SECURITIES PURCHASE AGREEMENT
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THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of November
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16, 2005, by and among CHARYS HOLDING COMPANY INC., a Delaware corporation (the
"Company"), and Highgate House Funds, Ltd. (the "Buyer").
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WITNESSETH:
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WHEREAS, the Company and the Buyer are executing and delivering this
Agreement in reliance upon an exemption from securities registration pursuant to
Section 4(2) and/or Rule 506 of Regulation D ("Regulation D") as promulgated by
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the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act
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of 1933, as amended (the "Securities Act");
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WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Buyer, as
provided herein, and the Buyer shall purchase at the Closing (as defined below)
(i) a Three Million Dollar ($3,000,000) secured convertible debenture (the
"First Convertible Debenture"), which shall be convertible, unless redeemed by
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the Company before the expiration of one hundred twenty days from the Closing
Date (as defined below) (the "Exclusive Redemption Date"), into shares of the
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Company's common stock, par value $0.001 (the "Common Stock") (as converted, the
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"Conversion Shares"), and (ii) warrants (the "First Warrants") to purchase an
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aggregate of 750,000 shares of Common Stock (the "First Warrant Shares"). The
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total purchase price for the First Convertible Debenture and the First Warrants
shall be Three Million Dollars ($3,000,000), (the "First Purchase Price"); and
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WHEREAS, at the Closing, the parties hereto shall execute and deliver a
Registration Rights Agreement substantially in the form attached hereto as
Exhibit A (the "Investor Registration Rights Agreement") pursuant to which the
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Company has agreed to provide certain registration rights under the Securities
Act and the rules and regulations promulgated there under, and applicable state
securities laws; and
WHEREAS, the aggregate proceeds of the sale of the First Convertible
Debenture and the First Warrants contemplated hereby shall be held in escrow
pursuant to the terms of an escrow agreement substantially in the form of the
Escrow Agreement among the Company, the Buyer and the Escrow Agent (as defined
below) attached hereto as Exhibit B (the "Escrow Agreement") and executed by the
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parties concurrently herewith;
WHEREAS, at the Closing, the parties hereto shall execute and deliver a
Security Agreement substantially in the form attached hereto as Exhibit C (the
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"Security Agreement") pursuant to which the Company has agreed to provide the
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Buyer a security interest in Pledged Collateral (as this term is defined in the
Security Agreement) to secure the Company's obligations as reflected therein;
WHEREAS, at the Closing, the parties hereto shall execute and deliver an
Escrow Shares Escrow Agreement substantially in the form attached hereto as
Exhibit D (the "Escrow
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Shares Escrow Agreement") pursuant to which the Company shall issue and deliver
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to the Escrow Agent Twenty Million (20,000,000) shares of Common Stock or
"security stock" (the "Escrow Shares") and the Escrow Agent shall distribute
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some or all of the Escrow Shares to the Buyer upon conversion, if applicable, of
the First Convertible Debenture and Second Convertible Debenture (as defined
herein), as the case may, pursuant to a Conversion Notice (as defined herein)
and/or exercise of the First Warrants and Second Warrants (as defined herein),
as the case may be; provided, however, that the Escrow Agent shall distribute
all of such Escrow Shares (less 1,000,000 of such shares which shall be retained
by the Escrow Agent for purposes of distributing First Warrant Shares and Second
Warrant Shares (as defined herein) upon exercise by the Buyer of the First
Warrants and Second Warrants, as the case may be) to the Company upon receipt of
a Redemption Notice (as defined in the Escrow Shares Agreement);
WHEREAS, at the Closing, the parties hereto shall execute and deliver
Irrevocable Transfer Agent Instructions substantially in the form attached
hereto as Exhibit E (the "Irrevocable Transfer Agent Instructions");
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WHEREAS, the Registration Rights Agreement, the Security Agreement, the
Escrow Shares Agreement and the Irrevocable Transfer Agent Instructions are
sometimes referred to herein as the "Other Transaction Documents";
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WHEREAS, the Company shall also have the option (the "First Option"),
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exercisable at any time upon notice duly given to Buyer, to issue and sell to
the Buyer, whereupon the Buyer shall purchase, at the Second Closing (as defined
below) (i) a One Million Dollar ($1,000,000) secured convertible debenture (the
"Second Convertible Debenture"), which shall be convertible, unless earlier
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redeemed by the Company, into Conversion Shares, and (ii) warrants (the "Second
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Warrants") to purchase an aggregate of 250,000 shares of Common Stock (the
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"Second Warrant Shares"). The total purchase price for the Second Convertible
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Debenture and the Second Warrants shall be One Million Dollars ($1,000,000),
(the "Second Closing Purchase Price"); and
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WHEREAS, in the event the Company exercises the First Option, the parties
shall execute and deliver at the Second Closing appropriate amendments to the
Other Transaction Documents to reflect the issuance of the Second Convertible
Debenture, the additional Conversion Shares into which such debenture is
convertible, the Second Warrants and the Second Warrant Shares;
WHEREAS, for purposes of the representations and warranties set forth in
Sections 2 and 3 below, the terms "Convertible Debenture," "Warrants,"
"Conversion Shares" and "Warrant Shares" shall mean: (i) with respect to the
First Closing, the First Convertible Debenture, the First Warrants, the
Conversion Shares into which the First Convertible Debenture is convertible and
the First Warrant Shares, respectively; and (ii) with respect to the Second
Closing, the Second Convertible Debenture, the Second Warrants, the Conversion
Shares into which the Second Convertible Debenture is convertible and the Second
Warrant Shares, respectively;
WHEREAS, for purposes of the covenants and other provisions set forth in
Sections 4, 5, 6 and 9 below, the terms "Convertible Debenture," "Warrants,"
"Conversion Shares" and "Warrant Shares" shall mean: (i) if the Company has not
exercised the First Option, the First
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Convertible Debenture, the First Warrants, the Conversion Shares into which the
First Convertible Debenture is convertible and the First Warrant Shares,
respectively; (ii) if the Company has exercised the First Option, the First
Convertible Debenture and Second Convertible Debenture, as the case may be, and
the Conversion Shares into which the same may be convertible, the First Warrants
and Second Warrants, as the case may be, and the First Warrant Shares and Second
Warrant Shares, as the case may be.
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Buyer hereby agree as
follows:
1. PURCHASE AND SALE OF CONVERTIBLE DEBENTURES; CLOSINGS.
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(a) Purchase of First Convertible Debenture. Subject to
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the satisfaction (or waiver) of the terms and conditions of this Agreement, the
Buyer agrees to purchase at the Closing (as defined herein below) and the
Company agrees to sell and issue to the Buyer at the Closing, the First
Convertible Debenture and the First Warrants. Upon execution hereof by the
Buyer, the Buyer shall wire transfer the First Purchase Price in same-day funds
or a check payable to "Gottbetter & Partners, LLP, as Escrow Agent for Charys
Holding Company Inc.", which Purchase Price shall be held in escrow pursuant to
the terms of the Escrow Agreement (as hereinafter defined) and disbursed in
accordance therewith.
(b) Closing. The closing (the "Closing") of the
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purchase and sale of the First Convertible Debenture and First Warrants shall
take place at 10:00 a.m. Eastern Standard Time within five (5) business days
following the date hereof, subject to notification of satisfaction of the
conditions to the Closing set forth herein and in Sections 7 and 8 below (or
such later date as is mutually agreed to by the Company and the Buyer) (the
"Closing Date"). The Closing shall occur on the Closing Date at the offices of
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Gottbetter & Partners, LLP, 000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 (or
such other place as is mutually agreed to by the Company and the Buyer).
(c) Escrow Arrangements; Form of Payment. Upon
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execution hereof by Buyer and pending the Closing, the First Purchase Price
shall be deposited in a non-interest bearing escrow account with Gottbetter &
Partners, LLP as escrow agent (the "Escrow Agent"), pursuant to the terms of the
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Escrow Agreement. Subject to the satisfaction of the terms and conditions of
this Agreement, on the Closing Date, (i) the Escrow Agent shall deliver to the
Company in accordance with the terms of the Escrow Agreement the First Purchase
Price for the First Convertible Debenture and First Warrants to be issued and
sold to the Buyer, and (ii) the Company shall deliver to the Buyer, the First
Convertible Debenture and the First Warrants, duly executed on behalf of the
Company.
(d) Purchase of Second Convertible Debenture. In the
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event the Company exercises the First Option upon notice given to Buyer, and
subject to the satisfaction (or waiver) of the terms and conditions set forth in
Sections 7 and 8 of this Agreement with respect to the Second Closing, the Buyer
agrees to purchase at the Second Closing (as defined herein below) and the
Company agrees to sell and issue to the Buyer at the Second Closing, the Second
Convertible Debenture and the Second Warrants. Notwithstanding the foregoing,
in the event the Company shall have exercised the First Option prior to the
First Closing, the parties may
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agree that the purchase and sale of the Second Convertible Debenture and Second
Warrants shall take place at the First Closing.
(e) Second Closing. Subject to the last sentence of the
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preceding paragraph, the closing (the "Second Closing") of the purchase and sale
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of the Second Convertible Debenture and Second Warrants shall take place at
10:00 a.m. Eastern Standard Time two (2) business days prior to the date a
registration statement is filed by the Company with the Securities and Exchange
Commission ("SEC") pursuant to the Investor Registration Rights Agreement
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providing for the registration of: (i) the Escrow Shares for conversion of the
First Convertible Debenture; (ii) the First Warrant Shares; and (iii) if the
Company has exercised the First Option, the Escrow Shares for conversion of the
Second Convertible Debenture and Second Warrant Shares; (the "Registration
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Statement"), subject to notification of satisfaction of the conditions to the
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Second Closing set forth herein and in Sections 7 and 8 below (or such later
date as is mutually agreed to by the Company and the Buyer) (the "Second Closing
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Date"). The Second Closing shall occur on the Second Closing Date at the
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offices of Gottbetter & Partners, LLP, 000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx
00000 (or such other place as is mutually agreed to by the Company and the
Buyer).
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
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The Buyer represents and warrants to the Company that:
(a) Investment Purpose. The Buyer is acquiring the
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Convertible Debenture and the Warrants, and, upon conversion of the Convertible
Debenture, if applicable and/or the exercise of the Warrants, the Buyer will
acquire the Conversion Shares and/or Warrant Shares, as defined below, then
issuable, for its own account for investment only and not with a view towards,
or for resale in connection with, the public sale or distribution thereof,
except pursuant to sales registered or exempted under the Securities Act;
provided, however, that by making the representations herein, the Buyer reserves
the right to dispose of the Conversion Shares, if applicable, and the Warrants
and Warrant Shares at any time in accordance with or pursuant to an effective
registration statement covering such Conversion Shares, Warrants and Warrant
Shares or an available exemption under the Securities Act.
(b) Accredited Investor Status. The Buyer is an
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"Accredited Investor" as that term is defined in Rule 501(a)(3) of Regulation D.
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(c) Reliance on Exemptions. The Buyer understands that
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the Convertible Debenture and the Warrants are being offered and sold to it in
reliance on specific exemptions from the registration requirements of United
States federal and state securities laws and that the Company is relying in part
upon the truth and accuracy of, and the Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of the Buyer to acquire such securities.
(d) Information. The Buyer and its advisors (and his
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or, its counsel), if any, have been furnished with all materials relating to the
business, finances and operations of the Company and information he deemed
material to making an informed investment decision
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regarding its purchase of the Convertible Debenture and the Warrants, and the
Warrant Shares and the Conversion Shares into which the Convertible Debenture
and Warrants are convertible or exercisable, as the case may be, which have been
requested by the Buyer. The Buyer and its advisors, if any, have been afforded
the opportunity to ask questions of the Company and its management. Neither
such inquiries nor any other due diligence investigations conducted by the Buyer
or its advisors, if any, or its representatives shall modify, amend or affect
the Buyer's right to rely on the Company's representations and warranties
contained in Section 3 below. The Buyer understands that its investment in the
Convertible Debenture and the Warrants, and the Warrant Shares and Conversion
Shares into which the Convertible Debenture and Warrants are convertible or
exercisable, as the case may be, involves a high degree of risk. The Buyer is
in a position regarding the Company, which, based upon employment, family
relationship or economic bargaining power, enabled and enables the Buyer to
obtain information from the Company in order to evaluate the merits and risks of
this investment. The Buyer has sought such accounting, legal and tax advice, as
it has considered necessary to make an informed investment decision with respect
to its acquisition of the Convertible Debenture and the Warrants, and the
Warrant Shares and Conversion Shares into which the Convertible Debenture and
Warrants are convertible or exercisable, as the case may be.
(e) No Governmental Review. The Buyer understands that
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no United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the
Convertible Debenture, the Warrants, the Warrant Shares or the Conversion
Shares, or the fairness or suitability of the investment in the Convertible
Debenture and the Warrants, and the Warrant Shares and Conversion Shares into
which the Convertible Debenture and Warrants are convertible or exercisable, as
the case may be, nor have such authorities passed upon or endorsed the merits of
the offering of the Convertible Debenture and the Warrants, and the Warrant
Shares and Conversion Shares into which the Convertible Debenture and Warrants
are convertible or exercisable, as the case may be.
(f) Transfer or Resale. The Buyer understands that,
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except as provided in the Investor Registration Rights Agreement: (i) the
Convertible Debenture, the Conversion Shares, the Warrants and the Warrant
Shares have not been and are not being registered under the Securities Act or
any state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder, or (B) the Buyer
shall have delivered to the Company an opinion of counsel, in a generally
acceptable form, to the effect that such securities to be sold, assigned or
transferred may be sold, assigned or transferred pursuant to an exemption from
such registration requirements; (ii) any sale of such securities made in
reliance on Rule 144 under the Securities Act (or a successor rule thereto)
("Rule 144") may be made only in accordance with the terms of Rule 144 and
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further, if Rule 144 is not applicable, any resale of such securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the Securities
Act) may require compliance with some other exemption under the Securities Act
or the rules and regulations of the Securities and Exchange Commission ("SEC")
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thereunder; and (iii) neither the Company nor any other person is under any
obligation to register such securities under the Securities Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder.
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(g) Legends. The Buyer understands that the
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certificates or other instruments representing the Convertible Debenture, the
Warrants, the Warrant Shares, the Escrow Shares and/or the Conversion Shares
shall bear a restrictive legend in substantially the following form (and a stop
transfer order may be placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT
PURPOSES AND NOT WITH A VIEW TOWARD RESALE AND MAY NOT
BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN
THE ABSENCE OF (i) AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR (ii)
AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM,
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS.
The legend set forth above shall be removed and the Company within five (5)
business days shall cause its transfer agent to issue a certificate without such
legend to the holder of the Convertible Debenture, Warrants, the Warrant Shares
and/or Conversion Shares upon which it is stamped, if, unless otherwise required
by state securities laws, (i) in connection with a public sale transaction,
provided the applicable securities subject to such public sale transaction are
registered under the Securities Act or (ii) in connection with a private sale
transaction, after such holder provides the Company with an opinion of counsel,
which opinion shall be in form, substance and scope customary for opinions of
counsel in comparable transactions, to the effect that a sale, assignment or
transfer of the securities subject to such private sale transaction may be made
without registration under the Securities Act.
(h) Authorization, Enforcement. This Agreement has been
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duly and validly authorized, executed and delivered on behalf of the Buyer and
is a valid and binding agreement of the Buyer enforceable in accordance with its
terms, except as such enforceability may be limited by general principles of
equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
6
(i) Receipt of Documents. The Buyer and its counsel has
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received and read in their entirety: (i) this Agreement and each
representation, warranty and covenant set forth herein, the Security Agreement,
the Investor Registration Rights Agreement, the Escrow Agreement, the
Irrevocable Transfer Agent Agreement, and the Escrow Shares Escrow Agreement;
(ii) all due diligence and other information necessary to verify the accuracy
and completeness of such representations, warranties and covenants; (iii) the
Company's Form 10-KSB for the fiscal year ended April 30, 2005; (iv) the
Company's Form 10-QSB for the fiscal quarter ended July 31, 2005; (v) the
Company's Form 8-K related to the restatement of the Company's Financial
Statements and (vi) it has received answers to all questions the Buyer submitted
to the Company regarding an investment in the Company; and the Buyer has relied
on the information contained therein and has not been furnished any other
documents, literature, memorandum or prospectus.
(j) Due Formation of Corporate and Other Buyers. The
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Buyer is a corporation duly incorporated and validly existing under the laws of
the Cayman Islands and has not been organized for the specific purpose of
purchasing the Convertible Debenture and Warrants and is not prohibited from
doing so.
(k) No Legal Advice From the Company. The Buyer
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acknowledges, that it had the opportunity to review this Agreement and the
transactions contemplated by this Agreement with its own legal counsel and
investment and tax advisors. The Buyer is relying solely on such counsel and
advisors and not on any statements or representations of the Company or any of
its representatives or agents for legal, tax or investment advice with respect
to this investment, the transactions contemplated by this Agreement or the
securities laws of any jurisdiction.
(l) No Group Participation. The Buyer and its
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affiliates is not a member of any group, nor is the Buyer acting in concert with
any other person with respect to its acquisition of the Convertible Debenture
and the Warrants, and the Warrant Shares and Conversion Shares into which the
Convertible Debenture and Warrants are convertible or exercisable, as the case
may be.
(m) Company Registration Statement. The Buyer makes no
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representation or warranty regarding the Company's ability to have any
registration statement filed pursuant to the Investor Registration Rights
Agreement or otherwise declared effective by the SEC. The Company has the sole
obligation to make any and all such filings as may be necessary and to have any
registration statement declared effective by the SEC to the extent required by
the Investor Registration Rights Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
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The Company represents and warrants to the Buyer that, except as set forth
in the SEC Documents (as defined herein) or otherwise on the schedule of
exceptions delivered to the Buyer in connection with the execution of this
Agreement (the "Schedules"):
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(a) Organization and Qualification. The Company and its
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subsidiaries are corporations duly organized and validly existing in good
standing under the laws of the
7
jurisdiction in which they are incorporated, and have the requisite corporate
power to own their properties and to carry on their business as now being
conducted. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company and its
subsidiaries taken as a whole.
(b) Authorization, Enforcement, Compliance with Other
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Instruments. (i) The Company has the requisite corporate power and authority to
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enter into and perform this Agreement, the Security Agreement, the Investor
Registration Rights Agreement, the Irrevocable Transfer Agent Instructions, the
Escrow Agreement and the Escrow Shares Escrow Agreement (collectively the
"Transaction Documents") and to issue the Convertible Debenture and the
----------------------
Warrants, and the Warrant Shares and Conversion Shares into which the
Convertible Debenture and Warrants are convertible or exercisable, as the case
may be (including those comprising the Escrow Shares), in accordance with the
terms hereof and thereof, (ii) the execution and delivery of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including, without limitation, the issuance of
the Convertible Debenture and the Warrants, and the reservation for issuance and
the issuance of the Conversion Shares and Warrant Shares issuable upon
conversion or exercise thereof, as the case may be (including those comprising
the Escrow Shares), have been duly authorized by the Company's Board of
Directors and no further consent or authorization is required by the Company,
its Board of Directors or its stockholders, (iii) the Transaction Documents have
been duly executed and delivered by the Company, (iv) the Transaction Documents
constitute the valid and binding obligations of the Company enforceable against
the Company in accordance with their terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies. The
authorized officer of the Company executing the Transaction Documents knows of
no reason why the Company cannot file the registration statement as required
under the Investor Registration Rights Agreement or perform any of the Company's
other obligations under such documents.
(c) Capitalization. The Company's authorized capital
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stock is comprised of: (i) 300,000,000 shares of Common Stock, $0.001 par value
per share, of which 8,930,951 shares are issued and outstanding, 11,361,682
shares are reserved for issuance pursuant to outstanding options and 862,069
shares are reserved for issuance pursuant to outstanding warrants; and (ii)
5,000,000 shares of Preferred Stock, $0.001 par value per share. There are
currently three series of Preferred Stock designated as follows: (i) 1,000,000
shares have been designated as Series A Preferred Stock, $0.001 par value per
share, all of which have been issued and are outstanding; (ii) 400,000 shares
have been designated as Series B Preferred Stock, $0.001 par value per share,
all of which have been issued and are outstanding; and (iii) 500,000 shares of
Series C Preferred Stock, $0.001 par value per share, all of which have been
issued and are outstanding. All of such outstanding shares have been validly
issued and are fully paid and nonassessable. Except as disclosed in the SEC
Documents (as defined in Section 3(f)) or in the Schedules, no shares of Common
Stock are subject to preemptive rights or any other similar rights or any liens
or encumbrances suffered or permitted by the Company. Except as disclosed in
the SEC Documents or in the Schedules, as of the date of this Agreement, (i)
there are no
8
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its subsidiaries, (ii) there
are no outstanding debt securities and (iii) there are no agreements or
arrangements under which the Company or any of its subsidiaries is obligated to
register the sale of any of their securities under the Securities Act (except
pursuant to the Investor Registration Rights Agreement) and (iv) there are no
outstanding registration statements and there are no outstanding comment letters
from the SEC or any other regulatory agency. There are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Convertible Debenture and Warrants as described
in this Agreement. The Convertible Debenture, Warrants, Warrant Shares and
Conversion Shares when issued, if applicable, will be free and clear of all
pledges, liens, encumbrances and other restrictions (other than those arising
under federal or state securities laws as a result of the private placement of
the Convertible Debenture and Warrants). No co-sale right, right of first
refusal or other similar right exists with respect to the Convertible Debenture,
Warrants, Warrant Shares, and/or the Conversion Shares or the issuance and sale
thereof. The issue and sale of the Convertible Debenture and the Warrants, and
the Warrant Shares and Conversion Shares into which the Convertible Debenture
and Warrants are convertible or exercisable, as the case may be, will not result
in a right of any holder of Company securities to adjust the exercise,
conversion, exchange or reset price under such securities. The Company has
furnished to the Buyer true and correct copies of the Company's Certificate of
Incorporation, as amended and as in effect on the date hereof (the "Certificate
-----------
of Incorporation"), and the Company's By-laws, as in effect on the date hereof
-----------------
(the "By-laws"), and the terms of all securities convertible into or exercisable
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for Common Stock and the material rights of the holders thereof in respect
thereto other than stock options issued to employees and consultants.
(d) Issuance of Securities. The Convertible Debenture
------------------------
and Warrants are duly authorized and, upon issuance in accordance with the terms
hereof, shall be duly issued, fully paid and nonassessable, are and free from
all taxes, liens and charges with respect to the issue thereof. The Conversion
Shares and the Warrant Shares issuable upon conversion of the Convertible
Debenture and Warrants, as the case may be (including those comprising the
Escrow Shares), have been duly authorized and reserved for issuance. Upon
conversion or exercise in accordance with the Transaction Documents, the
Conversion Shares and the Warrant Shares, as the case may be (including those
comprising the Escrow Shares), will be duly issued, fully paid and
nonassessable.
(e) No Conflicts. Except as disclosed in the SEC
-------------
Documents or in the Schedules, the execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby will not (i) result in a violation of the
Certificate of Incorporation, any certificate of designations of any outstanding
series of preferred stock of the Company or the By-laws or (ii) conflict with or
constitute a default (or an event which with notice or lapse of time or both
would become a
9
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, or result in a violation of
any law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations and the rules and regulations of The
National Association of Securities Dealers Inc.'s OTC Bulletin Board on which
the Common Stock is quoted) applicable to the Company or any of its subsidiaries
or by which any property or asset of the Company or any of its subsidiaries is
bound or affected. Except as disclosed in the SEC Documents or in the
Schedules, neither the Company nor its subsidiaries is in violation of any term
of or in default under its Certificate of Incorporation or By-laws or their
organizational charter or by-laws, respectively, or any material contract,
agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or
order or any statute, rule or regulation applicable to the Company or its
subsidiaries. The business of the Company and its subsidiaries is not being
conducted, and shall not be conducted in violation of any material law,
ordinance, or regulation of any governmental entity. Except as specifically
contemplated by this Agreement and as required under the Securities Act and any
applicable state securities laws, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under or contemplated by this Agreement or the Investor
Registration Rights Agreement in accordance with the terms hereof or thereof.
Except as disclosed in the SEC Documents or in the Schedules, all consents,
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof. The Company and its subsidiaries are unaware of
any facts or circumstance, which might give rise to any of the foregoing.
(f) SEC Documents: Financial Statements. Since February
-----------------------------------
4, 2004, the Company has filed all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (all of the foregoing
------------
filed prior to the date hereof or amended after the date hereof and all exhibits
included therein and financial statements and schedules thereto and documents
incorporated by reference therein, being hereinafter referred to as the "SEC
---
Documents"). The Company has delivered to the Buyer or its representatives, or
---------
made available through the SEC's website at xxxx://xxx.xxx.xxx., true and
complete copies of the SEC Documents. Except as otherwise set forth in the
Schedules, as of their respective dates, the financial statements of the Company
disclosed in the SEC Documents (the "Financial Statements") complied as to form
--------------------
in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as may
be otherwise indicated in such Financial Statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and, fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Buyer which is not included in the SEC Documents, including, without
limitation, information referred to in this Agreement, contains any untrue
statement of a
10
material fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(g) 10(b)-5. Except as otherwise set forth in the
-------
Schedules, the SEC Documents do not include any untrue statements of material
fact, nor do they omit to state any material fact required to be stated therein
necessary to make the statements made, in light of the circumstances under which
they were made, not misleading.
(h) Absence of Litigation. Except as disclosed in the
-----------------------
SEC Documents or in the Schedules, there is no action, suit, proceeding, inquiry
or investigation before or by any court, public board, government agency,
self-regulatory organization or body pending against or affecting the Company,
the Common Stock or any of the Company's subsidiaries, wherein an unfavorable
decision, ruling or finding would (i) have a material adverse effect on the
transactions contemplated hereby, (ii) adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under, this Agreement or any of the documents contemplated herein,
or (iii) except as expressly disclosed in the SEC Documents or in the Schedules,
have a material adverse effect on the business, operations, properties,
financial condition or results of operations of the Company and its subsidiaries
taken as a whole.
(i) Acknowledgment Regarding Buyer's Purchase of the
----------------------------------------------------
Convertible Debenture. The Company acknowledges and agrees that the Buyer is
----------------------
acting solely in the capacity of an arm's length purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that the Buyer is not acting as a financial advisor or fiduciary of
the Company (or in any similar capacity) with respect to this Agreement and the
transactions contemplated hereby and any advice given by the Buyer or any of
their respective representatives or agents in connection with this Agreement and
the transactions contemplated hereby is merely incidental to such Buyer's
purchase of the Convertible Debenture and the Warrants, and the Warrant Shares
and Conversion Shares into which the Convertible Debenture and Warrants are
convertible or exercisable, as the case may be. The Company further represents
to the Buyer that the Company's decision to enter into this Agreement has been
based solely on the independent evaluation by the Company and its
representatives.
(j) No General Solicitation. Neither the Company, nor
-------------------------
any of its affiliates, nor any person acting on its or their behalf, has engaged
in any form of general solicitation or general advertising (within the meaning
of Regulation D under the Securities Act) in connection with the offer or sale
of the Convertible Debenture and the Warrants, and the Warrant Shares and
Conversion Shares into which the Convertible Debenture and Warrants are
convertible or exercisable, as the case may be.
(k) No Integrated Offering. Neither the Company, nor
------------------------
any of its affiliates, nor any person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would require
registration of the Convertible Debenture and the Warrants, and the Warrant
Shares and Conversion Shares into which the Convertible Debenture and Warrants
are convertible or exercisable, as the case may be, under the Securities Act or
cause this offering of the Convertible Debenture and the Warrants, and the
Warrant Shares and Conversion Shares into which the
11
Convertible Debenture and Warrants are convertible or exercisable, as the case
may be, to be integrated with prior offerings by the Company for purposes of the
Securities Act.
(l) Employee Relations. Neither the Company nor any of
-------------------
its subsidiaries is involved in any labor dispute nor, to the knowledge of the
Company or any of its subsidiaries, is any such dispute threatened. None of the
Company's or its subsidiaries' employees is a member of a union and the Company
and its subsidiaries believe that their relations with their employees are good.
(m) Intellectual Property Rights. The Company and its
------------------------------
subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service xxxx registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. The Company and its subsidiaries do not have any
knowledge of any infringement by the Company or its subsidiaries of trademark,
trade name rights, patents, patent rights, copyrights, inventions, licenses,
service names, service marks, service xxxx registrations, trade secret or other
similar rights of others, and, to the knowledge of the Company there is no
claim, action or proceeding being made or brought against, or to the Company's
knowledge, being threatened against, the Company or its subsidiaries regarding
trademark, trade name, patents, patent rights, invention, copyright, license,
service names, service marks, service xxxx registrations, trade secret or other
infringement; and the Company and its subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
(n) Environmental Laws.
-------------------
(i) To the knowledge of the Company, each of the
Company and its subsidiaries has complied with all applicable Environmental Laws
(as defined below), except for violations of Environmental Laws that,
individually or in the aggregate, have not had and would not reasonably be
expected to have a material adverse effect on the assets, business, condition
(financial or otherwise), results of operations or future prospects of the
Company (a "Material Adverse Effect"). There is no pending or, to the knowledge
-----------------------
of the Company, threatened civil or criminal litigation, written notice of
violation, formal administrative proceeding, or investigation, inquiry or
information request, relating to any Environmental Law involving the Company or
any subsidiary, except for litigation, notices of violations, formal
administrative proceedings or investigations, inquiries or information requests
that, individually or in the aggregate, have not had and would not reasonably be
expected to have a Material Adverse Effect. For purposes of this Agreement,
"Environmental Law" means any federal, state or local law, statute, rule or
regulation or the common law relating to the environment or occupational health
and safety, including without limitation any statute, regulation, administrative
decision or order pertaining to (i) treatment, storage, disposal, generation and
transportation of industrial, toxic or hazardous materials or substances or
solid or hazardous waste; (ii) air, water and noise pollution; (iii) groundwater
and soil contamination; (iv) the release or threatened release into the
environment of industrial, toxic or hazardous materials or substances, or solid
or hazardous waste, including without limitation emissions, discharges,
injections, spills, escapes or dumping of pollutants, contaminants or chemicals;
(v) the protection of wild life, marine life and wetlands, including without
limitation all endangered and threatened
12
species; (vi) storage tanks, vessels, containers, abandoned or discarded
barrels, and other closed receptacles; (vii) health and safety of employees and
other persons; and (viii) manufacturing, processing, using, distributing,
treating, storing, disposing, transporting or handling of materials regulated
under any law as pollutants, contaminants, toxic or hazardous materials or
substances or oil or petroleum products or solid or hazardous waste. As used
above, the terms "release" and "environment" shall have the meaning set forth in
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA").
------
(ii) Set forth in the Schedules to this Agreement
is a list of all documents (whether in hard copy or electronic form) that
contain any environmental reports, investigations and audits relating to
premises currently or previously owned or operated by the Company or a
subsidiary (whether conducted by or on behalf of the Company or a subsidiary or
a third party, and whether done at the initiative of the Company or a subsidiary
or directed by a third party) which were issued or conducted during the past
five years and which the Company has possession of or access to. A complete and
accurate copy of each such document has been provided to the Buyer.
(iii) To the knowledge of the Company there is no
material environmental liability with respect to any solid or hazardous waste
transporter or treatment, storage or disposal facility that has been used by the
Company or any subsidiary.
(iv) The Company and its subsidiaries (i) have
received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (ii)
are in compliance with all terms and conditions of any such permit, license or
approval.
(o) Title. Any real property and facilities held under
-----
lease by the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries.
(p) Insurance. The Company and each of its subsidiaries
---------
are insured by insurers of recognized financial responsibility against such
losses and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
subsidiaries are engaged. Neither the Company nor any such subsidiary has been
refused any insurance coverage sought or applied for and neither the Company nor
any such subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its subsidiaries, taken as a whole.
(q) Regulatory Permits. The Company and its
-------------------
subsidiaries possess all material certificates, authorizations and permits
issued by the appropriate federal, state or foreign regulatory authorities
necessary to conduct their respective businesses, and neither the Company nor
any such subsidiary has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or permit.
13
(r) Internal Accounting Controls. Except as otherwise
------------------------------
set forth in the Schedules, the Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, and (iii)
the recorded amounts for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(s) No Material Adverse Breaches, etc. Except as set
------------------------------------
forth in the SEC Documents or in the Schedules, neither the Company nor any of
its subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Except as set forth in the SEC Documents or in the
Schedules, neither the Company nor any of its subsidiaries is in breach of any
contract or agreement which breach, in the judgment of the Company's officers,
has or is expected to have a Material Adverse Effect.
(t) Tax Status. Except as set forth in the SEC
-----------
Documents or in the Schedules, the Company and each of its subsidiaries has made
and filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject and (unless and
only to the extent that the Company and each of its subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
(u) Certain Transactions. Except as set forth in the
---------------------
SEC Documents or in the Schedules, and except for arm's length transactions
pursuant to which the Company makes payments in the ordinary course of business
upon terms no less favorable than the Company could obtain from third parties
and other than the grant of stock options disclosed in the SEC Documents, none
of the officers, directors, or employees of the Company is presently a party to
any transaction with the Company (other than for services as employees, officers
and directors), including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
(v) Fees and Rights of First Refusal. The Company is
-----------------------------------
not obligated to offer the securities offered hereunder on a right of first
refusal basis or otherwise to any third parties including, but not limited to,
current or former stockholders of the Company, underwriters, brokers, agents or
other third parties.
14
(w) Reliance. The Company acknowledges that the Buyer
--------
is relying on the representations and warranties made by the Company hereunder
and that such representations and warranties are a material inducement to the
Buyer purchasing the Convertible Debenture and Warrants. The Company further
acknowledges that without such representations and warranties of the Company
made hereunder, the Buyer would not enter into this Agreement.
(x) Xxxxxxxx-Xxxxx. The Company is in compliance with
--------------
the applicable requirements of the Xxxxxxxx-Xxxxx Act of 2002, as amended, and
the rules and regulations thereunder, that are currently in effect and is
actively taking steps to ensure that it will be in compliance with other
applicable provisions of such Act not currently in effect at all times after the
effectiveness of such provisions except where such noncompliance would not have
or reasonably be expected to result in a Material Adverse Effect or which would
be reasonably likely to have a material adverse effect on the transactions
contemplated hereby or by the Investor Registration Rights Agreement.
(y) Registration Form. The Company meets the
------------------
requirements for the use of Form SB-2 for the registration of the resale of the
Conversion Shares, the Escrow Shares and Warrant Shares, as the case may be, by
the Buyer to the extent required by the Investor Registration Rights Agreement.
(z) Non-Public Information. The Company confirms that
------------------------
neither it nor any person acting on its behalf has provided the Buyer or its
agents or counsel with any information that the Company believes constitutes
material, non-public information. The Company understands and confirms that the
Buyer will rely on the foregoing representation in effecting transactions in
securities of the Company.
(aa) Anti-Takeover Provision. The Company and its Board
-----------------------
of Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company's Certificate of Incorporation (or
similar charter documents) or the laws of its jurisdiction of incorporation that
is or could become applicable to the Buyer as a result of the Buyer and the
Company fulfilling their obligations or exercising their rights under this
Agreement, including without limitation the Company's issuance of the
Convertible Debenture, Warrants, Warrant Shares and Conversion Shares, as the
case may be, and the Buyer's ownership thereof.
4. COVENANTS.
---------
(a) Reasonable Best Efforts. Each party shall use its commercially
-----------------------
reasonable best efforts timely to satisfy each of the conditions to be satisfied
by it as provided in Sections 7 and 8 of this Agreement.
(b) Form D. The Company agrees to file a Form D with respect to
-------
the Convertible Debenture, Warrants, Warrant Shares and Conversion Shares as
required under Regulation D and to provide a copy thereof to the Buyer promptly
after such filing. The Company shall, on or before the Closing Date (or the
Second Closing Date as the context so requires), take such action as the Company
shall reasonably determine is necessary to qualify the
15
Convertible Debenture, Warrants, the Warrant Shares and Conversion Shares, or
obtain an exemption for the Convertible Debenture, Warrants, the Warrant Shares
and Conversion Shares, as the case may be, for sale to the Buyer at the Closing
(or the Second Closing as the context so requires) pursuant to this Agreement
under applicable securities or "Blue Sky" laws of the states of the United
States, and shall provide evidence of any such action so taken to the Buyer on
or prior to the Closing Date (or the Second Closing Date as the context so
requires).
(c) Reporting Status. Until the earlier of (i) the date as of
-----------------
which the Buyer may sell all of the Warrants, the Warrant Shares, and Conversion
Shares, as the case may be, without restriction pursuant to Rule 144(k)
promulgated under the Securities Act (or successor thereto), or (ii) the date on
which (A) the Buyer shall have sold all the Warrants, the Warrant Shares and
Conversion Shares, as the case may be, and (B) no amount of the Convertible
Debenture is outstanding (the "Registration Period"), the Company shall file in
-------------------
a timely manner all reports required to be filed with the SEC pursuant to the
Exchange Act and the regulations of the SEC thereunder, and the Company shall
not terminate its status as an issuer required to file reports under the
Exchange Act even if the Exchange Act or the rules and regulations thereunder
would otherwise permit such termination.
(d) Use of Proceeds. The Company shall use the proceeds from the
----------------
sale of the Convertible Debenture and Warrants for general corporate and working
capital purposes (including the funding of acquisitions), but in no event shall
the Company use the proceeds to repay any indebtedness owed to any Company
insiders.
(e) Reservation of Shares. The Company shall take all action
-----------------------
reasonably necessary to at all times have authorized, and reserved for the
purpose of issuance, that number of shares of Common Stock equal to a multiple
of five (5) times the number of shares of Common Stock into which the
Convertible Debenture is from time to time convertible at the Default Conversion
Price (as defined in the Convertible Debenture) unless a change in such multiple
is agreed to in writing by the Buyer and the Company. If at any time the
Company does not have available such number of authorized and unissued shares of
Common Stock as shall from time to time be sufficient to effect the issuance of
all of (i) the Conversion Shares, (including those comprising the Escrow
Shares), upon the conversion of the entire principal amount of the Convertible
Debenture and (ii) Warrant Shares upon exercise of the Warrants, the Company
shall call and hold a special meeting of the stockholders within one hundred
twenty (120) days of such occurrence, for the sole purpose of increasing the
number of shares authorized. The Company's management shall recommend to the
stockholders to vote in favor of increasing the number of shares of Common Stock
authorized. Subject to any restrictions under the proxy rules under the
Exchange Act, management shall also vote all of its shares in favor of
increasing the number of authorized shares of Common Stock. Notwithstanding the
foregoing, the Company's obligations under this Section 4(e) (other than an
obligation to keep reserved for issuance the Warrant Shares upon exercise of the
Warrants) shall terminate and be of no further force and effect in the event the
Convertible Debenture is redeemed by the Company.
(f) Listings or Quotation. The Company shall promptly after
----------------------
the Closing (and the Second Closing as the context so requires) secure the
listing or quotation of the Conversion Shares and the Warrant Shares upon a
national securities exchange, automated
16
quotation system or The National Association of Securities Dealers Inc.'s
Over-The-Counter Bulletin Board ("OTCBB") or other market, if any, upon which
-----
shares of Common Stock are then listed or quoted (subject to official notice of
issuance) and shall use its commercially reasonable best efforts to maintain, so
long as any other shares of Common Stock shall be so listed, such listing of the
Conversion Shares and Warrant Shares. The Company shall maintain the Common
Stock's authorization for quotation on the OTCBB. It shall be an event of
default hereunder if the Company fails to strictly comply with its obligation
under this Section 4(f).
(g) Fees and Expenses. (i) Prior to the date hereof, the
-------------------
Company has paid an aggregate of Ten Thousand Dollars ($10,000) in legal fees to
the Buyer in connection with this transaction and shall pay Fourteen Thousand
Nine Hundred Seventy-Five Dollars ($14,975) at the First Closing. The Company
shall bear all of its own legal and professional fees and expenses, including
but not limited to those associated with the filing of any registration
statement to the extent required under the Investor Registration Rights
Agreement. Each of the Company and the Buyer shall pay all costs and expenses
incurred by such party in connection with the negotiation, investigation,
preparation, execution and delivery of the Transaction Documents. The Company
shall also pay Yorkville Advisors Management, LLC a fee equal to seven percent
(7%) of the Purchase Price which shall be deducted from the monies deposited in
Escrow by the Buyer at the Closing (and the Second Closing as the context so
requires).
(ii) The Company has paid a due diligence fee to Yorkville
Advisors Management, LLC ("YAM") of $5,000 and shall pay a structure fee of
---
$5,000 to YAM at the First Closing.
(h) Warrants. The Company shall issue the Warrants to the
--------
Buyer at the Closing (and at the Second Closing as the context so requires).
The Warrant Shares shall have such registration rights as set forth in the
Investor Registration Rights Agreement.
(i) Registration Statement. The Company shall be solely
-----------------------
responsible for the contents of any registration statement, prospectus or other
filing made with the SEC or otherwise used in the offering of the Company's
securities (except as such disclosure relates solely to the Buyer and then only
to the extent that such disclosure conforms with information furnished in
writing by the Buyer to the Company), even if the Buyer or its agents as an
accommodation to the Company participate or assist in the preparation of such
registration statement, prospectus or other SEC filing. The Company shall
retain its own legal counsel to review, edit, confirm and do all things such
counsel deems necessary or desirable to such registration statement, prospectus
or other SEC filing to ensure that it does not contain an untrue statement or
alleged untrue statement of material fact or omit or alleged to omit a material
fact necessary to make the statements made therein, in light of the
circumstances under which the statements were made, not misleading.
(j) Corporate Existence. So long as any of the Convertible
--------------------
Debenture remains outstanding, the Company shall not directly or indirectly
consummate any merger, reorganization, restructuring, reverse stock split
consolidation, sale of all or substantially all of the Company's assets or any
similar transaction or related transactions (each such transaction, an
"Organizational Change") unless, prior to the consummation of an Organizational
----------------------
Change, the Company obtains the written consent of each Buyer. In any such
case, the Company will make
17
appropriate provision with respect to such holders' rights and interests to
insure that the provisions of this Section 4(j) will thereafter be applicable to
the Convertible Debenture.
(k) Transactions With Affiliates. So long as any of the
------------------------------
Convertible Debenture remains outstanding, the Company shall not, and shall
cause each of its subsidiaries not to, enter into, amend, modify or supplement,
or permit any subsidiary to enter into, amend, modify or supplement any
agreement, transaction, commitment, or arrangement with any of its or any
subsidiary's officers, directors, person who were officers or directors at any
time during the previous two (2) years, stockholders who beneficially own five
percent (5%) or more of the Common Stock, or Affiliates (as defined below) or
with any individual related by blood, marriage, or adoption to any such
individual or with any entity in which any such entity or individual owns a five
percent (5%) or more beneficial interest (each a "Related Party"), except for
-------------
(a) customary employment arrangements and benefit programs on reasonable terms,
(b) any investment in an Affiliate of the Company, (c) any agreement,
transaction, commitment, or arrangement on an arms-length basis on terms no less
favorable than terms which would have been obtainable from a person other than
such Related Party, (d) any agreement transaction, commitment, or arrangement
which is approved by a majority of the disinterested directors of the Company
and for purposes hereof, any director who is also an officer of the Company or
any subsidiary of the Company shall not be a disinterested director with respect
to any such agreement, transaction, commitment, or arrangement. "Affiliate" for
---------
purposes hereof means, with respect to any person or entity, another person or
entity that, directly or indirectly, (i) has a ten percent (10%) or more equity
interest in that person or entity, (ii) has ten percent (10%) or more common
ownership with that person or entity, (iii) controls that person or entity, or
(iv) shares common control with that person or entity. "Control" or "controls"
------- --------
for purposes hereof means that a person or entity has the power, direct or
indirect, to conduct or govern the policies of another person or entity.
(l) Transfer Agent. The Company covenants and agrees that,
---------------
in the event that the Company's agency relationship with the transfer agent
should be terminated for any reason prior to a date which is two (2) years after
the Closing Date, the Company shall immediately appoint a new transfer agent and
shall require that the new transfer agent execute and agree to be bound by the
terms of the Irrevocable Transfer Agent Instructions (as defined herein).
(m) Restriction on Issuance of the Capital Stock. So long as
---------------------------------------------
any of the Convertible Debenture remains outstanding, the Company shall not,
without the prior written consent of the Buyer, (i) except for proposed
issuances disclosed in Schedule 3(c), issue or sell shares of Common Stock or
Preferred Stock without consideration or for a consideration per share less than
the Closing Bid Price of the Common Stock determined immediately prior to its
issuance, (ii) except for proposed issuances disclosed in Schedule 3(c), issue
any warrant, option, right, contract, call, or other security instrument
granting the holder thereof, the right to acquire Common Stock without
consideration or for a consideration less than such Common Stock's Bid Price
value determined immediately prior to its issuance, (iii) except for the
Security Agreement (relating to a $3,500,000 note), dated November 1, 2005,
among the Company, Viasys Network Services Inc.("VNS"), Viasys Services Inc.
---
("VSI") and New Viasys Holdings, LLC ("NVH") and the additional Security
--- ---
Agreement (relating to a $6,572,103 note), dated November 1, 2005, among the
Company, VNS, VSI and NVH, enter into any security instrument granting the
holder
18
a security interest in any and all assets of the Company or (iv) file any
registration statement on Form S-8. "Closing Bid Price" on any day shall be the
closing bid price for a share of Common Stock on such date on the OTCBB (or such
other exchange, market, or other system that the Common Stock is then traded
on), as reported on Bloomberg, L.P. (or similar organization or agency
succeeding to its functions of reporting prices).
(n) Resales Absent Effective Registration Statement. The
---------------------------------------------------
Buyer understands and acknowledges that (i) this Agreement and the agreements
contemplated hereby may require the Company to issue and deliver Conversion
Shares (including those comprising the Escrow Shares) or Warrant Shares to the
Buyer with legend restricting their transferability under the Securities Act,
and (ii) it is aware that resales of such Conversion Shares (including those
comprising the Escrow Shares) or Warrant Shares may not be made unless, at the
time of resale, there is an effective registration statement under the
Securities Act covering such Buyer's resale(s) or an applicable exemption from
registration.
(o) Legend. Certificates evidencing the Warrant Shares and
------
Conversion Shares shall not contain any legend (including the legend set forth
above), (A) while a registration statement covering the resale of such security
is effective under the Securities Act (provided, however, that the Buyer's
prospectus delivery requirements under the Securities Act will remain
applicable), or (B) following any sale of such Warrant Shares and/or Conversion
Shares pursuant to Rule 144, or (C) if such Warrant Shares and/or Conversion
Shares are eligible for sale under Rule 144(k), or (D) if such legend is not
required under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the Staff of the SEC). Subject to
the foregoing, upon written request of the Buyer to have such legend removed,
the Company shall cause its counsel to issue a legal opinion to the Company's
transfer agent promptly after the effective date of any registration statement
(the "Effective Date") if required by the Company's transfer agent to effect the
removal of the legend hereunder. The Company agrees that following the Effective
Date or at such time as such legend is no longer required under this Section
4(o), it will, no later than three trading days following the delivery by the
Buyer to the Company or the Company's transfer agent of a certificate
representing Warrant Shares and/or Conversion Shares issued with a restrictive
legend, deliver or cause to be delivered to such Buyer a certificate
representing such Warrant Shares and/or Conversion Shares that is free from all
restrictive and other legends. The Company may not make any notation on its
records or give instructions to any transfer agent of the Company that
enlarge(s) the restrictions on transfer set forth herein.
(p) Pledge. The Company acknowledges and agrees that the
------
Buyer may from time to time pledge pursuant to a bona fide margin agreement with
a registered broker-dealer or grant a security interest in some or all of the
Convertible Debenture, Warrants, Warrant Shares and/or Conversion Shares to a
financial institution that is an "accredited investor" as defined in Rule 501(a)
under the Securities Act and, if required under the terms of such arrangement,
the Buyer may transfer pledged or secured Convertible Debenture, Warrants,
Warrant Shares and/or Conversion Shares to the pledgees or secured parties.
Such a pledge or transfer would not be subject to approval of the Company
provided that the Company may require a legal opinion of legal counsel to the
Buyer in connection therewith. Further, no notice shall be required of such
pledge. At the Buyer's expense, the Company will execute and deliver such
reasonable documentation as a pledgee or secured party of Convertible Xxxxxxxxx,
00
Xxxxxxxx, Xxxxxxx Shares, Escrow Shares and/or Conversion Shares may reasonably
request in connection with a pledge or transfer of the Convertible Debenture,
Warrants, Warrant Shares and/or Conversion Shares, including the preparation and
filing of any required prospectus supplement under Rule 424(b)(3) of the
Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of selling stockholders thereunder.
(q) Removal of Legend. In addition to the Buyer's other
-------------------
available remedies and provided that the conditions permitting the removal of
legend specified in Section 4(o) are met, the Company shall pay to the Buyer, in
cash, as partial liquidated damages and not as a penalty, for each $1,000 of
Warrant Shares and/or Conversion Shares (based on the closing price of the
Common Stock on the date such Warrant Shares and/or Conversion Shares are
submitted to the Company's transfer agent), $5 per trading day (increasing to
$10 per trading day five (5) trading days after such damages have begun to
accrue) for each trading day after the seventh (7th) trading day following
delivery by the Buyer to the Company or the Company's transfer agent of a
certificate representing Warrant Shares and/or Conversion Shares issued with a
restrictive legend, until such certificate is delivered to the Buyer with such
legend removed. Nothing herein shall limit the Buyer's right to pursue actual
damages for the failure of the Company and its transfer agent to deliver
certificates representing any securities as required hereby or by the
Irrevocable Transfer Agent Instructions, and the Buyer shall have the right to
pursue all remedies available to it at law or in equity, including, without
limitation, a decree of specific performance and/or injunctive relief.
(r) Press Release. In addition to any and all other public
--------------
statements or disclosures made by the Company in its sole discretion (subject to
the last sentence of this Section 4(r), the Company will issue a press release
and file a Current Report on Form 8-K with the SEC regarding the Closing of the
purchase and sale of the Convertible Debenture and Warrants on or before (4)
business days after the date of the Closing (and Second Closing as the context
so requires). Notwithstanding the foregoing, the Company shall not publicly
disclose the names of the Buyer, or include the names of the Buyer in any filing
with the SEC, without the prior written consent of the Buyer, except (i) as
required by federal securities law and (ii) to the extent such disclosure is
required by law or regulations, in which case the Company shall provide the
Buyer with prior notice of such disclosure permitted under subclause (i) or
(ii). Furthermore, the Company covenants and agrees that neither it nor any
other person acting on its behalf will provide the Buyer or its agents or
counsel with any information that the Company believes constitutes material
non-public information, unless prior thereto the Buyer shall have executed a
written agreement regarding the confidentiality and use of such information. The
Company understands and confirms that the Buyer shall be relying on the
foregoing representations in effecting transactions in securities of the
Company.
(s) Stock Splits, Etc. The provisions of this Agreement
--------------------
shall be appropriately adjusted to reflect any stock split, stock divided,
reverse stock split, reorganization or other similar event effected after the
date hereof.
(t) No Short Position. Each of the Buyer and any of its
-------------------
Affiliates do not have an open short position in the Common Stock, and the Buyer
agrees that it will not, and that it will cause its Affiliates not to, engage in
any short sales of, or hedging transactions with
20
respect to the Common Stock until the earlier to occur of (i) the fifth
anniversary of the Closing Date and (ii) the Buyer no longer owns a principal
balance of the Convertible Debenture.
5. TRANSFER AGENT INSTRUCTIONS.
-----------------------------
The Company shall issue the Irrevocable Transfer Agent Instructions to its
transfer agent irrevocably appointing Gottbetter & Partners, LLP as its agent
for purpose of having certificates issued, registered in the name of the Buyer
or its respective nominee(s), for the Conversion Shares representing such
amounts of Convertible Debenture as specified from time to time by the Buyer to
the Company upon conversion of the Convertible Debenture, for interest owed
pursuant to the Convertible Debenture, and for any and all Liquidated Damages
(as this term is defined in the Investor Registration Rights Agreement).
Gottbetter & Partners, LLP shall be paid a cash fee of One Hundred Fifty Dollars
($150) by the Buyer or their assigns for every occasion they act pursuant to the
Irrevocable Transfer Agent Instructions. For so long as any of the Conversion
Debenture remains outstanding, the Company shall not change its transfer agent
without the express written consent of the Buyer, which may be withheld by the
Buyer in its sole discretion, and any successor transfer agent shall be required
to execute the Irrevocable Transfer Agent Instructions. Prior to registration
of the Conversion Shares, if applicable, under the Securities Act, all such
certificates shall bear the restrictive legend specified in Section 2(g) of this
Agreement. The Company warrants that no instruction other than the Irrevocable
Transfer Agent Instructions referred to in this Section 5, and stop transfer
instructions to give effect to Section 2(g) hereof (in the case of the
Conversion Shares prior to registration of such shares under the Securities Act)
will be given by the Company to its transfer agent and that the Conversion
Shares shall otherwise be freely transferable on the books and records of the
Company as and to the extent provided in this Agreement and the Investor
Registration Rights Agreement. Nothing in this Section 5 shall affect in any
way the Buyer's obligations and agreement to comply with all applicable
securities laws upon resale of Conversion Shares. If the Buyer provides the
Company with an opinion of counsel, in form, scope and substance customary for
opinions of counsel in comparable transactions to the effect that registration
of a resale by the Buyer of any of the Conversion Shares is not required under
the Securities Act, and absent manifest error in such opinion, the Company shall
within five (5) business days instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by the Buyer.
The Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Buyer by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5, that the Buyer shall be entitled,
in addition to all other available remedies, to an injunction restraining any
breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.
6. THE ESCROW SHARES; LIMITATION ON CONVERSION.
------------------------------------------------
(a) Share Denominations. The Escrow Agent shall retain and hold
--------------------
the Escrow Shares which shall be held in accordance with the terms of this
Agreement and the Escrow
21
Shares Escrow Agreement. The Escrow Shares shall be in the share denominations
specified in Schedule II hereto, registered in the name of the Buyer.
(b) Conversion Notice. EXHIBIT F attached hereto and made a part
------------------- ---------
hereof sets forth the procedures with respect to the conversion of the
Convertible Debentures, including the forms of Conversion Notice to be provided
upon conversion, instructions as to the procedures for conversion and such other
information and instructions as may be reasonably necessary to enable the Buyer
or its permitted transferee(s) to exercise the right of conversion smoothly and
expeditiously. Said Exhibit F also sets forth the procedures with respect to
the exercise of the Warrants, the Company's redemption of the Convertible
Debenture and the release of the Escrow Shares by the Escrow Agent to the
Company in connection therewith.
(c) From and after the Closing Date, the Company agrees that, at
any time the conversion price of the Convertible Debenture is such that the
number of Escrow Shares for the Convertible Debenture is less than five (5)
times the number of shares of Common Stock that would be needed to satisfy full
conversion of such Convertible Debenture then outstanding, given the then
current conversion price (the "Full Conversion Shares"), upon five (5) business
----------------------
days written notice of such circumstance to the Company by the Buyer and the
Escrow Agent, the Company shall issue additional share certificates in the name
of the Buyer and/or its assigns in denominations specified by the Buyer, and
deliver same to the Escrow Agent, such that the new number of Escrow Shares with
respect to the Convertible Debentures is equal to five (5) times the Full
Conversion Shares.
(d) Buyer's Ownership of Common Stock. In addition to and not in
----------------------------------
lieu of the limitations on conversion set forth in the Convertible Debenture,
the conversion rights of the Buyer set forth in the Convertible Debenture shall
be limited, solely to the extent required, from time to time, such that, unless
the Buyer gives written notice 65 days in advance to the Company of the Buyer's
intention to exceed the Limitation on Conversion as defined herein, with respect
to all or a specified amount of the Convertible Debenture and the corresponding
number of the Conversion Shares in no instance shall the Buyer (singularly,
together with any Persons who in the determination of the Buyer, together with
the Buyer, constitute a group as defined in Rule 13d-5 of the Exchange Act) be
entitled to convert the Convertible Debenture to the extent such conversion
would result in the Buyer beneficially owning four point nine nine percent
(4.99%) of the outstanding shares of Common Stock of the Company. For these
purposes, beneficial ownership shall be defined and calculated in accordance
with Rule 13d-3, promulgated under the Exchange Act (the foregoing being herein
referred to as the "Limitation on Conversion"); provided, however, that the
------------------------- -------- -------
Limitation on Conversion shall not apply to any forced or automatic conversion
pursuant to this Agreement or the Convertible Debenture; and provided, further
-------- -------
that if the Company shall have breached any of the Transaction Documents, the
provisions of this Section 6(d) shall be null and void from and after such date.
The Company shall, promptly upon its receipt of a Conversion Notice tendered by
the Buyer (or its sole designee) for the Convertible Debenture, as applicable,
notify the Buyer by telephone and by facsimile (the "Limitation Notice") of the
-----------------
number of shares of Common Stock outstanding on such date and the number of
Conversion Shares, which would be issuable to the Buyer (or its sole designee,
as the case may be) if the conversion requested in such Conversion Notice were
effected in full and the number of shares of Common Stock outstanding giving
full effect to such conversion whereupon, in accordance with the Convertible
Debenture, notwithstanding anything to the contrary set forth in
22
the Convertible Debenture, the Buyer may, by notice to the Company within one
(1) business day of its receipt of the Limitation Notice by facsimile, revoke
such conversion to the extent (in whole or in part) that the Buyer determines
that such conversion would result in the ownership by the Buyer of shares of
Common Stock in excess of the Limitation on Conversion. The Limitation Notice
shall begin the 65 day advance notice required in this Section 6(d).
(e) Attorney's fees. The Company shall pay all reasonable
----------------
attorney's fees of the Buyer and Escrow Agent related to the redemption of the
Convertible Debenture but in no event shall such fees exceed $2,000.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL
----------------------------------------------------
(a) First Closing. The obligation of the Company hereunder to
--------------
issue and sell the First Convertible Debenture and the First Warrants to the
Buyer at the Closing is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions, provided that these conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion:
(i) The Buyer shall have executed the Transaction
Documents and delivered them to the Company.
(ii) The Buyer shall have delivered to the Escrow Agent
the First Purchase Price for the First Convertible Debenture and the First
Warrants and the Escrow Agent shall have delivered the net proceeds to the
Company by wire transfer of immediately available U.S. funds pursuant to the
wire instructions provided by the Company.
(iii) The representations and warranties of the Buyer
shall be true and correct in all material respects as of the date when made and
as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and the Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Buyer at or prior to the Closing Date. If requested by
the Company, the Company shall have received a certificate, executed by an
executive officer of the Buyer, dated as of the Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by the
Company.
(iv) The Company shall have filed a form UCC -1 with
regard to the Pledged Property and Pledged Collateral as detailed in the
Security Agreement dated the date hereof and provided proof of such filing to
the Buyer.
(v) The Company shall have executed a definitive stock
purchase agreement with Viasys, Inc.
(b) Second Closing. Unless otherwise consummated at the First
---------------
Closing (which, in that event, the following conditions precedent shall be
satisfied in connection with the First Closing) the obligation of the Company
hereunder to issue and sell the Second Convertible Debenture and the Second
Warrants to the Buyer at the Second Closing is subject to the
23
satisfaction, at or before the Second Closing Date, of each of the following
conditions, provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion:
(i) The Buyer shall have executed appropriate amendments
to the Other Transaction Documents providing for the inclusion thereunder of the
Second Convertible Debenture, Second Warrants and Second Warrant Shares, as the
case may be, and delivered them to the Company.
(ii) The Buyer shall have delivered to the Escrow Agent
the Second Purchase Price for the Second Convertible Debenture and the Second
Warrants and the Escrow Agent shall have delivered the net proceeds to the
Company by wire transfer of immediately available U.S. funds pursuant to the
wire instructions provided by the Company.
(iii) The representations and warranties of the Buyer
shall be true and correct in all material respects as of the date when made and
as of the Second Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and the Buyer
shall have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Buyer at or prior to the Second Closing Date.
If requested by the Company, the Company shall have received a certificate,
executed by an executive officer of the Buyer, dated as of the Second Closing
Date, to the foregoing effect and as to such other matters as may be reasonably
requested by the Company.
8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
------------------------------------------------------
(a) First Closing. The obligation of the Buyer hereunder to
--------------
purchase the First Convertible Debenture and the First Warrants at the Closing
is subject to the satisfaction, at or before the Closing Date, of each of the
following conditions, provided that these conditions are for the Buyer's sole
benefit and may be waived by the Buyer at any time in its sole discretion:
(i) The Company shall have executed the Transaction
Documents and delivered the same to the Buyer.
(ii) The Common Stock shall be authorized for quotation
on the OTCBB, trading in the Common Stock shall not have been suspended for any
reason, and all the Conversion Shares issuable upon the conversion of the First
Convertible Debenture shall have been approved by the OTCBB.
(iii) The representations and warranties of the Company
shall be true and correct in all material respects (except to the extent that
any of such representations and warranties is already qualified as to
materiality in Section 3 above, in which case, such representations and
warranties shall be true and correct without further qualification) as of the
date when made and as of the Closing Date as though made at that time (except
for representations and warranties that speak as of a specific date) and the
Company shall have performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the
24
Company at or prior to the Closing Date. If requested by the Buyer, the Buyer
shall have received a certificate, executed by the President of the Company,
dated as of the Closing Date, to the foregoing effect and as to such other
matters as may be reasonably requested by the Buyer including, without
limitation an update as of the Closing Date regarding the representation
contained in Section 3(c) above.
(iv) The Company shall have executed and delivered to
the Buyer the First Convertible Debenture and the First Warrants.
(v) The Buyer shall have received an opinion of counsel
in a form satisfactory to the Buyer.
(vi) The Company shall have provided to the Buyer a
certificate of good standing from the Secretary of State from the state in which
the Company is incorporated.
(vii) The Company shall have delivered to the Escrow
Agent the Escrow Shares.
(viii) The Company shall have provided to the Buyer an
acknowledgement, to the satisfaction of the Buyer, from the Company's certified
public accountant as to its ability to provide all consents required in order to
file a registration statement in connection with this transaction.
(ix) The Company shall have reserved out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the First Convertible Debenture, shares of Common Stock sufficient
to effect the conversion of all of such First Convertible Debenture.
(x) The Irrevocable Transfer Agent Instructions shall
have been delivered to and acknowledged in writing by the Company's transfer
agent.
(b) Second Closing. Unless otherwise consummated at the First
---------------
Closing (which, in that event, the following conditions precedent other than
subsection (iv) below shall be satisfied in connection with the First Closing),
the obligation of the Buyer hereunder to purchase the Second Convertible
Debenture and the Second Warrants at the Second Closing is subject to the
satisfaction, at or before the Second Closing Date, of each of the following
conditions:
(i) The Company shall have executed appropriate
amendments to the Other Transaction Documents providing for the inclusion
thereunder of the Second Convertible Debenture, Second Warrants and Second
Warrant Shares, as the case may be, and delivered them to the Buyer.
(ii) The representations and warranties of the Company
shall be true and correct in all material respects (except to the extent that
any of such representations and warranties is already qualified as to
materiality in Section 3 above, in which case, such representations and
warranties shall be true and correct without further qualification) as of the
25
date when made and as of the Second Closing Date as though made at that time
(except for representations and warranties that speak as of a specific date) and
the Company shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Company at or prior
to the Second Closing Date. If requested by the Buyer, the Buyer shall have
received a certificate, executed by two officers of the Company, dated as of the
Second Closing Date, to the foregoing effect and as to such other matters as may
be reasonably requested by the Buyer including, without limitation an update as
of the Second Closing Date regarding the representation contained in Section
3(c) above.
(iii) The Company shall have executed and delivered to
the Buyer the Second Convertible Debenture and the Second Warrants.
(iv) The Company shall have certified that all
conditions to the Second Closing have been satisfied and that the Company will
file the Registration Statement with the SEC in compliance with the rules and
regulations promulgated by the SEC for filing thereof two (2) business days
after the Second Closing. If requested by the Buyer, the Buyer shall have
received a certificate, executed by the two officers of the Company, dated as of
the Second Closing Date, to the foregoing effect. The Buyers have no obligation
to fund at the Second Closing if the Company has filed the Registration
Statement.
(v) The Company shall have provided to the Buyer a
certificate of good standing from the secretary of the state in which the
Company is incorporated.
(v) The Company shall have delivered to the Escrow Agent
the additional Escrow Shares pursuant to 6(c) hereof, if necessary.
(vi) The Company shall have provided to the Buyer an
acknowledgement, to the satisfaction of the Buyer, from the Company's certified
public accountant as to its ability to provide all consents required in order to
file a registration statement in connection with this transaction.
9. INDEMNIFICATION.
---------------
(a) In consideration of the Buyer's execution and
delivery of this Agreement and acquiring the Convertible Debenture and the
Warrants hereunder, and the Conversion Shares and Warrants into which the
Convertible Debenture and Warrants are convertible or exercisable, as the case,
and in addition to all of the Company's other obligations under this Agreement,
the Company shall defend, protect, indemnify and hold harmless the Buyer, and
its officers, directors, employees and agents (including, without limitation,
those retained in connection with the transactions contemplated by this
Agreement) (collectively, the "Buyer Indemnitees") from and against any and all
-----------------
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Buyer Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys' fees
and disbursements (the "Indemnified Liabilities"), incurred by the Buyer
------------------------
Indemnitees or any of them as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty
26
made by the Company in this Agreement, or any other certificate, instrument or
document contemplated hereby executed by the Company, (b) any breach of any
covenant, agreement or obligation of the Company contained in this Agreement,
the Convertible Debenture or the Investor Registration Rights Agreement or any
other certificate, instrument or document contemplated hereby executed by the
Company, or (c) any cause of action, suit or claim brought or made against such
Buyer Indemnitee based on material misrepresentations or due to a material
breach by the Company and arising out of or resulting from the execution,
delivery, performance or enforcement of this Agreement or any other instrument,
document or agreement executed pursuant hereto by any of the Buyer Indemnities,
any transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Convertible Debentures. To
the extent that the foregoing undertaking by the Company may be unenforceable
for any reason, the Company shall make the maximum contribution to the payment
and satisfaction of each of the Indemnified Liabilities, which is permissible
under applicable law.
(b) In consideration of the Company's execution and
delivery of this Agreement, and issuance of the Convertible Debenture and the
Warrants hereunder, and the Conversion Shares and Warrants into which the
Convertible Debenture and Warrants are convertible or exercisable, as the case,
and in addition to all of the Buyer's other obligations under this Agreement,
the Buyer shall defend, protect, indemnify and hold harmless the Company and all
of its officers, directors, employees and agents (including, without limitation,
those retained in connection with the transactions contemplated by this
Agreement) (collectively, the "Company Indemnitees") from and against any and
-------------------
all Indemnified Liabilities incurred by the Company Indemnitees or any of them
as a result of, or arising out of, or relating to (a) any misrepresentation or
breach of any representation or warranty made by the Buyer in this Agreement, or
any other certificate, instrument or document contemplated hereby executed by
the Buyer, (b) any breach of any covenant, agreement or obligation of the Buyer
contained in this Agreement, the Convertible Debenture or the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby executed by the Buyer, or (c) any cause of action, suit or
claim brought or made against such Company Indemnitee based on material
misrepresentations or due to a material breach by the Buyer and arising out of
or resulting from the execution, delivery, performance or enforcement of this
Agreement, the Convertible Debenture or the Investor Registration Rights
Agreement or any other instrument, document or agreement executed pursuant
hereto by any of the Company Indemnities. To the extent that the foregoing
undertaking by the Buyer may be unenforceable for any reason, the Buyer shall
make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities, which is permissible under applicable law.
10. GOVERNING LAW: MISCELLANEOUS.
------------------------------
(a) Governing Law. The parties hereto acknowledge that
--------------
the transactions contemplated by this Agreement and the exhibits hereto bear a
reasonable relation to the State of New York. The parties hereto agree that the
internal laws of the State of New York shall govern this Agreement and the
exhibits hereto, including, but not limited to, all issues related to usury.
Any action to enforce the terms of this Agreement or any of its exhibits shall
be brought exclusively in the state and/or federal courts situated in the County
and State of New York. Service of process in any action by the Buyer to enforce
the terms of this Agreement may be made by serving a copy of the summons and
complaint, in addition to any other relevant
27
documents, by commercial overnight courier to the Company at its principal
address set forth in this Agreement.
(b) Counterparts. This Agreement may be executed in two
------------
or more identical counterparts, all of which shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature pages to be
physically delivered to the other party within five (5) days of the execution
and delivery hereof.
(c) Headings. The headings of this Agreement are for
--------
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
(d) Severability. If any provision of this Agreement
------------
shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
(e) Entire Agreement, Amendments. This Agreement
------------------------------
supersedes all other prior oral or written agreements between the Buyer, the
Company, their affiliates and persons acting on their behalf with respect to the
matters discussed herein, and this Agreement and the instruments referenced
herein contain the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor any Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
(f) Notices. Any notices, consents, waivers, or other
-------
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon confirmation of receipt, when sent
by facsimile; (iii) seven (7) days after being sent by U.S. certified mail,
return receipt requested, or (iv) one (1) day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
28
If to the Company, to: Charys Holding Company Inc.
0000 Xxxxxxxxx Xxxxxx Xxxx, Xxxxx X000
Xxxxxxx, XX 00000
Attention: Xxxxx Xxx, Xx.
Telephone: 000-000-0000
Facsimile: 000-000-0000
With a copy to: Paul, Hastings, Xxxxxxxx & Xxxxxx LLP
000 Xxxxxxxxx Xxxxxx, X.X., Xxxxx 0000
Xxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxx
Telephone: 000-000-0000
Facsimile: 000-000-0000
If to the Transfer Agent, to: Fidelity Transfer Company
0000 X. Xxxx Xxxxxx, Xxxxx 000
Xxxx Xxxx Xxxx, Xxxx 00000
Attention: Xxxxx Xxxxxxxx
Telephone: 000-000-0000
Facsimile: 000-000-0000
If to the Buyer, to its address and facsimile number on Schedule I, with
copies to the Buyer's counsel as set forth on Schedule I. Each party shall
provide five (5) days' prior written notice to the other party of any change in
address or facsimile number.
(g) Successors and Assigns. This Agreement shall be
------------------------
binding upon and inure to the benefit of the parties and their respective
successors and assigns. Neither the Company nor the Buyer shall assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the other party hereto.
(h) No Third Party Beneficiaries. This Agreement is
-------------------------------
intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
(i) Survival. Unless this Agreement is terminated under
--------
Section 10(l), the representations and warranties of the Company and the Buyer
contained in Sections 2 and 3, the agreements and covenants set forth in
Sections 4, 5 and 10, and the indemnification provisions set forth in Section 9,
shall survive the Closing for a period of two (2) years following the date on
which the First Convertible Debenture and Second Convertible Debenture, as the
case may be, is redeemed or converted in full.
(j) Publicity. The Company and the Buyer shall have the
---------
right to approve, before issuance any press release or any other public
statement with respect to the transactions contemplated hereby made by any
party; provided, however, that the Company shall be entitled, without the prior
approval of the Buyer, to issue any press release or other public disclosure
with respect to such transactions required under applicable securities or other
laws or regulations provided, that the Company shall use its commercially
reasonable best efforts to
29
consult the Buyer in connection with any such press release or other public
disclosure prior to its release and Buyer shall be provided with a copy thereof
upon release thereof.
(k) Further Assurances. Each party shall do and
-------------------
perform, or cause to be done and performed, all such further acts and things,
and shall execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably request in order to
carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
(l) Termination. In the event that the Closing shall
-----------
not have occurred with respect to the Buyer on or before five (5) business days
from the date hereof due to the Company's or the Buyer's failure to satisfy the
conditions set forth in Sections 7 and 8 above (and the non-breaching party's
failure to waive such unsatisfied condition(s)), the non-breaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of business on such date without liability of any party to any
other party; provided, however, that if this Agreement is terminated by the
Company pursuant to this Section 10(l), the Company shall remain obligated to
reimburse the Buyer for the $5,000 fee (to the extent not paid) to Yorkville
Advisors Management, LLC and the fees and expenses of Gottbetter & Partners, LLP
described in Section 4(g) above.
(m) No Strict Construction. The language used in this
------------------------
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.
(n) Remedies. In addition to being entitled to exercise
--------
all rights provided herein or granted by law, including recovery of damages, the
Buyer and the Company will be entitled to specific performance under the
Agreement. The parties agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of obligations
described in the foregoing sentence and hereby agree to waive in any action for
specific performance of any such obligation the defense that a remedy at law
would be adequate.
[REMAINDER PAGE INTENTIONALLY LEFT BLANK]
30
IN WITNESS WHEREOF, the Buyer and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.
BUYER: COMPANY:
HIGHGATE HOUSE FUNDS, LTC. CHARYS HOLDING COMPANY INC.
By: By:
---------------------------------- -------------------------------------
Name: Name: Xxxxx Xxx, Xx.
Title: Title: Chief Executive Officer
31
EXHIBIT A
FORM OF INVESTOR REGISTRATION RIGHTS AGREEMENT
----------------------------------------------
1
INVESTOR REGISTRATION RIGHTS AGREEMENT
--------------------------------------
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of November
---------
__, 2005, by and among CHARYS HOLDING COMPANY INC., a Delaware corporation (the
"Company"), and HIGHGATE HOUSE FUNDS, LTD., a Cayman Islands company (the
-------
"Investor").
--------
WHEREAS:
A. Company and Investor have entered into a Securities Purchase
Agreement (the "Securities Purchase Agreement"), pursuant to which the Company
-----------------------------
proposes to sell a $3,000,000 secured convertible debenture (the "First
-----
Convertible Debenture") which shall be convertible into the Company's Common
----------------------
Stock, par value $0.001 per share (the "Common Stock") and in connection
-------------
therewith the Company has agreed to issue certain of its warrants (the "First
-----
Warrants");
--------
B. The Company shall also have the option (the "First Option") to issue
------------
and sell to the Investor a second $1,000,000 secured convertible debenture (the
"Second Convertible Debenture"), which shall be convertible into Common Stock
------------------------------
and in connection therewith the Company has agreed to issue additional certain
of its warrants (the "Second Warrants");
----------------
C. To induce the Investor to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations there under, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws; and
---------------
D. Capitalized terms used but not otherwise defined herein shall have
the meanings set forth in the Securities Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Investor
hereby agrees as follows:
1. DEFINITIONS.
-----------
As used in this Agreement, the following terms shall have the following
meanings:
(a) "Person" means a corporation, a limited liability company, an
------
association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
(b) "Register," "registered," and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the Securities Act and pursuant
to Rule 415 under the Securities Act or any successor rule providing for
offering securities on a continuous or delayed basis ("Rule 415"),
---------
and the declaration or ordering of effectiveness of such Registration
Statement(s) by the United States Securities and Exchange Commission (the
"SEC").
---
(c) "Registrable Securities" means (i) the Escrow Shares issued or
----------------------
issuable as "security stock" for conversion of the First Convertible Debenture
and Second Convertible Debenture, as the case may be and (ii) the First Warrant
Shares and Second Warrant Shares, as the case may be; provided, however, that if
the Company has redeemed in full all amounts owing under the First Convertible
Debenture and Second Convertible Debenture on or before the Exclusive Redemption
Date, Registrable Securities shall mean only the First Warrant Shares and the
Second Warrant Shares; and provided further that Registrable Securities shall
not include any shares of Common Stock convertible from interest accrued under
the First Convertible Debenture or Second Convertible Debenture subsequent to
the date of the filing of the Initial Registration Statement (as defined below).
(d) "Registration Statement" means a registration statement under
-----------------------
the Securities Act which covers the Registrable Securities.
2. REGISTRATION.
------------
(a) Subject to the terms and conditions of this Agreement, the
Company shall prepare and file, no later than ninety (90) days from the date
hereof (the "Scheduled Filing Deadline"), with the SEC a registration statement
-------------------------
on Form SB-2 (or similar form) under the Securities Act (the "Initial
-------
Registration Statement") for the resale by the Investor of all Registrable
-----------------------
Securities. The Company shall keep the Registration Statement "Evergreen" for
the life of the Convertible Debentures or until Rule 144(k) of the Securities
Act of 1933, as amended, is available to the Investor with respect to all of the
Conversion Shares and Warrant Shares whichever is later. The Company shall
retain, and pay at its sole expense, a law firm to file the Registration
Statement subject to the reasonable approval of the Investor. Prior to the
filing of the Registration Statement with the SEC, the Company shall furnish a
copy of the Initial Registration Statement to the Investor for its review and
comment. The Investor shall furnish comments on the Initial Registration
Statement to the Company within twenty-four (24) hours of the receipt thereof
from the Company.
(b) Effectiveness of the Initial Registration Statement. The
--------------------------------------------------------
Company shall use its commercially reasonable best efforts (i) to have the
Initial Registration Statement declared effective by the SEC no later than
ninety (90) days after the date filed, provided that if the First Convertible
Debenture is redeemed before the Exclusive Redemption Date, no later than one
hundred twenty (120) days after the date filed (the "Scheduled Effective
-------------------
Deadline") and (ii) to insure that the Initial Registration Statement and any
--------
subsequent Registration Statement remains in effect until all of the Registrable
Securities have been sold, subject to the terms and conditions of this
Agreement. It shall be an event of default hereunder if the Initial
Registration Statement is not declared effective by the SEC within one hundred
and twenty (120) days after filing thereof.
(c) Failure to File or Obtain Effectiveness of the Registration
--------------------------------------------------------------
Statement. In the event the Registration Statement is not filed by the
---------
Scheduled Filing Deadline or is not declared effective by the SEC on or before
the Scheduled Effective Deadline, or if after the
2
Registration Statement has been declared effective by the SEC, sales cannot be
made pursuant to the Registration Statement (whether because of a failure to
keep the Registration Statement effective, failure to disclose such information
as is necessary for sales to be made pursuant to the Registration Statement,
failure to register sufficient shares of Common Stock or otherwise then as
partial relief for the damages to any holder of Registrable Securities by reason
of any such delay in or reduction of its ability to sell the underlying shares
of Common Stock (which remedy shall not be exclusive of any other remedies at
law or in equity), the Company will pay as liquidated damages (the "Liquidated
----------
Damages") and not as a penalty, to the holder, a cash amount equal to two
-------
percent (2%) per month of the outstanding principal amount of the Convertible
Debenture outstanding. The initial payment of Liquidated Damages shall be made
within three (3) business days from the end of the month in which the Scheduled
Filing Deadline or Scheduled Effective Deadline occurred, as the case may be,
and shall continue thereafter until the Registration Statement is filed or
declared effective, as the case may be.
(d) Liquidated Damages. The Company and the Investor hereto
-------------------
acknowledge and agree that the sums payable under subsection 2(c) above shall
constitute liquidated damages and not penalties and are in addition to all other
rights of the Investor, including the right to call a default. The parties
further acknowledge that (i) the amount of loss or damages likely to be incurred
is incapable or is difficult to precisely estimate, (ii) the amounts specified
in such subsection bear a reasonable relationship to, and are not plainly or
grossly disproportionate to, the probable loss likely to be incurred in
connection with any failure by the Company to file a Registration Statement or
to obtain or maintain the effectiveness of a Registration Statement, (iii) one
of the reasons for the Company and the Investor reaching an agreement as to such
amounts was the uncertainty and cost of litigation regarding the question of
actual damages, and (iv) the Company and the Investor are sophisticated business
parties and have been represented by sophisticated and able legal counsel and
negotiated this Agreement at arm's length.
3. RELATED OBLIGATIONS.
--------------------
(a) The Company shall keep the Registration Statement effective
pursuant to Rule 415 at all times until the date on which the Investor shall
have sold all the Registrable Securities covered by such Registration Statement
(the "Registration Period"), which Registration Statement (including any
--------------------
amendments or supplements thereto and prospectuses contained therein) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading.
(b) The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the Securities Act, as may be necessary to keep such
Registration Statement effective at all times during the Registration Period,
and, during such period, comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities of the Company covered
by such Registration Statement until such time as all of such Registrable
Securities shall have been disposed of in accordance with the intended methods
of disposition by the seller or sellers thereof as set forth in such
Registration Statement.
3
In the case of amendments and supplements to a Registration Statement which are
required to be filed pursuant to this Agreement (including pursuant to this
Section 3(b)) by reason of the Company's filing a report on Form 10-KSB, Form
10-QSB or Form 8-K or any analogous report under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the Company shall incorporate such report
------------
by reference into the Registration Statement, if applicable, or shall file such
amendments or supplements with the SEC on the same day on which the Exchange Act
report is filed which created the requirement for the Company to amend or
supplement the Registration Statement.
(c) The Company shall furnish to the Investor whose Registrable
Securities are included in any Registration Statement, without charge, (i) at
least one (1) copy of such Registration Statement as declared effective by the
SEC and any amendment(s) thereto, including financial statements and schedules,
all documents incorporated therein by reference, all exhibits and each
preliminary prospectus, (ii) ten (10) copies of the final prospectus included in
such Registration Statement and all amendments and supplements thereto (or such
other number of copies as such Investor may reasonably request) and (iii) such
other documents as such Investor may reasonably request from time to time in
order to facilitate the disposition of the Registrable Securities owned by such
Investor.
(d) The Company shall use its commercially reasonable best efforts
to (i) register and qualify the Registrable Securities covered by a Registration
Statement under such other securities or "blue sky" laws of such jurisdictions
in the United States as the Investor reasonably requests, (ii) prepare and file
in those jurisdictions, such amendments (including post-effective amendments)
and supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (w) make any change to its articles of incorporation or by-laws, (x)
qualify to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(d), (y) subject itself to general
taxation in any such jurisdiction, or (z) file a general consent to service of
process in any such jurisdiction. The Company shall promptly notify the
Investor who holds Registrable Securities of the receipt by the Company of any
notification with respect to the suspension of the registration or qualification
of any of the Registrable Securities for sale under the securities or "blue sky"
laws of any jurisdiction in the United States or its receipt of actual notice of
the initiation or threat of any proceeding for such purpose.
(e) As promptly as practicable after becoming aware of such event
or development, the Company shall notify the Investor in writing of the
happening of any event as a result of which the prospectus included in a
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission 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 (provided that in no event shall such
notice contain any material, nonpublic information), and promptly prepare a
supplement or amendment to such Registration Statement to correct such untrue
statement or omission, and deliver ten (10) copies of such supplement or
amendment to the Investor. Notwithstanding any provision of this Agreement to
4
the contrary, if the Company makes such a notification, the Company may suspend
the use of any prospectus contained in any Registration Statement for periods
not to exceed forty five (45) business days in any three month period or two
periods not to exceed an aggregate of ninety (90) business days in any 12 month
period in the event that the Company determines, in the exercise of its
reasonable discretion, confirmed by a legal opinion from outside counsel, that
sales of Registrable Securities thereunder could constitute violations of the
Securities Act due to the Registration Statement containing an untrue statement
of a material fact or omission 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. In each case the
Company shall use commercially reasonable best efforts to remedy the deficiency
in the Registration Statement within thirty (30) business days. The Company
shall also promptly notify the Investor in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and when a
Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to each Investor by
facsimile on the same day of such effectiveness), (ii) of any request by the SEC
for amendments or supplements to a Registration Statement or related prospectus
or related information, and (iii) of the Company's reasonable determination that
a post-effective amendment to a Registration Statement would be appropriate.
(f) The Company shall use its commercially reasonable best efforts
to prevent the issuance of any stop order or other suspension of effectiveness
of a Registration Statement, or the suspension of the qualification of any of
the Registrable Securities for sale in any jurisdiction within the United States
of America and, if such an order or suspension is issued, to obtain the
withdrawal of such order or suspension at the earliest possible moment and to
notify the Investor who holds Registrable Securities being sold of the issuance
of such order and the resolution thereof or its receipt of actual notice of the
initiation or threat of any proceeding for such purpose.
(g) At the reasonable request of the Investor, the Company shall
furnish to such Investor, on the date of the effectiveness of the Registration
Statement and thereafter from time to time on such dates as an Investor may
reasonably request (i) a letter, dated such date, from the Company's independent
certified public accountants in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, and (ii) an opinion, dated as of such date, of counsel
representing the Company for purposes of such Registration Statement, in form,
scope and substance as is customarily given in an underwritten public offering,
addressed to the Investor.
(h) The Company shall make available for inspection by (i) the
Investor and (ii) one (1) firm of accountants or other agents retained by the
Investor (collectively, the "Inspectors") all pertinent financial and other
----------
records, and pertinent corporate documents and properties of the Company
(collectively, the "Records"), as shall be reasonably deemed necessary by each
-------
Inspector, and cause the Company's officers, directors and employees to supply
all information which the Inspector may reasonably request; provided, however,
that each Inspector shall agree, and the Investor hereby agrees, to hold in
strict confidence and shall not make any disclosure (except to an Investor) or
use any Record or other information which the Company determines in good faith
to be confidential, and of which determination the Inspectors are so notified,
unless (a) the disclosure of such Records is necessary to avoid or correct a
5
misstatement or omission in any Registration Statement or is otherwise required
under the Securities Act, (b) the release of such Records is ordered pursuant to
a final, non-appealable subpoena or order from a court or government body of
competent jurisdiction, or (c) the information in such Records has been made
generally available to the public other than by disclosure in violation of this
or any other agreement of which the Inspector and the Investor has knowledge.
The Investor agrees that it shall, upon learning that disclosure of such Records
is sought in or by a court or governmental body of competent jurisdiction or
through other means, give prompt notice to the Company and allow the Company, at
its expense, to undertake appropriate action to prevent disclosure of, or to
obtain a protective order for, the Records deemed confidential.
(i) The Company shall hold in confidence and not make any
disclosure of information concerning the Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning the Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow the Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.
(j) The Company shall use its commercially reasonable best efforts
either to cause all the Registrable Securities covered by a Registration
Statement (i) to be listed on each securities exchange on which securities of
the same class or series issued by the Company are then listed, if any, if the
listing of such Registrable Securities is then permitted under the rules of such
exchange or (ii) the inclusion for quotation on the National Association of
Securities Dealers, Inc. OTC Bulletin Board for such Registrable Securities.
The Company shall pay all fees and expenses in connection with satisfying its
obligation under this Section 3(j).
(k) The Company shall cooperate with the Investor who hold
Registrable Securities being offered and, to the extent applicable, to
facilitate the timely preparation and delivery of certificates to a transferee
of the Investor (not bearing any restrictive legend) representing the
Registrable Securities to be offered pursuant to a Registration Statement and
enable such certificates to be in such denominations or amounts, as the case may
be, as the Investor may reasonably request and registered in such names as the
Investor may request.
(l) The Company shall use its commercially reasonable best efforts
to cause the Registrable Securities covered by the applicable Registration
Statement to be registered with or approved by such other governmental agencies
or authorities as may be necessary to consummate the disposition of such
Registrable Securities.
(m) The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the Securities
6
Act) covering a twelve (12) month period beginning not later than the first day
of the Company's fiscal quarter next following the effective date of the
Registration Statement.
(n) The Company shall otherwise use its commercially reasonable
best efforts to comply with all applicable rules and regulations of the SEC in
connection with any registration hereunder.
(o) Within two (2) business days after a Registration Statement
which covers Registrable Securities is declared effective by the SEC, the
Company shall deliver, and shall cause legal counsel for the Company to deliver,
to the transfer agent for such Registrable Securities (with copies to the
Investor whose Registrable Securities are included in such Registration
Statement) confirmation that such Registration Statement has been declared
effective by the SEC in the form attached hereto as Exhibit A.
----------
(p) The Company shall take all other reasonable actions necessary
to expedite and facilitate disposition by the Investor of Registrable Securities
pursuant to a Registration Statement.
4. OBLIGATIONS OF THE INVESTOR.
------------------------------
The Investor agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 3(f) or the first
sentence of Section 3(e), such Investor will immediately discontinue disposition
of Registrable Securities pursuant to any Registration Statement(s) covering
such Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(e) or receipt of
notice from the Company that no supplement or amendment is required.
Notwithstanding anything to the contrary, the Company shall cause its transfer
agent to deliver unlegended certificates for shares of Common Stock to a
transferee of an Investor in accordance with the terms of the Securities
Purchase Agreement in connection with any sale of Registrable Securities with
respect to which an Investor has entered into a contract for sale prior to the
Investor's receipt of a notice from the Company of the happening of any event of
the kind described in Section 3(f) or the first sentence of 3(e) and for which
the Investor has not yet settled.
5. EXPENSES OF REGISTRATION.
--------------------------
All expenses incurred in connection with registrations, filings or
qualifications pursuant to the Agreement including, without limitation, all
registration, listing and qualifications fees, printers, legal and accounting
fees shall be paid by the Company.
6. INDEMNIFICATION.
---------------
With respect to Registrable Securities which are included in a Registration
Statement under this Agreement:
(a) To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend the Investor, the directors,
officers, partners, employees, agents, representatives of, and each Person, if
any, who controls the Investor within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person"), against
-------------------
7
any losses, claims, damages, liabilities, judgments, fines, penalties, charges,
costs, reasonable attorneys' fees, amounts paid in settlement or expenses, joint
or several (collectively, "Claims") incurred in investigating, preparing or
------
defending any action, claim, suit, inquiry, proceeding, investigation or appeal
taken from the foregoing by or before any court or governmental, administrative
or other regulatory agency, body or the SEC, whether pending or threatened,
whether or not an indemnified party is or may be a party thereto ("Indemnified
-----------
Damages"), to which any of them may become subject insofar as such Claims (or
-------
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon: (i) any untrue statement or alleged untrue
statement of a material fact in a Registration Statement or any post-effective
amendment thereto or in any filing made in connection with the qualification of
the offering under the securities or other "blue sky" laws of any jurisdiction
in which Registrable Securities are offered ("Blue Sky Filing"), or the omission
---------------
or alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii) any untrue
statement or alleged untrue statement of a material fact contained in any final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading; or (iii) any violation or alleged violation by the Company
of the Securities Act, the Exchange Act, any other law, including, without
limitation, any state securities law, or any rule or regulation there under
relating to the offer or sale of the Registrable Securities pursuant to a
Registration Statement (the matters in the foregoing clauses (i) through (iii)
being, collectively, "Violations"). The Company shall reimburse the Investor
----------
and each such controlling person promptly as such expenses are incurred and are
due and payable, for any legal fees or disbursements or other reasonable
expenses incurred by them in connection with investigating or defending any such
Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a): (x) shall not apply to
a Claim by an Indemnified Person arising out of or based upon a Violation which
occurs in reliance upon and in conformity with information furnished in writing
to the Company by such Indemnified Person expressly for use in connection with
the preparation of the Registration Statement or any such amendment thereof or
supplement thereto; (y) shall not be available to the extent such Claim is based
on a failure of the Investor to deliver or to cause to be delivered the
prospectus made available by the Company, if such prospectus was timely made
available by the Company pursuant to Section 3(c); and (z) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of the Company, which consent shall not be
unreasonably withheld. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Person
and shall survive the transfer of the Registrable Securities by the Investor
pursuant to Section 9 hereof.
(b) In connection with a Registration Statement, the Investor
agrees to indemnify, hold harmless and defend, to the same extent and in the
same manner as is set forth in Section 6(a), the Company, each of its directors,
each of its officers, employees, representatives, or agents and each Person, if
any, who controls the Company within the meaning of the Securities Act or the
Exchange Act (each an "Indemnified Party"), against any Claim or Indemnified
-----------------
Damages to which any of them may become subject, under the Securities Act, the
Exchange Act or otherwise, insofar as such Claim or Indemnified Damages arise
out of or is based upon any Violation, in each case to the extent, and only to
the extent, that such Violation
8
occurs in reliance upon and in conformity with written information furnished to
the Company by such Investor expressly for use in connection with such
Registration Statement; and, subject to Section 6(d), such Investor will
reimburse any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such Claim; provided, however, that the
indemnity agreement contained in this Section 6(b) and the agreement with
respect to contribution contained in Section 7 shall not apply to amounts paid
in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably
withheld; provided, further, however, that the Investor shall be liable under
this Section 6(b) for only that amount of a Claim or Indemnified Damages as does
not exceed the net proceeds to such Investor as a result of the sale of
Registrable Securities pursuant to such Registration Statement. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of such Indemnified Party and shall survive the transfer of the
Registrable Securities by the Investor pursuant to Section 9. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(b) with respect to any prospectus shall not inure to
the benefit of any Indemnified Party if the untrue statement or omission of
material fact contained in the prospectus was corrected and such new prospectus
was delivered to each Investor prior to such Investor's use of the prospectus to
which the Claim relates.
(c) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving a Claim,
such Indemnified Person or Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one (1) counsel for such
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. The Indemnified
Party or Indemnified Person shall cooperate fully with the indemnifying party in
connection with any negotiation or defense of any such action or claim by the
indemnifying party and shall furnish to the indemnifying party all information
reasonably available to the Indemnified Party or Indemnified Person which
relates to such action or claim. The indemnifying party shall keep the
Indemnified Party or Indemnified Person fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. No
indemnifying party shall be liable for any settlement of any action, claim or
proceeding effected without its prior written consent; provided, however, that
the indemnifying party shall not unreasonably withhold, delay or condition its
consent. No indemnifying party shall, without the prior written consent of the
Indemnified Party or Indemnified Person, consent to entry of any judgment or
enter into any settlement or other compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party or Indemnified Person of a release from all liability in
9
respect to such claim or litigation. Following indemnification as provided for
hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action.
(d) The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified Damages
are incurred.
(e) The indemnity agreements contained herein shall be in addition
to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
------------
To the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under Section
6 to the fullest extent permitted by law; provided, however, that: (i) no seller
of Registrable Securities guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (ii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received by
such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE EXHANGE ACT.
---------------------------------
With a view to making available to the Investor the benefits of Rule 144
promulgated under the Securities Act or any similar rule or regulation of the
SEC that may at any time permit the Investor to sell securities of the Company
to the public without registration ("Rule 144") the Company agrees to:
---------
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
so long as the Company remains subject to such requirements (it being understood
that nothing herein shall limit the Company's obligations under Section 4(c) of
the Securities Purchase Agreement) and the filing of such reports and other
documents as are required by the applicable provisions of Rule 144; and
10
(c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested to
permit the Investor to sell such securities pursuant to Rule 144 without
registration.
9. AMENDMENT OF REGISTRATION RIGHTS.
-----------------------------------
Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with the written consent of the Company and Investor.
Any amendment or waiver effected in accordance with this Section 9 shall be
binding upon each Investor and the Company. No such amendment shall be
effective to the extent that it applies to fewer than all of the holders of the
Registrable Securities. No consideration shall be offered or paid to any Person
to amend or consent to a waiver or modification of any provision of any of this
Agreement unless the same consideration also is offered to all of the parties to
this Agreement.
10. MISCELLANEOUS.
-------------
(a) A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two (2) or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from the registered owner of such Registrable Securities.
(b) Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) business day after deposit
with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
11
If to the Company, to: Charys Holding Company Inc.
0000 Xxxxxxxxx Xxxxxx Xxxx, Xxxxx X000
Xxxxxxx, XX 00000
Attention: Xxxxx Xxx, Xx.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Paul, Hastings, Xxxxxxxx & Xxxxxx LLP
000 Xxxxxxxxx Xxxxxx, X.X., Xxxxx 0000
Xxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to an Investor, to its address and facsimile number on the Schedule of
Investor attached hereto, with copies to the Investor's representatives as set
forth on the Schedule of Investors or to such other address and/or facsimile
number and/or to the attention of such other person as the recipient party has
specified by written notice given to each other party five (5) days prior to the
effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a courier or overnight courier
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
(c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(d) The parties hereto acknowledge that the transactions
contemplated by this Agreement and the exhibits hereto bear a reasonable
relation to the State of New York. The parties hereto agree that the internal
laws of the State of New York shall govern this Agreement and the exhibits
hereto, including, but not limited to, all issues related to usury. Any action
to enforce the terms of this Agreement or any of its exhibits shall be brought
exclusively in the state and/or federal courts situated in the County and State
of New York. Each party hereby irrevocably waives personal service of process
and consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT
12
MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY
DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR
ANY TRANSACTION CONTEMPLATED HEREBY.
(e) This Agreement, the Irrevocable Transfer Agent Instructions,
the Securities Purchase Agreement and related documents including the
Convertible Debenture, the Warrants and the Escrow Agreement dated the date
hereof by and among the Company, the Investor and Gottbetter & Partners, LLP.
(the "Escrow Agreement"), the Escrow Shares Escrow Agreement, and the Security
-----------------
Agreement dated the date hereof (the "Security Agreement") constitute the entire
------------------
agreement among the parties hereto with respect to the subject matter hereof and
thereof. There are no restrictions, promises, warranties or undertakings, other
than those set forth or referred to herein and therein. This Agreement, the
Irrevocable Transfer Agent Instructions, the Securities Purchase Agreement and
related documents including the Convertible Debenture, the Warrants, the Escrow
Shares Escrow Agreement, the Escrow Agreement and the Security Agreement
supersede all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof and thereof.
(f) This Agreement shall inure to the benefit of and be binding
upon the permitted successors and assigns of each of the parties hereto.
(g) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) This Agreement may be executed in identical counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
(i) Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
The language used in this Agreement will be deemed to be the language chosen by
the parties to express their mutual intent and no rules of strict construction
will be applied against any party.
(j) This Agreement is intended for the benefit of the parties
hereto and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
13
IN WITNESS WHEREOF, the parties have caused this Investor Registration
Rights Agreement to be duly executed as of day and year first above written.
COMPANY:
CHARYS HOLDING COMPANY INC.
By:
--------------------------------
Name: Xxxxx Xxx, Xx.
Title: Chief Executive Officer
INVESTOR:
HIGHGATE HOUSE FUNDS, LTD.
By:
--------------------------------
Name: Xxxx X. Xxxxxxxxxx
Title: Portfolio Manager
14
SCHEDULE I
----------
SCHEDULE OF INVESTORS
---------------------
ADDRESS/FACSIMILE
NAME NUMBER OF INVESTOR
------------------------ -----------------------------------
Highgate House Funds, Ltd. 000 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Facsimile: (000) 000-0000
With a copy to: Xxxxx X. Xxxxxxx, Esq.
Gottbetter & Partners, LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Facsimile: (000) 000-0000
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
-------------------------
Attention:
Re: CHARYS HOLDING COMPANY INC.
Ladies and Gentlemen:
We are counsel to Charys Holding Company Inc., a Delaware corporation (the
"Company"), and have represented the Company in connection with that certain
-------
Securities Purchase Agreement (the "Securities Purchase Agreement") entered into
-- -----------------------------
by and among the Company and the investor named therein (collectively, the
"Investor") pursuant to which the Company issued to the Investors shares of its
--------
Common Stock, par value $0.001 per share (the "Common Stock"). Pursuant to the
------------
Purchase Agreement, the Company also has entered into a Registration Rights
Agreement with the Investor (the "Investor Registration Rights Agreement")
---------------------------------------
pursuant to which the Company agreed, among other things, to register the
Registrable Securities (as defined in the Registration Rights Agreement) under
the Securities Act of 1933, as amended (the "Securities Act"). In connection
--------------
with the Company's obligations under the Registration Rights Agreement, on
____________ ____, the Company filed a Registration Statement on Form ________
(File No. 333-_____________) (the "Registration Statement") with the Securities
----------------------
and Exchange SEC (the "SEC") relating to the Registrable Securities which names
---
each of the Investor as a selling stockholder there under.
In connection with the foregoing, we advise you that a member of the SEC's
staff has advised us by telephone that the SEC has entered an order declaring
the Registration Statement effective under the Securities Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after
telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the Securities Act pursuant to the
Registration Statement.
Very truly yours,
[LAW FIRM]
By:
----------------------------
cc: [LIST NAMES OF INVESTOR]
EXHIBIT B
FORM OF ESCROW AGREEMENT
------------------------
1
ESCROW AGREEMENT
----------------
THIS ESCROW AGREEMENT (this "Agreement") is made and entered into as of
---------
November 16, 2005 by and between CHARYS HOLDING COMPANY INC., a Delaware
corporation (the "Company"); HIGHGATE HOUSE FUNDS, LTD., a Cayman Islands
-------
company (the "Investor"), and GOTTBETTER & PARTNERS, LLP, as Escrow Agent
--------
hereunder ("Escrow Agent").
-------------
BACKGROUND
----------
WHEREAS, the Company and the Investor have entered into a Securities
Purchase Agreement (the "Securities Purchase Agreement"), dated as of the date
-----------------------------
hereof, pursuant to which the Company proposes to sell a secured convertible
debenture having a principal face amount of $4,000,000 (the "Convertible
-----------
Debenture") which shall be convertible into the Company's Common Stock, par
---------
value $0.001 per share (the "Common Stock"), together with warrants to purchase
------------
up to 1,000,000 shares of Common Stock (the "Warrants"), for the Purchase Price,
--------
as that term is defined in the Securities Purchase Agreement. The Securities
Purchase Agreement provides that the Investor shall deposit the Purchase Price
in a segregated escrow account to be held by Escrow Agent in order to effectuate
a disbursement to the Company at a closing to be held as set forth in the
Securities Purchase Agreement (the "Closing").
-------
WHEREAS, the Company intends to sell the Convertible Debenture and the
Warrants (the "Offering").
--------
WHEREAS, Escrow Agent has agreed to accept, hold, and disburse the funds
deposited with it in accordance with the terms of this Agreement.
WHEREAS, in order to establish the escrow of funds and to effect the
provisions of the Securities Purchase Agreement, the parties hereto have entered
into this Agreement.
NOW THEREFORE, in consideration of the foregoing, it is hereby agreed as
follows:
1. DEFINITIONS. The following terms shall have the following
-----------
meanings when used herein:
a. "Escrow Funds" shall mean the funds deposited with Escrow Agent
------------
pursuant to this Agreement.
b. "Joint Written Direction" shall mean a written direction
-------------------------
executed by the Investor and the Company directing Escrow Agent to disburse all
or a portion of the Escrow Funds or to take or refrain from taking any action
pursuant to this Agreement.
c. "Escrow Period" shall begin with the commencement of the date
--------------
of execution of this Agreement and shall terminate upon the earlier to occur of
the following dates:
(i) The Closing Date for the sale of the Convertible
Debenture and Warrants to the Investor as contemplated by the Securities
Purchase Agreement;
(ii) The expiration of twenty (20) days from the date of
execution of this Agreement (unless extended by mutual written agreement between
the Company and the Investor with a copy of such extension to Escrow Agent); or
(iii) The date upon which a determination is made by the
Company and the Investor to terminate the Offering prior to the sale of the
Convertible Debenture and Warrants as contemplated by the Securities Purchase
Agreement.
During the Escrow Period, the Company and the Investor are aware that they
are not entitled to any funds received into escrow and no amounts deposited in
the Escrow Account shall become the property of the Company or the Investor or
any other entity, or be subject to the debts of the Company or the Investor or
any other entity.
2. APPOINTMENT OF AND ACCEPTANCE BY ESCROW AGENT. The Investor and the
---------------------------------------------
Company hereby appoint Escrow Agent to serve as Escrow Agent hereunder. Escrow
Agent hereby accepts such appointment and, upon receipt by wire transfer of the
Escrow Funds in accordance with Section 3 below, agrees to hold, invest and
disburse the Escrow Funds in accordance with this Agreement.
a. The Company hereby acknowledges that Escrow Agent is general
counsel to the Investor, the managing partner of the Escrow Agent is a director
of the Investor, and counsel to the Investor in connection with the transactions
contemplated and referred herein. The Company agrees that in the event of any
dispute arising in connection with this Escrow Agreement or otherwise in
connection with any transaction or agreement contemplated and referred herein,
Escrow Agent shall be permitted to continue to represent the Investor and the
Company will not seek to disqualify such counsel.
3. CREATION OF ESCROW FUNDS. Contemporaneously with the execution of
--------------------------
this Agreement, the parties shall establish an escrow account with Escrow Agent,
which escrow account shall be entitled as follows: Charys Holding Company
Inc./Highgate House Funds, Ltd. Escrow Account for the deposit of the Escrow
Funds. The Investor shall wire funds to the account of Escrow Agent as follows:
BANK: Citibank, N.A
ROUTING #: 000000000
ACCOUNT #: 00000000
NAME ON ACCOUNT: Gottbetter & Partners, LLP Trust Account
NAME ON SUB-ACCOUNT: Charys Holding Company Inc./Highgate House
Funds, Ltd. Escrow account
4. DEPOSITS INTO THE ESCROW ACCOUNT. The Investor agrees that it shall
--------------------------------
promptly deliver funds for the payment of the Convertible Debenture and Warrants
to Escrow Agent for deposit in the Escrow Account.
2
5. DISBURSEMENTS FROM THE ESCROW ACCOUNT.
-----------------------------------------
a. Escrow Agent will continue to hold such funds until Highgate
House Funds, Ltd. on behalf of the Investor and Company execute a Joint Written
Direction directing Escrow Agent to disburse the Escrow Funds pursuant to Joint
Written Direction signed by the Company and the Investor. In disbursing such
funds, Escrow Agent is authorized to rely upon such Joint Written Direction from
the Company and the Investor and may accept any signatory from the Company
listed on the signature page to this Agreement and any signature from the
Investor that Escrow Agent already has on file.
b. In the event Escrow Agent does not receive the amount of the
Escrow Funds from the Investor prior to the expiration of the Escrow Period,
Escrow Agent shall notify the Company and the Investor and the Company's
obligations under the Securities Purchase Agreement shall immediately terminate.
c. In the event Escrow Agent does receive the amount of the Escrow
Funds prior to expiration of the Escrow Period, in no event will the Escrow
Funds be released to the Company until such amount is received by Escrow Agent
in collected funds. For purposes of this Agreement, the term "collected funds"
shall mean all funds received by Escrow Agent which have cleared normal banking
channels and are in the form of cash.
6. COLLECTION PROCEDURE. Escrow Agent is hereby authorized to deposit
---------------------
the proceeds of each wire in the Escrow Account.
7. SUSPENSION OF PERFORMANCE: DISBURSEMENT INTO COURT. If at any time,
--------------------------------------------------
there shall exist any dispute between the Company and the Investor with respect
to holding or disposition of any portion of the Escrow Funds or any other
obligations of Escrow Agent hereunder, or if at any time Escrow Agent is unable
to determine, to Escrow Agent's sole satisfaction, the proper disposition of any
portion of the Escrow Funds or Escrow Agent's proper actions with respect to its
obligations hereunder, or if the parties have not within thirty (30) days of the
furnishing by Escrow Agent of a notice of resignation pursuant to Section 9
hereof, appointed a successor Escrow Agent to act hereunder, then Escrow Agent
may, in its sole discretion, take either or both of the following actions:
a. suspend the performance of any of its obligations (including
without limitation any disbursement obligations) under this Escrow Agreement
until such dispute or uncertainty shall be resolved to the sole satisfaction of
Escrow Agent or until a successor Escrow Agent shall be appointed (as the case
may be); provided however, Escrow Agent shall continue to invest the Escrow
Funds in accordance with Section 8 hereof; and/or
b. petition (by means of an interpleader action or any other
appropriate method) any court of competent jurisdiction in any venue convenient
to Escrow Agent, for instructions with respect to such dispute or uncertainty,
and to the extent required by law, pay into such court, for holding and
disposition in accordance with the instructions of such court, all funds held by
it in the Escrow Funds, after deduction and payment to Escrow Agent of all fees
and expenses (including court costs and attorneys' fees) payable to, incurred
by, or expected to
3
be incurred by Escrow Agent in connection with performance of its duties and the
exercise of its rights hereunder.
c. Escrow Agent shall have no liability to the Company, the
Investor, or any person with respect to any such suspension of performance or
disbursement into court, specifically including any liability or claimed
liability that may arise, or be alleged to have arisen, out of or as a result of
any delay in the disbursement of funds held in the Escrow Funds or any delay in
with respect to any other action required or requested of Escrow Agent.
8. INVESTMENT OF ESCROW FUNDS. Escrow Agent shall deposit the Escrow
----------------------------
Funds in a non-interest bearing account.
If Escrow Agent has not received a Joint Written Direction at any time that
an investment decision must be made, Escrow Agent shall maintain the Escrow
Funds, or such portion thereof, as to which no Joint Written Direction has been
received, in a non-interest bearing account.
9. RESIGNATION AND REMOVAL OF ESCROW AGENT. Escrow Agent may resign
------------------------------------------
from the performance of its duties hereunder at any time by giving thirty (30)
days' prior written notice to the parties or may be removed, with or without
cause, by the parties, acting jointly, by furnishing a Joint Written Direction
to Escrow Agent, at any time by the giving of ten (10) days' prior written
notice to Escrow Agent as provided herein below. Upon any such notice of
resignation or removal, the representatives of the Investor(s) and the Company
identified in Sections 13a.(iv) and 13b.(iv), below, jointly shall appoint a
successor Escrow Agent hereunder, which shall be a commercial bank, trust
company or other financial institution with a combined capital and surplus in
excess of $10,000,000.00. Upon the acceptance in writing of any appointment of
Escrow Agent hereunder by a successor Escrow Agent, such successor Escrow Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Escrow Agent, and the retiring Escrow
Agent shall be discharged from its duties and obligations under this Escrow
Agreement, but shall not be discharged from any liability for actions taken as
Escrow Agent hereunder prior to such succession. After any retiring Escrow
Agent's resignation or removal, the provisions of this Escrow Agreement shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Escrow Agent under this Escrow Agreement. The retiring Escrow Agent
shall transmit all records pertaining to the Escrow Funds and shall pay all
funds held by it in the Escrow Funds to the successor Escrow Agent, after making
copies of such records as the retiring Escrow Agent deems advisable and after
deduction and payment to the retiring Escrow Agent of all fees and expenses
(including court costs and attorneys' fees) payable to, incurred by, or expected
to be incurred by the retiring Escrow Agent in connection with the performance
of its duties and the exercise of its rights hereunder.
10. LIABILITY OF ESCROW AGENT.
----------------------------
a. Escrow Agent shall have no liability or obligation with respect
to the Escrow Funds except for Escrow Agent's willful misconduct or gross
negligence. Escrow Agent's sole responsibility shall be for the safekeeping,
investment, and disbursement of the Escrow Funds in accordance with the terms of
this Agreement. Escrow Agent shall have no implied duties or obligations and
shall not be charged with knowledge or notice or any fact or
4
circumstance not specifically set forth herein. Escrow Agent may rely upon any
instrument, not only as to its due execution, validity and effectiveness, but
also as to the truth and accuracy of any information contained herein, which
Escrow Agent shall in good faith believe to be genuine, to have been signed or
presented by the person or parties purporting to sign the same and conform to
the provisions of this Agreement. In no event shall Escrow Agent be liable for
incidental, indirect, special, and consequential or punitive damages. Escrow
Agent shall not be obligated to take any legal action or commence any proceeding
in connection with the Escrow Funds, any account in which Escrow Funds are
deposited, this Agreement or the Purchase Agreement, or to appear in, prosecute
or defend any such legal action or proceeding. Escrow Agent may consult legal
counsel selected by it in any event of any dispute or question as to
construction of any of the provisions hereof or of any other agreement or its
duties hereunder, or relating to any dispute involving any party hereto, and
shall incur no liability and shall be fully indemnified from any liability
whatsoever in acting in accordance with the opinion or instructions of such
counsel. The Company and the Investor jointly and severally shall promptly pay,
upon demand, the reasonable fees and expenses of any such counsel.
b. Escrow Agent is hereby authorized, in its sole discretion, to
comply with orders issued or process entered by any court with respect to the
Escrow Funds, without determination by Escrow Agent of such court's jurisdiction
in the matter. If any portion of the Escrow Funds is at any time attached,
garnished or levied upon under any court order, or in case the payment,
assignment, transfer, conveyance or delivery of any such property shall be
stayed or enjoined by any court order, or in any case any order judgment or
decree shall be made or entered by any court affecting such property or any part
thereof, then and in any such event, Escrow Agent is authorized, in its sole
discretion, to rely upon and comply with any such order, writ judgment or decree
which it is advised by legal counsel selected by it, binding upon it, without
the need for appeal or other action; and if Escrow Agent complies with any such
order, writ, judgment or decree, it shall not be liable to any of the parties
hereto or to any other person or entity by reason of such compliance even though
such order, writ judgment or decree may be subsequently reversed, modified,
annulled, set aside or vacated.
11. INDEMNIFICATION OF ESCROW AGENT. From and at all times after the
---------------------------------
date of this Agreement, the parties jointly and severally, shall, to the fullest
extent permitted by law and to the extent provided herein, indemnify and hold
harmless Escrow Agent and each director, officer, employee, attorney and agent
of Escrow Agent (collectively, the "Indemnified Parties") against any and all
-------------------
actions, claims (whether or not valid), losses, damages, liabilities, costs and
expenses of any kind or nature whatsoever (including without limitation
reasonable attorney's fees, costs and expenses) incurred by or asserted against
any of the Indemnified Parties from and after the date hereof, whether direct,
indirect or consequential, as a result of or arising from or in any way relating
to any claim, demand, suit, action, or proceeding (including any inquiry or
investigation) by any person, including without limitation the parties to this
Agreement, whether threatened or initiated, asserting a claim for any legal or
equitable remedy against any person under any statute or regulation, including,
but not limited to, any federal or state securities laws, or under any common
law or equitable cause or otherwise, arising from or in connection with the
negotiation, preparation, execution, performance or failure of performance of
this Agreement or any transaction contemplated herein, whether or not any such
Indemnified Party is a party to any such action or proceeding, suit or the
target of any such inquiry or investigation; provided, however, that no
Indemnified Party shall have the right to be indemnified hereunder for liability
5
finally determined by a court of competent jurisdiction, subject to no further
appeal, to have resulted from the gross negligence or willful misconduct of such
Indemnified Party. If any such action or claim shall be brought or asserted
against any Indemnified Party, such Indemnified Party shall promptly notify the
Company and the Investor hereunder in writing, and the Investor and the Company
shall assume the defense thereof, including the employment of counsel and the
payment of all expenses. Such Indemnified Party shall, in its sole discretion,
have the right to employ separate counsel (who may be selected by such
Indemnified Party in its sole discretion) in any such action and to participate
and to participate in the defense thereof, and the fees and expenses of such
counsel shall be paid by such Indemnified Party, except that the Investor and/or
the Company shall be required to pay such fees and expense if (a) the Investor
or the Company agree to pay such fees and expenses, or (b) the Investor and/or
the Company shall fail to assume the defense of such action or proceeding or
shall fail, in the sole discretion of such Indemnified Party, to employ counsel
reasonably satisfactory to the Indemnified Party in any such action or
proceeding, (c) the Investor and the Company are the plaintiff in any such
action or proceeding or (d) the named or potential parties to any such action or
proceeding (including any potentially impleaded parties) include both the
Indemnified Party, the Company and/or the Investor and the Indemnified Party
shall have been advised by counsel that there may be one or more legal defenses
available to it which are different from or additional to those available to the
Company or the Investor. The Investor and the Company shall be jointly and
severally liable to pay fees and expenses of counsel pursuant to the preceding
sentence, except that any obligation to pay under clause (a) shall apply only to
the party so agreeing. All such fees and expenses payable by the Company and/or
the Investor pursuant to the foregoing sentence shall be paid from time to time
as incurred, both in advance of and after the final disposition of such action
or claim. The obligations of the parties under this section shall survive any
termination of this Agreement, and resignation or removal of Escrow Agent shall
be independent of any obligation of Escrow Agent.
The parties agree that neither payment by the Company or the Investor of
any claim by Escrow Agent for indemnification hereunder shall impair, limit,
modify, or affect, as between the Investor and the Company, the respective
rights and obligations of Investor, on the one hand, and the Company, on the
other hand.
12. EXPENSES OF ESCROW AGENT. Except as set forth in Section 11 the
---------------------------
Investor shall reimburse Escrow Agent for all of its reasonable out-of-pocket
expenses, including attorneys' fees, travel expenses, telephone and facsimile
transmission costs, postage (including express mail and overnight delivery
charges), copying charges and the like. All of the compensation and
reimbursement obligations set forth in this Section shall be payable by the
Investor, upon demand by Escrow Agent. The obligations of the Investor under
this Section shall survive any termination of this Agreement and the resignation
or removal of Escrow Agent.
13. WARRANTIES.
----------
a. The Investor makes the following representations and warranties
to Escrow Agent:
(i) The Investor has full power and authority to execute and
deliver this Agreement and to perform its obligations hereunder.
6
(ii) This Agreement has been duly approved by all necessary
action of the Investor, including any necessary approval of the limited partner
of the Investor or necessary corporate approval, as applicable, has been
executed by duly authorized officers of the Investor, enforceable in accordance
with its terms.
(iii) The execution, delivery, and performance of the
Investor of this Agreement will not violate, conflict with, or cause a default
under any agreement of limited partnership of Investor or the articles of
incorporation or bylaws of the Investor (as applicable), any applicable law or
regulation, any court order or administrative ruling or degree to which the
Investor is a party or any of its property is subject, or any agreement,
contract, indenture, or other binding arrangement.
(iv) Xxxx X. Xxxxxxxxxx has been duly appointed to act as the
representative of the Investor hereunder and has full power and authority to
execute, deliver, and perform this Escrow Agreement, to execute and deliver any
Joint Written Direction, to amend, modify, or waive any provision of this
Agreement, and to take any and all other actions as the Investor's
representative under this Agreement, all without further consent or direction
form, or notice to, the Investor or any other party.
(v) No party other than the parties hereto have, or shall
have, any lien, claim or security interest in the Escrow Funds or any part
thereof. No financing statement under the Uniform Commercial Code is on file in
any jurisdiction claiming a security interest in or describing (whether
specifically or generally) the Escrow Funds or any part thereof.
(vi) All of the representations and warranties of the
Investor contained herein are true and complete as of the date hereof and will
be true and complete at the time of any disbursement from the Escrow Funds.
b. The Company makes the following representations and warranties
to Escrow Agent:
(i) The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware and has
full power and authority to execute and deliver this Agreement and to perform
its obligations hereunder.
(ii) This Agreement has been duly approved by all necessary
corporate action of the Company, including any necessary shareholder approval,
has been executed by duly authorized officers of the Company, enforceable in
accordance with its terms.
(iii) The execution, delivery, and performance by the Company
of this Agreement is in accordance with the Securities Purchase Agreement and
will not violate, conflict with, or cause a default under the certificate of
incorporation or bylaws of the Company, any applicable law or regulation, any
court order or administrative ruling or decree to which the Company is a party
or any of its property is subject, or any agreement, contract, indenture, or
other binding arrangement, including without limitation to the Securities
Purchase Agreement, to which the Company is a party.
7
(iv) Xxxxx Xxx, Xx. has been duly appointed to act as the
representative of the Company hereunder and has full power and authority to
execute, deliver, and perform this Agreement, to execute and deliver any Joint
Written Direction, to amend, modify or waive any provision of this Agreement and
to take all other actions as the Company's Representative under this Agreement,
all without further consent or direction from, or notice to, the Company or any
other party.
(v) No party other than the parties hereto have, or shall
have, any lien, claim or security interest in the Escrow Funds or any part
thereof. No financing statement under the Uniform Commercial Code is on file in
any jurisdiction claiming a security interest in or describing (whether
specifically or generally) the Escrow Funds or any part thereof.
(vi) All of the representations and warranties of the Company
contained herein are true and complete as of the date hereof and will be true
and complete at the time of any disbursement from the Escrow Funds.
14. CONSENT TO JURISDICTION AND VENUE; GOVERNING LAW. The parties
-----------------------------------------------------
hereto acknowledge that the transactions contemplated by this Agreement and the
exhibits hereto bear a reasonable relation to the State of New York. The
parties hereto agree that the internal laws of the State of New York shall
govern this Agreement and the exhibits hereto, including, but not limited to,
all issues related to usury. Any action to enforce the terms of this Agreement
or any of its exhibits shall be brought exclusively in the state and/or federal
courts situated in the County and State of New York. Service of process in any
action by any of the parties to enforce the terms of this Agreement may be made
by serving a copy of the summons and complaint, in addition to any other
relevant documents, by commercial overnight courier to the Company at its
principal address set forth in this Agreement.
15. NOTICE. All notices and other communications hereunder shall be in
------
writing and shall be deemed to have been validly served, given or delivered five
(5) days after deposit in the United States mails, by certified mail with return
receipt requested and postage prepaid, when delivered personally, one (1) day
delivered to any overnight courier, or when transmitted by facsimile
transmission and upon confirmation of receipt and addressed to the party to be
notified as follows:
If to Investor(s), to: Highgate House Funds, Ltd.
000 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx X. Xxxxxxxxxx, Esq.
Portfolio Manager
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
8
If to Escrow Agent, to: Gottbetter & Partners, LLP
000 Xxxxxxx Xxxxxx,
Xxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Company, to: Charys Holding Company Inc.
0000 Xxxxxxxxx Xxxxxx Xxxx , Xxxxx X000
Xxxxxxx, XX 00000
Attention: Xxxxx Xxx, Xx.
Telephone: (000) 000-0000
Facsimile: (000)000-0000
With a copy to: Paul, Hastings, Xxxxxxxx & Xxxxxx LLP
000 Xxxxxxxxx Xxxxxx, X.X., Xxxxx 0000
Xxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Or to such other address as each party may designate for itself by like notice.
16. AMENDMENTS OR WAIVER. This Agreement may be changed, waived,
----------------------
discharged or terminated only by a writing signed by the parties hereto. No
delay or omission by any party in exercising any right with respect hereto shall
operate as waiver. A waiver on any one occasion shall not be construed as a bar
to, or waiver of, any right or remedy on any future occasion.
17. SEVERABILITY. To the extent any provision of this Agreement is
------------
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition, or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
18. ENTIRE AGREEMENT. This Agreement constitutes the entire Agreement
-----------------
between the parties relating to the holding, investment, and disbursement of the
Escrow Funds and sets forth in their entirety the obligations and duties of
Escrow Agent with respect to the Escrow Funds.
19. BINDING EFFECT. All of the terms of this Agreement, as amended
---------------
from time to time, shall be binding upon, inure to the benefit of and be
enforceable by the respective heirs, successors and assigns of the Investor, the
Company, or Escrow Agent.
20. EXECUTION OF COUNTERPARTS. This Agreement and any Joint Written
---------------------------
Direction may be executed in counter parts, which when so executed shall
constitute one and same agreement or direction.
9
21. TERMINATION. Upon the first to occur of the disbursement of all
-----------
amounts in the Escrow Funds pursuant to Joint Written Directions or the
disbursement of all amounts in the Escrow Funds into court pursuant to Section 7
hereof, this Agreement shall terminate and Escrow Agent shall have no further
obligation or liability whatsoever with respect to this Agreement or the Escrow
Funds.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
10
IN WITNESS WHEREOF the parties have hereunto set their hands and seals the
day and year above set forth.
CHARYS HOLDING COMPANY INC.
By:
-------------------------------------
Name: Xxxxx Xxx, Xx.
Title: Chief Executive Officer
HIGHGATE HOUSE FUNDS, LTD.
By:
-------------------------------------
Name: Xxxx X. Xxxxxxxxxx
Title: Portfolio Manager
GOTTBETTER & PARTNERS, LLP
By:
-------------------------------------
Name: Xxxx X. Xxxxxxxxxx
Title: Managing Partner
11
EXHIBIT C
SECURITY AGREEMENT
------------------
1
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT (the "Agreement"), is entered into and made
---------
effective as of November ___, 2005, by and between CHARYS HOLDING COMPANY INC.,
a Delaware corporation (the "Company"), PERSONNEL RESOURCES OF GEORGIA, INC., a
-------
Georgia corporation, VIASYS NETWORK SERVICES INC., a Florida corporation, VIASYS
SERVICES INC., a Florida corporation (collectively, the "Subsidiaries"; and,
------------
together with the Company, the "Debtors") and Highgate House Funds, Ltd., a
-------
Cayman Islands company (the "Secured Party").
--------------
WHEREAS, the Company shall issue and sell to the Secured Party, as provided
in the Securities Purchase Agreement dated the date hereof (the "Securities
----------
Purchase Agreement"), and the Secured Party shall purchase a Three Million
-------------------
Dollars ($3,000,000) eight percent (8%) secured convertible debenture (the
"First Convertible Debenture"), as well as options, under the circumstances
-----------------------------
specified in the Securities Purchase Agreement, to purchase an additional One
Million Dollars ($1,000,000) eight percent (8%) secured convertible debenture
(the "Second Convertible Debenture" and, together with the First Convertible
------------------------------
Debenture, the "Convertible Debentures"), all of which shall be convertible into
----------------------
shares of the Company's common stock, par value $0.001 (the "Common Stock") (as
------------
converted, the "Conversion Shares");
------------------
WHEREAS, to induce the Secured Party to enter into the transaction
contemplated by the Securities Purchase Agreement, the First Convertible
Debenture, the Investor Registration Rights Agreement, the Escrow Shares Escrow
Agreement, the Irrevocable Transfer Agent Instructions and the Escrow Agreement
(all dated the date hereof and collectively referred to as the "Transaction
-----------
Documents"), the Debtors hereby grant to the Secured Party a security interest
---------
in and to the pledged property identified on Exhibit "A" hereto (collectively
-----------
referred to as the "Pledged Property") until the satisfaction of the
-----------------
Obligations, as defined herein below;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and for other good and valuable consideration, the adequacy
and receipt of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE 1.
DEFINITIONS AND INTERPRETATIONS
-------------------------------
Section 1.1 Recitals.
--------
The above recitals are true and correct and are incorporated herein, in
their entirety, by this reference.
Section 1.2 Interpretations.
---------------
Nothing herein expressed or implied is intended or shall be construed to
confer upon any person other than the Secured Party any right, remedy or claim
under or by reason hereof.
Section 1.3. Definitions.
-----------
Capitalized terms not otherwise defined herein shall have the meanings
ascribed to such terms in the Securities Purchase Agreement.
Section 1.4. Obligations Secured.
-------------------
The obligations secured hereby are any and all obligations of the Company
now existing or hereinafter incurred to the Secured Party, under the Securities
Purchase Agreement, the Convertible Debentures, and the Irrevocable Transfer
Agent Instructions (as to the obligation to deliver Escrow Shares underlying
Conversion Shares upon delivery of a Conversion Notice only) (collectively, the
"Obligations").
-----------
ARTICLE 2.
PLEDGED COLLATERAL, ADMINISTRATION OF COLLATERAL
------------------------------------------------
AND TERMINATION OF SECURITY INTEREST
------------------------------------
Section 2.1 Pledged Property.
----------------
(a) The Debtors hereby pledge to the Secured Party, and create in
the Secured Party for its benefit, a security interest in and to all of the
Pledged Property for such time until the Obligations are paid in full subject
only to the existing security interests held by other parties in such Pledged
Property as set forth in Exhibit "A" attached hereto. Notwithstanding the
------------
foregoing, the security interest granted pursuant to this Agreement shall
terminate immediately in the event the Company redeems, or the Secured Party
shall have converted, all amounts due under the Convertible Debentures. The
Pledged Property shall not include assets identified as "Excluded Assets" on
Exhibit "A" attached hereto.
------------
The Pledged Property, as set forth in Exhibit "A" attached hereto, and the
-----------
products thereof and the proceeds of all such items are hereinafter collectively
referred to as the "Pledged Collateral."
-------------------
(b) Simultaneously with the execution and delivery of this
Agreement, the Debtors shall make, execute, acknowledge, file, record and
deliver to the Secured Party any documents reasonably requested by the Secured
Party to perfect its security interest in the Pledged Property. Simultaneously
with the execution and delivery of this Agreement, the Debtors shall make,
execute, acknowledge and deliver to the Secured Party such documents and
instruments, including, without limitation, financing statements, certificates,
affidavits and forms as may, in the Secured Party's reasonable judgment, be
necessary to effectuate, complete or perfect, or to continue and preserve, the
security interest of the Secured Party in the Pledged Property, and the Secured
Party shall hold such documents and instruments as secured party, subject to the
terms and conditions contained herein.
Section 2.2 Rights; Interests; Etc.
-----------------------
(a) So long as no Event of Default (as hereinafter defined) shall
have occurred and be continuing:
2
(i) each of the Debtors shall be entitled to exercise any and
all rights pertaining to the Pledged Property or any part thereof for any
purpose not inconsistent with the terms hereof; and
(ii) each of the Debtors shall be entitled to receive and
retain any and all payments paid or made in respect of the Pledged Property.
(b) Upon the occurrence and during the continuance of an Event of
Default:
(i) All rights of each of the Debtors to exercise the rights
which it would otherwise be entitled to exercise pursuant to Section 2.2(a)(i)
hereof and to receive payments which it would otherwise be authorized to receive
and retain pursuant to Section 2.2(a)(ii) hereof shall be suspended, and all
such rights shall thereupon become vested in the Secured Party who shall
thereupon have the sole right to exercise such rights and to receive and hold as
Pledged Collateral such payments; provided, however, that if the Secured Party
shall become entitled and shall elect to exercise its right to realize on the
Pledged Collateral pursuant to Article 5 hereof, then all cash sums received by
the Secured Party, or held by the Debtors for the benefit of the Secured Party
and paid over pursuant to Section 2.2(b)(ii) hereof, shall be applied against
any outstanding Obligations;
(ii) All interest, dividends, income and other payments and
distributions which are received by the Debtors contrary to the provisions of
Section 2.2(b)(i) hereof shall be received in trust for the benefit of the
Secured Party, shall be segregated from other property of the Debtors and shall
be forthwith paid over to the Secured Party; and
(iii) The Secured Party in its sole discretion shall be
authorized to sell any or all of the Pledged Property at public or private sale
in order to recoup all of the outstanding principal plus accrued interest owed
pursuant to the Convertible Debentures as described herein.
(c) Each of the following events shall constitute a default under
this Agreement (each an "Event of Default"):
------------------
(i) any default, whether in whole or in part, shall occur in
the payment to the Secured Party of principal or interest under the Convertible
Debentures or other item comprising the Obligations as and when due or with
respect to any other debt or obligation of the Company to a party other than the
Secured Party;
(ii) any default, whether in whole or in part, shall occur in
the due observance or performance of any obligations or other covenants, terms
or provisions to be performed under this Agreement, the Securities Purchase
Agreement or the Convertible Debentures;
(iii) each of the Debtors shall: (1) make a general
assignment for the benefit of its creditors; (2) apply for or consent to the
appointment of a receiver, trustee, assignee, custodian, sequestrator,
liquidator or similar official for itself or any of its assets and properties;
(3) commence a voluntary case for relief as a debtor under the United States
Bankruptcy Code; (4) file with or otherwise submit to any governmental authority
any petition,
3
answer or other document seeking: (A) reorganization, (B) an arrangement with
creditors or (C) to take advantage of any other present or future applicable law
respecting bankruptcy, reorganization, insolvency, readjustment of debts, relief
of debtors, dissolution or liquidation; (5) file or otherwise submit any answer
or other document admitting or failing to contest the material allegations of a
petition or other document filed or otherwise submitted against it in any
proceeding under any such applicable law, or (6) be adjudicated a bankrupt or
insolvent by a court of competent jurisdiction;
(iv) any case, proceeding or other action shall be commenced
against the Debtors for the purpose of effecting, or an order, judgment or
decree shall be entered by any court of competent jurisdiction approving (in
whole or in part) anything specified in Section 2.2(c)(iii) hereof, or any
receiver, trustee, assignee, custodian, sequestrator, liquidator or other
official shall be appointed with respect to the Debtors, or shall be appointed
to take or shall otherwise acquire possession or control of all or a substantial
part of the assets and properties of the Debtors, and any of the foregoing shall
continue unstayed and in effect for any period of one hundred twenty (120) days;
(v) any material obligation of Debtors (other than its
Obligations under this Agreement) for the payment of borrowed money is not paid
when due or within any applicable grace period, or such obligation becomes or is
declared to be due and payable before the expressed maturity of the obligation,
or there shall have occurred an event that, with the giving of notice or lapse
of time, or both, would cause any such obligation to become, or allow any such
obligation to be declared to be, due and payable before the expressed maturity
date of the obligation (other than the default disclosed in Section 6.11
hereof); or
(vi) a breach by the Debtors of any material contract that
would have a Material Adverse Effect (as defined in Section 6.1 below) (other
than the default disclosed in Section 6.11 hereof).
ARTICLE 3.
ATTORNEY-IN-FACT; PERFORMANCE
-----------------------------
Section 3.1 Secured Party Appointed Attorney-In-Fact.
----------------------------------------
Upon the occurrence of an Event of Default, the Debtors hereby appoint the
Secured Party as its attorney-in-fact, with full authority in the place and
stead of the Debtors and in the name of the Debtors or otherwise, from time to
time in the Secured Party's discretion to take any action and to execute any
instrument which the Secured Party may reasonably deem necessary to accomplish
the purposes of this Agreement, including, without limitation, to receive and
collect all instruments made payable to the Company representing any payments in
respect of the Pledged Collateral or any part thereof and to give full discharge
for the same. The Secured Party may demand, collect, receipt for, settle,
compromise, adjust, xxx for, foreclose, or realize on the Pledged Property as
and when the Secured Party may determine. To facilitate collection, the Secured
Party may notify account debtors and obligors on any Pledged Property or Pledged
Collateral to make payments directly to the Secured Party.
4
Section 3.2 Secured Party May Perform.
-------------------------
If any of the Debtors fail to perform any agreement contained herein, the
Secured Party, at its option, may itself perform, or cause performance of, such
agreement, and the expenses of the Secured Party incurred in connection
therewith shall be included in the Obligations secured hereby and payable by the
Company under Section 8.3.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 4.1 Authorization; Enforceability.
-----------------------------
Each of the parties hereto represents and warrants that it has taken all
action necessary to authorize the execution, delivery and performance of this
Agreement and the transactions contemplated hereby; and upon execution and
delivery, this Agreement shall constitute a valid and binding obligation of the
respective party, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights or by the principles
governing the availability of equitable remedies.
Section 4.2 Ownership of Pledged Property.
-----------------------------
Each of the Debtors warrants and represents that it is the legal and
beneficial owner of the Pledged Property free and clear of any lien, security
interest, option or other charge or encumbrance except for the security interest
created by this Agreement or otherwise set forth on Exhibit "A".
------------
ARTICLE
DEFAULT; REMEDIES; SUBSTITUTE COLLATERAL
----------------------------------------
Section 5.1 Default and Remedies.
--------------------
(a) If an Event of Default described in Section 2.2(c)(i) and (ii)
occurs, then in each such case the Secured Party may declare the Obligations to
be due and payable immediately, by a notice in writing to the Debtors, and upon
any such declaration, the Obligations shall become immediately due and payable.
If an Event of Default described in Sections 2.2(c)(iii) through (vi) occurs and
is continuing for the period set forth therein, then the Obligations shall
automatically become immediately due and payable without declaration or other
act on the part of the Secured Party.
(b) Upon the occurrence of an Event of Default, the Secured Party
shall be entitled: (i) to receive all distributions with respect to the Pledged
Collateral, (ii) to cause the Pledged Property to be transferred into the name
of the Secured Party or its nominee, (iii) to dispose of the Pledged Property,
and (iv) to realize upon any and all rights in the Pledged Property then held by
the Secured Party.
5
Section 5.2 Method of Realizing Upon the Pledged Property: Other
----------------------------------------------------
Remedies.
---------
Upon the occurrence of an Event of Default, in addition to any rights and
remedies available at law or in equity, the following provisions shall govern
the Secured Party's right to realize upon the Pledged Property:
(a) Any item of the Pledged Property may be sold for cash or other
value in any number of lots at brokers board, public auction or private sale and
may be sold without demand, advertisement or notice (except that the Secured
Party shall give the related Debtor ten (10) days' prior written notice of the
time and place or of the time after which a private sale may be made (the "Sale
----
Notice")), which notice period is hereby agreed to be commercially reasonable.
------
At any sale or sales of the Pledged Property, the relevant Debtor may bid for
and purchase the whole or any part of the Pledged Property and, upon compliance
with the terms of such sale, may hold, exploit and dispose of the same without
further accountability to the Secured Party. The Debtors will execute and
deliver, or cause to be executed and delivered, such instruments, documents,
assignments, waivers, certificates, and affidavits and supply or cause to be
supplied such further information and take such further action as the Secured
Party reasonably shall require in connection with any such sale.
(b) Any cash being held by the Secured Party as Pledged Collateral
and all cash proceeds received by the Secured Party in respect of, sale of,
collection from, or other realization upon all or any part of the Pledged
Collateral shall be applied as follows:
(i) to the payment of all amounts due the Secured Party for
the expenses reimbursable to it hereunder or owed to it pursuant to Section 8.3
hereof;
(ii) to the payment of the Obligations then due and unpaid.
(iii) the balance, if any, to the person or persons entitled
thereto, including, without limitation, the Debtors.
(c) In addition to all of the rights and remedies which the
Secured Party may have pursuant to this Agreement, the Secured Party shall have
all of the rights and remedies provided by law, including, without limitation,
those under the Uniform Commercial Code.
(i) If the relevant Debtors fails to pay such amounts due
upon the occurrence of an Event of Default which is continuing, then the Secured
Party may institute a judicial proceeding for the collection of the sums so due
and unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against such Debtor and collect the monies adjudged or decreed
to be payable in the manner provided by law out of the property of the Debtor,
wherever situated.
(ii) The Debtors agree that they shall be liable for any
reasonable fees, expenses and costs incurred by the Secured Party in connection
with enforcement, collection and preservation of the obligations, including,
without limitation, reasonable legal fees and expenses, and such amounts shall
be deemed included as Obligations secured hereby and payable as set forth in
Section 8.3 hereof.
6
Section 5.3 Proofs of Claim.
---------------
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relating to the Debtors or the property of the Debtors or of
such other obligor or its creditors, the Secured Party (irrespective of whether
the Obligations shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Secured Party shall
have made any demand on the Debtors for the payment of the Obligations), shall
be entitled and empowered, by intervention in such proceeding or otherwise:
(i) to file and prove a claim for the whole amount of the
Obligations and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Secured Party (including any claim
for the reasonable legal fees and expenses and other expenses paid or incurred
by the Secured Party permitted hereunder and of the Secured Party allowed in
such judicial proceeding), and
(ii) to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same; and any
custodian, receiver, assignee, trustee, liquidator, sequestrator or other
similar official in any such judicial proceeding is hereby authorized by the
Secured Party to make such payments to the Secured Party and, in the event that
the Secured Party shall consent to the making of such payments directed to the
Secured Party, to pay to the Secured Party any amounts for expenses due it
hereunder.
Section 5.4 Duties Regarding Pledged Collateral.
-----------------------------------
The Secured Party shall have no duty as to the collection or protection of
the Pledged Property or any income thereon or as to the preservation of any
rights pertaining thereto, beyond the safe custody and reasonable care of any of
the Pledged Property actually in the Secured Party's possession.
ARTICLE 6.
AFFIRMATIVE COVENANTS
---------------------
The Debtors covenant and agree that, from the date hereof and until the
Obligations have been fully paid and satisfied or this Agreement shall otherwise
terminate, unless the Secured Party shall consent otherwise in writing (as
provided in Section 8.4 hereof):
Section 6.1 Existence, Properties, Etc.
---------------------------
(a) Each of the Debtors shall do, or cause to be done, all things,
or proceed with due diligence with any actions or courses of action, that may be
reasonably necessary (i) to maintain each of the Debtor's due organization,
valid existence and good standing under the laws of its state of incorporation,
and (ii) to preserve and keep in full force and effect all qualifications,
licenses and registrations in those jurisdictions in which the failure to do so
could have a Material Adverse Effect (as defined below); and (b) the Debtors
shall not do, or cause to be done, any act impairing the Debtor's corporate
power or authority (i) to carry on the Debtor's business as now conducted, and
(ii) to execute or deliver this Agreement or any other document
7
delivered in connection herewith, including, without limitation, any UCC-1
Financing Statements required by the Secured Party (which other loan instruments
collectively shall be referred as "Loan Instruments") to which it is or will be
----------------
a party, or perform any of its obligations hereunder or thereunder. For purpose
of this Agreement, the term "Material Adverse Effect" shall mean any material
-----------------------
and adverse effect as determined by Secured Party in its sole discretion,
whether individually or in the aggregate, upon (a) the Debtor's assets,
business, operations, properties or condition, financial or otherwise; (b) the
Debtor's to make payment as and when due of all or any part of the Obligations;
or (c) the Pledged Property.
Section 6.2 Financial Statements and Reports.
--------------------------------
The Company shall furnish to the Secured Party within a reasonable time
such financial data as the Secured Party may reasonably request, including,
without limitation, the following:
(a) The balance sheet of the Company as of the close of each
fiscal year, the statement of earnings and retained earnings of the Company as
of the close of such fiscal year, and statement of cash flows for the Company
for such fiscal year, all in reasonable detail, prepared in accordance with
generally accepted accounting principles consistently applied, certified by the
chief executive and chief financial officers of the Company as being true and
correct and accompanied by a certificate of the chief executive and chief
financial officers of the Company, stating that the Company has kept, observed,
performed and fulfilled each covenant, term and condition of this Agreement
during such fiscal year and that no Event of Default hereunder has occurred and
is continuing, or if an Event of Default has occurred and is continuing,
specifying the nature of same, the period of existence of same and the action
the Company proposes to take in connection therewith;
(b) A balance sheet of the Company as of the close of each month,
and statement of earnings and retained earnings of the Company as of the close
of such month, all in reasonable detail, and prepared substantially in
accordance with generally accepted accounting principles consistently applied,
certified by the chief executive and chief financial officers of the Company as
being true and correct; and
(c) Copies of all accountants' reports and accompanying financial
reports submitted to the Company by independent accountants in connection with
each annual examination of the Company.
Section 6.3 Accounts and Reports.
--------------------
The Company shall maintain a standard system of accounting in accordance
with generally accepted accounting principles consistently applied and provide,
at its sole expense, to the Secured Party the following:
(a) as soon as available, a copy of any notice or other
communication received by any of the Debtors alleging any nonpayment or other
material breach or default, or any foreclosure or other action respecting any
material portion of its assets and properties, respecting any of the
indebtedness of the Debtors in excess of $50,000 (other than the Obligations),
or any demand or other request for payment under any guaranty, assumption,
purchase agreement or similar agreement or arrangement respecting the
indebtedness or
8
obligations of others in excess of $50,000, including any received from any
person acting on behalf of the Secured Party or beneficiary thereof; and
(b) within fifteen (15) days after the making of each submission
or filing, a copy of any report, financial statement, notice or other document,
whether periodic or otherwise, submitted to the stockholders of the Company, or
submitted to or filed by the Company with any governmental authority involving
or affecting (i) the Debtors that could have a Material Adverse Effect; (ii) the
Obligations; (iii) any part of the Pledged Collateral; or (iv) any of the
transactions contemplated in Transaction Documents.
Section 6.4 Maintenance of Books and Records; Inspection.
--------------------------------------------
The Debtors shall maintain its books, accounts and records in accordance
with generally accepted accounting principles consistently applied, and permit
the Secured Party, its officers and employees and any professionals designated
by the Secured Party in writing, at any time to visit and inspect any of its
properties (including but not limited to the Pledged Property and Collateral
described in the Transaction Documents), corporate books and financial records,
and to discuss its accounts, affairs and finances with any employee, officer or
director thereof.
Section 6.5 Maintenance and Insurance.
-------------------------
(a) The Debtors shall maintain or cause to be maintained, at its
own expense, all of its assets and properties in good working order and
condition, making all necessary repairs thereto and renewals and replacements
thereof.
(b) The Debtors shall maintain or cause to be maintained, at its
own expense, insurance in form, substance and amounts (including deductibles),
which the Debtors deem reasonably necessary to the Company's business, (i)
adequate to insure all assets and properties of the Debtors, which assets and
properties are of a character usually insured by persons engaged in the same or
similar business against loss or damage resulting from fire or other risks
included in an extended coverage policy; (ii) against public liability and other
tort claims that may be incurred by the Debtors; (iii) as may be required by the
Transaction Documents and/or the applicable law and (iv) as may be reasonably
requested by Secured Party, all with adequate, financially sound and reputable
insurers.
Section 6.6 Contracts and Other Collateral.
------------------------------
The Debtors shall perform all of its obligations under or with respect to
each instrument, receivable, contract and other intangible included in the
Pledged Property to which the Debtors are now or hereafter will be party on a
timely basis and in the manner therein required, including, without limitation,
this Agreement.
Section 6.7 Defense of Collateral, Etc.
---------------------------
The Debtors shall defend and enforce their right, title and interest in and
to any part of: (a) the Pledged Property; and (b) if not included within the
Pledged Property, those assets and properties whose loss could have a Material
Adverse Effect, the Debtors shall defend the Secured Party's right, title and
interest in and to each and every part of the Pledged Property,
9
each against all manner of claims and demands on a timely basis to the full
extent permitted by applicable law.
Section 6.8 Payment of Debts, Taxes, Etc.
-----------------------------
The Debtors shall pay, or cause to be paid, all of its indebtedness and
other liabilities and perform, or cause to be performed, all of its obligations
in accordance with the respective terms thereof, and pay and discharge, or cause
to be paid or discharged, all taxes, assessments and other governmental charges
and levies imposed upon it, upon any of its assets and properties on or before
the last day on which the same may be paid without penalty, as well as pay all
other lawful claims (whether for services, labor, materials, supplies or
otherwise) as and when due
Section 6.9 Taxes and Assessments; Tax Indemnity.
------------------------------------
The Debtors shall (a) file all tax returns and appropriate schedules
thereto that are required to be filed under applicable law, prior to the date of
delinquency, (b) pay and discharge all taxes, assessments and governmental
charges or levies imposed upon the Debtors, upon its income and profits or upon
any properties belonging to it, prior to the date on which penalties attach
thereto, and (c) pay all taxes, assessments and governmental charges or levies
that, if unpaid, might become a lien or charge upon any of its properties;
provided, however, that the Debtors in good faith may contest any such tax,
assessment, governmental charge or levy described in the foregoing clauses (b)
and (c) so long as appropriate reserves are maintained with respect thereto.
Section 6.10 Compliance with Law and Other Agreements.
----------------------------------------
The Debtors shall maintain its business operations and property owned or
used in connection therewith in compliance with (a) all applicable federal,
state and local laws, regulations and ordinances governing such business
operations and the use and ownership of such property, and (b) all agreements,
licenses, franchises, indentures and mortgages to which the Debtors are a party
or by which the Debtors or any of their properties are bound. Without limiting
the foregoing, the Debtors shall pay all of their indebtedness promptly in
accordance with the terms thereof.
Section 6.11 Notice of Default.
-----------------
The Debtors shall give written notice to the Secured Party of the
occurrence of any default or Event of Default under this Agreement, the other
Transaction Documents or any other agreement of Debtors for the payment of
money, promptly upon the occurrence thereof.
Section 6.12 Notice of Litigation.
--------------------
The Debtors shall give notice, in writing, to the Secured Party of (a) any
actions, suits or proceedings wherein the amount at issue is in excess of
$50,000, instituted by any persons against the Debtors, or affecting any of the
assets of the Debtors, and (b) any dispute, not resolved within fifteen (15)
days of the commencement thereof, between the Debtors on the one hand and any
governmental or regulatory body on the other hand, which might reasonably be
10
expected to have a Material Adverse Effect on the business operations or
financial condition of the Company.
ARTICLE 7.
NEGATIVE COVENANTS
------------------
The Company covenants and agrees that, from the date hereof until the
Obligations have been fully paid and satisfied or this Agreement shall otherwise
terminate, the Company shall not, unless the Secured Party shall consent
otherwise in writing:
Section 7.1 Liens and Encumbrances.
------------------------
The Debtors shall not directly or indirectly make, create, incur, assume or
permit to exist any assignment, transfer, pledge, mortgage, security interest or
other lien or encumbrance of any nature in, to or against any part of the
Pledged Property or of the Debtor's capital stock, or offer or agree to do so,
or own or acquire or agree to acquire any asset or property of any character
subject to any of the foregoing encumbrances (including any conditional sale
contract or other title retention agreement), or assign, pledge or in any way
transfer or encumber its right to receive any income or other distribution or
proceeds from any part of the Pledged Property or the Debtors' capital stock; or
enter into any sale-leaseback financing respecting any part of the Pledged
Property as lessee, or cause or assist the inception or continuation of any of
the foregoing.
Section 7.1 Certificate of Incorporation, By-Laws, Mergers,
-----------------------------------------------
Consolidations, Acquisitions and Sales.
---------------------------------------
Without the prior express written consent of the Secured Party, the Debtors
shall not: (a) Amend their Certificate of Incorporation or By-Laws; (b) be a
party to any merger, consolidation or corporate reorganization; (c) except for
the Security Agreement (relating to a $3,500,000 note), dated November 1, 2005,
among the Company, Viasys Network Services Inc.("VNS"), Viasys Services Inc.
---
("VSI") and New Viasys Holdings, LLC ("NVH") and the additional Security
--- ---
Agreement (relating to a $6,572,103 note), dated November 1, 2005, among the
Company, VNS, VSI and NVH, sell, transfer, convey, grant a security interest in
or lease all or any substantial part of its assets, or (d) convey any of its
assets to any subsidiary; provided, however that this Section 7.2 shall not
prohibit the Company (whether through an existing or newly formed subsidiary)
from acquiring the stock or assets of another entity.
Section 7.2 Management, Ownership.
---------------------
The Company shall not materially change its ownership, executive staff or
management without the prior written consent of the Secured Party. The
ownership, executive staff and management of the Company are material factors in
the Secured Party's willingness to institute and maintain a lending relationship
with the Debtors.
11
Section 7.3 Dividends, Etc.
--------------
The Debtors shall not declare or pay any dividend of any kind, in cash or
in property, on any class of its capital stock, nor purchase, redeem, retire or
otherwise acquire for value any shares of such stock (other than the redemption
rights under the Convertible Debentures and any other securities of the Company
in existence as of the date hereof), nor make any distribution of any kind in
respect thereof, nor make any return of capital to shareholders, nor make any
payments in respect of any pension, profit sharing, retirement, stock option,
stock bonus, incentive compensation or similar plan (except as required or
permitted hereunder), without the prior written consent of the Secured Party.
Section 7.4 Guaranties; Loans.
-----------------
The Debtors shall not guarantee nor be liable in any manner, whether
directly or indirectly, or become contingently liable after the date of this
Agreement in connection with the obligations or indebtedness of any person or
persons, except for (i) the indebtedness currently secured by the liens
identified on the Pledged Property identified on Exhibit A hereto and (ii) the
endorsement of negotiable instruments payable to the Debtors for deposit or
collection in the ordinary course of business. The Debtors shall not make any
loan, advance or extension of credit to any person other than in the normal
course of its business. Nothing contained herein shall prohibit the Company
from complying with its obligations to replace a standby letter of credit in the
approximate amount of $1.35M with City National Bank, delivering the promissory
notes in favor of NVH or otherwise performing all obligations to be performed by
it under that certain Stock Purchase Agreement dated November 1, 2005 between
the Company and NVH. In addition, nothing contained herein shall prohibit the
Company, Viasys Network Services, Inc. and Viasys Services, Inc. from entering
into those amendments to certain revolving credit agreements with Xxxxxxx Xxxxx
Business Financial Services, Inc. ("Xxxxxxx"), specifically, WCMA Loan and
Security Agreement Nos. 2BN-07936, 2BN-07937 and 2BN-07938 (the "Xxxxxxx
Amendments"), nor shall the Company be prohibited from executing and delivering
an Unconditional Guarantee in favor of Xxxxxxx with respect thereto (the
"Xxxxxxx Guarantee").
Section 7.5 Debt.
----
The Debtors shall not create, incur, assume or suffer to exist any
additional indebtedness of any description whatsoever in an aggregate amount in
excess of $50,000 (excluding any indebtedness of the Debtors to the Secured
Party, trade accounts payable and accrued expenses incurred in the ordinary
course of business and the endorsement of negotiable instruments payable to the
Debtors, respectively for deposit or collection in the ordinary course of
business). Nothing contained herein shall prohibit the Company from complying
with its obligations to replace a standby letter of credit in the approximate
amount of $1.35M with City National Bank, delivering the promissory notes in
favor of NVH or otherwise performing all obligations to be performed by it under
that certain Stock Purchase Agreement dated November 1, 2005 between the Company
and NVH. In addition, nothing contained herein shall prohibit the Company,
Viasys Network Services, Inc. and Viasys Services, Inc. from entering into the
Xxxxxxx Amendments, nor shall the Company be prohibited from executing and
delivering the Xxxxxxx Guarantee.
12
Section 7.6 Conduct of Business.
-------------------
The Debtors will continue to engage, in an efficient and economical manner,
in a business of the same general type as conducted by it on the date of this
Agreement.
Section 7.7 Places of Business.
------------------
The location of the Company's chief place of business is Atlanta, Georgia.
The Company shall not change the location of its chief place of business, chief
executive office or any place of business disclosed to the Secured Party or move
any of the Pledged Property from its current location without thirty (30) days'
prior written notice to the Secured Party in each instance.
ARTICLE 8.
MISCELLANEOUS
-------------
Section 8.1 Notices.
-------
All notices or other communications required or permitted to be given
pursuant to this Agreement shall be in writing and shall be considered as duly
given on: (a) the date of delivery, if delivered in person, by nationally
recognized overnight delivery service or (b) five (5) days after mailing if
mailed from within the continental United States by certified mail, return
receipt requested to the party entitled to receive the same:
If to the Company, to: Charys Holding Company Inc.
0000 Xxxxxxxxx Xxxxxx Xxxx, Xxxxx X000
Xxxxxxx, XX 00000
Attention: Xxxxx Xxx, Xx.
Telephone: 000-000-0000
Facsimile: 000-000-0000
With a copy to: Paul, Hastings, Xxxxxxxx & Xxxxxx LLP
000 Xxxxxxxxx Xxxxxx, X.X., Xxxxx 0000
Xxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxx
Telephone: 000-000-0000
Facsimile: 000-000-0000
If to the Secured Party: Highgate House Funds, Ltd
000 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx X. Xxxxxxxxxx, Esq.
Telephone: 000-000-0000
Facsimile: 000-000-0000
13
With a copy to: Gottbetter & Partners, LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxxxxx, Esq.
Telephone: 000-000-0000
Facsimile: 000-000-0000
Any party may change its address by giving notice to the other party
stating its new address. Commencing on the tenth (10th) day after the giving of
such notice, such newly designated address shall be such party's address for the
purpose of all notices or other communications required or permitted to be given
pursuant to this Agreement.
Section 8.2 Severability.
------------
If any provision of this Agreement shall be held invalid or unenforceable,
such invalidity or unenforceability shall attach only to such provision and
shall not in any manner affect or render invalid or unenforceable any other
severable provision of this Agreement, and this Agreement shall be carried out
as if any such invalid or unenforceable provision were not contained herein.
Section 8.3 Expenses.
--------
In the event of an Event of Default, the Debtors will pay to the Secured
Party the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel, which the Secured Party may incur in
connection with: (i) the custody or preservation of, or the sale, collection
from, or other realization upon, any of the Pledged Property; (ii) the exercise
or enforcement of any of the rights of the Secured Party hereunder or (iii) the
failure by the Debtors to perform or observe any of the provisions hereof.
Section 8.4 Waivers, Amendments, Etc.
-------------------------
The Secured Party's delay or failure at any time or times hereafter to
require strict performance by the Debtors of any undertakings, agreements or
covenants shall not waive, affect, or diminish any right of the Secured Party
under this Agreement to demand strict compliance and performance herewith. Any
waiver by the Secured Party of any Event of Default shall not waive or affect
any other Event of Default, whether such Event of Default is prior or subsequent
thereto and whether of the same or a different type. None of the undertakings,
agreements and covenants of the Debtors contained in this Agreement, and no
Event of Default, shall be deemed to have been waived by the Secured Party, nor
may this Agreement be amended, changed or modified, unless such waiver,
amendment, change or modification is evidenced by an instrument in writing
specifying such waiver, amendment, change or modification and signed by the
Secured Party.
14
Section 8.5 Continuing Security Interest.
----------------------------
This Agreement shall create a continuing security interest in the Pledged
Property and shall: (i) remain in full force and effect until the Obligations
are paid in full at which time this Agreement shall terminate; (ii) be binding
upon the Debtor and their successors and heirs; and (iii) inure to the benefit
of the Secured Party and its successors and assigns. Notwithstanding the
foregoing, this Agreement shall terminate immediately in the event the Company
redeems, or the Secured Party shall have converted, all amounts due under the
Convertible Debentures. Upon the termination of this Agreement, the Debtor
shall be entitled to the return, at the Secured Party's expense, of such of the
Pledged Property as shall not have been sold in accordance with Section 5.2
hereof or otherwise applied pursuant to the terms hereof.
Section 8.6 Independent Representation.
--------------------------
Each party hereto acknowledges and agrees that it has received or has had
the opportunity to receive independent legal counsel of its own choice and that
it has been sufficiently apprised of its rights and responsibilities with regard
to the substance of this Agreement.
Section 8.7 Applicable Law: Jurisdiction.
-----------------------------
The parties hereto acknowledge that the transactions contemplated by this
Agreement and the exhibits hereto bear a reasonable relation to the State of New
York. The parties hereto agree that the internal laws of the State of New York
shall govern this Agreement and the exhibits hereto, including, but not limited
to, all issues related to usury. Any action to enforce the terms of this
Agreement or any of its exhibits shall be brought exclusively in the state
and/or federal courts situated in the County and State of New York. Service of
process in any action by the Secured Party to enforce the terms of this
Agreement may be made by serving a copy of the summons and complaint, in
addition to any other relevant documents, by commercial overnight courier to the
Debtors at its principal address set forth in this Agreement.
Section 8.8 Waiver of Jury Trial.
--------------------
AS A FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT
AND TO MAKE THE FINANCIAL ACCOMMODATIONS TO THE DEBTORS, THE DEBTORS HEREBY
WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO
THIS AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS RELATED TO THIS TRANSACTION.
Section 8.9 Entire Agreement.
----------------
This Agreement constitutes the entire agreement among the parties and
supersedes any prior agreement or understanding among them with respect to the
subject matter hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
15
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
COMPANY:
CHARYS HOLDING COMPANY INC.
By:
---------------------------------
Name: Xxxxx Xxx, Xx.
Title: Chief Executive Officer
SECURED PARTY:
HIGHGATE HOUSE FUNDS, LTD.
By:
---------------------------------
Name: Xxxx X. Xxxxxxxxxx
Title: Portfolio Manager
SUBSIDIARIES:
VIASYS NETWORK SERVICES, INC.
By:
---------------------------------
Name:
Title:
PERSONNEL RESOURCES OF GEORGIA, INC.
By:
---------------------------------
Name:
Title:
VIASYS SERVICES, INC.
By:
---------------------------------
Name:
Title:
16
EXHIBIT A
DEFINITION OF PLEDGED PROPERTY
------------------------------
For the purpose of securing prompt and complete payment and performance by
the Debtors of all of the Obligations, the Debtors unconditionally and
irrevocably hereby grants to the Secured Party a continuing security interest in
and to, and lien upon, the following Pledged Property of the Debtors:
(a) all goods of the Debtors, including, without limitation,
machinery, equipment, furniture, furnishings, fixtures, signs, lights, tools,
parts, supplies and motor vehicles of every kind and description, now or
hereafter owned by the Debtors or in which the Debtors may have or may hereafter
acquire any interest, and all replacements, additions, accessions, substitutions
and proceeds thereof, arising from the sale or disposition thereof, and where
applicable, the proceeds of insurance and of any tort claims involving any of
the foregoing;
(b) all inventory of the Debtors, including, but not limited to,
all goods, wares, merchandise, parts, supplies, finished products, other
tangible personal property, including such inventory as is temporarily out of
Debtors' custody or possession and including any returns upon any accounts or
other proceeds, including insurance proceeds, resulting from the sale or
disposition of any of the foregoing;
(c) all contract rights and general intangibles of the Debtors,
including, without limitation, goodwill, trademarks, trade styles, trade names,
leasehold interests, partnership or joint venture interests, patents and patent
applications, copyrights, deposit accounts whether now owned or hereafter
created;
(d) all documents, warehouse receipts, instruments and chattel
paper of the Debtors whether now owned or hereafter created;
(e) all accounts and other receivables, instruments or other forms
of obligations and rights to payment of the Debtors (herein collectively
referred to as "Accounts"), together with the proceeds thereof, all goods
--------
represented by such Accounts and all such goods that may be returned by the
Debtors' customers, and all proceeds of any insurance thereon, and all
guarantees, securities and liens which the Debtors may hold for the payment of
any such Accounts including, without limitation, all rights of stoppage in
transit, replevin and reclamation and as an unpaid vendor and/or lienor, all of
which the Debtors represents and warrants will be bona fide and existing
obligations of its respective customers, arising out of the sale of goods by the
Debtors in the ordinary course of business;
(f) to the extent assignable, all of the Debtors' rights under all
present and future authorizations, permits, licenses and franchises issued or
granted in connection with the operations of any of its facilities;
(g) all products and proceeds (including, without limitation,
insurance proceeds) from the above-described Pledged Property.
Notwithstanding the foregoing, the security interest granted by the Debtors in
the following Pledged Property shall be subject to the prior security interests
held or to be held by third parties as follows (the "Existing Liens"):
A-17
Upon the closing of the transaction contemplated by the Stock Purchase Agreement
(the "Viasys Transaction") between Charys Holding Company Inc. and New Viasys
Holdings, LLC ("Seller"), Charys will grant a security interest in the following
assets to Seller: (i) that certain Facilities Maintenance Agreement, dated as of
January 27, 1992, and as amended as of November 2, 2005, between Georgia
Electric Company (n/k/a VSI) and Xxxxxx Tire & Rubber Co.; (ii) gross revenues
and receipts, money, securities and all proceeds derived from such contract;
(iii) all claims of VSI against Xxxxxx Tire & Rubber Co. relating to or arising
out of such contract; (iv) all of the issued and outstanding shares of capital
stock of each of Viasys Services, Inc. and Viasys Network Services, Inc. (the
"Shares") together with the certificates, if any, evidencing the Shares, and (v)
all moneys, property or securities resulting from a reorganization,
reclassification or other similar transaction or otherwise received in exchange
for the Shares, and any warrants, rights or options issued to the holder of, or
otherwise in respect of, the Shares; provided that the Seller's security
interests are subordinate to those of the Secured Party in the amount of
$2,200,000.
Notwithstanding the foregoing, no security interest shall be granted by the
Debtors in the following (the "Excluded Assets"):
Upon the closing of the Viasys Transaction, Charys will grant a security
interest in the following assets to Seller: (i) all contract and other rights in
and to the VA Job; (ii) all general intangibles, including goodwill, relating to
the VA Job; (iii) all accounts receivable relating to the VA Job; (iii) gross
revenues and receipts, money, securities and all Proceeds derived from the VA
Job; and (iv) all machinery, equipment, furniture, fixtures, motor vehicles
(collectively "Tangible Assets") listed on Schedule 1 to the Security Agreement,
and all Tangible Assets and all insurance proceeds and products thereof now
owned or hereafter acquired and relating to the VA Job; (v) all claims of Debtor
against third parties, including, without limitation, against the Commonwealth
of Virginia Department of Transportation, relating to or arising out of the VA
Job.
A-18
EXHIBIT D
ESCROW SHARES ESCROW AGREEMENT
------------------------------
1
EXHIBIT E
IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
---------------------------------------
1
IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
November 17, 2005
Fidelity Transfer Company
0000 X. Xxxx Xxxxxx, Xxxxx 000
Xxxx Xxxx Xxxx, Xxxx 00000
Attention: Xxxxx Xxxxxxxx
RE: CHARYS HOLDING COMPANY INC.
Ladies and Gentlemen:
Reference is made to that certain Securities Purchase Agreement (the "Securities
----------
Purchase Agreement") dated November 16, 2005 by and between Charys Holding
-------------------
Company Inc., a Delaware corporation (the "Company"), and Highgate House Funds,
-------
Ltd. (the "Buyer") and that certain Escrow Shares Escrow Agreement (the "Escrow
----- ------
Agreement") of even date herewith among the Company, the Buyer and Gottbetter &
---------
Partners, LLP, as escrow agent (the "Escrow Agent"). Pursuant to the Securities
------------
Purchase Agreement, the Company shall sell to the Buyer, and the Buyer shall
purchase from the Company, one or more convertible debentures (collectively
referred to herein as the "Debenture") in the aggregate principal amount of Four
---------
Million Dollars ($4,000,000), plus accrued interest, which are convertible into
shares of the Company's common stock, par value $0.001 per share (the "Common
------
Stock"), at the Buyer's discretion unless earlier redeemed in full by the
-----
Company. These instructions relate to the following stock or proposed stock
issuances or transfers:
1. The Company has agreed to issue to the Buyer (i) up to 6,666,666
shares of Common Stock upon conversion of the Debenture ("Conversion
----------
Shares") including the shares of Common Stock to be issued to the
------
Buyer upon conversion of accrued interest into Common Stock and (ii)
1,000,000 shares of Common Stock upon exercise of the Warrant (as
defined in the Securities Purchase Agreement) (the "Warrant Shares")
--------------
if and to the extent required under the Securities Purchase Agreement.
2. The Company has issued 20,000,000 shares of Common Stock (the "Escrow
-------
Shares") in the Buyer's name that have been or are being delivered to
-----
the Escrow Agent pursuant to the Securities Purchase Agreement and the
Escrow Agreement.
This letter shall serve as our irrevocable authorization and direction to
Fidelity Transfer Company (the "Transfer Agent") to do the following:
--------------
1
1. Conversion Shares.
a. Instructions Applicable to Transfer Agent. With respect to the
Conversion Shares and the Warrant Shares, the Transfer Agent
shall issue the Conversion Shares or the Warrant Shares to the
Buyer from time to time upon delivery to the Transfer Agent of a
properly completed and duly executed Conversion Notice (the
"Conversion Notice"), in the form attached hereto as Exhibit I,
------------------- ---------
delivered on behalf of the Company to the Transfer Agent by the
Escrow Agent or a properly completed and duly executed notice of
exercise substantially in the form attached to the Warrant (the
"Exercise Notice"), respectively. Unless the Company shall have
delivered in good faith its notice of objection only to the
calculation of the Conversion Shares to the Transfer Agent and
Escrow Agent within one (1) business day of its receipt of the
Conversion Notice, upon receipt of a Conversion Notice or
Exercise Notice, the Transfer Agent shall within three (3)
Trading Days thereafter (i) issue and surrender to a common
carrier for overnight delivery to the address as specified in the
Conversion Notice or Exercise Notice, a certificate or
certificates, registered in the name of the Buyer or its
designees, for the number of shares of Common Stock to which the
Buyer shall be entitled as set forth in the Conversion Notice or
Exercise Notice or (ii) provided that the Transfer Agent is
participating in The Depository Trust Company ("DTC") Fast
---
Automated Securities Transfer Program, upon the request of the
Buyer, credit such aggregate number of shares of Common Stock to
which the Buyer shall be entitled to the Buyer's or its
designees' balance account with DTC through their Deposit
Withdrawal At Custodian ("DWAC") system provided the Buyer causes
----
its bank or broker to initiate the DWAC transaction. For purposes
hereof "Trading Day" shall mean any day on which the Nasdaq
------------
National Market is open for customary trading.
b. The Company hereby confirms to the Transfer Agent and the Buyer
that certificates representing the Conversion Shares and Warrant
Shares shall not bear any legend restricting transfer and should
not be subject to any stop-transfer restrictions and shall
otherwise be freely transferable on the books and records of the
Company; provided that counsel to the Company delivers (i) the
Notice of Effectiveness set forth in Exhibit II attached hereto
----------
and (ii) an opinion of counsel in the form set forth in Exhibit
-------
III attached hereto, and that if the Conversion Shares and the
---
Warrant Shares are not registered for resale under the Securities
Act of 1933, as amended (the "Securities Act"), then the
provisions of paragraph 1(a)(ii), above, shall not be applicable
until such shares are registered, and the certificates for the
Conversion Shares and Warrant Shares shall bear a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED IN
2
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A
FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS
NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS
OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT."
In the event such number of Conversion Shares or Warrant Shares
are issued to the Buyer such that the Buyer would be considered
an "affiliate" of the Company as defined under Rule 144 of the
Securities Act or in the event the Transfer Agent determines that
the Buyer would otherwise be considered an affiliate of the
Company under Rule 144 of the Securities Act, then the
certificates for the Conversion Shares and/or Warrant Shares
shall bear a legend in substantially the following form:
THE REGISTERED HOLDER OF THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY BE AN AFFILIATE (AS SUCH TERM IS DEFINED BY RULE
144 ("RULE 144") PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT")) OF THE COMPANY. IF SUCH HOLDER IS
AN AFFILIATE OF THE COMPANY, THESE SHARES MAY ONLY BE SOLD,
TRANSFERRED OR ASSIGNED PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR IN ACCORDANCE WITH THE
TERMS OF RULE 144 OR ANOTHER EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT.
The Transfer Agent herby acknowledges that the Escrow Shares are
not held by an affiliate, as defined under Rule 144 of the
Securities Act, and that, as such, the foregoing legend will not
be included on any certificate or certificates representing the
Escrow Shares so long as such Escrow Shares are held in escrow by
the Escrow Agent under the Escrow Agreement.
c. In the event that counsel to the Company fails or refuses to
render an opinion as required to issue the Conversion Shares or
Warrant Shares in accordance with the preceding paragraph (either
with or without restrictive legends, as applicable), then the
Company irrevocably and expressly authorizes counsel to the Buyer
to render such opinion. The Transfer Agent shall accept and be
entitled to rely on such opinion for the purposes of issuing the
Conversion Shares and Warrant Shares.
d. Instructions Applicable to Escrow Agent. Upon the Escrow Agent's
receipt of a properly completed Conversion Notice and/or the
Exercise Notice, the Escrow Agent shall, within one (1) Trading
Day thereafter, send to the Transfer Agent a Conversion Notice
and/or the Exercise Notice in the form attached hereto as Exhibit
-------
I, which shall constitute an irrevocable instruction to the
-
Transfer Agent to process such Conversion Notice in accordance
with
3
the terms of these instructions. The Transfer Agent shall not
process such Conversion Notice to the extent the Company has
delivered a written objection delivered in good faith by the
Company as to only the calculation of the Conversion Shares to
the Transfer Agent and the Escrow Agent.
2. Escrow Shares.
a. If the Escrow Agent sends the Escrow Shares to the Transfer Agent
for removal of the restrictive legend, the Company hereby
confirms that the Transfer Agent shall reissue to the Escrow
Agent the Escrow Shares which shall not bear any legend
restricting transfer and should not be subject to any
stop-transfer restrictions and shall otherwise be freely
transferable on the books and records of the Company; provided
that counsel to the Company delivers (i) the Notice of
Effectiveness set forth in Exhibit II attached hereto and (ii) an
----------
opinion of counsel in the form set forth in Exhibit III attached
-----------
hereto, or counsel to the Company shall issue a legal opinion to
the Company's Transfer Agent that the legend shall be removed
pursuant to Rule 144, Rule 144(k) or applicable requirements of
the Securities Act.
b. In the event that counsel to the Company fails or refuses to
render an opinion as required to issue the Escrow Shares in
accordance with the preceding paragraph (either with or without
restrictive legends, as applicable), then the Company irrevocably
and expressly authorizes counsel to the Buyer to render such
opinion. The Transfer Agent shall accept and be entitled to rely
on such opinion for the purposes of issuing the Escrow Shares
without a legend.
3. All Shares.
a. The Transfer Agent shall reserve for issuance to the Buyer the
Conversion Shares and Warrant Shares. All such shares shall
remain in reserve with the Transfer Agent until the Buyer
provides the Transfer Agent instructions that the shares or any
part of them shall be taken out of reserve and shall no longer be
subject to the terms of these instructions. Notwithstanding the
foregoing, in the event the Company redeems the Convertible
Debenture in full prior to any conversion thereof by the Buyer,
the Conversion Shares shall be taken out of reserve upon receipt
by the Transfer Agent of the Company's Redemption Notice and
evidence of payment of the Redemption Price, whereupon the
Conversion Shares shall no longer be subject to the terms of
these instructions and the Escrow Agent shall deliver the
certificates therefor to the Company for cancellation.
b. Unless the Company has delivered its written objection in good
faith as only to the calculation of the Conversion Shares under
Section 1(a) above, the Transfer Agent shall rely exclusively on
the Conversion Notice and Exercise Notice and shall have no
liability for relying on such instructions. Any Conversion Notice
delivered hereunder shall constitute an irrevocable instruction
to the Transfer Agent to process such notice or notices in
4
accordance with the terms thereof subject only to any written
objection of the Company delivered to the Transfer Agent and the
Escrow Agent. Such notice or notices may be transmitted to the
Transfer Agent by facsimile or any commercially reasonable
method.
c. The Company hereby confirms to the Transfer Agent and the Buyer
that no instructions other than as contemplated herein will be
given to Transfer Agent by the Company with respect to the
matters referenced herein. The Company hereby authorizes the
Transfer Agent, and the Transfer Agent shall be obligated, to
disregard any contrary instructions received by or on behalf of
the Company; provided that the Transfer Agent shall not disregard
any written notice delivered by the Company within one (1)
business day of its receipt of the Conversion Notice objecting to
only the calculation of the Conversion Shares and such shares
shall not be issued until any dispute regarding the calculation
of the Conversion Shares is resolved among the parties.
Certain Notice Regarding the Escrow Agent. The Company and the Transfer
Agent hereby acknowledge that the Escrow Agent is general counsel to the Buyer,
the managing partner of the Escrow Agent is a director of the Buyer and counsel
to the Buyer in connection with the transactions contemplated and referred
herein. The parties agree that in the event of any dispute arising in connection
with this Agreement or otherwise in connection with any transaction or agreement
contemplated and referred herein, the Escrow Agent shall not be permitted to
continue to represent the Buyer in any dispute between the Company and the
Buyer.
The Company hereby agrees that it shall not replace the Transfer Agent as
the Company's Transfer Agent without the prior written consent of the Buyer
unless otherwise permitted by the Securities Purchase Agreement.
Any attempt by Transfer Agent to resign as the Company's transfer agent
hereunder shall not be effective until such time as the Company provides to the
Transfer Agent written notice that a suitable replacement has agreed to serve as
transfer agent and to be bound by the terms and conditions of these Irrevocable
Transfer Agent Instructions; provided, however, that if no such suitable
replacement has so agreed within thirty (30) days following the date of the
Transfer Agent's resignation, such resignation will be considered effective at
midnight, Eastern Time, on such thirtieth (30th) day.
The Company and the Transfer Agent hereby acknowledge and confirm that
complying with the terms of this Agreement does not and shall not prohibit the
Transfer Agent from satisfying any and all fiduciary responsibilities and duties
it may owe to the Company.
The Company and the Transfer Agent acknowledge that the Buyer is relying on
the representations and covenants made by the Company and the Transfer Agent
hereunder and such representations and covenants are a material inducement to
the Buyer purchasing convertible debentures under the Securities Purchase
Agreement. The Company and the Transfer Agent further acknowledge that without
such representations and covenants of the Company and the Transfer Agent made
hereunder, the Buyer would not purchase the Debentures.
5
Each party hereto specifically acknowledges and agrees that in the event of
a breach or threatened breach by a party hereto of any provision hereof, the
Buyer will be irreparably damaged and that damages at law would be an inadequate
remedy if these Irrevocable Transfer Agent Instructions were not specifically
enforced. Therefore, in the event of a breach or threatened breach by a party
hereto, including, without limitation, the attempted termination of the agency
relationship created by this instrument, the Buyer shall be entitled, in
addition to all other rights or remedies, to an injunction restraining such
breach, without being required to show any actual damage or to post any bond or
other security, and/or to a decree for specific performance of the provisions of
these Irrevocable Transfer Agent Instructions.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
6
IN WITNESS WHEREOF, the parties have caused this letter agreement regarding
Irrevocable Transfer Agent Instructions to be duly executed and delivered as of
the date first written above.
COMPANY:
CHARYS HOLDING COMPANY INC.
By:
----------------------------
Name: Xxxxxxx X. Xxxxx
Title: Chief Financial Officer
GOTTBETTER & PARTNERS, LLP
By:
----------------------------
Name: Xxxx X. Xxxxxxxxxx
Title: Managing Partner
FIDELITY TRANSFER COMPANY, INC.
By:
----------------------------
Name:
--------------------------
Title:
------------------------
HIGHGATE HOUSE FUNDS, LTD
By:
----------------------------
Name: Xxxx X. Xxxxxxxxxx
Title: Portfolio Manager
7
EXHIBIT I
---------
TO IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
------------------------------------------
FORM OF CONVERSION NOTICE
-------------------------
Reference is made to the Securities Purchase Agreement (the "Securities Purchase
-------------------
Agreement") between Charys Holding Company Inc., (the "Company"), and Highgate
--------- -------
House Funds, Ltd. dated November 16, 2005. In accordance with and pursuant to
the Securities Purchase Agreement, the undersigned hereby elects to convert
convertible debentures into shares of common stock, par value $0.001 per share
(the "Common Stock"), of the Company for the amount indicated below as of the
-------------
date specified below.
Conversion Date:
-------------------------------
Amount to be converted: $
-------------------------------
Conversion Price (indicate the basis therefor): $
-------------------------------
Shares of Common Stock Issuable:
-------------------------------
Amount of Debenture unconverted: $
-------------------------------
Amount of Interest Converted: $
-------------------------------
Conversion Price of Interest (using same basis as above): $
-------------------------------
Shares of Common Stock Issuable:
Total Number of shares of Common Stock to be issued:
Please issue the shares of Common Stock in the following name and to the
following address:
Issue to:
-------------------------------------
Authorized Signature:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
Phone #:
-------------------------------------
EXHIBIT I-1
Broker DTC Participant Code:
-------------------------------------
Account Number*:
-------------------------------------
* NOTE THAT RECEIVING BROKER MUST INITIATE TRANSACTION ON DWAC SYSTEM.
EXHIBIT I-2
EXHIBIT II
----------
TO IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
------------------------------------------
FORM OF NOTICE OF EFFECTIVENESS
-------------------------------
OF REGISTRATION STATEMENT
-------------------------
__________, 2006
Fidelity Transfer Company
0000 X. Xxxx Xxxxxx, Xxxxx 000
Xxxx Xxxx Xxxx, Xxxx 00000
Attention:
RE: CHARYS HOLDING COMPANY INC.
Ladies and Gentlemen:
We are counsel to Charys Holding Company Inc., (the "Company"), and have
-------
represented the Company in connection with that certain Securities Purchase
Agreement, dated as of November 16, 2005 (the "Securities Purchase Agreement"),
-----------------------------
entered into by and among the Company and Highgate House Funds, Ltd. (the
"Buyer") pursuant to which the Company has agreed to sell to the Buyer (i) Four
Million Dollars ($4,000,000) of secured convertible debentures (the "Convertible
-----------
Debenture"), which shall be convertible into shares (the "Conversion Shares") of
--------- -----------------
the Company's common stock, par value $0.001 per share (the "Common Stock"),
------------
(ii) 1,000,000 shares of Common Stock pursuant to a warrant (the "Warrants") in
--------
accordance with the terms of the Securities Purchase Agreement (the "Warrant
-------
Shares"). The Company has delivered to the Escrow Agent an aggregate of
------
20,000,000 shares of Common Stock to be held in escrow (the "Escrow Shares") for
purposes of effectuating the delivery of the Conversation Shares and Warrants
Shares upon conversion and/or exercise of the Convertible Debenture and
Warrants, as the case may be. Pursuant to the Securities Purchase Agreement,
the Company also has entered into a Registration Rights Agreement, dated as of
November 16, 2005, with the Buyer (the "Investor Registration Rights Agreement")
--------------------------------------
pursuant to which the Company agreed, among other things, to provide certain
registration rights with respect to the Conversion Shares, the Escrow Shares and
the Warrant Shares under the Securities Act of 1933, as amended (the "1933
----
Act"). In connection with the Company's obligations under the Securities
---
Purchase Agreement and the Registration Rights Agreement, on _______, 2005, the
Company filed a Registration Statement (File No. ___-_________) (the
"Registration Statement") with the Securities and Exchange Commission (the
------------------------
"SEC") relating to the sale of the Conversion Shares, the Escrow Shares and the
---
Warrant Shares.
In connection with the foregoing, we advise the Transfer Agent that a
member of the SEC's staff has advised us by telephone that the SEC has entered
an order declaring the Registration Statement effective under the 1933 Act at
____ P.M. on __________, 2006 and we
EXHIBIT II-1
have no knowledge, after telephonic inquiry of a member of the SEC's staff, that
any stop order suspending its effectiveness has been issued or that any
proceedings for that purpose are pending before, or threatened by, the SEC and
the Conversion Shares and the Warrant Shares are available for sale under the
1933 Act pursuant to the Registration Statement.
The Buyer has confirmed it shall comply with all securities laws and
regulations applicable to it including applicable prospectus delivery
requirements upon sale of the Conversion Shares and the Warrant Shares.
Very truly yours,
By:
-----------------------------------
EXHIBIT II-2
EXHIBIT III
-----------
TO IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
------------------------------------------
FORM OF INSTRUCTIONS REGARDING REMOVAL OF LEGEND
------------------------------------------------
____________, 2006
VIA FACSIMILE AND REGULAR MAIL
------------------------------
Fidelity Transfer Company
0000 X. Xxxx Xxxxxx, Xxxxx 000
Xxxx Xxxx Xxxx, Xxxx 00000
Attention:
RE: CHARYS HOLDING COMPANY INC.
Ladies and Gentlemen:
We have acted as counsel to Charys Holding Company Inc. (the "Company"), in
-------
connection with the registration of ___________shares (the "Shares") of its
------
common stock with the Securities and Exchange Commission (the "SEC"). We have
---
not acted as your counsel. These instructions are given at the request and with
the consent of the Company.
In rendering these instructions we have relied on the accuracy of the Company's
Registration Statement on Form SB-2, as amended (the "Registration Statement"),
----------------------
filed by the Company with the SEC on _________ ___, 2006. The Company filed the
Registration Statement on behalf of certain selling stockholders (the "Selling
-------
Stockholders"). These instructions relate solely to the Selling Shareholders
------------
listed on Exhibit "A" hereto and number of Shares set forth opposite such
- ------------
Selling Stockholders' names. The SEC declared the Registration Statement
effective on __________ ___, 2006.
We understand that the Selling Stockholders acquired the Shares in a private
offering exempt from registration under the Securities Act of 1933, as amended.
Information regarding the Shares to be resold by the Selling Shareholders is
contained under the heading "Selling Stockholders" in the Registration
Statement, which information is incorporated herein by reference. These
instructions do not relate to the issuance of the Shares to the Selling
Stockholders. The instructions set forth herein relate solely to the resale or
transfer by the Selling Stockholders pursuant to the Registration Statement
under the Federal laws of the United States of America. We do not express any
views concerning any law of any state or other jurisdiction.
In rendering these instructions we have relied upon the accuracy of the
foregoing statements.
EXHIBIT III-1
Based on the foregoing, you are advised that the Shares have been registered
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended, and that the Transfer Agent may issue the Shares without restrictive
legends or the Transfer Agent may remove the restrictive legends contained on
the Shares. These instructions relate solely to the number of Shares set forth
opposite the Selling Stockholders listed on Exhibit "A" hereto.
------------
These instructions are furnished to Transfer Agent specifically in connection
with the issuance of the Shares, and solely for your information and benefit.
This letter may not be relied upon by Transfer Agent in any other connection,
and it may not be relied upon by any other person or entity for any purpose
without our prior written consent. This letter may not be assigned, quoted or
used without our prior written consent. The instructions set forth herein are
rendered as of the date hereof and we will not supplement these instructions
with respect to changes in the law or factual matters subsequent to the date
hereof.
Very truly yours,
EXHIBIT III-2
EXHIBIT "A"
-----------
(LIST OF SELLING STOCKHOLDERS)
------------------------------
NAME: NO. OF SHARES:
--------------------------------------------------- ---------------------------
EXHIBIT F
CONVERSION PROCEDURES
1. At any time following one hundred twenty (120) days from the
Closing, and from time to time thereafter during the term of the Convertible
Debenture, the Holder may deliver to the Escrow Agent written notice (a
"Conversion Notice") that it has elected to convert the Convertible Debenture
------------------
registered in the name of such Holder in whole or in part in accordance with the
terms of the Convertible Debenture and the Conversion Notice shall be in the
form annexed as Exhibit A to the Convertible Debenture. A fee of $50, payable
---------
by the Holder, shall accompany every Conversion Notice delivered to the Escrow
Agent.
2. The Holder shall send by fax or e-mail the executed Conversion
Notice to the Escrow Agent (with a copy to the Company) by 4:00 p.m. New York
time at least one business day prior to the Conversion Date (as defined in the
Convertible Debenture). The Escrow Agent shall send the Conversion Notice by
facsimile or e-mail address to the Company by the end of the business day on the
day received, assuming received by 6:00 p.m. New York time and if thereafter on
the next business day, at the facsimile telephone number or e-mail address, as
the case may be, of the principal place of business of the Company. Each
Company Conversion Notice price adjustment under Article V of the Convertible
Debenture shall be given by facsimile addressed to the Holder of the Convertible
Debenture at the facsimile telephone number of such Holder appearing on the
books of the Company as provided to the Company by such Holder for the purpose
of such Company Conversion Notice price adjustment, with a copy to the Escrow
Agent. Any such notice shall be deemed given and effective upon the
transmission of such facsimile or e-mail at the facsimile telephone number or
e-mail address, as the case may be, specified in this paragraph 2 (with printed
confirmation of transmission). In the event that the Escrow Agent receives the
Conversion Notice after 4:00 p.m. New York time, the Conversion Notice shall be
deemed to have been received on the next business day. In the event that the
Company receives the Conversion Notice after the end of the business day, notice
will be deemed to have been given the next business day.
3. The Company shall have one (1) business day from transmission of the
Conversion Notice by the Escrow Agent to object only to the calculation of the
number of Conversion Shares to be released out of the Escrow Shares being held
for such purpose. If the Company fails to object to the calculation of the
number of Conversion Shares to be released out of the Escrow Shares within said
time, then the Company shall be deemed to have waived any objections to said
calculation. The Company's only basis for any objection hereunder shall be to
the calculation of the number of Conversion Shares to be released out of the
Escrow Shares. If the Escrow Agent does not receive said objection notice
within the time period set forth above from the Company, and provided that the
Purchaser does not revoke such conversion, the Escrow Agent shall release from
escrow and deliver to the Holder certificates or instruments representing the
number of Conversion Shares issuable to the Holder in accordance with such
conversion on the second business day from the receipt by the Company of the
Conversion Notice. In the event that the certificates evidencing the Conversion
Shares held by the Escrow Agent are not in denominations appropriate for such
delivery to the Holder, the Escrow Agent shall request the
1
Company to cause its transfer agent and registrar to reissue certificates in
smaller denominations. The Escrow Agent shall, however, immediately release to
the requesting Holder certificates representing such lesser number of shares as
the denominations in its possession will allow that is closest to but no more
than the actual number to be released to such Holder. Upon receipt of the
reissued shares in lesser denominations from the Company's transfer agent, the
Escrow Agent shall release to such Holder the balance of the shares due to such
Holder.
4. The Holder shall send the original Convertible Debenture and
Conversion Notice to the Escrow Agent via FedEx or other commercial overnight
courier, along with a fee of $50, instructions regarding names and amount of
certificates for the issuance of the Conversion Shares, and, if conversion is
not in full, instructions as to the re-issuance of the balance of the
Convertible Debenture; provided, however, that if the Escrow Agent is holding
-------- -------
the Convertible Debenture, then the Conversion Notice may be faxed or e-mailed
and the fee may be transmitted via wire transfer to the Escrow Agent. The
Escrow Agent shall deliver the foregoing to the Company within one (1) business
day of the Escrow Agent's receipt thereof. In the event that the Escrow Agent
has custody of the Convertible Debenture, the Escrow Agent shall notify the
Company and the Holder in writing of the balance of the Convertible Debenture
remaining and the Company and the Holder shall acknowledge such notice in
writing, in lieu of issuance of a new Convertible Debenture for the balance.
5. If the Company will be issuing a new Convertible Debenture, it will
send such new Convertible Debenture to the Escrow Agent by overnight courier
within five (5) business days of its receipt of the original Convertible
Debenture and Conversion Notice. The Escrow Agent shall send the Conversion
Shares to the Holder in accordance with Holder's instructions within one (1)
business day of receipt of the Conversion Notice and will send the new
Convertible Debenture (if any) to the Holder upon receipt.
6. The Escrow Agent agrees to notify the Company in writing by
facsimile or e-mail each time the Escrow Agent releases Escrow Shares to the
Holder, such notice to be given at least one (1) business day prior to such
release.
7. Notwithstanding any of the foregoing provisions to the contrary, in
the event the Company shall have redeemed the Convertible Debenture in
accordance with Section 1.04 thereof, the Escrow Agent shall release back to the
Company all of the Escrow Shares otherwise held in the escrow account for the
purpose of effectuating the conversion of the Convertible Debenture. Said
Escrow Shares shall be distributed to the Company within one (1) business day
of the Escrow Agent's receipt of a copy of the Redemption Notice delivered by
the Company to the Holder together with evidence of payment of the Redemption
Price. The Escrow Agent shall be permitted to retain an aggregate of 750,000 of
the Escrow Shares for purposes of effectuating the exercise by the Holder of the
First Warrants and, if applicable, an aggregate of 250,000 of the Escrow Shares
for purposes of effectuating the exercise by the Holder of the Second Warrants.
8. The procedures set forth in this Exhibit F shall be applicable to
any exercise by the Holder of the Warrants and, in that regard, references to
"Conversion Notice" shall mean "Notice of Exercise" in the form attached to the
certificate for such Warrants and references to "Convertible Debenture" shall
mean the Warrants.
2
EXHIBIT G
---------
WARRANT
1
VOID AFTER 5:00 P.M., NEW YORK TIME ON NOVEMBER 17, 2008
WARRANT TO PURCHASE 200,000 SHARES OF COMMON STOCK
WARRANT TO PURCHASE COMMON STOCK
OF
CHARYS HOLDING COMPANY INC.
THIS WARRANT, AND THE SECURITIES INTO WHICH IT IS EXERCISABLE (COLLECTIVELY, THE
"SECURITIES"), HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
----------
AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES MAY
NOT BE OFFERED OR SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT OR
PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT
AND THE COMPANY WILL BE PROVIDED WITH OPINION OF COUNSEL OR OTHER SUCH
INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE
AVAILABLE.
FOR VALUE RECEIVED, Charys Holding Company Inc., a corporation organized
under the laws of Delaware (the "Company"), grants the following rights to
Highgate House Funds, Ltd, a Cayman Islands company and/or its assigns (the
"Holder"):
ARTICLE 1. DEFINITIONS
Capitalized terms used and not otherwise defined herein shall have the
meanings given such terms in the Securities Purchase Agreement by and between
the Company and the Holder and entered into on November 16, 2005 (the "Purchase
Agreement"). As used in this Agreement, the following terms shall have the
following meanings:
"Corporate Office" shall mean the office of the Company (or its successor)
at which at any particular time its principal business shall be administered.
"Exercise Date" shall mean any date on which the Holder gives the Company a
Notice of Exercise in the form attached hereto as Appendix I and in compliance
with Exhibit F to the Purchase Agreement.
"Exercise Price" shall mean the Fixed Price per share of Common Stock,
subject to adjustment as provided herein.
"Expiration Date" shall mean 5:00 p.m. (New York time) on November 16,
2008.
"Fair Market Value" shall have the meaning set forth in Section 2.2(b).
"Fixed Price" shall mean US$0.25 or if the First Convertible Debenture (as
defined in the Purchase Agreement) is not redeemed by the Exclusive Redemption
Date (as defined in the Purchase Agreement) shall mean US$.01.
"Market Value" shall have the meaning set forth in Section 2.2(b).
"SEC" shall mean the United States Securities and Exchange Commission.
"Warrant Shares" shall mean the shares of the Common Stock issuable upon
exercise of this Warrant.
ARTICLE 2. EXERCISE AND AGREEMENTS
2.1 Exercise of Warrant; Sale of Warrant and Warrant Shares. (a) This
--------------------------------------------------------
Warrant shall entitle the Holder to purchase, at the Exercise Price, 200,000
shares of Common Stock. This Warrant shall be exercisable at any time and from
time to time from the date hereof and prior to the Expiration Date (the
"Exercise Period"). This Warrant and the right to purchase Warrant Shares
hereunder shall expire and become void on the Expiration Date.
2.2 Manner of Exercise.
------------------
(a) The Holder may exercise this Warrant at any time and from time to
time during the Exercise Period, in whole or in part (but not in denominations
of fewer than 10,000 Warrant Shares, except upon an exercise of this Warrant
with respect to the remaining balance of Warrant Shares purchasable hereunder at
the time of exercise), by delivering to the Escrow Agent pursuant to the Escrow
Shares Escrow Agreement of even date herewith incorporated herein by reference
(i) a duly executed Notice of Exercise in substantially the form attached as
Appendix I hereto, (ii) the certificate representing the Warrants and (iii) a
bank cashier's or certified check for the aggregate Exercise Price of the
Warrant Shares being purchased.
(b) The Holder may, at its option, in lieu of paying cash for the
Warrant Shares, exercise this Warrant by an exchange, in whole or in part (a
"Warrant Exchange"), by delivery to the Escrow Agent of (i) a duly executed
Notice of Exercise electing a Warrant Exchange and (ii) the certificate
representing this Warrant. In connection with any Warrant Exchange, the Holder
shall be deemed to have paid for the Warrant Shares an amount equal to the Fair
Market Value of each Warrant delivered, and the Warrants shall be deemed
exercised for the amount so paid. For this purpose, the Fair Market Value of
each Warrant is the difference between the Market Value of a share of Common
Stock and the Exercise Price on the Exercise Date. Market Value shall mean the
average Closing Bid Price of a share of Common Stock during the ten (10) Trading
Days ending on the Exercise Date.
2.3 Termination. All rights of the Holder in this Warrant, to the
-----------
extent they have not been exercised, shall terminate on the Expiration Date.
2.4 No Rights Prior to Exercise. This Warrant shall not entitle the
------------------------------
Holder to any voting or other rights as a stockholder of the Company.
2.5 Fractional Shares. No fractional shares shall be issuable upon
------------------
exercise of this Warrant, and the number of Warrant Shares to be issued shall be
rounded up to the nearest whole number. If, upon exercise of this Warrant, the
Holder hereof would be entitled to receive any fractional share, the Company
shall issue to the Holder one additional share of Common Stock in lieu of such
fractional share.
2.6 Escrow. The Company agrees to enter into the Escrow Shares Escrow
------
Agreement and to deposit with the Escrow Agent thereunder stock certificates
registered in the name of the Holder, each representing a number of shares of
Common Stock (in denominations specified by the Purchaser) equal, in the
aggregate, to the total number of Warrant Shares for which this Warrant is
exercisable, assuming exercise of this Warrant in full on the date hereof. The
Company shall deposit additional certificates for Warrant Shares upon request by
the Escrow Agent pursuant to the Escrow Agreement and Exhibit F to the Purchase
Agreement.
2.7 Adjustments to Exercise Price and Number of Securities.
-------------------------------------------------------------
(a) Computation of Adjusted Exercise Price. In case the Company shall at
---------------------------------------
any time after the date hereof and until this Warrant is fully exercised issue
or sell any shares of Common Stock (other than the issuances or sales referred
to in Section 2.7 (f) hereof), including shares held in the Company's treasury
and shares of Common Stock issued upon the exercise of any options, rights or
warrants to subscribe for shares of Common Stock and shares of Common Stock
issued upon the direct or indirect conversion or exchange of securities for
shares of Common Stock (excluding shares of Common Stock issuable upon exercise
of options, warrants or conversion rights granted as of the date hereof), for a
consideration per share less than the Exercise Price on the date immediately
prior to the issuance or sale of such shares, or without consideration, then
forthwith upon such issuance or sale, the Exercise Price shall (until another
such issuance or sale) be reduced to the price equal to the quotient derived by
dividing (A) an amount equal to the sum of (X) the product of (a) the Exercise
Price on the date immediately prior to the issuance or sale of such shares,
multiplied by (b) the total number of shares of Common Stock outstanding
immediately prior to such issuance or sale plus, (Y) the aggregate of the amount
of all consideration, if any, received by the Company upon such issuance or
sale, by (B) the total number of shares of Common Stock outstanding immediately
after such issuance or sale; provided, however, that in no event shall the
Exercise Price be adjusted pursuant to this computation to an amount in excess
of the Exercise Price in effect immediately prior to such computation, except in
the case of a combination of outstanding shares of Common Stock, as provided by
Section 2.7 (c) hereof.
For the purposes of any computation to be made in accordance with this
Section 2.7(a), the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of Common Stock for
a consideration part or all of which shall be cash, the amount of cash
consideration therefor shall be deemed to be the amount of cash received by
the Company for such shares (or, if shares of Common Stock are offered by
the Company for
subscription, the subscription price, or if either of such securities shall
be sold to underwriters or dealers for public offering without a
subscription offering, the initial public offering price) before deducting
therefrom any compensation paid or discount allowed in the sale,
underwriting or purchase thereof by underwriters or dealers or others
performing similar services, or any expenses incurred in connection
therewith.
(ii) In case of the issuance or sale (otherwise than as a dividend
or other distribution on any stock of the Company) of shares of Common
Stock for a consideration part or all of which shall be other than cash,
the amount of the consideration therefor other than cash shall be deemed to
be the value of such consideration as determined in good faith by the Board
of Directors of the Company.
(iii) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following the
record date for the determination of stockholders entitled to receive such
dividend or other distribution and shall be deemed to have been issued
without consideration.
(iv) The reclassification of securities of the Company other than
shares of the Common Stock into securities including shares of Common Stock
shall be deemed to involve the issuance of such shares of Common Stock for
a consideration other than cash immediately prior to the close of business
on the date fixed for the determination of security holders entitled to
receive such shares, and the value of the consideration allocable to such
shares of Common Stock shall be determined as provided in subsection (ii)
of this Section 2.7(a).
(v) The number of shares of Common Stock at any one time
outstanding shall include the aggregate number of shares issued or issuable
(subject to readjustment upon the actual issuance thereof) upon the
exercise of options, rights, warrants and upon the conversion or exchange
of convertible or exchangeable securities; provided, however, that shares
issuable upon the exercise of the Warrants shall not be included in such
calculation.
(b) Options, Rights, Warrants and Convertible and Exchangeable
----------------------------------------------------------------
Securities. In case the Company shall at any time after the date hereof and
----------
until this Warrant is fully exercised issue options, rights or warrants to
subscribe for shares of Common Stock, or issue any securities convertible into
or exchangeable for shares of Common Stock, for a consideration per share less
than the Exercise Price immediately prior to the issuance of such options,
rights or warrants (excluding shares of Common Stock issuable upon exercise of
options, warrants or conversion rights granted as of the date hereof and shares
of Common Stock issuable upon exercise of stock options at or above the closing
market price per share of Common Stock under any stock option plan of the
Company), or such convertible or exchangeable securities, or without
consideration, the Exercise Price in effect immediately prior to the issuance of
such options, rights or warrants, or such convertible or exchangeable
securities, as the case may be, shall be reduced to a price
determined by making a computation in accordance with the provision of Section
2.7(a) hereof, provided that:
(i) The aggregate maximum number of shares of Common Stock, as the
case may be, issuable under such options, rights or warrants shall be
deemed to be issued and outstanding at the time such options, rights or
warranties were issued, and for a consideration equal to the minimum
purchase price per share provided for in such options, rights or warrants
at the time of issuance, plus the consideration (determined in the same
manner as consideration received on the issue or sale of shares in
accordance with the terms of the Warrants), if any, received by the Company
for such options, rights or warrants.
(ii) The aggregate maximum number of shares of Common Stock
issuable upon conversion or exchange of any convertible or exchangeable
securities shall be deemed to be issued and outstanding at the time of
issuance of such securities, and for a consideration equal to the
consideration (determined in the same manner as consideration received on
the issue or sale of shares of Common Stock in accordance with the terms of
the Warrants) received by the Company for such securities, plus the minimum
consideration, if any, receivable by the Company upon the conversion or
exchange thereof.
(iii) If any change shall occur in the price per share provided
for in any of the options, rights or warrants referred to in subsection (a)
of this Section 2.7, or in the price per share at which the securities
referred to in subsection (b) of this Section 2.7 are convertible or
exchangeable, such options, rights or warrants or conversion or exchange
rights, as the case may be, shall be deemed to have expired or terminated
on the date when such price change became effective in respect of shares
not theretofore issued pursuant to the exercise or conversion or exchange
thereof, and the Company shall be deemed to have issued upon such date new
options, rights or warrants or convertible or exchangeable securities at
the new price in respect of the number of shares issuable upon the exercise
of such options, rights or warrants or the conversion or exchange of such
convertible or exchangeable securities.
(iv) If any options, rights or warrants referred to in subsection
(a) of this Section 2.7, or any convertible or exchangeable securities
referred to in subsection (b) of this Section 2.7, expire or terminate
without exercise or conversion, as the case may be, then the Exercise Price
of the remaining outstanding Warrant shall be readjusted as if such
options, rights or warrants or convertible or exchangeable securities, as
the case may be, had never been issued.
(c) Subdivision and Combination. In case the Company shall at any time
---------------------------
subdivide or combine the outstanding shares of Common Stock, the Exercise Price
shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
(d) Adjustment in Number of Securities. Upon each adjustment of the
-------------------------------------
Exercise Price pursuant to the provisions of this Section 2.7, the number of
Warrant
Shares issuable upon the exercise of each Warrant shall be adjusted to the
nearest whole number by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Shares
issuable upon exercise of the Warrants immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
(e) Merger or Consolidation. In case of any consolidation of the
-------------------------
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental warrant agreement providing that the Holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
Warrant, the kind and amount of shares of stock and other securities and
property (except in the event the property is cash, then the Holder shall have
the right to exercise the Warrant and receive cash in the same manner as other
stockholders) receivable upon such consolidation or merger, by a holder of the
number of shares of Common Stock of the Company for which such warrant might
have been exercised immediately prior to such consolidation, merger, sale or
transfer. Such supplemental warrant agreement shall provide for adjustments
which shall be identical to the adjustments provided in Section 2.7. The
foregoing provisions of this paragraph (e) shall similarly apply to successive
consolidations or mergers.
(f) No Adjustment of Exercise Price in Certain Cases. No adjustment of
------------------------------------------------
the Exercise Price shall be made upon the issuance of any securities (i) under
an Approved Stock Plan (as such term is defined in the Convertible Debenture
dated as of the date hereof), (ii) that constitute Excluded Securities (as such
term is defined in the Convertible Debenture dated as of the date hereof) and/or
(iii) that constitute Other Securities (as such term is defined in the
Convertible Debenture dated as of the date hereof).
(g) Dividends and Other Distributions. In the event that the Company
-----------------------------------
shall at any time prior to the exercise of all Warrants declare a dividend
(other than a dividend consisting solely of shares of Common Stock) or otherwise
distribute to its stockholders any assets, property, rights, evidences of
indebtedness, securities (other than shares of Common Stock), whether issued by
the Company or by another, or any other thing of value, the Holders of the
unexercised Warrants shall thereafter be entitled, in addition to the shares of
Common Stock or other securities and property receivable upon the exercise
thereof, to receive, upon the exercise of such Warrants, the same property,
assets, rights, evidences of indebtedness, securities or any other thing of
value that they would have been entitled to receive at the time of such dividend
or distribution as if the Warrants had been exercised immediately prior to such
dividend or distribution. At the time of any such dividend or distribution, the
Company shall make appropriate reserves to ensure the timely performance of the
provisions of this subsection 2.7 (g). Nothing contained herein shall provide
for the receipt or accrual by a Holder of cash dividends prior to the exercise
by such Holder of the Warrants.
2.8 Registration Rights. The Holder shall have the registration rights
-------------------
set forth in the Investor Registration Rights Agreement.
ARTICLE 3. MISCELLANEOUS
3.1 Transfer. This Warrant may not be offered, sold, transferred,
--------
pledged, assigned, hypothecated or otherwise disposed of, in whole or in part,
at any time, except in compliance with applicable federal and state securities
laws by the transferor and the transferee (including, without limitation, the
delivery of an investment representation letter and a legal opinion reasonably
satisfactory to the Company).
3.2 Transfer Procedure. Subject to the provisions of Section 3.1, the
-------------------
Holder may transfer or assign this Warrant by giving the Company notice setting
forth the name, address and taxpayer identification number of the transferee or
assignee, if applicable (the "Transferee"), and surrendering this Warrant to the
Company for reissuance to the Transferee and, in the event of a transfer or
assignment of this Warrant in part, the Holder. (Each of the persons or
entities in whose name any such new Warrant shall be issued are herein referred
to as a "Holder").
3.3 Loss, Theft, Destruction or Mutilation. If this Warrant shall
------------------------------------------
become mutilated or defaced or be destroyed, lost or stolen, the Company shall
execute and deliver a new Warrant in exchange for and upon surrender and
cancellation of such mutilated or defaced Warrant or, in lieu of and in
substitution for such Warrant so destroyed, lost or stolen, upon the Holder
filing with the Company an affidavit that such Warrant has been so mutilated,
defaced, destroyed, lost or stolen. However, the Company shall be entitled, as
a condition to the execution and delivery of such new Warrant, to demand
reasonably acceptable indemnity to it and payment of the expenses and charges
incurred in connection with the delivery of such new Warrant. Any Warrant so
surrendered to the Company shall be canceled.
3.4 Notices. All notices and other communications from the Company to
-------
the Holder or vice versa shall be deemed delivered and effective when given
personally, by facsimile transmission with confirmation sheet at such address
and/or facsimile number as may have been furnished to the Company or the Holder,
as the case may be, in writing by the Company or the Holder from time to time.
3.5 Waiver. This Warrant and any term hereof may be changed, waived,
------
or terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought.
3.6 Governing Law. This Warrant shall be governed by and construed in
--------------
accordance with the laws of the State of New York, without giving effect to its
principles regarding conflicts of law. Any action to enforce the terms of this
Warrant shall be exclusively heard in the county, state and federal Courts of
New York and Country of the United States of America.
3.7 Signature. In the event that any signature on this Warrant is
---------
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the
party executing (or on whose behalf such signature is executed) the same, with
the same force and effect as if such facsimile signature page were an original
thereof.
3.8 Legal Fees. In the event any Person commences a legal action or
-----------
proceeding to enforce its rights under this Warrant, the non-prevailing party to
such action or proceeding shall pay all reasonable and necessary costs and
expenses (including reasonable and necessary attorney's fees) incurred in
enforcing such rights.
Dated: November 17, 2005
CHARYS HOLDING COMPANY INC.
By:
-----------------------------------------
Name: Xxxxx Xxx, Xx.
Title: Chief Executive Officer
Attest:
------------------------------------------------
Name:
Title:
APPENDIX I
NOTICE OF EXERCISE
------------------
1. The undersigned hereby elects (please check the appropriate box and fill in
the blank spaces):
[_] purchase ______ shares of Common Stock, $.001 par value per share, of
Charys Holding Company Inc. at [$.25] [$.01] per share for a total of
$______ and pursuant to the terms of the attached Warrant, and tenders
herewith payment of the aggregate Exercise Price of such Warrant Shares in
full; or
[_] purchase _______ shares of Common Stock, $.001 par value per share, of
Charys Holding Company Inc. pursuant to the cashless exercise provision
under Section 2.2 (b) of the attached Warrant, and tenders herewith the
number of Warrant Shares to purchase such Warrant Shares based upon the
formula set forth in Section 2.2 (b).
2. Please issue a certificate or certificates representing said Warrant Shares
in the name of the undersigned or in such other name as is specified below:
Dated: By:
-------------------------------- --------------------------------
Name:
------------------------------
Title:
--------------------------------
VOID AFTER 5:00 P.M., NEW YORK TIME ON NOVEMBER 17, 2008
WARRANT TO PURCHASE 400,000 SHARES OF COMMON STOCK
WARRANT TO PURCHASE COMMON STOCK
OF
CHARYS HOLDING COMPANY INC.
THIS WARRANT, AND THE SECURITIES INTO WHICH IT IS EXERCISABLE (COLLECTIVELY, THE
"SECURITIES"), HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
----------
AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES MAY
NOT BE OFFERED OR SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT OR
PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT
AND THE COMPANY WILL BE PROVIDED WITH OPINION OF COUNSEL OR OTHER SUCH
INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE
AVAILABLE.
FOR VALUE RECEIVED, Charys Holding Company Inc., a corporation organized
under the laws of Delaware (the "Company"), grants the following rights to
Highgate House Funds, Ltd, a Cayman Islands company and/or its assigns (the
"Holder"):
ARTICLE 1. DEFINITIONS
Capitalized terms used and not otherwise defined herein shall have the
meanings given such terms in the Securities Purchase Agreement by and between
the Company and the Holder and entered into on November 16, 2005 (the "Purchase
Agreement"). As used in this Agreement, the following terms shall have the
following meanings:
"Corporate Office" shall mean the office of the Company (or its successor)
at which at any particular time its principal business shall be administered.
"Exercise Date" shall mean any date on which the Holder gives the Company a
Notice of Exercise in the form attached hereto as Appendix I and in compliance
with Exhibit F to the Purchase Agreement.
"Exercise Price" shall mean the Fixed Price per share of Common Stock,
subject to adjustment as provided herein.
"Expiration Date" shall mean 5:00 p.m. (New York time) on November 16,
2008.
"Fair Market Value" shall have the meaning set forth in Section 2.2(b).
"Fixed Price" shall mean US$0.50.
"Market Value" shall have the meaning set forth in Section 2.2(b).
"SEC" shall mean the United States Securities and Exchange Commission.
"Warrant Shares" shall mean the shares of the Common Stock issuable upon
exercise of this Warrant.
ARTICLE 2. EXERCISE AND AGREEMENTS
2.1 Exercise of Warrant; Sale of Warrant and Warrant Shares. (a) This
--------------------------------------------------------
Warrant shall entitle the Holder to purchase, at the Exercise Price, 400,000
shares of Common Stock. This Warrant shall be exercisable at any time and from
time to time from the date hereof and prior to the Expiration Date (the
"Exercise Period"). This Warrant and the right to purchase Warrant Shares
hereunder shall expire and become void on the Expiration Date.
2.2 Manner of Exercise.
------------------
(a) The Holder may exercise this Warrant at any time and from time to
time during the Exercise Period, in whole or in part (but not in denominations
of fewer than 10,000 Warrant Shares, except upon an exercise of this Warrant
with respect to the remaining balance of Warrant Shares purchasable hereunder at
the time of exercise), by delivering to the Escrow Agent pursuant to the Escrow
Shares Escrow Agreement of even date herewith incorporated herein by reference
(i) a duly executed Notice of Exercise in substantially the form attached as
Appendix I hereto, (ii) the certificate representing the Warrants and (iii) a
bank cashier's or certified check for the aggregate Exercise Price of the
Warrant Shares being purchased.
(b) The Holder may, at its option, in lieu of paying cash for the
Warrant Shares, exercise this Warrant by an exchange, in whole or in part (a
"Warrant Exchange"), by delivery to the Escrow Agent of (i) a duly executed
Notice of Exercise electing a Warrant Exchange and (ii) the certificate
representing this Warrant. In connection with any Warrant Exchange, the Holder
shall be deemed to have paid for the Warrant Shares an amount equal to the Fair
Market Value of each Warrant delivered, and the Warrants shall be deemed
exercised for the amount so paid. For this purpose, the Fair Market Value of
each Warrant is the difference between the Market Value of a share of Common
Stock and the Exercise Price on the Exercise Date. Market Value shall mean the
average Closing Bid Price of a share of Common Stock during the ten (10) Trading
Days ending on the Exercise Date.
2.3 Termination. All rights of the Holder in this Warrant, to the
-----------
extent they have not been exercised, shall terminate on the Expiration Date.
2.4 No Rights Prior to Exercise. This Warrant shall not entitle the
------------------------------
Holder to any voting or other rights as a stockholder of the Company.
2.5 Fractional Shares. No fractional shares shall be issuable upon
------------------
exercise of this Warrant, and the number of Warrant Shares to be issued shall be
rounded up to the nearest whole number. If, upon exercise of this Warrant, the
Holder hereof would be entitled to receive any fractional share, the Company
shall issue to the Holder one additional share of Common Stock in lieu of such
fractional share.
2.6 Escrow. The Company agrees to enter into the Escrow Shares Escrow
------
Agreement and to deposit with the Escrow Agent thereunder stock certificates
registered in the name of the Holder, each representing a number of shares of
Common Stock (in denominations specified by the Purchaser) equal, in the
aggregate, to the total number of Warrant Shares for which this Warrant is
exercisable, assuming exercise of this Warrant in full on the date hereof. The
Company shall deposit additional certificates for Warrant Shares upon request by
the Escrow Agent pursuant to the Escrow Agreement and Exhibit F to the Purchase
Agreement.
2.7 Adjustments to Exercise Price and Number of Securities.
-------------------------------------------------------------
(a) Computation of Adjusted Exercise Price. In case the Company shall at
---------------------------------------
any time after the date hereof and until this Warrant is fully exercised issue
or sell any shares of Common Stock (other than the issuances or sales referred
to in Section 2.7 (f) hereof), including shares held in the Company's treasury
and shares of Common Stock issued upon the exercise of any options, rights or
warrants to subscribe for shares of Common Stock and shares of Common Stock
issued upon the direct or indirect conversion or exchange of securities for
shares of Common Stock (excluding shares of Common Stock issuable upon exercise
of options, warrants or conversion rights granted as of the date hereof), for a
consideration per share less than the Exercise Price on the date immediately
prior to the issuance or sale of such shares, or without consideration, then
forthwith upon such issuance or sale, the Exercise Price shall (until another
such issuance or sale) be reduced to the price equal to the quotient derived by
dividing (A) an amount equal to the sum of (X) the product of (a) the Exercise
Price on the date immediately prior to the issuance or sale of such shares,
multiplied by (b) the total number of shares of Common Stock outstanding
immediately prior to such issuance or sale plus, (Y) the aggregate of the amount
of all consideration, if any, received by the Company upon such issuance or
sale, by (B) the total number of shares of Common Stock outstanding immediately
after such issuance or sale; provided, however, that in no event shall the
Exercise Price be adjusted pursuant to this computation to an amount in excess
of the Exercise Price in effect immediately prior to such computation, except in
the case of a combination of outstanding shares of Common Stock, as provided by
Section 2.7 (c) hereof.
For the purposes of any computation to be made in accordance with this
Section 2.7(a), the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of Common Stock for
a consideration part or all of which shall be cash, the amount of cash
consideration therefor shall be deemed to be the amount of cash received by
the Company for such shares (or, if shares of Common Stock are offered by
the Company for
subscription, the subscription price, or if either of such securities shall
be sold to underwriters or dealers for public offering without a
subscription offering, the initial public offering price) before deducting
therefrom any compensation paid or discount allowed in the sale,
underwriting or purchase thereof by underwriters or dealers or others
performing similar services, or any expenses incurred in connection
therewith.
(ii) In case of the issuance or sale (otherwise than as a dividend
or other distribution on any stock of the Company) of shares of Common
Stock for a consideration part or all of which shall be other than cash,
the amount of the consideration therefor other than cash shall be deemed to
be the value of such consideration as determined in good faith by the Board
of Directors of the Company.
(iii) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following the
record date for the determination of stockholders entitled to receive such
dividend or other distribution and shall be deemed to have been issued
without consideration.
(iv) The reclassification of securities of the Company other than
shares of the Common Stock into securities including shares of Common Stock
shall be deemed to involve the issuance of such shares of Common Stock for
a consideration other than cash immediately prior to the close of business
on the date fixed for the determination of security holders entitled to
receive such shares, and the value of the consideration allocable to such
shares of Common Stock shall be determined as provided in subsection (ii)
of this Section 2.7(a).
(v) The number of shares of Common Stock at any one time
outstanding shall include the aggregate number of shares issued or issuable
(subject to readjustment upon the actual issuance thereof) upon the
exercise of options, rights, warrants and upon the conversion or exchange
of convertible or exchangeable securities; provided, however, that shares
issuable upon the exercise of the Warrants shall not be included in such
calculation.
(b) Options, Rights, Warrants and Convertible and Exchangeable
----------------------------------------------------------------
Securities. In case the Company shall at any time after the date hereof and
----------
until this Warrant is fully exercised issue options, rights or warrants to
subscribe for shares of Common Stock, or issue any securities convertible into
or exchangeable for shares of Common Stock, for a consideration per share less
than the Exercise Price immediately prior to the issuance of such options,
rights or warrants (excluding shares of Common Stock issuable upon exercise of
options, warrants or conversion rights granted as of the date hereof and shares
of Common Stock issuable upon exercise of stock options at or above the closing
market price per share of Common Stock under any stock option plan of the
Company), or such convertible or exchangeable securities, or without
consideration, the Exercise Price in effect immediately prior to the issuance of
such options, rights or warrants, or such convertible or exchangeable
securities, as the case may be, shall be reduced to a price determined by making
a computation in accordance with the provision of Section 2.7(a) hereof,
provided that:
(i) The aggregate maximum number of shares of Common Stock, as the
case may be, issuable under such options, rights or warrants shall be
deemed to be issued and outstanding at the time such options, rights or
warranties were issued, and for a consideration equal to the minimum
purchase price per share provided for in such options, rights or warrants
at the time of issuance, plus the consideration (determined in the same
manner as consideration received on the issue or sale of shares in
accordance with the terms of the Warrants), if any, received by the Company
for such options, rights or warrants.
(ii) The aggregate maximum number of shares of Common Stock
issuable upon conversion or exchange of any convertible or exchangeable
securities shall be deemed to be issued and outstanding at the time of
issuance of such securities, and for a consideration equal to the
consideration (determined in the same manner as consideration received on
the issue or sale of shares of Common Stock in accordance with the terms of
the Warrants) received by the Company for such securities, plus the minimum
consideration, if any, receivable by the Company upon the conversion or
exchange thereof.
(iii) If any change shall occur in the price per share provided
for in any of the options, rights or warrants referred to in subsection (a)
of this Section 2.7, or in the price per share at which the securities
referred to in subsection (b) of this Section 2.7 are convertible or
exchangeable, such options, rights or warrants or conversion or exchange
rights, as the case may be, shall be deemed to have expired or terminated
on the date when such price change became effective in respect of shares
not theretofore issued pursuant to the exercise or conversion or exchange
thereof, and the Company shall be deemed to have issued upon such date new
options, rights or warrants or convertible or exchangeable securities at
the new price in respect of the number of shares issuable upon the exercise
of such options, rights or warrants or the conversion or exchange of such
convertible or exchangeable securities.
(iv) If any options, rights or warrants referred to in subsection
(a) of this Section 2.7, or any convertible or exchangeable securities
referred to in subsection (b) of this Section 2.7, expire or terminate
without exercise or conversion, as the case may be, then the Exercise Price
of the remaining outstanding Warrant shall be readjusted as if such
options, rights or warrants or convertible or exchangeable securities, as
the case may be, had never been issued.
(c) Subdivision and Combination. In case the Company shall at any time
---------------------------
subdivide or combine the outstanding shares of Common Stock, the Exercise Price
shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
(d) Adjustment in Number of Securities. Upon each adjustment of the
-------------------------------------
Exercise Price pursuant to the provisions of this Section 2.7, the number of
Warrant
Shares issuable upon the exercise of each Warrant shall be adjusted to the
nearest whole number by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Shares
issuable upon exercise of the Warrants immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
(e) Merger or Consolidation. In case of any consolidation of the
-------------------------
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental warrant agreement providing that the Holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
Warrant, the kind and amount of shares of stock and other securities and
property (except in the event the property is cash, then the Holder shall have
the right to exercise the Warrant and receive cash in the same manner as other
stockholders) receivable upon such consolidation or merger, by a holder of the
number of shares of Common Stock of the Company for which such warrant might
have been exercised immediately prior to such consolidation, merger, sale or
transfer. Such supplemental warrant agreement shall provide for adjustments
which shall be identical to the adjustments provided in Section 2.7. The
foregoing provisions of this paragraph (e) shall similarly apply to successive
consolidations or mergers.
(f) No Adjustment of Exercise Price in Certain Cases. No adjustment of
------------------------------------------------
the Exercise Price shall be made upon the issuance of any securities (i) under
an Approved Stock Plan (as such term is defined in the Convertible Debenture
dated as of the date hereof), (ii) that constitute Excluded Securities (as such
term is defined in the Convertible Debenture dated as of the date hereof) and/or
(iii) that constitute Other Securities (as such term is defined in the
Convertible Debenture dated as of the date hereof).
(g) Dividends and Other Distributions. In the event that the Company
-----------------------------------
shall at any time prior to the exercise of all Warrants declare a dividend
(other than a dividend consisting solely of shares of Common Stock) or otherwise
distribute to its stockholders any assets, property, rights, evidences of
indebtedness, securities (other than shares of Common Stock), whether issued by
the Company or by another, or any other thing of value, the Holders of the
unexercised Warrants shall thereafter be entitled, in addition to the shares of
Common Stock or other securities and property receivable upon the exercise
thereof, to receive, upon the exercise of such Warrants, the same property,
assets, rights, evidences of indebtedness, securities or any other thing of
value that they would have been entitled to receive at the time of such dividend
or distribution as if the Warrants had been exercised immediately prior to such
dividend or distribution. At the time of any such dividend or distribution, the
Company shall make appropriate reserves to ensure the timely performance of the
provisions of this subsection 2.7 (g). Nothing contained herein shall provide
for the receipt or accrual by a Holder of cash dividends prior to the exercise
by such Holder of the Warrants.
2.8 Registration Rights. The Holder shall have the registration rights
-------------------
set forth in the Investor Registration Rights Agreement.
ARTICLE 3. MISCELLANEOUS
3.1 Transfer. This Warrant may not be offered, sold, transferred,
--------
pledged, assigned, hypothecated or otherwise disposed of, in whole or in part,
at any time, except in compliance with applicable federal and state securities
laws by the transferor and the transferee (including, without limitation, the
delivery of an investment representation letter and a legal opinion reasonably
satisfactory to the Company).
3.2 Transfer Procedure. Subject to the provisions of Section 3.1, the
-------------------
Holder may transfer or assign this Warrant by giving the Company notice setting
forth the name, address and taxpayer identification number of the transferee or
assignee, if applicable (the "Transferee"), and surrendering this Warrant to the
Company for reissuance to the Transferee and, in the event of a transfer or
assignment of this Warrant in part, the Holder. (Each of the persons or
entities in whose name any such new Warrant shall be issued are herein referred
to as a "Holder").
3.3 Loss, Theft, Destruction or Mutilation. If this Warrant shall
------------------------------------------
become mutilated or defaced or be destroyed, lost or stolen, the Company shall
execute and deliver a new Warrant in exchange for and upon surrender and
cancellation of such mutilated or defaced Warrant or, in lieu of and in
substitution for such Warrant so destroyed, lost or stolen, upon the Holder
filing with the Company an affidavit that such Warrant has been so mutilated,
defaced, destroyed, lost or stolen. However, the Company shall be entitled, as
a condition to the execution and delivery of such new Warrant, to demand
reasonably acceptable indemnity to it and payment of the expenses and charges
incurred in connection with the delivery of such new Warrant. Any Warrant so
surrendered to the Company shall be canceled.
3.4 Notices. All notices and other communications from the Company to
-------
the Holder or vice versa shall be deemed delivered and effective when given
personally, by facsimile transmission with confirmation sheet at such address
and/or facsimile number as may have been furnished to the Company or the Holder,
as the case may be, in writing by the Company or the Holder from time to time.
3.5 Waiver. This Warrant and any term hereof may be changed, waived,
------
or terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought.
3.6 Governing Law. This Warrant shall be governed by and construed in
--------------
accordance with the laws of the State of New York, without giving effect to its
principles regarding conflicts of law. Any action to enforce the terms of this
Warrant shall be exclusively heard in the county, state and federal Courts of
New York and Country of the United States of America.
3.7 Signature. In the event that any signature on this Warrant is
---------
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the
party executing (or on whose behalf such signature is executed) the same, with
the same force and effect as if such facsimile signature page were an original
thereof.
3.8 Legal Fees. In the event any Person commences a legal action or
-----------
proceeding to enforce its rights under this Warrant, the non-prevailing party to
such action or proceeding shall pay all reasonable and necessary costs and
expenses (including reasonable and necessary attorney's fees) incurred in
enforcing such rights.
Dated: November 17, 2005
CHARYS HOLDING COMPANY INC.
By:
-----------------------------------------
Name: Xxxxx Xxx, Xx.
Title: Chief Executive Officer
Attest:
------------------------------------------------
Name:
Title:
APPENDIX I
NOTICE OF EXERCISE
------------------
1. The undersigned hereby elects (please check the appropriate box and fill in
the blank spaces):
[_] to purchase ______ shares of Common Stock, $.001 par value per share,
of Charys Holding Company Inc. at $.50 per share for a total of $______ and
pursuant to the terms of the attached Warrant, and tenders herewith payment
of the aggregate Exercise Price of such Warrant Shares in full; or
[_] to purchase _______ shares of Common Stock, $.001 par value per share,
of Charys Holding Company Inc. pursuant to the cashless exercise provision
under Section 2.2 (b) of the attached Warrant, and tenders herewith the
number of Warrant Shares to purchase such Warrant Shares based upon the
formula set forth in Section 2.2 (b).
2. Please issue a certificate or certificates representing said Warrant Shares
in the name of the undersigned or in such other name as is specified below:
Dated: By:
-------------------------------- --------------------------------
Name:
------------------------------
Title:
--------------------------------
VOID AFTER 5:00 P.M., NEW YORK TIME ON NOVEMBER 17, 2008
WARRANT TO PURCHASE 200,000 SHARES OF COMMON STOCK
WARRANT TO PURCHASE COMMON STOCK
OF
CHARYS HOLDING COMPANY INC.
THIS WARRANT, AND THE SECURITIES INTO WHICH IT IS EXERCISABLE (COLLECTIVELY, THE
"SECURITIES"), HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
----------
AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES MAY
NOT BE OFFERED OR SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT OR
PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT
AND THE COMPANY WILL BE PROVIDED WITH OPINION OF COUNSEL OR OTHER SUCH
INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE
AVAILABLE.
FOR VALUE RECEIVED, Charys Holding Company Inc., a corporation organized
under the laws of Delaware (the "Company"), grants the following rights to
Highgate House Funds, Ltd, a Cayman Islands company and/or its assigns (the
"Holder"):
ARTICLE 1. DEFINITIONS
Capitalized terms used and not otherwise defined herein shall have the
meanings given such terms in the Securities Purchase Agreement by and between
the Company and the Holder and entered into on November 16, 2005 (the "Purchase
Agreement"). As used in this Agreement, the following terms shall have the
following meanings:
"Corporate Office" shall mean the office of the Company (or its successor)
at which at any particular time its principal business shall be administered.
"Exercise Date" shall mean any date on which the Holder gives the Company a
Notice of Exercise in the form attached hereto as Appendix I and in compliance
with Exhibit F to the Purchase Agreement.
"Exercise Price" shall mean the Fixed Price per share of Common Stock,
subject to adjustment as provided herein.
"Expiration Date" shall mean 5:00 p.m. (New York time) on November 16,
2008.
"Fair Market Value" shall have the meaning set forth in Section 2.2(b).
"Fixed Price" shall mean US$0.75 or if the First Convertible Debenture (as
defined in the Purchase Agreement) is not redeemed by the Exclusive Redemption
Date (as defined in the Purchase Agreement) shall mean US$.01.
"Market Value" shall have the meaning set forth in Section 2.2(b).
"SEC" shall mean the United States Securities and Exchange Commission.
"Warrant Shares" shall mean the shares of the Common Stock issuable upon
exercise of this Warrant.
ARTICLE 2. EXERCISE AND AGREEMENTS
2.1 Exercise of Warrant; Sale of Warrant and Warrant Shares. (a) This
--------------------------------------------------------
Warrant shall entitle the Holder to purchase, at the Exercise Price, 200,000
shares of Common Stock. This Warrant shall be exercisable at any time and from
time to time from the date hereof and prior to the Expiration Date (the
"Exercise Period"). This Warrant and the right to purchase Warrant Shares
hereunder shall expire and become void on the Expiration Date.
2.2 Manner of Exercise.
------------------
(a) The Holder may exercise this Warrant at any time and from time to
time during the Exercise Period, in whole or in part (but not in denominations
of fewer than 10,000 Warrant Shares, except upon an exercise of this Warrant
with respect to the remaining balance of Warrant Shares purchasable hereunder at
the time of exercise), by delivering to the Escrow Agent pursuant to the Escrow
Shares Escrow Agreement of even date herewith incorporated herein by reference
(i) a duly executed Notice of Exercise in substantially the form attached as
Appendix I hereto, (ii) the certificate representing the Warrants and (iii) a
bank cashier's or certified check for the aggregate Exercise Price of the
Warrant Shares being purchased.
(b) The Holder may, at its option, in lieu of paying cash for the
Warrant Shares, exercise this Warrant by an exchange, in whole or in part (a
"Warrant Exchange"), by delivery to the Escrow Agent of (i) a duly executed
Notice of Exercise electing a Warrant Exchange and (ii) the certificate
representing this Warrant. In connection with any Warrant Exchange, the Holder
shall be deemed to have paid for the Warrant Shares an amount equal to the Fair
Market Value of each Warrant delivered, and the Warrants shall be deemed
exercised for the amount so paid. For this purpose, the Fair Market Value of
each Warrant is the difference between the Market Value of a share of Common
Stock and the Exercise Price on the Exercise Date. Market Value shall mean the
average Closing Bid Price of a share of Common Stock during the ten (10) Trading
Days ending on the Exercise Date.
2.3 Termination. All rights of the Holder in this Warrant, to the
-----------
extent they have not been exercised, shall terminate on the Expiration Date.
2.4 No Rights Prior to Exercise. This Warrant shall not entitle the
------------------------------
Holder to any voting or other rights as a stockholder of the Company.
2.5 Fractional Shares. No fractional shares shall be issuable upon
------------------
exercise of this Warrant, and the number of Warrant Shares to be issued shall be
rounded up to the nearest whole number. If, upon exercise of this Warrant, the
Holder hereof would be entitled to receive any fractional share, the Company
shall issue to the Holder one additional share of Common Stock in lieu of such
fractional share.
2.6 Escrow. The Company agrees to enter into the Escrow Shares Escrow
------
Agreement and to deposit with the Escrow Agent thereunder stock certificates
registered in the name of the Holder, each representing a number of shares of
Common Stock (in denominations specified by the Purchaser) equal, in the
aggregate, to the total number of Warrant Shares for which this Warrant is
exercisable, assuming exercise of this Warrant in full on the date hereof. The
Company shall deposit additional certificates for Warrant Shares upon request by
the Escrow Agent pursuant to the Escrow Agreement and Exhibit F to the Purchase
Agreement.
2.7 Adjustments to Exercise Price and Number of Securities.
-------------------------------------------------------------
(a) Computation of Adjusted Exercise Price. In case the Company shall at
---------------------------------------
any time after the date hereof and until this Warrant is fully exercised issue
or sell any shares of Common Stock (other than the issuances or sales referred
to in Section 2.7 (f) hereof), including shares held in the Company's treasury
and shares of Common Stock issued upon the exercise of any options, rights or
warrants to subscribe for shares of Common Stock and shares of Common Stock
issued upon the direct or indirect conversion or exchange of securities for
shares of Common Stock (excluding shares of Common Stock issuable upon exercise
of options, warrants or conversion rights granted as of the date hereof), for a
consideration per share less than the Exercise Price on the date immediately
prior to the issuance or sale of such shares, or without consideration, then
forthwith upon such issuance or sale, the Exercise Price shall (until another
such issuance or sale) be reduced to the price equal to the quotient derived by
dividing (A) an amount equal to the sum of (X) the product of (a) the Exercise
Price on the date immediately prior to the issuance or sale of such shares,
multiplied by (b) the total number of shares of Common Stock outstanding
immediately prior to such issuance or sale plus, (Y) the aggregate of the amount
of all consideration, if any, received by the Company upon such issuance or
sale, by (B) the total number of shares of Common Stock outstanding immediately
after such issuance or sale; provided, however, that in no event shall the
Exercise Price be adjusted pursuant to this computation to an amount in excess
of the Exercise Price in effect immediately prior to such computation, except in
the case of a combination of outstanding shares of Common Stock, as provided by
Section 2.7 (c) hereof.
For the purposes of any computation to be made in accordance with this
Section 2.7(a), the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of Common Stock for
a consideration part or all of which shall be cash, the amount of cash
consideration therefor shall be deemed to be the amount of cash received by
the Company for such shares (or, if shares of Common Stock are offered by
the Company for
subscription, the subscription price, or if either of such securities shall
be sold to underwriters or dealers for public offering without a
subscription offering, the initial public offering price) before deducting
therefrom any compensation paid or discount allowed in the sale,
underwriting or purchase thereof by underwriters or dealers or others
performing similar services, or any expenses incurred in connection
therewith.
(ii) In case of the issuance or sale (otherwise than as a dividend
or other distribution on any stock of the Company) of shares of Common
Stock for a consideration part or all of which shall be other than cash,
the amount of the consideration therefor other than cash shall be deemed to
be the value of such consideration as determined in good faith by the Board
of Directors of the Company.
(iii) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following the
record date for the determination of stockholders entitled to receive such
dividend or other distribution and shall be deemed to have been issued
without consideration.
(iv) The reclassification of securities of the Company other than
shares of the Common Stock into securities including shares of Common Stock
shall be deemed to involve the issuance of such shares of Common Stock for
a consideration other than cash immediately prior to the close of business
on the date fixed for the determination of security holders entitled to
receive such shares, and the value of the consideration allocable to such
shares of Common Stock shall be determined as provided in subsection (ii)
of this Section 2.7(a).
(v) The number of shares of Common Stock at any one time
outstanding shall include the aggregate number of shares issued or issuable
(subject to readjustment upon the actual issuance thereof) upon the
exercise of options, rights, warrants and upon the conversion or exchange
of convertible or exchangeable securities; provided, however, that shares
issuable upon the exercise of the Warrants shall not be included in such
calculation.
(b) Options, Rights, Warrants and Convertible and Exchangeable
----------------------------------------------------------------
Securities. In case the Company shall at any time after the date hereof and
----------
until this Warrant is fully exercised issue options, rights or warrants to
subscribe for shares of Common Stock, or issue any securities convertible into
or exchangeable for shares of Common Stock, for a consideration per share less
than the Exercise Price immediately prior to the issuance of such options,
rights or warrants (excluding shares of Common Stock issuable upon exercise of
options, warrants or conversion rights granted as of the date hereof and shares
of Common Stock issuable upon exercise of stock options at or above the closing
market price per share of Common Stock under any stock option plan of the
Company), or such convertible or exchangeable securities, or without
consideration, the Exercise Price in effect immediately prior to the issuance of
such options, rights or warrants, or such convertible or exchangeable
securities, as the case may be, shall be reduced to a price
determined by making a computation in accordance with the provision of Section
2.7(a) hereof, provided that:
(i) The aggregate maximum number of shares of Common Stock, as the
case may be, issuable under such options, rights or warrants shall be
deemed to be issued and outstanding at the time such options, rights or
warranties were issued, and for a consideration equal to the minimum
purchase price per share provided for in such options, rights or warrants
at the time of issuance, plus the consideration (determined in the same
manner as consideration received on the issue or sale of shares in
accordance with the terms of the Warrants), if any, received by the Company
for such options, rights or warrants.
(ii) The aggregate maximum number of shares of Common Stock
issuable upon conversion or exchange of any convertible or exchangeable
securities shall be deemed to be issued and outstanding at the time of
issuance of such securities, and for a consideration equal to the
consideration (determined in the same manner as consideration received on
the issue or sale of shares of Common Stock in accordance with the terms of
the Warrants) received by the Company for such securities, plus the minimum
consideration, if any, receivable by the Company upon the conversion or
exchange thereof.
(iii) If any change shall occur in the price per share provided
for in any of the options, rights or warrants referred to in subsection (a)
of this Section 2.7, or in the price per share at which the securities
referred to in subsection (b) of this Section 2.7 are convertible or
exchangeable, such options, rights or warrants or conversion or exchange
rights, as the case may be, shall be deemed to have expired or terminated
on the date when such price change became effective in respect of shares
not theretofore issued pursuant to the exercise or conversion or exchange
thereof, and the Company shall be deemed to have issued upon such date new
options, rights or warrants or convertible or exchangeable securities at
the new price in respect of the number of shares issuable upon the exercise
of such options, rights or warrants or the conversion or exchange of such
convertible or exchangeable securities.
(iv) If any options, rights or warrants referred to in subsection
(a) of this Section 2.7, or any convertible or exchangeable securities
referred to in subsection (b) of this Section 2.7, expire or terminate
without exercise or conversion, as the case may be, then the Exercise Price
of the remaining outstanding Warrant shall be readjusted as if such
options, rights or warrants or convertible or exchangeable securities, as
the case may be, had never been issued.
(c) Subdivision and Combination. In case the Company shall at any time
---------------------------
subdivide or combine the outstanding shares of Common Stock, the Exercise Price
shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
(d) Adjustment in Number of Securities. Upon each adjustment of the
-------------------------------------
Exercise Price pursuant to the provisions of this Section 2.7, the number of
Warrant
Shares issuable upon the exercise of each Warrant shall be adjusted to the
nearest whole number by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Shares
issuable upon exercise of the Warrants immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
(e) Merger or Consolidation. In case of any consolidation of the
-------------------------
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental warrant agreement providing that the Holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
Warrant, the kind and amount of shares of stock and other securities and
property (except in the event the property is cash, then the Holder shall have
the right to exercise the Warrant and receive cash in the same manner as other
stockholders) receivable upon such consolidation or merger, by a holder of the
number of shares of Common Stock of the Company for which such warrant might
have been exercised immediately prior to such consolidation, merger, sale or
transfer. Such supplemental warrant agreement shall provide for adjustments
which shall be identical to the adjustments provided in Section 2.7. The
foregoing provisions of this paragraph (e) shall similarly apply to successive
consolidations or mergers.
(f) No Adjustment of Exercise Price in Certain Cases. No adjustment of
------------------------------------------------
the Exercise Price shall be made upon the issuance of any securities (i) under
an Approved Stock Plan (as such term is defined in the Convertible Debenture
dated as of the date hereof), (ii) that constitute Excluded Securities (as such
term is defined in the Convertible Debenture dated as of the date hereof) and/or
(iii) that constitute Other Securities (as such term is defined in the
Convertible Debenture dated as of the date hereof).
(g) Dividends and Other Distributions. In the event that the Company
-----------------------------------
shall at any time prior to the exercise of all Warrants declare a dividend
(other than a dividend consisting solely of shares of Common Stock) or otherwise
distribute to its stockholders any assets, property, rights, evidences of
indebtedness, securities (other than shares of Common Stock), whether issued by
the Company or by another, or any other thing of value, the Holders of the
unexercised Warrants shall thereafter be entitled, in addition to the shares of
Common Stock or other securities and property receivable upon the exercise
thereof, to receive, upon the exercise of such Warrants, the same property,
assets, rights, evidences of indebtedness, securities or any other thing of
value that they would have been entitled to receive at the time of such dividend
or distribution as if the Warrants had been exercised immediately prior to such
dividend or distribution. At the time of any such dividend or distribution, the
Company shall make appropriate reserves to ensure the timely performance of the
provisions of this subsection 2.7 (g). Nothing contained herein shall provide
for the receipt or accrual by a Holder of cash dividends prior to the exercise
by such Holder of the Warrants.
2.8 Registration Rights. The Holder shall have the registration rights
-------------------
set forth in the Investor Registration Rights Agreement.
ARTICLE 3. MISCELLANEOUS
3.1 Transfer. This Warrant may not be offered, sold, transferred,
--------
pledged, assigned, hypothecated or otherwise disposed of, in whole or in part,
at any time, except in compliance with applicable federal and state securities
laws by the transferor and the transferee (including, without limitation, the
delivery of an investment representation letter and a legal opinion reasonably
satisfactory to the Company).
3.2 Transfer Procedure. Subject to the provisions of Section 3.1, the
-------------------
Holder may transfer or assign this Warrant by giving the Company notice setting
forth the name, address and taxpayer identification number of the transferee or
assignee, if applicable (the "Transferee"), and surrendering this Warrant to the
Company for reissuance to the Transferee and, in the event of a transfer or
assignment of this Warrant in part, the Holder. (Each of the persons or
entities in whose name any such new Warrant shall be issued are herein referred
to as a "Holder").
3.3 Loss, Theft, Destruction or Mutilation. If this Warrant shall
------------------------------------------
become mutilated or defaced or be destroyed, lost or stolen, the Company shall
execute and deliver a new Warrant in exchange for and upon surrender and
cancellation of such mutilated or defaced Warrant or, in lieu of and in
substitution for such Warrant so destroyed, lost or stolen, upon the Holder
filing with the Company an affidavit that such Warrant has been so mutilated,
defaced, destroyed, lost or stolen. However, the Company shall be entitled, as
a condition to the execution and delivery of such new Warrant, to demand
reasonably acceptable indemnity to it and payment of the expenses and charges
incurred in connection with the delivery of such new Warrant. Any Warrant so
surrendered to the Company shall be canceled.
3.4 Notices. All notices and other communications from the Company to
-------
the Holder or vice versa shall be deemed delivered and effective when given
personally, by facsimile transmission with confirmation sheet at such address
and/or facsimile number as may have been furnished to the Company or the Holder,
as the case may be, in writing by the Company or the Holder from time to time.
3.5 Waiver. This Warrant and any term hereof may be changed, waived,
------
or terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought.
3.6 Governing Law. This Warrant shall be governed by and construed in
--------------
accordance with the laws of the State of New York, without giving effect to its
principles regarding conflicts of law. Any action to enforce the terms of this
Warrant shall be exclusively heard in the county, state and federal Courts of
New York and Country of the United States of America.
3.7 Signature. In the event that any signature on this Warrant is
---------
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the
party executing (or on whose behalf such signature is executed) the same, with
the same force and effect as if such facsimile signature page were an original
thereof.
3.8 Legal Fees. In the event any Person commences a legal action or
-----------
proceeding to enforce its rights under this Warrant, the non-prevailing party to
such action or proceeding shall pay all reasonable and necessary costs and
expenses (including reasonable and necessary attorney's fees) incurred in
enforcing such rights.
Dated: November 17, 2005
CHARYS HOLDING COMPANY INC.
By:
-----------------------------------------
Name: Xxxxx Xxx, Xx.
Title: Chief Executive Officer
Attest:
------------------------------------------------
Name:
Title:
APPENDIX I
NOTICE OF EXERCISE
------------------
1. The undersigned hereby elects (please check the appropriate box and fill in
the blank spaces):
[_] to purchase ______ shares of Common Stock, $.001 par value per share,
of Charys Holding Company Inc. at [$.75] [$.01] per share for a total of
$______ and pursuant to the terms of the attached Warrant, and tenders
herewith payment of the aggregate Exercise Price of such Warrant Shares in
full; or
[_] to purchase _______ shares of Common Stock, $.001 par value per share,
of Charys Holding Company Inc. pursuant to the cashless exercise provision
under Section 2.2 (b) of the attached Warrant, and tenders herewith the
number of Warrant Shares to purchase such Warrant Shares based upon the
formula set forth in Section 2.2 (b).
2. Please issue a certificate or certificates representing said Warrant Shares
in the name of the undersigned or in such other name as is specified below:
Dated: By:
-------------------------------- --------------------------------
Name:
------------------------------
Title:
--------------------------------
VOID AFTER 5:00 P.M., NEW YORK TIME ON NOVEMBER 17, 2008
WARRANT TO PURCHASE 200,000 SHARES OF COMMON STOCK
WARRANT TO PURCHASE COMMON STOCK
OF
CHARYS HOLDING COMPANY INC.
THIS WARRANT, AND THE SECURITIES INTO WHICH IT IS EXERCISABLE (COLLECTIVELY, THE
"SECURITIES"), HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
----------
AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES MAY
NOT BE OFFERED OR SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT OR
PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT
AND THE COMPANY WILL BE PROVIDED WITH OPINION OF COUNSEL OR OTHER SUCH
INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE
AVAILABLE.
FOR VALUE RECEIVED, Charys Holding Company Inc., a corporation organized
under the laws of Delaware (the "Company"), grants the following rights to
Highgate House Funds, Ltd, a Cayman Islands company and/or its assigns (the
"Holder"):
ARTICLE 1. DEFINITIONS
Capitalized terms used and not otherwise defined herein shall have the
meanings given such terms in the Securities Purchase Agreement by and between
the Company and the Holder and entered into on November 16, 2005 (the "Purchase
Agreement"). As used in this Agreement, the following terms shall have the
following meanings:
"Corporate Office" shall mean the office of the Company (or its successor)
at which at any particular time its principal business shall be administered.
"Exercise Date" shall mean any date on which the Holder gives the Company a
Notice of Exercise in the form attached hereto as Appendix I and in compliance
with Exhibit F to the Purchase Agreement.
"Exercise Price" shall mean the Fixed Price per share of Common Stock,
subject to adjustment as provided herein.
"Expiration Date" shall mean 5:00 p.m. (New York time) on November 16,
2008.
"Fair Market Value" shall have the meaning set forth in Section 2.2(b).
"Fixed Price" shall mean US$1.00 or if the First Convertible Debenture (as
defined in the Purchase Agreement) is not redeemed by the Exclusive Redemption
Date (as defined in the Purchase Agreement) shall mean US$.01.
"Market Value" shall have the meaning set forth in Section 2.2(b).
"SEC" shall mean the United States Securities and Exchange Commission.
"Warrant Shares" shall mean the shares of the Common Stock issuable upon
exercise of this Warrant.
ARTICLE 2. EXERCISE AND AGREEMENTS
2.1 Exercise of Warrant; Sale of Warrant and Warrant Shares. (a) This
--------------------------------------------------------
Warrant shall entitle the Holder to purchase, at the Exercise Price, 200,000
shares of Common Stock. This Warrant shall be exercisable at any time and from
time to time from the date hereof and prior to the Expiration Date (the
"Exercise Period"). This Warrant and the right to purchase Warrant Shares
hereunder shall expire and become void on the Expiration Date.
2.2 Manner of Exercise.
------------------
(a) The Holder may exercise this Warrant at any time and from time to
time during the Exercise Period, in whole or in part (but not in denominations
of fewer than 10,000 Warrant Shares, except upon an exercise of this Warrant
with respect to the remaining balance of Warrant Shares purchasable hereunder at
the time of exercise), by delivering to the Escrow Agent pursuant to the Escrow
Shares Escrow Agreement of even date herewith incorporated herein by reference
(i) a duly executed Notice of Exercise in substantially the form attached as
Appendix I hereto, (ii) the certificate representing the Warrants and (iii) a
bank cashier's or certified check for the aggregate Exercise Price of the
Warrant Shares being purchased.
(b) The Holder may, at its option, in lieu of paying cash for the
Warrant Shares, exercise this Warrant by an exchange, in whole or in part (a
"Warrant Exchange"), by delivery to the Escrow Agent of (i) a duly executed
Notice of Exercise electing a Warrant Exchange and (ii) the certificate
representing this Warrant. In connection with any Warrant Exchange, the Holder
shall be deemed to have paid for the Warrant Shares an amount equal to the Fair
Market Value of each Warrant delivered, and the Warrants shall be deemed
exercised for the amount so paid. For this purpose, the Fair Market Value of
each Warrant is the difference between the Market Value of a share of Common
Stock and the Exercise Price on the Exercise Date. Market Value shall mean the
average Closing Bid Price of a share of Common Stock during the ten (10) Trading
Days ending on the Exercise Date.
2.3 Termination. All rights of the Holder in this Warrant, to the
-----------
extent they have not been exercised, shall terminate on the Expiration Date.
2.4 No Rights Prior to Exercise. This Warrant shall not entitle the
------------------------------
Holder to any voting or other rights as a stockholder of the Company.
2.5 Fractional Shares. No fractional shares shall be issuable upon
------------------
exercise of this Warrant, and the number of Warrant Shares to be issued shall be
rounded up to the nearest whole number. If, upon exercise of this Warrant, the
Holder hereof would be entitled to receive any fractional share, the Company
shall issue to the Holder one additional share of Common Stock in lieu of such
fractional share.
2.6 Escrow. The Company agrees to enter into the Escrow Shares Escrow
------
Agreement and to deposit with the Escrow Agent thereunder stock certificates
registered in the name of the Holder, each representing a number of shares of
Common Stock (in denominations specified by the Purchaser) equal, in the
aggregate, to the total number of Warrant Shares for which this Warrant is
exercisable, assuming exercise of this Warrant in full on the date hereof. The
Company shall deposit additional certificates for Warrant Shares upon request by
the Escrow Agent pursuant to the Escrow Agreement and Exhibit F to the Purchase
Agreement.
2.7 Adjustments to Exercise Price and Number of Securities.
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(a) Computation of Adjusted Exercise Price. In case the Company shall at
---------------------------------------
any time after the date hereof and until this Warrant is fully exercised issue
or sell any shares of Common Stock (other than the issuances or sales referred
to in Section 2.7 (f) hereof), including shares held in the Company's treasury
and shares of Common Stock issued upon the exercise of any options, rights or
warrants to subscribe for shares of Common Stock and shares of Common Stock
issued upon the direct or indirect conversion or exchange of securities for
shares of Common Stock (excluding shares of Common Stock issuable upon exercise
of options, warrants or conversion rights granted as of the date hereof), for a
consideration per share less than the Exercise Price on the date immediately
prior to the issuance or sale of such shares, or without consideration, then
forthwith upon such issuance or sale, the Exercise Price shall (until another
such issuance or sale) be reduced to the price equal to the quotient derived by
dividing (A) an amount equal to the sum of (X) the product of (a) the Exercise
Price on the date immediately prior to the issuance or sale of such shares,
multiplied by (b) the total number of shares of Common Stock outstanding
immediately prior to such issuance or sale plus, (Y) the aggregate of the amount
of all consideration, if any, received by the Company upon such issuance or
sale, by (B) the total number of shares of Common Stock outstanding immediately
after such issuance or sale; provided, however, that in no event shall the
Exercise Price be adjusted pursuant to this computation to an amount in excess
of the Exercise Price in effect immediately prior to such computation, except in
the case of a combination of outstanding shares of Common Stock, as provided by
Section 2.7 (c) hereof.
For the purposes of any computation to be made in accordance with this Section
2.7(a), the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of Common Stock for
a consideration part or all of which shall be cash, the amount of cash
consideration therefor shall be deemed to be the amount of cash received by
the Company for such shares (or, if shares of Common Stock are offered by
the Company for
subscription, the subscription price, or if either of such securities shall
be sold to underwriters or dealers for public offering without a
subscription offering, the initial public offering price) before deducting
therefrom any compensation paid or discount allowed in the sale,
underwriting or purchase thereof by underwriters or dealers or others
performing similar services, or any expenses incurred in connection
therewith.
(ii) In case of the issuance or sale (otherwise than as a dividend
or other distribution on any stock of the Company) of shares of Common
Stock for a consideration part or all of which shall be other than cash,
the amount of the consideration therefor other than cash shall be deemed to
be the value of such consideration as determined in good faith by the Board
of Directors of the Company.
(iii) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following the
record date for the determination of stockholders entitled to receive such
dividend or other distribution and shall be deemed to have been issued
without consideration.
(iv) The reclassification of securities of the Company other than
shares of the Common Stock into securities including shares of Common Stock
shall be deemed to involve the issuance of such shares of Common Stock for
a consideration other than cash immediately prior to the close of business
on the date fixed for the determination of security holders entitled to
receive such shares, and the value of the consideration allocable to such
shares of Common Stock shall be determined as provided in subsection (ii)
of this Section 2.7(a).
(v) The number of shares of Common Stock at any one time
outstanding shall include the aggregate number of shares issued or issuable
(subject to readjustment upon the actual issuance thereof) upon the
exercise of options, rights, warrants and upon the conversion or exchange
of convertible or exchangeable securities; provided, however, that shares
issuable upon the exercise of the Warrants shall not be included in such
calculation.
(b) Options, Rights, Warrants and Convertible and Exchangeable
----------------------------------------------------------------
Securities. In case the Company shall at any time after the date hereof and
----------
until this Warrant is fully exercised issue options, rights or warrants to
subscribe for shares of Common Stock, or issue any securities convertible into
or exchangeable for shares of Common Stock, for a consideration per share less
than the Exercise Price immediately prior to the issuance of such options,
rights or warrants (excluding shares of Common Stock issuable upon exercise of
options, warrants or conversion rights granted as of the date hereof and shares
of Common Stock issuable upon exercise of stock options at or above the closing
market price per share of Common Stock under any stock option plan of the
Company), or such convertible or exchangeable securities, or without
consideration, the Exercise Price in effect immediately prior to the issuance of
such options, rights or warrants, or such convertible or exchangeable
securities, as the case may be, shall be reduced to a price
determined by making a computation in accordance with the provision of Section
2.7(a) hereof, provided that:
(i) The aggregate maximum number of shares of Common Stock, as the
case may be, issuable under such options, rights or warrants shall be
deemed to be issued and outstanding at the time such options, rights or
warranties were issued, and for a consideration equal to the minimum
purchase price per share provided for in such options, rights or warrants
at the time of issuance, plus the consideration (determined in the same
manner as consideration received on the issue or sale of shares in
accordance with the terms of the Warrants), if any, received by the Company
for such options, rights or warrants.
(ii) The aggregate maximum number of shares of Common Stock
issuable upon conversion or exchange of any convertible or exchangeable
securities shall be deemed to be issued and outstanding at the time of
issuance of such securities, and for a consideration equal to the
consideration (determined in the same manner as consideration received on
the issue or sale of shares of Common Stock in accordance with the terms of
the Warrants) received by the Company for such securities, plus the minimum
consideration, if any, receivable by the Company upon the conversion or
exchange thereof.
(iii) If any change shall occur in the price per share provided
for in any of the options, rights or warrants referred to in subsection (a)
of this Section 2.7, or in the price per share at which the securities
referred to in subsection (b) of this Section 2.7 are convertible or
exchangeable, such options, rights or warrants or conversion or exchange
rights, as the case may be, shall be deemed to have expired or terminated
on the date when such price change became effective in respect of shares
not theretofore issued pursuant to the exercise or conversion or exchange
thereof, and the Company shall be deemed to have issued upon such date new
options, rights or warrants or convertible or exchangeable securities at
the new price in respect of the number of shares issuable upon the exercise
of such options, rights or warrants or the conversion or exchange of such
convertible or exchangeable securities.
(iv) If any options, rights or warrants referred to in subsection
(a) of this Section 2.7, or any convertible or exchangeable securities
referred to in subsection (b) of this Section 2.7, expire or terminate
without exercise or conversion, as the case may be, then the Exercise Price
of the remaining outstanding Warrant shall be readjusted as if such
options, rights or warrants or convertible or exchangeable securities, as
the case may be, had never been issued.
(c) Subdivision and Combination. In case the Company shall at any time
---------------------------
subdivide or combine the outstanding shares of Common Stock, the Exercise Price
shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
(d) Adjustment in Number of Securities. Upon each adjustment of the
-------------------------------------
Exercise Price pursuant to the provisions of this Section 2.7, the number of
Warrant
Shares issuable upon the exercise of each Warrant shall be adjusted to the
nearest whole number by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Shares
issuable upon exercise of the Warrants immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
(e) Merger or Consolidation. In case of any consolidation of the
-------------------------
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental warrant agreement providing that the Holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
Warrant, the kind and amount of shares of stock and other securities and
property (except in the event the property is cash, then the Holder shall have
the right to exercise the Warrant and receive cash in the same manner as other
stockholders) receivable upon such consolidation or merger, by a holder of the
number of shares of Common Stock of the Company for which such warrant might
have been exercised immediately prior to such consolidation, merger, sale or
transfer. Such supplemental warrant agreement shall provide for adjustments
which shall be identical to the adjustments provided in Section 2.7. The
foregoing provisions of this paragraph (e) shall similarly apply to successive
consolidations or mergers.
(f) No Adjustment of Exercise Price in Certain Cases. No adjustment of
------------------------------------------------
the Exercise Price shall be made upon the issuance of any securities (i) under
an Approved Stock Plan (as such term is defined in the Convertible Debenture
dated as of the date hereof), (ii) that constitute Excluded Securities (as such
term is defined in the Convertible Debenture dated as of the date hereof) and/or
(iii) that constitute Other Securities (as such term is defined in the
Convertible Debenture dated as of the date hereof).
(g) Dividends and Other Distributions. In the event that the Company
-----------------------------------
shall at any time prior to the exercise of all Warrants declare a dividend
(other than a dividend consisting solely of shares of Common Stock) or otherwise
distribute to its stockholders any assets, property, rights, evidences of
indebtedness, securities (other than shares of Common Stock), whether issued by
the Company or by another, or any other thing of value, the Holders of the
unexercised Warrants shall thereafter be entitled, in addition to the shares of
Common Stock or other securities and property receivable upon the exercise
thereof, to receive, upon the exercise of such Warrants, the same property,
assets, rights, evidences of indebtedness, securities or any other thing of
value that they would have been entitled to receive at the time of such dividend
or distribution as if the Warrants had been exercised immediately prior to such
dividend or distribution. At the time of any such dividend or distribution, the
Company shall make appropriate reserves to ensure the timely performance of the
provisions of this subsection 2.7 (g). Nothing contained herein shall provide
for the receipt or accrual by a Holder of cash dividends prior to the exercise
by such Holder of the Warrants.
2.8 Registration Rights. The Holder shall have the registration rights
-------------------
set forth in the Investor Registration Rights Agreement.
ARTICLE 3. MISCELLANEOUS
3.1 Transfer. This Warrant may not be offered, sold, transferred,
--------
pledged, assigned, hypothecated or otherwise disposed of, in whole or in part,
at any time, except in compliance with applicable federal and state securities
laws by the transferor and the transferee (including, without limitation, the
delivery of an investment representation letter and a legal opinion reasonably
satisfactory to the Company).
3.2 Transfer Procedure. Subject to the provisions of Section 3.1, the
-------------------
Holder may transfer or assign this Warrant by giving the Company notice setting
forth the name, address and taxpayer identification number of the transferee or
assignee, if applicable (the "Transferee"), and surrendering this Warrant to the
Company for reissuance to the Transferee and, in the event of a transfer or
assignment of this Warrant in part, the Holder. (Each of the persons or
entities in whose name any such new Warrant shall be issued are herein referred
to as a "Holder").
3.3 Loss, Theft, Destruction or Mutilation. If this Warrant shall
------------------------------------------
become mutilated or defaced or be destroyed, lost or stolen, the Company shall
execute and deliver a new Warrant in exchange for and upon surrender and
cancellation of such mutilated or defaced Warrant or, in lieu of and in
substitution for such Warrant so destroyed, lost or stolen, upon the Holder
filing with the Company an affidavit that such Warrant has been so mutilated,
defaced, destroyed, lost or stolen. However, the Company shall be entitled, as
a condition to the execution and delivery of such new Warrant, to demand
reasonably acceptable indemnity to it and payment of the expenses and charges
incurred in connection with the delivery of such new Warrant. Any Warrant so
surrendered to the Company shall be canceled.
3.4 Notices. All notices and other communications from the Company to
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the Holder or vice versa shall be deemed delivered and effective when given
personally, by facsimile transmission with confirmation sheet at such address
and/or facsimile number as may have been furnished to the Company or the Holder,
as the case may be, in writing by the Company or the Holder from time to time.
3.5 Waiver. This Warrant and any term hereof may be changed, waived,
------
or terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought.
3.6 Governing Law. This Warrant shall be governed by and construed in
--------------
accordance with the laws of the State of New York, without giving effect to its
principles regarding conflicts of law. Any action to enforce the terms of this
Warrant shall be exclusively heard in the county, state and federal Courts of
New York and Country of the United States of America.
3.7 Signature. In the event that any signature on this Warrant is
---------
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the
party executing (or on whose behalf such signature is executed) the same, with
the same force and effect as if such facsimile signature page were an original
thereof.
3.8 Legal Fees. In the event any Person commences a legal action or
-----------
proceeding to enforce its rights under this Warrant, the non-prevailing party to
such action or proceeding shall pay all reasonable and necessary costs and
expenses (including reasonable and necessary attorney's fees) incurred in
enforcing such rights.
Dated: November 17, 2005
CHARYS HOLDING COMPANY INC.
By:
-----------------------------------------
Name: Xxxxx Xxx, Xx.
Title: Chief Executive Officer
Attest:
------------------------------------------------
Name:
Title:
APPENDIX I
NOTICE OF EXERCISE
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1. The undersigned hereby elects (please check the appropriate box and fill in
the blank spaces):
[_] to purchase ______ shares of Common Stock, $.001 par value per share,
of Charys Holding Company Inc. at [$1.00] [$.01] per share for a total of
$______ and pursuant to the terms of the attached Warrant, and tenders
herewith payment of the aggregate Exercise Price of such Warrant Shares in
full; or
[_] to purchase _______ shares of Common Stock, $.001 par value per share,
of Charys Holding Company Inc. pursuant to the cashless exercise provision
under Section 2.2 (b) of the attached Warrant, and tenders herewith the
number of Warrant Shares to purchase such Warrant Shares based upon the
formula set forth in Section 2.2 (b).
2. Please issue a certificate or certificates representing said Warrant Shares
in the name of the undersigned or in such other name as is specified below:
Dated: By:
-------------------------------- --------------------------------
Name:
------------------------------
Title:
--------------------------------
SCHEDULE I
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SCHEDULE OF BUYERS
------------------
ADDRESS/FACSIMILE PRINCIPAL AMOUNT OF
NAME NUMBER OF BUYER DEBENTURES
-------------------------- -------------------------- --------------------
Highgate House Funds, Ltd. 000 Xxxxxxx Xxxxxx $3,000,000
Xxx Xxxx, XX 00000 $1,000,000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Xxxxx X. Xxxxxxx, Esq.
Gottbetter & Partners, LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
1
SCHEDULE II
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SHARE DENOMINATIONS
-------------------
NAME OF INVESTOR
Highgate House Funds, Ltd.
Stock Certificate Denominations for the Escrow Shares in the name of Highgate
House Funds, Ltd.:
10 certificates each for 500 shares
10 certificates each for 1,000 shares
10 certificates each for 2,500 shares
10 certificates each for 5,000 shares
11 certificates each for 10,000 shares
10 certificates each for 25,000 shares
12 certificates each for 50,000 shares
12 certificates each for 100,000 shares
11 certificates each for 250,000 shares
10 certificates each for 500,000 shares
10 certificates each for 1,000,000 shares
