EXHIBIT 4-1.aa
FORM OF SERIES 1 BRIDGE NOTES
PURCHASE AND SECURITY AGREEMENT
THIS SERIES 1 BRIDGE NOTE PURCHASE AND SECURITY AGREEMENT (the
"Agreement") is made and entered into as of this 28th day of March, 2000, among
PROVIDENTIAL HOLDINGS, INC., a Nevada corporation (the "Company") and the
persons listed on the Purchaser signature pages attached hereto (each of whom is
individually referred to as a "Purchaser" and all of whom collectively are
referred to as the "Purchasers").
BACKGROUND
The Company has authorized the issuance, sale, and delivery of up to
$4,000,000 in original principal amount of the Company's Series 1 Secured
Convertible Bridge Financing Notes, in substantially the form attached hereto as
Exhibit A (the "Bridge Notes"). The Bridge Notes are convertible into shares of
the Company's common stock, par value $.001 (the "Common Stock"). The Common
Stock issuable upon conversion of the Bridge Notes is hereinafter referred to as
the "Conversion Shares". The Bridge Notes have attached repricing rights
evidenced by a warrant in substantially the form of Attachment 1 to the Bridge
Notes (the "Repricing Warrant"), exercisable under certain circumstances for
additional shares of Common Stock (the "Repricing Shares") at the exercise price
of $.001. In connection with the issuance of the Bridge Notes, the Company has
authorized the issuance of Purchase Warrants, in substantially the form attached
hereto as Exhibit B (the "Warrants") giving a Purchaser the right to purchase
Common Stock. Each Purchaser will be issued a Warrant at that Closing
exercisable for 20,000 shares of Common Stock for each $100,000 in principal
amount of Bridge Notes purchased. The shares of Common Stock issuable upon
exercise of the Warrants are hereinafter referred to as the "Warrant Shares."
The proceeds of the Bridge Notes will be used to provide the Company with
operating capital. The Bridge Notes are secured by a pledge of certain assets of
the Company and also by certain shares of Common Stock held by certain Company
officers pledged as part of their limited guaranty of the Company's Obligations
hereunder, all having a value of approximately 200% of the principal amount of
the Bridge Notes at any time outstanding. The Purchasers wish to purchase, upon
the terms and conditions stated in this Agreement, up to $4,000,000 in principal
amount of the Bridge Notes, with each Purchaser purchasing Bridge Notes in the
principal amount set forth on such Purchaser's signature page affixed to this
Agreement. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
in substantially the form attached hereto as Exhibit C (the "Registration Rights
Agreement") pursuant to which the Company has agreed to provide certain
registration rights in respect of the Conversion Shares, the Warrant Shares, and
the Repricing Shares under the Securities Act of 1933 ("1933 Act") and the rules
and regulations promulgated thereunder, and applicable state securities laws.
The Company and the Purchasers are executing and delivering this Agreement in
reliance upon the exemption from securities registration pursuant to Section
4(2) and Regulation D ("Regulation D").
AGREEMENT
For and 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 each Purchaser
hereby agree as follows:
SECTION 1. BRIDGE NOTES.
SECTION 1.1 AUTHORIZATION, ISSUANCE, AND SALE OF NOTES. The Company has
authorized the sale and issuance, in accordance with the terms of this
Agreement, of up to $4,000,000 in original principal amount of its Bridge Notes
at one or more closings. The Company agrees to issue and sell to each Purchaser
and each Purchaser agrees to purchase from the Company, at a Closing, a Bridge
Note in the principal amount (the "Purchased Bridge Notes") set forth adjacent
to the caption "Purchased Bridge Notes" on the signature page to this Agreement
of each Purchaser hereto at a purchase price (the "Purchase Price") of 100% of
the principal amount of Bridge Notes purchased.
SECTION 1.2 AUTHORIZATION AND ISSUANCE OF WARRANTS. The Company has
authorized the issuance and delivery of Warrants exercisable for up to 800,000
shares of Common Stock in connection with the issuance, sale, and delivery of
the Bridge Notes. The Company agrees to issue and deliver to each Purchaser a
Warrant exercisable for 20,000 shares of Common Stock for each $100,000 in
principal amount of the Bridge Notes purchased by such Purchaser.
SECTION 1.3 FORM OF PAYMENT. On or before the Closing Date, each
Purchaser shall pay the Purchase Price for the Purchased Bridge Notes to be
issued and sold to such Purchaser at the Closing, by wire transfer of
immediately available funds to:
Bank:
Center:
Account No.:
ABA Routing No.:
Attn:
Re:
SECTION 1.4 CLOSING. All closings of the purchase and sale of the
Purchased Bridge Notes shall take place at the offices of Xxxxxxx Xxxxxxxx Xxxxx
Xxxxxxxxxxx & Kuh LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, within five
(5) business days following the date that $1,500,000 (the "Minimum Amount") is
held by SunTrust Bank, Atlanta (the "Escrow Agent"), subject to notification of
satisfaction (or waiver) of the conditions to the Closing set forth in Section 5
below (such closing being called the "First Closing" and such date and time
being called the "First Closing Date"). Following the First Closing, the Company
anticipates it will continue to offer the Bridge Notes until the offering of the
Bridge Notes is terminated or all $4,000,000 in principal amount is purchased.
From time to time, one or more additional closings may occur at such time and
date as is mutually agreeable between the Purchasers purchasing Bridge Notes at
such closing and the Company (each such closing being called an "Additional
Closing" and such date and time being called an "Additional Closing Date," and
all of such closings are hereinafter referred to individually as a "Closing" and
collectively as the "Closings," and each date on which a Closing shall occur is
hereinafter referred to as a "Closing Date" and collectively as the "Closing
Dates"). Each Closing is expected to take place by exchange of faxed signature
pages with originals to follow by overnight delivery.
SECTION 1.5 DELIVERIES AT CLOSING. At each Closing the Company shall
deliver to the Purchasers:
(a) the original of this Agreement;
(b) Bridge Notes in definitive form with attached
Repricing Warrants, registered in the name of each Purchaser, or the
designee of such Purchaser, representing the Purchased Bridge Notes
purchased by such Purchaser;
(c) Warrants in definitive form, registered in the name
of each Purchaser, or the designee of such Purchaser;
(d) a copy of the Registration Rights Agreement;
(e) a copy of the Escrow Agreement in substantially the
form of EXHIBIT D hereto (the "Escrow Agreement");
(f) a copy of the Guaranty Agreement executed by the
Company and Xxxxx Xxxxxx (each a "Pledgor" and collectively, the
"Pledgors") as guarantor thereunder and an accompanying Stock Pledge
Agreement executed by each Pledgor as pledgor of certain shares of
Common Stock (the shares pledged are hereinafter referred to as the
"Pledged Shares"), along with share certificates representing the
Pledged Shares;
(g) a copy of the opinion of counsel to the Company, in
substantially the form of Exhibit E hereto;
(h) a copy of the Irrevocable Transfer Agent
Instructions, in substantially the form of Exhibit F hereto, (the
"Transfer Agent Instructions");
(i) the Compliance Certificate of the Company (the
"Compliance Certificate"); and
(j) the Secretary Certificate of the Company (the
"Secretary Certificate").
SECTION 2. SECURITY AGREEMENT.
The provisions of this Section 2 shall remain in effect so long as any
of the Bridge Notes shall remain outstanding.
SECTION 2.1 GRANT OF SECURITY INTEREST. In order to secure the
obligations of the Company due to the Purchasers (such obligations are sometimes
hereinafter referred to as the "Obligations") under the Bridge Notes, in
addition to the general credit of the Company and the Pledged Shares, the
Company hereby grants to the Purchasers and the Representative (for and on
behalf of the Purchasers), effective at the First Closing, a continuing first
priority security interest in and a general lien upon:
(a) the assets of the Company listed and described on
Exhibit G hereto (the "Pledged Assets"); and
(b) all proceeds, as such term is defined in Section
9-306(1) of the Uniform
Commercial Code as in effect in the State of New York on the date
hereof (the "UCC")and, in any event, shall include, without limitation,
(i) any and all proceeds of any insurance, indemnity, warranty, or
guaranty payable to the Company from time to time with respect to any
of the Pledged Assets, (ii) any and all payments (in any form
whatsoever) made or due and payable to the Company from time to time in
connection with any requisitions, confiscation, condemnation, seizure,
or forfeiture of all or any part of the Pledged Assets by any
governmental authority (or any person acting under color of
governmental authority), and (iii) any and all other amounts from time
to time paid or payable under or in connection with any of the Pledged
Assets (collectively, the "Collateral").
SECTION 2.2 REMEDIES UPON DEFAULT. Upon the occurrence or existence of
an Event of Default (as defined in Section 10 of the Bridge Notes), the
Representative (on behalf of each Purchaser) shall have the right to pursue all
available remedies at law or in equity, including without limitation:
(a) all of the rights and remedies available to a secured
party under the UCC, and any other applicable law, all of which shall
be cumulative and none of which shall be exclusive, to the fullest
extent permitted by law, and all other legal and equitable rights under
this Agreement and the Transaction Agreements which may be available to
the Representative, all of which shall be cumulative;
(b) the right to take possession of the Collateral upon
reasonable notice and to enter the offices of the Company during normal
business hours to take possession of the Collateral; the right of the
Purchaser to (a) enter upon the premises of Company or any of its
subsidiaries, or any other place or places where the Collateral is
located and kept, through self-help and without judicial process,
without first obtaining a final judgment or giving Company or any of
its subsidiaries notice and opportunity for a hearing on the validity
of the Representative's claim and without any obligation to pay rent to
Company or any of its subsidiaries, and remove the Collateral therefrom
to the premises of Representative or any agent of Representative, for
such time as Representative may desire, in order to effectively collect
or liquidate the Collateral; and/or (b) require Company to assemble the
Collateral and make it available to Representative at a place to be
designated by the Representative, in their sole discretion.
(c) the right to sell or otherwise dispose of all or any
part of the Collateral in its then condition, at public or private sale
or sales, with such notice as may be required by law, in lots or in
bulk, for cash or on credit, all as such Representative may deem
advisable, and purchase all or any part of the Collateral at public or,
if permitted by law, private sale and, in lieu of actual payment of
such purchase price, may set off the amount of such price against the
Obligations, and to apply the proceeds realized from such sale, after
allowing two (2) business days for collection, first to the reasonable
costs, expenses, and attorneys' fees and expenses incurred by such
Representative for collection and for acquisition, storage, sale, and
delivery of the Collateral, secondly to interest due upon the
Obligations, and thirdly to the principal of the Obligations; and
(d) the right to proceed by an action or actions at law
or in equity to obtain possession of the Collateral, to recover the
Obligations and amounts secured hereunder or to foreclose under this
Agreement and sell the Collateral or any portion thereof, pursuant to a
judgment or decree of a court or courts of competent jurisdiction, all
without the necessity of
posting any bond.
SECTION 2.3 FINANCING STATEMENTS. The Company and the Representative
(on behalf of each Purchaser) agree to file or cause to be filed on or before
the First Closing UCC financing statements in such jurisdictions (including the
State of California evidencing the security interests granted herein, copies of
which are attached hereto as Exhibit H. The Representative is authorized, to the
extent permitted by law, to file any such financing statements without the
signature of the Company.
SECTION 2.4 NOTICE. Any notice required to be given by Representative
of a sale, lease, or other disposition of the Collateral or any other intended
action by Representative, given to Company in the manner set forth in Section
9.6 below, at least ten (10) days prior to such proposed action, shall
constitute commercially reasonable and fair notice thereof to Company.
SECTION 2.5 APPOINTMENT OF PURCHASER REPRESENTATIVE. Each Purchaser
hereto hereby irrevocably appoints SovCap Equity Partners, Ltd., a corporation
organized under the laws of the Bahamas and a First Closing Purchaser hereunder,
to act as the sole and exclusive agent and representative (the "Representative")
of each such Purchaser to act on behalf of such Purchaser and in such
Purchaser's name, place, and stead, to (i) exercise all rights of such
Purchaser, and (ii) take all action on behalf of the Purchaser that may be taken
by the Purchaser with respect to the Collateral, under this Agreement, the
Bridge Notes, and the other Transaction Agreements. Without limiting the
generality of the foregoing:
(a) The Representative shall have the power, on behalf of
all Purchasers, to send all notices which shall or may be given by the
Purchasers, under the Transaction Agreements, declare Events of Default
under this Agreement, the Bridge Notes, and the other Transaction
Agreements, accelerate the Bridge Notes, rescind acceleration of the
Bridge Notes, and enforce the Bridge Notes, this Agreement, and the
other Transaction Agreements. The Representative reserves the right, in
its sole discretion, in each instance without prior notice to the
Purchasers, (i) to agree to the modification, waiver, or release of any
of the terms of any of the Transaction Agreements, including, without
limitation, the waiver or release of any of the conditions precedent
for the purchase and sale of the Bridge Notes; (ii) to consent to any
action or failure to act by the Company; and (iii) to exercise or
refrain from exercising any powers, rights, or remedies that the
Purchasers have or may have with respect to Collateral under the
Transaction Agreements; PROVIDED, HOWEVER, that the Representative
shall not, without obtaining the prior written consent of each
Purchaser (which consent shall not be unreasonably withheld,
conditioned or delayed), exercise any of such rights so as to knowingly
release or waive any claim against the Company or any other person who
may be liable with respect to the Bridge Notes if such action would
have a materially adverse effect on the collection of the indebtedness
evidenced by the Bridge Notes or the enforcement of the Transaction
Agreements.
If any Purchaser shall refuse to consent to any amendment,
modification, waiver, release, or subordination requiring the written
consent of the Purchasers, the Purchasers who consent to such
amendment, modification, waiver, release, or subordination may, at
their option, at any time thereafter (but shall not be obligated to)
purchase the Bridge Note or Bridge Notes held by the non-consenting
Purchaser or Purchasers by paying to such non-consenting Purchaser or
Purchasers an amount equal to the unpaid principal and accrued but
unpaid interest on the Bridge Note held by such non-consenting
Purchaser or Purchasers.
(b) The Representative shall have the power to collect,
enforce, and bring any action on the Transaction Agreements and any
Collateral granted therein in the name of the Representative for the
benefit of all Purchasers.
SECTION 2.6 ASSURANCES.
(a) Each Purchaser hereby authorizes third parties with
whom Representative deals in carrying out the responsibilities of
Representative hereunder, to rely conclusively on the instructions and
decisions of the Representative as to any action taken pursuant to and
in accordance with the terms of this Agreement and the other
Transaction Agreements without any further or additional approval or
authorization from such Purchaser, including without limitation, the
execution and delivery of any documents or instruments, or any other
actions required to be taken by the Representative under this Agreement
and the other Transaction Agreements, and no Purchaser shall have any
cause of action against third parties with whom Representative deals in
carrying out the responsibilities of Representative hereunder or under
the other Transaction Agreements for any action taken by such third
parties in reliance upon the instructions or decisions of the
Representative.
(b) All actions, decisions, and instructions of the
Representative shall be conclusive and binding upon all of the
Purchasers, and no Purchaser shall have any cause of action against the
Representative for any actions taken, decision made or instruction
given by the Representative under this Agreement, except as provided in
Section 2.8(a).
SECTION 2.7 DEFAULT AND ACCELERATION PROCEDURES.
(a) Each Purchaser acknowledges and agrees that its
respective rights in, to, and under the Collateral are limited to its
Proportionate Share of the Collateral securing all the Bridge Notes,
whether Such Bridge Notes are issued at the Initial Closing or an
Additional Closing.
(b) The Representative shall give all Purchasers written
notice of any Event of Default under the Bridge Notes, this Agreement,
or the other Transaction Agreements known to it which, in the sole
judgment of the Representative, materially adversely affects the
respective interests of the Purchasers under any of the Transaction
Agreements. In the event of any Event of Default thereunder, the
Representative shall pursue any remedies available to the Purchasers
under the Transaction Agreements which the Representative in its sole
discretion shall deem advisable, and Representative may also elect to
postpone the pursuit of remedies if in its sole discretion and judgment
it is appropriate under the circumstances to do so.
(c) In the event proceedings are instituted for a sale
under power of sale or a judicial foreclosure of the Collateral
provided under the Transaction Agreements, the provisions of the UCC,
absent written agreement to the contrary, shall govern such proceedings
and the actions taken pursuant thereto, as among the Representative and
the Purchasers.
(d) In the event the Representative acquires title to any
of the Collateral provided under the Transaction Agreements pursuant to
a foreclosure or conveyance in lieu of foreclosure, title shall be
taken in a form acceptable to the Representative and shall be held
by or on behalf of the Representative for the benefit of the Purchasers
in their Proportionate Share. The Representative shall manage such
Collateral in its ordinary course of business and in accordance with
its customary practices and procedures for as long as such title is
held in whole or in part in the name of or on behalf of the
Representative. The Representative shall have the authority to
contemporaneously to sell such Collateral on terms and conditions
reasonably acceptable to the Representative.
(e) If the Representative receives a payment after
acceleration of the Bridge Notes, whether pursuant to a demand for
payment or as a result of legal proceedings against the Company, or
from any source whatsoever, such payment shall be applied in the
following order (unless mandated otherwise by the Transaction
Agreements):
(1) To the expenses incurred in effecting such
recovery or in enforcing any right or remedy under the
Transaction Agreements, and any other expenses theretofore
incurred by the Representative and not previously reimbursed
by the Company;
(2) To accrued interest, payable by the Company,
according to Purchaser's Proportionate Share of the accrued
interest on the Bridge Notes; and
(3) To the unpaid principal of the Bridge Notes
with each Purchaser receiving such Purchaser's Proportionate
Share of such principal.
(f) The term "Proportionate Share" shall mean the
outstanding principal amount of each Purchaser's Bridge Note divided by
the total outstanding principal amount of Bridge Notes.
SECTION 2.8 STANDARD OF CARE OF THE REPRESENTATIVE.
(a) The Representative shall endeavor in good faith to
perform all services and duties and exercise all powers hereunder
specifically assigned and delegated to the Representative, and the
Representative shall perform and exercise, and shall have the right and
power to perform and exercise, such other services and powers as are
reasonably incidental thereto. Neither the Representative nor any of
its officers, directors, employees or agent shall be liable to the
Purchasers for any action or failure to act or any error of judgment,
negligence or mistake under any the Transaction Agreement or in
connection herewith and therewith (a) at the request or with the
approval of the Purchasers or (b) in the absence of its or their
willful misconduct or gross negligence. Without limiting the generality
of the foregoing, the Representative may consult with counsel or other
advisors selected by it, and the Representative shall not be liable for
any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel or other advisors. In
performing its obligations hereunder and under the Transaction
Agreements, the Representative may rely in good faith on written and
telephonic communications received by the Representative without
investigating the genuineness thereof or the power and authority of the
author of such communications. The Representative may exercise any of
its powers and rights to perform any duty under this Agreement through
attorneys and agents. Each Purchaser acknowledges and agrees that the
Representative's duties and obligations under this Agreement are
administrative and ministerial in nature, and that the Representative
has no fiduciary obligation to the Purchasers.
(b) The Representative does not assume, and shall not
have, any responsibility or liability, express or implied, for the
adequacy, sufficiency, validity, collectability, genuineness, or
enforceability of any of the Transaction Agreements, for the financial
condition of the Company, for compliance by the Company with the terms
and conditions of the Transaction Agreements, for the accuracy of any
financial or other information furnished to the Purchaser by the
Representative or by any other party or for the perfection of any of
the Collateral. The Representative shall not be required to ascertain
or inquire as to the performance or observance by the Company of any of
the terms, conditions, provisions, covenants, or agreements contained
in any of the Transaction Agreements or as to the use of the proceeds
of the offering of the Bridge Notes or of the existence or possible
existence of any Event of Default thereunder.
(c) The Representative may accept deposits from, lend
money to, and generally engage in any kind of banking, trust, financial
advisory, or other business with the Company or any affiliate thereof
as if it were not performing the duties specified herein, and may
accept fees and other consideration from the Company or affiliate for
services in connection with such services, without having to account
for the same to the Purchasers.
(d) Neither the Representative (acting in its capacity as
Representative and not as a Purchaser) nor any of its directors,
officers, employees or Representatives shall have any responsibility to
any Borrower on account of the failure or delay in performance or
breach by any Purchaser (other than the Representative acting in its
capacity as Representative) of any of its obligations hereunder or to
any Purchaser on account of the failure of or delay in performance or
breach by any other Purchaser or any Borrower of any of their
respective obligations hereunder or in connection herewith.
(e) The Representative and the Company may deem and treat
the payee of any Bridge Note as the holder thereof until written notice
of transfer shall have been delivered as provided herein by such payee
to the Representative and the Company.
(f) Each Purchaser agrees (i) to reimburse the
Representative in the amount of such Purchaser's Proportionate Share of
any expenses incurred for the benefit of the Purchasers by the
Representative, including counsel fees and compensation of
representatives and employees paid for services rendered on behalf of
the Purchasers, not reimbursed by the Company and (ii) to indemnify and
hold harmless the Representative and any of its directors, officers,
employees or representatives, on demand, in the amount of its
Proportionate Share, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by or asserted against it in its capacity
as the Representative or any of them in any way relating to or arising
out of this Agreement or any of the other Transaction Agreements or any
action taken or omitted by it or any of them under this Agreement or
any of the other Transaction Agreements, to the extent not reimbursed
by the Company; provided, however, that no Purchaser shall be liable to
the Representative for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgment, suits, costs, expenses
or disbursements resulting from the gross negligence or willful
misconduct of the Representative or any of its directors, officers,
employees or Representatives.
(g) Each Purchaser acknowledges that it has,
independently and without reliance upon the Representative or any other
Purchaser and based on such documents and
information as it has deemed appropriate, made its own credit analysis
and decision to enter into this Agreement and any other Transaction
Agreement to which such Purchaser is party. Each Purchaser also
acknowledges that it will, independently and without reliance upon the
Representative or any other Purchaser and based on such documents and
information as it shall deem appropriate at the time, continue to make
its own decisions in taking or not taking action under or based upon
this Agreement, any other Transaction Agreement, any related agreement
or any document furnished hereunder.
(h) Subject to the appointment and acceptance of a
successor Representative as provided below, the Representative may
resign at any time by notifying the Purchasers and the Company. Upon
any such resignation, the Purchasers shall have the right to appoint a
successor Representative. If no successor Representative shall have
been so appointed by such Purchasers and shall have accepted such
appointment within 30 days after the retiring Representative gives
notice of its resignation, then the retiring Representative may, on
behalf of the Purchasers, appoint a successor Representative, which
successor Representative shall be reasonable acceptable to the holders
of at least 51% of the principal amount of the Bridge Notes then
outstanding. Upon the acceptance of any appointment as Representative
hereunder by a successor bank, such successor shall thereupon succeed
to and become vested with all the rights, powers, privileges and duties
of the retiring Representative and the retiring Representative shall be
discharged from its duties and obligations hereunder and under each of
the other Transaction Agreements. After any Representative's
resignation hereunder, the provisions of this Article shall continue in
effect for its benefit in respect of any actions taken or omitted to be
taken by it while it was acting as Representative.
(i) The Purchasers hereby acknowledge that the
Representative shall be under no duty to take any discretionary action
permitted to be taken by the Representative pursuant to the provisions
of this Agreement or any of the other Transaction Agreements unless it
shall be requested in writing to do so by the Purchasers.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
To induce the Purchasers to purchase the Bridge Notes, the Company represents
and warrants to each Purchaser, except as referenced on Schedule 1 hereto (the
"Disclosure Schedule"), which reference shall set forth the specific section to
which the qualification relates and the statement which constitutes the
qualification, that:
SECTION 3.1 ORGANIZATION AND QUALIFICATION. The Company and its
subsidiaries are corporations duly organized, validly existing, and in good
standing under the laws of the 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 each subsidiary is duly
qualified as a foreign corporation to do business and is in good standing in
each 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. As
used in this Agreement, "Material Adverse Effect" means any material adverse
effect on the business, properties, assets, operations, results of operations,
financial condition or prospects of the Company and its subsidiaries taken as a
whole, or on the transactions contemplated hereby or by the agreements and
instruments to be entered into in connection herewith, or on the authority or
ability of the Company to perform its obligations under the Transaction
Agreements.
SECTION 3.2 AUTHORIZATION, ENFORCEMENT, COMPLIANCE WITH OTHER
INSTRUMENTS.
(a) The Company has the requisite corporate power and
authority to enter into and perform each of this Agreement, the Bridge
Notes, the Repricing Warrants, the Warrants, the Registration Rights
Agreement, the Escrow Agreement, the individual guaranties and stock
pledge agreements of the Pledgors, the Transfer Agent Instructions, the
Financing Statement, and any related agreements (collectively, the
"Transaction Agreements" and individually a "Transaction Agreement"),
and to issue the Bridge Notes, the Repricing Warrants, the Warrants,
the Conversion Shares, the Repricing Shares, and the Warrant Shares;
(b) the execution and delivery by the Company of each of
the Transaction Agreements and the consummation by it of the
transactions contemplated thereby, including without limitation the
issuance of the Bridge Notes, the Warrants, and the Repricing Warrants,
the reservation for issuance and the issuance of the Conversion Shares
issuable upon conversion of the Bridge Notes and the reservation for
issuance and the issuance of the Repricing Shares, and the Warrant
Shares, upon exercise of the Repricing Warrants, and the Warrants (the
Bridge Notes, the Repricing Warrants, the Warrants, the Conversion
Shares, the Repricing Shares, and the Warrant Shares are hereinafter
collectively, the "Securities") 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;
(c) each of the Transaction Agreements have been duly and
validly executed and delivered by the Company; and
(d) each of the Transaction Agreements constitutes the
valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, except as such enforceability may
be limited by 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.
SECTION 3.3 CAPITALIZATION. Immediately prior to Closing, the
authorized capital stock of the Company consisted of (a) [100,000,000] shares
are Common Stock, par value $.001, of which [26,690,629] shares are issued and
outstanding, and (b) 1,000,000 shares of preferred stock ("Preferred Stock"),
par value $.001, none of which are issued and outstanding. All of such
outstanding shares have been validly issued and are fully paid and
nonassessable. Except as
described in Section 3.3 of the Disclosure Schedule, no shares of Common Stock
or preferred 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 Section 3.3 of the Disclosure Schedule, as of the effective date of
this Agreement, (a) there are no 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, (b) there are no outstanding debt securities, and (c) 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 1933 Act
(except the Registration Rights Agreement). There are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities in the manner contemplated by this
Agreement. The Company has furnished to the Purchaser true and correct copies of
the Company's Certificate of Incorporation, as amended (the "Charter") and the
Company's Bylaws, as in effect on the date hereof (the "Bylaws"), and the terms
of all securities convertible into or exercisable for Common Stock and the
material rights of the holders thereof in respect thereto.
SECTION 3.4 ISSUANCE OF SECURITIES. The Bridge Notes have been duly
authorized and are free from all taxes, liens, and charges with respect to the
issue thereof. The Conversion Shares issuable upon conversion of the Bridge
Notes have been duly authorized and reserved for issuance. The Repricing
Warrants have been duly authorized and are free from all taxes, liens, and
charges with respect to the issuance thereof. The Repricing Shares issuable upon
exercise of the Repricing Warrants have been duly authorized and reserved for
issuance. The Warrants have been duly authorized and are free from all taxes,
liens, and charges with respect to the issuance thereof. The Warrant Shares
issuable upon exercise of the Warrants have been duly authorized and reserved
for issuance. Upon conversion of the Bridge Notes, the Conversion Shares will,
and upon exercise of the Repricing Warrants and the Warrants, the Repricing
Shares and the Warrant Shares will, be duly and validly issued, fully paid, and
nonassessable, and free from all taxes, liens, and charges, with respect to the
issuance thereof, with the holders being entitled to all rights accorded to a
holder of Common Stock. The issuance of the Securities by the Company is exempt
from registration under the 1933 Act.
SECTION 3.5 NO CONFLICTS. Except as disclosed in Section 3.5 of the
Disclosure Schedule, the execution, delivery, and performance of the Transaction
Agreements by the Company, and the consummation by the Company of the
transactions contemplated thereby, will not (a) result in a violation of the
Charter or the Bylaws of the Company or (b) conflict with, constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration, or
cancellation 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 principal market or
exchange on which the Common Stock is traded or listed) 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 described in
Section 3.5 of the Disclosure Schedule, neither the Company nor any subsidiary
is in violation of any term of, or in default under, its Charter or the Bylaws
or their organizational charter or bylaws, respectively, or any 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 in violation of any law, ordinance, or regulation of any
governmental entity. Except as specifically contemplated by this Agreement and
as required under the 1933 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, and perform any of its obligations under or
contemplated by the Transaction Agreements in accordance with the terms thereof.
Except as disclosed in Section 3.5 of the Disclosure Schedule, 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 circumstances which might give rise to any of the foregoing.
SECTION 3.6 SEC DOCUMENTS; FINANCIAL STATEMENTS. Since January 1, 1997,
the Company has filed all reports, schedules, forms, statements, and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act")
(all of the foregoing filed prior to 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 made available to each Purchaser or its
representative true and complete copies of the SEC Documents. The Company has a
class of securities registered under Section 12(b) or 12(g) of the 1934 Act or
is required to file reports pursuant to Section 15(d) of the 1934 Act, and has
filed all the materials required to be filed as reports pursuant to the Exchange
Act for the period the Company was required by law to file such material. As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the 1934 Act and the rules and regulations of the Sec
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, 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. As of their
respective dates, the financial statements of the Company included 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 (a) as may be
otherwise indicated in such financial statements or the notes thereto, or (b) in
the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and present fairly, 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 Purchaser which is not included in the SEC Documents, including, without
limitation, information referred to in Section 4.4 of this Agreement, contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in the light of the
circumstance under which they are or were made, not misleading. Neither the
Company nor any of its subsidiaries or any of their officers, directors,
employees or agents have provided any of the Purchasers with any material,
nonpublic information.
SECTION 3.7 ABSENCE OF CERTAIN CHANGES. Except as described in Section
3.7 of the Disclosure Schedule, since the date of the most recent [audited]
balance sheet included in the SEC Documents, there has been no material adverse
change and no material adverse development in the business, properties,
operations, financial condition, results of operations, or prospects of the
Company or its subsidiaries. The Company has not taken any steps, and does not
currently expect to take any steps, to seek protection pursuant to any
bankruptcy law nor does the Company or its subsidiaries have any knowledge that
its creditors intend to initiate involuntary bankruptcy proceedings.
SECTION 3.8 ABSENCE OF LITIGATION. There is no action, suit,
proceeding, inquiry, or investigation before or by any court, public board,
government agency, self-regulatory organization, or body pending or, to the
knowledge of the Company or any of its subsidiaries, threatened against or
affecting the Company, the Common Stock, or any of the Company's subsidiaries or
any of the Company or its subsidiaries, officers or directors in their capacity
as such, wherein an unfavorable decision, ruling or finding would (a) adversely
affect the validity or enforceability of, or the authority or ability of the
Company to perform its obligations under the Transaction Agreements or (b)
except as expressly set forth in Schedule 3.8 of the Disclosure Schedule, have a
Material Adverse Effect.
SECTION 3.9 PURCHASE OF SECURITIES. The Company acknowledges and agrees
that the Purchaser 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 Purchaser 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 Purchasers or any of their respective representatives or agents in
connection with this Agreement and the transactions contemplated hereby is
merely incidental to such Purchaser's purchase of the Securities. The Company
further represents to the Purchaser that the Company's decision to enter into
this Agreement has been based solely on the independent evaluation by the
Company and its representatives.
SECTION 3.10 NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS, OR
CIRCUMSTANCES. No event, liability, development, or circumstance has occurred or
exists, or to the knowledge of the Company is contemplated to occur, with
respect to the Company or its subsidiaries or their respective business,
properties, prospects, operations, or financial condition, which could be
material but which has not been publicly announced.
SECTION 3.11 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 0000 Xxx) in connection with the offer or sale of the
Bridge Notes or the Conversion Shares.
SECTION 3.12 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 any of
the Securities under the 1933 Act or cause this offering to be integrated with
prior offerings by the Company for purposes of the 1933 Act or any applicable
stockholder approval provisions nor will the company or any of its subsidiaries
take any action or steps that would require registration of the Securities under
the 1933 Act or cause the offering of the Securities to be integrated with other
offerings.
SECTION 3.13 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. Neither the
Company nor any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that relations with
their employees are good. No executive officer (as defined in Rule 501(f) of the
0000 Xxx) has notified the Company that such officer intends to leave the
Company or otherwise terminate such officer's employment with the Company.
SECTION 3.14 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. Except as set forth on Section 3.14 of the
Disclosure Schedule, none of the Company's trademarks, trade names, service
marks, service xxxx registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, government authorizations, trade
secrets, or other intellectual property rights have expired or terminated, or
are expected to expire or terminate in the near future. The Company and its
subsidiaries do not have any knowledge of any infringement by the Company or its
subsidiaries of the 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. Except as set
forth on Section 3.15 of the Disclosure Schedule, 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. The Company and its subsidiaries
have taken reasonable security measures to protect the secrecy, confidentiality,
and value of all of their intellectual properties.
SECTION 3.15 ENVIRONMENTAL LAWS. The Company and its subsidiaries are
(a) in compliance with any and all applicable foreign, federal, state, and local
laws and regulations relating to the protection of human health and safety, the
environment, or hazardous, toxic substances, wastes, pollutants, or contaminants
("Environmental Laws"), (b) have received all permits, licenses, or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses, and (c) are in compliance with all terms and conditions
of any such permit, license, or approval.
SECTION 3.16 TITLE. The Company and its subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to 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,
encumbrances, and defects except as described in Section 3.16 of the Disclosure
Schedule or as 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 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. The Pledged Assets are owned by
the Company free and clear of any and all encumbrances, liens, and adverse
claims whatsoever, has been at all times prior to the date hereof, and shall
remain from and after the date of this Agreement in the possession of the
Company and
located at its principal executive offices located in San Diego, California. The
fair market value of the Pledged Assets is not less than 200% of the principal
amount of the Bridge Notes.
SECTION 3.17 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.
SECTION 3.18 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, except to the extent that the failure to possess any such
certificate, authorization, and permit would not have a Material Adverse Effect,
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.
SECTION 3.19 INTERNAL ACCOUNTING CONTROLS. The Company and each of its
subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (a) transactions are executed in accordance
with management's general or specific authorizations, (b) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (c) access to assets is permitted only in accordance with
management's general or specific authorization, and (d) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
SECTION 3.20 NO MATERIALLY ADVERSE CONTRACTS, ETC. 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 to the knowledge of the Company is
expected in the future to have, a Material Adverse Effect. Neither the Company
nor any of its subsidiaries is a party to any contract or agreement which in the
judgment of the Company's officers has, or to the knowledge of the Company is
expected to have, a Material Adverse Effect.
SECTION 3.21 TAX STATUS. Except as set forth on Section 3.21 of the
Disclosure Schedule, the Company and each of its subsidiaries has made or filed
all federal and state income and all other tax returns, reports, and
declarations required by any jurisdiction to which it is subject (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), and 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 amounts deemed 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, and except
as set forth on Schedule
3.21, there are no open years, examinations in progress or claims against it for
federal, state or other taxes (including penalties and interest) for any period
or periods prior to the date hereof.
SECTION 3.22 CERTAIN TRANSACTIONS. Except as set forth on Section 3.22
of the Disclosure Schedule and in the SEC Documents, 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 on Section
3.22 of the Disclosure Schedule, none of the officers, directors, or employees
of the Company is presently a party to any transaction with the Company or any
subsidiary of 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.
SECTION 3.23 DILUTIVE EFFECT. The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of the Bridge
Notes will increase in certain circumstances. The Company further acknowledges
that its obligation to issue Conversion Shares upon conversion of the Bridge
Notes in accordance with this Agreement and the Bridge Notes is absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company.
SECTION 3.24 APPLICATION OF TAKEOVER PROTECTIONS. 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 agreements) or other similar
anti-takeover provision under the Certificate of Incorporation or the laws of
the state of its incorporation which is or could become applicable to the
Purchaser as a result of the transactions contemplated by this Agreement,
including, without limitation, the Company's issuance of the Securities and the
Purchaser's ownership of the Securities.
SECTION 3.25 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.
SECTION 3.26 FOREIGN CORRUPT PRACTICES ACT. The Company has not made,
offered, or agreed to offer anything of value to any government official,
political party, or candidate for government office nor has it taken any action
which would cause the Company to be in violation of the Foreign Corrupt
Practices Act of 1977.
SECTION 3.27 DISCLOSURE. Neither this Agreement nor any Schedule or
Exhibit hereto, contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained herein or therein not
misleading. None of the statements, documents, certificates or other items
prepared or supplied by the Company with respect to the transactions
contemplated hereby contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained therein not misleading.
SECTION 4. REPRESENTATION AND WARRANTIES OF PURCHASERS
Each Purchaser represents and warrants to the Company, with respect to
such Purchaser only that:
SECTION 4.1 INVESTMENT PURPOSE. The Purchaser is acquiring the
Securities 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 1933 Act; provided,
however, that by making the representations herein, the Purchaser does not agree
to hold any Securities for any minimum or other specific term and reserves the
right to dispose of the Securities at any time in accordance with or pursuant to
a registration statement or an exemption under the 1933 Act.
SECTION 4.2 ACCREDITED INVESTOR STATUS. The Purchaser is an "accredited
investor" as that term is defined in Rule 501(a)(3) of Regulation D.
SECTION 4.2 RELIANCE ON EXEMPTION. The Purchaser understands that the
Securities 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 Purchaser's compliance with, the representations, warranties, agreements,
acknowledgments, and understandings of the Purchaser set forth herein in order
to determine the availability of such exemptions and the eligibility of the
Purchaser to acquire such securities.
SECTION 4.3 INFORMATION. The Purchaser and its advisors, if any, have
been furnished with all materials relating to the business, finances, and
operations of the Company and materials relating to the offer and sale of the
Securities, which have been requested by such Purchaser. The Purchaser and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company. Neither such inquiries nor any other due diligence investigations
conducted by the Purchaser or its advisors, if any, or its representatives shall
modify, amend, or affect such Purchaser's right to rely on the Company's
representations and warranties contained in Section 3 hereof. The Purchaser
understands that its investment in the Securities involves a high degree of
risk. The Purchaser 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 Securities.
SECTION 4.4 NO GOVERNMENTAL REVIEW. The Purchaser understands that 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
Securities, or the fairness or suitability of the investment in
the Securities, nor have such authorities passed upon or endorsed the merits of
the offering of the Securities.
SECTION 4.5 TRANSFER OR RESALE. The Purchaser understands that except
as provided in the Registration Rights Agreement:
(a) the Securities have not been and are not being
registered under the 1933 Act or any state securities laws, and may not
be offered for sale, sold, assigned, or transferred unless;
(i) subsequently registered thereunder;
(ii) the Purchaser 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; or
(iii) the Purchaser provides the Company with
reasonable assurance that such securities can be sold,
assigned, or transferred pursuant to Rule 144 or promulgated
under the 1933 Act (or a successor rule thereto);
(b) any sale of such securities made in reliance on Rule
144 promulgated under the 1933 Act (or a successor rule thereto) ("Rule
144") may be made only in accordance with the terms of Rule 144 and
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 0000 Xxx) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC
thereunder; and
(c) neither the Company nor any other person is under any
obligation to register such securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any
exemption thereunder.
SECTION 4.6 LEGENDS. The Purchaser understands that the certificates or
other instruments representing the Bridge Notes and, until such time as the sale
of the Conversion Shares have been registered under the 1933 Act as contemplated
by the Registration Rights Agreement, the stock certificates representing 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 FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED, OR ASSIGNED IN 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 GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE
STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144
UNDER SAID ACT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Bridge Notes and the
Conversion Shares, upon which it is stamped, if, unless otherwise required by
state securities laws, (a) the sale of the Conversion Shares is registered under
the 1933 Act, (b) in connection with a sale transaction, such holder provides
the Company with an opinion of counsel, in a generally acceptable form, to the
effect that a public sale, assignment, or transfer of the Bridge Notes and the
Conversion Shares may be made without registration under the 1933 Act, or (c)
such holder provides the Company with reasonable assurances that the Bridge
Notes and the Conversion Shares can be sold pursuant to Rule 144 without any
restriction as to the number of securities acquired as of a particular date that
can then be immediately sold.
SECTION 4.7 AUTHORIZATION ENFORCEMENT. This Agreement has been duly and
validly authorized, executed, and delivered on behalf of the Purchaser and is a
valid and binding agreement of the Purchaser enforceable in accordance with its
terms, subject as to enforceability to general principles of equity and to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
SECTION 4.08 RESIDENCE. The Purchaser is a resident of that
jurisdiction specified in its address on the Purchaser signature page.
SECTION 4.9 NO SCHEME TO EVADE REGISTRATION. The Purchaser represents
and warrants to the Company, as to itself only, that the acquisition of the
Securities is not a transaction (or any element of a series of transactions)
that is part of a plan or scheme by the Purchaser to evade the registration
provisions of the 1933 Act and that
(a) such Purchaser is an "accredited investor" within the
meaning of Rule 501 under the Securities Act;
(b) such Purchaser has sufficient knowledge and
experience to evaluate the risks and merits of its investment in the
Company and it is able financially to bear the risks thereof;
(c) such Purchaser has had an opportunity to ask
questions of and receive answers from and to discuss the Company's
business, management, and financial affairs with the Company's
management;
(d) the Securities are being acquired for its own account
for the purpose of investment and not with a view to or for sale in
connection with any distribution thereof;
(e) such Purchaser was not offered nor made aware of the
Company's interest in issuing the Bridge Notes by any means of public
advertisement or solicitation;
(f) in connection with such Purchaser's purchase of the
Securities, it has been solely responsible for its own (i) due
diligence investigation of the Company and (ii) investment decision,
and has not engaged or relied upon any agent or "purchaser
representative" to review or analyze the Company's business and affairs
or advise the
Purchaser with respect to the merits of the investment;
(g) such Purchaser has full power and authority to
execute, deliver, and perform this Agreement; and this Agreement
constitutes the legal, valid, and binding obligation of such Purchaser,
enforceable against it in accordance with their respective terms; and
(h) if such Purchaser proposes to sell the Securities
pursuant to Rule 144A under the Securities Act, it will (A) take
reasonable steps to obtain the information required by such Rule to
establish a reasonable belief that the prospective purchaser is a
"qualified institutional buyer" as such term is defined in Rule 144A
and (B) advise the prospective purchaser that the Purchaser is relying
on the exemption from the registration provisions of the Securities Act
available pursuant to Rule 144A.
SECTION 4.10 COVENANT NOT TO TRADE. Each Purchaser covenants and
agrees, not to purchase, sell, make any short sale of, pledge, grant any option
for the purchase or sale of or otherwise trade any Common Stock prior to the
conversion of the Bridge Notes (other than a purchase of Common Stock from the
Company pursuant to the exercise of the Repricing Warrant or the Warrant),
without the prior written consent of the Company.
SECTION 5. CONDITIONS TO EACH CLOSING
Each Purchaser's obligation to purchase and pay for the Securities is
subject to the satisfaction prior to or at each Closing of the following
conditions provided that these conditions are for each Purchaser's sole benefit
and may be waived by such Purchaser at any time in its sole discretion:
SECTION 5.1 TRANSACTION AGREEMENTS. The Company shall have delivered to
the Purchaser the Transaction Agreements as provided in Section 1.5, above,
executed by all the parties thereto.
SECTION 5.2 OPINION OF COUNSEL. The Purchaser shall have received from
counsel for the Company, an opinion in substantially the form of Exhibit E,
addressed to the Purchaser, dated the Closing Date.
SECTION 5.3 REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The
representations and warranties of the Company contained in this Agreement and
those otherwise made in writing by or on behalf of the Company in connection
with the transactions contemplated by this Agreement shall be true when made and
as of the Closing Date, except to the extent of changes caused by the
transactions contemplated herein; provided, however, that there shall exist at
the time of the Closing and after giving effect to such transactions no default
or Event of Default (as defined in Section 10 of the Bridge Notes) and the
Company shall have performed, satisfied and complied with the covenants,
agreements and conditions required by the Transaction Agreements to be
performed, satisfied or complied with by the Company at or prior to the Closing
Date. Such Purchaser shall have received a certificate, executed by the Chief
Executive Officer of the Company, dated as of the Closing Date, to the foregoing
effect, and an update as of the Closing Date of the representation contained in
Section 3 (c) above.
SECTION 5.4 PURCHASE AND LOAN PERMITTED BY APPLICABLE LAWS. The
purchase of, and payment for, all the Securities evidenced by or attendant to
the Bridge Notes shall not violate any
applicable domestic law or governmental regulation (including, without
limitation, Section 5 of the Securities Act) and shall not subject the Purchaser
to any tax, penalty, liability, or other onerous condition under, or pursuant
to, any applicable law or governmental regulation or order.
SECTION 5.5 NO ADVERSE LITIGATION. There shall be no action, suit,
investigation, or proceeding, pending or, to the best of the Purchaser's or the
Company's knowledge, threatened, against or affecting the Purchaser, the
Company, any of the Purchaser's or the Company's properties or rights, or any of
the Purchaser's or the Company's Affiliates, officers, or directors, by or
before any court, arbitrator, or administrative or governmental body which (i)
seeks to restrain, enjoin, prevent the consummation of, or otherwise affect the
transactions contemplated by this Agreement or (ii) questions the validity or
legality of any such transactions, or (iii) seeks to recover damages or obtain
other relief in connection with any such transactions, and, to the best of the
Purchaser's and the Company's knowledge, there shall be no valid basis for any
such action, proceeding, or investigation, and the Purchaser shall have received
a certificate executed by the chief executive officer of the Company, dated the
Closing Date, to such effect.
SECTION 5.6 APPROVALS AND CONSENTS. The Company shall have duly
received all authorizations, waivers, consents, approvals, licenses, franchises,
permits, and certificates (collectively, "Consents") by or of all federal,
state, and local governmental authorities and all material consents by or of all
other persons necessary or advisable for the issuance of the Bridge Notes, all
such consents shall be in full force and effect at the time of Closing, and the
Purchaser shall have received a certificate executed by the chief executive
officer of the Company, dated the Closing Date, to such effect.
SECTION 5.7 NO MATERIAL ADVERSE CHANGE. Since the date of the balance
sheet in the most recently filed SEC Document filed at least 10 days prior to
the Closing Date, there shall not have been any material adverse change in the
business, condition (financial or other), assets, properties, operations, or
prospects of the Company, and the Purchaser shall have received a certificate
executed by the chief executive officer of the Company, dated the Closing Date,
to such effect.
SECTION 5.8 PROCEEDINGS. All proceedings taken or to be taken in
connection with the transactions contemplated hereby, and all documents incident
thereto shall be reasonably satisfactory in form and substance to the Purchaser
and the Purchasers counsel, and the Purchaser and the Purchasers counsel shall
have received all such counterpart originals or certified or other copies of
such documents as the Purchaser or the Purchaser's counsel may reasonably
request.
SECTION 5.9 SECRETARY CERTIFICATE. The Purchaser shall have received a
Secretary's Certificate from the Secretary or an Assistant Secretary of the
Company dated the Closing Date and certifying: (A) that attached thereto is a
true and complete copy of the Charter as then in effect, certified or bearing
evidence of filing by the Secretary of State of Delaware, and (B) a certificate
of said Secretary of State, dated as of a recent date as to the due
incorporation and good standing of the Company, the payment of all franchise
taxes by the Company, and listing all documents of the Company on file with said
Secretary of State; (C) that attached thereto is a true and complete copy of the
Bylaws of the Company as in effect on the date of such certification; (D) that
attached thereto is a true and complete copy of all resolutions adopted by the
Board of Directors or the stockholders of the Company authorizing the execution,
delivery, and performance of Transaction Agreements and the issuance, sale, and
delivery of the Securities, and that all such resolutions are in full force and
effect and are all the resolutions adopted in connection with the foregoing
agreements and the transactions
contemplated thereby; (E) that the Charter has not been amended since the date
of the last amendment referred to in the certificate delivered pursuant to
clause (A) above; and (F) to the incumbency and specimen signature of each
officer of the Company executing all Transaction Agreements and any certificate
or instrument furnished pursuant hereto, and a certification by another officer
of the Company as to the incumbency and signature of the officer signing the
certificate.
SECTION 5.10 TRANSFER AGENT INSTRUCTIONS. The Transfer Agent
Instructions shall have been delivered to and acknowledged in writing by the
Company's transfer agent.
SECTION 5.11 LIEN SEARCH. The Company shall have obtained a lien
search, the results of which shall indicate that, upon filing of the UCC
Financing Statements contemplated hereby, the Purchasers will have a first
priority security interest in the Collateral.
SECTION 5.12 UCC FINANCING STATEMENTS. The Company shall have promptly
filed the appropriate UCC Financing Statement in the form, manner, time, and
place of filing required by the county and state where the Collateral is
situated, to properly perfect the security granted herein.
SECTION 5.13 NO SUSPENSIONS. There shall be no suspensions of trading
in or in delisting (or pending delisting) of the Common Stock (including the
removal from the OTCBB).
SECTION 5.14 STOCKHOLDER APPROVAL. If the Common Stock is then listed
or traded on a principal securities exchange or The Nasdaq Stock Market, the
Company shall have obtained stockholder approval in accordance with Section
6.11.
SECTION 6. AFFIRMATIVE COVENANTS
The Company covenants to each Purchaser that from and after the date of
this Agreement through the Closing and thereafter so long as any of the Bridge
Notes remain outstanding:
SECTION 6.1 FINANCIAL INFORMATION. The Company shall furnish to the
Purchaser:
(a) within five (5) days after the filing thereof with
the SEC, a copy of its Annual Reports on Form 10-K, its Quarterly
Reports on Form 10-Q, any Current Reports on Form 8-K, and any
registration statements or amendments filed pursuant to the 1933 Act;
(b) within one (1) day after release thereof, copies of
all press releases issued by the Company or any of its subsidiaries;
(c) copies of the same notices and other information
given to the stockholders of the Company generally, contemporaneously
with the giving thereof to the stockholders;
(d) promptly upon any officer of the Company obtaining
knowledge (i) of any condition or event which constitutes an Event of
Default, (ii) that the holder of any Bridge Notes has given any notice
or taken any other action with respect to a claimed Event of Default
under this Agreement, (iii) of any condition or event which, in the
opinion of management of the Company would have a Material Adverse
Effect, other than conditions or events applicable to the economy as a
whole, (iv) that any person has given any notice to the Company or
taken any other action with respect to a claimed Event of Default, or
(v) of the
institution of any litigation involving claims against the Company,
unless such litigation is defended by the insurance carrier without any
reservation of rights and is reasonably expected to be fully covered by
a creditworthy insurer, in an amount equal to or greater than $250,000
with respect to any single cause of action or of any adverse
determination in any litigation involving a potential liability to the
Company equal to or greater than $100,000 with respect to any single
cause of action, a certificate executed by the chief executive officer
of the Company specifying the nature and period of existence of any
such condition or event, or specifying the notice given or action taken
by such holder or person and the nature of such claimed Event of
Default, event or condition, and what action the Company has taken, is
taking, or proposes to take with respect thereto; and
(e) with reasonable promptness, such other information
and data with respect to the Company as the Purchaser may reasonably
request.
SECTION 6.2 FORM D; FORM 8-K. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Purchaser promptly after such filing. The Company shall, on or
before each Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for, or obtain exemption for
the Securities for, sale to the Purchaser at each Closing 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
Purchaser on or prior to the Closing Date. On or before the fifth (5th) business
day following the Initial Closing Date and on or before the first business day
following any Additional Closing Date, the Company shall file a Form 8-K with
the SEC describing the terms of the transaction contemplated by the Transaction
Agreement and consummated on such Closing Date or Additional Closing Date, as
the case may be, in each case in the form required by the 1934 Act.
SECTION 6.3 REPORTING STATUS. Until the earlier of (a) the date as of
which the Investors (as that term is defined in the Registration Rights
Agreement) may sell all of the Conversion Shares without restriction pursuant to
Rule l44(k) promulgated under the 1933 Act (or successor thereto), or (b) the
date on which (i) the Investors shall have sold all the Conversion Shares and
(ii) none of the Bridge Notes is outstanding (the "Registration Period"), the
Company shall file all reports required to be filed with the SEC pursuant to the
1934 Act, and the Company shall not terminate its status as an issuer required
to file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would otherwise permit such termination.
SECTION 6.4 INSPECTION OF PROPERTY. The Company will permit any Person
designated by any Purchaser in writing, at the Purchaser's expense, to visit and
inspect any of the properties of the Company, to examine the books and financial
records of the Company and make copies thereof or extracts therefrom and to
discuss its affairs, finances, and accounts with its officers and its
independent public accountants, all at reasonable times and upon reasonable
prior notice to the Company.
SECTION 6.5 MAINTENANCE OF PROPERTIES; INSURANCE. The Company will
maintain or cause to be maintained in good repair, working order, and condition
all properties used or useful in the business of the Company and from time to
time will make or cause to be made all appropriate repairs, renewals, and
replacements thereof. The Company will maintain or cause to be maintained, with
financially sound and reputable insurers (or, as to workers' compensation or
similar insurance, in an insurance fund or by self-insurance authorized by the
laws of the jurisdiction in question),
insurance with respect to their respective properties and businesses against
loss or damage of the kinds customarily insured against by corporations of
established reputation engaged in the same or similar businesses and
similarly situated, of such type and in such amounts as are customarily
carried under similar circumstances by such other corporations and as are in
good faith believed by the Company to be sufficient to prevent the Company
from becoming a co-insurer within the terms of the policies in question.
SECTION 6.6 MAINTENANCE OF SECURITY INTEREST. The Company will at all
times maintain or cause to be maintained a perfected first priority security
interest in Collateral as security therefor in favor of all Purchasers as a
group, together with the Pledged Shares, with a value of not less than 200% of
the aggregate principal amount of the Bridge Notes then outstanding.
SECTION 6.7 EXPENSES. The Company and the Purchasers shall pay all
costs and expenses incurred by such party in connection with the negotiation,
investigation, preparation, execution, and delivery of this Agreement, the
Bridge Notes, the Escrow Agreement, the Registration Rights Agreement, and other
documents executed in connection with the issuance of the Bridge Notes. The
costs and expenses of Sovereign Capital Advisors, LLC for the First Closing,
including the fees and expenses of Xxxxxxx Xxxxxxxx Xxxxx Xxxxxxxxxxx & Kuh LLP,
shall be paid for by the Company at the First Closing and the fees and expenses
for all Additional Closings shall be paid for by the Company at such Additional
Closing.
SECTION 6.8 AUTHORIZED SHARES OF COMMON STOCK, RESERVATION OF SHARES.
The Company shall at all times, so long as any of the Bridge Notes are
outstanding, reserve and keep available out of its authorized and unissued
Common Stock, solely for the purpose of effecting the conversion of the Bridge
Notes, such number of shares of Common Stock equal to or greater than 150% of
the number of Conversion Shares issuable upon conversion of the Bridge Notes
which are then outstanding or which could be issued at any time under this
Agreement.
SECTION 6.9 CORPORATE EXISTENCE, ETC. The Company will at all times
preserve and keep in full force and effect its corporate existence, and rights,
licenses, and franchises material to its business, and will qualify to do
business as a foreign corporation in each jurisdiction where the failure to so
qualify would have a Material Adverse Effect.
SECTION 6.10 TRANSFER AGENTS. 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, the Company shall immediately appoint a new
transfer agent and shall require that the transfer agent execute and agree to be
bound by the terms of the Irrevocable Instructions to Transfer Agent.
SECTION 6.11 STOCKHOLDER APPROVAL; PROXY. If the Common Stock becomes
listed on a principal securities exchange or the Nasdaq Stock Market the Company
covenants to submit to its stockholders a proposal for ratification of the
issuance of the Bridge Notes, the Conversion Shares and Warrant Shares and the
Repricing Warrant Shares, if and as required by the rules of such exchange or
the National Association of Securities Dealers, Inc. (the "NASD"), as the case
may be, applicable to the transaction. All officers and directors will, upon
request of the Purchaser, execute a proxy authorizing the Purchaser or any
designee of the Purchaser to vote all shares of Common Stock, the voting of
which is controlled by such officer or director, at any meeting (or any
adjournment thereof) at which Stockholder action is proposed to ratify the
issuance of the Bridge Notes and the Conversion Shares.
SECTION 6.12 TRANSFER AGENT INSTRUCTIONS. The Company shall issue
Transfer Agent Instructions to its transfer agent to issue certificates,
registered in the name of the Purchaser or its respective nominee(s), for the
Conversion Shares, the Repricing Shares, and the Warrant Shares in such amounts
as specified from time to time by the Purchaser to the Company upon conversion
of the Bridge Notes, except as provided in Section 6.18 herein. Prior to
registration of the Conversion Shares under the 1933 Act, all such certificates
shall bear the restrictive legend specified in Section 4.6 of this Agreement.
The Company warrants that no instruction other than the Transfer Agent
Instructions referred to in this Section 6.12, and stop transfer instructions to
give effect to Section 4.6 hereof (in the case of the Conversion Shares, prior
to registration of such shares under the 0000 Xxx) will be given by the Company
to its transfer agent and that the Bridge Notes and 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 Registration Rights Agreement.
Nothing in this Section 6.12 shall affect in any way the Purchaser's obligations
and agreement to comply with all applicable securities laws upon resale of the
Bridge Notes or Conversion Shares. If the Purchaser provides the Company with an
opinion of counsel, reasonably satisfactory in form, and substance to the
Company, that registration of a resale by the Purchaser of any of the Bridge
Notes or Conversion Shares is not required under the 1933 Act, the Company shall
permit the transfer, and, in the case of the Conversion Shares, promptly
instruct its transfer agent to issue one or more certificates in such name and
in such denominations as specified by the Purchaser. The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable harm to
the Purchaser 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 6.12 will be inadequate
and agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Section 6.12, that the Purchaser 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.
SECTION 6.13 PAYMENT OF TAXES. The Company will pay all taxes,
assessments, and other governmental charges imposed upon it or any of its
properties or assets or in respect of any of its franchises, business, income,
or properties before any penalty or significant interest accrues thereon, and
all claims (including, without limitation, claims for labor, services,
materials, and supplies) for sums which have become due and payable and which by
law have or may become a lien upon any of its properties or assets; provided,
however, that no such charge or claim need be paid if such claim is (i) being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted, and (ii) the amount of such claim is accrued on the
financial statements of the Company or other appropriate provision is made as
shall be required by generally accepted accounting principles.
SECTION 6.14 COMPLIANCE WITH LAWS, ETC. The Company will comply with
the requirements of all applicable laws, rules, regulations, and orders of any
court or other governmental authority (including, without limitation, those
related to environmental or ERISA compliance), noncompliance with which could
materially adversely affect the business, condition (financial or other),
assets, property, operations, or prospects of the Company.
SECTION 6.15 USE OF PROCEEDS. The Company will use the proceeds from
the sale and issuance of the Bridge Notes for operating capital purposes.
SECTION 6.16 REGISTRATION STATEMENT. The Company shall comply with all
of the dates and obligations contained in the Registration Rights Agreement.
SECTION 6.17 LISTINGS. The Company shall promptly secure the listing of
the Conversion Shares, the Repricing Shares and the Warrant Shares, upon each
national securities exchange or automated quotation system, if any, upon which
shares of Common Stock are then listed (subject to official notice of issuance)
and shall maintain, so long as any other shares of Common Stock shall be so
listed, such listings of all Conversion Shares, the Repricing Shares and the
Warrant Shares from time to time issuable under the terms of the Bridge Notes,
the Repricing Warrants, the Warrants, and the Registration Rights Agreement. The
Company shall maintain the Common Stock's authorization for quotation in the
over-the-counter market. The Company shall promptly provide to the Purchaser
copies of any notices it receives regarding the continued eligibility of the
Common Stock for trading in the over-the-counter market.
SECTION 6.18 INDEMNIFICATION. In consideration of the Purchaser's
execution and delivery of this Agreement and acquiring the Securities hereunder
and in addition to all of the Company's other obligations under this Agreement,
the Company shall defend, protect, indemnify, and hold harmless each Purchaser
and each other holder of the Securities and each officer, director, employee,
and agent of each Purchaser (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement) (collectively,
the "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 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 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 Company in any Transaction Agreement or
any other certificate, instrument, or document contemplated hereby or thereby,
(b) any breach of any covenant, agreement, or obligation of the Company
contained in the Transaction Agreements, or any other certificate, instrument or
document contemplated hereby or thereby, or (c) any cause of action, suit, or
claim brought or made against such Indemnitee 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 Indemnitees, any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of the issuance of the Bridge Notes,
or the status of the Purchaser or holder of the Bridge Notes or the Conversion
Shares, as an investor in the Company. 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.
SECTION 6.19 BEST EFFORTS. The Company shall use its best efforts
timely to satisfy each of the conditions to be satisfied by it as provided in
Section 5 of this Agreement.
SECTION 7. NEGATIVE COVENANTS
The provisions of this Section 7 shall remain in effect so long as any
of the Bridge Notes shall remain outstanding.
SECTION 7.1 DEFINITION OF DEBT.
For purposes of this Agreement, the capitalized term "Debt" of any
Person shall mean:
(a) all indebtedness of such Person for borrowed money,
including without limitation obligations evidenced by bonds,
debentures, Bridge Notes, or other similar
instruments;
(b) all indebtedness guaranteed in any manner by such
Person, or in effect guaranteed by such Person through an agreement to
purchase, contingent or otherwise;
(c) all accounts payable which, to the knowledge of such
Person, have remained unpaid for a period of 90 days after the same
become due and payable in accordance with their respective terms taking
into account any grace period relating to the due date expressly set
forth in the applicable invoice with respect to the payment of such
accounts payable;
(d) all indebtedness secured by any mortgage, lien,
pledge, charge, security interest or other encumbrance upon or in
property owned by such Person, even though such Person has not assumed
or become liable for the payment of such indebtedness;
(e) all indebtedness created or arising under any
conditional sale agreement or lease in the nature thereof (including
obligations as lessee under leases which shall have been or should be,
in accordance with generally accepted accounting principles, recorded
as capitalized leases) (but excluding operating leases) or other title
retention agreement with respect to property acquired by such Person,
even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession of such
property;
(f) all bankers' acceptances and letters of credit; and
(g) liabilities in respect of unfunded vested benefits
under Plans covered by Title IV of ERISA.
SECTION 7.2 RESTRICTIONS ON DEBT. The Company will not create, assume,
or incur or become or at any time be liable in respect of, any Debt, except:
(a) the Bridge Notes issued pursuant to this Agreement;
(b) Debt outstanding on the date hereof to the extent
reflected on the most recent balance sheet of the Company or incurred
in the ordinary course of business thereafter; and
(c) purchase money security interests not to exceed
$250,000 per year.
Notwithstanding the foregoing provisions of Section 7.2, the Company will not
create, assume, or incur, or become or at any time be liable in respect of, any
Debt for money borrowed, advances made, or goods purchased, if the Purchaser,
the Person making such advances, or the vendor of such goods (or any Person who
guarantees or becomes surety for all or any part of such Debt or acquires any
right or incurs any obligation to become, either immediately or upon the
occurrence of some future contingency, the owner of all or any part thereof)
shall have any right, by reason of any statute or otherwise, to have any claim
in respect of such Debt first satisfied out of the general assets of the Company
in priority to the claims of its general creditors.
SECTION 7.3 RESTRICTIONS ON DIVIDENDS. The Company will not (a) pay any
dividends, in cash or otherwise, on, (b) make any distributions to holders of,
or (c) purchase, redeem, or otherwise acquire any of its outstanding Common
Stock or Preferred Stock or set apart assets for a sinking or other analogous
fund for the purchase, redemption, retirement, or other acquisition of, any
shares of its
Common Stock or Preferred Stock; provided, however, that the Company may, so
long as at the time of and after giving effect thereof no Event of Default has
occurred and is continuing: (i) pay dividends on its outstanding Preferred Stock
in accordance with the Charter; (ii) with prior written approval of each
Purchaser, repurchase shares of its Common Stock issued or to be issued by the
Company upon exercise of stock options granted to employees and directors of the
Company pursuant to the terms of plans adopted by the Board of Directors of the
Company; and (iii) pay cash in lieu of fractional shares of its Common Stock on
the exercise of outstanding warrants to purchase its Common Stock, pursuant to
the terms of such warrants.
SECTION 7.4 RESTRICTIONS ON TRANSACTIONS WITH AFFILIATES. So long as
any Bridge Notes are 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 years, stockholders who beneficially own 5% or more of the
Common Stock, or Affiliates 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 5% or more beneficial interest (each a "Related Party"),
except for (a) customary employment arrangements and benefit programs on
reasonable terms, (b) any agreement, transaction, commitment or arrangement on a
aims-length basis on terms no less favorable than terms which would have been
obtainable from a person other than such Related Party, or (c) any agreement,
transaction, commitment or arrangement which is approved by a majority of the
disinterested directors of the Company. 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 5% or more equity interest in that person or entity, (ii) has 5% 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 control or govern the policies of another person or
entity.
SECTION 7.5 RESTRICTIONS ON INVESTMENTS. Other than as permitted by
this Agreement, the Company will not purchase or acquire or invest in, or agree
to purchase or acquire or invest in the business, property, or assets of, or any
securities of, any other company or business; provided, however, that the
Company may invest its Excess Cash as defined below in:
(a) securities issued or directly and fully guaranteed or
insured by the United States government or any agency thereof having
maturities of not more than one year from the date of acquisition;
(b) certificates of deposit or eurodollar certificates of
deposit, having maturities of not more than one hundred eighty days
from the date of acquisition, or one year from the date of acquisition
in the case of certificates of deposit or eurodollar certificates of
deposit being used to secure the Company's reimbursement obligations
under letters of credit (provided that nothing contained herein shall
be construed to permit letters of credit not otherwise permitted under
this Agreement);
(c) commercial paper of any Person that is not a
subsidiary or an Affiliate of the Company, maturing within one hundred
eighty days after the date of acquisition;
(d) bank loan participations; and
(e) money market instruments having maturities of not
more than one hundred eighty days from the date of acquisition, or one
year from the date of acquisition in the case of money market
instruments being used to secure the Company's reimbursement
obligations under letters of credit (provided that nothing contained
herein shall be construed to permit letters of credit not otherwise
permitted under this Agreement);
in all cases of such credit quality as a prudent business person would invest
in. As used in this Section, "Excess Cash" shall mean that portion of the
proceeds of the Bridge Notes which has not been invested as described in Section
hereof.
SECTION 7.6 RESTRICTIONS ON SALE AND LEASE-BACK TRANSACTIONS. The
Company will not sell or transfer any of its properties to anyone with the
intention of taking back a lease of the same property or leasing other property
for substantially the same use as the property being sold or transferred;
provided, however, that the Company may continue and extend its existing leasing
arrangements and may lease, under operating leases, fixtures, equipment, and
real estate in the ordinary course of business of the Company.
SECTION 7.7 RESTRICTIONS ON SALES OF ASSETS. The Company will not sell,
transfer, or dispose of any property except for sales of obsolete equipment
having a book value at the time of sale of not more than $100,000 in the
aggregate in any fiscal year.
SECTION 7.8 RESTRICTIONS ON SUBSIDIARIES. The Company will not, without
the written consent of the Purchaser, organize, or transfer any assets to, any
subsidiary, provided that, if consent of the Purchaser is obtained and any
Subsidiaries are organized, or assets transferred, in compliance with this
Section 7.8, the Company will not permit such Subsidiaries to enter into any
transaction or agreement which would violate any of the provisions of this
Section 7.8 if such provisions were applicable to such subsidiary.
SECTION 7.9 CHANGE IN BUSINESS; OPERATIONS. The Company will not cause
or effect any change in or addition to the primary business of the Company that
has not been approved by the Purchaser, such that more than 10% of the
consolidated net revenues of the Company are derived from a business other than
the business in which the Company was engaged on the date hereof as reflected in
the applicable last SEC Document filed prior to the First Closing ("Change in
Business"), except any such changes approved in advance in writing by the
Representative. The business of the Company and its subsidiaries shall not be
conducted in violation of any law, ordinance, or regulation of any governmental
entity.
SECTION 7.10 EXCEPTIONS WITH CONSENT OF THE PURCHASERS. The Company may
seek an exception to any prohibited action under this Section by first, giving
written notice to all the Purchasers of Bridge Notes under this Agreement, along
with copies of all documentation requested by any Purchaser relating to such
requested exception, and second, in the sole discretion of the Purchasers,
satisfactorily responding to any Purchaser inquiries about the requested action.
The Company may undertake any such requested action otherwise prohibited by this
Section 7 only after receiving the advance written consent of the Purchasers
holding at least two-thirds (2/3) of the principal amount of the Bridge Notes
then outstanding.
SECTION 8. MISCELLANEOUS.
SECTION 8.1 RESTRICTIONS ON CONVERSION AND EXERCISE. Notwithstanding
any rights of conversion or exercise contained in the Series 1 Bridge Notes, the
Repricing Warrants or Purchaser Warrants, in no event shall any Purchaser or
subsequent holder thereof be entitled to convert or exercise any Series 1 Bridge
Notes, Repricing Warrants or Purchaser Warrants in excess of that number which,
upon giving effect to such conversion or exercise, would cause the aggregate
number of shares of Common Stock beneficially owned by the holder and its
affiliates to exceed 4.99% of the outstanding shares of the Common Stock
following such conversion. For purposes of the foregoing proviso, the aggregate
number of shares of Common Stock beneficially owned by the holder and its
affiliates shall include the number of shares of Common Stock issuable upon
conversion or exercise of any Series 1 Bridge Notes, Repricing Warrants or
Purchaser Warrants with respect to which the determination of such proviso is
being made, but shall exclude the number of shares of Common Stock which would
be issuable upon (i) conversion of the remaining, unconverted or unexercised
Series 1 Bridge Notes, Repricing Warrants and Purchaser Warrants beneficially
owned by the holder and its affiliates, and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of the Company
(including, without limitation, any warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained herein beneficially
owned by the holder and its affiliates. Except as set forth in the preceding
sentence, for purposes of this Section 9.1, beneficial ownership shall be
calculated in accordance with Section 13(d) of the 1934 Act.
SECTION 8.2 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.
SECTION 8.3 HEADINGS. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
SECTION 8.4 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.
SECTION 8.5 ENTIRE AGREEMENT. AMENDMENTS. This Agreement supersedes all
other prior oral or written agreements between the Purchaser, 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 Purchaser 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 Company and the holders of at least two-thirds (2/3) of the
principal amount of Bridge Notes then outstanding, and no provision hereof may
be waived other than by an instrument in writing signed by the party against
whom enforcement is sought. No such amendment shall be effective to the extent
that it applies to less than all of the holders of the Preferred Shares then
outstanding.
SECTION 8.6 NOTICES. Any notice, consent, waiver, or other
communication required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (a) upon
receipt, when delivered personally, (b) upon receipt, when sent by facsimile,
PROVIDED, that a copy is mailed by U.S. certified mail, return receipt
requested, (c) three (3) days after being sent by U.S. certified mail, return
receipt requested, or (d) 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:
If to the Company: PROVIDENTIAL HOLDINGS, INC.
0000 Xxxxxx Xxxxxx
Xxxxxxxx Xxxxxx, Xxxxxxxxxx 00000
Attention:
Telephone:
Facsimile:
If to any Purchaser, to its address and facsimile number on the signature page
of such Purchaser hereto, with copies to such Purchaser's counsel as set forth
on the signature page of such Purchaser hereto. Each party shall provide five
(5) days prior written notice to the other party of any change in address or
facsimile number.
SECTION 8.7 INTEREST. In no event shall the amount of interest due or
payable hereunder or under the Bridge Notes exceed the maximum rate of interest
allowed by applicable law, and if any such payment is inadvertently made by the
Company or is inadvertently received by any holder of Bridge Notes, then such
excess sum shall be credited as a payment of principal, unless the applicable
holder of a Bridge Notes shall notify the Company in writing that it elects to
have such excess sum returned forthwith. It is the express intent hereof that
the Company not pay and the holder of the Bridge Notes not receive, directly or
indirectly in any manner whatsoever, interest in excess of that which may
legally be paid by the Company under applicable law.
SECTION 8.8 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
permitted assigns. The Company shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the holders of
two-thirds (2/3) of the principal amount of the Bridge Notes then outstanding.
Any Purchaser may assign its rights hereunder without the consent of the
Company; PROVIDED, HOWEVER, that any such assignment shall not release such
Purchaser from its obligations hereunder unless such obligations are assumed by
such assignee and the Company has consented to such assignment and assumption.
SECTION 8.9 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.
SECTION 8.10 SURVIVAL. The representations, warranties, agreements,
covenants and indemnification provisions contained in this Agreement shall
survive each of the Closings. Each Purchaser shall be responsible only for its
own representations, warranties, agreements and covenants hereunder.
SECTION 8.11 PUBLICITY. The Company and the Purchasers shall have the
right to approve, before issuance, any press releases or any other public
statements with respect to the transactions contemplated hereby; provided,
however, that the Company shall be entitled, without the prior approval of the
Purchasers, to make any press release or other public disclosure with respect to
such transactions as is required by applicable law and regulations (although the
Purchaser shall be consulted by the Company in connection with any such press
release or other public disclosure prior to its release and shall be provided
with a copy thereof).
SECTION 8.12 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.
SECTION 8.13 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.
SECTION 8.14 GOVERNING LAW. The corporate laws of the State of Nevada
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 this Agreement shall be governed by the
internal laws of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. Each party hereby irrevocably
submits to the non-exclusive jurisdiction of the state and federal courts
sitting 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, 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 brought
in an inconvenient forum or that the venue of 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 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.
IN WITNESS WHEREOF, the Purchasers and the Company have caused this
Series 1 Bridge Note Purchase and Security Agreement to be duly executed as of
the date first written above.
COMPANY SIGNATURE PAGE
TO
SERIES 1 BRIDGE NOTE PURCHASE AND SECURITY AGREEMENT
COMPANY
PROVIDENTIAL HOLDINGS, INC.
By: /s/ Xxxxx Xxxxxx
-----------------
Xxxxx Xxxxxx
President and Chief Executive Officer
PURCHASER SIGNATURE PAGE
TO
SERIES 1 BRIDGE NOTE PURCHASE AND SECURITY AGREEMENT
PURCHASER
Purchaser Name:_______________________
By:___________________________________
Name:_________________________________
Title:________________________________
================================================================================
PURCHASER NAME __________________________________________
ADDRESS AND
FACSIMILE NUMBER __________________________________________
__________________________________________
__________________________________________
__________________________________________
--------------------------------------------------------------------------------
PRINCIPAL AMOUNT OF BRIDGE NOTES
PURCHASED __________________________________________
--------------------------------------------------------------------------------
PURCHASER'S LEGAL COUNSEL __________________________________________
ADDRESS AND
FACSIMILE NUMBER __________________________________________
__________________________________________
__________________________________________
================================================================================
