Exhibit 4.1
GOSUN COMMUNICATIONS LTD., INC.
SECURITIES PURCHASE AGREEMENT
DECEMBER 21, 2001
TABLE OF CONTENTS
Page
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1. AGREEMENT TO SELL AND PURCHASE...........................................1
2. FEES AND WARRANTS........................................................1
3. CLOSING, DELIVERY AND PAYMENT............................................2
3.1 Closing...........................................................2
3.2 Delivery..........................................................2
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................3
4.1 Organization, Good Standing and Qualification.....................3
4.2 Subsidiaries......................................................3
4.3 Capitalization; Voting Rights.....................................3
4.4 Authorization; Binding Obligations................................4
4.5 Liabilities.......................................................4
4.6 Agreements; Action................................................5
4.7 Obligations to Related Parties....................................5
4.8 Changes...........................................................6
4.9 Title to Properties and Assets; Liens, Etc........................7
4.10 Intellectual Property.............................................7
4.11 Compliance with Other Instruments.................................8
4.12 Litigation........................................................8
4.13 Tax Returns and Payments..........................................8
4.14 Employees.........................................................8
4.15 Registration Rights and Voting Rights.............................9
4.16 Compliance with Laws; Permits.....................................9
4.17 Environmental and Safety Laws.....................................9
4.18 Valid Offering....................................................9
4.19 Full Disclosure..................................................10
4.20 Insurance........................................................10
4.21 SEC Reports......................................................10
4.22 No Market Manipulation...........................................10
4.23 Listing..........................................................10
4.24 No Integrated Offering...........................................11
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4.25 Stop Transfer....................................................11
4.26 Dilution.........................................................11
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS........................11
5.1 Requisite Power and Authority....................................11
5.2 Investment Representations.......................................11
5.3 Purchaser Bears Economic Risk....................................12
5.4 Acquisition for Own Account......................................12
5.5 Purchaser Can Protect Its Interest...............................12
5.6 Accredited Investor..............................................12
5.7 Legends..........................................................12
5.8 Short Sales......................................................12
6. COVENANTS OF THE COMPANY................................................13
6.1 Stop-Orders......................................................13
6.2 Listing..........................................................13
6.3 Market Regulations...............................................13
6.4 Reporting Requirements...........................................14
6.5 Use of Funds.....................................................14
6.6 Access to Facilities.............................................14
6.7 Insurance........................................................14
6.8 Intellectual Property............................................15
6.9 Properties.......................................................15
6.10 Confidentiality..................................................15
6.11 Required Approvals...............................................15
6.12 Reissuance of Securities.........................................16
6.13 Opinion..........................................................16
6.14 Authorized Representative........................................16
7. COVENANTS OF THE COMPANY AND PURCHASERS REGARDING INDEMNIFICATION.......16
7.1 Company Indemnification..........................................16
7.2 Purchaser's Indemnification......................................17
7.3 Procedures.......................................................17
8. CONVERSION OF CONVERTIBLE NOTES.........................................17
8.1 Mechanics of Conversion..........................................17
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8.2 Mandatory Redemption.............................................18
8.3 Maximum Conversion...............................................18
8.4 Injunction - Posting of Bond.....................................19
8.5 Buy-In...........................................................19
8.6 Optional Redemption..............................................19
9. REGISTRATION RIGHTS.....................................................20
9.1 Registration Rights Granted......................................20
9.2 Registration Procedures..........................................22
9.3 Provision of Documents...........................................23
9.4 Non-Registration Events..........................................23
9.5 Expenses.........................................................24
9.6 Indemnification and Contribution.................................24
10. OFFERING RESTRICTIONS...................................................26
11. SECURITY INTEREST.......................................................27
12. MISCELLANEOUS...........................................................27
12.1 Governing Law....................................................27
12.2 Survival.........................................................27
12.3 Successors and Assigns...........................................28
12.4 Entire Agreement.................................................28
12.5 Severability.....................................................28
12.6 Amendment and Waiver.............................................28
12.7 Delays or Omissions..............................................28
12.8 Notices..........................................................28
12.9 Attorneys' Fees..................................................29
12.10 Titles and Subtitles.............................................29
12.11 Counterparts.....................................................29
12.12 Broker's Fees....................................................29
12.13 Indemnification..................................................29
12.14 Construction.....................................................29
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GOSUN COMMUNICATIONS LTD., INC.
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "AGREEMENT") is made and entered
into as of December 21, 2001, by and among GOSUN COMMUNICATIONS LTD., INC., a
Texas corporation (the "COMPANY"), and the Purchaser listed on Exhibit A hereto
(the "PURCHASER").
RECITALS
WHEREAS, the Company has authorized the sale of 8% Convertible Notes in
an aggregate principal amount of $300,000 (the "NOTES"), convertible into shares
of the Company's common stock, $0.001 par value per share (the "COMMON STOCK");
WHEREAS, the Company wishes to issue warrants (the "WARRANTS") to the
Purchaser to purchase shares of the Company's Common Stock in connection with
Purchaser's purchase of the Notes;
WHEREAS, Purchaser desires to purchase the Notes and Warrants on the
terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Notes and Warrants to
Purchaser on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises, representations, warranties and covenants hereinafter set forth
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. AGREEMENT TO SELL AND PURCHASE. Pursuant to the terms and conditions
set forth in this Agreement, on the Closing Date (as defined in Section 3), the
Company agrees to sell to the Purchaser, and the Purchaser hereby agrees to
purchase from the Company Notes in the amount set forth next to the Purchaser's
name on Exhibit A under the column heading "Closing Date Notes," convertible in
accordance with the terms thereof into shares of the Company's Common Stock,
which amount shall be equal to $300,000. The Notes purchased on the Closing Date
shall be known as the "OFFERING." The form of Notes is annexed hereto as Exhibit
B. The Notes will have a Maturity Date (as defined in the Notes) two years from
the date of issuance. Collectively, the Notes and Warrants (as defined in
Section 2) and Common Stock issuable upon conversion of the Notes and exercise
of the Warrants are referred to as the "SECURITIES."
2. FEES AND WARRANTS.
(a) The Company will issue and deliver to the persons listed on
Exhibit A under the column heading "Warrant Holders", or to such other persons
as the Purchaser shall otherwise designate (such named persons, as they may be
so otherwise
designated, being referred to as the "WARRANT RECIPIENTS"), Warrants to purchase
shares of Common Stock in the amounts designated on Exhibit A hereto in
connection with the Offering (the "Warrants") pursuant to Section 1 hereof. The
Warrants must be delivered on the Closing Date. The aggregate number of shares
of Common Stock purchasable upon exercise of the Warrants granted on the Closing
Date is set forth on Exhibit A hereto. A form of Warrant is annexed hereto as
Exhibit C. The per share "PURCHASE PRICE" of Common Stock as defined in the
Warrants shall be equal to the lesser of (i) 120% of the average of the three
lowest closing prices of the Common Stock as reported by Bloomberg Financial for
the Pink Sheets, the NASD OTC Bulletin Board, NASDAQ SmallCap Market, NASDAQ
National Market, American Stock Exchange, or New York Stock Exchange (each of
the foregoing the "PRINCIPAL MARKET"), or such other principal market or
exchange where the Common Stock is listed or traded, for the ten (10) trading
days preceding but not including the Closing Date or (ii) 120% of the average of
the three lowest closing prices of the Common Stock as reported by Bloomberg
Financial on the Principal Market for the ten trading days prior to but not
including the date the Warrant is exercised. All the representations, covenants,
warranties, undertakings, and indemnification, and other rights made or granted
to or for the benefit of Purchaser are hereby also made and granted to the
holders of the Warrants in respect of the Warrants and shares of the Company's
Common Stock issuable upon exercise of the Warrants (the "WARRANT SHARES").
(b) The Company shall reimburse Purchaser for its reasonable legal
fees of $15,000 for services rendered to Purchaser in preparation of this
Agreement and the Related Agreements, and an additional amount not to exceed
$2,500 in connection with its due diligence review of the Company and relevant
matters. Amounts required to be paid hereunder will be paid at the Closing.
(c) The Company will pay a cash fee in the amount of ten percent
(10%) of the aggregate gross purchase price to be paid to the Company from the
sale of Notes in the Offering (the "FUND MANAGER'S FEE") to the persons listed
on Exhibit A under the column heading "Fund Manager's Fee Recipient." The Fund
Manager's Fee must be paid on the Closing Date. The aforementioned Fund
Manager's Fee and legal fees will be payable at the Closing out of funds held
pursuant to a Funds Escrow Agreement to be entered into by the Company,
Purchaser and an Escrow Agent. Failure to timely deliver the Fund Manager's Fee,
or the Warrants shall be deemed an Event of Default as defined in Article III of
the Notes.
3. CLOSING, DELIVERY AND PAYMENT.
3.1 CLOSING. Subject to the terms and conditions herein, the closing
of the transactions contemplated hereby (the "CLOSING"), which closing is
comprised of Purchaser's purchase of Notes in the aggregate principal amount of
$300,000, shall take place on the date hereof, at the offices of ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇, Esq., ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or at
such other time or place as the Company and Purchaser may mutually agree (such
date is hereinafter referred to as the "CLOSING DATE").
3.2 DELIVERY. At the Closing, subject to the terms and conditions
hereof, the Company will deliver to the Purchaser an applicable Note
representing the aggregate principal amount borrowed by the Company at the
Closing from the Purchaser and a warrant certificate registered in the
Purchaser's name representing the number of Warrant Shares as to which the
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Warrant is exercisable pursuant to this Agreement, against payment of the
purchase price therefor by certified funds or wire transfer made payable to the
order of the Company, cancellation of indebtedness or any combination of the
foregoing.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Purchaser as of
the date of this Agreement as set forth below.
4.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas. The Company has the corporate power and authority to own
and operate its properties and assets, to execute and deliver this Agreement,
the Warrants to be issued in connection with this Agreement, the Funds Escrow
Agreement, the Security Agreement and all other agreements referred to herein
(collectively, the "RELATED AGREEMENTS"), to issue and sell the Notes and the
shares of Common Stock issuable upon conversion of the Notes (the "CONVERSION
SHARES"), to issue and sell the Warrants and the Warrant Shares, and to carry
out the provisions of this Agreement and the Related Agreements and to carry on
its business as presently conducted and as presently proposed to be conducted.
The Company is duly qualified and is authorized to do business and is in good
standing as a foreign corporation in all jurisdictions in which the nature of
its activities and of its properties (both owned and leased) makes such
qualification necessary, except for those jurisdictions in which failure to do
so would not have a material adverse effect on the Company or its business.
4.2 SUBSIDIARIES. Except as disclosed on Schedule 4.2, the Company
does not own or control any equity security or other interest of any other
corporation, limited partnership or other business entity. If any entity is
listed on Schedule 4.2. and the Company owns a controlling interest in such
entity, each of the representations and warranties set forth in this Section 4
are being hereby restated with respect to such entity (modified as appropriate
to the nature of such entity.)
4.3 CAPITALIZATION; VOTING RIGHTS.
(a) The authorized capital stock of the Company, immediately
prior to the Closing, consists of (i) 49,000,000 shares of Common Stock, par
value $0.001 per share, 30,215,384 shares of which are issued and outstanding as
of September 30, 2001, and (ii) 5,000 shares of Preferred Stock, par value
$0.001 per share, none of which are issued and outstanding.
(b) Other than (i) the shares reserved for issuance under the
Company's stock option plans; (ii) shares which may be granted pursuant to this
Agreement and the Related Agreements; and (iii) set forth on SCHEDULE 4.3, there
are no outstanding options, warrants, rights (including conversion or preemptive
rights and rights of first refusal), proxy or stockholder agreements, or
arrangements or agreements of any kind for the purchase or acquisition from the
Company of any of its securities. Neither the offer, issuance or sale of any of
the Notes or Warrants, or the issuance of any of the Conversion Shares or
Warrant Shares, nor the consummation of any transaction contemplated hereby will
result in a change in the price or
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number of any securities of the Company outstanding, under anti-dilution or
other similar provisions contained in or affecting any such securities.
(c) All issued and outstanding shares of the Company's Common
Stock (i) have been duly authorized and validly issued and are fully paid and
nonassessable and (ii) were issued in compliance with all applicable state and
federal laws concerning the issuance of securities.
(d) The rights, preferences, privileges and restrictions of the
shares of Preferred Stock and the Common Stock are as stated in the Articles of
Incorporation (the "CHARTER"). The Conversion Shares and Warrant Shares have
been duly and validly reserved for issuance. When issued in compliance with the
provisions of this Agreement and the Company's Charter, the Securities will be
validly issued, fully paid and nonassessable, and will be free of any liens or
encumbrances; provided, however, that the Securities may be subject to
restrictions on transfer under state and/or federal securities laws as set forth
herein or as otherwise required by such laws at the time a transfer is proposed.
(e) No stock plan, stock purchase, stock option or other
agreement or understanding between the Company and any holder of any equity
securities or rights to purchase equity securities provides for acceleration or
other changes in the vesting provisions or other terms of such agreement or
understanding as the result of any merger, consolidated sale of stock or assets,
change in control or any other transaction(s) by the Company, including the
transactions contemplated hereunder.
4.4 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action on the
part of the Company, its officers, directors and stockholders necessary for the
authorization of this Agreement and the Related Agreements, the performance of
all obligations of the Company hereunder at the Closing and the authorization,
sale, issuance and delivery of the Securities pursuant hereto and the Related
Agreements has been taken or will be taken prior to the Closing. The Agreement
and the Related Agreements, when executed and delivered, will be valid and
binding obligations of the Company enforceable in accordance with their terms,
except (a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights, and (b) general principles of equity that restrict the
availability of equitable remedies. The sale of the Notes and the subsequent
conversion of the Notes into Conversion Shares are not and will not be subject
to any preemptive rights or rights of first refusal that have not been properly
waived or complied with. The sale of the Warrants and the subsequent exercise of
the Warrants for Warrant Shares are not and will not be subject to any
preemptive rights or rights of first refusal that have not been properly waived
or complied with. The Notes and the Warrants, when executed and delivered in
accordance with the terms of this Agreement, will be valid and binding
obligations of the Company, enforceable in accordance with their respective
terms.
4.5 LIABILITIES. Except as set forth on the Company's financial
statements or incurred in the ordinary course of business, since September 30,
2001, the Company has no material liabilities and, to the best of its knowledge,
knows of no material contingent liabilities, except current liabilities incurred
in the ordinary course of business which have not been, either in any individual
case or in the aggregate, material.
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4.6 AGREEMENTS; ACTION.
(a) Except as set forth on SCHEDULE 4.6, there are no
agreements, understandings, instruments, contracts, proposed transactions,
judgments, orders, writs or decrees to which the Company is a party or to its
knowledge by which it is bound which may involve (i) obligations (contingent or
otherwise) of, or payments to, the Company in excess of $50,000 (other than
obligations of, or payments to, the Company arising from purchase or sale
agreements entered into in the ordinary course of business), or (ii) the
transfer or license of any patent, copyright, trade secret or other proprietary
right to or from the Company (other than licenses arising from the purchase of
"off the shelf" or other standard products), or (iii) provisions restricting the
development, manufacture or distribution of the Company's products or services,
or (iv) indemnification by the Company with respect to infringements of
proprietary rights.
(b) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities individually in excess of $50,000 or, in the case of
indebtedness and/or liabilities individually less than $50,000, in excess of
$100,000 in the aggregate other than in the ordinary course of business, (iii)
made any loans or advances to any person, other than ordinary advances for
travel expenses, or (iv) sold, exchanged or otherwise disposed of any of its
assets or rights, other than the sale of its inventory in the ordinary course of
business.
(c) For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
(d) Except as set forth on SCHEDULE 4.6, the Company has not
engaged in the past two years in any discussion (i) with any representative of
any corporation or corporations regarding the consolidation or merger of the
Company with or into any such corporation or corporations, (ii) with any
corporation, partnership, association or other business entity or any individual
regarding the sale, conveyance or disposition of all or substantially all of the
assets of the Company, or a transaction or series of related transactions in
which more than 50% of the voting power of the Company is disposed of or (iii)
regarding any other form of acquisition, liquidation, dissolution or winding up
of the Company.
4.7 OBLIGATIONS TO RELATED PARTIES. There are no obligations of the
Company to officers, directors, stockholders or employees of the Company other
than (a) for payment of salary for services rendered, (b) reimbursement for
reasonable expenses incurred on behalf of the Company and (c) for other standard
employee benefits made generally available to all employees (including stock
option agreements outstanding under any stock option plan approved by the Board
of Directors of the Company). None of the officers, directors or stockholders of
the Company, or any members of their immediate families, are indebted to the
Company. None of the officers, directors or, to the best of the Company's
knowledge, key employees or stockholders of the Company or any members of their
immediate families, are indebted to the Company or
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have any direct or indirect ownership interest in any firm or corporation with
which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation which competes with the Company, other
than passive investments in publicly traded companies (representing less than 1%
of such company) which may compete with the Company. No officer, director or
stockholder, or any member of their immediate families, is, directly or
indirectly, interested in any material contract with the Company and no
agreements, understandings or proposed transactions are contemplated between the
Company and any such person. The Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
4.8 CHANGES. Since September 30, 2001, there has not been:
(a) Any change in the assets, liabilities, financial condition,
prospects or operations of the Company, other than changes in the ordinary
course of business, none of which individually or in the aggregate has had or is
reasonably expected to have a material adverse effect on such assets,
liabilities, financial condition, prospects or operations of the Company;
(b) Any resignation or termination of any officer, key employee
or group of employees of the Company;
(c) Any material change, except in the ordinary course of
business, in the contingent obligations of the Company by way of guaranty,
endorsement, indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, business or
prospects or financial condition of the Company;
(e) Any waiver by the Company of a valuable right or of a
material debt owed to it;
(f) Any direct or indirect loans made by the Company to any
stockholder, employee, officer or director of the Company, other than advances
made in the ordinary course of business;
(g) Any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder;
(h) Any declaration or payment of any dividend or other
distribution of the assets of the Company;
(i) Any labor organization activity related to the Company;
(j) Any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;
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(k) Any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(l) Any change in any material agreement to which the Company is
a party or by which it is bound which may materially and adversely affect the
business, assets, liabilities, financial condition, operations or prospects of
the Company;
(m) Any other event or condition of any character that, either
individually or cumulatively, has or may materially and adversely affect the
business, assets, liabilities, financial condition, prospects or operations of
the Company; or
(n) Any arrangement or commitment by the Company to do any of
the acts described in subsection (a) through (m) above.
4.9 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company has good
and marketable title to its properties and assets, and good title to its
leasehold estates, in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge, other than (a) those resulting from taxes which have not
yet become delinquent, (b) minor liens and encumbrances which do not materially
detract from the value of the property subject thereto or materially impair the
operations of the Company, and (c) those that have otherwise arisen in the
ordinary course of business. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned, leased or used by the Company are in good
operating condition and repair and are reasonably fit and usable for the
purposes for which they are being used. The Company is in compliance with all
material terms of each lease to which it is a party or is otherwise bound.
4.10 INTELLECTUAL PROPERTY.
(a) The Company owns or possesses sufficient legal rights to all
patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information and other proprietary rights and processes necessary for
its business as now conducted and to the Company's knowledge as presently
proposed to be conducted (the "INTELLECTUAL PROPERTY"), without any known
infringement of the rights of others. There are no outstanding options, licenses
or agreements of any kind relating to the foregoing proprietary rights, nor is
the Company bound by or a party to any options, licenses or agreements of any
kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information and other proprietary rights
and processes of any other person or entity other than such licenses or
agreements arising from the purchase of "off the shelf" or standard products.
(b) The Company has not received any communications alleging
that the Company has violated any of the patents, trademarks, service marks,
trade names, copyrights or trade secrets or other proprietary rights of any
other person or entity, nor is the Company aware of any basis therefor.
(c) The Company does not believe it is or will be necessary to
utilize any inventions, trade secrets or proprietary information of any of its
employees made prior to their employment by the Company, except for inventions,
trade secrets or proprietary information that have been rightfully assigned to
the Company.
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4.11 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation or default of any term of the Charter or Bylaws, or of any provision
of any mortgage, indenture, contract, agreement, instrument or contract to which
it is party or by which it is bound or of any judgment, decree, order or writ.
The execution, delivery and performance of and compliance with this Agreement
and the Related Agreements, and the issuance and sale of Securities pursuant
hereto, will not, with or without the passage of time or giving of notice,
result in any such material violation, or be in conflict with or constitute a
default under any such term or provision, or result in the creation of any
mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company or the suspension, revocation, impairment, forfeiture or
nonrenewal of any permit, license, authorization or approval applicable to the
Company, its business or operations or any of its assets or properties.
4.12 LITIGATION. There is no action, suit, proceeding or
investigation pending or, to the Company's knowledge, currently threatened
against the Company that questions the validity of this Agreement or the Related
Agreements or the right of the Company to enter into any of such agreements, or
to consummate the transactions contemplated hereby or thereby, or which might
result, either individually or in the aggregate, in any material adverse change
in the assets, condition, affairs or prospects of the Company, financially or
otherwise, or any change in the current equity ownership of the Company, nor is
the Company aware that there is any basis for any of the foregoing. The Company
is not a party 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 currently pending
or which the Company intends to initiate.
4.13 TAX RETURNS AND PAYMENTS. The Company has timely filed all tax
returns (federal, state and local) required to be filed by it. All taxes shown
to be due and payable on such returns, any assessments imposed, and to the
Company's knowledge all other taxes due and payable by the Company on or before
the Closing, have been paid or will be paid prior to the time they become
delinquent. The Company has not been advised (a) that any of its returns,
federal, state or other, have been or are being audited as of the date hereof,
or (b) of any deficiency in assessment or proposed judgment to its federal,
state or other taxes. The Company has no knowledge of any liability of any tax
to be imposed upon its properties or assets as of the date of this Agreement
that is not adequately provided for.
4.14 EMPLOYEES. The Company has no collective bargaining agreements
with any of its employees. There is no labor union organizing activity pending
or, to the Company's knowledge, threatened with respect to the Company. The
Company is not a party to or bound by any currently effective employment
contract, deferred compensation arrangement, bonus plan, incentive plan, profit
sharing plan, retirement agreement or other employee compensation plan or
agreement. To the Company's knowledge, no employee of the Company, nor any
consultant with whom the Company has contracted, is in violation of any term of
any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or to
contract with, the Company because of the nature of the business to be conducted
by the Company; and to the Company's knowledge the continued employment by the
Company of its present employees, and the performance of the Company's contracts
with its independent contractors, will not result in any such violation. The
Company is not aware that any of its employees is obligated under any contract
(including licenses,
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covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with their duties to the Company. The Company has not received any
notice alleging that any such violation has occurred. No employee of the Company
has been granted the right to continued employment by the Company or to any
material compensation following termination of employment with the Company. The
Company is not aware that any officer, key employee or group of employees
intends to terminate his, her or their employment with the Company, nor does the
Company have a present intention to terminate the employment of any officer, key
employee or group of employees.
4.15 REGISTRATION RIGHTS AND VOTING RIGHTS. The Company is presently
not under any obligation, and has not granted any rights, to register any of the
Company's presently outstanding securities or any of its securities that may
hereafter be issued. To the Company's knowledge, no stockholder of the Company
has entered into any agreement with respect to the voting of equity securities
of the Company.
4.16 COMPLIANCE WITH LAWS; PERMITS. To its knowledge, the Company is
not in violation of any applicable statute, rule, regulation, order or
restriction of any domestic or foreign government or any instrumentality or
agency thereof in respect of the conduct of its business or the ownership of its
properties which violation would materially and adversely affect the business,
assets, liabilities, financial condition, operations or prospects of the
Company. No governmental orders, permissions, consents, approvals or
authorizations are required to be obtained and no registrations or declarations
are required to be filed in connection with the execution and delivery of this
Agreement and the issuance of any of the Securities, except such as has been
duly and validly obtained or filed, or with respect to any filings that must be
made after the Closing, as will be filed in a timely manner. The Company has all
franchises, permits, licenses and any similar authority necessary for the
conduct of its business as now being conducted by it, the lack of which could
materially and adversely affect the business, properties, prospects or financial
condition of the Company.
4.17 ENVIRONMENTAL AND SAFETY LAWS. The Company is not in violation
of any applicable statute, law or regulation relating to the environment or
occupational health and safety, and to its knowledge, no material expenditures
are or will be required in order to comply with any such existing statute, law
or regulation. No Hazardous Materials (as defined below) are used or have been
used, stored, or disposed of by the Company or, to the Company's knowledge, by
any other person or entity on any property owned, leased or used by the Company.
For the purposes of the preceding sentence, "HAZARDOUS MATERIALS" shall mean (a)
materials which are listed or otherwise defined as "HAZARDOUS" or "TOXIC" under
any applicable local, state, federal and/or foreign laws and regulations that
govern the existence and/or remedy of contamination on property, the protection
of the environment from contamination, the control of hazardous wastes, or other
activities involving hazardous substances, including building materials, or (b)
any petroleum products or nuclear materials.
4.18 VALID OFFERING. Assuming the accuracy of the representations
and warranties of the Purchaser contained in this Agreement, the offer, sale and
issuance of the Securities will be exempt from the registration requirements of
the Securities Act of 1933, as amended (the "SECURITIES ACT"), and will have
been registered or qualified (or are exempt from
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registration and qualification) under the registration, permit or qualification
requirements of all applicable state securities laws. Neither the Company nor
any agent on its behalf has solicited or will solicit any offers to sell or has
offered to sell or will offer to sell all or any part of the Securities to any
person or persons so as to bring the sale of such Securities by the Company
within the registration provisions of the Securities Act or any state securities
laws.
4.19 FULL DISCLOSURE. The Company has provided the Purchaser with
all information requested by the Purchaser in connection with its decision to
purchase the Notes and Warrants, including all information the Company believes
is reasonably necessary to make such investment decision. Neither this
Agreement, the exhibits and schedules hereto, the Related Agreements nor any
other document delivered by the Company to Purchaser or its attorneys or agents
in connection herewith or therewith or with the transactions contemplated hereby
or thereby, contain any untrue statement of a material fact nor omit to state a
material fact necessary in order to make the statements contained herein or
therein not misleading. To the Company's knowledge, there are no facts which
(individually or in the aggregate) materially adversely affect the business,
assets, liabilities, financial condition, prospects or operations of the Company
that have not been set forth in the Agreement, the exhibits and schedules
hereto, the Related Agreements or in other documents delivered to Purchaser or
its attorneys or agents in connection herewith.
4.20 INSURANCE. The Company has general commercial, product
liability, fire and casualty insurance policies with coverage customary for
companies similarly situated to the Company.
4.21 SEC REPORTS. The Company has filed all proxy statements,
reports and other documents required to be filed by it under the Exchange Act.
The Company has furnished the Purchaser with copies of (i) its Annual Report on
Form 10-K for the fiscal year ended December 31, 2000 and (ii) its Quarterly
Reports on Form 10-Q for the fiscal quarters ended March 31, 2001, June 30, 2001
and September 30, 2001 (collectively, the "SEC REPORTS"). Each SEC Report was in
substantial compliance with the requirements of its respective form and none of
the SEC Reports, nor the financial statements (and the notes thereto) included
in the SEC Reports, as of their respective dates, contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
4.22 NO MARKET MANIPULATION. The Company has not taken, and will not
take, directly or indirectly, any action designed to, or that might reasonably
be expected to, cause or result in stabilization or manipulation of the price of
the Common Stock of the Company to facilitate the sale or resale of any of the
Securities being offered hereby or affect the price at which any of the
Securities being offered hereby may be issued.
4.23 LISTING. The Company's Common Stock is listed for trading on
the NASD OTC Bulletin Board and satisfies all requirements for the continuation
of such listing. The Company has not received any notice that its Common Stock
will be delisted from the NASD OTC Bulletin Board or that the Common Stock does
not meet all requirements for the continuation of such listing.
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4.24 NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the Securities Act which would prevent the Company
from selling the Securities pursuant to Rule 506 under the Securities Act, or
any applicable exchange-related stockholder approval provisions. Nor will the
Company or any of its affiliates or subsidiaries take any action or steps that
would cause the offering of the Securities to be integrated with other
offerings.
4.25 STOP TRANSFER. The Securities are restricted securities as of
the date of this Agreement. The Company will not issue any stop transfer order
or other order impeding the sale and delivery of any of the Securities at such
time as the Securities are registered for public sale or an exemption from
registration is available, except as required by federal securities laws.
4.26 DILUTION. The number of shares of Common Stock issuable upon
conversion of the Notes and exercise of the Warrants may increase substantially
in certain circumstances, including, but not necessarily limited to, the
circumstance wherein the trading price of the Common Stock declines prior to
conversion or exercise of such securities. The Company's executive officers and
directors have studied and fully understand the nature of the Securities being
sold hereby and recognize that they have a potential dilutive effect. The Board
of Directors of the Company has concluded, in its good faith business judgment,
that such issuance is in the best interests of the Company. The Company
specifically acknowledges that its obligation to issue the shares of Common
Stock upon conversion of the Notes and exercise of the Warrants is binding upon
the Company and enforceable regardless of the dilution such issuance may have on
the ownership interests of other shareholders of the Company.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser hereby represents and warrants to the Company with
respect to itself or himself as follows (such representations and warranties do
not lessen or obviate the representations and warranties of the Company set
forth in this Agreement):
5.1 REQUISITE POWER AND AUTHORITY. Purchaser has all necessary power
and authority under all applicable provisions of law to execute and deliver this
Agreement and the Related Agreements and to carry out their provisions. All
action on Purchaser's part required for the lawful execution and delivery of
this Agreement and the Related Agreements have been or will be effectively taken
prior to the Closing. Upon their execution and delivery, this Agreement and the
Related Agreements will be valid and binding obligations of Purchaser,
enforceable in accordance with their terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights, and (b) as limited by
general principles of equity that restrict the availability of equitable
remedies.
5.2 INVESTMENT REPRESENTATIONS. Purchaser understands that the
Securities are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon Purchaser's representations
contained in the Agreement.
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5.3 PURCHASER BEARS ECONOMIC RISK. Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. Purchaser must bear the economic risk of
this investment until the Securities are registered pursuant to the Securities
Act, or an exemption from registration is available.
5.4 ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring the Notes
for Purchaser's own account for investment only, and not with a view towards
their distribution.
5.5 PURCHASER CAN PROTECT ITS INTEREST. Purchaser represents that by
reason of its, or of its management's, business or financial experience,
Purchaser has the capacity to protect its own interests in connection with the
transactions contemplated in this Agreement, and the Related Agreements.
Further, Purchaser is aware of no publication of any advertisement in connection
with the transactions contemplated in the Agreement.
5.6 ACCREDITED INVESTOR. Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
5.7 LEGENDS.
(a) The Notes shall bear the following legend until the Notes
and Conversion Shares are covered by an effective registration statement filed
with the SEC:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS
NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR, IF APPLICABLE, STATE SECURITIES LAWS. THIS NOTE
AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE OR
SUCH SHARES UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS
OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO GOSUN
COMMUNICATIONS LTD., INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."
(b) The Conversion Shares and the Warrant Shares shall bear a
legend which shall be in substantially the following form until such shares are
covered by an effective registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR IF
APPLICABLE, STATE SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
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THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
SECURITIES ACT AND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO GOSUN COMMUNICATIONS LTD., INC. THAT
SUCH REGISTRATION IS NOT REQUIRED."
(c) The Warrants shall bear the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS
WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS WARRANT OR THE UNDERLYING SHARES OF COMMON
STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO GOSUN
COMMUNICATIONS LTD., INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."
5.8 SHORT SALES. The Purchaser will not and shall not cause any
person or entity to engage in "short sales" of the Company's Common Stock.
6. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Purchaser as follows:
6.1 STOP-ORDERS. The Company will advise the Purchaser, promptly
after it receives notice of issuance by the Securities and Exchange Commission
(the "SEC"), any state securities commission or any other regulatory authority
of any stop order or of any order preventing or suspending any offering of any
securities of the Company, or of the suspension of the qualification of the
Common Stock of the Company for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.
6.2 LISTING. The Company will maintain the listing of its Common
Stock on a Principal Market, and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
National Association of Securities Dealers ("NASD") and such exchanges, as
applicable. The Company will provide the Purchaser copies of all notices it
receives notifying the Company of the threatened and actual delisting of the
Common Stock from any Principal Market.
6.3 MARKET REGULATIONS. The Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions
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contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to Purchaser and
promptly provide copies thereof to Purchaser.
6.4 REPORTING REQUIREMENTS. (a) Until at least two (2) years after
the effectiveness of the Registration Statement on Form SB-2 or such other
Registration Statement described in Section 9.1(d) hereof, the Company will (i)
cause its Common Stock to continue to be registered under Sections 12(b) or
12(g) of the Exchange Act, (ii) comply in all respects with its reporting and
filing obligations under the Exchange Act, (iii) comply with all reporting
requirements that is applicable to an issuer with a class of shares registered
pursuant to Section 12(g) of the Exchange Act, and (iv) comply with all
requirements related to any registration statement filed pursuant to this
Agreement. The Company will not take any action or file any document (whether or
not permitted by the Securities Act or the Exchange Act or the rules thereunder)
to terminate or suspend such registration or to terminate or suspend its
reporting and filing obligations under said Acts until the earlier of (y) two
(2) years after the effective date of the Registration Statement on Form SB-2 or
such other Registration Statement described in Section 9.1(d) hereof, or (z) the
sale by the Purchaser of all the Securities issuable by the Company pursuant to
this Agreement. Until at least two (2) years after the Warrants have been
exercised, the Company will use its commercial best efforts to continue the
listing of the Common Stock on the NASD OTC Bulletin Board, NASDAQ or a national
securities exchange and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the NASD
and NASDAQ.
6.5 USE OF FUNDS. The Company undertakes to use the proceeds of the
Purchaser's funds for the purposes set forth on SCHEDULE 6.5 attached hereto. A
deviation from the use of proceeds set forth on SCHEDULE 6.5 of more than 10%
per item or more than 20% in the aggregate shall be deemed a material breach of
the Company's obligations hereunder.
6.6 ACCESS TO FACILITIES. The Company will permit any
representatives designated by the Purchaser (or any transferee of the
Purchaser), so long as such person holds any Securities upon reasonable notice
and during normal business hours, at such person's expense and accompanied by a
representative of the Company, to (a) visit and inspect any of the properties of
the Company, (b) subject to a customary confidentiality agreement, examine the
corporate and financial records of the Company (unless such examination is not
permitted by federal, state or local law or by contract) and make copies thereof
or extracts therefrom and (c) discuss the affairs, finances and accounts of any
such corporations with the directors, officers and independent accountants of
the Company.
6.7 INSURANCE. The Company will keep its assets which are of an
insurable character insured by financially sound and reputable insurers against
loss or damage by fire, explosion and other risks customarily insured against by
companies in the Company's line of business, in amounts sufficient to prevent
the Company from becoming a co-insurer and not in any event less than 100% of
the insurable value of the property insured; and the Company will maintain, with
financially sound and reputable insurers, insurance against other hazards and
risks and liability to persons and property to the extent and in the manner
customary for companies in similar businesses similarly situated and to the
extent available on commercially reasonable terms.
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6.8 INTELLECTUAL PROPERTY. The Company shall maintain in full force
and effect its corporate existence, rights and franchises and all licenses and
other rights to use Intellectual Property owned or possessed by it and
reasonably deemed to be necessary to the conduct of its business.
6.9 PROPERTIES. The Company will keep its properties in good repair,
working order and condition, reasonable wear and tear excepted, and from time to
time make all needful and proper repairs, renewals, replacements, additions and
improvements thereto; and the Company will at all times comply with each
provision of all leases to which it is a party or under which it occupies
property if the breach of such provision could reasonably be expected to have a
material adverse effect.
6.10 CONFIDENTIALITY. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Purchaser,
unless expressly agreed to by the Purchaser or unless and until such disclosure
is required by law or applicable regulation, and then only to the extent of such
requirement.
6.11 REQUIRED APPROVALS. For so long as at least 20% of the
principal amount of the Notes are outstanding, the Company, without the prior
written consent of the Purchaser, shall not:
(a) enter into any transaction or series of transactions with
any stockholder, director, officer or employee which would require disclosure
pursuant to Rule 404 of the Regulation S-K under the Securities Act;
(b) authorize, create or issue any securities (or any rights or
securities directly or indirectly convertible into or exercisable or
exchangeable for securities) having rights, preferences or privileges superior
to the Conversion Shares;
(c) directly or indirectly declare or pay any dividends or make
any distributions upon any of its capital stock or other equity securities (or
any securities directly or indirectly convertible into or exercisable or
exchangeable for equity securities);
(d) directly or indirectly redeem, purchase or otherwise acquire
any of the Corporation's capital stock or other equity securities (including,
without limitation, the Securities or any warrants, options and other rights to
acquire such capital stock or other equity securities) or directly or indirectly
redeem, purchase or make any payments with respect to any stock appreciation
rights, phantom stock plans or similar rights or plans;
(e) sell, lease or otherwise dispose of more than 10% of the
assets of the Company (computed on the basis of book value, determined in
accordance with GAAP consistently applied, or fair market value, determined by
the Board of Directors in its reasonable good faith judgment) in any transaction
or series of related transactions (other than sales of inventory in the ordinary
course of business) or sell or permanently dispose of any of its intellectual
property;
(f) liquidate, dissolve or effect a recapitalization,
reclassification or reorganization in any form of transaction (including,
without limitation, any reorganization into a
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limited liability company, a partnership or any other non-corporate entity which
is treated as a partnership for federal income tax purposes or a stock split or
"reverse" stock split of the Common Stock);
(g) become subject to (including, without limitation, by way of
amendment to or modification of) any agreement or instrument which by its terms
would (under any circumstances) restrict the Company's right to perform the
provisions of this Agreement or any of the agreements contemplated thereby;
(h) amend, alter or repeal the Company's Bylaws or Charter as to
increase the number of authorized shares of the Common Stock or any series of
preferred stock, or materially affect the rights or other powers of the
Conversion Shares, or otherwise take any action which is designed to, or could
have the effect of, adversely affecting the rights or other powers of the
Conversion Shares; or
(i) materially alter or change the business of the Company.
6.12 REISSUANCE OF SECURITIES. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Section 5.7 above at such time as (a) the holder thereof is permitted to dispose
of such Securities pursuant to Rule 144(k) under the Securities Act, or (b) upon
resale subject to an effective registration statement after such Securities are
registered under the Securities Act. The Company agrees to cooperate with the
Purchaser in connection with all resales pursuant to Rule 144(d) and Rule 144(k)
and provide legal opinions necessary to allow such resales provided the Company
and its counsel receive reasonably requested representations from the selling
Purchaser and broker, if any.
6.13 OPINION. On the Closing Date, the Company will deliver to the
Purchaser an opinion acceptable to the Purchaser from the Company's legal
counsel in the form annexed hereto as Exhibit D. The Company will provide, at
the Company's expense, such other legal opinions in the future as are reasonably
necessary for the conversion of the Notes and exercise of the Warrants.
6.14 AUTHORIZED REPRESENTATIVE. The Company hereby agrees to (i)
retain the services of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and Global Guarantee Corporation for a
period of at least two years from the date hereof to perform, among other
services, investment advisory services and (ii) to appoint ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and/or
his designated representative as power of attorney on behalf of the Company to
execute any and all documents necessary to satisfy the Company's obligations
pursuant to the transactions contemplated hereby including, but not limited to,
conversion requests to the Company's transfer agent with respect to the Notes.
7. COVENANTS OF THE COMPANY AND PURCHASER REGARDING INDEMNIFICATION.
7.1 COMPANY INDEMNIFICATION. The Company agrees to indemnify, hold
harmless, reimburse and defend Purchaser, each of Purchaser's officers,
directors, agents, affiliates, control persons, and principal shareholders,
against any claim, cost, expense, liability,
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obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Purchaser which results, arises out of or is
based upon (i) any misrepresentation by Company or breach of any warranty by
Company in this Agreement or in any exhibits or schedules attached hereto or any
Related Agreement, or (ii) any breach or default in performance by Company of
any covenant or undertaking to be performed by Company hereunder, or any other
agreement entered into by the Company and Purchaser relating hereto.
7.2 PURCHASER'S INDEMNIFICATION. Purchaser agrees to indemnify, hold
harmless, reimburse and defend the Company and each of the Company's officers,
directors, agents, affiliates, control persons and principal shareholders, at
all times against any claim, cost, expense, liability, obligation, loss or
damage (including reasonable legal fees) of any nature, incurred by or imposed
upon the Company which results, arises out of or is based upon (a) any
misrepresentation by Purchaser in this Agreement or in any exhibits or schedules
attached hereto or any Related Agreement; or (b) any breach or default in
performance by Purchaser of any covenant or undertaking to be performed by
Purchaser hereunder, or any other agreement entered into by the Company and
Purchaser relating hereto.
7.3 PROCEDURES. The procedures and limitations set forth in Section
9.6 shall apply to the indemnifications set forth in Sections 7.1 and 7.2 above.
8. CONVERSION OF CONVERTIBLE NOTES.
8.1 MECHANICS OF CONVERSION.
(a) Upon the conversion of the Notes or 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 the Purchaser (or its
nominee) or such other persons as designated by the Purchaser and in such
denominations to be specified representing the number of Conversion Shares
issuable upon such conversion. The Company warrants that no instructions other
than these instructions have been or will be given to the transfer agent of the
Company's Common Stock and that the Conversion Shares issued will be unlegended,
free-trading, and freely transferable, and will not contain a legend restricting
the resale or transferability of the Conversion Shares, provided the Purchaser
has notified the Company of the Purchaser's intention to sell the Conversion
Shares and the Conversion Shares are included in an effective registration
statement or are otherwise exempt from registration when sold.
(b) Purchaser will give notice of its decision to exercise its
right to convert the Notes or part thereof by telecopying or otherwise
delivering an executed and completed notice of the number of shares to be
converted to the Company (the "NOTICE OF CONVERSION"). The Purchaser will not be
required to surrender the Notes until the Purchaser receives a certificate or
certificates, as the case may be, representing the Conversion Shares or until
the Note has been fully satisfied. Each date on which a Notice of Conversion is
telecopied or delivered to the Company in accordance with the provisions hereof
shall be deemed a "CONVERSION DATE." The Company will or will cause the transfer
agent to transmit the Company's Common Stock certificates representing the
shares issuable upon conversion of the Notes (and a certificate representing the
balance of the Notes not so converted, if requested by
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Purchaser) to the Purchaser via express courier for receipt by such Purchaser
within five business days after receipt by the Company of the Notice of
Conversion (the "DELIVERY DATE").
(c) The Company understands that a delay in the delivery of the
Conversion Shares in the form required pursuant to Section 8 hereof, or the
Mandatory Redemption Payment described in Section 8.2 hereof, beyond the
Delivery Date or Mandatory Redemption Payment Date (as defined in Section 8.2)
could result in economic loss to the Purchaser. As compensation to the Purchaser
for such loss, the Company agrees to pay late payments to the Purchaser for late
issuance of the Conversion Shares in the form required pursuant to Section 8
hereof upon conversion of the Notes or late payment of the Mandatory Redemption
Payment, 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 Note
principal 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
Purchaser, in the event that the Company fails for any reason to effect delivery
of the Conversion Shares by the Delivery Date or make payment by the Mandatory
Redemption Payment Date, the Purchaser 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 Purchaser 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.
(d) Nothing contained herein or in any document referred to
herein or delivered in connection herewith shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest or
dividends required to be paid or other charges hereunder exceed the maximum
amount permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Company to a Purchaser and thus refunded to
the Company.
8.2 MANDATORY REDEMPTION. In the event the Company is unable to
issue Conversion Shares on a Delivery Date or at any time when a Note is
convertible, for any reason, then at the Purchaser's election, the Company must
pay to the Purchaser five (5) business days after request by the Purchaser or on
the Delivery Date (if requested by the Purchaser) a sum of money determined by
multiplying the principal of the Note required to be converted and not so
converted (or otherwise not convertible, as applicable) by 130%, together with
accrued but unpaid interest thereon ("MANDATORY REDEMPTION PAYMENT"). The
Mandatory Redemption Payment must be received by the Purchaser on the same date
as the Conversion Shares are otherwise deliverable or within five (5) business
days after request, whichever is sooner ("MANDATORY REDEMPTION PAYMENT DATE").
Upon receipt of the Mandatory Redemption Payment, the corresponding Note
principal and interest will be deemed paid and no longer outstanding.
8.3 MAXIMUM CONVERSION. The Purchaser shall not be entitled to
convert on a Conversion Date that amount of a Note or Notes in connection with
that number of shares of Common Stock which would be in excess of the sum of (i)
the number of shares of Common
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Stock beneficially owned by the Purchaser on a Conversion Date, and (ii) the
number of shares of Common Stock issuable upon the conversion of the Notes with
respect to which the determination of this proviso is being made on a Conversion
Date, which would result in beneficial ownership by the Purchaser of more than
4.99% of the outstanding shares of Common Stock of the Company on such
Conversion Date. For the purposes of the proviso to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Exchange Act and Regulation 13d-3 thereunder. Subject to the
foregoing, a Purchaser shall not be limited to aggregate conversions of only
4.99%. A Purchaser may void the conversion limitation described in this Section
8.3 upon 75 days prior notice to the Company or upon an Event of Default under
the Note. A Purchaser may allocate which of the equity of the Company deemed
beneficially owned by such Purchaser shall be included in the 4.99% amount
described above and which shall be allocated to the excess above 4.99%.
8.4 INJUNCTION - POSTING OF BOND. In the event a Purchaser shall
elect to convert a Note or part thereof, the Company may not refuse conversion
for any reason, unless an injunction from a court, on notice, restraining and or
enjoining conversion of all or part of said Note shall have been sought and
obtained and the Company posts a surety bond for the benefit of such Purchaser
in the amount of 130% of the amount of the Note, which is subject to the
injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Purchaser to the extent it obtains judgment.
8.5 BUY-IN. In addition to any other rights available to the
Purchaser, if the Company fails to deliver to the Purchaser Conversion Shares by
the Delivery Date and if after the Delivery Date the Purchaser purchases (in an
open market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Purchaser of the Common Stock which the Purchaser
anticipated receiving upon such conversion (a "BUY-IN"), then the Company shall
pay in cash to the Purchaser (in addition to any remedies available to or
elected by such Purchaser) the amount by which (A) the Purchaser'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 Note, 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 Purchaser
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 Note
principal and/or interest, the Company shall be required to pay the Purchaser
$1,000, plus interest. The Purchaser shall provide the Company written notice
indicating the amounts payable to the Purchaser in respect of the Buy-In.
8.6 OPTIONAL REDEMPTION. The Company will have the option of
redeeming any outstanding Notes ("OPTIONAL REDEMPTION") by paying to the
Purchaser a sum of money as follows:
from the Closing Date through 90 days after the Closing Date --
120% from 91 days through 135 days after the Closing Date -- 135%
after 135 days following the Closing Date -- 150%
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of the principal amount of the Note together with accrued but unpaid interest
thereon and any and all other sums due, accrued or payable to the Purchaser
arising under this Agreement, Note or any other document delivered herewith
("REDEMPTION AMOUNT") outstanding on the day notice of redemption ("NOTICE OF
REDEMPTION) is given to a Purchaser ("REDEMPTION DATE"). A Notice of Redemption
may not be given in connection with any portion of Note for which notice of
conversion has been given by the Purchaser at any time before receipt of a
Notice of Redemption. The Purchaser may elect within five (5) business days
after receipt of a Notice of Redemption to give the Company Notice of Conversion
in connection with some or all of the Note principal and interest which was the
subject of the Notice of Redemption. A Notice of Redemption must be accompanied
by a certificate signed by the chief executive officer or chief financial
officer of the Company stating that the Company has on deposit and segregated
ready funds equal to the Redemption Amount. The Redemption Amount must be paid
in good funds to the Purchaser no later than the seventh (7th) business day
after the Redemption Date ("OPTIONAL REDEMPTION PAYMENT DATE"). In the event the
Company fails to pay the Redemption Amount by the Optional Redemption Payment
Date, then the Redemption Notice will be null and void and the Company will
thereafter have no further right to effect an Optional Redemption, and at the
Purchaser's election, the Redemption Amount will be deemed a Mandatory
Redemption Payment and the Optional Redemption Payment Date will be deemed a
Mandatory Redemption Payment Date. Such failure will also be deemed an Event of
Default under the Note. Any Notice of Redemption must be given to all holders of
Notes issued in connection with the Offering, in proportion to their holdings of
Note principal on a Redemption Date. A Notice of Redemption may be given by the
Company, provided (i) no Event of Default, as described in the Note shall have
occurred or be continuing; and (ii) the Conversion Shares issuable upon
conversion of the full outstanding Note principal are included for unrestricted
resale in a registration statement effective as of the Redemption Date. Note
proceeds may not be used to effect an Optional Redemption.
9. REGISTRATION RIGHTS.
9.1 REGISTRATION RIGHTS GRANTED. The Company hereby grants the
following registration rights to holders of the securities purchased hereby.
(a) On two occasions, for a period commencing 90 days after the
Closing Date, but not later than four (4) years after the Closing Date (the
"REQUEST DATE"), the Company, upon a written request therefor from holders of
more than 50% of the aggregate of the Company's Securities then outstanding, on
an as converted basis (the Conversion Shares and Warrant Shares issued or
issuable with respect to all Notes or Warrants issued or to be issued hereunder,
being, the "REGISTRABLE SECURITIES"), shall prepare and file with the SEC a
registration statement under the Securities Act covering the Registrable
Securities which are the subject of such request, unless such Registrable
Securities are the subject of an effective registration statement. In addition,
upon the receipt of such request, the Company shall promptly give written notice
to all other record holders of the Registrable Securities that such registration
statement is to be filed and shall include in such registration statement
Registrable Securities for which it has received written requests within 10 days
after the Company gives such written notice. Such other requesting record
holders shall be deemed to have exercised their demand registration right under
this Section 9.1. As a condition precedent to the inclusion of Registrable
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Securities, the holder thereof shall provide the Company with such information
as the Company reasonably requests. The obligation of the Company under this
Section 9.1 shall be limited to two registration statements.
(b) If the Company at any time proposes to register any of its
securities under the Act for sale to the public, whether for its own account or
for the account of other security holders or both, except with respect to
registration statements on Forms ▇-▇, ▇-▇ or another form not available for
registering the Registrable Securities for sale to the public, provided the
Registrable Securities are not otherwise registered for resale by the Purchaser
or subsequent holder pursuant to an effective registration statement, each such
time it will give at least 20 days' prior written notice to the record holder of
any Securities of its intention so to do. Upon the written request of the
holder, received by the Company within 15 days after the giving of any such
notice by the Company, to register any of the Registrable Securities, the
Company will cause such Registrable Securities as to which registration shall
have been so requested to be included with the securities to be covered by the
registration statement proposed to be filed by the Company, all to the extent
required to permit the sale or other disposition of the Registrable Securities
so registered by the holder of such Registrable Securities (the "SELLER"). In
the event that any registration pursuant to this Section 9.1(b) shall be, in
whole or in part, an underwritten public offering of Common Stock of the
Company, the number of shares of Registrable Securities to be included in such
an underwriting may be reduced by the managing underwriter if and to the extent
that the Company and the underwriter shall reasonably be of the opinion that
such inclusion would adversely affect the marketing of the securities to be sold
by the Company therein; provided, however, that the Company shall notify the
Seller in writing of any such reduction. Notwithstanding the forgoing
provisions, or Section 9.1(a) hereof, the Company may withdraw or delay or
suffer a delay of any registration statement referred to in this Section 9.1(b)
without thereby incurring any liability to the Seller.
(c) If, at the time any written request for registration is
received by the Company pursuant to Section 9.1(a), the Company has determined
to proceed with the actual preparation and filing of a registration statement
under the Securities Act in connection with the proposed offer and sale for cash
of any of its securities for the Company's own account, such written request
shall be deemed to have been given pursuant to Section 9.1(b) rather than
Section 9.1(a), and the rights of the holders of Registrable Securities covered
by such written request shall be governed by Section 9.1(b) except that the
Company or underwriter, if any, may not withdraw such registration or limit the
amount of Registrable Securities included in such registration.
(d) The Company shall file with the SEC within 60 days of the
Closing Date (the "FILING DATE"), and use its reasonable commercial efforts to
cause to be declared effective a Form SB-2 registration statement (or such other
form that it is eligible to use) within 90 days of the Closing Date in order to
register the Registrable Securities for resale and distribution under the
Securities Act. The registration statement described in this paragraph must be
declared effective by the SEC within 150 days of the Closing Date (as defined
herein) ("EFFECTIVE DATE"). The Company will register not less than a number of
shares of Common Stock in the aforedescribed registration statement that is
equal to 300% of the Warrant Shares and Conversion Shares issuable at the
Conversion Prices set forth in the Warrants and Notes, respectively, that would
be in effect on the Closing Date or the date of filing of such registration
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statement (employing the conversion price which would result in the greater
number of Shares), assuming the conversion of 100% of the Notes which are then
outstanding or issuable hereunder, and at least one share of common stock for
each common share issuable upon exercise of the Warrants which are then
outstanding or issuable hereunder (employing the Conversion Price that would
result in the greater number of shares). The Registrable Securities shall be
reserved and set aside exclusively for the benefit of the Purchaser and the
holders of the Warrants, as the case may be, and not issued, employed or
reserved for anyone other than the Purchaser and the holders of the Warrants.
Such registration statement will be promptly amended or additional registration
statements will be promptly filed by the Company as necessary to register
additional Company Shares to allow the public resale of all Common Stock
included in and issuable by virtue of the Registrable Securities. No securities
of the Company other than the Registrable Securities will be included in the
registration statement described in this Section 9.1(d).
9.2 REGISTRATION PROCEDURES. If and whenever the Company is required
by the provisions hereof to effect the registration of any shares of Registrable
Securities under the Act, the Company will, as expeditiously as possible:
(a) prepare and file with the SEC a registration statement with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective for the period of the distribution
contemplated thereby (determined as herein provided), and promptly provide to
the holders of Registrable Securities copies of all filings and SEC letters of
comment;
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
until the later of: (i) six months after the latest exercise period of the
Warrants; (ii) twelve months after the Maturity Date of the last maturing Notes
or (iii) four years after the Closing Date, and comply with the provisions of
the Securities Act with respect to the disposition of all of the Registrable
Securities covered by such registration statement in accordance with the
Seller's intended method of disposition set forth in such registration statement
for such period;
(c) furnish to the Seller, and to each underwriter if any, such
number of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons reasonably may
request to facilitate the public sale or their disposition of the securities
covered by such registration statement;
(d) use its best efforts to register or qualify the Seller's
Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Seller and in the
case of an underwritten public offering, the managing underwriter shall
reasonably request, provided, however, that the Company shall not for any such
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction;
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(e) list the Registrable Securities covered by such registration
statement with any securities exchange on which the Common Stock of the Company
is then listed;
(f) immediately notify the Seller and each underwriter under
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event
of which the Company has knowledge as a result of which the prospectus contained
in such registration statement, as then in effect, includes an 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 in light of
the circumstances then existing; and
(g) make available for inspection by the Seller, any underwriter
participating in any distribution pursuant to such registration statement, and
any attorney, accountant or other agent retained by the Seller or underwriter,
all publicly available, non-confidential financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all publicly available,
non-confidential information reasonably requested by the seller, underwriter,
attorney, accountant or agent in connection with such registration statement.
9.3 PROVISION OF DOCUMENTS.
(a) At the request of the Seller, provided a demand for
registration has been made pursuant to Section 9.1(a) or a request for
registration has been made pursuant to Section 9.1(b), the Registrable
Securities will be included in a registration statement filed pursuant to this
Section 9.
(b) In connection with each registration hereunder, the Seller
will furnish to the Company in writing such information and representation
letters with respect to itself and the proposed distribution by it as reasonably
shall be necessary in order to assure compliance with federal and applicable
state securities laws. In connection with each registration pursuant to Section
9 covering an underwritten public offering, the Company and the Seller agree to
enter into a written agreement with the managing underwriter in such form and
containing such provisions as are customary in the securities business for such
an arrangement between such underwriter and companies of the Company's size and
investment stature.
9.4 NON-REGISTRATION EVENTS. The Company and the Purchaser agree
that the Seller will suffer damages if any registration statement required under
Section 9.1(a) above is not filed within 60 days after written request by the
holder and not declared effective by the SEC within 150 days after such request,
and maintained in the manner and within the time periods contemplated by Section
9 hereof, and it would not be feasible to ascertain the extent of such damages
with precision. Accordingly, if (i) the Registration Statement described in
Section 9.1(a) is not filed within 60 days of such written request, or is not
declared effective by the SEC on or prior to the date that is 150 days after
such request, or (ii) the registration statement on Form SB-2 or such other form
as described in Section 9.1(d) is not filed on or before the Filing Date or not
declared effective on or before the sooner of the Effective Date, or within five
days of receipt by the Company of a communication from the SEC that the
registration statement
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described in Section 9.1(d) will not be reviewed, or (iii) any registration
statement described in Section 9.1(a) or (d) is filed and declared effective but
shall thereafter cease to be effective (without being succeeded immediately by
an additional registration statement filed and declared effective) for a period
of time which shall exceed 30 days in the aggregate per year but not more than
20 consecutive calendar days (defined as a period of 365 days commencing on the
date the Registration Statement is declared effective) (each such event referred
to in this Section 9.4 is referred to herein as a "NON-REGISTRATION Event"),
then, for so long as such Non-Registration Event shall continue, (i) the Company
shall pay in cash as Liquidated Damages to each holder of any Registrable
Securities an amount equal to two percent (2%) per month or part thereof during
the pendency of such Non-Registration Event of the principal of the Notes issued
in connection with the Offering, whether or not converted, then owned of record
by such holder or issuable as of or subsequent to the occurrence of such
Non-Registration Event and (ii) the Conversion Price as defined in Section 2.1
of the Notes shall be reduced by 10% for each 30-day period following the
Effective Date that the Registration Statement is not declared effective by the
SEC. Payments to be made pursuant to this Section shall be due and payable
immediately upon demand in immediately available funds. In the event a Mandatory
Redemption Payment is demanded from the Company by the holder pursuant to
Section 8.2 of this Agreement, then the Liquidated Damages described in this
Section 9.4 shall no longer accrue on the portion of the purchase price
underlying the Mandatory Redemption Payment, from and after the date the holder
receives the Mandatory Redemption Payment. It shall be deemed a Non-Registration
Event to the extent that all the Common Stock included in the Registrable
Securities and underlying the Securities is not included in an effective
registration statement as of and after the Effective Date at the conversion
prices in effect from and after the Effective Date.
9.5 EXPENSES. All expenses incurred by the Company in complying with
Section 9, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state securities or "blue sky"
laws, fees of the NASD, transfer taxes, fees of transfer agents and registrars,
fees of, and disbursements incurred by, one counsel for the Seller, and costs of
insurance are called "REGISTRATION EXPENSES". All underwriting discounts and
selling commissions applicable to the sale of Registrable Securities, including
any fees and disbursements of any special counsel to the Seller beyond those
included in Registration Expenses, are called "SELLING EXPENSES."
The Company will pay all Registration Expenses in connection
with the registration statement under Section 9. All Selling Expenses in
connection with each registration statement under Section 9 shall be borne by
the Seller and may be apportioned among the Sellers in proportion to the number
of shares sold by the Seller relative to the number of shares sold under such
registration statement or as all Sellers thereunder may agree.
9.6 INDEMNIFICATION AND CONTRIBUTION.
(a) In the event of a registration of any Registrable Securities
under the Securities Act pursuant to Section 9, the Company will indemnify and
hold harmless each Seller, each officer of each Seller, each director of each
Seller, each underwriter of such Registrable Securities thereunder and each
other person, if any, who controls any such Seller or
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underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities was registered under the Securities Act
pursuant to Section 9, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Seller, each such underwriter and each such controlling
person for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company will not be liable in any such case
if and to the extent that any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission so made in conformity with information furnished by any such
Seller, the underwriter or any such controlling person in writing specifically
for use in such registration statement or prospectus.
(b) In the event of a registration of any of the Registrable
Securities under the Securities Act pursuant to Section 9, the Seller will
indemnify and hold harmless the Company, and each person, if any, who controls
the Company within the meaning of the Securities Act, each officer of the
Company who signs the registration statement and each director of the Company,
against all losses, claims, damages or liabilities, joint or several, to which
the Company or such officer or director may become subject under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the registration
statement under which such Registrable Securities were registered under the
Securities Act pursuant to Section 9, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company and each such officer or
director for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however, that the Seller will be liable hereunder
in any such case if and only to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with information pertaining to such Seller, as such, furnished in
writing to the Company by such Seller specifically for use in such registration
statement or prospectus, and provided, further, however, that the liability of
the Seller hereunder shall be limited to the proportion of any such loss, claim,
damage, liability or expense which is equal to the proportion that the public
offering price of the Registrable Securities sold by the Seller under such
registration statement bears to the total public offering price of all
securities sold thereunder, but not in any event to exceed the net proceeds
received by the Seller from the sale of Registrable Securities covered by such
registration statement.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is
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to be made against the indemnifying party hereunder, notify the indemnifying
party in writing thereof, but the omission so to notify the indemnifying party
shall not relieve it from any liability which it may have to such indemnified
party other than under this Section 9.6(c) and shall only relieve it from any
liability which it may have to such indemnified party under this Section 9.6(c)
if and to the extent the indemnifying party is prejudiced by such omission. In
case any such action shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate in and, to the extent it shall wish, to
assume and undertake the defense thereof with counsel satisfactory to such
indemnified party, and, after notice from the indemnifying party to such
indemnified party of its election so to assume and undertake the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under this Section 9.6(c) for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected, provided,
however, that, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be reasonable defenses available to it which are
different from or additional to those available to the indemnifying party or if
the interests of the indemnified party reasonably may be deemed to conflict with
the interests of the indemnifying party, the indemnified parties shall have the
right to select one separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the reasonable
expenses and fees of such separate counsel and other expenses related to such
participation to be reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution in
the event of joint liability under the Securities Act in any case in which
either (i) the Seller, or any controlling person of the Seller, makes a claim
for indemnification pursuant to this Section 9.6 but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding the
fact that this Section 9.6 provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of the Seller
or controlling person of the Seller in circumstances for which indemnification
is provided under this Section 9.6; then, and in each such case, the Company and
the Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (A) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities offered by it
pursuant to such registration statement; and (B) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 10(f) of the Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
10. OFFERING RESTRICTIONS. Except as previously disclosed in the SEC
Reports or stock or stock options granted to employees or directors of the
Company; or equity or debt issued in connection with an acquisition of a
business or assets by the Company; or the issuance by the Company of stock in
connection with the establishment of a joint venture partnership or licensing
arrangement (these exceptions hereinafter referred to as the "EXCEPTED
ISSUANCES"), the
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Company will not issue any equity, convertible debt or other securities which
are or could be (by conversion or registration) free-trading securities prior to
the expiration of 12 months from the actual effective date of the registration
statement described in Section 9.1(d) above (the "EXCLUSION PERIOD"). This
restriction shall not prohibit the Company from issuing any equity, convertible
debt or other securities prior to the expiration of the Exclusion Period,
provided that such equity, convertible debt or other securities are restricted
securities when issued and remain restricted until the expiration of the
Exclusion Period. Notwithstanding the above, if the Purchaser elects not to
further fund the Company pursuant to the schedule set forth in the Term Sheet
between the Company and the Purchaser following the transaction contemplated
hereby, the Purchaser shall waive the provisions of this Section 10.
11. SECURITY INTEREST.
11.1 SECURITY SHARES. As a condition of Closing, the Company will
deliver to the Purchaser Common Shares of the Company owned by Yi-▇▇▇▇ ▇▇▇▇,
together with appropriate stock powers, as more fully set forth in a Security
Agreement. Collectively, the foregoing stock is referred to as "Security
Shares." The Company will also execute all such documents reasonably necessary
to memorialize and further protect the security interest described above.
11.2 REVENUE. In the event of a Non-Registration Event pursuant to
Section 9.4 hereof, the Company has agreed to grant a security interest in the
Company's revenue such that the Company hereby agrees that any revenue received
by the Company after a Non-Registration Event shall be applied first to
obligations constituting fees, expenses and/or other charges then payable by the
Company to the Purchaser, second to all accrued interest then owing under the
Note and third to reduce the outstanding principal balance then owing under the
Note. The Company will execute all such documents reasonably necessary to
memorialize and further protect the security interest described above.
12. MISCELLANEOUS.
12.1 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to principles of conflicts of laws. Any action brought by either party against
the other concerning the transactions contemplated by this Agreement shall be
brought only in the state courts of New York or in the federal courts located in
the state of New York. Both parties and the individuals executing this Agreement
and other agreements on behalf of the Company agree to submit to the
jurisdiction of such courts and waive trial by jury. The prevailing party shall
be entitled to recover from the other party its reasonable attorney's fees and
costs. In the event that any provision of this Agreement or any other agreement
delivered in connection herewith is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of any agreement.
12.2 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Purchaser and
the closing of the
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transactions contemplated hereby. All statements as to factual matters contained
in any certificate or other instrument delivered by or on behalf of the Company
pursuant hereto in connection with the transactions contemplated hereby shall be
deemed to be representations and warranties by the Company hereunder solely as
of the date of such certificate or instrument.
12.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Securities from time to time.
12.4 ENTIRE AGREEMENT. This Agreement, the exhibits and schedules
hereto, the Related Agreements and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.
12.5 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
12.6 AMENDMENT AND WAIVER.
(a) This Agreement may be amended or modified only upon the
written consent of the Company and the Purchaser.
(b) The obligations of the Company and the rights of the holders
of the Securities under the Agreement may be waived only with the written
consent of such holders of Securities. The rights of the holder of a Note may be
waived only with the written consent of the holder of such Note.
12.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement or the Related
Agreements, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring. It is further agreed that any waiver, permit, consent or
approval of any kind or character on the Purchaser's part of any breach, default
or noncompliance under this Agreement, the Notes or the Related Agreements or
any waiver on such party's part of any provisions or conditions of the
Agreement, a Note or the Related Agreements must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, the Notes or the Related Agreements, by
law or otherwise afforded to any party, shall be cumulative and not alternative.
12.8 NOTICES. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (a) upon personal delivery to
the party to be notified, (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day, (c) five days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (d) one day after deposit with a
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nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the Company
at the address as set forth on the signature page hereof and to the Purchaser at
the address set forth on the signature page hereto for such Purchaser, with a
copy in the case of the Purchaser to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq., ▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, facsimile number (▇▇▇) ▇▇▇-▇▇▇▇, or at
such other address as the Company or the Purchaser may designate by ten days
advance written notice to the other parties hereto.
12.9 ATTORNEYS' FEES. In the event that any suit or action is
instituted to enforce any provision in this Agreement, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including, without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
12.10 TITLES AND SUBTITLES. The titles of the sections and
subsections of the Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
12.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
12.12 BROKER'S FEES. Each party hereto represents and warrants that
no agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein, except as specified herein with respect to
the Purchaser. Each party hereto further agrees to indemnify each other party
for any claims, losses or expenses incurred by such other party as a result of
the representation in this Section 12.12 being untrue.
12.13 INDEMNIFICATION. The Company shall indemnify the Purchaser for
any losses or expenses incurred by the Purchaser in connection with any claims
brought against the Purchaser by any third party (including any other
stockholder of the Company) as a result of the transactions contemplated by this
Agreement, other than for a breach of representation or warranty made by the
Purchaser herein.
12.14 CONSTRUCTION. Each party acknowledges that its legal counsel
participated in the preparation of this Agreement and, therefore, stipulates
that the rule of construction that ambiguities are to be resolved against the
drafting party shall not be applied in the interpretation of this Agreement to
favor any party against the other.
-29-
IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
GOSUN COMMUNICATIONS LTD., INC. LAURUS MASTER FUND, LTD.
By: ___________________________________________
By: ________________________________ Name:
Name: Address:
Title: c/o Onshore Corporate Services Ltd.
Address: ▇.▇. ▇▇▇ ▇▇▇▇ G.T., Queensgate House,
80 ▇▇▇▇▇ ▇▇▇▇ Er Road South Church Street
Guangzhou China 510080 Grand Cayman, Cayman Islands
[SECURITIES PURCHASE AGREEMENT SIGNATURE PAGE]
LIST OF EXHIBITS
Schedule of Purchasers Exhibit A
Form of Offering Convertible Note Exhibit B
Form of Warrant Exhibit C
Form of Opinion Exhibit D
EXHIBIT A
SCHEDULE OF PURCHASERS
--------------------------------------------------------------------------------
CLOSING DATE NOTES
PURCHASER
--------------------------------------------------------------------------------
LAURUS MASTER FUND, LTD. $300,000
TOTAL $300,000
--------------------------------------------------------------------------------
SCHEDULE OF WARRANT HOLDERS
--------------------------------------------------------------------------------
NAME OF WARRANT HOLDER NUMBER OF WARRANT SHARES
--------------------------------------------------------------------------------
LAURUS MASTER FUND, LTD. 15,000
--------------------------------------------------------------------------------
SCHEDULE OF FUND MANAGER'S FEE RECIPIENTS
--------------------------------------------------------------------------------
FUND MANAGER CLOSING DATE FUND MANAGER'S FEES
--------------------------------------------------------------------------------
LAURUS MASTER FUND, LTD. $30,000
--------------------------------------------------------------------------------
TOTAL $30,000 (10% OF CLOSING)
--------------------------------------------------------------------------------
A-1
EXHIBIT B
FORM OF CONVERTIBLE NOTE
B-1
EXHIBIT C
FORM OF WARRANT
C-1
EXHIBIT D
FORM OF OPINION
1. The Company is a corporation validly existing and in good
standing under the laws of the State of Texas and has all requisite corporate
power and authority to own, operate and lease its properties and to carry on its
business as it is now being conducted.
2. The Company has the requisite corporate power and authority to
execute, deliver and perform its obligations under the Agreement and Related
Agreements. All corporate action on the part of the Company, its officers,
directors and stockholders necessary for (i) the authorization of the Agreement
and Related Agreements, and the performance of all obligations of the Company
thereunder at the Closing, and (ii) the authorization, sale, issuance and
delivery of the Securities pursuant to the Agreement and the Related Agreements
has been taken. The Conversion Shares and the Warrant Shares, when issued
pursuant to and in accordance with the terms of the Agreement and upon delivery,
shall be validly issued and outstanding, fully paid and non assessable.
3. The execution, delivery and performance of the Agreement, the
Notes or the Related Agreements by the Company and the consummation of the
transactions contemplated by any thereof, will not, with or without the giving
of notice or the passage of time or both:
(a) Violate the provisions of the Restated Articles or
bylaws of the Company; or
(b) To the best of such counsel's knowledge, violate any
judgment, decree, order or award of any court binding upon the
Company.
4. The Agreement and Related Agreements constitute and the Notes,
upon their issuance will constitute, valid and legally binding obligations of
the Company, and are enforceable against the Company in accordance with their
respective terms.
5. Assuming the accuracy of the representations and warranties of
the Purchasers contained in the Agreement, the offer, sale and issuance of the
Securities will be exempt from the registration requirements of the Securities
Act, and will have been registered or qualified (or are exempt from registration
and qualification) under the registration, permit or qualification requirements
of all applicable state securities laws. To the best of such counsel's
knowledge, neither the Company, nor any of its affiliates, nor any person acting
on its or their behalf, has directly or indirectly made any offers or sales of
any security or solicited any offers to buy and security under circumstances
that would cause the offering of the Securities pursuant to this Agreement to be
integrated with prior offerings by the Company for purposes of the Securities
Act which would prevent the Company from selling the Securities pursuant to Rule
506 under the Securities Act, or any applicable exchange-related stockholder
approval provisions.
6. There is no action, suit, proceeding or investigation pending or,
to the best of such counsel's knowledge, currently threatened against the
Company that questions the validity of the Agreement or the Related Agreements
or the right of the Company to enter into any of such agreements, or to
consummate the transactions contemplated thereby, or which might result, either
individually or in the aggregate, in any material adverse change in the assets,
condition, affairs or prospects of the Company, financially or otherwise, or any
change in the current equity ownership of the Company. To the best of such
counsel's knowledge, the Company is not a party or subject to the provisions of
any order, writ, injunction, judgment or decree of any court or government
agency or instrumentality; nor is there any action, suit, proceeding or
investigation by the Company currently pending or which the Company intends to
initiate.
7. The holding period of the Company shares deposited as security
pursuant to the Security Agreement in the hands of the Purchasers for purposes
of Rule 144 of the Act will combine with and date back to the acquisition date
of such security shares by the depositing Shareholders.
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE
COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO GOSUN COMMUNICATIONS LTD., INC., THAT SUCH REGISTRATION IS NOT
REQUIRED.
CONVERTIBLE NOTE
FOR VALUE RECEIVED, GOSUN COMMUNICATIONS LTD., INC., a Texas
corporation (hereinafter called the "BORROWER"), hereby promises to pay to
LAURUS MASTER FUND, LTD., ▇/▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇., ▇.▇. ▇▇▇ ▇▇▇▇
G.T., Queensgate House, South Church Street, Grand Cayman, Cayman Islands, Fax:
▇▇▇-▇▇▇-▇▇▇▇ (the "HOLDER") on order, without demand, the sum of Three Hundred
Thousand Dollars ($300,000), with simple interest accruing at the annual rate of
8%, on December 21, 2003 (the "Maturity Date").
The following terms shall apply to this Note:
ARTICLE I
DEFAULT RELATED PROVISIONS
1.1 Payment Grace Period. The Borrower shall have a five (5) day
grace period to pay any monetary amounts due under this Note, after which grace
period a default interest rate of twenty percent (20%) per annum shall apply to
the amounts owed hereunder.
1.2 Conversion Privileges. The Conversion Privileges set forth in
Article II shall remain in full force and effect immediately from the date
hereof and until the Note is paid in full.
1.3 Interest Rate. Subject to the Holder's right to convert,
interest payable on this Note shall accrue at the annual rate of eight percent
(8%) and be payable in arrears commencing December 31, 2001 and quarterly
thereafter, and on the Maturity Date, accelerated or otherwise, when the
principal and remaining accrued but unpaid interest shall be due and payable, or
sooner as described below.
1
ARTICLE II
CONVERSION RIGHTS
The Holder shall have the right to convert the principal amount and
interest due under this Note into Shares of the Borrower's Common Stock as set
forth below.
2.1. Conversion into the Borrower's Common Stock.
(a) The Holder shall have the right from and after the issuance of
this Note and then at any time until this Note is fully paid, to convert any
outstanding and unpaid principal portion of this Note, and at the Holder's
election, the interest accrued on the Note, (the date of giving of such notice
of conversion being a "CONVERSION DATE") into fully paid and nonassessable
shares of common stock of the Borrower as such stock exists on the date of
issuance of this Note, or any shares of capital stock of the Borrower into which
such stock shall hereafter be changed or reclassified (the "COMMON STOCK") at
the conversion price as defined in Section 2.1(b) hereof (the "CONVERSION
PRICE"), determined as provided herein. Upon delivery to the Borrower of a
Notice of Conversion as described in Section 8 of the Securities Purchase
Agreement entered into between the Borrower and certain persons who are
signatories thereto, including the Holder, relating to this Note (the "PURCHASE
AGREEMENT") of the Holder's written request for conversion, the Borrower shall
issue and deliver to the Holder within three business days from the Conversion
Date that number of shares of Common Stock for the portion of the Note converted
in accordance with the foregoing. At the election of the Holder, the Borrower
will deliver accrued but unpaid interest on the Note through the Conversion Date
directly to the Holder on or before the Delivery Date (as defined in the
Purchase Agreement). The number of shares of Common Stock to be issued upon each
conversion of this Note shall be determined by dividing that portion of the
principal of the Note to be converted and interest, if any, by the Conversion
Price.
(b) Subject to adjustment as provided in Section 2.1(c) hereof, the
Conversion Price per share shall be the lower of (i) eighty percent (80%) of the
average of the three lowest closing prices for the Common Stock on the NASD OTC
Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Market System, American
Stock Exchange, or New York Stock Exchange (whichever of the foregoing is at the
time the principal trading exchange or market for the Common Stock, the
"PRINCIPAL MARKET"), or if not then trading on a Principal Market, such other
principal market or exchange where the Common Stock is listed or traded, for the
thirty (30) trading days prior to but not including the Closing Date (as defined
in the Purchase Agreement) in connection with which this Note is issued
("MAXIMUM BASE PRICE"); or (ii) eighty percent (80%) of the average of the three
lowest closing prices for the Common Stock on the Principal Market, or on any
securities exchange or other securities market on which the Common Stock is then
being listed or traded, for the thirty (30) trading days prior to but not
including the Conversion Date.
(c) The Maximum Base Price described in Section 2.1(b)(i) above and
number and kind of shares or other securities to be issued upon conversion
determined pursuant to Section 2.1(a) and 2.1(b),
2
shall be subject to adjustment from time to time upon the happening of certain
events while this conversion right remains outstanding, as follows:
A. Merger, Sale of Assets, etc. If the Borrower at any time
shall consolidate with or merge into or sell or convey all or substantially all
its assets to any other corporation, this Note, as to the unpaid principal
portion thereof and accrued interest thereon, shall thereafter be deemed to
evidence the right to purchase such number and kind of shares or other
securities and property as would have been issuable or distributable on account
of such consolidation, merger, sale or conveyance, upon or with respect to the
securities subject to the conversion or purchase right immediately prior to such
consolidation, merger, sale or conveyance. The foregoing provision shall
similarly apply to successive transactions of a similar nature by any such
successor or purchaser. Without limiting the generality of the foregoing, the
anti-dilution provisions of this Section shall apply to such securities of such
successor or purchaser after any such consolidation, merger, sale or conveyance.
B. Reclassification, etc. If the Borrower at any time shall, by
reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase an adjusted number of such
securities and kind of securities as would have been issuable as the result of
such change with respect to the Common Stock immediately prior to such
reclassification or other change.
C. Stock Splits, Combinations and Dividends. If the shares of
Common Stock are subdivided or combined into a greater or smaller number of
shares of Common Stock, or if a dividend is paid on the Common Stock in shares
of Common Stock, the Conversion Price shall be proportionately reduced in case
of subdivision of shares or stock dividend or proportionately increased in the
case of combination of shares, in each such case by the ratio which the total
number of shares of Common Stock outstanding immediately after such event bears
to the total number of shares of Common Stock outstanding immediately prior to
such event.
(d) During the period the conversion right exists, the Borrower will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of Common Stock upon the full conversion of
this Note. The Borrower represents that upon issuance, such shares will be duly
and validly issued, fully paid and non-assessable. The Borrower agrees that its
issuance of this Note shall constitute full authority to its officers, agents,
and transfer agents who are charged with the duty of executing and issuing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the conversion of this Note.
2.2 Method of Conversion. This Note may be converted by the Holder
in whole or in part as described in Section 2.1(a) hereof and the Purchase
Agreement. Upon partial conversion of this Note, a new Note containing the same
date and provisions of this Note shall, at the request of the Holder, be issued
by the Borrower to the Holder for the principal balance of this Note and
interest which shall not have been converted or paid.
3
ARTICLE III
EVENT OF DEFAULT
The occurrence of any of the following events of default ("EVENT OF
DEFAULT") shall, at the option of the Holder hereof, make all sums of principal
and interest then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable, all without demand, presentment or
notice, or grace period, all of which hereby are expressly waived, except as set
forth below:
3.1 Failure to Pay Principal or Interest. The Borrower fails to pay
any installment of principal or interest hereon or on any other promissory note
issued pursuant to the Purchase Agreement, when due and such failure continues
for a period of five (5) days after the due date.
3.2 Breach of Covenant. The Borrower breaches any material covenant
or other term or condition of this Note in any material respect and such breach,
if subject to cure, continues for a period of twenty (20) days after written
notice to the Borrower from the Holder.
3.3 Breach of Representations and Warranties. Any material
representation or warranty of the Borrower made herein, in the Purchase
Agreement, or in any agreement, statement or certificate given in writing
pursuant hereto or in connection therewith shall be false or misleading.
3.4 Receiver or Trustee. The Borrower shall make an assignment for
the benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business; or such a receiver or trustee shall otherwise be appointed.
3.5 Judgments. Any money judgment, writ or similar final process
shall be entered or filed against the Borrower or any of its property or other
assets for more than $50,000, and shall remain unvacated, unbonded or unstayed
for a period of forty-five (45) days.
3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings or relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against the
Borrower.
3.7 Delisting. Delisting of the Common Stock from the Principal
Market or such other principal exchange on which the Common Stock is listed for
trading; the Borrower's failure to comply with the conditions for listing; or
notification that the Borrower is not in compliance with the conditions for such
continued listing.
3.8 Concession. A concession by the Borrower, after applicable
notice and cure periods, under any one or more obligations in an aggregate
monetary amount in excess of $50,000.
4
3.9 Stop Trade. An SEC stop trade order or Principal Market trading
suspension.
3.10 Failure to Deliver Common Stock or Replacement Note. The
Borrower's failure to timely deliver Common Stock to the Holder pursuant to and
in the form required by this Note and Section 8 of the Purchase Agreement, or if
required a replacement Note.
3.11 Registration Default. The occurrence of a Non-Registration
Event as described in Section 9.4 of the Purchase Agreement.
ARTICLE IV
MISCELLANEOUS
4.1 Failure or Indulgence Not Waiver. No failure or delay on the
part of the Holder hereof in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights and
remedies existing hereunder are cumulative to, and not exclusive of, any rights
or remedies otherwise available.
4.2 Notices. Any notice herein required or permitted to be given
shall be in writing and shall be deemed effectively given: (a) upon personal
delivery to the party notified, (b) when sent by confirmed telex or facsimile if
sent during normal business hours of the recipient, if not, then on the next
business day, (c) five days after having been sent by registered or certified
mail, return receipt requested, postage prepaid, or (d) one day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
Borrower at the address as set forth on the signature page to the Purchase
Agreement executed in connection herewith and to the Holder at the address set
forth on the signature page to the Purchase Agreement for such Holder, with a
copy to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq., ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇ ▇▇▇▇▇, facsimile number (▇▇▇) ▇▇▇-▇▇▇▇, or at such other address as the
Borrower or the Holder may designate by ten days advance written notice to the
other parties hereto. A Notice of Conversion shall be deemed given when made to
the Borrower pursuant to the Purchase Agreement.
4.3 Amendment Provision. The term "Note" and all reference thereto,
as used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.
4.4 Assignability. This Note shall be binding upon the Borrower and
its successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder.
5
4.5 Cost of Collection. If default is made in the payment of this
Note, the Borrower shall pay the Holder hereof reasonable costs of collection,
including reasonable attorneys' fees.
4.6 Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of laws. Any action brought by either party against the other
concerning the transactions contemplated by this Agreement shall be brought only
in the state courts of New York or in the federal courts located in the state of
New York. Both parties and the individual signing this Note on behalf of the
Borrower agree to submit to the jurisdiction of such courts. The prevailing
party shall be entitled to recover from the other party its reasonable
attorney's fees and costs. In the event that any provision of this Note is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any such provision which may prove invalid or unenforceable under any law
shall not affect the validity or unenforceability of any other provision of this
Note.
4.7 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
4.8 Prepayment. This Note may not be paid (in whole or in part)
prior to the Maturity Date without the consent of the Holder.
4.9 Security Interest. The holder of this Note has been granted a
security interest in common stock of the Borrower more fully described in a
Security Agreement.
4.10 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Note and, therefore, stipulates that the
rule of construction that ambiguities are to be resolved against the drafting
party shall not be applied in the interpretation of this Note to favor any party
against the other.
[THIS SPACE INTENTIONALLY LEFT BLANK]
6
IN WITNESS WHEREOF, the Borrower has caused this Note to be signed in
its name by its Chief Executive Officer on this ___ day of December, 2001.
GOSUN COMMUNICATIONS LTD., INC.
By:_________________________________
WITNESS:
-------------------------------
7
NOTICE OF CONVERSION
(To be executed by the Holder in order to convert the Note)
The undersigned hereby elects to convert $_________ of the principal and
$_________ of the interest due on the Note issued by GOSUN COMMUNICATIONS LTD.,
INC. on December 21, 2001 into Shares of Common Stock of GOSUN COMMUNICATIONS
LTD., INC. (the "Company") according to the conditions set forth in such Note,
as of the date written below.
Date of Conversion:_____________________________________________________________
Conversion Price:_______________________________________________________________
Shares To Be Delivered:_________________________________________________________
Signature:______________________________________________________________________
Print Name:_____________________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________
8