EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
dated as of
October 7, 1999
by and between
Eagle Wireless International, Inc.
as the Issuer,
and
GCA Strategic Investment Fund Limited
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS ...................................................... 1
SECTION 1.1 DEFINITIONS ............................................... 1
SECTION 1.2 ACCOUNTING TERMS AND DETERMINATIONS ....................... 9
ARTICLE II. PURCHASE AND SALE OF SECURITIES .................................. 10
SECTION 2.1 PURCHASE AND SALE OF CONVERTIBLE DEBENTURES ................ 10
SECTION 2.2 PURCHASE PRICE ............................................. 10
SECTION 2.3 CLOSING AND MECHANICS OF PAYMENT ........................... 10
SECTION 2.4 TERMS OF COMMITMENT AND SUBSEQUENT TAKEDOWNS ............... 10
ARTICLE III. PAYMENT TERMS OF CONVERTIBLE DEBENTURES ......................... 12
SECTION 3.1 PAYMENT OF PRINCIPAL AND INTEREST; PAYMENT MECHANICS ....... 12
SECTION 3.2 PAYMENT OF INTEREST ........................................ 12
SECTION 3.3 VOLUNTARY PREPAYMENT ....................................... 12
SECTION 3.4 MANDATORY PREPAYMENTS ...................................... 13
SECTION 3.5 PREPAYMENT PROCEDURES ...................................... 14
SECTION 3.6 PAYMENT OF ADDITIONAL AMOUNTS .............................. 15
ARTICLE IV. REPRESENTATIONS AND WARRANTIES .................................. 16
SECTION 4.1 ORGANIZATION AND QUALIFICATION ............................ 16
SECTION 4.2 AUTHORIZATION AND EXECUTION ............................... 17
SECTION 4.3 CAPITALIZATION ............................................. 17
SECTION 4.4 GOVERNMENTAL AUTHORIZATION ................................. 18
SECTION 4.5 ISSUANCE OF SHARES ......................................... 18
SECTION 4.6 NO CONFLICTS ............................................... 18
SECTION 4.7 FINANCIAL INFORMATION ...................................... 19
SECTION 4.8 LITIGATION ................................................. 19
SECTION 4.9 COMPLIANCE WITH ERISA AND OTHER BENEFIT PLANS .............. 19
SECTION 4.10 ENVIRONMENTAL MATTERS ..................................... 20
SECTION 4.11 TAXES ..................................................... 20
SECTION 4.12 INVESTMENTS, JOINT VENTURES ............................... 20
SECTION 4.13 NOT AN INVESTMENT COMPANY ................................. 20
SECTION 4.14 FULL DISCLOSURE ........................................... 20
SECTION 4.15 NO SOLICITATION; NO INTEGRATION WITH OTHER OFFERINGS ...... 21
SECTION 4.16 PERMITS .................................................. 21
SECTION 4.17 LEASES ................................................... 21
SECTION 4.18 ABSENCE OF ANY UNDISCLOSED LIABILITIES OR CAPITAL CALLS .. 21
SECTION 4.19 PUBLIC UTILITY HOLDING COMPANY ........................... 21
SECTION 4.20 INTELLECTUAL PROPERTY RIGHTS ............................. 22
SECTION 4.21 INSURANCE 22
SECTION 4.22 TITLE TO PROPERTIES ...................................... 22
SECTION 4.23 INTERNAL ACCOUNTING CONTROLS ............................. 22
SECTION 4.24 YEAR 2000 COMPLIANCE ..................................... 22
SECTION 4.25 FOREIGN PRACTICES ........................................ 23
SECTION 4.26 TITLE TO CERTAIN ASSETS .................................. 23
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASER ...................... 23
SECTION 5.1 PURCHASER ................................................. 23
ARTICLE VI. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES .................. 25
SECTION 6.1 CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS TO PURCHASE 25
SECTION 6.2 CONDITIONS TO THE COMPANY'S OBLIGATIONS ................... 27
ARTICLE VII. AFFIRMATIVE COVENANTS .......................................... 27
SECTION 7.1 INFORMATION ................................................ 27
SECTION 7.2 PAYMENT OF OBLIGATIONS ..................................... 28
SECTION 7.3 MAINTENANCE OF PROPERTY; INSURANCE ......................... 28
SECTION 7.4 MAINTENANCE OF EXISTENCE ................................... 28
SECTION 7.5 COMPLIANCE WITH LAWS ....................................... 29
SECTION 7.6 INSPECTION OF PROPERTY, BOOKS AND RECORDS .................. 29
SECTION 7.7 INVESTMENT COMPANY ACT ..................................... 29
SECTION 7.8 USE OF PROCEEDS ............................................ 29
SECTION 7.9 COMPLIANCE WITH TERMS AND CONDITIONS OF MATERIAL CONTRACTS . 29
SECTION 7.10 RESERVED SHARES AND LISTINGS .............................. 30
SECTION 7.11 TRANSFER AGENT INSTRUCTIONS ............................... 30
SECTION 7.12 MAINTENANCE OF REPORTING STATUS; SUPPLEMENTAL INFORMATION . 31
SECTION 7.13 FORM D; BLUE SKY LAWS ..................................... 31
ARTICLE VIII. NEGATIVE COVENANTS ............................................ 31
SECTION 8.1 LIMITATIONS ON DEBT OR OTHER LIABILITIES ................... 31
SECTION 8.2 TRANSACTIONS WITH AFFILIATES ............................... 32
SECTION 8.3 MERGER OR CONSOLIDATION .................................... 32
SECTION 8.4 LIMITATION ON ASSET SALES .................................. 32
SECTION 8.5 RESTRICTIONS ON CERTAIN AMENDMENTS ......................... 32
SECTION 8.6 PROHIBITION ON DISCOUNTED EQUITY OFFERINGS; REGISTRATION RIGHTS33
SECTION 8.7 LIMITATION ON STOCK REPURCHASES ............................ 34
ARTICLE IX. RESTRICTIVE LEGENDS ............................................. 34
SECTION 9.1 RESTRICTIONS ON TRANSFER ................................... 34
SECTION 9.2 LEGENDS .................................................... 34
SECTION 9.3 NOTICE OF PROPOSED TRANSFERS 34
ARTICLE X. ADDITIONAL AGREEMENTS AMONG THE PARTIES 34
SECTION 10.1 LIQUIDATED DAMAGES ........................................ 35
SECTION 10.2 CONVERSION NOTICE ......................................... 35
SECTION 10.3 CONVERSION LIMIT .......................................... 35
SECTION 10.4 REGISTRATION RIGHTS ....................................... 36
SECTION 10.5 RESTRICTION ON ISSUANCE OF SECURITIES ..................... 38
ARTICLE XI. ADJUSTMENT OF FIXED PRICE ....................................... 38
SECTION 11.1 REORGANIZATION ............................................ 38
SECTION 11.2 SHARE REORGANIZATION ...................................... 38
SECTION 11.3 RIGHTS OFFERING ........................................... 39
SECTION 11.4 SPECIAL DISTRIBUTION ...................................... 40
SECTION 11.5 CAPITAL REORGANIZATION .................................... 41
SECTION 11.6 PURCHASE PRICE ADJUSTMENTS ................................ 41
SECTION 11.7 ADJUSTMENT RULES .......................................... 42
SECTION 11.8 CERTIFICATE AS TO ADJUSTMENT .............................. 42
SECTION 11.9 NOTICE TO HOLDERS ......................................... 42
ARTICLE XII. EVENTS OF DEFAULT .............................................. 43
SECTION 12.1 EVENTS OF DEFAULT ........................................ 43
SECTION 12.2 POWERS AND REMEDIES CUMULATIVE ........................... 45
ARTICLE XIII. MISCELLANEOUS ................................................. 45
SECTION 13.1 NOTICES .................................................. 45
SECTION 13.2 NO WAIVERS; AMENDMENTS ................................... 46
SECTION 13.3 INDEMNIFICATION .......................................... 46
SECTION 13.4 EXPENSES: DOCUMENTARY TAXES ............................. 48
SECTION 13.5 PAYMENT .................................................. 49
SECTION 13.6 SUCCESSORS AND ASSIGNS ................................... 49
SECTION 13.7 BROKERS .................................................. 49
SECTION 13.8 GEORGIA LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY
SECTION 13.8 TRIAL; APPOINTMENT OF AGENT .............................. 49
SECTION 13.9 ENTIRE AGREEMENT ......................................... 49
SECTION 13.10 SURVIVAL; SEVERABILITY ................................... 50
SECTION 13.12 REPORTING ENTITY FOR THE COMMON STOCK .................... 50
SECTION 13.13 PUBLICITY ................................................ 50
LIST OF SCHEDULES
Schedule 4.3 Capitalization
Schedule 4.7 Financial Information
Schedule 4.8 Litigation
Schedule 4.12 Investments, Joint Ventures
Schedule 7.8 Use of Proceeds
Schedule 8.2 Transactions with Affiliates
LIST OF EXHIBITS
Exhibit A Form of Convertible Debentures
Exhibit B Form of Registration Rights Agreement
Exhibit C Form of Solvency Certificate
Exhibit D Form of Officer's Certificate
Exhibit E Form of Escrow Agreement
Exhibit F Form of Common Stock Purchase Warrant
Exhibit G Security Agreement
SECURITIES PURCHASE AGREEMENT
AGREEMENT, dated as of October 7, 1999, between Eagle Wireless
International, Inc. (the " Company") and GCA Strategic Investment Fund Limited
("Purchaser").
R E C I T A L S:
WHEREAS, the Company desires to sell and issue to Purchaser, and Purchaser
desires to purchase from the Company, up to the greater of (i) $4,500,000
aggregate principal amount of or (ii) the total number of registered common
shares represented in the Company's shelf registration statement relating to the
Company's 7% Convertible Debentures due October 7, 2002 (the " Convertible
Debentures") (the "Commitment Amount"), with terms and conditions as set forth
in the form of Convertible Debenture attached hereto as EXHIBIT A;
WHEREAS, the Convertible Debentures will be convertible into shares of the
Company's common stock, $.001 par value per share (the "Common Stock");
WHEREAS, in order to induce the Purchaser to enter into the transactions
described in this Agreement, the Company desires to issue to the Purchaser up to
an aggregate of 100,000 warrants to purchase shares of Common Stock upon the
Closing (as defined herein) and up to an additional 210,000 warrants in
Subsequent Takedowns (as defined herein) on the terms and conditions described
in the form of the common stock purchase warrant attached hereto as EXHIBIT F
(the "Warrants"); and
WHEREAS, Purchaser will have certain registration rights with respect to
such shares of Common Stock issuable as interest under, and upon conversion of,
the Convertible Debentures (the "Debenture Shares") and upon exercise of the
Warrants (the "Warrant Shares," the Debenture Shares and the Warrant Shares
being collectively referred to herein as the " Conversion Shares") as set forth
in the Registration Rights Agreement in the form attached hereto as EXHIBIT B;
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1. DEFINITIONS
ARTICLE 1.1 DEFINITIONS. The following terms, as used herein, have the
following meanings:
ARTICLE 1.2
ARTICLE 1.3 "Additional Shares of Common Stock" has the meaning set forth in
Section 11.6.
ARTICLE 1.4
ARTICLE 1.5 "Affiliate" means, with respect to any Person (the " Subject
Person"), (i) any other Person (a " Controlling Person") that directly, or
indirectly through one or more intermediaries, Controls the Subject Person or
(ii) any other Person (other than the Subject Person or a Consolidated
Subsidiary of the Subject Person) which is Controlled by or is under common
Control with a Controlling Person.
ARTICLE 1.6
ARTICLE 1.7 "Agreement" means this Securities Purchase Agreement, as amended,
supplemented or otherwise modified from time to time in accordance with its
terms.
ARTICLE 1.8
ARTICLE 1.9 "Asset Sale" has the meaning set forth in Section 8.4.
ARTICLE 1.10
ARTICLE 1.11 "Balance Sheet Date" has the meaning set forth in Section 4.7.
ARTICLE 1.12
ARTICLE 1.13 "Benefit Arrangement" means at any time an employee benefit plan
within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by the
Company.
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ARTICLE 1.14
ARTICLE 1.15 "Benefit Plans" has the meaning set forth in Section 4.9(b).
ARTICLE 1.16
ARTICLE 1.17 "Business Day" means any day except a Saturday, Sunday or other day
on which commercial banks in the City of New York are authorized or required by
law to close.
ARTICLE 1.18
ARTICLE 1.19 "Capital Reorganization" has the meaning set forth in Section 11.5.
ARTICLE 1.20
ARTICLE 1.21 "Change in Control" means (i) after the date of this Agreement, any
person or group of persons (within the meaning of Sections 13 and 14 of the
Exchange Act and the rules and regulations of the Commission relating to such
sections) other than Purchaser shall have acquired beneficial ownership (within
the meaning of Rules 13d-3 and 13d-5 promulgated by the Commission pursuant to
the Exchange Act) of 33% or more of the outstanding shares of Common Stock of
the Company; (ii) any sale or other disposition (other than by reason of death
or disability) to any Person of more than 50,000 shares of Common Stock of the
Company by any executive officers and/or employee directors of the Company
(including, but not limited to, H. Xxxx Xxxxxx) (iii) individuals constituting
the Board of Directors of the Company on the date hereof (together with any new
Directors whose election by such Board of Directors or whose nomination for
election by the stockholders of the Company was approved by a vote of at least
50.1% of the Directors still in office who are either Directors as of the date
hereof or whose election or nomination for election was previously so approved),
cease for any reason to constitute at least two-thirds of the Board of Directors
of the Company then in office.
ARTICLE 1.22 "Closing Bid Price" shall mean for any security as of any date, the
lowest closing bid price as reported by Bloomberg, L.P. (" Bloomberg") on the
principal securities exchange or trading market where such security is listed or
traded or, if the foregoing does not apply, the lowest closing bid price of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no lowest trading price is
reported for such security by Bloomberg, then the average of the bid prices of
any market makers for such securities as reported in the "Pink Sheets" by the
National Quotation Bureau, Inc. If the lowest closing bid price cannot be
calculated for such security on such date on any of the foregoing bases, the
lowest closing bid price of such security on such date shall be the fair market
value as mutually determined by Purchaser and the Company for which the
calculation of the closing bid price requires, and in the absence of such mutual
determination, as determined by the Board of Directors of the Company in good
faith.
"Closing Date" means the date on which all of the conditions set forth in
Sections 6.1 and 6.2 shall have been satisfied and Convertible Debentures in the
aggregate principal amount of $1,500,000 are issued by the Company to Purchaser.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission or any entity
succeeding to all of its material functions.
"Common Stock" means common stock, $.001 par value per share, of the
Company.
"Company" means Eagle Wireless International, Inc., a Texas
corporation, and its successors.
"Company Corporate Documents" means the certificate of incorporation
and bylaws of the Company.
"Consolidated Net Worth" means at any date the total shareholder's equity
which would appear on a consolidated balance sheet of the Company prepared as of
such date.
"Consolidated Subsidiary" means at any date with respect to any Person or
Subsidiary or other entity, the accounts of which would be consolidated with
those of such Person in its consolidated financial statements if such statements
were prepared as of such date.
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"Control" (including, with correlative meanings, the terms "Controlling,"
"Controlled by" and under "common Control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that Person, whether
through the ownership of voting securities, by contract or otherwise.
"Conversion Date" shall mean the date of delivery (including delivery via
telecopy) of a Notice of Conversion for all or a portion of a Convertible
Debenture by the holder thereof to the Company as specified in each Convertible
Debenture.
"Conversion Price" has the meaning set forth in the Convertible
Debentures.
"Conversion Shares" has the meaning set forth in the Recitals.
"Convertible Debentures" means the Company's Convertible Debentures
substantially in the form set forth as EXHIBIT A hereto.
"Deadline" has the meaning set forth in Section 10.1.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments
issued by such Person, (iii) all obligations of such Person as lessee which (y)
are capitalized in accordance with GAAP or (z) arise pursuant to sale-leaseback
transactions, (iv) all reimbursement obligations of such Person in respect of
letters of credit or other similar instruments, (v) all Debt of others secured
by a Lien on any asset of such Person, whether or not such Debt is otherwise an
obligation of such Person and (vi) all Debt of others Guaranteed by such Person.
"Default" means any event or condition which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Default Fee" has the meaning set forth in Section 10.4.
"Derivative Securities" has the meaning set forth in Section 8.6.
"Discounted Equity Offerings" has the meaning set forth in Section 8.6.
"Directors" means the individuals then serving on the Board of Directors
or similar such management council of the Company.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment, including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the cleanup or other
remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Company and each Subsidiary and all members of a
controlled group of corporation and all trades or businesses (whether or not
incorporated) under common control which, together with the Company or any
Subsidiary, are treated as a single employer under the Code.
3
"Event of Default" has the meaning set forth in Article XII hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expense Reimbursement Fee" has the meaning set forth in Section 13.4.
"Financing" means a public or private financing consummated (meaning
closing and funding) through the issuance of debt or equity securities (or
securities convertible into or exchangeable for debt or equity securities) of
the Company, other than Permitted Financings.
"Fixed Price(s)" has the meaning set forth in Section 11.1.
"GAAP" has the meaning set forth in Section 1.2.
"Guarantee" by any Person means any obligation, contingent or otherwise,
of such Person directly or indirectly guaranteeing (whether by virtue of
partnership arrangements, by agreement to keep well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain a minimum net worth,
financial ratio or similar requirements, or otherwise) any Debt of any other
Person and, without limiting the generality of the foregoing, any obligation,
direct or indirect, contingent or otherwise, of such Person (i) to purchase or
pay (or advance or supply funds for the purchase or payment of) such Debt or
(ii) entered into for the purpose of assuring in any other manner the holder of
such Debt of the payment thereof or to protect such holder against loss in
respect thereof (in whole or in part); PROVIDED that the term Guarantee shall
not include endorsements for collection or deposit in the ordinary course of
business. The term Guarantee used as a verb has a corresponding meaning.
"Hazardous Materials" means any hazardous materials, hazardous wastes,
hazardous constituents, hazardous or toxic substances or petroleum products
(including crude oil or any derivative or fraction thereof), defined or
regulated as such in or under any Environmental Laws.
`Intellectual Property" has the meaning set forth in Section 4.20.
"Investment" means any investment in any Person, whether by means of share
purchase, partnership interest, capital contribution, loan, time deposit or
otherwise.
"Lien" means any lien, mechanic's lien, materialmen's lien, lease,
easement, charge, encumbrance, mortgage, conditional sale agreement, title
retention agreement, agreement to sell or convey, option, claim, title
imperfection, encroachment or other survey defect, pledge, restriction, security
interest or other adverse claim, whether arising by contract or under law or
otherwise (including, without limitation, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code or comparable law
of any jurisdiction in respect of any of the foregoing).
"Listing Applications" has the meaning set forth in Section 4.4.
"Majority Holders" means (i) as of the Closing Date, Purchaser and (ii) at
any time thereafter, the holders of more than 50% in aggregate principal amount
of the 7% Convertible Debentures dated October 7, 1999 outstanding at such time.
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"Market Price" shall mean the Closing Bid Price of the Common Stock
preceding the date of determination.
"Material Plan" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $500,000.
"Maturity Date" shall mean the date of maturity of the Convertible
Debentures.
"Maximum Number of Shares" shall mean that percentage that the Company may
issue without shareholder approval under the applicable rules of the National
Market or the applicable OTC Bulletin Board or equivalent entity, of the then
issued and outstanding shares of Common Stock of the Company as of the
applicable date of determination, or such greater number of shares as the
stockholders of the Company may have previously approved.
"NASD" has the meaning set forth in Section 7.10.
"Nasdaq Market" means the Nasdaq Stock Market's National Market System.
"National Market" means the Nasdaq Market, the Nasdaq Small Cap Market,
the New York Stock Exchange, Inc. or the American Stock Exchange, Inc..
"Net Cash Proceeds" means, with respect to any transaction, the total
amount of cash proceeds received by the Company or any Subsidiary less (i)
reasonable underwriters' fees, brokerage commissions, reasonable professional
fees and other customary out-of-pocket expenses payable in connection with such
transaction, and (ii) in the case of dispositions of assets, (A) actual transfer
taxes (but not income taxes) payable with respect to such dispositions, and (B)
the amount of Debt, if any, secured by a Lien on the asset or assets disposed of
and required to be, and actually repaid by the Company or any Subsidiary in
connection therewith, and any trade payables specifically relating to such asset
or assets sold by the Company or any Subsidiary that are not assumed by the
purchaser of such asset or assets.
"Notice of Conversion" means the form to be delivered by a holder of a
Convertible Debenture upon conversion of all or a portion thereof to the Company
substantially in the form of EXHIBIT A to the form of Convertible Debenture.
"Notice of Exercise" means the form to be delivered by a holder of a
Warrant upon exercise of all or a portion thereof to the Company substantially
in the form of EXHIBIT A to the Warrant.
"Officer's Certificate" shall mean a certificate executed by the
President, chief executive officer or chief financial officer of the Company in
the form of EXHIBIT D attached hereto.
"OTC Bulletin Board" means the over-the-counter bulletin board operated
by the NASD.
"Other Taxes" has the meaning set forth in Section 3.6(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permits" means all domestic and foreign licenses, franchises, grants,
authorizations, permits, easements, variances, exemptions, consents,
certificates, orders and approvals necessary to own, lease and operate the
properties of, and to carry on the business of the Company and the Subsidiaries.
"Permitted Financings" has the meaning set forth in Section 10.5.
5
"Person" means an individual, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock Company,
government (or any agency or political subdivision thereof) or other entity of
any kind.
"Plan" means at any time an employee pension benefit plan which is covered
by Title IV of ERISA or subject to the minimum funding standards under the Code
and either (i) is maintained, or contributed to, by any member of the ERISA
group for employees of any member of the ERISA group or (ii) has at any time
within the preceding five years been maintained, or contributed to, by any
Person which was at such time a member of the ERISA group for employees of the
Person which was at such time a member of the ERISA Group.
"Purchase Price" means the purchase price for the Securities set forth
in Section 2.2 hereof.
"Purchaser" means the entity listed on the signature page hereto and its
successors and assigns, including holders from time to time of the Convertible
Debentures.
"Recourse Financing" means Debt of the Company or any Subsidiary which, by
its terms, does not bar the lender thereof from action against the Company or
any Subsidiary, as borrower or guarantor, if the security value of the project
or asset pledged in respect thereof falls below the amount required to repay
such Debt.
"Redemption Event" has the meaning set forth in Section 3.4.
"Registrable Securities" has the meaning set forth in Section 10.4(a).
"Registration Default" has the meaning set forth in Section 10.4(e).
"Registration Maintenance Period" has the meaning set forth in
Section 10.4(c).
"Registration Statement" has the meaning set forth in Section 10.4(b).
"Registration Rights Agreement" means the agreement between the Company
and Purchaser dated the date hereof substantially in the form set forth in
EXHIBIT B attached hereto.
"Required Effectiveness Date" has the meaning set forth in
Section 10.4(b).
"Reserved Amount" has the meaning set forth in Section 7.10(a).
"Restricted Payment" means, with respect to any Person, (i) any dividend
or other distribution on any shares of capital stock of such Person (except
dividends payable solely in shares of capital stock of the same or junior class
of such Person and dividends from a wholly-owned direct or indirect Subsidiary
of the Company to its parent corporation), (ii) any payment on account of the
purchase, redemption, retirement or acquisition of (a) any shares of such
Person's capital stock or (b) any option, warrant or other right to acquire
shares of such Person's capital stock or (iii) any loan, or advance or capital
contribution to any Person (a " Stockholder") owning any capital stock of such
Person other than relocation, travel or like advances to officers and employees
in the ordinary course of business, and other than reasonable compensation as
determined by the Board of Directors.
"Rights Offering" has the meaning set forth in Section 11.3.
"Sale Event" has the meaning set forth in Section 3.4.
"SEC Reports" has the meaning set forth in Section 7.1(a).
"Securities" means the Convertible Debentures, the Warrants and, as
applicable, the Conversion Shares.
"Securities Act" means the Securities Act of 1933, as amended.
6
"Share Reorganization" has the meaning set forth in Section 11.2.
"Solvency Certificate" shall mean a certificate executed by the treasurer
of the Company as to the solvency of the Company, the adequacy of its capital
and its ability to pay its debts, all after giving effect to the issuance and
sale of the Convertible Debentures and the completion of the offering (including
without limitation the payment of any fees or expenses in connection therewith),
which such Solvency Certificate shall be in the form of EXHIBIT C attached
hereto.
"Special Distribution" has the meaning set forth in Section 11.4.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which (x) a majority of the capital stock or other ownership interests
having ordinary voting power to elect a majority of the Board of Directors or
other persons performing similar functions are at the time directly or
indirectly owned by such Person or (y) the results of operations, the assets and
the liabilities of which are consolidated with such Person under GAAP.
"Subsidiary Corporate Documents" means the certificates of
incorporation and bylaws of each Subsidiary.
"Taxes" has the meaning set forth in Section 3.6.
"Trading Day" shall mean any Business Day in which the OTC Bulletin Board,
National Market or other automated quotation system or exchange on which the
Common Stock is then traded is open for trading for at least four (4) hours.
"Transaction Agreements" means this Agreement, the Convertible Debentures,
the Warrants, the Registration Rights Agreement, the Security Agreement, and the
other agreements contemplated by this Agreement.
"Transfer" means any disposition of Securities that would constitute a
sale thereof under the Securities Act.
"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the present value of all benefits under Plan
exceeds (ii) the fair market value of all Plan assets allocable to such benefits
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"Warrant" means the Common Stock Purchase Warrant substantially in the
form set forth in EXHIBIT F hereto.
ARTICLE 1.1 ACCOUNTING TERMS AND DETERMINATIONS . Unless otherwise specified
herein, all accounting terms used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial statements required to
be delivered hereunder shall be prepared, in accordance with generally accepted
accounting principles as in effect from time to time, applied on a consistent
basis (except for changes concurred in by the Company's independent public
accountants) (" GAAP"). All references to "dollars," "Dollars" or "$" are to
United States dollars unless otherwise indicated.
ARTICLE 1.2
ARTICLE 1.3
ARTICLE 2. PURCHASE AND SALE OF SECURITIES
ARTICLE 1.1 PURCHASE AND SALE OF CONVERTIBLE DEBENTURES .
ARTICLE 1.2
(a) Subject to the terms and conditions set forth herein, the Company
agrees to issue and sell to Purchaser, and Purchaser agrees to purchase from the
Company, Convertible Debentures up to the aggregate Commitment Amount.
7
(a) Purchaser shall acquire Convertible Debentures on the Closing Date
in an aggregate principal amount of One Million Five Hundred Thousand Dollars
($1,500,000.00).
(b)
(c) In connection with the Purchaser's agreement to purchase the
Convertible Debentures specified in this Article II, the Company shall issue and
deliver to the Purchaser on the Closing Date Warrants to purchase an aggregate
of 100,000 shares of Common Stock.
(d)
ARTICLE 1.2 PURCHASE PRICE. The purchase price for the Convertible
Debentures on the Closing Date and at any Subsequent Takedown (as defined
herein) shall be 95% of the principal amount thereof. No part of the purchase
price of the Convertible Debentures shall be allocated to the Warrant.
Therefore, the aggregate consideration payable by Purchaser to the Company for
the Convertible Debentures and Warrants on the Closing Date shall be One Million
Four Hundred and Twenty Five Thousand Dollars ($1,425,000.00) (the " Purchase
Price").
ARTICLE 1.3
ARTICLE 1.4 CLOSING AND MECHANICS OF PAYMENT.
ARTICLE 1.5
(a) The Purchase Price shall be paid on the Closing Date by wire
transfer of immediately available funds on or before 5:00 p.m. (EST).
(a) The Convertible Debentures and Warrants issued on the Closing Date
shall be dated the date hereof; PROVIDED, HOWEVER, interest shall accrue on the
applicable Convertible Debentures only from and after the date of funding
thereof.
(b)
ARTICLE 1.2 TERMS OF COMMITMENT AND SUBSEQUENT TAKEDOWNS.
ARTICLE 1.3
(a) COMMITMENT TERM. Purchaser's commitment to purchase the Commitment
Amount of Debentures from the Company, subject to the terms and conditions set
forth herein, shall expire on the second anniversary of the Closing Date.
(b)
(c) COMMITMENT FEE. The Company agrees to pay Purchaser an aggregate
commitment fee of 1.5% of the Commitment Amount which remains unused and has not
been canceled as of October 7, 2001. The Company may cancel any unused portion
of the Commitment Amount at any time upon 10 days written notice to Purchaser,
in which event the Company will pay Purchaser a commitment fee of 1.5% of the
Commitment Amount that it has canceled; provided, however, if Purchaser fails to
honor the Commitment, except as otherwise permitted herein, then no Commitment
Fee shall be due to Purchaser.
(d)
(e) SUBSEQUENT TAKEDOWN PERIOD. Following the earlier of (i) the 120th
Trading Day after the effective date of the Registration Statement, (in the case
of the first draw on the Commitment Amount by the Company following the Closing
Date (a "Takedown") and the 120th Trading Day after the previous Takedown (in
the case of all subsequent Takedowns, together known as "Subsequent Takedowns")
or (ii) conversion by Purchaser of the Debentures purchased in a previous
Takedown, the Company, at its sole option, may request Purchaser to purchase
additional amounts of the unused Commitment Amount.
(f)
(g) SUBSEQUENT TAKEDOWN AMOUNTS. The amount the Company may request in
any Subsequent Takedown shall be lesser of (i) a maximum of $1,000,000 principal
amount (the "Maximum Subsequent Takedown Amount"), and (ii) a maximum dollar
amount equal to the product of the formula of:
(h)
(i) Subsequent Takedown Amount = [(V multiplied by P) multiplied by 20%]
(j)
(k) Where V is equal to the weighted average trading volume of the
Common Stock for (i) the total of the 120 Trading Days or (ii) the total number
of Trading Days elapsed between Takedowns, following the effective date of the
Registration Statement or the closing of the previous Takedown, as applicable,
and P is equal to the weighted average sale price of the Common Stock for (i)
the 120 Trading Day period or (ii) the number of Trading Days elapsed between
Takedowns, following the effective date of the Registration Statement or the
closing of the previous
8
Takedown, as applicable (the "Subsequent Takedown Amount"). The Company shall
provide Purchaser a minimum of 20 business days prior written notice of its
intention to effect a Takedown.
(l)
(m) CONDITION TO SUBSEQUENT TAKEDOWNS. Subsequent Takedowns will be
subject to the conditions set forth in Section 6.1 hereof and the following:
(n)
(i) the effectiveness of the Registration Statement covering resales
of the Conversion Shares;
(ii)
(iii) the accuracy and completeness of the Company's representations
and warranties set forth in Article IV hereof as of the closing date of each
Subsequent Takedown;
(iv)
(v) the absence of suspensions of trading in or delisting (or pending
delisting) of the Common Stock;
(vi)
(vii) the receipt of legal opinions from counsel for the Company in
form and substance satisfactorily to Purchaser;
(viii)
(ix) the receipt of an accountant's "comfort letter" or "agreed upon
procedures" letter, as appropriate;
(x)
(xi) the completion of due diligence investigations regarding the
Company by Purchaser and absence of disputes with respect thereto; and
(xii)
(xiii) the absence of material adverse changes in the Company's
financial condition or prospects or share listing status or price.
(xiv)
(o) ADDITIONAL TAKEDOWN LIMITS. In no event shall the Purchaser (or
"group") as such term is defined in Rule 13d-3 of the Exchange Act) receive
Conversion Shares, upon the issuance of any Common Stock as a result of a
Takedown or the exercise of any Warrants, if, immediately after giving effect to
such issuance, the Purchaser (or group) would beneficially own (excluding for
such purpose additional Common Stock beneficially owned through ownership of the
Warrants) in excess of 4.99% of the Common Stock then outstanding. This
provision will not be effective in an Event of Default which remains uncured for
a period of 10 days.
(p)
(q)
ARTICLE 2. PAYMENT TERMS OF CONVERTIBLE DEBENTURES
ARTICLE 1.1 PAYMENT OF PRINCIPAL AND INTEREST; PAYMENT MECHANICS. The Company
will pay all amounts due on each Convertible Debenture by the method and at the
address specified for such purpose by Purchaser in writing, without the
presentation or surrender of any Convertible Debenture or the making of any
notation thereon, except that upon written request of the Company made
concurrently with or reasonably promptly after payment or prepayment in full of
this Convertible Debenture, the holder shall surrender the Convertible Debenture
for cancellation, reasonably promptly after any such request, to the Company at
its principal executive office. Prior to any sale or other disposition of any
Convertible Debenture, the holder thereof will, at its election, either endorse
thereon the amount of principal paid thereon and the last date to which interest
has been paid thereon or surrender the Convertible Debenture to the Company in
exchange for a new Convertible Debenture or Convertible Debentures. The Company
will afford the benefits of this Section 3.1 to any direct or indirect
transferee of the Convertible Debenture purchased under this Agreement and that
has made the same agreement relating to this Convertible Debenture as Purchaser
has in this Section 3.1; provided that such transferee is an "accredited
investor" under Rule 501 of the Securities Act.
ARTICLE 1.2
ARTICLE 1.3 PAYMENT OF INTEREST. Interest shall accrue on the outstanding
principal amount of each Convertible Debenture and shall be payable as specified
therein.
ARTICLE 1.4
9
ARTICLE 1.5 VOLUNTARY PREPAYMENT . For so long as no Event of Default shall have
occurred and is continuing, the Company may, at its option, repay, in whole or
in part, the Convertible Debentures, per the formula set forth in Section 5.1 of
EXHIBIT A hereto, thereof following at least five (5) Business Days prior
written notice to Purchaser (the expiration of such five (5) Business Day period
being referred to as the "prepayment date"); PROVIDED, HOWEVER, that if such
date is not a Business Day, the prepayment date shall be the next Business Day
thereafter.
ARTICLE 1.6
ARTICLE 1.7 MANDATORY PREPAYMENTS.
ARTICLE 1.8
(a) Upon (i) the occurrence of a Change in Control of the Company,
(ii) a transfer of all or substantially all of the assets of the Company
to any Person in a single transaction or series of related transactions,
(iii) a consolidation, merger or amalgamation of the Company with or into
another Person in which the Company is not the surviving entity (other
than a merger which is effected solely to change the jurisdiction of
incorporation of the Company and results in a reclassification, conversion
or exchange of outstanding shares of Common Stock solely into shares of
Common Stock) (each of items (i), (ii) and (iii) being referred to as a
"Sale Event"), or (iv) the occurrence of a Registration Default which
continues uncured for a period of ten (10) days, then, in each case, the
Company shall, upon request of the Majority Holders, redeem the
Convertible Debentures and Warrants, subject to the provisions of SECTION
5 of the Convertible Debentures and SECTION 13 of the Warrants,
respectively. The redemption price payable upon any such redemption shall
be the Redemption Price in SECTION 5 of the Convertible Debentures and
SECTION 13 of the Warrants, respectively (referred to herein as the
"Formula Price").
(a) At the option of Purchaser, upon the consummation of one or more
Financings, the Company shall use 25% of the Net Cash Proceeds therefrom
(unless such Net Cash Proceeds from each such Financing is less than
$250,000) to redeem the Convertible Debentures.
(a) Upon the issuance of the Maximum Number of Shares and the failure
within 40 days of such issuance to obtain shareholder approval to issue
additional shares of Common Stock (the "Redemption Event"), the Company
shall redeem the outstanding balance of each Convertible Debenture and
Warrant for the Formula Price.
(a) In the event that there is an insufficient number of authorized,
issuable, unlegended and freely tradeable shares of Common Stock
registered under the Registration Statement filed by the Company to
fully convert the Convertible Debentures and exercise all Warrants held
by Purchaser and sell such shares issued thereon, then the Company
shall immediately file an amendment to the then current registration
statement to register a sufficient number of such shares to convert
said Convertible Debentures and Warrants. Upon the failure within ten
(10) Trading Days to register a sufficient number of such shares, the
Company shall redeem the outstanding balance of each Convertible
Debenture and Warrant for the Formula Price. In addition, failure of
the Company to register a sufficient number of such shares to fully
convert said Convertible Debentures and exercise such Warrants shall be
a Registration Default under SECTION 10.4(E) from the date of the
Notice of Conversion to the date of the earlier of (i) the redemption
of the outstanding balance of the Convertible Debentures and exercise
of all such Warrants or (ii) full conversion of the Convertible
Debentures and exercise of all such Warrants.
ARTICLE 1.1 PREPAYMENT PROCEDURES.
ARTICLE 1.2
(a) Any permitted prepayment or redemption of the Convertible Debentures
and Warrants, as applicable pursuant to Sections 3.3 or 3.4 above shall be
deemed to be effective and consummated (for purposes of determining the
Formula Price and the time at which Purchaser shall thereafter not be
entitled to deliver a Notice of Conversion for the Convertible Debentures)
as follows:
(i) A prepayment pursuant to Section 3.3, the "prepayment
date" specified therein;
(i) A redemption pursuant to Section 3.4(a), the date of
consummation of the applicable Sale Event or the Registration
Default;
10
(i) A redemption pursuant to Section 3.4(b), three (3)
Business Days following the date of consummation of the applicable
Financing (meaning closing and funding); and
(i) A redemption pursuant to Section 3.4(c), the date
specified in each Convertible Debenture.
(a) On the Maturity Date and on the effective date of a repayment or
redemption of the Convertible Debentures and Warrants as specified in
Section 3.5(a) above, the Company shall deliver by wire transfer of
funds the repayment/redemption price to Purchaser of the Convertible
Debentures and Warrants subject to redemption. Should Purchaser not
receive payment of any amounts due on redemption of its Convertible
Debentures and Warrants by reason of the Company's failure to make
payment at the times prescribed above for any reason, the Company shall
pay to the applicable holder on demand (x) interest on the sums not
paid when due at an annual rate equal to the greater of (I) the maximum
lawful rate and (II) 18% per annum, compounded at the end of each
thirty (30) days, until the applicable holder is paid in full and
(y) all costs of collection, including, but not limited to, reasonable
attorneys' fees and costs, whether or not suit or other formal
proceedings are instituted.
(a) The Company shall select the Convertible Debentures and Warrants
to be redeemed in any redemption in which not all of the Convertible
Debentures and Warrants are to be redeemed so that the ratio of the
Convertible Debentures and Warrants of each holder selected for
redemption to the total Convertible Debentures and Warrants owned by
that holder shall be the same as the ratio of all such Convertible
Debentures and Warrants selected for redemption bears to the total of
all then outstanding Convertible Debentures and Warrants. Should any
Convertible Debentures and Warrants required to be redeemed under the
terms hereof not be redeemed solely by reason of limitations imposed by
law, the applicable Convertible Debentures and Warrants shall be
redeemed on the earliest possible dates thereafter to the maximum
extent permitted by law.
(a) Any Notice of Conversion delivered by Purchaser (including
delivery via telecopy) to the Company prior to the (x) Maturity Date or
(y) effective date of a voluntary repayment pursuant to Section 3.3 or
a mandatory prepayment pursuant to Section 3.4 as specified in
Section 3.5(a) above), shall be honored by the Company and the
conversion of the Convertible Debentures shall be deemed effected on
the Conversion Date. In addition, between the effective date of a
voluntary prepayment pursuant to Section 3.3 or a mandatory prepayment
pursuant to Section 3.4 as specified in Section 3.5(a) above and the
date the Company is required to deliver the redemption proceeds in full
to Purchaser, Purchaser may deliver a Notice of Conversion to the
Company. Such notice will be (x) of no force or effect if the Company
timely pays the redemption proceeds to Purchaser when due or
(y) honored on or as of the date of the Notice of Conversion if the
Company fails to timely pay the redemption proceeds to Purchaser when
due.
11
ARTICLE 1.1 PAYMENT OF ADDITIONAL AMOUNTS.
ARTICLE 1.2
(a) Any and all payments by the Company hereunder or under the
Convertible Debentures to Purchaser and each "qualified assignee"
thereof shall be made free and clear of and without deduction or
withholding for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect
thereto (all such taxes, levies, imposts, deductions, charges,
withholdings and liabilities being hereinafter referred to as " Taxes")
unless such Taxes are required by law or the administration thereof to
be deducted or withheld. If the Company shall be required by law or
the administration thereof to deduct or withhold any Taxes from or in
respect of any sum payable under the Convertible Debentures (i) the
holders of the Convertible Debentures subject to such Taxes shall have
the right, but not the obligation, for a period of thirty (30) days
commencing upon the day it shall have received written notice from the
Company that it is required to withhold Taxes to transfer all or any
portion of the Convertible Debentures to a qualified assignee to the
extent such transfer can be effected in accordance with the other
provisions of this Agreement and applicable law; (ii) the Company shall
make such deductions or withholdings; (iii) the sum payable shall be
increased as may be necessary so that after making all required
deductions or withholdings (including deductions or withholdings
applicable to additional amounts paid under this Section 3.6) Purchaser
receives an amount equal to the sum it would have received if no such
deduction or withholding had been made; and (iv) the Company shall
forthwith pay the full amount deducted or withheld to the relevant
taxation or other authority in accordance with applicable. A
"qualified assignee" of a Purchaser is a Person that is organized under
the laws of (I) the United States or (II) any jurisdiction other than
the United States or any political subdivision thereof and that
(y) represents and warrants to the Company that payments of the Company
to such assignee under the laws in existence on the date of this
Agreement would not be subject to any Taxes and (z) from time to time,
as and when requested by the Company, executes and delivers to the
Company and the Internal Revenue Service forms, and provides the
Company with any information necessary to establish such assignee's
continued exemption from Taxes under applicable law.
(a) The Company shall forthwith pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or
similar levies (all such taxes, charges and levies hereinafter referred
to as "Other Taxes") which arise from any payment made under any of
the Transaction Agreements or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement other
than Taxes payable solely as a result of the transfer from Purchaser to
a Person of any Security.
(a) The Company shall indemnify Purchaser, or qualified assignee, for
the full amount of Taxes or Other Taxes (including, without limitation,
any Taxes or Other Taxes imposed by any jurisdiction on amounts payable
under this Section 3.6) paid by Purchaser, or qualified assignee, and
any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto, whether or not such Taxes or Other
Taxes were correctly or legally asserted. Payment under this
indemnification shall be made within 30 days from the date Purchaser or
assignee makes written demand therefor. A certificate as to the amount
of such Taxes or Other Taxes submitted to the Company by Purchaser or
assignee shall be conclusive evidence of the amount due from the
Company to such party.
(a) Within 30 days after the date of any payment of Taxes, the Company
will furnish to Purchaser the original or a certified copy of a receipt
evidencing payment thereof.
(a) Purchaser shall provide to the Company a form W-8, stating that it
is a non-U.S. person, together with any additional tax forms which may be
required under the Code, as amended after the date hereof, to allow
interest payments to be made to it without deduction.
ARTICLE 1. REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to Purchaser, as of the Closing Date
and again at the closing of each Subsequent Takedown, the following:
12
ARTICLE 1.1 ORGANIZATION AND QUALIFICATION. The Company and each Subsidiary is
a corporation (or other legal entity) duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation, with full
power and authority to own, lease, use and operate its properties and to carry
on its business as and where now owned, leased, used, operated and conducted.
The Company is qualified to conduct business as a foreign corporation and is in
good standing in every jurisdiction in which the nature of the business
conducted by it makes such qualification necessary, except where such failure
would not have a Material Adverse Effect. A " Material Adverse Effect" means any
material adverse effect on the operations, results of operations, properties,
assets or condition (financial or otherwise) of the Company or the Company and
its Subsidiaries, taken as a whole, or on the transactions contemplated hereby
or by the agreements or instruments to be entered into in connection herewith.
ARTICLE 1.2
ARTICLE 1.3 AUTHORIZATION AND EXECUTION.
ARTICLE 1.4
(a) The Company has all requisite corporate power and authority to enter
into and perform each Transaction Agreement and to consummate the
transactions contemplated hereby and thereby and to issue the Securities
in accordance with the terms hereof and thereof.
(a) The execution, delivery and performance by the Company of each
Transaction Agreement and the issuance by the Company of the Securities
have been duly and validly authorized and no further consent or
authorization of the Company, its Board of Directors or its shareholders
is required.
(a) This Agreement has been duly executed and delivered by the Company.
(a) This Agreement constitutes, and upon execution and delivery thereof
by the Company, each of the Transaction Agreements will constitute, a
valid and binding agreement of the Company, in each case enforceable
against the Company in accordance with its respective terms.
ARTICLE 1.1 CAPITALIZATION . As of the date hereof, the authorized, issued and
outstanding capital stock of the Company is as set forth on SCHEDULE 4.3 hereto
and except as set forth on SCHEDULE 4.3 no other shares of capital stock of the
Company will be outstanding as of the Closing Date. All of such outstanding
shares of capital stock are, or upon issuance will be, duly authorized, validly
issued, fully paid and nonassessable. No shares of capital stock of the Company
are subject to preemptive rights or similar rights of the stockholders of the
Company or any liens or encumbrances imposed through the actions or failure to
act of the Company. Other than as set forth on SCHEDULE 4.3 hereto, as of the
date hereof, (i) there are no outstanding options, warrants, scrip, rights to
subscribe for, puts, calls, rights of first refusal, agreements, understandings,
claims or other commitments or rights of any character whatsoever relating to,
or securities or rights convertible into or exchangeable for any shares of
capital stock of the Company or any of its Subsidiaries, or arrangements by
which the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries,
and (ii) there are no agreements or arrangements under which the Company or any
of its Subsidiaries are obligated to register the sale of any of its or their
securities under the Securities Act (except pursuant to the Registration Rights
Agreement) and (iii) there are no anti-dilution or price adjustment provisions
contained in any security issued by the Company (or in any agreement providing
rights to security holders) that will be triggered by the issuance of the
Convertible Debentures or Conversion Shares. The Company has furnished to
Purchaser true and correct copies of the Company's Corporate Documents, and the
terms of all securities convertible into or exercisable for Common Stock and the
material rights of the holders thereof in respect thereto.
ARTICLE 1.2
ARTICLE 1.3 GOVERNMENTAL AUTHORIZATION . The execution and delivery by the
Company of the Transaction Agreements does not and will not, the issuance and
sale by the Company of the Securities does not and will not, and the
consummation of the transactions contemplated hereby and by the other
Transaction Agreements will not, require any action by or in respect of, or
filing with, any governmental body, agency or governmental official except (a)
such actions or filings that have been undertaken or made prior to the date
hereof and that will be in full force and effect (or as to which all applicable
waiting periods have expired) on and as of the date hereof or which are not
required to be filed on or prior to the Closing Date, (b) such actions or
filings that, if not obtained, would not result in a Material Adverse Effect,
(c) listing applications ("Listing Applications") to be filed with the OTC
Bulletin Board or the
13
National Market relating to the Conversion Shares of Common Stock issuable upon
conversion of the Convertible Debentures, and (d) the filing of a "Form D" as
described in Section 7.13 below.
ARTICLE 1.4
ARTICLE 1.5 ISSUANCE OF SHARES. Upon conversion in accordance with the terms of
the Convertible Debentures and exercise of the Warrants, the Conversion Shares
shall be duly and validly issued and outstanding, fully paid and nonassessable,
free and clear of any Taxes, Liens and charges with respect to issuance and
shall not be subject to preemptive rights or similar rights of any other
stockholders of the Company. Assuming the representations and warranties of
Purchaser herein are true and correct in all material respects, each of the
Securities will have been issued in material compliance with all applicable U.S.
federal and state securities laws. The Company understands and acknowledges
that, in certain circumstances, the issuance of Conversion Shares could dilute
the ownership interests of other stockholders of the Company. The Company
further acknowledges that its obligation to issue Conversion Shares upon
conversion of the Convertible Debentures and exercise of the Warrants is
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the Company.
ARTICLE 1.6
ARTICLE 1.7 NO CONFLICTS . The execution and delivery by the Company of the
Transaction Agreements to which it is a party did not and will not, the issuance
and sale by the Company of the Securities did not and will not and the
consummation of the transactions contemplated hereby and by the other
Transaction Agreements will not, contravene or constitute a default under or
violation of (i) any provision of applicable law or regulation, (ii) the Company
Corporate Documents, (iii) any agreement, judgment, injunction, order, decree or
other instrument binding upon the Company or any Subsidiary or any of their
respective assets, or result in the creation or imposition of any Lien on any
asset of the Company or any Subsidiary. The Company and each Subsidiary is in
compliance with and conforms to all statutes, laws, ordinances, rules,
regulations, orders, restrictions and all other legal requirements of any
domestic or foreign government or any instrumentality thereof having
jurisdiction over the conduct of its businesses or the ownership of its
properties, except where such failure would not have a Material Adverse Effect.
ARTICLE 1.8
ARTICLE 1.9 FINANCIAL INFORMATION. Since May 31, 1999 (the " Balance Sheet
Date"), except as disclosed in SCHEDULE 4.7, there has been (x) no material
adverse change in the assets or liabilities, or in the business or condition,
financial or otherwise, or in the results of operations or prospects, of the
Company and its Subsidiaries, whether as a result of any legislative or
regulatory change, revocation of any license or rights to do business, fire,
explosion, accident, casualty, labor trouble, flood, drought, riot, storm,
condemnation, act of God, public force or otherwise and (y) no material adverse
change in the assets or liabilities, or in the business or condition, financial
or otherwise, or in the results of operations or prospects, of the Company and
its subsidiaries except in the ordinary course of business; and no fact or
condition exists or is contemplated or threatened which might cause such a
change in the future. The audited and unaudited consolidated balance sheets of
the Company and its Subsidiaries for the periods ending August 31, 1998, and May
31, 1999, respectively, and the related consolidated statements of income,
changes in stockholders' equity and changes in cash flows for the periods then
ended, including the footnotes thereto, except as indicated therein, (i)
complied in all material respects with applicable accounting requirements and
(ii) have been prepared in accordance with GAAP consistently applied throughout
the periods indicated, except that the unaudited financial statements do not
contain notes and may be subject to normal audit adjustments and normal annual
adjustments. Such financial statements fairly present the financial condition of
the Company and its Subsidiaries at the dates indicated and the consolidated
results of their operations and cash flows for the periods then ended and,
except as indicated therein, reflect all claims against and all Debts and
liabilities of the Company and its Subsidiaries, fixed or contingent.
ARTICLE 1.10
ARTICLE 1.11 LITIGATION. Except as set forth on SCHEDULE 4.8, there is no
action, suit or proceeding pending or, to the knowledge of the Company,
threatened against the Company or any Subsidiary, before any court or arbitrator
or any governmental body, agency or official in which there is a reasonable
possibility of an adverse decision which could materially adversely affect the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or which challenges the validity of any
Transaction Agreements.
ARTICLE 1.12
14
ARTICLE 1.13 COMPLIANCE WITH ERISA AND OTHER BENEFIT PLANS.
ARTICLE 1.14
(a) Each member of the ERISA Group has fulfilled its obligations under the
minimum funding standards of ERISA and the Code with respect to each Plan and is
in compliance in all material respects with the presently applicable provisions
of ERISA and the Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Code in respect of any Plan, (ii) failed to make any required contribution or
payment to any Plan or Multiemployer Plan or in respect of any Benefit
Arrangement, or made any amendment to any Plan or Benefit Arrangement, which as
resulted or could result in the imposition of a Lien or the posting of a bond or
other security under ERISA or the Code or (iii) incurred any liability under
Title IV of ERISA other than a liability to the PBGC for premiums under Section
4007 of ERISA.
(a) The benefit plans not covered under clause (a) above (including profit
sharing, deferred compensation, stock option, employee stock purchase, bonus,
retirement, health or insurance plans, collectively the " Benefit Plans")
relating to the employees of the Company are duly registered where required by,
and are in good standing in all material respects under, all applicable laws.
All required employer and employee contributions and premiums under the Benefit
Plans to the date hereof have been made, the respective fund or funds
established under the Benefit Plans are funded in accordance with applicable
laws, and no past service funding liabilities exist thereunder.
(b)
(c) No Benefit Plans have any unfunded liabilities, either on a "going
concern" or "winding up" basis and determined in accordance with all applicable
laws and actuarial practices and using actuarial assumptions and methods that
are reasonable in the circumstances. No event has occurred and no condition
exists with respect to any Benefit Plans that has resulted or could reasonably
be expected to result in any pension plan having its registration revoked or
wound up (in whole or in part) or refused for the purposes of any applicable
laws or being placed under the administration of any relevant pension benefits
regulatory authority or being required to pay any taxes or penalties (in any
material amounts) under any applicable laws.
(d)
ARTICLE 1.2 ENVIRONMENTAL MATTERS . The costs and liabilities associated with
Environmental Laws (including the cost of compliance therewith) are unlikely to
have a material adverse effect on the business, condition (financial or
otherwise), operations, performance, properties or prospects of the Company or
any Subsidiary. Each of the Company and the Subsidiaries conducts its businesses
in compliance in all material respects with all applicable Environmental Laws.
ARTICLE 1.3
ARTICLE 1.4 TAXES . All United States federal, state, county, municipality,
local or foreign income tax returns and all other material tax returns
(including foreign tax returns) which are required to be filed by or on behalf
of the Company and each Subsidiary have been filed and all material taxes due
pursuant to such returns or pursuant to any assessment received by the Company
and each Subsidiary have been paid except those being disputed in good faith and
for which adequate reserves have been established. The charges, accruals and
reserves on the books of the Company and each Subsidiary in respect of taxes and
other governmental charges have been established in accordance with GAAP.
ARTICLE 1.5
ARTICLE 1.6 INVESTMENTS, JOINT VENTURES . Other than as set forth in SCHEDULE
4.12, the Company has no Subsidiaries or other direct or indirect Investment in
any Person, and the Company is not a party to any partnership, management,
shareholders' or joint venture or similar agreement.
ARTICLE 1.7
ARTICLE 1.8 NOT AN INVESTMENT COMPANY . Neither the Company nor any Subsidiary
is an "Investment Company" within the meaning of Investment Company Act of 1940,
as amended.
ARTICLE 1.9
ARTICLE 1.10 FULL DISCLOSURE . The information heretofore furnished by the
Company to Purchaser for purposes of or in connection with this Agreement or any
transaction contemplated hereby does not, and all such information hereafter
furnished by the Company or any Subsidiary to Purchaser will not (in each case
taken together and on the date as of which such information is furnished),
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein, in the light of the
circumstances under which they are made, not misleading.
ARTICLE 1.11
15
ARTICLE 1.12 NO SOLICITATION; NO INTEGRATION WITH OTHER OFFERINGS. No form of
general solicitation or general advertising was used by the Company or, to the
best of its actual knowledge, any other Person acting on behalf of the Company,
in connection with the offer and sale of the Securities. Neither the Company,
nor, to its knowledge, any Person acting on behalf of the Company, has, either
directly or indirectly, sold or offered for sale to any Person (other than
Purchaser) any of the Securities or, within the six months prior to the date
hereof, any other similar security of the Company except as contemplated by this
Agreement, and the Company represents that neither itself nor any Person
authorized to act on its behalf (except that the Company makes no representation
as to Purchaser and their Affiliates) will sell or offer for sale any such
security to, or solicit any offers to buy any such security from, or otherwise
approach or negotiate in respect thereof with, any Person or Persons so as
thereby to cause the issuance or sale of any of the Securities to be in
violation of any of the provisions of Section 5 of the Securities Act. The
issuance of the Securities to Purchaser will not be integrated with any other
issuance of the Company's securities (past, current or future) which requires
stockholder approval under the rules of the OTC Bulletin Board.
ARTICLE 1.13
ARTICLE 1.14 PERMITS. (a) Each of the Company and its Subsidiaries has all
material Permits; (b) all such Permits are in full force and effect, and each of
the Company and its Subsidiaries has fulfilled and performed all material
obligations with respect to such Permits; (c) no event has occurred which
allows, or after notice of lapse of time would allow, revocation or termination
by the issuer thereof or which results in any other material impairment of the
rights of the holder of any such Permit; and (d) the Company has no reason to
believe that any governmental body or agency is considering limiting, suspending
or revoking any such Permit.
ARTICLE 1.15
ARTICLE 1.16 LEASES . Neither the Company nor any Subsidiary is a party to any
capital lease obligation with a value greater than $250,000 or to any operating
lease with an aggregate annual rental greater than $250,000 during the life of
such lease.
ARTICLE 1.17
ARTICLE 1.18 ABSENCE OF ANY UNDISCLOSED LIABILITIES OR CAPITAL CALLS. There are
no liabilities of the Company or any Subsidiary of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, and there
is no existing condition, situation or set of circumstances which would
reasonably be expected to result in such a liability, other than (i) those
liabilities provided for in the financial statements delivered pursuant to
Section 4.7 and (ii) other undisclosed liabilities which, individually or in the
aggregate, would not have a Material Adverse Effect.
ARTICLE 1.19
ARTICLE 1.20 PUBLIC UTILITY HOLDING COMPANY. Neither the Company nor any
Subsidiary is, or will be upon issuance and sale of the Securities and the use
of the proceeds described herein, subject to regulation under the Public Utility
Holding Company Act of 1935, as amended, the Federal Power Act, the Interstate
Commerce Act or to any federal or state statute or regulation limiting its
ability to issue and perform its obligations under any Transaction Agreement.
ARTICLE 1.21 INTELLECTUAL PROPERTY RIGHTS. Each of the Company and its
Subsidiaries owns, or is licensed under, and has the rights to use, all material
patents, trademarks, trade names, copyrights, technology, know-how and processes
(collectively, "Intellectual Property") used in, or necessary for the conduct
of its business; no claims have been asserted by any Person to the use of any
such Intellectual Property or challenging or questioning the validity or
effectiveness of any license or agreement related thereto. To the best of
Company's and its Subsidiaries' knowledge, there is no valid basis for any such
claim and the use of such Intellectual Property by the Company and its
Subsidiaries will not infringe upon the rights of any Person.
ARTICLE 1.22
ARTICLE 1.23 INSURANCE. The Company and its Subsidiaries maintain, with
financially sound and reputable insurance companies, insurance in at least such
amounts and against such risks such that any uninsured loss would not have a
Material Adverse Effect. All insurance coverages of the Company and its
Subsidiaries are in full force and effect and there are no past due premiums in
respect of any such insurance.
ARTICLE 1.24
ARTICLE 1.25 TITLE TO PROPERTIES. The Company and its Subsidiaries have good
and marketable title to all their respective properties reflected on the
financial statements referred to in Section 4.7, free and clear of all Liens.
ARTICLE 1.26
16
ARTICLE 1.27 INTERNAL ACCOUNTING CONTROLS. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's Board of Directors, to provide reasonable
assurance that (i) transactions are executed in accordance with managements'
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
ARTICLE 1.28
ARTICLE 1.29 YEAR 2000 COMPLIANCE.
ARTICLE 1.30
(a) COMPUTER AND OTHER SYSTEMS. (i) All software programs and computer
hardware that are owned, leased or licensed by the Company and each Subsidiary,
or used by third parties on behalf of the Company and each Subsidiary
("Computer Systems"), are designated to be used prior to, during and after the
calendar year 2000 A.D., including leap years; (ii) all other operational
systems that use software or equipment that are owned, leased, or licensed by
the Company and each Subsidiary, or used by third parties on behalf of the
Company and each Subsidiary (" Other Systems"), are designated to be used prior
to, during or after the calendar year 2000 A.D., including leap years; (iii) the
Computer systems and Other Systems will properly operate during each such period
without error or degradation of performance caused by a lack of Year 2000
Capabilities; and (iv) the Computer Systems and Other Systems will properly
operate during each such period without requiring intervention or modification
to Date Data.
(b)
(c) CAPABILITIES OF SUPPLIERS, VENDORS AND LANDLORDS. To the best of the
Company's knowledge after specific inquiry of all of its material suppliers,
vendors and landlords, the Company and each Subsidiary will not suffer a loss
from interruption or cessation of business operations, in whole or in part, as a
result of such suppliers, vendors or landlords failing to provide materials,
labor, supplies or access to leased space for the operation of the Company and
each Subsidiary as a result of such suppliers or vendors not having Year 2000
Capabilities.
(d)
(e) CAPABILITIES. For purposes of this Agreement, (x) "Year 2000
Capabilities" means the ability to: (i) manage and manipulate data involving
dates, including single century formulas and multi-century formulas, in a manner
that will not cause an abnormally ending scenario or generate incorrect values
or invalid results involving such dates; (ii) include the indication of proper
century dates in all date-related user interface functions and date fields; and
(iii) operate with proper century dates in date-related software or hardware
interface functions; and (y) "Date Data" means any existing data or input of
date which includes an indication of or reference to date.
(f)
ARTICLE 1.31 FOREIGN PRACTICES . Neither the Company nor any of its Subsidiaries
nor, to the Company's knowledge, any employee or agent of the Company or any
Subsidiary has made any payments of funds of the Company or Subsidiary, or
received or retained any funds, in each case in violation of any law, rule or
regulation.
ARTICLE 1.32
ARTICLE 1.33 TITLE TO CERTAIN ASSETS. The Company owns the assets designated as
collateral and described on Exhibit A to that certain Security Agreement between
the Company and Purchaser of even date herewith in substantially the form of
EXHIBIT G hereto (the "Security Agreement"), free and clear of any lien or
encumbrance.
ARTICLE 1.34
ARTICLE 1.35
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF PURCHASER
ARTICLE 1.1 PURCHASER. Purchaser hereby represents and warrants to the Company
that:
ARTICLE 1.2
(a) Purchaser is an "accredited investor" within the meaning of Rule
501(a) under the Securities Act and the Securities to be acquired by it
pursuant to this Agreement are being acquired for its own account and,
as of the date hereof, not with a view toward, or for sale in
connection with, any distribution thereof except in compliance with
applicable United States federal and state securities law; provided
that the disposition of Purchaser's property shall at all times be and
remain within its control;
17
(a) the execution, delivery and performance of this Agreement and the
purchase of the Securities pursuant thereto are within Purchaser's
corporate or partnership powers, as applicable, and have been duly and
validly authorized by all requisite corporate or partnership action;
(a) this Agreement has been duly executed and delivered by Purchaser;
(a) the execution and delivery by Purchaser of the Transaction
Agreements to which it is a party does not, and the consummation of the
transactions contemplated hereby and thereby will not, contravene or
constitute a default under or violation of (i) any provision of applicable
law or regulation, or (ii) any agreement, judgment, injunction, order,
decree or other instrument binding upon Purchaser;
(a) Purchaser understands that the Securities have not been registered
under the Securities Act and may not be transferred or sold except as
specified in this Agreement or the remaining Transaction Agreements;
(a) this Agreement constitutes a valid and binding agreement of
Purchaser enforceable in accordance with its terms, subject to (i)
applicable bankruptcy, insolvency or similar laws affecting the
enforceability of creditors rights generally and (ii) equitable principles
of general applicability;
(a) Purchaser has such knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of
its investment in the Securities and Purchaser is capable of bearing the
economic risks of such investment;
(a) Purchaser is knowledgeable, sophisticated and experienced in
business and financial matters; Purchaser has previously invested in
securities similar to the Securities and fully understands the limitations
on transfer described herein; Purchaser has been afforded access to
information about the Company and the financial condition, results of
operations, property, management and prospects of the Company sufficient
to enable it to evaluate its investment in the Securities; Purchaser has
been afforded the opportunity to ask such questions as it has deemed
necessary of, and to receive answers from, representatives of the Company
concerning the terms and conditions of the offering of the Securities and
the merits and the risks of investing in the Securities; and Purchaser has
been afforded the opportunity to obtain such additional information which
the Company possesses or can acquire that is necessary to verify the
accuracy and completeness of the information given to Purchaser concerning
the Company. The foregoing does not in any way relieve the Company of its
representations and other undertakings hereunder, and shall not limit
Purchaser's ability to rely thereon;
(a) no part of the source of funds used by Purchaser to acquire the
Securities constitutes assets allocated to any separate account maintained
by Purchaser in which any employee benefit plan (or its related trust) has
any interest; and
(a) Purchaser is a corporation organized under the laws of Bermuda.
ARTICLE 1. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES
ARTICLE 1.1 CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS TO PURCHASE. The
obligation of Purchaser hereunder to purchase the Convertible Debentures at the
Closing and at the closing of each Subsequent Takedown is subject to the
satisfaction, on or before the Closing Date and each Subsequent Takedown closing
date, of each of the following conditions, provided that these conditions are
for Purchaser's sole benefit and may be waived by Purchaser at any time in its
sole discretion:
(a) The Company shall have duly executed this Agreement, the Warrant,
the Registration Rights Agreement, and the Security Agreement and all
other appropriate financing statements, and delivered the same to
Purchaser;
18
(a) The Company shall have delivered to Purchaser duly executed
certificates representing the Convertible Debentures in accordance with
Section 2.3 hereof;
(a) The Company shall have delivered the Solvency Certificate;
(a) The representations and warranties of the Company contained in
each Transaction Agreement 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 such time (except for representations and warranties that speak
as of a specified date) and the Company shall have performed, satisfied
and complied with all covenants, agreements and conditions required by
such Transaction Agreements to be performed, satisfied or complied with
by it at or prior to the Closing Date. Purchaser shall have received
an Officer's 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 Purchaser,
including but not limited to certificates with respect to the Company
Corporate Documents, resolutions relating to the transactions
contemplated hereby and the incumbencies of certain officers and
Directors of the Company. The form of such certificate is attached
hereto as EXHIBIT D;
(a) The Company shall have received all governmental, Board of
Directors, shareholders and third party consents and approvals necessary
or desirable in connection with the issuance and sale of the Securities
and the consummation of the transactions contemplated by the Transaction
Agreements;
(a) All applicable waiting periods in respect to the issuance and sale
of the Securities shall have expired without any action having been taken
by any competent authority that could restrain, prevent or impose any
materially adverse conditions thereon or that could seek or threaten any
of the foregoing;
(a) No law or regulation shall have been imposed or enacted that, in the
judgment of Purchaser, could adversely affect the transactions set forth
herein or in the other Transaction Agreements, and no law or regulation
shall have been proposed that in the reasonable judgment of Purchaser
could reasonably have any such effect;
(a) Purchaser shall have received an opinion, dated the Closing Date, of
counsel to the Company, in form and substance satisfactory to Purchaser;
(a) All fees and expenses due and payable by the Company on or prior
to the Closing Date shall have been paid;
(a) The Company Corporate Documents and the Subsidiary Corporate
Documents, if any, shall be in full force and effect and no term or
condition thereof shall have been amended, waived or otherwise modified
without the prior written consent of Purchaser;
(a) There shall have occurred no material adverse change in the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or any Subsidiary since June 30,
1999;
(a) There shall exist no action, suit, investigation, litigation or
proceeding pending or threatened in any court or before any arbitrator
or governmental instrumentality that challenges the validity of or
purports to affect this Agreement or any other Transaction Agreement,
or other transaction contemplated hereby or thereby or that could
reasonably be expected to have a Material Adverse Effect, or any
material adverse effect on the enforceability of the Transaction
Agreements or the Securities or the rights of the holders of the
Securities or Purchaser hereunder;
(a) Purchaser shall have confirmed the receipt of the Convertible
Debentures and the Warrants to be issued, duly executed by the Company in
the denominations and registered in the name of Purchaser;
19
(a) There shall not have occurred any disruption or adverse change in
the financial or capital markets generally, or in the market for the
Common Stock (including but not limited to any suspension or delisting),
which Purchaser reasonably deems material in connection with the purchase
of the Securities;
(a) Immediately before and after the Closing Date, no Default or Event
of Default shall have occurred and be continuing;
(a) Purchaser shall have received all other opinions, resolutions,
certificates, instruments, agreements or other documents as they shall
reasonably request;
(a) An Escrow Agreement, substantially in the form of EXHIBIT E, by and
between the Company and Purchaser, and accepted by the Law Offices of Xxx
X. Xxxxxxxx as escrow agent (the "Escrow Agent"), shall have been duly
executed by the said parties.
(b) Company shall have delivered to Purchaser the Use of Proceeds
SCHEDULE 7.8.
ARTICLE 1.1 CONDITIONS TO THE COMPANY'S OBLIGATIONS . The obligations of the
Company to issue and sell the Securities to Purchaser pursuant to this Agreement
are subject to the satisfaction, at or prior to any Closing Date, of the
following conditions:
ARTICLE 1.2
(a) The representations and warranties of Purchaser contained herein
shall be true and correct in all material respects on the Closing Date and
Purchaser shall have performed and complied in all material respects with
all agreements required by this Agreement to be performed or complied with
by Purchaser at or prior to the Closing Date;
(a) The issue and sale of the Securities by the Company shall not be
prohibited by any applicable law, court order or governmental regulation;
(a) Receipt by the Company of duly executed counterparts of this
Agreement and the Registration Rights Agreement signed by Purchaser;
(a) The Company shall have received payment of Purchase Price, less the
Expense Reimbursement Fee.
ARTICLE 1. AFFIRMATIVE COVENANTS
The Company hereby agrees that, from and after the date hereof for so long
as any Convertible Debentures remain outstanding and for the benefit of
Purchaser:
ARTICLE 1.1 INFORMATION. The Company will deliver to each holder of the
Convertible Debentures:
ARTICLE 1.2
(a) promptly upon the filing thereof, copies of (i) all registration
statements (other than the exhibits thereto and any registration
statements on Form S-8 or its equivalent), and (ii) all reports of Forms
10-K, 10-Q and 8-K (or other equivalents) which the Company or any
Subsidiary has filed with the Commission (collectively, "SEC Reports");
(a) simultaneously with the delivery of each item referred to in
clause (a) above, a certificate from the chief financial officer of the
Company stating that no Default or Event of Default has occurred and is
continuing, or, if as of the date of such delivery a Default shall have
occurred and be continuing, a certificate from the Company setting forth
the details of such Default or Event of Default and the action which the
Company is taking or proposes to take with respect thereto;
(a) within two (2) days after any officer of the Company obtains
knowledge of a Default or Event of Default, or that any Person has given
any notice or taken any action with respect to a claimed Default
20
hereunder, a certificate of the chief financial officer of the Company
setting forth the details thereof and the action which the Company is
taking or proposed to take with respect thereto;
(a) promptly upon the mailing thereof to the shareholders of the Company
generally, copies of all financial statements, reports and proxy
statements so mailed and any other document generally distributed to
shareholders;
(a) at least two (2) Business Days prior to the consummation of any
Financing or other event requiring a repayment of the Convertible
Debentures under Section 3.4, notice thereof together with a summary of
all material terms thereof and copies of all documents and instruments
associated therewith;
(a) notice promptly upon the occurrence of any event by which the
Reserved Amount becomes less than the sum of (i) 1.5 times the maximum
number of Conversion Shares issuable pursuant to the Transaction
Agreements; and
(a) promptly following the commencement thereof, notice and a
description in reasonable detail of any litigation or proceeding to which
the Company or any Subsidiary is a party in which the amount involved is
$250,000 or more and not covered by insurance or in which injunctive or
similar relief is sought.
ARTICLE 1.1 PAYMENT OF OBLIGATIONS. The Company will, and will cause each
Subsidiary to, pay and discharge, at or before maturity, all their respective
material obligations, including, without limitation, tax liabilities, except
where the same may be contested in good faith by appropriate proceedings and
will maintain, in accordance with GAAP, appropriate reserves for the accrual of
any of the same.
ARTICLE 1.2
ARTICLE 1.3 MAINTENANCE OF PROPERTY; INSURANCE. The Company will, and will
cause each Subsidiary to, keep all property useful and necessary in its business
in good working order and condition, ordinary wear and tear excepted. In
addition, the Company and each Subsidiary will maintain insurance in at least
such amounts and against such risks as it has insured against as of the Closing
Date.
ARTICLE 1.4
ARTICLE 1.5 MAINTENANCE OF EXISTENCE. The Company will, and will cause each
Subsidiary to, continue to engage in business of the same general type as now
conducted by the Company and such Subsidiaries, and will preserve, renew and
keep in full force and effect its respective corporate existence and their
respective material rights, privileges and franchises necessary or desirable in
the normal conduct of business.
ARTICLE 1.6
ARTICLE 1.7 COMPLIANCE WITH LAWS. The Company will, and will cause each
Subsidiary to, comply, in all material respects, with all federal, state,
municipal, local or foreign applicable laws, ordinances, rules, regulations,
municipal by-laws, codes and requirements of governmental authorities
(including, without limitation, Environmental Laws and ERISA and the rules and
regulations thereunder) except (i) where compliance therewith is contested in
good faith by appropriate proceedings or (ii) where non-compliance therewith
could not reasonably be expected, in the aggregate, to have a material adverse
effect on the business, condition (financial or otherwise), operations,
performance, properties or prospects of the Company or such Subsidiary.
ARTICLE 1.8
ARTICLE 1.9 INSPECTION OF PROPERTY, BOOKS AND RECORDS. The Company will, and
will cause each Subsidiary to, keep proper books of record and account in which
full, true and correct entries shall be made of all dealings and transactions in
relation to their respective businesses and activities; and will permit, during
normal business hours, Purchaser' Representative or an affiliate thereof, as
representatives of Purchaser, to visit and inspect any of their respective
properties, upon reasonable prior notice, to examine and make abstracts from any
of their respective books and records and to discuss their respective affairs,
finances and accounts with their respective executive officers and independent
public accountants (and by this provision the Company authorizes its independent
public accountants to disclose and discuss with Purchaser the affairs, finances
and accounts of the Company and its Subsidiaries in the presence of a
representative of the Company; provided, however, that such discussions will not
result in any unreasonable expense to the Company, without Company consent), all
at such reasonable times.
ARTICLE 1.10
21
ARTICLE 1.11 INVESTMENT COMPANY ACT. The Company will not be or become an
open-end investment trust, unit investment trust or face-amount certificate
company that is or is required to be registered under Section 8 of the
Investment Company Act of 1940, as amended.
ARTICLE 1.12
ARTICLE 1.13 USE OF PROCEEDS. The proceeds from the issuance and sale of the
Convertible Debentures by the Company shall be used in accordance with SCHEDULE
7.8 attached hereto. None of the proceeds from the issuance and sale of the
Convertible Debentures by the Company pursuant to this Agreement will be used
directly or indirectly for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying any "margin stock" within the meaning of
Regulation G of the Board of Governors of the Federal Reserve System.
ARTICLE 1.14
ARTICLE 1.15 COMPLIANCE WITH TERMS AND CONDITIONS OF MATERIAL CONTRACTS.
The Company will, and will cause each Subsidiary to, comply, in all respects,
with all terms and conditions of all material contracts to which it is subject.
ARTICLE 1.16
ARTICLE 1.17 RESERVED SHARES AND LISTINGS.
ARTICLE 1.18
(a) The Company shall at all times have authorized, and reserved for the
purpose of issuance, a sufficient number of shares of Common Stock to provide
for the full conversion of the outstanding Convertible Debentures and exercise
of the Warrants and issuance of the Conversion Shares (based on the conversion
price of the Convertible Debentures in effect from time to time and the exercise
price of the Warrants, respectively) (the "Reserved Amount"). The Company shall
not reduce the Reserved Amount without the prior written consent of Purchaser.
With respect to all Securities which contain an indeterminate number of shares
of Common Stock issuable in connection therewith (such as the Convertible
Debentures), the Company shall include in the Reserve Amount, no less than two
(2) times the number of shares that is then actually issuable upon conversion or
exercise of such Securities. If at any time the number of shares of Common Stock
authorized and reserved for issuance is below the number of Conversion Shares
issued or issuable upon conversion of the Convertible Debentures and exercise of
the Warrants, the Company will promptly take all corporate action necessary to
authorize and reserve a sufficient number of shares, including, without
limitation, either (x) calling a special meeting of shareholders to authorize
additional shares, in the case of an insufficient number of authorized shares or
(y) in lieu thereof, consummating the immediate repurchase of the Convertible
Debentures and the Warrants contemplated in Sections 3.4(c) and 10.3 hereof,
respectively.
(a) The Company shall promptly file the Listing Applications and secure the
listing of the Conversion Shares upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and shall maintain, so long as
any other shares of Common Stock shall be so listed, such listing of all
Conversion Shares from time to time issuable upon conversion or exercise of the
Convertible Debentures and Warrants, respectively. The Company will maintain the
listing and trading of its Common Stock on the OTC Bulletin Board. The Company
will use its commercially reasonable best efforts to obtain as soon as
practicable and maintain the listing and trading of its Common Stock on a
National Market. The Company will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
National Association of Securities Dealers, Inc. (the "NASD") and such
exchanges, as applicable. The Company shall promptly provide to Purchaser copies
of any notices it receives regarding the continued eligibility of the Common
Stock for listing on the OTC Bulletin Board or any National Market.
(b)
ARTICLE 1.2 TRANSFER AGENT INSTRUCTIONS . Upon receipt of a Notice of Conversion
or Notice of Exercise, as applicable, the Company shall immediately direct the
Company's transfer agent to issue certificates, registered in the name of
Purchaser or its nominee, for the Conversion Shares, in such amounts as
specified from time to time by Purchaser to the Company upon proper conversion
of the Convertible Debentures or exercise of the Warrants. Upon conversion of
any Convertible Debentures in accordance with their terms and/or exercise of any
Warrants in accordance with their terms, the Company will, and will use its best
lawful efforts to cause its transfer agent to, issue one or more certificates
representing shares of Common Stock in such name or names and in such
denominations specified by a Purchaser in a Notice of Conversion or Notice of
Exercise, as the case may be. As long as the Registration Statement contemplated
by the Registration Rights Agreement shall remain effective, the shares of
Common Stock issuable upon conversion of any Convertible Debentures or exercise
of the Warrants shall be issued
22
to any transferee of such shares from Purchaser without any restrictive legend
upon appropriate evidence of transfer in compliance with the Securities Act and
the rules and regulations of the Commission; provided that for so long as the
Registration Statement is effective, no opinion of counsel will be required to
effect any such transfer. The Company further warrants and agrees that no
instructions other than these instructions have been or will be given to its
transfer agent. Nothing in this Section 7.11 shall affect in any way a
Purchaser's obligation to comply with all securities laws applicable to
Purchaser upon resale of such shares of Common Stock, including any prospectus
delivery requirements.
ARTICLE 1.3
ARTICLE 1.4 MAINTENANCE OF REPORTING STATUS; SUPPLEMENTAL INFORMATION. So long
as any of the Securities are outstanding, the Company shall timely file all
reports required to be filed with the Commission pursuant to the Exchange Act.
The Company shall not terminate its status as an issuer required to file reports
under the Exchange Act, even if the Exchange Act or the rules and regulations
thereunder would permit such termination. If at anytime the Company is not
subject to the requirements of Section 13 or 15(d) of the Exchange Act, the
Company will promptly furnish at its expense, upon request, for the benefit of
the holders from time to time of Securities, and prospective purchasers of
Securities, information satisfying the information requirements of Rule 144
under the Securities Act.
ARTICLE 1.5
ARTICLE 1.6 FORM D; BLUE SKY LAWS. The Company agrees to file a "Form D" with
respect to the Securities as required under Regulation D of the Securities Act
and to provide a copy thereof to Purchaser promptly after such filing. The
Company shall, on or before the Closing Date, take such action as the Company
shall reasonably determine is necessary to qualify the Securities for sale to
Purchaser 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 Purchaser on or prior to the Closing Date.
ARTICLE 1.7
ARTICLE 1.8
ARTICLE 2. NEGATIVE COVENANTS
The Company hereby agrees that after the date hereof for so long as any
Convertible Debentures remain outstanding and for the benefit of Purchaser:
ARTICLE 1.1 LIMITATIONS ON DEBT OR OTHER LIABILITIES. Neither the Company nor
any Subsidiary will create, incur, assume or suffer to exist (at any time after
the Closing Date, after giving effect to the application of the proceeds of the
issuance of the Securities) (i) any Debt except (x) Debt incurred in a Permitted
Financing, (y) Debt incurred in connection with equipment leases to which the
Company or its Subsidiaries are a party incurred in the ordinary course of
business; and (z) Debt incurred in connection with trade accounts payable,
imbalances and refunds arising in the ordinary course of business and (ii) any
equity securities (including Derivative Securities) (other than those securities
that are issuable (x) under or pursuant to stock option plans, warrants or other
rights programs that exist as of the date hereof, (z) in connection with the
acquisition (including by merger) of a business or of assets otherwise permitted
under this Agreement), unless the Company complies with the mandatory prepayment
terms of Section 3.4(b) hereof.
ARTICLE 1.2
ARTICLE 1.3 TRANSACTIONS WITH AFFILIATES. The Company and each Subsidiary will
not, directly or indirectly, pay any funds to or for the account of, make any
investment (whether by acquisition or stock or indebtedness, by loan, advance,
transfer of property, guarantee or other agreement to pay, purchase or service,
directly or indirectly, and Debt, or otherwise) in, lease, sell, transfer or
otherwise dispose of any assets, tangible or intangible, to, or participate in,
or effect any transaction in connection with any joint enterprise or other joint
arrangement with, any Affiliate, except, (1) pursuant to those agreements
specifically identified on SCHEDULE 8.2 attached hereto (with a copy of such
agreements annexed to such SCHEDULE 8.2) and (2) on terms to the Company or such
Subsidiary no less favorable than terms that could be obtained by the Company or
such Subsidiary from a Person that is not an Affiliate of the Company upon
negotiation at arms' length, as determined in good faith by the Board of
Directors of the Company; PROVIDED that no determination of the Board of
Directors shall be required with respect to any such transactions entered into
in the ordinary course of business.
ARTICLE 1.4
23
ARTICLE 1.5 MERGER OR CONSOLIDATION. The Company will not, in a single
transaction or a series of related transactions (i) consolidate with or merge
with or into any other Person, or (ii) permit any other Person to consolidate
with or merge into it, unless the Company shall be the survivor of such merger
or consolidation and (x) immediately before and immediately after given effect
to such transaction (including any indebtedness incurred or anticipated to be
incurred in connection with the transaction), no Default or Event of Default
shall have occurred and be continuing; and (y) the Company has delivered to
Purchaser an Officer's Certificate stating that such consolidation, merger or
transfer complies with this Agreement, and that all conditions precedent in this
Agreement relating to such transaction have been satisfied.
ARTICLE 1.6
ARTICLE 1.7 LIMITATION ON ASSET SALES. Neither the Company nor any Subsidiary
will consummate an Asset Sale of material assets of the Company or any
Subsidiary without the prior written consent of Purchaser, which consent shall
not be unreasonably withheld. As used herein, "Asset Sale" means any sale,
lease, transfer or other disposition (or series of related sales, leases,
transfers or dispositions) or sales of capital stock of a Subsidiary (other than
directors' qualifying shares), property or other assets (each referred to for
the purpose of this definition as a "disposition"), including any disposition by
means of a merger, consolidation or similar transaction other than a disposition
of property or assets at fair market value in the ordinary course of business.
ARTICLE 1.8
ARTICLE 1.9 RESTRICTIONS ON CERTAIN AMENDMENTS. Neither the Company nor any
Subsidiary will waive any provision of, amend, or suffer to be amended, any
provision of such entity's existing Debt, any material contract or agreement
previously or hereafter filed by the Company with the Commission as part of its
SEC Reports, any Company Corporate Document or Subsidiary Corporate Document if
such amendment, in the Company's reasonable judgment, would materially adversely
affect Purchaser or the holders of the Securities without the prior written
consent of Purchaser.
ARTICLE 1.10
ARTICLE 1.11 PROHIBITION ON DISCOUNTED EQUITY OFFERINGS; REGISTRATION RIGHTS.
ARTICLE 1.12
(a) In addition to and not in lieu of the covenant specified in
Section 8.1 above, until such time as all of the Convertible Debentures
have been either redeemed or converted into Conversion Shares in full, the
Company agrees that it will not issue any of its equity securities (or
securities convertible into or exchangeable or exercisable for equity
securities (the "Derivative Securities")) on terms that allow a holder
thereof to acquire such equity securities (or Derivative Securities) at a
discount to the Market Price of the Common Stock at the time of issuance
or, in the case of Derivative Securities at a conversion price based on
any formula (other than standard anti-dilution provisions) based on the
Market Price on a date later than the date of issuance so long as such
conversion is not below the Market Price on the date of issuance (each
such event, a "Discounted Equity Offering"). As used herein, "discount"
shall include, but not be limited to, (i) any warrant, right or other
security granted or offered in connection with such issuance which, on the
applicable date of grant, is offered with an exercise or conversion price,
as the case may be, at less than the then current Market Price of the
Common Stock or, if such security has an exercise or conversion price
based on any formula (other than standard anti-dilution provisions) based
on the Market Price on a date later than the date of issuance, then at a
price below the Market Price on such date of exercise or conversion, as
the case may be, or (ii) any commissions, fees or other allowances paid in
connection with such issuances (other than customary underwriter or
placement agent commissions, fees or allowances). For the purposes of
determining the Market Price at which Common Stock is acquired under this
Section, normal underwriting commissions and placement fees (including
underwriters' warrants) shall be excluded.
(a) Until such time as all of the Convertible Debentures have been
either redeemed or converted into Conversion Shares in full, the
Company agrees it will not issue any of its equity securities (or
Derivative Securities), unless any shares of Common Stock issued or
issuable in connection therewith are "restricted securities." As used
herein "restricted securities" shall mean securities which may not be
sold by virtue of contractual restrictions imposed by the Company
either pursuant to an exemption from registration under the Securities
Act or pursuant to a registration statement filed by the Company with
the Commission, in each case prior to twelve (12) months following the
date of issuance of such securities.
24
(a) The restrictions contained in this Section 8.6 shall not apply to the
issuance by the Company of (or the agreement to issue) Common Stock or
Derivative Securities in connection with (i) the acquisition (including by
merger) of a business or of assets otherwise permitted under this
Agreement, or (ii) stock option or other compensatory plans.
ARTICLE 1.1 LIMITATION ON STOCK REPURCHASES. Except as otherwise set forth in
the Convertible Debentures and the Warrants, the Company shall not, without the
written consent of the Majority Holders, redeem, repurchase or otherwise acquire
(whether for cash or in exchange for property or other securities or otherwise)
any shares of capital stock of the Company or any warrants, rights or options to
purchase or acquire any such shares.
ARTICLE 1.2
ARTICLE 2. RESTRICTIVE LEGENDS
ARTICLE 1.1 RESTRICTIONS ON TRANSFER. From and after their respective dates of
issuance, none of the Securities shall be transferable except upon the
conditions specified in this Article IX, which conditions are intended to ensure
compliance with the provisions of the Securities Act in respect of the Transfer
of any of such Securities or any interest therein. Each Purchaser will use its
best efforts to cause any proposed transferee of any Securities held by it to
agree to take and hold such Securities subject to the provisions and upon the
conditions specified in this Article IX.
ARTICLE 1.2
ARTICLE 1.3 LEGENDS. The Conversion Shares shall be considered "unlegended"
and/or "unrestricted" within the meaning of this Agreement and the Transaction
Agreements, provided that certain legends may be necessary under the Securities
Act, Exchange Act and relevant state laws.
ARTICLE 1.4
ARTICLE 1.5 NOTICE OF PROPOSED TRANSFERS. Prior to any proposed Transfer of the
Securities (other than a Transfer (i) registered or exempt from registration
under the Securities Act, (ii) to an affiliate of a Purchaser which is an
"accredited investor" within the meaning of Rule 501(a) under the Securities
Act, provided that any such transferee shall agree to be bound by the terms of
this Agreement and the Registration Rights Agreement, or (iii) to be made in
reliance on Rule 144 under the Securities Act), the holder thereof shall give
written notice to the Company of such holder's intention to effect such
Transfer, setting forth the manner and circumstances of the proposed Transfer,
which shall be accompanied by (a) an opinion of counsel reasonably acceptable to
the Company, confirming that such transfer does not give rise to a violation of
the Securities Act, (B) representation letters in form and substance reasonably
satisfactory to the Company to ensure compliance with the provisions of the
Securities Act and (C) letters in form and substance reasonably satisfactory to
the Company from each such transferee stating such transferee's agreement to be
bound by the terms of this Agreement and the Registration Rights Agreement. Such
proposed Transfer may be effected only if the Company shall have received such
notice of transfer, opinion of counsel, representation letters and other letters
referred to in the immediately preceding sentence, whereupon the holder of such
Securities shall be entitled to Transfer such Securities in accordance with the
terms of the notice delivered by the holder to the Company.
ARTICLE 1.6
ARTICLE 1.7
ARTICLE 2. ADDITIONAL AGREEMENTS AMONG THE PARTIES
ARTICLE 1.1 LIQUIDATED DAMAGES.
ARTICLE 1.2
(a) The Company shall cause its transfer agent to, issue and deliver
shares of Common Stock consistent with Section 7.11 hereof within three
(3) Trading Days of delivery of a Notice of Conversion or Notice of
Exercise, as applicable (the "Deadline") to Purchaser (or any party
receiving Securities by transfer from Purchaser) at the address of
Purchaser set forth in the Notice of Conversion or Notice of Exercise,
as the case may be. The Company understands that a delay in the
issuance of such certificates after the Deadline could result in
economic loss to Purchaser.
(a) Without in any way limiting Purchaser's right to pursue other
remedies, including actual damages and/or equitable relief, the Company
agrees that if delivery of the Conversion Shares is more than one (1)
Business Day after the Deadline (other than a failure due to the
circumstances described in Section 4.3 of
25
the Convertible Debentures, which failure shall be governed by such
Section) the Company shall pay to Purchaser, as liquidated damages and not
as a penalty, $500 for each $100,000 of Convertible Debentures then
outstanding per day in cash, for each of the first ten (10) days beyond
the Deadline, and $1,000 for each $100,000 of Convertible Debentures then
outstanding per day in cash for each day thereafter that the Company fails
to deliver such Common Stock. Such cash amount shall be paid to Purchaser
by the last day of the calendar week following the week in which it has
accrued or, at the option of Purchaser (by written notice to the Company
by the first day of the week following the week in which it has accrued),
shall be added to the principal amount of the Convertible Debenture (if
then outstanding) payable to Purchaser, in which event interest shall
accrue thereon in accordance with the terms of the Convertible Debentures
and such additional principal amount shall be convertible into Common
Stock in accordance with the terms of the Convertible Debentures.
ARTICLE 1.1 CONVERSION NOTICE . The Company agrees that, in addition to any
other remedies which may be available to Purchaser, including, but not limited
to, the remedies available under Section 10.1, in the event the Company fails
for any reason (other than as a result of actions taken by a Purchaser in breach
of this Agreement) to effect delivery to a Purchaser of certificates with or
without restrictive legends as contemplated by Article IX representing the
shares of Common Stock on or prior to the Deadline after conversion of any
Convertible Debentures or exercise of the Warrants, Purchaser will be entitled,
if prior to the delivery of such certificates, to revoke the Notice of
Conversion or Notice of Exercise, as applicable, by delivering a notice to such
effect to the Company whereupon the Company and Purchaser shall each be restored
to their respective positions immediately prior to delivery of such Notice of
Conversion or Notice of Exercise, as the case may be.
ARTICLE 1.2
ARTICLE 1.3 CONVERSION LIMIT . Notwithstanding the conversion rights under the
Convertible Debentures, unless Purchaser delivers a waiver in accordance with
the immediately following sentence, in no event shall Purchaser be entitled to
convert any portion of the Convertible Debentures, in excess of that portion of
the Convertible Debentures, as applicable, of which the sum of (i) the number of
shares of Common Stock beneficially owned by Purchaser and its Affiliates (other
than shares of Common Stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the Convertible Debenture or other
Derivative Securities convertible into or exchangeable for shares of Common
Stock which contain a limitation similar to that set forth in this Section
10.3), and (ii) the number of shares of Common Stock issuable upon the
conversion of the portion of the Convertible Debenture with respect to which
this determination is being made, would result in beneficial ownership by
Purchaser and its Affiliates of more than 9.99% of the outstanding shares of
Common Stock. For purposes of Section 10.3(i) beneficial ownership shall be
determined in accordance with Rule 13d-3 of the Exchange Act and Regulations 13
D-G thereunder, except as otherwise provided in this Section 10.3. The foregoing
limitation shall not apply and shall be of no further force or effect (i)
immediately preceding and upon the occurrence of any voluntary or mandatory
redemption or repayment transaction described herein or in the Convertible
Debentures, (ii) immediately preceding and upon any Sale Event, (iii) on the
Maturity Date or (iv) following the occurrence of any Event of Default which is
not cured for a period of ten (10) calendar days.
ARTICLE 1.4
ARTICLE 1.5 REGISTRATION RIGHTS.
ARTICLE 1.6
(a) The Company shall grant Purchaser registration rights covering
the Conversion Shares (the "Registrable Securities") on the terms set
forth in the Registration Rights Agreement and herein.
(a) The Company shall prepare and file within 30 days following the
Closing Date a registration statement or amendment thereto (the
"Registration Statement") covering the resale of the Registrable
Securities in the amount of 2,990,000 shares of Common Stock. In
addition, on or before the 180th day following the Closing Date ("Six
Month Anniversary Date"), the Company shall prepare and file a
subsequent registration statement (the "Subsequent Registration
Statement") covering the resale of the Registrable Securities in an
amount equal to at least one and a half times the number of Conversion
Shares issuable if Convertible Debentures in an aggregate principal
amount equal to the aggregate remaining Commitment Amount were fully
converted on the Six Month Anniversary Date. The Company shall use its
best efforts to cause the Registration Statement and the Subsequent
Registration Statement to be declared effective by the Commission or
the earlier of (i) 90 days of the Closing Date with respect to the
26
Registration Statement or 90 days following the date of filing the
Subsequent Registration Statement, as applicable, (ii) five days
following the receipt of a "No Review" Letter from the Commission or
(iii) the first day following the day the Commission determines the
Registration Statement or the Subsequent Registration Statement
eligible to be declared effective. The Company shall pay all expenses
of registration (other than underwriting fees and discounts, if any, in
respect of Registrable Securities offered and sold under each
registration statement by Purchaser).
(a) If the Registration Statement or the Subsequent Registration
Statement is not declared effective by the Commission by the Required
Effectiveness Date, the Company shall pay to Purchaser, as liquidated
damages and not as a penalty, an amount equal to 2% of the outstanding
principal amount of the Convertible Debentures, prorated, for each 30
day period the Registration Statement or the Subsequent Registration
Statement is not declared effective by the Commission, which amount
will be increased to 3% of the outstanding principal amount of the
Convertible Debentures in the event that the Registration Statement or
the Subsequent Registration Statement is not declared effective by the
Commission within 120 days of the Closing Date with respect to the
Registration Statement or the Six Month Anniversary Date with respect
to the Subsequent Registration Statement. In addition, commencing 150
days following the Closing Date or the Six Month Anniversary Date, as
applicable, the Conversion Price of the Convertible Debentures will
decrease by 1% for each 30-day period in which the Registration
Statement or the Subsequent Registration Statement is not declared
effective. In the event the Company fails to obtain a valid
registration statement by the 180th day following the Closing Date or
the Six Month Anniversary Date, as applicable, the Company will redeem
the Convertible Debentures and the Warrants as set forth in Section 5
of the Convertible Debentures and Section 13 of the Warrants,
respectively. Additionally, the Company will grant to Purchaser first
priority piggyback registration rights in the event the Company
proposes to effect a registered offering of Common Stock or warrants or
both prior to the filing of the Registration Statement referenced above.
(a) Any such liquidated damages shall be paid in cash by the Company to
Purchaser by wire transfer in immediately available funds on the last day
of each calendar week following the event requiring its payment.
(a) If, following the declaration of effectiveness of the
Registration Statement or the Subsequent Registration Statement, such
registration statement (or any prospectus or supplemental prospectus
contained therein) shall cease to be effective for any reason
(including but not limited to the occurrence of any event that results
in any prospectus or supplemental prospectus containing an untrue
statement of a material fact or omitting a material fact required to be
stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading),
the Company fails to file required amendments to the Registration
Statement or Subsequent Registration Statement in order to allow the
Purchaser to exercise its rights to receive unrestricted, unlegended,
freely tradeable shares of Common Stock, or if for any reason there are
insufficient shares of such shares of Common Stock registered under the
then current Registration Statement or Subsequent Registration
Statement to effect full conversion of the Convertible Debentures or
exercise of the Warrants (a "Registration Default"), the Company shall
immediately take all necessary steps to cause the Registration
Statement or Subsequent Registration Statement to be amended or
supplemented so as to cure such Registration Default. Failure to cure
a Registration Default within ten (10) business days shall result in
the Company paying to Purchaser liquidated damages at the rate of
$1,000 per day from the date of such Registration Default until the
Registration Default is cured.
(a) In the event the Company does not file the Subsequent Registration
Statement on or before the Six Month Anniversary Date, the Company shall
cancel the unused portion of the Commitment Amount and pay the Commitment
Fee set forth in Section 2.4(b) hereof.
ARTICLE 1.1 RESTRICTION ON ISSUANCE OF SECURITIES. For a period of 90 days
following the last to occur of (i) the date of the final Subsequent Takedown or
(ii) the date the Commitment expires, is completed or is terminated in full, the
Company will not sell, or offer to sell, any securities (including credit
facilities which are convertible into
27
securities which may be issued at a discount to the then current Market Price)
other than borrowings under conventional credit facilities existing as of the
date hereof or resulting from the Company's current discussions with Bank of
America, stock issued or credit facilities to be established in connection with
acquisitions, employee and director stock options of the Company, existing
rights and warrants of the Company and securities issued under the Convertible
Debentures or Warrants. In addition, the Company shall not issue any securities
in connection with a strategic alliance entered into by the Company unless such
securities are the subject of a one year statutory or contractual hold period
or, if not subject to such a hold period, unless the Purchaser has fully
converted all outstanding Convertible Debentures and exercised all Warrants.
Notwithstanding the foregoing, the Company may enter into the following types of
transactions (collectively referred to as "Permitted Financings"): (1)
"permanent financing" transactions, which would include any form of debt or
equity financing (other than an underwritten offering), which is followed by a
reduction of the said financing commitment to zero and payment of all related
fees and expenses; (2) "project financing" which provide for the issuance of
recourse debt instruments in connection with the operation of the Company's
business as presently conducted or as proposed to be conducted; (3) an
underwritten offering of Common Stock, provided that such offering provides for
the registration of the Common Stock to be received by Purchaser as a result of
the conversion of the Convertible Debentures and the exercise of the Warrants
held by the Purchaser; and (4) other financing transactions specifically
consented to in writing by the Purchaser.
ARTICLE 1.2
ARTICLE 2. ADJUSTMENT OF FIXED PRICE
ARTICLE 1.1 REORGANIZATION. The Conversion Price and the exercise price of the
Warrants (collectively, the "Fixed Prices") shall be adjusted, as applicable, as
hereafter provided.
ARTICLE 1.2
ARTICLE 1.3 SHARE REORGANIZATION. If and whenever the Company shall:
ARTICLE 1.4
(i) subdivide the outstanding shares of Common Stock into a greater
number of shares;
(i) consolidate the outstanding shares of Common Stock into a smaller
number of shares;
(i) issue Common Stock or securities convertible into or exchangeable
for shares of Common Stock as a stock dividend to all or substantially all
the holders of Common Stock; or
(i) make a distribution on the outstanding Common Stock to all or
substantially all the holders of Common Stock payable in Common Stock or
securities convertible into or exchangeable for Common Stock;
any of such events being herein called a "Share Reorganization," then in each
such case the applicable Fixed Price shall be adjusted, effective immediately
after the record date at which the holders of Common Stock are determined for
the purposes of the Share Reorganization or, if no record date is fixed, the
effective date of the Share Reorganization, by multiplying the applicable Fixed
Price in effect on such record or effective date, as the case may be, by a
fraction of which:
(I) the numerator shall be the number of shares of Common Stock
outstanding on such record or effective date (without giving effect to the
transaction); and
(II) the denominator shall be the number of shares of Common Stock
outstanding after giving effect to such Share Reorganization, including,
in the case of a distribution of securities convertible into or
exchangeable for shares of Common Stock, the number of shares of Common
Stock that would have been outstanding if such securities had been
converted into or exchanged for Common Stock on such record or effective
date.
ARTICLE 1.1 RIGHTS OFFERING. If and whenever the Company shall issue to all or
substantially all the holders of Common Stock, rights, options or warrants under
which such holders are entitled, during a period expiring not more than 45 days
after the record date of such issue, to subscribe for or purchase Common Stock
(or Derivative Securities), at a price per share (or, in the case of securities
convertible into or exchangeable for Common Stock, at
28
an exchange or conversion price per share at the date of issue of such
securities) of less than 95% of the Market Price of the Common Stock on such
record date (any such event being herein called a "Rights Offering"), then in
each such case the applicable Fixed Price shall be adjusted, effective
immediately after the record date at which holders of Common Stock are
determined for the purposes of the Rights Offering, by multiplying the
applicable Fixed Price in effect on such record date by a fraction of which:
ARTICLE 1.2
(i) the numerator shall be the sum of:
(ii)
(iii) (I) the number of shares of Common Stock outstanding on such record
date; and
(iv)
(v) (II) a number obtained by dividing:
(vi)
(A) either,
(B)
(x) the product of the total number of shares of Common Stock
so offered for subscription or purchase and the price at which such shares
are so offered, or
(y) the product of the maximum number of shares of Common
Stock into or for which the convertible or exchangeable securities so
offered for subscription or purchase may be converted or exchanged and the
conversion or exchange price of such securities, or, as the case may be,
by
(A) the Market Price of the Common Stock on such record date; and
(B)
(ii) the denominator shall be the sum of:
(iii)
(I) the number of shares of Common Stock outstanding on such record
date; and
(II) the number of shares of Common Stock so offered for
subscription or purchase (or, in the case of Derivative Securities, the
maximum number of shares of Common Stock for or into which the securities
so offered for subscription or purchase may be converted or exchanged).
To the extent that such rights, options or warrants are not exercised prior to
the expiry time thereof, the applicable Fixed Price shall be readjusted
effective immediately after such expiry time to the applicable Fixed Price which
would then have been in effect upon the number of shares of Common Stock (or
Derivative Securities) actually delivered upon the exercise of such rights,
options or warrants.
ARTICLE 1.1 SPECIAL DISTRIBUTION. If and whenever the Company shall issue or
distribute to all or substantially all the holders of Common Stock:
ARTICLE 1.2
(i) shares of the Company of any class, other than Common Stock;
(i) rights, options or warrants; or
(i) any other assets (excluding cash dividends and equivalent dividends
in shares paid in lieu of cash dividends in the ordinary course);
and if such issuance or distribution does not constitute a Share Reorganization
or a Rights Offering (any such event being herein called a "Special
Distribution"), then in each such case the applicable Fixed Price shall be
adjusted, effective immediately after the record date at which the holders of
Common Stock are determined for purposes of the Special Distribution, by
multiplying the applicable Fixed Price in effect on such record date by a
fraction of which:
(i) the numerator shall be the difference between:
(A) the product of the number of shares of Common Stock outstanding on
such record date and the Market Price of the Common Stock on such date;
and
29
(A) the fair market value, as determined by the Directors (whose
determination shall be conclusive), to the holders of Common Stock of the
shares, rights, options, warrants, evidences of indebtedness or other
assets issued or distributed in the Special Distribution (net of any
consideration paid therefor by the holders of Common Stock), and
(i) the denominator shall be the product of the number of shares of
Common Stock outstanding on such record date and the Market Price of the
Common Stock on such date.
ARTICLE 12.5 CAPITAL REORGANIZATION. If and whenever there shall occur:
ARTICLE 12.6
(i) a reclassification or redesignation of the shares of Common Stock or
any change of the shares of Common Stock into other shares, other than in
a Share Reorganization;
(i) a consolidation, merger or amalgamation of the Company with, or into
another body corporate; or
(i) the transfer of all or substantially all of the assets of the
Company to another body corporate;
(any such event being herein called a "Capital Reorganization"), then in each
such case the holder who exercises the right to convert Convertible Debentures
after the effective date of such Capital Reorganization shall be entitled to
receive and shall accept, upon the exercise of such right, in lieu of the number
of shares of Common Stock to which such holder was theretofore entitled upon the
exercise of the conversion privilege, the aggregate number of shares or other
securities or property of the Company or of the body corporate resulting from
such Capital Reorganization that such holder would have been entitled to receive
as a result of such Capital Reorganization if, on the effective date thereof,
such holders had been the holder of the number of shares of Common Stock to
which such holder was theretofore entitled upon conversion; provided, however,
that no such Capital Reorganization shall be consummated in effect unless all
necessary steps shall have been taken so that such holders shall thereafter be
entitled to receive such number of shares or other securities of the Company or
of the body corporate resulting from such Capital Reorganization, subject to
adjustment thereafter in accordance with provisions the same, as nearly as may
be possible, as those contained above.
ARTICLE 12.5 PURCHASE PRICE ADJUSTMENTS. In case at any time and from time to
time the Company shall issue any shares of Common Stock or Derivative Securities
convertible or exercisable for shares of Common Stock (the number of shares so
issued, or issuable upon conversion or exercise of such Derivative Securities,
as applicable, being referred to as "Additional Shares of Common Stock") for
consideration less than the then Market Price at the date of issuance of such
shares of Common Stock or such Derivative Securities, in each such case the
Conversion Price shall, concurrently with such issuance, be adjusted by
multiplying the Conversion Price immediately prior to such event by a fraction:
(i) the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of such Additional Shares of
Common Stock plus the number of shares of Common Stock that the aggregate
consideration received by the Company for the total number of such Additional
Shares of Common Stock so issued would purchase at the Market Price and (ii) the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of Additional Shares of Common Stock plus the
number of such Additional Shares of Common Stock so issued or sold.
ARTICLE 12.6
ARTICLE 12.7 ADJUSTMENT RULES. The following rules and procedures shall be
applicable to adjustments made in this Article XI:
ARTICLE 12.8
(a) no adjustment in the applicable Fixed Price shall be required
unless such adjustment would result in a change of at least 1% in the
applicable Fixed Price then in effect, provided, however, that any
adjustments which, but for the provisions of this clause would otherwise
have been required to be made, shall be carried forward and taken into
account in any subsequent adjustment;
30
(a) if any event occurs of the type contemplated by the adjustment
provisions of this Article XI but not expressly provided for by such
provisions, the Company will give notice of such event as provided herein,
and the Company's board of directors will make an appropriate adjustment
in the Fixed Price so that the rights of the holders of the applicable
Security shall not be diminished by such event; and
(a) if a dispute shall at any time arise with respect to any adjustment
of the applicable Fixed Price, such dispute shall be conclusively
determined by the auditors of the Company or, if they are unable or
unwilling to act, by a firm of independent chartered accountants selected
by the Directors and any such determination shall be binding upon the
Company and Purchaser.
ARTICLE 12.5 CERTIFICATE AS TO ADJUSTMENT. The Company shall from time to time
promptly after the occurrence of any event which requires an adjustment in the
applicable Fixed Price deliver to Purchaser a certificate specifying the nature
of the event requiring the adjustment, the amount of the adjustment necessitated
thereby, the applicable Fixed Price after giving effect to such adjustment and
setting forth, in reasonable detail, the method of calculation and the facts
upon which such calculation is based.
ARTICLE 12.6
ARTICLE 12.7 NOTICE TO HOLDERS. If the Company shall fix a record date for:
ARTICLE 12.8
(a) any Share Reorganization (other than the subdivision of
outstanding Common Stock into a greater number of shares or the
consolidation of outstanding Common Stock into a smaller number of
shares),
(a) any Rights Offering,
(a) any Special Distribution,
(a) any Capital Reorganization (other than a reclassification or
redesignation of the Common Stock into other shares),
(a) Sale Event; or
(a) any cash dividend,
the Company shall, not less than 10 days prior to such record date or, if no
record date is fixed, prior to the effective date of such event, give to
Purchaser notice of the particulars of the proposed event or the extent that
such particulars have been determined at the time of giving the notice.
ARTICLE 12. EVENTS OF DEFAULT
ARTICLE 12.5 EVENTS OF DEFAULT. If one or more of the following events (each
an "Event of Default") shall have occurred and be continuing:
ARTICLE 12.6
(a) failure by the Company to pay or repay when due, all or any part
of the principal on any of the Convertible Debentures (whether by
virtue of the agreements specified in this Agreement or the Convertible
Debentures);
(a) failure by the Company to pay (i) within five (5) Business Days of
the due date thereof any interest on any Convertible Debentures or (ii)
within five (5) Business Days following the delivery of notice to the
Company of any fees or any other amount payable (not otherwise referred to
in (a) above or this clause (b)) by the Company under this Agreement or
any other Transaction Agreement;
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(a) failure by the Company to timely comply with the requirements of
Section 7.11 or 10.1 hereof, which failure is not cured within five (5)
Business Days of such failure;
(a) failure on the part of the Company to observe or perform any
covenant contained in Section 7.10 or Article VIII of this Agreement;
(a) failure on the part of the Company to observe or perform any
covenant or agreement contained in any Transaction Agreement (other than
those covered by clauses (a), (b), (c), (d) or (e) above) for 30 days from
the date of such occurrence;
(a) the trading in the Common Stock shall have been suspended by the
Commission, OTC Bulletin Board or any National Market (except for any
suspension of trading of limited duration solely to permit dissemination
of material information regarding the Company and except if, at the time
there is any suspension on any National Market, the Common Stock is then
listed and approved for trading on another National Market within ten (10)
Trading Days thereof);
(a) failure of the Company to file the Listing Applications within
twenty (20) Business Days of the Closing Date or the closing date of a
Subsequent Takedown, as applicable, which failure is not cured within five
(5) Business Days of such failure;
(a) the Company shall have its Common Stock delisted from the OTC
Bulletin Board or a National Market for at least ten (10) consecutive
Trading Days and is unable to obtain a listing on a National Market within
such ten (10) Trading Days;
(a) the Registration Statement shall not have been declared effective by
the Commission by the Required Effectiveness Date, or such effectiveness
shall not be maintained for the Registration Maintenance Period, in each
case which results in the Company incurring the Default Fee for a period
in excess of 10 days;
(a) the Company or any Subsidiary has commenced a voluntary case or
other proceeding seeking liquidation, winding-up, reorganization or
other relief with respect to itself or its debts under any bankruptcy,
insolvency, moratorium or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of
its property, or has consented to any such relief or to the appointment
of or taking possession by any such official in an involuntary case or
other proceeding commenced against it, or has made a general assignment
for the benefit of creditors, or has failed generally to pay its debts
as they become due, or has taken any corporate action to authorize any
of the foregoing;
(a) an involuntary case or other proceeding has been commenced
against the Company or any Subsidiary seeking liquidation, winding-up,
reorganization or other relief with respect to it or its debts under
any bankruptcy, insolvency, moratorium or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of 60
days, or an order for relief has been entered against the Company or
any Subsidiary under the federal bankruptcy laws as now or hereafter in
effect;
(a) default in any provision (including payment) or any agreement
governing the terms of any Debt of the Company or any Subsidiary in excess
of $500,000, which has not been cured within any applicable period of
grace associated therewith;
(a) judgments or orders for the payment of money which in the aggregate
at any one time exceed $1,000,000 and are not covered by insurance have
been rendered against the Company or any Subsidiary by
32
a court of competent jurisdiction and such judgments or orders shall
continue unsatisfied and unstayed for a period of 60 days; or
(a) any representation, warranty, certification or statement made by the
Company in any Transaction Agreement or which is contained in any
certificate, document or financial or other statement furnished at any
time under or in connection with any Transaction Agreement shall prove to
have been untrue in any material respect when made.
then, and in every such occurrence, Purchaser may, with respect to an Event of
Default specified in paragraphs (a) or (b), and the Majority Holders may, with
respect to any other Event of Default, by notice to the Company, declare the
Convertible Debentures to be, and the Convertible Debentures shall thereon
become immediately due and payable; PROVIDED that in the case of any of the
Events of Default specified in paragraph (k) or (l) above with respect to the
Company or any Subsidiary, then, without any notice to the Company or any other
act by Purchaser, the entire amount of the Convertible Debentures shall become
immediately due and payable, PROVIDED, FURTHER, if any Event of Default has
occurred and is continuing, and irrespective of whether any Convertible
Debenture has been declared immediately due and payable hereunder, any Purchaser
of Convertible Debentures may proceed to protect and enforce the rights of
Purchaser by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or in any
Convertible Debenture, or for an injunction against a violation of any of the
terms hereof or thereof, or in aid of the exercise of any power granted hereby
or thereby or by law or otherwise, and PROVIDED FURTHER, in the case of any
Event of Default, the amount declared due and payable on the Convertible
Debentures shall be the Formula Price thereof.
ARTICLE 12.5 POWERS AND REMEDIES CUMULATIVE. No right or remedy herein
conferred upon or reserved to Purchaser is intended to be exclusive of any other
right or remedy, and every right and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right and remedy given
hereunder or now hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy. Every power and remedy given by the Convertible Debentures or
by law may be exercised from time to time, and as often as shall be deemed
expedient, by Purchaser.
ARTICLE 12. MISCELLANEOUS
ARTICLE 12.5 NOTICES. All notices, demands and other communications to any
party hereunder shall be in writing (including telecopier or similar writing)
and shall be given to such party at its address set forth on the signature pages
hereof, or such other address as such party may hereafter specify for the
purpose to the other parties. Each such notice, demand or other communication
shall be effective (i) if given by telecopy, when such telecopy is transmitted
to the telecopy number specified on the signature page hereof, (ii) if given by
mail, four days after such communication is deposited in the mail with first
class postage prepaid, addressed as aforesaid or (iii) if given by any other
means, when delivered at the address specified in or pursuant to this Section.
ARTICLE 12.5 NO WAIVERS; AMENDMENTS.
ARTICLE 12.6
(a) No failure or delay on the part of any party in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, power or remedy
preclude any other or further exercise thereof or the exercise of any
other right, power or remedy.
(a) Any provision of this Agreement may be amended, supplemented or
waived if, but only if, such amendment, supplement or waiver is in
writing and is signed by the Company and the Majority Holders;
PROVIDED, that without the consent of each holder of any Convertible
Debenture affected thereby, an amendment or waiver may not (a) reduce
the aggregate principal amount of Convertible Debentures whose holders
must consent to an amendment or waiver, (b) reduce the rate or extend
the time for payment of
33
interest on any Convertible Debenture, (c) reduce the principal amount of
or extend the stated maturity of any Convertible Debenture or (d) make any
Convertible Debenture payable in money or property other than as stated in
such Convertible Debenture. In determining whether the holders of the
requisite principal amount of Convertible Debentures have concurred in any
direction, consent, or waiver as provided in any Transaction Agreement,
Convertible Debentures which are owned by the Company or any other obligor
on or guarantor of the convertible Debentures, or by any Person
Controlling, Controlled by, or under common Control with any of the
foregoing, shall be disregarded and deemed not to be outstanding for the
purpose of any such determination; and PROVIDED FURTHER that no such
amendment, supplement or waiver which affects the rights of Purchaser and
their affiliates otherwise than solely in their capacities as holders of
Convertible Debentures shall be effective with respect to them without
their prior written consent.
ARTICLE 12.5 INDEMNIFICATION.
ARTICLE 12.6
(a) The Company agrees to indemnify and hold harmless Purchaser, its
Affiliates, and each Person, if any, who controls Purchaser, or any of
its Affiliates, within the meaning of the Securities Act or the
Exchange Act (each, a "Controlling Person"), and the respective
partners, agents, employees, officers and Directors of Purchaser, their
Affiliates and any such Controlling Person (each an "Indemnified
Party") and collectively, the "Indemnified Parties"), from and against
any and all losses, claims, damages, liabilities and expenses
(including, without limitation and as incurred, reasonable costs of
investigating, preparing or defending any such claim or action, whether
or not such Indemnified Party is a party thereto, provided that the
Company shall not be obligated to advance such costs to any Indemnified
Party other than Purchaser unless it has received from such Indemnified
Party an undertaking to repay to the Company the costs so advanced if
it should be determined by final judgment of a court of competent
jurisdiction that such Indemnified Party was not entitled to
indemnification hereunder with respect to such costs) which may be
incurred by such Indemnified Party in connection with any
investigative, administrative or judicial proceeding brought or
threatened that relates to or arises out of, or is in connection with
any activities contemplated by any Transaction Agreement or any other
services rendered in connection herewith; PROVIDED that the Company
will not be responsible for any claims, liabilities, losses, damages or
expenses that are determined by final judgment of a court of competent
jurisdiction to result from such Indemnified Party's gross negligence,
willful misconduct or bad faith.
(a) If any action shall be brought against an Indemnified Party with
respect to which indemnity may be sought against the Company under this
Agreement, such Indemnified Party shall promptly notify the Company in
writing and the Company, at its option, may, assume the defense
thereof, including the employment of counsel reasonably satisfactory to
such Indemnified Party and payment of all reasonable fees and
expenses. The failure to so notify the Company shall not affect any
obligations the Company may have to such Indemnified Party under this
Agreement or otherwise unless the Company is materially adversely
affected by such failure. Such Indemnified Party shall have the right
to employ separate counsel in such action and participate in the
defense thereof, but the fees and expenses of such counsel shall be at
the expense of such Indemnified Party, unless (i) the Company has
failed to assume the defense and employ counsel or (ii) the named
parties to any such action (including any impleaded parties) include
such Indemnified Party and the Company, and such Indemnified Party
shall have been advised by counsel that there may be one or more legal
defenses available to it which are different from or additional to
those available to the Company, in which case, if such Indemnified
Party notifies the Company in writing that it elects to employ separate
counsel at the expense of the Company, the Company shall not have the
right to assume the defense of such action or proceeding on behalf of
such Indemnified Party, PROVIDED, HOWEVER, that the Company shall not,
in connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or
circumstances, be responsible hereunder for the reasonable fees and
expenses of more than one such firm of separate counsel, in addition to
any local counsel, which counsel shall be designated by Purchaser. The
Company shall not be liable for any settlement of any such action
effected without the written consent of the Company (which shall not be
unreasonably withheld) and the Company agrees to
34
indemnify and hold harmless each Indemnified Party from and against any
loss or liability by reason of settlement of any action effected with the
consent of the Company. In addition, the Company will not, without the
prior written consent of Purchaser, settle or compromise or consent to the
entry of any judgment in or otherwise seek to terminate any pending or
threatened action, claim, suit or proceeding in respect to which
indemnification or contribution may be sought hereunder (whether or not
any Indemnified Party is a party thereto) unless such settlement,
compromise, consent or termination includes an express unconditional
release of Purchaser and the other Indemnified Parties, satisfactory in
form and substance to Purchaser, from all liability arising out of such
action, claim, suit or proceeding.
(a) If for any reason the foregoing indemnity is unavailable
(otherwise than pursuant to the express terms of such indemnity) to an
Indemnified Party or insufficient to hold an Indemnified Party
harmless, then in lieu of indemnifying such Indemnified Party, the
Company shall contribute to the amount paid or payable by such
Indemnified Party as a result of such claims, labilities, losses,
damages, or expenses (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand
and by Purchaser on the other from the transactions contemplated by
this Agreement or (ii) if the allocation provided by clause (i) is not
permitted under applicable law, in such proportion as is appropriate to
reflect not only the relative benefits received by the Company on the
one hand and Purchaser on the other, but also the relative fault of the
Company and Purchaser as well as any other relevant equitable
considerations. Notwithstanding the provisions of this Section 13.3,
the aggregate contribution of all Indemnified Parties shall not exceed
the amount of interest and fees actually received by Purchaser pursuant
to this Agreement. It is hereby further agreed that the relative
benefits to the Company on the one hand and Purchaser on the other with
respect to the transactions contemplated hereby shall be determined by
reference to, among other things, whether any untrue or alleged untrue
statement of material fact or the omission or alleged omission to state
a material fact related to information supplied by the Company or by
Purchaser and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
(a) The indemnification, contribution and expense reimbursement
obligations set forth in this Section 13.3 (i) shall be in addition to
any liability the Company may have to any Indemnified Party at common
law or otherwise; (ii) shall survive the termination of this Agreement
and the other Transaction Agreements and the payment in full of the
Convertible Debentures and (iii) shall remain operative and in full
force and effect regardless of any investigation made by or on behalf
of Purchaser or any other Indemnified Party.
ARTICLE 12.5 EXPENSES: DOCUMENTARY TAXES. The Company agrees to pay to
Purchaser a fee of $15,000.00 (the "Expense Reimbursement Fee") in full
satisfaction of all obligations of the Company to Purchaser and its agents in
connection with the negotiation and preparation of the Transaction Agreements,
relevant due diligence, and fees and disbursements of legal counsel. In
addition, the Company agrees to pay any and all stamp, transfer and other
similar taxes, assessments or charges payable in connection with the execution
and delivery of any Transaction Agreement or the issuance of the Securities to
Purchaser, excluding their assigns.
ARTICLE 12.6
ARTICLE 12.7 PAYMENT. The Company agrees that, so long as Purchaser shall own
any Convertible Debentures purchased by it from the Company hereunder, the
Company will make payments to Purchaser of all amounts due thereon by wire
transfer by 4:00 P.M. (E.S.T.).
ARTICLE 12.8
ARTICLE 12.9 SUCCESSORS AND ASSIGNS . This Agreement shall be binding upon the
Company and upon Purchaser and its respective successors and assigns; PROVIDED
that the Company shall not assign or otherwise transfer its rights or
obligations under this Agreement to any other Person without the prior written
consent of the Majority Holders. All provisions hereunder purporting to give
rights to Purchaser and its affiliates or to holders of Securities are for the
express benefit of such Persons and their successors and assigns.
ARTICLE 12.10
35
ARTICLE 12.11 BROKERS. Except for a fee payable to (x) Midori Capital
Corporation in the form of (i) 8% of the aggregate proceeds received by the
Company in connection with the transactions contemplated hereby, (ii) warrants
to purchase 35,000 shares of Company Common Stock for each $1,000,000 principal
amount of Convertible Debentures funded on a pro rata basis and (iii) a $15,000
cash expense reimbursement; and (y) Kason Corporation in an amount equal to one
percent of the aggregate proceeds received by the Company pursuant to the
transactions contemplated hereby, the Company represents and warrants that it
has not employed any broker, finder, financial advisor or investment banker who
would be entitled to any brokerage, finder's or other fee or commission payable
by the Company or Purchaser in connection with the sale of the Securities.
36
ARTICLE 12.5 GEORGIA LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL;
APPOINTMENT OF AGENT. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF GEORGIA. EACH PARTY HERETO HEREBY SUBMITS
TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF GEORGIA AND OF ANY FEDERAL DISTRICT COURT SITTING IN
ATLANTA, GEORGIA FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY
HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY TO
THIS AGREEMENT IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN ANY SUCH
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, TO SUCH PARTY AT ITS ADDRESS SET FORTH HEREIN. NOTHING HEREIN
SHALL AFFECT THE RIGHT OF ANY PARTY TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW. EACH PARTY WAIVES ITS RIGHT TO A TRIAL BY JURY.
ARTICLE 12.6
ARTICLE 12.7 ENTIRE AGREEMENT. This Agreement, the Exhibits or Schedules
hereto, which include, but are not limited to the Convertible Denbenture, the
Warrant, the Registration Rights Agreement and the Security Agreement, set forth
the entire agreement and understanding of the parties relating to the subject
matter hereof and supersedes all prior and contemporaneous agreements,
negotiations and understandings between the parties, both oral and written
relating to the subject matter hereof. The terms and conditions of all Exhibits
and Schedules to this Agreement are incorporated herein by this reference and
shall constitute part of this Agreement as is fully set forth herein.
ARTICLE 12.8
ARTICLE 12.9 SURVIVAL; SEVERABILITY. The representations, warranties,
covenants and agreements of the parties hereto shall survive the Closing
hereunder. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
ARTICLE 12.10
ARTICLE 12.11 TITLE AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
ARTICLE 12.12
ARTICLE 12.13 REPORTING ENTITY FOR THE COMMON STOCK. The reporting entity relied
upon for the determination of the trading price or trading volume of the Common
Stock on any given Trading Day for the purposes of this Agreement and all
Exhibits shall be Bloomberg, L.P. or any successor thereto. The written mutual
consent of the Purchaser and the Company shall be required to employ any other
reporting entity.
ARTICLE 12.5 PUBLICITY. The Company and the Purchaser shall consult with each
other in issuing any press releases or otherwise making public statements with
respect to the transactions contemplated hereby and no party shall issue any
such press release or otherwise make any such public statement without the prior
written consent of the other parties, which consent shall not be unreasonably
withheld or delayed, except that no prior consent shall be required if such
disclosure is required by law, in which such case the disclosing party shall
provide the other parties with prior notice of such public statement.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of Purchaser without the prior written consent of Purchaser, except to the
extent required by law, in which case the Company shall provide Purchaser with
prior written notice of such public disclosure.
[SIGNATURE PAGE FOLLOWS]
37
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers, as of the date first
above written.
EAGLE WIRELESS INTERNATIONAL, INC.
By:_______________________________________
Name: H. Xxxx Xxxxxx
Title: President and Chief Executive Officer
Address: Eagle Wireless International, Inc.
000 Xxxxxxxxxx Xxxxx
Xxxxxx Xxxx, XX 00000
Fax:
Tel.:
GCA STRATEGIC INVESTMENT FUND LIMITED
By:_______________________________________
Name: Xxxxx X. Xxxxxx
Title: Director
Address: c/o Prime Management Limited
Mechanics Xxxxxxxx
00 Xxxxxx Xxxxxx
Xxxxxxxx XX XX, Xxxxxxx
Fax: 000-000-0000
Tel.: 000-000-0000
38
