EXECUTION COPY
SECURITIES EXCHANGE AGREEMENT
SECURITIES EXCHANGE AGREEMENT (the "AGREEMENT"), dated as of April 30,
2007, by and among Charys Holding Company, Inc. (the "COMPANY") and the
investors listed on the Schedule of Investors attached hereto (individually, a
"INVESTOR" and collectively, the "INVESTORS").
WHEREAS:
A. The Company and each Investor is executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) of the Securities Act of 1933, as amended (the "1933 ACT"), and
Rule 506 of Regulation D ("REGULATION D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the 1933 Act.
B. In exchange for refinancing the shares of Series D Cumulative
Preferred Stock in the Company set forth opposite such Investor's name in column
(4) on the Schedule of Investors, the Company has authorized the issuance of
subordinated unsecured convertible notes of the Company in substantially the
form attached hereto as Exhibit A (together with any convertible notes issued in
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replacement thereof in accordance with the terms thereof, the "NOTES"), which
Notes shall be convertible into the Company's common stock, par value $0.001 per
share (the "COMMON STOCK"), in accordance with the terms of the Notes.
C. Each Investor wishes to exchange and the Company wishes to exchange,
upon the terms and conditions stated in this Agreement, that aggregate principal
amount of Notes set forth opposite such Investor's name in column (3) on the
Schedule of Investors (which aggregate principal amount for all Investors shall
be $15,037,278 and the shares of Common Stock into which such Notes are
convertible being referred to herein as the "CONVERSION SHARES"), in exchange
for such number of Series D Cumulative Preferred Stock in the Company as is set
forth opposite such Buyer's name in column (4) on the Schedule of Investors.
D. The Company and Buyer intend that the aforementioned exchange shall
be in accordance with the requirements of Rule 144(d)(3) of the 1933 Act such
that the Notes shall be deemed to have been acquired at the same time as the
Series D Cumulative Preferred Stock in the Company surrendered in connection
with the exchange.
E. In the event of certain defaults with respect to payments under the
Notes, the Company shall issue warrants in substantially the form attached
hereto as Exhibit B (the "DEFAULT WARRANTS"), to acquire that number of shares
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of Common Stock as provided in the Notes (the "DEFAULT WARRANT SHARES").
F. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
substantially in the form attached hereto as Exhibit C (the "REGISTRATION RIGHTS
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AGREEMENT"), pursuant to which the Company has agreed to provide certain
registration rights with respect to the Registrable Securities (as defined in
the Registration Rights Agreement), under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.
G. At the Closing, that certain Escrow Shares Escrow Agreement pursuant
to which the Company issued and delivered to Gottbetter & Partners, LLP
8,666,666 shares of Common Stock as "security stock" shall be terminated.
H. Those certain warrants issued to the Investors on May 19, 2006 shall
continue to be outstanding following the Closing.
I. The Notes, the Conversion Shares, the Default Warrants and the
Default Warrant Shares are collectively referred to herein as the "SECURITIES."
NOW, THEREFORE, the Company and each Investor hereby agree as follows:
1. PURCHASE AND PLACECITYSALE OF NOTES.
(a) Amount. Subject to the satisfaction (or waiver) of the conditions
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set forth in Sections 6 and 7 below, the Company shall issue to each Investor,
and each Investor severally, but not jointly, agrees to exchange with the
Company on the Closing Date (as defined below), a principal amount of Notes, as
is set forth opposite such Investor's name in column (3) on the Schedule of
Investors.
(b) Closing. The closing (the "CLOSING") of the purchase of the Notes
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by the Investors shall occur at the offices of XxXxxxxxx, Will & Xxxxx LLP, 000
Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000. The date and time of the Closing (the
"CLOSING DATE") shall be 10:00 a.m., New York City time, on the date hereof,
subject to the notification of satisfaction (or waiver) of the conditions to the
Closing set forth in Sections 6 and 7 below (or such later date as is mutually
agreed to by the Company and each Investor). As used herein "Business Day"
means any day other than a Saturday, Sunday or other day on which commercial
banks in The City of New York are authorized or required by law to remain
closed.
(c) Exchange Consideration. The aggregate exchange consideration for
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the Notes to be received by each Investor (the "Exchange Consideration") shall
be the number of shares of Series D Cumulative Preferred Stock in the Company
set forth opposite such Investor's name in column (4) on the Schedule of
Investors.
(d) Exchange of Shares. On the Closing Date, (A) each Investor shall
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deliver its portion of the Exchange Consideration to the Company for the Notes
to be issued to such Investor at the Closing, by delivery of certificates
representing such number of Series D Cumulative Preferred Stock in the Company
as is set forth opposite such Investor's name in column (4) on the Schedule of
Investors (the "SERIES D CUMULATIVE PREFERRED CERTIFICATES"), duly endorsed (or
accompanied by duly executed stock powers) for transfer to the Company and (B)
the Company shall deliver to each Investor the Notes (in the principal amounts
as is set forth opposite such Investor's name in column (3) on the Schedule of
Investors), each duly executed on behalf of the Company and registered in the
name of such Investor or its designee.
2. REPRESENTATIONS AND WARRANTIES.
Each Investor represents and warrants with respect to only itself that:
(a) Organization; Authority. Such Investor is an entity duly
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organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite power and authority to enter
into and to consummate the transactions contemplated by the Transaction
Documents (as defined below) to which it is a party and otherwise to carry out
its obligations hereunder and thereunder.
(b) No Public Sale or Distribution. Such Investor is (i) acquiring the
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Notes and, if applicable, the Default Warrants, (ii) upon conversion of the
Notes will acquire the Conversion Shares, and (iii), if applicable, upon
exercise of the Default Warrants will acquire the Default Warrant Shares, in
each case, for its own account 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, such Investor does not agree to hold any of
the 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. Such Investor is not
a broker-dealer registered, or required to be registered, with the SEC under the
1934 Act. Such Investor is acquiring the Securities hereunder in the ordinary
course of its business. Such Investor does not presently have any agreement or
understanding, directly or indirectly, with any Person to distribute any of the
Securities.
(c) Accredited Investor Status. Such Investor is an "accredited
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investor" as that term is defined in Rule 501(a) of Regulation D.
(d) Reliance on Exemptions. Such Investor understands that the
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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
such Investor's compliance with,
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the representations, warranties, agreements, acknowledgments and understandings
of such Investor set forth herein in order to determine the availability of such
exemptions and the eligibility of such Investor to acquire the Securities.
(e) Information. Such Investor and its advisors, if any, have been
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furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the transactions contemplated hereby
which have been requested by such Investor. Such Investor 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
such Investor or its advisors, if any, or its representatives shall modify,
amend or affect such Investor's right to rely on the Company's representations
and warranties contained herein. Such Investor understands that its investment
in the Securities involves a high degree of risk. Such Investor has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its investment in the Securities.
Specifically, such Investor has been provided with access to all of the
Company's SEC Documents (as defined below), including the following: (i) the
Company's annual report to stockholders for the fiscal year ended April 30,
2006, and the definitive proxy statement filed in connection with that annual
report; (ii) the information contained in an annual report on Form 10-KSB under
the 1934 Act for the fiscal year ended April 30, 2006; and (iii) the information
contained in any reports or documents required to be filed by the Company under
Sections 13(a), 14(a), 14(c), and 15(d) of the 1934 Act since the distribution
or filing of the reports specified above. As used herein, "SEC Documents" means
all reports, schedules, exhibits, forms, statements and other documents required
to be filed by the Company with the SEC pursuant to the reporting requirements
of the 1934 Act (including documents incorporated by reference therein),
including the registration statement filed by the Company on Form SB-2 on April
30, 2007 and any other registration statements filed by the Company pursuant to
the 1933 Act.
(f) No Governmental Review. Such Investor understands that no
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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.
(g) Transfer or Resale. Such Investor understands that except as
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provided in the Registration Rights Agreement: (i) 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 (A)
subsequently registered thereunder, (B) such Investor 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 (C) such
Investor provides the Company with reasonable assurance that such Securities can
be sold, assigned or transferred pursuant to Rule 144 or Rule 144A promulgated
under the 1933 Act, as amended (or a successor rule thereto) (collectively,
"RULE 144"); (ii) any sale of the Securities made in reliance on 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 the Securities under circumstances in which the
seller (or the Person (as defined in Section 3(s)) 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 (iii) neither the Company nor
any other Person is under any obligation to register the Securities under the
1933 Act or any state securities laws or to comply with the terms and conditions
of any exemption thereunder. The Securities may be pledged in connection with a
bona fide margin account or other loan or financing arrangement secured by the
Securities and such pledge of Securities shall not be deemed to be a transfer,
sale or assignment of the Securities hereunder, and no Investor effecting a
pledge of Securities shall be required to provide the Company with any notice
thereof or otherwise make any delivery to the Company pursuant to this Agreement
or any other Transaction Document (as defined in Section 3(b)), including,
without limitation, this Section 2(g).
(h) Legends. Such Investor understands that the certificates or other
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instruments representing the Notes and, if applicable, the Default Warrants and,
until such time as the resale of the Conversion Shares and the Default Warrant
Shares have been registered under the 1933 Act as contemplated by the
Registration Rights Agreement, the stock certificates representing the
Conversion Shares and the Default Warrant Shares, except as set forth below,
shall bear any legend as required by the "blue sky" laws of any state and a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):
[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE]
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[EXERCISABLE] HAVE BEEN][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 MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
(B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS
NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR 144A
UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection with
a sale, assignment or other transfer, such holder provides the Company with an
opinion of counsel, in a generally acceptable form, to the effect that such
sale, assignment or transfer of the Securities may be made without registration
under the applicable requirements of the 1933 Act, or (iii) such holder provides
the Company with reasonable assurance that the Securities can be sold, assigned
or transferred pursuant to Rule 144 or Rule 144A. The Company shall bear all
fees and expenses related to the removal of the legend and issuance of any new
unlegended Securities.
(i) Validity; Enforcement. This Agreement and the Registration Rights
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Agreement have been duly and validly authorized, executed and delivered on
behalf of such Investor and shall constitute the legal, valid and binding
obligations of such Investor enforceable against such Investor in accordance
with their respective terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors' rights and
remedies.
(j) No Conflicts. The execution, delivery and performance by such
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Investor of this Agreement and the Registration Rights Agreement and the
consummation by such Investor of the transactions contemplated hereby and
thereby will not (i) result in a violation of the organizational documents of
such Investor or (ii) conflict with, or 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 such Investor is a party), (iii)
result in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws) applicable to such Investor,
except in the case of clauses (ii) and (iii) above, for such conflicts,
defaults, rights or violations which would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
ability of such Investor to perform its obligations hereunder.
(k) Residency. Such Investor is a resident of that jurisdiction
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specified below its address on the Schedule of Investors.
(l) General Solicitation. No Investor is purchasing the Securities as
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a result of any advertisement, article, notice or other communication regarding
the Securities published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Investors that, except
as otherwise set forth in the SEC Documents or otherwise on the schedule of
exceptions delivered to the Investors in connection with the execution of this
Agreement (the "SCHEDULES"):
(a) Organization and Qualification. The Company and its
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"Subsidiaries" (which for purposes of this Agreement means any joint venture or
any entity in which the Company, directly or indirectly, owns capital stock or
holds an equity or similar interest) are entities duly organized and validly
existing in good standing under the laws of the jurisdiction in which they are
formed, and have the requisite power and authority to own their properties and
to carry on their business as now being conducted. Each of the Company and its
Subsidiaries is duly qualified as a foreign entity to do business and is in good
standing in every jurisdiction in which its ownership of property or the nature
of the business conducted by it makes such qualification necessary, except to
the extent that the failure to be
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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,
condition (financial or otherwise) or prospects of the Company and its
Subsidiaries, both taken as a whole and individually as to any Subsidiary that
is a Significant Subsidiary (as defined in Regulation S-X), or on the
transactions contemplated hereby and the other Transaction Documents or by the
agreements and instruments to be entered into in connection herewith or
therewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined below). The Company has
no Subsidiaries except as set forth on Schedule 3(a). The Company owns,
directly or indirectly, all of the capital stock or other equity interests of
each Subsidiary free and clear of any liens, except for Permitted Liens (as
defined in the Notes), and all the issued and outstanding shares of capital
stock of each Subsidiary are validly issued and are fully paid, non-assessable
and free of preemptive and similar rights to subscribe for or purchase
securities. For purposes of this Agreement, "Lien" means, with respect to any
property, any mortgage, pledge, hypothecation, assignment, security interest,
tax lien, charge, or other lien, easement or encumbrance.
(b) Authorization; Enforcement; Validity. The Company has the
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requisite corporate power and authority to enter into and perform its
obligations under this Agreement, if applicable, the Default Warrants, the
Registration Rights Agreement and each of the other agreements entered into by
the parties hereto in connection with the transactions contemplated by this
Agreement (collectively, the "TRANSACTION DOCUMENTS") and to issue the
Securities in accordance with the terms hereof and thereof. The execution and
delivery of this Agreement and the other Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby and
thereby, including, without limitation, the issuance of the Notes and the
reservation for issuance and the issuance of the Conversion Shares issuable upon
conversion of the Notes, the issuance of the Default Warrants and the
reservation for issuance and issuance of the Default Warrant Shares issuable
upon exercise of the Default Warrants, have been duly authorized by the
Company's Board of Directors and (other than the filing with the SEC of one or
more Registration Statements in accordance with the requirements of the
Registration Rights Agreement and any other filings as may be required by any
state securities agencies) no further filing, consent, or authorization is
required by the Company, its Board of Directors or its stockholders. This
Agreement and the other Transaction Documents of even date herewith have been
duly executed and delivered by the Company, and constitute the legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective 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 applicable creditors' rights and
remedies and except as rights to indemnification and to contribution may be
limited by federal or state securities law.
(c) Issuance of Securities. The issuance of the Notes and, if
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applicable, the Default Warrants are duly authorized and upon issuance in
accordance with the terms of the Transaction Documents shall be free from all
taxes, liens and charges with respect to the issue thereof. As of the Closing,
the Company shall have reserved from its duly authorized capital stock not less
than 130% of the sum of the maximum number of shares of Common Stock issuable
upon conversion of the Notes (without taking into account any limitations on the
conversion of the Notes set forth in the Notes. Upon issuance or conversion in
accordance with the Notes or exercise in accordance with the Default Warrants,
as the case may be, the Conversion Shares and the Default Warrant Shares,
respectively, will be validly issued, fully paid and nonassessable and free from
all preemptive or similar rights, taxes, liens and charges with respect to the
issue thereof, with the holders being entitled to all rights accorded to a
holder of Common Stock. Subject to the representations and warranties of the
Investors in this Agreement, the offer and issuance by the Company of the
Securities is exempt from registration under the 1933 Act.
(d) No Conflicts. The execution, delivery and performance of this
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Agreement and the other Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of the Notes, if applicable, the
Default Warrants, and reservation for issuance of the Conversion Shares and the
Default Warrant Shares) will not (i) result in a violation of the Certificate of
Incorporation (as defined in Section 3(r)) of the Company or Bylaws (as defined
in Section 3(r)) of the Company or (ii) conflict with, or 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, except to the extent such conflict, default
or termination right would not reasonably be expected to have a Material Adverse
Effect, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities
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laws and regulations and the rules and regulations of the Over-The-Counter
Bulletin Board of the NASD (the "PRINCIPAL MARKET") 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, in the case of clause (ii) or
(iii) above, to the extent such violations would not reasonably be expected to
have a Material Adverse Effect.
(e) Consents. The Company is not required to obtain any consent,
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authorization or order of, or make any filing or registration with, any court,
governmental agency or any regulatory or self-regulatory agency or any other
Person in order for it to execute, deliver or perform any of its obligations
under or contemplated by this Agreement and the other Transaction Documents, in
each case in accordance with the terms hereof or thereof. 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 Closing Date or as may be otherwise permitted hereunder, and the
Company is unaware of any facts or circumstances which might prevent the Company
from obtaining or effecting any of the registration, application or filings
pursuant to the preceding sentence.
(f) Acknowledgment Regarding Investors' Purchase of Securities. The
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Company acknowledges and agrees that each Investor is acting solely in the
capacity of an arm's-length purchaser with respect to this Agreement and the
other Transaction Documents and the transactions contemplated hereby and thereby
and that no Investor is (i) an officer or director of the Company, (ii) an
"affiliate" of the Company or any of its Subsidiaries (as defined in Rule 144)
or (iii) to its knowledge, a "beneficial owner" of more than 10% of the shares
of Common Stock (as defined for purposes of Rule 13d-3 of the Securities
Exchange Act of 1934, as amended (the "1934 ACT")). The Company further
acknowledges that no Investor is acting as a financial advisor or fiduciary of
the Company or any of its Subsidiaries (or in any similar capacity) with respect
to the Transaction Documents and the transactions contemplated hereby and
thereby, and any advice given by a Investor or any of its representatives or
agents in connection with this Agreement and the other Transaction Documents and
the transactions contemplated hereby and thereby is merely incidental to such
Investor's purchase of the Securities. The Company further represents to each
Investor that the Company's decision to enter into this Agreement and the other
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.
(g) No General Solicitation; Placement Agent's Fees. Neither the
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Company, nor any of its Subsidiaries or 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) in connection with the offer or
sale of the Securities. The Company shall be responsible for the payment of any
placement agent's fees, financial advisory fees, or brokers' commissions (other
than for persons engaged by any Investor or its investment advisor) relating to
or arising out of the transactions contemplated hereby. The Company shall pay,
and hold each Investor harmless against, any liability, loss or expense
(including, without limitation, attorneys' fees and out-of-pocket expenses)
arising in connection with any such claim. The Company acknowledges that it has
engaged Gottbetter Capital Finance, LLC to structure the transaction in
connection with the exchange of the Securities. The Company has not engaged any
placement agent or other agent in connection with the exchange of the
Securities.
(h) No Integrated Offering. None of the Company, its Subsidiaries, any
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of their affiliates, or 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 of the Securities to
be integrated with prior offerings by the Company for purposes of the 1933 Act
or any applicable stockholder approval provisions, including, without
limitation, under the rules and regulations of any exchange or automated
quotation system on which any of the securities of the Company are listed or
designated. None of the Company, its Subsidiaries, their affiliates or any
Person acting on its or their behalf will take any action or steps referred to
in the preceding sentence that would require registration of any of the
Securities under the 1933 Act or cause the offering of the Securities to be
integrated with other offerings.
(i) Dilutive Effect. The Company understands and acknowledges that the
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number of Conversion Shares and/or Default Warrant Shares issuable upon exercise
of the Notes and/or Default Warrants, as applicable, will increase in certain
circumstances. The Company further acknowledges that its obligation to issue
Conversion Shares upon conversion of the Notes in accordance with this Agreement
and its obligation to issue the Default Warrant Shares upon exercise of the
Default Warrants in accordance with the Notes and the Default Warrants is, in
each case, absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other stockholders of the
Company.
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(j) Application of Takeover Protections; Rights Agreement. The Company
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and its board of directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Certificate of Incorporation or the laws of
the jurisdiction of its incorporation which is or could become applicable to any
Investor as a result of the transactions contemplated by this Agreement,
including, without limitation, the Company's issuance of the Securities and any
Investor's ownership of the Securities. The Company has not adopted a
stockholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change in control of the Company.
(k) SEC Documents; Financial Statements. Except as disclosed in the
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SEC Documents or on Schedule 3(k), during the two (2) years prior to the date
hereof, the Company has filed all SEC Documents required to be filed by it with
the SEC. The Company has delivered to the Investors or their respective
representatives true, correct and complete copies of each of the SEC Documents
not available on the XXXXX system that have been requested by each Investor. 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 the
light of the circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Documents complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto as in effect as
of the time of filing. Such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Investors which is
not included in the SEC Documents, including, without limitation, information
referred to in Section 2(e) 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 not misleading, in the light of the circumstance under
which they are or were made.
(l) Absence of Certain Changes. Except as disclosed in the SEC
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Documents filed at least three Business Days prior to the date of this
Agreement, since the date of the Company's most recent audited financial
statements contained in a Form 10-KSB, there has been no material adverse change
and no material adverse development in the business, assets, properties,
operations, condition (financial or otherwise), results of operations or
prospects of the Company or its Subsidiaries. Since the date of the Company's
most recent audited financial statements contained in a Form 10-KSB, neither the
Company nor any of its Subsidiaries has (i) declared or paid any dividends, (ii)
sold any assets, individually or in the aggregate, in excess of $500,000 outside
of the ordinary course of business or (iii) had capital expenditures,
individually or in the aggregate, in excess of $500,000. Neither the Company
nor any of its Subsidiaries has taken any steps to seek protection pursuant to
any bankruptcy law nor does the Company have any knowledge or reason to believe
that its creditors intend to initiate involuntary bankruptcy proceedings or any
actual knowledge of any fact which would reasonably lead a creditor to do so.
The Company, individually and on a consolidated basis, is not as of the date
hereof, and after giving effect to the transactions contemplated hereby to occur
at the Closing, will not be Insolvent (as defined below). For purposes of this
Section 3(l), "Insolvent" means (i) the present fair saleable value of the
Company's and its Subsidiaries' assets is less than the amount required to pay
the Company's and its Subsidiaries' total Indebtedness (as defined in Section
3(s)), (ii) the Company and its Subsidiaries are unable to pay their debts and
liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured or (iii) the Company and its
Subsidiaries intend to incur or believe that they will incur debts that would be
beyond their ability to pay as such debts mature or (iv) the Company has
unreasonably small capital with which to conduct the business in which it is
engaged as such business is now conducted and is proposed to be conducted.
(m) No Undisclosed Events, Liabilities, Developments or Circumstances.
------------------------------------------------------------------
No event, liability, development or circumstance has occurred or exists, or is
contemplated to occur with respect to the Company, its Subsidiaries or their
respective business, properties, prospects, operations or financial condition,
that would be required to be disclosed by the Company under applicable
securities laws on a registration statement on Form S-1 or
-7-
any other applicable form filed with the SEC relating to an issuance and sale by
the Company of its Common Stock and which has not been publicly announced.
(n) Conduct of Business; Regulatory Permits. Neither the Company nor
-----------------------------------------
any of its Subsidiaries is in violation of any term of or in default under its
Certificate of Incorporation or Bylaws or their organizational charter or
certificate of incorporation or any certificate of designation or bylaws,
respectively. Neither the Company nor any of its Subsidiaries is in violation
of any judgment, decree or order or any law, statute, ordinance, rule or
regulation applicable to the Company or its Subsidiaries, and neither the
Company nor any of its Subsidiaries is, or will conduct its business, in
violation of any of the foregoing, except for possible violations which would
not, individually or in the aggregate, have a Material Adverse Effect. Without
limiting the generality of the foregoing, the Company is not in violation of any
of the rules, regulations or requirements of the Principal Market and has no
knowledge of any facts or circumstances which would reasonably lead to delisting
or suspension of the Common Stock by the Principal Market in the foreseeable
future. During the two (2) years prior to the date hereof, except as disclosed
in the SEC Documents filed at least three Business Days prior to the date of
this Agreement, (i) the Common Stock has been designated for quotation on the
Principal Market, (ii) trading in the Common Stock has not been suspended by the
SEC or the Principal Market and (iii) the Company has received no communication,
written or oral, from the SEC or the Principal Market regarding the suspension
or delisting of the Common Stock from the Principal Market. The Company and its
Subsidiaries possess all certificates, authorizations and permits issued by the
appropriate regulatory authorities necessary to conduct their respective
businesses, except where the failure to possess such certificates,
authorizations or permits would not have, individually or in the aggregate, 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.
(o) Foreign Corrupt Practices. Neither the Company nor any of its
---------------------------
Subsidiaries nor any director, officer, agent, employee or other Person acting
on behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company or any of its Subsidiaries (i) used
any corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; (ii) made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; (iii) violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or employee.
(p) Xxxxxxxx-Xxxxx Act. The Company is in compliance with any and all
-------------------
applicable requirements of the Xxxxxxxx-Xxxxx Act of 2002 that are effective as
of the date hereof, and any and all applicable rules and regulations promulgated
by the SEC thereunder that are effective as of the date hereof.
(q) Transactions with Affiliates. Except as set forth on the SEC
------------------------------
Documents filed at least three Business Days prior to the date of this
Agreement, or in Schedules to this Agreement, none of the officers, directors or
employees of the Company or any of its Subsidiaries is presently a party to any
transaction with the Company or any of its Subsidiaries (other than for ordinary
course services as employees, officers or 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 such officer, director or employee or, to the
knowledge of the Company or any of its Subsidiaries, any corporation,
partnership, trust or other entity in which any such officer, director, or
employee has a substantial interest or is an officer, director, trustee or
partner.
(r) Equity Capitalization. As of February 28, 2007, the authorized
---------------------
capital stock of the Company consists of (i) 300,000,000 shares of Common Stock,
of which as of such date, 40,264,710 were issued and outstanding, up to
8,000,000 shares were reserved for issuance pursuant to the Company's stock
option and purchase plans and 223,300,000 shares were reserved for issuance
pursuant to securities (including the Notes) exercisable or exchangeable for, or
convertible into, shares of Common Stock and (ii) 5,000,000 shares of preferred
stock, par value $0.001 per share, of which as of such date, 1,000,000 shares of
Series A Preferred Stock were issued and outstanding, 500,000 shares of Series C
Preferred Stock were issued and outstanding, and 900 shares of Series D
Preferred Stock were issued and outstanding. All of such outstanding shares
have been, or upon issuance will be, validly issued and are fully paid and
nonassessable. Except as disclosed on Schedule 3(m) or as set forth in the SEC
Documents filed at least three Business Days prior to the date hereof, (i) none
of the Company's capital stock is
-8-
subject to any preemptive rights or any similar rights, or any Liens suffered or
permitted by the Company; (ii) 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, or exercisable or
exchangeable for, any 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 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, or exercisable or
exchangeable for, any capital stock of the Company or any of its Subsidiaries;
(iii) there are no outstanding debt securities, notes, credit or loan
agreements, credit facilities or other agreements, documents or instruments
evidencing Indebtedness (as defined below) of the Company or any of its
Subsidiaries or by which the Company or any of its Subsidiaries is or may become
bound; (iv) there are no financing statements securing obligations in any
material amounts, either singly or in the aggregate, filed in connection with
the Company or any of its Subsidiaries; (v) 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 pursuant
to the Registration Rights Agreement); (vi) there are no outstanding securities
or instruments of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to purchase, repurchase, retire or redeem a security of
the Company or any of its Subsidiaries; (vii) there are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the transactions contemplated hereby; (viii) the Company does not
have any stock appreciation rights or "phantom stock" plans or agreements or any
similar plan or agreement; and (ix) the Company and its Subsidiaries have no
liabilities or obligations required to be disclosed in such SEC Documents but
not so disclosed in such SEC Documents, other than those incurred in the
ordinary course of the Company's or its Subsidiaries' respective businesses and
which, individually or in the aggregate, do not or would not have a Material
Adverse Effect. The Company has furnished to each Investor true, correct and
complete copies of the Company's Certificate of Incorporation, as amended and as
in effect on the date hereof (the "Certificate of Incorporation"), and the
Company's Bylaws, as amended and as in effect on the date hereof (the "Bylaws")
not available on the XXXXX system if such Certificate of Incorporation and
Bylaws have been requested in writing by such Holder. The terms of all
securities convertible into, or exercisable or exchangeable for, shares of
Common Stock and the material rights of the holders thereof in respect thereto
are disclosed in the SEC Documents that have been filed at least three Business
Days prior to the date of this Agreement.
(s) Indebtedness and Other Contracts. Except as disclosed on Schedule
---------------------------------
3(s), the SEC Documents filed at least three Business Days prior to the date of
this Agreement, or any of the other Schedules attached hereto, neither the
Company nor any of its Subsidiaries (i) has any outstanding Indebtedness (as
defined below), (ii) is a party to any contract, agreement or instrument, the
violation of which, or default under which, by the other party(ies) to such
contract, agreement or instrument would result in a Material Adverse Effect,
(iii) is in violation of any term of or in default under (and no event or
circumstance has occurred or is existing that, with the giving of notice or
passage of time, or both, would constitute any such violation of or default
under) any contract, agreement or instrument relating to any Indebtedness,
except where such violations and defaults would not result, individually or in
the aggregate, in a Material Adverse Effect, or (iv) is a party to any contract,
agreement or instrument relating to any Indebtedness, the performance of which,
in the judgment of the Company's officers, has or is expected to have a Material
Adverse Effect. For purposes of this Agreement: (x) "Indebtedness" of any
Person means, without duplication (A) all indebtedness for borrowed money, (B)
all obligations issued, undertaken or assumed as the deferred purchase price of
property or services including (without limitation) capital leases in accordance
with generally accepted accounting principles (other than trade payables entered
into in the ordinary course of business), (C) all reimbursement or payment
obligations with respect to letters of credit, surety bonds and other similar
instruments, (D) all obligations evidenced by notes, bonds, debentures or
similar instruments, including obligations so evidenced and incurred in
connection with the acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred in connection with a financing, in either case
with respect to any property or assets acquired with the proceeds of such
indebtedness (even though the rights and remedies of the seller or bank under
such agreement in the event of default are limited to repossession or sale of
such property), (F) all monetary obligations under any leasing or similar
arrangement which, in connection with generally accepted accounting principles,
consistently applied for the periods covered thereby, is classified as a capital
lease, (G) all indebtedness referred to in clauses (A) through (F) above secured
by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or in any property or
assets (including accounts and contract rights) owned by any Person, even though
the
-9-
Person which owns such assets or property has not assumed or become liable for
the payment of such indebtedness, and (H) all Contingent Obligations in respect
of indebtedness or obligations of others of the kinds referred to in clauses (A)
through (G) above; (y) "Contingent Obligation" means, as to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to any Indebtedness, lease, dividend or other obligation of another
Person if the primary purpose or intent of the Person incurring such liability,
or the primary effect thereof, is to provide assurance to the obligee of such
liability that such liability will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of such liability
will be protected (in whole or in part) against loss with respect thereto; and
(z) "Person" means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
(t) Absence of Litigation. Except as disclosed on the SEC Documents
-----------------------
filed at least three Business Days prior to the date of this Agreement, or any
of the other Schedules attached hereto, there is no action, suit, proceeding,
inquiry or investigation before or by the Principal Market, any court, public
board, government agency, self-regulatory organization or body pending or, to
the knowledge of the Company, threatened against or affecting the Company or any
of its Subsidiaries, the Common Stock or any of the Company's Subsidiaries or
any of the Company's or its Subsidiaries' officers or directors which is outside
of the ordinary course of business or individually or in the aggregate material
to the Company.
(u) 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 have a Material Adverse Effect.
(v) Employee Relations.
-------------------
(i) Neither the Company nor any of its Subsidiaries is a party to
any collective bargaining agreement or employs any member of a union. The
Company and its Subsidiaries believe that their relations with their employees
are good. No executive officer of the Company (as defined in Rule 501(f) of the
0000 Xxx) or any of its Subsidiaries has notified the Company or any such
Subsidiary that such officer intends to leave the Company or any such Subsidiary
or otherwise terminate such officer's employment with the Company or any such
Subsidiary. No executive officer of the Company or any of its Subsidiaries is,
or is now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability with respect to
any of the foregoing matters.
(ii) The Company and its Subsidiaries are in compliance with all
federal, state, local and foreign laws and regulations respecting labor,
employment and employment practices and benefits, terms and conditions of
employment and wages and hours, except where failure to be in compliance would
not, either individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect.
(iii) To the knowledge of the Company, no key employee or group of
employees has any plans to terminate employment with the Company or any
Subsidiary.
(w) 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 such 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 any of its Subsidiaries. Any real property and facilities held
under lease by the Company or any of 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 facilities by the Company and its Subsidiaries.
-10-
(x) 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 other intellectual property rights
("INTELLECTUAL PROPERTY RIGHTS") necessary to conduct their respective
businesses as now conducted. None of the Company's or its Subsidiaries'
Intellectual Property Rights have expired, terminated or been abandoned, or are
expected to expire, terminate or be abandoned, within three years from the date
of this Agreement. The Company does not have any knowledge of any infringement
by the Company or any of its Subsidiaries of Intellectual Property Rights of
others. There is no claim, action or proceeding being made or brought, or to the
knowledge of the Company, being threatened, against the Company or any of its
existing Subsidiaries regarding its Intellectual Property Rights. The Company is
unaware of any facts or circumstances which might give rise to any of the
foregoing infringements or claims, actions or proceedings. The Company and its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their Intellectual Property Rights.
(y) Environmental Laws. The Company and its Subsidiaries (i) are in
-------------------
compliance with any and all Environmental Laws (as hereinafter defined), (ii)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit, license or
approval where, in each of the foregoing clauses (i), (ii) and (iii), the
failure to so comply could be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect. The term "ENVIRONMENTAL LAWS" means
all federal, state, local or foreign laws relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, "HAZARDOUS MATERIALS") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.
(z) Subsidiary Rights. The Company or one of its Subsidiaries has the
------------------
unrestricted right to vote, and (subject to limitations imposed by applicable
law) to receive dividends and distributions on, all capital securities of its
Subsidiaries as owned by the Company or such Subsidiary.
(aa) Tax Status. The Company and each of its Subsidiaries (i) has made
----------
or filed all foreign, federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject,
(ii) 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 (iii) has set aside
on its books provision reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. Except as disclosed on Schedule 3(aa), the SEC Documents filed at least
three Business Days prior to the date of this Agreement, or any of the other
Schedules attached hereto, 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.
(bb) Internal Accounting and Disclosure Controls. The Company and each
-------------------------------------------
of its Subsidiaries maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset and liability accountability, (iii) access to assets or
incurrence of liabilities is permitted only in accordance with management's
general or specific authorization and (iv) the recorded accountability for
assets and liabilities is compared with the existing assets and liabilities at
reasonable intervals and appropriate action is taken with respect to any
difference. The Company maintains disclosure controls and procedures (as such
term is defined in Rule 13a-14 under the 0000 Xxx) that are effective in
ensuring that information required to be disclosed by the Company in the reports
that it files or submits under the 1934 Act is recorded, processed, summarized
and reported, within the time periods specified in the rules and forms of the
SEC, including, without limitation, controls and procedures designed in to
ensure that information required to be disclosed by the Company in the reports
that it files or submits under the 1934 Act is accumulated and communicated to
the Company's management, including its principal executive officer or officers
and its principal financial officer or officers, as appropriate, to allow timely
-11-
decisions regarding required disclosure. During the twelve months prior to the
date hereof neither the Company nor any of its Subsidiaries have received any
notice or correspondence from any accountant relating to any potential material
weakness in any part of the system of internal accounting controls of the
Company or any of its Subsidiaries.
(cc) Off Balance Sheet Arrangements. There is no transaction,
---------------------------------
arrangement, or other relationship between the Company or any of its
Subsidiaries and an unconsolidated or other off balance sheet entity that is
required to be disclosed by the Company in its 1934 Act filings and is not so
disclosed or that otherwise would be reasonably likely to have a Material
Adverse Effect.
(dd) Investment Company Status. The Company is not, and upon
---------------------------
consummation of the sale of the Securities will not be, an "investment company,"
a company controlled by an "investment company" or an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment company" as such terms
are defined in the Investment Company Act of 1940, as amended.
(ee) Transfer Taxes. On the Closing Date, all stock transfer or other
---------------
taxes (other than income or similar taxes) which are required to be paid in
connection with the sale and transfer of the Securities to be issued to each
Investor hereunder will be, or will have been, fully paid or provided for by the
Company, and all laws imposing such taxes will be or will have been complied
with.
(ff) Acknowledgement Regarding Investors' Trading Activity. It is
---------------------------------------------------------
understood and acknowledged by the Company (i) that following the public
disclosure of the transactions contemplated by the Transaction Documents, in
accordance with the terms thereof, none of the Investors have been asked by the
Company or its Subsidiaries to agree, nor has any Investor agreed with the
Company or its Subsidiaries, to desist from purchasing or selling, long and/or
short, securities of the Company, or "derivative" securities based on securities
issued by the Company or to hold the Securities for any specified term; (ii)
that any Investor, and counter parties in "derivative" transactions to which any
such Investor is a party, directly or indirectly, presently may have a "short"
position in the Common Stock which were established prior to such Investor's
knowledge of the transactions contemplated by the Transaction Documents, and
(iii) that each Investor shall not be deemed to have any affiliation with or
control over any arm's-length counterparty in any "derivative" transaction. The
Company further understands and acknowledges that following the public
disclosure of the transactions contemplated by the Transaction Documents, in
accordance with the terms thereof, one or more Investors may engage in hedging
and/or trading activities at various times during the period that the Securities
are outstanding, including, without limitation, during the periods that the
value of the Conversion Shares and, if applicable, the Default Warrant Shares
deliverable with respect to Securities are being determined and (b) such hedging
and/or trading activities, if any, can reduce the value of the existing
stockholders' equity interest in the Company both at and after the time the
hedging and/or trading activities are being conducted. The Company acknowledges
that such aforementioned hedging and/or trading activities do not constitute a
breach of this Agreement, the Notes, if applicable, the Default Warrants or any
of the documents executed in connection herewith.
(gg) Registration Eligibility. The Company is eligible to register the
------------------------
Conversion Shares and, if applicable, the Default Warrant Shares for resale by
the Investors using Form S-1 or any other available form promulgated under the
1933 Act.
(hh) Manipulation of Price. The Company and its Subsidiaries have not,
---------------------
and to the Company's knowledge no one acting on their behalf has, (i) taken,
directly or indirectly, any action designed to cause or to result in the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of any of the Securities, (ii) sold, bid for,
purchased, or paid any compensation for soliciting purchases of, any of the
Securities, or (iii) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company.
(ii) U.S. Real Property Holding Corporation. The Company is not, nor
----------------------------------------
has ever been, a U.S. real property holding corporation within the meaning of
Section 897 of the Internal Revenue Code of 1986, as amended, and the Company
shall so certify upon Investor's request.
-12-
(jj) Disclosure. The Company confirms that neither it nor any other
----------
Person acting on its behalf has provided any of the Investors or their agents or
counsel with any information that constitutes or could reasonably be expected to
constitute material, nonpublic information. The Company understands and
confirms that each of the Investors will rely on the foregoing representations
in effecting transactions in securities of the Company. All disclosure provided
to the Investors regarding the Company and its Subsidiaries, their business and
the transactions contemplated by this Agreement and the other Transaction
Documents, including the Schedules and Exhibits hereto and thereto, furnished by
or on behalf of the Company is true and correct and does not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made herein or therein, in the light of the
circumstances under which they were made, not misleading. No press release
issued by the Company or its Subsidiaries during the twelve (12) months
preceding the date of this Agreement contained at the time of release any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading. No event
or circumstance has occurred or information exists with respect to the Company
or any of its Subsidiaries or its or their business, assets, liabilities,
properties, prospects, operations or conditions (financial or otherwise), which,
under applicable law, rule or regulation, requires public disclosure at or
before the date hereof or announcement by the Company but which has not been so
publicly announced or disclosed.
(kk) Ranking of Notes. All existing Indebtedness of the Company or its
----------------
Subsidiaries is senior to or ranks pari passu with the Notes in right of
payment, whether in respect of payment of redemptions, interest, damages or upon
liquidation or dissolution or otherwise. In that regard, the Investors
specifically acknowledge that all of those certain 8.75% Senior Convertible
Notes issued February 16, 2007 in the principal amount of $175 million, and
issued March 6, 2007 in the principal amount of $26.25 million in connection
with the issuance of securities of the Company by XxXxxxx Securities Co. L.P.
are expressly acknowledged to be senior to the Notes in right of payment,
whether in respect of payment of redemptions, interest, damages or upon
liquidation or dissolution or otherwise.
4. COVENANTS.
(a) Best Efforts. Each party shall use its reasonable best efforts
-------------
timely to satisfy each of the conditions to be satisfied by it as provided in
Sections 6 and 7 of this Agreement.
(b) Form D and Blue Sky. 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 Investor promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for or to qualify the
Securities for sale to the Investors at the Closing pursuant to this Agreement
under applicable securities or "Blue Sky" laws of the states of the United
States (or to obtain an exemption from such qualification), and shall provide
evidence of any such action so taken to the Investors on or prior to the Closing
Date. The Company shall make all filings and reports relating to the offer and
sale of the Securities required under applicable securities or "Blue Sky" laws
of the states of the United States following the Closing Date.
(c) Reporting Status. Until the date on which the Investors shall have
----------------
sold all the Conversion Shares and Default Warrant Shares, and none of the Notes
or Default Warrants is outstanding (the "REPORTING PERIOD"), the Company shall
timely 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 no longer require or otherwise permit such
termination.
(d) Intentionally Omitted.
----------------------
(e) Financial Information. The Company agrees to send the following to
---------------------
each Investor (as defined in the Registration Rights Agreement) during the
Reporting Period (i) unless the following are filed with the SEC through XXXXX
and are available to the public through the XXXXX system, within one (1)
Business Day after the filing thereof with the SEC, a copy of its Annual Reports
and Quarterly Reports on Form 10-K, 10-KSB, 10-Q or 10-QSB, any interim reports
or any consolidated balance sheets, income statements, stockholders' equity
statements and/or cash flow statements for any period other than annual, any
Current Reports on Form 8-K and any registration statements (other than on Form
S-8) or amendments filed pursuant to the 1933 Act, (ii) on the same day as the
-13-
release thereof, facsimile copies of all press releases issued by the Company or
any of its Subsidiaries, and (iii) copies of any notices and other information
made available or given to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the
stockholders.
(f) Listing. The Company shall promptly secure the listing of all of
-------
the Registrable Securities (as defined in the Registration Rights Agreement)
upon each national securities exchange and automated quotation system, if any,
upon which the Common Stock is then listed (subject to official notice of
issuance) and shall maintain such listing of all Registrable Securities from
time to time issuable under the terms of the Transaction Documents on such
exchange or automated quotation system or an Eligible Market. The Company shall
maintain the Common Stock's authorization for quotation on the Principal Market.
Neither the Company nor any of its Subsidiaries shall take any action which
would be reasonably expected to result in the delisting or suspension of the
Common Stock on an Eligible Market. The Company shall pay all fees and expenses
in connection with satisfying its obligations under this Section 4(f).
(g) Fees. The Company shall reimburse Castlerigg Master Investments
----
Ltd., or its designee(s), and Gottbetter Partners, LLP, or its designee(s) (in
each case, in addition to any other expense amounts paid to any Investor prior
to the date of this Agreement), for all reasonable costs and expenses incurred
in connection with the transactions contemplated by the Transaction Documents
(including reasonable legal fees and disbursements in connection therewith and
documentation and implementation of the Transaction Documents), which amount
shall be paid at the Closing. The Company represents and warrants that there
are no placement agent's fees, financial advisory fees, or broker's commissions
(other than for Persons engaged by any Investor) relating to or arising out of
the transactions contemplated by the Transaction Documents, other than a $2,000
fee payable to Gottbetter Capital Finance, LLC. The Company shall pay, and hold
each Investor harmless against, any liability, loss or expense (including,
without limitation, reasonable attorneys' fees and out-of-pocket expenses)
arising in connection with any claim relating to any such fees.
(h) Pledge of Securities. The Company acknowledges and agrees that the
--------------------
Securities, subject to the provisions of Rule 144, may be pledged by an Investor
(as defined in the Registration Rights Agreement) in connection with a bona fide
margin agreement or other loan or financing arrangement that is secured by the
Securities. The pledge of Securities shall not be deemed to be a transfer, sale
or assignment of the Securities hereunder, and no Investor effecting a pledge of
Securities shall be required to provide the Company with any notice thereof or
otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document. The Company hereby agrees to execute and deliver
such documentation as a pledgee of the Securities may reasonably request in
connection with a pledge of the Securities to such pledgee by an Investor.
(i) Disclosure of Transactions and Other Material Information. On or
-----------------------------------------------------------
before 8:30 a.m., New York time, on the fourth Business Day following the date
of this Agreement, the Company shall file a Current Report on Form 8-K
describing the terms of the transactions contemplated by the Transaction
Documents in the form required by the 1934 Act and attaching (unless the Company
shall elect to defer the filing of exhibits as permitted by the Exchange Act)
the material Transaction Documents (including, without limitation, this
Agreement, the form of Notes and the Registration Rights Agreement) (including
all attachments, the "8-K FILING"). From and after the filing of the 8-K Filing
with the SEC, the Company shall have disclosed any material nonpublic
information delivered to the Investors by the Company or any of its
Subsidiaries, or any of their respective officers, directors, employees,
stockholders, representatives or agents. The Company shall not, and shall cause
each of its Subsidiaries and its and each of their respective officers,
directors, employees and agents, not to, provide any Investor with any material,
nonpublic information regarding the Company or any of its Subsidiaries from and
after the filing of the 8-K Filing with the SEC without the express written
consent of such Investor. In the event of a breach of the foregoing covenant by
the Company, or any of its Subsidiaries, or any of its or their respective
officers, directors, employees and agents, in addition to any other remedy
provided herein or in the Transaction Documents, a Investor shall have the right
to make a public disclosure, in the form of a press release, public
advertisement or otherwise, of such material, nonpublic information without the
prior approval by the Company, its Subsidiaries, or any of its or their
respective officers, directors, employees or agents. No Investor shall have any
liability to the Company, any of its Subsidiaries, or any of its or their
respective officers, directors, employees, stockholders or agents, for any such
disclosure. Subject to the foregoing, none of the Company, its Subsidiaries or
any Investor shall issue 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 any Investor, to make
any press release or other public
-14-
disclosure with respect to such transactions (i) in substantial conformity with
the 8-K Filing and contemporaneously therewith and (ii) as is required by
applicable law and regulations (provided that in the case of clause (i) each
Investor shall be consulted by the Company in connection with any such press
release or other public disclosure prior to its release). Without the prior
written consent of any applicable Investor, neither the Company nor any of its
Subsidiaries shall disclose the name of any Investor in any filing,
announcement, release or otherwise.
(j) Corporate Existence. So long as any Investor beneficially owns any
-------------------
Notes or Default Warrants, the Company shall not be party to any Fundamental
Transaction (as defined in the Notes) unless the Company is in compliance with
the applicable provisions governing Fundamental Transactions set forth in the
Notes and the Default Warrants.
(k) Reservation of Shares. The Company shall take all action necessary
---------------------
to at all times have authorized, and reserved for the purpose of issuance, no
less than 130% of (i) the maximum number of shares of Common Stock issuable upon
conversion of the Notes (assuming for purposes hereof, that the Notes are
convertible at the Conversion Price and without taking into account any
limitations on the conversion of the Notes set forth in the Notes) and (ii) if
applicable, the maximum number of shares of Common Stock issuable upon exercise
of the Default Warrants (assuming for purposes hereof the Exercise Price (as
defined in the Default Warrants), subject to adjustment for stock splits and
stock dividends and without taking into account any limitations on the exercise
of the Default Warrants set forth in the Default Warrants).
(l) Conduct of Business. The business of the Company and its
---------------------
Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any government, or any department or agency thereof or any
governmental entity, except where such violations would not result, either
individually or in the aggregate, in a Material Adverse Effect.
(m) Legend. Certificates evidencing the Default Warrant Shares and
------
Conversion Shares shall not contain any legend (including the legend set forth
above), (A) while a registration statement covering the resale of such security
is effective under the 1933 Act (provided, however, that the Investor's
prospectus delivery requirements under the 1933 Act will remain applicable), or
(B) following any sale of such Default Warrant Shares and/or Conversion Shares
pursuant to Rule 144, or (C) if such Default Warrant Shares and/or Conversion
Shares are eligible for sale under Rule 144(k), or (D) if such legend is not
required under applicable requirements of the 1933 Act (including judicial
interpretations and pronouncements issued by the Staff of the SEC). Subject to
the foregoing, upon written request of the Investor to have such legend removed,
the Company shall cause its counsel to issue a legal opinion to the Company's
transfer agent promptly after the effective date of any registration statement
(the "EFFECTIVE DATE") if required by the Company's transfer agent to effect the
removal of the legend hereunder. The Company agrees that following the
Effective Date or at such time as such legend is no longer required under this
Section 4(m), it will, no later than three (3) Trading Days (as defined in the
Notes) following the delivery by the Investor to the Company or the Company's
transfer agent of a certificate representing Default Warrant Shares and/or
Conversion Shares issued with a restrictive legend, deliver or cause to be
delivered to such Investor a certificate representing such Default Warrant
Shares and/or Conversion Shares that is free from all restrictive and other
legends. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company that enlarge(s) the
restrictions on transfer set forth herein.
(n) Removal of Legend. In addition to the Investor's other available
-------------------
remedies and provided that the conditions permitting the removal of legend
specified in Section 4(m) are met, the Company shall pay to the Investor, in
cash, as partial liquidated damages and not as a penalty, for each $1,000 of
Default Warrant Shares and/or Conversion Shares (based on the Closing Sale Price
(as defined in the Notes) of the Common Stock on the date such Default Warrant
Shares and/or Conversion Shares are submitted to the Company's transfer agent),
$5 per trading day (increasing to $10 per Trading Day five (5) trading days
after such damages have begun to accrue) for each Trading Day after the seventh
(7th) trading day following delivery by the Investor to the Company or the
Company's transfer agent of a certificate representing Default Warrant Shares
and/or Conversion Shares issued with a restrictive legend, until such
certificate is delivered to the Investor with such legend removed. Nothing
herein shall limit the Investor's right to pursue actual damages for the failure
of the Company and its transfer agent to deliver certificates representing any
securities as required hereby, and the Investor shall have the right to pursue
all remedies available to it at law or in equity, including, without limitation,
a decree of specific performance and/or injunctive relief.
-15-
(o) Publicity. The Company and the Investor shall have the right to
---------
approve, before issuance any press release or any other public statement with
respect to the transactions contemplated hereby made by any party; provided,
however, that the Company shall be entitled, without the prior approval of the
Investor, to issue any press release or other public disclosure with respect to
such transactions required under applicable securities or other laws or
regulations provided, that the Company shall use its commercially reasonable
best efforts to consult the Investor in connection with any such press release
or other public disclosure prior to its release and Investor shall be provided
with a copy thereof upon release thereof.
(p) Company's Failure to Timely Deliver Securities. In addition to the
----------------------------------------------
foregoing, if within three (3) Trading Days after the Company's receipt of the
facsimile copy of an exercise or conversion notice the Company shall fail to
issue the Conversion Shares or Default Warrant Shares to the Investor, and if on
or after such third Trading Day the Investor is required to purchase (in an open
market transaction or otherwise) shares of Common Stock in order to deliver in
satisfaction of a sale initiated by the Investor in anticipation of receiving
from the Company the shares of Common Stock issuable upon such exercise or
conversion (a "BUY-IN"), then the Company shall, within three (3) Business Days
after the Investor's request and in the Investor's discretion, either (i) pay
cash to the Investor in an amount equal to the Investor's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased (the "BUY-IN PRICE"), at which point the Company's obligation to
deliver such Conversion Shares or Default Warrant Shares resulting from such
exercise or conversion shall terminate, or (ii) promptly honor its obligation to
deliver to the Investor a certificate or certificates representing such
Conversion Shares or Default Warrant Shares and pay cash to the holder in an
amount equal to the excess (if any) of the Buy-In Price over the product of (A)
such number of shares of Common Stock, times (B) the Closing Sale Price on the
date of exercise. Nothing herein shall limit the holder's right to pursue
actual damages for the Company's failure to maintain a sufficient number of
authorized shares of Common Stock or to otherwise issue shares of Common Stock
upon conversion of the Notes or exercise of the Default Warrant in accordance
with the terms thereof, and the holder shall have the right to pursue all
remedies available at law or in equity (including a decree of specific
performance and/or injunctive relief). Notwithstanding the foregoing, the
Company shall have no obligations to deliver Conversion Shares or Default
Warrant Shares or to pay any Buy-In Price under this Section 4(q) if the Company
has timely delivered in good faith a bona fide objection to such conversion or
exercise notice.
5. REGISTER.
The Company shall maintain at its principal executive offices (or such
other office or agency of the Company as it may designate by notice to each
holder of Securities), a register for the Notes and the Default Warrants in
which the Company shall record the name and address of the Person in whose name
the Notes and the Default Warrants have been issued (including the name and
address of each transferee), the principal amount of Notes held by such Person,
the number of Conversion Shares issuable upon conversion of the Notes and the
number of Default Warrant Shares issuable upon exercise of the Default Warrants
held by such Person. The Company shall keep the register open and available at
all times during business hours for inspection of any Investor or its legal
representatives.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO ISSUE.
(a) The obligation of the Company hereunder to issue the Notes to each
Investor at the Closing is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions, provided that these conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion by providing each Investor with prior written notice
thereof.
(b) Such Investor shall have executed each of the Transaction Documents
to which it is a party and delivered the same to the Company.
(c) Such Investor and each other Investor shall have delivered to the
Company the Exchange Consideration by delivery of the Series D Cumulative
Preferred Certificates, duly endorsed (or accompanied by duly executed stock
powers) for transfer to the Company.
(d) The representations and warranties of such Investor shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except for representations and
-16-
warranties that speak as of a specific date), and such Investor shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Investor at or prior to the Closing Date.
(e) The Company shall have obtained approval of the Principal Market to
list the Conversion Shares and the Default Warrant Shares.
7. CONDITIONS TO EACH INVESTOR'S OBLIGATION.
(a) The obligation of each Investor hereunder to accept the Notes at
the Closing is subject to the satisfaction, at or before the Closing Date, of
each of the following conditions, provided that these conditions are for each
Investor's sole benefit and may be waived by such Investor at any time in its
sole discretion by providing the Company with prior written notice thereof:
(i) The Company shall have duly executed and delivered to such Investor
(A) each of the Transaction Documents and (B) the Notes (in such principal
amounts as is set forth across from such Investor's name in column (3) of the
Schedule of Investors being purchased by such Investor at the Closing pursuant
to this Agreement.
(ii) Such Investor shall have received the opinion of Glast, Xxxxxxxx &
Xxxxxx, P.C., the Company's outside counsel, dated as of the Closing Date, in a
form reasonably acceptable to Investors.
(iii) The Company shall have delivered to such Investor a certificate
evidencing the formation and good standing of the Company issued by the
Secretary of State of Delaware as of a date within five (5) days of the Closing
Date.
(iv) The Company shall have delivered to such Investor a certified copy
of the Certificate of Incorporation as certified by the Secretary of State of
the State of Delaware within five (5) days of the Closing Date.
(v) The Company shall have delivered to such Investor a certificate,
executed by the Secretary of the Company and dated as of the Closing Date, as to
(i) the resolutions consistent with Section 3(b) as adopted by the Company's
board of directors in a form reasonably acceptable to such Investor, (ii) the
Certificate of Incorporation and (iii) the Bylaws, each as in effect at the
Closing.
(vi) The representations and warranties of the Company shall be true
and correct as of the date when made and as of the Closing Date as though made
at that time (except for representations and warranties that speak as of a
specific date) and the Company shall have performed, satisfied and complied in
all respects with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by the Company
at or prior to the Closing Date. Such Investor 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 as to such other matters as may be
reasonably requested by such Investor.
(vii) The Company shall have delivered to such Investor a letter from
the Company's transfer agent certifying the number of shares of Common Stock
outstanding as of a date within five (5) days of the Closing Date.
(viii) The Common Stock (I) shall be designated for quotation or listed
on the Principal Market and (II) shall not have been suspended, as of the
Closing Date, by the SEC or the Principal Market from trading on the Principal
Market nor shall suspension by the SEC or the Principal Market have been
threatened, as of the Closing Date, either (A) in writing by the SEC or the
Principal Market or (B) by falling below the minimum maintenance requirements of
the Principal Market.
(ix) The Company shall have obtained all governmental, regulatory or
third party consents and approvals, if any, necessary for the sale of the
Securities, including without limitation, those required by the Principal
Market.
-17-
(x) The Company shall have delivered to such Investor such other
documents relating to the transactions contemplated by this Agreement as such
Investor or its counsel may reasonably request.
8. MISCELLANEOUS.
(a) Governing Law; Jurisdiction; Jury Trial. All 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 exclusive jurisdiction of the state and
federal courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, 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. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
(b) Counterparts. This Agreement may be executed in two or more
------------
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
(c) Headings. The headings of this Agreement are for convenience of
--------
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) Severability. If any provision of this Agreement shall be invalid
------------
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement in
that jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
(e) Entire Agreement; Amendments. This Agreement and the other
------------------------------
Transaction Documents supersede all other prior oral or written agreements
between the Investors, the Company, their affiliates and Persons acting on their
behalf with respect to the matters discussed herein, and this Agreement, the
other Transaction Documents and the instruments referenced herein and therein
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 Investor makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be amended other than by an instrument in writing signed by
the Company and the holders of at least a majority of the Notes issued and
issuable hereunder, and any amendment to this Agreement made in conformity with
the provisions of this Section 8(e) shall be binding on all Investors and
holders of Securities, as applicable. 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 Notes then outstanding. No consideration
shall be offered or paid to any Person to amend or consent to a waiver or
modification of any provision of any of the Transaction Documents unless the
same consideration also is offered to all of the parties to the Transaction
Documents, holders of Notes or, if applicable, holders of the Default Warrants,
as the case may be. The Company has not, directly or indirectly, made any
agreements with any Investors relating to the terms or conditions of the
transactions contemplated by the Transaction Documents except as set forth in
the Transaction Documents. Without limiting the foregoing, the Company confirms
that, except as set forth in this Agreement, no Investor has made any commitment
or promise or has any other obligation to provide any financing to the Company
or otherwise.
-18-
(f) Notices. Any notices, consents, waivers or other communications
-------
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit with
an overnight courier 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:
Charys Holding Company, Inc.
0000 Xxxxxxxxx Xxxxxx Xxxx, Xxxxx X000
Xxxxxxx, Xxxxxxx 00000
Attention: Xxxxx X. Xxx, Xx.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy (for informational purposes only) to:
Glast, Xxxxxxxx & Xxxxxx, P.C.
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Transfer Agent:
Fidelity Transfer Company
0000 X. Xxxx Xxxxxx, Xxxxx 000
Xxxx Xxxx Xxxx, Xxxx 00000
Attention: Xxxxx Xxxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to a Investor, to its address and facsimile number set forth on the
Schedule of Investors, with copies to such Investor's representatives as set
forth on the Schedule of Investors, or to such other address and/or facsimile
number and/or to the attention of such other Person as the recipient party has
specified by written notice given to each other party five (5) days prior to the
effectiveness of such change provided, that Gottbetter & Partners, LLP shall
--------
only receive notices sent to clients of its firm. Written confirmation of
receipt (A) given by the recipient of such notice, consent, waiver or other
communication, (B) mechanically or electronically generated by the sender's
facsimile machine containing the time, date, recipient facsimile number and an
image of the first page of such transmission or (C) provided by an overnight
courier service shall be rebuttable evidence of personal service, receipt by
facsimile or receipt from an overnight courier service in accordance with clause
(i), (ii) or (iii) above, respectively.
(g) Successors and Assigns. This Agreement shall be binding upon and
------------------------
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Notes or the Default Warrants. The Company
shall not assign this Agreement or any rights or obligations hereunder without
the prior written consent of the holders of at least a majority of the aggregate
number of Registrable Securities issued and issuable hereunder, including by way
of a Fundamental Transaction (unless the Company is in compliance with the
applicable provisions governing Fundamental Transactions set forth in the Notes
and the Default Warrants). An Investor may assign some or all of its rights
hereunder in connection with transfer of any of its Notes or, if applicable,
Default Warrants, subject to compliance with the securities laws, without the
consent of the Company, in which event such assignee shall be deemed to be an
Investor hereunder with respect to such assigned rights.
-19-
(h) No Third Party Beneficiaries. This Agreement is intended for the
------------------------------
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
(i) Survival. The representations and warranties of the Company and
--------
the Investors contained in Sections 2 and 3 shall survive the Closing and the
agreements and covenants set forth in Sections 4, 5 and 8 shall survive the
Closing. Each Investor shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.
(j) 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
any 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.
(k) Indemnification. In consideration of each Investor's execution and
---------------
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Investor and each affiliate of a Investor that holds Notes or Default Warrants
and all of their stockholders, partners, members, officers, directors, employees
and direct or indirect investors and any of the foregoing Persons' agents or
other representatives (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 any Indemnitee 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 the Transaction Documents, (b) any breach of any
covenant, agreement or obligation of the Company contained in the Transaction
Documents or (c) any cause of action, suit or claim brought or made against such
Indemnitee by a third party (including for these purposes a derivative action
brought on behalf of the Company) and arising out of or resulting from (i) the
execution, delivery, performance or enforcement of the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(ii) any transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, (iii) any
disclosure made by such Investor pursuant to Section 4(i), or (iv) the status of
such Investor or holder of the Securities as an investor in the Company pursuant
to the transactions contemplated by the Transaction Documents; provided, that no
Investor shall be entitled to indemnification to the extent any of the foregoing
is caused by its gross negligence or willful misconduct. 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.
Except as otherwise set forth herein, the mechanics and procedures with respect
to the rights and obligations under this Section 9(k) shall be the same as those
set forth in Section 6 of the Registration Rights Agreement.
(l) 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.
(m) Remedies. Each Investor and each affiliate of a Investor that
--------
holds Notes or Default Warrants shall have all rights and remedies set forth in
the Transaction Documents and all rights and remedies which such holders have
been granted at any time under any other agreement or contract and all of the
rights which such holders have under any law. Any Person having any rights under
any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law. Furthermore, the Company recognizes that in the
event that it fails to perform, observe, or discharge any or all of its
obligations under the Transaction Documents, any remedy at law may prove to be
inadequate relief to the Investors. The Company therefore agrees that the
Investors shall be entitled to seek temporary and permanent injunctive relief in
any such case without the necessity of proving actual damages and without
posting a bond or other security.
-20-
(n) Rescission and Withdrawal Right. Notwithstanding anything to the
---------------------------------
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Investor exercises a right, election, demand
or option under a Transaction Document and the Company does not timely perform
its related obligations within the periods therein provided, then such Investor
may rescind or withdraw, in its sole discretion from time to time upon written
notice to the Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights.
(o) Payment Set Aside. To the extent that the Company makes a payment
------------------
or payments to the Investors hereunder or pursuant to any of the other
Transaction Documents or the Investors enforce or exercise their rights
hereunder or thereunder, and such payment or payments or the proceeds of such
enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
a trustee, receiver or any other Person under any law (including, without
limitation, any bankruptcy law, foreign, state or federal law, common law or
equitable cause of action), then to the extent of any such restoration the
obligation or part thereof originally intended to be satisfied shall be revived
and continued in full force and effect as if such payment had not been made or
such enforcement or setoff had not occurred.
(p) Independent Nature of Investors' Obligations and Rights. The
-------------------------------------------------------------
obligations of each Investor under any Transaction Document are several and not
joint with the obligations of any other Investor, and no Investor shall be
responsible in any way for the performance of the obligations of any other
Investor under any Transaction Document. Nothing contained herein or in any
other Transaction Document, and no action taken by any Investor pursuant hereto
or thereto, shall be deemed to constitute the Investors as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Investors are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents and the Company acknowledges that the Investors are not
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. Each Investor confirms
that it has independently participated in the negotiation of the transaction
contemplated hereby with the advice of its own counsel and advisors. Each
Investor shall be entitled to independently protect and enforce its rights,
including, without limitation, the rights arising out of this Agreement or out
of any other Transaction Documents, and it shall not be necessary for any other
Investor to be joined as an additional party in any proceeding for such purpose.
(q) Exculpation Among Investors. Each Investor acknowledges that it is
---------------------------
not relying upon any Person (including, without limitation, any other Investor),
other than the Company and its officers and directors (acting in their capacity
as representatives of the Company), in deciding to invest and in making its
investment in the Company. Each Investor agrees that no other Investor nor the
respective controlling Persons, officers, directors, partners, members,
shareholders, agents or employees of any other Investor shall be liable to such
Investor for any losses incurred by such Investor in connection with its
investment in the Company.
(r) Controlling Agreement. In the event of any conflict between the
provisions of this Agreement and any of the other Transaction Documents, the
terms of this Agreement shall control.
[SIGNATURE PAGE FOLLOWS]
-21-
IN WITNESS WHEREOF, each Investor and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.
COMPANY:
CHARYS HOLDING COMPANY, INC.
By
-----------------------------------------------
Xxxxx X. Xxx, Xx., Chief Executive Officer
BUYERS:
GOTTBETTER CAPITAL MASTER, LTD.
By
-----------------------------------------------
Xxxx X. Xxxxxxxxxx, Director
CASTLERIGG MASTER INVESTMENTS LTD.
By
------------, ------------
UBS X'XXXXXX LLC F/B/O X'XXXXXX PIPES CORPORATE STRATEGIES MASTER LTD.
By
-----------------------------------------------
------------, ------------
-22-
SCHEDULE OF INVESTORS
(1) (2) (3) (4) (5)
AGGREGATE
AGGREGATE NUMBER OF
PRINCIPAL PREFERRED LEGAL REPRESENTATIVE'S
ADDRESS AND AMOUNT OF SHARES ADDRESS AND
INVESTOR FACSIMILE NUMBER NOTES TENDERED FACSIMILE NUMBER
--------------------------- ------------------------- ---------- ---------- ---------------------------
Gottbetter Capital Master, 000 Xxxxxxx Xxxxxx 500 Xxxxx X. Xxxxxxx, Esq.
Ltd. 00xx Xxxxx Xxxxxxxxxx & Xxxxxxxx, XXX
Xxx Xxxx, XX 00000 000 Xxxxxxx Xxxxxx
Facsimile: 212.400.6999 00xx Xxxxx
Xxx Xxxx, XX 00000
Facsimile: 212.400.6901
-----------------------------------------------------------------------------------------------------------
Castlerigg Master 00 X. 00xx Xxxxxx 300
Investments Ltd. 00xx Xxxxx
Xxx Xxxx, XX 00000
Facsimile: 212.603.5710
-----------------------------------------------------------------------------------------------------------
UBS X'Xxxxxx LLC F/B/O 100
X'Xxxxxx Pipes Corporate
Strategies Master Ltd.
-----------------------------------------------------------------------------------------------------------
-23-
SCHEDULE 3(a)
SUBSIDIARIES
Charys Holding Company, Inc.
0000 Xxxxxxxxx Xxxxxx Xxxx
Xxxxx X000
Xxxxxxx, XX 00000
Personnel Resources of Georgia, Inc.
000 X Xxxxxxx Xx
Xxxxxxxxxx, XX 00000
CCI Telecom, Inc.
0000 Xxxxx Xxxxx
XxXxxxxx, XX 00000
Method IQ, Inc.
0000 Xxxxxxxx Xxxx
Xxxxx 000
Xxxxxxxxxx, XX 00000
Viasys Services, Inc.
0000 Xxxxx Xxxxx
Xxxxxxxx, XX 00000
Viasys Network Services, Inc.
0000 Xxxxx Xxxxx
Xxxxxxxx, XX 00000
Crochet & Borel Services, Inc.
000 Xxxx Xxxx Xxx
Xxxx Xxxxxx, XX 00000
Digital Communication Services, Inc.
00 Xxxxx 0xx
Xxxxxx Xxxxx, XX 00000
Ayin Holding Company Inc.
00000 XX 000
Xxxxx 000
Xxxxxxx, XX 00000
Ayin Tower Management Services, Inc.
00000 XX 000
Xxxxx 000
Xxxxxxx, XX 00000
LFC, Inc.
00000 XX 000
Xxxxx 000
Xxxxxxx, XX 00000
Aeon Technologies, Inc.
0000 Xxxxx Xxxxx
XxXxxxxx, XX 00000
Berkshire Wireless, Inc.
000 Xxxxxxxx
Xx Xxx, XX00000
CCI Integrated Solutions, Inc.
0000 Xxxxx Xxxxx
XxXxxxxx, XX 00000
Complete Tower Sources, Inc
000 Xxxxxxx Xxxx
Xxxxxxxx, XX 00000
Xxxxxxxx Site Acq., Inc.
000 Xxxxxxxxxxxx Xx
Xxxxxxxxx, XX 00000
Cotton Restoration of Central
Texas, LP
00000 XX Xxxxxxx
Xxxxxxx, XX 00000
Cotton Commercial USA, LP
00000 XX Xxxxxxx
Xxxxxxx, XX 00000
Cotton Holdings 1, Inc.
00000 XX Xxxxxxx
Xxxxxxx, XX 00000
-24-
SCHEDULE 3(k)
EXCEPTIONS TO SEC FILING REQUIREMENTS
None.
-25-
SCHEDULE 3(r)
EXCEPTIONS TO EQUITY CAPITAL
CHARYS HOLDING COMPANY, INC.
CAPITALIZATION TABLE
AS OF 3/31/07
SUMMARY
Preferred Shares Authorized, par value $0.001 5,000,000
Preferred Shares Issued and Outstanding as of 3/31/2007 1,500,900
Common Shares Authorized, par value $0.001 300,000,000
Common Shares Issued and Outstanding as of 3/31/2007 44,266,775
FULLY DILUTED SUMMARY: FULLY DILUTED SHARES OPTIONS CONVERSION WARRANTS
------------- ---------- --------- ---------- ----------------
COMMON STOCK:
Public Stockholders 6,342,290 6,342,290 0 0 0
Management & Officers & Directors Shares (detail below) 7,053,379 3,049,492 4,003,887 0 0 (A)
Employees and Consultants: 22,818,205 18,628,216 3,339,989 0 850,000 (B)
Financing Sources 280,525,796 16,246,777 750,000 84,276,389 179,252,630 (C)
------------------------------------------------------------------
TOTAL OUTSTANDING COMMON STOCK. OPTIONS AND WARRANTS 316,739,670 44,266,775 8,093,876 84,276,389 180,102,630
TRANSACTIONS PENDING POST 3/31/07: 0 0 0 0 0 (I)
PREFERRED STOCK:
Series A Preferred Stock - Xxxxx X. Xxx 1,000,000 1,000,000 0 0 0 (G)
Series B Preferred Stock - Frost Bank 0 0 0 0 0 (D)
Series C Preferred Stock - Frost Bank 500,000 500,000 0 0 0 (E)
Series D Preferred Stock - Gotterbetter 16,018,674 900 0 4,000,000 12,017,774
------------------------------------------------------------------
TOTAL PREFERRED STOCK 17,518,674 1,500,900 0 4,000,000 12,017,774
------------------------------------------------------------------
TOTAL OUTSTANDING 334,258,344 45,767,675 8,093,876 88.276,389 192,120,404
==================================================================
NOTES: Total Shares Options Conversion Warrants
--------- --------- --------- ---------- --------
(A) Management (Officers & Directors) Shares:
Xxxxxxx Xxxxxxxxxxx - Former Director 87,500 87,500 0 0 0
Xxx Xxxxx - Officer 600,000 0 600,000 0 0
Xxx Xxxxx - Officer 25,000 0 25,000 0 0
Xxxxxxx Oyster - Director 185,000 85,000 100,000 0 0
Xxxxxxx Oyster - Director 300,000 0 300,000 0 0
Xxxxxxx Oyster - Director 25,000 0 25,000 0 0
Xxxx XxXxxxx - Director 85,000 85,000 0 0 0
Xxxxxxxxx XxXxx - Director 20,000 20,000 0 0 0
Xxxxx Xxxxxx - Director 20,000 20,000 0 0 0
Xxxx Xxxxxx - Director 87,842 87,842 0 0 0
Xx Xxxxxx - Former Officer 100,000 0 100,000 0 0
Xxxxxxxx Xxxxxxx - Former Officer 300,000 0 300,000 0 0
Xxxxx Xxxxxxx - Director 85,000 85,000 0 0 0
Xxxxx Xxx -Officer and Director 4,422,372 2,185,150 2,237,222 0 0
Xxxxx Xxx -Officer and Director 16,665 0 16,665 0 0
Xxxxx XxXxxxx - Former Director 630,000 330,000 300,000 0 0
Xxxxxx Xxxxx - Director 64,000 64,000 0 0 0
-----------------------------------------------------
Total Management (Officers & Directors) Shares /Options 7,053,379 3,049,492 4,003,887 0 0
=====================================================
EXERCISE PRICE
-------------------------------
NOTES: Options Conversion Warrants
--------- ---------- --------
(A) Management (Officers & Directors) Shares:
Xxxxxxx Xxxxxxxxxxx - Former Director
Xxx Xxxxx - Officer $ 0.40
Xxx Xxxxx - Officer $ 8.15
Xxxxxxx Oyster - Director $ 1.05
Xxxxxxx Oyster - Director $ 1.09
Xxxxxxx Oyster - Director $ 8.15
Xxxx XxXxxxx - Director
Xxxxxxxxx XxXxx - Director $ 0.40
Xxxxx Xxxxxx - Director $ 0.40
Xxxx Xxxxxx - Director
Xx Xxxxxx - Former Officer $ 0.40
Xxxxxxxx Xxxxxxx - Former Officer $ 0.40
Xxxxx Xxxxxxx - Director $ 0.40
Xxxxx Xxx -Officer and Director $ 0.40
Xxxxx Xxx -Officer and Director $ 8.15
Xxxxx XxXxxxx - Former Director (F)
Xxxxxx Xxxxx - Director
Total Management (Officers & Directors) Shares /Options
Total Shares Options Conversion Warrants
---------- ---------- --------- ---------- --------
(B) Employees and Consultants:
Subsidiary Employees 1,183,207 716,941 466,266 0 0
Xxxxxxx Xxxxxxx 200,000 0 200,000 0 0
Xxxxxxx Xxxxxxx 25,000 0 25,000 0 0
Nat'l Financial Communication 200,000 0 200,000 0 0
Spiderboy Consultants 4,300,000 1,851,277 2,448,723 0 0
Xxxxx Xxxxx 500,000 500,000 0 0 0
Whonor, Inc. 100,000 0 0 0 100,000
Xxxxxx Xxxxxx 650,000 650,000 0 0 0
Xxx Xxxxxxxxx 250,000 250,000 0 0 0
Platinum Advisors Services 2,400,000 2,400,000 0 0 0
Xxxx Xxxxx 1,900,000 1,550,000 0 0 350,000
Xxx Del Presto 425,000 25,000 0 0 400,000
Xxxxxx Xxxxxxx 300,000 300,000 0 0 0
Your Equity Advisor 12,500 12,500 0 0 0
Xxxxx Xxxxxx 0 0 0 0 0
Even Xxxx 40,000 40,000 0 0 0
Xxxxxx Xxxxxxxxx - consulting svcs. (Cotton) 200,000 200,000 0 0 0
New Century Capital - consulting svcs. (C&B) 1,300,000 1,300,000 0 0 0
Xxxxxx Xxxxxxxx - pmt. For legal services 70,300 70,300 0 0 0
Xxx Xxxxxx - consulting svcs. (VSI) 479,805 479,805 0 0 0
Xxxxxx Xxxxxx - consulting svcs. (VSI) 245,195 245,195 0 0 0
Xxxxxx Xxxxxxx - consulting svcs. (MSAI/CTSI) 225,000 225,000 0 0 0
Xxxxxx Xxxxxx - consulting svcs. (C&B) 375,000 375,000 0 0 0
Xxxxxxx Xxxxxx - consulting svcs. (C&B) 250,000 250,000 0 0 0
Xxx Del Presto - consulting svcs. (New Stream/Gottbetter) 100,000 100,000 0 0 0
Greater Bay Bank 630,499 630,499 0 0 0
Xxxxx Xxxxxxxxxx (S-8) 50,000 50,000 0 0 0
Xxxxxx Xxxxxxxxx (S-8) 200,000 200,000 0 0 0
Xxxxxxx Xxxxxxx 100,000 100,000 0 0 0
Xxxxxxx Xxxxxxxxx 31,912 31,912 0 0 0
Xxx Del Presto 300,000 300,000 0 0 0
Xxxxxx Xxxxxx 40,000 40,000 0 0 0
Xxxxx Xxxxxx 200,000 200,000 0 0 0
Xxxx Xxxxxxxx 24,500 24,500 0 0 0
Xxxxxx Xxxxxxxxx 375,000 375,000 0 0 0
Xxxxx Xxxxx 9,800 9,800 0 0 0
Xxxx Xxxxxx 5,140 5,140 0 0 0
Xxxxxxxx Xxxxxx 200,000 200,000 0 0 0
Xxxxxxx X Xxxxx 20,000 20,000 0 0 0
Xxxxxx and Xxxxxxxx PLLP 120,300 120,300 0 0 0
York Equity Analyst 12,500 12,500 0 0 0
Xxx Del Presto 200,000 200,000 0 0 0
Xxxxxx Xxxxxxxx 56,000 56,000 0 0 0
Xxxxxx Xxxx 25,000 25,000 0 0 0
Xxx Xxxxxx 100,000 100,000 0 0 0
Xxxxxx X. Xxxxxx 100,000 100,000 0 0 0
X. Xxxxxx/X. Xxxxxx 200,000 200,000 0 0 0
Xxxxxxx Xxxxxxx 100,000 100,000 0 0 0
Xxxxxx Xxxxxxxxx 200,000 200,000 0 0 0
Xxxxxxx Xxxxxxx 50,000 50,000 0 0 0
Sound Capital 375,000 375,000 0 0 0
Xxxx Xxxxxx 4,728 4,728 0 0 0
Xxxx Xxxx 40,000 40,000 0 0 0
Xxxxxxx Xxxxxx 248,819 248,819 0 0 0
Sound Capital 375,000 375,000 0 0 0
Xxxxxxx Xxxxxx 80,000 80,000 0 0 0
Xxxx Xxxxxxxx 59,000 59,000 3 0 0 0
Xxxxxxx Xxxxxxx 50,000 50,000 0 0 0
Xxx Xxxxxxxxx 100,000 100,000 0 0 0
EXERCISE PRICE
-------------------------------
Options Conversion Warrants
-------- ---------- ---------
(B) Employees and Consultants:
Subsidiary Employees $ 0.23
Xxxxxxx Xxxxxxx $ 0.40
Xxxxxxx Xxxxxxx $ 8.15
Nat'l Financial Communication $ 2.00
Spiderboy Consultants $ 0.00
Xxxxx Xxxxx
Whonor, Inc. $ 1.22
Xxxxxx Xxxxxx
Xxx Xxxxxxxxx
Platinum Advisors Services
Xxxx Xxxxx $ 2.00
Xxx Del Presto $ 1.50
Xxxxxx Xxxxxxx
Your Equity Advisor
Xxxxx Xxxxxx
Even Xxxx
Xxxxxx Xxxxxxxxx - consulting svcs. (Cotton)
New Century Capital - consulting svcs. (C&B)
Xxxxxx Xxxxxxxx - pmt. For legal services
Xxx Xxxxxx - consulting svcs. (VSI)
Xxxxxx Xxxxxx - consulting svcs. (VSI)
Xxxxxx Xxxxxxx - consulting svcs. (MSAI/CTSI)
Xxxxxx Xxxxxx - consulting svcs. (C&B)
Xxxxxxx Xxxxxx - consulting svcs. (C&B)
Xxx Del Presto - consulting svcs. (New Stream/Gottbetter)
Greater Bay Bank
Xxxxx Xxxxxxxxxx (S-8)
Xxxxxx Xxxxxxxxx (S-8)
Xxxxxxx Xxxxxxx
Xxxxxxx Xxxxxxxxx
Xxx Del Presto
Xxxxxx Xxxxxx
Xxxxx Xxxxxx
Xxxx Xxxxxxxx
Xxxxxx Xxxxxxxxx
Xxxxx Xxxxx
Xxxx Xxxxxx
Xxxxxxxx Xxxxxx
Xxxxxxx X Xxxxx
Xxxxxx and Xxxxxxxx PLLP
York Equity Analyst
Xxx Del Presto
Xxxxxx Xxxxxxxx
Xxxxxx Xxxx
Xxx Xxxxxx
Xxxxxx X. Xxxxxx
X. Xxxxxx/X. Xxxxxx
Xxxxxxx Xxxxxxx
Xxxxxx Xxxxxxxxx
Xxxxxxx Xxxxxxx
Sound Capital
Xxxx Xxxxxx
Xxxx Xxxx
Xxxxxxx Xxxxxx
Sound Capital
Xxxxxxx Xxxxxx
Xxxx Xxxxxxxx
Xxxxxxx Xxxxxxx
Xxx Xxxxxxxxx
Xxx Xxxxxxxxx 100,000 100,000 0 0 0
Xxx Xxxxxxxxx 100,000 100,000 0 0 0
Xxx Xxxxxxxxx 100,000 100,000 0 0 0
Xxxxxx Xxxxxx 200,000 200,000 0 0 0
Xxxxxx Xxxxxx 200,000 200,000 0 0 0
New Century Capital Consultants 1,500,000 1,500,000 0 0 0
Xxxxxxx X. Xxxxxxxx 42,000 42,000 0 0 0
Xxxxx X. Xxxxxxxx Xx. 25,000 25,000 0 0 0
Xxxxxxx Xxxxx 20,000 20,000 0 0 0
Stite & Xxxxxxxx 12,000 12,000 0 0 0
Xxxxxxx Xxxxx 5,000 5,000 0 0 0
Xxxxx Xxxxxx 100,000 100,000 0 0 0
0
0
-------------------------------------------------------
Total Employee and Consultants 22,818,205 18,628,216 3,339,989 0 850,000
=======================================================
Xxx Xxxxxxxxx
Xxx Xxxxxxxxx
Xxx Xxxxxxxxx
Xxxxxx Xxxxxx
Xxxxxx Xxxxxx
New Century Capital Consultants
Xxxxxxx X. Xxxxxxxx
Xxxxx X. Xxxxxxxx Xx.
Xxxxxxx Xxxxx
Stite & Xxxxxxxx
Xxxxxxx Xxxxx
Xxxxx Xxxxxx
Total Employee and Consultants
-------------------------------------------------------------
Total Shares Options Conversion Warrants
----------- ---------- ------- ---------- -----------
(C) Financing / Acquisitions:
Venture Banking Group 821,133 821,133 0 0 0
Greater Bay Bank 28,400 0 0 0 28,400
Highgate 1,966,370 966,370 0 0 1,000,000
M Xxxxxx and S Posner 250,000 0 0 0 250,000
Jadeco / Schwarrtz 500,000 0 0 0 500,000
T Crochet 8,008,000 7,258,000 750,000 0 0
Harris, Posner, Posner 350,000 250,000 0 0 100,000
W Xxxxx / Acquisition 309,768 309,768 0 0 0
L Xxxx Xxxxx / Acquisition 1,817,019 1,817,019 0 0 0
New Stream 2,000,000 0 0 0 2,000,000
Xxxx / Acquisition 62,500 62,500 0 0 0
Gotterbetter / Warrant 11,030,614 0 0 0 11,030,614
Aries Equity Corp. 250,000 0 0 0 250,000
CSH Advisors Inc. 250,000 0 0 0 250,000
Cotton / Acquisition 2,355,532 2,355,532 0 0 0
Rock Creek 1,250,000 1,250,000 0 0 0
Lubermanns 500,000 500,000 0 0 0
Vision Capital 422,222 0 0 422,222 0
Vision Capital 19,983,330 0 0 0 19,983,330
Imperium Master Fund, LTD 551,531 0 0 0 551,531
New Stream Commercial Finance, LLC - New Stream II 600,000 0 0 0 600,000
Xxxxxx Xxxxxxxx 72,939 72,939 0 0 0
Xxxx Xxxxxxxx 583,516 583,516 0 0 0
Xxxx Xxxxxxxx 2,562,667 0 0 0 2,562,667
XxXxxxx Securities Co., L.P. 4,271,111 0 0 0 4,271,111
XxXxxxx Securities Co., L.P. 67,083,266 0 0 0 67,083,266
XxXxxxx Securities Co., L.P. 67,083,266 0 0 0 67,083,266
XxXxxxx Securities Co., L.P. 83,854,167 0 0 83,854,167 0
Xxxx Xxxxx 1,708,445 0 0 0 1,708,445
0 0 0 0
---------------------------------------------------------
Total Financing / Acquisitions 280,525,796 16,246,777 750,000 84,276,389 179,252,630
=========================================================
EXERCISE PRICE
---------------------------------
Options Conversion Warrants
-------- ----------- ----------
(C) Financing / Acquisitions:
Venture Banking Group $ 0.35
Greater Bay Bank $ 1.69
Highgate (H)
M Xxxxxx and S Posner $ 0.80
Jadeco / Schwarrtz $ 1.10
T Crochet $ 0.00
Harris, Posner, Posner $ 5.00
W Xxxxx / Acquisition
L Xxxx Xxxxx / Acquisition
New Stream $ 4.80
Xxxx / Acquisition
Gotterbetter / Warrant $ 2.25
Aries Equity Corp.
CSH Advisors Inc.
Cotton / Acquisition
Rock Creek
Lubermanns
Vision Capital $ 2.25
Vision Capital see note
Imperium Master Fund, LTD $ 2.25
New Stream Commercial Finance, LLC - New Stream II $ 4.00
Xxxxxx Xxxxxxxx
Xxxx Xxxxxxxx
Xxxx Xxxxxxxx $ 2.25
XxXxxxx Securities Co., L.P. $ 2.25
XxXxxxx Securities Co., L.P. $ 2.25
XxXxxxx Securities Co., L.P. $ 2.25
XxXxxxx Securities Co., L.P. $ 2.40
Xxxx Xxxxx $ 2.25
Total Financing / Acquisitions
(D) Series B Preferred Stock held by Frost Bank converts in a 1 to 1 ratio into
common stock at the holders election. Conversion Right expires April, 2015.
(E) Series C Preferred Stock held by Frost Bank converts in a 1 to 1 ratio into
common stock at the holders election. Conversion Right are effective
starting April, 2007 and expire April, 2009 Holder has a Put Option to
Xxxxxxx Xxxxx @ $3.50 per share 725,000
(F) 100,000 at $1.50
100,000 at $3.00
100,000 at $5.00
(G) No conversion rights.
(H) 200,000 at $0.25
400,000 at $0.50
200,000 at $0.75
200,000 at $1.00
(I) Transactions Pending
Total Transactions Pending:
EXERCISE PRICE
-----------------------------
Total Shares Options Conversion Warrants Options Conversion Warrants
----- ------ ------- ---------- -------- ------- ---------- --------
--------------------------------------------
Total Transactions Pending: 0 0 0 0 0
============================================
-26-
SCHEDULE 3(s)
INDEBTEDNESS AND OTHER CONTRACTS
Charys Holding Company, Inc.
Debt Schedule
==========================================================================================================
($ in thousands)
Obligation Due To: Amount
------------------------------------------------------------ ---------------------------------- --------
HOLDING COMPANY
---------------
8.75 Senior Convertible Notes XxXxxxx $201,250
Due 2/18/12
9.5% Unsecured Promissory Note Harris, Posner, Posner $ 1,000
Due 5/1/07, subject to other conditions
Interest $ 71
15% Promissory Note HarPos $ 800
Interest & Other $ 200
10% Convertible Debenture Various $ 4,267
Maturity 8/30/06
Interest
Redemption Premium
Liquidated Damages
Series D Convertible Preferred Stock Various $ 9,000
Maturity 11/19/06
Dividens $ 1,554
Liquidated Damages $ 900
Redemption Premium $ -
8% Subordinated Note Vision $ 950
4% Subordinated Convertible Note Jade Securities $ 380
Due 12/31/07
----------------------------------------------------------------------------------------------------------
TOTAL FINANCING DEBT $220,372
----------------------------------------------------------------------------------------------------------
8% Note Seller of Aeon $ 473
Due: $156 on 4/9/07
Due: $156 on 4/9/08
Due: $157 on 4/9/09
10% Unsecured Promissory Note Sellers of DCI $ 640
8.75% Promissory Note Seller of MSAI $ 2,210
Due 2/18/12
9% Promissory Note Seller of MSAI $ 5,400
Due: $2,700 on 2/15/06
Due: $2,700 on 2/15/09
8.75% Promissory Note Seller of CTSI $ 5,790
Due 12/16/12
9% Promissory Note Seller of CTSI $ 14,200
Due: $7,100 on 2/15/06
Due: $7,100 on 2/15/09
4.74% Unsecured Promissory Note Sellers of C&B Services $ 47,632
Due 12/16/12
Note Cotton $ 5,100
Payment Florida Tel Con $ 3,350
----------------------------------------------------------------------------------------------------------
TOTAL SELLERS NOTES $ 84,796
----------------------------------------------------------------------------------------------------------
Personal Recourses of Georgia
-----------------------------
Unsecured Note[No Due Date] C Xxxxx $ 15
Unsecured Note[No Due Date] J Xxxxx $ 29
Unsecured Note[No Due Date] B Xxxxxxx (Related Party) $ 15
CCI Telecom
-----------
Credit Facility expires 8/29/06 CAPCO Capital $ 2,200
Secured by Accounts Receivable and certain other assets
Viasys Services
---------------
Letter of Credit $ -
Avin Holding Company
--------------------
LIBOR + 485 Basis Points (10.18%) Secured Promissory Note New Stream Commercial Finance II $ 6,500
Due 11/7/06
Method IQ
---------
Credit Facility expires 8/29/06 CAPCO Capital $ 220
Secured by Accounts Receivable and certain other assets
LFC
---
Digital Communication Services
------------------------------
Line of Credit Various $ 1,000
C & B Services
--------------
$35 million credit facility New Stream Commercial Finance I $ 2,400
CTSI
----
New Stream
--------
TOTAL DEBT $317,589
========
-27-
SCHEDULE 3(aa)
TAX STATUS
None.
-28-
EXHIBITS
--------
Exhibit A Form of Notes
Exhibit B Form of Default Warrants
Exhibit C Form of Registration Rights Agreement
-29-
Exhibit A
EXECUTION COPY
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED
BY THE SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE
TERMS OF THIS NOTE, INCLUDING SECTIONS 3(C)(III) AND 19(A) HEREOF. THE
PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE SECURITIES
ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE
FACE HEREOF PURSUANT TO SECTION 3(C)(III) OF THIS NOTE.
CHARYS HOLDING COMPANY, INC.
SUBORDINATED UNSECURED CONVERTIBLE NOTE
Issuance Date: April 30, 2007 Principal: U.S. $8,354,043.00
FOR VALUE RECEIVED, Charys Holding Company, Inc., a Delaware corporation
(the "COMPANY"), hereby promises to pay to the order of GOTTBETTER CAPITAL
MASTER, LTD. or registered assigns ("HOLDER") the amount set out above as the
Principal (as reduced pursuant to the terms hereof pursuant to redemption,
conversion or otherwise, the "PRINCIPAL") when due, whether upon the Maturity
Date (as defined below), on any Installment Date with respect to the Installment
Amount due on such Installment Date (each, as defined herein), acceleration,
redemption or otherwise (in each case in accordance with the terms hereof) and
to pay interest ("INTEREST") on any outstanding Principal at a rate equal to
8.75% per annum (the "INTEREST RATE"), from the date set out above as the
Issuance Date (the "ISSUANCE DATE") until the same becomes due and payable,
whether upon any Installment Date or, the Maturity Date, acceleration,
conversion, redemption or otherwise (in each case in accordance with the terms
hereof). This Subordinated Unsecured Convertible Note (including all
Subordinated Unsecured Convertible Notes issued in exchange, transfer or
replacement hereof, this "NOTE") is one of an issue of Subordinated Unsecured
Convertible Notes issued pursuant to the Securities Exchange Agreement (as
defined below) on the Closing Date (collectively, the "NOTES" and such other
Subordinated Unsecured Convertible Notes, the "OTHER NOTES"). Certain
capitalized terms used herein are defined in Section 27. Notwithstanding
anything herein contained to the contrary or in the Securities Exchange
Agreement defined below, the Holder specifically acknowledges that all of those
certain 8.75% Senior Convertible Notes issued by the Company on February 16,
2007 in the principal amount of $175 million, and issued on March 6, 2007 in the
principal amount of $26.25 million in connection with the issuance of securities
of the Company by XxXxxxx Securities Co. L.P. are senior to this Note in right
of payment, whether in respect of payment of redemptions, interest, damages or
upon liquidation or dissolution or otherwise.
(1) PAYMENTS OF PRINCIPAL. On each Installment Date, the Company shall
---------------------
pay to the Holder an amount equal to the Installment Amount due on such
Installment Date. The "MATURITY DATE" shall be May 1, 2008, as may be extended
at the option of the Holder (i) in the event that, and for so long as, an Event
of Default (as defined in Section 4(a)) shall have occurred and be continuing or
any event shall have occurred and be continuing which with the passage of time
and the failure to cure would result in an Event of Default and (ii) through the
date that is ten (10) days after the consummation of a Change of Control in the
event that a Change of Control is publicly announced or a Change of Control
Notice (as defined in Section 5(b)) is delivered prior to the Maturity Date and
(iii) in connection with a deferral in accordance with the provisions of Section
8(b).
(2) INTEREST; INTEREST RATE. Interest on this Note shall commence
-------------------------
accruing on the Issuance Date and shall be computed on the basis of a 365-day
year and actual days elapsed and shall be payable in arrears for each Payment
Month on the Installment Date during the period beginning on the Issuance Date
and ending on,
- 1 -
and including, the Maturity Date. Interest shall be payable on each Installment
Date, to the record holder of this Note on the applicable Installment Date, and
to the extent that any Principal amount of this Note is converted prior to such
Installment Date, accrued and unpaid Interest with respect to such converted
Principal amount and accrued and unpaid Late Charges with respect to such
Principal and Interest shall be paid through the Conversion Date (as defined
below) on the next succeeding Installment Date to the record holder of this Note
on the applicable Conversion Date, in cash ("CASH INTEREST"). Prior to the
payment of Interest on an Installment Date, Interest on this Note shall accrue
at the Interest Rate. Upon the occurrence and during the continuance of an
Event of Default, the Interest Rate shall be increased to fifteen percent (15%).
In the event that such Event of Default is subsequently cured, the adjustment
referred to in the preceding sentence shall cease to be effective as of the date
of such cure; provided that the Interest as calculated and unpaid at such
increased rate during the continuance of such Event of Default shall continue to
apply to the extent relating to the days after the occurrence of such Event of
Default through and including the date of cure of such Event of Default. The
Company shall pay any and all taxes that may be payable with respect to the
issuance and delivery of Interest Shares; provided that the Company shall not be
--------
required to pay any tax that may be payable in respect of any issuance of
Interest Shares to any Person other than the Holder or with respect to any
income tax due by the Holder with respect to such Interest Shares.
(3) CONVERSION OF NOTES. This Note shall be convertible into shares of
-------------------
the Company's common stock, par value $0.001 per share (the "COMMON STOCK"), on
the terms and conditions set forth in this Section 3 (the "CONVERSION").
(a) Conversion Right. Subject to the provisions of Section 3(d),
-----------------
at any time or times on or after the Issuance Date, the Holder shall be entitled
to convert any portion of the outstanding and unpaid Conversion Amount (as
defined below) into fully paid and nonassessable shares of Common Stock in
accordance with Section 3(c), at the Conversion Rate (as defined below). The
Company shall not issue any fraction of a share of Common Stock upon any
Conversion. If the issuance would result in the issuance of a fraction of a
share of Common Stock, the Company shall round such fraction of a share of
Common Stock up to the nearest whole share. The Company shall pay any and all
taxes that may be payable with respect to the issuance and delivery of Common
Stock upon Conversion of any Conversion Amount.
(b) Conversion Rate. The number of shares of Common Stock
----------------
issuable upon Conversion of any Conversion Amount pursuant to Section 3(a) shall
be determined by dividing (x) such Conversion Amount by (y) the Conversion Price
(the "CONVERSION RATE").
(i) "CONVERSION AMOUNT" means the portion of the Principal to
be converted, redeemed or otherwise with respect to which this determination is
being made.
(ii) "CONVERSION PRICE" means, as of any Conversion Date (as
defined below) or other date of determination, $2.25, subject to adjustment as
provided herein.
(c) Mechanics of Conversion.
-------------------------
(i) Optional Conversion. To convert any Conversion Amount
--------------------
into shares of Common Stock on any date (a "CONVERSION DATE"), the Holder shall
(A) transmit by facsimile (or otherwise deliver), for receipt on or prior to
11:59 p.m., New York Time, on such date, a copy of an executed notice of
Conversion in the form attached hereto as Exhibit I (the "CONVERSION NOTICE") to
---------
the Company and (B) if required by Section 3(c)(iii), surrender this Note to a
common carrier for delivery to the Company as soon as practicable on or
following such date (or an indemnification undertaking with respect to this Note
in the case of its loss, theft or destruction). On or before the first (1st)
Business Day following the date of receipt of a Conversion Notice, the Company
shall transmit by facsimile a confirmation of receipt of such Conversion Notice
to the Holder and the Transfer Agent. On or before the second Business Day
following the date of receipt of a Conversion Notice (the "SHARE DELIVERY
DATE"), the Company shall (X) provided that the Transfer Agent is participating
in the DTC Fast Automated Securities Transfer Program, credit such aggregate
number of shares of Common Stock to which the Holder shall be entitled to the
Holder's or its designee's balance account with DTC through its Deposit
Withdrawal Agent Commission system or (Y) if the Transfer Agent is not
participating in the DTC Fast Automated Securities Transfer Program, issue and
deliver to the address as specified in the Conversion Notice, a certificate,
registered in the name of the Holder or its designee, for the number of shares
of Common Stock to which the Holder shall be
- 2 -
entitled. If this Note is physically surrendered for Conversion as required by
Section 3(c)(iii) and the outstanding Principal of this Note is greater than the
Principal portion of the Conversion Amount being converted, then the Company
shall as soon as practicable and in no event later than three (3) Business Days
after receipt of this Note and at its own expense, issue and deliver to the
holder a new Note (in accordance with Section 17(d)) representing the
outstanding Principal not converted. The Person or Persons entitled to receive
the shares of Common Stock issuable upon a Conversion of this Note shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on the Conversion Date. In the event of a partial Conversion of
this Note pursuant hereto, the principal amount converted shall be deducted from
the Installment Amounts relating to the Installment Dates as set forth in the
Conversion Notice.
(ii) Company's Failure to Timely Convert. If within three
--------------------------------------
(3) Trading Days after the Company's receipt of the facsimile copy of a
Conversion Notice the Company shall fail to issue and deliver a certificate to
the Holder or credit the Holder's balance account with DTC for the number of
shares of Common Stock to which the Holder is entitled upon such holder's
Conversion of any Conversion Amount (a "CONVERSION FAILURE"), and if on or after
such Trading Day the Holder purchases (in an open market transaction or
otherwise) Common Stock to deliver in satisfaction of a sale by the Holder of
Common Stock issuable upon such Conversion that the Holder anticipated receiving
from the Company (a "BUY-IN"), then the Company shall, within three (3) Business
Days after the Holder's request and in the Holder's discretion, either (i) pay
cash to the Holder in an amount equal to the Holder's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased (the "BUY-IN PRICE"), at which point the Company's obligation to
deliver such certificate (and to issue such Common Stock) shall terminate, or
(ii) promptly honor its obligation to deliver to the Holder a certificate or
certificates representing such Common Stock and pay cash to the Holder in an
amount equal to the excess (if any) of the Buy-In Price over the product of (A)
such number of shares of Common Stock, times (B) the Closing Bid Price on the
Conversion Date.
(iii) Book-Entry. Notwithstanding anything to the contrary
----------
set forth herein, upon Conversion of any portion of this Note in accordance with
the terms hereof, the Holder shall not be required to physically surrender this
Note to the Company unless (A) the full Conversion Amount represented by this
Note is being converted or (B) the Holder has provided the Company with prior
written notice (which notice may be included in a Conversion Notice) requesting
reissuance of this Note upon physical surrender of this Note. The Holder and
the Company shall maintain records showing the Principal, Interest and Late
Charges converted and the dates of such Conversions or shall use such other
method, reasonably satisfactory to the Holder and the Company, so as not to
require physical surrender of this Note upon Conversion.
(iv) Pro Rata Conversion; Disputes. In the event that the
--------------------------------
Company receives a Conversion Notice from more than one holder of Notes for the
same Conversion Date and the Company can convert some, but not all, of such
portions of the Notes submitted for Conversion, the Company, subject to Section
3(d), shall convert from each holder of Notes electing to have Notes converted
on such date a pro rata amount of such holder's portion of its Notes submitted
for Conversion based on the principal amount of Notes submitted for Conversion
on such date by such holder relative to the aggregate principal amount of all
Notes submitted for Conversion on such date. In the event of a dispute as to
the number of shares of Common Stock issuable to the Holder in connection with a
Conversion of this Note, the Company shall issue to the Holder the number of
shares of Common Stock not in dispute and resolve such dispute in accordance
with Section 24.
(d) Limitations on Conversions.
----------------------------
(i) Beneficial Ownership. The Company shall not effect any
---------------------
Conversion of this Note, and the Holder of this Note shall not have the right to
convert any portion of this Note pursuant to Section 3(a), to the extent that
after giving effect to such Conversion, the Holder (together with the Holder's
affiliates) would beneficially own in excess of 4.99% (the "MAXIMUM PERCENTAGE")
of the number of shares of Common Stock outstanding immediately after giving
effect to such Conversion. For purposes of the foregoing sentence, the 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 of
this Note with respect to which the determination of such sentence is being
made, but shall exclude the number of shares of Common Stock which would be
issuable upon (A) Conversion of the remaining, nonconverted portion of this Note
beneficially owned by the Holder or any of its affiliates and (B) exercise or
Conversion of the unexercised or nonconverted portion of any other securities of
the
- 3 -
Company (including, without limitation, any Other Notes or warrants) subject to
a limitation on Conversion or exercise analogous to the limitation contained
herein beneficially owned by the Holder or any of its affiliates. Except as set
forth in the preceding sentence, for purposes of this Section 3(d)(i),
beneficial ownership shall be calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "1934 ACT"). For purposes of
this Section 3(d)(i), in determining the number of outstanding shares of Common
Stock, the Holder may rely on the number of outstanding shares of Common Stock
as reflected in (x) the Company's most recent Form 10-Q or Form 8-K, as the case
may be (y) a more recent public announcement by the Company or (z) any other
notice by the Company or the Transfer Agent setting forth the number of shares
of Common Stock outstanding. For any reason at any time, upon the written or
oral request of the Holder, the Company shall within one Business Day confirm
orally and in writing to the Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock
shall be determined after giving effect to the Conversion or exercise of
securities of the Company, including this Note, by the Holder or its affiliates
since the date as of which such number of outstanding shares of Common Stock was
reported. By written notice to the Company, the Holder may increase or decrease
the Maximum Percentage to any other percentage not in excess of 9.99% specified
in such notice; provided that (i) any such increase will not be effective until
the sixty-first (61st) day after such notice is delivered to the Company, and
(ii) any such increase or decrease will apply only to the Holder and not to any
other holder of Notes.
(ii) Principal Market Regulation. The Company shall not be
-----------------------------
obligated to issue any shares of Common Stock upon Conversion of this Note if
the issuance of such shares of Common Stock would exceed the aggregate number of
shares of Common Stock which the Company may issue upon Conversion or exercise,
as applicable, of the Notes and Warrants without breaching the Company's
obligations under the rules or regulations of the Principal Market (the
"EXCHANGE CAP"), except that such limitation shall not apply in the event that
the Company (A) obtains the approval of its stockholders as required by the
applicable rules of the Principal Market for issuances of Common Stock in excess
of such amount or (B) obtains a written opinion from outside counsel to the
Company that such approval is not required, which opinion shall be reasonably
satisfactory to the Required Holders. Until such approval or written opinion is
obtained, no holder of the Notes pursuant to the Securities Exchange Agreement
(the "HOLDERS") shall be issued in the aggregate, upon Conversion or exercise,
as applicable, of Notes or Warrants, shares of Common Stock in an amount greater
than the product of the Exchange Cap multiplied by a fraction, the numerator of
which is the principal amount of Notes issued to the Holders pursuant to the
Securities Exchange Agreement on the Closing Date and the denominator of which
is the aggregate principal amount of all Notes issued to the Holders pursuant to
the Securities Exchange Agreement on the Closing Date (with respect to each
Purchaser, the "EXCHANGE CAP ALLOCATION"). In the event that any Purchaser
shall sell or otherwise transfer any of such Purchaser's Notes, the transferee
shall be allocated a pro rata portion of such Purchaser's Exchange Cap
Allocation, and the restrictions of the prior sentence shall apply to such
transferee with respect to the portion of the Exchange Cap Allocation allocated
to such transferee. In the event that any holder of Notes shall convert all of
such holder's Notes into a number of shares of Common Stock which, in the
aggregate, is less than such holder's Exchange Cap Allocation, then the
difference between such holder's Exchange Cap Allocation and the number of
shares of Common Stock actually issued to such holder shall be allocated to the
respective Exchange Cap Allocations of the remaining holders of Notes on a pro
rata basis in proportion to the aggregate principal amount of the Notes then
held by each such holder.
(4) RIGHTS UPON EVENT OF DEFAULT.
--------------------------------
(a) Event of Default. Each of the following events shall
------------------
constitute an "EVENT OF DEFAULT":
(i) The failure of the applicable Registration Statement
required to be filed pursuant to the Registration Rights Agreement to be
declared effective by the SEC, or, while the applicable Registration Statement
is required to be maintained effective pursuant to the terms of the Registration
Rights Agreement, the effectiveness of the applicable Registration Statement
lapses for any reason (including, without limitation, the issuance of a stop
order) or is unavailable to any holder of the Notes for sale of all of such
holder's Registrable Securities (as defined in the Registration Rights
Agreement) in accordance with the terms of the Registration Rights Agreement,
and such lapse or unavailability continues for a period of five (5) consecutive
Trading Days or for more than an aggregate of ten (10) days in any 365-day
period (other than days during an Allowable Grace Period (as defined in the
Registration Rights Agreement));
- 4 -
(ii) If after Conversion, the suspension from trading or
failure of the Common Stock to be listed on an Eligible Market for a period of
five (5) consecutive Trading Days or for more than an aggregate of ten (10)
Trading Days in any 365-day period;
(iii) The Company's (A) failure to cure a Conversion Failure
by delivery of the required number of shares of Common Stock within ten (10)
Business Days after the applicable Conversion Date or (B) notice, written or
oral, to any holder of the Notes, including by way of public announcement or
through any of its agents, at any time, of its intention not to comply with a
request for Conversion of any Notes into shares of Common Stock that is tendered
in accordance with the provisions of the Notes, other than pursuant to Section
3(d);
(iv) At any time following the 10th consecutive Business Day
that the Holder's Authorized Share Allocation is less than the number of shares
of Common Stock that the Holder would be entitled to receive upon a Conversion
of the full Conversion Amount of this Note (without regard to any limitations on
Conversion set forth in Section 3(d) or otherwise);
(v) The Company's failure to pay to the Holder any amount of
Principal, Interest, Late Charges or other amounts when and as due under this
Note (including, without limitation, the Company's failure to pay any redemption
payments or amounts hereunder) or any other Transaction Document (as defined in
the Securities Exchange Agreement) or any other agreement, document, certificate
or other instrument delivered in connection with the transactions contemplated
hereby and thereby to which the Holder is a party, except, in the case of a
failure to pay Interest and Late Charges when and as due, in which case only if
such failure continues for a period of at least five (5) Business Days;
(vi) The entry by a court having jurisdiction in the premises
of (i) a decree or order for relief in respect of the Company or any Subsidiary
of a voluntary case or proceeding under any applicable Federal or State
bankruptcy, insolvency, reorganization or other similar law or (ii) a decree or
order adjudging the Company or any Subsidiary as bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization, arrangement,
adjustment or composition of or in respect of the Company or any Subsidiary
under any applicable Federal or State law or (iii) appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar official
of the Company or any Subsidiary or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and the continuance of
any such decree or order for relief or any such other decree or order unstayed
and in effect for a period of 60 consecutive days;
(vii) The commencement by the Company or any Subsidiary of a
voluntary case or proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to
the entry of a decree or order for relief in respect of the Company or any
Subsidiary in an involuntary case or proceeding under any applicable Federal or
State bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against it, or
the filing by it of a petition or answer or consent seeking reorganization or
relief under any applicable Federal or State law, or the consent by it to the
filing of such petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or any Subsidiary or of any substantial part of
its property, or the making by it of an assignment for the benefit of creditors,
or the admission by it in writing of its inability to pay its debts generally as
they become due, or the taking of corporate action by the Company or any
Subsidiary in furtherance of any such action;
(viii) The Company breaches any material representation,
warranty, covenant or other term or condition of any Transaction Document,
except, in the case of a breach of a covenant or other term or condition of any
Transaction Document which is curable, only if the Holder gives five (5)
Business Days prior notice of such breach and it remains uncured for a period of
at least five (5) Business Days;
(ix) (A) the indictment or conviction of any of the named
executive officers (as defined in Item 402(a)(3) of Regulation S-K) or any of
the directors of the Company of a violation of federal or state securities laws
or (B) the settlement in an amount over $1,000,000 by any such officer or
director of an action relating to such officer's violation of federal or state
securities laws, breach of fiduciary duties or self-dealing;
- 5 -
(x) Any breach or failure in any respect to comply with
Section 9 of this Note; or
(xi) Any Event of Default (as defined in the Other Notes)
occurs with respect to any Other Notes.
(b) Redemption Right. Promptly after the occurrence of an Event
-----------------
of Default with respect to this Note or any Other Note, the Company shall
deliver written notice thereof via facsimile and overnight courier (an "EVENT OF
DEFAULT NOTICE") to the Holder. At any time after the earlier of the Holder's
receipt of an Event of Default Notice and the Holder becoming aware of an Event
of Default, the Holder may require the Company to redeem all or any portion of
this Note by delivering written notice thereof (the "EVENT OF DEFAULT REDEMPTION
NOTICE") to the Company, which Event of Default Redemption Notice shall indicate
the portion of this Note the Holder is electing to redeem. Each portion of this
Note subject to redemption by the Company pursuant to this Section 4(b) shall be
redeemed by the Company at a price equal to the greater of (i) the product of
(x) the sum of the Conversion Amount to be redeemed together with accrued and
unpaid Interest with respect to such Conversion Amount and accrued and unpaid
Late Charges with respect to such Conversion Amount and Interest and (y) the
Redemption Premium and (ii) the product of (A) the Conversion Rate with respect
to such sum of the Conversion Amount together with accrued and unpaid Interest
with respect to such Conversion Amount and accrued and unpaid Late Charges with
respect to such Conversion Amount and Interest in effect at such time as the
Holder delivers an Event of Default Redemption Notice and (B) the Closing Sale
Price of the Common Stock on the date immediately preceding such Event of
Default (the "EVENT OF DEFAULT REDEMPTION PRICE"). Redemptions required by this
Section 4(b) shall be made in accordance with the provisions of Section 12. In
the event of a partial redemption of this Note pursuant hereto, the principal
amount redeemed shall be deducted from the Installment Amounts relating to the
applicable Installment Dates as set forth in the Event of Default Redemption
Notice.
(c) In addition, and without limitation of any other rights and
remedies hereunder, upon the first occurrence of a default under Section 4(a)(v)
---------------
of this Note, without regard to any cure period thereunder, and upon the
expiration of each additional 30 day thereafter during which the Event of
Default continues, in whole or in part (such late payment, the "DELINQUENT
PAYMENT AMOUNT"), the Company shall issue a Warrant to the Holder in the form
attached to the Securities Exchange Agreement (including any warrants issued in
exchange therefore or replacement thereof, a "WARRANT") for such number of
shares of Common Stock of the Company equal to the Delinquent Payment Amount at
such time divided by the Conversion Price. Upon the second occurrence of an
Event of Default under Section 4(a)(v) of this Note, without regard to any cure
---------------
period thereunder, the Company shall issue a Warrant to the Holder for such
number of shares of Common Stock of the Company equal to the outstanding
principal balance of the Note at such time divided by the Conversion Price. The
issuance of any Warrant hereunder is not a cure of any Event of Default. The
Company and the Holder agree that it would be extremely difficult and
impracticable under the presently known and anticipated facts and circumstances
to ascertain and fix with precision the actual damages the Holder would incur
should the Company delay in making timely payments hereunder, and, accordingly,
the Company and the Holder agree that a Warrant shall be issued as provided
herein as liquidated damages for such delay, and not as a penalty. The Company
and the Holder agree that the liquidated damages identified herein are not a
penalty, but instead are a good faith and reasonable estimate of the damages and
loss the Holder would suffer in the event the Company delays in making timely
payments under this Note.
- 6 -
(5) RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.
-----------------------------------------------------------------
(a) Assumption. The Company shall not enter into or be party to a
----------
Fundamental Transaction unless (i) the Successor Entity assumes in writing all
of the obligations of the Company under this Note and the other Transaction
Documents in accordance with the provisions of this Section 5(a) pursuant to
written agreements in form and substance reasonably satisfactory to the Required
Holders and approved by the Required Holders prior to such Fundamental
Transaction, including agreements to deliver to each holder of Notes in exchange
for such Notes a security of the Successor Entity evidenced by a written
instrument substantially similar in form and substance to the Notes, including,
without limitation, having a principal amount and interest rate equal to the
principal amounts and the interest rates of the Notes held by such holder and
having similar ranking to the Notes, and satisfactory to the Required Holders
and (ii) the Successor Entity (including its Parent Entity) is a publicly
traded corporation whose common stock is quoted on or listed for trading on an
Eligible Market (a "PUBLIC SUCCESSOR ENTITY"). Upon the occurrence of any
Fundamental Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Note referring to the "Company" shall refer
instead to the Successor Entity), and may exercise every right and power of the
Company and shall assume all of the obligations of the Company under this Note
with the same effect as if such Successor Entity had been named as the Company
herein. Upon consummation of the Fundamental Transaction, the Successor Entity
shall deliver to the Holder confirmation that there shall be issued upon
Conversion or redemption of this Note at any time after the consummation of the
Fundamental Transaction, in lieu of the shares of the Company's Common Stock (or
other securities, cash, assets or other property) purchasable upon the
Conversion or redemption of the Notes prior to such Fundamental Transaction,
such shares of the publicly traded common stock (or its equivalent) of the
Successor Entity (including its Parent Entity), as adjusted in accordance with
the provisions of this Note. The provisions of this Section shall apply
similarly and equally to successive Fundamental Transactions and shall be
applied without regard to any limitations on the Conversion or redemption of
this Note.
(b) Redemption Right. No sooner than fifteen (15) days nor later
-----------------
than ten (10) days prior to the consummation of a Change of Control, but not
prior to the public announcement of such Change of Control, the Company shall
deliver written notice thereof via facsimile and overnight courier to the Holder
(a "CHANGE OF CONTROL NOTICE"). At any time during the period beginning after
the Holder's receipt of a Change of Control Notice and ending on the date of the
consummation of such Change of Control (or, in the event a Change of Control
Notice is not delivered at least ten (10) days prior to a Change of Control, at
any time on or after the date which is ten (10) days prior to a Change of
Control and ending ten (10) days after the consummation of such Change of
Control), the Holder may require the Company to redeem all or any portion of
this Note by delivering written notice thereof ("CHANGE OF CONTROL REDEMPTION
NOTICE") to the Company, which Change of Control Redemption Notice shall
indicate the Conversion Amount the Holder is electing to redeem. The portion of
this Note subject to redemption pursuant to this Section 5 shall be redeemed by
the Company at a price equal to the greater of (i) the product of (x) 125% of
the sum of the Conversion Amount being redeemed together with accrued and unpaid
Interest with respect to such Conversion Amount and accrued and unpaid Late
Charges with respect to such Conversion Amount and Interest and (y) the quotient
determined by dividing (A) the Closing Sale Price of the Common Stock
immediately following the public announcement of such proposed Change of Control
by (B) the Conversion Price and (ii) 125% of the sum of the Conversion Amount
being redeemed together with accrued and unpaid Interest with respect to such
Conversion Amount and accrued and unpaid Late Charges with respect to such
Conversion Amount and Interest (the "CHANGE OF CONTROL REDEMPTION PRICE").
Redemptions required by this Section 5 shall be made in accordance with the
provisions of Section 12 and shall have priority to payments to stockholders in
connection with a Change of Control. Notwithstanding anything to the contrary
in this Section 5, but subject to Section 3(d), until the Change of Control
Redemption Price (together with any interest thereon) is paid in full, the
Conversion Amount submitted for redemption under this Section 5(c) (together
with any interest thereon) may be converted, in whole or in part, by the Holder
into Common Stock pursuant to Section 3. In the event of a partial redemption
of this Note pursuant hereto, the principal amount redeemed shall be deducted
from the Installment Amounts relating to the applicable Installment Dates as set
forth in the Change of Control Redemption Notice.
- 7 -
(6) RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.
-------------------------------------------------------------------
(a) Purchase Rights. Except with respect to the purchase of any
----------------
current Subsidiaries or any proposed acquisition of a new Subsidiary and except
as disclosed in the SEC Documents filed at least three Business Days prior to
the date of this Agreement), or the issuance of any shares of the Common Stock
to employees or consultants for services rendered to the Company or any
Subsidiary, or the issuance of any shares of the Common Stock in settlement of
debts or disputes of the Company or any Subsidiary, or the issuance of any
shares of the Common Stock to any lender in connection with financings of the
Company or any Subsidiary, or the issuance of any shares of the Common Stock
pursuant to any Stock Option Plan adopted by the Company or any Subsidiary, or
shares of the Common Stock issued pursuant to any S-8 Registration Statement
filed by the Company with the SEC, or as otherwise consented to by the Required
Holders (an "EXCLUDED SECURITY"), if at any time the Company grants, issues or
sells any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "PURCHASE RIGHTS"), then the Holder will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which the Holder could have acquired if the Holder had held the
number of shares of Common Stock acquirable upon complete Conversion of this
Note (without taking into account any limitations or restrictions on the
convertibility of this Note) immediately before the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights. As used
herein, "SEC Documents" means all reports, schedules, exhibits, forms,
statements and other documents required to be filed by the Company with the SEC
pursuant to the reporting requirements of the 1934 Act (including documents
incorporated by reference therein), including the registration statement filed
by the Company on Form SB-2 on April 30, 2007 and any other registration
statements filed by the Company pursuant to the Securities Act of 1933, as
amended (the "1933 ACT").
(b) Other Corporate Events. In addition to and not in
------------------------
substitution for any other rights hereunder, prior to the consummation of any
Fundamental Transaction pursuant to which holders of shares of Common Stock are
entitled to receive securities or other assets with respect to or in exchange
for shares of Common Stock (a "CORPORATE EVENT"), the Company shall make
appropriate provision to ensure that the Holder will thereafter have the right
to receive upon a Conversion of this Note, (i) in addition to the shares of
Common Stock receivable upon such Conversion, such securities or other assets to
which the Holder would have been entitled with respect to such shares of Common
Stock had such shares of Common Stock been held by the Holder upon the
consummation of such Corporate Event (without taking into account any
limitations or restrictions on the convertibility of this Note) or (ii) in lieu
of the shares of Common Stock otherwise receivable upon such Conversion, such
securities or other assets received by the holders of shares of Common Stock in
connection with the consummation of such Corporate Event in such amounts as the
Holder would have been entitled to receive had this Note initially been issued
with Conversion rights for the form of such consideration (as opposed to shares
of Common Stock) at a Conversion rate for such consideration commensurate with
the Conversion Rate. Provision made pursuant to the preceding sentence shall be
in a form and substance satisfactory to the Required Holders. The provisions of
this Section shall apply similarly and equally to successive Corporate Events
and shall be applied without regard to any limitations on the Conversion or
redemption of this Note.
(7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.
---------------------------------------------
(a) Adjustment of Conversion Price upon Issuance of Common Stock.
-------------------------------------------------------------
Subject to the Exchange Agreement, if and whenever on or after the Issuance
Date, the Company issues or sells, or in accordance with this Section 7(a) is
deemed to have issued or sold, any shares of Common Stock (including the
issuance or sale of shares of Common Stock owned or held by or for the account
of the Company, but excluding shares of Common Stock deemed to have been issued
or sold by the Company in connection with any Excluded Security) for a
consideration per share (the "NEW ISSUANCE PRICE") less than a price (the
"APPLICABLE PRICE") equal to the Conversion Price in effect immediately prior to
such issue or sale (the foregoing a "DILUTIVE ISSUANCE"), then immediately after
such Dilutive Issuance the Conversion Price then in effect shall be reduced to
an amount equal to the New Issuance Price. For purposes of determining the
adjusted Conversion Price under this Section 7(a), the following shall be
applicable:
(i) Issuance of Options. If the Company in any manner grants
-------------------
or sells any Options and the lowest price per share for which one share of
Common Stock is issuable upon the exercise of any such
- 8 -
Option or upon Conversion or exchange or exercise of any Convertible Securities
issuable upon exercise of such Option is less than the Applicable Price, then
such share of Common Stock shall be deemed to be outstanding and to have been
issued and sold by the Company at the time of the granting or sale of such
Option for such price per share. For purposes of this Section 7(a)(i), the
"lowest price per share for which one share of Common Stock is issuable upon the
exercise of any such Option or upon Conversion or exchange or exercise of any
Convertible Securities issuable upon exercise of such Option" shall be equal to
the sum of the lowest amounts of consideration (if any) received or receivable
by the Company with respect to any one share of Common Stock upon granting or
sale of the Option, upon exercise of the Option and upon Conversion or exchange
or exercise of any Convertible Security issuable upon exercise of such Option.
No further adjustment of the Conversion Price shall be made upon the actual
issuance of such Common Stock or of such Convertible Securities upon the
exercise of such Options or upon the actual issuance of such Common Stock upon
Conversion or exchange or exercise of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company in
------------------------------------
any manner issues or sells any Convertible Securities and the lowest price per
share for which one share of Common Stock is issuable upon such Conversion or
exchange or exercise thereof is less than the Applicable Price, then such share
of Common Stock shall be deemed to be outstanding and to have been issued and
sold by the Company at the time of the issuance of sale of such Convertible
Securities for such price per share. For the purposes of this Section 7(a)(ii),
the "price per share for which one share of Common Stock is issuable upon such
Conversion or exchange or exercise" shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the Company with
respect to any one share of Common Stock upon the issuance or sale of the
Convertible Security and upon the Conversion or exchange or exercise of such
Convertible Security. No further adjustment of the Conversion Price shall be
made upon the actual issuance of such Common Stock upon Conversion or exchange
or exercise of such Convertible Securities, and if any such issue or sale of
such Convertible Securities is made upon exercise of any Options for which
adjustment of the Conversion Price had been or are to be made pursuant to other
provisions of this Section 7(a), no further adjustment of the Conversion Price
shall be made by reason of such issue or sale.
(iii) Change in Option Price or Rate of Conversion. If the
----------------------------------------------
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, Conversion, exchange or exercise of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable or exercisable for Common Stock changes at any time, the
Conversion Price in effect at the time of such change shall be adjusted to the
Conversion Price which would have been in effect at such time had such Options
or Convertible Securities provided for such changed purchase price, additional
consideration or changed Conversion rate, as the case may be, at the time
initially granted, issued or sold. For purposes of this Section 7(a)(iii), if
the terms of any Option or Convertible Security that was outstanding as of the
Issuance Date are changed in the manner described in the immediately preceding
sentence, then such Option or Convertible Security and the Common Stock deemed
issuable upon exercise, Conversion or exchange thereof shall be deemed to have
been issued as of the date of such change. No adjustment shall be made if such
adjustment would result in an increase of the Conversion Price then in effect.
(iv) Calculation of Consideration Received. In case any
----------------------------------------
Option is issued in connection with the issue or sale of other securities of the
Company, together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $.0.001. If any
Common Stock, Options or Convertible Securities are issued or sold or deemed to
have been issued or sold for cash, the consideration received therefor will be
deemed to be the net amount received by the Company therefor. If any Common
Stock, Options or Convertible Securities are issued or sold for a consideration
other than cash, the amount of the consideration other than cash received by the
Company will be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Company will be the Closing Sale Price of such securities on the
date of receipt. If any Common Stock, Options or Convertible Securities are
issued to the owners of the non-surviving entity in connection with any merger
in which the Company is the surviving entity, the amount of consideration
therefor will be deemed to be the fair value of such portion of the net assets
and business of the non-surviving entity as is attributable to such Common
Stock, Options or Convertible Securities, as the case may be. The fair value of
any consideration other than cash or securities will be determined jointly by
the Company and the Required Holders. If such parties are unable to reach
agreement within ten (10) days after the occurrence of an event requiring
valuation (the "VALUATION EVENT"), the fair value of such consideration will be
determined within five (5) Business
- 9 -
Days after the tenth (10th) day following the Valuation Event by an independent,
reputable appraiser jointly selected by the Company and the Required Holders.
The determination of such appraiser shall be deemed binding upon all parties
absent manifest error and the fees and expenses of such appraiser shall be borne
by the Company.
(v) Record Date. If the Company takes a record of the
------------
holders of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (B) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date will be deemed to be the date
of the issue or sale of the Common Stock deemed to have been issued or sold upon
the declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
(b) Adjustment of Conversion Price upon Subdivision or Combination
--------------------------------------------------------------
of Common Stock. If the Company at any time on or after the Issuance Date
-----------------
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced. If the Company at any time on or
after the Issuance Date combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Conversion Price in effect immediately prior to
such combination will be proportionately increased.
(c) Other Events. If any event occurs of the type contemplated by
------------
the provisions of this Section 7 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the Holder under this Note;
provided that no such adjustment will increase the Conversion Price as otherwise
determined pursuant to this Section 7.
(d) Notices.
-------
(i) Immediately upon any adjustment of the Conversion Price
pursuant to this Section 7, the Company will give written notice thereof to the
Holder, setting forth in reasonable detail, and certifying, the calculation of
such adjustment. In the case of a dispute as to the determination of such
adjustment, then such dispute shall be resolved in accordance with the
procedures set forth in Section 24.
(ii) The Company will give written notice to each Holder at
least ten (10) Business Days prior to the date on which the Company closes its
books or takes a record (I) with respect to any dividend or distribution upon
the Common Stock, (II) with respect to any pro rata subscription offer to
holders of Common Stock or (III) for determining rights to vote with respect to
any Fundamental Transaction or Liquidation Event, provided that such information
shall be made known to the public prior to or in conjunction with such notice
being provided to such Holder.
(iii) The Company will also give written notice to each
Holder no later than (i) ten (10) Business Days prior to the date on which any
Fundamental Transaction or Liquidation Event will take place and (ii) the date
upon which such Fundamental Transaction or Liquidation Event is announced to the
public; provided that such information shall be made known to the public prior
to or in conjunction with such notice being provided to such Holder.
(8) COMPANY REDEMPTION. The Company may prepay (a "COMPANY
-------------------
REDEMPTION") all or any portion of this Note (the "COMPANY REDEMPTION AMOUNT"),
subject, however to the payment of a prepayment penalty which shall be equal to
110% of the outstanding Principal, together with accrued and unpaid Interest
with respect to such Company Redemption Amount and accrued and unpaid Late
Charges with respect to such Company Redemption Amount and Interest. If the
Company elects a Company Redemption, then the Company Redemption Amount which is
to be paid to the Holder on the applicable Company Redemption Date shall be
redeemed by the Company on such Company Redemption Date, and the Company shall
pay to the Holder on such Company Redemption Date, by wire transfer of
immediately available funds, an amount in cash equal to the Company Redemption
Amount.
- 10 -
(9) MANDATORY REDEMPTION AT MATURITY. If any Notes remain outstanding
---------------------------------
on the Maturity Date, the Company shall redeem such Notes in cash in an amount
equal to the outstanding Principal plus any accrued but unpaid Interest and Late
Charges (the "MATURITY DATE REDEMPTION PRICE"). The Company shall pay the
Maturity Date Redemption Price on the Maturity Date by wire transfer of
immediately available funds to an account designated in writing by such Holder.
If the Company fails to redeem all of the Principal outstanding on the Maturity
Date by payment of the Maturity Date Redemption Price, then in addition to any
remedy such Holder may have under any Transaction Document, (I) the applicable
Maturity Date Redemption Price payable in respect of such unredeemed Principal
shall bear interest at the rate of 3.0% per month, prorated for partial months,
until paid in full, and (II) any Holder shall have the option to require the
Company to convert any or all of such Holder's Note and for which the Maturity
Date Redemption Price (together with any interest thereon) has not been paid
into shares of Common Stock equal to the number which results from dividing the
Maturity Date Redemption Price (together with any interest thereon) by the
Conversion Price. If the Company has failed to pay the Maturity Date Redemption
Price in a timely manner as described above, then the Maturity Date shall be
automatically extended for the Note until the date the Holders receive such
shares of Common Stock or Maturity Date Redemption Price. All redemptions shall
be made on a pro-rata basis to all holders of the Notes.
(10) NONCIRCUMVENTION. The Company hereby covenants and agrees that
----------------
the Company will not, by amendment of its Certificate of Incorporation, Bylaws
or through any reorganization, transfer of assets, consolidation, merger, scheme
of arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Note, and will at all times in good faith carry out all of the
provisions of this Note and take all action as may be required to protect the
rights of the Holder of this Note.
(11) RESERVATION OF AUTHORIZED SHARES.
-----------------------------------
(a) Reservation. The Company shall initially reserve out of its
-----------
authorized and unissued Common Stock a number of shares of Common Stock for each
of the Notes equal to 130% of the Conversion Rate with respect to the Conversion
Amount of each such Note as of the Issuance Date. So long as any of the Notes
are outstanding, the Company shall take all action necessary to reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the Conversion of the Notes, 130% of the number of shares
of Common Stock as shall from time to time be necessary to effect the Conversion
of all of the Notes then outstanding pursuant to Sections 2 and 3; provided that
at no time shall the number of shares of Common Stock so reserved be less than
the number of shares required to be reserved by the previous sentence (without
regard to any limitations on Conversions) (the "REQUIRED RESERVE AMOUNT"). The
initial number of shares of Common Stock reserved for Conversions of the Notes
and each increase in the number of shares so reserved shall be allocated pro
rata among the holders of the Notes based on the principal amount of the Notes
held by each holder at the Closing (as defined in the Securities Exchange
Agreement) or increase in the number of reserved shares, as the case may be (the
"AUTHORIZED SHARE ALLOCATION"). In the event that a holder shall sell or
otherwise transfer any of such holder's Notes, each transferee shall be
allocated a pro rata portion of such holder's Authorized Share Allocation. Any
shares of Common Stock reserved and allocated to any Person which ceases to hold
any Notes shall be allocated to the remaining holders of Notes, pro rata based
on the principal amount of the Notes then held by such holders.
(b) Insufficient Authorized Shares. If at any time while any of
--------------------------------
the Notes remain outstanding the Company does not have a sufficient number of
authorized and unreserved shares of Common Stock to satisfy its obligation to
reserve for issuance upon Conversion of the Notes at least a number of shares of
Common Stock equal to the Required Reserve Amount (an "AUTHORIZED SHARE
FAILURE"), then the Company shall immediately take all action necessary to
increase the Company's authorized shares of Common Stock to an amount sufficient
to allow the Company to reserve the Required Reserve Amount for the Notes then
outstanding. Without limiting the generality of the foregoing sentence, as soon
as practicable after the date of the occurrence of an Authorized Share Failure,
but in no event later than sixty (60) days after the occurrence of such
Authorized Share Failure, the Company shall hold a meeting of its stockholders
for the approval of an increase in the number of authorized shares of Common
Stock. In connection with such meeting, the Company shall provide each
stockholder with a proxy statement and shall use its best efforts to solicit its
stockholders' approval of such increase in authorized shares of Common Stock and
to cause its board of directors to recommend to the stockholders that they
approve such proposal.
(12) HOLDER'S REDEMPTIONS.
---------------------
- 11 -
(a) Reservation. The Company shall initially reserve out of its
-----------
authorized and unissued Common Stock a number of shares of Common Stock for each
of the Notes equal to 130% of the Conversion Rate with respect to the Conversion
Amount of each such Note as of the Issuance Date. So long as any of the Notes
are outstanding, the Company shall take all action necessary to reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the Conversion of the Notes, 130% of the number of shares
of Common Stock as shall from time to time be necessary to effect the Conversion
of all of the Notes then outstanding pursuant to Sections 2 and 3; provided that
at no time shall the number of shares of Common Stock so reserved be less than
the number of shares required to be reserved by the previous sentence (without
regard to any limitations on Conversions) (the "REQUIRED RESERVE AMOUNT"). The
initial number of shares of Common Stock reserved for Conversions of the Notes
and each increase in the number of shares so reserved shall be allocated pro
rata among the holders of the Notes based on the principal amount of the Notes
held by each holder at the Closing (as defined in the Securities Exchange
Agreement) or increase in the number of reserved shares, as the case may be (the
"AUTHORIZED SHARE ALLOCATION"). In the event that a holder shall sell or
otherwise transfer any of such holder's Notes, each transferee shall be
allocated a pro rata portion of such holder's Authorized Share Allocation. Any
shares of Common Stock reserved and allocated to any Person which ceases to hold
any Notes shall be allocated to the remaining holders of Notes, pro rata based
on the principal amount of the Notes then held by such holders.
(b) Redemption by Other Holders. Upon the Company's receipt of
------------------------------
notice from any of the holders of the Other Notes for redemption or repayment as
a result of an event or occurrence substantially similar to the events or
occurrences described in Section 4(b) or Section 5(b) (each, an "OTHER
REDEMPTION NOTICE"), the Company shall immediately forward to the Holder by
facsimile a copy of such notice. If the Company receives a Redemption Notice
and one or more Other Redemption Notices, during the seven (7) Business Day
period beginning on and including the date which is three (3) Business Days
prior to the Company's receipt of the Holder's Redemption Notice and ending on
and including the date which is three (3) Business Days after the Company's
receipt of the Holder's Redemption Notice and the Company is unable to redeem
all principal, interest and other amounts designated in such Redemption Notice
and such Other Redemption Notices received during such seven (7) Business Day
period, then the Company shall redeem a pro rata amount from each holder of the
Notes (including the Holder) based on the principal amount of the Notes
submitted for redemption pursuant to such Redemption Notice and such Other
Redemption Notices received by the Company during such seven Business Day
period.
(13) VOTING RIGHTS. The Holder shall have no voting rights as the
--------------
holder of this Note, except as required by law, including, but not limited to,
the General Corporation Law of the State of Delaware, and as expressly provided
in this Note.
(14) PARTICIPATION. If converted, The Holder, as the holder of this
-------------
Note, shall be entitled to receive such dividends paid and distributions made to
the holders of Common Stock to the same extent as if the Holder had converted
this Note into Common Stock (without regard to any limitations on Conversion
herein or elsewhere) and had held such shares of Common Stock on the record date
for such dividends and distributions. Payments under the preceding sentence
shall be made concurrently with the dividend or distribution to the holders of
Common Stock.
(15) VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The affirmative
------------------------------------------------
vote at a meeting duly called for such purpose or the written consent without a
meeting of the Required Holders shall be required for any change or amendment to
this Note or the Other Notes.
- 12 -
(16) TRANSFER. This Note and any shares of Common Stock issued upon
--------
Conversion of this Note may be offered, sold, assigned or transferred by the
Holder without the consent of the Company, subject only to the provisions of
Section 2(f) of the Securities Exchange Agreement and the Securities Act of
1933, as amended.
(17) REISSUANCE OF THIS NOTE.
--------------------------
(a) Transfer. If this Note is to be transferred, the Holder shall
--------
surrender this Note to the Company, whereupon the Company will forthwith issue
and deliver upon the order of the Holder a new Note (in accordance with Section
17(d)), registered as the Holder may request, representing the outstanding
Principal being transferred by the Holder and, if less then the entire
outstanding Principal is being transferred, a new Note (in accordance with
Section 17(d)) to the Holder representing the outstanding Principal not being
transferred. The Holder and any assignee, by acceptance of this Note,
acknowledge and agree that, by reason of the provisions of Section 3(c)(iii)
following Conversion or redemption of any portion of this Note, the outstanding
Principal represented by this Note may be less than the Principal stated on the
face of this Note.
(b) Lost, Stolen or Mutilated Note. Upon receipt by the Company
--------------------------------
of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Note, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the Holder to the Company in
customary form and, in the case of mutilation, upon surrender and cancellation
of this Note, the Company shall execute and deliver to the Holder a new Note (in
accordance with Section 17(d)) representing the outstanding Principal.
(c) Note Exchangeable for Different Denominations. This Note is
-----------------------------------------------
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for a new Note or Notes (in accordance with Section 17(d) and in
principal amounts of at least $100,000) representing in the aggregate the
outstanding Principal of this Note, and each such new Note will represent such
portion of such outstanding Principal as is designated by the Holder at the time
of such surrender.
(d) Issuance of New Notes. Whenever the Company is required to
------------------------
issue a new Note pursuant to the terms of this Note, such new Note (i) shall be
of like tenor with this Note, (ii) shall represent, as indicated on the face of
such new Note, the Principal remaining outstanding (or in the case of a new Note
being issued pursuant to Section 17(a) or Section 17(c), the Principal
designated by the Holder which, when added to the principal represented by the
other new Notes issued in connection with such issuance, does not exceed the
Principal remaining outstanding under this Note immediately prior to such
issuance of new Notes), (iii) shall have an issuance date, as indicated on the
face of such new Note, which is the same as the Issuance Date of this Note, (iv)
shall have the same rights and conditions as this Note, and (v) shall represent
accrued Interest and Late Charges on the Principal and Interest of this Note,
from the Issuance Date.
(18) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND
-----------------------------------------------------------------
INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative and
------------------
in addition to all other remedies available under this Note and any of the other
Transaction Documents at law or in equity (including a decree of specific
performance and/or other injunctive relief), and nothing herein shall limit the
Holder's right to pursue actual and consequential damages for any failure by the
Company to comply with the terms of this Note. Amounts set forth or provided
for herein with respect to payments, Conversion and the like (and the
computation thereof) shall be the amounts to be received by the Holder and shall
not, except as expressly provided herein, be subject to any other obligation of
the Company (or the performance thereof). The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to the
Holder and that the remedy at law for any such breach may be inadequate. The
Company therefore agrees that, in the event of any such breach or threatened
breach, the Holder shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach, without the necessity of
showing economic loss and without any bond or other security being required.
(19) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this
----------------------------------------------------
Note is placed in the hands of an attorney for collection or enforcement or is
collected or enforced through any legal proceeding or the Holder otherwise takes
action to collect amounts due under this Note or to enforce the provisions of
this Note or (b) there occurs any bankruptcy, reorganization, receivership of
the Company or other proceedings affecting Company creditors' rights and
involving a claim under this Note, then the Company shall pay the costs
- 13 -
incurred by the Holder for such collection, enforcement or action or in
connection with such bankruptcy, reorganization, receivership or other
proceeding, including, but not limited to, attorneys' fees and disbursements.
(20) CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly
-----------------------
drafted by the Company and all the Holders and shall not be construed against
any person as the drafter hereof. The headings of this Note are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Note.
(21) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part
--------------------------------
of the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.
(22) DISPUTE RESOLUTION. In the case of a dispute as to the
-------------------
determination of the Closing Bid Price or the Closing Sale Price or the
arithmetic calculation of the Conversion Rate or the Redemption Price, the
Company shall submit the disputed determinations or arithmetic calculations via
facsimile within one (1) Business Day of receipt, or deemed receipt, of the
Conversion Notice or Redemption Notice or other event giving rise to such
dispute, as the case may be, to the Holder. If the Company fails to object to
the calculation of the number of Escrow Shares to be released or otherwise with
respect to the Conversion Notice, within said time, then the Company shall be
deemed to have waived any objections to said calculation and the Conversion
Notice. In the case of a dispute, the Company shall instruct the Escrow Agent to
transfer to the Holder the number of Common Shares that is not disputed, if any,
and shall transmit an explanation of the disputed determinations or arithmetic
calculations to the Holder and Escrow Agent via facsimile within one (1)
Business Day of receipt of such Holder's Conversion Notice or other date of
determination. If the Holder and the Company are unable to agree upon such
determination or calculation within one (1) Business Day of such disputed
determination or arithmetic calculation being submitted to the Holder, then the
Company shall, within one Business Day submit via facsimile (a) the disputed
determination of the Closing Bid Price or the Closing Sale Price to an
independent, reputable investment bank selected by the Company and approved by
the Holder or (b) the disputed arithmetic calculation of the Conversion Rate or
the Redemption Price to the Company's independent, outside accountant. The
Company, at the Company's expense, shall cause the investment bank or the
accountant, as the case may be, to perform the determinations or calculations
and notify the Company and the Holder of the results no later than one (1)
Business Day from the time it receives the disputed determinations or
calculations. Such investment bank's or accountant's determination or
calculation, as the case may be, shall be binding upon all parties absent
manifest error.
(23) NOTICES; PAYMENTS.
------------------
(a) Notices. Whenever notice is required to be given under this
-------
Note, unless otherwise provided herein, such notice shall be given in accordance
with Section 10(f) of the Securities Exchange Agreement. The Company shall
provide the Holder with prompt written notice of all actions taken pursuant to
this Note, including in reasonable detail a description of such action and the
reason therefore. Without limiting the generality of the foregoing, the Company
will give written notice to the Holder (i) immediately upon any adjustment of
the Conversion Price, setting forth in reasonable detail, and certifying, the
calculation of such adjustment and (ii) at least 20 days prior to the date on
which the Company closes its books or takes a record (A) with respect to any
dividend or distribution upon the Common Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock or (C) for determining rights to
vote with respect to any Fundamental Transaction, dissolution or liquidation,
provided in each case that such information shall be made known to the public
prior to or in conjunction with such notice being provided to the Holder.
(b) Payments. Whenever any payment of cash is to be made by the
--------
Company to any Person pursuant to this Note, such payment shall be made in
lawful money of the United States of America by a check drawn on the account of
the Company and sent via overnight courier service to such Person at such
address as previously provided to the Company in writing (which address, in the
case of each of the Holders, shall initially be as set forth on the Schedule of
Buyers attached to the Securities Exchange Agreement); provided that the Holder
may elect to receive a payment of cash via wire transfer of immediately
available funds by providing the Company with prior written notice setting out
such request and the Holder's wire transfer instructions. Whenever any amount
expressed to be due by the terms of this Note is due on any day which is not a
Business Day, the same shall instead be due on the next succeeding day which is
a Business Day and, in the case of any Installment Date which is not the
- 14 -
date on which this Note is paid in full, the extension of the due date thereof
shall not be taken into account for purposes of determining the amount of
Interest due on such date. Any amount of Principal or other amounts due under
the Transaction Documents, other than Interest, which is not paid when due shall
result in a late charge being incurred and payable by the Company in an amount
equal to interest on such amount at the rate of eighteen percent (18%) per annum
from the date such amount was due until the same is paid in full ("LATE
CHARGE").
(24) CANCELLATION. After all Principal, accrued Interest and other
------------
amounts at any time owed on this Note have been paid in full, this Note shall
automatically be deemed canceled, shall be surrendered to the Company for
cancellation and shall not be reissued.
(25) WAIVER OF NOTICE. To the extent permitted by law, the Company
------------------
hereby waives demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Note and the Securities Exchange Agreement.
(26) GOVERNING LAW. This Note shall be construed and enforced in
--------------
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note 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.
(27) CERTAIN DEFINITIONS. For purposes of this Note, the following
--------------------
terms shall have the following meanings:
(a) "APPROVED STOCK PLAN" means any employee benefit plan which
has been approved by the Board of Directors of the Company, pursuant to which
the Company's securities may be issued to any employee, officer or director for
services provided to the Company.
(b) "BLOOMBERG" means Bloomberg Financial Markets.
(c) "BUSINESS DAY" means any day other than Saturday, Sunday or
other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.
(d) "CHANGE OF CONTROL" means any Fundamental Transaction other
than (i) any reorganization, recapitalization or reclassification in which
holders of the Company's voting power immediately prior to such reorganization,
recapitalization or reclassification continue after such reorganization,
recapitalization or reclassification to hold publicly traded securities and,
directly or indirectly, the voting power of the surviving entity or entities
necessary to elect a majority of the members of the board of directors (or their
equivalent if other than a corporation) of such entity or entities, (ii)
pursuant to a migratory merger effected solely for the purpose of changing the
jurisdiction of incorporation of the Company or (iii) a Fundamental Transaction
that has been previously authorized by a written consent of the Required Holders
prior to the consummation of such Fundamental Transaction.
(e) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for any
security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 5:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid
Price or the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases,
- 15 -
the Closing Bid Price or the Closing Sale Price, as the case may be, of such
security on such date shall be the fair market value as mutually determined by
the Company and the Holder. If the Company and the Holder are unable to agree
upon the fair market value of such security, then such dispute shall be resolved
pursuant to Section 24. All such determinations to be appropriately adjusted
for any stock dividend, stock split, stock combination or other similar
transaction during the applicable calculation period.
(f) "CLOSING DATE" shall have the meaning set forth in the
Securities Exchange Agreement, which date is the date the Company initially
issued Notes pursuant to the terms of the Securities Exchange Agreement.
(g) "COMPANY CONVERSION PRICE" means, as of any Conversion Date or
other date of determination, the applicable Conversion Price. All such
determinations to be appropriately adjusted for any stock split, stock dividend,
stock combination or other similar transaction that proportionately decreases or
increases the Common Stock the applicable such Company Conversion Measuring
Period.
(h) "CONVERTIBLE SECURITIES" means any stock or securities (other
than Options) directly or indirectly convertible into or exercisable or
exchangeable for Common Stock.
(i) "ELIGIBLE MARKET" means the Principal Market, The New York
Stock Exchange, Inc., the American Stock Exchange or The Nasdaq SmallCap Market.
(j) "EXCLUDED SECURITIES" means any Common Stock issued or
issuable: (i) in connection with any Approved Stock Plan or shares of the Common
Stock issued pursuant to any S-8 Registration Statement filed by the Company
with the SEC; (ii) upon Conversion of the Notes or the exercise of the Warrants;
(iii) pursuant to a bona fide firm commitment underwritten public offering with
a nationally recognized underwriter which generates gross proceeds to the
Company in excess of $25,000,000 (other than an "at-the-market offering" as
defined in Rule 415(a)(4) under the 1933 Act and "equity lines"); (iv) in
connection with the payment of any Interest Shares on the Notes; (v) in
connection with any acquisition by the Company, whether through an acquisition
of stock or a merger of any business, assets or technologies the primary purpose
of which is not to raise equity capital in an amount not to exceed, in the
aggregate 20% of the outstanding shares of Common Stock in any calendar year;
(vi) upon Conversion of any Options or Convertible Securities which are
outstanding on the day immediately preceding the Issuance Date, provided that
the terms of such Options or Convertible Securities are not amended, modified or
changed on or after the Issuance Date; (vii) the issuance of any shares of the
Common Stock in settlement of debts or disputes of the Company or any
Subsidiary; (viii) the issuance of any shares of the Common Stock to employees
or consultants for services rendered to the Company or any Subsidiary; (ix) the
issuance of any shares of the Common Stock to any lender in connection with
financings of the Company or any Subsidiary; and (viii) as may be otherwise
provided in the Securities Exchange Agreement or in this Note.
(k) "FISCAL QUARTER" means each of the fiscal quarters adopted by
the Company for financial reporting purposes that correspond to the Company's
fiscal year that ends on December 31, or such other fiscal quarter adopted by
the Company for financial reporting purposes in accordance with GAAP.
(l) "FUNDAMENTAL TRANSACTION" means that (i) the Company shall,
directly or indirectly, in one or more related transactions, (A) consolidate or
merge with or into (whether or not the Company is the surviving corporation)
another Person, or (B) sell, assign, transfer, convey or otherwise dispose of
all or substantially all of the properties or assets of the Company to another
Person, or (C) allow another Person to make a purchase, tender or exchange offer
that is accepted by the holders of more than the 50% of the outstanding shares
of Common Stock (not including any shares of Common Stock held by the Person or
Persons making or party to, or associated or affiliated with the Persons making
or party to, such purchase, tender or exchange offer), or (D) consummate a share
purchase agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off or scheme of arrangement) with
another Person whereby such other Person acquires more than the 50% of the
outstanding shares of Common Stock (not including any shares of Common Stock
held by the other Person or other Persons making or party to, or associated or
affiliated with the other Persons making or party to, such stock purchase
agreement or other business combination), or (v) reorganize, recapitalize or
reclassify its Common Stock or (ii) any "person" or "group" (as these terms are
used for purposes of Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended) is or shall become the "beneficial owner" (as defined in Rule
13d-3 under the
- 16 -
Securities Exchange Act of 1934, as amended), directly or indirectly, of 50% of
the issued and outstanding Common Stock or the aggregate ordinary voting power
represented by issued and outstanding Common Stock. Provided, however,
notwithstanding anything herein contained or in any of the other Transaction
Documents, any consolidation of a Subsidiary into another Subsidiary or
Subsidiaries shall not be deemed to be a Fundamental Transaction.
(m) "GAAP" means United States generally accepted accounting
principles, consistently applied.
(n) "INSTALLMENT AMOUNT" means with respect to any Installment
Date, the lesser of (A) with respect each Installment Date, the amount set forth
opposite such date on Exhibit II attached hereto (in each case, plus the sum of
any accrued and unpaid Interest with respect thereto and accrued and unpaid Late
Charges with respect thereto and Interest and any accrued and unpaid interest
thereon), and (B) the Principal amount (plus the sum of any accrued and unpaid
Interest with respect to such Principal amount and accrued and unpaid Late
Charges with respect to such Principal amount and Interest any accrued and
unpaid interest thereon) under this Note as of such Installment Date, as any
such Installment Amount may be reduced pursuant to the terms of this Note,
whether upon Conversion, redemption or otherwise. For the avoidance of doubt,
any accrued and unpaid interest which may be paid pursuant to this definition
shall be deducted from the total interest to be paid on any subsequent Interest
Payment Date. In the event the Holder shall sell or otherwise transfer any
portion of this Note, the transferee shall be allocated a pro rata portion of
the each unpaid Installment Amount hereunder.
(o) "INSTALLMENT DATE" means May 15, 2007 and the first calendar
day of July 2007 and each subsequent calendar month through May 1, 2008, and any
other Installment Date scheduled by the Holder in connection with a Deferral
Amount pursuant to Section 8(b) hereof.
(p) "ISSUANCE DATE" means the Issuance Date.
(q) "LIQUIDATION EVENT" means the voluntary or involuntary
liquidation, dissolution or winding up of the Company or such Subsidiaries the
assets of which constitute all or substantially all of the business of the
Company and its Subsidiaries taken as a whole, in a single transaction or series
of transactions.
(r) "OPTIONS" means any rights, warrants or options to subscribe
for or purchase shares of Common Stock or Convertible Securities.
(s) "PARENT ENTITY" of a Person means an entity that, directly or
indirectly, controls the applicable Person and whose common stock or equivalent
equity security is quoted or listed on an Eligible Market, or, if there is more
than one such Person or Parent Entity, the Person or Parent Entity with the
largest public market capitalization as of the date of consummation of the
Fundamental Transaction.
(t) "PAYMENT MONTH" means each of: the period beginning on and
including the Issuance Date and ending on and including May 31, 2007; and each
of the monthly periods commencing on the first day of June 2007 and each
subsequent month and ending on the last day of each such calendar month, so long
as Principal or Interest or Late Charges are outstanding under the Note.
(u) "PERMITTED LIENS" means subject to the Securities Exchange
Agreement (i) any Lien for taxes not yet due or delinquent or being contested in
good faith by appropriate proceedings for which adequate reserves have been
established in accordance with GAAP, (ii) any statutory Lien arising in the
ordinary course of business by operation of law with respect to a liability that
is not yet due or delinquent, (iii) any Lien created by operation of law, such
as materialmen's liens, mechanics' liens and other similar liens, arising in the
ordinary course of business with respect to a liability that is not yet due or
delinquent or that are being contested in good faith by appropriate proceedings,
and (iv) any Lien described in the Company's SEC documents as of the date
hereof.
(v) "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.
- 17 -
(w) "PRINCIPAL MARKET" means The National Association of
Securities Dealers Inc.'s Over-The-Counter Bulletin Board.
(x) "REDEMPTION PREMIUM" means (i) in the case of the Events of
Default described in Section 4(a)(i) - (vi) and (ix) - (xii), 120% or (ii) in
the case of the Events of Default described in Section 4(a)(vii) - (viii), 100%.
(y) "REGISTRATION RIGHTS AGREEMENT" means that certain
registration rights agreement dated as of the Issuance Date by and among the
Company and the initial holders of the Notes relating to, among other things,
the registration of the resale of the Common Stock issuable upon Conversion of
the Notes and exercise of the Warrants.
(z) "REQUIRED HOLDERS" means the holders of Notes representing at
least a majority of the aggregate principal amount of the Notes then
outstanding.
(aa) "SEC" means the United States Securities and Exchange
Commission.
(bb) "SECURITIES EXCHANGE AGREEMENT" means that certain Securities
Exchange Agreement dated as of the Issuance Date by and among the Company and
the initial holders of the Notes pursuant to which the Company issued the Notes.
(cc) "SUCCESSOR ENTITY" means the Person, which may be the
Company, formed by, resulting from or surviving any Fundamental Transaction or
the Person with which such Fundamental Transaction shall have been made,
provided that if such Person is not a publicly traded entity whose common stock
or equivalent equity security is quoted or listed for trading on an Eligible
Market, Successor Entity shall mean such Person's Parent Entity.
(dd) "TRADING DAY" means any day on which the Common Stock is
traded on the Principal Market, or, if the Principal Market is not the principal
trading market for the Common Stock, then on the principal securities exchange
or securities market on which the Common Stock is then traded; provided that
"Trading Day" shall not include any day on which the Common Stock is scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock is suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour
ending at 5:00:00 p.m., New York Time).
(28) DISCLOSURE. Upon receipt or delivery by the Company of any notice
----------
in accordance with the terms of this Note, unless the Company has in good faith
determined that the matters relating to such notice do not constitute material,
nonpublic information relating to the Company or its Subsidiaries, the Company
shall within one (1) Business Day after any such receipt or delivery publicly
disclose such material, nonpublic information on a Current Report on Form 8-K or
otherwise. In the event that the Company believes that a notice contains
material, nonpublic information relating to the Company or its Subsidiaries, the
Company so shall indicate to such Holder contemporaneously with delivery of such
notice, and in the absence of any such indication, the Holder shall be allowed
to presume that all matters relating to such notice do not constitute material,
nonpublic information relating to the Company or its Subsidiaries.
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as
of the Issuance Date set out above.
CHARYS HOLDING COMPANY, INC.
By
-----------------------------------------
Xxxxx X. Xxx, Xx. Chief Executive Officer
- 18 -
EXHIBIT I
CHARYS HOLDING COMPANY, INC.
CONVERSION NOTICE
Reference is made to the Subordinated Unsecured Convertible Note (the "NOTE")
issued to the undersigned by Charys Holding Company, Inc. (the "COMPANY"). In
accordance with and pursuant to the Note, the undersigned hereby elects to
convert the Conversion Amount (as defined in the Note) of the Note indicated
below into shares of Common Stock par value $0.001 per share (the "COMMON
STOCK") of the Company, as of the date specified below.
Date of Conversion:
------------------------------------------------------
Aggregate Conversion Amount to be converted:
-----------------------------
Please confirm the following information:
Conversion Price:
--------------------------------------------------------
Number of shares of Common Stock to be issued:
---------------------------
Please issue the Common Stock into which the Note is being converted in the
following name and to the following address:
Issue to:
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
Facsimile Number:
--------------------------------------------------------
Authorization:
-----------------------------------------------------------
By:
-----------------------------------------------------------------
Title:
---------------------------------------------------------
Dated:
-------------------------------------------------------------------------
Account Number:
----------------------------------------------------------
(if electronic book entry transfer)
Transaction Code Number:
-------------------------------------------------
(if electronic book entry transfer)
Installment Amounts to be reduced and amount of reduction:
---------------
ACKNOWLEDGMENT
The Company hereby acknowledges this Conversion Notice and hereby directs
____________ to issue the above indicated number of shares of Common Stock in
accordance with the Conversion Notice.
CHARYS HOLDING COMPANY, INC.
By:
------------------------------
Name:
Title:
EXHIBIT II (GOTTBETTER)
-------------------------
DATE PAYMENT ($)
--------- --------------
5/15/2007 500,000
--------- --------------
7/1/2007 447,663.89
--------- --------------
8/1/2007 847,478.40
--------- --------------
9/1/2007 726,180.07
--------- --------------
10/1/2007 721,242.79
--------- --------------
11/1/2007 716,305.51
--------- --------------
12/1/2007 817,244.07
--------- --------------
1/1/2008 811,534.78
--------- --------------
2/1/2008 805,825.49
--------- --------------
3/1/2008 800,116.20
--------- --------------
4/1/2008 794,406.91
--------- --------------
5/01/2008 788,697.62
-------------------------
Exhibit B
NTR 5/14/2007
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISEABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED PURSUANT TO
AN AVAILABLE EXEMPTION UNDER THE 1933 ACT IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
CHARYS HOLDING COMPANY, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: [ ]
Number of Shares of Common Stock: [ ]
Date of Issuance: [ ] ("ISSUANCE DATE")
Charys Holding Company, Inc., a Delaware corporation (the "COMPANY"),
hereby certifies that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, [APPLICABLE BUYER], the registered
holder hereof or its permitted assigns (the "HOLDER"), is entitled, subject to
the terms set forth below, to purchase from the Company, at the Exercise Price
(as defined below) then in effect, upon surrender of this Warrant to Purchase
Common Stock (including any Warrants to Purchase Common Stock issued in
exchange, transfer or replacement hereof, the "WARRANT"), at any time or times
on or after the date hereof but not after 11:59 p.m., New York Time, on the
Expiration Date (as defined below), [NUMBER OF SHARES] fully paid nonassessable
shares of Common Stock (as defined below) (the "WARRANT SHARES"). Except as
otherwise defined herein, capitalized terms in this Warrant shall have the
meanings set forth in Section 16. This Warrant is one of the Warrants to
purchase Common Stock (the "DEFAULT WARRANTS") issued pursuant to Section 2 of
those certain Subordinated Unsecured Convertible Notes, dated as of ________,
2007 (the "ISSUANCE DATE"), by the Company to the investors (the "BUYERS")
referred to therein (the "NOTES").
1. EXERCISE OF WARRANT.
---------------------
(a) Mechanics of Exercise. Subject to the terms and conditions
-----------------------
hereof (including, without limitation, the limitations set forth in Section
1(f)), this Warrant may be exercised by the Holder on any day on or after the
date hereof, in whole or in part, by (i) delivery of a written notice, in the
form attached hereto as Exhibit A (the "EXERCISE NOTICE"), of the Holder's
----------
election to exercise this Warrant and (ii) (A) payment to the Company of an
amount equal to the applicable Exercise Price multiplied by the number of
Warrant Shares as to which
1
NTR 5/14/2007
this Warrant is being exercised (the "AGGREGATE EXERCISE PRICE") in cash or wire
transfer of immediately available funds or (B) by notifying the Company that
this Warrant is being exercised pursuant to a Cashless Exercise (as defined in
Section 1(d)). The Holder shall not be required to deliver the original Warrant
in order to effect an exercise hereunder. Execution and delivery of the Exercise
Notice with respect to less than all of the Warrant Shares shall have the same
effect as cancellation of the original Warrant and issuance of a new Warrant
evidencing the right to purchase the remaining number of Warrant Shares. On or
before the second Business Day following the date on which the Company has
received each of the Exercise Notice and the Aggregate Exercise Price (or notice
of a Cashless Exercise) (the "EXERCISE DELIVERY DOCUMENTS"), the Company shall
transmit by facsimile an acknowledgment of confirmation of receipt of the
Exercise Delivery Documents to the Holder and the Company. On or before the
third Business Day following the date on which the Company has received all of
the Exercise Delivery Documents (the "SHARE DELIVERY DATE"), the Company shall
(X) provided that the Company's transfer agent is participating in The
Depository Trust Company ("DTC") Fast Automated Securities Transfer Program,
upon the request of the Holder, credit such aggregate number of shares of Common
Stock to which the Holder is entitled pursuant to such exercise to the Holder's
or its designee's balance account with DTC through its Deposit Withdrawal Agent
Commission system, or (Y) if the Company's transfer agent is not participating
in the DTC Fast Automated Securities Transfer Program, transfer and dispatch by
overnight courier to the address as specified in the Exercise Notice,
certificates for the approximate number of shares of Common Stock to which the
Holder is entitled pursuant to such exercise. Upon delivery of the Exercise
Notice and Aggregate Exercise Price referred to in clause (ii)(A) above or
notification to the Company of a Cashless Exercise referred to in Section 1(d),
the Holder shall be deemed for all corporate purposes to have become the holder
of record of the Warrant Shares with respect to which this Warrant has been
exercised, irrespective of the date of delivery of the certificates evidencing
such Warrant Shares. If this Warrant is submitted in connection with any
exercise pursuant to this Section 1(a) and the number of Warrant Shares
represented by this Warrant submitted for exercise is greater than the number of
Warrant Shares being acquired upon an exercise, then the Company shall as soon
as practicable and in no event later than five Business Days after any exercise
and at its own expense, issue a new Warrant (in accordance with Section 7(d))
representing the right to purchase the number of Warrant Shares purchasable
immediately prior to such exercise under this Warrant, less the number of
Warrant Shares with respect to which this Warrant is exercised. No fractional
shares of Common Stock are to be transferred upon the exercise of this Warrant,
but rather the number of shares of Common Stock to be transferred shall be
rounded up to the nearest whole number. The Company shall pay any and all taxes
which may be payable with respect to the issuance and delivery of Warrant Shares
upon exercise of this Warrant.
(b) Exercise Price. For purposes of this Warrant, "EXERCISE
---------------
PRICE" means $5.00, subject to adjustment as provided herein.
(c) Company's Failure to Timely Deliver Securities. In addition
------------------------------------------------
to the foregoing, if within three (3) Trading Days after the Company's receipt
of the facsimile copy of an exercise notice the Company shall fail to transfer
the Warrant Shares to the Buyer, and if on
2
NTR 5/14/2007
or after such third Trading Day the Buyer is required to purchase (in an open
market transaction or otherwise) shares of Common Stock in order to deliver in
satisfaction of a sale initiated by the Buyer in anticipation of receiving from
the Company the shares of Common Stock issuable upon such exercise (a "BUY-IN"),
then the Company shall, within three (3) Business Days after the Buyer's request
and in the Buyer's discretion, either (i) pay cash to the Buyer in an amount
equal to the Buyer's total purchase price (including brokerage commissions, if
any) for the shares of Common Stock so purchased (the "BUY-IN PRICE"), at which
point the Company's obligation to deliver such certificate (and to issue such
shares of Common Stock) resulting from such exercise shall terminate, or (ii)
promptly honor its obligation to deliver to the Buyer a certificate or
certificates representing such shares of Common Stock and pay cash to the holder
in an amount equal to the excess (if any) of the Buy-In Price over the product
of (A) such number of shares of Common Stock, times (B) the Closing Sale Price
on the date of exercise. Nothing herein shall limit the holder's right to pursue
actual damages for the Company's failure to maintain a sufficient number of
authorized shares of Common Stock or to otherwise issue shares of Common Stock
upon exercise of this Warrant in accordance with the terms hereof, and the
holder shall have the right to pursue all remedies available at law or in equity
(including a decree of specific performance and/or injunctive relief).
(d) Cashless Exercise. Notwithstanding anything contained herein
------------------
to the contrary, if a Registration Statement (as defined in the Registration
Rights Agreement) covering the Warrant Shares that are the subject of the
Exercise Notice (the "UNAVAILABLE WARRANT SHARES") is not available for the
resale of such Unavailable Warrant Shares, the Holder may, in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making the
cash payment otherwise contemplated to be made to the Company upon such exercise
in payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the "Net Number" of shares of Common Stock determined according to the
following formula (a "CASHLESS EXERCISE"):
Net Number = (A x B) - (A x C)
B
For purposes of the foregoing formula:
A= the total number of Warrant Shares with respect to which
this Warrant is then being exercised.
B= the average of the Closing Sale Price of the shares of
Common Stock (as reported by Bloomberg) on the five Trading
Days immediately preceding the date of the Exercise Notice.
C= the Exercise Price then in effect for the applicable
Warrant Shares at the time of such exercise.
3
NTR 5/14/2007
(e) Disputes. In the case of a dispute as to the determination of
--------
the Exercise Price or the arithmetic calculation of the Warrant Shares, the
Company shall promptly transfer to the Holder the number of Warrant Shares that
are not disputed and resolve such dispute in accordance with Section 12.
(f) (i) Limitations on Exercises; Beneficial Ownership. The
------------------------------------------------
Company shall not effect the exercise of this Warrant, and the Holder shall not
have the right to exercise this Warrant, to the extent that after giving effect
to such exercise, such Person (together with such Person's affiliates) would
beneficially own (directly or indirectly through Warrant Shares or otherwise) in
excess of 4.99% of the shares of Common Stock outstanding immediately after
giving effect to such exercise. For purposes of the foregoing sentence, the
aggregate number of shares of Common Stock beneficially owned (directly or
indirectly through Warrant Shares or otherwise) by such Person and its
affiliates shall include the number of shares of Common Stock issuable upon
exercise of this Warrant with respect to which the determination of such
sentence is being made, but shall exclude shares of Common Stock which would be
issuable upon (i) exercise of the remaining, unexercised portion of this Warrant
beneficially owned by such Person and its affiliates and (ii) exercise or
conversion of the unexercised or unconverted portion of any other securities of
the Company beneficially owned by such Person and its affiliates (including,
without limitation, any convertible notes or convertible preferred stock or
warrants) subject to a limitation on conversion or exercise analogous to the
limitation contained herein. Except as set forth in the preceding sentence, for
purposes of this subsection, beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended. For purposes of this Warrant, in determining the number of outstanding
shares of Common Stock, the Holder may rely on the number of outstanding shares
of Common Stock as reflected in (1) the Company's most recent Form 10-K, Form
10-Q, Current Report on Form 8-K or other public filing with the Securities and
Exchange Commission, as the case may be, (2) a more recent public announcement
by the Company or (3) any other notice by the Company or the Company's transfer
agent setting forth the number of shares of Common Stock outstanding. In any
case, the number of outstanding shares of Common Stock shall be determined after
giving effect to the conversion or exercise of securities of the Company,
including the SEA Securities and the Default Warrants, by the Holder and its
affiliates since the date as of which such number of outstanding shares of
Common Stock was reported. By written notice to the Company, the Holder may
increase or decrease the Maximum Percentage to any other percentage not in
excess of 9.99% specified in such notice; provided that (i) any such increase
will not be effective until the sixty-first (61st) day after such notice is
delivered to the Company, and (ii) any such increase or decrease will apply only
to the Holder and not to any other holder of Default Warrants.
(ii) Principal Market Regulation. The Company shall not be
-----------------------------
obligated to issue any shares of Common Stock upon exercise of this Warrant if
the issuance of such shares of Common Stock would exceed the aggregate number of
shares of Common Stock which the Company may issue upon conversion or exercise
or otherwise, as applicable, of the SEA Securities and Default Warrants without
breaching the Company's obligations under the rules or regulations of the
Principal Market (the "EXCHANGE CAP"), except that such limitation shall not
4
NTR 5/14/2007
apply in the event that the Company (A) obtains the approval of its stockholders
as required by the applicable rules of the Principal Market for issuances of
Common Stock in excess of such amount or (B) obtains a written opinion from
outside counsel to the Company that such approval is not required, which opinion
shall be reasonably satisfactory to the Required Holders. Until such approval
or written opinion is obtained, no purchaser of the Warrants pursuant to the
Securities Exchange Agreement (the "PURCHASERS") shall be issued in the
aggregate, upon conversion or exercise or otherwise, as applicable, of SEA
Securities or Default Warrants, shares of Common Stock in an amount greater than
the product of the Exchange Cap multiplied by a fraction, the numerator of which
is the number of Warrants issued to the Purchasers pursuant to the Securities
Exchange Agreement on the Closing Date and the denominator of which is the
aggregate number of Warrants issued to the Purchasers pursuant to the Securities
Exchange Agreement on the Closing Date (with respect to each Purchaser, the
"EXCHANGE CAP ALLOCATION"). In the event that any Purchaser shall sell or
otherwise transfer any of such Purchaser's Warrants, the transferee, if a
registered Holder of such Warrants, shall be allocated a pro rata portion of
such Purchaser's Exchange Cap Allocation, and the restrictions of the prior
sentence shall apply to such transferee with respect to the portion of the
Exchange Cap Allocation allocated to such transferee. In the event that any
holder of Warrants shall exercise all of such holder's Warrants into a number of
shares of Common Stock which, in the aggregate, is less than such holder's
Exchange Cap Allocation, then the difference between such holder's Exchange Cap
Allocation and the number of shares of Common Stock actually issued to such
holder shall be allocated to the respective Exchange Cap Allocations of the
remaining registered holders of Warrants on a pro rata basis in proportion to
the aggregate number of shares of Common Stock underlying the then held by each
such holder. To the extent required by the Principal Market, the provisions of
the Exchange Cap shall be modified to comply with the applicable rules and
regulations of the Principal Market, provided that any such changes shall not,
in the Holder's reasonable discretion, materially change the terms of the
transaction contemplated hereby.
Notwithstanding anything in this Warrant to the contrary, the Company shall
be entitled to treat the registered holder of this Warrant as such appears in
its records, as the owner of this Warrant for all purposes; provided that such
records are kept current using a reasonably satisfactory and customary method
intended for such purpose.
2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
--------------------------------------------------------------
Exercise Price and the number of Warrant Shares shall be adjusted from time to
time as follows:
(a) Adjustment upon Issuance of shares of Common Stock. If and
-----------------------------------------------------
whenever on or after the Issuance Date the Company issues or sells, or in
accordance with this Section 2 is deemed to have issued or sold, any shares of
Common Stock (including the issuance or sale of shares of Common Stock owned or
held by or for the account of the Company, but excluding shares of Common Stock
deemed to have been issued by the Company in connection with any Excluded
Securities (as defined in the SEA Securities) for a consideration per share (the
"NEW ISSUANCE PRICE") less than a price (the "APPLICABLE PRICE") equal to the
Exercise Price in effect
5
NTR 5/14/2007
immediately prior to such issue or sale or deemed issuance or sale (the
foregoing a "DILUTIVE ISSUANCE"), then immediately after such Dilutive Issuance,
the Exercise Price then in effect shall be reduced to an amount equal to the New
Issuance Price. Upon each such adjustment of the Exercise Price hereunder, the
number of Warrant Shares shall be adjusted to the number of shares of Common
Stock determined by multiplying the Exercise Price in effect immediately prior
to such adjustment by the number of Warrant Shares acquirable upon exercise of
this Warrant immediately prior to such adjustment and dividing the product
thereof by the Exercise Price resulting from such adjustment. For purposes of
determining the adjusted Exercise Price under this Section 2(a), the following
shall be applicable:
(i) Issuance of Options. If the Company grants any Options
---------------------
and the lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon
conversion, exercise or exchange of any Convertible Securities
issuable upon exercise of any such Option is less than the
Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company
at the time of the granting or sale of such Option for such price
per share. For purposes of this Section 2(a)(i), the "lowest
price per share for which one share of Common Stock is issuable
upon exercise of such Options or upon conversion, exercise or
exchange of such Convertible Securities" shall be equal to the
sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common
Stock upon the granting or sale of the Option, upon exercise of
the Option and upon conversion, exercise or exchange of any
Convertible Security issuable upon exercise of such Option. No
further adjustment of the Exercise Price or number of Warrant
Shares shall be made upon the actual issuance of such shares of
Common Stock or of such Convertible Securities upon the exercise
of such Options or upon the actual issuance of such shares of
Common Stock upon conversion, exercise or exchange of such
Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company in
------------------------------------
any manner issues or sells any Convertible Securities and the
lowest price per share for which one share of Common Stock is
issuable upon the conversion, exercise or exchange thereof is
less than the Applicable Price, then such share of Common Stock
shall be deemed to be outstanding and to have been issued and
sold by the Company at the time of the issuance or sale of such
Convertible Securities for such price per share. For the purposes
of this Section 2(a)(ii), the "lowest price per share for which
one share of Common Stock is issuable upon the conversion,
exercise or exchange" shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the
Company with respect to one share of Common Stock upon the
issuance or sale of the Convertible Security and upon conversion,
exercise or exchange of such Convertible Security. No
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further adjustment of the Exercise Price or number of Warrant
Shares shall be made upon the actual issuance of such shares of
Common Stock upon conversion, exercise or exchange of such
Convertible Securities, and if any such issue or sale of such
Convertible Securities is made upon exercise of any Options for
which adjustment of this Warrant has been or is to be made
pursuant to other provisions of this Section 2(a), no further
adjustment of the Exercise Price or number of Warrant Shares
shall be made by reason of such issue or sale.
(iii) Change in Option Price or Rate of Conversion. If the
-----------------------------------------------
purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion,
exercise or exchange of any Convertible Securities, or the rate
at which any Convertible Securities are convertible into or
exercisable or exchangeable for shares of Common Stock increases
or decreases at any time, the Exercise Price and the number of
Warrant Shares in effect at the time of such increase or decrease
shall be adjusted to the Exercise Price and the number of Warrant
Shares which would have been in effect at such time had such
Options or Convertible Securities provided for such increased or
decreased purchase price, additional consideration or increased
or decreased conversion rate, as the case may be, at the time
initially granted, issued or sold. For purposes of this Section
2(a)(iii), if the terms of any Option or Convertible Security
that was outstanding as of the date of issuance of this Warrant
are increased or decreased in the manner described in the
immediately preceding sentence, then such Option or Convertible
Security and the shares of Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have
been issued as of the date of such increase or decrease. No
adjustment pursuant to this Section 2(a) shall be made if such
adjustment would result in an increase of the Exercise Price then
in effect or a decrease in the number of Warrant Shares.
(iv) Calculation of Consideration Received. In case any
----------------------------------------
Option is issued in connection with the issue or sale of other
securities of the Company, together comprising one integrated
transaction in which no specific consideration is allocated to
such Options by the parties thereto, the Options will be deemed
to have been issued for a consideration of $0.01. If any shares
of Common Stock, Options or Convertible Securities are issued or
sold or deemed to have been issued or sold for cash, the
consideration received therefor will be deemed to be the net
amount received by the Company therefor. If any shares of Common
Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of such consideration
received by the Company will be the fair value of such
consideration, except where such
7
NTR 5/14/2007
consideration consists of securities, in which case the amount of
consideration received by the Company will be the Closing Sale
Price of such security on the date of receipt. If any shares of
Common Stock, Options or Convertible Securities are issued to the
owners of the non-surviving entity in connection with any merger
in which the Company is the surviving entity, the amount of
consideration therefor will be deemed to be the fair value of
such portion of the net assets and business of the non-surviving
entity as is attributable to such shares of Common Stock, Options
or Convertible Securities, as the case may be. The fair value of
any consideration other than cash or securities will be
determined jointly by the Company and the Required Holders. If
such parties are unable to reach agreement within ten (10) days
after the occurrence of an event requiring valuation (the
"Valuation Event"), the fair value of such consideration will be
determined within five (5) Business Days after the tenth day
following the Valuation Event by an independent, reputable
appraiser jointly selected by the Company and the Required
Holders. The determination of such appraiser shall be final and
binding upon all parties absent manifest error and the fees and
expenses of such appraiser shall be borne by the Company.
(v) Record Date. If the Company takes a record of the
------------
holders of shares of Common Stock for the purpose of entitling
them (A) to receive a dividend or other distribution payable in
shares of Common Stock, Options or in Convertible Securities or
(B) to subscribe for or purchase shares of Common Stock, Options
or Convertible Securities, then such record date will be deemed
to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of
the granting of such right of subscription or purchase, as the
case may be.
(b) Adjustment upon Subdivision or Combination of shares of Common
--------------------------------------------------------------
Stock. If the Company at any time on or after the Issuance Date subdivides (by
-----
any stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Exercise Price in effect immediately prior to such subdivision will
be proportionately reduced and the number of Warrant Shares will be
proportionately increased. If the Company at any time on or after the Issuance
Date combines (by combination, reverse stock split or otherwise) one or more
classes of its outstanding shares of Common Stock into a smaller number of
shares, the Exercise Price in effect immediately prior to such combination will
be proportionately increased and the number of Warrant Shares will be
proportionately decreased. Any adjustment under this Section 2(b) shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
8
NTR 5/14/2007
(c) Other Events. If any event occurs of the type contemplated by
------------
the provisions of this Section 2(c) but not expressly provided for by such
provisions (including, without limitation, the granting of share appreciation
rights, phantom share rights or other rights with equity features), then the
Company's Board of Directors will make an appropriate adjustment in the Exercise
Price so as to protect the rights of the Holders; provided that no such
adjustment will increase the Exercise Price as otherwise determined pursuant to
this Section 2(c).
3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or
----------------------------------
make any dividend or other distribution of its assets (or rights to acquire its
assets) to Holders of shares of Common Stock, by way of return of capital or
otherwise (including, without limitation, any distribution of cash, stock or
other securities not addressed by Section 2, property or options not addressed
by Section 2 by way of a dividend, spin off, reclassification, corporate
rearrangement, scheme of arrangement or other similar transaction) (a
"DISTRIBUTION"), at any time after the issuance of this Warrant, then, in each
such case:
(a) any Exercise Price in effect immediately prior to the close of
business on the record date fixed for the determination of holders of shares of
Common Stock entitled to receive the Distribution shall be reduced, effective as
of the close of business on such record date, to a price determined by
multiplying such Exercise Price by a fraction of which (i) the numerator shall
be the Closing Bid Price of a share of Common Stock on the trading day
immediately preceding such record date minus the value of the Distribution (as
determined in good faith by the Company's Board of Directors) applicable to one
share of Common Stock, and (ii) the denominator shall be the Closing Bid Price
of the shares of Common Stock on the trading day immediately preceding such
record date; and
(b) the number of Warrant Shares shall be increased to a number of
shares equal to the number of shares of Common Stock obtainable immediately
prior to the close of business on the record date fixed for the determination of
holders of shares of Common Stock entitled to receive the Distribution
multiplied by the reciprocal of the fraction set forth in the immediately
preceding paragraph (a); provided that in the event that the Distribution is of
shares of Common Stock (or common stock) ("OTHER SHARES OF COMMON STOCK") of a
company whose common shares are traded on a national securities exchange or a
national automated quotation system, then the Holder may elect to receive a
warrant to purchase Other Shares of Common Stock in lieu of an increase in the
number of Warrant Shares, the terms of which shall be identical to those of this
Warrant, except that such warrant shall be exercisable into the number of shares
of Other Shares of Common Stock that would have been payable to the Holder
pursuant to the Distribution had the Holder exercised this Warrant immediately
prior to such record date and with an aggregate exercise price equal to the
product of the amount by which the exercise price of this Warrant was decreased
with respect to the Distribution pursuant to the terms of the immediately
preceding paragraph (a) and the number of Warrant Shares calculated in
accordance with the first part of this paragraph (b).
4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.
--------------------------------------------
9
NTR 5/14/2007
(a) Purchase Rights. In addition to any adjustments pursuant to
----------------
Section 2 above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of shares of Common
Stock (the "PURCHASE RIGHTS"), then, upon exercise of this Warrant, the Holder
will be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which the Holder could have acquired if the Holder
had held the proportionate number of shares of Common Stock acquirable upon
exercise of this Warrant (without regard to any limitations on the exercise of
this Warrant) immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such record is taken,
the date as of which the record holders of shares of Common Stock are to be
determined for the grant, issue or sale of such Purchase Rights.
(b) Fundamental Transactions. If the Company enters into or is
-------------------------
party to a Fundamental Transaction, then the Holder shall have the right to
either (A) purchase and receive upon the basis and upon the terms and conditions
herein specified and in lieu of the Warrant Shares immediately theretofore
issuable upon exercise of the Warrant, such shares of stock, securities or
assets (including cash) as would have been issuable or payable with respect to
or in exchange for a number of Warrant Shares equal to the number of Warrant
Shares immediately theretofore issuable upon exercise of the Warrant, had such
Fundamental Transaction not taken place or (B) require the repurchase of this
Warrant for a purchase price, payable in cash within five (5) business days
after such request, equal to the Black Scholes Value of the remaining
unexercised portion of this Warrant on the date of such request. The terms of
any agreement pursuant to which a Fundamental Transaction is effected shall
include terms requiring any such successor or surviving entity and Holder to
comply with the provisions of this Section 4(b). The provisions of this Section
------------
shall apply similarly and equally to successive Fundamental Transactions and
shall be applied without regard to any limitations on the exercise of this
Warrant.
5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the
----------------
company will not, by amendment of its Articles of Incorporation, Bylaws or
through any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, and will at all times in good faith carry out all the
provisions of this Warrant and take all action that is required hereunder to
protect the rights of the holder. Without limiting the generality of the
foregoing, the Company (i) shall not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the Exercise
Price then in effect, (ii) shall take all such actions as may be necessary or
appropriate in order that the Company may validly and legally have the Common
Stock fully paid and nonassessable shares of Common Stock transferred to the
Holder upon the exercise of this Warrant, and (iii) shall, so long as any of the
Default Warrants are outstanding, take all action necessary to reserve and keep
available out of its authorized and unissued shares of Common Stock, solely for
the purpose of effecting the exercise of the Default Warrants, 130% (or such
lesser amount limited by the SEC) of the number of shares of Common Stock as
shall
10
NTR 5/14/2007
from time to time be necessary to effect the exercise of the Default Warrants
then outstanding (without regard to any limitations on exercise).
6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise
--------------------------------------------
specifically provided herein, the Holder, solely in such person's capacity as a
Holder of this Warrant, shall not be entitled to vote or receive dividends or be
deemed the Holder of share capital of the Company for any purpose, nor shall
anything contained in this Warrant be construed to confer upon the Holder,
solely in such person's capacity as the Holder of this Warrant, any of the
rights of a shareholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise, prior to the issuance to the Holder of the Warrant shares which such
person is then entitled to receive upon the due exercise of this Warrant. In
addition, nothing contained in this Warrant shall be construed as imposing any
liabilities on the Holder to purchase any securities (upon exercise of this
Warrant or otherwise) or as a shareholder of the Company. Notwithstanding this
Section 6, the Company shall provide the Holder with copies of the same notices
and other information given to the shareholders of the Company generally,
contemporaneously with the giving thereof to its shareholders.
7. REISSUANCE OF WARRANTS.
------------------------
(a) Transfer of Warrant. If this Warrant is to be transferred,
---------------------
the Holder shall surrender this Warrant to the Company, whereupon the Company
will forthwith issue and deliver upon the order of the Holder a new Warrant (in
accordance with Section 7(d)), registered as the Holder may request,
representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less then the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the Holder representing the right to purchase the number
of Warrant Shares not being transferred.
(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the
-------------------------------------
Company of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the Holder to the Company in
customary form and, in the case of mutilation, upon surrender and cancellation
of this Warrant, the Company shall execute and deliver to the Holder a new
Warrant (in accordance with Section 7(d)) representing the right to purchase the
Warrant Shares then underlying this Warrant.
(c) Exchangeable for Multiple Warrants. This Warrant is
-------------------------------------
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for a new Warrant or Warrants (in accordance with Section 7(d))
representing in the aggregate the right to purchase the number of Warrant Shares
then underlying this Warrant, and each such new Warrant will represent the right
to purchase such portion of such Warrant Shares as is designated by the Holder
at the time of such surrender; provided, however, that no Warrants for
fractional shares of Common Stock shall be given.
11
NTR 5/14/2007
(d) Issuance of New Warrants. Whenever the Company is required to
------------------------
issue a new Warrant pursuant to the terms of this Warrant, such new Warrant (i)
shall be of like tenor with this Warrant, (ii) shall represent, as indicated on
the face of such new Warrant, the right to purchase the Warrant Shares then
underlying this Warrant (or in the case of a new Warrant being issued pursuant
to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder
which, when added to the number of shares of Common Stock underlying the other
new Warrants issued in connection with such issuance, does not exceed the number
of Warrant Shares then underlying this Warrant), (iii) shall have an issuance
date, as indicated on the face of such new Warrant which is the same as the
Issuance Date, and (iv) shall have the same rights and conditions as this
Warrant.
8. NOTICES. Whenever notice is required to be given under this
-------
Warrant, unless otherwise provided herein, such notice shall be given in
accordance with Section 9(f) of the Securities Exchange Agreement. The Company
shall provide the Holder with prompt written notice of all actions taken
pursuant to this Warrant, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the
foregoing, the Company will give written notice to the Holder (i) promptly after
any adjustment of the exercise price, setting forth in reasonable detail, and
certifying, the calculation of such adjustment and (ii) at least ten days prior
to the date on which the Company closes its books or takes a record (a) with
respect to any dividend or distribution upon the shares of Common Stock, (b)
with respect to any grants, issuances or sales of any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property
to Holders of shares of Common Stock or (c) for determining rights to vote with
respect to any Fundamental Transaction, dissolution or liquidation, provided in
each case that such information shall be made known to the public prior to or in
conjunction with such notice being provided to the Holder.
9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the
----------------------
provisions of this Warrant may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the Required
Holders; provided that no such action may increase the exercise price of any
Default Warrant or decrease the number of shares or class of stock obtainable
upon exercise of any Default Warrant without the written consent of the Holder.
No such amendment shall be effective to the extent that it applies to less than
all of the Holders of the Default Warrants then outstanding.
10. SEVERABILITY. If any provision of this Warrant or the application
------------
thereof becomes or is declared by a court of competent jurisdiction to be
illegal, void or unenforceable, the remainder of the terms of this Warrant will
continue in full force and effect.
11. GOVERNING LAW. This Warrant shall be governed by and construed and
-------------
enforced in accordance with, and all questions concerning the construction,
validity, interpretation and performance of this Warrant 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
12
NTR 5/14/2007
(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.
12. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly
----------------------
drafted by the Company and all the Buyers and shall not be construed against any
person as the drafter hereof. The headings of this Warrant are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Warrant.
13. DISPUTE RESOLUTION. In the case of a dispute as to the
-------------------
determination of the Exercise Price or the arithmetic calculation of the Warrant
Shares, the Company shall submit the disputed determinations or arithmetic
calculations via facsimile within two Business Days of receipt of the Exercise
Notice giving rise to such dispute, as the case may be, to the Holder. If the
Holder and the Company are unable to agree upon such determination or
calculation of the Exercise Price or the Warrant Shares within three Business
Days of such disputed determination or arithmetic calculation being submitted to
the Holder, then the Company shall, within two Business Days submit via
facsimile (a) the disputed determination of the Exercise Price to an
independent, reputable investment bank selected by the Company and approved by
the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to
the Company's independent, outside accountant. The Company shall cause, at the
expense of the losing party, the investment bank or the accountant, as the case
may be, to perform the determinations or calculations and notify the Company and
the Holder of the results no later than ten Business Days from the time it
receives the disputed determinations or calculations. Such investment bank's or
accountant's determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error.
14. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The
-------------------------------------------------------------
remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant and the other Transaction Documents,
at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Holder right
to pursue actual damages for any failure by the Company to comply with the terms
of this Warrant. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any such breach or threatened breach, the Holder of
this Warrant shall be entitled, in addition to all other available remedies, to
an injunction restraining any breach, without the necessity of showing economic
loss and without any bond or other security being required.
15. TRANSFER. This Warrant may be offered for sale, sold, transferred
--------
or assigned without the consent of the Company, except as may otherwise be
required by Section 2(f) of the Securities Exchange Agreement.
16. CONTROLLING AGREEMENT. In the event of any conflict between the
----------------------
provisions of this Warrant and any of the other Transaction Documents, the terms
of the Securities Exchange Agreement shall control.
13
NTR 5/14/2007
17. CERTAIN DEFINITIONS. For purposes of this Warrant, the following
--------------------
terms shall have the following meanings:
(a) "BLACK SCHOLES VALUE" means the value of this Warrant based on
the Black and Scholes Option Pricing Model obtained from the "OV" function on
Bloomberg determined as of the day immediately following the public announcement
of the applicable Fundamental Transaction and reflecting (i) a risk-free
interest rate corresponding to the U.S. Treasury rate for a period equal to the
remaining term of this Warrant as of such date of request and (ii) an expected
volatility equal to the greater of 60% and the 100 day volatility obtained from
the HVT function on Bloomberg.
(b) "BLOOMBERG" means Bloomberg Financial Markets.
(c) "BUSINESS DAY" means any day other than Saturday, Sunday or
other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.
(d) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for any
security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 5:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid
Price or the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the Holder. If
the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to Section 12. All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.
(e) "COMMON STOCK" means (i) the Company's shares of Common Stock,
$0.001 par value per share, and (ii) any share capital into which such Common
Stock shall have been changed or any share capital resulting from a
reclassification of such Common Stock.
(f) "COMMON STOCK DEEMED OUTSTANDING" means, at any given time,
the number of shares of Common Stock actually outstanding at such time, plus the
number of shares
14
NTR 5/14/2007
of Common Stock deemed to be outstanding pursuant to Sections 2(a)(i) and
2(a)(ii) hereof regardless of whether the Options or Convertible Securities are
actually exercisable at such time, but excluding any shares of Common Stock
owned or held by or for the account of the Company or issuable upon conversion
and exercise, as applicable, of the SEA Securities and the Warrants.
(g) "CONVERTIBLE SECURITIES" means any stock or securities (other
than Options) directly or indirectly convertible into or exercisable or
exchangeable at the option of the holder thereof for shares of Common Stock.
(h) "ELIGIBLE MARKET" means the Principal Market, the American
Stock Exchange, The New York Stock Exchange, Inc., the Nasdaq Capital Market or
the Nasdaq National Market.
(i) "EXPIRATION DATE"means the date sixty months after the
Issuance Date or, if such date falls on a day other than a Business Day or on
which trading does not take place on the Principal Market (a "Holiday"), the
next date that is not a Holiday.
(j) "FUNDAMENTAL TRANSACTION" means that (i) the Company shall,
directly or indirectly, in one or more related transactions, (A) consolidate or
merge with or into (whether or not the Company is the surviving corporation)
another Person, or (B) sell, assign, transfer, convey or otherwise dispose of
all or substantially all of the properties or assets of the Company to another
Person, or (C) allow another Person to make a purchase, tender or exchange offer
that is accepted by such number of holders of outstanding shares of Common Stock
resulting in such Person (together with any affiliates of such Person) holding
more than the 50% of the outstanding Common Stock of the Company following such
purchase, tender or exchange offer, or (D) consummate a stock purchase agreement
or other business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with another Person
resulting in such other Person (together with any affiliates of such person)
holding more than the 50% of the outstanding Common Stock of the Company
following such stock purchase agreement or other business combination, or (E)
reorganize, recapitalize or reclassify its Common Stock or (ii) any "person" or
"group" (as these terms are used for purposes of Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended) is or shall become the "beneficial
owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended), directly or indirectly, of 50% of the issued and outstanding Common
Stock or the aggregate ordinary voting power represented by issued and
outstanding Common Stock. Provided, however, notwithstanding anything herein
contained or in any of the other Transaction Documents, any consolidation of a
Subsidiary into another Subsidiary or Subsidiaries shall not be deemed to be a
Fundamental Transaction.
(k) "OPTIONS" means any rights, warrants or options to subscribe
for or purchase shares of Common Stock or Convertible Securities.
(l) "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.
15
NTR 5/14/2007
(m) "PRINCIPAL MARKET" means the NASD OTC Bulletin Board.
(n) "REGISTRATION RIGHTS AGREEMENT" means that certain
registration rights agreement by and among the Company and the Buyers.
(o) "REQUIRED HOLDERS" means the holders of the Default Warrants
representing at least a majority of shares of Common Stock underlying the
Default Warrants then outstanding.
(p) "SEA SECURITIES" means the Notes issued pursuant to the
Securities Exchange Agreement.
(q) "SECURITIES EXCHANGE AGREEMENT" means that certain Securities
Exchange Agreement dated as of April 30, 2007, between the Company and the
Holder.
IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common
Stock to be duly executed as of the Issuance Date set out above.
CHARYS HOLDING COMPANY, INC.
By__________________________________________
Xxxxx X. Xxx, Xx., Chief Executive Officer
16
EXHIBIT A
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK
CHARYS HOLDING COMPANY, INC.
The undersigned holder hereby exercises the right to purchase
_______________ of the shares of Common Stock ("WARRANT SHARES") of Charys
Holding Company, Inc., a Delaware corporation (the "COMPANY"), evidenced by the
attached Warrant to Purchase Common Stock (the "WARRANT"). Capitalized terms
used herein and not otherwise defined shall have the respective meanings set
forth in the Warrant.
1. Form of Exercise Price. The Holder intends that payment of the
Exercise Price shall be made as:
____________ a "Cash Exercise" with respect to ________________
-------------
Warrant Shares; and/or
____________ a "Cashless Exercise" with respect to _____________
-----------------
Warrant Shares.
2. Notwithstanding anything to the contrary contained herein, this
Exercise Notice shall constitute a representation by the Holder of the Warrant
submitting this Exercise Notice that, after giving effect to the exercise
provided for in this Exercise Notice, such Holder (together with its affiliates)
will not have beneficial ownership (together with the beneficial ownership of
such Person's affiliates) of a number of shares of Common Stock which exceeds
the maximum percentage of the total outstanding shares of Common Stock as
determined pursuant to the provisions of Section 1(f)(i) of the Warrant.
3. Payment of Exercise Price. In the event that the holder has elected
a Cash Exercise with respect to some or all of the Warrant Shares to be
transferred pursuant hereto, the holder shall pay the Aggregate Exercise Price
in the sum of $___________________ to the Company in accordance with the terms
of the Warrant.
4. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.
Date: _______________ __, ______
___________________________________
Name of Registered Holder
By:________________________________
Name:
Title:
Exhibit C
INVESTOR REGISTRATION RIGHTS AGREEMENT
--------------------------------------
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of April
---------
30, 2007 by and among CHARYS HOLDING COMPANY, INC., a Delaware corporation (the
"Company"), and (the undersigned investors listed on Schedule I attached hereto
-------
(each, an "Investor" and collectively, the "Investors").
-------- ---------
WHEREAS:
A. The Company and Investors have entered into a Securities Exchange
Agreement (the "Securities Exchange Agreement"), pursuant to which the Company
-----------------------------
proposes to issue convertible notes of the Company (the "Convertible Notes")
-----------------
which shall be convertible into the Company's Common Stock, par value $0.001 per
share (the "Common Stock"), and in connection therewith, under certain
-------------
conditions, the Company has agreed to issue certain warrants to purchase
additional shares of Common Stock (the "Default Warrants");
----------------
B. To induce the Investors to execute and deliver the Securities
Exchange Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws;
---------------
C. Notwithstanding anything to the contrary contained herein, the
Investors acknowledge that the Company filed a registration statement on April
30, 2007 with respect to securities issued to XxXxxxx Securities Co., L.P.,, and
that the Registrable Securities (as defined below) will not be included in nor
registered pursuant to any such registration statement; and
D. Capitalized terms used but not otherwise defined herein shall have
the meanings set forth in the Securities Exchange Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Investors
hereby agree as follows:
1. DEFINITIONS.
-----------
As used in this Agreement, the following terms shall have the following
meanings:
(a) "Person" means a corporation, a limited liability company, an
------
association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
(b) "Register," "registered," and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the Securities Act and pursuant
to Rule 415 under the Securities Act or any successor rule providing for
offering securities on a continuous or delayed basis ("Rule 415"), and the
--------
declaration or ordering of effectiveness of such Registration Statement(s) by
the United States Securities and Exchange Commission (the "SEC").
---
(c) "Registrable Securities" means shares of Common Stock in an
-----------------------
amount equal to (a) the shares of Common Stock issuable to the Investors upon
conversion of the Convertible Notes pursuant to the Securities Exchange
Agreement and the Notes and (b) the shares of Common Stock issuable to the
Investors upon exercise of the Warrant Shares, as defined in the Default
Warrants.
(d) "Registration Statement" means a registration statement under
-----------------------
the Securities Act which covers any of the Registrable Securities.
(e) "Scheduled Filing Deadline" means three hundred sixty (360)
---------------------------
days from the date hereof.
2. REGISTRATION.
------------
(a) Subject to the terms and conditions of this Agreement, the
Company shall prepare and file, no later the Scheduled Filing Deadline, with the
SEC a registration statement on Form SB-2 (or similar form) under the Securities
Act (the "SB-2 Registration Statement") for the resale by the Investors of all
---------------------------
Registrable Securities, or if it becomes eligible, a registration statement on
Form S-3 under the Securities Act (the "Registration Statement"). The Company
----------------------
shall keep the Registration Statement "Evergreen" until payment or conversion in
full of the Convertible Notes and exercise or expiration of the Default
Warrants, if any, or until Rule 144(k) of the Securities Act is available to the
Investors with respect to all of the Conversion Shares and Warrant Shares
whichever is later. The Company shall retain, and pay at its sole expense, a
law firm to file the Registration Statement subject to the reasonable approval
of a majority of the Required Holders (as defined in the Convertible Notes) of
the Investors; provided, however, that in no event shall the Company be required
to retain any law firm in addition to its current securities counsel for
purposes of this Agreement. Prior to the filing of the Registration Statement
with the SEC, the Company shall furnish a copy of the Initial Registration
Statement to the Investors for their review and comment. The Investors shall
furnish comments on the Registration Statement to the Company within twenty-four
(24) hours of the receipt thereof from the Company.
(b) Effectiveness of the Registration Statement. The Company
-----------------------------------------------
shall use its best efforts (i) to have the Registration Statement declared
effective by the SEC no later than one hundred eighty (180) days after the date
filed (the "Scheduled Effective Deadline") and (ii) to insure that the
------------------------------
Registration Statement remains in effect until all of the Registrable Securities
have been sold, subject to the terms and conditions of this Agreement. It shall
be an event of default hereunder if the Registration Statement is not declared
effective by the SEC within one hundred eighty (180) days after filing thereof.
(c) Failure to File or Obtain and Maintain Effectiveness of the
--------------------------------------------------------------
Registration Statement. In the event the Registration Statement is not filed by
----------------------
the Scheduled Filing Deadline or is not declared effective by the SEC on or
before the Scheduled Effective Deadline, or if after the Registration Statement
has been declared effective by the SEC, sales cannot be made pursuant to the
Registration Statement (whether because of a failure to keep the Registration
Statement effective, failure to disclose such information as is necessary for
sales to be made pursuant to the Registration Statement, failure to register
sufficient shares of Common Stock or otherwise), then as partial relief for the
damages to any holder of Registrable Securities by reason of any such delay in
or reduction of its ability to sell the underlying shares of Common Stock (which
remedy shall not be exclusive of any other remedies at law or in equity), the
Company will pay as liquidated damages (the "Liquidated Damages") and not as a
------------------
penalty, to the Investors, a cash amount equal to two percent (2%) per month of
the principal amount of the Convertible Notes outstanding and held by such
Investors. The initial payment of Liquidated Damages shall be made within three
(3) business days from the end of the month in which the Scheduled Filing
Deadline or Scheduled Effective Deadline occurred, as the case may be, and shall
continue thereafter until the Registration Statement is filed or declared
effective, or the Convertible Notes have been redeemed by the Company, as the
case may be. In the event that the Liquidated Damages are caused by a failure
to maintain the effectiveness of the Registration Statement for more than ten
days in any 365 day period, the initial payment of Liquidated Damages shall be
made within three (3) business days from the end of the month in which the 11th
day in such 365 day period that the Company failed to maintain the effectiveness
of the Registration Statement falls and shall continue thereafter until the
effectiveness of the Registration Statement has been restored.
(d) Liquidated Damages. The Company and the Investors hereto
-------------------
acknowledge and agree that the sums payable under subsection 2(c) above shall
constitute liquidated damages and not penalties and are in addition to all other
rights of the Investors, including the right to call a default. Any Liquidated
Damages (and any accrued but unpaid interest thereon) that remain unpaid after
the date set forth in Section 2(c) shall accrue interest at the rate of twelve
percent (12%) per annum. All Liquidated Damages paid pursuant to this
Agreement, but not including any interest accrued thereon, shall not exceed, in
the aggregate, 10% of the aggregate Exchange Price (as defined in the Securities
Exchange Agreement) delivered to the Company pursuant to the Securities Exchange
Agreement (the "Liquidated Damages Maximum"), and, at such time as the
Liquidated Damages Maximum has been paid, the Company shall have no further
obligation to pay amounts under subsection 2(c) above other than interested
accrued on such Liquidated Damages not otherwise paid. The parties further
acknowledge that (i) the amount of loss or damages likely to be incurred is
incapable or is difficult to precisely estimate, (ii) the amounts specified in
such subsection bear a reasonable relationship to, and are not plainly
- 2 -
or grossly disproportionate to, the probable loss likely to be incurred in
connection with any failure by the Company to file a Registration Statement or
to obtain or maintain the effectiveness of a Registration Statement, (iii) one
of the reasons for the Company and the Investors reaching an agreement as to
such amounts was the uncertainty and cost of litigation regarding the question
of actual damages, and (iv) the Company and the Investors are sophisticated
business parties and have been represented by sophisticated and able legal
counsel and negotiated this Agreement at arm's length.
3. RELATED OBLIGATIONS.
--------------------
(a) The Company shall keep the Registration Statement effective
pursuant to Rule 415 at all times until the date on which the Investors shall
have sold all the Registrable Securities covered by such Registration Statement
(the "Registration Period"), which Registration Statement (including any
--------------------
amendments or supplements thereto and prospectuses contained therein) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading.
(b) The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the Securities Act, as may be necessary to keep such
Registration Statement effective at all times during the Registration Period,
and, during such period, comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities of the Company covered
by such Registration Statement until such time as all of such Registrable
Securities shall have been disposed of in accordance with the intended methods
of disposition by the seller or sellers thereof as set forth in such
Registration Statement. In the case of amendments and supplements to a
Registration Statement which are required to be filed pursuant to this Agreement
(including pursuant to this Section 3(b)) by reason of the Company's filing a
report on Form 10-KSB, Form 10-QSB or Form 8-K or any analogous report under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company
------------
shall incorporate such report by reference into the Registration Statement, if
applicable, or shall file such amendments or supplements with the SEC on the
same day on which the Exchange Act report is filed which created the requirement
for the Company to amend or supplement the Registration Statement.
(c) The Company shall furnish to each Investor whose Registrable
Securities are included in any Registration Statement, without charge, (i) at
least one (1) copy of such Registration Statement as declared effective by the
SEC and any amendment(s) thereto, including financial statements and schedules,
all documents incorporated therein by reference, all exhibits and each
preliminary prospectus, (ii) ten (10) copies of the final prospectus included in
such Registration Statement and all amendments and supplements thereto (or such
other number of copies as such Investor may reasonably request) and (iii) such
other documents as such Investor may reasonably request from time to time in
order to facilitate the disposition of the Registrable Securities owned by such
Investor.
(d) The Company shall use its commercially reasonable best efforts
to (i) register and qualify the Registrable Securities covered by a Registration
Statement under such other securities or "blue sky" laws of such jurisdictions
in the United States as any Investor reasonably requests, (ii) prepare and file
in those jurisdictions, such amendments (including post-effective amendments)
and supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (w) make any change to its certificate of incorporation or by-laws,
(x) qualify to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(d), (y) subject itself to general
taxation in any such jurisdiction, or (z) file a general consent to service of
process in any such jurisdiction. The Company shall promptly notify each
Investor who holds Registrable Securities of the receipt by the Company of any
notification with respect to the suspension of the registration or qualification
of any of the Registrable Securities for sale under the securities or "blue sky"
laws of any jurisdiction in the United States or its receipt of actual notice of
the initiation or threat of any proceeding for such purpose.
- 3 -
(e) As promptly as practicable after becoming aware of such event
or development, the Company shall notify each Investor in writing of the
happening of any event as a result of which the prospectus included in a
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading (provided that in no event shall such
notice contain any material, nonpublic information), and promptly prepare a
supplement or amendment to such Registration Statement to correct such untrue
statement or omission, and deliver ten (10) copies of such supplement or
amendment to each Investor. Notwithstanding any provision of this Agreement to
the contrary, if the Company makes such a notification, the Company may suspend
the use of any prospectus contained in any Registration Statement for periods
not to exceed forty-five (45) business days in any three month period or two
periods not to exceed an aggregate of ninety (90) business days in any 12 month
period in the event that the Company determines, in the exercise of its
reasonable discretion, confirmed by a legal opinion from outside counsel, that
sales of Registrable Securities thereunder could constitute violations of the
Securities Act due to the Registration Statement containing an untrue statement
of a material fact or omission to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. In each case the
Company shall use commercially reasonable best efforts to remedy the deficiency
in the Registration Statement within thirty (30) business days. The Company
shall also promptly notify each Investor in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and when a
Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to each Investor by
facsimile on the same day of such effectiveness), (ii) of any request by the SEC
for amendments or supplements to a Registration Statement or related prospectus
or related information, and (iii) of the Company's reasonable determination that
a post-effective amendment to a Registration Statement would be appropriate.
(f) The Company shall use its commercially reasonable best efforts
to prevent the issuance of any stop order or other suspension of effectiveness
of a Registration Statement, or the suspension of the qualification of any of
the Registrable Securities for sale in any jurisdiction within the United States
of America and, if such an order or suspension is issued, to obtain the
withdrawal of such order or suspension at the earliest possible moment and to
notify the Investors who hold Registrable Securities being sold of the issuance
of such order and the resolution thereof or its receipt of actual notice of the
initiation or threat of any proceeding for such purpose.
(g) At the reasonable request of any Investor, the Company shall
furnish to such Investor, on the date of the effectiveness of the Registration
Statement and thereafter from time to time on such dates as an Investor may
reasonably request (i) a letter, dated such date, from the Company's independent
certified public accountants in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, and (ii) an opinion, dated as of such date, of counsel
representing the Company for purposes of such Registration Statement, in form,
scope and substance as is customarily given in an underwritten public offering,
addressed to the Investors.
(h) The Company shall make available for inspection by (i) any
Investor and (ii) one (1) firm of accountants or other agents retained by the
Investors (collectively, the "Inspectors") all pertinent financial and other
----------
records, and pertinent corporate documents and properties of the Company
(collectively, the "Records"), as shall be reasonably deemed necessary by each
-------
Inspector, and cause the Company's officers, directors and employees to supply
all information which the Inspector may reasonably request; provided, however,
that each Inspector shall agree, and any Investor hereby agrees, to hold in
strict confidence and shall not make any disclosure (except to an Investor) or
use any Record or other information which the Company determines in good faith
to be confidential, and of which determination the Inspectors are so notified,
unless (a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement or is otherwise required
under the Securities Act, (b) the release of such Records is ordered pursuant to
a final, non-appealable subpoena or order from a court or government body of
competent jurisdiction, or (c) the information in such Records has been made
generally available to the public other than by disclosure in violation of this
or any other agreement of which the Inspector and the Investor has knowledge.
Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential.
- 4 -
(i) The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow the Investor, at such Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.
(j) The Company shall use its commercially reasonable best efforts
either to cause all the Registrable Securities covered by a Registration
Statement (i) to be listed on each securities exchange on which securities of
the same class or series issued by the Company are then listed, if any, if the
listing of such Registrable Securities is then permitted under the rules of such
exchange or (ii) the inclusion for quotation on the National Association of
Securities Dealers, Inc. OTC Bulletin Board for such Registrable Securities.
The Company shall pay all fees and expenses in connection with satisfying its
obligation under this Section 3(j).
(k) The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, to
facilitate the timely preparation and delivery of certificates to a transferee
of the Investor (not bearing any restrictive legend) representing the
Registrable Securities to be offered pursuant to a Registration Statement and
enable such certificates to be in such denominations or amounts, as the case may
be, as the Investors may reasonably request and registered in such names as the
Investors may request.
(l) The Company shall use its commercially reasonable best efforts
to cause the Registrable Securities covered by the applicable Registration
Statement to be registered with or approved by such other governmental agencies
or authorities as may be necessary to consummate the disposition of such
Registrable Securities.
(m) The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the Securities Act) covering a twelve (12)
month period beginning not later than the first day of the Company's fiscal
quarter next following the effective date of the Registration Statement.
(n) The Company shall otherwise use its commercially reasonable
best efforts to comply with all applicable rules and regulations of the SEC in
connection with any registration hereunder.
(o) Within two (2) business days after a Registration Statement
which covers Registrable Securities is declared effective by the SEC, the
Company shall deliver, and shall cause legal counsel for the Company to deliver,
to the transfer agent for such Registrable Securities (with copies to the
Investors whose Registrable Securities are included in such Registration
Statement) confirmation that such Registration Statement has been declared
effective by the SEC in the form attached hereto as Exhibit A.
----------
(p) The Company shall take all other reasonable actions necessary
to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.
4. OBLIGATIONS OF THE INVESTORS.
-------------------------------
Each Investor agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 3(f) or the first
sentence of Section 3(e), such Investor will immediately discontinue disposition
of Registrable Securities pursuant to any Registration Statement(s) covering
such Registrable Securities until such event has been remedied. Notwithstanding
anything to the contrary, the Company shall cause its transfer agent to deliver
unlegended certificates for shares of Common Stock to a transferee of an
Investor in accordance with the terms of the Securities Exchange Agreement in
connection with any sale of Registrable Securities with
- 5 -
respect to which an Investor has entered into a contract for sale prior to the
Investor's receipt of a notice from the Company of the happening of any event of
the kind described in Section 3(f) or the first sentence of 3(e) and for which
the Investor has not yet settled.
5. EXPENSES OF REGISTRATION.
--------------------------
All expenses incurred in connection with registrations, filings or
qualifications pursuant to the Agreement including, without limitation, all
registration, listing and qualifications fees, printers, legal and accounting
fees shall be paid by the Company.
6. INDEMNIFICATION.
---------------
With respect to Registrable Securities which are included in a Registration
Statement under this Agreement:
(a) To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Investor, the directors,
officers, partners, employees, agents, representatives of, and each Person, if
any, who controls any Investor within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person"), against any losses, claims,
-------------------
damages, liabilities, judgments, fines, penalties, charges, costs, reasonable
attorneys' fees, amounts paid in settlement or expenses, joint or several
(collectively, "Claims") incurred in investigating, preparing or defending any
------
action, claim, suit, inquiry, proceeding, investigation or appeal taken from the
foregoing by or before any court or governmental, administrative or other
regulatory agency, body or the SEC, whether pending or threatened, whether or
not an indemnified party is or may be a party thereto ("Indemnified Damages"),
-------------------
to which any of them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon: (i) any untrue statement or alleged untrue statement of a
material fact in a Registration Statement or any post-effective amendment
thereto or in any filing made in connection with the qualification of the
offering under the securities or other "blue sky" laws of any jurisdiction in
which Registrable Securities are offered ("Blue Sky Filing"), or the omission or
---------------
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii) any untrue
statement or alleged untrue statement of a material fact contained in any final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading; or (iii) any violation or alleged violation by the Company
of the Securities Act, the Exchange Act, any other law, including, without
limitation, any state securities law, or any rule or regulation there under
relating to the offer or sale of the Registrable Securities pursuant to a
Registration Statement (the matters in the foregoing clauses (i) through (iii)
being, collectively, "Violations"). The Company shall reimburse the Investors
----------
and each such controlling Person promptly as such expenses are incurred and are
due and payable, for any legal fees or disbursements or other reasonable
expenses incurred by them in connection with investigating or defending any such
Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a): (x) shall not apply to
a Claim by an Indemnified Person arising out of or based upon a Violation which
occurs in reliance upon and in conformity with information furnished in writing
to the Company by such Indemnified Person expressly for use in connection with
the preparation of the Registration Statement or any such amendment thereof or
supplement thereto; (y) shall not be available to the extent such Claim is based
on a failure of the Investor to deliver or to cause to be delivered the
prospectus made available by the Company, if such prospectus was timely made
available by the Company pursuant to Section 3(c); and (z) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of the Company, which consent shall not be
unreasonably withheld. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Person
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9 hereof.
(b) In connection with a Registration Statement, each Investor
agrees to severally and not jointly indemnify, hold harmless and defend, to the
same extent and in the same manner as is set forth in Section 6(a), the Company,
each of its directors, each of its officers, employees, representatives, or
agents and each Person, if any, who controls the Company within the meaning of
the Securities Act or the Exchange Act (each an "Indemnified Party"), against
-----------------
any Claim or Indemnified Damages to which any of them may become subject, under
- 6 -
the Securities Act, the Exchange Act or otherwise, insofar as such Claim or
Indemnified Damages arise out of or is based upon any Violation, in each case to
the extent, and only to the extent, that such Violation occurs in reliance upon
and in conformity with written information furnished to the Company by such
Investor expressly for use in connection with such Registration Statement; and,
subject to Section 6(d), such Investor will reimburse any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 6(b) and the agreement with respect to contribution
contained in Section 7 shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of such
Investor, which consent shall not be unreasonably withheld; provided, further,
however, that the Investor shall be liable under this Section 6(b) for only that
amount of a Claim or Indemnified Damages as does not exceed the net proceeds to
such Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any prospectus shall not inure to the benefit of any Indemnified
Party if the untrue statement or omission of material fact contained in the
prospectus was corrected and such new prospectus was delivered to each Investor
prior to such Investor's use of the prospectus to which the Claim relates. The
indemnification provided for in this Section 6(b) shall not exceed for any
Investor, the positive difference between the Exchange Price paid for its
portion of the Registrable Shares and the closing bid price on the Principal
Market (as defined in the Securities Exchange Agreement) of the Company's Common
Stock on the day that such Investor sells or transfers such shares.
(c) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving a Claim,
such Indemnified Person or Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one (1) counsel for such
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. The Indemnified
Party or Indemnified Person shall cooperate fully with the indemnifying party in
connection with any negotiation or defense of any such action or claim by the
indemnifying party and shall furnish to the indemnifying party all information
reasonably available to the Indemnified Party or Indemnified Person which
relates to such action or claim. The indemnifying party shall keep the
Indemnified Party or Indemnified Person fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. No
indemnifying party shall be liable for any settlement of any action, claim or
proceeding effected without its prior written consent; provided, however, that
the indemnifying party shall not unreasonably withhold, delay or condition its
consent. No indemnifying party shall, without the prior written consent of the
Indemnified Party or Indemnified Person, consent to entry of any judgment or
enter into any settlement or other compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party or Indemnified Person of a release from all liability in
respect to such claim or litigation. Following indemnification as provided for
hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action.
(d) The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified Damages
are incurred.
- 7 -
(e) The indemnity agreements contained herein shall be in addition
to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
-----------
To the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under Section
6 to the fullest extent permitted by law; provided, however, that: (i) no seller
of Registrable Securities guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (ii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received by
such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE EXCHANGE ACT.
----------------------------------
With a view to making available to the Investors the benefits of Rule 144
promulgated under the Securities Act or any similar rule or regulation of the
SEC that may at any time permit the Investors to sell securities of the Company
to the public without registration ("Rule 144") the Company agrees to:
---------
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) File with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
so long as the Company remains subject to such requirements (it being understood
that nothing herein shall limit the Company's obligations under Section 4(c) of
the Securities Exchange Agreement) and the filing of such reports and other
documents as are required by the applicable provisions of Rule 144; and
(c) Furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. AMENDMENT OF REGISTRATION RIGHTS.
-----------------------------------
Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with the written consent of the Company and a majority
of the Required Holders. Any amendment or waiver effected in accordance with
this Section 9 shall be binding upon each Investor and the Company. No such
amendment shall be effective to the extent that it applies to fewer than all of
the holders of the Registrable Securities. No consideration shall be offered or
paid to any Person to amend or consent to a waiver or modification of any
provision of any of this Agreement unless the same consideration also is offered
to all of the parties to this Agreement.
10. MISCELLANEOUS.
------------
(a) A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two (2) or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from the registered owner of such Registrable Securities.
(b) Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission
- 8 -
is mechanically or electronically generated and kept on file by the sending
party); or (iii) one (1) business day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company, to: Charys Holding Company, Inc.
0000 Xxxxxxxxx Xxxxxx Xxxx, Xxxxx X000
Xxxxxxx, Xxxxxxx 00000
Attention: Xxxxx X. Xxx, Xx.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Glast, Xxxxxxxx & Xxxxxx, P.C.
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to an Investor, to its address and facsimile number on the Schedule of
Investors attached hereto, with copies to such Investor's representatives as set
forth on the Schedule of Investors or to such other address and/or facsimile
number and/or to the attention of such other person as the recipient party has
specified by written notice given to each other party five (5) days prior to the
effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a courier or overnight courier
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
(c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(d) The parties hereto acknowledge that the transactions
contemplated by this Agreement and the exhibits hereto bear a reasonable
relation to the State of New York. The parties hereto agree that the internal
laws of the State of New York shall govern this Agreement and the exhibits
hereto, including, but not limited to, all issues related to usury. Any action
to enforce the terms of this Agreement or any of its exhibits shall be brought
exclusively in the state and/or federal courts situated in the County and State
of New York. Each party hereby irrevocably waives personal service of process
and consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.
(e) This Agreement, the Securities Exchange Agreement and related
documents including the Convertible Notes and the Default Warrants, constitute
the entire agreement among the parties hereto with respect to the subject matter
hereof and thereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein and therein.
This Agreement, the Securities Exchange Agreement and related documents
including the Convertible Notes and the Default Warrants, supersede all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof. In the event of any
- 9 -
conflict between the provisions of this Agreement and the Securities Exchange
Agreement, the Convertible Notes and the Default Warrants, the terms of the
Securities Exchange Agreement shall control.
(f) This Agreement shall inure to the benefit of and be binding
upon the permitted successors and assigns of each of the parties hereto.
(g) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) This Agreement may be executed in identical counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
(i) Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent and no rules of strict
construction will be applied against any party.
(j) This Agreement is intended for the benefit of the parties
hereto and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
- 10 -
IN WITNESS WHEREOF, the parties have caused this Investor Registration
Rights Agreement to be duly executed as of day and year first above written.
COMPANY:
CHARYS HOLDING COMPANY, INC.
By:
-----------------------------------------
Name: Xxxxx X. Xxx, Xx.
Title: Chief Executive Officer
INVESTORS:
GOTTBETTER CAPITAL MASTER, LTD.
By:
-----------------------------------------
Name: Xxxx X. Xxxxxxxxxx
Title: Director
CASTLERIGG MASTER INVESTMENTS LTD.
By:
-----------------------------------------
Name:
Title:
UBS X'XXXXXX LLC F/B/O X'XXXXXX PIPES
CORPORATE STRATEGIES MASTER LTD.
By:
-----------------------------------------
Name:
Title:
- 11 -
SCHEDULE I
----------
SCHEDULE OF INVESTORS
---------------------
ADDRESS/FACSIMILE
NAME NUMBER OF INVESTOR
------------------------------------- -------------------------------
Gottbetter Capital Master, Ltd. 000 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Facsimile: (000) 000-0000
With a copy to: Xxxxx X. Xxxxxxx, Esq.
Gottbetter & Partners, LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Castlerigg Master Investments 00 Xxxx 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 000000
Facsimile: (000) 000-0000
Email: xxxxxxxx@xxxxxxxxxxx.xxx
UBS X'Xxxxxx LLC F/B/O X'Xxxxxx Pipes 1 North Xxxxxx
Corporate Strategies Master Ltd. Xxxxxxx, XX 00000
Facsimile: (000) 000-0000
- 11 -
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
-------------------------------
OF REGISTRATION STATEMENT
-------------------------
Attention:
Re: CHARYS HOLDING COMPANY, INC.
Ladies and Gentlemen:
We are counsel to Charys Holding Company, Inc., a Delaware corporation (the
"Company"), and have represented the Company in connection with that certain
-------
Securities Exchange Agreement (the "Securities Exchange Agreement") entered into
-- -----------------------------
by and among the Company and the investors named therein (collectively, the
"Investors") pursuant to which the Company issued to the Investors Subordinated
---------
Unsecured Convertible Notes (the "Notes"), and if applicable, Default Warrants
-----
("Default Warrants"), which Notes and Default Warrants are convertible into
-----------------
shares of Common Stock, par value $0.001 per share (the "Common Stock").
------------
Pursuant to the Securities Exchange Agreement, the Company also has entered into
a Registration Rights Agreement with the Investors (the "Registration Rights
-------------------
Agreement") pursuant to which the Company agreed, among other things, to
---------
register the Registrable Securities (as defined in the Registration Rights
Agreement) under the Securities Act of 1933, as amended (the "Securities Act").
--------------
In connection with the Company's obligations under the Registration Rights
Agreement, on the Company filed a Registration Statement on
------------ ----,
Form (File No. 333 )(the "Registration Statement") with
-------- -------------- ----------------------
the Securities and Exchange Commission (the "SEC") relating to the Registrable
---
Securities which names each of the Investors as a selling stockholder
thereunder.
In connection with the foregoing, we advise you that a member of the SEC's
staff has advised us by telephone that the SEC has entered an order declaring
the Registration Statement effective under the Securities Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after
telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the Securities Act pursuant to the
Registration Statement.
Very truly yours,
[LAW FIRM]
By:
----------------------------
cc: [LIST NAMES OF INVESTOR]
