STRUCTURED EQUITY LINE FLEXIBLE FINANCINGSM AGREEMENT
between
CRIPPLE CREEK SECURITIES, LLC
and
GRC INTERNATIONAL, INC.
Dated as of January 21, 1997
Amended and Restated as of August 26, 1998
STRUCTURED EQUITY LINE FLEXIBLE FINANCING(SM) AGREEMENT, dated as of
January 21, 1997 and amended and restated as of August 26, 1998 (the
"Agreement"), between Cripple Creek Securities, LLC (the "Investor"), a limited
liability company organized and existing under the laws of the State of
Delaware, and GRC International, Inc., a corporation organized and existing
under the laws of the State of Delaware (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue to the Investor, and the
Investor shall purchase from the Company, from time to time as provided herein,
the Company's Common Stock, par value $.10 per share (the "Common Stock"), for a
maximum aggregate Purchase Price of $18,000,000 (the "Maximum Offering Amount");
and
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) promulgated by the Securities and Exchange Commission ("SEC")
under the United States Securities Act of 1933, as amended (the "Securities
Act"), and/or upon such other exemption from the registration requirements of
the Securities Act as may be available with respect to any or all of the
investments in Common Stock to be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
Section 1.1 Additional Investment Amount". See Section 2.1(b)(iv).
Section 1.2 "Additional Purchase Date" shall mean, with respect to any
Investment Period for which the Company has delivered to the Investor an
Additional Purchase Notice, any Trading Day during such Investment Period on
which the Investor notifies the Company by delivery of an Investor Notice of its
election to purchase all or a portion of the Additional Investment Amount in
respect of such Investment Period.
Section 1.3 "Additional Purchase Notice". See Section 2.1(b)(iv).
Section 1.4 "Additional Warrant". See Section 2.7(b)(ii).
Section 1.5 "Cancellation Notice" shall mean a notice delivered by the
Company in its sole and absolute discretion to the Investor with respect to an
Investment Period notifying the Investor that it is not required to purchase the
Minimum Investment Amount and/or any Additional Investment Amount for such
Investment Period.
Section 1.6 "Closing" shall mean the consummation of each purchase and
sale of Common Stock pursuant to Section 2.1.
Section 1.7 "Closing Date" shall mean, with respect to each purchase
and sale of Common Stock pursuant to this Agreement, the third Trading Day
following Investor's notice to the Company of its election to purchase Common
Stock from the Company (as extended pursuant to Section 3.2(i)) provided all
conditions to the Closing have been satisfied.
Section 1.8 "Commitment Period" shall mean the period commencing on
April 1, 1998 and expiring on the earliest to occur of (a) the election by the
Company to terminate the Investor's obligation to purchase Common Stock pursuant
to Section 10.4 herein, (b) the date on which the Investor shall have purchased
Common Stock pursuant to this Agreement for an aggregate Purchase Price of
$18,000,000 or such lesser maximum purchase amount as determined pursuant to
Section 2.2(d), (c) the date this Agreement is terminated pursuant to Section
2.6 or (d) the date occurring forty-two (42) months (subject to extension as
provided by Section 2.2(b)) from the date of commencement of such period.
Section 1.9 "Common Stock". See introductory paragraphs.
Section 1.10 "Condition Satisfaction Date". See Section 3.2.
Section 1.11 "Effective Date" shall mean January 30, 1997.
Section 1.12 "Equity Offering" shall mean the issuance or sale by the
Company (a) in a registered public offering or (b) in a transaction exempt from
or not subject to the registration requirements of the Securities Act of any
shares of Common Stock or securities which are convertible into or exchangeable
for its Common Stock or any warrants, options or other rights to subscribe for
or purchase its Common Stock or any such convertible or exchangeable securities
(other than securities issued or issuable under the Company's present or future
employee, officer, director or consultant stock or option or similar
equity-based compensation plans (collectively, the "Compensation Plans")), upon
the conversion or exchange of convertible or exchangeable securities or upon the
exercise of warrants (excluding the Warrant and the Additional Warrant), or
other rights, or upon the issuance of any shares of Common Stock issued upon
exercise of options, conversion or exchange of convertible or exchangeable
securities, warrants or other rights outstanding on the date of execution and
delivery of this Agreement (other than the Additional Warrant) and listed in the
SEC Documents on file with the SEC as of the date of this Agreement (other than
the Warrant and the Additional Warrant) and other than (i) shares of Common
Stock which may be issued upon exercise of options granted under the
Compensation Plans, (ii) shares of Common Stock which may be issued upon
exercise of the Warrant and the Additional Warrant, (iii) shares of Common Stock
or securities which are convertible into or exchangeable for Common Stock or any
warrants, options or other rights to subscribe for or purchase Common Stock or
any such convertible or exchangeable securities issued in strategic corporate
partnering transactions, and (iv) shares of Common Stock which may be issued
upon conversion of convertible debentures issued on the date of this Agreement
(and exercise of warrants issued in connection therewith).
Section 1.13 "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
Section 1.14 "Floor Price". See Section 2.2(b).
Section 1.15 "Investment Amount" shall mean the amount invested by the
Investor with respect to any Optional Purchase Date as notified by the Investor
to the Company in accordance with Section 2.5(a) hereof, and with respect to any
Mandatory Purchase Date, Additional Purchase Date or Investor Incremental
Purchase Date, as the case may be, as notified by the Investor to the Company in
accordance with Sections 2.5(b), (c) and (d), respectively,
which Investment Amount shall be at least $100,000 and shall be in increments of
$50,000 in excess thereof.
Section 1.16 "Investment Period" shall mean each three-month period
(subject to extension as provided by Section 2.2(b)) commencing on (a) in the
case of the first Investment Period, the first Trading Day subsequent to the
expiration of the Optional Purchase Period and (b) in the case of subsequent
Investment Periods, commencing on the Trading Day subsequent to the expiration
of the immediately preceding Investment Period.
Section 1.17 "Investor Incremental Purchase". See Section 2.1(b)(iii).
Section 1.18 "Investor Incremental Purchase Date" shall mean any
Trading Day during each Investment Period with respect to which a Mandatory
Purchase Notice has been given that the Investor in its sole discretion elects
by delivery of an Investor Incremental Purchase Notice to purchase shares of
Common Stock pursuant to an Investor Incremental Purchase.
Section 1.19 "Investor Incremental Purchase Notice" shall mean a notice
delivered by the Investor to the Company, notifying the Company of the
Investor's election to purchase Common Stock pursuant to an Investor Incremental
Purchase.
Section 1.20 "Investor Notice". See Section 2.5(e)(i).
Section 1.21 "Mandatory Purchase Date" shall mean, with respect to any
Investment Period for which the Company has delivered a Mandatory Purchase
Notice to the Investor, any Trading Day during such Investment Period on which
the Investor notifies the Company by delivery of an Investor Notice of its
election to purchase all or a portion of the Minimum Investment Amount in
respect of such Investment Period.
Section 1.22 "Mandatory Purchase Notice". See Section 2.5(b)(i).
Section 1.23 "Mandatory Purchase Period" shall mean the aggregate of
all Investment Periods during the Commitment Period.
Section 1.24 "Material Adverse Effect" shall mean any effect on the
business, operations, properties, prospects, or financial condition of the
Company and which is material and adverse to the Company or to the Company and
such other entities controlled by the Company, taken as a whole and/or any
condition or situation which would prohibit or otherwise interfere with the
ability of the Company to enter into and perform its obligations under this
Agreement, the Registration Rights Agreement, the Warrant or the Additional
Warrant.
Section 1.25 "Maximum Offering Amount". See introductory paragraphs.
Section 1.26 "Minimum Investment Amount". See Section 2.1(b)(ii).
Section 1.27 "Minimum Offering Amount" shall mean the purchase of
Common Stock of the Company by the Investor for a minimum aggregate Purchase
Price of $5,000,000.
Section 1.28 "NASD" shall mean the National Association of Security
Dealers, Inc.
Section 1.29 "Optional Purchase Date" shall mean any Trading Day during
the Optional Purchase Period that the Investor in its sole discretion elects by
delivery of an Optional Purchase Notice to purchase Common Stock from the
Company.
Section 1.30 "Optional Purchase Notice". See Section 2.5(a).
Section 1.31 "Optional Purchase Period" shall mean the period
commencing on April 1, 1998 and ending on September 30, 1998. Notwithstanding
any other provision in this Agreement, the Investor shall make no purchases of
Common Stock during the Optional Purchase Period.
Section 1.32 "Preliminary Purchase Notice." See Section 2.1(e).
Section 1.33 "Principal Market" shall mean the New York Stock Exchange,
the American Stock Exchange, or the Nasdaq National Market, whichever is at the
time the principal trading exchange or market for the Common Stock.
Section 1.34 "Purchase Price". See Section 2.3.
Section 1.35 "Registration Rights Agreement". See Section 2.7(c).
Section 1.36 "Registration Statement". See Section 3.2(a).
Section 1.37 "Revolving Credit Agreement". See Section 3.2(f).
Section 1.38 "Securities Act". See introductory paragraphs.
Section 1.39 "SEC". See introductory paragraphs.
Section 1.40 "SEC Documents". See Section 5.2.
Section 1.41 "Stock Price". See Section 2.3.
Section 1.42 "Trading Day" shall mean any day during which the New York
Stock Exchange shall be open for business and on which trading of the Common
Stock on the Principal Market shall not have been suspended or limited.
Section 1.43 "Value of Open Market Trading" with respect to any Trading
Day shall mean the product of the reported trading volume of the Common Stock on
the Principal Market (in the case that the Principal Market is the New York
Stock Exchange or the American Stock Exchange, the reported trading volume of
the Common Stock shall be the reported traded volume on such exchange and shall
not be the composite trading volume and in the case that the Principal Market is
the Nasdaq National Market, the reported trading volume shall be 50% of the
amount reported) on any such day, multiplied by the weighted average trading
price (by trading volume) of the Common Stock on such day (each as determined in
accordance with Section 12.4 hereof); provided, however, that in the event that
the Company consummates a registered public offering of Common Stock (whether
primary or secondary), the Trading Day on which such
transaction is consummated shall be excluded from any calculation under this
Agreement based upon the Value of Open Market Trading.
Section 1.44 "Warrant". See Section 2.7(a).
Section 1.45 "Warrant Exercise Price". See Section 2.7(a).
Section 1.46 "Warrant Shares". See Section 3.2(l).
ARTICLE II
Purchase and Sale of Common Stock
Section 2.1 Investments.
(a) Subject to the terms and conditions set forth herein
(including, without limitation, the provisions of Article III hereof) (i) during
the Optional Purchase Period the Investor may in its sole and absolute
discretion from time to time direct the Company to issue to the Investor, and
the Company shall be obligated to issue and sell to the Investor, shares of
Common Stock at the Purchase Price determined pursuant to Section 2.3 for an
aggregate Purchase Price of up to $3,000,000 and (ii) during the Mandatory
Purchase Period, the Company may in its sole and absolute discretion from time
to time elect to issue and sell to the Investor, and the Investor shall be
obligated to purchase from the Company, on such Mandatory Purchase Date,
Mandatory Purchase Dates, Additional Purchase Date or Additional Purchase Dates
as the Investor shall elect, shares of Common Stock at the Purchase Price
determined pursuant to Section 2.3.
(b) (i) The Investor shall have the right, but not the
obligation, at any time and from time to time during the Optional Purchase
Period to purchase Common Stock from the Company for an aggregate Purchase Price
of up to $3,000,000, by delivering an Optional Purchase Notice or Optional
Purchase Notices to the Company provided that (A) on the date of delivery of an
Optional Purchase Notice, the Stock Price shall not be below the Floor Price and
(B) on the Trading Day immediately preceding the date of delivery of an Optional
Purchase Notice all conditions provided in this Agreement for the delivery of an
Optional Purchase Notice are satisfied. Each Optional Purchase Notice shall set
forth the Investment Amount with respect to the Optional Purchase Date to which
it relates.
(ii) Subject to the terms and conditions of this Agreement,
on or before the tenth (10th) day preceding the commencement of an Investment
Period, the Company may deliver a Mandatory Purchase Notice to the Investor
which shall require the Investor to purchase shares of Common Stock from the
Company during such Investment Period for an aggregate Purchase Price of
$1,500,000, subject to the limitations imposed by Section 2.2(a) (the "Minimum
Investment Amount"), provided that on the date of delivery of the Mandatory
Purchase Notice and on the Trading Day immediately preceding the commencement of
such Investment Period all conditions provided in this Agreement for the
delivery of a Mandatory Purchase Notice are satisfied. A Mandatory Purchase
Notice shall be irrevocable by the Company. Upon delivery of such Mandatory
Purchase Notice, the Investor shall be obligated to purchase on the Closing Date
in respect of such Mandatory Purchase Date or Mandatory Purchase Dates as the
Investor elects during the Investment Period to which such Mandatory
Purchase Notice relates, shares of Common Stock for an aggregate Purchase Price
equal to the Minimum Investment Amount. On each such Mandatory Purchase Date,
the Investor shall deliver to the Company an Investor Notice which shall set
forth the Investment Amount.
(iii) Subject to the terms and conditions of this Agreement,
the Investor may, but is not obligated to, during any Investment Period with
respect to which a Mandatory Purchase Notice has been given, purchase shares of
Common Stock from the Company at any time and from time to time in its sole and
absolute discretion during such Investment Period for an aggregate Purchase
Price (an "Investor Incremental Purchase"), provided that (A) the aggregate
Purchase Price for all shares of Common Stock to be acquired during such
Investment Period, whether pursuant to a Mandatory Purchase Notice, an
Additional Purchase Notice or an Investor Incremental Purchase Notice, shall not
exceed $3,000,000 and (B) the aggregate Purchase Price for all shares of Common
Stock previously acquired by the Investor under this Agreement, whether pursuant
to a Mandatory Purchase Notice, an Additional Purchase Notice or an Investor
Incremental Purchase Notice and to be acquired during such Investment Period
shall not exceed the Minimum Offering Amount unless otherwise agreed to by the
Company in writing or unless the Company has elected to sell to the Investor
shares of Common Stock in excess of the Minimum Offering Amount as provided
below. Any Investor Incremental Purchase shall, at the Investor's option and in
its sole and absolute discretion, be credited towards the Investor's Minimum
Investment Amount for up to two Investment Periods for which a Mandatory
Purchase Notice has been given. The Investor will notify the Company of its
intent to credit all or a portion of the Investor Incremental Purchase at any
time prior to the end of an Investment Period with respect to which the Investor
elects to apply such credit. At such time as the Investor shall have acquired
shares of Common Stock under this Agreement for an aggregate Purchase Price
equal to at least the Minimum Offering Amount, the Investor shall no longer have
the right to effect an Investor Incremental Purchase; provided, however, that
the Investor shall continue to have the right to effect such Investor
Incremental Purchase if the Company allows the Investor to do so by providing
its written consent. At such time as the Company has elected to sell to the
Investor shares of Common Stock in excess of the Minimum Offering Amount by
delivery of a Mandatory Purchase Notice to the Investor following the sale by
the Company to the Investor of shares of Common Stock for an aggregate Purchase
Price of at least the Minimum Offering Amount or by otherwise advising the
Investor in writing, the Investor's right to effect Investor Incremental
Purchases shall be restored as provided in this Subsection 2.1(b)(iii). Each
Investor Incremental Purchase Notice shall set forth the Investment Amount with
respect to the Investor Incremental Purchase Date to which it relates.
(iv) Subject to the terms and conditions of this Agreement,
on or before the tenth (10th) day immediately preceding the commencement of an
Investment Period, the Company may deliver a written notice to the Investor
(each such notice hereinafter referred to as an "Additional Purchase Notice")
requiring the Investor to purchase shares of Common Stock from the Company (in
addition to the Minimum Investment Amount) during such Investment Period for an
aggregate Purchase Price of up to $1,500,000 (which must be in increments of
$50,000), subject to the limitations imposed by Section 2.2(a) (the "Additional
Investment Amount"), provided that (A) the average Value of Open Market Trading
for the prior twenty (20) Trading Days preceding and excluding the date of
commencement of such Investment Period was at least $500,000, and (B) all
conditions precedent for delivery of an Additional Purchase Notice are satisfied
on the date of delivery of the Additional Purchase Notice and the Trading Day
immediately preceding the commencement of such Investment Period. An Additional
Purchase Notice shall be irrevocable by the Company. The Company may
not deliver an Additional Purchase Notice with respect to any Investment Period
unless it has also delivered a Mandatory Purchase Notice with respect to such
Investment Period. Upon receipt of such Additional Purchase Notice, the Investor
shall be obligated to purchase on the Closing Date in respect of such Additional
Purchase Date or Additional Purchase Dates as the Investor elects during the
Investment Period to which such Additional Purchase Notice relates, shares of
Common Stock for an aggregate Purchase Price equal to the Additional Investment
Amount. On each such Additional Purchase Date or Additional Purchase Dates, the
Investor shall deliver to the Company an Investor Notice which shall set forth
the Investment Amount.
(c) Notwithstanding anything herein to the contrary, the
Investor shall not be required or entitled to purchase shares of Common Stock to
the extent such purchase would conflict with the provisions of Subsection
3.2(l)(i) herein.
(d) On the Closing Date in respect of an Optional Purchase
Date, Mandatory Purchase Date, Additional Purchase Date or Investor Incremental
Purchase Date, the Company shall sell to the Investor the number of shares of
Common Stock determined pursuant to Section 2.4(b); provided, however, that the
Investor shall not be required to purchase from the Company shares of Common
Stock pursuant to the terms of this Agreement for an aggregate Purchase Price in
excess of the Maximum Offering Amount.
(e) On or before the thirtieth (30th) day preceding the
commencement of an Investment Period, the Company agrees to deliver to the
Investor written notice (which notice shall not be considered legally binding
for purposes of this Agreement) indicating the Company's intentions with respect
to the Mandatory Purchase Notice and Additional Purchase Notice, if any, for the
next succeeding Investment Period (the "Preliminary Purchase Notice"); provided
that, in no event shall such Preliminary Purchase Notice be a substitute for a
Mandatory Purchase Notice or an Additional Purchase Notice as required by this
Agreement. The Company shall not deliver a Mandatory Purchase Notice or an
Additional Purchase Notice for an Investment Period if the Company has not
delivered a Preliminary Purchase Notice for such Investment Period. If the
Company delivers a Preliminary Purchase Notice for an Investment Period but then
fails to deliver a Mandatory Purchase Notice or an Additional Purchase Notice
for said Investment Period, then the Company shall pay any reasonable due
diligence expenses, subject to the limitations set forth in Section 11.2, that
the Investor incurred in anticipation of the delivery of a Mandatory Purchase
Notice or Additional Purchase Notice for said Investment Period.
Section 2.2 Limitation on Investment Amount.
(a) Notwithstanding the obligation of the Investor to purchase
shares of Common Stock pursuant to Section 2.1(b)(ii) and (iv), the aggregate
Investment Amount for any Investment Period (whether pursuant to a Mandatory
Purchase Notice or an Additional Purchase Notice or any combination thereof)
shall not exceed the lesser of (i) the amount set forth in the Mandatory
Purchase Notice or Additional Purchase Notice or any combination thereof which
shall not exceed $3,000,000, (ii) an amount equal to the product of (A) 8% of
the average daily Value of Open Market Trading of the Common Stock on the
Principal Market for each Trading Day on which the low trading price of the
Common Stock on the Principal Market is above the Floor Price during the
Investment Period immediately preceding the Investment Period with respect to
which a Mandatory Purchase Notice or an Additional Purchase Notice (or
combination thereof) is given times (B) the number of Trading Days on which the
low trading price of the
Common Stock on the Principal Market is above the Floor Price in such
immediately preceding Investment Period (rounded up to the next increment of
$50,000), and (iii) an amount equal to the product of (A) 8% of the average
daily Value of Open Market Trading of the Common Stock on the Principal Market
for each Trading Day on which the low trading price of the Common Stock on the
Principal Market is above the Floor Price during the Investment Period with
respect to which a Mandatory Purchase Notice or an Additional Purchase Notice
(or a combination thereof) was given times (B) the number of Trading Days on
which the low trading price of the Common Stock on the Principal Market is above
the Floor Price in such Investment Period (rounded up to the next increment of
$50,000). Notwithstanding the limitations imposed by clauses (ii) and (iii) of
this Subsection 2.2(a) on the required investment during any Investment Period
in respect of a Mandatory Purchase Notice or an Additional Purchase Notice, the
Investor shall be entitled to effect an Investor Incremental Purchase during
such Investment Period in accordance with 2.1(b)(iii); provided, however, that
the Investor may not effect an Investor Incremental Purchase during such
Investment Period until all Mandatory Purchases and Additional Purchases, if
any, applicable to such Investment Period have been made.
(b) Notwithstanding anything to the contrary contained herein,
the Investor may not acquire any shares of Common Stock during the Optional
Purchase Period or any Investment Period (whether pursuant to an Optional
Purchase Notice, a Mandatory Purchase Notice, Additional Purchase Notice or an
Investor Incremental Purchase Notice) if the Stock Price during each and every
of the three (3) Trading Days prior to but excluding an Optional Purchase Date,
a Mandatory Purchase Date, an Additional Purchase Date or an Investor
Incremental Purchase Date shall be below $4.00 per share (the "Floor Price").
The Investment Period and the Commitment Period shall be extended by 1-1/2
Trading Days (rounded up to the next full Trading Day) for each Trading Day
within such Investment Period during which Stock Price is below the Floor Price;
provided, however, that if during any Investment Period during which the
Investor is obligated to purchase Common Stock pursuant to a Mandatory Purchase
Notice or an Additional Purchase Notice, the Stock Price shall be below the
Floor Price for more than twenty (20) Trading Days, (i) the Investment Period
and the Commitment Period shall be extended by thirty (30) Trading Days only,
provided, however, that in no event shall the Commitment Period extend beyond
forty-eight (48) months, (ii) the Investor shall not be required to purchase any
shares of Common Stock during the remainder of the Investment Period (as so
extended), regardless of its obligation to purchase Common Stock at the
commencement of the Investment Period and the number of shares of Common Stock
actually purchased during such Investment Period, and (iii) the Investor shall
have the option to purchase shares of Common Stock on any Trading Day (such
purchase to constitute an Investor Incremental Purchase) within the remainder of
the Investment Period provided that on such Trading Day the Stock Price shall
not be below the Floor Price.
(c) The Investor shall not purchase during any Investment
Period shares of Common Stock from the Company in excess of an aggregate
Purchase Price of $3,000,000 without the Company's prior written consent.
(d) If during the Mandatory Purchase Period the Company shall
deliver or shall have been deemed to deliver to the Investor more than six (6)
Cancellation Notices (other than Cancellations Notices delivered pursuant to
Section 2.5(c)(ii)), the Investor's obligation to purchase shares of Common
Stock up to the Maximum Offering Amount shall be reduced by $1,500,000 for each
subsequent Investment Period in which a Cancellation Notice (other than
Cancellation Notices delivered pursuant to Section 2.5(c)(ii)) is given.
Section 2.3 Determination of Purchase Price. The purchase price per
share of the Company's Common Stock (the "Purchase Price") shall be 94% of the
low trading price of the Common Stock on the Principal Market, during the three
(3) Trading Days prior to but excluding an Optional Purchase Date, a Mandatory
Purchase Date, an Additional Purchase Date or an Investor Incremental Purchase
Date, as the case may be; provided, however, that if the low trading price is
below the Floor Price on any of such three (3) Trading Days, such Trading Day
shall not be considered in determining the Purchase Price, and the Purchase
Price shall be determined solely be reference to the remaining Trading Days in
such three (3) Trading Day period (the "Stock Price").
Section 2.4
(a) Closings. On each Closing Date (i) the Company shall
deliver to the Investor one or more certificates representing the number of
shares of Common Stock to be purchased by the Investor pursuant to Section 2.1
registered in the name of the Investor or, at the Investor's option, deposit
such certificate(s) into such account or accounts previously designated by the
Investor and (ii) the Investor shall deliver to the Company the amount
determined pursuant to Section 2.4(b) by federal funds wire transfer or transfer
of New York Clearing House funds to an account designated by the Company's Chief
Executive Officer or Chief Financial Officer or such other person as either of
them may designate in writing, on or before the Closing Date. In addition, on or
prior to the Closing Date, each of the Company and the Investor shall deliver
all documents, instruments and writings required to be delivered or reasonably
requested by either of them pursuant to this Agreement in order to implement and
effect the transactions contemplated herein.
(b) Payment for the Common Stock Purchased by the Investor. On
the Closing Date, the Investor shall pay to the Company the Investment Amount
(less any amounts withheld pursuant to Section 11.2) in such funds as provided
in 2.4(a), and shall receive from the Company the number of shares of Common
Stock determined by dividing the Investment Amount by the Purchase Price
(rounded to the nearest whole number of shares).
Section 2.5 Mechanics of Notification.
(a) Delivery of Optional Purchase Notice. At any time and from
time to time during the Optional Purchase Period, the Investor may deliver a
written notice to the Company (each such notice hereinafter referred to as an
"Optional Purchase Notice") setting forth the Investment Amount, subject to the
limitations imposed by Sections 2.1 and 3.2(l) herein, which the Investor
intends to purchase from the Company. The Investor may not deliver an Optional
Purchase Notice to the Company if the conditions set forth in Section 2.1(b)(i)
are not satisfied or if the events described in Section 2.6 occur, or if a
dispute exists between the Investor and the Company pursuant to Section 3.3 or
if the conditions set forth in Article III are not satisfied. If such Optional
Purchase Notice does not comply with Section 2.1(b)(i), any of the events
described in Section 2.6 occur, a dispute exists between the Investor and the
Company pursuant to Section 3.3 or if the conditions set forth in Article III
are not satisfied, on or after the date on which an Optional Purchase Notice is
given but prior to the closing of the transaction on the Closing Date associated
with such Optional Purchase Notice, such Optional Purchase Notice shall be null,
void and of no further force or effect.
(b) Delivery of Mandatory Purchase Notice.
(i) On or before the tenth (10th) day immediately preceding
the commencement of an Investment Period, the Chief Executive Officer or the
Chief Financial Officer (or such other person as designated by either in
writing) of the Company may deliver a written notice to the Investor (each such
notice hereinafter referred to as a "Mandatory Purchase Notice") which shall
require the Investor to purchase shares of Common Stock from the Company for an
aggregate Purchase Price of $1,500,000, subject to the limitations imposed by
Sections 2.1 and 3.2(l) herein. The Company may not deliver a Mandatory Purchase
Notice to the Investor if the conditions set forth in Section 2.1(b)(ii) are not
satisfied or if the events described in Section 2.6 occur, or if a dispute
exists between the Investor and the Company pursuant to Section 3.3, or if the
conditions set forth in Article III are not satisfied. If the conditions set
forth in Section 2.1(b)(ii) are not satisfied, any of the events described in
Section 2.6 occur, a dispute exists between the Investor and the Company
pursuant to Section 3.3 or if the conditions set forth in Article III are not
satisfied, on or after the date on which a Mandatory Purchase Notice is given
but prior to the closing of the transaction on the Closing Date associated with
such Mandatory Purchase Notice, the Investor Notice relating to such Mandatory
Purchase Notice shall be, at the option of the Investor, null, void and of no
further force or effect.
(ii) In the event the Company intends not to obligate the
Investor to purchase Common Stock during an Investment Period, on or before the
tenth (10th) day preceding the commencement of such Investment Period, the
Company shall deliver a Cancellation Notice to the Investor. Such Cancellation
Notice shall be irrevocable by the Company.
(iii) In the event the Company fails to deliver a Mandatory
Purchase Notice or a Cancellation Notice pursuant to clause (b)(i) or (b)(ii) on
or before the tenth (10th) day preceding the commencement of an Investment
Period, the Company shall be deemed to have delivered a Cancellation Notice with
respect to such Investment Period.
(c) Delivery of an Additional Purchase Notice.
(i) On or before the tenth (10th) day immediately preceding
the commencement of an Investment Period, the Chief Executive Officer or the
Chief Financial Officer (or such other person as designated by either in
writing) of the Company may deliver an Additional Purchase Notice to the
Investor stating the Additional Investment Amount, subject to the limitations
imposed by Sections 2.1 and 3.2(l) herein, which the Investor shall be required
to purchase during such Investment Period (in addition to shares of Common Stock
which the Investor is required to purchase pursuant to the delivery by the
Company to the Investor of a Mandatory Purchase Notice). An Additional Purchase
Notice may not be delivered if a Mandatory Purchase Notice is not delivered with
respect to the same Investment Period. The Company may not deliver an Additional
Purchase Notice to the Investor if the conditions set forth in Section
2.1(b)(iv) are not satisfied or if the events described in Section 2.6 occur, or
if a dispute exists between the Investor and the Company pursuant to Section
3.3, or if the conditions set forth in Article III are not satisfied. If the
conditions set forth in Section 2.1(b)(iv) are not satisfied, any of the events
described in Section 2.6 occur, a dispute exists between the Investor and the
Company pursuant to Section 3.3 or if the conditions set forth in Article III
are not satisfied, on or after the date on which an Additional Purchase Notice
is given but prior to the closing of the transaction on the Closing Date
associated with such Additional Purchase Notice,
such Additional Purchase Notice shall be, at the option of the Investor, null,
void and of no further force or effect.
(ii) In the event the Company intends to not require the
Investor to purchase Common Stock during an Investment Period pursuant to an
Additional Purchase Notice, on or before the thirtieth (30th) day preceding the
commencement of such Investment Period, the Company shall deliver a Cancellation
Notice to the Investor. Such Cancellation Notice shall be irrevocable.
(d) Delivery of an Investor Incremental Purchase Notice. During
any Investment Period with respect to which the Company delivers a Mandatory
Purchase Notice the Investor may, in its sole and absolute discretion, at any
time and from time to time deliver an Investor Incremental Purchase Notice to
the Company stating the amount of the Investor Incremental Purchase for that
Investment Period, subject to the limitations imposed by Section 2.1(b)(iii). If
any of the events described in Section 2.6 occur, a dispute exists between the
Investor and the Company pursuant to Section 3.3 or if the conditions set forth
in Article III are not satisfied, on or after the date on which an Investor
Incremental Purchase Notice is given but prior to the closing of the transaction
on the Closing Date associated with such Investor Incremental Purchase Notice,
such Investor Incremental Purchase Notice shall be, at the option of the
Investor, null, void and of no further force or effect.
(e) Date of Delivery of an Optional Purchase Notice, an Investor
Incremental Purchase Notice an Investor Notice, a Mandatory Purchase Notice, an
Additional Purchase Notice or Other Notice.
(i) An Optional Purchase Notice, an Investor Incremental
Purchase Notice, and any other notice sent by the Investor to the Company
notifying the Company of the Investor's election to purchase Common Stock (each
an "Investor Notice") and any other notice sent by the Investor to the Company
shall be deemed to be delivered on the Trading Day it is received by facsimile
or otherwise by the Company if such notice is received prior to 5:00 P.M. New
York time, or on the immediately succeeding Trading Day if it is received by
facsimile or otherwise after 5:00 P.M. New York time (in which case the
provisions of Sections 2.1(b) and 2.2(b) must be satisfied as of such
immediately succeeding Trading Day).
(ii) A Mandatory Purchase Notice or an Additional Purchase
Notice shall be deemed to be delivered on the Trading Day it is received by
facsimile or otherwise by the Investor if such notice is received prior to 5:00
P.M. New York time, or on the immediately succeeding Trading Day if it is
received by facsimile or otherwise after 5:00 P.M. New York time or on any day
which is not a Trading Day (in which case the provisions of Sections 2.1(b) and
2.2(b) must be satisfied as of such immediately succeeding Trading Day).
Section 2.6 Termination or Suspension of Investment Obligation.
(a) The Investor shall not purchase any shares of Common Stock
from the Company on any Closing Date nor may an Optional Purchase Notice or
Additional Purchase Notice be delivered nor shall a Mandatory Purchase Notice be
delivered at any time during the Commitment Period that there shall exist any
one or more of the following: (i) the withdrawal of the effectiveness of the
Registration Statement, (ii) the Company's failure to satisfy the requirements
of Section 3.2 or (iii) any failure or interruption in the material compliance
by the Company with the covenants provided in Article VI. In the event that the
Company shall have delivered a Mandatory Purchase Notice or Additional Purchase
Notice with respect to an Investment Period and one or more of the events listed
in clauses (i) through (iii) above exist at the time such Mandatory Purchase
Notice or Additional Purchase Notice is given but has not been cured by the
Trading Day preceding the commencement of the Investment Period to which
such notice relates, the Mandatory Purchase Notice or Additional Purchase Notice
shall be void and of no effect. In the event that the Company shall have
delivered a Mandatory Purchase Notice or Additional Purchase Notice with respect
to an Investment Period and one or more of the events listed in clauses (i)
through (iii) above occur during the Investment Period, the obligation of the
Investor to purchase shares of Common Stock during such Investment Period shall
be reduced (but in no event shall such reduction result in a negative number) by
subtracting an amount calculated by multiplying the amount which the Investor
would otherwise be obligated to purchase by a fraction, the numerator of which
shall be 1-1/2 times the number of Trading Days within such Investment Period
that such event or events exist and the denominator of which shall be the number
of Trading Days within such Investment Period (without adjustment for the Stock
Price being below the Floor Price pursuant to Section 2.2(b)) from the
Investor's obligation during such Investment Period. If such event remains
uncured for a period of greater than five (5) Trading Days or exists during the
last five (5) Trading Days of the Investment Period, the remaining obligation of
the Investor to purchase shares of Common Stock pursuant to a Mandatory Purchase
Notice or an Additional Purchase Notice shall be canceled for the remainder of
the Investment Period. If such event exists on the last day preceding an
Investment Period on which the Company may deliver a Mandatory Purchase Notice
with respect of such Investment Period, the Company shall have five (5) Trading
Days in which to cure, and if cured within such period, the commencement of the
Investment Period shall be postponed for such number of days during such period
as the event remained uncured, but in no event shall such Investment Period be
postponed for a period in excess of five (5) Trading Days.
(b) The obligation of the Investor to purchase shares of Common
Stock under the Agreement may, if the Investor in its sole and absolute
discretion so elects, be terminated (including with respect to a Closing Date
which has not yet occurred) in the event that (i) there shall occur any stop
order or suspension of the effectiveness of the Registration Statement or any
withdrawal of the effectiveness of the Registration Statement for any reason
other than as a result of subsequent corporate developments which would require
the Registration Statement to be amended to reflect such event in order to
maintain its compliance with the disclosure requirements of the Securities Act
or (ii) the Company shall at any time fail to comply with the requirements of
Sections 6.2, 6.3, 6.4, 6.5 or 6.6 and the Company shall fail to cure such
noncompliance within (i) five (5) Trading Days after receipt of notice from the
Investor of its election to terminate this Agreement provided that the Investor
has been notified by the Company of such noncompliance within two (2) Trading
Days of the occurrence of such noncompliance or, if the noncompliance relates to
a failure of the Company to comply with the provisions of Section 6.5, the
Investor otherwise becomes aware of such noncompliance or (ii) otherwise within
five (5) Trading Days of the occurrence of such noncompliance; provided,
however, that notwithstanding the foregoing, the Investor may, in its sole and
absolute discretion, terminate this Agreement if the Company shall fail to
maintain the listing of the Common Stock on a Principal Market, or if trading of
the Common Stock on a Principal Market shall have been suspended for a period of
five (5) consecutive Trading Days.
Section 2.7 Commitment Fee.
(a) On the Effective Date, the Company will issue to the Investor
a warrant exercisable by the Investor in its sole and absolute discretion from
time to time within seven (7) years from the date of issuance (the "Warrant") to
purchase an aggregate of 125,000 shares of Common Stock at an exercise price per
share equal to 140% of the average of the closing sale prices of the Common
Stock on the Principal Market for the period from and including January
21, 1997 to and including January 29, 1997 (the "Warrant Exercise Price"). The
Warrant shall provide that it shall not be exercisable on any date to the extent
that such exercise would limit the ability of the Investor to purchase shares of
Common Stock as a result of a Mandatory Purchase Notice or Additional Purchase
Notice pursuant to Section 2.1(c). The Warrant shall be delivered by the Company
to the Investor upon execution of this Agreement by the parties hereto, and
shall not be exercisable by the Investor for a period of eighteen (18) months
from the date of issuance; provided, however, that if (i) the Company declares a
record date for a material dividend or distribution in respect of the Common
Stock (in cash or securities or other assets, other than Common Stock), (ii) if
at any time (A) there occurs any consolidation or merger of the Company with or
into any other corporation or other entity or person (whether or not the Company
is the surviving corporation) or there occurs any other corporate reorganization
or transaction or series of related transactions, and as a result thereof the
shareholders of the Company pursuant to such merger, consolidation,
reorganization or other transaction own in the aggregate less than 50% of the
voting power and common equity of the ultimate parent corporation or other
transaction (B) the Company transfers all or substantially all of the Company's
assets to another corporation or other entity or person or (iii) the Agreement
is terminated by the Investor pursuant to Section 2.6, the Warrant shall become
immediately exercisable at a price equal to the lesser of (A) the Warrant
Exercise Price or (B) if applicable, 80% of the Transaction Value per share of
Common Stock. The term "Transaction Value per share" means, in the case of a
merger, acquisition, sale of Common Stock, sale of assets, or similar
transaction, the fair market value of the consideration to be received per share
of Common Stock, as evidenced by the average of the closing sale price for the
Common Stock during the ten (10) Trading Days following the announcement of such
definitive agreement and in the case of a material dividend or distribution
(which material dividend or distribution shall not include any grant of any
"poison pill" that does not involve any increase in the consideration payable
thereunder upon redemption of the "poison pill"), the fair market value of the
dividend or distribution per share of Common Stock to be received as determined
in good faith by the Company's Board of Directors; provided that if the dividend
or distribution is in the form of an instrument that trades "when issued" the
fair market value thereof shall be determined by reference to the average of the
closing sale price for such instrument in the when issued market (or in the
absence of a closing sale price, the average of the closing bid and asked price)
during the ten (10) Trading Days following such record date.
(b) (i) The Company shall notify the Investor in writing on or
before April 1, 1999 as to whether it intends to require or does not intend to
require the Investor to purchase Common Stock in excess of the Minimum Offering
Amount through the remainder of the Commitment Period. In the event the Company
fails to make such notification, the Company shall be deemed to have notified
the Investor that it does not intend to require the Investor to purchase Common
Stock in excess of the Minimum Offering Amount through the remainder of the
Commitment Period.
(ii) In the event (A) the Company elects on or before April
1,1999 to issue and sell to the Investor shares of Common Stock by delivery of
Mandatory Purchase Notices and Additional Purchase Notices in excess of the
Minimum Offering Amount, or (B) the Company notifies the Investor on or before
April 1, 1999 that it intends to require the Investor to purchase shares of
Common Stock in excess of the Minimum Offering Amount through the remainder of
the Commitment Period, the Company shall issue to the Investor, as of the date
of occurrence of the event specified in clauses (A) or (B) above, an additional
warrant exercisable from time to time within seven (7) years from the date of
issuance (an "Additional Warrant") to
purchase an aggregate of 75,000 shares of Common Stock at an exercise price
equal to 140% of the closing sale price on the Principal Market of the Company's
Common Stock on the date the Additional Warrant is issued. The Additional
Warrant shall provide that it shall not be exercisable on any date to the extent
that such exercise would limit the ability of the Investor to purchase shares of
Common Stock as a result of a Mandatory Purchase Notice or Additional Purchase
Notice pursuant to Section 2.1(c). The Additional Warrant shall be exercisable
by the Investor at such time as the Warrant becomes exercisable (provided that
if the Warrant becomes exercisable prior to the issuance of the Additional
Warrant, the Additional Warrant, when issued, shall be immediately exercisable).
(c) The resale by the Investor of Common Stock issuable upon
exercise of the Warrant as well as the Additional Warrant shall be subject to a
registration rights agreement (the "Registration Rights Agreement") entered into
between the Company and the Investor on the date of execution of this Agreement.
Each of the Warrant and the Additional Warrant shall be substantially in the
form of Exhibit A hereto.
ARTICLE III
Conditions to Delivery of Optional Purchase Notices,
Mandatory Purchase Notices, Additional Purchase Notices,
and Conditions to Closing
Section 3.1 Conditions Precedent to the Obligation of the Company to
Issue and Sell Common Stock. The obligation hereunder of the Company to issue
and sell Common Stock to the Investor incident to each Closing is subject to the
satisfaction, at or before each such Closing, of each of the conditions set
forth below, which conditions cannot be waived without the prior written consent
of the Company and the Investor.
(a) Accuracy of the Investor's Representation and Warranties. The
representations and warranties of the Investor set forth in this Agreement shall
be true and correct in all material respects as of the date of this Agreement
and as of the date of each such Closing as though made at each such time.
(b) Performance by the Investor. The Investor shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Investor at or prior to such Closing; provided, further,
that the Investor shall have fully performed its obligations to purchase shares
of Common Stock pursuant to Section 2.1 herein with respect to the preceding
Investment Period.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which,
in the reasonable opinion of the Company and its legal counsel, prohibits or
adversely affects any of the transactions contemplated by this Agreement, and no
proceeding shall have been commenced which may have the effect of prohibiting or
adversely affecting any of the transactions contemplated by this Agreement.
Section 3.2 Conditions Precedent to the Right of the Investor to
Deliver an Optional Purchase Notice an Investor Incremental Purchase Notice, the
Right of the Company to Deliver a Mandatory Purchase Notice or an Additional
Purchase Notice and the Obligation of the Investor to Purchase Common Stock. The
right of the Investor to deliver an Optional Purchase Notice, an Investor
Incremental Purchase Notice, the right of the Company to deliver a Mandatory
Purchase Notice or an Additional Purchase Notice and the obligation of the
Investor hereunder to acquire and pay for Common Stock incident to a Closing is
subject to the satisfaction, on the date of delivery of such Optional Purchase
Notice, Mandatory Purchase Notice or Additional Purchase Notice, as applicable,
and on the applicable Closing Date (each a "Condition Satisfaction Date") of
each of the following conditions, which conditions cannot be waived without the
prior written consent of the Company and the Investor.
(a) Registration of the Common Stock with the SEC. The Company
shall have filed with the SEC a registration statement on Form S-3 (the
"Registration Statement") for the registration of the resale by the Investor of
the Common Stock to be acquired pursuant to this Agreement under the Securities
Act, which Registration Statement shall have been declared effective by the SEC.
Furthermore, the Company shall have filed with the applicable states securities
commissions such blue sky filings as shall have been requested by the Investor,
and any required filings with the NASD or exchange or market where the Common
Stock is traded. No stop order or suspension or withdrawal of the effectiveness
of or with respect to any registration statement or any other suspension of the
use of any registration statement or related prospectus shall have been issued
by the SEC or any states securities commission during the Commitment Period, and
the Company shall be in compliance with the terms of the Registration Rights
Agreement.
(b) Effective Registration Statement. The Registration Statement
shall have previously become effective and shall remain effective on each
Condition Satisfaction Date and (i) neither the Company nor the Investor shall
have received notice that the SEC has issued or intends to issue a stop order
with respect to the Registration Statement or that the SEC otherwise has
suspended or withdrawn the effectiveness of the Registration Statement, either
temporarily or permanently, or intends or has threatened to do so, and (ii) no
other suspension of the use of the Registration Statement or prospectus shall
exist.
(c) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company as set forth in this Agreement and
the Registration Rights Agreement shall be true and correct as of each Condition
Satisfaction Date as though made at each such time (except for representations
and warranties specifically made as of a particular date) with respect to all
periods, and as to all events and circumstances occurring or existing to and
including each Condition Satisfaction Date.
(d) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement and the Registration Rights Agreement
to be performed, satisfied or complied with by the Company at or prior to each
Condition Satisfaction Date.
(e) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits or adversely affects any of the transactions contemplated by this
Agreement, and no proceeding shall have been commenced
which may have the effect of prohibiting or adversely affecting any of the
transactions contemplated by this Agreement.
(f) Adverse Changes. Since September 30,1996 the date through
which the most recent quarterly report of the Company on Form 10-Q has been
prepared and filed with the SEC, a copy of which is included in the SEC
Documents, except as disclosed in SEC Documents or as publicly disclosed in
Company press releases subsequent to such date, no event which had or is
reasonably likely to have a Material Adverse Effect has occurred. The Company
has received and delivered to the Investor the waiver of the default by the
Company of the minimum Tangible Net Worth requirement for the quarter ended
December 31,1996 under the Amended and Restated Revolving Credit and Term Loan
Facility, dated as of February 12, 1996, by and among the Company, SWL, Inc.,
General Research Corporation and Mercantile Safe Deposit & Trust Company (the
"Revolving Credit Agreement").
(g) No Suspension of Trading In or Delisting of Common Stock. The
trading of the Common Stock shall not have been suspended by the SEC, the
Principal Market or the NASD and the Common Stock shall have been approved for
listing or quotation on and shall not have been delisted from the Principal
Market. The issuance of shares of Common Stock with respect to the applicable
Closing, if any, shall not violate the shareholder approval requirements of the
Principal Market.
(h) Legal Opinions and Letters. The Company shall have caused to
be delivered to the Investor, (i) within five (5) Trading Days of the delivery
of the first Mandatory Purchase Notice, (ii) as of a date subsequent to the date
of the Company's filing of any quarterly report on Form 10-Q (or the date by
which such report is required to be filed) after the delivery of the first
Mandatory Purchase Notice, (iii) as of a date subsequent to any date after the
delivery of the first Mandatory Purchase Notice on which the Company announces,
whether on a preliminary or definitive basis, its fourth quarter or full-year
financial results, (iv) to the extent provided by Section 3.3, and (v) as of a
date within five (5) Trading Days of a Mandatory Purchase Notice or an
Additional Purchase Notice, as the case may be, a letter from the Company's
independent counsel containing the statements set forth in Exhibit B addressed
to the Investor stating, inter alia, that in such counsel's belief the
Registration Statement (as may be amended, if applicable), does not contain an
untrue statement of material fact or omits a material fact required to make the
statements contained therein, not misleading or that the underlying prospectus
(if applicable, as so amended or supplemented) does not contain an untrue
statement of material fact or omits a material fact required to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading; provided, however, that in the event that such a letter
cannot be delivered by the Company's independent counsel to the Investor, the
Company shall promptly notify the Investor and promptly revise the Registration
Statement, and the Investor shall not deliver an Optional Purchase Notice, and
the Company shall not deliver a Mandatory Purchase Notice, an Additional
Purchase Notice or, if an Optional Purchase Notice, a Mandatory Purchase Notice
or an Additional Purchase Notice shall have been delivered in good faith without
knowledge by the Investor or the Company that a letter of independent counsel
can not be delivered as required, postpone such Closing Date for a period of up
to five (5) Trading Days until such letter is delivered to the Investor (or such
Closing shall otherwise be canceled). In the event of such a postponement, the
Purchase Price of the Common Stock to be issued at such Closing as determined
pursuant of Section 2.3 shall be the lower of such Purchase Price as calculated
as of the originally scheduled Closing Date or as of the actual Closing Date.
(i) Accountant's Letter.
(i) The Company shall engage its independent auditors to
perform certain agreed upon procedures in accordance with the provisions of
Statement on Auditing Standards No. 72, as amended, and report thereon as shall
have been reasonably requested by the Investor with respect to certain financial
information contained in the Registration Statement and shall have delivered to
the Investor, (x) within five (5) Trading Days of the delivery of the first
Mandatory Purchase Notice and (y) within ten (10) Trading Days of the filing
with the SEC of each SEC Document which is deemed to be incorporated by
reference in the Registration Statement and is filed after the delivery of the
first Mandatory Purchase Notice, a report addressed to the Investor.
(ii) In the event that the Investor shall have requested
delivery of an "agreed upon procedures" report pursuant to Section 3.3, the
Company shall engage its independent auditors to perform certain agreed upon
procedures and report thereon as shall have been reasonably requested by the
Investor with respect to certain financial information of the Company and the
Company shall deliver to the Investor a copy of such report addressed to the
Investor. In the event that the report required by this Section 3.2(i) cannot be
delivered by the Company's independent auditors, the Company shall, if
necessary, promptly revise the Registration Statement and the Investor shall not
deliver an Optional Purchase Notice or an Investor Incremental Purchase Notice,
and the Company shall not deliver a Mandatory Purchase Notice or an Additional
Purchase Notice or, if an Optional Purchase Notice, an Investor Incremental
Purchase Notice shall have been delivered in good faith without knowledge by the
Investor that a report of the Company's independent auditors can not be
delivered as required or, if a Mandatory Purchase Notice or an Additional
Purchase Notice shall have been delivered in good faith without knowledge by the
Company that a report of its independent auditors can not be delivered as
required, postpone such Closing Date for a period of up to five (5) Trading Days
until such a report is delivered (or such Closing shall otherwise be canceled).
In the event of such a postponement, the Purchase Price of the Common Stock to
be issued at such Closing as determined pursuant to Section 2.3 shall be the
lower of such Purchase Price as calculated as of the originally scheduled
Closing Date and as of the actual Closing Date.
(j) Officer's Certificate. The Company shall have delivered to
the Investor, on each Closing Date, a certificate in substantially the form and
substance of Exhibit C hereto, executed in either case by an executive officer
of the Company and to the effect that all the conditions to such Closing shall
have been satisfied as at the date of each such certificate.
(k) Due Diligence. No dispute between the Company and the
Investor shall exist pursuant to Section 3.3 as to the adequacy of the
disclosure contained in the Registration Statement.
(l) Beneficial Ownership Limitation. On each Closing Date (i) the
additional shares of Common Stock then to be purchased by the Investor shall not
exceed the number of such shares which, when aggregated with all other shares of
Common Stock then owned by the Investor pursuant to this Agreement and with the
shares of Common Stock beneficially or deemed beneficially owned by the Investor
pursuant to this Agreement, the Warrant and the Additional Warrant (if then
issued and outstanding) ("Warrant Shares") theretofore issued to the Investor
pursuant to Section 2.7, would result in the Investor or any
affiliate of the Investor beneficially owning more than 4.9% of all of such
Common Stock as would be outstanding on such Closing Date, as determined in
accordance with Section 13(d) of the Exchange Act and (ii) the Investor shall
have received and been reasonably satisfied with such other certificates and
documents as shall have been reasonably requested by the Investor in order for
the Investor to confirm the Company's satisfaction of the conditions set forth
in this Section 3.2. For purposes of clause (i) of this Section 3.2(l), in the
event that the amount of Common Stock outstanding as determined in accordance
with Section 13(d) of the Exchange Act and the regulations promulgated
thereunder is greater on a Closing Date than on the date upon which the Optional
Purchase Notice, Mandatory Purchase Notice, the Additional Purchase Notice or
Investor Incremental Purchase Notice associated with such Closing Date is given,
the amount of Common Stock outstanding on such Closing Date shall govern for
purposes of determining whether the when aggregating all purchases of Common
Stock made pursuant to this Agreement and, if any, Warrant Shares, would own
more than 4.9% of the Common Stock following such Closing Date.
Section 3.3 Due Diligence Review. Prior to the delivery of an Optional
Purchase Notice, or after the delivery of a Mandatory Purchase Notice or an
Additional Purchase Notice pursuant to Section 2.5 herein, the Company shall
make available for inspection and review by the Investor, advisors to and
representatives of the Investor (who may or may not be affiliated with the
Investor and who are reasonably acceptable to the Company), any underwriter
participating in any disposition of Common Stock on behalf of the Investor
pursuant to the Registration Statement, any such registration statement or
amendment or supplement thereto or any blue sky, NASD or other filing, all
financial and other records, all SEC Documents and other filings with the SEC,
and all other corporate documents and properties of the Company as may be
reasonably necessary for the purpose of such review, and cause the Company's
officers, directors and employees to supply all such information reasonably
requested by the Investor or any such representative, advisor or underwriter in
connection with such Registration Statement (including, without limitation, in
response to all questions and other inquiries reasonably made or submitted by
any of them), prior to and from time to time after the filing and effectiveness
of the Registration Statement for the sole purpose of enabling the Investor and
such representatives, advisors and underwriters and their respective accountants
and attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
The Company shall not disclose non-public information to the Investor,
advisors to or representatives of the Investor unless prior to disclosure of
such information the Company identifies such information as being non-public
information and provides the Investor, such advisors and representatives with
the opportunity to accept or refuse to accept such non-public information for
review. The Company may, as a condition to disclosing any non-public information
hereunder, require the Investor's advisors and representatives to enter into a
confidentiality agreement (including an agreement with such advisors and
representatives prohibiting them from trading in Common Stock during such period
of time as they are in possession of non-public information) in form reasonably
satisfactory to the Company and the Investor.
Nothing herein shall require the Company to disclose non-public
information to the Investor, his advisors or representatives, and the Company
represents that it does not disseminate non-public information to any investors
who purchase stock in the Company in a public offering, to money managers or to
securities analysts, provided, however, that notwithstanding anything
herein to the contrary, the Company will, as hereinabove provided, immediately
notify the advisors and representatives of the Investor and, if any,
underwriters, of any event or the existence of any circumstance (without any
obligation to disclose the specific event or circumstance) of which it becomes
aware, constituting non-public information (whether or not requested of the
Company specifically or generally during the course of due diligence by such
persons or entities), which, if not disclosed in the prospectus included in the
Registration Statement would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated therein in order
to make the statements, therein, in light of the circumstances in which they
were made, not misleading. Nothing contained in this Section 3.3 shall be
construed to mean that such persons or entities other than the Investor (without
the written consent of the Investor prior to disclosure of such information) may
not obtain non-public information in the course of conducting due diligence in
accordance with the terms of this Agreement; provided, however, that in no event
shall the Investor's advisors or representatives disclose to the Investor the
nature of the specific event or circumstances constituting any non-public
information discovered by such advisors or representatives in the course of
their due diligence (without the written consent of the Investor prior to
disclosure of such information). The Investor's advisors or representatives
shall make complete disclosure to the Investor's independent counsel of all
events or circumstances constituting non-public information discovered by such
advisors or representatives in the course of their due diligence upon which such
advisors or representatives form the opinion that the Registration Statement
contains an untrue statement of a material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make the
statements contained therein, in the light of the circumstances in which they
were made, not misleading. Upon receipt of such disclosure, the Investor's
independent counsel shall consult with the Company's independent counsel in
order to address the concern raised as to the existence of a material
misstatement or omission and to discuss appropriate disclosure with respect
thereto; provided, however, that such consultation shall not constitute the
advice of the Company's independent counsel to the Investor as to the accuracy
of the Registration Statement and related prospectus In the event after such
consultation the Investor's independent counsel believes that the Registration
Statement contains an untrue statement or a material fact or omits a material
fact required to be stated in the Registration Statement or necessary to make
the statements contained therein, in light of the circumstances in which they
were made, not misleading, (a) the Company shall file with the SEC an amendment
to the Registration Statement responsive to such alleged untrue statement or
omission and provide the Investor, as promptly as practicable with copies of the
Registration Statement and related prospectus, as so amended, (b) if the Company
disputes the existence of any such material misstatement or omission, (i) the
Company's independent counsel shall provide the Investor's independent counsel
with a letter stating that nothing has come to their attention that would lead
them to believe that the Registration Statement or the related prospectus, as of
the date of such opinion contains an untrue statement of a material fact or
omits a material fact required to be stated in the Registration Statement or the
related prospectus or necessary to make the statements contained therein, in
light of the circumstances in which they were made, not misleading and (ii) in
the event the dispute relates to the adequacy of financial disclosure and the
Investor shall reasonably request, the Company's independent auditors shall
provide to the Company a letter outlining the performance of such "agreed upon
procedures" as shall be reasonably requested by the Investor and the Company
shall provide the Investor with a copy of such letter, or (c) if the Company
disputes the existence of any such material misstatement or omission, and the
dispute relates to the timing of disclosure of a material event and the
Company's independent counsel is unable to provide the opinion referenced in
clause (b)(i) above to the Investor, then this Agreement shall be suspended for
a period of up to thirty
(30) days, at the end of which, if the dispute still exists between the
Company's independent counsel and the Investor's independent counsel, the
Company shall either (i) amend the Registration Statement as provided above,
(ii) provide to the Investor the Company's independent counsel opinion and a
copy of the letter of the Company's independent auditors referenced above, or
(iii) the obligation of the Investor to purchase shares of Common Stock pursuant
to this Agreement shall terminate. The Investor hereby agrees to hold harmless
the Company's independent auditors from any liability that may arise out of the
delivery of an "agreed upon procedures" letter pursuant to clause (b)(ii) above.
ARTICLE IV
Representations and Warranties of Investor
The Investor represents and warrants to the Company as follows:
Section 4.1 Intent. The Investor is entering into this Agreement for
its own account and the Investor has no present arrangement (whether or not
legally binding) at any time to sell the Common Stock to or through any person
or entity; provided, however, that by making the representations herein, the
Investor does not agree to hold the Common Stock for any minimum or other
specific term and reserves the right to dispose of the Common Stock at any time
in accordance with federal and state securities laws applicable to such
disposition.
Section 4.2 Sophisticated Investor. The Investor is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited
investor (as defined in Rule 501 of Regulation D), and Investor has such
experience in business and financial matters that it is capable of evaluating
the merits and risks of an investment in Common Stock. The Investor acknowledges
that an investment in the Common Stock is speculative and involves a high degree
of risk.
Section 4.3 Authority. This Agreement has been duly authorized and
validly executed and delivered by the Investor and is a valid and binding
agreement of the Investor enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section 4.4 No Brokers. The Investor has taken no action which would
give rise to any claim by any person for brokerage commission, finder's fees or
similar payments by the Company relating to this Agreement or the transactions
contemplated hereby.
Section 4.5 Not an Affiliate. The Investor is not an officer, director
or "affiliate" (as that term is defined in Rule 405 of the Securities Act) of
the Company.
Section 4.6 Organization and Standing. The Investor is a limited
liability company duly organized, validly existing, and in good standing under
the laws of the State of Delaware.
Section 4.7 Absence of Conflicts. The execution and delivery of this
Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions contemplated thereby, and compliance
with the requirements thereof, will not violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on
the Investor, or the provision of any indenture, instrument or agreement to
which the Investor is a party or is subject, or by which the Investor or any of
its assets is bound, or conflict with or constitute a material default
thereunder, or result in the creation or imposition of any lien pursuant to the
terms of any such indenture, instrument or agreement, or constitute a breach of
any fiduciary duty owed by the Investor to any third party, or require the
approval of any third-party (which has not been obtained) pursuant to any
material contract, agreement, instrument, relationship or legal obligation to
which the Investor is subject or to which any of its assets, operations or
management may be subject.
Section 4.8 Disclosure: Access to Information. The Investor has
received all documents, records, books and other information pertaining to the
Investor's investment in the Company that have been requested by the Investor.
The Investor further acknowledges that it understands that the Company is
subject to the periodic reporting requirements of the Exchange Act, and the
Investor has reviewed or received copies of any such reports that have been
requested by it.
Section 4.9 Manner of Sale. At no time was the Investor presented with
or solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
ARTICLE V
Representations and Warranties of the Company
The Company represents and warrants to the Investor as follows:
Section 5.1 Company Status. The Company has registered its Common Stock
pursuant to Section 12(b) or 12(g) of the Exchange Act and is in full compliance
with all reporting requirements of the Exchange Act, and the Company has
maintained all requirements for the continued listing or quotation of its Common
Stock, and such Common Stock is currently listed or quoted on the Principal
Market. As of August 26, 1998, the Principal Market is the New York Stock
Exchange, and the Company is eligible to use Form S-3 under the Securities Act.
Section 5.2 Current Public Information. The Company has furnished the
Investor with true and correct copies of all registration statements, reports
and documents, including proxy statements (other than preliminary proxy
statements), filed with the SEC by or with respect to the Company through
November 14,1996. All such registration statements, reports and documents,
together with those registration statements, reports and documents filed
pursuant to the Securities Act or Exchange Act subsequent to the date of this
Agreement (copies of which shall be supplied to the Investor) are collectively
referred to herein as the "SEC Documents".
Section 5.3 No General Solicitation in Regard to this Transaction.
Neither the Company nor any of its affiliates nor any distributor or any person
acting on its or their behalf has conducted any general solicitation (as that
term is used in Rule 502(c) of Regulation D) with respect to any of the Common
Stock, nor have they made any offers or sales of any security or solicited any
offers to buy any security under any circumstances that would require
registration of the Common Stock under the Securities Act.
Section 5.4 Valid Issuance of Common Stock. As of January 21, 1997, (a)
the Company has authorized capitalization consisting of 30,000,000 shares of
Common Stock, par value $.10 per share, (b) the Company has reserved for
issuance to employees, officers, directors or consultants approximately
1,900,000 shares of Common Stock, (c) there are issued and outstanding 9,642,557
shares of Common Stock, of which 300,000 are held in treasury, (d) the Company
has no other outstanding securities convertible into or exchangeable for its
Common Stock or any warrants, options or other rights to subscribe for or
purchase its Common Stock or any such convertible or exchangeable securities
(other than securities under the Company's Compensation Plans and other than the
Company's 5% Convertible Debentures due 2002) other than as described in the
documents filed with the SEC. All of the outstanding shares of Common Stock of
the Company have been duly and validly authorized and issued and are fully paid
and nonassessable, upon issuance of the Common Stock, the Common Stock will be
duly and validly issued, fully paid and nonassessable, and the holders of
outstanding Common Stock of the Company are not and shall not be entitled to
preemptive or other rights afforded by the Company or other rights afforded by
the Company to subscribe for the capital stock or other securities of the
Company as a result of the sale of the Common Stock to the Investor hereunder.
Section 5.5 Organization and Qualification. The Company is a
corporation duly incorporated and existing in good standing under the laws of
the State of Delaware and has the requisite corporate power to own its
properties and to carry on its business as now being conducted. The Company and
each subsidiary, if any, is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary, other than those in which the failure so to qualify would not have a
Material Adverse Effect.
Section 5.6 Authorization: Enforcement. (a) The Company has the
requisite corporate power and authority to enter into and perform this Agreement
and to issue the Common Stock, the Warrant and the Additional Warrant in
accordance with the terms hereof and thereof, (b) the execution, issuance and
delivery of this Agreement by the Company and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action and no further consent or authorization of the Company or its
Board of Directors or stockholders is required (other than such stockholder
approval as may be required by the standards imposed on companies listed on the
New York Stock Exchange or other Principal Market on which the Common Stock is
traded with respect to issuances by such companies of greater than 20% of such
companies' outstanding voting stock), (c) this Agreement has been duly executed
and delivered by the Company and constitutes valid and binding obligations of
the Company enforceable against the Company in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency, or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application and
(d) the Common Stock issuable in accordance with the terms of this Agreement or
upon exercise of the Warrant and the Additional Warrant will be duly and validly
issued, fully paid and nonassessable.
Section 5.7 Corporate Documents. The Company has furnished or made
available to the Investor true and correct copies of the Company's Certificate
of Incorporation, as amended and in effect on the date hereof (the
"Certificate"), and the Company's By-Laws, as amended and in effect on the date
hereof (the "By-Laws").
Section 5.8 No Conflicts. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, including without limitation the issuance of
Common Stock, the Warrant and the Additional Warrant do not and will not (a)
result in a violation of the Company's Certificate of Incorporation or By-Laws
or (b) except as otherwise disclosed in Section 5.16 herein, conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, or (c)
result in a violation of any federal, state, local or foreign law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or any of its subsidiaries or by
which any property or asset of the Company or any of its subsidiaries is bound
or affected (except for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect) nor is the Company otherwise in
violation of, conflict with or in default under any of the foregoing; provided
that, for purposes of the Company's representations and warranties as to
violations of foreign law, rule or regulation referenced in clause (iii), such
representations and warranties are made only to the best of the Company's
knowledge insofar as the execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby are or may be affected by the status of the Investor under
or pursuant to any such foreign law, rule or regulation). The business of the
Company is not being conducted in violation of any law, ordinance or regulation
of any governmental entity, except for possible violations which either singly
or in the aggregate do not and will not have a Material Adverse Effect. The
Company is not required under federal, state or local law, rule or regulation to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or issue and sell
the Common Stock or the Warrant and the Additional Warrants in accordance with
the terms hereof (other than any SEC, NASD or state securities filings which may
be required to be made by the Company subsequent to any Closing, and any
registration statement which may be filed pursuant hereto and other than any
shareholder approval required by the rules applicable to companies whose common
stock trades on the New York Stock Exchange or other Principal Market referenced
in Section 5.6); provided that, for purposes of the representation made in this
sentence, the Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Investor herein.
Section 5.9 SEC Documents. The Company has delivered or made available
to the Investor true and complete copies of the SEC Documents (including,
without limitation, proxy information and solicitation materials). The Company
has not provided to the Investor any information which, according to applicable
law, rule or regulation, should have been disclosed publicly prior to the date
hereof by the Company but which has not been so disclosed. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
rules and regulations of the SEC promulgated thereunder and other federal, state
and local laws, rules and regulations applicable to such SEC Documents, and none
of the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (a) as may be otherwise indicated in such financial
statements or the notes thereto or (b) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of operations
and cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).
Section 5.10 No Material Adverse Change. Since September 30, 1996, the
date through which the most recent quarterly report of the Company on Form 10-Q
has been prepared and filed with the SEC, a copy of which is included in the SEC
Documents, no Material Adverse Effect has occurred or exists with respect to the
Company or its subsidiaries, except as disclosed in the SEC Documents or except
as otherwise publicly disclosed in Company press releases.
Section 5.11 No Undisclosed Liabilities. The Company and its
subsidiaries have no liabilities or obligations not disclosed in the SEC
Documents or except as otherwise publicly disclosed in Company press releases,
other than those incurred in the ordinary course of the Company's or its
subsidiaries' respective businesses since September 30,1996 and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect on the Company and upon any of its subsidiaries taken as a whole.
Section 5.12 No Undisclosed Events or Circumstances. Since September
30, 1996, no event or circumstance has occurred or exists with respect to the
Company or its subsidiaries or their respective businesses, properties,
prospects, operations or financial condition, which, under applicable law, rule
or regulation, requires public disclosure or announcement prior to the date
hereof by the Company but which has not been disclosed in the SEC Documents or
otherwise publicly disclosed in Company press releases.
Section 5.13 No Integrated Offering. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, other than pursuant to this Agreement, under circumstances
that would require registration of the Common Stock under the Securities Act to
be issued under this Agreement.
Section 5.14 No Brokers. The Company has taken no action which would
give rise to any claim by any person for brokerage commissions, finder's fees or
similar payments by the Investor relating to this Agreement for the transactions
contemplated hereby.
Section 5.15 Litigation and Other Proceedings. Except as may be set
forth in the SEC Documents, there are no lawsuits or proceedings pending or to
the best knowledge of the Company threatened, against the Company, nor has the
Company received any written or oral notice of any such action, suit, proceeding
or investigation, which might have a Material Adverse Effect on the Company or
which might materially adversely affect the transactions contemplated by this
Agreement. Except as set forth in the SEC Documents no judgment, order, writ,
injunction or decree or award has been issued by or, so far as is known by the
Company, requested of any court, arbitrator or governmental agency which might
result in a Material Adverse Effect on the Company or which might materially
adversely affect the transactions contemplated by this Agreement.
Section 5.16 No Violation of Covenants. No event of default has
occurred and is continuing (or event which with lapse of time or notice or both
would constitute such an event) which has not otherwise been waived under any of
the revolving credit facilities or under any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument for money borrowed or any other
material agreement to which the Company or any of its subsidiaries is bound, or
to which any of the property or assets of the Company or any of its subsidiaries
is subject. The Company shall have fifteen (15) Trading Days after the end of a
fiscal quarter during which to cure or obtain the waiver of any default that has
occurred and is continuing during an Investment Period with respect to the
minimum Tangible Net Worth covenant under the terms of the Revolving Credit
Agreement, and the Investor hereby acknowledges that the Company shall not be
deemed to be in default under this Agreement for such period of fifteen (15)
Trading Days after the end of a fiscal quarter during which the Company cures
such default or obtains a waiver of such default.
Section 5.17 Effectiveness of SEC Filings. The SEC has not issued any
stop order or other order suspending the effectiveness of any registration
involving the securities of the Company or its subsidiaries.
ARTICLE VI
Covenants of the Company
Section 6.1 Registration Rights. The Registration Rights Agreement
shall remain in full force and effect and the Company shall comply in all
respects with the terms thereof.
Section 6.2 Reservation of Common Stock. As of the date hereof, the
Company will reserve in each Investment Period 750,000 shares of Common Stock,
and the Company shall continue to reserve and keep available at all times in
each Investment Period, free of preemptive rights, shares of Common Stock for
the purpose of enabling the Company to satisfy any obligation to issue shares of
its Common Stock incident to the Closings in such Investment Period and incident
to the exercise of the Warrant and the Additional Warrant issued hereunder; such
amount of shares of Common Stock to be reserved to be calculated based upon the
minimum Purchase Price therefore under the terms of this Agreement, and assuming
the full exercise of the Warrant and the Additional Warrant. The number of
shares so reserved from time to time, as theretofore increased or reduced as
hereinafter provided, may be reduced by the number of shares actually delivered
hereunder and the number of shares so reserved shall be increased to reflect (a)
potential increases in the Common Stock which the Company may thereafter be so
obligated to issue by reason of adjustments to the Purchase Price therefore and
the issuance of the Warrant and each Additional Warrant and (b) stock splits and
stock dividends and distributions.
Section 6.3 Listing of Common Stock. The Company hereby agrees to
maintain the listing of the Common Stock on a Principal Market, and as soon as
practicable to list the additional shares of Common Stock issuable under this
Agreement (including Common Stock issuable upon exercise of the Warrant and the
Additional Warrant); provided, however, that notwithstanding anything else in
this Agreement to the contrary, the Company shall have no obligation to list a
number of shares of Common Stock in excess of 19.9% of the number of shares of
Common Stock outstanding before the listing; provided further, that the
limitations in
this Section 6.3 on the Company's obligation to list its shares on a Principal
Market shall not affect the Company's obligations under Section 10.4(b). The
Company further agrees, if the Company applies to have the Common Stock traded
on any other Principal Market, it will include in such application the Common
Stock issuable under this Agreement (including Common Stock issuable upon
exercise of the Warrant and the Additional Warrant), and will take such other
action as is necessary or desirable to cause the Common Stock to be listed on
such other Principal Market as promptly as possible. The Investor shall have no
obligation to purchase Common Stock that is not listed on a Principal Market.
The Company shall undertake its best efforts to obtain the shareholder approval
referenced in Section 5.6 required for the issuance of Common Stock under this
Agreement within such time period as shall not at any time preclude the Investor
from providing an Optional Purchase Notice during the Optional Purchase Period,
or the Company from providing a Mandatory Purchase Notice or an Additional
Purchase Notice for the maximum Investment Amount during any Investment Period.
Section 6.4 Exchange Act Registration. The Company will cause its
Common Stock to continue to be registered under Section 12(g) or 12(b) of the
Exchange Act, will comply in all respects with its reporting and filing
obligations under the Exchange Act, and will not take any action or file any
document (whether or not permitted by the Exchange Act or the rules thereunder)
to terminate or suspend such registration or to terminate or suspend its
reporting and filing obligations under the Exchange Act. The Company will take
all action to continue the listing and trading of its Common Stock on the
Principal Market and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the NASD and the
Principal Market.
Section 6.5 Legends. The certificates evidencing the Common Stock to be
issued to the Investor at each Closing and upon the exercise of the Warrant and
the Additional Warrant (and otherwise as provided by Section 7.1) shall be free
of legends or stop transfer or other restrictions.
Section 6.6 Corporate Existence. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
Section 6.7 Additional SEC Documents. The Company will furnish to the
Investor, as and when the originals thereof are submitted to the SEC for filing,
copies of all SEC Documents so furnished or submitted to the SEC.
Section 6.8 "Blackout Period". The Company will immediately notify the
Investor upon the occurrence of any of the following events in respect of a
registration statement or related prospectus in respect of an offering of
securities required to be registered under this Agreement or the Registration
Rights Agreement: (a) receipt of any request for additional information by the
SEC or any other federal or state governmental authority during the period of
effectiveness of the registration statement for amendments or supplements to the
registration statement or related prospectus; (b) the issuance by the SEC or any
other federal or state governmental authority of any stop order suspending the
effectiveness of the registration statement or the initiation of any proceedings
for that purpose; (c) receipt of any notification with respect to the suspension
of the qualification or exemption from qualification of any of such registrable
securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; (d) the happening of any event which makes any
statement made in the registration statement or related prospectus or any
document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or which
requires the making of any changes in the registration statement, related
prospectus or documents so that, in the case of the registration statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (e) the Company's reasonable determination that a post-effective
amendment to the registration statement would be appropriate; and the Company
will promptly make available to the Investor any such supplement or amendment to
the related prospectus. The Investor shall not deliver to the Company any
Optional Purchase Notice, and the Company shall not deliver to the Investor any
Mandatory Purchase Notice or Additional Purchase Notice during the continuation
of any of the foregoing events.
Section 6.9 Rule 153 Prospectus Delivery. The Company shall cause
copies of the prospectus that is part of the Registration Statement to be
delivered to the Principal Market so that the Investor may meet the prospectus
delivery requirements imposed by Section 5(b)(2) of the Securities Act of 1933,
as amended, through compliance by the Company with Rule 153 thereunder.
ARTICLE VII
Legends and Delivery of Certificates, Investor Compliance and Investor Covenants
Section 7.1 Legends and Delivery of Certificates. Each of the Warrant
and the Additional Warrant and, unless otherwise provided below, the Common
Stock will bear the following legend (the "Legend"):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AS TO
THE SECURITIES UNDER THE SECURITIES ACT AND ANY APPLICABLE
STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS.
In the event shares of Common Stock are issued incident to a Closing or
upon exercise of the Warrant or the Additional Warrant in circumstances pursuant
to which shares of Common Stock are either required to bear the Legend or are
not to bear the Legend, such certificates (bearing or not bearing the Legend, as
appropriate) shall be issued and delivered to the Investor or as otherwise
directed by the Investor on the applicable Closing Date or within two Trading
Days of the surrender of the Warrant or Additional Warrant for exercise
(together with all other documentation required to be delivered to effect such
exercise), as applicable, in each case against payment therefor.
The Company shall cause the transfer agent for the Common Stock to
issue and deliver to the Investor or as otherwise directed by the Investor,
shares of Common Stock not bearing the
Legend, during the following periods and under the following circumstances and
without the need for any further advice or instruction or documentation to the
transfer agent by or from the Investor:
(a) At any time from and after the effective date of the
applicable registration statement: (i) incident to any Closing or the issuance
of any shares of Common Stock; (ii) incident to the exercise of the Warrant and
the Additional Warrant; and (iii) upon any surrender of one or more certificates
evidencing Common Stock and which bear the Legend, to the extent accompanied by
a notice requesting the issuance of new certificates free of the Legend to
replace those surrendered; provided that in connection with such event the
Investor confirms to the transfer agent that it intends to sell such Common
Stock to a third party which is not an affiliate of the Company or the Investor,
and the Investor agrees to redeliver such Common Stock to the transfer agent to
add the Legend in the event the Common Stock is not sold; and
(b) At any time from and after the Closing Date, upon any
surrender of one or more certificates evidencing Common Stock and which bear the
Legend, to the extent accompanied by a notice requesting the issuance of new
certificates free of the Legend to replace those surrendered and containing or
also accompanied by representations that (i) the then holder thereof is
permitted to dispose thereof pursuant to Rule 144(k) under the Securities Act,
(ii) such holder intends to effect the sale or other disposition of such Common
Stock whether or not pursuant to the Registration Statement, to a purchaser or
purchasers who will not be subject to the registration requirements of the
Securities Act or (iii) such holder is not then subject to such requirements.
Section 7.2 No Other Legend or Stock Transfer Restrictions. No Legend
has been or shall be placed on the share certificates representing the Common
Stock and no instructions or stop transfers or other restrictions on transfer
have been or shall be given to the Company's transfer agent with respect thereto
other than as expressly set forth in this Article VII.
Section 7.3 Investor's Compliance. Nothing in this Article VII shall
affect in any way the Investor' s obligations under any agreement to comply with
all applicable securities laws upon resale of the Common Stock.
Section 7.4 Covenants of the Investor.
(a) The Investor shall not make any offers or sales of the
Common Stock other than pursuant to a registration statement under the
Securities Act or pursuant to an exemption from the registration requirements
thereof. The Investor will comply with applicable prospectus delivery
requirements under the Securities Act; provided, that the Company complies to
the extent applicable with the mechanics for prospectus delivery set forth in
Rule 153(a) under the Securities Act.
(b) The Investor covenants and agrees that it will not,
directly or through any affiliate (i) create the lowest reported sales price of
the Common Stock on the Principal Market on any Trading Day or (ii) offer to
sell shares of Common Stock at a price lower than the then prevailing bid price
for the Common Stock on the Principal Market.
(c) The Investor shall limit its trading in shares of Common
Stock to trading on the Principal Market for the Common Stock for as long as the
Company maintains the listing
of its Common Stock on a Principal Market; provided, however, that the Investor
shall not be subject to the foregoing limitation if the Company does not
maintain the listing of its Common Stock on a Principal Market.
(d) The Investor covenants and agrees that it shall not retain
beneficial ownership of shares of Common Stock for the purpose of limiting the
Investor's obligation of purchase shares of Common Stock under this Agreement as
a result of the provisions of Section 2.1(c). The Investor further covenants and
agrees that it shall use its reasonable best efforts to sell shares of Common
Stock to the extent required such that the limitations of Section 2.1(c) shall
not prevent the Investor from acquiring shares of Common Stock pursuant to a
Mandatory Purchase Notice or Additional Purchase Notice.
ARTICLE VIII
Other Issuances of Common Stock
Section 8.1 Equity Offering Adjustment to Purchase Price.
(a) In the event that during the Optional Purchase Period or
during an Investment Period the Company makes an Equity Offering and an Optional
Purchase Notice or a Mandatory Purchase Notice (and Additional Purchase Notice
or Investor Incremental Purchase Notice, if applicable) has been delivered with
respect to the Optional Purchase Period or such Investment Period, then
notwithstanding anything herein to the contrary, the purchase price per share of
Common Stock for any Investment Amount made during the Optional Purchase Period
and such Investment Period prior to the consummation of the Equity Offering
shall be the lower of (a) the lowest effective purchase price per share of
Common Stock received by the Company in any such Equity Offering, and (b) the
price per share of Common Stock determined hereunder with respect to purchases
of Common Stock effected by the Investor (whether pursuant to an Optional
Purchase Notice, a Mandatory Purchase Notice, an Additional Purchase Notice or
an Investor Incremental Purchase Notice) during the Optional Purchase Period or
such Investment Period;
(b) Subsequent to consummation of the Equity Offering, the
Company's obligation to adjust the purchase price per share of Common Stock
pursuant to 8.1(a) during the remainder of the Optional Purchase Period or any
Investment Period shall terminate.
Section 8.2 Other Adjustments to Purchase Price and Floor Price. The
daily low trading price of the Common Stock for any Trading Day used to
calculate the Purchase Price and the Floor Price shall be adjusted
proportionally to reflect any stock splits, stock dividends, reclassifications,
combinations and similar transactions involving the Company's Common Stock.
ARTICLE IX
Choice of Law and Venue, Waiver of Jury Trial
Section 9.1 Choice of Law: Submission to Jurisdiction. THIS AGREEMENT
SHALL BE CONSTRUED UNDER THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF
LAW. The parties hereby agree that all actions or proceedings arising directly
or indirectly from or in connection with this Agreement shall, at the option of
either party, be litigated only in the United States District Court for the
Southern District of New York located in New York County, New York. The parties
consent to the jurisdiction and venue of the foregoing court and consent that
any process or notice of motion or other application to said court or a judge
thereof may be served inside or outside the State of New York or the Southern
District of New York by registered mail, return receipt requested, directed to
the party for which it is intended at its address set forth in this Agreement
(and service so made shall be deemed complete five (5) days after the same has
been posted as aforesaid) or by personal service or in such other manner as may
be permissible under the rules of said court. The parties hereto hereby
irrevocably waive any and all right to a trial by jury with respect to any legal
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby.
ARTICLE X
Assignment: Entire Agreement, Amendment: Termination
Section 10.1 Assignment. Neither this Agreement nor any rights of the
Investor or the Company hereunder may be assigned by either party to any other
person. Notwithstanding the foregoing, the Investor's rights and obligations
under this Agreement may be assigned at any time, in whole or in part, to (x)
any affiliate of the Investor without any prior written consent of the Company
or (y) to any other person or entity, upon the prior written consent of the
Company, which consent shall not to be unreasonably withheld (a "Permitted
Transferee"), and the rights and obligation of the Investor under this Agreement
shall inure to the benefit of, and be enforceable by and against, any such
Permitted Transferee.
Section 10.2 Entire Agreement, Amendment. This Agreement, the
Registration Rights Agreement, and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof, and no party shall be liable or
bound to any other party in any manner by any warranties, representations or
covenants except as specifically set forth in this Agreement or therein. Except
as expressly provided in this Agreement, neither this Agreement nor any term
hereof may be amended, waived, discharged or terminated other than by a written
instrument signed by the party against whom enforcement of any such amendment,
waiver, discharge or termination is sought.
Section 10.3 Publicity. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Investor
without its express written consent, unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement. Except as may be required by law, the Company and the Investor
shall consult with each other before issuing any press release or otherwise
making any public statements with respect to this Agreement and shall not issue
any such press release or make any such public statement prior to such
consultation.
Section 10.4 Termination.
(a) If any of the events listed in Section 2.6(a)(i) through
(a)(iv) occur and remain uncured for a period of either (x) twenty (20)
consecutive Trading Days or (y) ninety (90) Trading Days in the aggregate in any
365-day period, the Investor may elect, in its sole and
absolute discretion, to terminate this Agreement. The Investor may also
terminate this Agreement pursuant to the provisions of Section 2.6(b).
(b) In the event this Agreement (x) is terminated by the
Investor pursuant to Section 10.4(a) or Section 2.6(b), (y) is terminated by the
Company other than following a breach by the Investor of any material term or
provision of the Agreement, or (z) expires following the conclusion of the
period described in Section 1.8(d), prior to the Company having issued Common
Stock to the Investor under this Agreement for an aggregate Purchase Price at
least equal to the Minimum Offering Amount, the Company shall pay to the
Investor, within thirty (30) days of such termination, as liquidated damages an
amount in cash equal to $300,000 multiplied by a fraction the numerator of which
is equal to the difference between the Minimum Offering Amount and the aggregate
Purchase Price of Common Stock purchased under this Agreement prior to
termination and the denominator of which shall be the Minimum Offering Amount.
In the event the Investor shall have purchased Common Stock for an aggregate
Purchase Price of at least the Minimum Offering Amount prior to the date of
termination, the Investor shall not be entitled to any damages or other remedies
under this Section 10.4(b).
(c) On or before April 1, 1999, the Company may, in its sole
discretion and without being subject to the provisions of Section 10.4(b)
hereof, terminate the Investor's obligation to purchase any Investment Amount
for the remainder of the Commitment Period, provided, however, that the Company
shall have sold to the Investor the Minimum Offering Amount.
ARTICLE XI
Notices. Etc.; Cost and Expenses; Indemnification
Section 11.1 Notices. Etc. All notices, demands, requests, consents,
approvals or other communications required or permitted to be given hereunder or
which are given with respect to this Agreement shall be in writing and shall be
personally served or deposited in the mail, registered or certified, return
receipt requested, postage prepaid, or delivered by reputable air courier
service with charges prepaid, or transmitted by hand delivery, telegram, telex
or facsimile, addressed as set forth below, or to such other address as such
party shall have specified most recently by written notice: (a) if to the
Company, to: GRC International, Inc., 0000 Xxxxxxx Xxxx, Xxxxxx, XX 00000;
Attention: Chief Financial Officer and General Counsel, Facsimile No.: (703)
448-6890, with copies (which shall not constitute notice) to: Xxxxxx & Xxxxxx,
000 00xx Xx. X.X., Xxxxxxxxxx, X.X. 00000; Attention: Xxxxxx X. Xxxxxx, Esq. and
Xxxxxxx X. Xxxxx, Esq., Facsimile No.: (000) 000-0000; and (b) if to the
Investor, to Cripple Creek Securities, LLC, 00 Xxxx 00xx Xx., 00xx Xx., Xxx
Xxxx, X.X. 00000; Attention: Xxxxxx X. Xxxxxxx, Esq., Facsimile No.: (212)
698-0554. Notice shall be deemed given on the date of service or transmission if
personally served or transmitted by telegram, telex or facsimile. Notice
otherwise sent as provided herein shall be deemed given on the third business
day following the date mailed or on the second business day following delivery
of such notice by a reputable air courier service.
Section 11.2 Cost and Expenses. The Company shall be responsible for
the Investor's reasonable, actual and allocable costs and expenses (including
legal fees) incurred in entering into this Agreement in an amount not exceeding
$45,000, which amounts shall be paid within forty-five (45) days of the
Company's receipt of the applicable invoice or invoices as well as the
Investor's reasonable, actual and allocable costs and expenses (including legal
fees) incurred in connection with the performance of its initial due diligence
activities relating to the effectiveness of the Registration Statement in an
amount of up to $25,000. The Company shall also be responsible for any
reasonable, actual and allocable subsequent costs and expenses incurred by the
Investor in connection with matters set forth in Section 3.3 (including without
limitation legal fees and fees of advisors and representatives of the Investor)
in an amount not exceeding $7,500 with respect to the Optional Purchase Period
and each Investment Period, which amounts may be netted by the Investor against
the amount of any payment relating to the issuance of shares of Common Stock to
the Investor in connection with any Closing. In the event that with respect to
the conduct by the Investor of its due diligence activities in connection with
the effectiveness of the Registration Statement, the Optional Purchase Period or
any Investment Period, it incurs reasonable, actual and allocable costs and
expenses in excess of the amount for which the Company is responsible to
reimburse it, up to $5,000 of such excess costs and expenses may be carried
forward to be reimbursed by the Company (within the limitation set forth above)
in connection with the Optional Purchase Period, the first Investment Period or
the immediately succeeding Investment Period, as applicable.
Section 11.3 Securities Law Indemnification.
(a) Indemnification of Investor. The Company agrees to indemnify
and hold harmless the Investor and each person, if any, who controls the
Investor within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement of a
material fact or any alleged untrue statement of material fact contained in the
Registration Statement (or any amendment thereto), including any prospectus, or
in any offering circular or other document, as applicable, or the omission or
alleged omission therefrom of a material fact required to be stated therein or
necessary to make the statement therein not misleading or arising out of any
untrue statement or alleged untrue statement of a material fact contained in any
prospectus (or any amendment or supplement thereto), or in any offering circular
or other document, as applicable, or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, based upon any such untrue statement or omission,
or any such alleged untrue statement or omission; provided that (subject to
Section 11.3(d) below) any such settlement is effected with the written consent
of the Company; and
(iii) against any and all expenses whatsoever, as incurred
(including the fees and disbursements of counsel chosen by the Investor),
reasonably incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or omission,
to the extent that any such expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Company by the Investor expressly for use in the Registration Statement (or any
amendment thereto), including any prospectus (or any amendment or supplement
thereto), or in any offering circular or other document, as applicable.
(b) Indemnification of Company. The Investor agrees to
indemnify and hold harmless the Company its directors, each of its officers who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act against any and all loss, liability, claim, damage and expense
described in the indemnity contained in subsection (a) of this Section, as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto), including any prospectus (or any amendment or supplement
thereto), or in any offering circular or other document, as applicable, in
reliance upon and in conformity with written information furnished to the
Company by the Investor expressly for use in the Registration Statement (or any
amendment or supplement thereto) or in any offering circular or other document,
as applicable.
(c) Action against Parties; Notification. Each indemnified
party shall give notice as promptly as reasonably practicable to each
indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, but failure to so notify an indemnifying
party shall not relieve such indemnifying party from any liability hereunder to
the extent it is not materially prejudiced as a result thereof and in any event
shall not relieve it from any liability which it may have otherwise than on
account of his indemnity agreement. In the case of parties indemnified pursuant
to Section 11.3(a) above, counsel to the indemnified parties shall be selected
by the Investor, and in the case of parties indemnified pursuant to Section
11.3(b) above, counsel to the indemnified parties shall be selected by the
Company. An indemnifying party may participate at its own expense in the defense
of any such action; provided, however, that counsel to the indemnifying party
shall not (except with he consent of the indemnified party) also be counsel to
the indemnified party. In no event shall the indemnifying parties be liable for
fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnifies parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances. No
indemnifying party shall, without the prior written consent of the indemnified
parties, settle or compromise or consent to the entry or any judgment with
respect to any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever in
respect of which indemnification or contribution could be sought under this
Section or Section 11.4 hereof (whether or not the indemnified parties are
actual or potential parties thereto), unless such settlement, compromise or
consent (i) includes an unconditional release of each indemnifies part form all
liability arising out of such litigation, investigation proceeding or claim and
(ii) does not include a statement as to or an admission of fault, culpability or
a failure to act by or on behalf of an any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at
any time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for the fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 11.3(a)(ii) effected without its written consent
if (i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received
notice of the terms of such settlement at least 30 days prior to such settlement
being entered into and (iii) such indemnifying party shall not have reimbursed
such indemnified party in accordance with such request prior to the date of such
settlement.
Section 11.4 Contribution. If the indemnification provided for in
Section 11.3 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to herein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred (a) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Investor on the other hand from the offering of
the Common Stock pursuant to this Agreement or (b) if the allocation provided by
clause (a) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (a)
above but also the relative fault of the Company on the one hand and of the
Investor on the other hand in connection with the statements or omissions which
resulted in such losses, liabilities, claims, damages or expenses, as well as
any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Investor on the other hand in connection with the offering of the Common Stock
pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total proceeds from the offering of the Common Stock pursuant
to this Agreement received by the Company from the Investor and the total
proceeds received by the Investor upon the sale of such Common Stock bear to the
aggregate public offering price.
The relative fault of the Company on the one hand and the Investor on
the other hand shall be determined by reference to, among other things, whether
any such untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
Company or by the Investor and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Company and the Investor agree that it would not be just and
equitable if contribution pursuant to this Section 11.4 were determined on a
pro-rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section 11.4.
The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 11.4
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 11.4, the Investor shall
not be required to contribute any amount in excess of the amount by which the
total price at which the Common Stock purchased by it and resold to the public
exceeds the amount of any damages which the Investor has otherwise been required
to pay by reason of any such untrue or alleged untrue statement or omission or
alleged 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.
For purposes of this Section 11.4, each person, if any, who controls
the Investor within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act shall have the same rights to contribution as such
Investor, and each director of the Company, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act shall have the same rights to contribution as the Company.
Section 11.5 General Indemnification. Each party shall indemnify the
other against any loss, cost or damages (including reasonable attorney's fees
and expenses) incurred as a result of such parties' breach of any
representation, warranty, covenant or agreement in this Agreement.
ARTICLE XII
Miscellaneous
Section 12.1 Counterparts. This Agreement may be executed in any number
of counterparts, all of which together shall constitute one instrument.
Section 12.2 Survival: Severability. The representations, warranties,
covenants and agreements of the parties hereto shall survive each Closing
hereunder. The indemnity and contribution agreements contained in Sections 11.3
and 11.4 hereof shall remain operative and in full force and effect regardless
of (a) any termination of this Agreement or of the Commitment Period, (b) any
investigation made by or on behalf of any indemnified party or by or on behalf
of the Company, and (c) the consummation of the sale or successive resales of
the Common Stock. 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.
Section 12.3 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.
Section 12.4 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
shall be Bloomberg or any other reputable pricing service chosen by the Investor
and reasonably acceptable to the Company.
Section 12.5 Effectiveness of the Agreement. This Agreement shall be
effective as of the Effective Date provided the Company shall have delivered on
such date fully executed versions of the Warrant, the opinion(s) of counsel and
the Registration Rights Agreement and any other documents required to be
delivered pursuant to the terms of this Agreement and shall have agreed by such
date to the final form of Exhibits to this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof.
CRIPPLE CREEK SECURITIES, LLC GRC INTERNATIONAL, INC.
By: By:
--------------------------------- --------------------------------
Name: Name:
Title: Title:
