SECURITIES PURCHASE AGREEMENT
AGREEMENT,
dated as of December ___, 2006, between Royal Spring Water, Inc. (the “Company”)
and GCA Strategic Investment Fund Limited (“Purchaser”).
R
E C I T A L S:
WHEREAS,
the Company desires to sell and issue to Purchaser, and Purchaser desires to
purchase from the Company, $1,250,000 aggregate principal amount of the
Company’s Convertible Note due December ___, 2008 (the “Convertible Note”), with
terms and conditions as set forth in the form of Convertible Note attached
hereto as Exhibit A;
WHEREAS,
the Convertible Note will be convertible into shares of the Company’s common
stock, par value $.001 per share (the “Common Stock”);
WHEREAS,
in order to induce the Purchaser to enter into the transactions described in
this Agreement, the Company desires to issue to the Purchaser warrants to
purchase shares of Common Stock upon the Closing equal to 500,000 shares of
Common Stock (as defined herein) in the following increments: (i) 100,000 with
a
strike price of $2.00, (ii) 100,000 with a strike price of $3.00, (iii) 100,000
with a strike price of $4.00, (iv) 100,000 with a strike price of $4.50 and
(v)
100,000 with a strike price of $5.00 on the terms and conditions described
in
the form of the common stock purchase warrant attached hereto as Exhibit
F (the “Warrants”), and
WHEREAS,
Purchaser will have certain registration rights with respect to such shares
of
Common Stock issuable as interest under, and upon conversion of, the Convertible
Note (the “Note Shares”) and upon exercise of the Warrants (the “Warrant
Shares,” the Note Shares and the Warrant Shares being collectively referred to
herein as the “Conversion Shares”) as set forth in the Registration Rights
Agreement in the form attached hereto as Exhibit B;
NOW,
THEREFORE, in consideration of the foregoing premises and the covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE
I. DEFINITIONS
Section
1.1 Definitions. The following terms, as used herein, have the
following meanings:
“Additional
Shares of Common Stock” has the meaning set forth in Section 11.6.
“Affiliate”
means, with respect to any Person (the “Subject Person”), (i) any other Person
(a “Controlling Person”) that directly, or indirectly through one or more
intermediaries, Controls the Subject Person or (ii) any other Person (other
than
the Subject Person or a Consolidated Subsidiary of the Subject Person) which
is
Controlled by or is under common Control with a Controlling
Person.
“Agreement”
means this Securities Purchase Agreement, as amended, supplemented or otherwise
modified from time to time in accordance with its terms.
“Asset
Sale” has the meaning set forth in Section 8.4.
“Balance
Sheet Date” has the meaning set forth in Section 4.7.
“Benefit
Arrangement” means at any time an employee benefit plan within the meaning of
Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which
is
maintained or otherwise contributed to by the Company.
“Benefit
Plans” has the meaning set forth in Section 4.9(b).
“Business
Day” means any day except a Saturday, Sunday or other day on which commercial
banks in the City of New York are authorized or required by law to
close.
“Capital
Reorganization” has the meaning set forth in Section 11.5.
“Change
in Control” means (i) after the date of this Agreement, any person or group of
persons (within the meaning of Sections 13 and 14 of the Exchange Act and the
rules and regulations of the Commission relating to such sections) other than
Purchaser shall have acquired beneficial ownership (within the meaning of Rules
13d-3 and 13d-5 promulgated by the Commission pursuant to the Exchange Act)
of
33a% or more of the outstanding shares of Common Stock of the Company without
the prior written consent of Purchaser; (ii) any sale or other disposition
(other than by reason of death or disability) to any Person of more than 75,000
shares of Common Stock of the Company by any executive officers and/or employee
directors of the Company without the prior written consent of Purchaser; (iii)
individuals constituting the Board of Directors of the Company on the date
hereof (together with any new Directors whose election by such Board of
Directors or whose nomination for election by the stockholders of the Company
was approved by a vote of at least 50.1% of the Directors still in office who
are either Directors as of the date hereof or whose election or nomination
for
election was previously so approved), cease for any reason to constitute at
least two-thirds of the Board of Directors of the Company then in
office.
“Closing
Bid Price” shall mean for any security as of any date, the lowest closing bid
price as reported by Bloomberg, L.P. (“Bloomberg”) on the principal securities
exchange or trading market where such security is listed or traded or, if the
foregoing does not apply, the lowest closing bid price of such security in
the
over-the-counter market on the electronic bulletin board for such security
as
reported by Bloomberg, or, if no lowest trading price is reported for such
security by Bloomberg, then the average of the bid prices of any market makers
for such securities as reported in the “Pink Sheets” by the National Quotation
Bureau, Inc. If the lowest closing bid price cannot be calculated for such
security on such date on any of the foregoing bases, the lowest closing bid
price of such security on such date shall be the fair market value as mutually
determined by Purchaser and the Company for which the calculation of the closing
bid price requires, and in the absence of such mutual determination, as
determined by the Board of Directors of the Company in good faith.
“Closing
Date” means the date on which all of the conditions set forth in Sections 6.1
and 6.2
shall
have been satisfied and Convertible Note in the aggregate principal amount
of
$1,250,000 are issued by the Company to Purchaser.
“Code”
means the Internal Revenue Code of 1986, as amended.
“Commission”
means the Securities and Exchange Commission or any entity succeeding to all
of
its material functions.
“Common
Stock” means common stock, par value $.001 per share, of the
Company.
“Company”
means Royal Spring Water, Inc., a California corporation, and its
successors.
“Company
Corporate Documents” means the certificate of incorporation and bylaws of the
Company.
“Consolidated
Net Worth” means at any date the total shareholder’s equity which would appear
on a consolidated balance sheet of the Company prepared as of such
date.
“Consolidated
Subsidiary” means at any date with respect to any Person or Subsidiary or other
entity, the accounts of which would be consolidated with those of such Person
in
its consolidated financial statements if such statements were prepared as of
such date.
“Control”
(including, with correlative meanings, the terms “Controlling,” “Controlled by”
and under “common Control with”), as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that Person, whether through the
ownership of voting securities, by contract or otherwise.
“Conversion
Date” shall mean the date of delivery (including delivery via telecopy) of a
Notice of Conversion for all or a portion of a Convertible Note by the holder
thereof to the Company as specified in each Convertible Note.
“Conversion
Price” has the meaning set forth in the Convertible Note.
“Conversion
Shares” has the meaning set forth in the Recitals.
“Convertible
Note” means the Company’s Convertible Note substantially in the form set forth
as Exhibit A hereto.
“Deadline”
has the meaning set forth in Section 10.1.
“Debt”
of
any Person means at any date, without duplication, (i) all obligations of such
Person for borrowed money, (ii) all obligations of such Person evidenced by
bonds, notes, or other similar instruments issued by such Person, (iii) all
obligations of such Person as lessee which (y) are capitalized in accordance
with GAAP or (z) arise pursuant to sale-leaseback transactions, (iv) all
reimbursement
obligations of such Person in respect of letters of credit or other similar
instruments, (v) all Debt of others secured by a Lien on any asset of such
Person, whether or not such Debt is otherwise an obligation of such Person
and
(vi) all Debt of others Guaranteed by such Person.
“Default”
means any event or condition which constitutes an Event of Default or which
with
the giving of notice or lapse of time or both would, unless cured or waived,
become an Event of Default.
“Default
Fee” has the meaning set forth in Section 10.4.
“Derivative
Securities” has the meaning set forth in Section 8.6.
“Discounted
Equity Offerings” has the meaning set forth in Section 8.6.
“Directors”
means the individuals then serving on the Board of Directors or similar such
management council of the Company.
“Environmental
Laws” means any and all federal, state, local and foreign statutes, laws,
regulations, ordinances, rules, judgments, orders, decrees, permits,
concessions, grants, franchises, licenses, agreements or other governmental
restrictions relating to the environment or to emissions, discharges or releases
of pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes into the environment,
including, without limitation, ambient air, surface water, ground water, or
land, or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants, contaminants,
petroleum or petroleum products, chemicals or industrial, toxic or hazardous
substances or wastes or the cleanup or other remediation thereof.
“ERISA”
means the Employee Retirement Income Security Act of 1974, as amended, or any
successor statute.
“ERISA
Group” means the Company and each Subsidiary and all members of a controlled
group of corporation and all trades or businesses (whether or not incorporated)
under common control which, together with the Company or any Subsidiary, are
treated as a single employer under the Code.
“Event
of
Default” has the meaning set forth in Article XII hereof.
“Exchange
Act” means the Securities Exchange Act of 1934, as amended.
“Expense
Reimbursement Fee” has the meaning set forth in Section 13.4.
“Financing”
means a public or private financing consummated (meaning closing and funding)
through the issuance of debt or equity securities (or securities convertible
into or exchangeable for debt or equity securities) of the Company, other than
Permitted Financings.
“Fixed
Price(s)” has the meaning set forth in Section 11.1.
“GAAP”
has the meaning set forth in Section 1.2.
“Guarantee”
by any Person means any obligation, contingent or otherwise, of such Person
directly or indirectly guaranteeing (whether by virtue of partnership
arrangements, by agreement to keep well, to purchase assets, goods, securities
or services, to take-or-pay, or to maintain a minimum net worth, financial
ratio
or similar requirements, or otherwise) any Debt of any other Person and, without
limiting the generality of the foregoing, any obligation, direct or indirect,
contingent or otherwise, of such Person (i) to purchase or pay (or advance
or
supply funds for the purchase or payment of) such Debt or (ii) entered into
for
the purpose of assuring in any other manner the holder of such Debt of the
payment thereof or to protect such holder against loss in respect thereof (in
whole or in part); provided that the term Guarantee shall not include
endorsements for collection or deposit in the ordinary course of
business. The term Guarantee used as a verb has a corresponding
meaning.
“Hazardous
Materials” means any hazardous materials, hazardous wastes, hazardous
constituents, hazardous or toxic substances or petroleum products (including
crude oil or any derivative or fraction thereof), defined or regulated as such
in or under any Environmental Laws.
‘Intellectual
Property” has the meaning set forth in Section 4.20.
“Investment”
means any investment in any Person, whether by means of share purchase,
partnership interest, capital contribution, loan, time deposit or
otherwise.
“Lien”
means any lien, mechanic’s lien, materialmen’s lien, lease, easement, charge,
encumbrance, mortgage, conditional sale agreement, title retention agreement,
agreement to sell or convey, option, claim, title imperfection, encroachment
or
other survey defect, pledge, restriction, security interest or other adverse
claim, whether arising by contract or under law or otherwise (including, without
limitation, any financing lease having substantially the same economic effect
as
any of the foregoing, and the filing of any financing statement under the
Uniform Commercial Code or comparable law of any jurisdiction in respect of
any
of the foregoing).
“Listing
Applications” has the meaning set forth in Section 4.4.
“Majority
Holders” means (i) as of the Closing Date, Purchaser and (ii) at any time
thereafter, the holders of more than 50% in aggregate principal amount of the
Convertible Note outstanding at such time.
“Market
Price” shall mean the Closing Bid Price of the Common Stock preceding the date
of determination.
“Material
Plan” means at any time a Plan or Plans having aggregate Unfunded Liabilities in
excess of $100,000.
“Maturity
Date” shall mean the date of maturity of the Convertible Note.
“Maximum
Number of Shares” shall mean that percentage that the Company may issue without
shareholder approval under the applicable rules of the OTC Bulletin Board,
National Market or equivalent entity then applicable to the Company, of the
then
issued and outstanding shares of Common
Stock of the Company as of the applicable date of determination, or such greater
number of shares as the stockholders of the Company may have previously
approved.
"NASD"
has the meaning set forth in Section 7.10.
“Nasdaq
Market” means the Nasdaq Stock Market’s National Market System.
“National
Market” means the Nasdaq Market, the Nasdaq Small Cap Market, the New York Stock
Exchange, Inc. or the American Stock Exchange, Inc..
“Net
Cash
Proceeds” means, with respect to any transaction, the total amount of cash
proceeds received by the Company or any Subsidiary less (i) reasonable
underwriters’ fees, brokerage commissions, reasonable professional fees and
other customary out-of-pocket expenses payable in connection with such
transaction, (ii) in the case of dispositions of assets,
(A)
actual transfer taxes (but not
income taxes) payable with respect to such dispositions, and
(B)
the
amount of Debt, if any, secured by a Lien on the asset or assets disposed of
and
required to be, and actually repaid by the Company or any Subsidiary in
connection therewith, and any trade payables specifically relating to such
asset
or assets sold by the Company or any Subsidiary that are not assumed by the
purchaser of such asset or assets, and (iii) proceeds of any lien on any
accounts receivable or any alternative energy project..
“Notice
of Conversion” means the form to be delivered by a holder of a Convertible Note
upon conversion of all or a portion thereof to the Company substantially in
the
form of Exhibit A to the form of Convertible Note.
“Officer’s
Certificate” shall mean a certificate executed by the President, chief executive
officer or chief financial officer of the Company in the form of Exhibit
C attached hereto.
"OTC
Bulletin Board" means the over-the-counter bulletin board operated by the
NASD.
“Other
Taxes” has the meaning set forth in Section 3.6(b).
“PBGC”
means the Pension Benefit Guaranty Corporation or any entity succeeding to
any
or all of its functions under ERISA.
“Permits”
means all domestic and foreign licenses, franchises, grants, authorizations,
permits, easements, variances, exemptions, consents, certificates, orders and
approvals necessary to own, lease and operate the properties of, and to carry
on
the business of the Company and the Subsidiaries.
“Permitted
Financings” has the meaning set forth in Section 8.6.
“Person”
means an individual, corporation, partnership, trust, incorporated or
unincorporated association, joint venture, joint stock Company, government
(or
any agency or political subdivision thereof) or other entity of any
kind.
“Plan”
means at any time an employee pension benefit plan which is covered by Title
IV
of ERISA or subject to the minimum funding standards under the Code and either
(i) is maintained, or contributed to, by any member of the ERISA group for
employees of any member of the ERISA group or
(ii)
has at any time within the preceding five years been maintained, or contributed
to, by any Person which was at such time a member of the ERISA group for
employees of the Person which was at such time a member of the ERISA
Group.
“Purchase
Price” means the purchase price for the Securities set forth in Section 2.2
hereof.
“Purchaser”
means the entity listed on the signature page hereto and its
successors and assigns, including holders from time to time of the Convertible
Note.
“Recourse
Financing” means Debt of the Company or any Subsidiary which, by its terms, does
not bar the lender thereof from action against the Company or any Subsidiary,
as
borrower or guarantor, if the security value of the project or asset pledged
in
respect thereof falls below the amount required to repay such Debt.
“Redemption
Event” has the meaning set forth in Section 3.4.
“Registrable
Securities” has the meaning set forth in Section 10.4(a).
“Registration
Statement” has the meaning set forth in Section 10.4(b).
“Registration
Rights Agreement” means the agreement between the Company and Purchaser dated
the date hereof substantially in the form set forth in Exhibit B attached
hereto.
“Reserved
Amount” has the meaning set forth in Section 7.10(a).
“Restricted
Payment” means, with respect to any Person, (i) any dividend or other
distribution on any shares of capital stock of such Person (except dividends
payable solely in shares of capital stock of the same or junior class of such
Person and dividends from a wholly-owned direct or indirect Subsidiary of the
Company to its parent corporation), (ii) any payment on account of the purchase,
redemption, retirement or acquisition of (a) any shares of such Person’s capital
stock or (b) any option, warrant or other right to acquire shares of such
Person’s capital stock or (iii) any loan, or advance or capital contribution to
any Person (a “Stockholder”) owning any capital stock of such Person other than
relocation, travel or like advances to officers and employees in the ordinary
course of business, and other than reasonable compensation as determined by
the
Board of Directors.
“Rights
Offering” has the meaning set forth in Section 11.3.
“Sale
Event” has the meaning set forth in Section 3.4.
“SEC
Reports” has the meaning set forth in Section 4.7
“Securities”
means the Convertible Note, the Warrants and, as applicable, the Conversion
Shares.
“Securities
Act” means the Securities Act of 1933, as amended.
“Security
Agreement” has the meaning set forth in the recitals.
“Share
Reorganization” has the meaning set forth in Section 11.2.
“Special
Distribution” has the meaning set forth in Section 11.4.
“Subsidiary”
means, with respect to any Person, any corporation or other entity of
which
(x)
a
majority of the capital stock or other ownership interests having ordinary
voting power to elect a majority of the Board of Directors or other persons
performing similar functions are at the time directly or indirectly owned by
such Person or (y) the results of operations, the assets and the liabilities
of
which are consolidated with such Person under GAAP.
“Subsidiary
Corporate Documents” means the certificates of incorporation and bylaws of each
Subsidiary.
“Taxes”
has the meaning set forth in Section 3.6.
“Trading
Day” shall mean any Business Day in which the OTC Bulletin Board, National
Market or other automated quotation system or exchange on which the
Common Stock is then traded is open for trading for at least four (4)
hours.
“Transaction
Agreements” means this Agreement, the Convertible Note, the Registration Rights
Agreement, and the other agreements contemplated by this Agreement.
“Transfer”
means any disposition of Securities that would constitute a sale thereof under
the Securities Act.
“Unfunded
Liabilities” means, with respect to any Plan at any time, the amount (if any) by
which (i) the present value of all benefits under Plan exceeds (ii) the fair
market value of all Plan assets allocable to such benefits (excluding any
accrued but unpaid contributions), all determined as of the then most recent
valuation date for such Plan, but only to the extent that such excess represents
a potential liability of a member of the ERISA Group to the PBGC or any other
Person under Title IV of ERISA.
“VWAP”
shall mean for any security as of any date, the volume weighted average price
as
reported by Bloomberg, L.P. (“Bloomberg”) on the principal securities exchange
or trading market where such security is listed or traded or, if the foregoing
does not apply, the volume weighted average price of such security in the
over-the-counter market on the electronic bulletin board for such security
as
reported by Bloomberg, or, if no volume weighted average price is reported
for
such security by Bloomberg, then the average of the bid prices of any market
makers for such securities as reported in the “Pink Sheets” by the National
Quotation Bureau, Inc. If the volume weighted average price cannot be
calculated for such security on such date on any of the foregoing bases, the
volume weighted average price of such security on such date shall be the fair
market value as mutually determined by Purchaser and the Company for which
the
calculation of the volume weighted average price requires, and in the absence
of
such mutual determination, as determined by the Board of Directors of the
Company in good faith.
“Warrant”
means the Common Stock Purchase Warrants substantially in the form set forth
in
Exhibit F hereto and issued in the following increments: (i)
100,000 with a strike price of $2.00, (ii) 100,000 with a strike price of $3.00,
(iii) 100,000 with a strike price of $4.00, (iv) 100,000 with a strike price
of
$4.50 and (v) 100,000 with a strike price of $5.00.
Section
1.2 Accounting Terms and Determinations. Unless otherwise specified
herein, all accounting terms used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial statements required
to
be delivered hereunder shall be prepared, in accordance with generally accepted
accounting principles as in effect from time to time, applied on a consistent
basis (except for changes concurred in by the Company’s independent public
accountants) (“GAAP”). All references to “dollars,” “Dollars” or “$” are to
United States dollars unless otherwise indicated.
ARTICLE
II. PURCHASE AND SALE OF SECURITIES
Section
2.1 Purchase and Sale of Convertible Note.
(a)
Subject to the terms and conditions
set forth herein, the Company agrees to issue and sell to Purchaser, and
Purchaser agrees to purchase from the Company, the Convertible
Note.
(b)
Purchaser shall acquire Convertible Note on the Closing Date in an aggregate
principal amount of One Million Two Hundred Fifty Thousand Dollars
($1,250,000.00).
Section
2.2 Purchase Price. The purchase price for the Convertible Note on the
Closing Date shall be 95% of the principal amount thereof. Therefore,
the aggregate consideration payable by Purchaser to the Company for the
Convertible Note on the Closing Date shall be One Million One Hundred Eighty
Seven Thousand Five Hundred Dollars ($1,187,500.00) (the “Purchase
Price”).
Section
2.3 Closing and Mechanics of Payment.
(a)
The Purchase Price shall be paid on
the Closing Date by wire transfer of immediately available funds on or before
5:00 p.m. (EST).
(b)
The
Convertible Note issued on the Closing Date shall be dated the date
hereof.
ARTICLE
III. PAYMENT TERMS OF CONVERTIBLE NOTE
Section
3.1 Payment of Principal and Interest; Payment Mechanics. The Company
will pay all amounts due on each Convertible Note by the method and at the
address specified for such purpose by Purchaser in writing, without the
presentation or surrender of any Convertible Note or the making of any notation
thereon, except that upon written request of the Company made concurrently
with
or reasonably promptly after payment or prepayment in full of this Convertible
Note, the holder shall surrender the Convertible Note for cancellation,
reasonably promptly after any such request, to the Company at its principal
executive office. Prior to any sale or other disposition of any
Convertible Note, the holder thereof will, at its election, either endorse
thereon the amount of principal paid thereon and
the
last date to which interest has been paid thereon or surrender the Convertible
Note to the Company in exchange for a new Convertible Note or Convertible Notes.
The Company will afford the benefits of this Section 3.1 to any direct or
indirect transferee of the Convertible Note purchased under this Agreement
that
has made the same agreement relating to this Convertible Note as Purchaser
has
in this Section 3.1; provided that such transferee is an “accredited investor”
under Rule 501 of the Securities Act and the transaction is otherwise exempt
from the registration requirements of the Securities Act and Purchaser provides
the Company with a legal opinion from counsel in form and substance reasonably
satisfactory to the Company.
Section
3.2. Intentionally Omitted.
Section
3.3 Voluntary Prepayment. For so long as no Event of Default shall have
occurred and is continuing, the Company may, at its option, repay, in whole
or
in part, the Convertible Note, per the formula set forth in Section 5.1 of
Exhibit A hereto, following at least five (5) Business Days prior written
notice to Purchaser (the expiration of such five (5) Business Day period being
referred to as the “prepayment date”); provided, however, that if
such date is not a Business Day, the prepayment date shall be the next Business
Day thereafter.
Section
3.4 Mandatory Prepayments.
(a)
Upon
(i) the occurrence of a Change in Control of the Company, (ii) a transfer of
all
or substantially all of the assets of the Company to any Person in a single
transaction or series of related transactions, (iii) a consolidation or merger
of the Company with or into another Person in which the Company is not the
surviving entity (other than a merger which is effected solely to change the
jurisdiction of incorporation of the Company and results in a reclassification,
conversion or exchange of outstanding shares of Common Stock solely into shares
of Common Stock) (each of items (i), (ii) and (iii)
being referred to as a “Sale Event”), or (iv) the occurrence of a Registration
Default which continues uncured for a period of twenty (20) days, then, in
each
case, the Company shall, upon request of the Majority Holders, redeem the
Convertible Note and Warrants. The redemption price payable upon any
such redemption shall be the redemption price in Section 5 of the
Convertible Note and Section 13 of the Warrants, respectively (referred
to herein as the "Formula Price").
(b)
At the option of Purchaser, upon
the consummation of one or more Financings, the Company shall use 25% of the
Net
Cash Proceeds therefrom (unless such Net Cash Proceeds from each such Financing
is less than $250,000) to redeem the Convertible Note.
(c)
Upon the issuance of the Maximum
Number of Shares, the receipt by the Company of Notice of Conversion requiring
the issuance of shares of Common Stock in excess of the Maximum Number of
Shares, and the failure within 40 days of such issuance to obtain shareholder
approval, if such approval is required by either the laws of the jurisdiction
of
the Company’s incorporation or the rules of any market on which the Company’s
securities are then traded, to issue additional shares of Common Stock required
to be issued in connection with such Notices of Conversion (the “Redemption
Event”), the Company shall redeem the outstanding balance of each Convertible
Note and Warrant for the Formula Price.
(d)
In the event that there is an
insufficient number of authorized, issuable, shares of Common Stock registered
under the Registration Statement filed by the Company to allow Purchaser to
fully convert the Convertible Note and exercise all Warrants held by Purchaser
and sell such shares issued thereon, then the Company shall immediately file
an
amendment to the then current Registration Statement to register a sufficient
number of such shares to convert said Convertible Note and Warrants, provided
that no such failure is the result of the conduct of the
Purchaser. Upon the failure within twenty (20) Trading Days measured
from the date of filing the Registration Statement to register a sufficient
number of such shares, the Company shall redeem the outstanding balance of
each
Convertible Note and Warrant for the Formula Price. In addition,
failure of the Company to register a sufficient number of such shares to fully
convert said Convertible Note and exercise such Warrants shall be a Registration
Default under Section 10.4(e) from the date of the Notice of Conversion
to the date of the earlier of (i) the redemption of the outstanding balance
of
the Convertible Note and exercise of all such Warrants or (ii) full conversion
of the Convertible Note and exercise of all such Warrants.
Section
3.5 Prepayment Procedures.
(a)
Any permitted prepayment or
redemption of the Convertible Note pursuant to Sections 3.3 or 3.4 above shall
be deemed to be effective and consummated (for purposes of determining the
Formula Price and the time at which Purchaser shall thereafter not be entitled
to deliver a Notice of Conversion for the Convertible Note) as
follows:
(i)
A prepayment pursuant to Section
3.3, the “prepayment date” specified therein;
(ii)
A redemption pursuant to Section
3.4(a), the date of consummation of the applicable Sale Event;
(iii)
A redemption pursuant to Section
3.4(b), three (3) Business Days following the date of consummation of the
applicable Financing (meaning closing and funding); and
(iv)
A redemption pursuant to Section
3.4(c), the date specified in each Convertible Note.
(b)
On the Maturity Date and on the
effective date of a repayment or redemption of the Convertible Note as specified
in Section 3.5(a) above, the Company shall deliver by wire transfer of funds
the
repayment/redemption price to Purchaser of the Convertible Note subject to
redemption. Should Purchaser not receive payment of any amounts due
on redemption of its Convertible Note by reason of the Company’s failure to make
payment at the times prescribed above for any reason, the Company shall pay
to
the applicable holder on demand (x) interest on the sums not paid when due
at an
annual rate equal to the maximum lawful rate compounded at the end of each
thirty (30) days, until the applicable holder is paid in full and (y) all costs
of collection, including, but not limited
to, reasonable attorneys’ fees and costs, whether or not suit or other formal
proceedings are instituted.
(c)
The Company shall select the
Convertible Note to be redeemed in any redemption in which not all of
the Convertible Note are to be redeemed so that the ratio of the
Convertible Note of each holder selected for redemption to the total Convertible
Note owned by that holder shall be the same as the ratio of all such Convertible
Note selected for redemption bears to the total of all then outstanding
Convertible Note . Should any Convertible Note required to be redeemed under
the
terms hereof not be redeemed solely by reason of limitations imposed by law,
the
applicable Convertible Note shall be redeemed on the earliest possible dates
thereafter to the maximum extent permitted by law.
(d)
Any Notice of Conversion delivered
by Purchaser (including delivery via telecopy) to the Company prior to the
(x)
Maturity Date or (y) effective date of a voluntary repayment pursuant to Section
3.3 or a mandatory prepayment pursuant to Section 3.4 as specified in Section
3.5(a) above), shall be honored by the Company and the conversion of the
Convertible Note shall be deemed effected on the Conversion Date. In addition,
between the effective date of a voluntary prepayment pursuant to Section 3.3
or
a mandatory prepayment pursuant to Section 3.4 as specified in Section 3.5(a)
above and the date the Company is required to deliver the redemption proceeds
in
full to Purchaser, Purchaser may deliver a Notice of Conversion to the
Company. Such notice will be (x) of no force or effect if the Company
timely pays the redemption proceeds to Purchaser when due or (y) honored on
or
as of the date of the Notice of Conversion if the Company fails to timely pay
the redemption proceeds to Purchaser when due.
Section
3.6 Payment of Additional Amounts.
(a)
Any and all payments by the Company
hereunder or under the Convertible Note to Purchaser and each “qualified
assignee” thereof shall be made free and clear of and without deduction or
withholding for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto
(all such taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as “Taxes”) unless such Taxes are
required by law or the administration thereof to be deducted or
withheld. If the Company shall be required by law or the
administration thereof to deduct or withhold any Taxes from or in respect of
any
sum payable under the Convertible Note (i) the holders of the Convertible Note
subject to such Taxes shall have the right, but not the obligation, for a period
of thirty (30)
days
commencing upon the day it shall have received written notice from the Company
that it is required to withhold Taxes to transfer all or any portion of the
Convertible Note to a qualified assignee to the extent such transfer can be
effected in accordance with the other provisions of this Agreement and
applicable law; (ii) the Company shall make such deductions or withholdings;
(iii) the sum payable shall be increased as may be necessary so that after
making all required deductions or withholdings
(including deductions or withholdings applicable to additional amounts paid
under this Section 3.6) Purchaser receives an amount equal to the sum it would
have received if no such deduction or withholding had been made; and (iv) the
Company shall forthwith pay the full amount deducted or withheld to the relevant
taxation or other authority in accordance with applicable law. A “qualified
assignee” of a Purchaser is a Person that is organized under the laws of (i) the
United States or (II) any jurisdiction other than the United States or any
political subdivision thereof and that (y) represents and warrants to the
Company that payments of the Company to such assignee under the laws in
existence on the date of this Agreement would not be subject to any Taxes and
(z)
from
time to time, as and when requested by the Company, executes and delivers to
the
Company and the Internal Revenue Service forms, and provides the Company with
any information necessary to establish such assignee’s continued exemption from
Taxes under applicable law.
(b)
The Company shall forthwith pay any
present or future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies (all such taxes, charges and levies hereinafter
referred to as “Other Taxes”) which arise from any payment made under any of the
Transaction Agreements or from the execution, delivery or registration of,
or
otherwise with respect to, this Agreement other than Taxes payable solely as
a
result of the transfer from Purchaser to a Person of any Security.
(c)
The Company shall indemnify
Purchaser, or qualified assignee, for the full amount of Taxes or Other Taxes
(including, without limitation, any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this Section 3.6) paid by Purchaser,
or
qualified assignee, and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto, whether or not such Taxes
or Other Taxes were correctly or legally asserted. Payment under this
indemnification shall be made within 30 days from the date Purchaser or assignee
makes written demand therefor.
(d)
Within 30 days after the date of any payment of Taxes, the Company will furnish
to Purchaser the original or a certified copy of a receipt evidencing payment
thereof.
(e)
Purchaser shall provide to the
Company a form W-8, stating that it is a non-U.S. person, together with any
additional tax forms which may be required under the Code, as amended after
the
date hereof, to allow interest payments to be made to it without
deduction.
ARTICLE
IV. REPRESENTATIONS AND WARRANTIES
The
Company represents and warrants to Purchaser, as of the Closing Date, the
following:
Section
4.1 Organization and Qualification. The Company and each Subsidiary is
a corporation (or other legal entity) duly organized, validly existing and
in
good standing under the laws of its jurisdiction of incorporation, with full
power and authority to own, lease, use and operate its properties and to carry
on its business as and where now owned, leased, used, operated and conducted.
The Company is qualified to conduct business as a foreign corporation and is
in
good standing in every jurisdiction in which the nature of the business
conducted by it makes such qualification necessary, except where such failure
would not have a Material Adverse Effect. A “Material Adverse Effect” means any
material adverse effect on the operations, results of operations, properties,
assets or condition (financial or otherwise) of the Company or the Company
and
its Subsidiaries, taken as a whole, or on the transactions contemplated hereby
or by the agreements or instruments to be entered into in connection
herewith.
Section
4.2 Authorization and Execution.
(a)
The Company has all requisite
corporate power and authority to enter into and perform each Transaction
Agreement and to consummate the transactions contemplated hereby and thereby
and
to issue the Securities in accordance with the terms hereof and
thereof.
(b)
The execution, delivery and
performance by the Company of each Transaction Agreement and the issuance by
the
Company of the Securities have been duly and validly authorized and no further
consent or authorization of the Company, its Board of Directors or its
shareholders is required.
(c)
This Agreement has been duly
executed and delivered by the Company.
(d)
This Agreement constitutes, and
upon execution and delivery thereof by the Company, each of the Transaction
Agreements will constitute, a valid and binding agreement of the Company, in
each case enforceable against the Company in accordance with its respective
terms.
Section
4.3 Capitalization . As of the date hereof, the authorized, issued and
outstanding capital stock of the Company is as set forth on Schedule 4.3
hereto and except as set forth on Schedule 4.3 no other shares of capital
stock of the Company will be outstanding as of the Closing Date. All of such
outstanding shares of capital stock are, or upon issuance will be, duly
authorized, validly issued, fully paid and nonassessable. No shares of capital
stock of the Company are subject to preemptive rights or similar rights of
the
stockholders of the Company or any liens or encumbrances imposed through the
actions or failure to act of the Company. Other than as set forth on Schedule
4.3 hereto, as of the date hereof, (i) there are no outstanding options,
warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal,
agreements, understandings, claims or other commitments or rights of any
character whatsoever relating to, or securities or rights convertible into
or
exchangeable for any shares of capital stock of the Company or any of its
Subsidiaries, or arrangements by which the Company or any of its Subsidiaries
is
or may become bound to issue additional shares of capital stock of the Company
or any of its Subsidiaries, and (ii) there are no agreements or arrangements
under which the Company or any of its Subsidiaries are obligated to register
the
sale of any of its or their securities under the Securities Act (except pursuant
to the Registration Rights Agreement) and (iii)
there are no anti-dilution or price adjustment provisions contained in any
security issued by the Company (or in any agreement providing rights to security
holders) that will be triggered by the issuance of the Convertible Note or
Conversion Shares. The Company has furnished to Purchaser true and correct
copies of the Company’s Corporate Documents, and the terms of all securities
convertible into or exercisable for Common Stock and the material rights of
the
holders thereof in respect thereto.
Section
4.4 Governmental Authorization. To the Company’s knowledge, the
execution and delivery by the Company of the Transaction Agreements does not
and
will not, the issuance and sale by the Company of the Securities does not and
will not, and the consummation of the transactions contemplated hereby and
by
the other Transaction Agreements will not, require any action by or in respect
of, or filing with, any governmental body, agency or governmental official
except (a) such actions or filings that have been undertaken or made prior
to
the date hereof and that will be in full force and effect (or as
to which all applicable waiting periods have expired) on and as of
the date hereof or which are not required to be filed on or prior to the Closing
Date, (b) such actions or filings that, if not obtained, would not result in
a
Material Adverse Effect, and (c) the filing of a “Form D” as described in
Section 7.13 below.
Section
4.5 Issuance of Shares. Upon conversion in accordance with the terms of
the Convertible Note, the Conversion Shares shall be duly and validly issued
and
outstanding, fully paid and nonassessable, free and clear of any Taxes, Liens
and charges with respect to issuance and shall not be subject to preemptive
rights or similar rights of any other stockholders of the
Company. Assuming the representations and warranties of Purchaser
herein are true and correct in all material respects, each of the Securities
will have been issued in material compliance with all applicable U.S. federal
and state securities laws. The Company understands and acknowledges that, in
certain circumstances, the issuance of Conversion Shares could dilute the
ownership interests of other stockholders of the Company. The Company
further acknowledges that its obligation to issue Conversion Shares upon
conversion of the Convertible Note is absolute and unconditional regardless
of
the dilutive effect that such issuance may have on the ownership interests
of
other stockholders of the Company.
Section
4.6 No Conflicts. The execution and delivery by the Company of the
Transaction Agreements to which it is a party did not and will not, the issuance
and sale by the Company of the Securities did not and will not and the
consummation of the transactions contemplated hereby and by the other
Transaction Agreements will not, contravene or constitute a default under or
violation of (i) any provision of applicable law or regulation, (ii) the Company
Corporate Documents, (iii) any agreement, judgment, injunction, order, decree
or
other instrument binding upon the Company or any Subsidiary or any of their
respective assets, or result in the creation or imposition of any Lien on any
asset of the Company or any Subsidiary. The Company and each Subsidiary is
in
compliance with and conforms to all statutes, laws, ordinances, rules,
regulations, orders, restrictions and all other legal requirements of any
domestic or foreign government or any instrumentality thereof having
jurisdiction over the conduct of its businesses or the ownership of its
properties, except where such failure would not have a Material Adverse
Effect.
Section
4.7 Financial Information. Since January 1, 2006, the Company has
timely filed all forms, reports and documents with the Commission required
to be
filed by it under the Exchange Act through the date hereof (all of the foregoing
filed prior to the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents (other than exhibits)
incorporated by reference therein, being referred to herein collectively as
the
“SEC Reports”). The Company has delivered or made available to each Purchaser
true and complete copies of the SEC Reports, except for such exhibits and
incorporated documents. Such SEC Reports, at the time filed, complied
in all material respects with the requirements of the Exchange Act and the
rules
and regulations of the Commission thereunder applicable to such SEC Reports.
None of the SEC Reports, including without limitation, any financial statements
or schedules included therein, contains any untrue statement of a material
fact
or omits to state a material fact necessary to in order to make the statements
made, in light of the circumstances under which they were made, not
misleading. There have been no material adverse changes in the
Company’s business, properties, results of operations, condition (financial or
otherwise) or prospects since the date of the Company’s most recent Report on
Form 10-K for the years ended December 31, 2004 and December 31, 2005,
respectively, which have not been disclosed in the Company’s SEC Reports or to
the Purchaser in writing. The audited and unaudited consolidated
balance sheets of the Company and its Subsidiaries contained in the SEC Reports,
and the related consolidated statements of income, changes in stockholders’
equity and changes in cash flows for the periods then ended, including the
footnotes thereto, except as indicated therein, (i)
complied in all material respects with applicable accounting requirements and
the published rules and regulations of the Commission with respect thereto
and
(ii) have been prepared in accordance with GAAP consistently applied throughout
the periods indicated, except that the unaudited financial statements do not
contain notes and may be subject to normal audit adjustments and normal annual
adjustments. Such financial statements fairly present the financial
condition of the Company and its Subsidiaries at the dates indicated and the
consolidated results of their operations and cash flows for the periods then
ended and, except as indicated therein, reflect all claims against and all
Debts
and liabilities of the Company and its Subsidiaries, fixed or contingent. Since
December 31, 2000 (the “Balance Sheet Date”), except as disclosed in the SEC
Reports, there has been (x) no material adverse change in the assets or
liabilities, or in the business or condition, financial or otherwise, or in
the
results of operations or prospects, of the Company and its Subsidiaries, whether
as a result of any legislative or regulatory change, revocation of any license
or rights to do business, fire, explosion, accident, casualty,
labor trouble, flood, drought, riot, storm, condemnation, act of God, public
force or otherwise and (y) no material adverse change in the assets or
liabilities, or in the business or condition, financial or otherwise, or in
the
results of operations or prospects, of the Company and its subsidiaries except
in the ordinary course of business; and no fact or condition exists or is
contemplated or threatened which might cause such a change in the
future.
Section
4.8 Litigation. To the knowledge of the Company, except as
set forth on Schedule 4.8, there is no action, suit or proceeding pending
or threatened against the Company or any Subsidiary, before any court or
arbitrator or any gov to the knowledge of the Company governmental body, agency
or official in which there is a reasonable possibility of an adverse decision
which could materially adversely affect the business, condition (financial
or
otherwise), operations, performance, properties or prospects of the Company
or
which challenges the validity of any Transaction Agreements.
Section
4.9 Compliance with ERISA and other Benefit Plans.
(a)
Each member of the ERISA Group has
fulfilled its obligations under the minimum funding standards of ERISA and
the
Code with respect to each Plan and is in compliance in all material respects
with the presently applicable provisions of ERISA and the Code with respect
to
each Plan. No member of the ERISA Group has (i) sought a waiver of the minimum
funding standard under Section 412 of the Code in respect of any Plan, (ii)
failed to make any required contribution or payment to any Plan or Multiemployer
Plan or in respect of any Benefit Arrangement, or made any amendment to any
Plan
or Benefit Arrangement, which as resulted or could result in the imposition
of a
Lien or the posting of a bond or other security under ERISA or the Code or
(iii)
incurred any liability under Title IV of ERISA other than a liability to the
PBGC for premiums under Section 4007 of ERISA.
(b)
The
benefit plans not covered under clause (a) above (including profit sharing,
deferred compensation, stock option, employee stock purchase, bonus, retirement,
health or insurance plans, collectively the “Benefit Plans”) relating to the
employees of the Company are duly registered where required by, and are in
good
standing in all material respects under, all applicable laws. All required
employer and employee contributions and premiums under the Benefit Plans to
the
date hereof have been made, the respective fund or funds established under
the
Benefit Plans are funded in accordance with applicable laws, and no past service
funding liabilities exist thereunder.
(c)
No Benefit Plans have any unfunded
liabilities, either on a “going concern” or “winding up” basis and determined in
accordance with all applicable laws and actuarial practices and using actuarial
assumptions and methods that are reasonable in the circumstances. No
event has occurred and no condition exists with respect to any Benefit Plans
that has resulted or could reasonably be expected to result in any pension
plan
having its registration revoked or wound up (in whole or in part) or refused
for
the purposes of any applicable laws or being placed under the administration
of
any relevant pension benefits regulatory authority or being required to pay
any
taxes or penalties (in any material amounts) under any applicable
laws.
Section
4.10 Environmental Matters. The costs and liabilities associated with
Environmental Laws (including the cost of compliance therewith) are unlikely
to
have a material adverse effect on the business, condition (financial or
otherwise), operations, performance, properties or prospects of the Company
or
any Subsidiary. Each of the Company and the Subsidiaries conducts its
businesses in compliance in all material respects with all applicable
Environmental Laws.
Section
4.11 Taxes. All United States federal, state, county, municipality,
local or foreign income tax returns and all other material tax returns
(including foreign tax returns) which are required
to be filed by or on behalf of the Company and each Subsidiary have been filed
and all material taxes due pursuant to such returns or pursuant to any
assessment received by the Company and each Subsidiary have been paid except
those being disputed in good faith and for which adequate reserves have been
established. The charges, accruals and reserves on the books of the Company
and
each Subsidiary in respect of taxes and other governmental charges have been
established in accordance with GAAP.
Section
4.12 Investments, Joint Ventures. Other than as set forth in
Schedule 4.12, the Company has no Subsidiaries or other direct or
indirect Investment in any Person, and the Company is not a party to any
partnership, management, shareholders’ or joint venture or similar
agreement.
Section
4.13 Not an Investment Company. Neither the Company nor any Subsidiary
is an “Investment Company” within the meaning of Investment Company Act of 1940,
as amended.
Section
4.14 Full Disclosure. The information heretofore furnished by the
Company to Purchaser for purposes of or in connection with this Agreement or
any
transaction contemplated hereby does not, and all such information hereafter
furnished by the Company or any Subsidiary to Purchaser will not (in each case
taken together and on the date as of which such information is furnished),
contain any untrue statement of a material fact or omit to state a material
fact
necessary in order to make the statements contained therein, in the light of
the
circumstances under which they are made, not misleading.
Section
4.15 No Solicitation; No Integration with Other Offerings. No form of
general solicitation or general advertising was used by the Company or, to
the
best of its actual knowledge, any other Person acting on behalf of the Company,
in connection with the offer and sale of the Securities. Neither the Company,
nor, to its knowledge, any Person acting on behalf of the Company, has, either
directly or indirectly, sold or offered for sale to any Person (other than
Purchaser) any of the Securities or, within the six months prior to the date
hereof, any other similar security of the Company except as contemplated by
this
Agreement, and the Company represents that neither itself nor any Person
authorized to act on its behalf (except that the Company makes no representation
as to Purchaser and their Affiliates) will sell or offer for sale any such
security to, or solicit any offers to buy any such security from, or otherwise
approach or negotiate in respect thereof with, any Person or Persons so as
thereby to cause the issuance or sale of any of the Securities to be in
violation of any of the provisions of Section 5 of the Securities
Act.
Section
4.16 Permits. (a) Each of the Company and its Subsidiaries has all
material Permits; (b) all such Permits are in full force and effect, and each
of
the Company and its Subsidiaries has fulfilled and performed all material
obligations with respect to such Permits; (c) no event has occurred which
allows, or after notice of lapse of time would allow, revocation or termination
by the issuer thereof or which results in any other material impairment of
the
rights of the holder of any such Permit; and (d) the Company has no reason
to
believe that any governmental body or agency is considering limiting, suspending
or revoking any such Permit.
Section
4.17 Leases. Except as set forth on Schedule 4.17, neither the
Company nor any Subsidiary is a party to any capital lease obligation with
a
value greater than $100,000 or to any operating lease with an aggregate annual
rental greater than $100,000 during the life of such lease.
Section
4.18 Absence of Any Undisclosed Liabilities or Capital Calls. There are
no liabilities of the Company or any Subsidiary of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, and there
is no existing condition, situation or set of circumstances which would
reasonably be expected to result in such a liability, other than (i) those
liabilities provided for in the financial statements delivered pursuant to
Section 4.7 and (ii) other undisclosed
liabilities which, individually or in the aggregate, would not have a Material
Adverse Effect.
Section
4.19 Public Utility Holding Company. Neither the Company nor any
Subsidiary is, or will be upon issuance and sale of the Securities and the
use
of the proceeds described herein, subject to regulation under the Public Utility
Holding Company Act of 1935, as amended, the Federal Power Act, the Interstate
Commerce Act or to any federal or state statute or regulation limiting its
ability to issue and perform its obligations under any Transaction
Agreement.
Section
4.20 Intellectual Property Rights. Each of the Company and its
Subsidiaries owns, or is licensed under, and has the rights to use, all material
patents, trademarks, trade names, copyrights, technology, know-how and processes
(collectively, “Intellectual Property”) used in, or necessary for the conduct of
its business; no claims have been asserted by any Person to the use of any
such
Intellectual Property or challenging or questioning the validity or
effectiveness of any license or agreement related thereto. To the
best of Company’s and its Subsidiaries’ knowledge, there is no valid basis for
any such claim and the use of such Intellectual Property by the Company and
its
Subsidiaries will not infringe upon the rights of any Person.
Section
4.21 Insurance. The Company and its Subsidiaries maintain, with those
insurance companies listed on Schedule 4.21, insurance in at least such
amounts and against such risks such that any uninsured loss would not have
a
Material Adverse Effect. All insurance coverages of the Company and its
Subsidiaries are in full force and effect and there are no past due premiums
in
respect of any such insurance.
Section
4.22 Title to Properties. The Company and its Subsidiaries have good
and marketable title to all their respective properties free and clear of all
Liens.
Section
4.23 Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient,
in
the judgment of the Company’s Board of Directors, to provide reasonable
assurance that (i) transactions are executed in accordance with managements’
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management’s general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
Section
4.24 Subsidiaries. Except for the directly and indirectly owned
subsidiaries of the Company as set forth on Schedule 4.24 (the
“Subsidiaries”), the Company does not own or hold any shares of stock or any
other security or interest in any other equity, or any rights to acquire any
such security or interest. Except for the Subsidiaries disclosed on Schedule
4.24, the Company has never had any subsidiary corporation of which the
securities having a majority of voting power in electing the board of directors
or representing a majority of the economic interests were, at the time as of
which any determination was made, owned by the Company either directly or
indirectly. The number of authorized, issued and outstanding shares of capital
stock of the Subsidiaries is as set forth on Schedule 4.24. All
outstanding shares of the Subsidiaries capital stock are validly issued, fully
paid and nonassessable,
are free from, and were not issued in violation of any preemptive rights, and
are owned of record and beneficially by the Company.
Section
4.25 Foreign Practices. Neither the Company nor any of its Subsidiaries
nor, to the Company’s knowledge, any employee or agent of the Company or any
Subsidiary has made any payments of funds of the Company or Subsidiary, or
received or retained any funds, in each case in violation of any law, rule
or
regulation.
ARTICLE
V. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Section
5.1 Purchaser. Purchaser hereby represents and warrants to the Company
that:
(a)
Purchaser is an “accredited
investor” within the meaning of Rule 501(a) under the Securities Act and the
Securities to be acquired by it pursuant to this Agreement are being acquired
for its own account, for investment purposes, and, as of the date hereof, not
with a view toward, or for sale in connection with, any distribution thereof
except in compliance with applicable United States federal and state securities
law; provided that the disposition of Purchaser’s property shall at all times be
and remain within its control;
(b)
the execution, delivery and
performance of this Agreement and the purchase of the Securities pursuant
thereto are within Purchaser’s corporate or partnership powers, as applicable,
and have been duly and validly authorized by all requisite corporate or
partnership action;
(c)
this Agreement has been duly
executed and delivered by Purchaser;
(d)
the execution and delivery by
Purchaser of the Transaction Agreements to which it is a party does not, and
the
consummation of the transactions contemplated hereby and thereby will not,
contravene or constitute a default under or violation of (i) any provision
of
applicable law or regulation, or (ii) any agreement, judgment, injunction,
order, decree or other instrument binding upon Purchaser;
(e)
Purchaser understands that the
Securities have not been registered under the Securities Act and may not be
transferred or sold except as specified in this Agreement or the remaining
Transaction Agreements;
(f)
this Agreement constitutes a valid
and binding agreement of Purchaser enforceable in accordance with its terms,
subject to (i) applicable bankruptcy, insolvency or similar laws affecting
the
enforceability of creditors rights generally and (ii) equitable principles
of
general applicability;
(g)
Purchaser has such knowledge and
experience in financial and business matters so as to be capable of evaluating
the merits and risks of its investment in the Securities and Purchaser is
capable of bearing the economic risks of such investment;
(h)
Purchaser is knowledgeable,
sophisticated and experienced in business and financial matters; Purchaser
has
previously invested in securities similar to the Securities and fully
understands the limitations on transfer described herein; Purchaser has been
afforded access to information about the Company and the financial condition,
results of operations, property, management and prospects of the Company
sufficient to enable it to evaluate its investment in the Securities; Purchaser
has been afforded the opportunity to ask such questions as it has deemed
necessary of, and to receive answers from, representatives of the Company
concerning the terms and conditions of the offering of the Securities and the
merits and the risks of investing in the Securities; and Purchaser has been
afforded the opportunity to obtain such additional information which the Company
possesses or can acquire that is necessary to verify the accuracy and
completeness of the information given to Purchaser concerning the
Company. The foregoing does not in any way relieve the Company of its
representations and other undertakings hereunder, and shall not limit
Purchaser’s ability to rely thereon;
(i)
no part of the source of funds used
by Purchaser to acquire the Securities constitutes assets allocated to any
separate account maintained by Purchaser in which any employee benefit plan
(or
its related trust) has any interest;
(j)
no
form of general advertising was received by the Purchaser or any other person
acting on behalf of the Purchaser; and
(k)
Purchaser is a corporation organized under the laws of Bermuda.
ARTICLE
VI. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES
Section
6.1 Conditions Precedent to Purchaser’s Obligations to Purchase. The
obligation of Purchaser hereunder to purchase the Convertible Note at the
Closing is subject to the satisfaction, on or before the Closing Date, of each
of the following conditions, provided that these conditions are for Purchaser’s
sole benefit and may be waived by Purchaser at any time in its sole
discretion:
(a)
The Company shall have duly
executed this Agreement, the Warrant, the Mortgages and the Registration Rights
Agreement and delivered the same to Purchaser;
(b)
The Company shall have delivered to
Purchaser duly executed Convertible Note in accordance with Section 2.3
hereof;
(c)
The representations and warranties
of the Company contained in each Transaction Agreement shall be true and correct
in all material respects as of the date when made and as of the Closing Date
as
though made at such time (except for representations and warranties that speak
as of a specified date) and the Company shall have performed, satisfied and
complied with all covenants, agreements and conditions required by such
Transaction Agreements to be performed, satisfied or complied with by it at
or
prior to the Closing Date. Purchaser shall have received an Officer’s
Certificate executed by the chief executive officer of the Company, dated as
of
the Closing Date, to the foregoing effect and as to such other matters as may
be
reasonably requested by Purchaser, including but not limited to certificates
with respect to the Company Corporate Documents, resolutions relating to the
transactions contemplated hereby and the incumbencies of certain officers and
Directors of the Company. The form of such certificate is attached
hereto as Exhibit C;
(d)
The Company shall have received all
governmental, Board of Directors, shareholders and third party consents and
approvals necessary or desirable in connection with the issuance and sale of
the
Securities and the consummation of the transactions contemplated by the
Transaction Agreements;
(e)
All applicable waiting periods in
respect to the issuance and sale of the Securities shall have expired without
any action having been taken by any competent authority that could restrain,
prevent or impose any materially adverse conditions thereon or that could seek
or threaten any of the foregoing;
(f)
No law or regulation shall have
been imposed or enacted that, in the judgment of Purchaser, could adversely
affect the transactions set forth herein or in the other Transaction Agreements,
and no law or regulation shall have been proposed that in the reasonable
judgment of Purchaser could reasonably have any such effect;
(g)
Purchaser shall have received an
opinion, dated the Closing Date, of counsel to the Company, in form and
substance satisfactory to Purchaser;
(h)
All fees and expenses due and
payable by the Company on or prior to the Closing Date shall have been
paid;
(i)
The Company Corporate Documents and
the Subsidiary Corporate Documents, if any, shall be in full force and effect
and no term or condition thereof shall have been amended, waived or otherwise
modified without the prior written consent of Purchaser;
(j)
There shall have occurred no
material adverse change in the business, condition (financial or otherwise),
operations, performance, properties or prospects of the Company or any
Subsidiary since January 1, 2006;
(k)
To the Company’s knowledge, there
shall exist no action, suit, investigation, litigation or proceeding pending
or
threatened in any court or before any arbitrator or governmental instrumentality
that challenges the validity of or purports to affect this Agreement or any
other Transaction Agreement, or other transaction contemplated hereby or thereby
or that could reasonably be expected to have a Material Adverse Effect, or
any
material adverse effect on the enforceability of the Transaction Agreements
or
the Securities or the rights of the holders of the Securities or Purchaser
hereunder;
(l)
Purchaser shall have confirmed the
receipt of the Convertible Note to be issued, duly executed by the
Company in the denominations and registered in the name of
Purchaser;
(m)
Immediately before and after the
Closing Date, no Default or Event of Default shall have occurred and be
continuing;
(n)
Purchaser shall have received all
other opinions, resolutions, certificates, instruments, agreements or other
documents as they shall reasonably request;
(o)
Company shall have delivered to Purchaser the Use of Proceeds Schedule
7.8.
Section
6.2 Conditions to the Company’s Obligations. The obligations of the
Company to issue and sell the Securities to Purchaser pursuant to this Agreement
are subject to the satisfaction, at or prior to any Closing Date, of the
following conditions:
(a)
The representations and warranties
of Purchaser contained herein shall be true and correct in all material respects
on the Closing Date and Purchaser shall have performed and complied in all
material respects with all agreements required by this Agreement to be performed
or complied with by Purchaser at or prior to the Closing Date;
(b)
The issue and sale of the
Securities by the Company shall not be prohibited by any applicable law, court
order or governmental regulation;
(c)
Receipt by the Company of duly
executed counterparts of this Agreement and the Registration Rights Agreement
signed by Purchaser;
(d)
The Company shall have received
payment of the Purchase Price, less the Expense Reimbursement Fee.
ARTICLE
VII. AFFIRMATIVE COVENANTS
The
Company hereby agrees that, from and after the date hereof for so long as any
Convertible Note remains outstanding and for the benefit of
Purchaser:
Section
7.1 Information. The Company will deliver to each holder of the
Convertible Note:
(a)
within two (2) days after any
officer of the Company obtains knowledge of a Default or Event of Default,
or
that any Person has given any notice or taken any action with respect to a
claimed Default
hereunder, a certificate of the chief financial officer of the Company setting
forth the details thereof and the action which the Company is taking or proposed
to take with respect thereto;
(b)
promptly upon the mailing thereof
to the shareholders of the Company generally, copies of all financial
statements, reports and proxy statements so mailed and any other document
generally distributed to shareholders;
(c)
at
least two (2) Business Days prior to the consummation of any Financing or other
event requiring a repayment of the Convertible Note under Section 3.4, notice
thereof together with a summary of all material terms thereof and copies of
all
documents and instruments associated therewith;
(d)
notice promptly upon the occurrence
of any event by which the Reserved Amount becomes less than the sum of (i)
1.5
times the maximum number of Conversion Shares issuable pursuant to the
Transaction Agreements; and
(e)
promptly following knowledge of the
commencement thereof, notice and a description in reasonable detail of any
litigation or proceeding to which the Company or any Subsidiary is a party
in
which the amount involved is $100,000 or more and not covered by insurance
or in
which injunctive or similar relief is sought.
Section
7.2 Payment of Obligations. The Company will, and will cause each
Subsidiary to, pay and discharge, at or before maturity, all their respective
material obligations, including, without limitation, tax liabilities, except
where the same may be contested in good faith by appropriate proceedings and
will maintain, in accordance with GAAP, appropriate reserves for the accrual
of
any of the same.
Section
7.3 Maintenance of Property; Insurance. The Company will, and will
cause each Subsidiary to, keep all property useful and necessary in its business
in good working order and condition, ordinary wear and tear excepted. In
addition, the Company and each Subsidiary will maintain insurance in at least
such amounts and against such risks as it has insured against as of the Closing
Date.
Section
7.4 Maintenance of Existence. The Company will, and will cause each
Subsidiary to, continue to engage in business of the same general type as now
conducted by the Company and such Subsidiaries, and will preserve, renew and
keep in full force and effect its respective corporate existence and their
respective material rights, privileges and franchises necessary or desirable
in
the normal conduct of business.
Section
7.5 Compliance with Laws. The Company will, and will cause each
Subsidiary to, comply, in all material respects, with all federal, state,
municipal, local or foreign applicable laws, ordinances, rules, regulations,
municipal by-laws, codes and requirements of governmental authorities
(including, without limitation, Environmental Laws and ERISA and the rules
and
regulations thereunder) except (i) where compliance therewith is contested
in
good faith by appropriate proceedings or (ii) where non-compliance therewith
could not reasonably be expected, in the aggregate, to have a material adverse
effect on the business, condition (financial or otherwise), operations,
performance, properties or prospects of the Company or such
Subsidiary.
Section
7.6 Inspection of Property, Books and Records. The Company will, and
will cause each Subsidiary to, keep proper books of record and account in which
full, true and correct entries shall be made of all dealings and transactions
in
relation to their respective businesses and activities; and will permit, during
normal business hours, Purchaser’ Representative or an affiliate thereof, as
representatives of Purchaser, to visit and inspect any of their respective
properties, upon reasonable prior notice, to examine and make abstracts from
any
of their respective books and records and to discuss their respective affairs,
finances and accounts with their respective executive officers and independent
public accountants (and by this provision the Company authorizes its independent
public accountants to disclose and discuss with Purchaser the affairs, finances
and accounts of the Company and its Subsidiaries in the presence of a
representative of the Company; provided, however, that such discussions will
not
result in any unreasonable expense to the Company, without Company consent),
all
at such reasonable times.
Section
7.7 Investment Company Act. Provided that Purchaser is not any of the
following described entities, the Company will not be or become an open-end
investment trust, unit investment trust or face-amount certificate company
that
is or is required to be registered under Section 8 of the Investment Company
Act
of 1940, as amended.
Section
7.8 Use of Proceeds. The proceeds from the issuance and sale of the
Convertible Note by the Company shall be used in accordance with Schedule
7.8 attached hereto. None of the proceeds from the issuance and sale of the
Convertible Note by the Company pursuant to this Agreement will be used directly
or indirectly for the purpose, whether immediate, incidental or ultimate, of
purchasing or carrying any “margin stock” within the meaning of Regulation G of
the Board of Governors of the Federal Reserve System.
Section
7.9 Compliance with Terms and Conditions of Material Contracts. The
Company will, and will cause each Subsidiary to, comply, in all respects, with
all terms and conditions of all material contracts to which it is
subject.
Section
7.10 Reserved Shares.
(a)
The
Company shall at all times have authorized, and reserved for the purpose of
issuance, a sufficient number of shares of Common Stock to provide for the
full
conversion of the outstanding Convertible Note and issuance of the Conversion
Shares (based on the conversion price of the Convertible Note in effect from
time to time) (the “Reserved Amount”). The Company shall not reduce the Reserved
Amount without the prior written consent of Purchaser. With respect to all
Securities which contain an indeterminate number of shares of Common Stock
issuable in connection therewith (such as the Convertible Note), the Company
shall include in the Reserve Amount, no less than two (2) times the number
of
shares that is then actually issuable upon conversion or exercise of such
Securities. If at any time the number of shares of Common Stock authorized
and
reserved for issuance is below the number of Conversion Shares issued or
issuable upon conversion of the Convertible Note, the Company will promptly
take
all corporate action necessary to authorize and reserve a sufficient number
of
shares, including, without limitation, either (x) calling a special meeting
of
shareholders to authorize additional shares, in the case of an insufficient
number of authorized shares or (y) in lieu thereof, consummating
the immediate repurchase of the Convertible Note contemplated in Sections 3.4(c)
hereof.
Section
7.11 Transfer Agent Instructions. Upon receipt of a Notice of
Conversion or Notice of Exercise, as applicable, the Company shall immediately
direct the Company's transfer agent to issue certificates, registered in the
name of Purchaser or its nominee, for the Conversion Shares, in such amounts
as
specified from time to time by Purchaser to the Company upon proper conversion
of the Convertible Note. Upon conversion of any Convertible Note in accordance
with their terms, the Company will, and will use its best lawful efforts to
cause its transfer agent to, issue one or more certificates representing shares
of Common Stock in such name or names and in such denominations specified by
a
Purchaser in a Notice of Conversion. As long as the Registration Statement
contemplated by the Registration Rights Agreement shall remain effective, the
shares of Common Stock issuable upon conversion of any Convertible Note shall
be
issued to any transferee of such shares from Purchaser without any restrictive
legend upon appropriate evidence of transfer in compliance with the Securities
Act and the rules and regulations of the Commission; provided that for so long
as the Registration Statement is effective, no opinion of counsel will be
required to effect any such transfer. The Company further warrants and agrees
that no instructions other than these instructions have been or will be given
to
its transfer agent. Nothing in this Section 7.11 shall affect in any way a
Purchaser’s obligation to comply with all securities laws applicable to
Purchaser upon resale of such shares of Common Stock, including any prospectus
delivery requirements.
Section
7.12 Maintenance of Reporting Status; Supplemental Information. So long
as any of the Securities are outstanding, the Company shall timely file all
reports required to be filed with the Commission pursuant to the Exchange
Act. The Company shall not terminate its status as an issuer required
to file reports under the Exchange Act, even if the Exchange Act or the rules
and regulations thereunder would permit such termination. If at
anytime the Company is not subject to the requirements of Section 13 or 15(d)
of
the Exchange Act, the Company will promptly furnish at its expense, upon
request, for the benefit of the holders from time to time of Securities, and
prospective purchasers of Securities, information satisfying the information
requirements of Rule 144 under the Securities Act.
Section
7.13 Form D; Blue Sky Laws. The Company agrees to file a “Form D” with
respect to the Securities as required under Regulation D of the Securities
Act
and to provide a copy thereof to Purchaser promptly after such
filing. The Company shall, on or before the Closing Date, take such
action as the Company shall reasonably determine is necessary to qualify the
Securities for sale, if required, to Purchaser at the Closing pursuant to this
Agreement under applicable securities or “blue sky” laws of the states of the
United States (or to obtain an exemption from such qualification), and shall
provide evidence of any such action so taken to Purchaser on or prior to the
Closing Date.
ARTICLE
VIII. NEGATIVE COVENANTS
The
Company hereby agrees that after the date hereof for so long as any Convertible
Note remains outstanding and for the benefit of Purchaser:
Section
8.1 Limitations on Debt or Other Liabilities. Neither the Company nor
any Subsidiary will create, incur, assume or suffer to exist (at any time after
the Closing Date, after giving effect to the application of the proceeds of
the
issuance of the Securities) (i) any Debt except (x) Debt incurred in a Permitted
Financing, (y) Debt incurred in connection with equipment leases to which the
Company or its Subsidiaries are a party incurred in the ordinary course of
business; and (z) Debt incurred in connection with trade accounts payable,
imbalances and refunds arising in the ordinary course of business and (ii)
any
equity securities (including Derivative Securities) (other than those securities
that are issuable (x) under or pursuant to stock option plans, warrants or
other
rights programs that exist as of the date hereof, (z) in connection with the
acquisition (including by merger) of a business or of assets otherwise permitted
under this Agreement), unless the Company complies with the mandatory prepayment
terms of Section 3.4(b) hereof.
Section
8.2 Transactions with Affiliates. The Company and each Subsidiary will
not, directly or indirectly, pay any funds to or for the account of, make any
investment (whether by acquisition or stock or indebtedness, by loan, advance,
transfer of property, guarantee or other agreement to pay, purchase or service,
directly or indirectly, and Debt, or otherwise) in, lease, sell, transfer or
otherwise dispose of any assets, tangible or intangible, to, or participate
in,
or effect any transaction in connection with any joint enterprise or other
joint
arrangement with, any Affiliate, except, (1) pursuant to those agreements
specifically identified on Schedule 8.2 attached hereto (with a copy of
such agreements annexed to such Schedule 8.2) or hereafter entered into
with the prior written consent of Purchaser and (2) on terms to the Company
or
such Subsidiary no less favorable than terms that could be obtained by the
Company or such Subsidiary from a Person that is not an Affiliate of the Company
upon negotiation at arms’ length, as determined in good faith by the Board of
Directors of the Company; provided that no determination of the Board of
Directors shall be required with respect to any such transactions entered into
in the ordinary course of business.
Section
8.3 Merger or Consolidation. The Company will not, in a single
transaction or a series of related transactions (i) consolidate with or merge
with or into any other Person, or (ii) permit any other Person to consolidate
with or merge into it, unless the Company shall be the survivor of such merger
or consolidation and (x) immediately before and immediately after given effect
to such transaction (including any indebtedness incurred or anticipated to
be
incurred in connection with the transaction), no Default or Event of Default
shall have occurred and be continuing; and (y) the Company has delivered to
Purchaser an Officer’s Certificate stating that such consolidation, merger or
transfer complies with this Agreement, and that all conditions precedent in
this
Agreement relating to such transaction have been satisfied.
Section
8.4 Limitation on Asset Sales. Neither the Company nor any Subsidiary
will consummate an Asset Sale of material assets of the Company or any
Subsidiary without the prior written consent of Purchaser, which consent shall
not be unreasonably withheld. As used herein, “Asset Sale” means any
sale, lease, transfer or other disposition (or series of related sales, leases,
transfers or dispositions) or sales of capital stock of a Subsidiary (other
than
directors’ qualifying shares), property or other assets (each referred to for
the purpose of this definition as a “disposition”), including any disposition by
means of a merger, consolidation or similar transaction other than a disposition
of property or assets at fair market value in the ordinary course of
business.
Section
8.5 Restrictions on Certain Amendments. Neither the Company nor any
Subsidiary will waive any provision of, amend, or suffer to be amended, any
provision of such entity’s existing Debt, any material contract or agreement,
any Company Corporate Document or Subsidiary Corporate Document if such
amendment, in the Company’s reasonable judgment, would materially adversely
affect Purchaser or the holders of the Securities without the prior written
consent of Purchaser.
Section
8.6 Restrictions on Issuances of Securities.
(a)
In addition to and not in lieu of
the covenant specified in Section 8.1 above:
(1)
From
the Closing Date and continuing until 180 days following the date on which
the
Registration Statement becomes effective, the Company agrees that it will not
issue any of its equity securities (or securities convertible into or
exchangeable or exercisable for equity securities (the “Derivative Securities”))
on terms that allow a holder thereof to acquire such equity securities (or
Derivative Securities) at a discount to the Market Price of the Common Stock
at
the time of issuance or, in the case of Derivative Securities, at a conversion
price based on any formula (other than standard anti-dilution provisions) based
on the Market Price on a date later than the date of issuance which is below
the
Market Price on the date of issuance (each such event, a “Discounted Equity
Offering”) other than (i) borrowings under conventional credit facilities
existing as of the date hereof, (ii) stock issued or credit facilities to be
established in connection with acquisitions, (iii) equity securities or
Derivative Securities in connection with employee and director stock option
and
stock purchase plans and (iv) securities issued under the Convertible Note
or
Warrants. In addition, the Company shall not issue any equity securities in
connection with a strategic alliance entered into by the Company unless such
securities are the subject of a one year statutory or contractual hold period
or, if not subject to such a hold period, unless the Purchaser has fully
converted all outstanding Convertible Note and exercised all
Warrants. As used herein, “discount” shall include, but not be
limited to, (i) any warrant, right or other security granted or offered in
connection with such issuance which, on the applicable date of grant, is offered
with an exercise or conversion price, as the case may be, at less than the
then
current Market Price of the Common Stock or, if such security has an exercise
or
conversion price based on any formula (other than standard anti-dilution
provisions) based on the Market Price on a date later than the date of issuance,
then at a price below the Market Price on such date of exercise or conversion,
as the case may be, or (ii) any commissions, fees or other allowances paid
in
connection with such issuances (other than customary underwriter or placement
agent commissions, fees or allowances). For the purposes of
determining the Market Price at which Common Stock is acquired under this
Section, normal underwriting commissions and placement fees (including
underwriters’
warrants) shall be excluded. Notwithstanding the foregoing, the Company may
enter into the following types of transactions (collectively referred to as
"Permitted Financings"): (1) "permanent financing" transactions,
which would include any form of debt or equity financing (other than an
underwritten offering), which is followed by a reduction of the said financing
commitment to zero and payment of all related fees and expenses; (2) "project
financing" which provide for the issuance of recourse debt instruments in
connection with the operation of the Company's business as presently conducted
or as proposed to be conducted; (3) an underwritten offering of Common Stock,
provided that such offering provides for the registration of the Conversion
Shares if the Registration Statement has not been declared effective; (4) any
non-convertible financings solely for alternative fuel projects that do not
create a direct obligation to the Company or involve the issuance of Company
debt or
equity; and (5) other financing transactions specifically consented to in
writing by the Purchaser.
(2)
The 180-day restrictive period set
forth in paragraph (1) of this Section 8.6(a) shall be increased by one day
for
each day a Registration Default has occurred and not been cured by the
Company.
(b)
Until such time as all of the
Convertible Note has been either redeemed or converted into Conversion Shares
in
full, the Company agrees it will not issue any of its equity securities (or
Derivative Securities), unless any shares of Common Stock issued or issuable
in
connection therewith are “restricted securities.” As used herein “restricted
securities” shall mean securities which may not be sold prior to twelve (12)
months following the date of issuance of such securities by virtue of
contractual restrictions imposed by the Company or otherwise.
Section
8.7 Limitation on Stock Repurchases. Except as otherwise set forth in
the Convertible Note and the Warrants, the Company shall not, without the
written consent of the Majority Holders, redeem, repurchase or otherwise acquire
(whether for cash or in exchange for property or other securities or otherwise)
any shares of capital stock of the Company or any warrants, rights or options
to
purchase or acquire any such shares.
Section
8.8 Limitation on Sales By Officers and Employee Directors. For a
period of 180 days following the date the Registration Statement is declared
effective by the Commission, no executive officer or a employee director of
the
Company shall, individually, sell or otherwise dispose of (other than by reason
of death or disability) to any Person an amount of Common stock greater than
that allowed by Rule 144, promulgated under the Securities Act.
ARTICLE
IX. RESTRICTIVE LEGENDS
Section
9.1 Restrictions on Transfer. From and after their respective dates of
issuance, none of the Securities shall be transferable except upon the
conditions specified in this Article IX, which conditions are intended to ensure
compliance with the provisions of the Securities Act in respect of the Transfer
of any of such Securities or any interest therein. Purchaser will use
its best efforts to cause any proposed transferee of any Securities held by
it
to agree to take and hold such Securities subject to the provisions and upon
the
conditions specified in this Article IX.
Section
9.2 Legends. The Conversion Shares, upon resale by the Purchaser
pursuant to the Registration Statement, shall be freely tradeable and
unrestricted.
Section
9.3 Notice of Proposed Transfers. Prior to any proposed Transfer of the
Securities (other than a Transfer (i) registered or exempt from registration
under the Securities Act, (ii) to an affiliate of a Purchaser which is an
“accredited investor” within the meaning of Rule 501(a) under the Securities
Act, provided that any such transferee shall agree to be bound by the terms
of
this Agreement and the Registration Rights Agreement, or (iii) to be made in
reliance on Rule 144 under the Securities Act), the holder thereof shall give
written notice to the Company of such holder’s intention to effect such
Transfer, setting forth the manner and circumstances of the proposed Transfer,
which shall be accompanied by (a) an opinion of counsel reasonably acceptable
to
the Company, confirming that such transfer is in compliance with and does not
give rise to a violation of the Securities Act, (B) representation letters
in
form and substance reasonably satisfactory to the Company to ensure compliance
with the provisions of the Securities Act and (C) letters in form and substance
reasonably
satisfactory to the Company from each such transferee stating such transferee’s
agreement to be bound by the terms of this Agreement and the Registration Rights
Agreement. Such proposed Transfer may be effected only if the Company
shall have received such notice of transfer, opinion of counsel, representation
letters and other letters referred to in the immediately preceding sentence,
whereupon the holder of such Securities shall be entitled to Transfer such
Securities in accordance with the terms of the notice delivered by the holder
to
the Company.
ARTICLE
X. ADDITIONAL AGREEMENTS AMONG THE PARTIES
Section
10.1 Liquidated Damages.
(a)
The
Company shall cause its transfer agent to, issue and deliver shares of Common
Stock consistent with Section 7.11 hereof within three (3) Trading Days after
delivery of a Notice of Conversion, as applicable (the “Deadline”) to Purchaser
(or any party receiving Securities by transfer from Purchaser) at the address
of
Purchaser set forth in the Notice of Conversion. The Company understands that
a
delay in the issuance of such certificates after the Deadline could result
in
economic loss to Purchaser.
(b)
Without in any way limiting
Purchaser’s right to pursue other remedies, including actual damages and/or
equitable relief, the Company agrees that if delivery of the Conversion Shares
is more than one (1) Business Day after the Deadline (other than a failure
due
to the circumstances described in Section 4.3 of the Convertible Note,
whichfailure
shall be governed by such Section) the Company shall pay to Purchaser, as
liquidated damages and not as a penalty, $500 for each $100,000 of Convertible
Note then outstanding per day in cash, for each of the first ten (10) days
beyond the Deadline, and $1,000 for each $100,000 of Convertible Note then
outstanding per day in cash for each day thereafter that the Company fails
to
deliver such Common Stock. Such cash amount shall be paid to
Purchaser by the last day of the calendar week following the week in which
it
has accrued or, at the option of Purchaser (by written notice to the Company
by
the first day of the week following the week in which it has accrued), shall
be
added to the principal amount of the Convertible Note (if then outstanding)
payable to Purchaser, in which event interest shall accrue thereon in accordance
with the terms of the Convertible Note and such additional principal amount
shall be convertible into Common Stock in accordance with the terms of the
Convertible Note.
Section
10.2 Conversion Notice. The Company agrees that, in addition to any
other remedies which may be available to Purchaser, including, but not limited
to, the remedies available under Section 10.1, in the event the Company fails
for any reason (other than as a result of actions taken by a Purchaser in breach
of this Agreement) to effect delivery to a Purchaser of certificates with or
without restrictive legends as contemplated by Article IX representing the
shares of Common Stock on or prior to the Deadline after conversion of any
Convertible Note, Purchaser will be entitled, if prior to the delivery of such
certificates, to revoke the Notice of Conversion by delivering a notice to
such
effect to the Company whereupon the Company and Purchaser shall each be restored
to their respective positions immediately prior to delivery of such Notice
of
Conversion.
Section
10.3 Conversion Limit. Notwithstanding the conversion rights under the
Convertible Note, unless Purchaser delivers a waiver in accordance with the
last
sentence in this Section, in no event shall Purchaser be entitled to convert
any
portion of the Convertible Note, in excess of that portion of the Convertible
Note, as applicable, of which the sum of (i) the number of shares of Common
Stock beneficially owned by Purchaser and its Affiliates (other than shares
of
Common Stock which may be deemed beneficially owned through the ownership of
the
unconverted portion of the Convertible Note or other Derivative Securities
convertible into or exchangeable for shares of Common
Stock which contain a limitation similar to that set forth in this Section
10.3), and (ii) the number of shares of Common Stock issuable upon the
conversion of the portion of the Convertible Note with respect to which this
determination is being made, would result in beneficial ownership by Purchaser
and its Affiliates of more than 4.99% of the outstanding shares of Common
Stock. For purposes of Section 10.3(i) beneficial ownership shall be
determined in accordance with Rule 13d-3 of the Exchange Act and Regulations
13
D-G thereunder, except as otherwise provided in this Section 10.3. The foregoing
limitation shall not apply and shall be of no further force or effect (i)
immediately preceding and upon the occurrence of any voluntary or mandatory
redemption or repayment transaction described herein or in the Convertible
Note,
(ii) immediately preceding and upon any Sale Event, (iii) on the Maturity Date
or (iv) following the occurrence of any Event of Default which is not cured
for
a period of ten (10) calendar days.
Section
10.4 Registration Rights.
(a)
The Company shall grant Purchaser
registration rights covering the Conversion Shares (the “Registrable
Securities”) on the terms set forth in the Registration Rights Agreement and
herein.
(b)
The Company shall prepare and file
on or before the 30th day following
the
Closing Date (the “Filing Date”), a registration statement or amendment thereto
(the “Registration Statement”) to register no less than 3,000,000 shares of
Common Stock covering the resale of the Registrable Securities with the
Commission. In the event the Company fails to file the Registration
Statement by the Filing Date for any reason other than Purchaser’s failure to
provide information requested by the Company for the completion and filing
of
the Registration Statement, the Company shall pay to Purchaser as liquidated
damages (and not as a penalty) one percent (1%) of the then outstanding
principal amount of Convertible Note per day until the Registration Statement
is
filed with the Commission. The Company shall use its best efforts to
cause the Registration Statement to be declared effective by the Commission
or
the earlier of (i) 60 days following the Closing Date, (ii) ten days following
the receipt of a “No Review” Letter from the Commission or (iii) the first
Business Day following the day the Commission determines the Registration
Statement eligible to be declared effective (the “Required Effectiveness Date”).
The Company shall pay all expenses of registration (other than underwriting
fees
and discounts, if any, in respect of Registrable Securities offered and sold
under the registration statement by Purchaser). The Company agrees to
file an initial written response to the Commission within ten calender days
of
receipt of any comments by the Commission relating to the
Registration Statement.
(c)
If the Registration
Statement is not declared effective by the Commission by the Required
Effectiveness Date, the Company shall pay to Purchaser, as liquidated damages
(and not as a penalty), an amount equal to 2% of the outstanding principal
amount of the Convertible Note, prorated, for each 30 day period the
Registration Statement is not declared effective by the
Commission. In the event the Company fails to obtain a valid
registration statement by the 360th day following the Closing Date, the Company
will redeem the Convertible Note and the Warrants as set forth in Section 5
of
the Convertible Note and Section 13 of the Warrants,
respectively. Additionally, the Company will grant to Purchaser
certain piggyback registration rights in the event the Company proposes to
effect a registered offering of Common Stock or warrants or both prior to the
filing of the Registration Statement referenced above.
(d)
Any such liquidated damages shall
be paid in cash by the Company to Purchaser by wire transfer in immediately
available funds on the last day of each calendar week following the event
requiring its payment.
(e)
If, following the declaration of
effectiveness of the Registration Statement, such registration statement (or
any
prospectus or supplemental prospectus contained therein)
shall cease to be effective for any reason (including but not limited to the
occurrence of any event that results in any prospectus or supplemental
prospectus containing an untrue statement of a material fact or omitting a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading), the Company fails to file required amendments to the
Registration Statement in order to allow the Purchaser to resell the Conversion
Shares pursuant to the Registration Statement as unrestricted, unlegended,
freely tradeable shares of Common Stock, or if for any reason there are
insufficient shares of such shares of Common Stock registered under the then
current Registration Statement to effect full conversion of the Convertible
Note
or exercise of the Warrants (a "Registration Default"), the Company shall
immediately take all necessary steps to cause the Registration Statement to
be
amended or supplemented so as to cure such Registration Default. Failure to
cure
a Registration Default within ten (10) Business Days shall result in the Company
paying to Purchaser liquidated damages at the rate of one percent (1%) of the
outstanding principal amount of Convertible Note for each 30 day period
(prorated), the Registration Default remains uncured.
ARTICLE
XI. ADJUSTMENT OF FIXED PRICE
Section
11.1 Reorganization. The Conversion Price (the “Fixed Price”) shall be
adjusted, as applicable, as hereafter provided.
Section
11.2 Share Reorganization. If and whenever the Company
shall:
(i)
subdivide the outstanding shares of
Common Stock into a greater number of shares;
(ii)
consolidate the outstanding shares
of Common Stock into a smaller number of shares;
(iii)
issue Common Stock or securities convertible into or exchangeable for shares
of
Common Stock as a stock dividend to all or substantially all the holders of
Common Stock; or
(iv)
make
a distribution on the outstanding Common Stock to all or substantially all
the
holders of Common Stock payable in Common Stock or securities convertible into
or exchangeable for Common Stock; any
of
such events being herein called a “Share Reorganization,” then in each such case
the applicable Fixed Price shall be adjusted, effective immediately after the
record date at which the holders of Common Stock are determined for the purposes
of the Share Reorganization or, if no record date is fixed, the effective date
of the Share Reorganization, by multiplying the applicable Fixed Price in effect
on such record or effective date, as the case may be, by a fraction of
which:
(i)
the numerator shall be the number
of shares of Common Stock outstanding on such record or effective
date (without giving effect to the transaction); and
(ii)
the denominator shall be the
number of shares of Common Stock outstanding after giving effect to such Share
Reorganization, including, in the case of a distribution of securities
convertible into or exchangeable for shares of Common Stock, the number of
shares of Common Stock that would have been outstanding if such securities
had
been converted into or exchanged for Common Stock on such record or effective
date.
Section
11.3 Rights Offering. If and whenever the Company shall issue to all or
substantially all the holders of Common Stock, rights, options or warrants
under
which such holders are entitled, during a period expiring not more than 45
days
after the record date of such issue, to subscribe for or purchase Common Stock
(or Derivative Securities), at a price per share (or, in the case of securities
convertible into or exchangeable for Common Stock, at an exchange or conversion
price per share at the date of issue of such securities) of less than 95% of
the
Market Price of the Common Stock on such record date (any such event being
herein called a “Rights Offering”), then in each such case the applicable Fixed
Price shall be adjusted, effective immediately after the record date at which
holders of Common Stock are determined for the purposes of the Rights Offering,
by multiplying the applicable Fixed Price in effect on such record date by
a
fraction of which:
(i)
the
numerator shall be the sum of:
(i)
the
number of shares of Common Stock outstanding on such record date;
and
(ii)
a number obtained by
dividing:
(A)
either,
(x)
the product of the total number of
shares of Common Stock so offered for subscription or purchase and the price
at
which such shares are so offered, or
(y)
the product of the maximum number
of shares of Common Stock into or for which the convertible or exchangeable
securities so offered for subscription or purchase may be converted or exchanged
and the conversion or exchange price of such securities, or, as the case may
be,
by
(B)
the Market Price of the Common
Stock on such record date; and
(ii)
the denominator shall be the sum
of:
(i)
the
number of shares of Common Stock outstanding on such record date; and
(ii)
the
number of shares of Common Stock so offered for subscription or
purchase
(or, in the case of Derivative Securities, the maximum number of shares of
Common
Stock for or into which the securities so offered for subscription or purchase
may
be
converted or exchanged).
To
the
extent that such rights, options or warrants are not exercised prior to the
expiry time thereof, the applicable Fixed Price shall be readjusted effective
immediately after such expiry time to the applicable Fixed Price which would
then have been in effect upon the number of shares of Common Stock (or
Derivative Securities) actually delivered upon the exercise of such rights,
options or warrants.
Section
11.4 Special Distribution. If and whenever the Company shall issue or
distribute to all or substantially all the holders of Common Stock:
(i)
shares of the Company of any class,
other than Common Stock;
(ii)
rights, options or warrants;
or
(iii)
any
other assets (excluding cash dividends and equivalent dividends in shares paid
in lieu of cash dividends in the ordinary course); and
if
such issuance or distribution does not constitute a Share Reorganization or
a
Rights Offering (any such event being herein called a “Special Distribution”),
then in each such case the applicable Fixed Price shall be adjusted, effective
immediately after the record date at which the holders of Common Stock are
determined for purposes of the Special Distribution, by multiplying the
applicable Fixed Price in effect on such record date by a fraction of
which:
(i)
the
numerator shall be the difference between:
(A)
the product of the number of shares
of Common Stock outstanding on such record date and the Market Price of the
Common Stock on such date; and
(B)
the fair market value, as
determined by the Directors (whose determination shall be conclusive), to the
holders of Common Stock of the shares, rights, options, warrants, evidences
of
indebtedness or other assets issued or distributed in the Special Distribution
(net of any consideration paid therefor by the holders of Common Stock),
and
(ii)
the denominator shall be the
product of the number of shares of Common Stock outstanding on such record
date
and the Market Price of the Common Stock on such date.
Section
11.5 Capital
Reorganization. If and whenever there shall occur:
(i)
a reclassification or redesignation
of the shares of Common Stock or any change of the shares of Common Stock into
other shares, other than in a Share Reorganization;
(ii)
a consolidation, merger or
amalgamation of the Company with, or into another body corporate;
or
(iii)
the
transfer of all or substantially all of the assets of the Company to another
body corporate; (any
such
event being herein called a “Capital Reorganization”), then in each such case
the holder who exercises the right to convert Convertible Note after the
effective date of such Capital Reorganization shall be entitled to receive
and
shall accept, upon the exercise of such right, in lieu of the number of shares
of Common Stock to which such holder was theretofore entitled upon the exercise
of the conversion privilege, the aggregate number of shares or other securities
or property of the Company or of the body corporate resulting from such Capital
Reorganization that such holder would have been entitled to receive as a result
of such Capital Reorganization if, on the effective date thereof, such holders
had been the holder of the number of shares of Common Stock to which such holder
was theretofore entitled upon conversion; provided, however, that no such
Capital Reorganization shall be consummated in effect unless all necessary
steps
shall have been taken so that such
holders shall thereafter be entitled to receive such number of shares or other
securities of the Company or of the body corporate resulting from such Capital
Reorganization, subject to adjustment thereafter in accordance with provisions
the same, as nearly as may be possible, as those contained above.
Section
11.6 Purchase Price Adjustments. In case at any time and from time to
time the Company shall issue any shares of Common Stock or Derivative Securities
convertible or exercisable for shares of Common Stock (the number of shares
so
issued, or issuable upon conversion or exercise of such Derivative Securities,
as applicable, being referred to as “Additional Shares of Common Stock”) for
consideration less than the then Market Price at the date of issuance of such
shares of Common Stock or such Derivative Securities, in each such case the
Conversion Price shall, concurrently with such issuance, be adjusted by
multiplying the Conversion Price immediately prior to such event by a fraction:
(i) the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of such Additional Shares of
Common Stock plus the number of shares of Common Stock that the aggregate
consideration received by the Company for the total number of such Additional
Shares of Common Stock so issued would purchase at the Market Price and (ii)
the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of Additional Shares of Common Stock plus
the
number of such Additional Shares of Common Stock so issued or sold.
Section
11.7 Adjustment Rules. The following rules and procedures shall be
applicable to adjustments made in this Article XI:
(a)
no adjustment in the applicable
Fixed Price shall be required unless such adjustment would result in a change
of
at least 1% in the applicable Fixed Price then in effect, provided, however,
that any adjustments which, but for the provisions of this clause would
otherwise have been required to be made, shall be carried forward and taken
into
account in any subsequent adjustment;
(b)
if any event occurs of the type
contemplated by the adjustment provisions of this Article XI but not expressly
provided for by such provisions, the Company will give notice of such event
as
provided herein, and the Company’s board of directors will make an appropriate
adjustment in the Fixed Price so that the rights of the holders of the
applicable Security shall not be diminished by such event; and
(c)
if a dispute shall at any time
arise with respect to any adjustment of the applicable Fixed Price, such dispute
shall be conclusively determined by the auditors of the Company or, if they
are
unable or unwilling to act, by a firm of independent chartered accountants
selected by the Directors and any such determination shall be binding upon
the
Company and Purchaser.
Section
11.8 Certificate as to Adjustment. The Company shall from time to time
promptly after the occurrence of any event which requires an adjustment in
the
applicable Fixed Price deliver to Purchaser a certificate specifying the nature
of the event requiring the adjustment, the amount of the adjustment necessitated
thereby, the applicable Fixed Price after giving effect to such adjustment
and
setting forth, in reasonable detail, the method of calculation and the facts
upon which such calculation is based.
Section
11.9 Notice to Holders. If the Company shall fix a record date
for:
(a)
any Share Reorganization (other
than the subdivision of outstanding Common Stock into a greater number of shares
or the consolidation of outstanding Common Stock into a smaller number of
shares),
(b)
any Rights Offering,
(c)
any Special
Distribution,
(d)
any Capital Reorganization (other
than a reclassification or redesignation of the Common Stock into other
shares),
(e)
Sale Event; or
(f)
any cash dividend, the
Company shall, not less than 10 days prior to such record date or, if no record
date is fixed, prior to the effective date of such event, give to Purchaser
notice of the particulars of the proposed event or the extent that such
particulars have been determined at the time of giving the notice.
ARTICLE
XII. EVENTS OF DEFAULT
Section
12.1 Events of Default. If one or more of the following
events (each an “Event of Default”) shall have occurred and be
continuing:
(a)
failure by the Company to pay or
repay when due, all or any part of the principal on any of the Convertible
Note
(whether by virtue of the agreements specified in this Agreement or the
Convertible Note);
(b)
failure by the Company to pay (i)
within five (5) Business Days of the due date thereof any interest on any
Convertible Note or (ii) within five (5) Business Days following the delivery
of
notice to the Company of any fees or any other amount payable (not otherwise
referred to in (a) above or this clause (b)) by the Company under this Agreement
or any other Transaction Agreement;
(c)
failure by the Company to timely comply with the requirements of Section
7.11
or
10.1 hereof, which failure is not cured within five (5) Business Days of such
failure;
(d)
failure on the part of the Company
to observe or perform any covenant contained in Section 7.10 or Article VIII
of
this Agreement;
(e)
failure on the part of the Company to observe or perform any covenant or
agreement contained in any Transaction Agreement (other than those covered
by
clauses (a), (b), (c) or (d) above) for 30 days from the date of such
occurrence;
(f)
the trading in the Common Stock
shall have been suspended by the Commission, the OTC Bulletin Board or any
market on which the securities of the Company are then traded (except for any
suspension of trading of limited duration solely to permit dissemination of
material information regarding the Company and except if, at the time there
is
any suspension on any market, the Common Stock is then listed and approved
for
trading on another market within ten (10) Trading Days thereof);
(g)
the Company shall have its Common
Stock delisted from the OTC Bulletin Board for at least ten (10) consecutive
Trading Days and is unable to obtain a listing on the OTC Bulletin Board within
such ten (10) Trading Days;
(h)
the Registration Statement shall
not have been declared effective by the Commission by the Required Effectiveness
Date, or such effectiveness shall not be maintained for the Registration
Maintenance Period, in each case which results in the Company incurring
liquidated damages or a default fee for a period in excess of 10
days;
(i)
the Company or any Subsidiary has
commenced a voluntary case or other proceeding seeking liquidation, winding-up,
reorganization or other relief with respect to itself or its debts under any
bankruptcy, insolvency, moratorium or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator, custodian
or other similar official of it or any substantial part of its property, or
has
consented to any such relief or to the appointment of or taking possession
by
any such official in an involuntary case or other proceeding commenced against
it, or has made a general assignment for the benefit of creditors, or has failed
generally to pay its debts as they become due, or has taken any corporate action
to authorize any of the foregoing;
(j)
an
involuntary case or other proceeding has been commenced against the Company
or
any Subsidiary seeking liquidation, winding-up, reorganization or other relief
with respect to it or its debts under any bankruptcy, insolvency, moratorium
or
other similar law now or hereafter in effect or seeking the appointment of
a
trustee, receiver, liquidator, custodian or other similar official of it or
any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 60 days, or an order
for
relief has been entered against the Company or any Subsidiary under the federal
bankruptcy laws as now or hereafter in effect;
(k)
default in any provision (including
payment) or any agreement governing the terms of any Debt of the Company or
any
Subsidiary in excess of $500,000, which has not been cured within any applicable
period of grace associated therewith;
(l)
judgments or orders for the payment
of money which in the aggregate at any one time exceed $1,000,000 and are not
covered by insurance have been rendered against the Company or any Subsidiary
by
a court of competent jurisdiction and such judgments or orders shall continue
unsatisfied and unstayed for a period of 60 days;
(m)
any representation, warranty,
certification or statement made by the Company in any Transaction Agreement
or
which is contained in any certificate, document or financial or other statement
furnished at any time under or in connection with any Transaction Agreement
shall prove to have been untrue in any material respect when made;
or
(n)
any transfer directly or indirectly
(whether by cash, property, guarantee or other agreement to pay or service)
on
any amounts outstanding to or originating as loans to the Company from officers,
directors or shareholders for so long as any Note remains
outstanding.
then,
and
in every such occurrence, Purchaser may, with respect to an Event of Default
specified in paragraphs (a) or (b), and the Majority Holders may, with respect
to any other Event of Default, by notice to the Company, declare the Convertible
Note to be, and the Convertible Note shall thereon become immediately due and
payable; provided that in the case of any of the Events of Default
specified in paragraph (i) or (j) above with respect to the Company or any
Subsidiary, then, without any notice to the Company or any other act by
Purchaser, the entire amount of the Convertible Note shall become immediately
due and payable, provided, further, if any Event of Default has
occurred and is continuing, and irrespective of whether any Convertible Note
has
been declared immediately due and payable hereunder, any Purchaser of
Convertible Note may proceed to protect and enforce the rights of Purchaser
by
an action at law, suit in equity or other appropriate proceeding, whether for
the specific performance of any agreement contained herein or in any Convertible
Note, or for an injunction against a violation of any of the terms hereof or
thereof, or in aid of the exercise of any power granted hereby or thereby or
by
law or otherwise, and provided further, in the case of any Event of
Default, the amount declared due and payable on the Convertible Note shall
be
the Formula Price thereof.
Section
12.2 Powers and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to Purchaser is intended to be exclusive of any
other
right or remedy, and every right and remedy shall, to the extent permitted
by
law, be cumulative and in addition to every other right and remedy given
hereunder or now hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy. Every power and remedy given by the Convertible Note or by
law
may be exercised from time to time, and as often as shall be deemed expedient,
by Purchaser.
ARTICLE
XIII. MISCELLANEOUS
Section
13.1 Notices. All notices, demands and other communications to any
party hereunder shall be in writing (including telecopier or similar writing)
and shall be given to such party at its address set forth on the signature
pages
hereof, or such other address as such party may hereafter specify for the
purpose to the other parties. Each such notice, demand or other
communication shall be effective (i) if given by telecopy, when such telecopy
is
transmitted to the telecopy number specified on the signature page hereof,
(ii)
if given by mail, four days after such communication is deposited in the mail
with first class postage prepaid, addressed as aforesaid or (iii) if given
by
any other means, when delivered at the address specified in or pursuant to
this
Section.
Section
13.2 No Waivers; Amendments.
(a)
No failure or delay on the part of
any party in exercising any right, power or remedy hereunder shall operate
as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy.
(b)
Any provision of this Agreement may
be amended, supplemented or waived if, but only if, such amendment, supplement
or waiver is in writing and is signed by the Company and the Majority Holders;
provided, that without the consent of each holder of any Convertible Note
affected thereby, an amendment or waiver may not (a) reduce the aggregate
principal amount of Convertible Note whose holders must consent to an amendment
or waiver, (b) reduce the rate or extend the time for payment of interest on
any
Convertible Note, (c) reduce the principal amount of or extend the stated
maturity of any Convertible Note or (d) make any Convertible Note payable in
money or property other than as stated in such Convertible Note. In determining
whether the holders of the requisite principal amount of Convertible Note have
concurred in any direction, consent, or waiver as provided in any Transaction
Agreement, Convertible Note which are owned by the Company or any other obligor
on or guarantor of the Convertible Note, or by any Person Controlling,
Controlled by, or under common Control with any of the foregoing, shall be
disregarded and deemed not to be outstanding for the purpose of any such
determination; and provided further that no such amendment, supplement or
waiver which affects the rights of Purchaser and their affiliates otherwise
than
solely in their capacities as holders of Convertible Note shall be effective
with respect to them without their prior written consent.
Section
13.3 Indemnification.
(a)
The Company agrees to indemnify and
hold harmless Purchaser, its Affiliates, and each Person, if any, who controls
Purchaser, or any of its Affiliates, within the meaning of the Securities Act
or
the Exchange Act (each, a “Controlling Person”), and the respective partners,
agents, employees, officers and Directors of Purchaser, their Affiliates and
any
such Controlling Person (each an “Indemnified Party”) and collectively, the
“Indemnified Parties”), from and against any and all losses, claims, damages,
liabilities and expenses (including, without limitation and as incurred,
reasonable costs of investigating, preparing or defending any such claim or
action, whether or not such Indemnified Party is a party thereto, provided
that
the Company shall not be obligated to advance such costs to any Indemnified
Party other than Purchaser unless it has received from such Indemnified Party
an
undertaking to repay to the Company the costs so advanced if it should be
determined by final judgment of a court of competent jurisdiction that such
Indemnified Party was not entitled to indemnification hereunder with respect
to
such costs) which may be incurred by such Indemnified Party in connection with
any investigative, administrative or judicial proceeding brought or threatened
that relates to or arises out of, or is in connection with any activities
contemplated by any Transaction Agreement or any other services rendered in
connection herewith; provided that the Company will not be responsible
for any claims, liabilities, losses, damages or expenses that (i) are determined
by final judgment of a court of competent jurisdiction to result from such
Indemnified Party’s gross negligence, willful misconduct or bad faith and (ii)
not in excess of the amount of funds actually received by the Company pursuant
to this Agreement.
(b)
If
any action shall be brought against an Indemnified Party with respect to which
indemnity may be sought against the Company under this Agreement, such
Indemnified Party shall promptly notify the Company in writing and the Company,
at its option, may, assume the defense thereof, including the employment of
counsel reasonably satisfactory to such Indemnified Party and payment of all
reasonable fees and expenses. The failure to so notify the Company shall not
affect any obligations the Company may have to such Indemnified Party under
this
Agreement or otherwise unless the Company is materially adversely affected
by
such failure. Such Indemnified Party shall have the right to employ
separate counsel in such action and participate in the defense thereof, but
the
fees and expenses of such counsel shall be at the expense of such Indemnified
Party, unless (i) the Company has failed to assume the defense and employ
counsel or (ii) the named parties to any such action (including any impleaded
parties) include such Indemnified Party and the Company, and such Indemnified
Party shall have been advised by counsel that there may be one or more legal
defenses available to it which are different from or additional to those
available to the Company, in which case, if such Indemnified Party notifies
the
Company in writing that it elects to employ separate counsel at the expense
of
the Company, the Company shall not have the right to assume the defense of
such
action or proceeding on behalf of such Indemnified Party, provided,
however, that the Company shall not, in connection with any one such
action or proceeding or separate but substantially similar or related actions
or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be responsible hereunder for the reasonable fees and expenses
of more than one such firm of separate counsel, in addition to any local
counsel, which counsel shall be designated by the Company and subject to
approval by the Purchaser. The Company shall not be liable for any
settlement of any such action effected without the written consent of the
Company (which shall not be unreasonably withheld) and the Company agrees to
indemnify and hold harmless each Indemnified Party from and against any loss
or
liability by reason of settlement of any action effected with the consent of
the
Company. In addition, the Company will not, without the prior written consent
of
Purchaser, settle or compromise or consent to the entry of any judgment in
or
otherwise seek to terminate any pending or threatened action, claim, suit or
proceeding in respect to which indemnification or contribution may be sought
hereunder (whether or not any Indemnified Party is a party thereto) unless
such
settlement, compromise, consent or termination includes an express unconditional
release of Purchaser and the other Indemnified Parties, satisfactory in form
and
substance to Purchaser, from all liability arising out of such action, claim,
suit or proceeding.
(c)
If for any reason the foregoing
indemnity is unavailable (otherwise than pursuant to the express terms of such
indemnity) to an Indemnified Party or insufficient to hold an Indemnified Party
harmless, then in lieu of indemnifying such Indemnified Party, the Company
shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such claims, liabilities, losses, damages, or expenses (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company
on
the one hand and by Purchaser on the other from the transactions contemplated
by
this Agreement
or (ii) if the allocation provided by clause (i) is not permitted under
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits received by the Company on the one hand and Purchaser on
the
other, but also the relative fault of the Company and Purchaser as well as
any
other relevant equitable considerations. Notwithstanding the provisions of
this
Section 13.3, the aggregate contribution of all Indemnified Parties shall not
exceed the amount of interest and fees actually received by Purchaser pursuant
to this Agreement. It is hereby further agreed that the relative
benefits to the Company on the one hand and Purchaser on the other with respect
to the transactions contemplated hereby shall be determined by reference to,
among other things, whether any untrue or alleged untrue statement of material
fact or the omission or alleged omission to state a material fact related to
information supplied by the Company or by Purchaser and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
(d)
The indemnification, contribution
and expense reimbursement obligations set forth in this Section 13.3 (i) shall
be in addition to any liability the Company may have to any Indemnified Party
at
common law or otherwise; (ii) shall survive the termination of this Agreement
and the other Transaction Agreements and the payment in full of the Convertible
Note and (iii) shall remain operative and in full force and effect regardless
of
any investigation made by or on behalf of Purchaser or any other Indemnified
Party.
Section
13.4 Expenses: Documentary Taxes. The Company has incurred an
application fee equal to 2.5% of the principal amount of the Convertible Note
which shall be payable to Global Capital Advisors, LLC (“GCA”) on the Closing
Date. In addition, the Company agrees to pay to GCA, on the Closing Date, a
fee
equal to $25,000.00 (the “Out of Pocket Fee”) in full satisfaction of all
obligations of the Company to Purchaser and its agents in connection with the
negotiation and preparation of the Transaction Agreements, relevant due
diligence, and fees and disbursements of legal counsel. In addition,
the Company agrees to pay any and all stamp, transfer and other similar taxes,
assessments or charges payable in connection with the execution and delivery
of
any Transaction Agreement or the issuance of the Securities to Purchaser,
excluding their assigns.
Section
13.5 Payment. The Company agrees that, so long as Purchaser shall own
any Convertible Note purchased by it from the Company hereunder, the Company
will make payments to Purchaser of all amounts due thereon by wire transfer
by
4:00 P.M. (E.S.T.) pursuant to those instructions provided by
Purchaser.
Section
13.6 Successors and Assigns. This Agreement shall be binding upon the
Company and upon Purchaser and its respective successors and assigns;
provided that the Company shall not assign or otherwise transfer its
rights or obligations under this Agreement to any other Person without the
prior
written consent of the Majority Holders. All provisions hereunder purporting
to
give rights to Purchaser and its affiliates or to holders of Securities are
for
the express benefit of such Persons and their successors and
assigns.
Section
13.7 Brokers. Except for Redrock Trading Partners, LLC, (the
“Brokers”), the Company represents and warrants that it has not employed any
broker, finder, financial advisor or investment banker who would be entitled
to
any brokerage, finder’s or other fee or commission payable by the Company or
Purchaser in connection with the sale of the Securities. The Company represents
and warrants that it is solely responsible for any fees due
Brokers.
Section
13.8 California Law; Submission to Jurisdiction; Waiver of Jury Trial;
Appointment of Agent. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA. EACH PARTY
HERETO HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES
DISTRICT COURT FOR THE STATE OF CALIFORNIA AND OF ANY FEDERAL DISTRICT COURT
SITTING IN CALIFORNIA FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF
OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY
HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY
TO
THIS AGREEMENT IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN ANY SUCH
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, TO SUCH PARTY AT ITS ADDRESS SET FORTH HEREIN. NOTHING HEREIN
SHALL AFFECT THE RIGHT OF ANY PARTY TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW. EACH PARTY WAIVES ITS RIGHT TO A TRIAL BY
JURY.
Section
13.9 Entire Agreement. This Agreement, the Exhibits or Schedules
hereto, which include, but are not limited to the Convertible Note and the
Registration Rights Agreement, set forth the entire agreement and understanding
of the parties relating to the subject matter hereof and supersedes all prior
and contemporaneous agreements, negotiations and understandings between the
parties, both oral and written relating to the subject matter hereof. The terms
and conditions of all Exhibits and Schedules to this Agreement are incorporated
herein by this reference and shall constitute part of this Agreement as is
fully
set forth herein.
Section
13.10 Survival; Severability. The representations, warranties,
covenants and agreements of the parties hereto shall survive the Closing
hereunder. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable
or
void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement
to any party.
Section
13.11 Title and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section
13.12 Reporting Entity for the Common Stock. The reporting entity
relied upon for the determination of the trading price or trading volume of
the
Common Stock on any given Trading Day for the purposes of this Agreement and
all
Exhibits shall be Bloomberg, L.P. or any successor thereto. The written mutual
consent of the Purchaser and the Company shall be required to employ any other
reporting entity.
Section
13.13 Publicity. The Company and the Purchaser shall consult
with each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and no party
shall issue any such press release or otherwise make any such public statement
without the prior written consent of the other parties, which consent shall
not
be unreasonably withheld or delayed, except that no prior consent shall be
required if such disclosure is required by law, in which such case the
disclosing party shall provide the other parties with prior notice of such
public statement. Notwithstanding the foregoing, the Company shall
not publicly disclose the name of Purchaser without the prior written consent
of
Purchaser, except to the extent required by law, in which case the Company
shall
provide Purchaser with prior written notice of such public
disclosure.
[signature
page follows]
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers, as of the date first
above written.
|
Royal
Spring Water, Inc.
|
||
|
By:
Name: Xxxx Xxxxx Title: President
|
||
|
Address:
|
Royal
Spring Water, Inc. 00000 Xxxxxx Xxxxxx Xxxxx 000 Xxx Xxxx, XX 00000
|
|
|
Fax:
Tel.:
|
||
|
GCA
STRATEGIC INVESTMENT FUND LIMITED
|
||
|
By:
Name: Xxxxx X. Xxxxxx Title: Director
|
||
|
Address:
|
c/o
Prime Management Limited Mechanics Xxxxxxxx 00 Xxxxxx Xxxxxx Xxxxxxxx
XX
XX, Xxxxxxx
|
|
|
Fax:
000-000-0000 Tel.: 000-000-0000
|
||
TABLE
OF CONTENTS
|
ARTICLE
I. DEFINITIONS
|
1
|
|
Section
1.1 Definitions
|
1
|
|
Section
1.2 Accounting Terms and Determinations
|
9
|
|
ARTICLE
II. PURCHASE AND SALE OF SECURITIES
|
10
|
|
Section
2.1 Purchase and Sale of Convertible Note
|
10
|
|
Section
2.2 Purchase Price
|
10
|
|
Section
2.3 Closing and Mechanics of Payment
|
10
|
|
ARTICLE
III. PAYMENT TERMS OF CONVERTIBLE NOTE
|
10
|
|
Section
3.1 Payment of Principal and Interest; Payment
Mechanics
|
10
|
|
Section
3.2
|
11
|
|
Section
3.3 Voluntary Prepayment
|
11
|
|
Section
3.4 Mandatory Prepayments
|
11
|
|
Section
3.5 Prepayment Procedures
|
12
|
|
Section
3.6 Payment of Additional Amounts
|
13
|
|
ARTICLE
IV. REPRESENTATIONS AND WARRANTIES
|
15
|
|
Section
4.1 Organization and Qualification
|
15
|
|
Section
4.2 Authorization and Execution
|
15
|
|
Section
4.3 Capitalization
|
16
|
|
Section
4.4 Governmental Authorization
|
16
|
|
Section
4.5 Issuance of Shares
|
16
|
|
Section
4.6 No Conflicts
|
17
|
|
Section
4.7 Financial Information
|
17
|
|
Section
4.8 Litigation
|
18
|
|
Section
4.9 Compliance with ERISA and other Benefit Plans
|
18
|
|
Section
4.10 Environmental Matters
|
19
|
|
Section
4.11 Taxes
|
19
|
|
Section
4.12 Investments, Joint Ventures
|
19
|
|
Section
4.13 Not an Investment Company
|
19
|
|
Section
4.14 Full Disclosure
|
19
|
|
Section
4.15 No Solicitation; No Integration with Other
Offerings
|
19
|
|
Section
4.16 Permits
|
20
|
|
Section
4.17 Leases
|
20
|
|
Section
4.18 Absence of Any Undisclosed Liabilities or Capital
Calls
|
20
|
|
Section
4.19 Public Utility Holding Company
|
20
|
|
Section
4.20 Intellectual Property Rights
|
20
|
|
Section
4.21 Insurance
|
21
|
|
Section
4.22 Title to Properties
|
21
|
|
Section
4.23 Internal Accounting Controls
|
21
|
|
Section
4.24 Subsidiaries
|
21
|
|
Section
4.25 Foreign Practices
|
21
|
|
ARTICLE
V. REPRESENTATIONS AND WARRANTIES OF PURCHASER
|
22
|
|
Section
5.1 Purchaser
|
22
|
|
ARTICLE
VI. CONDITIONS PRECEDENT TO PURCHASE OF
SECURITIES
|
23
|
|
Section
6.1 Conditions Precedent to Purchaser’s Obligations to
Purchase
|
23
|
|
Section
6.2 Conditions to the Company’s Obligations
|
25
|
|
ARTICLE
VII. AFFIRMATIVE COVENANTS
|
25
|
|
Section
7.1 Information
|
26
|
|
Section
7.2 Payment of Obligations
|
26
|
|
Section
7.3 Maintenance of Property; Insurance
|
26
|
|
Section
7.4 Maintenance of Existence
|
26
|
|
Section
7.5 Compliance with Laws
|
27
|
|
Section
7.6 Inspection of Property, Books and Records
|
27
|
|
Section
7.7 Investment Company Act
|
27
|
|
Section
7.8 Use of Proceeds
|
27
|
|
Section
7.9 Compliance with Terms and Conditions of Material
Contracts
|
27
|
|
Section
7.10 Reserved Shares
|
28
|
|
Section
7.11 Transfer Agent Instructions
|
28
|
|
Section
7.12 Maintenance of Reporting Status; Supplemental
Information
|
28
|
|
Section
7.13 Form D; Blue Sky Laws
|
29
|
|
ARTICLE
VIII. NEGATIVE COVENANTS
|
29
|
|
Section
8.1 Limitations on Debt or Other Liabilities
|
29
|
|
Section
8.2 Transactions with Affiliates
|
29
|
|
Section
8.3 Merger or Consolidation
|
30
|
|
Section
8.4 Limitation on Asset Sales
|
30
|
|
Section
8.5 Restrictions on Certain Amendments
|
30
|
|
Section
8.6 Restrictions on Issuances of Securities
|
30
|
|
Section
8.7 Limitation on Stock Repurchases
|
32
|
|
Section
8.8 Limitation on Sales By Officers and Employee
Directors
|
32
|
|
ARTICLE
IX. RESTRICTIVE LEGENDS
|
32
|
|
Section
9.1 Restrictions on Transfer
|
32
|
|
Section
9.2 Legends
|
32
|
|
Section
9.3 Notice of Proposed Transfers
|
32
|
|
ARTICLE
X. ADDITIONAL AGREEMENTS AMONG THE PARTIES
|
33
|
|
Section
10.1 Liquidated Damages
|
33
|
|
Section
10.2 Conversion Notice
|
34
|
|
Section
10.3 Conversion Limit
|
34
|
|
Section
10.4 Registration Rights
|
34
|
|
ARTICLE
XI. ADJUSTMENT OF FIXED PRICE
|
36
|
|
Section
11.1 Reorganization
|
.36
|
|
Section
11.2 Share Reorganization
|
36
|
|
Section
11.3 Rights Offering
|
37
|
|
Section
11.4 Special Distribution
|
38
|
|
Section
11.5 Capital Reorganization
|
38
|
|
Section
11.6 Purchase Price Adjustments
|
39
|
|
Section
11.7 Adjustment Rules
|
39
|
|
Section
11.8 Certificate as to Adjustment
|
40
|
|
Section
11.9 Notice to Holders
|
40
|
|
ARTICLE
XII. EVENTS OF DEFAULT
|
41
|
|
Section
12.1 Events of Default.
|
41
|
|
Section
12.2 Powers and Remedies Cumulative
|
43
|
|
ARTICLE
XIII. MISCELLANEOUS
|
43
|
|
Section
13.1 Notices
|
43
|
|
Section
13.2 No Waivers; Amendments
|
43
|
|
Section
13.3 Indemnification
|
44
|
|
Section
13.4 Expenses: Documentary Taxes
|
46
|
|
Section
13.5 Payment
|
46
|
|
Section
13.6 Successors and Assigns
|
46
|
|
Section
13.7 Brokers
|
47
|
|
Section
13.8 California Law; Submission to Jurisdiction; Waiver of Jury
Trial;Appointment of Agent
|
47
|
|
Section
13.9 Entire Agreement
|
47
|
|
Section
13.10 Survival; Severability.
|
47
|
|
Section
13.11 Title and Subtitles
|
48
|
|
Section
13.12 Reporting Entity for the Common Stock.
|
48
|
|
Section
13.13 Publicity.
|
48
|
LIST
OF SCHEDULES
Schedule
4.3 Capitalization Schedule 4.7 Financial Information Schedule 4.8 Litigation
Schedule 4.12 Investments, Joint Ventures Schedule 4.17 Leases Schedule 4.21
List of Insurance Companies Schedule 4.24 Subsidiaries Schedule 7.8 Use of
Proceeds Schedule 8.2 Transactions with Affiliates
LIST
OF EXHIBITS
Exhibit
A
Form of Convertible Note Exhibit B Form of Registration Rights Agreement Exhibit
C Form of Officer’s Certificate Exhibit D Form of Solvency Certificate Exhibit E
Form of Escrow Agreement Exhibit F Form of Common Stock Purchase
Warrant
dated
as of
December
___, 2006
by
and between
Royal
Spring Water, Inc.
as
the Issuer,
and
GCA
Strategic Investment Fund Limited
