ▇▇-▇▇▇▇▇▇▇

 

ADDRESS FOR NOTICE (include telephone, fax and e-mail):

▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇

▇▇▇ ▇▇▇▇, ▇▇  ▇▇▇▇▇

 

 

DELIVERY INSTRUCTIONS (if different from above):

 


 

NAME OF INVESTOR:

 

Capital Ventures International

 

By:  Heights Capital Management, Inc., its authorized agent

 

 

By:

/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇

 

 

 

Name:

▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇

 

 

Title:

Investment Manager

 

Investment Amount:  $3,500,000

(SUBJECT TO THE COMPANY’S RIGHT, IN ITS SOLE DISCRETION, TO CUT-BACK OR REDUCE, SUCH AMOUNT)

 

Tax ID No.:  ▇▇-▇▇▇▇▇▇▇

 

ADDRESS FOR NOTICE (include telephone, fax and e-mail):

c/o Heights Capital Management, Inc.

▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇., ▇▇▇▇▇ ▇▇▇▇

▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇  ▇▇▇▇▇

 

DELIVERY INSTRUCTIONS (if different from above):

Shares and warrants should be delivered to the following address:

Capital Ventures International

▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇

▇▇▇▇ ▇▇▇▇▇▇, ▇▇  ▇▇▇▇▇

Attn: Accounts Receivable

 

The shares (not the warrants) should be broken down into 4 stock certificates

 


 

NAME OF INVESTOR:

 

Portside Growth And Opportunity Fund

 

By:

/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇

 

 

  Name:

▇▇▇▇▇▇▇ ▇▇▇▇▇

 

  Title:

Authorized Signatory

 

Investment Amount:  $2,000,000

(SUBJECT TO THE COMPANY’S RIGHT, IN ITS SOLE DISCRETION, TO CUT-BACK OR REDUCE, SUCH AMOUNT)

 

Tax ID No.:  ▇▇-▇▇▇▇▇▇▇

 

ADDRESS FOR NOTICE (include telephone, fax and e-mail):

c/o Ramius Capital Group, LLC

▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇

▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇

(Tel):

(▇▇▇) ▇▇▇-▇▇▇▇

(Fax):

(▇▇▇) ▇▇▇-▇▇▇▇

(Email):

▇▇▇▇▇▇@▇▇▇▇▇▇.▇▇▇

 

DELIVERY INSTRUCTIONS (if different from above):

 

Please see Attached Memorandum

 

 [            ]

 

Document Metadata

Filed: August 8th, 2005