EXHIBIT 4.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
March 31, 2003, among Matritech, Inc., a Delaware corporation (the "Company"),
and the purchasers identified on the signature pages hereto (each, including its
successors and assigns, a "Purchaser" and collectively the "Purchasers").
WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act") and Rule 506 promulgated thereunder, the Company desires to
issue and sell to the Purchasers, and each Purchaser, severally and not jointly,
desires to purchase from the Company, securities of the Company as more fully
described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchaser agrees
as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Debentures (as defined herein), and (b) the
following terms have the meanings indicated in this Section 1.1:
"Actual Minimum" means, as of any date, the maximum aggregate
number of shares of Common Stock then issued or issuable as of such date
upon exercise or conversion in full of all Warrants and Debentures which
have been issued to date pursuant to this Agreement.
"Affiliate" means any Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is
under common control with a Person, as such terms are used in and
construed under Rule 144 under the Securities Act.
"Capital Shares" means the Common Stock and any shares of any
other class of common stock whether now or hereafter authorized, having
the right to participate in the distribution of earnings and assets of
the Company.
"Capital Shares Equivalents" means any securities, rights, or
obligations that are convertible into or exchangeable for or give any
right to subscribe for or purchase, directly or indirectly, any Capital
Shares of the Company or any warrants, options or other rights to
subscribe for or purchase, directly or indirectly, Capital Shares or any
such convertible or exchangeable securities.
"Closing" means the closing of the purchase and sale of the
Securities pursuant to Section 2.1.
"Closing Bid Price" means on any particular date (a) the closing
bid price per share of Common Stock on such date on the Principal Market
or the OTC Bulletin Board (as reported by Bloomberg L.P. at 4:15 PM (New
York time), or (b) if there is no such price on such date, then the
closing bid price on the Principal Market or the OTC Bulletin Board on
the date nearest preceding such date (as reported by Bloomberg L.P. at
4:15 PM (New York time) for the closing bid price for regular session
trading on such day), or (c) if the shares of Common Stock are not then
reported on the Principal Market or the OTC Bulletin Board, then the
average of the "Pink Sheet" quotes for the relevant conversion period,
as determined in good faith by the Purchasers, or (c) if the shares of
Common Stock are not then publicly traded the fair market value of a
share of Common Stock as determined by an appraiser selected in good
faith by the Purchasers of a majority in interest of the principal
amount of Debentures then outstanding.
"Closing Price" means the average of the Closing Bid Prices for
the 5 Trading Days immediately prior to the date in question.
"Closings" means, collectively, the First Closing and the Second
Closing.
"Closing Dates" means the dates of the First Closing and Second
Closing.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par value
$0.01 per share, and any securities into which such common stock shall
hereinafter have been reclassified into.
"Company Counsel" means Xxxxx, Xxxxxxx & Xxxxxxxxx, LLP, outside
counsel to the Company, with offices at 000 Xxxx Xxxxxx, Xxxxxx,
Xxxxxxxxxxxxx 00000.
"Complete SEC Reports" shall mean, collectively, the SEC Reports
and the Pending 10-K.
"Debentures" means the 7.5% Convertible Debentures due 36 months
from their date of issuance, unless otherwise set forth therein, issued
by the Company to the Purchasers hereunder, in the form of Exhibit A.
"Disclosure Schedules" shall have the meaning ascribed to such
term in Section 3.1.
"Effective Date" means the date that an Underlying Shares
Registration Statement is first declared effective by the Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
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"First Closing" means the closing of the sale of the Securities
pursuant to Section 2.1(a).
"First Closing Date" means the date of the First Closing, which
shall occur within 5 Business Days of the date hereof or such other time
and date as may be agreed to in writing by the Company and each
Purchaser.
"FW" means Xxxxxxx Xxxxxxxxx LLP with offices at 000 Xxxxxxxxx
Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000-0000.
"GAAP" shall have the meaning ascribed to such term in Section
3.1(h).
"Liens" shall have the meaning ascribed to such term in Section
3.1(a).
"Losses" means any and all losses, claims, damages, liabilities,
settlement costs and expenses, including without limitation costs of
preparation and reasonable attorneys' fees.
"Material Adverse Effect" shall have the meaning assigned to
such term in Section 3.1(b).
"Milestone Date" means the first Trading Day immediately
following a period of 15 consecutive Trading Days during which the VWAP
for each such Trading Date is at least $2.75 (as appropriately adjusted
for any stock splits, stock dividends, stock combinations and other
similar transactions of the Common Stock that occur after the date of
this Agreement).
"Pending 10-K" means the Company's draft Annual Report on Form
10-K delivered by the Company to the Purchasers on March 28, 2003.
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
"Principal Market" means initially the NASDAQ Small-Cap Market
and shall also include the American Stock Exchange, the New York Stock
Exchange or the NASDAQ National Market, whichever is at the time the
principal trading exchange or market for the Common Stock, based upon
share volume.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the First Closing Date, among the Company and the
Purchasers, in the form of Exhibit B.
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"Required Approvals" shall have the meaning ascribed to such
term in Section 3.1(e).
"Rule 144" means Rule 144 promulgated by the Commission pursuant
to the Securities Act, as such Rule may be amended from time to time, or
any similar rule or regulation hereafter adopted by the Commission
having substantially the same effect as such Rule.
"SEC Reports" shall have the meaning ascribed to such term in
Section 3.1(h).
"Second Closing" shall mean the closing of the sale of the
Securities pursuant to Section 2.1(b).
"Second Closing Date" shall mean the date of the Second Closing,
which shall occur within 5 Trading Days of a Milestone Date.
"Securities" means the Debentures, the Warrants and the
Underlying Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Set Price" shall have the meaning ascribed to such term in the
Debentures.
"Shareholder Approval" shall have the meaning ascribed to such
term in the Debenture.
"Subscription Amount" means, (i) as to each Purchaser and the
First Closing, the amount set forth below such Purchaser's signature
block on the signature pages hereto and next to the heading "First
Closing Subscription" in United States dollars and in immediately
available funds, and (ii) as to each Purchaser and the Second Closing,
the amount set forth below such Purchaser's signature block on the
signature pages hereto and next to the heading "Second Closing
Subscription" in United States dollars and in immediately available
funds.
"Subsidiary" means any subsidiary of the Company that is
required to be listed in Schedule 3.1(a).
"Trading Day" means any day during which the Principal Market
shall be open for business.
"Transaction Documents" means this Agreement, the Debentures,
the Warrants, the Registration Rights Agreement and any other documents
or agreements executed in connection with the transactions contemplated
hereunder.
"Underlying Shares" means the shares of Common Stock issuable
upon conversion of the Debentures and upon exercise of the Warrants and
issued and issuable in lieu of the cash payment of interest on the
Debentures.
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"Underlying Shares Registration Statement" or "Registration
Statement" means a registration statement meeting the requirements set
forth in the Registration Rights Agreement and covering the resale of
the Underlying Shares by each Purchaser as provided for in the
Registration Rights Agreement.
"VWAP" means, for any date, the price determined by the first of
the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Principal Market, the daily volume weighted
average price of the Common Stock for such date (or the nearest
preceding date) on the Principal Market on which the Common Stock is
then listed or quoted as reported by Bloomberg Financial L.P. (based on
a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time);
(b) if the Common Stock is not then listed or quoted on a Principal
Market and if prices for the Common Stock are then quoted on the OTC
Bulletin Board, the volume weighted average price of the Common Stock
for such date (or the nearest preceding date) on the OTC Bulletin Board;
(c) if the Common Stock is not then listed or quoted on the OTC Bulletin
Board and if prices for the Common Stock are then reported in the "Pink
Sheets" published by the National Quotation Bureau Incorporated (or a
similar organization or agency succeeding to its functions of reporting
prices), the most recent bid price per share of the Common Stock so
reported; or (d) in all other cases, the fair market value of a share of
Common Stock as determined by a nationally recognized-independent
appraiser selected in good faith by Purchasers holding a majority of the
principal amount of Debentures then outstanding.
"Warrants" means collectively the Common Stock purchase
warrants, in the form of Exhibit C delivered to the Purchasers at the
Closing in accordance with Section 2.2.
"Warrant Shares" means those shares of Common Stock issuable
upon exercise of the Warrants.
ARTICLE II
PURCHASE AND SALE
2.1 Upon the terms and subject to the conditions set forth herein, the
Company agrees to sell, and each Purchaser agrees to purchase, severally and not
jointly, the Debentures as set forth next to the respective Purchaser's name on
the signature pages hereto for an aggregate purchase price of up to
$8,000,000.00 ("Purchase Price") in two Closings as follows:
(a) First Closing. On the First Closing Date, each Purchaser
shall purchase, severally and not jointly, the principal amount of
Debentures equal to each Purchaser's Subscription Amount, amounting in
the aggregate to $5,000,000 principal amount of Debentures and the
Company shall sell such principal amount of Debentures to each such
Purchaser.
(b) Second Closing. On the Second Closing Date, in the event the
Company so elects in its sole discretion but subject to Section 2.2,
each Purchaser shall purchase, severally and not jointly, the principal
amount of Debentures equal to each Purchaser's Subscription Amount as to
the Second Closing, amounting in the aggregate to $3,000,000
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principal amount of Debentures and the Company shall sell such principal
amount of Debentures to each such Purchaser.
(c) Each Closing. Each Closing shall take place at the offices
of FW or at such other location as the parties may agree.
2.2 Closing Conditions. Upon satisfaction or waiver by the party sought
to be benefited thereby, of the conditions set forth in this Section 2.2, each
Closing shall occur.
(a) At or prior to each Closing (unless otherwise specified
below), the Company shall deliver or cause to be delivered to each
Purchaser the following:
(i) a Debenture with a principal amount equal to such
Purchaser's Subscription Amount as to such Closing, registered
in the name of such Purchaser;
(ii) a Warrant to purchase up to a number of shares of
Common Stock equal to 35% of such Purchaser's Subscription
Amount divided by the Set Price as to the Debentures purchased
by such Purchaser at such Closing with a term of 5 years and an
exercise price per Warrant Share equal to the Closing Price on
such Closing Date, subject to adjustment therein;
(iii) as to the First Closing only, a legal opinion of
Company Counsel, in the form of Exhibit D attached hereto,
addressed to the Purchasers;
(iv) as to the Second Closing only, the Company shall
have delivered to each Purchaser a letter representing that the
representations and warranties contained herein are true and
accurate as of the date of such Closing (which representations
and warranties shall have the same qualifications as the
representations and warranties contained herein, which
qualification shall be updated to include the most recent SEC
Reports), or explaining why such representations and warranties
are not true and accurate as of the date of such Closing; and
(v) as to the First Closing only, the Registration
Rights Agreement duly executed by the Company.
(b) At or prior to each Closing, each Purchaser shall deliver or
cause to be delivered to the Company the following:
(i) such Purchaser's Subscription Amount as to such
Closing by wire transfer to the instructions set forth on Annex
1 attached hereto; and
(ii) as to the First Closing only, the Registration
Rights Agreement duly executed by such Purchaser.
(c) as to the First Closing, all representations and warranties
of the other party
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contained herein shall remain true and correct as of such Closing Date
and all covenants of the other party in the Transactions Documents
required to have been performed by such Closing Date shall have been
performed as of such Closing Date and as to the Second Closing, all
representations and warranties of the Purchasers contained herein shall
remain true and correct as of such Closing Date and all of the covenants
of the other party in the Transactions Documents required to have been
performed by such Closing Date shall have been performed as of such
Closing Date.
(d) There shall have been no Material Adverse Effect (as defined
in Section 3.1(b)) with respect to the Company since the date hereof.
(e) As to the Second Closing only:
(i) the Milestone Date shall have occurred within 365
days of the First Closing Date and the Company shall have
provided any representations and documents reasonably required
by any Purchaser evidencing that the Milestone Date has
occurred;
(ii) the Second Closing shall have occurred within 5
Trading Days of the Milestone Date; and
(iii) all liquidated damages and other amounts owing to
the Purchasers shall have been paid;
(iv) there is a sufficient number of authorized but
unissued and otherwise unreserved shares of Common Stock for an
issuance of all of the shares of Common Stock then issuable upon
conversion in full of the Debentures and exercise in full of the
Warrants to be issued at such Closing;
(v) the issuance of all of the Underlying Shares
relating to the Debentures and Warrants to be issued at such
Closing would be permitted in full without violating the
limitations set forth in Section 4(a)(ii)(B) of the Debenture;
(vi) no Event of Default nor any event that with the
passage of time would constitute an Event of Default shall have
occurred and is continuing with respect to the outstanding
Debentures;
(vii) the Registration Statement relating to the
Securities issued at the First Closing shall have been declared
effective and shall be effective on the Second Closing Date; and
(viii) no public announcement of a pending or proposed
Change of Control Transaction or Fundamental Transaction (as
such terms are defined in the Debenture) has occurred that has
not been consummated.
(f) As to the Second Closing only, the Company shall have
consented thereto.
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(g) From the date hereof to such Closing Date, trading in the
Common Stock shall not have been suspended by the Commission (except for
any suspension of trading of limited duration agreed to by the Company,
which suspension shall be terminated prior to such Closing), and, at any
time prior to such Closing Date, trading in securities generally as
reported by Bloomberg Financial Markets shall not have been suspended or
limited, or minimum prices shall not have been established on securities
whose trades are reported by such service, or on the Principal Market,
nor shall a banking moratorium have been declared either by the United
States or New York State authorities, nor shall there have occurred any
material outbreak or escalation of hostilities or other national or
international calamity of such magnitude in its effect on, or any
material adverse change in, any financial market which, in each case, in
the reasonable judgment of the Purchasers, makes it impracticable or
inadvisable to purchase the Debentures at such Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth
in the disclosure schedules delivered to the Purchasers concurrently herewith
(the "Disclosure Schedules") which Disclosure Schedules shall be deemed a part
hereof, or, other than with respect to Sections 3.1(g), 3.1(u), 3.1(v), 3.1(w),
3.1(z) and 3.1(dd), except as set forth in the Complete SEC Reports, the Company
hereby makes the representations and warranties set forth below to the
Purchasers.
(a) Subsidiaries. The Company has no direct or indirect
subsidiaries. The Company owns, directly or indirectly, all of the
capital stock or other equity interests of each Subsidiary free and
clear of any lien, charge, security interest, encumbrance, right of
first refusal or other restriction (collectively, "Liens"), and all the
issued and outstanding shares of capital stock of each Subsidiary are
validly issued and are fully paid, non-assessable and free of preemptive
and similar rights. If the Company has no subsidiaries, then references
in the Transaction Documents to the Subsidiaries will be disregarded.
(b) Organization and Qualification. Each of the Company and the
Subsidiaries is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the jurisdiction
of its incorporation or organization (as applicable), with the requisite
power and authority to own and use its properties and assets and to
carry on its business as currently conducted. Neither the Company nor
any Subsidiary is in violation of any of the provisions of its
respective certificate or articles of incorporation, bylaws or other
organizational or charter documents. Each of the Company and the
Subsidiaries is duly qualified to do business and is in good standing as
a foreign corporation or other entity in each jurisdiction in which the
nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or
in good standing, as the case may be, could not, individually or in the
aggregate: (i) adversely affect the legality, validity or enforceability
of any Transaction Document, (ii) have or result in or be reasonably
likely to have or result in a material adverse effect on the results of
operations, assets, business or
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condition (financial or otherwise) of the Company and the Subsidiaries,
taken as a whole, or (iii) adversely impair the Company's ability to
perform fully on a timely basis its obligations under any of the
Transaction Documents (any of (i), (ii) or (iii), a "Material Adverse
Effect").
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations hereunder or thereunder. The
execution and delivery of each of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated
hereby or thereby have been duly authorized by all necessary action on
the part of the Company and no further consent or action is required by
the Company other than Required Approvals. Each of the Transaction
Documents has been (or upon delivery will be) duly executed by the
Company and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies
generally and general principles of equity. Neither the Company nor any
Subsidiary is in violation of any of the provisions of its respective
certificate or articles of incorporation, by-laws or other
organizational or charter documents.
(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company
of the transactions contemplated thereby do not and will not: (i)
conflict with or violate any provision of the Company's or any
Subsidiary's certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) subject to obtaining the
Required Approvals (as defined below), conflict with, or constitute a
default (or an event that with notice or lapse of time or both would
become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse
of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) or
other understanding to which the Company or any Subsidiary is a party or
by which any property or asset of the Company or any Subsidiary is bound
or affected, or (iii) result, in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of
any court or governmental authority to which the Company or a Subsidiary
is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or a
Subsidiary is bound or affected; except in the case of each of clauses
(ii) and (iii), such as could not, individually or in the aggregate,
have or result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. Neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or
order of, give any notice to, or make any filing or registration with,
any court or other federal, state, local or other governmental authority
or other Person in connection with the execution, delivery and
performance by the Company of the Transaction Documents, other than (i)
the filings required under Section 4.8, (ii) the filing with the
Commission of the Underlying Shares Registration Statement, (iii) the
notice and/or application(s) to each applicable Principal
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Market for the issuance and sale of the Debentures and Warrants and the
listing of the Underlying Shares for trading thereon in the time and
manner required thereby, and (iv) the filing of Form D with the
Commission and applicable Blue Sky filings and any Shareholder Approval
(collectively, the "Required Approvals").
(f) Issuance of the Securities. The Debentures and the Warrants
are duly authorized and, when issued and paid for in accordance with the
applicable Transaction Documents, will be duly and validly issued, fully
paid and non-assessable, free and clear of all Liens imposed by the
Company other than restrictions on transfer provided for in the
Transaction Documents. The Underlying Shares, when issued in accordance
with the terms of the Transaction Documents, will be validly issued,
fully paid and nonassessable, free and clear of all Liens imposed by the
Company. The Company has reserved from its duly authorized capital stock
a number of shares of Common Stock for issuance of the Underlying Shares
at least equal to the Required Minimum on the date hereof. The Company
has not, and to the knowledge of the Company, no Affiliate of the
Company has sold, offered for sale or solicited offers to buy or
otherwise negotiate in respect of any security (as defined in Section 2
of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under
the Securities Act of the sale of the Securities to the Purchasers, or
that would be integrated with the offer or sale of the Securities for
purposes of the rules and regulations of any Principal Market.
(g) Capitalization. The number of shares and type of all
authorized, issued and outstanding capital stock of the Company is set
forth in the Pending 10-K. Except as set forth in the Transaction
Documents, no securities of the Company are entitled to preemptive or
similar rights, and no Person has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in
the transactions contemplated by the Transaction Documents. Except as a
result of the purchase and sale of the Securities, there are no
outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities,
rights or obligations convertible into or exchangeable for, or giving
any Person any right to subscribe for or acquire, any shares of Common
Stock, or contracts, commitments, understandings or arrangements by
which the Company or any Subsidiary is or may become bound to issue
additional shares of Common Stock, or securities or rights convertible
or exchangeable into shares of Common Stock. The issuance and sale of
the Securities will not obligate the Company to issue shares of Common
Stock or other securities to any Person (other than the Purchasers and
Xxxxx Xxxxx) and will not result in a right of any holder of Company
securities to adjust the exercise, conversion, exchange or reset price
under such securities.
(h) SEC Reports; Financial Statements. The Company has filed all
reports required to be filed by it under the Securities Act and the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for
the two years preceding the date hereof (or such shorter period as the
Company was required by law to file such material) (the foregoing
materials being collectively referred to herein as the "SEC Reports") on
a timely basis or has received a valid extension of such time of filing
and has filed any such
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SEC Reports prior to the expiration of any such extension. The Company
has identified and made available to the Purchasers a copy of all SEC
Reports filed within the 10 days preceding the date hereof. As of their
respective dates, the SEC Reports complied in all material respects with
the requirements of the Securities Act and the Exchange Act and the
rules and regulations of the Commission promulgated thereunder, and none
of the SEC Reports, when filed, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Reports comply
in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in
effect at the time of filing. Such financial statements have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved ("GAAP"),
except as may be otherwise specified in such financial statements or the
notes thereto, and fairly present in all material respects the financial
position of the Company and its consolidated subsidiaries as of and for
the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to
normal, immaterial, year-end audit adjustments and provided that such
unaudited statements may not include footnotes otherwise required by
GAAP.
(i) Material Changes. Since the date of the latest audited
financial statements included within the Complete SEC Reports, except as
specifically disclosed in the Complete SEC Reports: (i) there has been
no event, occurrence or development that has had or that could
reasonably be expected to have a Material Adverse Effect, (ii) the
Company has not incurred any liabilities (contingent or otherwise) other
than (A) trade payables and accrued expenses incurred in the ordinary
course of business consistent with past practice and (B) liabilities not
required to be reflected in the Company's financial statements pursuant
to GAAP or required to be disclosed in filings made with the Commission,
(iii) the Company has not altered its method of accounting or the
identity of its auditors, (iv) the Company has not declared or made any
dividend or distribution of cash or other property to its stockholders
or purchased, redeemed or made any agreements to purchase or redeem any
shares of its capital stock (other than as contemplated in the
Transaction Documents), and (v) the Company has not issued any equity
securities to any officer, director or Affiliate, except pursuant to
existing Company stock option or similar plans.
(j) Litigation. There is no action, suit, proceeding or
investigation pending or, to the knowledge of the Company, threatened
against the Company, any Subsidiary affecting any of their respective
properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county,
local or foreign) (collectively, an "Action") which: (i) adversely
affects or challenges the legality, validity or enforceability of any of
the Transaction Documents or the Securities or (ii) could, if there were
an unfavorable decision, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect. Neither
the Company nor any Subsidiary, nor, to the Company's knowledge, any
director or officer thereof, is or has been the subject of any Action
involving a claim of violation of or liability under
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federal or state securities laws or a claim of breach of fiduciary duty.
There has not been, and to the knowledge of the Company, there is not
pending or contemplated, any investigation by the Commission involving
the Company or any current or former director or officer of the Company.
The Commission has not issued any stop order or other order suspending
the effectiveness of any registration statement filed by the Company or
any Subsidiary under the Exchange Act or the Securities Act.
(k) Compliance. Neither the Company nor any Subsidiary: (i) is
in default under or in violation of (and no event has occurred that has
not been waived that, with notice or lapse of time or both, would result
in a default by the Company or any Subsidiary under), nor has the
Company or any Subsidiary received notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or
credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound (whether or not
such default or violation has been waived), (ii) is in violation of any
order of any court, arbitrator or governmental body, or (iii) is or has
been in violation of any statute, rule or regulation of any governmental
authority, except in each case as could not, individually or in the
aggregate, have or result in a Material Adverse Effect.
(l) Labor Relations. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the
employees of the Company.
(m) Regulatory Permits. The Company and the Subsidiaries possess
all certificates, authorizations and permits issued by the appropriate
federal, state, local or foreign regulatory authorities necessary to
conduct their respective businesses as described in the Complete SEC
Reports, except where the failure to possess such permits could not,
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect ("Material Permits"), and neither the Company
nor any Subsidiary has received any notice of proceedings relating to
the revocation or modification of any Material Permit.
(n) Title to Assets. The Company and the Subsidiaries have good
and marketable title in fee simple to all real property owned by them
that is material to the business of the Company and the Subsidiaries and
good and marketable title in all personal property owned by them that is
material to the business of the Company and the Subsidiaries, in each
case free and clear of all Liens, except for Liens as do not materially
affect the value of such property and do not materially interfere with
the use made and proposed to be made of such property by the Company and
the Subsidiaries. Any real property and facilities held under lease by
the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases of which the Company and the
Subsidiaries are in compliance, except where the failure to be in
compliance would not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect.
(o) Patents and Trademarks. The Company and the Subsidiaries
have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service
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marks, trade names, copyrights, licenses and other similar rights that
are necessary or material for use in connection with their respective
businesses as described in the SEC Reports and which the failure to so
have could have a Material Adverse Effect (collectively, the
"Intellectual Property Rights"). Neither the Company nor any Subsidiary
has received a written notice that the Intellectual Property Rights used
by the Company or any Subsidiary violates or infringes upon the rights
of any Person. To the knowledge of the Company, all such Intellectual
Property Rights are enforceable and there is no existing infringement by
another Person of any of the Intellectual Property Rights.
(p) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses
in which the Company and the Subsidiaries are engaged. Neither the
Company nor any Subsidiary has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business without a significant increase in
cost.
(q) Transactions With Affiliates and Employees. Except as set
forth in the Complete SEC Reports, none of the officers or directors of
the Company and, to the knowledge of the Company, none of the employees
of the Company is presently a party to any transaction with the Company
or any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental
of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge
of the Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee
or partner.
(r) Internal Accounting Controls. The Company and the
Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset 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. The
Company has established disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Company and designed
such disclosures controls and procedures to ensure that material
information relating to the Company, including its subsidiaries, is made
known to the certifying officers by others within those entities,
particularly during the period in which the Company's Form 10-K or 10-Q,
as the case may be, is being prepared. The Company's certifying officers
have evaluated the effectiveness of the Company's controls and
procedures as of a date within 90 days prior to the filing date of the
Form 10-Q for the quarter ended September 30, 2002 (such date, the
"Evaluation Date"). The Company
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presented in the Form 10-Q for the quarter ended September 30, 2002 the
conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no
significant changes in the Company's internal controls (as such term is
defined in Item 307(b) of Regulation S-K under the Exchange Act).
(s) Solvency/Indebtedness. The Company is not insolvent within
the meaning of Title 11 of the United States Code. The Company does not
intend to incur debts beyond its ability to pay such debts as they
mature (taking into account the timing and amounts of cash to be payable
on or in respect of its debt). The Complete SEC Reports set forth as of
the dates thereof all outstanding secured and unsecured Indebtedness of
the Company or any Subsidiary, or for which the Company or any
Subsidiary has commitments. For the purposes of this Agreement,
"Indebtedness" shall mean (a) any liabilities for borrowed money or
amounts owed in excess of $50,000 (other than trade accounts payable
incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations, whether or not the same
are or should be reflected in the Company's balance sheet or the notes
thereto, except guaranties by endorsement of negotiable instruments for
deposit or collection in the ordinary course of business, and (c) the
present value of any lease payments in excess of $50,000 due under
leases required to be capitalized in accordance with GAAP. Neither the
Company nor any Subsidiary is in default with respect to any
Indebtedness.
(t) Certain Fees. Except for the payment of fees in connection
with that certain Letter Agreement between the Company and the Century
Capital, dated December 31, 2002, no brokerage or finder's fees or
commissions are or will be payable by the Company to any broker,
financial advisor or consultant, finder, placement agent, investment
banker, bank or other Person with respect to the transactions
contemplated by this Agreement, and the Company has not taken any action
that would cause any Purchaser to be liable for any such fees or
commissions. The Company agrees that the Purchasers shall have no
obligation with respect to any fees or with respect to any claims made
by or on behalf of any Person for fees of the type contemplated by this
Section with the transactions contemplated by this Agreement.
(u) Private Placement. Assuming the accuracy of the
representations and warranties of the Purchasers set forth in Section
3.2, the offer, issuance and sale of the Securities to the Purchasers in
accordance with the terms of the Transaction Documents, as contemplated
hereby are exempt from the registration requirements of the Securities
Act. The issuance and sale of the Securities hereunder does not
contravene the rules and regulations of the Principal Market and no
shareholder approval is required for the Company to fulfill its
obligations under the Transaction Documents.
(v) Listing and Maintenance Requirements. The Company has not,
in the 12 months preceding the date hereof, received notice from any
Principal Market on which the Common Stock is or has been listed or
quoted to the effect that the Company is not in compliance with the
listing or maintenance requirements of such Principal Market. The
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Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with all such listing
and maintenance requirements.
(w) Registration Rights. The Company has not granted or agreed
to grant to any Person any rights (including "piggy-back" registration
rights) to have any securities of the Company registered with the
Commission or any other governmental authority that have not been
included on a registration statement filed with the Commission.
(x) Seniority. As of the date of this Agreement, no indebtedness
of the Company is senior to the Debentures in right of payment, whether
with respect to interest or upon liquidation or dissolution, or
otherwise, other than indebtedness secured by purchase money security
interests (which is senior only as to underlying assets covered thereby)
and capital lease obligations (which is senior only as to the property
covered thereby).
(y) Disclosure. Other than the Pending 10-K, the Company
confirms that neither it nor any other Person acting on its behalf has
provided any of the Purchasers or their agents or counsel with any
information that constitutes or might constitute material, nonpublic
information. The Company understands and confirms that the Purchasers
will rely on the foregoing representations in effecting transactions in
securities of the Company. All disclosure provided to the Purchasers
regarding the Company, its business and the transactions contemplated
hereby, including the Disclosure Schedules to this Agreement, furnished
by or on behalf of the Company with respect to the representations and
warranties made herein are true and correct with respect to such
representations and warranties and do not contain any untrue statement
of a material fact or omit to state any material fact necessary in order
to make the statements made therein, in light of the circumstances under
which they were made, not misleading. The Company acknowledges and
agrees that, other than with respect to the representations and
warranties contained in the confidentiality agreement entered into with
each Purchaser in connection with the review of the Pending 10-K or as
expressly set forth in the Transaction Documents, no Purchaser makes or
has made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth
in Section 3.2.
(z) Form S-3 Eligibility. The Company is eligible to register
the resale of the Underlying Shares for resale by the Purchaser on Form
S-3 promulgated under the Securities Act.
(aa) Tax Status. The Company and each of its Subsidiaries has
made or filed all federal, state and foreign income and all other tax
returns, reports and declarations required by any jurisdiction to which
it is subject and which are due (unless and only to the extent that the
Company and each of its Subsidiaries has set aside on its books
provisions reasonably adequate for the payment of all unpaid and
unreported taxes or has obtained an extension of the deadline for such
filing) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on
such returns, reports and declarations, except those being contested in
good faith and has set aside on its books provisions reasonably adequate
for
-15-
the payment of all taxes for periods subsequent to the periods to which
such returns, reports or declarations apply. To the Company's knowledge,
there are no unpaid taxes in any material amount claimed to be due by
the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim. The Company has not
executed a waiver with respect to the statute of limitations relating to
the assessment or collection of any foreign, federal, statue or local
tax. To the Company's knowledge, none of the Company's tax returns is
presently being audited by any taxing authority.
(bb) Acknowledgment Regarding Purchasers' Purchase of
Securities. The Company acknowledges and agrees that the Purchasers are
acting solely in the capacity of arm's length purchasers with respect to
this Agreement and the transactions contemplated hereby. The Company
further acknowledges that no Purchaser is acting as a financial advisor
or fiduciary of the Company (or in any similar capacity) with respect to
this Agreement and the transactions contemplated hereby and any
statement made by any Purchaser or any of their respective
representatives or agents in connection with this Agreement and the
transactions contemplated hereby is not advice or a recommendation and
is merely incidental to the Purchasers' purchase of the Securities. The
Company further represents to each Purchaser that the Company's decision
to enter into this Agreement has been based solely on the independent
evaluation of the Company and its representatives.
(cc) No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor, to the knowledge of the Company,
any of its directors or officers (i) has conducted or will conduct any
general solicitation (as that term is used in Rule 502(c) of Regulation
D) or general advertising with respect to the sale of the Debentures or
the Warrants, or (ii) made any offers or sales of any security or
solicited any offers to buy any security under any circumstances that
would require registration of the Debentures, the Underlying Shares or
the Warrants under the Securities Act or made any "directed selling
efforts" as defined in Rule 902 of Regulation S.
(dd) No Disagreements with Accountants and Lawyers. There are no
disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the accountants and lawyers formerly or
presently employed by the Company and the Company is current with
respect to any fees owed to its accountants.
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants to the
Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or
partnership power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and otherwise to
carry out its obligations thereunder. The purchase by such Purchaser of
the Securities hereunder has been duly authorized by all necessary
action on the part of such Purchaser. Each of this Agreement, and the
Registration Rights Agreement has been duly executed by such Purchaser,
and when delivered by such Purchaser in accordance with the terms
-16-
hereof, will constitute the valid and legally binding obligation of such
Purchaser, enforceable against it in accordance with its terms.
(b) Investment Intent. Such Purchaser is acquiring the
Securities as principal for its own account for investment purposes only
and not with a view to or for distributing or reselling such Securities
or any part thereof, without prejudice, however, to such Purchaser's
right, subject to the provisions of this Agreement, at all times to sell
or otherwise dispose of all or any part of such Securities pursuant to
an effective registration statement under the Securities Act or under an
exemption from such registration and in compliance with applicable
federal and state securities laws. Nothing contained herein shall be
deemed a representation or warranty by such Purchaser to hold Securities
for any period of time. Such Purchaser is acquiring the Securities
hereunder in the ordinary course of its business. Such Purchaser does
not have any agreement or understanding, directly or indirectly, with
any Person to distribute any of the Securities.
(c) Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, and on each date on
which it exercises any Warrants or converts any Debentures, it will be
either: (i) an "accredited investor" as defined in Rule 501(a)(1),
(a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a
"qualified institutional buyer" as defined in Rule 144A(a) under the
Securities Act. Such Purchaser has not been formed solely for the
purpose of acquiring the Securities. Such Purchaser is not a registered
broker-dealer under Section 15 of the Exchange Act.
(d) Experience of such Purchaser. Such Purchaser, either alone
or together with its representatives, has such knowledge, sophistication
and experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such
investment. Such Purchaser is able to bear the economic risk of an
investment in the Securities and, at the present time, is able to afford
a complete loss of such investment.
(e) General Solicitation. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.
(i) Residence. If such Purchaser is an individual, then such
Purchaser resides in the state or province identified in the address of
such Purchaser set forth on the signature page hereto; if such Purchaser
is a partnership, corporation, limited liability company or other
entity, then the office or offices of such Purchaser in which its
investment decision was made is located at the address or addresses of
such Purchaser set forth on the signature page hereto.
(j) Rule 144. Such Purchaser acknowledges and agrees that the
Securities are "restricted securities" as defined in Rule 144
promulgated under the Securities Act as in effect from time to time and
must be held indefinitely unless they are subsequently
-17-
registered under the Securities Act or an exemption from such
registration is available. Such Purchaser has been advised or is aware
of the provisions of Rule 144, which permits limited resale of shares
purchased in a private placement subject to the satisfaction of certain
conditions, including, among other things: the availability of certain
current public information about the Company, the resale occurring
following the required holding period under Rule 144 and the number of
shares being sold during any three-month period not exceeding specified
limitations.
(k) Company Information. Such Purchaser has read the Complete
SEC Reports and has had an opportunity to discuss the Company's
business, management and financial affairs with directors, officers and
management of the Company and has had the opportunity to review the
Company's operations and facilities. Such Purchaser has also had the
opportunity to ask questions of and receive answers from, the Company
and its management regarding the terms and conditions of this
investment.
(l) Ownership of Common Stock. Such Purchaser, as of the date of
this Agreement, does not own any shares of Common Stock.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of in compliance with
state and federal securities laws and subject to the terms of the
Debentures and Warrants, as applicable. In connection with any transfer
of Securities other than pursuant to an effective registration
statement, to the Company or to an Affiliate of a Purchaser, the Company
may require the transferor thereof to provide to the Company an opinion
of counsel selected by the transferor, the form and substance of which
opinion and choice of counsel shall be reasonably satisfactory to the
Company, to the effect that such transfer does not require registration
of such transferred Securities under the Securities Act. As a condition
of transfer, any such transferee shall agree in writing to be bound by
the terms of this Agreement and shall have the rights of a Purchaser
under this Agreement and the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is
required by this Section 4.1(b), of the following legend on any
certificate evidencing Securities:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [EXERCISABLE] [CONVERTIBLE]] HAVE NOT BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION
OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
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EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF
COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL
BE REASONABLY ACCEPTABLE TO THE COMPANY. THE SECURITIES ISSUABLE UPON
EXERCISE OR CONVERSION OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.
The Company acknowledges and agrees that a Purchaser may from
time to time pledge pursuant to a bona fide margin agreement or grant a
security interest in some or all of the Underlying Shares and, if
required under the terms of such arrangement, such Purchaser may
transfer pledged or secured Underlying Shares to the pledgees or secured
parties. If required by the Company's transfer agent in order to effect
a pledge, the Company shall cause its counsel, at no cost to the
Purchasers, to issue an opinion of counsel to the Company's transfer
agent. Further, no notice shall be required of such pledge. At the
appropriate Purchaser's expense, the Company will execute and deliver
such reasonable documentation as a pledgee or secured party of
Underlying Shares may reasonably request in connection with a pledge or
transfer of the Underlying Shares, including the preparation and filing
of any required prospectus supplement under Rule 424(b)(3) of the
Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of Selling Stockholders thereunder.
(c) Certificates evidencing Underlying Shares shall not contain
any legend (including the legend set forth in Section 4.1(b)): (i) while
a registration statement (including the Underlying Shares Registration
Statement) covering the resale of such security is effective under the
Securities Act, or (ii) following any sale of such Underlying Shares
pursuant to Rule 144, or (iii) if such Underlying Shares are eligible
for sale under Rule 144(k), or (iv) if such legend is not required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the Staff of the
Commission); provided, however, in connection with the issuance of the
Underlying Shares, each Purchaser, severally and not jointly with the
other Purchasers, hereby agrees to adhere to and abide by all prospectus
delivery requirements under the Securities Act and Commission
Regulations. If all or any portion of a Debenture or Warrant is
converted or exercised (as applicable) at a time when there is an
effective registration statement to cover the resale of the Underlying
Shares, or if such Underlying Shares may be sold under Rule 144(k) or if
such legend is not otherwise required under applicable requirements of
the Securities Act (including judicial interpretations thereof) then
such Underlying Shares shall be issued free of all legends. The Company
agrees that following the Effective Date relating to any Underlying
Shares or at such time as such legend is no longer required under this
Section 4.1(c), it will, no later than five Trading Days following the
delivery by a Purchaser to the Company or the Company's transfer agent
of a certificate representing such Underlying Securities issued with a
restrictive legend, deliver or cause to be delivered to such Purchaser a
certificate representing such shares that is free from all restrictive
and other legends. The Company
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may not make any notation on its records or give instructions to any
transfer agent of the Company that enlarge the restrictions on transfer
set forth in this Section.
(d) In addition to such Purchaser's other available remedies,
the Company shall pay to a Purchaser, in cash, as liquidated damages and
not as a penalty, for each $1,000 of Underlying Shares (based on the
VWAP of the Common Stock on the date such Securities are submitted to
the Company's transfer agent) delivered for removal of the restrictive
legend and subject to this Section 4.1(c), $10 per Trading Day
(increasing to $20 per Trading Day 5 Trading Days after such damages
have begun to accrue) for each Trading Day after such fifth Trading Day
until such certificate is delivered without a legend. Notwithstanding
anything herein to the contrary, amounts payable hereunder for failure
to remove restrictive legends on Underlying Shares shall be reduced by
any amounts also payable pursuant to Section 4(a)(iii)(C), Section
4(b)(ii) and Section 4(b)(iii) of the Debentures for failure to timely
deliver such Underlying Shares.
4.2 Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Securities may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that its obligations under the Transaction
Documents, including without limitation its obligation to issue the Underlying
Shares pursuant to the Transaction Documents, are unconditional and absolute and
not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim that the Company may
have against any Purchaser and regardless of the dilutive effect that such
issuance may have on the ownership of the other stockholders of the Company.
4.3 Furnishing of Information. As long as any Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act. Upon the request
of any Purchaser, the Company shall deliver to such Purchaser a written
certification of a duly authorized officer as to whether it has complied with
the preceding sentence. As long as any Purchaser owns Securities, if the Company
is not required to file reports pursuant to such laws, it will prepare and
furnish to the Purchasers and make publicly available in accordance with Rule
144(c) such information as is required for the Purchasers to sell the Securities
under Rule 144. The Company further covenants that it will take such further
action as any holder of Securities may reasonably request, all to the extent
required from time to time to enable such Person to sell such Securities without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144.
4.4 Integration. The Company shall not, and shall use its best efforts
to ensure that no Affiliate of the Company shall, sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers, or
that would be integrated with the offer or sale of the Securities for purposes
of the rules and regulations of any Principal Market.
4.5 Reservation and Listing of Securities.
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(a) The Company shall maintain a reserve from its duly
authorized shares of Common Stock for issuance pursuant to the
Transaction Documents in such amount as may be required to fulfill its
obligations in full under the Transaction Documents.
(b) If, on any date, the number of authorized but unissued (and
otherwise unreserved) shares of Common Stock is less than 130% of (i)
the Actual Minimum on such date, minus (ii) the number of shares of
Common Stock previously issued pursuant to the Transaction Documents,
then the Board of Directors of the Company shall use commercially
reasonable efforts to amend the Company's certificate of incorporation
to increase the number of authorized but unissued shares of Common Stock
to at least 130% of the Actual Minimum at such time (minus the number of
shares of Common Stock previously issued pursuant to the Transaction
Documents), as soon as possible; provided that the Company will not be
required at any time to authorize a number of shares of Common Stock
greater than the maximum remaining number of shares of Common Stock that
could possibly be issued after such time pursuant to the Transaction
Documents.
(c) The Company shall: (i) prepare and file with such Principal
Market an additional shares listing application covering a number of
shares of Common Stock at least equal to the Actual Minimum on the date
of such application, (ii) use its best efforts to take all steps
necessary to cause such shares of Common Stock to be approved for
listing on the Principal Market as soon as possible thereafter, (iii)
notify the Purchasers upon such listing, and (iv) use its best efforts
to maintain the listing of such Common Stock on such Principal Market or
another Principal Market. In addition, the Company shall, at its next
regularly scheduled annual or special meeting of shareholders, but in no
event later than June 30, 2003, include a proposal for Shareholder
Approval, with the recommendation of the Company's Board of Directors
that such proposal be approved, and the Company shall solicit proxies
from its shareholders in connection therewith in the same manner as all
other management proposals in such proxy statement and all
management-appointed proxyholders shall vote their proxies in favor of
such proposal.
(d) If, on any date, the number of shares of Common Stock
previously listed on a Principal Market is less than 130% of the Actual
Minimum on such date, then the Company shall use its best efforts to
list on such Principal Market, as soon as reasonably possible, a number
of shares of Common Stock at least equal to 130% of the Actual Minimum
on such date; provided that the Company will not be required at any time
to list a number of shares of Common Stock greater than the maximum
number of shares of Common Stock that could possibly be issued pursuant
to the Transaction Documents.
4.6 Conversion and Exercise Procedures. The form of Election to Purchase
included in the Warrants and the form of Conversion Notice included in the
Debentures set forth the totality of the procedures required of the Purchasers
in order to exercise the Warrants or convert the Debentures. No additional legal
opinion or other information or instructions shall be required of the Purchasers
to exercise their Warrants or convert their Debentures. The Company shall honor
exercises of the Warrants and conversions of the Debentures and shall deliver
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Underlying Shares in accordance with the terms, conditions and time periods set
forth in the Transaction Documents.
4.7 Future Financings. From the date hereof until 90 days after the
Effective Date of the initial Registration Statement relating to the Securities
issued at the First Closing and, if applicable, from the Second Closing Date
until 90 days after the Effective Date of the initial Registration Statement
relating to the Securities issued at the Second Closing, other than as
contemplated by this Agreement, neither the Company nor any Subsidiary shall
issue or sell any Capital Shares or Capital Shares Equivalents. Notwithstanding
anything herein to the contrary, the 90 day period set forth in this Section 4.7
shall be extended for the number of Trading Days during such period in which (y)
trading in the Common Stock is suspended by any Principal Market, or (z)
following the Effective Date, the Registration Statement is not effective or the
prospectus included in the Registration Statement may not be used by the
Purchasers for the resale of the Underlying Shares. Notwithstanding the
foregoing, this Section 4.7 shall not apply in respect of the issuance of (a)
shares of Common Stock or options to employees, consultants, advisors, officers
or directors of the Company pursuant to any stock or option plan duly adopted by
a majority of the non-employee members of the Board of Directors of the Company
or a majority of the members of a committee of non-employee directors
established for such purpose, (b) securities upon the exercise of, or in
connection with the payment of interest on or redemption of, the Debentures or
any Debentures of this series or of any other series or security issued by the
Company in connection with the offer and sale of this Company's securities
pursuant to this Agreement, or (c) securities upon the exercise of or conversion
of any convertible securities, options or warrants issued and outstanding on the
date of this Agreement, provided that such securities have not been amended
since the date of this Agreement, (d) securities in connection with acquisitions
or strategic investments (including, without limitation, any licensing or
distribution arrangements), the primary purpose of which is not to raise
capital, (e) securities to financial institutions or lessors in connection with
commercial credit arrangements, equipment financings or similar transactions,
where the principal consideration for such transaction is not the issuance of
such securities, or (f) up to, in the aggregate, $2,000,000 of Capital Shares
(not Capital Shares Equivalents), in a one-time transaction with pre-existing
shareholders, for a per share purchase price of not less than 90% of the average
of the VWAPs during the 5 Trading Days prior to any such transaction ("Market
Price") along with up to 25% warrant coverage with an exercise price not less
than 112% of the then Market Price, which transaction may have registration
rights. For purposes of clarification, an issuance pursuant to clause (f) above
shall be subject to the anti-dilution provisions in the Debentures and Warrants.
4.8 Securities Laws Disclosure; Publicity. The Company shall, within 1
Trading Day following the date of this Agreement, file a Current Report on Form
8-K disclosing all material terms of the transactions contemplated hereby. The
Company and the Purchasers shall consult with each other in issuing any press
releases, with respect to the transactions contemplated hereby, including the
above-reference Form 8-K. Notwithstanding the foregoing, other than (i) in
connection with the filing of any of the Transaction Documents as exhibits to
such Current Report on Form 8-K or any SEC Report and (ii) in any registration
statement filed pursuant to the Registration Rights Agreement and filings
related thereto, the Company shall not publicly disclose the name of any
Purchaser, or include the name of any Purchaser in any filing with the
Commission or any regulatory agency or Principal Market, without the prior
written consent of
-22-
such Purchaser, except to the extent such disclosure is required by law or
Principal Market regulations, in which case the Company shall provide the
Purchasers with prior notice of such disclosure.
4.9 Non-Public Information. Other than the Pending 10-K, the Company
covenants and agrees that neither it nor any other Person acting on its behalf
will provide any Purchaser or its agents or counsel with any information that
the Company believes constitutes material non-public information, unless prior
thereto such Purchaser shall have executed a written agreement regarding the
confidentiality and use of such information. The Company understands and
confirms that each Purchaser shall be relying on the foregoing representations
in effecting transactions in securities of the Company.
4.10 Use of Proceeds. The Company shall use the net proceeds from the
sale of the Securities hereunder for working capital purposes and not for the
satisfaction of any portion of the Company's debt (other than payment of trade
payables, capital lease obligations, the Debentures, fees to Xxxxx Xxxxx and
accrued expenses in the ordinary course of the Company's business and prior
practices), to redeem any Company equity or equity-equivalent securities or to
settle any outstanding litigation. Prior to the receipt of Shareholder Approval,
the Company shall not declare or pay any cash dividend on its shares of Common
Stock while any Debentures remains outstanding.
4.11 Indemnification of Purchasers. Subject to the provisions of this
Section 4.11, the Company will indemnify and hold the Purchasers and their
directors, officers, shareholders, partners, employees and agents (each, a
"Purchaser Party") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a
Purchaser, or any of them or their respective Affiliates, by any stockholder of
the Company who is not an Affiliate of such Purchaser, with respect to any of
the transactions contemplated by the Transaction Documents (unless such action
is based upon a breach of such Purchaser's representation, warranties or
covenants under the Transaction Documents or any agreements or understandings
such Purchaser may have with any such stockholder or any violations by the
Purchaser of state or federal securities laws or any conduct by such Purchaser
which constitutes fraud, gross negligence, willful misconduct or malfeasance).
If any action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing. Any Purchaser Party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Purchaser Party except to the extent that (i)
the employment thereof has been specifically authorized by the Company in
writing, (ii) the Company has failed after a reasonable period of time to assume
such defense and to employ counsel or (iii) in such action there is, in the
reasonable opinion of such separate counsel, a material conflict on any material
issue between the position of the Company and the position of such Purchaser
Party. The Company
-23-
will not be liable to any Purchaser Party under this Agreement (i) for any
settlement by an Purchaser Party effected without the Company's prior written
consent, which shall not be unreasonably withheld or delayed; or (ii) to the
extent, but only to the extent that a loss, claim, damage or liability is
attributable to any Purchaser Party's breach of any of the representations,
warranties, covenants or agreements made by the Purchasers in this Agreement or
in the other Transaction Documents.
4.12 Shareholders Rights Plan. In the event that a shareholders rights
plan is adopted by the Company, no claim will be made or enforced by the Company
or any other Person that any Purchaser is an "Acquiring Person" under the plan
or in any way could be deemed to trigger the provisions of such plan by virtue
of receiving Securities under the Transaction Documents.
4.13 Participation in Future Financing. From the date hereof until 12
months after the Effective Date of the initial Registration Statement relating
to the Securities issued at the First Closing and, if applicable, from the
Second Closing Date until 12 months after the Effective Date of the initial
Registration Statement relating to the Securities issued at the Second Closing,
if the Company intends to effect a private placement of Capital Shares or
Capital Shares Equivalents (a "Subsequent Financing") the Company shall deliver
to each of such Purchasers a written notice (the "Subsequent Financing Notice")
of its intention to effect such Subsequent Financing, which Subsequent Financing
Notice shall describe in reasonable detail the proposed terms of such Subsequent
Financing, the dollar amount of proceeds intended to be raised thereunder, not
including any amounts that may be provided pursuant to this Section 4.13 by the
Holders ("Subsequent Financing Amount"), the Person with whom such Subsequent
Financing is proposed to be effected, and attached to which shall be a term
sheet or similar document relating thereto. Such Purchaser shall have the right
to participate in such transaction pursuant to the terms set forth herein
provided such Purchaser shall notify the Company by 6:30 p.m. (New York City
time) on the fifth (5th) Trading Day after delivery to the Purchaser of the
Subsequent Financing Notice of its agreement to provide (or to cause its
designee to provide), subject to completion of mutually acceptable documentation
substantially reflecting the terms described in the Subsequent Financing Notice,
all or part of such Purchaser's Pro-Rata Share (as defined below) of the
Participation Amount (defined below) on substantially the terms set forth in the
Subsequent Financing Notice and such term sheet or similar document. For
purposes of the foregoing, "Pro Rata Share" means a fraction, the numerator of
which is the outstanding principal amount of Debentures then owned by such
Purchaser and the denominator of which is the total outstanding principal amount
of Debentures then outstanding. "Participation Amount" means an amount in
addition to the Subsequent Financing Amount and shall equal that amount which is
50% of the Subsequent Financing Amount such that the total-post participation
amount of such Subsequent Financing shall equal up to 150% of the Subsequent
Financing Amount. Five Trading Days after the delivery to the Purchasers of the
Subsequent Financing Notice, the Company may effect such Subsequent Financing on
the terms substantially as set forth in the Subsequent Financing Notice for up
to an aggregate amount equal to the Subsequent Financing Amount plus the
Participation Amount; provided that he Company must provide the Purchasers with
a second Subsequent Financing Notice, and the Purchasers will again have the
right of participation set forth above in this Section 4.13, if the Subsequent
Financing subject to the initial Subsequent Financing Notice is not consummated
for any reason on the terms set forth in such Subsequent Financing Notice within
60 Trading Days after the date of the initial
-24-
Subsequent Financing Notice. In the event the Company reasonably believes a
Subsequent Financing Notice constitutes material information of the Company,
prior to delivering such notice, the Company may require the Purchaser to
execute a written agreement, in form and substance reasonably satisfactory to
such Purchaser, regarding the confidentiality and use of such information.
Notwithstanding the foregoing, this Section 4.13 shall not apply in respect of
the issuance of (a) shares of Common Stock or options to employees, consultants,
advisors, officers or directors of the Company pursuant to any stock or option
plan duly adopted by a majority of the non-employee members of the Board of
Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose, (b) securities upon the
exercise of, or in connection with the payment of interest on or redemption of,
the Debentures or any Debentures of this series or of any other series or
security issued by the Company in connection with the offer and sale of this
Company's securities pursuant to this Agreement, or (c) securities upon the
exercise of or conversion of any convertible securities, options or warrants
issued and outstanding on the date of this Agreement, provided that the
securities have not been amended since the date of this Agreement, (d)
securities in connection with acquisitions or strategic investments (including,
without limitation, any licensing or distribution arrangements), the primary
purpose of which is not to raise capital, or (e) securities to financial
institutions or lessors in connection with commercial credit arrangements,
equipment financings or similar transactions, where the principal consideration
for such transaction is not the issuance of such securities.
ARTICLE V
MISCELLANEOUS
5.1 Termination. This Agreement may be terminated by the Company or any
Purchaser, by written notice to the other parties, if the First Closing has not
been consummated by the tenth Trading Day following the date of this Agreement;
provided that no such termination will affect the right of any party to xxx for
any breach by the other party (or parties).
5.2 Fees and Expenses. The Company has agreed to reimburse $40,000 to
Omicron Master Trust ("Omicron") (of which $15,000 has been received) as
reimbursement for the its legal, administrative and due diligence fees and
expenses incurred to prepare and negotiate the Transaction Documents.
Accordingly, in lieu of the foregoing payments, the Company, on the First
Closing Date, will direct that the aggregate amount that Omicron is to pay for
the Debentures and Warrants at such Closing, be reduced by $25,000 (the
remaining portion of the $40,000 not yet paid). Except as expressly set forth in
the Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all transfer agent fees, stamp taxes and other taxes and duties levied
in connection with the issuance of any Securities.
5.3 Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with
-25-
respect to such matters, which the parties acknowledge have been merged into
such documents, exhibits and schedules.
5.4 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Section prior to 5:30 p.m. (New York City time) on a Trading
Day, (b) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a Trading Day or later than 5:30 p.m. (New
York City time) on any Trading Day, or (c) the Trading Day following the date of
mailing, if sent by U.S. nationally recognized overnight courier service. The
addresses for such notices and communications are those set forth on the
signature pages hereof, or such other address as may be designated in writing
hereafter, in the same manner, by such Person.
5.5 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and each of the Purchasers or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.
5.6 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
5.7 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers. Any Purchaser may assign
its rights under this Agreement and the Registration Rights Agreement to any
Person to whom such Purchaser assigns or transfers any Securities.
5.8 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Sections 4.12.
5.9 Governing Law; Venue; Waiver of Jury Trial. All questions concerning
the construction, validity, enforcement and interpretation of this Agreement
shall be governed by and construed and enforced in accordance with the internal
laws of the State of New York, without regard to the principles of conflicts of
law thereof. Each party hereby irrevocably submits to the exclusive jurisdiction
of the state and federal courts sitting in the City of New York, borough of
Manhattan, for the adjudication of any dispute hereunder or in connection
-26-
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the Transaction Documents),
and hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is improper or inconvenient
venue for such proceeding. Each party hereby irrevocably waives personal service
of process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. The parties hereby waive all rights to a trial
by jury. If either party shall commence an action or proceeding to enforce any
provisions of this Agreement, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.
5.10 Survival. The representations and warranties contained herein shall
survive the earlier of (a) the second anniversary of the Second Closing Date if
the Second Closing occurs, (b) the second anniversary of the First Closing Date
if the Second Closing does not occur, and (c) the date on which the Debentures
and Warrants are no longer outstanding. The agreements and covenants contained
herein shall survive, as to a Purchaser and unless otherwise set forth in the
Transaction Documents, until such Purchaser no longer holds any Securities.
5.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
5.12 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefore, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.13 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
-27-
5.14 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate. Without limiting the generality of the
foregoing, the Company expressly agrees that its breach of the next-to-last last
sentence of Section 4.7 would cause each Purchaser irreparable harm, and
consents to the granting of injunctive relief by any court having jurisdiction
to preclude any such issuance of securities.
5.15 Payment Set Aside. To the extent that the Company makes a payment
or payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
5.16 Usury. To the extent it may lawfully do so, the Company hereby
agrees not to insist upon or plead or in any manner whatsoever claim, and will
resist any and all efforts to be compelled to take the benefit or advantage of,
usury laws wherever enacted, now or at any time hereafter in force, in
connection with any claim, action or proceeding that may be brought by any
Purchaser in order to enforce any right or remedy under any Transaction
Document. Notwithstanding any provision to the contrary contained in any
Transaction Document, it is expressly agreed and provided that the total
liability of the Company under the Transaction Documents for payments in the
nature of interest shall not exceed the maximum lawful rate authorized under
applicable law (the "Maximum Rate"), and, without limiting the foregoing, in no
event shall any rate of interest or default interest, or both of them, when
aggregated with any other sums in the nature of interest that the Company may be
obligated to pay under the Transaction Documents exceed such Maximum Rate. It is
agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or
any official governmental action subsequent to the date hereof, the new maximum
contract rate of interest allowed by law will be the Maximum Rate applicable to
the Transaction Documents from the effective date forward, unless such
application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any
Purchaser with respect to indebtedness evidenced by the Transaction Documents,
such excess shall be applied by such Purchaser to the unpaid principal balance
of any such indebtedness or be refunded to the Company, the manner of handling
such excess to be at such Purchaser's election.
5.17 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of
-28-
any other Purchaser, and no Purchaser shall be responsible in any way for the
performance of the obligations of any other Purchaser under any Transaction
Document. Nothing contained herein or in any Transaction Document, and no action
taken by any Purchaser pursuant thereto, shall be deemed to constitute the
Purchasers as a partnership, an association, a joint venture or any other kind
of entity, or create a presumption that the Purchasers are in any way acting in
concert or as a group with respect to such obligations or the transactions
contemplated by the Transaction Document. Each Purchaser shall be entitled to
independently protect and enforce its rights, including without limitation the
rights arising out of this Agreement or out of the other Transaction Documents,
and it shall not be necessary for any other Purchaser to be joined as an
additional party in any proceeding for such purpose. Each Purchaser was
introduced to the Company by Xxxxx Xxxxx, who has acted solely as agent for the
Company and not for any Purchaser. Each Purchaser has been represented by its
own separate legal counsel in their review and negotiation of the Transaction
Documents. For reasons of administrative convenience only, Purchasers and their
respective counsel have chosen to communicate with the Company through FW. FW
does not represent all of the Purchasers but only Omicron Master Trust. The
Company has elected to provide all Purchasers with the same terms and
Transaction Documents for the convenience of the Company and not because it was
required or requested to do so by the Purchasers.
5.18 Liquidated Damages. The Company's obligations to pay any liquidated
damages or other amounts owing under the Transaction Documents is a continuing
obligation of the Company and shall not terminate until all unpaid liquidated
damages and other amounts have been paid notwithstanding the fact that the
instrument or security pursuant to which such liquidated damages or other
amounts are due and payable shall have been canceled.
***********************
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IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
MATRITECH, INC.
By: /s/ Xxxxxxx X. Xxxxx
---------------------------------------
Name: Xxxxxxx X. Xxxxx
Title: Chairman and Chief Executive Officer
Address for Notice:
000 Xxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx, 00000
Attn: Xxxxxxx X. Xxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
With a copy to: Xxxxx, Xxxxxxx & Xxxxxxxxx, LLP
000 Xxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attn: Xxxxx X. Xxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
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PURCHASERS SIGNATURE PAGE
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
OMICRON MASTER TRUST Address for Notice:
------------------
By: Omicron Capital L.P., as subadvisor c/o Omicron Capital L.P.
By: Omicron Capital Inc., its general partner 000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxx Xxxx
By: /s/ Xxxxx Xxxxxxxxx Fax: (000) 000-0000
-------------------------------------------
Xxxxx Xxxxxxxxx, President
First Closing Subscription: $3,000,000
Second Closing Subscription: $1,800,000
With a copy to:
--------------
Xxxxxxx Xxxxxxxxx LLP
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxx X. Xxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
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PURCHASERS SIGNATURE PAGE (CONT...)
MIDSUMMER INVESTMENT, LTD. Address for Notice:
------------------
By: MIDSUMMER CAPITAL, LLC, C/o Midsummer Capital, LLC
As investment advisor 000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
By /s/ Xxxxx Xxxxxxx Tel: (000) 000-0000
---------------------------------------- Fax: (000) 000-0000
Xxxxx Xxxxxxx, Managing Director Attn: Xxxxx Xxxxxxx
First Closing Subscription: $1,400,000
Second Closing Subscription: $840,000
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(PURCHASERS SIGNATURE PAGE (CONT...)
ISLANDIA, L.P. Address for Notice:
------------------
By: Xxxx Xxxx, Inc., its general partner C/o Xxxx Xxxx, Inc.
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
By /s/ Xxxxxxx Xxxxxx Tel: (000) 000-0000
----------------------------------------- Fax: (000) 000-0000
Xxxxxxx Xxxxxx, Attn: Fund Manager
First Closing Subscription: $600,000
Second Closing Subscription: $360,000
-33-
ANNEX A
Company Wire Instructions
Xxxxx Xxxxxx Xxxx & Xxxxx, Xx.
Xxxxxx, Xxxxxxxxxxxxx
ABA#: 0110 0002 8
ATTN: Xxxxxxx Group
Credit MLIF#: 3218569
For further credit to: Matritech, Inc.
DDA# 99037582 (for international wires)
-34-
DISCLOSURE SCHEDULES
These Disclosure Schedules (the "Disclosure Schedules") dated as of
March 31, 2003 are delivered pursuant to the Securities Purchase Agreement dated
as of the date hereof (the "Purchase Agreement") by and between Matritech, Inc.
(the "Company") and the Purchasers named therein and shall be deemed
incorporated by reference into the representations and warranties of the Company
contained in Section 3.1 of the Purchase Agreement. Capitalized terms used but
not defined herein shall have the meanings ascribed to them in the Purchase
Agreement.
Nothing in these Disclosure Schedules is intended to broaden the scope
of any representation or warranty of the Company contained in the Purchase
Agreement or to create any covenant on the part of the Company. Inclusion of any
item in the Disclosure Schedules (1) does not represent a determination by the
Company that such item (a) is material, nor shall it be deemed to establish a
standard of materiality, or (b) did not arise in the ordinary course of business
and (2) shall not constitute, or be deemed to be, an admission to any third
party concerning such item by the Company.
The headings in these Disclosure Schedules are for convenience of
reference only and shall not affect the disclosures contained herein. Whenever
the Disclosure Schedules includes descriptions of certain documents or brief
summaries of certain aspects of the Company, its business, or events related to
the Company, such descriptions and summaries are qualified by reference to the
actual documents or other matters to which they refer.
Schedule 3.1(g) Capitalization
Reserved Shares
As of December 31, 2002 the following shares of common stock were reserved
and available for future issuance:
Stock Option Plans - Awarded....... 2,653,865
Stock Option Plans - Available..... 2,642,320
2002 Employee Stock Purchase Plan.. 221,000
Exercise of warrants outstanding... 532,046
---------
6,049,231
=========
Stock Option Plans
We have granted incentive and nonqualified options under our 1988, 1992
and 2002
-35-
option plans and the 1992 and 2002 Directors' Plans. All option grants, prices
and vesting periods are determined by the Board of Directors. Incentive stock
options must be granted at a price not less than the fair market value on the
date of grant. Options vest at various rates over periods of up to four years
and expire ten years from the date of grant. The exercise price of incentive
options granted to an option holder who owns stock possessing more than 10% of
the voting power of the outstanding capital stock must be at least equal to 110%
of the fair market value of the common stock on the date of grant.
There are 2,653,865 common shares subject to outstanding stock option
grants as set forth below and 2,642,320 common shares available for future
grants under existing option plans at December 31, 2002. The following table
summarizes stock option activity:
WEIGHTED
NUMBER OPTION AVERAGE
OF PRICE PRICE
OPTIONS PER SHARE PER SHARE
---------- -------------- ---------
Options outstanding, December 31, 1999 .. 1,433,255 0.84 - 13.13 4.47
Granted ............................ 124,206 1.16 - 7.88 4.54
Exercised .......................... (188,204) 1.16 - 7.88 2.42
Terminated ......................... (97,107) 1.16 - 13.13 7.10
---------- -------------- -----
Options outstanding, December 31, 2000... 1,272,150 0.84 - 13.13 4.58
Granted ............................ 321,278 1.80 - 4.34 3.09
Exercised .......................... (60,494) 1.34 - 2.44 2.38
Terminated ......................... (94,375) 1.34 - 7.88 1.54
---------- -------------- -----
Options outstanding, December 31, 2001... 1,438,559 0.84 - 13.13 4.52
Granted ............................ 1,319,780 1.86 - 2.54 2.21
Exercised .......................... (6,850) 1.34 - 1.44 1.40
Terminated ......................... (217,624) 1.16 - 7.88 3.95
---------- -------------- -----
Options outstanding, December 31, 2002 2,533,865 $0.84 - $13.13 $3.38
========= ============== =====
Options exercisable, December 31, 2002 .. 1,074,243 $0.84 - $13.13 $4.81
========= ============== =====
Options exercisable, December 31, 2001 .. 975,016 $0.84 - $13.13 $5.35
========= ============== =====
Options exercisable, December 31, 2000 .. 827,348 $0.84 - $13.13 $5.76
========= ============== =====
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OPTIONS OUTSTANDING OPTIONS
------------------- EXERCISABLE
WEIGHTED -----------
AVERAGE
REMAINING WEIGHTED WEIGHTED
CONTRACTUAL AVERAGE AVERAGE
RANGE OF NUMBER LIFE (IN EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING YEARS) PRICE EXERCISABLE PRICE
--------------- ----------- ----------- -------- ----------- --------
$ 0.84 - $ 1.16 130,000 6.58 $ 0.91 105,000 $ 0.93
$ 1.34 - 2.00 284,218 7.31 $ 1.76 120,513 $ 1.55
$ 2.03 - 2.85 1,302,996 8.70 $ 2.29 198,425 $ 2.40
$ 3.17 - 4.34 351,263 7.55 $ 3.40 186,317 $ 3.49
$ 5.00 - 6.69 42,325 6.83 $ 6.28 40,925 $ 6.27
$ 7.88 - 10.63 393,063 4.00 $ 7.89 393,063 $ 7.89
$ 13.13 30,000 3.43 $13.13 30,000 $13.13
--------- ---- ------ --------- ------
Total...... 2,533,865 7.45 $ 3.38 1,074,243 $ 4.81
========= ==== ====== ========= ======
In addition we issued in the first quarter of 2003 an Incentive Stock Option for
120,000 shares exercisable at a price of $1.745
Stock Purchase Plan
We have reserved and may issue up to an aggregate of 225,000 shares of common
stock under the Employee Stock Purchase Plans. At December 31, 2002, 221,000
shares are available for issuance under the plan.
Warrants
There are three different warrants outstanding at March 28, 2003
"Sunrise Warrants" expiring 7/05 for 200,000 shares exercisable at $2.50 per
share
"Far East Warrants" expiring 12/05 for 222,077 shares exercisable at $2.30 per
share
"Far East Warrants" expiring 12/03 for 109,969 shares exercisable at $2.75 per
share
Schedule 3.1(u) Private Placement
The Company must obtain shareholder approval under Nasdaq Marketplace Rule 4350
in
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order for the Company to issue in connection with the Debentures and Warrants in
the aggregate in excess of 19.999% of the number of shares of Common Stock
outstanding on the Trading Day immediately preceding the Original Issue Date and
also as a condition to consummation of the Second Closing.
Schedule 3.1(v) Listing and Maintenance Requirements
On November 19, 2002, the Company received written notice from The Nasdaq Stock
Market, Inc. that it did not comply with The NASDAQ National Market Place Rule
4450(a)(3) requiring a minimum of $10 million in stockholder's equity. In
response, the Company applied to list its securities on The NASDAQ SmallCap
Market. The staff approved the request to list on The NASDAQ SmallCap Market on
January 22, 2003 subject to receipt of outstanding fees and shares of the
Company began trading on The NASDAQ SmallCap Market on Monday, January 27, 2003.
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