================================================================================
SECURED CONVERTIBLE NOTE PURCHASE AGREEMENT
among
Interiors, Inc.
and
Limeridge LLC
September 30, 1999
================================================================================
THE XXXXXXXXX LAW GROUP, P.C.
00 Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx, X.X. 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
SECURED CONVERTIBLE NOTE PURCHASE AGREEMENT
THIS SECURED CONVERTIBLE NOTE PURCHASE AGREEMENT, dated as of September
30, 1999 (the "Agreement"), among Limeridge LLC (hereinafter referred to as the
"Investor"), and Interiors, Inc., a corporation organized and existing under the
laws of the State of Delaware (Nasdaq Small Cap symbol "INTXA", the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investor,
and the Investors shall purchase up to $13,540,626 principal amount of Notes (as
defined below), and Warrants to purchase an aggregate of 1,000,000 Warrant
Shares, in exchange for the Cash Purchase Price (as defined below); and
WHEREAS, such investment will be made in reliance upon the provisions of
Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D") of the United
States Securities Act of 1933, as amended, and the regulations promulgated
thereunder (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 Shares" shall have that meaning set forth in
Section 2.4 below.
Section 1.2 "Bid Price" shall mean the closing bid price (as reported by
Bloomberg L.P.) of the Common Stock on the Principal Market.
Section 1.3 "Business Day" means any day except Saturday, Sunday and any
day that shall be a Federal legal holiday or a day on which banking institutions
in the State of New York are authorized or required by law or other government
actions to close.
Section 1.4 "Capital Shares" shall mean the Common Stock and any shares of
any other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of earnings and assets of the Company.
Section 1.5 "Capital Shares Equivalents" shall mean any securities,
rights, or obligations that are convertible into or exchangeable for, or giving
any right to subscribe for, any Capital Shares of the Company or any warrants,
options or other rights to subscribe for or purchase Capital Shares or any such
convertible or exchangeable securities.
Section 1.6 "Closing" shall mean the closing of the purchase and sale of
the Notes and Warrants pursuant to Article II below.
Section 1.7 "Closing Date" shall mean the date each of the conditions
precedent to Closing as set forth in Section 2.6 below, have been satisfied or
waived in writing, and a Closing occurs.
Section 1.8 "Collateral" shall have the definition as set forth in the
Security Agreement.
Section 1.9 "Common Stock" shall mean the Company's Class A Common Stock,
$0.001 par value per share.
Section 1.10 "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of (i) 150%
of the Underlying Shares calculated as of the Trading Day immediately preceding
the filing date of the Registration Statement, and (ii) 100% of the Warrant
Shares.
Section 1.11 "Escrow Agent" shall mean the law firm of The Xxxxxxxxx Law
Group, P.C., pursuant to the terms of the Escrow Agreement.
Section 1.12 "Escrow Agreement" shall mean the Escrow Agreement attached
hereto as Exhibit B.
Section 1.13 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.14 "Exchange Agreement" shall mean the Exchange Agreement of
even date herewith executed by the Company, Petals, Inc., and the Investors,
annexed hereto as Exhibit C.
Section 1.15 "Legend" shall have the meaning set forth in Article VIII
below.
Section 1.16 "Material Adverse Effect" shall mean any effect on the
business, operations, properties, prospects, or financial condition of the
Company and/or its subsidiaries that is material and adverse to the Company and
its subsidiaries and affiliates, taken as a whole, and/or any condition,
circumstance, or situation that would prohibit or otherwise in any material
respect interfere with the ability of the Company to enter into and perform any
of its obligations under this Agreement, the Escrow Agreement, the Security
Agreement, the Registration Rights Agreement, the Exchange Agreement, the Notes,
or Warrants in any material respect.
Section 1.17 "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.18 "Notes" shall mean the Secured Convertible Notes of the
Company to be issued on the Closing Date in the form annexed hereto as Exhibit
A.
2
Section 1.19 "Outstanding" when used with reference to shares of Common
Stock, preferred stock of the Company, or Capital Shares (collectively the
"Shares"), shall mean, at any date as of which the number of such Shares is to
be determined, all issued and outstanding Shares, and shall include all such
Shares issuable in respect of outstanding scrip or any certificates representing
fractional interests in such Shares; provided, however, that Outstanding shall
not mean any such Shares then directly or indirectly owned or held by or for the
account of the Company.
Section 1.20 "Person" shall mean an individual, a corporation, a
partnership, an association, a limited liability company, a trust or other
entity or organization, including a government or political subdivision or an
agency or instrumentality thereof.
Section 1.21 "Preferred Stock" shall mean the Company's Series C
Convertible Preferred Stock which is being exchanged by the Investor pursuant to
the Exchange Agreement.
Section 1.22 "Prime Rate" shall mean the rate of interest per annum
publicly announced from time to time by the principal New York City office of
the Chase Manhattan bank, or its successor, as its prime rate (which rate shall
change when and as such prime rate changes).
Section 1.23 "Principal Market" shall mean the Nasdaq National Market, the
Nasdaq Small Cap Market, the American Stock Exchange, or the New York Stock
Exchange, whichever is at the time the principal trading exchange or market for
the Common Stock.
Section 1.24 "Purchase Price" shall mean $13,540,626, of which (a) as set
forth in Section 2.2 below, an aggregate of $5,027,000 of such Purchase Price is
payable by the exchange of the Preferred Stock, and (b) $7,500,000 of the
Purchase Price is payable to the Company by bank cashiers' check or wire
transfer of immediately available funds (the "Cash Purchase Price"), and (c)
$1,013,626 of the Purchase Price is in the form of monies owed by the Company
due to the Investor as set forth on Schedule A annexed hereto.
Section 1.25 "Registrable Securities" shall have the definition set forth
in the Registration Rights Agreement.
Section 1.26 "Registration Rights Agreement" shall mean the agreement
regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company and the Investors on
the Subscription Date annexed hereto as Exhibit D.
Section 1.27 "Registration Statement" shall mean a registration statement
on Form S-3 (or other available form) for the registration of the resale by the
Investors of the Registrable Securities under the Securities Act.
Section 1.28 "Regulation D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.29 "SEC" shall mean the Securities and Exchange Commission.
3
Section 1.30 "Section 4(2)" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.31 "Securities" shall mean the Notes, Underlying Shares,
Warrants, Warrant Shares, and Additional Shares.
Section 1.32 "Securities Act" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.33 "Security Agreement" shall mean the agreement regarding the
Investors security interest in the Collateral, entered into between the Company,
Petals, Inc., and the Investors on the Subscription Date in the form annexed
hereto as Exhibit E.
Section 1.34 "Subscription Date" shall mean the date on which this
Agreement and all Exhibits and attachments hereto are executed and delivered by
the parties hereto.
Section 1.35 "Trading Day" shall mean any day during which the Principal
Market shall be open for business.
Section 1.36 "Underlying Shares" shall mean all shares of Common Stock or
other securities issued or issuable pursuant to conversion of the Notes.
Section 1.37 "Warrants" shall mean the Common Stock Purchase Warrants to
be issued on the Closing Date in the form annexed hereto as Exhibit F.
Section 1.38 "Warrant Shares" shall mean all shares of Common Stock or
other securities issued or issuable pursuant to the exercise of the Warrants.
ARTICLE II
Purchase and Sale of the Notes and Warrant
Section 2.1 Closing. On the Business Day that all of the conditions in
Section 2.5 have been satisfied and a Closing occurs, the Company will sell and
the Investor will buy, in reliance upon the representations and warranties
contained in this Agreement, and upon the terms and satisfaction of each of the
conditions set forth in Section 2.5 below, an aggregate of $13,540,626 principal
amount of Notes; and Warrants to purchase 1,000,000 Warrant Shares, in exchange
for the Purchase Price.
4
Section 2.2 Forms of Payment/Deliveries.
(a) On the Subscription Date, the Company shall send to the Escrow Agent
the original Notes and Warrants being issued hereby, and the Investor shall wire
transfer to the Escrow Agent, the Cash Purchase Price and shall deliver to the
Escrow Agent the original Preferred Stock to be held in escrow by the Escrow
Agent, pending satisfaction of all of the conditions to the Closing and the
deliveries by the Company specified herein.
(b) Against delivery by the Company to the Escrow Agent of certificates
evidencing up to an aggregate principal amount of Notes of $7,500,000, the
Investor shall irrevocably instruct and cause the Escrow Agent to pay the Cash
Purchase Price by wire transfer of immediately available funds from the Escrow
Agent to the Company net of all fees payable as per the terms hereunder. In
addition, on the Closing Date, upon the consummation of the exchange
contemplated by the Exchange Agreement, the Investor shall pay the remainder of
the Purchase Price by causing and instructing the Escrow Agent to deliver to the
Company the original Preferred Stock against delivery by the Company to the
Escrow Agent of certificates evidencing up to $6,040,626 principal amount of
Notes.
Section 2.3 Additional Shares. If a "blackout period" (which is defined as
any period in which the effectiveness of the Registration Statement is suspended
for a reason other than a suspension of the Registration Statement arising
because the Company possesses material non-public information) occurs at any
time after the first anniversary of the Closing Date, and the Bid Price on the
Trading Day immediately preceding such "blackout period" (the "Old Bid Price")
is greater than the Bid Price on the first Trading Day following such "blackout
period" (the "New Bid Price"), the Company shall issue to the Investor the
number of additional shares of Common Stock equal to the difference between (y)
the product of (i) the number of Underlying Shares and Warrant Shares held by
the Investor during such "blackout period" that are or were not otherwise freely
tradable and (ii) the Old Bid Price, divided by the New Bid Price and (z) the
number of Underlying Shares and Warrant Shares held by the Investor during such
blackout period that were not otherwise freely tradable during such blackout
period. In the event a "blackout period" lasts for more than 30 calendar days
then the Investor shall have the right to demand the Company to redeem the Notes
and Warrants pursuant to the redemption provision of the Notes and Warrants.
Section 2.4 Liquidated Damages. In addition to any other provisions for
liquidated damages in this Agreement or any Exhibit annexed hereto, if that the
Company does not deliver unlegended, freely tradable Common Stock in connection
with the sale of such Common Stock by the Investor as set forth in Article VIII
below within five Business Days of surrender by the Investor of the Common Stock
certificate in accordance with the terms and conditions set forth in Article
VIII below (such date of receipt is referred to as the "Receipt Date"), the
Company shall pay to the Investor, in immediately available funds, upon demand,
as liquidated damages for such failure and not as a penalty, for every day
thereafter for the first ten days, two percent of the product of (i) the number
of shares of Common Stock undelivered and (ii) the Bid Price on the Receipt
Date, and three percent of the product of (i) the number of shares of Common
Stock undelivered and (ii) the Bid Price on the Receipt Date, for every day
thereafter that the unlegended shares of Common Stock are not delivered, which
liquidated damages shall accrue
5
from the sixth Business Day after the Receipt Date. The parties hereto
acknowledge and agree that the sums payable pursuant to the Registration Rights
Agreement and as set forth above, and the obligation to issue Additional Shares
under Section 2.4 above, shall constitute liquidated damages and not penalties.
The parties further acknowledge that the amount of loss or damages likely to be
incurred in the event of a failure to deliver unlegended, freely tradable shares
of Common Stock cannot be precisely estimated, and the parties are sophisticated
business parties and have been represented by sophisticated and able legal and
financial counsel and negotiated this Agreement at arm's length. Notwithstanding
the above, in the event that the Company does not deliver unlegended Common
Stock in connection with the sale of such Common Stock by the Investor as set
forth in Article VIII below within five Business Days of the Receipt Date, the
Company shall also pay to the Investor, in immediately available funds, interest
(at the then current Prime Rate), based upon the product of (i) the number of
undelivered unlegended freely tradable shares, and (ii) the Bid Price of the
Common Stock on the Receipt Date, undelivered for every day thereafter that the
unlegended shares of Common Stock are not delivered. Any and all payments
required pursuant to this paragraph shall be payable only in cash, and any
payment hereunder shall not relieve the Company of its delivery obligations
under this Section or elsewhere in this Agreement or any Exhibit annexed hereto.
Section 2.5 Conditions to Closing. Upon the terms and satisfaction of each
of the following conditions, and in reliance upon the representations and
warranties contained in this Agreement, the Company will sell and the Investor
will buy the Notes and Warrants:
(A) Acceptance by the Investor of a satisfactory Secured Convertible
Note Purchase Agreement (including all Exhibits annexed hereto) and due
execution by all parties of this Agreement and the Exhibits annexed
hereto;
(B) Delivery into escrow by the Company of the original Notes, and
the original Warrants to be issued, as more fully set forth in the Escrow
Agreement;
(C) All representations and warranties of the Company contained
herein and in all Exhibits (and the representations and warranties of
Petals, Inc. contained in the Security Agreement) annexed hereto shall
remain true and correct in all material respects as of the Closing Date;
(D) The Investor shall have received an opinion of counsel
substantially in the form of Exhibit G annexed hereto;
(E) The Company shall have obtained all permits and qualifications
required by any state for the offer and sale of the Notes, and Warrants,
or shall have the availability of exemptions therefrom. At the Closing
Date, all laws and regulations to which the Company and the Investor are
subject shall legally permit the sale and issuance of the Notes and
Warrants;
(F) The Company and Petals, Inc. shall have executed the financing
statements and Security Agreement (as set forth in Section 4.37 below) and
authorized the Investor to file same with the proper state authorities in
the states of New York and Delaware giving notice of the Investor's
exclusive security interest in the Collateral;
6
(G) The Company shall have authorized the payment of fees out of the
escrowed proceeds pursuant to Section 12.7 below; and
(H) The Company shall have obtained consents for the Company to
participate in this transaction from any party necessary to complete this
transaction.
ARTICLE III
Representations and Warranties of the Investor
The Investor represents and warrants to the Company that:
Section 3.1 Intent. Without limiting its ability to resell the Securities
pursuant to an effective registration statement or an exemption from
registration, the Investor has no present arrangement (whether or not legally
binding) at any time to sell the Securities to or through any person or entity;
provided, however, that by making the representations herein, the Investor does
not agree to hold the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in accordance with
federal and state securities laws applicable to such disposition. Without
limiting its ability to resell the Securities, the Investor represents that the
Notes and Warrants are purchased for the Investor's own account, for investment
purposes only and not for distribution or resale to others. The Investor agrees
that it will not sell the Securities unless they are registered under the
Securities Act or unless an exemption from such registration is available.
Section 3.2 Accredited Investor/Investment Experience. The Investor is an
accredited investor (as defined in Rule 501 of Regulation D), and has such
experience in business and financial matters that it is capable of evaluating
the merits and risks of an investment in the Notes and Warrants. As of the
Closing Date, the Investors (i) has adequate means of providing for its current
need and possible personal contingencies, (ii) has no need for liquidity in this
investment, (iii) is able to bear the substantial economic risk of an investment
in the Notes and Warrant for an indefinite period, and (iv) can afford the
complete loss of its investment. The Investor recognizes the highly speculative
nature of this investment. The Investor acknowledges that it has carefully read
the SEC Documents and the terms and conditions of the Notes and Warrants and
fully understands the contents thereof.
Section 3.3 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. The decision to invest and the
execution and delivery of this Agreement by the Investor, the performance by the
Investor of its obligations hereunder and the consummation by the Investor of
the transactions contemplated hereby have been duly authorized and requires no
other proceedings on the part of the Investor. This Agreement has been duly
executed and delivered by the Investor and, assuming the due execution and
delivery hereof and acceptance thereof by the Company, will constitute the
legal,
7
valid and binding obligations of the Investor, enforceable against the Investor
in accordance with its terms.
Section 3.4 Not an Affiliate. The Investor is neither an officer, director
or "affiliate" (as that term is defined in Rule 405 of the Securities Act) of
the Company.
Section 3.5 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 hereby and thereby, and
compliance with the requirements thereof, will not (a) violate the
organizational documents of any of the Investor; (b) violate any law, rule,
regulation, order, writ, judgment, injunction, decree or award binding on any of
the Investor, or, to the knowledge of the Investor; (c) violate any provision of
any indenture, instrument or agreement to which the Investor is a party or are
subject, or by which the Investor or any of its assets is bound; (d) conflict
with or constitute a material default thereunder; (e) 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 (f) 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 3.6 Disclosure; Access to Information. The Investor has received
all documents, records, books and other information pertaining to Investor's
investment in the Company that have been requested by the Investor. The Investor
has had the opportunity to ask questions of, and receive answers from, the
Company.
Section 3.7 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 in
connection with the offer and sale of the Notes and Warrants.
Section 3.8 Exemption from Registration. The Investor acknowledges and
understands that the Notes and Warrant have not been registered under the
Securities Act by reason of an exemption under the provisions of the Securities
Act.
Section 3.9 No Legal, Tax or Investment Advice. The Investor understands
that nothing in this Agreement or any other materials presented to the Investor
in connection with the purchase and sale of the Notes and Warrants constitutes
legal, tax or investment advice. The Investor has relied on, and have consulted
with, such legal, tax and investment advisors as the Investor, in its sole
discretion, has deemed necessary or appropriate in connection with its purchase
of the Notes and Warrants.
Section 3.10 No Advertisements. The Investor is not purchasing the Notes
and Warrants as a result of, or subsequent to, any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media or broadcast over television or radio, or presented at any seminar or
meeting.
8
ARTICLE IV
Representations and Warranties of the Company
The Company represents and warrants that:
Section 4.1 Organization of the Company. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of
Delaware and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted except as described in the SEC
Documents. The Company 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 (individually or in the aggregate) in which the failure so to
qualify would not reasonably be expected to have a Material Adverse Effect. The
Company is not in violation of any material terms of its Articles of
Incorporation (as defined below) or Bylaws (as defined below).
Section 4.2 Authority. (i) The Company has the requisite corporate power
and authority to enter into and perform its obligations under this Agreement,
and all Exhibits annexed hereto, and to issue the Securities, (ii) the
execution, issuance and delivery of this Agreement, and all Exhibits annexed
hereto by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action and no further consent or authorization of the Company, its
shareholders, or its Board of Directors is necessary, and (iii) this Agreement,
and all Exhibits annexed hereto, have been duly executed and delivered by the
Company and constitute valid and binding obligations of the Company enforceable
against the Company in accordance with their 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. Upon their
issuance and delivery pursuant to this Agreement, the Securities will be validly
issued, fully paid and nonassessable, and will be free of any liens or
encumbrances other than those created hereunder or by the actions of the
Investor; provided, however, that the Securities are subject to restrictions on
transfer under state and/or federal securities laws. The issuance and sale of
the Securities will not give rise to any preemptive right or right of first
refusal or right of participation on behalf of any person other than the
Investor pursuant to the terms of this Agreement.
Section 4.3 Capitalization. As of September 27, 1999, the authorized
capital stock of the Company consists of 60,000,000 shares of Class A Common
Stock, $0.001 par value, of which 31,378,067 shares of Class A Common Stock are
outstanding, 2,500,000 shares of Class B Common Stock, of which 2,445,000 shares
of Class B Common Stock are outstanding, and 5,300,000 shares of preferred
stock, of which 1,002,907 of Series A Preferred Stock are outstanding, 200,000
shares of Series B Preferred Stock are outstanding, and 6,527 shares of Series C
Preferred Stock are outstanding. All of the outstanding shares of the Company's
capital stock have been duly and validly authorized and issued and are fully
paid and nonassessable. No shares of Common Stock or preferred stock of the
Company are entitled to preemptive or similar rights. Except as disclosed in the
SEC Documents or on Schedule 4.3 annexed hereto, there are no outstanding
options, warrants, rights to subscribe to, calls or commitments of any character
9
whatsoever relating to, or, except as a result of the purchase and sale of the
Notes and Warrants, securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments, understandings, or
arrangements by which the Company or any subsidiary is or may become bound to
issue additional shares of Common Stock or securities or rights convertible or
exchangeable into shares of Common Stock. Except as disclosed in the SEC
Documents or on Schedule 4.3 annexed hereto, and to the knowledge of the
Company, no Person or group of Persons beneficially owns (as determined pursuant
to Rule 13d-3 promulgated under the Exchange Act) or has the right to acquire by
agreement with or by obligation binding upon the Company beneficial ownership of
in excess of five percent of the Common Stock.
Section 4.4 Common Stock. The Company has registered its Common Stock
pursuant to Section 12(g) of the Exchange Act and is in full compliance with all
reporting requirements of the Exchange Act, and such Common Stock is currently
listed or quoted, and trades, on the Nasdaq Small Cap Stock Market, and the
Company is in full compliance with the rules and regulations of the Nasdaq Small
Cap Stock Market.
Section 4.5 SEC Documents. The Company has delivered or made available to
the Investor true and complete copies of the SEC Documents filed by the Company
with the SEC during the twelve months immediately preceding the date hereof. The
Company has not provided to the Investor any information that, 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. The SEC
Documents comply in all material respects with the requirements of the
Securities Act and/or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder and none of the SEC Documents
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in 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 (i) as may be
otherwise indicated in such financial statements or the notes thereto or (ii) in
the case of unaudited interim statements, to the extent they may 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). The Company has filed a Form 12b-25 on June 30, 1999, relating to
its Form 10-K for the year ended June 30, 1999 and agrees that it shall file the
aforementioned Form 10-K in a timely manner as set forth on the Form 12b-25.
Section 4.6 Valid Issuances. Neither the issuance of the Securities, nor
the Company's performance of its obligations under this Agreement, and all
Exhibits annexed hereto, will (i) result in the creation or imposition by the
Company of any liens, charges, claims or other encumbrances upon the Securities,
issued or issuable hereunder, or any of the assets of the Company other than the
security interest granted under the Security Agreement, or (ii) entitle the
holders of Outstanding
10
Capital Shares to preemptive or other rights to subscribe to or acquire any
Capital Shares or other securities of the Company.
Section 4.7 No General Solicitation or Advertising 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 (i) has conducted or will conduct
any general solicitation (as that term is used in Rule 502(c) of Regulation D)
or general advertising in connection with the offer and sale of the Notes and
Warrants, or (ii) has 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 Notes and Warrants under the Securities Act, except as
contemplated by this Agreement.
Section 4.8 Corporate Documents. The Company has furnished or made
available to the Investor true and correct copies of the Company's Articles of
incorporation, as amended and in effect on the date hereof (the "Articles of
Incorporation"), and the Company's bylaws, as amended and in effect on the date
hereof (the "ByLaws"). The Articles of Incorporation and ByLaws are in full
force and effect as of the Closing Date, without change or amendment.
Section 4.9 No Conflicts. The execution, delivery and performance of this
Agreement (including all Exhibits annexed hereto) by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby,
including without limitation the issuance of the Securities, do not and will not
(i) result in a violation of the Articles of Incorporation or ByLaws or (ii)
conflict with, or constitute a material default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, patent, patent license, indenture, instrument or any "lock-up" or
similar provision of any underwriting or similar agreement to which the Company
is a party, or (iii) result in a violation of any federal, state or local law,
rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations) applicable to the Company or by which any
property or asset of the Company is bound or affected, nor is the Company
otherwise in violation of, in conflict with, or in default under, any of the
foregoing except as would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect. 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 that either singly or in the
aggregate would not reasonably be expected to have a Material Adverse Effect.
Except for the filing of a Form D within 15 days after the Closing Date (which
the Company agrees it will file), and such other form(s) required by "blue sky"
laws, 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 Note, or Warrant, in accordance with the terms hereof; 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 4.10 No Material Adverse Change. Since January 1, 1999, no
Material Adverse Effect has occurred or exists with respect to the Company,
except as disclosed in the SEC Documents, or as publicly announced.
11
Section 4.11 No Undisclosed Liabilities. The Company has no liabilities or
obligations, known or unknown, absolute or otherwise (individually or in the
aggregate), which are not disclosed in the SEC Documents or otherwise publicly
announced, or as incurred in the ordinary course of the Company's businesses
since January 1, 1999, or which, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect.
Section 4.12 No Undisclosed Events or Circumstances. Since January 1,
1999, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company, but which
has not been so publicly announced or disclosed in the SEC Documents.
Section 4.13 Litigation and Other Proceedings. Except as set forth in the
SEC Documents, there are no lawsuits or proceedings pending or to the 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 would reasonably be expected to have a Material Adverse Effect. 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 would be reasonably expected
to result in a Material Adverse Effect.
Section 4.14 Accuracy of Reports and Information. The Company is in
compliance, to the extent applicable, with all reporting obligations under
either Section 12(b), 12(g) or 15(d) of the Exchange Act. The Company has
complied in all material respects and to the extent applicable with all
reporting obligations, under either Section 13(a) or 15(d) of the Exchange Act
for a period of at least twelve (12) months immediately preceding the Closing
Date.
Section 4.15 Acknowledgment of Dilution. The Company is aware and
acknowledges that issuance of Common Stock upon the conversion of the Notes
and/or exercise of the Warrants, may result in dilution of the outstanding
shares of Common Stock, which dilution may be substantial under certain market
conditions. The Company further acknowledges that its obligation to issue
Additional Shares in accordance with the terms herein, Underlying Shares in
accordance with the Notes, and Warrant Shares in accordance with the Warrant is
unconditional and absolute regardless of the effect of any such dilution.
Section 4.16 Employee Relations. The Company is not involved in any labor
dispute, nor, to the knowledge of the Company, is any such dispute threatened
which could reasonably be expected to have a Material Adverse Effect. None of
the Company's employees is a member of a union and the Company believes that its
relations with its employees are good.
Section 4.17 Insurance. The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the businesses
in which the Company is engaged. The Company has no notice to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires, or obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have a Material
Adverse Effect.
12
Section 4.18 Board Approval. The Board of Directors of the Company has
concluded, in its good faith business judgment that the issuances of the
securities of the Company in connection with this Agreement are in the best
interests of the Company.
Section 4.19 Integration. The Company, any of its affiliates, or any
person acting on its or their behalf has not, shall not, and shall use its best
efforts to ensure that no affiliate shall, directly or indirectly, sell, offer
for sale or solicit offers to buy or otherwise negotiate in respect of any
security of the Company that would be integrated with the offer or sale of the
Notes and Warrants in a manner that would require the registration under the
Securities Act of the issue, offer or sale of the Notes and Warrants to the
Investor. The Notes and Warrants are being offered and sold pursuant to the
terms hereunder, are not being offered and sold as part of a previously
commenced private placement of securities.
Section 4.20 Patents and Trademarks. The Company has, or has rights to
use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses, trade secrets and other
intellectual property rights which are necessary for use in connection with its
business or which the failure to so have would have a Material Adverse Effect
(collectively, the "Intellectual Property Rights"). To the best knowledge of the
Company, none of the Intellectual Property Rights infringe on any rights of any
other Person, and the Company either owns or has duly licensed or otherwise
acquired all necessary rights with respect to the Intellectual Property Rights.
The Company has not received any notice from any third party of any claim of
infringement by the Company of any of the Intellectual Property Rights, and has
no reason to believe there is any basis for any such claim. To the best
knowledge of the Company, there is no existing infringement by another Person on
any of the Intellectual Property Rights.
Section 4.21 Use of Proceeds. The net proceeds are to be used for general
working capital and not for the repayment of any judgment.
Section 4.22 Subsidiaries. Except as disclosed in the SEC Documents, the
Company does not presently own or control, directly or indirectly, any interest
in any other corporation, partnership, association or other business entity.
Petals, Inc. ("Petals") is a wholly owned subsidiary of the Company. The Company
is the beneficial owner all of the outstanding shares of Petals (a total of 411
shares of Petals common stock). Petals is authorized to, and has the power to
enter into, and perform its obligations as set forth in this Agreement and all
Exhibits annexed hereto.
Section 4.23 No Private Placements. Except as disclosed in the SEC
Documents and in Schedule 4.3 annexed hereto, the Company has not conducted a
private placement of its Common Stock or of any debt or equity instrument
convertible into Common Stock within one year prior to the Closing Date. Except
for the transactions contemplated hereby, there are no outstanding securities
issued by the Company that are entitled to registration rights under the
Securities Act. Except as disclosed in the SEC Documents, there are no
outstanding securities issued by the Company that are directly or indirectly
convertible into, exercisable into, or exchangeable for, shares of Common Stock,
that have anti-dilution or similar rights that would be affected by the issuance
of the Securities.
13
Section 4.24 Permits; Compliance. The Company and each of its subsidiaries
is in possession of and operating in compliance with all franchises, grants,
authorizations, licenses, permits, easements, variances, exemptions, consents,
certificates, approvals and orders necessary to own, lease and operate its
properties and to carry on its business as it is now being conducted
(collectively, the "Company Permits") all of which are valid and in full force
and effect, and there is no action pending or, to the knowledge of the Company,
threatened regarding the suspension or cancellation of any of the Company
Permits except for such Company Permits, the failure of which to possess, or the
cancellation, or suspension of which, would not, individually or in the
aggregate, have a Material Adverse Effect. To the Company's knowledge, neither
the Company nor any of its subsidiaries is in material conflict with, or in
material default or material violation of, any of the Company Permits. Since
January 1, 1999 neither the Company nor any of its subsidiaries has received any
notification with respect to possible material conflicts, material defaults or
material violations of applicable laws.
Section 4.25 Taxes. Except where non-compliance would not have a Material
Adverse Effect, all federal, state, city and other tax returns, reports and
declarations required to be filed by or on behalf of the Company have been filed
and such returns are complete and accurate and disclose all taxes (whether based
upon income, operations, purchases, sales, payroll, licenses, compensation,
business, capital, properties or assets or otherwise) required to be paid in the
periods covered thereby.
Section 4.26 No Bankruptcy. The Company is aware of no facts or claims
against it that would, and the Company has no present intention to, liquidate
the assets of the Company and/or seek bankruptcy protection either voluntarily
or involuntarily.
Section 4.27 No Default. Except where non-compliance would not have a
Material Adverse Effect, the Company is not in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust or other material instrument
or agreement to which it is a party or by which it is or its property is bound.
Section 4.28 Absence of Events of Default. Except as set forth in the SEC
Documents and this Agreement, no Event of Default, as defined in any agreement
to which the Company is a party, and no event which, with the giving of notice
or the passage of time or both, would become an Event of Default (as so
defined), has occurred and is continuing, which would have a Material Adverse
Effect.
Section 4.29 Governmental Consent, etc. Except for the filing of the Form
D and any state securities filings, no consent, approval or authorization of or
designation, declaration or filing with any governmental authority on the part
of the Company is required in connection with the valid execution and delivery
of this Agreement, or the offer, sale or issuance of the Securities, or the
consummation of any other transaction contemplated hereby.
Section 4.30 Intellectual Property Rights. Except as disclosed in the SEC
Documents, the Company has sufficient trademarks, trade names, patent rights,
copyrights and licenses to conduct its business. To the Company's knowledge,
neither the Company nor its products is
14
infringing or will infringe any trademark, trade name, patent right, copyright,
license, trade secret or other similar right of others currently in existence;
and there is no claim being made against the Company regarding any trademark,
trade name, patent, copyright, license, trade secret or other intellectual
property right which could have a Material Adverse Effect.
Section 4.31 Material Contracts. Except as set forth in the SEC Documents,
the agreements to which the Company is a party described in the SEC Documents
are valid agreements, in full force and effect the Company is not in material
breach or material default (with or without notice or lapse of time, or both)
under any of such agreements and, to the Company's knowledge, the other
contracting party or parties thereto are not in material breach or material
default (with or without notice or lapse of time, or both) under any of such
agreements.
Section 4.32 Title to Assets. Except as set forth in SEC Documents, the
Company has good and marketable title to all properties and material assets
described in the SEC Documents as owned by it, free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest other than
such as are not material to the business of the Company.
Section 4.33 Full Disclosure. There is no fact known to the Company (other
than general economic conditions known to the public generally) that has not
been publicly disclosed by the Company or disclosed in writing to the Investor
which could reasonably be expected to have a Material Adverse Effect, or could
reasonably be expected to materially and adversely affect the ability of the
Company to perform its obligations pursuant to this Agreement.
Section 4.34 Security Interest. The Company agrees to cause Petals to give
the Investor a security interest on the Collateral during the time that any
portion of the Notes remains outstanding. The Company represents and warrants
that as of the Closing Date there are no liens, encumbrances, claims or security
interests on the Collateral, other than the security interest given to the
Investor pursuant to this Agreement. The Company hereby authorizes the Investor
to file a UCC-1 Financing Statement on the Collateral in favor of the Investor.
The Company agrees that it will not, and will not cause Petals to, encumber the
Collateral in any way during the time the Notes remain outstanding.
ARTICLE V
Covenants of the Investor
Section 5.1 4.99% Limitation. The number of shares of Common Stock which
may be acquired by the Investor pursuant to the terms of this Agreement shall
not exceed the number of such shares which, when aggregated with all other
shares of Common Stock then owned by the Investor, would result in the Investor
owning more than 4.99% of the then issued and outstanding Common Stock at any
one time. The preceding sentence shall not interfere with the Investor's right
to convert any portion of the Notes and/or exercise the Warrant over time which
in the aggregate totals more than 4.99% of the then outstanding shares of Common
Stock so long as the Investor owns more than 4.99% of the then outstanding
Common Stock at any given time.
15
ARTICLE VI
Covenants of the Company
Section 6.1 Registration Rights. The Company shall cause the Registration
Rights Agreement to remain in full force and effect so long as any Registrable
Securities remain outstanding and the Company shall comply in all material
respects with the terms thereof.
Section 6.2 Reservation of Common Stock. As of the date hereof, the
Company has authorized and reserved and the Company shall continue to reserve
and keep available at all times, free of preemptive rights, no less than 150% of
the Underlying Shares assuming conversion of the full principal amount of Notes
on the Trading Day immediately preceding the Closing Date, plus 100% of the
Warrant Shares for the purpose of enabling the Company to satisfy any obligation
to issue the Underlying Shares and Warrant Shares; such number of shares of
Common Stock to be reserved shall be calculated based upon the Conversion Price
and Exercise Price under the terms of this Agreement, the Notes and Warrants on
the Trading Day immediately preceding the Closing Date. The number of shares so
reserved shall be increased to reflect potential decreases in the Common Stock
that the Company may thereafter be so obligated to issue by reason of
adjustments to the Conversion Price and/or Exercise Price as set forth in the
Notes and Warrants, or in the event of a reduction of the Bid Price.
Section 6.3 Listing of Common Stock. The Company shall (a) not later than
the 30th calendar day following the Closing Date prepare and file with the
Principal Market (as well as any other national securities exchange, market or
trading facility on which the Common Stock is then listed) an additional shares
listing application covering at least the sum of (i) 150% the number of
Underlying Shares as would be issuable upon a conversion of (and as payment of
dividends in respect of) the full principal amount of the Notes, assuming such
conversion occurred on the Closing Date, and (ii) the Warrant Shares issuable
upon exercise in full of the Warrants, (b) take all steps necessary to cause
such shares to be approved for listing on the Principal Market (as well as on
any other national securities exchange, market or trading facility on which the
Common Stock is then listed) as soon as possible thereafter, and (c) provide to
the Investor evidence of such listing, and the Company shall maintain the
listing of its Common Stock on such exchange or market for so long as the
Securities is owned by the Investor. In addition, if at any time the number of
shares of Common Stock issuable on conversion of all then outstanding principal
amount of Notes, and/or upon exercise in full of the Warrant is greater than the
number of shares of Common Stock theretofore listed with the Principal Market
(and any such other national securities exchange, market or trading facility),
the Company shall promptly take such action (including the actions described in
the preceding sentence), if required pursuant to the rules and regulations of
the Principal Market, to file an additional shares listing application with the
Principal Market (and any such other national securities exchange, market or
trading facility) covering at least a number of shares equal to the sum of (x)
150% of the number of Underlying Shares as would then be issuable upon a
conversion in full of the Notes, and (y) the number of Warrant Shares as would
be issuable upon exercise in full of the Warrants. The Company warrants that it
(i) has not received any notice, oral or written, affecting it's continued
listing on the Nasdaq Small Cap Market, and (ii) is in full compliance with the
requirements for continued listing on the Nasdaq Small Cap Market. The Company
will take no action, which would adversely impact its continued listing or the
eligibility of the Company for such listing. The Company will comply with the
listing and trading requirements of its Common Stock on the Nasdaq Small Cap
Market (and of any then Principal Market) and will comply in all respects
16
with the Company's reporting, filing and other obligations under the bylaws or
rules of the Principal Market. If the Company receives notification from Nasdaq
or any other entity stating that the Company is not in compliance with the
listing qualifications of such Principal Market, the Company will immediately
thereafter give written notice to the Investor and take all action necessary to
bring the Company into compliance with all applicable listing standards of the
Principal Market.
Section 6.4 Exchange Act Registration. The Company will maintain the
registration of its Common Stock under Section 12 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 Exchange Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under said Act.
Section 6.5 Legends. The securities to be sold by the Company pursuant to
this Agreement shall be free of restrictive legends, except as set forth in
Article VIII.
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 Notice of Certain Events Affecting Registration. 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 Registrable Securities: (i) 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;
(ii) 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; (iii) receipt
of any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that 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
that 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 (v) the Company's reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate. The Company will
promptly make available to the Investor any such supplement or amendment to the
related prospectus.
Section 6.8 Consolidation; Merger. For so long as any of the Securities
are owned by the Investor, the Company shall not, at any time after the date
hereof, effect any merger or consolidation of the Company with or into, or a
transfer of all or substantially all of the assets of
17
the Company to, another entity (a "Consolidation Event") unless the resulting
successor or acquiring entity (if not the Company) assumes by written instrument
the obligation to deliver to the Investor such shares of stock and/or securities
as the Investor is entitled to receive pursuant to this Agreement, and all
Exhibits annexed hereto.
Section 6.9 Issuance of Underlying Shares and Warrant Shares. The issuance
of the Warrant Shares and the Underlying Shares pursuant to exercise of the
Warrants and the conversion of the Notes, shall be made in accordance with the
provisions and requirements of Section 4(2) of the Securities Act or Regulation
D and any applicable state securities law.
Section 6.10 Legal Opinion. The Company's independent counsel shall
deliver to the Investor upon execution of this Agreement, an opinion in the form
of Exhibit G. The Company will obtain for the Investor, at the Company's
expense, any and all opinions of counsel which may be reasonably required in
order to convert the Notes and/or exercise the Warrants, including, but not
limited to, obtaining for the Investor an opinion of counsel, subject only to
receipt of a notice of conversion (the "Notice of Conversion") in the form of
Exhibit H, and/or subject only to a receipt of a notice of exercise in the form
annexed to the Warrant, directing the Company's transfer agent to remove the
legend from the certificate.
Section 6.11 Restrictions on Future Financing. The Company agrees that it
shall not enter into any financing transactions which provide for (i) the
issuance of shares of Common Stock that are freely tradable by such holder prior
to the first anniversary of the Closing Date, or (ii) any securities that are
convertible into Common Stock prior to the first anniversary of the Closing
Date.
Section 6.12 Exercise of Warrants. The Company will permit the Investor to
exercise its right to purchase shares of Common Stock upon exercise of the
Warrants as is set forth in the Warrants.
Section 6.13 Conversion of Notes. The Company will permit the Investor to
exercise its right to convert the Notes by telecopying an executed and completed
Notice of Conversion to the Company.
Section 6.14 Increase in Authorized Shares. At such time as the Company
would be, if a Notice of Conversion or notice of exercise (as the case may be)
were to be delivered on such date, precluded from (a) converting in full all of
the Notes that remain unconverted at such date (and paying any accrued but
unpaid dividends in respect thereof in shares of Common Stock), or (b) honoring
the exercise in full of the Warrant, due to the unavailability of a sufficient
number of shares of authorized but unissued or re-acquired Common Stock, the
Board of Directors of the Company shall promptly (and in any case within 75
calendar days from such date) hold a shareholders meeting in which the
shareholders would vote for authorization to amend the Articles of Incorporation
to increase the number of shares of Common Stock which the Company is authorized
to issue to at least a number of shares equal to the sum of (i) all shares of
Common Stock then outstanding, (ii) the number of shares of Common Stock
issuable on account of all outstanding warrants, options and convertible
securities (other than the Notes and Warrants) and on account of all shares
reserved under any stock option, stock purchase, warrant or similar plan, (iii)
150% of the number of Underlying Shares as would then be issuable upon a
conversion in
18
full of the then outstanding Notes and as payment of all future dividends
thereon in shares of Common Stock in accordance with the terms of this Agreement
and the Notes, and (iv) such number of Warrant Shares as would then be issuable
upon the exercise in full of the Warrant. In connection therewith, the Board of
Directors shall (x) adopt proper resolutions authorizing such increase, (y)
recommend to its shareholders, and otherwise use its best efforts to promptly
and duly obtain shareholder approval to carry out such resolutions and (z)
within five Business Days of obtaining such shareholder authorization, file an
appropriate amendment to the Articles of Incorporation to evidence such
increase. The foregoing shall not relieve the Company from any claim for damages
that the Investor may have against the Company as a result of the Company not
having a sufficient number of authorized shares of Common Stock to satisfy its
obligations under this Agreement or any Exhibit annexed hereto.
Section 6.15 Notice of Breaches. Each of the Company on the one hand, and
the Investor on the other, shall give prompt written notice to the other of any
breach by it of any representation, covenant, warranty or other agreement
contained in this Agreement or any Exhibit annexed hereto, as well as any events
or occurrences arising after the date hereof, which would reasonably be likely
to cause any representation, covenant, or warranty or other agreement of such
party, as the case may be, contained in this Agreement or any Exhibit annexed
hereto, to be incorrect or breached as of such Closing Date. However, no
disclosure by either party pursuant to this Section shall be deemed to cure any
breach of any representation, warranty or other agreement contained in this
Agreement or any Exhibit annexed hereto. Notwithstanding the generality of the
foregoing, the Company shall promptly notify the Investor of any notice or claim
(written or oral) that it receives from any lender of the Company to the effect
that the consummation of the transactions contemplated by this Agreement or any
Exhibit annexed hereto, violates or would violate any written agreement or
understanding between such lender and the Company, and the Company shall
promptly furnish by facsimile to the Investor a copy of any written statement in
support of or relating to such claim or notice.
Section 6.16 Transfer of Intellectual Property Rights. Except in the
ordinary course of the Company's business or in connection with the sale of all
or substantially all of the assets of the Company, the Company shall not
transfer, sell or otherwise dispose of, any Intellectual Property Rights, or
allow the Intellectual Property Rights to become subject to any Liens, or fail
to renew such Intellectual Property Rights (if renewable and would otherwise
expire); provided, however, the Company may license the Intellectual Property
Rights.
Section 6.17 Notices. The Company agrees to provide all holders of Notes
and Warrants with copies of all notices and information, including without
limitation notices and proxy statements in connection with any meetings, that
are provided to the holders of shares of Common Stock, contemporaneously with
the delivery of such notices or information to such Common Stock holders.
Section 6.18 Questions/Answers. The Company shall provide the Investor
with the opportunity to ask additional questions of, and receive answers (all of
which information shall be limited to information in the public domain) from the
Company concerning the Company during the period that the Investor own the Notes
and/or Warrants.
19
Section 6.19 Rule 144 Compliance. The Company covenants and agrees that
for so long as any of the Common Stock issuable upon conversion of the Notes
remain outstanding and continue to be "restricted securities" within the meaning
of Rule 144 under the Act, the Company shall cooperate in order to permit
resales of the Underlying Shares pursuant to Rule 144 under the Act. The Company
shall provide the Company's transfer agent any and all papers necessary to
complete the transfer under Rule 144, including, but not limited to, opinions of
counsel to the Company's transfer agent, and the Company shall continue to file
all material required to be filed pursuant to Sections 13(a) or 15(d) of the
1934 Act.
Section 6.20 Issuance Limitation. The aggregate number of shares of Common
Stock which may be acquired by the Investor upon conversion of all of Notes and
upon exercise of all of the Warrants, shall not equal or exceed nineteen and
nine tenths (19.9%) percent of the aggregate number of issued and outstanding
shares of Common Stock, Class B Common Stock or other Securities of the Company
having voting power as at the Closing Date (the "Maximum Underlying Shares").
Until such time as the Notes and Warrants issued under this Agreement shall have
been either converted or redeemed pursuant, and the Warrants shall have either
been exercised or shall have expired, the Investor may not convert his or its
Note and/or exercise his or its Warrant into an aggregate number of Underlying
Shares and Warrant Shares which shall exceed the product of multiplying (a) a
fraction, the numerator of which shall be the original principal amount of this
Note and the denominator of which shall be $13,540,626, by (b) the aggregate
number of Maximum Underlying Shares. In lieu of such issuance(s) the Company
shall pay to the Investor the cash value of such shares of Common Stock due to
the Investor within five Business Days of when such issuance is due based upon
the Bid Price of the Common Stock on the Trading Date of when due (or such next
Trading Day if such day is not a Trading Day).
ARTICLE VII
Due Diligence Review; Non-Disclosure of Non-Public Information
Section 7.1 Due Diligence Review. 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 any
underwriter participating in any disposition of the Registrable Securities 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 its respective
accountants and attorneys to conduct initial and ongoing due diligence with
respect to the Company and the accuracy of the Registration Statement.
20
Section 7.2 Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose non-public information to the
Investor, or 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, and their 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, advisors and
representatives of the Investor, to enter into a confidentiality agreement in
form reasonably satisfactory to the Company and the Investor.
(b) Nothing herein shall require the Company to disclose non-public
information to the Investor or its 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 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 and nothing herein shall prevent any such persons or entities from
notifying the Company of its opinion that based on such due diligence by such
persons or entities, 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 light of the circumstances in which they were made, not misleading.
ARTICLE VIII
Legends
Section 8.1 Legends. The Investor agrees to the imprinting, so long as is
required by this Section, of the following legend (or such substantially similar
legend as is acceptable to the Investor and its counsel, the parties agreeing
that any unacceptable legended securities shall be replaced promptly by and at
the Company's cost) on each of the Securities (provided that the Additional
Shares, Underlying Shares and Warrant Shares shall not contain such legend if
such
21
shares have been included as part of a then effective Registration Statement or
an exemption from registration then exists):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR APPLICABLE STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR
SUCH SECURITIES UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS OR PURSUANT TO AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT THERE IS AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
The Company agrees that it will provide the Investor, upon request, with a
certificate or certificates representing the Securities, free from such legend
at such time as such legend is no longer required hereunder. The Company may not
take any action or make any notation on its records or give instructions to any
transfer agent of the Company that enlarge the restrictions of transfer set
forth in this Section.
Upon the one-year anniversary of the Closing Date, the Company shall issue
to the transfer agent for its Common Stock (and to any substitute or replacement
transfer agent for its Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent) instructions in substantially the form
of Exhibit I hereto. Such instructions shall be irrevocable by the Company from
and after the date hereof or from and after the issuance thereof to any such
substitute or replacement transfer agent, as the case may be, except as
otherwise expressly provided in the Registration Rights Agreement. It is the
intent and purpose of such instructions, as provided therein, to require the
transfer agent for the Common Stock from time to time upon transfer of
Registrable Securities by the Investor to issue certificates evidencing such
Registrable Securities free of the Legend during the following periods and under
the following circumstances and except as provided below, without consultation
by the transfer agent with the Company or its counsel and without the need for
any further advice or instruction or documentation to the transfer agent by or
from the Company or its counsel or the Investor:
(a) at any time after one year after the Closing Date, and the
Effective Date has occurred, upon surrender of one or more certificates
evidencing the Warrant, Notes, Underlying Shares or Warrant Shares that bear the
aforementioned Legend, to the extent accompanied by a notice requesting the
issuance of new certificates free of the aforementioned legend to replace those
surrendered; provided that (i) the Registration Statement shall then be
effective; (ii) the Investor confirms to the transfer agent that it has sold,
pledged or otherwise transferred or agreed to sell, pledge or otherwise transfer
such Common Stock in a bona fide transaction to a third party that is not an
affiliate of the Company; and (iii) the Investor confirms to the transfer agent
that the Investor has complied with the prospectus delivery requirement; or
(b) at any time upon any surrender of one or more certificates
evidencing Registrable Securities, that bear the aforementioned legend, to the
extent accompanied by a notice requesting the issuance of new certificates free
of such legend to replace those surrendered
22
and containing representations that (i) the Investor is permitted to dispose of
such Registrable Securities, without limitation as to amount or manner of sale
pursuant to Rule 144(k) under the Securities Act (or any other similar exemption
as may then be in effect), or (ii) the Investor has sold, pledged or otherwise
transferred or agreed to sell, pledge or otherwise transfer such Registrable
Securities, in a manner other than pursuant to an effective registration
statement, to a transferee who will upon such transfer be entitled to freely
tradable securities. The Company shall have counsel provide any and all opinions
necessary for the sale under Rule 144 (or such other applicable exemption).
Any of the notices referred to above in this Section may be sent by
facsimile to the Company's transfer agent.
Section 8.2 No Legend or Stock Transfer Restrictions. No instructions or
"stop transfer orders," so called, "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect to the Notes, Warrants or Securities other than as expressly set forth
in this Article.
ARTICLE IX
Choice of Law; Venue; Jurisdiction
Section 9.1 Choice of Law; Venue; Jurisdiction. This Agreement will be
construed and enforced in accordance with and governed exclusively by the laws
of the State of New York, except for matters arising under the Securities Act,
without reference to principles of conflicts of law. Each of the parties
consents to the exclusive jurisdiction of the U.S. District Court sitting in the
Southern District of the State of New York sitting in Manhattan in connection
with any dispute arising under this Agreement and hereby waives, to the maximum
extent permitted by law, any objection, including any objection based on forum
non conveniens, to the bringing of any such proceeding in such jurisdictions.
ARTICLE X
Assignment; Termination
Section 10.1 Assignment. The Investor's interest in this Agreement and
their ownership of the Notes and Warrant may be assigned or transferred at any
time, in whole or in part, to any other person or entity (including any
affiliate of the Investor) who agrees to, and truthfully can, make the
representations and warranties contained in Article III, and who agrees to be
bound by the covenants of Article V. The provisions of this Agreement shall
inure to the benefit of, and be enforceable by, any transferee of any of the
Notes and/or Warrant purchased or acquired by the Investor hereunder with
respect to the Common Stock held by such person.
Section 10.2 Termination. This Agreement shall terminate upon the earliest
of (i) the date that all the Securities have been sold by the Investor; (ii) all
of the principal amount of the Notes and all of the Warrants issued on the
Closing date shall have been redeemed by the Company as per the terms of the
Notes and Warrants; (iii) five years after the Closing Date; or (iv) the date
the Investor receives an opinion from Company counsel that all of the
Registrable Securities may be publicly sold under Rule 144, or pursuant to an
effective Registration
23
Statement without volume limitation; provided, however, that the provisions of
Articles III, IV, V, VI, VII, VIII, IX, X, XI, and XII herein and the terms of
the Registration Rights Agreement shall survive the termination of this
Agreement.
ARTICLE XI
Notices
Section 11.1 Notices. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a Business Day between the hours of 9:00 a.m. and 5:00 p.m. where
such notice is to be received), or the first Business Day following such
delivery (if delivered other than on a Business Day between the hours of 9:00
a.m. and 5:00 p.m. where such notice is to be received), (b) on the second
Business Day following the date of mailing by reputable courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur, or (c) five calendar days after sent by regular
mail. The addresses for such communications shall be:
If to the Company:
Interiors, Inc.
000 Xxxxxxxxxx Xxxxxx
Xxxxx Xxxxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: President
With a copy to:
Xxxxxxxxx Xxxxxxx
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxxx X. Xxxxx, Esq.
24
If to the Investor:
Limeridge LLC
c/o Citco Trustees Cayman Limited
Corporate Centre
PO Box 31106SMB
Grand Cayman, Cayman Islands
British West Indies
Attention: Xxxxxxx Xxx
Facsimile: 000 000-0000
Telephone: 000 000-0000
Any party hereto may from time to time change its address or facsimile
number for notices under this Section 11.1 by giving at least ten calendar days'
prior written notice of such changed address or facsimile number to the other
party hereto.
Section 11.2 Indemnification. The Company agrees to indemnify and hold
harmless the Investor and each agent and affiliate of the Investor against any
losses, claims, damages or liabilities, joint or several (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys' fees), to which any of the Investor may
become subject, under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon the breach by the Company of any term of this Agreement. This
indemnity agreement will be in addition to any liability, which the Company may
otherwise have.
The Investor agree that it will indemnify and hold harmless the Company,
and each officer, director of the Company or person, if any, who controls the
Company within the meaning of the Securities Act, against any losses, claims,
damages or liabilities (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees) to which the Company or any such officer, director or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon the breach by such Person of any term of
this Agreement. This indemnity agreement will be in addition to any liability,
which the Investor or any subsequent assignee may otherwise have.
Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve the indemnifying
party from any liability which it may have to any indemnified party otherwise
than as to the particular item as to which indemnification is then being sought
solely pursuant to this Section. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, assume the defense thereof, subject to the provisions herein stated
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this
25
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation, unless the indemnifying party shall not pursue the
action to its final conclusion. The indemnified party shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall not be at the expense
of the indemnifying party if the indemnifying party has assumed the defense of
the action with counsel reasonably satisfactory to the indemnified party;
provided that if the indemnified party is one of the Investor, the fees and
expenses of such counsel shall be at the expense of the indemnifying party if
(i) the employment of such counsel has been specifically authorized in writing
by the indemnifying party, or (ii) the named parties to any such action
(including any impleaded parties) include both the Investor and the indemnifying
party and the Investor shall have been advised by such counsel that there may be
one or more legal defenses available to the indemnifying party different from or
in conflict with any legal defenses which may be available to the Investor (in
which case the indemnifying party shall not have the right to assume the defense
of such action on behalf of the Investor, it being understood, however, that the
indemnifying party shall, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable only for the reasonable
fees and expenses of one separate firm of attorneys for the Investor, which firm
shall be designated in writing by the Investor). No settlement of any action
against an indemnified party shall be made without the prior written consent of
the indemnified party, which consent shall not be unreasonably withheld.
Each party hereby agrees that if another party to this Agreement obtains a
judgment against it in such a proceeding, the party which obtained such judgment
may enforce same by summary judgment in the courts of any country having
jurisdiction over the party against whom such judgment was obtained, and each
party hereby waives any defenses available to it under local law and agrees to
the enforcement of such a judgment. Each party to this Agreement irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law. Each party waives
its right to a trial by jury. If the Investor, or any person claimed to be
affiliated or associated with the Investor, becomes involved in any capacity in
any action, proceeding or investigation brought by or against any such person,
including shareholders of the Company, in connection with or as a result of any
matter referred to in this Agreement or any Exhibit annexed hereto, the Company
shall reimburse the Investor and/or those claimed to be affiliated or associated
with the Investor for its legal fees and expenses and other expenses (including
the cost of any investigation and preparation) incurred in connection therewith,
provided, however, that if at the conclusion of such action, proceeding or
investigation it shall be finally judicially determined by a court of competent
jurisdiction that indemnity for such fees and expenses is contrary to law, or
that the Investor is not the prevailing party then in that event, the Company
shall not be responsible for such payment.
Section 11.3 Contribution. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) the indemnified
party makes a claim for indemnification pursuant to Section 11.2 hereof but is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal
26
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that the express provisions of
Section 11.2 hereof provide for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of any
indemnified party, then the Company and the Investor shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(which shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees), in either
such case (after contribution from others) on the basis of relative fault as
well as any other relevant equitable considerations. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in Section 11.2
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contributions from any person who was not guilty of such fraudulent
misrepresentation.
ARTICLE XII
Miscellaneous
Section 12.1 Counterparts; Facsimile; Amendments. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by the Company on the one hand, and all of the Investor on the other
hand.
Section 12.2 Entire Agreement. This Agreement, and the Exhibits and
Schedules annexed hereto, set forth the entire agreement and understanding of
the parties relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, negotiations and understandings between the parties,
both oral and written relating to the subject matter hereof. The terms and
conditions of all Exhibits and Schedules to this Agreement are incorporated
herein by this reference and shall constitute part of this Agreement as is fully
set forth herein.
Section 12.3 Survival; Severability. The representations, and warranties,
of the parties hereto shall survive for a period of one year after the
termination of this Agreement as provided above. If 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 12.4 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.
27
Section 12.5 Reporting Entity for the Common Stock. The reporting entity
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement and all
Exhibits shall be Bloomberg, L.P. or any successor thereto. The written mutual
consent of the Investor and the Company shall be required to rely upon any other
reporting entity.
Section 12.6 Replacement of Certificates. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of the Securities and (ii) in the case of any such loss, theft or
destruction of such certificate, upon delivery of an indemnity agreement or
security reasonably satisfactory in form and amount to the Company, and to the
Company's transfer agent, or (iii) in the case of any such mutilation, on
surrender and cancellation of such certificate, the Company at its expense will
execute and deliver, in lieu thereof, a new certificate of like tenor.
Section 12.7 Fees and Expenses. Each of the parties shall pay its own fees
and expenses (including the fees of any attorneys, accountants, appraisers or
others engaged by such party) in connection with this Agreement and the
transactions contemplated hereby, except that the Company shall pay on the
Closing Date, in cash, out of escrow, to the Escrow Agent the sum of $35,000,
and the sum of $225,000 to Greenfield Capital. The Company shall pay to
Limeridge LLC the sum equal to one percent (1%) of the outstanding principal
amount of the Notes on the last Business Day of each calendar month (pro rated
for any period less than a full calendar month) after the Closing Date for as
long as the Notes remain outstanding.
Section 12.8 Publicity. The Company and the Investor shall consult with
each other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby and no party shall issue
any such press release or otherwise make any such public statement without the
prior written consent of the other parties, which consent shall not be
unreasonably withheld or delayed, except that no prior consent shall be required
if such disclosure is required by law, in which such case the disclosing party
shall provide the other parties with prior notice of such public statement.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of the Investors without the prior written consent of the Investor, except to
the extent required by law, in which case the Company shall provide the Investor
with prior written notice of such public disclosure.
Exhibits: SCHEDULES:
-------- ---------
A: Note 4.3 Capitalization
B: Escrow Agreement
C: Exchange Agreement
D: Registration Rights Agreement
E: Security Agreement
F: Common Stock Purchase Warrant
G: Opinion of Counsel
H: Notice of Conversion
I: Instruction Letter to Transfer Agent
28
IN WITNESS WHEREOF, the parties hereto have caused this Secured
Convertible Note Purchase Agreement to be executed by the undersigned, thereunto
duly authorized, as of the date first set forth above.
INTERIORS, INC.
By: /s/ Xxx Xxxx
-------------------------------------
Name: Xxx Xxxx
Title: President
INVESTOR:
LIMERIDGE LLC
By: /s/
-------------------------------------
Name:
Title:
29
