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EXHIBIT 10.2
PURCHASE AGREEMENT dated as of December 31, 2000 by and between Verso
Technologies, Inc., a Minnesota corporation (formerly known as Eltrax System,
Inc.) (the "Company"), and those persons signatory hereto (each such person
being called a "Purchaser" and all such persons, collectively called the
"Purchasers").
WHEREAS the Company and the Purchasers are parties to a Convertible
Debenture Purchase Agreement dated as of July 27, 2000, (the "DP Agreement");
and
WHEREAS pursuant to the DP Agreement, the Purchasers have purchased in
the aggregate $7,000,000 of the Company's 5.00% Convertible Debentures (the "Old
Debentures").
NOW, THEREFORE, the parties hereby agree as follows:
ARTICLE 1
1.1 General. Capitalized terms used herein and not otherwise
defined shall have the meaning ascribed thereto in the DP Agreement.
1.2 Repurchase of Old Debentures. (a) The Company may repurchase
at its sole election up to $5 million of Old Debentures by advising the
Purchaser in writing of its election to purchase such Old Debentures which
notice may be given at any time prior to January 10, 2001, (the "Repurchase
Notice"). The Repurchase Notice shall contain the amount of the Old Debentures
to be repurchased, which amount must be at least $1 million but in no event
greater than $5 million (the principal amount of the Old Debentures to be
repurchased is hereinafter called the "Repurchased Principal"). One-half of the
aggregate of the Old Debentures to be repurchased shall be repurchased from each
Purchaser.
(b) The closing of the repurchase of the Old Debentures
(the "Repurchase Closing") shall take place at the offices of Morse, Zelnick,
Rose & Lander, LLP, 000 Xxxx Xxxxxx, Xxx Xxxx, X.X. 00000 on February 5, 2001
(the "Repurchase Date").
(c) At the Repurchase Closing, the parties shall deliver
or shall cause to be delivered the following: (1) each Purchaser shall deliver
to the Company Old Debentures representing no less than the aggregate principal
amount of Old Debentures to be repurchased from such Purchaser, and (2) the
Company shall deliver to each Purchaser (i) an amount equal to 100% of the
principal amount of the Old Debentures to be repurchased from such Purchaser
plus all accrued and unpaid interest with respect thereto in United States
dollars in immediately available funds by wire transfer to an account designated
in writing by each Purchaser for such purpose (ii) to the extent that the
principal amount of the Old Debentures delivered to the Company shall be in
excess of the principal amount of the Old Debentures to be purchased from such
Purchaser, debentures in a form identical to the Old Debentures except that the
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principal amount thereof shall be equal to such excess and (iii) a legal opinion
of Xxxxxx & Xxxxxx LLP outside counsel to the Company, in the form of Exhibit A.
1.3 Conversion Price of Old Debentures. (a) If the Repurchased
Principal shall exceed $4.2 Million, then the conversion price of the Old
Debentures shall be fixed at a price equal to the lesser of (i) the "Adjusted
Conversion Price" (as determined as provided in Section 1.3(b)) and (ii) the
conversion price of the Old Debentures outstanding immediately following the
Repurchase Closing, and all such outstanding Old Debentures shall be amended to
reflect such adjustment.
(b) The "Adjusted Conversion Price" shall be equal to (i)
the average closing bid price of a share of common stock of the Company as
reported on the NASDAQ National Market for the ten Trading Days preceding the
Repurchase Date, multiplied by (ii) 85%.
1.4 Termination. If the Company shall not have given the
Repurchase Notice to the Purchasers, by January 10, 2001, this Agreement shall
terminate and be of no further force and effect.
1.5 Commitment to Purchase Additional Debentures. The Purchasers
hereby agree with the Company that subject to the provisions of this Agreement,
they shall severally and not jointly, purchase from the Company that amount of
the Company's Series A 5.00% Convertible Debentures, which shall be in Form of
Exhibit B annexed hereto (the "Debentures") as shall in the aggregate be equal
to the Repurchased Principal (the "Commitment Amount").
1.6 Purchase and Sale of Additional Debentures. At any time after
the Repurchase Date to and including the 365th day after the Repurchase Date
(such period being called the "Put Period"), the Company may notify the
Purchasers in writing that it wishes to issue and sell to the Purchasers exactly
$1,000,000 of its Debentures (a "Put Notice"), provided that after the Company
has sold Debentures to the Purchasers that equal that portion of the Commitment
Amount that is evenly divisible by $1,000,000, then the Company may notify the
Purchaser in writing that it wishes to issue and sell to the Purchasers
Debentures in an amount not less than the remainder of the Commitment Amount.
Within 10 days of the receipt by the Purchasers of the first Put Notice (the
"Initial Put Notice"), the Purchasers may advise the Company that they wish to
purchase up to $1,000,000 of additional Debentures in which event such amount of
additional Debentures shall be sold to the Purchasers at the Initial Closing (as
defined below). Each Purchaser shall purchase 50% of such Debentures. The
Debentures to be sold pursuant to the Initial Put Notice are hereinafter called
the "Initial Tranche Debentures". Any Debentures to be sold pursuant to any
other Put Notice (an "Additional Put Notice") are hereinafter called "Additional
Tranche Debentures".
1.7 The Initial Tranche Closing. The closing of the purchase and
sale of the Initial Tranche Debentures (the "Initial Closing") shall take place
at the offices of Xxxxx Xxxxxxx Xxxx & Xxxxxx LLP ("MZRL"), 000 Xxxx Xxxxxx,
Xxxxx 000, Xxx Xxxx, Xxx Xxxx 00000,
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on the fifteenth Trading Day following the giving of the Initial Put Notice. The
date of the Initial Closing is hereinafter referred to as the ("Initial Closing
Date"). At the Initial Closing, the parties shall deliver or shall cause to be
delivered the following: (a) the Company shall deliver to each Purchaser (i)
Debentures in the aggregate principal amount of 50% of the Initial Tranche
Debentures, which Debentures shall be dated the Initial Closing Date, and shall
mature one year after the Initial Closing Date and shall be registered in the
name of such Purchaser, (ii) Common Stock purchase warrants, in the form of
Exhibit C, registered in the name of such Purchaser, pursuant to which such
Purchaser shall have the right to acquire such number of shares of Common Stock
as is equal to 20% of the shares of Common Stock into which the Initial Tranche
Debentures acquired by such Purchaser are initially convertible, at a price per
share equal to 110% of the initial Conversion Price of the Initial Tranche
Debentures (the "Initial Warrants"), (iii) a legal opinion of Xxxxxx & Xxxxxx
LLP outside counsel to the Company, in the form of Exhibit D, (iv) an executed
Registration Rights Agreement, dated the Initial Closing Date, among the Company
and the Purchasers, in the form of Exhibit E (the "Registration Rights
Agreement"), and (v) Transfer Agent Instructions, in the form of Exhibit F,
delivered to and acknowledged by the Company's transfer agent (the "Transfer
Agent Instructions"); and (b) each Purchaser shall deliver to the Company (i) an
amount equal to principal amount of the Initial Tranche Debentures being
purchased by such Purchaser in United States dollars in immediately available
funds by wire transfer to an account designated in writing by the Company for
such purpose, and (ii) an executed Registration Rights Agreement.
1.8 Additional Closings. (a) Subject to the terms and conditions
set forth in this Agreement, the Company shall have during the Put Period the
right to deliver to the Purchasers an Additional Put Notice, requiring the
Purchasers to purchase (severally, and not jointly) Additional Tranche
Debentures. An Additional Put Notice may be delivered no earlier than the 35th
Trading Day after the date of the most recent sale of Debentures to the
Purchasers pursuant to this Agreement, unless otherwise consented to by the
Purchasers in writing. Notwithstanding anything to the contrary that may be
contained herein, in no event shall the Purchasers be required to purchase in
the aggregate Debentures in excess of the Commitment Amount and any Put Notice
given after the purchase of Debentures by the Purchasers in an aggregate amount
equal to the Commitment Amount shall be null and void ab initio.
(b) The closing of the purchase and sale of any
Additional Tranche Debentures (an "Additional Closing") shall take place at the
offices of Xxxxx Xxxxxxx Xxxx & Xxxxxx LLP ("MZRL"), 000 Xxxx Xxxxxx, Xxxxx 000,
Xxx Xxxx, Xxx Xxxx 00000, on the fifteenth Trading Day following the giving of
an Additional Put Notice. The date of each such Additional Closing is
hereinafter referred to as (an "Additional Closing Date"). At each Additional
Closing, the parties shall deliver or shall cause to be delivered the following:
(a) the Company shall deliver to each Purchaser (i) Debentures in the aggregate
principal amount of 50% of such Additional Tranche Debentures, which Debentures
shall be dated such Additional Closing Date, and shall mature one year after
such Additional Closing Date and shall be registered in the name of such
Purchaser, (ii) Common Stock purchase warrants, in the form of Exhibit C,
registered in the name of such Purchaser, pursuant to which such Purchaser shall
have the right to acquire such number of shares of Common Stock as is equal to
20% of the
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shares of Common Stock into which such Additional Tranche Debentures acquired by
such Purchaser are initially convertible, at a price per share equal to 110% of
the initial Conversion Price of such Additional Tranche Debentures
(collectively, the "Additional Warrants"), and (b) each Purchaser shall deliver
to the Company an amount equal to principal amount of the Additional Tranche
Debentures being purchased by such Purchaser in United States dollars in
immediately available funds by wire transfer to an account designated in writing
by the Company for such purpose.
1.9 Certain Defined Terms. For purposes of this Agreement,
"Business Day," "Commission," "Conversion Price," "Effective Date," "Exchange
Date," "Original Issue Date," "Person," "Trading Day" and "Underlying Shares
Registration Statement" shall have the meanings set forth in the Debentures. The
Initial Warrants and Additional Warrants are collectively referred to as the
"Warrants."
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of the Company. The Company
hereby makes the following representations and warranties to each Purchaser:
(a) Organization and Qualification. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Minnesota with the requisite corporate power and authority
to own and use its properties and assets and to carry on its business as
currently conducted. The Company has no subsidiaries other than as set forth in
Schedule 2.1(a) (collectively the "Subsidiaries"). Each of the Subsidiaries is
an entity, duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization (as applicable), with
the requisite corporate power and authority to own and use its properties and
assets and to carry on its business as currently conducted. Each of the Company
and the Subsidiaries is duly qualified to do business and is in good standing as
a foreign corporation in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
could not be reasonably expected to, individually or in the aggregate, (x)
adversely affect the legality, validity or enforceability of the Securities (as
defined below) or any of this Agreement, the Registration Rights Agreement, the
Debenture or the Transfer Agent Instructions (collectively, the "Transaction
Documents"), (y) have or result in a material adverse effect on the results of
operations, assets, prospects, or condition (financial or otherwise) of the
Company and the Subsidiaries, taken as a whole, or (z) adversely impair the
Company's ability to perform fully on a timely basis its obligations under any
of the Transaction Documents (any of (x), (y) or (z), a "Material Adverse
Effect").
(b) Authorization; Enforcement. The Company has the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated by each of
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the Transaction Documents and otherwise to carry out its obligations thereunder.
The execution and delivery of each of the Transaction Documents by the Company
and the consummation by it of the transactions contemplated thereby have been
duly authorized by all necessary action on the part of the Company and no
further action is required by the Company. Each of the Transaction Documents has
been duly executed by the Company and, when delivered in accordance with the
terms hereof, will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except to the
extent that enforcement thereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect relating
to creditors' rights generally and (ii) general principles of equity (regardless
of whether enforceability is considered in a proceeding at law or in equity) and
except to the extent that rights to indemnification and contribution contained
in this Agreement may be limited by federal or state securities laws on public
policy relating thereto. Neither the Company nor any Subsidiary is in violation
of any of the provisions of its respective certificate or articles of
incorporation, by-laws or other charter or organizational documents.
(c) Capitalization. The number and type of authorized,
issued and outstanding capital stock of the Company is set forth in Schedule
2.1(c). Except as disclosed in Schedule 2.1(c), the Company owns all of the
capital stock of each Subsidiary. No shares of Common Stock are entitled to
preemptive or similar rights, nor is any holder of securities of the Company or
any Subsidiary entitled to preemptive or similar rights arising out of any
agreement or understanding with the Company or any Subsidiary by virtue of any
of the Transaction Documents. Except as a result of the purchase and sale of the
Debentures and the Warrants and except as disclosed in Schedule 2.1(c), there
are no outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable for, or giving any Person any right
to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings, or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common Stock.
(d) Issuance of the Debentures and the Warrants. The
Debentures and the Warrants will be duly and validly issued, free and clear of
all liens, encumbrances and rights of first refusal of any kind (collectively,
"Liens"). On the date hereof and on each Closing Date, the Company will have
(and will, at all times while Debentures and Warrants are outstanding, maintain)
an adequate reserve of duly authorized shares of Common Stock, reserved for
issuance to the holders of such Debentures and Warrants, to enable it to perform
its conversion, exercise and other obligations thereunder. The shares of Common
Stock issuable upon conversion of the Debentures and upon exercise of the
Warrants are collectively referred to herein as the "Underlying Shares." The
Debentures, the Warrants and the Underlying Shares are collectively referred to
herein as, the "Securities." When issued in accordance with the Debentures and
the Warrants, the Underlying Shares will be duly authorized, validly issued,
fully paid and nonassessable, and free and clear of all Liens.
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(e) No Conflicts. The execution, delivery and performance
of the Transaction Documents by the Company and the consummation by the Company
of the transactions contemplated thereby do not and will not (i) conflict with
or violate any provision of the Company's or any Subsidiary's certificate or
articles of incorporation, bylaws or other charter documents (each as amended
through the date hereof), or (ii) subject to obtaining the Required Approvals
(as defined below), conflict with, or constitute a default (or an event which
with notice or lapse of time or both could become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation (with
or without notice, lapse of time or both) of, any agreement, credit facility,
debt or other instrument (evidencing a Company or Subsidiary debt or otherwise)
or other understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including federal and
state securities laws and regulations), or by which any property or asset of the
Company or a Subsidiary is bound or affected; except in the case of each of
clauses (ii) and (iii), as could not reasonably be expected to, individually or
in the aggregate, have or result in a Material Adverse Effect. The business of
the Company is not being conducted in violation of any law, ordinance or
regulation of any governmental authority, except for violations which,
individually or in the aggregate, could not reasonably be expected to have or
result in a Material Adverse Effect.
(f) Filings, Consents and Approvals. Neither the Company
nor any Subsidiary is required to obtain any consent, waiver, authorization or
order of, give any notice to, or make any filing or registration with, any court
or other federal, state, local or other governmental authority or other Person
in connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filings required pursuant to Section
3.10, (ii) the filing with the Commission of the registration statement meeting
the requirements set forth in the Registration Rights Agreement and covering the
resale of the Underlying Shares by the Purchasers (the "Underlying Shares
Registration Statement"), (iii) applicable Blue Sky filings, (iv) the consent of
the "Lenders" under the Revolving Credit and Security Agreement dated March 14,
2000, among Company, the other borrowers from time to time party thereto, the
various lenders who are or may become parties thereto as lenders ("Lenders"),
and PNC Bank, National Association, in its capacity as administrative and
collateral agent for the Lenders (together with its successors in such capacity,
"Agent") (as at any time amended, the "PNC Agreement"), and (v) in all other
cases where the failure to obtain such consent, waiver, authorization or order,
or to give such notice or make such filing or registration could not reasonably
be expected to have or result in, individually or in the aggregate, a Material
Adverse Effect (collectively, the "Required Approvals").
(g) Litigation; Proceedings. There is no action, suit,
inquiry, notice of violation, proceeding or investigation pending or, to the
knowledge of the Company, threatened against or affecting the Company or any of
its Subsidiaries or any of their respective properties before or by any court,
arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an "Action") which
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(i) adversely affects or challenges the legality, validity or enforceability of
any of the Transaction Documents or the Securities or (ii) could reasonably be
expected to, individually or in the aggregate, have or result in a Material
Adverse Effect.
(h) No Default or Violation. Except for the Company's
failure to achieve the net cash flow required by the PNC Agreement for each of
the first, second and third quarter of fiscal 2000, neither the Company nor any
Subsidiary (i) is in default under or in violation of (and no event has occurred
which has not been waived which, with notice or lapse of time or both, could
result in a default by the Company or any Subsidiary under), nor has the Company
or any Subsidiary received notice of a claim that it is in default under or that
it is in violation of, any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its
properties is bound (whether or not such default or violation has been waived),
(ii) is in violation of any judgment or order of any court, arbitrator or
governmental body, or (iii) is in violation of any statute, rule or regulation
of any governmental authority, in each case of clauses (i), (ii) or (iii) above,
except as could not reasonably be expected to, individually or in the aggregate,
have or result in a Material Adverse Effect.
(i) Private Offering. Assuming the accuracy of the
representations and warranties of the Purchasers set forth in Sections
2.2(b)-(g), the offer, issuance and sale of the Securities to the Purchasers as
contemplated hereby are exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"). Neither the Company
nor any Person acting on its behalf has taken or is, to the knowledge of the
Company, contemplating taking any action which could subject the offering,
issuance or sale of the Securities to the registration requirements of the
Securities Act including soliciting any offer to buy or sell the Securities by
means of any form of general solicitation or advertising.
(j) SEC Documents; Financial Statements. The Company has
filed all reports required to be filed by it under the Exchange Act, including
pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date
hereof (or such shorter period as the Company was required by law to file such
material) (the foregoing materials, together with the Registration Statement on
Form S-4 dated August 29, 2000, being collectively referred to herein as the
"SEC Documents" and, together with the Schedules to this Agreement the
"Disclosure Materials") on a timely basis or has received a valid extension of
such time of filing and has filed any such SEC Documents prior to the expiration
of any such extension. As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Documents, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. All material
agreements to which the Company is a party or to which the property or assets of
the Company are subject have been filed as exhibits to the SEC Documents as
required under the Exchange Act. The financial statements of the Company
included in the SEC Documents comply in all material respects with applicable
accounting requirements and the rules and regulations of the Commission with
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respect thereto as in effect at the time of filing. Such financial statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved ("GAAP"), except as
may be otherwise specified in such financial statements or the notes thereto,
and fairly present in all material respects the consolidated financial position
of the Company and its Subsidiaries as of and for the dates thereof and the
results of operations and cash flows for the periods then ended, subject, in the
case of unaudited statements, to normal, immaterial, year-end audit adjustments.
Since December 31, 1999, except as specifically disclosed in the Disclosure
Materials or Schedule 2.1(j), (a) there has been no event, occurrence or
development that has had or that could reasonably be expected to result in a
Material Adverse Effect, (b) the Company has not incurred any liabilities
(contingent or otherwise) other than (x) liabilities incurred in the ordinary
course of business consistent with past practice and (y) liabilities not
required to be reflected in the Company's financial statements, including the
notes thereto, pursuant to GAAP or required to be disclosed in filings made with
the Commission, (c) the Company has not altered its method of accounting or the
identity of its auditors and (d) the Company has not declared or made any
payment or distribution of cash or other property to its stockholders or
officers or directors (other than in compliance with existing Company stock
option plans with respect to its capital stock, stock purchase plan and earnout
agreements with acquired companies), or purchased or redeemed (or made any
agreements to purchase or redeem) any shares of its capital stock.
(k) Investment Company. The Company is not, and is not an
Affiliate (as defined in Rule 405 under the Securities Act) of, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(l) Certain Fees. No fees or commissions will be payable
by the Company to any broker, financial advisor or consultant, finder, placement
agent, investment banker, bank or other Person with respect to the transactions
contemplated by this Agreement. The Purchasers shall have no obligation with
respect to any fees or with respect to any claims made by or on behalf of other
Persons for fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated by this Agreement. The Company
shall indemnify and hold harmless the Purchasers, their employees, officers,
directors, agents, and partners, and their respective Affiliates, from and
against all claims, losses, damages, costs (including the costs of preparation
and attorney's fees) and expenses suffered in respect of any such claimed or
existing fees, as such fees and expenses are incurred.
(m) [INTENTIONALLY OMITTED]
(n) Seniority. Except as disclosed in Schedule 2.1(n), as
of the date of this Agreement, no indebtedness of the Company could be Senior
Indebtedness as defined in Section 11 of the Debenture.
(o) Listing and Maintenance Requirements. The Company has
not, in the twelve months preceding the date hereof, received written notice
from any stock exchange, market or trading facility on which the Common Stock is
or has been listed (or on which it has been quoted) to the effect that the
Company is not in compliance with the listing or
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maintenance requirements of such exchange, market or trading facility. The
Company is, and has no reason to believe that it will not in the foreseeable
future continue to be, in compliance with all such listing and maintenance
requirements.
(p) Patents and Trademarks. The Company and its
Subsidiaries have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names, copyrights,
licenses and rights which are necessary or material for use in connection with
their respective businesses as described in the SEC Documents, except where the
failure to so have could not have a Material Adverse Effect (collectively, the
"Intellectual Property Rights"). Neither the Company nor any Subsidiary has
received a written notice that the Intellectual Property Rights used by the
Company or its Subsidiaries violates or infringes upon the rights of any Person.
To the best knowledge of the Company, all such Intellectual Property Rights are
enforceable, and there is no existing infringement by another Person of any of
the Intellectual Property Rights.
(q) Registration Rights; Rights of Participation. Except
as set forth on Schedule 6(b) to the Registration Rights Agreement, the Company
has not granted or agreed to grant to any Person any rights (including
"piggy-back" registration rights) to have any securities of the Company
registered with the Commission or any other governmental authority which have
not been satisfied. No Person has any right of first refusal, preemptive right,
right of participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents.
(r) Regulatory Permits. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Documents and are operating their
respective businesses in compliance with the terms thereof, except where the
failure to possess such permits or operate their business could not,
individually or in the aggregate, reasonably be expected to have or result in a
Material Adverse Effect ("Material Permits"), and neither the Company nor any
such Subsidiary has received any notice of proceedings relating to the
revocation or modification of any Material Permit.
(s) Title. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them which is
material to the business of the Company and its Subsidiaries and good and
marketable title in all personal property owned by them which is material to the
business of the Company and its Subsidiaries, in each case free and clear of all
Liens, [except for Liens of the Agent and Cereus] and Liens that do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company and its
Subsidiaries. Any real property and facilities held under lease by the Company
and its Subsidiaries are held by them under valid, subsisting and enforceable
leases of which the Company and its Subsidiaries are in compliance in all
material respects.
(t) Absence of Certain Proceedings. Except as described
in the SEC Documents, (i) neither the Company nor any Subsidiary, nor any
director or officer thereof, is
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or has been the subject of any Action involving (A) a claim of violation of or
liability under federal or state securities laws or (B) a claim of breach of
fiduciary duty; (ii) the Company does not have pending before the Commission any
request for confidential treatment of information, and the Company has no
knowledge of any expected such request that could be made prior to the Effective
Date; and (iii) there has not been, and to the best of the Company's knowledge,
there is not pending or contemplated, any investigation by the Commission
involving the Company or any current or former director or officer of the
Company.
(u) Labor Relations. Except as disclosed in Schedule
2.1(u), no material labor problem exists or, to the knowledge of the Company, is
imminent with respect to any of the employees of the Company.
(v) Non-Public Information. The Company confirms that
neither it nor any other Person acting on its behalf has provided any of the
Purchasers or their agents or counsel with any information with respect to the
Company that constitutes or might constitute material non-public information.
The Company understands and confirms that the Purchasers shall be relying on the
foregoing representations in effecting transactions in securities of the
Company. All disclosure provided to the Purchasers regarding the Company, its
business and the transactions contemplated hereby, including the Schedules to
this Agreement, furnished by or on behalf of the Company are true and correct
and do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
2.2 Representations and Warranties of the Purchasers. Each
Purchaser hereby for itself and for no other Purchaser, represents and warrants
to the Company as follows:
(a) Organization; Authority. Such Purchaser is an entity
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution, delivery and performance by such
Purchaser of this Agreement and the Registration Rights Agreement and the
consummation by it of the transaction contemplated hereby and thereby, including
purchase by such Purchaser of the Securities hereunder has been duly authorized
by all necessary action on the part of such Purchaser. Each of this Agreement
and the Registration Rights Agreement has been duly executed by such Purchaser,
and when delivered by such Purchaser in accordance with the terms hereof, will
constitute the valid and legally binding obligation of such Purchaser,
enforceable against it in accordance with its terms, except to the extent that
enforcement thereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect relating
to creditors' rights generally and (ii) general principles of equity (regardless
of whether enforceability is considered in a proceeding at law or in equity) and
except to the extent that rights to indemnification and contribution contained
in this Agreement may be limited by federal or state securities laws on public
policy relating thereto.
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(b) Investment Intent. Such Purchaser is acquiring the
Securities as principal for its own account for investment purposes only and not
with a view to or for distributing or reselling such Securities or any part
thereof, without prejudice, however, to such Purchaser's right, subject to the
provisions of the Registration Rights Agreement to sell or otherwise dispose of
such Securities pursuant to an effective registration statement under the
Securities Act or under an exemption from such registration and in compliance
with applicable federal and state securities laws. Such Purchaser is acquiring
the Securities hereunder in the ordinary course of its business. Such Purchaser
does not have any agreement or understanding, directly or indirectly, with any
Person to distribute the Securities.
(c) Purchaser Status. At the time such Purchaser was
offered the Securities, it was, at the date hereof it is, and on each Closing
Date and on each exercise date under the Warrant it will be an "accredited
investor" as defined in Rule 501(a) under the Securities Act.
(d) Experience of such Purchaser. Such Purchaser, either
alone or together with its representatives, has such knowledge, sophistication
and experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the Securities,
and has so evaluated the merits and risks of such investment.
(e) Ability of such Purchaser to Bear Risk of Investment.
Such Purchaser is able to bear the economic risk of an investment in the
Securities and is able to afford a complete loss of such investment.
(f) Access to Information. Such Purchaser acknowledges
that it has reviewed the Disclosure Materials and has been afforded (i) the
opportunity to ask such questions as it has deemed necessary of, and to receive
answers from, representatives of the Company concerning the terms and conditions
of the offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information which the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment and to verify the
accuracy and completeness of the information contained in the Disclosure
Materials. Neither such inquiries nor any other investigation conducted by or on
behalf of such Purchaser or its representatives or counsel shall modify, amend
or affect such Purchaser's right to rely on the truth, accuracy and completeness
of the Disclosure Materials and the Company's representations and warranties
contained in the Transaction Documents.
(g) Reliance. Such Purchaser understands and acknowledges
that (i) the Securities are being offered and sold to it without registration
under the Securities Act in a private placement that is exempt from the
registration provisions of the Securities Act and (ii) the availability of such
exemption depends in part on, and the Company will rely upon the accuracy and
truthfulness of, the foregoing representations, and such Purchaser hereby
consents to such reliance.
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(h) Limitation. The Company acknowledges and agrees that
no Purchaser makes or has made any representations or warranties with respect to
the transactions contemplated hereby other than those specifically set forth in
this Section 2.2.
ARTICLE 3
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions.
(a) Securities may only be disposed of pursuant to an
effective registration statement under the Securities Act, or pursuant to an
available exemption from or in a transaction not subject to the registration
requirements of the Securities Act, and in compliance with any applicable
federal and state securities laws. In connection with any transfer of Securities
other than pursuant to an effective registration statement or to the Company,
except as otherwise set forth herein, the Company may require the transferor
thereof to provide to the Company an opinion of counsel selected by the
transferor, such counsel and the form and substance of which opinion shall be
reasonably satisfactory to counsel for the Company, to the effect that such
transfer does not require registration of such transferred Securities under the
Securities Act. Notwithstanding the foregoing, the Company, without requiring a
legal opinion as described in the immediately preceding sentence, hereby
consents to and agrees to register on the books of the Company and with any
transfer agent for the securities of the Company any transfer of Securities by a
Purchaser to an Affiliate (as such term is defined in Rule 501(a) under the
Securities Act) of such Purchaser or to one or more funds or managed accounts
under common management with such Purchaser, and any transfer among any such
Affiliates or one or more funds or managed accounts, provided that the
transferee certifies to the Company that it is an "accredited investor" as
defined in Rule 501(a) under the Securities Act and that it is acquiring the
Securities solely for investment purposes (subject to the qualifications
hereof). Any such transferee shall agree in writing to be bound by the terms of
this Agreement and shall have the rights of a Purchaser under this Agreement and
the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is
required by Section 3.1(c), of the following legend on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE
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REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
(c) Underlying Shares shall not contain the legend set
forth above nor any other legend if the conversion of Debentures or exercise of
the Warrants occurs at any time while an Underlying Shares Registration
Statement for the applicable Underlying Shares is effective under the Securities
Act or, in the event there is not an effective Underlying Shares Registration
Statement, at such time, in the opinion of counsel to the Company, such legend
is not required under applicable requirements of the Securities Act (including
judicial interpretations and pronouncements issued by the staff of the
Commission). The Company shall cause its counsel to issue the legal opinion
included in the Transfer Agent Instructions to the Company's transfer agent on
the Effective Date. The Company agrees that, in the event any Underlying Shares
are issued with a legend in accordance with this Section 3.1(b), it will, within
three Trading Days after request therefor by a Purchaser, provide such Purchaser
with a certificate or certificates representing such Underlying Shares, free
from such legend at such time as such legend would not have been required under
this Section 3.1(b) had such issuance occurred on the date of such request. The
Company may not make any notation on its records or give instructions to any
transfer agent of the Company, which enlarges the restrictions of transfer set
forth in this Section.
3.2 Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Underlying Shares upon (i) conversion of the Debentures and (ii)
exercise of the Warrants will result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that its obligation to issue Underlying Shares
upon (x) conversion of the Debentures and (y) exercise of the Warrants is
unconditional and absolute, subject to the limitations set forth in the
Debentures or in the Warrants, regardless of the effect of any such dilution.
3.3 Furnishing of Information. As long as the Purchasers own
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to Section
13(a) or 15(d) of the Exchange Act. As long as the Purchasers own Securities, if
the Company is not required to file reports pursuant to such sections, it will
prepare and furnish to the Purchasers and make publicly available in accordance
with Rule 144(c) promulgated under the Securities Act such information as is
required for the Purchasers to sell the Securities under Rule 144 promulgated
under the Securities Act. The Company further covenants that it will take such
further action as any holder of Securities may reasonably request, all to the
extent required from time to time to enable such Person to sell Underlying
Shares without registration under the Securities Act within the limitation of
the exemptions provided by Rule 144 promulgated under the Securities Act,
including causing its attorneys to render and deliver any legal opinion required
in order to permit a Purchaser to sell Underlying Shares under Rule 144 upon
notice of an intention to sell or other form of notice having a similar effect.
Upon the request of any such Person, the Company shall deliver to such Person a
written certification of a duly authorized officer as to whether it has complied
with such requirements.
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3.4 Integration. The Company shall not, and shall use its best
efforts to ensure that no Affiliate of the Company shall, sell, offer for sale
or solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that could be integrated with the
offer or sale of the Securities in a manner that could require the registration
under the Securities Act of the sale of the Securities to the Purchasers.
3.5 Increase in Authorized Shares. If on any date the Company
could be, if a notice of conversion or exercise (as the case may be) were to be
delivered on such date, precluded from issuing the sum of (a) 175% of the number
of Underlying Shares as would then be issuable upon a conversion in full of the
Debentures, and (b) the number of Underlying Shares issuable upon exercise in
full of the Warrants (the "Current Required Minimum"), in either case, due to
the unavailability of a sufficient number of authorized but unissued or reserved
shares of Common Stock, then the Board of Directors of the Company shall
promptly prepare and mail to the stockholders of the Company proxy materials
requesting authorization to amend the Company's certificate of incorporation to
increase the number of shares of Common Stock which the Company is authorized to
issue to at least such number of shares as reasonably requested by the
Purchasers in order to provide for such number of authorized and unissued shares
of Common Stock to enable the Company to comply with its issuance, conversion,
exercise and reservation of shares obligations as set forth in this Agreement,
the Debentures and the Warrants (the sum of (x) the number of shares of Common
Stock then outstanding plus all shares of Common Stock issuable upon exercise of
all outstanding options, warrants and convertible instruments, and (y) the
Current Required Minimum, shall be a reasonable number). In connection
therewith, the Board of Directors shall (a) adopt proper resolutions authorizing
such increase, (b) recommend to and otherwise use its best efforts to promptly
and duly obtain stockholder approval to carry out such resolutions (and hold a
special meeting of the stockholders no later than the earlier to occur of (x)
the 25th day after the date on which the Commission shall have indicated that
they approve of or have no further comments on the preliminary proxy materials
to be delivered by the Company to its shareholders in connection with the
meeting contemplated by this Section and (y) the 90th day after request by a
holder of a conversion or other issuance that could require the actions
contemplated in this Section) and (c) within two Business Days of obtaining such
stockholder authorization, file an appropriate amendment to the Company's
certificate or articles of incorporation to evidence such increase.
3.6 Reservation and Listing of Underlying Shares.
(a) The Company shall (i) in the time and manner required
by any national securities exchange, market, trading or quotation facility on
which the Common Stock is then traded, prepare and file with such national
securities exchange or market or trading or quotation facility on which the
Common Stock is then listed for trading an additional shares listing application
covering a number of shares of Common Stock which is not less than the Current
Required Minimum, (ii) take all steps necessary to cause such shares of Common
Stock to be approved for listing on any such national securities exchange or
market or trading or quotation facility on which the Common Stock is then listed
as soon as possible thereafter, and (iii) provide to the Purchasers evidence of
such listing, and the Company shall maintain the
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listing of its Common Stock thereon. If the number of Underlying Shares issuable
upon conversion in full of the then outstanding Debentures and upon exercise of
the then unexercised portion of the Warrants exceeds 85% of the number of
Underlying Shares previously listed on account thereof with any such required
exchanges, then the Company shall take the necessary actions to list immediately
a number of Underlying Shares as equals no less than the then Current Required
Minimum.
(b) The Company shall maintain a reserve of shares of
Common Stock for issuance upon conversion of the Debentures in full and upon
exercise in full of the Warrants in accordance with this Agreement, the
Debentures and the Warrants, respectively, in such amount as may be required to
fulfill its obligations in full under the Transaction Documents, which reserve
shall equal no less than the then Current Required Minimum.
3.7 Conversion and Exercise Procedures. The Transfer Agent
Instructions, Conversion Notice (as defined in the Debentures) and Form of
Election to Purchase under the Warrants set forth the totality of the procedures
with respect to the conversion of the Debentures and exercise of the Warrants,
including the form of legal opinion, if necessary, that shall be rendered to the
Company's transfer agent and such other information and instructions as may be
reasonably necessary to enable the Purchasers to convert their Debentures and
exercise their Warrants.
3.8 Conversion and Exercise Obligations of the Company. The
Company shall honor conversions of the Debentures and exercises of the Warrants
and shall deliver Underlying Shares in accordance with the respective terms,
conditions and time periods set forth in the Debentures and the Warrants.
3.9 Right of First Refusal; Participation Right; Subsequent
Registrations.
(a) Commencing on the date hereof and for a period of
120-Trading Days after the Effective Date, provided that such 120-Trading Day
period shall be extended for the number of Trading Days during such period (A)
in which trading in the Common Stock is suspended by The Nasdaq Stock Market or
such market or quotation system on which the Common Stock is then listed, or (B)
during which the Underlying Shares Registration Statement is not effective, or
(C) during which the prospectus included in the Underlying Shares Registration
Statement may not be used by the holders thereof for the resale of Underlying
Shares (the "Investment Restriction Period"), the Purchasers shall have the
right to co-invest (the "Co-Investment Right") on the same terms and conditions
in any transaction intended to be exempt or not subject to registration under
the Securities Act in which the Company shall, directly or indirectly, offer,
sell, grant any option to purchase, or otherwise dispose of (or announce any
offer, sale or grant of any option to purchase or otherwise dispose of) any of
its or its Affiliates' equity or equity-equivalent securities, including the
issuance of any debt or other instrument at any time over the life thereof
convertible into or exchangeable for Common Stock (a "Subsequent Placement").
Notwithstanding the foregoing, the following transactions shall not constitute a
Subsequent Placement: (i) the issuance of shares of Common Stock upon conversion
of the Debentures or upon the exercise of the Warrants in accordance
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with their respective terms; (ii) the issuance of shares of Common Stock upon
the exercise of outstanding options or warrants to purchase shares of Common
Stock; (iii) the issuance of any options or warrants to purchase Common Stock to
employees, officers or directors of, or consultants to, the Company pursuant to
any stock option or stock purchase plan or agreements approved by the Company's
Board of Directors; (iv) the issuance of shares of Common Stock or securities
convertible into or exchangeable for shares of Common Stock to any bank lender
(including the issuance of warrants contemplated on Schedule 2.1(c) hereto as
item (4) under the section titled "Options and Warrants") or other Person in
satisfaction of amounts owing to such Person; or (v) the issuance of shares of
Common Stock or options or warrants to purchase Common Stock pursuant to the
Cereus Merger. The Company shall give promptly to the Purchasers written notice
of any Subsequent Placement, which notice shall describe in reasonable detail
the proposed terms of such Subsequent Placement (the "Subsequent Placement
Notice"). The Purchasers' Co-Investment Right shall terminate unless the
Purchasers notify the Company of their intention to purchase the securities
proposed to be sold in the Subsequent Placement on the terms set forth in the
Subsequent Placement Notice by 6:30 p.m. New York City time by the seventh
Trading Day after their receipt of such Subsequent Placement Notice. The
Co-Investment Right shall be allocated among the Purchasers on a pro rata basis
by reference to aggregate principal amount of the Debentures purchased by such
Purchaser under this Agreement, or in such other manner as the Purchasers shall
determine.
(b) Notwithstanding anything to the contrary contained
herein, if a Subsequent Placement provides for the (i) sale of shares of Common
Stock at a per share purchase price less than 85% of the fair market value of
such shares on the date of sale, and/or (ii) sale of any security convertible
into or exchangeable for shares of Common Stock including any securities which
provide for any adjustments to the conversion or exchange ratio (including
"reset" provisions), as the case may be (other than adjustments occasioned by
stock dividends or a combination, subdivision or reclassification of outstanding
shares of Common Stock) ("First Refusal Convertible Securities"), and the per
share purchase price to be paid for the Common Stock issuable pursuant to such
First Refusal Convertible Securities is, or could be, less than 85% of the fair
market value of such shares on the date the First Refusal Convertible Security
is first issued, then, and in such event, the Purchasers shall have a right of
first refusal with respect to such financing and the Subsequent Placement Notice
shall describe in reasonable detail the proposed terms of such Subsequent
Placement, the amount of proceeds intended to be raised thereunder, the Person
with whom such Subsequent Placement is proposed to be effected and shall annex
thereto the proposed form of documentation. The Purchasers shall notify the
Company by 6:30 p.m. New York City time by the seventh Trading Day after its
receipt of the Subsequent Placement Notice of its willingness to provide (or to
cause its designee to provide), in accordance with the terms set forth in the
Subsequent Placement Notice and pursuant to the proposed form of documentation
(subject to reasonable modifications), financing to the Company. If the
Purchasers notify the Company of their willingness to provide the proposed
financing, the parties shall act and negotiate in good faith to cause a closing
of the proposed financing to be effected on or before the twelfth Trading Day
after the Purchasers receipt of the Subsequent Placement Notice. Commencing upon
its delivery of the Subsequent Placement Notice, the Company shall act in good
faith and shall provide Purchasers with timely responses to any business
inquiries necessary for its evaluation of the proposed financing. Further,
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commencing upon its delivery of the Subsequent Placement Notice, the Company
shall act in good faith, and shall cause its legal and accounting professionals
to act in a commercially reasonable manner, each under the circumstances, to
facilitate closing the proposed financing in a timely manner. The time for
closing shall be extended beyond the twelfth Trading Date after the Purchasers
receipt of the Subsequent Placement Notice by such period of delay which is
solely attributable to the failure of the Company or its professionals to act in
the manner prescribed by the foregoing sentences. If the Purchasers shall fail
to notify the Company of their intention to effect such financing within such
time period, the Company may effect such Subsequent Placement substantially upon
the terms and to the Persons (or Affiliates of such Persons) set forth in the
Subsequent Placement Notice; provided that the Company shall provide the
Purchasers with a second Subsequent Placement Notice, and the Purchasers shall
again have the right of first refusal set forth above in this paragraph (b), if
the Subsequent Placement subject to the initial Subsequent Placement Notice
shall not have been consummated for any reason on the terms set forth in such
Subsequent Placement Notice within thirty Trading Days after the date of the
initial Subsequent Placement Notice with the Person (or an Affiliate of such
Person) identified in the Subsequent Placement Notice. If the Purchasers shall
indicate a willingness to provide financing in excess of the amount set forth in
the Subsequent Placement Notice, then each Purchaser shall be entitled to
provide financing pursuant to such Subsequent Placement Notice up to an amount
equal to such Purchaser's pro-rata portion of the aggregate principal amount of
Debentures purchased by such Purchaser under this Agreement, but the Company
shall not be required to accept financing from the Purchasers in an amount less
than or in excess of the aggregate amount set forth in the Subsequent Placement
Notice.
(c) Except as set forth on Schedule 3.9(c), the Company
shall not for a period of 60-Trading Days after the Effective Date, provided
that such 60-Trading Day period shall be extended for the number of Trading Days
during such period (A) in which trading in the Common Stock is suspended by The
Nasdaq Stock Market or such market or quotation system on which the Common Stock
is then listed, or (B) during which the Underlying Shares Registration Statement
is not effective, or (C) during which the prospectus included in the Underlying
Shares Registration Statement may not be used by the holders thereof for the
resale of Underlying Shares (the "Registration Restriction Period", without the
prior written consent of the Purchasers, permit to be filed a registration
statement which seeks to register "Discount Shares" (as hereinafter defined).
Notwithstanding the foregoing, on or after the tenth Trading Day preceding the
expiration of the Registration Restriction Period the Company may file a
registration statement covering Discount Shares, provided that such registration
statement shall not be declared effective by the SEC prior to the expiration of
the Registration Restriction Period. The term "Discount Shares" shall mean (i)
Common Stock, the purchase price per share of which on the date of sale was less
than 75% of the fair market value of such shares on such date, or (ii) First
Refusal Convertible Securities where the purchase price to be paid for the
Common Stock issuable pursuant to such First Refusal Convertible Securities is,
or could be, less than 75% of the fair market value of such shares on the date
the First Refusal Convertible Security was first issued.
3.10 Certain Securities Laws Disclosures; Publicity. The Company
shall: (i) within one Business Day of the date hereof, issue a press release
reasonably acceptable to the
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Purchasers disclosing the transactions contemplated hereby, (ii) within one
Business Day of the giving of the Repurchase Notice issue a press release with
respect thereto, (iii) file with the Commission a Report on Form 8-K disclosing
the transactions contemplated hereby within ten Business Days after the
Repurchase Closing Date (including this Agreement, the form of Warrant and the
Registration Rights Agreement as exhibits thereto), and (iv) timely file with
the Commission a Form D promulgated under the Securities Act as required under
Regulation D promulgated under the Securities Act and provide a copy thereof to
the Purchasers promptly after the filing thereof. The Company shall, no less
than one Business Day prior to the filing of any disclosure required by clauses
(ii), (iii) and (iv) above, provide a copy thereof to the Purchasers. Such
filings will not be made without the consent of the Purchasers, not to be
unreasonably withheld or delayed. The Company and the Purchasers shall consult
with each other in issuing any other press releases or otherwise making public
statements or filings and other communications with the Commission or any
regulatory agency or stock market or trading facility with respect to the
transactions contemplated hereby, and neither party shall issue any such press
release or otherwise make any such public statement, filings or other
communications without the prior written consent of the other, which consent
shall not be unreasonably withheld or delayed, except that no prior consent
shall be required if such disclosure is required by law or stock market
regulations, in which such case the disclosing party shall provide the other
party with prior notice of such public statement, filing or other communication.
3.11 Use of Proceeds. The Company shall use the net proceeds from
the sale of the Securities hereunder for working capital purposes and not for
the satisfaction of any portion of the Company's debt (other than pursuant to
the PNC Agreement and payment of (a) trade payables in the ordinary course of
the Company's business and consistent with prior practices or (b) capital lease
obligations).
3.12 Reimbursement. If any Purchaser, other than by reason of its
gross negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by or against any Person, including
stockholders of the Company, in connection with or as a result of the
consummation of the transactions contemplated by Transaction Documents, the
Company will reimburse such Purchaser for its reasonable legal and other
expenses (including the reasonable cost of any investigation and preparation and
travel in connection therewith) incurred in connection therewith, as such
expenses are incurred. In addition, other than with respect to any matter in
which a Purchaser is a named party, the Company will pay such Purchaser the
charges, as reasonably determined by such Purchaser, for the time of any
officers or employees of such Purchaser devoted to appearing and preparing to
appear as witnesses, assisting in preparation for hearings, trials or pretrial
matters, or otherwise with respect to inquiries, hearings, trials, and other
proceedings relating to the subject matter of this Agreement. The reimbursement
obligations of the Company under this paragraph shall be in addition to any
liability which the Company may otherwise have, shall extend upon the same terms
and conditions to any Affiliates of the Purchasers who are actually named in
such action, proceeding or investigation, and partners, directors, agents,
employees and controlling persons (if any), as the case may be, of the
Purchasers and any such Affiliate, and shall be binding upon and inure to the
benefit of any successors, assigns, heirs
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and personal representatives of the Company, the Purchasers and any such
Affiliate and any such Person. The Company also agrees that neither the
Purchasers nor any such Affiliates, partners, directors, agents, employees or
controlling persons shall have any liability to the Company or any Person
asserting claims on behalf of or in right of the Company in connection with or
as a result of the consummation of the Transaction Documents except to the
extent that any losses, claims, damages, liabilities or expenses incurred by the
Company result from the gross negligence or willful misconduct of the applicable
Purchaser or entity in connection with the transactions contemplated by this
Agreement.
3.13 Certain Trading Restrictions. (a) Each Purchaser agrees that
it will not enter into and will not encourage or assist others into entering on
its behalf into any Short Sales (as hereinafter defined) or have other Persons
do so on their behalf for so long as its holds Debentures. For purposes hereof,
a "Short Sale" by a Purchaser shall mean a sale of Common Stock by a Purchaser
that is marked as a short sale and that is made at a time when there is no
equivalent offsetting long position in the Common Stock held by such Purchaser.
For purposes of determining whether there is an equivalent offsetting long
position in the Common Stock held by a Purchaser, on any date of computation,
Underlying Shares that would be issuable upon the conversion in full of the
Debentures or exercise in full of the Warrants held by such Purchaser shall be
deemed to be held long by such Purchaser.
(b) The Company shall not issue or sell any of the
principal amount of the Debentures to any Person other than the Purchasers.
3.14 No Dividends. So long as any amount remains outstanding under
any Debenture, the Company shall not pay any dividend on account of any
outstanding capital stock, except dividends paid in shares of the Company's
capital stock.
ARTICLE 4
CONDITIONS
4.1 Conditions Precedent to the Obligation to Sell and Purchase
Old Debentures. (a) The obligation of each Purchaser to sell the Old Debentures
and the obligation of the Company to acquire the Old Debentures at the
Repurchase Closing is subject to the satisfaction (or waiver by such party), at
or before the Repurchase Date of each of the following conditions:
(i) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by the Transaction Documents;
(ii) The Lenders shall have agreed in writing that the
subordination provisions of the Old Debentures to be repaid shall not apply to
such repayment.
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(b) In addition to the conditions set forth in
Section 4.1 (a), the obligation of each Purchaser to sell the Old Debentures at
the Repurchase Closing is subject to the satisfaction (or waiver by such
Purchaser) at or before the Repurchase Date of each of the following conditions:
(i) Accuracy of the Company's Representations and
Warranties. The representations and warranties of the Company contained herein
shall be true and correct in all material respects as of the date when made and
as of the Repurchase Date as though made on and as of such date;
(ii) Delivery of Closing Items. The Company shall have
delivered to the Purchasers all of the items required to have been delivered by
the Company under Section 1.2 (c) on or before the Repurchase Date;
4.2 Conditions Precedent to the Obligation of the Purchasers to
Purchase Debentures and Warrants. The obligation of each Purchaser to acquire
Debentures and Warrants at the Initial Closing or at an Additional Closing (each
being hereinafter called a "Closing") is subject to the satisfaction by the
Company or waiver by such Purchaser, at or before the Initial Closing Date, or
an Additional Closing Date, as the case may be (each being hereinafter called a
"Closing Date") of each of the following conditions:
(i) Accuracy of the Company's Representations and
Warranties. The representations and warranties of the Company contained herein
shall be true and correct in all material respects as of the date when made and
as of such Closing Date as though made on and as of such date;
(ii) Delivery of Closing Items. The Company shall have
delivered to the Purchasers all of the items required to have been delivered by
the Company pursuant hereto or before such Closing Date;
(iii) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by the Transaction Documents;
(iv) Adverse Changes. Since the date of execution of this
Agreement, no event or series of events which reasonably could be expected to
have or result in a Material Adverse Effect shall have occurred;
(v) No Suspensions of Trading in Common Stock; Listing.
The trading in the Common Stock shall not have been suspended by the Commission
or on The Nasdaq Stock Market (except for any suspensions of trading of not more
than one Trading Day solely to permit dissemination of material information
regarding the Company) at any time since the
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date of execution of this Agreement, and the Common Stock shall have been at all
times since such date been listed for trading on The Nasdaq Stock Market; and
(vi) Performance by the Company. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by the Company at or prior to such Closing Date;
(vii) Change of Control. No Change of Control in the
Company shall have occurred. "Change of Control" means the occurrence of any of
(i) an acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
in excess of 50% of the voting securities of the Company, (ii) a replacement of
more than one-half of the members of the Company's board of directors which is
not approved by those individuals who are members of the board of directors on
the date hereof in one or a series of related transactions, (iii) the merger of
the Company with or into another entity in which the Company is not the
surviving legal entity, consolidation or sale of all or substantially all of the
assets of the Company in one or a series of related transactions or (iv) the
execution by the Company of an agreement to which the Company is a party or by
which it is bound, providing for any of the events set forth above in (i), (ii)
or (iii).
(viii) Performance of Conversion and Exercise Obligations.
The Company shall have delivered Underlying Shares upon conversion, if any, of
the Debentures and the Old Debentures and exercise, if any, of the Warrants and
those warrants issued to the Purchasers pursuant to the DP Agreement in
accordance with their respective terms.
(ix) Closing Threshold. For the twenty Trading Days
immediately preceding such Closing Date, the average daily trading volume of the
Common Stock on the NASDAQ National Market as reported by Bloomberg LP, shall be
at least 120,000 shares and the closing bid price of a share of common stock of
the Company as reported on the NASDAQ National Market for each of the Fifteen
Trading Days preceding the Initial Put Notice or additional Put Notice which
apply to such Closing shall not have been less than $1.50 nor greater than
$5.00.
(x) Shareholder Approval. No approval of the shareholders
of the Company shall be required under the rules of the Nasdaq Stock Market in
order to issue 130% of the Underlying Shares issuable upon the conversion in
full of the Debentures issuable at such Closing.
(xi) Issuance of Debentures and Warrants. The Company
shall have reserved for issuance to the Purchasers upon the conversion of the
Debentures and the exercise of the Warrants a number of shares of Common Stock
equal to no less than the sum of 175% of the shares of Common Stock which would
be issuable upon conversion in full of such Debentures, assuming that such
conversion occurred at the Conversion Price on such Closing Date and the
exercise in full of the Warrants.
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(xii) S-3 Registration Statement. With respect to an
Additional Closing (but not with respect to the Initial Closing) the Underlying
Shares Registration Statement shall have been effective for at least thirty five
Trading Days.
4.3 Conditions Precedent to the Obligation of the Company to sell
Debentures and Warrants at the Closings. The obligation of the Company to sell
Debentures and Warrants at the Closings is subject to the satisfaction by the
Purchaser or waiver by the Company, at or before each respective Closing Date,
of each of the following conditions:
(i) Accuracy of the Purchaser's Representations and
Warranties. The representations and warranties of the Purchaser contained herein
shall be true and correct in all material respects as of the date when made and
as of the Closing Date as though made on and as of such date;
(ii) Delivery of Closing Items. The Purchaser shall have
delivered to the Purchasers all of the items required to have been delivered by
the Purchaser pursuant hereto on or before such Closing Date.
(iii) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by the Transaction Documents.
ARTICLE 5
MISCELLANEOUS
5.1 Fees and Expenses. Simultaneously with the execution of this
Agreement, the Company shall reimburse the Purchasers for their legal fees and
expenses incurred in connection with the preparation and negotiation of the
Transaction Documents by paying to MZRL $25,000 for the preparation and
negotiation of the Transaction Documents. The Purchasers shall pay MZRL's fees
and expenses in connection with each Closing in an amount not to exceed $2,500
per Closing. Other than the amount contemplated in the immediately preceding
sentence, and except as otherwise set forth in the Registration Rights
Agreement, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all stamp and other taxes
and duties levied in connection with the issuance of the Securities.
5.2 Entire Agreement; Amendments. The Transaction Documents,
together with the Exhibits and Schedules thereto, contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with respect
to such matters, which the parties acknowledge have been merged into such
documents, exhibits and schedules.
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5.3 Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 6:30 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Agreement later than 6:30 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York City time) on
such date, (iii) the Business Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as follows:
If to the Company: Verso Technologies, Inc.
000 Xxxxxxxx Xxxxxxx, Xxxxx 000
Xxxxxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Chief Financial Officer
With copies to: Xxxxxx & Xxxxxx LLP
2700 International Tower
000 Xxxxxxxxx Xxxxxx, X.X.
Xxxxxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxxxx X. Xxx, Esq.
If to a Purchaser: To the address set forth under such
Purchaser's name on the signature pages
hereto.
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
5.4 Amendments; Waivers. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by the Company and each of the Purchasers or, in the case of a
waiver, by the party against whom enforcement of any such waiver is sought. No
waiver of any default with respect to any provision, condition or requirement of
this Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right accruing to it thereafter.
5.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
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5.6 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Purchasers.
5.7 No Third-Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
5.8 Governing Law. The corporate laws of the State of Minnesota
shall govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. 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 via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
5.9 Waiver of Jury Trial. The Company and the Purchasers each
waive their respective rights to a trial by jury of any claim or cause of action
based upon or arising out of or related to this Agreement, the Transaction
Documents, or the transactions contemplated hereby or thereby, in any action,
proceeding or other litigation of any type brought by any of the parties against
any other party, related person, or assignee, whether with respect to contract
claims, tort claims, or otherwise. The Company and the Purchasers each agree
that any such claim or cause of action shall be tried by a court trial without a
jury. Without limiting the foregoing, the parties further agree that their
respective right to a trial by jury is waived by operation of this section as to
any action, counterclaim or other proceeding which seeks, in whole or in part,
to challenge the validity or enforceability of this Agreement or any Transaction
Document or any provisions hereof or thereof. This waiver shall apply to any
subsequent amendments, renewals, supplements or modifications to this Agreement
and the Transaction Documents.
5.10 Survival. The representations, warranties, agreements and
covenants contained herein shall survive the Closing and the delivery, exercise
and conversion (as the case may be) of the Warrants and the Debentures for a
period of three years from the last Closing Date.
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5.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
5.12 Severability. In case any one or more of the provisions of
this Agreement shall be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provisions of this Agreement shall
not in any way be affected or impaired thereby, and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
5.13 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers will be entitled to specific performance of the obligations of the
Company under the Transaction Documents. The Company and each of the Purchasers
agree that monetary damages may not be adequate compensation for any loss
incurred by reason of any breach of its obligations described in the foregoing
sentence and hereby agrees to waive in any action for specific performance of
any such obligation the defense that a remedy at law would be adequate.
5.14 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document is several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert with respect to such obligations or
the transactions contemplated by the Transaction Document. Each Purchaser shall
be entitled to independently protect and enforce its rights, including without
limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
SIGNATURE PAGES FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have caused this Convertible
Debenture Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
VERSO TECHNOLOGIES, INC.
By: /s/ Xxxxxx X. Xxxxxxx
-------------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: Executive Vice President and
Chief Financial Officer
By: /s Xxxxxx X. Xxxx
-------------------------------------
Name: Xxxxxx X. Xxxx
Title: Chairman and Chief Executive
Officer
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
27
STRONG RIVER INVESTMENTS, INC.
By: /s/ Xxxxxxx X. Xxxxxxxxx
-------------------------------------
Name: Xxxxxxx X. Xxxxxxxxx
Title: Attorney-in-fact
Address for Notice: x/x Xxxxx, Xxxxxxxx-Xxxx & Xxxxxx (BVI) Ltd.
Xxxxxxxxxx Plaza, 2nd Floor
Wickhams Cay I, Road Town
Tortola, British Virgin Islands
With copies to: Xxxxx Xxxxxxx Xxxx & Xxxxxx LLP
000 Xxxx Xxxxxx, Xxxxx 000
Xxx Xxxx, Xxx Xxxx 00000
Facsimile No.: (000) 000-0000
Attn: Xxxxxxx X. Xxxx, Esq.
28
BAY HARBOR INVESTMENTS, INC.
By: /s/ Xxxxxxx X. Xxxxxxxxx
-------------------------------------
Name: Xxxxxxx X. Xxxxxxxxx
Title: Attorney-in-fact
Address for Notice: x/x Xxxxx, Xxxxxxxx-Xxxx & Xxxxxx (BVI) Ltd.
Xxxxxxxxxx Plaza, 2nd Floor
Wickhams Cay I, Road Town
Tortola, British Virgin Islands
With copies to: Xxxxx Xxxxxxx Xxxx & Xxxxxx LLP
000 Xxxx Xxxxxx, Xxxxx 000
Xxx Xxxx, Xxx Xxxx 00000
Facsimile No.: (000) 000-0000
Attn: Xxxxxxx X. Xxxx, Esq.
