EXHIBIT 10
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SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "AGREEMENT") is dated as of
June 14, 2004 among SulphCo, Inc., a Nevada corporation (the "COMPANY"), and the
purchasers identified on the signature pages hereto (each, 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"), the Company desires to issue and sell to each Purchaser,
and each Purchaser, severally and not jointly, desires to purchase from the
Company, certain 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 each of the
Purchasers agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. In addition to the terms defined elsewhere in this
Agreement, the following terms have the meanings indicated:
"ADDITIONAL INVESTMENT RIGHTS" means, collectively, the
Additional Investment Rights issued and sold under this Agreement, in
the form of EXHIBIT E.
"ADDITIONAL INVESTMENT RIGHT WARRANTS" has the meaning set
forth in the Additional Investment Rights.
"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. With respect to a
Purchaser, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such Purchaser
will be deemed to be an Affiliate of such Purchaser.
"BUSINESS DAY" means any day other than Saturday, Sunday or
other day on which commercial banks in The City of New York are
authorized or required by law to remain closed.
"CHANGE OF CONTROL" means the occurrence of any of the
following in one or a series of related transactions: (i) an
acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule 13d-5(b)(1) under the Exchange Act) of
more than one-half of the voting rights or equity interests in the
Company; (ii) a replacement of more than one-half of the members of the
Company's board of directors that is not approved by those individuals
who are members of the board of directors on the date hereof (or other
directors previously approved by such individuals); (iii) a merger or
consolidation of the Company or any significant Subsidiary or a sale of
more than one-half of the assets of the Company in one or a series of
related transactions, unless following such transaction or series of
transactions, the holders of the Company's securities prior to the
first such transaction continue to hold at least two-thirds of the
voting rights and equity interests in the surviving entity or acquirer
of such assets; (iv) a recapitalization, reorganization or other
transaction involving the Company or any significant Subsidiary that
constitutes or results in a transfer of more than one-half of the
voting rights or equity interests in the Company; (v) consummation of a
"Rule 13e-3 transaction" as defined in Rule 13e-3 under the Exchange
Act with respect to the Company, or (vi) the execution by the Company
or its controlling shareholders of a definitive agreement providing for
any of the foregoing events.
"CLOSING" means the closing of the purchase and sale of the
Shares, the Additional Investment Rights and Warrants pursuant to
Section 2.1.
"CLOSING DATE" means the date of the Closing.
"CLOSING PRICE" 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 an Eligible Market or any other
national securities exchange, the closing price per share of the Common
Stock for such date (or the nearest preceding date) on the primary
Eligible Market or exchange on which the Common Stock is then listed or
quoted; (b) if prices for the Common Stock are then quoted on the OTC
Bulletin Board, the closing bid price per share of the Common Stock for
such date (or the nearest preceding date) so quoted; (c) 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 closing 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 an independent appraiser selected in good faith
by Purchasers holding a majority of the Securities.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock of the Company, par
value $0.001 per share.
"COMMON STOCK EQUIVALENTS" means, collectively, Options and
Convertible Securities.
"COMPANY COUNSEL" means Xxxxx & Associates, counsel to the
Company.
"CONVERTIBLE SECURITIES" means any stock or securities (other
than Options) convertible into or exercisable or exchangeable for
Common Stock.
"EFFECTIVE DATE" means the date that the Registration
Statement is first declared effective by the Commission.
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"ELIGIBLE MARKET" means any of the New York Stock Exchange,
the American Stock Exchange, the NASDAQ National Market, the NASDAQ
SmallCap Market or OTC Bulletin Board.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXCLUDED STOCK" means the issuance of Common Stock (A) upon
exercise or conversion of any options or other securities described in
SCHEDULE 3.1(f) (provided that such exercise or conversion occurs in
accordance with the terms thereof, without amendment or modification,
and that the applicable exercise or conversion price or ratio is
described in such schedule) or otherwise pursuant to any employee
benefit plan described in SCHEDULE 3.1(f) or hereafter adopted by the
Company and approved by its shareholders or (B) in connection with any
issuance of shares or grant of options to employees, officers,
directors or consultants of the Company pursuant to a stock option plan
or other incentive stock plan duly adopted by the Company's board of
directors or in respect of the issuance of Common Stock upon exercise
of any such options.
"FILING DATE" means the 30th day following the Closing Date
with respect to the initial Registration Statement required to be filed
hereunder, and, with respect to any additional Registration Statements
that may be required pursuant to Section 6.1(g), the 10th day following
the date on which the Company first knows, or reasonably should have
known, that such additional Registration Statement is required under
such Section.
"LIEN" means any lien, charge, claim, security interest,
encumbrance, right of first refusal or other restriction.
"LOSSES" means any and all losses, claims, damages,
liabilities, settlement costs and expenses, including, without
limitation, costs of preparation and reasonable attorneys' fees.
"OPTIONS" means any rights, warrants or options to subscribe
for or purchase Common Stock or Convertible Securities (including all
Additional Investment Right Warrants that can be issued under the
Transaction Documents).
"PERSON" means any 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 any court or other federal, state,
local or other governmental authority or other entity of any kind.
"PER UNIT PURCHASE PRICE" means $1.25.
"POST-EFFECTIVE AMENDMENT" means a post-effective amendment to
the Registration Statement.
"POST-EFFECTIVE AMENDMENT FILING DEADLINE" means the 10th
Trading Day after the Registration Statement ceases to be effective
pursuant to applicable securities laws due to the passage of time or
the occurrence of an event requiring the Company to file a
Post-Effective Amendment.
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"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.
"PROSPECTUS" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes
any information previously omitted from a prospectus filed as part of
an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by
any prospectus supplement, with respect to the terms of the offering of
any portion of the Registrable Securities covered by the Registration
Statement, and all other amendments and supplements to the Prospectus
including post effective amendments, and all material incorporated by
reference or deemed to be incorporated by reference in such Prospectus.
"PURCHASER COUNSEL" has the meaning set forth in SECTION
6.2(a).
"REGISTRABLE SECURITIES" means any Common Stock (including
Underlying Shares) issued or issuable pursuant to the Transaction
Documents, together with any securities issued or issuable upon any
stock split, dividend or other distribution, recapitalization or
similar event with respect to the foregoing.
"REGISTRATION STATEMENT" means each registration statement
required to be filed under Article VI, including (in each case) the
Prospectus, amendments and supplements to such registration statement
or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed
to be incorporated by reference in such registration statement.
"REQUIRED EFFECTIVENESS DATE" means (i) with respect to the
initial Registration Statement required to be filed hereunder, the 90th
day following the Closing Date, and (ii) with respect to any additional
Registration Statements that may be required pursuant to SECTION
6.1(f), the 30th day following the date on which the Company first
knows, or reasonably should have known, that such additional
Registration Statement is required under such Section.
"RULE 144," "RULE 415," and "RULE 424" means Rule 144, Rule
415 and Rule 424, respectively, promulgated by the Commission pursuant
to the Securities Act, as such Rules 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.
"SECURITIES" means the Shares, Additional Investment Rights,
Warrants and the Underlying Shares.
"SHARES" means an aggregate of 1,015,480 shares of Common
Stock, which are being issued and sold to the Purchasers at the
Closing, and an additional aggregate of 1,015,480 shares of Common
Stock, which may be issued and sold to the Purchasers at the Second
Closing as provided in Section 2.2(c) below.
"SUBSIDIARY" means any Person in which the Company, directly
or indirectly, owns capital stock or holds an equity or similar
interest.
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"TRADING DAY" means (a) any day on which the Common Stock is
listed or quoted and traded on its primary Trading Market, or (b) if
the Common Stock is not then listed or quoted and traded on any
Eligible Market, then a day on which trading occurs on the OTC Bulletin
Board (or any successor thereto), or (c) if trading ceases to occur on
the OTC Bulletin Board (or any successor thereto), any Business Day.
"TRADING MARKET" means the OTC Bulletin Board or any other
Eligible Market, or any national securities exchange, market or trading
or quotation facility on which the Common Stock is then listed or
quoted.
"TRANSACTION DOCUMENTS" means this Agreement, the Additional
Investment Rights, the Warrants, the Transfer Agent Instructions and
any other documents or agreements executed in connection with the
transactions contemplated hereunder.
"TRANSFER AGENT INSTRUCTIONS" means the Irrevocable Transfer
Agent Instructions, in the form of EXHIBIT D, executed by the Company
and delivered to and acknowledged in writing by the Company's transfer
agent.
"UNDERLYING SHARES" means the shares of Common Stock issuable
upon exercise of the Warrants, the Additional Investment Rights and the
Additional Investment Right Warrants issued upon exercise of the
Additional Investment Rights.
"UNIT" means one Share, an Additional Investment Right to
acquire one share of Common Stock, a Warrant to acquire 0.35 shares of
Common Stock per share of Common Stock issued on the Closing Date and a
Warrant to acquire .70 shares of Common Stock per share of Common Stock
issued upon the exercise of an Additional Investment Right.
"WARRANTS" means, collectively, the Common Stock purchase
warrants issued and sold under this Agreement, in the form of EXHIBIT
A, and any warrants issued upon exercise of such warrants or the
Additional Investment Right Warrants.
ARTICLE II
PURCHASE AND SALE
2.1 Subject to the terms and conditions set forth in this Agreement, at
the Closing the Company shall issue and sell to each Purchaser, and each
Purchaser shall, severally and not jointly, purchase from the Company, one-half
of such number of Units indicated below such Purchaser's name on the signature
page of this Agreement at the Per Unit Purchase Price. The Closing shall take
place at the offices of Proskauer Rose LLP immediately following the execution
hereof, or at such other location or time as the parties may agree.
2.2 CLOSING DELIVERIES.
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(a) At the Closing, the Company shall deliver or cause to be
delivered to each Purchaser the following:
(i) one or more stock certificates, free and clear
of all restrictive and other legends (except as expressly provided in
Section 4.1(b) hereof), evidencing such number of Shares equal to
one-half of the number of Units indicated below such Purchaser's name
on the signature page of this Agreement, registered in the name of such
Purchaser;
(ii) an Additional Investment Right, registered in
the name of such Purchaser, pursuant to which such Purchaser shall have
the right to acquire one-half of such number of Underlying Shares
indicated below such Purchaser's name on the signature page of this
Agreement under the heading "Additional Investment Right Shares" and
Additional Investment Right Warrants to acquire one-half of such number
of Underlying Shares under the heading "Additional Investment Right
Warrants Shares", on the terms set forth therein;
(iii) a Warrant, registered in the name of such
Purchaser, pursuant to which such Purchaser shall have the right to
acquire one-half of such number of Underlying Shares indicated below
such Purchaser's name on the signature page of this Agreement under the
heading "Warrant Shares";
(iv) a legal opinion of Company Counsel, in the form
of EXHIBIT B, executed by such counsel and delivered to the Purchasers;
(v) duly executed Transfer Agent Instructions
acknowledged by the Company's transfer agent; and
(vi) a certificate from a duly authorized officer
certifying on behalf of the Company that each of the conditions set
forth in Section 5.1 has been satisfied;
(b) At the Closing, each Purchaser shall deliver or cause to
be delivered an amount equal to the Per Unit Purchase Price multiplied by
one-half of the number of Units indicated below such Purchaser's name on the
signature page of this Agreement, in United States dollars and in immediately
available funds, by wire transfer to an account designated in writing to such
Purchaser by the Company for such purpose.
(c) In the event that prior to October 31, 2004 (the "Option
Period") the Company enters into a Collaboration Agreement (as defined below),
the Company shall have the right to require a second closing (the "Second
Closing") pursuant to which the Company shall issue and sell to each Purchaser,
and each Purchaser shall, severally and not jointly, purchase from the Company,
one-half of such number of Units indicated below such Purchaser's name on the
signature page of this Agreement at the Per Unit Purchase Price. The Second
Closing shall occur five (5) Trading Days after the public announcement of the
Collaboration Agreement by both of the parties thereto. At the Second Closing,
the Company shall deliver or cause to be delivered to each Purchaser the
following: (i) one or more stock certificates, free and clear of all restrictive
and other legends (except as expressly provided in Section 4.1(b) hereof),
evidencing such number of Shares equal to one-half of the number of Units
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indicated below such Purchaser's name on the signature page of this Agreement,
registered in the name of such Purchaser; (ii) an Additional Investment Right,
registered in the name of such Purchaser, pursuant to which such Purchaser shall
have the right to acquire one-half of such number of Underlying Shares indicated
below such Purchaser's name on the signature page of this Agreement under the
heading "Additional Investment Right Shares" and Additional Investment Right
Warrants to acquire one-half of such number of Underlying Shares under the
heading "Additional Investment Right Warrants Shares", on the terms set forth
therein; (iii) a Warrant, registered in the name of such Purchaser, pursuant to
which such Purchaser shall have the right to acquire one-half of such number of
Underlying Shares indicated below such Purchaser's name on the signature page of
this Agreement under the heading "Warrant Shares"; (iv) an updated legal opinion
of Company Counsel, in the form of Exhibit B, executed by such counsel and
delivered to the Purchasers; and (v) a certificate from a duly authorized
officer certifying on behalf of the Company that each of the conditions set
forth in Section 5.1 has been satisfied (treating each reference to the
"Closing" as a reference to the "Second Closing"). At the Second Closing, each
Purchaser shall deliver or cause to be delivered an amount equal to the Per Unit
Purchase Price multiplied by one-half of the number of Additional Units
indicated below such Purchaser's name on the signature page of this Agreement,
in United States dollars and in immediately available funds, by wire transfer to
an account designated in writing to such Purchaser by the Company for such
purpose. Each Purchaser shall have the right, at any time during the Option
Period, to request a Second Closing and to purchase on the terms provided herein
up to the total amount (or any portion thereof) of the Securities that could be
purchased by such Purchaser at the Second Closing. The term "Collaboration
Agreement" means a collaboration agreement between the Company and a major
international oil producer, in all respects satisfactory to, and deemed to be a
validation of the value and effectiveness of the Company's products by, a
majority in interest of the Purchasers in their sole and absolute discretion.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each of the Purchasers as follows:
(a) SUBSIDIARIES. The Company has no direct or indirect
Subsidiaries other than those listed in Schedule 3.1(a). Except as disclosed in
Schedule 3.1(a), the Company owns, directly or indirectly, all of the capital
stock or comparable equity interests of each Subsidiary free and clear of any
Lien and all the issued and outstanding shares of capital stock or comparable
equity interest of each Subsidiary are validly issued and are fully paid,
non-assessable and free of preemptive and similar rights.
(b) ORGANIZATION AND QUALIFICATION. Each of the Company and
the Subsidiaries is an entity duly 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
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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 a
material adverse effect on the results of operations, assets, prospects,
business or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole on a consolidated basis, 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 and thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and 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, its Board of Directors or its shareholders. Each of the
Transaction Documents has been (or upon delivery will be) duly executed by the
Company and is, or 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.
(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 hereby and 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, (ii) 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 and the rules and regulations of any
self-regulatory organization to which the Company or its securities are
subject), or by which any property or asset of the Company or a Subsidiary is
bound or affected.
(e) ISSUANCE OF THE SECURITIES. The Securities (including the
Underlying Shares) are duly authorized and, when issued and paid for in
accordance with the Transaction Documents, will be duly and validly issued,
fully paid and nonassessable, free and clear of all Liens and shall not be
subject to preemptive rights or similar rights of shareholders. The Company has
reserved from its duly authorized capital stock the maximum number of shares of
Common Stock issuable upon exercise of the Additional Investment Rights and the
Warrants.
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(f) CAPITALIZATION. The number of shares and type of all
authorized, issued and outstanding capital stock, options and other securities
of the Company (whether or not presently convertible into or exercisable or
exchangeable for shares of capital stock of the Company) is set forth in
Schedule 3.1(f). All outstanding shares of capital stock are duly authorized,
validly issued, fully paid and nonassessable and have been issued in compliance
with all applicable securities laws. Except as disclosed in Schedule 3.1(f),
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 exercisable 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. There are no anti-dilution or price adjustment provisions contained in
any security issued by the Company (or in any agreement providing rights to
security holders) and the issue and sale of the Securities (including the
Underlying Shares) will not obligate the Company to issue shares of Common Stock
or other securities to any Person (other than the Purchasers) 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. To the knowledge of
the Company, except as specifically disclosed in Schedule 3.1(f), no Person or
group of related Persons beneficially owns (as determined pursuant to Rule 13d-3
under the Exchange Act), or has the right to acquire, by agreement with or by
obligation binding upon the Company, beneficial ownership of in excess of 5% of
the outstanding Common Stock, ignoring for such purposes any limitation on the
number of shares of Common Stock that may be owned at any single time.
(g) SEC REPORTS; FINANCIAL STATEMENTS. Except as set forth in
Schedule 3.1(g), the Company has filed all reports required to be filed by it
under 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
(together with any materials filed by the Company under the Exchange Act,
whether or not required) being collectively referred to herein as the "SEC
REPORTS" and, together with this Agreement and the Schedules to this Agreement,
the "DISCLOSURE MATERIALS") on a timely basis or has received a valid extension
of such time of filing and has filed any such SEC Reports prior to the
expiration of any such extension. The Company has delivered to each Purchaser
true, correct and complete copies 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 the
light of the circumstances under which they were made, not misleading. Except as
set forth in Schedule 3.1(g), 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 United States 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,
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subject, in the case of unaudited statements, to normal, immaterial, year-end
audit adjustments. Other than a certain Refinery Test Agreement dated June 6,
2003, all material agreements to which the Company or any Subsidiary is a party
or to which the property or assets of the Company or any Subsidiary are subject
are included as part of or specifically identified in the SEC Reports.
(h) MATERIAL CHANGES. Since the date of the latest audited
financial statements included within the SEC Reports, except as specifically
disclosed in the SEC Reports or in Schedule 3.1(h), (i) there has been no event,
occurrence or development that, individually or in the aggregate, has had or
that could result in 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, except as disclosed in its SEC
Reports, (iv) the Company has not declared or made any dividend or distribution
of cash or other property to its shareholders or purchased, redeemed or made any
agreements to purchase or redeem any shares of its capital stock, and (v) the
Company has not issued any equity securities to any officer, director or
Affiliate, except pursuant to existing Company stock-based plans.
(i) ABSENCE OF LITIGATION. There is no action, suit, claim,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company, threatened against or affecting the Company or any of
its Subsidiaries that could, individually or in the aggregate, have a Material
Adverse Effect. Schedule 3.1(i) contains a complete list and summary description
of any pending or, to the knowledge of the Company, threatened proceeding
against or affecting the Company or any of its Subsidiaries, without regard to
whether it could, individually or in the aggregate, have a Material Adverse
Effect.
(j) 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, including without limitation all foreign, federal, state
and local laws relating to taxes, environmental protection, occupational health
and safety, product quality and safety and employment and labor matters, except
in each case as could not, individually or in the aggregate, have or result in a
Material Adverse Effect.
(k) 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
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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 such non-compliance as would not have a
Material Adverse Effect.
(l) CERTAIN FEES. Except for the fees described in Schedule
3.1(l), all of which are payable to registered broker-dealers, 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.
(m) PRIVATE PLACEMENT. Neither the Company nor any Person
acting on the Company's behalf has sold or offered to sell or solicited any
offer to buy the Securities by means of any form of general solicitation or
advertising. Except as set forth on Schedule 3.1(m), neither the Company nor any
of its Affiliates nor any Person acting on the Company's behalf has, directly or
indirectly, at any time within the past six months, made any offer or sale of
any security or solicitation of any offer to buy any security under
circumstances that would (i) eliminate the availability of the exemption from
registration under Regulation D under the Securities Act in connection with the
offer and sale of the Securities as contemplated hereby or (ii) cause the
offering of the Securities pursuant to the Transaction Documents to be
integrated with prior offerings by the Company for purposes of any applicable
law, regulation or stockholder approval provisions, including, without
limitation, under the rules and regulations of any Trading Market. The Company
is not, and is not an Affiliate of, an "investment company" within the meaning
of the Investment Company Act of 1940, as amended. The Company is not a United
States real property holding corporation within the meaning of the Foreign
Investment in Real Property Tax Act of 1980.
(n) LISTING AND MAINTENANCE REQUIREMENTS. The Company has not,
in the two years preceding the date hereof, received notice (written or oral)
from any Trading 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 Trading Market. Except as disclosed in Schedule
3.1(n), the 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.
(o) REGISTRATION RIGHTS. Except for registration rights on
Form S-8 regarding Excluded Stock, 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 satisfied.
(p) APPLICATION OF TAKEOVER PROTECTIONS. There is no control
share acquisition, business combination, poison pill (including any distribution
under a rights agreement) or other similar anti-takeover provision under the
Company's charter documents or the laws of its state of incorporation that is or
could become applicable to any of the Purchasers as a result of the Purchasers
and the Company fulfilling their obligations or exercising their rights under
the Transaction Documents, including, without limitation, as a result of the
Company's issuance of the Securities and the Purchasers' ownership of the
Securities.
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(q) DISCLOSURE. 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 each
of 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 Schedules to this Agreement, furnished by or on behalf of
the Company are true and correct 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 the light of the circumstances under which they were
made, not misleading. No event or circumstance has occurred or information
exists with respect to the Company or any of its Subsidiaries or its or their
business, properties, prospects, operations or financial conditions, which,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed. The Company acknowledges and agrees that (i) 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 or
(ii) any statement, commitment or promise to the Company or, to its knowledge,
any of its representatives which is or was an inducement to the Company to enter
into this Agreement or otherwise.
(r) ACKNOWLEDGMENT REGARDING PURCHASERS' PURCHASE OF
SECURITIES. The Company acknowledges and agrees that each of the Purchasers is
acting solely in the capacity of an arm's length purchaser 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 advice given by any Purchaser or any of
their respective representatives or agents in connection with this Agreement and
the transactions contemplated hereby 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 transactions contemplated hereby by the
Company and its representatives.
(s) PATENTS AND TRADEMARKS. The Company and the Subsidiaries
have, or have rights to use, all patents, patent applications, trademarks,
trademark applications, service 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.
(t) 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.
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(u) 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 SEC Reports, except where the
failure to possess such permits could not, individually or in the aggregate,
have or 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.
(v) TRANSACTIONS WITH AFFILIATES AND EMPLOYEES. Except as set
forth in SEC Reports filed at least ten days prior to the date hereof, 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.
(w) FORM SB-2 ELIGIBILITY. The Company is eligible to register
the resale of its Common Stock for resale by the Purchasers under Form SB-2
promulgated under the Securities Act.
(x) SOLVENCY. Based on the financial condition of the Company
as of the Closing Date, (i) the Company's fair saleable value of its assets
exceeds the amount that will be required to be paid on or in respect of the
Company's existing debts and other liabilities (including known contingent
liabilities) as they mature; (ii) the Company's assets do not constitute
unreasonably small capital to carry on its business for the current fiscal year
as now conducted and as proposed to be conducted including its capital needs
taking into account the particular capital requirements of the business
conducted by the Company, and projected capital requirements and capital
availability thereof; and (iii) the current cash flow of the Company, together
with the proceeds the Company would receive, were it to liquidate all of its
assets, after taking into account all anticipated uses of the cash, would be
sufficient to pay all amounts on or in respect of its debt when such amounts are
required to be paid. 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).
(y) GOING CONCERN. The Company and the Subsidiaries have no
knowledge (upon receipt of the proceeds of this transaction) that Xxxx Xxxxxx &
Company, CPAs, Ltd., the Company's independent public accountants, will issue an
audit letter containing a "going concern" opinion in connection with the
Company's annual report on Form 10-KSB pursuant to Section 13 or 15(d) under the
Exchange Act for the fiscal year ended December 31, 2003.
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(z) 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.
(aa) XXXXXXXX-XXXXX ACT. The Company is in compliance with
applicable requirements of the Xxxxxxxx-Xxxxx Act of 2002 and applicable rules
and regulations promulgated by the Commission thereunder in effect as of the
date of this Agreement, except where such noncompliance could not be reasonably
expected to have, individually or in the aggregate, a Material Adverse Effect.
3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby, as to itself only 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 hereunder and thereunder. The purchase by such Purchaser of the
Shares and the Warrants and Additional Investment Rights hereunder has been duly
authorized by all necessary action on the part of such Purchaser. This Agreement
has been duly executed and delivered by such Purchaser and constitutes the valid
and binding obligation of such Purchaser, enforceable against it in accordance
with its terms.
(b) INVESTMENT INTENT. Such Purchaser is acquiring the
Securities 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.
(c) PURCHASER STATUS. At the time such Purchaser was offered
the Shares, the Additional Investment Rights and the Warrants, it was, and at
the date hereof it is, an "accredited investor" as defined in Rule 501(a) under
the Securities 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.
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(e) ACCESS TO INFORMATION. Such Purchaser has had the
opportunity to ask questions or, and receive answers from, representatives of
the Company concerning the Company and the terms and conditions of this
transaction, as well as obtain any information requested by such Purchaser. Such
Purchaser's decision to enter into the transactions contemplated hereby is based
on such Purchaser's own evaluation of the risks and merits of an investment in
Company. Such Purchaser acknowledges that such Purchaser's investment in the
Securities involves a high degree of risk.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
4.1 TRANSFER RESTRICTIONS.
(a) Securities may only be disposed of pursuant to an
effective registration statement under the Securities Act or pursuant to an
available exemption from the registration requirements of the Securities Act,
and in compliance with any applicable state securities laws. In connection with
any transfer of Securities other than pursuant to an effective registration
statement or to the Company or pursuant to Rule 144(k), except as otherwise set
forth herein, the Company may require the transferor to provide to the Company
an opinion of counsel selected by the transferor, the form and substance of
which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration under the Securities Act.
Notwithstanding the foregoing, the Company hereby consents to and agrees to
register on the books of the Company and with its transfer agent, without any
such legal opinion, any transfer of Securities by a Purchaser to an Affiliate of
such Purchaser, provided that the transferee certifies to the Company that it is
an "accredited investor" as defined in Rule 501(a) under the Securities Act.
(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 HAVE 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 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
OR BLUE SKY LAWS. NOTWITHSTANDING THE FOREGOING, THESE SECURITIES AND
THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.
15
Certificates evidencing Securities shall not be required to contain such legend
or any other legend (i) while a Registration Statement covering the resale of
such Securities is effective under the Securities Act, or (ii) following any
sale of such Securities pursuant to Rule 144, or (iii) if such Securities 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). The
Company shall cause its counsel to issue the legal opinion included in the
Transfer Agent Instructions to the Company's transfer agent on the Effective
Date. Following the Effective Date or at such earlier time as a legend is no
longer required for certain Securities, the Company will no later than three
Trading Days following the delivery by a Purchaser to the Company or the
Company's transfer agent of a legended certificate representing such Securities,
deliver or cause to be delivered to such Purchaser a certificate representing
such Securities that is free from all restrictive and other legends. The Company
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.
(c) The Company acknowledges and agrees that a Purchaser may
from time to time pledge or grant a security interest in some or all of the
Securities in connection with a bona fide margin agreement or other loan or
financing arrangement secured by the Securities and, if required under the terms
of such agreement, loan or arrangement, such Purchaser may transfer pledged or
secured Securities to the pledgees or secured parties. Such a pledge or transfer
would not be subject to approval of the Company and no legal opinion of the
pledgee, secured party or pledgor shall be required in connection therewith.
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 Securities may reasonably request
in connection with a pledge or transfer of the Securities, 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.
4.2 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 paragraph (c) of Rule 144 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 to satisfy the provisions of Rule 144 applicable to the
issuer of securities relating to transactions for the sale of securities
pursuant to Rule 144.
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4.3 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 Trading Market.
4.4 RESERVATION AND LISTING OF SECURITIES. 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. In the event that at any
time the then authorized shares of Common Stock are insufficient for the Company
to satisfy its obligations in full under the Transaction Documents, the Company
shall promptly take such actions as may be required to increase the number of
authorized shares. The Company shall in the time and manner required by its
Trading Market, prepare and file with such Trading Market an additional shares
listing application covering the number of shares of Common Stock issuable under
the Transaction Documents and shall take all steps necessary to cause such
shares of Common Stock to be approved for listing on its Trading Market as soon
as possible.
4.5 SUBSEQUENT PLACEMENTS.
(a) From the date hereof until the Effective Date, the Company
will not, directly or indirectly, offer, sell, grant any option to purchase, or
otherwise dispose of (or announce any offer, sale, grant or any option to
purchase or other disposition of) any of its or the Subsidiaries' equity or
equity equivalent securities, including without limitation any debt, preferred
stock or other instrument or security that is, at any time during its life and
under any circumstances, convertible into or exchangeable or exercisable for
Common Stock or Common Stock Equivalents (any such offer, sale, grant,
disposition or announcement being referred to as a "SUBSEQUENT PLACEMENT").
(b) From the Effective Date until 30 Trading Days after the
Effective Date (the "BLOCKOUT PERIOD"), the Company will not, directly or
indirectly, effect any Subsequent Placement except as set forth in Section
4.5(e).
(c) The Blockout Period set forth in Section 4.5(b) above
shall be extended for the number of Trading Days during such period in which (i)
trading in the Common Stock is suspended by any Trading Market, (ii) the
Registration Statement is not effective, or (iii) the prospectus included in the
Registration Statement may not be used by the Purchasers for the resale of
Registrable Securities thereunder.
(d) From the end of the Blockout Period until 180 Trading Days
from the Effective Date, the Company will not, directly or indirectly, effect
any Subsequent Placement unless the Company shall have first complied with this
Section 4.5(d).
(i) The Company shall deliver to each Purchaser a
written notice (the "OFFER") of any proposed or intended issuance or
sale or exchange of the securities being offered (the "OFFERED
SECURITIES") in a Subsequent Placement, which Offer shall (w) identify
and describe the Offered Securities, (x) describe the price and other
terms upon which they are to be issued, sold or exchanged, and the
17
number or amount of the Offered Securities to be issued, sold or
exchanged, (y) identify the Persons or entities to which or with which
the Offered Securities are to be offered, issued, sold or exchanged and
(z) offer to issue and sell to or exchange with each Purchaser (A) a
pro rata portion of the Offered Securities based on such Purchaser's
pro rata portion of the aggregate purchase price paid by the Purchasers
for all of the Shares purchased hereunder (the "BASIC AMOUNT"), and (B)
with respect to each Purchaser that elects to purchase its Basic
Amount, any additional portion of the Offered Securities attributable
to the Basic Amounts of other Purchasers as such Purchaser shall
indicate it will purchase or acquire should the other Purchasers
subscribe for less than their Basic Amounts (the "UNDERSUBSCRIPTION
AMOUNT").
(ii) To accept an Offer, in whole or in part, a
Purchaser must deliver a written notice to the Company prior to the end
of the five (5) Trading Day period of the Offer, setting forth the
portion of the Purchaser's Basic Amount that such Purchaser elects to
purchase and, if such Purchaser shall elect to purchase all of its
Basic Amount, the Undersubscription Amount, if any, that such Purchaser
elects to purchase (in either case, the "NOTICE OF ACCEPTANCE"). If the
Basic Amounts subscribed for by all Purchasers are less than the total
of all of the Basic Amounts, then each Purchaser who has set forth an
Undersubcription Amount in its Notice of Acceptance shall be entitled
to purchase, in addition to the Basic Amounts subscribed for, the
Undersubscription Amount it has subscribed for; PROVIDED, HOWEVER, that
if the Undersubscription Amounts subscribed for exceed the difference
between the total of all the Basic Amounts and the Basic Amounts
subscribed for (the "AVAILABLE UNDERSUBSCRIPTION AMOUNT"), each
Purchaser who has subscribed for any Undersubscription Amount shall be
entitled to purchase on that portion of the Available Undersubscription
Amount as the Basic Amount of such Purchaser bears to the total Basic
Amounts of all Purchasers that have subscribed for Undersubscription
Amounts, subject to rounding by the Board of Directors to the extent
its deems reasonably necessary.
(iii) The Company shall have five (5) Trading Days
from the expiration of the period set forth in Section 4.5(d)(ii) above
to issue, sell or exchange all or any part of such Offered Securities
as to which a Notice of Acceptance has not been given by the Purchasers
(the "REFUSED SECURITIES"), but only to the offerees described in the
Offer and only upon terms and conditions (including, without
limitation, unit prices and interest rates) that are not more favorable
to the acquiring Person or Persons or less favorable to the Company
than those set forth in the Offer.
(iv) In the event the Company shall propose to sell
less than all the Refused Securities (any such sale to be in the manner
and on the terms specified in Section 4.5(d)(iii) above), then each
Purchaser may, at its sole option and in its sole discretion, reduce
the number or amount of the Offered Securities specified in its Notice
of Acceptance to an amount that shall be not less than the number or
amount of the Offered Securities that the Purchaser elected to purchase
pursuant to Section 4.5(d)(ii) above multiplied by a fraction, (i) the
numerator of which shall be the number or amount of Offered Securities
the Company actually proposes to issue, sell or exchange (including
Offered Securities to be issued or sold to Purchasers pursuant to
Section 4.5(c)(ii) above prior to such reduction) and (ii) the
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denominator of which shall be the original amount of the Offered
Securities. In the event that any Purchaser so elects to reduce the
number or amount of Offered Securities specified in its Notice of
Acceptance, the Company may not issue, sell or exchange more than the
reduced number or amount of the Offered Securities unless and until
such securities have again been offered to the Purchasers in accordance
with Section 4.5(d)(i) above.
(v) Upon the closing of the issuance, sale or
exchange of all or less than all of the Refused Securities, the
Purchasers shall acquire from the Company, and the Company shall issue
to the Purchasers, the number or amount of Offered Securities specified
in the Notices of Acceptance, as reduced pursuant to Section 4.5(d)(iv)
above if the Purchasers have so elected, upon the terms and conditions
specified in the Offer. The purchase by the Purchasers of any Offered
Securities is subject in all cases to the preparation, execution and
delivery by the Company and the Purchasers of a purchase agreement
relating to such Offered Securities reasonably satisfactory in form and
substance to the Purchasers and their respective counsel.
(vi) Any Offered Securities not acquired by the
Purchasers or other persons in accordance with Section 4.5(d)(iii)
above may not be issued, sold or exchanged until they are again offered
to the Purchasers under the procedures specified in this Agreement.
(e) The restrictions contained in paragraphs (a), (b) and (d)
of this Section 4.5 shall not apply to Excluded Stock.
4.6 SECURITIES LAWS DISCLOSURE; PUBLICITY. The Company shall, on or
before 8:30 a.m., New York City time on June 15, 2004, issue a press release
acceptable to the Purchasers disclosing all material terms of the transactions
contemplated hereby. On or before the first Business Day following the Closing
Date the Company shall file a Current Report on Form 8-K with the Commission
(the "8-K FILING") describing the terms of the transactions contemplated by the
Transaction Documents and including as exhibits to such Current Report on Form
8-K this Agreement, the form of the Additional Investment Rights and the form of
Warrants, in the form required by the Exchange Act. Thereafter, the Company
shall timely file any filings and notices required by the Commission or
applicable law with respect to the transactions contemplated hereby and provide
copies thereof to the Purchasers promptly after filing. Except with respect to
the 8-K Filing and the press release referenced above (a copy of which will be
provided to the Purchasers for their review as early as practicable prior to its
filing), the Company shall, at least two Trading Days prior to the filing or
dissemination of any disclosure required by this paragraph, provide a copy
thereof to the Purchasers for their review. The Company and the Purchasers shall
consult with each other in issuing any press releases or otherwise making public
statements or filings and other communications with the Commission or any
regulatory agency or Trading Market with respect to the transactions
contemplated hereby, and neither party shall issue any such press release or
otherwise make any such public statement, filing or other communication without
the prior consent of the other, except if such disclosure is required by law, in
which case the disclosing party shall promptly provide the other party with
prior notice of such public statement, filing or other communication.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of any Purchaser, or include the name of any Purchaser in any filing with the
19
Commission or any regulatory agency or Trading Market, without the prior written
consent of such Purchaser, except to the extent such disclosure (but not any
disclosure as to the controlling Persons thereof) is required by law or Trading
Market regulations, in which case the Company shall provide the Purchasers with
prior notice of such disclosure. The Company shall not, and shall cause each of
its Subsidiaries and its and each of their respective officers, directors,
employees and agents not to, provide any Purchaser with any material nonpublic
information regarding the Company or any of its Subsidiaries from and after the
filing of the 8-K Filing without the express written consent of such Purchaser.
In the event of a breach of the foregoing covenant by the Company, any of its
Subsidiaries, or any of its or their respective officers, directors, employees
and agents, in addition to any other remedy provided herein or in the
Transaction Documents, a Purchaser shall have the right to make a public
disclosure, in the form of a press release, public advertisement or otherwise,
of such material nonpublic information without the prior approval by the
Company, its Subsidiaries, or any of its or their respective officers,
directors, employees or agents. No Purchaser shall have any liability to the
Company, its Subsidiaries, or any of its or their respective officers,
directors, employees, shareholders or agents for any such disclosure. Subject to
the foregoing, neither the Company nor any Purchaser shall issue any press
releases or any other public statements with respect to the transactions
contemplated hereby; provided, however, that the Company shall be entitled,
without the prior approval of any Purchaser, to make any press release or other
public disclosure with respect to such transactions (i) in substantial
conformity with the 8-K Filing and contemporaneously therewith and (ii) as is
required by applicable law and regulations (provided that in the case of clause
(i) each Purchaser shall be consulted by the Company in connection with any such
press release or other public disclosure prior to its release). Each press
release disseminated during the 12 months preceding the date of this Agreement
did not at the time of release contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading.
4.7 USE OF PROCEEDS. Except as set forth on SCHEDULE 4.7, the Company
shall use the net proceeds from the sale of the Securities hereunder for working
capital purposes and not (i) for the satisfaction of any portion of the
Company's debt (other than payment of trade payables and accrued expenses in the
ordinary course of the Company's business and consistent with prior practices),
(ii) to redeem any Company equity or equity-equivalent securities, or (iii) to
settle any outstanding litigation.
4.8 REIMBURSEMENT. If any Purchaser or any of its Affiliates or any
officer, director, partner, controlling Person, employee or agent of a Purchaser
or any of its Affiliates (a "RELATED PERSON") becomes involved in any capacity
in any Proceeding brought by or against any Person in connection with or as a
result of the transactions contemplated by the Transaction Documents, the
Company will indemnify and hold harmless such Purchaser or Related Person for
its reasonable legal and other expenses (including the costs of any
investigation, preparation and travel) and for any Losses incurred in connection
therewith, as such expenses or Losses are incurred, excluding only Losses that
result directly from such Purchaser's or Related Person's gross negligence or
willful misconduct. In addition, the Company shall indemnify and hold harmless
each Purchaser and Related Person from and against any and all Losses, as
incurred, arising out of or relating to any breach by the Company of any of the
representations, warranties or covenants made by the Company in this Agreement
or any other Transaction Document, or any allegation by a third party that, if
true, would constitute such a breach. The conduct of any Proceedings for which
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indemnification is available under this paragraph shall be governed by Section
6.4(c) below. The indemnification obligations of the Company under this
paragraph shall be in addition to any liability that the Company may otherwise
have and shall be binding upon and inure to the benefit of any successors,
assigns, heirs and personal representatives of the Purchasers and any such
Related Persons. The Company also agrees that neither the Purchasers nor any
Related Persons shall have any liability to the Company or any Person asserting
claims on behalf of or in right of the Company in connection with or as a result
of the transactions contemplated by the Transaction Documents, except to the
extent that any Losses incurred by the Company result from the gross negligence
or willful misconduct of the applicable Purchaser or Related Person in
connection with such transactions. If the Company breaches its obligations under
any Transaction Document, then, in addition to any other liabilities the Company
may have under any Transaction Document or applicable law, the Company shall pay
or reimburse the Purchasers on demand for all costs of collection and
enforcement (including reasonable attorneys fees and expenses). Without limiting
the generality of the foregoing, the Company specifically agrees to reimburse
the Purchasers on demand for all costs of enforcing the indemnification
obligations in this paragraph.
ARTICLE V
CONDITIONS
5.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PURCHASERS. The
obligation of each Purchaser to acquire Securities at the Closing is subject to
the satisfaction or waiver by such Purchaser, at or before the Closing, of each
of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained herein shall be true and correct in all
material respects as of the date when made and as of the Closing as though made
on and as of such date; and
(b) PERFORMANCE. The Company and each other Purchaser shall
have performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by it at or prior to the Closing.
(c) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction that prohibits the consummation of any of the transactions
contemplated by the Transaction Documents;
(d) ADVERSE CHANGES. Since the date of execution of this
Agreement, no event or series of events shall have occurred that reasonably
would be expected to have or result in a Material Adverse Effect; and
(e) NO SUSPENSIONS OF TRADING IN COMMON STOCK; LISTING.
Trading in the Common Stock shall not have been suspended by the Commission or
any Trading Market (except for any suspensions of trading of not more than three
Trading Days (whether or not consecutive) solely to permit dissemination of
material information regarding the Company) at any time since the date of
execution of this Agreement, and the Common Stock shall have been at all times
since such date listed for trading on an Eligible Market;
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5.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY. The
obligation of the Company to sell Securities at the Closing is subject to the
satisfaction or waiver by the Company, at or before the Closing, of each of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Purchasers contained herein shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made on and as of such date; and
(b) PERFORMANCE. The Purchasers shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by the Transaction Documents to be performed, satisfied
or complied with by the Purchasers at or prior to the Closing.
ARTICLE VI
REGISTRATION RIGHTS
6.1 SHELF REGISTRATION
(a) As promptly as possible, and in any event on or prior to
the Filing Date, the Company shall prepare and file with the Commission a
"Shelf" Registration Statement covering the resale of all Registrable Securities
for an offering to be made on a continuous basis pursuant to Rule 415. The
Registration Statement shall be on Form SB-2 (except if the Company is not then
eligible to register for resale the Registrable Securities on Form SB-2, in
which case such registration shall be on Form SB-2 or another appropriate form
in accordance herewith as the Purchasers may consent) and shall contain (except
if otherwise directed by the Purchasers) the "Plan of Distribution" attached
hereto as EXHIBIT C.
(b) The Company shall use its best efforts to cause the
Registration Statement to be declared effective by the Commission as promptly as
possible after the filing thereof, but in any event prior to the Required
Effectiveness Date, and shall use its best efforts to keep the Registration
Statement continuously effective under the Securities Act until the fifth
anniversary of the Effective Date or such earlier date when all Registrable
Securities covered by such Registration Statement have been sold publicly (the
"EFFECTIVENESS Period").
(c) The Company shall notify each Purchaser in writing
promptly (and in any event within one Trading Day) after receiving notification
from the Commission that the Registration Statement has been declared effective.
(d) As promptly as possible, and in any event no later than
the Post-Effective Amendment Filing Deadline, the Company shall prepare and file
with the Commission a Post-Effective Amendment. The Company shall use its best
efforts to cause the Post-Effective Amendment to be declared effective by the
Commission as promptly as possible after the filing thereof, but in any event
prior to the fifteenth Trading Day after the Post-Effective Amendment Filing
Deadline. The Company shall notify each Purchaser in writing promptly (and in
any event within one business day) after receiving notification from the
Commission that the Post-Effective Amendment has been declared effective.
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(e) If: (i) any Registration Statement is not filed on or
prior to the Filing Date (if the Company files such Registration Statement
without affording the Purchasers the opportunity to review and comment on the
same as required by Section 6.2(a) hereof, the Company shall not be deemed to
have satisfied this clause (i)), or (ii) the-Company fails to file with the
Commission a request for acceleration in accordance with Rule 461 promulgated
under the Securities Act, within five Trading Days after the date that the
Company is notified (orally or in writing, whichever is earlier) by the
Commission that a Registration Statement will not be "reviewed," or will not be
subject to further review, or (iii) the Company fails to respond to any comments
made by the Commission within 10 Trading Days after the receipt of such
comments, or (iv) a Registration Statement filed hereunder is not declared
effective by the Commission by the Required Effectiveness Date or (v) a
Post-Effective Amendment is not filed on or prior to the Post-Effective
Amendment Filing Deadline or is not declared effective on or prior to the
fifteenth Trading Day after the Post-Effective Amendment Filing Deadline; or
(vi) after a Registration Statement is filed with and declared effective by the
Commission, such Registration Statement ceases to be effective as to all
Registrable Securities to which it is required to relate at any time prior to
the expiration of the Effectiveness Period without being succeeded within 10
Trading Days by an amendment to such Registration Statement or by a subsequent
Registration Statement filed with and declared effective by the Commission, or
(vii) an amendment to a Registration Statement is not filed by the Company with
the Commission within ten Trading Days after the Commission's having notified
the Company that such amendment is required in order for such Registration
Statement to be declared effective, or (viii) the Common Stock is not listed or
quoted, or is suspended from trading on an Eligible Market for a period of three
Trading Days (which need not be consecutive Trading Days) (any such failure or
breach being referred to as an "Event," and for purposes of clause (i), (iv) or
(v) the date on which such Event occurs, or for purposes of clause (ii) the date
on which such five Trading Day period is exceeded, or for purposes of clauses
(iii), (vi) or (vii) the date which such ten Trading Day-period is exceeded, or
for purposes of clause (viii) the date on which such three Trading Day period is
exceeded, being referred to as "`Event Date"), then: (x) on each such Event Date
the Company shall pay to each Purchaser an amount in cash, as partial liquidated
damages and not as a penalty, equal to 2% of the aggregate purchase price paid
by such Purchaser pursuant to the Purchase Agreement; and (y) on each monthly
anniversary of each such Event Date thereof (if the applicable Event shall not
have been cured by such date) until the applicable Event is cured, the Company
shall pay to each Purchaser an amount in cash, as partial liquidated damages and
not as a penalty, equal to 2% of the aggregate purchase price paid by such
Purchaser pursuant to the Purchase Agreement. Such payments shall be in partial
compensation to the Purchasers and shall not constitute the Purchaser's
exclusive remedy for such events. If the Company fails to pay any liquidated
damages pursuant to this Section in full within seven days after the date
payable, the Company will pay interest thereon at a rate of 18% per annum (or
such lesser maximum amount that is permitted to be paid by applicable law) to
the Purchaser, accruing daily from the date such liquidated damages are due
until such amounts, plus all such interest thereon, are paid in full.
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(f) Except as set forth on Schedule 6.1(f), the Company shall
not, prior to the Effective Date of the Registration Statement, prepare and file
with the Commission a registration statement relating to an offering for its own
account or the account of others (other than as contemplated in the Transaction
Documents) under the Securities Act of any of its equity securities other than a
registration statement filed on Form S-8 covering Excluded Stock.
(g) If the Company issues to the Purchasers any Common Stock
pursuant to the Transaction Documents that is not included in the initial
Registration Statement, then the Company shall file an additional Registration
Statement covering such number of shares of Common Stock on or prior to the
Filing Date and shall use it best efforts, but in no event later than the
Required Effectiveness Date, to cause such additional Registration Statement to
become effective by the Commission.
6.2 REGISTRATION PROCEDURES. In connection with the Company's
registration obligations hereunder, the Company shall:
(a) Not less than three Trading Days prior to the filing of a
Registration Statement or any related Prospectus or any amendment or supplement
thereto (including any document that would be incorporated or deemed to be
incorporated therein by reference), the Company shall (i) furnish to each
Purchaser and any counsel designated by any Purchaser (each, a "PURCHASER
COUNSEL", and Vertical Ventures, LLC has initially designated Proskauer Rose LLP
"LP COUNSEL") copies of all such documents proposed to be filed, which documents
(other than those incorporated or deemed to be incorporated by reference) will
be subject to the review of such Purchasers and Purchaser Counsel (it being
understood that such review must be completed within three Business Days of
receipt of such documents), and (ii) cause its officers and directors, counsel
and independent certified public accountants to respond to such inquiries as
shall be necessary, in the reasonable opinion of respective counsel, to conduct
a reasonable investigation within the meaning of the Securities Act. The Company
shall not file a Registration Statement or any such Prospectus or any amendments
or supplements thereto to which Purchasers holding a majority of the Registrable
Securities shall reasonably object.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to each Registration Statement and the
Prospectus used in connection therewith as may be necessary to keep the
Registration Statement continuously effective as to the applicable Registrable
Securities for the Effectiveness Period and prepare and file with the Commission
such additional Registration Statements in order to register for resale under
the Securities Act all of the Registrable Securities; (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus supplement,
and as so supplemented or amended to be filed pursuant to Rule 424; (iii)
respond as promptly as reasonably possible, and in any event within ten days, to
any comments received from the Commission with respect to the Registration
Statement or any amendment thereto and as promptly as reasonably possible
provide the Purchasers true and complete copies of all correspondence from and
to the Commission relating to the Registration Statement; and (iv) comply in all
material respects with the provisions of the Securities Act and the Exchange Act
with respect to the disposition of all Registrable Securities covered by the
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Purchasers thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.
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(c) Notify the Purchasers of Registrable Securities to be sold
and Purchaser Counsel as promptly as reasonably possible, and (if requested by
any such Person) confirm such notice in writing no later than one Trading Day
thereafter, of any of the following events: (i) the Commission notifies the
Company whether there will be a "review" of any Registration Statement; (ii) the
Commission comments in writing on any Registration Statement (in which case the
Company shall deliver to each Purchaser a copy of such comments and of all
written responses thereto); (iii) any Registration Statement or any
post-effective amendment is declared effective; (iv) the Commission or any other
Federal or state governmental authority requests any amendment or supplement to
any Registration Statement or Prospectus or requests additional information
related thereto; (v) the Commission issues any stop order suspending the
effectiveness of any Registration Statement or initiates any Proceedings for
that purpose; (vi) the Company receives notice of any suspension of the
qualification or exemption from qualification of any Registrable Securities for
sale in any jurisdiction, or the initiation or threat of any Proceeding for such
purpose; or (vii) the financial statements included in any Registration
Statement become ineligible for inclusion therein or any statement made in any
Registration Statement or Prospectus or any document incorporated or deemed to
be incorporated therein by reference is untrue in any material respect or any
revision to a Registration Statement, Prospectus or other document is required
so that it will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(d) Use its best efforts to avoid the issuance of or, if
issued, obtain the withdrawal of (i) any order suspending the effectiveness of
any Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, as soon as possible.
(e) Furnish to each Purchaser and Purchaser Counsel, without
charge, at least one conformed copy of each Registration Statement and each
amendment thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference, and all exhibits
to the extent requested by such Person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents with the
Commission.
(f) Promptly deliver to each Purchaser and Purchaser Counsel,
without charge, as many copies of the Prospectus or Prospectuses (including each
form of prospectus) and each amendment or supplement thereto as such Persons may
reasonably request. The Company hereby consents to the use of such Prospectus
and each amendment or supplement thereto by each of the selling Purchasers in
connection with the offering and sale of the Registrable Securities covered by
such Prospectus and any amendment or supplement thereto.
(g) (i) In the time and manner required by each Trading
Market, prepare and file with such Trading Market an additional shares listing
application covering all of the Registrable Securities; (ii) take all steps
necessary to cause such Registrable Securities to be approved for listing on
each Trading Market as soon as possible thereafter; (iii) provide to the
Purchasers evidence of such listing; and (iv) maintain the listing of such
Registrable Securities on each such Trading Market or another Eligible Market.
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(h) Prior to any public offering of Registrable Securities,
use its best efforts to register or qualify or cooperate with the selling
Purchasers and each applicable Purchaser Counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any Purchaser requests in writing, to keep each such registration or
qualification (or exemption therefrom) effective during the Effectiveness Period
and to do any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by a
Registration Statement.
(i) Cooperate with the Purchasers to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be delivered to a transferee pursuant to a Registration Statement, which
certificates shall be free, to the extent permitted by this Agreement, of all
restrictive legends, and to enable such Registrable Securities to be in such
denominations and registered in such names as any such Purchasers may request.
(j) Upon the occurrence of any event described in Section
6.2(c)(vii), as promptly as reasonably possible, prepare a supplement or
amendment, including a post-effective amendment, to the Registration Statement
or a supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(k) Cooperate with any due diligence investigation undertaken
by the Purchasers in connection with the sale of Registrable Securities,
including, without limitation, by making available any documents and
information; provided that the Company will not deliver or make available to any
Purchaser material, nonpublic information unless such Purchaser specifically
requests in advance to receive material, nonpublic information in writing.
(l) If Holders of a majority of the Registrable Securities
being offered pursuant to a Registration Statement select underwriters for the
offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, by providing customary legal opinions, comfort letters and
indemnification and contribution obligations.
(m) Comply with all applicable rules and regulations of the
Commission.
In connection with the registration of the Registrable
Securities, it shall be a condition precedent to the obligations of the Company
to complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Purchaser (or to make any payments or
other damages to such Purchaser pursuant to Section 6.1) that such Purchaser
shall furnish to the Company such information regarding itself and the
Registrable Securities held by it as shall reasonably be required to effect the
registration of such Registrable Securities within five Trading Days of the
Company's written request.
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6.3 REGISTRATION EXPENSES. The Company shall pay (or reimburse the
Purchasers for) all fees and expenses incident to the performance of or
compliance with this Agreement by the Company, including without limitation (a)
all registration and filing fees and expenses, including without limitation
those related to filings with the Commission, any Trading Market and in
connection with applicable state securities or Blue Sky laws, (b) printing
expenses (including without limitation expenses of printing certificates for
Registrable Securities and of printing prospectuses requested by the
Purchasers), (c) messenger, telephone and delivery expenses, (d) fees and
disbursements of counsel for the Company, (e) fees and expenses of all other
Persons retained by the Company in connection with the consummation of the
transactions contemplated by this Agreement, and (f) all listing fees to be paid
by the Company to the Trading Market.
6.4 INDEMNIFICATION
(a) INDEMNIFICATION BY THE COMPANY. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Purchaser, the officers, directors, partners, members, agents, brokers
(including brokers who offer and sell Registrable Securities as principal as a
result of a pledge or any failure to perform under a margin call of Common
Stock), investment advisors and employees of each of them, each Person who
controls any such Purchaser (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) and the officers, directors, partners,
members, agents and employees of each such controlling Person, to the fullest
extent permitted by applicable law, from and against any and all Losses, as
incurred, arising out of or relating to any untrue or alleged untrue statement
of a material fact contained in the Registration Statement, any Prospectus or
any form of prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or relating to any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in the light of the circumstances under which they were
made) not misleading, except to the extent, but only to the extent, that (i)
such untrue statements, alleged untrue statements, omissions or alleged
omissions are based solely upon information regarding such Purchaser furnished
in writing to the Company by such Purchaser expressly for use therein, or to the
extent that such information relates to such Purchaser or such Purchaser's
proposed method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Purchaser expressly for use in the
Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto or (ii) in the case of an occurrence of an event
of the type specified in Section 6.2(c)(v)-(vii), the use by such Purchaser of
an outdated or defective Prospectus after the Company has notified such
Purchaser in writing that the Prospectus is outdated or defective and prior to
the receipt by such Purchaser of the Advice contemplated in Section 6.5. The
Company shall notify the Purchasers promptly of the institution, threat or
assertion of any Proceeding of which the Company is aware in connection with the
transactions contemplated by this Agreement.
(b) INDEMNIFICATION BY PURCHASERS. Each Purchaser shall,
severally and not jointly, indemnify and hold harmless the Company, its
directors, officers, agents and employees, each Person who controls the Company
(within the meaning of Section 15 of the Securities Act and Section 20 of the
Exchange Act), and the directors, officers, agents or employees of such
controlling Persons, to the fullest extent permitted by applicable law, from and
against all Losses (as determined by a court of competent jurisdiction in a
27
final judgment not subject to appeal or review) arising solely out of any untrue
statement of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or in any amendment or supplement
thereto, or arising solely out of any omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in the light of the
circumstances under which they were made) not misleading to the extent, but only
to the extent, that such untrue statement or omission is contained in any
information so furnished in writing by such Purchaser to the Company
specifically for inclusion in such Registration Statement or such Prospectus or
to the extent that (i) such untrue statements or omissions are based solely upon
information regarding such Purchaser furnished in writing to the Company by such
Purchaser expressly for use therein, or to the extent that such information
relates to such Purchaser or such Purchaser's proposed method of distribution of
Registrable Securities and was reviewed and expressly approved in writing by
such Purchaser expressly for use in the Registration Statement, such Prospectus
or such form of Prospectus or in any amendment or supplement thereto or (ii) in
the case of an occurrence of an event of the type specified in SECTION
6.2(c)(v)-(vii), the use by such Purchaser of an outdated or defective
Prospectus after the Company has notified such Purchaser in writing that the
Prospectus is outdated or defective and prior to the receipt by such Purchaser
of the Advice contemplated in SECTION 6.5. In no event shall the liability of
any selling Purchaser hereunder be greater in amount than the dollar amount of
the net proceeds received by such Purchaser upon the sale of the Registrable
Securities giving rise to such indemnification obligation.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity hereunder
(an "INDEMNIFIED PARTY"), such Indemnified Party shall promptly notify the
Person from whom indemnity is sought (the "INDEMNIFYING PARTY") in writing, and
the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant to
this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (i) the Indemnifying Party has agreed in
writing to pay such fees and expenses; or (ii) the Indemnifying Party shall have
failed promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or
(iii) the named parties to any such Proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall have been advised by counsel that a conflict of interest
is likely to exist if the same counsel were to represent such Indemnified Party
and the Indemnifying Party (in which case, if such Indemnified Party notifies
the Indemnifying Party in writing that it elects to employ separate counsel at
the expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
28
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within ten Trading Days of written notice thereof to the Indemnifying
Party (regardless of whether it is ultimately determined that an Indemnified
Party is not entitled to indemnification hereunder; provided, that the
Indemnifying Party may require such Indemnified Party to undertake to reimburse
all such fees and expenses to the extent it is finally judicially determined
that such Indemnified Party is not entitled to indemnification hereunder).
(d) CONTRIBUTION. If a claim for indemnification under SECTION
6.4(a) or (b) is unavailable to an Indemnified Party (by reason of public policy
or otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in SECTION 6.4(c), any reasonable attorneys' or
other reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this SECTION 6.4(d) were determined by pro
rata allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 6.4(d), no Purchaser
shall be required to contribute, in the aggregate, any amount in excess of the
amount by which the proceeds actually received by such Purchaser from the sale
of the Registrable Securities subject to the Proceeding exceeds the amount of
any damages that such Purchaser has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties may have
to the Indemnified Parties.
29
6.5 DISPOSITIONS. Each Purchaser agrees that it will comply with the
prospectus delivery requirements of the Securities Act as applicable to it in
connection with sales of Registrable Securities pursuant to the Registration
Statement. Each Purchaser further agrees that, upon receipt of a notice from the
Company of the occurrence of any event of the kind described in SECTIONS
6.2(c)(v), (vi) or (vii), such Purchaser will discontinue disposition of such
Registrable Securities under the Registration Statement until such Purchaser's
receipt of the copies of the supplemented Prospectus and/or amended Registration
Statement contemplated by SECTION 6.2(j), or until it is advised in writing (the
"ADVICE") by the Company that the use of the applicable Prospectus may be
resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus or Registration Statement. The Company may provide
appropriate stop orders to enforce the provisions of this paragraph.
6.6 NO PIGGYBACK ON REGISTRATIONS. Neither the Company nor any of its
security holders (other than the Purchasers in such capacity pursuant hereto)
may include securities of the Company in the Registration Statement other than
the Registrable Securities, and the Company shall not after the date hereof
enter into any agreement providing any such right to any of its security
holders.
6.7 PIGGY-BACK REGISTRATIONS. If at any time during the Effectiveness
Period there is not an effective Registration Statement covering all of the
Registrable Securities and the Company shall determine to prepare and file with
the Commission a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each Purchaser written notice of
such determination and if, within fifteen days after receipt of such notice, any
such Purchaser shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
Purchaser requests to be registered.
ARTICLE VII
MISCELLANEOUS
7.1 TERMINATION. This Agreement may be terminated by the Company or any
Purchaser, by written notice to the other parties, if the Closing has not been
consummated by the third 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).
7.2 FEES AND EXPENSES. At the Closing, the Company shall pay to
Vertical Ventures, LLC an aggregate of $5,000 for their legal fees and expenses
incurred in connection with the preparation and negotiation of this Agreement.
In lieu of the foregoing remaining payment, Vertical Ventures, LLC may retain
such amount at the Closing. 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
30
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.
7.3 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 respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules. At or
after the Closing, and without further consideration, the Company will execute
and deliver to the Purchasers such further documents as may be reasonably
requested in order to give practical effect to the intention of the parties
under the Transaction Documents. Notwithstanding anything to the contrary
herein, Securities may be assigned to any Person in connection with a bona fide
margin account or other loan or financing arrangement secured by such Company
Securities.
7.4 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 6:30 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 6:30 p.m. (New
York City time) on any Trading Day, (c) the Trading Day following the date of
deposit with a nationally recognized overnight courier service, or (d) upon
actual receipt by the party to whom such notice is required to be given. The
addresses and facsimile numbers for such notices and communications are those
set forth on the signature pages hereof, or such other address or facsimile
number as may be designated in writing hereafter, in the same manner, by any
such Person.
7.5 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.
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with respect to a matter that relates exclusively to the rights of
Purchasers under ARTICLE VI and that does not directly or indirectly affect the
rights of other Purchasers may be given by Purchasers holding at least a
majority of the Registrable Securities to which such waiver or consent relates.
7.6 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.
7.7 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
31
its rights under this Agreement to any Person to whom such Purchaser assigns or
transfers any Securities, provided such transferee agrees in writing to be
bound, with respect to the transferred Securities, by the provisions hereof that
apply to the "Purchasers." Notwithstanding anything to the contrary herein,
Securities may be assigned to any Person in connection with a bona fide margin
account or other loan or financing arrangement secured by such Securities.
7.8 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 that each Related Person is an intended third party
beneficiary of Section 4.8 and each Indemnified Party is an intended third party
beneficiary of Section 6.4 and (in each case) may enforce the provisions of such
Sections directly against the parties with obligations thereunder.
7.9 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
laws of the state of new york. THE COMPANY AND PURCHASERS Hereby Irrevocably
Submit 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
BROUGHT BY THE COMPANY OR ANY PURCHASER Hereunder, In Connection 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 Waive, And Agree Not To Assert In Any Suit, Action Or ProceedinG
BROUGHT BY THE COMPANY OR ANY PURCHASER, Any Claim That It Is Not Personally
Subject To The Jurisdiction Of Any Such Court, OR That Such Suit, Action Or
Proceeding Is Improper. 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 Company AND PURCHASERS Hereby Waive All
Rights To A Trial By Jury.
7.10 SURVIVAL. The representations, warranties, agreements and
covenants contained herein shall survive the Closing and the delivery and/or
exercise of the Securities, as applicable.
7.11 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
32
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.
7.12 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 therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
7.13 RESCISSION AND WITHDRAWAL RIGHT. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.
7.14 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.
7.15 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.
7.16 PAYMENT SET ASIDE. To the extent that the Company makes a payment
or payments to any Purchaser hereunder or pursuant to the Additional Investment
Rights or Warrants or any Purchaser enforces or exercises its rights hereunder
or 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 by 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.
33
7.17 ADJUSTMENTS IN SHARE NUMBERS AND PRICES. In the event of any stock
split, subdivision, dividend or distribution payable in shares of Common Stock
(or other securities or rights convertible into, or entitling the holder thereof
to receive directly or indirectly shares of Common Stock), combination or other
similar recapitalization or event occurring after the date hereof, each
reference in any Transaction Document to a number of shares or a price per share
shall be amended to appropriately account for such event.
7.18 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 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. The decision of each Purchaser to
purchase Securities pursuant to this Agreement has been made by such Purchaser
independently of any other Purchaser and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company or of the Subsidiary which may have been
made or given by any other Purchaser or by any agent or employee of any other
Purchaser, and no Purchaser or any of its agents or employees shall have any
liability to any other Purchaser (or any other person) relating to or arising
from any such information, materials, statements or opinions. 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. The Company hereby confirms that it understands and agrees
that the Purchasers are not acting as a "group" as that term is used in Section
13(d) of the Exchange Act. Each Purchaser acknowledges that no other Purchaser
has acted as agent for such Purchaser in connection with making its investment
hereunder and that no other Purchaser will be acting as agent of such Purchaser
in connection with monitoring its investment hereunder. 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 represents that it has been represented by its own separate legal
counsel in its review and negotiations of this Agreement and the Transaction
Documents and each party represents and confirms that Proskauer Rose LLP
represents only Vertical Ventures, LLC in connection with this Agreement and the
Transaction Documents.
[Signature pages to follow]
34
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized signatories as of the date first
indicated above.
SULPHCO, INC.
By: __________________________
Name: Xxxxxx X. Xxxxxxxxx
Title: Chief Executive Officer
Address for Notice:
000 Xxxxx Xxxxxxx Xxxxx,
Xxxxxx, XX 00000
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
Attn: Chief Executive Officer
With a copy to: Xxxxx & Associates
00000 Xxxx Xxxxxxx Xxxx., Xxxxx 000
Xxx Xxxxxxx, XX 00000
Facsimile No.: 000-000-0000
Telephone No.: (000) 000-0000
Attn: Xxxxxx X. Xxxxx, Esq.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR PURCHASERS FOLLOW]
VERTICAL VENTURES, LLC
By: __________________________
Name:
Title:
Number of Units: _________
Warrants Shares: _________
Additional Investment Right Shares:_________
Additional Investment Right
Warrant Shares: _________
Address for Notice:
Vertical Ventures, LLC
000 Xxxxxxxxx Xxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
Attn: Xxxxxx Xxxxxxxxx
With a copy to: Proskauer Rose LLP
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
Attn: Xxxx X. Xxxxxxx, Esq.
______________________________________
By: __________________________
Name:
Title:
Number of Units: _________
Warrants Shares: _________
Additional Investment Right Shares:_________
Additional Investment Right
Warrant Shares: _________
Address for Notice:
______________________________________
______________________________________
______________________________________
______________________________________
Facsimile No.: _______________________
Telephone No.: _______________________
Attn: ________________________________
Exhibits:
---------
A Form of Warrant
B Opinion of Company Counsel
C Plan of Distribution
D Transfer Agent Instructions
E Form of Additional Investment Right
