SECURITIES PURCHASE AGREEMENT
EXHIBIT
10.1
AGREEMENT,
dated
as of October 27, 2006, between Mems USA, Inc. (the “ Company”) and GCA
Strategic Investment Fund Limited (“Purchaser”).
R
E C I T A L S:
WHEREAS,
the
Company desires to sell and issue to Purchaser, and Purchaser desires to
purchase from the Company, $3,530,000 aggregate principal amount of the
Company’s Convertible Note due October 27, 2009 (the “ Convertible Note”), with
terms and conditions as set forth in the form of Convertible Note attached
hereto as Exhibit
A;
WHEREAS,
the
Convertible Note will be convertible into shares of the Company’s common stock,
par value $.001 per share (the “ Common Stock”);
WHEREAS,
in
order to induce the Purchaser to enter into the transactions described in this
Agreement, the Company desires to issue to the Purchaser a warrant to purchase
shares of Common Stock upon the Closing equal to 1,000,000 shares of Common
Stock (as defined herein) on the terms and conditions described in the form
of
the common stock purchase warrant attached hereto as Exhibit
F
(the
“Warrants”), and
WHEREAS,
Purchaser will have certain registration rights with respect to such shares
of
Common Stock issuable as interest under, and upon conversion of, the Convertible
Note (the “Note Shares”) and upon exercise of the Warrants (the “Warrant
Shares,” the Note Shares and the Warrant Shares being collectively referred to
herein as the “Conversion Shares”) as set forth in the Registration Rights
Agreement in the form attached hereto as Exhibit B;
NOW,
THEREFORE,
in
consideration of the foregoing premises and the covenants contained herein
and
other good and valuable consideration, the receipt and sufficiency of which
are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE
1.
DEFINITIONS
1
Definitions
. The
following terms, as used herein, have the following meanings:
“Additional
Shares of Common Stock” has the meaning set forth in
Section 11.6.
“Affiliate”
means, with respect to any Person (the “ Subject Person”), (i) any other
Person (a “ Controlling Person”) that directly, or indirectly through one or
more intermediaries, Controls the Subject Person or (ii) any other Person
(other than the Subject Person or a Consolidated Subsidiary of the Subject
Person) which is Controlled by or is under common Control with a Controlling
Person.
“Agreement”
means this Securities Purchase Agreement, as amended, supplemented or otherwise
modified from time to time in accordance with its terms.
1
“Asset
Sale” has the meaning set forth in Section 8.4.
“Balance
Sheet Date” has the meaning set forth in Section 4.7.
“Benefit
Arrangement” means at any time an employee benefit plan within the meaning of
Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which
is maintained or otherwise contributed to by the Company.
“Benefit
Plans” has the meaning set forth in Section 4.9(b).
“Business
Day” means any day except a Saturday, Sunday or other day on which commercial
banks in the City of New York are authorized or required by law to
close.
“Capital
Reorganization” has the meaning set forth in Section 11.5.
“Change
in Control” means (i) after the date of this Agreement, any person or group
of persons (within the meaning of Sections 13 and 14 of the Exchange Act and
the
rules and regulations of the Commission relating to such sections) other than
Purchaser shall have acquired beneficial ownership (within the meaning of Rules
13d-3 and 13d-5 promulgated by the Commission pursuant to the Exchange Act)
of
33a%
or more
of the outstanding shares of Common Stock of the Company without the prior
written consent of Purchaser; (ii) any sale or other disposition (other
than by reason of death or disability) to any Person of more than 75,000 shares
of Common Stock of the Company by any executive officers and/or employee
directors of the Company without the prior written consent of Purchaser;
(iii) individuals constituting the Board of Directors of the Company on the
date hereof (together with any new Directors whose election by such Board of
Directors or whose nomination for election by the stockholders of the Company
was approved by a vote of at least 50.1% of the Directors still in office who
are either Directors as of the date hereof or whose election or nomination
for
election was previously so approved), cease for any reason to constitute at
least two-thirds of the Board of Directors of the Company then in
office.
“Closing
Bid Price” shall mean for any security as of any date, the lowest closing bid
price as reported by Bloomberg, L.P. (“ Bloomberg”) on the principal securities
exchange or trading market where such security is listed or traded or, if the
foregoing does not apply, the lowest closing bid price of such security in
the
over-the-counter market on the electronic bulletin board for such security
as
reported by Bloomberg, or, if no lowest trading price is reported for such
security by Bloomberg, then the average of the bid prices of any market makers
for such securities as reported in the “Pink Sheets” by the National Quotation
Bureau, Inc. If the lowest closing bid price cannot be calculated for such
security on such date on any of the foregoing bases, the lowest closing bid
price of such security on such date shall be the fair market value as mutually
determined by Purchaser and the Company for which the calculation of the closing
bid price requires, and in the absence of such mutual determination, as
determined by the Board of Directors of the Company in good faith.
2
“Closing
Date” means the date on which all of the conditions set forth in
Sections 6.1 and 6.2 shall have been satisfied and Convertible Note in the
aggregate principal amount of $3,530,000 are issued by the Company to Purchaser.
“Code”
means the Internal Revenue Code of 1986, as amended.
“Commission”
means the Securities and Exchange Commission or any entity succeeding to all
of
its material functions.
“Common
Stock” means common stock, par value $.001 per share, of the
Company.
“Company”
means Mems USA, Inc., a Nevada corporation, and its successors.
“Company
Corporate Documents” means the certificate of incorporation and bylaws of the
Company.
“Consolidated
Net Worth” means at any date the total shareholder’s equity which would appear
on a consolidated balance sheet of the Company prepared as of such
date.
“Consolidated
Subsidiary” means at any date with respect to any Person or Subsidiary or other
entity, the accounts of which would be consolidated with those of such Person
in
its consolidated financial statements if such statements were prepared as of
such date.
“Control”
(including, with correlative meanings, the terms “Controlling,” “Controlled by”
and under “common Control with”), as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that Person, whether through the
ownership of voting securities, by contract or otherwise.
“Conversion
Date” shall mean the date of delivery (including delivery via telecopy) of a
Notice of Conversion for all or a portion of a Convertible Note by the holder
thereof to the Company as specified in each Convertible Note.
“Conversion
Price” has the meaning set forth in the Convertible Note.
“Conversion
Shares” has the meaning set forth in the Recitals.
“Convertible
Note” means the Company’s Convertible Note substantially in the form set forth
as Exhibit A
hereto.
“Deadline”
has the meaning set forth in Section 10.1.
“Debt”
of
any Person means at any date, without duplication, (i) all obligations of
such Person for borrowed money, (ii) all obligations of such Person
evidenced by bonds, notes, or other similar instruments issued by such Person,
(iii) all obligations of such Person as lessee which (y) are
capitalized in accordance with GAAP or (z) arise pursuant to sale-leaseback
transactions, (iv) all reimbursement obligations of such Person in respect
of letters of credit or other similar instruments, (v) all Debt of others
secured by a Lien on any asset of such Person, whether or not such Debt is
otherwise an obligation of such Person and (vi) all Debt of others
Guaranteed by such Person.
3
“Default”
means any event or condition which constitutes an Event of Default or which
with
the giving of notice or lapse of time or both would, unless cured or waived,
become an Event of Default.
“Default
Fee” has the meaning set forth in Section 10.4.
“Derivative
Securities” has the meaning set forth in Section 8.6.
“Discounted
Equity Offerings” has the meaning set forth in Section 8.6
“Directors”
means the individuals then serving on the Board of Directors or similar such
management council of the Company.
“Environmental
Laws” means any and all federal, state, local and foreign statutes, laws,
regulations, ordinances, rules, judgments, orders, decrees, permits,
concessions, grants, franchises, licenses, agreements or other governmental
restrictions relating to the environment or to emissions, discharges or releases
of pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes into the environment,
including, without limitation, ambient air, surface water, ground water, or
land, or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants, contaminants,
petroleum or petroleum products, chemicals or industrial, toxic or hazardous
substances or wastes or the cleanup or other remediation thereof.
“ERISA”
means the Employee Retirement Income Security Act of 1974, as amended, or any
successor statute.
“ERISA
Group” means the Company and each Subsidiary and all members of a controlled
group of corporation and all trades or businesses (whether or not incorporated)
under common control which, together with the Company or any Subsidiary, are
treated as a single employer under the Code.
“Event
of
Default” has the meaning set forth in Article XII hereof.
“Exchange
Act” means the Securities Exchange Act of 1934, as amended.
“Expense
Reimbursement Fee” has the meaning set forth in Section 134.
4
“Financing”
means a public or private financing consummated (meaning closing and funding)
through the issuance of debt or equity securities (or securities convertible
into or exchangeable for debt or equity securities) of the Company, other than
Permitted Financings.
“Fixed
Price(s)” has the meaning set forth in Section 11.1.
“GAAP”
has the meaning set forth in Section 1.2.
“Guarantee”
by any Person means any obligation, contingent or otherwise, of such Person
directly or indirectly guaranteeing (whether by virtue of partnership
arrangements, by agreement to keep well, to purchase assets, goods, securities
or services, to take-or-pay, or to maintain a minimum net worth, financial
ratio
or similar requirements, or otherwise) any Debt of any other Person and, without
limiting the generality of the foregoing, any obligation, direct or indirect,
contingent or otherwise, of such Person (i) to purchase or pay (or advance
or supply funds for the purchase or payment of) such Debt or (ii) entered
into for the purpose of assuring in any other manner the holder of such Debt
of
the payment thereof or to protect such holder against loss in respect thereof
(in whole or in part); provided
that the
term Guarantee shall not include endorsements for collection or deposit in
the
ordinary course of business. The term Guarantee used as a verb has a
corresponding meaning.
“Hazardous
Materials” means any hazardous materials, hazardous wastes, hazardous
constituents, hazardous or toxic substances or petroleum products (including
crude oil or any derivative or fraction thereof), defined or regulated as such
in or under any Environmental Laws.
‘Intellectual
Property” has the meaning set forth in Section 4.20.
“Investment”
means any investment in any Person, whether by means of share purchase,
partnership interest, capital contribution, loan, time deposit or
otherwise.
“Lien”
means any lien, mechanic’s lien, materialmen’s lien, lease, easement, charge,
encumbrance, mortgage, conditional sale agreement, title retention agreement,
agreement to sell or convey, option, claim, title imperfection, encroachment
or
other survey defect, pledge, restriction, security interest or other adverse
claim, whether arising by contract or under law or otherwise (including, without
limitation, any financing lease having substantially the same economic effect
as
any of the foregoing, and the filing of any financing statement under the
Uniform Commercial Code or comparable law of any jurisdiction in respect of
any
of the foregoing).
“Listing
Applications” has the meaning set forth in Section 4.4.
“Majority
Holders” means (i) as of the Closing Date, Purchaser and (ii) at any
time thereafter, the holders of more than 50% in aggregate principal amount
of
the Convertible Note outstanding at such time.
5
“Market
Price” shall mean the Closing Bid Price of the Common Stock preceding the date
of determination.
“Material
Plan” means at any time a Plan or Plans having aggregate Unfunded Liabilities in
excess of $200,000.
“Maturity
Date” shall mean the date of maturity of the Convertible Note.
“Maximum
Number of Shares” shall mean that percentage that the Company may issue without
shareholder approval under the applicable rules of the OTC Bulletin Board,
National Market or equivalent entity then applicable to the Company, of the
then
issued and outstanding shares of Common Stock of the Company as of the
applicable date of determination, or such greater number of shares as the
stockholders of the Company may have previously approved.
"NASD"
has the meaning set forth in Section 7.10.
“Nasdaq
Market” means the Nasdaq Stock Market’s National Market System.
“National
Market” means the Nasdaq Market, the Nasdaq Small Cap Market, the New York Stock
Exchange, Inc. or the American Stock Exchange, Inc..
“Net
Cash
Proceeds” means, with respect to any transaction, the total amount of cash
proceeds received by the Company or any Subsidiary less (i) reasonable
underwriters’ fees, brokerage commissions, reasonable professional fees and
other customary out-of-pocket expenses payable in connection with such
transaction, (ii) in the case of dispositions of assets, (A) actual
transfer taxes (but not income taxes) payable with respect to such dispositions,
and (B) the amount of Debt, if any, secured by a Lien on the asset or
assets disposed of and required to be, and actually repaid by the Company or
any
Subsidiary in connection therewith, and any trade payables specifically relating
to such asset or assets sold by the Company or any Subsidiary that are not
assumed by the purchaser of such asset or assets, and (iii) proceeds of any
lien
on any accounts receivable or any alternative energy project..
“Notice
of Conversion” means the form to be delivered by a holder of a Convertible Note
upon conversion of all or a portion thereof to the Company substantially in
the
form of Exhibit A
to the
form of Convertible Note.
“Officer’s
Certificate” shall mean a certificate executed by the President, chief executive
officer or chief financial officer of the Company in the form of Exhibit C
attached
hereto.
"OTC
Bulletin Board" means the over-the-counter bulletin board operated by the
NASD.
“Other
Taxes” has the meaning set forth in Section 3.6(b).
“PBGC”
means the Pension Benefit Guaranty Corporation or any entity succeeding to
any
or all of its functions under ERISA.
6
“Permits”
means all domestic and foreign licenses, franchises, grants, authorizations,
permits, easements, variances, exemptions, consents, certificates, orders and
approvals necessary to own, lease and operate the properties of, and to carry
on
the business of the Company and the Subsidiaries.
“Permitted
Financings” has the meaning set forth in Section 8.6.
“Person”
means an individual, corporation, partnership, trust, incorporated or
unincorporated association, joint venture, joint stock Company, government
(or
any agency or political subdivision thereof) or other entity of any
kind.
“Plan”
means at any time an employee pension benefit plan which is covered by
Title IV of ERISA or subject to the minimum funding standards under the
Code and either (i) is maintained, or contributed to, by any member of the
ERISA group for employees of any member of the ERISA group or (ii) has at
any time within the preceding five years been maintained, or contributed to,
by
any Person which was at such time a member of the ERISA group for employees
of
the Person which was at such time a member of the ERISA Group.
“Purchase
Price” means the purchase price for the Securities set forth in Section 2.2
hereof.
“Purchaser”
means the entity listed on the signature page hereto and its successors and
assigns, including holders from time to time of the Convertible
Note.
“Recourse
Financing” means Debt of the Company or any Subsidiary which, by its terms, does
not bar the lender thereof from action against the Company or any Subsidiary,
as
borrower or guarantor, if the security value of the project or asset pledged
in
respect thereof falls below the amount required to repay such Debt.
“Redemption
Event” has the meaning set forth in Section 3.4.
“Registrable
Securities” has the meaning set forth in Section 10.4(a).
“Registration
Statement” has the meaning set forth in Section 10.4(b).
“Registration
Rights Agreement” means the agreement between the Company and Purchaser dated
the date hereof substantially in the form set forth in Exhibit B
attached
hereto.
“Reserved
Amount” has the meaning set forth in Section 7.10(a).
“Restricted
Payment” means, with respect to any Person, (i) any dividend or other
distribution on any shares of capital stock of such Person (except dividends
payable solely in shares of capital stock of the same or junior class of such
Person and dividends from a wholly-owned direct or indirect Subsidiary of the
Company to its parent corporation), (ii) any payment on account of the
purchase, redemption, retirement or acquisition of (a) any shares of such
Person’s capital stock or (b) any option, warrant or other right to acquire
shares of such Person’s capital stock or (iii) any loan, or advance or
capital contribution to any Person (a “ Stockholder”) owning any capital stock
of such Person other than relocation, travel or like advances to officers and
employees in the ordinary course of business, and other than reasonable
compensation as determined by the Board of Directors.
7
“Rights
Offering” has the meaning set forth in Section 11.3.
“Sale
Event” has the meaning set forth in Section 3.4.
“SEC
Reports” has the meaning set forth in Section 4.7
“Securities”
means the Convertible Note, the Warrants and, as applicable, the Conversion
Shares.
“Securities
Act” means the Securities Act of 1933, as amended.
“Security
Agreement” has the meaning set forth in the recitals.
“Share
Reorganization” has the meaning set forth in Section 11.2.
“Special
Distribution” has the meaning set forth in Section 11.4.
“Subsidiary”
means, with respect to any Person, any corporation or other entity of which
(x) a majority of the capital stock or other ownership interests having
ordinary voting power to elect a majority of the Board of Directors or other
persons performing similar functions are at the time directly or indirectly
owned by such Person or (y) the results of operations, the assets and the
liabilities of which are consolidated with such Person under GAAP.
“Subsidiary
Corporate Documents” means the certificates of incorporation and bylaws of each
Subsidiary.
“Taxes”
has the meaning set forth in Section 3.6.
“Trading
Day” shall mean any Business Day in which the OTC Bulletin Board, National
Market or other automated quotation system or exchange on which the Common
Stock
is then traded is open for trading for at least four (4) hours.
“Transaction
Agreements” means this Agreement, the Convertible Note, the Registration Rights
Agreement, and the other agreements contemplated by this Agreement.
8
“Transfer”
means any disposition of Securities that would constitute a sale thereof under
the Securities Act.
“Unfunded
Liabilities” means, with respect to any Plan at any time, the amount (if any) by
which (i) the present value of all benefits under Plan exceeds
(ii) the fair market value of all Plan assets allocable to such benefits
(excluding any accrued but unpaid contributions), all determined as of the
then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
“VWAP”
shall mean for any security as of any date, the volume weighted average price
as
reported by Bloomberg, L.P. (“ Bloomberg”) on the principal securities exchange
or trading market where such security is listed or traded or, if the foregoing
does not apply, the volume weighted average price of such security in the
over-the-counter market on the electronic bulletin board for such security
as
reported by Bloomberg, or, if no volume weighted average price is reported
for
such security by Bloomberg, then the average of the bid prices of any market
makers for such securities as reported in the “Pink Sheets” by the National
Quotation Bureau, Inc. If the volume weighted average price cannot be calculated
for such security on such date on any of the foregoing bases, the volume
weighted average price of such security on such date shall be the fair market
value as mutually determined by Purchaser and the Company for which the
calculation of the volume weighted average price requires, and in the absence
of
such mutual determination, as determined by the Board of Directors of the
Company in good faith.
“Warrant”
means the Common Stock Purchase Warrants substantially in the form set forth
in
Exhibits
F & G
hereto.
2
Accounting Terms and Determinations
. Unless
otherwise specified herein, all accounting terms used herein shall be
interpreted, all accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder shall be prepared,
in
accordance with generally accepted accounting principles as in effect from
time
to time, applied on a consistent basis (except for changes concurred in by
the
Company’s independent public accountants) (“ GAAP”) All references to “dollars,”
“Dollars” or “$” are to United States dollars unless otherwise
indicated.
ARTICLE
2.
PURCHASE AND SALE OF SECURITIES
1
Purchase and Sale of Convertible Note
.
(a) Subject
to the terms and conditions set forth herein, the Company agrees to issue and
sell to Purchaser, and Purchaser agrees to purchase from the Company, the
Convertible Note.
9
(b) Purchaser
shall acquire Convertible Note on the Closing Date in an aggregate principal
amount of Three Million Five Hundred Thirty Thousand Dollars
($3,530,000.00).
2
Purchase Price
. The
purchase price for the Convertible Note on the Closing Date shall be 90% of
the
principal amount thereof. Therefore, the aggregate consideration payable by
Purchaser to the Company for the Convertible Note on the Closing Date shall
be
Three Million One Hundred Seventy Seven Thousand Dollars ($3,177,000.00) (the
“
Purchase Price”).
3
Closing and Mechanics of Payment
.
(a) The
Purchase Price shall be paid on the Closing Date by wire transfer of immediately
available funds on or before 5:00 p.m. (EST).
(b) The
Convertible Note issued on the Closing Date shall be dated the date
hereof.
ARTICLE
3.
PAYMENT TERMS OF CONVERTIBLE NOTE
1
Payment of Principal and Interest; Payment Mechanics
. The
Company will pay all amounts due on each Convertible Note by the method and
at
the address specified for such purpose by Purchaser in writing, without the
presentation or surrender of any Convertible Note or the making of any notation
thereon, except that upon written request of the Company made concurrently
with
or reasonably promptly after payment or prepayment in full of this Convertible
Note, the holder shall surrender the Convertible Note for cancellation,
reasonably promptly after any such request, to the Company at its principal
executive office. Prior to any sale or other disposition of any Convertible
Note, the holder thereof will, at its election, either endorse thereon the
amount of principal paid thereon and the last date to which interest has been
paid thereon or surrender the Convertible Note to the Company in exchange for
a
new Convertible Note or Convertible Notes. The Company will afford the benefits
of this Section 3.1 to any direct or indirect transferee of the Convertible
Note purchased under this Agreement that has made the same agreement relating
to
this Convertible Note as Purchaser has in this Section 3.1; provided that
such transferee is an “accredited investor” under Rule 501 of the
Securities Act and the transaction is otherwise exempt from the registration
requirements of the Securities Act and Purchaser provides the Company with
a
legal opinion from counsel in form and substance reasonably satisfactory to
the
Company.
2 Intentionally
Omitted.
3
Voluntary Prepayment
. For so
long as no Event of Default shall have occurred and is continuing, the Company
may, at its option, repay, in whole or in part, the Convertible Note, per the
formula set forth in Section 5.1 of Exhibit
A
hereto,
following at least five (5) Business Days prior written notice to Purchaser
(the
expiration of such five (5) Business Day period being referred to as the
“prepayment date”); provided,
however,
that if
such date is not a Business Day, the prepayment date shall be the next Business
Day thereafter.
10
4
Mandatory Prepayments
.
(a) Upon
(i) the occurrence of a Change in Control of the Company, (ii) a
transfer of all or substantially all of the assets of the Company to any Person
in a single transaction or series of related transactions, (iii) a
consolidation or merger of the Company with or into another Person in which
the
Company is not the surviving entity (other than a merger which is effected
solely to change the jurisdiction of incorporation of the Company and results
in
a reclassification, conversion or exchange of outstanding shares of Common
Stock
solely into shares of Common Stock) (each of items (i), (ii) and (iii) being
referred to as a “ Sale Event”), or (iv) the occurrence of a Registration
Default which continues uncured for a period of twenty (20) days, then, in
each
case, the Company shall, upon request of the Majority Holders, redeem the
Convertible Note and Warrants. The redemption price payable upon any such
redemption shall be the redemption price in Section
5
of the
Convertible Note and Section
13
of the
Warrants, respectively (referred to herein as the "Formula Price").
(b) At
the
option of Purchaser, upon the consummation of one or more Financings, the
Company shall use 25% of the Net Cash Proceeds therefrom (unless such Net Cash
Proceeds from each such Financing is less than $250,000) to redeem the
Convertible Note.
(c) Upon
the
issuance of the Maximum Number of Shares, the receipt by the Company of Notice
of Conversion requiring the issuance of shares of Common Stock in excess of
the
Maximum Number of Shares, and the failure within 70 days of such issuance to
obtain shareholder approval, if such approval is required by either the laws
of
the jurisdiction of the Company’s incorporation or the rules of any market on
which the Company’s securities are then traded, to issue additional shares of
Common Stock required to be issued in connection with such Notices of Conversion
(the “ Redemption Event”), the Company shall redeem the outstanding balance of
each Convertible Note and Warrant for the Formula Price.
(d) In
the
event that there is an insufficient number of authorized, issuable, shares
of
Common Stock registered under the Registration Statement filed by the Company
to
allow Purchaser to fully convert the Convertible Note and exercise all Warrants
held by Purchaser and sell such shares issued thereon, then the Company shall
immediately file an amendment to the then current Registration Statement to
register a sufficient number of such shares to convert said Convertible Note
and
Warrants, provided that no such failure is the result of the conduct of the
Purchaser. Upon the failure within twenty (20) Trading Days measured from the
date of filing the Registration Statement to register a sufficient number of
such shares, the Company shall redeem the outstanding balance of each
Convertible Note and Warrant for the Formula Price. In addition, failure of
the
Company to register a sufficient number of such shares to fully convert said
Convertible Note and exercise such Warrants shall be a Registration Default
under Section
10.4(e)
from the
date of the Notice of Conversion to the date of the earlier of (i) the
redemption of the outstanding balance of the Convertible Note and exercise
of
all such Warrants or (ii) full conversion of the Convertible Note and exercise
of all such Warrants.
11
5
Prepayment Procedures.
(a) Any
permitted prepayment or redemption of the Convertible Note pursuant to
Sections 3.3 or 3.4 above shall be deemed to be effective and consummated
(for purposes of determining the Formula Price and the time at which Purchaser
shall thereafter not be entitled to deliver a Notice of Conversion for the
Convertible Note) as follows:
(i) A
prepayment pursuant to Section 3.3, the “prepayment date” specified
therein;
(ii) A
redemption pursuant to Section 3.4(a), the date of consummation of the
applicable Sale Event;
(iii) A
redemption pursuant to Section 3.4(b), three (3) Business Days following
the date of consummation of the applicable Financing (meaning closing and
funding); and
(iv) A
redemption pursuant to Section 3.4(c), the date specified in each
Convertible Note.
(b) On
the
Maturity Date and on the effective date of a repayment or redemption of the
Convertible Note as specified in Section 3.5(a) above, the Company shall
deliver by wire transfer of funds the repayment/redemption price to Purchaser
of
the Convertible Note subject to redemption. Should Purchaser not receive payment
of any amounts due on redemption of its Convertible Note by reason of the
Company’s failure to make payment at the times prescribed above for any reason,
the Company shall pay to the applicable holder on demand (x) interest on
the sums not paid when due at an annual rate equal to the maximum lawful rate
compounded at the end of each thirty (30) days, until the applicable holder
is
paid in full and (y) all costs of collection, including, but not limited
to, reasonable attorneys’ fees and costs, whether or not suit or other formal
proceedings are instituted.
(c) The
Company shall select the Convertible Note to be redeemed in any redemption
in
which not all of the Convertible Note are to be redeemed so that the ratio
of
the Convertible Note of each holder selected for redemption to the total
Convertible Note owned by that holder shall be the same as the ratio of all
such
Convertible Note selected for redemption bears to the total of all then
outstanding Convertible Note . Should any Convertible Note required to be
redeemed under the terms hereof not be redeemed solely by reason of limitations
imposed by law, the applicable Convertible Note shall be redeemed on the
earliest possible dates thereafter to the maximum extent permitted by
law.
12
(d) Any
Notice of Conversion delivered by Purchaser (including delivery via telecopy)
to
the Company prior to the (x) Maturity Date or (y) effective date of a
voluntary repayment pursuant to Section 3.3 or a mandatory prepayment
pursuant to Section 3.4 as specified in Section 3.5(a) above), shall
be honored by the Company and the conversion of the Convertible Note shall
be
deemed effected on the Conversion Date. In addition, between the effective
date
of a voluntary prepayment pursuant to Section 3.3 or a mandatory prepayment
pursuant to Section 3.4 as specified in Section 3.5(a) above and the
date the Company is required to deliver the redemption proceeds in full to
Purchaser, Purchaser may deliver a Notice of Conversion to the Company. Such
notice will be (x) of no force or effect if the Company timely pays the
redemption proceeds to Purchaser when due or (y) honored on or as of the
date of the Notice of Conversion if the Company fails to timely pay the
redemption proceeds to Purchaser when due.
6
Payment of Additional Amounts
.
(a) Any
and
all payments by the Company hereunder or under the Convertible Note to Purchaser
and each “qualified assignee” thereof shall be made free and clear of and
without deduction or withholding for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto (all such taxes, levies, imposts, deductions, charges,
withholdings and liabilities being hereinafter referred to as “ Taxes”) unless
such Taxes are required by law or the administration thereof to be deducted
or
withheld. If the Company shall be required by law or the administration thereof
to deduct or withhold any Taxes from or in respect of any sum payable under
the
Convertible Note (i) the holders of the Convertible Note subject to such
Taxes shall have the right, but not the obligation, for a period of thirty
(30)
days commencing upon the day it shall have received written notice from the
Company that it is required to withhold Taxes to transfer all or any portion
of
the Convertible Note to a qualified assignee to the extent such transfer can
be
effected in accordance with the other provisions of this Agreement and
applicable law; (ii) the Company shall make such deductions or
withholdings; (iii) the sum payable shall be increased as may be necessary
so that after making all required deductions or withholdings (including
deductions or withholdings applicable to additional amounts paid under this
Section 3.6) Purchaser receives an amount equal to the sum it would have
received if no such deduction or withholding had been made; and (iv) the
Company shall forthwith pay the full amount deducted or withheld to the relevant
taxation or other authority in accordance with applicable law. A “qualified
assignee” of a Purchaser is a Person that is organized under the laws of
(i) the United States or (II) any jurisdiction other than the United
States or any political subdivision thereof and that (y) represents and
warrants to the Company that payments of the Company to such assignee under
the
laws in existence on the date of this Agreement would not be subject to any
Taxes and (z) from time to time, as and when requested by the Company,
executes and delivers to the Company and the Internal Revenue Service forms,
and
provides the Company with any information necessary to establish such assignee’s
continued exemption from Taxes under applicable law.
13
(b) The
Company shall forthwith pay any present or future stamp or documentary taxes
or
any other excise or property taxes, charges or similar levies (all such taxes,
charges and levies hereinafter referred to as “ Other Taxes”) which arise from
any payment made under any of the Transaction Agreements or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement other
than Taxes payable solely as a result of the transfer from Purchaser to a Person
of any Security.
(c) The
Company shall indemnify Purchaser, or qualified assignee, for the full amount
of
Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes
imposed by any jurisdiction on amounts payable under this Section 3.6) paid
by Purchaser, or qualified assignee, and any liability (including penalties,
interest and expenses) arising therefrom or with respect thereto, whether or
not
such Taxes or Other Taxes were correctly or legally asserted. Payment under
this
indemnification shall be made within 30 days from the date Purchaser or assignee
makes written demand therefor.
(d) Within
30
days after the date of any payment of Taxes, the Company will furnish to
Purchaser the original or a certified copy of a receipt evidencing payment
thereof.
(e) Purchaser
shall provide to the Company a form W-8, stating that it is a non-U.S person,
together with any additional tax forms which may be required under the Code,
as
amended after the date hereof, to allow interest payments to be made to it
without deduction.
ARTICLE
4.
REPRESENTATIONS AND WARRANTIES
The
Company represents and warrants to Purchaser, as of the Closing Date, the
following:
1
Organization and Qualification
. The
Company and each Subsidiary is a corporation (or other legal entity) duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, with full power and authority to own, lease,
use
and operate its properties and to carry on its business as and where now owned,
leased, used, operated and conducted. The Company is qualified to conduct
business as a foreign corporation and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary, except where such failure would not have a Material Adverse Effect.
A
“ Material Adverse Effect” means any material adverse effect on the operations,
results of operations, properties, assets or condition (financial or otherwise)
of the Company or the Company and its Subsidiaries, taken as a whole, or on
the
transactions contemplated hereby or by the agreements or instruments to be
entered into in connection herewith.
14
2
Authorization and Execution
.
(a) The
Company has all requisite corporate power and authority to enter into and
perform each Transaction Agreement and to consummate the transactions
contemplated hereby and thereby and to issue the Securities in accordance with
the terms hereof and thereof.
(b) The
execution, delivery and performance by the Company of each Transaction Agreement
and the issuance by the Company of the Securities have been duly and validly
authorized and no further consent or authorization of the Company, its Board
of
Directors or its shareholders is required.
(c) This
Agreement has been duly executed and delivered by the Company.
(d) This
Agreement constitutes, and upon execution and delivery thereof by the Company,
each of the Transaction Agreements will constitute, a valid and binding
agreement of the Company, in each case enforceable against the Company in
accordance with its respective terms.
3
Capitalization .
As of
the date hereof, the authorized, issued and outstanding capital stock of the
Company is as set forth on Schedule 4.3
hereto
and except as set forth on Schedule
4.3
no other
shares of capital stock of the Company will be outstanding as of the Closing
Date. All of such outstanding shares of capital stock are, or upon issuance
will
be, duly authorized, validly issued, fully paid and nonassessable. No shares
of
capital stock of the Company are subject to preemptive rights or similar rights
of the stockholders of the Company or any liens or encumbrances imposed through
the actions or failure to act of the Company. Other than as set forth on
Schedule 4.3
hereto,
as of the date hereof, (i) there are no outstanding options, warrants,
scrip, rights to subscribe for, puts, calls, rights of first refusal,
agreements, understandings, claims or other commitments or rights of any
character whatsoever relating to, or securities or rights convertible into
or
exchangeable for any shares of capital stock of the Company or any of its
Subsidiaries, or arrangements by which the Company or any of its Subsidiaries
is
or may become bound to issue additional shares of capital stock of the Company
or any of its Subsidiaries, and (ii) there are no agreements or
arrangements under which the Company or any of its Subsidiaries are obligated
to
register the sale of any of its or their securities under the Securities Act
(except pursuant to the Registration Rights Agreement) and (iii) there are
no anti-dilution or price adjustment provisions contained in any security issued
by the Company (or in any agreement providing rights to security holders) that
will be triggered by the issuance of the Convertible Note or Conversion Shares.
The Company has furnished to Purchaser true and correct copies of the Company’s
Corporate Documents, and the terms of all securities convertible into or
exercisable for Common Stock and the material rights of the holders thereof
in
respect thereto.
15
4
Governmental Authorization
. To the
Company’s knowledge, the execution and delivery by the Company of the
Transaction Agreements does not and will not, the issuance and sale by the
Company of the Securities does not and will not, and the consummation of the
transactions contemplated hereby and by the other Transaction Agreements will
not, require any action by or in respect of, or filing with, any governmental
body, agency or governmental official except (a) such actions or filings
that have been undertaken or made prior to the date hereof and that will be
in
full force and effect (or as to which all applicable waiting periods have
expired) on and as of the date hereof or which are not required to be filed
on
or prior to the Closing Date, (b) such actions or filings that, if not
obtained, would not result in a Material Adverse Effect, and (c) the filing
of a “Form D” as described in Section 7.13 below.
5
Issuance of Shares
. Upon
conversion in accordance with the terms of the Convertible Note, the Conversion
Shares shall be duly and validly issued and outstanding, fully paid and
nonassessable, free and clear of any Taxes, Liens and charges with respect
to
issuance and shall not be subject to preemptive rights or similar rights of
any
other stockholders of the Company. Assuming the representations and warranties
of Purchaser herein are true and correct in all material respects, each of
the
Securities will have been issued in material compliance with all applicable
U.S.
federal and state securities laws. The Company understands and acknowledges
that, in certain circumstances, the issuance of Conversion Shares could dilute
the ownership interests of other stockholders of the Company. The Company
further acknowledges that its obligation to issue Conversion Shares upon
conversion of the Convertible Note is absolute and unconditional regardless
of
the dilutive effect that such issuance may have on the ownership interests
of
other stockholders of the Company.
6
No Conflicts
. The
execution and delivery by the Company of the Transaction Agreements to which
it
is a party did not and will not, the issuance and sale by the Company of the
Securities did not and will not and the consummation of the transactions
contemplated hereby and by the other Transaction Agreements will not, contravene
or constitute a default under or violation of (i) any provision of
applicable law or regulation, (ii) the Company Corporate Documents,
(iii) any agreement, judgment, injunction, order, decree or other
instrument binding upon the Company or any Subsidiary or any of their respective
assets, or result in the creation or imposition of any Lien on any asset of
the
Company or any Subsidiary. The Company and each Subsidiary is in compliance
with
and conforms to all statutes, laws, ordinances, rules, regulations, orders,
restrictions and all other legal requirements of any domestic or foreign
government or any instrumentality thereof having jurisdiction over the conduct
of its businesses or the ownership of its properties, except where such failure
would not have a Material Adverse Effect.
16
7
Financial Information
. Since
June 30, 2006, the Company has timely filed all forms, reports and documents
with the Commission required to be filed by it under the Exchange Act through
the date hereof (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and schedules thereto and
documents (other than exhibits) incorporated by reference therein, being
referred to herein collectively as the “ SEC Reports”). The Company has
delivered or made available to each Purchaser true and complete copies of the
SEC Reports, except for such exhibits and incorporated documents. Such SEC
Reports, at the time filed, complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the Commission
thereunder applicable to such SEC Reports. None of the SEC Reports, including
without limitation, any financial statements or schedules included therein,
contains any untrue statement of a material fact or omits to state a material
fact necessary to in order to make the statements made, in light of the
circumstances under which they were made, not misleading. There have been no
material adverse changes in the Company’s business, properties, results of
operations, condition (financial or otherwise) or prospects since the date
of
the Company’s most recent Report on Form 10_K for the years ended December
31, 2003, December 31, 2004 and December 31, 2005, respectively, which have
not
been disclosed in the Company’s SEC Reports or to the Purchaser in writing. The
audited and unaudited consolidated balance sheets of the Company and its
Subsidiaries contained in the SEC Reports, and the related consolidated
statements of income, changes in stockholders’ equity and changes in cash flows
for the periods then ended, including the footnotes thereto, except as indicated
therein, (i) complied in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission with
respect thereto and (ii) have been prepared in accordance with GAAP
consistently applied throughout the periods indicated, except that the unaudited
financial statements do not contain notes and may be subject to normal audit
adjustments and normal annual adjustments. Such financial statements fairly
present the financial condition of the Company and its Subsidiaries at the
dates
indicated and the consolidated results of their operations and cash flows for
the periods then ended and, except as indicated therein, reflect all claims
against and all Debts and liabilities of the Company and its Subsidiaries,
fixed
or contingent. Since December 31, 2000 (the “ Balance Sheet Date”), except as
disclosed in the SEC Reports, there has been (x) no material adverse change
in the assets or liabilities, or in the business or condition, financial or
otherwise, or in the results of operations or prospects, of the Company and
its
Subsidiaries, whether as a result of any legislative or regulatory change,
revocation of any license or rights to do business, fire, explosion, accident,
casualty, labor trouble, flood, drought, riot, storm, condemnation, act of
God,
public force or otherwise and (y) no material adverse change in the assets
or
liabilities, or in the business or condition, financial or otherwise, or in
the
results of operations or prospects, of the Company and its subsidiaries except
in the ordinary course of business; and no fact or condition exists or is
contemplated or threatened which might cause such a change in the
future.
8
Litigation
. To the
knowledge of the Company, except as set forth on Schedule
4.8,
there
is no action, suit or proceeding pending or threatened against the Company
or
any Subsidiary, before any court or arbitrator or any gov to the knowledge
of
the Company governmental body, agency or official in which there is a reasonable
possibility of an adverse decision which could materially adversely affect
the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or which challenges the validity of
any
Transaction Agreements.
17
9
Compliance with ERISA and other Benefit Plans
.
(a) Each
member of the ERISA Group has fulfilled its obligations under the minimum
funding standards of ERISA and the Code with respect to each Plan and is in
compliance in all material respects with the presently applicable provisions
of
ERISA and the Code with respect to each Plan. No member of the ERISA Group
has
(i) sought a waiver of the minimum funding standard under Section 412 of the
Code in respect of any Plan, (ii) failed to make any required contribution
or
payment to any Plan or Multiemployer Plan or in respect of any Benefit
Arrangement, or made any amendment to any Plan or Benefit Arrangement, which
as
resulted or could result in the imposition of a Lien or the posting of a bond
or
other security under ERISA or the Code or (iii) incurred any liability under
Title IV of ERISA other than a liability to the PBGC for premiums under Section
4007 of ERISA.
(b) The
benefit plans not covered under clause (a) above (including profit sharing,
deferred compensation, stock option, employee stock purchase, bonus, retirement,
health or insurance plans, collectively the “ Benefit Plans”) relating to the
employees of the Company are duly registered where required by, and are in
good
standing in all material respects under, all applicable laws. All required
employer and employee contributions and premiums under the Benefit Plans to
the
date hereof have been made, the respective fund or funds established under
the
Benefit Plans are funded in accordance with applicable laws, and no past service
funding liabilities exist thereunder.
(c) No
Benefit Plans have any unfunded liabilities, either on a “going concern” or
“winding up” basis and determined in accordance with all applicable laws and
actuarial practices and using actuarial assumptions and methods that are
reasonable in the circumstances. No event has occurred and no condition exists
with respect to any Benefit Plans that has resulted or could reasonably be
expected to result in any pension plan having its registration revoked or wound
up (in whole or in part) or refused for the purposes of any applicable laws
or
being placed under the administration of any relevant pension benefits
regulatory authority or being required to pay any taxes or penalties (in any
material amounts) under any applicable laws.
10
Environmental Matters
. The
costs and liabilities associated with Environmental Laws (including the cost
of
compliance therewith) are unlikely to have a material adverse effect on the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or any Subsidiary. Each of the Company
and the Subsidiaries conducts its businesses in compliance in all material
respects with all applicable Environmental Laws.
11
Taxes
. All
United States federal, state, county, municipality, local or foreign income
tax
returns and all other material tax returns (including foreign tax returns)
which
are required to be filed by or on behalf of the Company and each Subsidiary
have
been filed and all material taxes due pursuant to such returns or pursuant
to
any assessment received by the Company and each Subsidiary have been paid except
those being disputed in good faith and for which adequate reserves have been
established. The charges, accruals and reserves on the books of the Company
and
each Subsidiary in respect of taxes and other governmental charges have been
established in accordance with GAAP.
18
12
Investments, Joint Ventures
. Other
than as set forth in Schedule
4.12,
the
Company has no Subsidiaries or other direct or indirect Investment in any
Person, and the Company is not a party to any partnership, management,
shareholders’ or joint venture or similar agreement.
13
Not an Investment Company
.
Neither the Company nor any Subsidiary is an “Investment Company” within the
meaning of Investment Company Act of 1940, as amended.
14
Full Disclosure
. The
information heretofore furnished by the Company to Purchaser for purposes of
or
in connection with this Agreement or any transaction contemplated hereby does
not, and all such information hereafter furnished by the Company or any
Subsidiary to Purchaser will not (in each case taken together and on the date
as
of which such information is furnished), contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements contained therein, in the light of the circumstances under which
they
are made, not misleading.
15
No Solicitation; No Integration with Other Offerings
. No
form of general solicitation or general advertising was used by the Company
or,
to the best of its actual knowledge, any other Person acting on behalf of the
Company, in connection with the offer and sale of the Securities. Neither the
Company, nor, to its knowledge, any Person acting on behalf of the Company,
has,
either directly or indirectly, sold or offered for sale to any Person (other
than Purchaser) any of the Securities or, within the six months prior to the
date hereof, any other similar security of the Company except as contemplated
by
this Agreement, and the Company represents that neither itself nor any Person
authorized to act on its behalf (except that the Company makes no representation
as to Purchaser and their Affiliates) will sell or offer for sale any such
security to, or solicit any offers to buy any such security from, or otherwise
approach or negotiate in respect thereof with, any Person or Persons so as
thereby to cause the issuance or sale of any of the Securities to be in
violation of any of the provisions of Section 5 of the Securities Act
16
Permits
. (a)
Each of the Company and its Subsidiaries has all material Permits; (b) all
such
Permits are in full force and effect, and each of the Company and its
Subsidiaries has fulfilled and performed all material obligations with respect
to such Permits; (c) no event has occurred which allows, or after notice of
lapse of time would allow, revocation or termination by the issuer thereof
or
which results in any other material impairment of the rights of the holder
of
any such Permit; and (d) the Company has no reason to believe that any
governmental body or agency is considering limiting, suspending or revoking
any
such Permit.
19
17
Leases
.
Neither the Company nor any Subsidiary is a party to any capital lease
obligation with a value greater than $100,000 or to any operating lease with
an
aggregate annual rental greater than $100,000 during the life of such
lease.
18
Absence of Any Undisclosed Liabilities or Capital Calls
. There
are no liabilities of the Company or any Subsidiary of any kind whatsoever,
whether accrued, contingent, absolute, determined, determinable or otherwise,
and there is no existing condition, situation or set of circumstances which
would reasonably be expected to result in such a liability, other than (i)
those
liabilities provided for in the financial statements delivered pursuant to
Section 4.7 and (ii) other undisclosed liabilities which, individually or in
the
aggregate, would not have a Material Adverse Effect.
19
Public Utility Holding Company
.
Neither the Company nor any Subsidiary is, or will be upon issuance and sale
of
the Securities and the use of the proceeds described herein, subject to
regulation under the Public Utility Holding Company Act of 1935, as amended,
the
Federal Power Act, the Interstate Commerce Act or to any federal or state
statute or regulation limiting its ability to issue and perform its obligations
under any Transaction Agreement.
20
Intellectual Property Rights
. Each
of the Company and its Subsidiaries owns, or is licensed under, and has the
rights to use, all material patents, trademarks, trade names, copyrights,
technology, know-how and processes (collectively, “ Intellectual Property”) used
in, or necessary for the conduct of its business; no claims have been asserted
by any Person to the use of any such Intellectual Property or challenging or
questioning the validity or effectiveness of any license or agreement related
thereto. To the best of Company’s and its Subsidiaries’ knowledge, there is no
valid basis for any such claim and the use of such Intellectual Property by
the
Company and its Subsidiaries will not infringe upon the rights of any
Person.
21
Insurance
. The
Company and its Subsidiaries maintain, with those insurance companies listed
on
Schedule
4.21,
insurance in at least such amounts and against such risks such that any
uninsured loss would not have a Material Adverse Effect. All insurance coverages
of the Company and its Subsidiaries are in full force and effect and there
are
no past due premiums in respect of any such insurance.
22
Title to Properties
. The
Company and its Subsidiaries have good and marketable title to all their
respective properties free and clear of all Liens.
23
Internal Accounting Controls
. The
Company and each of its Subsidiaries maintain a system of internal accounting
controls sufficient, in the judgment of the Company’s Board of Directors, to
provide reasonable assurance that (i) transactions are executed in accordance
with managements’ general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management’s general or specific
authorization, and (iv) the recorded accountability for assets is compared
with
the existing assets at reasonable intervals and appropriate action is taken
with
respect to any differences.
20
24
Subsidiaries
. Except
for the directly and indirectly owned subsidiaries of the Company as set forth
on Schedule
4.24
(the
“Subsidiaries”), the Company does not own or hold any shares of stock or any
other security or interest in any other equity, or any rights to acquire any
such security or interest. Except for the Subsidiaries disclosed on Schedule
4.24,
the
Company has never had any subsidiary corporation of which the securities having
a majority of voting power in electing the board of directors or representing
a
majority of the economic interests were, at the time as of which any
determination was made, owned by the Company either directly or indirectly.
The
number of authorized, issued and outstanding shares of capital stock of the
Subsidiaries is as set forth on Schedule
4.24.
All
outstanding shares of the Subsidiaries capital stock are validly issued, fully
paid and nonassessable, are free from, and were not issued in violation of
any
preemptive rights, and are owned of record and beneficially by the
Company..
25
Foreign Practices
.
Neither the Company nor any of its Subsidiaries nor, to the Company’s knowledge,
any employee or agent of the Company or any Subsidiary has made any payments
of
funds of the Company or Subsidiary, or received or retained any funds, in each
case in violation of any law, rule or regulation.
ARTICLE
5.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
1
Purchaser
.
Purchaser hereby represents and warrants to the Company that:
(a) Purchaser
is an “accredited investor” within the meaning of Rule 501(a) under the
Securities Act and the Securities to be acquired by it pursuant to this
Agreement are being acquired for its own account, for investment purposes,
and,
as of the date hereof, not with a view toward, or for sale in connection with,
any distribution thereof except in compliance with applicable United States
federal and state securities law; provided that the disposition of Purchaser’s
property shall at all times be and remain within its control;
(b) the
execution, delivery and performance of this Agreement and the purchase of the
Securities pursuant thereto are within Purchaser’s corporate or partnership
powers, as applicable, and have been duly and validly authorized by all
requisite corporate or partnership action;
(c) this
Agreement has been duly executed and delivered by Purchaser;
(d) the
execution and delivery by Purchaser of the Transaction Agreements to which
it is
a party does not, and the consummation of the transactions contemplated hereby
and thereby will not, contravene or constitute a default under or violation
of
(i) any provision of applicable law or regulation, or (ii) any agreement,
judgment, injunction, order, decree or other instrument binding upon
Purchaser;
21
(e) Purchaser
understands that the Securities have not been registered under the Securities
Act and may not be transferred or sold except as specified in this Agreement
or
the remaining Transaction Agreements;
(f) this
Agreement constitutes a valid and binding agreement of Purchaser enforceable
in
accordance with its terms, subject to (i) applicable bankruptcy, insolvency
or
similar laws affecting the enforceability of creditors rights generally and
(ii)
equitable principles of general applicability;
(g) Purchaser
has such knowledge and experience in financial and business matters so as to
be
capable of evaluating the merits and risks of its investment in the Securities
and Purchaser is capable of bearing the economic risks of such
investment;
(h) Purchaser
is knowledgeable, sophisticated and experienced in business and financial
matters; Purchaser has previously invested in securities similar to the
Securities and fully understands the limitations on transfer described herein;
Purchaser has been afforded access to information about the Company and the
financial condition, results of operations, property, management and prospects
of the Company sufficient to enable it to evaluate its investment in the
Securities; Purchaser has been afforded the opportunity to ask such questions
as
it has deemed necessary of, and to receive answers from, representatives of
the
Company concerning the terms and conditions of the offering of the Securities
and the merits and the risks of investing in the Securities; and Purchaser
has
been afforded the opportunity to obtain such additional information which the
Company possesses or can acquire that is necessary to verify the accuracy and
completeness of the information given to Purchaser concerning the Company.
The
foregoing does not in any way relieve the Company of its representations and
other undertakings hereunder, and shall not limit Purchaser’s ability to rely
thereon;
(i) no
part
of the source of funds used by Purchaser to acquire the Securities constitutes
assets allocated to any separate account maintained by Purchaser in which any
employee benefit plan (or its related trust) has any interest;
(j) no
form
of general advertising was received by the Purchaser or any other person acting
on behalf of the Purchaser; and
(k) Purchaser
is a corporation organized under the laws of Bermuda.
22
ARTICLE
6.
CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES
1
Conditions Precedent to Purchaser’s Obligations to Purchase
. The
obligation of Purchaser hereunder to purchase the Convertible Note at the
Closing is subject to the satisfaction, on or before the Closing Date, of each
of the following conditions, provided that these conditions are for Purchaser’s
sole benefit and may be waived by Purchaser at any time in its sole
discretion:
(a) The
Company shall have duly executed this Agreement, the Warrant, the Mortgages
and
the Registration Rights Agreement and delivered the same to
Purchaser;
(b) The
Company shall have delivered to Purchaser duly executed Convertible Note in
accordance with Section 2.3 hereof;
(c) The
representations and warranties of the Company contained in each Transaction
Agreement shall be true and correct in all material respects as of the date
when
made and as of the Closing Date as though made at such time (except for
representations and warranties that speak as of a specified date) and the
Company shall have performed, satisfied and complied with all covenants,
agreements and conditions required by such Transaction Agreements to be
performed, satisfied or complied with by it at or prior to the Closing Date.
Purchaser shall have received an Officer’s Certificate executed by the chief
executive officer of the Company, dated as of the Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by Purchaser,
including but not limited to certificates with respect to the Company Corporate
Documents, resolutions relating to the transactions contemplated hereby and
the
incumbencies of certain officers and Directors of the Company. The form of
such
certificate is attached hereto as Exhibit
C;
(d) The
Company shall have received all governmental, Board of Directors, shareholders
and third party consents and approvals necessary or desirable in connection
with
the issuance and sale of the Securities and the consummation of the transactions
contemplated by the Transaction Agreements;
(e) All
applicable waiting periods in respect to the issuance and sale of the Securities
shall have expired without any action having been taken by any competent
authority that could restrain, prevent or impose any materially adverse
conditions thereon or that could seek or threaten any of the
foregoing;
(f) No
law or
regulation shall have been imposed or enacted that, in the judgment of
Purchaser, could adversely affect the transactions set forth herein or in the
other Transaction Agreements, and no law or regulation shall have been proposed
that in the reasonable judgment of Purchaser could reasonably have any such
effect;
(g) Purchaser
shall have received an opinion, dated the Closing Date, of counsel to the
Company, in form and substance satisfactory to Purchaser;
23
(h) All
fees
and expenses due and payable by the Company on or prior to the Closing Date
shall have been paid;
(i) The
Company Corporate Documents and the Subsidiary Corporate Documents, if any,
shall be in full force and effect and no term or condition thereof shall have
been amended, waived or otherwise modified without the prior written consent
of
Purchaser;
(j) There
shall have occurred no material adverse change in the business, condition
(financial or otherwise), operations, performance, properties or prospects
of
the Company or any Subsidiary since January 1, 2006;
(k) To
the
Company’s knowledge, there shall exist no action, suit, investigation,
litigation or proceeding pending or threatened in any court or before any
arbitrator or governmental instrumentality that challenges the validity of
or
purports to affect this Agreement or any other Transaction Agreement, or other
transaction contemplated hereby or thereby or that could reasonably be expected
to have a Material Adverse Effect, or any material adverse effect on the
enforceability of the Transaction Agreements or the Securities or the rights
of
the holders of the Securities or Purchaser hereunder;
(l) Purchaser
shall have confirmed the receipt of the Convertible Note to be issued, duly
executed by the Company in the denominations and registered in the name of
Purchaser;
(m) Immediately
before and after the Closing Date, no Default or Event of Default shall have
occurred and be continuing;
(n) Purchaser
shall have received all other opinions, resolutions, certificates, instruments,
agreements or other documents as they shall reasonably request;
(o) Company
shall have delivered to Purchaser the Use of Proceeds Schedule
7.8.
2
Conditions to the Company’s Obligations
. The
obligations of the Company to issue and sell the Securities to Purchaser
pursuant to this Agreement are subject to the satisfaction, at or prior to
any
Closing Date, of the following conditions:
(a) The
representations and warranties of Purchaser contained herein shall be true
and
correct in all material respects on the Closing Date and Purchaser shall have
performed and complied in all material respects with all agreements required
by
this Agreement to be performed or complied with by Purchaser at or prior to
the
Closing Date;
24
(b) The
issue
and sale of the Securities by the Company shall not be prohibited by any
applicable law, court order or governmental regulation;
(c) Receipt
by the Company of duly executed counterparts of this Agreement and the
Registration Rights Agreement signed by Purchaser;
(d) The
Company shall have received payment of the Purchase Price, less the Expense
Reimbursement Fee.
ARTICLE
7.
AFFIRMATIVE COVENANTS
The
Company hereby agrees that, from and after the date hereof for so long as any
Convertible Note remains outstanding and for the benefit of
Purchaser:
1
Information
. The
Company will deliver to each holder of the Convertible Note:
(a) within
two (2) days after any officer of the Company obtains knowledge of a Default
or
Event of Default, or that any Person has given any notice or taken any action
with respect to a claimed Default hereunder, a certificate of the chief
financial officer of the Company setting forth the details thereof and the
action which the Company is taking or proposed to take with respect
thereto;
(b) promptly
upon the mailing thereof to the shareholders of the Company generally, copies
of
all financial statements, reports and proxy statements so mailed and any other
document generally distributed to shareholders;
(c) at
least
two (2) Business Days prior to the consummation of any Financing or other event
requiring a repayment of the Convertible Note under Section 3.4, notice thereof
together with a summary of all material terms thereof and copies of all
documents and instruments associated therewith;
(d) notice
promptly upon the occurrence of any event by which the Reserved Amount becomes
less than the sum of (i) 1.5 times the maximum number of Conversion Shares
issuable pursuant to the Transaction Agreements; and
(e) promptly
following knowledge of the commencement thereof, notice and a description in
reasonable detail of any litigation or proceeding to which the Company or any
Subsidiary is a party in which the amount involved is $250,000 or more and
not
covered by insurance or in which injunctive or similar relief is
sought.
2
Payment of Obligations
. The
Company will, and will cause each Subsidiary to, pay and discharge, at or before
maturity, all their respective material obligations, including, without
limitation, tax liabilities, except where the same may be contested in good
faith by appropriate proceedings and will maintain, in accordance with GAAP,
appropriate reserves for the accrual of any of the same.
25
3
Maintenance of Property; Insurance
. The
Company will, and will cause each Subsidiary to, keep all property useful and
necessary in its business in good working order and condition, ordinary wear
and
tear excepted. In addition, the Company and each Subsidiary will maintain
insurance in at least such amounts and against such risks as it has insured
against as of the Closing Date.
4
Maintenance of Existence
. The
Company will, and will cause each Subsidiary to, continue to engage in business
of the same general type as now conducted by the Company and such Subsidiaries,
and will preserve, renew and keep in full force and effect its respective
corporate existence and their respective material rights, privileges and
franchises necessary or desirable in the normal conduct of
business.
5
Compliance with Laws
. The
Company will, and will cause each Subsidiary to, comply, in all material
respects, with all federal, state, municipal, local or foreign applicable laws,
ordinances, rules, regulations, municipal by-laws, codes and requirements of
governmental authorities (including, without limitation, Environmental Laws
and
ERISA and the rules and regulations thereunder) except (i) where compliance
therewith is contested in good faith by appropriate proceedings or (ii) where
non-compliance therewith could not reasonably be expected, in the aggregate,
to
have a material adverse effect on the business, condition (financial or
otherwise), operations, performance, properties or prospects of the Company
or
such Subsidiary.
6
Inspection of Property, Books and Records
. The
Company will, and will cause each Subsidiary to, keep proper books of record
and
account in which full, true and correct entries shall be made of all dealings
and transactions in relation to their respective businesses and activities;
and
will permit, during normal business hours, Purchaser’ Representative or an
affiliate thereof, as representatives of Purchaser, to visit and inspect any
of
their respective properties, upon reasonable prior notice, to examine and make
abstracts from any of their respective books and records and to discuss their
respective affairs, finances and accounts with their respective executive
officers and independent public accountants (and by this provision the Company
authorizes its independent public accountants to disclose and discuss with
Purchaser the affairs, finances and accounts of the Company and its Subsidiaries
in the presence of a representative of the Company; provided, however, that
such
discussions will not result in any unreasonable expense to the Company, without
Company consent), all at such reasonable times.
7
Investment Company Act
.
Provided that Purchaser is not any of the following described entities, the
Company will not be or become an open-end investment trust, unit investment
trust or face-amount certificate company that is or is required to be registered
under Section 8 of the Investment Company Act of 1940, as amended.
8
Use of Proceeds
. The
proceeds from the issuance and sale of the Convertible Note by the Company
shall
be used in accordance with Schedule
7.8
attached
hereto. None of the proceeds from the issuance and sale of the Convertible
Note
by the Company pursuant to this Agreement will be used directly or indirectly
for the purpose, whether immediate, incidental or ultimate, of purchasing or
carrying any “margin stock” within the meaning of Regulation G of the Board of
Governors of the Federal Reserve System.
26
9
Compliance with Terms and Conditions of Material Contracts
. The
Company will, and will cause each Subsidiary to, comply, in all respects, with
all terms and conditions of all material contracts to which it is
subject.
10
Reserved Shares
.
(a) The
Company shall at all times have authorized, and reserved for the purpose of
issuance, a sufficient number of shares of Common Stock to provide for the
full
conversion of the outstanding Convertible Note and issuance of the Conversion
Shares (based on the conversion price of the Convertible Note in effect from
time to time) (the “Reserved Amount”). The Company shall not reduce the Reserved
Amount without the prior written consent of Purchaser. With respect to all
Securities which contain an indeterminate number of shares of Common Stock
issuable in connection therewith (such as the Convertible Note), the Company
shall include in the Reserve Amount, no less than two (2) times the number
of
shares that is then actually issuable upon conversion or exercise of such
Securities. If at any time the number of shares of Common Stock authorized
and
reserved for issuance is below the number of Conversion Shares issued or
issuable upon conversion of the Convertible Note, the Company will promptly
take
all corporate action necessary to authorize and reserve a sufficient number
of
shares, including, without limitation, either (x) calling a special meeting
of
shareholders to authorize additional shares, in the case of an insufficient
number of authorized shares or (y) in lieu thereof, consummating the immediate
repurchase of the Convertible Note contemplated in Sections 3.4(c)
hereof.
11
Transfer Agent Instructions
. Upon
receipt of a Notice of Conversion or Notice of Exercise, as applicable, the
Company shall immediately direct the Company's transfer agent to issue
certificates, registered in the name of Purchaser or its nominee, for the
Conversion Shares, in such amounts as specified from time to time by Purchaser
to the Company upon proper conversion of the Convertible Note. Upon conversion
of any Convertible Note in accordance with their terms, the Company will, and
will use its best lawful efforts to cause its transfer agent to, issue one
or
more certificates representing shares of Common Stock in such name or names
and
in such denominations specified by a Purchaser in a Notice of Conversion. As
long as the Registration Statement contemplated by the Registration Rights
Agreement shall remain effective, the shares of Common Stock issuable upon
conversion of any Convertible Note shall be issued to any transferee of such
shares from Purchaser without any restrictive legend upon appropriate evidence
of transfer in compliance with the Securities Act and the rules and regulations
of the Commission; provided that for so long as the Registration Statement
is
effective, no opinion of counsel will be required to effect any such transfer.
The Company further warrants and agrees that no instructions other than these
instructions have been or will be given to its transfer agent. Nothing in this
Section 7.11 shall affect in any way a Purchaser’s obligation to comply with all
securities laws applicable to Purchaser upon resale of such shares of Common
Stock, including any prospectus delivery requirements.
27
12
Maintenance of Reporting Status; Supplemental Information
. So
long as any of the Securities are outstanding, the Company shall timely file
all
reports required to be filed with the Commission pursuant to the Exchange Act.
The Company shall not terminate its status as an issuer required to file reports
under the Exchange Act, even if the Exchange Act or the rules and regulations
thereunder would permit such termination. If at anytime the Company is not
subject to the requirements of Section 13 or 15(d) of the Exchange Act, the
Company will promptly furnish at its expense, upon request, for the benefit
of
the holders from time to time of Securities, and prospective purchasers of
Securities, information satisfying the information requirements of Rule 144
under the Securities Act.
13
Form D; Blue Sky Laws
. The
Company agrees to file a “Form D” with respect to the Securities as required
under Regulation D of the Securities Act and to provide a copy thereof to
Purchaser promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary to qualify the Securities for sale, if required, to Purchaser at
the
Closing pursuant to this Agreement under applicable securities or “blue sky”
laws of the states of the United States (or to obtain an exemption from such
qualification), and shall provide evidence of any such action so taken to
Purchaser on or prior to the Closing Date.
ARTICLE
8.
NEGATIVE COVENANTS
The
Company hereby agrees that after the date hereof for so long as any Convertible
Note remains outstanding and for the benefit of Purchaser:
1
Limitations on Debt or Other Liabilities
.
Neither the Company nor any Subsidiary will create, incur, assume or suffer
to
exist (at any time after the Closing Date, after giving effect to the
application of the proceeds of the issuance of the Securities) (i) any Debt
except (x) Debt incurred in a Permitted Financing, (y) Debt incurred in
connection with equipment leases to which the Company or its Subsidiaries are
a
party incurred in the ordinary course of business; and (z) Debt incurred in
connection with trade accounts payable, imbalances and refunds arising in the
ordinary course of business and (ii) any equity securities (including Derivative
Securities) (other than those securities that are issuable (x) under or pursuant
to stock option plans, warrants or other rights programs that exist as of the
date hereof, (z) in connection with the acquisition (including by merger) of
a
business or of assets otherwise permitted under this Agreement), unless the
Company complies with the mandatory prepayment terms of Section 3.4(b)
hereof.
2
Transactions with Affiliates
. The
Company and each Subsidiary will not, directly or indirectly, pay any funds
to
or for the account of, make any investment (whether by acquisition or stock
or
indebtedness, by loan, advance, transfer of property, guarantee or other
agreement to pay, purchase or service, directly or indirectly, and Debt, or
otherwise) in, lease, sell, transfer or otherwise dispose of any assets,
tangible or intangible, to, or participate in, or effect any transaction in
connection with any joint enterprise or other joint arrangement with, any
Affiliate, except, (1) pursuant to those agreements specifically identified
on
Schedule
8.2
attached
hereto (with a copy of such agreements annexed to such Schedule
8.2)
or
hereafter entered into with the prior written consent of Purchaser and (2)
on
terms to the Company or such Subsidiary no less favorable than terms that could
be obtained by the Company or such Subsidiary from a Person that is not an
Affiliate of the Company upon negotiation at arms’ length, as determined in good
faith by the Board of Directors of the Company; provided
that no
determination of the Board of Directors shall be required with respect to any
such transactions entered into in the ordinary course of business.
28
3
Merger or Consolidation
. The
Company will not, in a single transaction or a series of related transactions
(i) consolidate with or merge with or into any other Person, or (ii) permit
any
other Person to consolidate with or merge into it, unless the Company shall
be
the survivor of such merger or consolidation and (x) immediately before and
immediately after given effect to such transaction (including any indebtedness
incurred or anticipated to be incurred in connection with the transaction),
no
Default or Event of Default shall have occurred and be continuing; and (y)
the
Company has delivered to Purchaser an Officer’s Certificate stating that such
consolidation, merger or transfer complies with this Agreement, and that all
conditions precedent in this Agreement relating to such transaction have been
satisfied.
4
Limitation on Asset Sales
.
Neither the Company nor any Subsidiary will consummate an Asset Sale of material
assets of the Company or any Subsidiary without the prior written consent of
Purchaser, which consent shall not be unreasonably withheld. As used herein,
“Asset Sale” means any sale, lease, transfer or other disposition (or series of
related sales, leases, transfers or dispositions) or sales of capital stock
of a
Subsidiary (other than directors’ qualifying shares), property or other assets
(each referred to for the purpose of this definition as a “disposition”),
including any disposition by means of a merger, consolidation or similar
transaction other than a disposition of property or assets at fair market value
in the ordinary course of business.
5
Restrictions on Certain Amendments
.
Neither the Company nor any Subsidiary will waive any provision of, amend,
or
suffer to be amended, any provision of such entity’s existing Debt, any material
contract or agreement, any Company Corporate Document or Subsidiary Corporate
Document if such amendment, in the Company’s reasonable judgment, would
materially adversely affect Purchaser or the holders of the Securities without
the prior written consent of Purchaser.
6
Restrictions on Issuances of Securities
.
(a) In
addition to and not in lieu of the covenant specified in Section 8.1
above:
29
(1) From
the
Closing Date and continuing until 180 days following the date on which the
Registration Statement becomes effective, the Company agrees that it will not
issue any of its equity securities (or securities convertible into or
exchangeable or exercisable for equity securities (the “Derivative Securities”))
on terms that allow a holder thereof to acquire such equity securities (or
Derivative Securities) at a discount to the Market Price of
the
Common Stock at the time of issuance or, in the case of Derivative Securities,
at a conversion price based on any formula (other than standard anti-dilution
provisions) based on the Market Price on a date later than the date of issuance
which is below the Market Price on the date of issuance (each such event, a
“Discounted Equity Offering”) other than (i) borrowings under conventional
credit facilities existing as of the date hereof, (ii) stock issued or credit
facilities to be established in connection with acquisitions, (iii) equity
securities or Derivative Securities in connection with employee and director
stock option and stock purchase plans and (iv) securities issued under the
Convertible Note or Warrants. In addition, the Company shall not issue any
equity securities in connection with a strategic alliance entered into by the
Company unless such securities are the subject of a one year statutory or
contractual hold period or, if not subject to such a hold period, unless the
Purchaser has fully converted all outstanding Convertible Note and exercised
all
Warrants. As used herein, “discount” shall include, but not be limited to, (i)
any warrant, right or other security granted or offered in connection with
such
issuance which, on the applicable date of grant, is offered with an exercise
or
conversion price, as the case may be, at less than the then current Market
Price
of the Common Stock or, if such security has an exercise or conversion price
based on any formula (other than standard anti-dilution provisions) based on
the
Market Price on a date later than the date of issuance, then at a price below
the Market Price on such date of exercise or conversion, as the case may be,
or
(ii) any commissions, fees or other allowances paid in connection with such
issuances (other than customary underwriter or placement agent commissions,
fees
or allowances). For the purposes of determining the Market Price at which Common
Stock is acquired under this Section, normal underwriting commissions and
placement fees (including underwriters’ warrants) shall be excluded.
Notwithstanding the foregoing, the Company may enter into the following types
of
transactions (collectively referred to as "Permitted Financings"): (1)
"permanent financing" transactions, which would include any form of debt or
equity financing (other than an underwritten offering), which is followed by
a
reduction of the said financing commitment to zero and payment of all related
fees and expenses; (2) "project financing" which provide for the issuance of
recourse debt instruments in connection with the operation of the Company's
business as presently conducted or as proposed to be conducted; (3) an
underwritten offering of Common Stock, provided that such offering provides
for
the registration of the Conversion Shares if the Registration Statement has
not
been declared effective; (4) any non-convertible financings solely for
alternative fuel projects that do not create a direct obligation to the Company
or involve the issuance of Company debt or equity; and (5) other financing
transactions specifically consented to in writing by the Purchaser.
30
(2) The
180-day restrictive period set forth in paragraph (1) of this Section 8.6(a)
shall be increased by one day for each day a Registration Default has occurred
and not been cured by the Company.
(b) Until
such time as all of the Convertible Note has been either redeemed or converted
into Conversion Shares in full, the Company agrees it will not issue any of
its
equity securities (or Derivative Securities), unless any shares of Common Stock
issued or issuable in connection therewith are “restricted securities.” As used
herein “restricted securities” shall mean securities which may not be sold prior
to twelve (12) months following the date of issuance of such securities by
virtue of contractual restrictions imposed by the Company or
otherwise.
7
Limitation on Stock Repurchases
. Except
as otherwise set forth in the Convertible Note and the Warrants, the Company
shall not, without the written consent of the Majority Holders, redeem,
repurchase or otherwise acquire (whether for cash or in exchange for property
or
other securities or otherwise) any shares of capital stock of the Company or
any
warrants, rights or options to purchase or acquire any such
shares.
8
Limitation on Sales By Officers and Employee Directors
. For a
period of 180 days following the date the Registration Statement is declared
effective by the Commission, no executive officer or a employee director of
the
Company shall, individually, sell or otherwise dispose of (other than by reason
of death or disability) to any Person an amount of Common stock greater than
that allowed by Rule 144, promulgated under the Securities Act.
ARTICLE
9.
RESTRICTIVE LEGENDS
1
Restrictions on Transfer
. From
and after their respective dates of issuance, none of the Securities shall
be
transferable except upon the conditions specified in this Article IX, which
conditions are intended to ensure compliance with the provisions of the
Securities Act in respect of the Transfer of any of such Securities or any
interest therein. Purchaser will use its best efforts to cause any proposed
transferee of any Securities held by it to agree to take and hold such
Securities subject to the provisions and upon the conditions specified in this
Article IX.
2
Legends.
The
Conversion Shares, upon resale by the Purchaser pursuant to the Registration
Statement, shall be freely tradeable and unrestricted.
31
3 Notice
of Proposed Transfers
. Prior
to any proposed Transfer of the Securities (other than a Transfer (i) registered
or exempt from registration under the Securities Act, (ii) to an affiliate
of a
Purchaser which is an “accredited investor” within the meaning of Rule 501(a)
under the Securities Act, provided that any such transferee shall agree to
be
bound by the terms of this Agreement and the Registration Rights Agreement,
or
(iii) to be made in reliance on Rule 144 under the Securities Act), the holder
thereof shall give written notice to the Company of such holder’s intention to
effect such Transfer, setting forth the manner and circumstances of the proposed
Transfer, which shall be accompanied by (a) an opinion of counsel reasonably
acceptable to the Company, confirming that such transfer is in compliance with
and does not give rise to a violation of the Securities Act, (B) representation
letters in form and substance reasonably satisfactory to the Company to ensure
compliance with the provisions of the Securities Act and (C) letters in form
and
substance reasonably satisfactory to the Company from each such transferee
stating such transferee’s agreement to be bound by the terms of this Agreement
and the Registration Rights Agreement. Such proposed Transfer may be effected
only if the Company shall have received such notice of transfer, opinion of
counsel, representation letters and other letters referred to in the immediately
preceding sentence, whereupon the holder of such Securities shall be entitled
to
Transfer such Securities in accordance with the terms of the notice delivered
by
the holder to the Company.
ARTICLE
10.
ADDITIONAL AGREEMENTS AMONG THE PARTIES
1
Liquidated Damages
.
(a) The
Company shall cause its transfer agent to, issue and deliver shares of Common
Stock consistent with Section 7.11 hereof within three (3) Trading Days after
delivery of a Notice of Conversion, as applicable (the “Deadline”) to Purchaser
(or any party receiving Securities by transfer from Purchaser) at the address
of
Purchaser set forth in the Notice of Conversion. The Company understands that
a
delay in the issuance of such certificates after the Deadline could result
in
economic loss to Purchaser.
(b) Without
in any way limiting Purchaser’s right to pursue other remedies, including actual
damages and/or equitable relief, the Company agrees that if delivery of the
Conversion Shares is more than one (1) Business Day after the Deadline (other
than a failure due to the circumstances described in Section 4.3 of the
Convertible Note, which failure shall be governed by such Section) the Company
shall pay to Purchaser, as liquidated damages and not as a penalty, $500 for
each $100,000 of Convertible Note then outstanding per day in cash, for each
of
the first ten (10) days beyond the Deadline, and $1,000 for each $100,000 of
Convertible Note then outstanding per day in cash for each day thereafter that
the Company fails to deliver such Common Stock. Such cash amount shall be paid
to Purchaser by the last day of the calendar week following the week in which
it
has accrued or, at the option of Purchaser (by written notice to the Company
by
the first day of the week following the week in which it has accrued), shall
be
added to the principal amount of the Convertible Note (if then outstanding)
payable to Purchaser, in which event interest shall accrue thereon in accordance
with the terms of the Convertible Note and such additional principal amount
shall be convertible into Common Stock in accordance with the terms of the
Convertible Note.
32
2
Conversion Notice
. The
Company agrees that, in addition to any other remedies which may be available
to
Purchaser, including, but not limited to, the remedies available under Section
10.1, in the event the Company fails for any reason (other than as a result
of
actions taken by a Purchaser in breach of this Agreement) to effect delivery
to
a Purchaser of certificates with or without restrictive legends as contemplated
by Article IX representing the shares of Common Stock on or prior to the
Deadline after conversion of any Convertible Note, Purchaser will be entitled,
if prior to the delivery of such certificates, to revoke the Notice of
Conversion by delivering a notice to such effect to the Company whereupon the
Company and Purchaser shall each be restored to their respective positions
immediately prior to delivery of such Notice of Conversion.
3
Conversion Limit
.
Notwithstanding the conversion rights under the Convertible Note, unless
Purchaser delivers a waiver in accordance with the last sentence in this
Section, in no event shall Purchaser be entitled to convert any portion of
the
Convertible Note, in excess of that portion of the Convertible Note, as
applicable, of which the sum of (i) the number of shares of Common Stock
beneficially owned by Purchaser and its Affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the Convertible Note or other Derivative Securities
convertible into or exchangeable for shares of Common Stock which contain a
limitation similar to that set forth in this Section 10.3), and (ii) the number
of shares of Common Stock issuable upon the conversion of the portion of the
Convertible Note with respect to which this determination is being made, would
result in beneficial ownership by Purchaser and its Affiliates of more than
4.99% of the outstanding shares of Common Stock. For purposes of Section 10.3(i)
beneficial ownership shall be determined in accordance with Rule 13d-3 of the
Exchange Act and Regulations 13 D-G thereunder, except as otherwise provided
in
this Section 10.3. The foregoing limitation shall not apply and shall be of
no
further force or effect (i) immediately preceding and upon the occurrence of
any
voluntary or mandatory redemption or repayment transaction described herein
or
in the Convertible Note, (ii) immediately preceding and upon any Sale Event,
(iii) on the Maturity Date or (iv) following the occurrence of any Event of
Default which is not cured for a period of ten (10) calendar days.
4
Registration Rights
.
(a) The
Company shall grant Purchaser registration rights covering the Conversion Shares
(the “Registrable Securities”) on the terms set forth in the Registration Rights
Agreement and herein.
(b) The
Company shall prepare and file on or before the 60th
day
following the Closing Date (the “Filing Date”), a registration statement or
amendment thereto (the “Registration Statement”) to register no less than
10,000,000 shares of Common Stock covering the resale of the Registrable
Securities with the Commission. In the event the Company fails to file the
Registration Statement by the Filing Date for any reason other than Purchaser’s
failure to provide information requested by the Company for the completion
and
filing of the Registration Statement, the Company shall pay to Purchaser as
liquidated damages (and not as a penalty) one percent (1%) of the then
outstanding principal amount of Convertible Note per day until the Registration
Statement is filed with the Commission. The Company shall use its best efforts
to cause the Registration Statement to be declared effective by the Commission
or the earlier of (i) 90 days following the Closing Date, (ii) ten days
following the receipt of a “No Review” Letter from the Commission or (iii) the
first Business Day following the day the Commission determines the Registration
Statement eligible to be declared effective (the “Required Effectiveness Date”).
The Company shall pay all expenses of registration (other than underwriting
fees
and discounts, if any, in respect of Registrable Securities offered and sold
under the registration statement by Purchaser). The Company agrees to file
an
initial written response to the Commission within ten calender days of receipt
of any comments by the Commission relating to the Registration
Statement.
33
(c) If
the
Registration Statement is not declared effective by the Commission by the
Required Effectiveness Date, the Company shall pay to Purchaser, as liquidated
damages (and not as a penalty), an amount equal to 2% of the outstanding
principal amount of the Convertible Note, prorated, for each 30 day period
the
Registration Statement is not declared effective by the Commission. In the
event
the Company fails to obtain a valid registration statement by the 360th day
following the Closing Date, the Company will redeem the Convertible Note and
the
Warrants as set forth in Section 5 of the Convertible Note and Section 13 of
the
Warrants, respectively. Additionally, the Company will grant to Purchaser
certain piggyback registration rights in the event the Company proposes to
effect a registered offering of Common Stock or warrants or both prior to the
filing of the Registration Statement referenced above.
(d) Any
such
liquidated damages shall be paid in cash by the Company to Purchaser by wire
transfer in immediately available funds on the last day of each calendar week
following the event requiring its payment.
(e) If,
following the declaration of effectiveness of the Registration Statement, such
registration statement (or any prospectus or supplemental prospectus contained
therein) shall cease to be effective for any reason (including but not limited
to the occurrence of any event that results in any prospectus or supplemental
prospectus containing an untrue statement of a material fact or omitting a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading), the Company fails to file required amendments to the
Registration Statement in order to allow the Purchaser to resell the Conversion
Shares pursuant to the Registration Statement as unrestricted, unlegended,
freely tradeable shares of Common Stock, or if for any reason there are
insufficient shares of such shares of Common Stock registered under the then
current Registration Statement to effect full conversion of the Convertible
Note
or exercise of the Warrants (a "Registration Default"), the Company shall
immediately take all necessary steps to cause the Registration Statement to
be
amended or supplemented so as to cure such Registration Default. Failure to
cure
a Registration Default within ten (10) Business Days shall result in the Company
paying to Purchaser liquidated damages at the rate of one percent (1%) of the
outstanding principal amount of Convertible Note for each 30 day period
(prorated), the Registration Default remains uncured.
34
ARTICLE
11.
ADJUSTMENT OF FIXED PRICE
1
Reorganization
. The
Conversion Price (the “Fixed Price”) shall be adjusted, as applicable, as
hereafter provided.
2
Share Reorganization
. If and
whenever the Company shall:
(i) subdivide
the outstanding shares of Common Stock into a greater number of
shares;
(ii) consolidate
the outstanding shares of Common Stock into a smaller number of
shares;
(iii) issue
Common Stock or securities convertible into or exchangeable for shares of Common
Stock as a stock dividend to all or substantially all the holders of Common
Stock; or
(iv) make
a
distribution on the outstanding Common Stock to all or substantially all the
holders of Common Stock payable in Common Stock or securities convertible into
or exchangeable for Common Stock;
any
of
such events being herein called a “Share Reorganization,” then in each such case
the applicable Fixed Price shall be adjusted, effective immediately after the
record date at which the holders of Common Stock are determined for the purposes
of the Share Reorganization or, if no record date is fixed, the effective date
of the Share Reorganization, by multiplying the applicable Fixed Price in effect
on such record or effective date, as the case may be, by a fraction of
which:
(i) the
numerator shall be the number of shares of Common Stock outstanding on such
record or effective date (without giving effect to the transaction);
and
(ii) the
denominator shall be the number of shares of Common Stock outstanding after
giving effect to such Share Reorganization, including, in the case of a
distribution of securities convertible into or exchangeable for shares of Common
Stock, the number of shares of Common Stock that would have been outstanding
if
such securities had been converted into or exchanged for Common Stock on such
record or effective date.
3
Rights Offering
. If and
whenever the Company shall issue to all or substantially all the holders of
Common Stock, rights, options or warrants under which such holders are entitled,
during a period expiring not more than 45 days after the record date of such
issue, to subscribe for or purchase Common Stock (or Derivative Securities),
at
a price per share (or, in the case of securities convertible into or
exchangeable for Common Stock, at an exchange or conversion price per share
at
the date of issue of such securities) of less than 95% of the Market Price
of
the Common Stock on such record date (any such event being herein called a
“Rights Offering”), then in each such case the applicable Fixed Price shall be
adjusted, effective immediately after the record date at which holders of Common
Stock are determined for the purposes of the Rights Offering, by multiplying
the
applicable Fixed Price in effect on such record date by a fraction of
which:
35
(i) the
numerator shall be the sum of:
(i) the
number of shares of Common Stock outstanding on such record date;
and
(ii) a
number
obtained by dividing:
(A) either,
(x) the
product of the total number of shares of Common Stock so offered for
subscription or purchase and the price at which such shares are so offered,
or
(y) the
product of the maximum number of shares of Common Stock into or for which the
convertible or exchangeable securities so offered for subscription or purchase
may be converted or exchanged and the conversion or exchange price of such
securities, or, as the case may be, by
(B) the
Market Price of the Common Stock on such record date; and
(ii) the
denominator shall be the sum of:
(i) the
number of shares of Common Stock outstanding on such record date;
and
(ii) the
number of shares of Common Stock so offered for subscription or purchase (or,
in
the case of Derivative Securities, the maximum number of shares of Common Stock
for or into which the securities so offered for subscription or purchase may
be
converted or exchanged).
To
the
extent that such rights, options or warrants are not exercised prior to the
expiry time thereof, the applicable Fixed Price shall be readjusted effective
immediately after such expiry time to the applicable Fixed Price which would
then have been in effect upon the number of shares of Common Stock (or
Derivative Securities) actually delivered upon the exercise of such rights,
options or warrants.
36
4
Special Distribution
. If and
whenever the Company shall issue or distribute to all or substantially all
the
holders of Common Stock:
(i) shares
of
the Company of any class, other than Common Stock;
(ii) rights,
options or warrants; or
(iii) any
other
assets (excluding cash dividends and equivalent dividends in shares paid in
lieu
of cash dividends in the ordinary course);
and
if
such issuance or distribution does not constitute a Share Reorganization or
a
Rights Offering (any such event being herein called a “Special Distribution”),
then in each such case the applicable Fixed Price shall be adjusted, effective
immediately after the record date at which the holders of Common Stock are
determined for purposes of the Special Distribution, by multiplying the
applicable Fixed Price in effect on such record date by a fraction of
which:
(i) the
numerator shall be the difference between:
(A) the
product of the number of shares of Common Stock outstanding on such record
date
and the Market Price of the Common Stock on such date; and
(B) the
fair
market value, as determined by the Directors (whose determination shall be
conclusive), to the holders of Common Stock of the shares, rights, options,
warrants, evidences of indebtedness or other assets issued or distributed in
the
Special Distribution (net of any consideration paid therefor by the holders
of
Common Stock), and
(ii) the
denominator shall be the product of the number of shares of Common Stock
outstanding on such record date and the Market Price of the Common Stock on
such
date.
5
Capital Reorganization
. If and
whenever there shall occur:
(i) a
reclassification or redesignation of the shares of Common Stock or any change
of
the shares of Common Stock into other shares, other than in a Share
Reorganization;
(ii) a
consolidation, merger or amalgamation of the Company with, or into another
body
corporate; or
(iii) the
transfer of all or substantially all of the assets of the Company to another
body corporate;
37
(any
such
event being herein called a “Capital Reorganization”), then in each such case
the holder who exercises the right to convert Convertible Note after the
effective date of such Capital Reorganization shall be entitled to receive
and
shall accept, upon the exercise of such right, in lieu of the number of shares
of Common Stock to which such holder was theretofore entitled upon the exercise
of the conversion privilege, the aggregate number of shares or other securities
or property of the Company or of the body corporate resulting from such Capital
Reorganization that such holder would have been entitled to receive as a result
of such Capital Reorganization if, on the effective date thereof, such holders
had been the holder of the number of shares of Common Stock to which such holder
was theretofore entitled upon conversion; provided, however, that no such
Capital Reorganization shall be consummated in effect unless all necessary
steps
shall have been taken so that such holders shall thereafter be entitled to
receive such number of shares or other securities of the Company or of the
body
corporate resulting from such Capital Reorganization, subject to adjustment
thereafter in accordance with provisions the same, as nearly as may be possible,
as those contained above.
6
Purchase Price Adjustments
. In
case at any time and from time to time the Company shall issue any shares of
Common Stock or Derivative Securities convertible or exercisable for shares
of
Common Stock (the number of shares so issued, or issuable upon conversion or
exercise of such Derivative Securities, as applicable, being referred to as
“Additional Shares of Common Stock”) for consideration less than the then Market
Price at the date of issuance of such shares of Common Stock or such Derivative
Securities, in each such case the Conversion Price shall, concurrently with
such
issuance, be adjusted by multiplying the Conversion Price immediately prior
to
such event by a fraction: (i) the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to the issuance of such
Additional Shares of Common Stock plus the number of shares of Common Stock
that
the aggregate consideration received by the Company for the total number of
such
Additional Shares of Common Stock so issued would purchase at the Market Price
and (ii) the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of Additional Shares of Common
Stock plus the number of such Additional Shares of Common Stock so issued or
sold.
7
Adjustment Rules
. The
following rules and procedures shall be applicable to adjustments made in this
Article XI:
(a) no
adjustment in the applicable Fixed Price shall be required unless such
adjustment would result in a change of at least 1% in the applicable Fixed
Price
then in effect, provided, however, that any adjustments which, but for the
provisions of this clause would otherwise have been required to be made, shall
be carried forward and taken into account in any subsequent
adjustment;
(b) if
any
event occurs of the type contemplated by the adjustment provisions of this
Article XI but not expressly provided for by such provisions, the Company will
give notice of such event as provided herein, and the Company’s board of
directors will make an appropriate adjustment in the Fixed Price so that the
rights of the holders of the applicable Security shall not be diminished by
such
event; and
38
(c) if
a
dispute shall at any time arise with respect to any adjustment of the applicable
Fixed Price, such dispute shall be conclusively determined by the auditors
of
the Company or, if they are unable or unwilling to act, by a firm of independent
chartered accountants selected by the Directors and any such determination
shall
be binding upon the Company and Purchaser.
8
Certificate as to Adjustment
. The
Company shall from time to time promptly after the occurrence of any event
which
requires an adjustment in the applicable Fixed Price deliver to Purchaser a
certificate specifying the nature of the event requiring the adjustment, the
amount of the adjustment necessitated thereby, the applicable Fixed Price after
giving effect to such adjustment and setting forth, in reasonable detail, the
method of calculation and the facts upon which such calculation is
based.
9
Notice to Holders
. If the
Company shall fix a record date for:
(a) any
Share
Reorganization (other than the subdivision of outstanding Common Stock into
a
greater number of shares or the consolidation of outstanding Common Stock into
a
smaller number of shares),
(b) any
Rights Offering,
(c) any
Special Distribution,
(d) any
Capital Reorganization (other than a reclassification or redesignation of the
Common Stock into other shares),
(e) Sale
Event; or
(f) any
cash
dividend,
the
Company shall, not less than 10 days prior to such record date or, if no record
date is fixed, prior to the effective date of such event, give to Purchaser
notice of the particulars of the proposed event or the extent that such
particulars have been determined at the time of giving the notice.
ARTICLE
13.
EVENTS OF DEFAULT
5
Events of Default.
If one
or more of the following events (each an “Event of Default”) shall have occurred
and be continuing:
39
(a) failure
by the Company to pay or repay when due, all or any part of the principal on
any
of the Convertible Note (whether by virtue of the agreements specified in this
Agreement or the Convertible Note);
(b) failure
by the Company to pay (i) within five (5) Business Days of the due date thereof
any interest on any Convertible Note or (ii) within five (5) Business Days
following the delivery of notice to the Company of any fees or any other amount
payable (not otherwise referred to in (a) above or this clause (b)) by the
Company under this Agreement or any other Transaction Agreement;
(c) failure
by the Company to timely comply with the requirements of Section 7.11 or 10.1
hereof, which failure is not cured within five (5) Business Days of such
failure;
(d) failure
on the part of the Company to observe or perform any covenant contained in
Section 7.10 or Article VIII of this Agreement;
(e) failure
on the part of the Company to observe or perform any covenant or agreement
contained in any Transaction Agreement (other than those covered by clauses
(a),
(b), (c) or (d) above) for 30 days from the date of such
occurrence;
(f) the
trading in the Common Stock shall have been suspended by the Commission, the
OTC
Bulletin Board or any market on which the securities of the Company are then
traded (except for any suspension of trading of limited duration solely to
permit dissemination of material information regarding the Company and except
if, at the time there is any suspension on any market, the Common Stock is
then
listed and approved for trading on another market within ten (10) Trading Days
thereof);
(g) the
Company shall have its Common Stock delisted from the OTC Bulletin Board for
at
least ten (10) consecutive Trading Days and is unable to obtain a listing on
the
OTC Bulletin Board within such ten (10) Trading Days;
(h) the
Registration Statement shall not have been declared effective by the Commission
by the Required Effectiveness Date, or such effectiveness shall not be
maintained for the Registration Maintenance Period, in each case which results
in the Company incurring liquidated damages or a default fee for a period in
excess of 10 days;
(i) the
Company or any Subsidiary has commenced a voluntary case or other proceeding
seeking liquidation, winding-up, reorganization or other relief with respect
to
itself or its debts under any bankruptcy, insolvency, moratorium or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or has consented to any such relief or to
the
appointment of or taking possession by any such official in an involuntary
case
or other proceeding commenced against it, or has made a general assignment
for
the benefit of creditors, or has failed generally to pay its debts as they
become due, or has taken any corporate action to authorize any of the
foregoing;
40
(j) an
involuntary case or other proceeding has been commenced against the Company
or
any Subsidiary seeking liquidation, winding-up, reorganization or other relief
with respect to it or its debts under any bankruptcy, insolvency, moratorium
or
other similar law now or hereafter in effect or seeking the appointment of
a
trustee, receiver, liquidator, custodian or other similar official of it or
any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 60 days, or an order
for
relief has been entered against the Company or any Subsidiary under the federal
bankruptcy laws as now or hereafter in effect;
(k) default
in any provision (including payment) or any agreement governing the terms of
any
Debt of the Company or any Subsidiary in excess of $500,000, which has not
been
cured within any applicable period of grace associated therewith;
(l) judgments
or orders for the payment of money which in the aggregate at any one time exceed
$1,000,000 and are not covered by insurance have been rendered against the
Company or any Subsidiary by a court of competent jurisdiction and such
judgments or orders shall continue unsatisfied and unstayed for a period of
60
days; or
(m) any
representation, warranty, certification or statement made by the Company in
any
Transaction Agreement or which is contained in any certificate, document or
financial or other statement furnished at any time under or in connection with
any Transaction Agreement shall prove to have been untrue in any material
respect when made.
then,
and
in every such occurrence, Purchaser may, with respect to an Event of Default
specified in paragraphs (a) or (b), and the Majority Holders may, with respect
to any other Event of Default, by notice to the Company, declare the Convertible
Note to be, and the Convertible Note shall thereon become immediately due and
payable; provided
that in
the case of any of the Events of Default specified in paragraph (i) or (j)
above
with respect to the Company or any Subsidiary, then, without any notice to
the
Company or any other act by Purchaser, the entire amount of the Convertible
Note
shall become immediately due and payable, provided,
further,
if any
Event of Default has occurred and is continuing, and irrespective of whether
any
Convertible Note has been declared immediately due and payable hereunder, any
Purchaser of Convertible Note may proceed to protect and enforce the rights
of
Purchaser by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or in
any
Convertible Note, or for an injunction against a violation of any of the terms
hereof or thereof, or in aid of the exercise of any power granted hereby or
thereby or by law or otherwise, and provided further,
in the
case of any Event of Default, the amount declared due and payable on the
Convertible Note shall be the Formula Price thereof.
41
6
Powers and Remedies Cumulative
. No
right or remedy herein conferred upon or reserved to Purchaser is intended
to be
exclusive of any other right or remedy, and every right and remedy shall, to
the
extent permitted by law, be cumulative and in addition to every other right
and
remedy given hereunder or now hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any
other
appropriate right or remedy. Every power and remedy given by the Convertible
Note or by law may be exercised from time to time, and as often as shall be
deemed expedient, by Purchaser.
ARTICLE
14.
MISCELLANEOUS
5
Notices
. All
notices, demands and other communications to any party hereunder shall be in
writing (including telecopier or similar writing) and shall be given to such
party at its address set forth on the signature pages hereof, or such other
address as such party may hereafter specify for the purpose to the other
parties. Each such notice, demand or other communication shall be effective
(i)
if given by telecopy, when such telecopy is transmitted to the telecopy number
specified on the signature page hereof, (ii) if given by mail, four days after
such communication is deposited in the mail with first class postage prepaid,
addressed as aforesaid or (iii) if given by any other means, when delivered
at
the address specified in or pursuant to this Section.
6
No Waivers; Amendments
.
(a) No
failure or delay on the part of any party in exercising any right, power or
remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or
remedy.
(b) Any
provision of this Agreement may be amended, supplemented or waived if, but
only
if, such amendment, supplement or waiver is in writing and is signed by the
Company and the Majority Holders; provided,
that
without the consent of each holder of any Convertible Note affected thereby,
an
amendment or waiver may not (a) reduce the aggregate principal amount of
Convertible Note whose holders must consent to an amendment or waiver, (b)
reduce the rate or extend the time for payment of interest on any Convertible
Note, (c) reduce the principal amount of or extend the stated maturity of any
Convertible Note or (d) make any Convertible Note payable in money or property
other than as stated in such Convertible Note. In determining whether the
holders of the requisite principal amount of Convertible Note have concurred
in
any direction, consent, or waiver as provided in any Transaction Agreement,
Convertible Note which are owned by the Company or any other obligor on or
guarantor of the Convertible Note, or by any Person Controlling, Controlled
by,
or under common Control with any of the foregoing, shall be disregarded and
deemed not to be outstanding for the purpose of any such determination; and
provided further
that no
such amendment, supplement or waiver which affects the rights of Purchaser
and
their affiliates otherwise than solely in their capacities as holders of
Convertible Note shall be effective with respect to them without their prior
written consent.
42
7
Indemnification
.
(a) The
Company agrees to indemnify and hold harmless Purchaser, its Affiliates, and
each Person, if any, who controls Purchaser, or any of its Affiliates, within
the meaning of the Securities Act or the Exchange Act (each, a “Controlling
Person”), and the respective partners, agents, employees, officers and Directors
of Purchaser, their Affiliates and any such Controlling Person (each an
“Indemnified Party”) and collectively, the “Indemnified Parties”), from and
against any and all losses, claims, damages, liabilities and expenses
(including, without limitation and as incurred, reasonable costs of
investigating, preparing or defending any such claim or action, whether or
not
such Indemnified Party is a party thereto, provided that the Company shall
not
be obligated to advance such costs to any Indemnified Party other than Purchaser
unless it has received from such Indemnified Party an undertaking to repay
to
the Company the costs so advanced if it should be determined by final judgment
of a court of competent jurisdiction that such Indemnified Party was not
entitled to indemnification hereunder with respect to such costs) which may
be
incurred by such Indemnified Party in connection with any investigative,
administrative or judicial proceeding brought or threatened that relates to
or
arises out of, or is in connection with any activities contemplated by any
Transaction Agreement or any other services rendered in connection herewith;
provided
that the
Company will not be responsible for any claims, liabilities, losses, damages
or
expenses that (i) are determined by final judgment of a court of competent
jurisdiction to result from such Indemnified Party’s gross negligence, willful
misconduct or bad faith and (ii) not in excess of the amount of funds actually
received by the Company pursuant to this Agreement.
(b) If
any
action shall be brought against an Indemnified Party with respect to which
indemnity may be sought against the Company under this Agreement, such
Indemnified Party shall promptly notify the Company in writing and the Company,
at its option, may, assume the defense thereof, including the employment of
counsel reasonably satisfactory to such Indemnified Party and payment of all
reasonable fees and expenses. The failure to so notify the Company shall not
affect any obligations the Company may have to such Indemnified Party under
this
Agreement or otherwise unless the Company is materially adversely affected
by
such failure. Such Indemnified Party shall have the right to employ separate
counsel in such action and participate in the defense thereof, but the fees
and
expenses of such counsel shall be at the expense of such Indemnified Party,
unless (i) the Company has failed to assume the defense and employ counsel
or
(ii) the named parties to any such action (including any impleaded parties)
include such Indemnified Party and the Company, and such Indemnified Party
shall
have been advised by counsel that there may be one or more legal defenses
available to it which are different from or additional to those available to
the
Company, in which case, if such Indemnified Party notifies the Company in
writing that it elects to employ separate counsel at the expense of the Company,
the Company shall not have the right to assume the defense of such action or
proceeding on behalf of such Indemnified Party, provided,
however,
that
the Company shall not, in connection with any one such action or proceeding
or
separate but substantially similar or related actions or proceedings in the
same
jurisdiction arising out of the same general allegations or circumstances,
be
responsible hereunder for the reasonable fees and expenses of more than one
such
firm of separate counsel, in addition to any local counsel, which counsel shall
be designated by the Company and subject to approval by the Purchaser The
Company shall not be liable for any settlement of any such action effected
without the written consent of the Company (which shall not be unreasonably
withheld) and the Company agrees to indemnify and hold harmless each Indemnified
Party from and against any loss or liability by reason of settlement of any
action effected with the consent of the Company. In addition, the Company will
not, without the prior written consent of Purchaser, settle or compromise or
consent to the entry of any judgment in or otherwise seek to terminate any
pending or threatened action, claim, suit or proceeding in respect to which
indemnification or contribution may be sought hereunder (whether or not any
Indemnified Party is a party thereto) unless such settlement, compromise,
consent or termination includes an express unconditional release of Purchaser
and the other Indemnified Parties, satisfactory in form and substance to
Purchaser, from all liability arising out of such action, claim, suit or
proceeding.
43
(c) If
for
any reason the foregoing indemnity is unavailable (otherwise than pursuant
to
the express terms of such indemnity) to an Indemnified Party or insufficient
to
hold an Indemnified Party harmless, then in lieu of indemnifying such
Indemnified Party, the Company shall contribute to the amount paid or payable
by
such Indemnified Party as a result of such claims, liabilities, losses, damages,
or expenses (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and by Purchaser on the other
from the transactions contemplated by this Agreement or (ii) if the allocation
provided by clause (i) is not permitted under applicable law, in such proportion
as is appropriate to reflect not only the relative benefits received by the
Company on the one hand and Purchaser on the other, but also the relative fault
of the Company and Purchaser as well as any other relevant equitable
considerations. Notwithstanding the provisions of this Section 13.3, the
aggregate contribution of all Indemnified Parties shall not exceed the amount
of
interest and fees actually received by Purchaser pursuant to this Agreement.
It
is hereby further agreed that the relative benefits to the Company on the one
hand and Purchaser on the other with respect to the transactions contemplated
hereby shall be determined by reference to, among other things, whether any
untrue or alleged untrue statement of material fact or the omission or alleged
omission to state a material fact related to information supplied by the Company
or by Purchaser and the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
(d) The
indemnification, contribution and expense reimbursement obligations set forth
in
this Section 13.3 (i) shall be in addition to any liability the Company may
have
to any Indemnified Party at common law or otherwise; (ii) shall survive the
termination of this Agreement and the other Transaction Agreements and the
payment in full of the Convertible Note and (iii) shall remain operative and
in
full force and effect regardless of any investigation made by or on behalf
of
Purchaser or any other Indemnified Party.
44
8
Expenses: Documentary Taxes
. The
Company has incurred an application fee equal to 1% per each USD$1,000,000
funded of the principal amount of the Convertible Note which shall be payable
on
the Closing Date. In addition, the Company agrees to pay to Global Capital
Advisors, LLC (“GCA”), on the Closing Date, a fee equal to $15,000.00 (the “Out
of Pocket Fee”) in full satisfaction of all obligations of the Company to
Purchaser and its agents in connection with the negotiation and preparation
of
the Transaction Agreements, relevant due diligence, and fees and disbursements
of legal counsel. The Company has paid xxxxxxx money of $7,500 which shall
be
applied toward the Out of Pocket Fee on the Closing Date. In addition, the
Company agrees to pay any and all stamp, transfer and other similar taxes,
assessments or charges payable in connection with the execution and delivery
of
any Transaction Agreement or the issuance of the Securities to Purchaser,
excluding their assigns.
Additionally,
the Company shall issue to GCA a Warrant to purchase shares of Common Stock
upon
the Closing equal to 500,000 shares of Common Stock on the terms and conditions
described in the form of the common stock purchase warrant attached hereto
as
Exhibit
G.
9
Payment
. The
Company agrees that, so long as Purchaser shall own any Convertible Note
purchased by it from the Company hereunder, the Company will make payments
to
Purchaser of all amounts due thereon by wire transfer by 4:00 P.M. (ES.T.)
pursuant to those instruction set forth in Schedule
13.5.
10
Successors and Assigns
. This
Agreement shall be binding upon the Company and upon Purchaser and its
respective successors and assigns; provided
that the
Company shall not assign or otherwise transfer its rights or obligations under
this Agreement to any other Person without the prior written consent of the
Majority Holders. All provisions hereunder purporting to give rights to
Purchaser and its affiliates or to holders of Securities are for the express
benefit of such Persons and their successors and assigns.
11
Brokers
. Except
for Colony Park Financial, LLC, Antaeus Capital, Inc. and Xxxx and Xxxxxxxxx
xxx
Xxxxx, (the “Brokers”), the Company represents and warrants that it has not
employed any broker, finder, financial advisor or investment banker who would
be
entitled to any brokerage, finder’s or other fee or commission payable by the
Company or Purchaser in connection with the sale of the Securities. The Company
represents and warrants that it is solely responsible for any fees due
Brokers.
45
12
Nevada Law; Submission to Jurisdiction; Waiver of Jury Trial; Appointment of
Agent
. THIS
AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
THE
STATE OF NEVADA. EACH PARTY HERETO HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION
OF THE UNITED STATES DISTRICT COURT FOR THE STATE OF NEVADA AND OF ANY FEDERAL
DISTRICT COURT SITTING IN NEVADA FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE
OF
ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
EACH PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS
IN
ANY SUCH PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED
MAIL, POSTAGE PREPAID, TO SUCH PARTY AT ITS ADDRESS SET FORTH HEREIN. NOTHING
HEREIN SHALL AFFECT THE RIGHT OF ANY PARTY TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW. EACH PARTY WAIVES ITS RIGHT TO A TRIAL BY JURY.
13 Entire
Agreement
. This
Agreement, the Exhibits or Schedules hereto, which include, but are not limited
to the Convertible Note and the Registration Rights Agreement, set forth the
entire agreement and understanding of the parties relating to the subject matter
hereof and supersedes all prior and contemporaneous agreements, negotiations
and
understandings between the parties, both oral and written relating to the
subject matter hereof. The terms and conditions of all Exhibits and Schedules
to
this Agreement are incorporated herein by this reference and shall constitute
part of this Agreement as is fully set forth herein.
14 Survival;
Severability.
The
representations, warranties, covenants and agreements of the parties hereto
shall survive the Closing hereunder. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force
and
effect without said provision; provided that such severability shall be
ineffective if it materially changes the economic benefit of this Agreement
to
any party.
15 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
16 Reporting
Entity for the Common Stock.
The
reporting entity relied upon for the determination of the trading price or
trading volume of the Common Stock on any given Trading Day for the purposes
of
this Agreement and all Exhibits shall be Bloomberg, L.P. or any successor
thereto. The written mutual consent of the Purchaser and the Company shall
be
required to employ any other reporting entity.
46
17 Publicity.
The
Company and the Purchaser shall consult with each other in issuing any press
releases or otherwise making public statements with respect to the transactions
contemplated hereby and no party shall issue any such press release or otherwise
make any such public statement without the prior written consent of the other
parties, which consent shall not be unreasonably withheld or delayed, except
that no prior consent shall be required if such disclosure is required by law,
in which such case the disclosing party shall provide the other parties with
prior notice of such public statement. Notwithstanding the foregoing, the
Company shall not publicly disclose the name of Purchaser without the prior
written consent of Purchaser, except to the extent required by law, in which
case the Company shall provide Purchaser with prior written notice of such
public disclosure.
[signature
page follows]
47
IN
WITNESS WHEREOF,
the
parties hereto have caused this Agreement to be duly executed by their
respective authorized officers, as of the date first above written.
Mems
USA,
Inc.
By: | /S/ Xxxxx X. Xxxxx |
Name: | Xxxxx X. Xxxxx |
Title: | Chairman, CEO and President |
Address: | Mems USA, Inc. |
0000 Xxxxxxx Xxxxxx Xxxx |
Xxxxx
0-000
|
Xxxxxxxx
Xxxxxxx, XX 00000
|
Fax: 000-000-0000 |
Tel.: 000-000-0000 |
GCA
STRATEGIC INVESTMENT FUND LIMITED
By: | /S/ Xxxxx X. Xxxxxx |
Name: | Xxxxx X. Xxxxx |
Title: | Director |
Address: | c/o Prime Management Limited |
Mechanics Xxxxxxxx |
00
Xxxxxx Xxxxxx
|
Xxxxxxxx
XX XX, Xxxxxxx
|
Fax: 000-000-0000 |
Tel.: 000-000-0000 |
48
TABLE
OF CONTENTS
ARTICLE
I. DEFINITIONS
|
1
|
|
|
Section
1.1 Definitions
|
1
|
|
Section
1.2 Accounting Terms and Determinations
|
9
|
ARTICLE
II. PURCHASE AND SALE OF SECURITIES
|
10
|
|
|
Section
2.1 Purchase and Sale of Convertible Note
|
10
|
|
Section
2.2 Purchase Price
|
10
|
|
Section
2.3 Closing and Mechanics of Payment
|
10
|
ARTICLE
III. PAYMENT TERMS OF CONVERTIBLE NOTE
|
10
|
|
|
Section
3.1 Payment of Principal and Interest; Payment Mechanics
|
10
|
|
Section
3.2
|
11
|
|
Section
3.3 Voluntary Prepayment
|
11
|
|
Section
3.4 Mandatory Prepayments
|
11
|
|
Section
3.5 Prepayment Procedures
|
12
|
|
Section
3.6 Payment of Additional Amounts
|
13
|
ARTICLE
IV. REPRESENTATIONS AND WARRANTIES
|
15
|
|
|
Section
4.1 Organization and Qualification
|
15
|
|
Section
4.2 Authorization and Execution
|
15
|
|
Section
4.3 Capitalization
|
16
|
|
Section
4.4 Governmental Authorization
|
16
|
|
Section
4.5 Issuance of Shares
|
16
|
|
Section
4.6 No Conflicts
|
17
|
|
Section
4.7 Financial Information
|
17
|
|
Section
4.8 Litigation
|
18
|
|
Section
4.9 Compliance with ERISA and other Benefit Plans
|
18
|
|
Section
4.10 Environmental Matters
|
19
|
|
Section
4.11 Taxes
|
19
|
|
Section
4.12 Investments, Joint Ventures
|
19
|
|
Section
4.13 Not an Investment Company
|
19
|
|
Section
4.14 Full Disclosure
|
19
|
|
Section
4.15 No Solicitation; No Integration with Other Offerings
|
19
|
|
Section
4.16 Permits
|
20
|
|
Section
4.17 Leases
|
20
|
|
Section
4.18 Absence of Any Undisclosed Liabilities or Capital
Calls
|
20
|
|
Section
4.19 Public Utility Holding Company
|
20
|
|
Section
4.20 Intellectual Property Rights
|
20
|
|
Section
4.21 Insurance
|
21
|
|
Section
4.22 Title to Properties
|
21
|
|
Section
4.23 Internal Accounting Controls
|
21
|
|
Section
4.24 Subsidiaries
|
21
|
|
Section
4.25 Foreign Practices
|
21
|
i
|
||
ARTICLE
V.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
|
22
|
|
|
Section
5.1 Purchaser
|
22
|
ARTICLE
VI. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES
|
23
|
|
|
Section
6.1 Conditions Precedent to Purchaser's Obligations to
Purchase
|
23
|
|
Section
6.2 Conditions to the Company's Obligations
|
25
|
ARTICLE
VII. AFFIRMATIVE COVENANTS
|
25
|
|
|
Section
7.1 Information
|
26
|
|
Section
7.2 Payment of Obligations
|
26
|
|
Section
7.3 Maintenance of Property; Insurance
|
26
|
|
Section
7.4 Maintenance of Existence
|
26
|
|
Section
7.5 Compliance with Laws
|
27
|
|
Section
7.6 Inspection of Property, Books and Records
|
27
|
|
Section
7.7 Investment Company Act
|
27
|
|
Section
7.8 Use of Proceeds
|
27
|
|
Section
7.9 Compliance with Terms and Conditions of Material
Contracts
|
27
|
|
Section
7.10 Reserved Shares
|
28
|
|
Section
7.11 Transfer Agent Instructions
|
28
|
|
Section
7.12 Maintenance of Reporting Status; Supplemental
Information
|
28
|
|
Section
7.13 Form D; Blue Sky Laws
|
29
|
ARTICLE
VIII. NEGATIVE COVENANTS
|
29
|
|
|
Section
8.1 Limitations on Debt or Other Liabilities
|
29
|
|
Section
8.2 Transactions with Affiliates
|
29
|
|
Section
8.3 Merger or Consolidation
|
30
|
|
Section
8.4 Limitation on Asset Sales
|
30
|
|
Section
8.5 Restrictions on Certain Amendments
|
30
|
|
Section
8.6 Restrictions on Issuances of Securities
|
30
|
|
Section
8.7 Limitation on Stock Repurchases
|
32
|
|
Section
8.8 Limitation on Sales By Officers and Employee Directors
|
32
|
ARTICLE
IX. RESTRICTIVE LEGENDS
|
32
|
|
|
Section
9.1 Restrictions on Transfer
|
32
|
|
Section
9.2 Legends
|
32
|
|
Section
9.3 Notice of Proposed Transfers
|
32
|
ARTICLE
X. ADDITIONAL AGREEMENTS AMONG THE PARTIES
|
33
|
|
|
Section
10.1 Liquidated Damages
|
33
|
|
Section
10.2 Conversion Notice
|
33
|
|
Section
10.3 Conversion Limit
|
34
|
|
Section
10.4 Registration Rights
|
34
|
ii
ARTICLE
XI. ADJUSTMENT OF FIXED PRICE
|
36
|
|
|
Section
11.1 Reorganization
|
36
|
|
Section
11.2 Share Reorganization
|
36
|
|
Section
11.3 Rights Offering
|
36
|
|
Section
11.4 Special Distribution
|
38
|
|
Section
11.5 Capital Reorganization
|
38
|
|
Section
11.6 Purchase Price Adjustments
|
39
|
|
Section
11.7 Adjustment Rules
|
39
|
|
Section
11.8 Certificate as to Adjustment
|
40
|
|
Section
11.9 Notice to Holders
|
40
|
ARTICLE
XII. EVENTS OF DEFAULT
|
41
|
|
|
Section
12.1 Events of Default
|
41
|
|
Section
12.2 Powers and Remedies Cumulative
|
43
|
ARTICLE
XIII. MISCELLANEOUS
|
43
|
|
|
Section
13.1 Notices
|
43
|
|
Section
13.2 No Waivers; Amendments
|
43
|
|
Section
13.3 Indemnification
|
44
|
|
Section
13.4 Expenses: Documentary Taxes
|
46
|
|
Section
13.5 Payment
|
46
|
|
Section
13.6 Successors and Assigns
|
46
|
|
Section
13.7 Brokers
|
47
|
|
Section
13.8 Nevada Law; Submission to Jurisdiction; Waiver of Jury Trial;
Appointment of Agent
|
47
|
|
Section
13.9 Entire Agreement
|
47
|
|
Section
13.10 Survival; Severability
|
47
|
|
Section
13.11 Title and Subtitles
|
48
|
|
Section
13.12 Reporting Entity for the Common Stock
|
48
|
|
Section
13.13 Publicity
|
48
|
iii
LIST
OF SCHEDULES
Schedule 4.3
Capitalization
Schedule
4.7 Financial
Information
Schedule
4.8 Litigation
Schedule
4.12 Investments,
Joint Ventures
Schedule
4.21 List
of
Insurance Companies
Schedule
7.8 Use
of
Proceeds
Schedule
8.2 Transactions
with Affiliates
Schedule
13.5 Wiring
Instructions
iv
LIST
OF EXHIBITS
Exhibit
A Form
of
Convertible Note
Exhibit B
Form
of
Registration Rights Agreement
Exhibit C
Form
of
Officer’s Certificate
Exhibit
D Form
of
Solvency Certificate
Exhibit
E Form
of
Escrow Agreement
Exhibit
F Form
of
Common Stock Purchase Warrant
Exhibit
G Form
of
Common Stock Purchase Warrant
v
dated
as of
October
27, 2006
by
and between
Mems
USA, Inc.
as
the Issuer,
and
GCA
Strategic Investment Fund Limited