EXHIBIT 10.12(a)
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "AGREEMENT") is dated as of July
12, 2004, among Citizens, Inc. a Colorado corporation (the "COMPANY"), and each
of the purchasers identified on the signature pages hereto (each a "PURCHASER"
and collectively the "PURCHASERS").
WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
"SECURITIES ACT"), the Company desires to issue and sell to each Purchaser, and
each Purchaser, severally and not jointly, desires to purchase from the Company,
securities of the Company as more fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agrees
as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, the following terms have the meanings indicated:
"ACTUAL MINIMUM" means, as of any date, the maximum aggregate number of
shares of Common Stock then issued or potentially issuable in the future
pursuant to the Transaction Documents, including any Underlying Shares issuable
upon exercise or conversion in full of all Warrants, Unit Warrants and Shares,
ignoring any limits on the number of shares of Common Stock that may be owned by
a Purchaser at any one time and (i) assuming that (a) any previously unconverted
Shares are held until the fifth anniversary of the Closing Date and all
dividends thereon are paid in shares of Common Stock, and (b) the Volume
Weighted Average Price of the Common Stock at all times on and after the date of
determination equals the Volume Weighted Average Price of the Common Stock on
the Trading Day immediately prior to the date of determination, and (ii) giving
effect to the Conversion Price (as defined in the Amendment to State Series) as
in effect on such date, without regard to potential changes in the Closing Price
that may occur thereafter; provided, however, that prior to the issuance of the
Series A-2 Preferred Stock, the Conversion Price for such Series A-2 Preferred
Stock will be assumed to equal $7.00 per share (as adjusted for stock splits,
stock dividends, stock combinations or other similar events).
"ADDITIONAL UNITS" means, collectively, (i) one share of Series A-2
Preferred Stock and (ii) a Warrant to acquire a number of shares of Common
Stock, with respect to each Additional Unit issuable upon the exercise of the
Unit Warrants, equal to the Stated Value of each share of Series A-2 Preferred
Stock divided by the conversion price for such share, multiplied by 27.5%.
"ADDITIONAL WARRANT" means a Warrant, in the form of Exhibit C, to acquire
a number of shares of Common Stock equal to the product of .03798336 and the
amount of any additional
capital contribution made to the Company by a holder of Series A-1 Preferred
Stock pursuant to Section 12(a) or Section 12(b) of the Amendment to State
Series.
"AFFILIATE" means any Person that, directly or indirectly through one or
more intermediaries, controls or is controlled by or is under common control
with a Person, as such terms are used in and construed under Rule 144 under the
Securities Act. With respect to a Purchaser, any investment fund or managed
account that is managed on a discretionary basis by the same investment manager
as such Purchaser will be deemed to be an Affiliate of such Purchaser.
"AMENDMENT TO STATE SERIES" means the means the Amendment to State Series
to the Company's Restated and Amended Articles of Incorporation setting forth
the designations of the Series A Preferred Stock, in the form of Exhibit A.
"BANKRUPTCY EVENT" means any of the following events: (a) the Company or
any Subsidiary commences a case or other proceeding under any bankruptcy,
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction relating to the
Company or any Subsidiary thereof; (b) there is commenced against the Company or
any Subsidiary any such case or proceeding that is not dismissed within 60 days
after commencement; (c) the Company or any Subsidiary is adjudicated insolvent
or bankrupt or any order of relief or other order approving any such case or
proceeding is entered; (d) the Company or any Subsidiary suffers any appointment
of any custodian or the like for it or any substantial part of its property that
is not discharged or stayed within 60 days; (e) the Company or any Subsidiary
makes a general assignment for the benefit of creditors; (f) the Company or any
Subsidiary fails to pay, or states that it is unable to pay or is unable to pay,
its debts generally as they become due; (g) the Company or any Subsidiary calls
a meeting of its creditors with a view to arranging a composition, adjustment or
restructuring of its debts; or (h) the Company or any Subsidiary, by any act or
failure to act, expressly indicates its consent to, approval of or acquiescence
in any of the foregoing or takes any corporate or other action for the purpose
of effecting any of the foregoing.
"BUSINESS DAY" means any day other than Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized or required by law
to remain closed.
"CAPITAL LEASE" means, with respect to the Company and its Subsidiaries,
any lease of any property that is, in accordance with GAAP, classified and
accounted for as a capital lease on a consolidated balance sheet of the Company
and its Subsidiaries.
"CHANGE OF CONTROL" means the occurrence of any of the following in one or
a series of related transactions: (i) an acquisition after the date hereof by an
individual or legal entity or "group" (as described in Rule 13d-5(b)(1) under
the Exchange Act) of more than one-half of the Company's outstanding securities;
(ii) a replacement of more than one-half of the members of the Company's board
of directors that is not approved by those individuals who are members of the
board of directors on the date hereof (or other directors previously approved by
such individuals); (iii) a merger or consolidation of the Company or any
Subsidiary or a sale of more than one-half of the assets of the Company in one
or a series of related transactions, unless following such transaction or series
of transactions, the holders of the Company's securities prior
2
to the first such transaction continue to hold at least one-half of the
securities of the surviving entity or acquirer of such assets; (iv) a
recapitalization, reorganization or other transaction involving the Company or
any Subsidiary that constitutes or results in a transfer of more than one-half
of the outstanding equity interests of the Company; (v) consummation of a "Rule
13e-3 transaction" as defined in Rule 13e-3 under the Exchange Act with respect
to the Company, or (vi) the execution by the Company or its controlling
shareholders of an agreement providing for or reasonably likely to result in any
of the foregoing events.
"CLOSING" means the closing of the purchase and sale of the Securities
pursuant to Section 2.2.
"CLOSING DATE" means ________ __, 2004.
"CLOSING PRICE" means, for any date, the price determined by the first of
the following clauses that applies: (a) if the Common Stock is then listed or
quoted on an Eligible Market or any other national securities exchange, the
closing bid price per share of the Common Stock for such date (or the nearest
preceding date) on the primary Eligible Market or exchange on which the Common
Stock is then listed or quoted; (b) if prices for the Common Stock are then
quoted on the OTC Bulletin Board, the closing bid price per share of the Common
Stock for such date (or the nearest preceding date) so quoted; (c) if prices for
the Common Stock are then reported in the "Pink Sheets" published by the Pink
Sheets LLC (or a similar organization or agency succeeding to its functions of
reporting prices), the most recent closing bid price per share of the Common
Stock so reported; or (d) in all other cases, the fair market value of a share
of Common Stock as determined by an independent appraiser selected in good faith
by the Company, the cost of which shall be paid by the Company.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON EQUITY" means, collectively, (i) the Common Stock and (ii) the
Class B common stock of the Company, of no par value per share, and any
securities into which such shares may hereafter be reclassified.
"COMMON STOCK" means the Class A common stock of the Company, of no par
value per share, and any securities into which such Class A common stock may
hereafter be reclassified.
"COMMON STOCK EQUIVALENTS" shall mean, collectively, Options and
Convertible Securities.
"COMPANY COUNSEL" means Xxxxx & Xxxxxx, P.C., counsel to the Company.
"CONTINGENT OBLIGATION" means, with respect to any Person, without
duplication, any obligation, contingent or otherwise under GAAP, of such Person
pursuant to which such Person has directly or indirectly guaranteed any Debt or
other payment obligation of any other Person and, without limiting the
generality of the foregoing, any obligation, direct or indirect, contingent or
otherwise, of such first Person (i) to purchase or pay (or advance or supply
funds for the purchase or payment of) such Debt or other obligation (whether
arising by agreement to keep well, to purchase assets, goods, securities or
services or to take-or-pay), or (ii) entered into for the purpose of assuring in
any other manner the obligee of such Debt or other obligation of the
3
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); provided, however, that the term Contingent Obligation shall
not include endorsements for collection or deposit in the ordinary course of
business obligations.
"CONVERTIBLE SECURITIES" shall mean any evidence of indebtedness, shares,
options, warrants or other securities directly or indirectly convertible into or
exercisable or exchangeable for shares of Common Equity.
"DEBT" means, with respect to the Company and its Subsidiaries at any date
and without duplication, any of the following: (i) all Debt for Money Borrowed;
(ii) all obligations to pay the deferred purchase price of property or services
of any such Person, except trade payables arising in the ordinary course of
business not more than 60 days past due; (iii) all obligations of any such
Person secured by a Lien on any asset of the Company and its Subsidiaries; (iv)
all Contingent Obligations of any such Person, including any asserted claim with
respect to any indemnified matter; (v) obligations in the form of earn-out
obligations to be paid in cash; (vi) all obligations of any such Person under
Capital Leases; (vii) all obligations, contingent or otherwise, of any such
Person relative to the face amount of letters of credit, whether or not drawn,
including any reimbursement obligation with respect thereto; (viii) all
obligations incurred by any such Person pursuant to Hedging Agreements; (ix) any
synthetic lease or other lease obligations of such Person; (x) any obligations
of such Person in respect of off-balance-sheet agreements or transactions that
are in the nature of, or in substitution of, financings; (xi) any other item
that would be required to be classified as a liability in an audited financial
statement under GAAP (other than the total policy and reinsurance liabilities
including by way of illustration and not of limitation, future policy benefit
reserves, dividend accumulations, premium deposits, policy claims payable, other
policyholders' funds and deposits with insurance regulators, each as reflected
in the Company's Consolidated Statements of Financial Position and judgments
subject to appeal and bonded); and (xii) any indebtedness or other obligations
of any other Person of the type specified in any of the foregoing classes, the
payment or collection of which such Person has guaranteed or in respect of which
such Person is liable, contingently or otherwise, including liable by way of
agreement to purchase products or securities, to provide funds for payment, to
maintain working capital or other balance sheet conditions or otherwise to
assure a creditor against loss.
"DEBT FOR MONEY BORROWED" means, with respect to the Company and its
Subsidiaries at any date and without duplication, any of the following: (i) all
liabilities, obligations and indebtedness for borrowed money, including
obligations evidenced by bonds, debentures, notes or other similar instruments
of any Person; (ii) all obligations of any Person as lessee under Capital
Leases; (iii) all Contingent Obligations of any such Person with respect to Debt
for Money Borrowed; and (iv) all obligations, contingent or otherwise, of any
such Person relative to the unexpired face amount of letters of credit, whether
or not drawn, and banker's acceptances issued for the account of any such
Person.
"EFFECTIVE DATE" means the date that an Underlying Shares Registration
Statement is declared effective by the Commission.
"ELIGIBLE MARKET" means the New York Stock Exchange, the American Stock
Exchange, the NASDAQ National Market or the NASDAQ SmallCap Market.
4
"EVENT EQUITY VALUE" means 115% of the arithmetic average of the Closing
Prices for the five Trading Days preceding either (a) the date of delivery of
the notice requiring payment of the Event Equity Value, or (b) the date on which
such required payment (together with any other payments, expenses and liquidated
damages then due and payable under the Transaction Documents) is paid in full,
whichever is greater.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCLUDED STOCK" means any shares of Common Stock issued or issuable (A)
upon exercise, conversion or exchange of any Common Stock Equivalents described
in Schedule 3.1(g) (provided that such exercise, conversion or exchange occurs
in accordance with the terms thereof, without amendment or modification, and
that the applicable exercise, conversion or exchange price or ratio is described
in such schedule); (B) to officers, directors, employees or consultants of the
Company pursuant to restricted stock issuances, stock grants or stock options,
in each case pursuant to any contract, plan or other arrangement by the board of
directors of the Company; (C) in connection with any strategic partnership or
joint venture with a Person or other investment in the Company by a Person in
each case who is not engaged in the business of investing in companies and the
primary purpose of which is not to raise capital for the Company or any
Subsidiary; (D) in connection with a transaction involving a merger or
acquisition of an entity, business or assets, that (i) does not result in either
(x) a Change of Control of the Company or (y) a change in the principal line of
business of the Company and (ii) is not principally for the purpose of obtaining
cash; or (E) pursuant to a registered firm commitment underwritten public
offering (other than 10% of such securities as provided in Section 4.7(d)
below).
"EXISTING CREDIT FACILITY" means (i) the Loan Agreement dated March 22,
2004, between Citizens, Inc. and Regions Bank, and all amendments, modifications
and renewals thereof, and (ii) any term loan provided by Regions Bank to
Citizens, Inc.; provided that, in no event shall the aggregate principal amount
outstanding pursuant to clauses (i) and (ii) hereof exceed $30,000,000.
"GAAP" means United States generally accepted accounting principles, as
recognized by the American Institute of Certified Public Accountants or the
Financial Accounting Standards Board, consistently applied and maintained on a
consistent basis for the Company and its Subsidiaries throughout the period
indicated and consistent with the prior financial practice of the Company;
provided, however, that any accounting principle or practice required to be
changed by the American Institute of Certified Public Accountants or the
Financial Accounting Standards Board (or other appropriate board or committee of
either) in order to continue as a generally accepted accounting principle or
practice may be so changed.
"GOING CONCERN OPINION" means the issuance of an audit letter containing a
"going concern" qualification by the Company's independent public accountant in
connection with the Company's annual report on Form 10-K pursuant to Section 13
or 15(d) under the Exchange Act or any other filing with the Commission.
"HEDGING AGREEMENT" means any interest rate, foreign currency, commodity
or equity swap, collar, cap, floor or forward rate agreement, or other agreement
or arrangement designed
5
to protect against fluctuations in interest rates or currency, commodity or
equity values (including any option with respect to any of the foregoing and any
combination of the foregoing agreements or arrangements), and any confirmation
executed in connection with any such agreement or arrangement, all as amended or
modified.
"INITIAL UNIT" means, collectively, (i) one share of Series A-1 Preferred
Stock and (ii) a Warrant to acquire 18.99168 shares of Common Stock.
"LIEN" means any lien, mortgage, pledge, charge, claim, security interest,
encumbrance, right of first refusal or other restriction upon or in any property
or assets (including accounts and contract rights).
"LOSSES" means any and all losses, claims, damages, liabilities,
settlement costs and expenses, including without limitation costs of preparation
of legal action and reasonable attorneys' fees.
"MATERIAL ADVERSE EFFECT" has the meaning set forth in Section 3.1(b)
hereof.
"MATERIAL SUBSIDIARY" means a Subsidiary, including its subsidiaries,
which meets any of the following conditions:
(a) The Company's and its other Subsidiaries' investments in and
advances to the Subsidiary exceed ten percent (10%) of the total assets of the
Company and its Subsidiaries consolidated as of the end of the most recently
completed fiscal year; or
(b) The Company's and its other Subsidiaries' proportionate share of the
total assets (after intercompany eliminations) of the Subsidiary exceeds ten
percent (10%) of the total assets of the Company and its Subsidiaries
consolidated as of the end of the most recently completed fiscal year; or
(c) The Company's and its other Subsidiaries' equity in the income from
continuing operations before income taxes, extraordinary items and cumulative
effect of a change in accounting principle of the Subsidiary exceeds ten percent
(10%) of such income of the Company and its Subsidiaries consolidated for the
most recently completed fiscal year.
"OPTIONS" means any rights, warrants or options to subscribe, directly or
indirectly for or purchase Common Equity or Convertible Securities (taking into
account all Securities that can be issued under the Transaction Documents and
assuming that prior to the issuance of the Series A-2 Preferred Stock the
conversion price is equal to $7.00 per share (as adjusted for stock splits,
stock dividends, stock combinations or other similar events)).
"PERSON" means any individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.
"PERMITTED SUBORDINATED DEBT" means Debt that (x) is expressly subordinate
to the Series A Preferred Stock in right of payment, whether with respect to
dividends or upon
6
liquidation or dissolution, or otherwise, pursuant to a subordination agreement
substantially in the form attached hereto as Exhibit G and (y) does not provide
at any time for the payment, prepayment, repayment, repurchase or defeasance,
directly or indirectly, of any principal or premium, if any, thereon until at
least 91 days after the Mandatory Redemption Date (as defined in the Amendment
to State Series).
"PROCEEDING" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement,
dated as of the date hereof, among the Company and the Purchasers, in the form
of Exhibit B.
"REQUIRED EFFECTIVENESS DATE" means the date on which an Underlying Shares
Registration Statement is required to become effective pursuant to the
Registration Rights Agreement.
"REQUIRED MINIMUM" means, as of any date, the maximum aggregate number of
shares of Common Stock then issued or potentially issuable in the future
pursuant to the Transaction Documents, including any Underlying Shares issuable
upon exercise or conversion in full of all Warrants, Unit Warrants and Shares,
ignoring any limits on the number of shares of Common Stock that may be owned by
a Purchaser at any one time and (i) assuming that (a) any previously unconverted
Shares are held until the fifth anniversary of the Closing Date or, if earlier,
until maturity, and all dividends thereon are paid in shares of Common Stock,
and (b) the Volume Weighted Average Price of the Common Stock for the prior 15
consecutive Trading Days shall at all times on and after the date of
determination equals the Volume Weighted Average Price on the Trading Day
immediately prior to the date of determination, and (ii) giving effect to the
Conversion Price (as defined in the Amendment to State Series) as in effect on
such date, without regard to potential changes in the Closing Price that may
occur thereafter; provided, however, that prior to the issuance of the Series
A-2 Preferred Stock, the Conversion Price for such Series A-2 Preferred Stock
will be assumed to equal $7.00 per share (as adjusted for stock splits, stock
dividends, stock combinations or other similar events).
"RULE 144" means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"SEC REPORTS" has the meaning set forth in Section 3.1(h) hereof.
"SECURITIES" means the Shares, the Warrants, the Unit Warrants and the
Underlying Shares issued or issuable to the Purchasers pursuant to the
Transaction Documents.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SERIES A PREFERRED STOCK" means, each of the Series A-1 Preferred Stock
and Series A-2 Preferred Stock.
7
"SERIES A-1 PREFERRED STOCK" means the Series A-1 Senior Convertible
Preferred Stock of the Company, which is convertible into shares of Common
Stock.
"SERIES A-2 PREFERRED STOCK" means the Series A-2 Senior Convertible
Preferred Stock of the Company, which is convertible into shares of Common
Stock.
"SHARES" means (i) an aggregate of 25,000 shares of Series A-1 Preferred
Stock which are being purchased by the Purchasers pursuant to this Agreement,
and (ii) an aggregate of 5,000 shares of Series A-2 Preferred Stock, which may
be purchased by the Purchasers upon the exercise of the Unit Warrants.
"SUBSIDIARY" means any Person in which the Company, directly or
indirectly, owns capital stock or holds an equity or similar interest.
"TRADING DAY" means (a) any day on which the Common Stock is listed or
quoted, and traded, on its primary Trading Market, or (b) if the Common Stock is
not then listed or quoted, and traded, on any Eligible Market, then any Business
Day.
"TRADING MARKET" means the New York Stock Exchange or any other national
securities exchange, market or trading or quotation facility on which the Common
Stock is then listed or quoted.
"TRANSACTION DOCUMENTS" means this Agreement, the Registration Rights
Agreement, the Unit Warrants, the Warrants, the Amendment to State Series, the
Transfer Agent Instructions, and any other documents or agreements executed or
delivered in connection with the transactions contemplated hereunder and
thereunder.
"TRANSFER AGENT INSTRUCTIONS" means the Transfer Agent Instructions, in
the form of Exhibit D, executed by the Company and delivered to and acknowledged
in writing by the Company's transfer agent.
"TRIGGERING EVENT" means any of the following events: (a) immediately
prior to any Bankruptcy Event; (b) the Common Stock is not listed or quoted, or
is suspended from trading, on an Eligible Market for a period of five Trading
Days (which need not be consecutive Trading Days); (c) the Company fails for any
reason to deliver a certificate evidencing any Securities to a Purchaser within
five Trading Days after delivery of such certificate is required pursuant to any
Transaction Document or the exercise or conversion rights of the Holders
pursuant to the Transaction Documents are otherwise suspended for any reason;
(d) the Company fails to have available a sufficient number of authorized but
unissued and otherwise unreserved shares of Common Stock available to issue
Underlying Shares upon any exercise of the Warrants, the Additional Units or any
conversion of convertible Securities; (e) at any time after the Required
Effectiveness Date, any Common Stock issuable pursuant to the Transaction
Documents is not listed on an Eligible Market; (f) the Company effects or
publicly announces its intention to effect any exchange, recapitalization or
other transaction that effectively requires or rewards physical delivery of
certificates evidencing the Common Stock; (g) any other Event (as defined in the
Registration Rights Agreement) occurs and remains uncured for 60 days; (h) the
Company fails to make any cash payment required under the Transaction Documents
and such failure is not cured within five days after notice of such default is
first given to the Company by a Purchaser;
8
(i) the issuance of a Going Concern Opinion; (j) the Company breaches Section
4.14 or 4.15; or (k) the Company defaults in the timely performance of any other
obligation under the Transaction Documents and such default continues uncured
for a period of 10 days after the date on which notice of such default is first
given to the Company by a Purchaser (it being understood that no prior notice
need be given in the case of a default that cannot reasonably be cured within 10
days).
"UNDERLYING SHARES" means the shares of Common Stock issuable upon
conversion of the Shares and upon exercise of the Warrants (including the
Warrants issuable upon exercise of the Unit Warrants) and in satisfaction of any
other obligation of the Company to issue shares of Common Stock pursuant to the
Transaction Documents.
"UNDERLYING SHARES REGISTRATION STATEMENT" means a registration statement
meeting the requirements set forth in the Registration Rights Agreement and
covering the resale of the Underlying Shares by the Purchasers.
"UNITS" means, collectively, the Initial Units and the Additional Units.
"UNIT WARRANTS" means the unit warrants, in the form of Exhibit F, to
purchase Additional Units.
"VOLUME WEIGHTED AVERAGE PRICE" means, with respect to any particular
Trading Day or for any particular period, the volume weighted average trading
price per share of Common Stock on such Trading Day or for such period on an
Eligible Market as reported by Bloomberg, L.P., or any successor performing
similar functions.
"WARRANT" means a Common Stock purchase warrant, in the form of Exhibit C.
ARTICLE II
PURCHASE AND SALE
2.1 Sale and Issuance of the Initial Units and the Unit Warrants at
Closing. Subject to the terms and conditions of this Agreement, each Purchaser
agrees, severally and not jointly, to purchase at the Closing and the Company
agrees to sell and issue to each Purchaser at the Closing, for the aggregate
purchase price set forth opposite such Purchaser's name on Schedule A hereto
under the heading "Purchase Price":
(a) that number of Initial Units set forth opposite such
Purchaser's name on Schedule A hereto under the heading "Initial Units - Shares
of Series A-1 Preferred Stock;" and
(b) a Unit Warrant exercisable for that number of Additional Units
set forth opposite such Purchaser's name on Schedule A hereto under the heading
"Additional Units - Shares of Series A-2 Preferred Stock."
2.2 Closing. The purchase and sale of the Initial Units and the Unit
Warrants pursuant to the terms of Section 2.1 shall take place at the offices of
Proskauer Rose LLP in New York, New York, at 10:00 a.m. (New York City Time) on
the date each of the conditions set forth in Sections 2.3 have been satisfied,
or at such other time and place as the Company and the
9
Purchasers mutually agree upon in writing (which time and place are designated
as the "CLOSING").
2.3 Closing Deliveries.
(a) At the Closing, the Company shall deliver or cause to be
delivered to each Purchaser the following:
(i) one or more stock certificates evidencing that number of
shares of Series A-1 Preferred Stock corresponding to the Initial Units
purchased by such Purchaser as indicated on Schedule A hereto under the
heading "Initial Units - Shares of Series A-1 Preferred Stock", registered
in the name of such Purchaser;
(ii) a Warrant, registered in the name of such Purchaser,
pursuant to which such Purchaser shall have the right to acquire that
number of shares of Common Stock corresponding to number of the Initial
Units purchased by such Purchaser as indicated on Schedule A hereto under
the heading "Initial Units-Warrant Shares;"
(iii) a Unit Warrant, registered in the name of such
Purchaser, as set forth in Section 2.1(b) above, entitling such Purchaser
to subscribe for (i) that number of Shares as indicated on Schedule A
hereto under the heading "Additional Units - Shares of Series A-2
Preferred Stock", and (ii) a Warrant exercisable for that number of shares
of Common Stock as indicated on Schedule A hereto under the heading
"Additional Units-Additional Warrant Shares;"
(iv) evidence that the Amendment to State Series has been
filed and become effective on or prior to the Closing Date with the
Secretary of State of the State of Colorado, in form and substance
mutually agreed to by the parties;
(v) the legal opinion of Company Counsel, in the form of
Exhibit E, executed by such counsel and delivered to the Purchasers;
(vi) the Registration Rights Agreement duly executed by the
Company;
(vii) duly executed Transfer Agent Instructions acknowledged
by the Company's transfer agent; and
(b) At the Closing, each Purchaser shall deliver or cause to be
delivered to the Company the following:
(i) the purchase price set forth opposite such Purchaser's
name on Schedule A hereto under the heading "Purchase Price," in United
States dollars and in immediately available funds, by wire transfer to an
account designated in writing by the Company for such purpose; and
(ii) the Registration Rights Agreement duly executed by such
Purchaser.
10
2.4 Additional Capital Contributions. In the event that a holder of
shares of Series A-1 Preferred Stock makes an additional capital contribution to
the Company pursuant to Section 12(a) or Section 12(b) of the Amendment to State
Series, the Company shall concurrently deliver or cause to be delivered to each
such holder an Additional Warrant, registered in the name of such holder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. The Company hereby
makes the following representations and warranties to each of the Purchasers:
(a) Subsidiaries. The Company does not directly or indirectly
control or own any interest in any other corporation, partnership, joint venture
or other business association or entity, other than those listed in Schedule
3.1(a). Except as disclosed in Schedule 3.1(a), the Company owns, directly or
indirectly, all of the capital stock of each Subsidiary free and clear of any
Lien, and all the issued and outstanding shares of capital stock of each
Subsidiary are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights.
(b) Organization and Qualification. Each of the Company and its
Material Subsidiaries is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. Neither the Company nor any Material Subsidiary is in
violation of any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents. Each of the
Company and the Material Subsidiaries is duly qualified to do business and is in
good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not, individually or in the aggregate, (i)
adversely affect the legality, validity or enforceability of any Transaction
Document, (ii) have or result in a material adverse effect on the results of
operations, assets, prospects, business or condition (financial or otherwise) of
the Company and the Material Subsidiaries, taken as a whole, or (iii) adversely
impair the Company's ability to perform fully on a timely basis its obligations
under any of the Transaction Documents (any of (i), (ii) or (iii), a "MATERIAL
ADVERSE EFFECT").
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereunder and thereunder have been duly authorized by
all necessary action on the part of the Company and no further consent or action
is required by the Company, its Board of Directors or its stockholders. Each of
the Transaction Documents has been (or upon delivery will be) duly executed by
the Company and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except (i) as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium
11
and other laws of general application affecting the enforcement of creditors'
rights generally and (ii) as enforceability may be limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies.
(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby do not and will not (i) conflict
with or violate any provision of the Company's or any Subsidiary's certificate
or articles of incorporation, bylaws or other organizational or charter
documents, or (ii) subject to obtaining the Required Approvals (as defined
below), conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by which any
property or asset of the Company or any Subsidiary is bound or affected, or
(iii) result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company or a Subsidiary is subject (including federal and state
securities laws and regulations) and the rules and regulations of any
self-regulatory organization to which the Company or its securities are subject,
or by which any property or asset of the Company or a Subsidiary is bound or
affected; except in the case of each of clauses (ii) and (iii), such as could
not, individually or in the aggregate, have or result in a Material Adverse
Effect.
(e) Filings, Consents and Approvals. Neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or order of,
give any notice to, or make any filing or registration with, any court or other
federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filings required under Section 4.8 and
the required filing of the Amendment to State Series pursuant to Section 2.3,
(ii) the filing with the Commission of the Underlying Shares Registration
Statement, (iii) the application(s) to each Trading Market for the listing of
the Common Stock for trading thereon in the time and manner required thereby,
(iv) applicable Blue Sky filings, and (v) in all other cases where the failure
to obtain such consent, waiver, authorization or order, or to give such notice
or make such filing or registration could not have or result in, individually or
in the aggregate, a Material Adverse Effect (collectively, the "REQUIRED
APPROVALS").
(f) Issuance of the Securities. The Securities are duly authorized
and, when issued and paid for in accordance with the Transaction Documents, will
be duly and validly issued, fully paid and nonassessable, free and clear of all
Liens and shall not be subject to preemptive rights or similar rights of
stockholders. The Company has reserved from its duly authorized capital stock a
number of shares of Common Stock for issuance upon the conversion or exercise of
the Warrants, Unit Warrants and Shares at least equal to the Required Minimum on
the date hereof.
(g) Capitalization. The number of shares and type of all
authorized, issued and outstanding capital stock, options and other securities
of the Company (whether or not presently convertible into, or exercisable or
exchangeable for, shares of capital stock of the
12
Company) is set forth in Schedule 3.1(g). All outstanding shares of capital
stock are duly authorized, validly issued, fully paid and nonassessable and have
been issued in compliance with all applicable securities laws. Except as
disclosed in Schedule 3.1(g), there are no outstanding options, warrants, script
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into, or
exercisable or exchangeable for, or giving any Person any right to subscribe for
or acquire, any shares of Common Equity, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of Common Equity, or securities or
rights convertible into, or exercisable or exchangeable for, shares of Common
Equity. Except as disclosed in Schedule 3.1(g), there are no anti-dilution or
price adjustment provisions contained in any security issued by the Company (or
in any agreement providing rights to security holders) and the issue and sale of
the Securities will not obligate the Company to issue shares of Common Equity or
other securities to any Person (other than the Purchasers) and will not result
in a right of any holder of Company securities to adjust the exercise,
conversion, exchange or reset price under such securities. To the knowledge of
the Company, except as specifically disclosed in Schedule 3.1(g), no Person or
group of related Persons beneficially owns (as determined pursuant to Rule 13d-3
under the Exchange Act), or has the right to acquire, by agreement with or by
obligation binding upon the Company, beneficial ownership of in excess of 5% of
the outstanding Common Equity, ignoring for such purposes any limitation on the
number of shares of Common Equity that may be owned at any single time.
(h) SEC Reports; Financial Statements. The Company has filed all
reports required to be filed by it under the Securities Act and the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was required by
law to file such material) (the foregoing materials being collectively referred
to herein as the "SEC REPORTS" and, together with this Agreement and the
Schedules to this Agreement, the "DISCLOSURE MATERIALS") on a timely basis or
has received a valid extension of such time of filing and has filed any such SEC
Reports prior to the expiration of any such extension. The Company has delivered
to the Purchasers, prior to the execution and delivery of this Agreement, a copy
of any SEC Reports filed within the 10 days preceding the date hereof. As of
their respective dates, the SEC Reports complied in all material respects with
the requirements of the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the SEC
Reports, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. The financial statements of the Company
included in the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the Commission with
respect thereto as in effect at the time of filing. Such financial statements
have been prepared in accordance with GAAP, except as may be otherwise specified
in such financial statements or the notes thereto, and fairly present in all
material respects the financial position of the Company and its consolidated
subsidiaries as of and for the dates thereof and the results of operations and
cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments. All material
agreements to which the Company or any Subsidiary is a party or to which the
property or assets of the Company or any Subsidiary are subject are included as
part of or specifically identified in the SEC Reports. Each press release
disseminated during the 12 months
13
preceding the date of this Agreement did not at the time of release contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading.
(i) Material Changes. Since the date of the latest audited
financial statements included within the SEC Reports, except as specifically
disclosed in the SEC Reports, (i) there has been no event, occurrence or
development that, individually or in the aggregate, has had or that could result
in a Material Adverse Effect, (ii) the Company has not incurred any liabilities
(contingent or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice, (B)
liabilities not required to be reflected in the Company's financial statements
pursuant to GAAP or required to be disclosed in filings made with the Commission
and (C) under the Existing Credit Facility, (iii) the Company has not altered
its method of accounting or the identity of its auditors, the Company has not
declared or made any dividend or distribution of cash or other property to its
stockholders or purchased, redeemed or made any agreements to purchase or redeem
any shares of its capital stock, and (iv) the Company has not issued any equity
securities to any officer, director or Affiliate, except pursuant to existing
Company stock option plans.
(j) Litigation. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, any Subsidiary or any of
their respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an "ACTION") which (i) adversely affects or challenges
the legality, validity or enforceability of any of the Transaction Documents or
the Securities or (ii) except as set forth in Schedule 3.1(j) of the Disclosure
Schedule, could, if there were an unfavorable decision, individually or in the
aggregate, have or result in a Material Adverse Effect. Schedule 3.1(j) of the
Disclosure Schedule contains a complete list and summary description of any
pending or, to the knowledge of the Company, threatened proceeding against or
affecting the Company or any of its Subsidiaries, without regard to whether it
would have a Material Adverse Effect. Except as set forth in Schedule 3.1(j) of
the Disclosure Schedule, neither the Company nor any Subsidiary, nor any
director or officer thereof (in their capacity as such), is or has been the
subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty. The
Company does not have pending before the Commission any request for confidential
treatment of information, and the Company does not expect to make any such
request prior to the Required Effectiveness Date. There has not been, and to the
knowledge of the Company, there is not pending or contemplated, any
investigation by the Commission involving the Company or any current or former
director or officer of the Company. The Commission has not issued any stop order
or other order suspending the effectiveness of any registration statement filed
by the Company or any Subsidiary under the Exchange Act or the Securities Act.
No strike, work stoppage, slow down or other material labor problem exists or,
to the knowledge of the Company, is threatened or imminent with respect to any
of the employees of the Company or the Subsidiaries.
(k) Compliance. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not been
waived that, with notice or
14
lapse of time or both, would result in a default by the Company or any
Subsidiary under), nor has the Company or any Subsidiary received notice of a
claim that it is in default under or that it is in violation of, any indenture,
loan or credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its assets or properties is bound or affected
(whether or not such default or violation has been waived), (ii) is in violation
of any order of any court, arbitrator or governmental body, or (iii) is or has
been in violation of any statute, rule or regulation of any governmental
authority, including without limitation all foreign, federal, state and local
laws relating to taxes, environmental protection, occupational health and
safety, product quality and safety and employment and labor matters, except in
each case of (i), (ii) and (iii) above, as could not, individually or in the
aggregate, have or result in a Material Adverse Effect.
(l) Regulatory Permits. The Company and the Subsidiaries possess
all certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not, individually or in the aggregate, have or
result in a Material Adverse Effect ("MATERIAL PERMITS"), and neither the
Company nor any Subsidiary has received any notice of proceedings relating to
the revocation or modification of any Material Permit.
(m) Title to Assets. The Company and the Subsidiaries have good
and marketable title in to all real property owned by them that is material to
the business of the Company and the Subsidiaries and good and marketable title
in all personal property owned by them that is material to the business of the
Company and the Subsidiaries, in each case free and clear of all Liens, except
for (i) Liens disclosed in the Company's 2003 Annual Report on Form 10-K filed
with the Commission or in any other filing made with the Commission since such
date and (ii) Liens as do not materially affect the value of such property and
do not materially interfere with the use made and proposed to be made of such
property by the Company and the Subsidiaries. Any real property and facilities
held under lease by the Company and the Subsidiaries are held by them under
valid, subsisting and enforceable leases of which the Company and the
Subsidiaries are in compliance with all material terms and provisions.
(n) Patents and Trademarks. The Company and the Subsidiaries have,
or have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and other similar
rights that are necessary or material for use in connection with their
respective businesses as described in the SEC Reports and which the failure to
so have could have a Material Adverse Effect (collectively, the "INTELLECTUAL
PROPERTY RIGHTS"). Neither the Company nor any Subsidiary has received a written
notice that the Intellectual Property Rights used by the Company or any
Subsidiary violates or infringes upon the rights of any Person. To the knowledge
of the Company, all such Intellectual Property Rights are enforceable and there
is no existing infringement by another Person of any of the Intellectual
Property Rights.
(o) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which the
Company and the Subsidiaries are engaged. Neither the Company nor any Subsidiary
has any reason to believe that it will not be
15
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its business without a significant increase in cost.
(p) Transactions With Affiliates and Employees. Except as set
forth in SEC Reports filed at least ten days prior to the date hereof, none of
the officers or directors of the Company and, to the knowledge of the Company,
none of the employees of the Company is presently a party to any transaction
with the Company or any Subsidiary (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner.
(q) Internal Accounting Controls. The Company and the Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's general
or specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(r) Certain Fees. Except for the fees described in Schedule
3.1(r), all of which are payable to registered broker-dealers, no brokerage or
finder's fees or commissions are or will be payable by the Company to any
broker, financial advisor or consultant, finder, placement agent, investment
banker, bank or other Person with respect to the transactions contemplated by
this Agreement, and the Company has not taken any action that would cause any
Purchaser to be liable for any such fees or commissions.
(s) Private Placement. Neither the Company nor any Person acting
on the Company's behalf has sold or offered to sell or solicited any offer to
buy the Securities by means of any form of general solicitation or advertising.
Neither the Company nor any of its Affiliates nor any Person acting on the
Company's behalf has, directly or indirectly, at any time within the past six
months, made any offer or sale of any security or solicitation of any offer to
buy any security under circumstances that would (i) eliminate the availability
of the exemption from registration under Regulation D under the Securities Act
in connection with the offer and sale of the Securities as contemplated hereby
or (ii) cause the offering of the Securities pursuant to the Transaction
Documents to be integrated with prior offerings by the Company for purposes of
any applicable law, regulation or shareholder approval provisions, including
without limitation under the rules and regulations of any Trading Market. The
Company is not, and is not an Affiliate of, an "investment company" within the
meaning of the Investment Company Act of 1940, as amended. The Company is not a
United States real property holding corporation within the meaning of the
Foreign Investment in Real Property Tax Act of 1980.
(t) Form S-3 Eligibility. The Company is eligible to register its
Common Stock for resale by the Purchasers under Form S-3 promulgated under the
Securities Act.
16
(u) Listing and Maintenance Requirements. The Company has not, in
the two years preceding the date hereof, received notice (written or oral) from
any Trading Market on which the Common Stock is or has been listed or quoted to
the effect that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company is, and has no reason to
believe that it will not in the foreseeable future continue to be, in compliance
with all such listing and maintenance requirements.
(v) Registration Rights. The Company has not granted or agreed to
grant to any Person any rights (including "piggy-back" registration rights) to
have any securities of the Company registered with the Commission or any other
governmental authority that have not been satisfied.
(w) Application of Takeover Protections. The Company and its Board
of Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company's Certificate of Incorporation (or
similar charter documents) or the laws of its state of incorporation that is or
could become applicable to the Purchasers as a result of the Purchasers and the
Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation the Company's issuance of
the Securities and the Purchasers' ownership of the Securities.
(x) Indebtedness. Except as set forth on Schedule 3.1(x) and (i)
trade payables arising in the ordinary course of business not more than sixty
(60) days past due, (ii) the Existing Credit Facility and (iii) Capital Leases
incurred in the ordinary course of business not exceeding $3,000,000, the
Company does not have any Debt.
(y) Disclosure. The Company confirms that neither it nor any other
Person acting on its behalf has provided any of the Purchasers or their agents
or counsel with any information that constitutes or might constitute material,
nonpublic information. The Company understands and confirms that each of the
Purchasers will rely on the foregoing representations in purchasing the
Securities. All written disclosure provided to the Purchasers regarding the
Company, its business and the transactions contemplated hereby, including the
Schedules to this Agreement, furnished by or on behalf of the Company are true
and correct and do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or information exists with
respect to the Company or any of its Subsidiaries or its or their business,
properties, prospects, operations or financial conditions, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed
(assuming for this purpose that the Company's reports filed under the Exchange
Act are being incorporated into an effective registration statement filed by the
Company under the Securities Act). The Company acknowledges and agrees that no
Purchaser makes or has made any representations or warranties with respect to
the transactions contemplated hereby other than those specifically set forth in
Section 3.2.
17
(z) Acknowledgment Regarding Purchasers' Purchase of Securities.
The Company acknowledges and agrees that each of the Purchasers is acting solely
in the capacity of an arm's length purchaser with respect to this Agreement and
the transactions contemplated hereby. The Company further acknowledges that no
Purchaser is acting as a financial advisor or fiduciary of the Company or any
other Purchaser (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereby and any advice given by any Purchaser or
any of their respective representatives or agents in connection with this
Agreement and the transactions contemplated hereby is merely incidental to such
Purchaser's purchase of the Securities. The Company further represents to each
Purchaser that the Company's decision to enter into this Agreement has been
based solely on the independent evaluation of the Company and its
representatives.
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, as to itself only and for no other Purchaser, represents and warrants to
the Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The purchase by such Purchaser of the Securities
hereunder has been duly authorized by all necessary action on the part of such
Purchaser. Each of this Agreement and the Registration Rights Agreement has been
duly executed by such Purchaser, and when delivered by such Purchaser in
accordance with the terms hereof, will constitute the valid and binding
obligation of such Purchaser, enforceable against it in accordance with its
terms.
(b) Investment Intent. Such Purchaser is acquiring the Securities
as principal for its own account for investment purposes only and not with a
view to or for distributing or reselling such Securities or any part thereof,
without prejudice, however, to such Purchaser's right, subject to the provisions
of this Agreement and the Registration Rights Agreement, at all times to sell or
otherwise dispose of all or any part of such Securities pursuant to an effective
registration statement under the Securities Act or under an exemption from such
registration and in compliance with applicable federal and state securities
laws. Nothing contained herein shall be deemed a representation or warranty by
such Purchaser to hold Securities for any period of time.
(c) Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is an "accredited investor" as
defined in Rule 501(a) under the Securities Act.
(d) Experience of such Purchaser. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment. Such Purchaser is able to
bear the economic risk of an investment in the Securities and, at the present
time, is able to afford a complete loss of such investment.
18
(e) Representations and Warranties of the Company. Such Purchaser
acknowledges and agrees that the Company does not make or has not made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 3.1 or any other
Transaction Document.
(f) Financial Advisor/Fiduciary. Such Purchaser acknowledges that
the Company is not acting as a financial advisor or fiduciary of such Purchaser
(or in any similar capacity) with respect to this Agreement and the transactions
contemplated hereby. Each Purchaser further represents to the Company that such
Purchaser's decision to enter into this Agreement has been based solely on the
independent evaluation of such Purchaser and its representatives.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) Securities may only be disposed of pursuant to an effective
registration statement under the Securities Act or pursuant to an available
exemption from the registration requirements of the Securities Act, and in
compliance with any applicable state securities laws. In connection with any
transfer of Securities other than pursuant to an effective registration
statement or to the Company or pursuant to Rule 144(k), except as otherwise set
forth herein, the Company may require the transferor to provide to the Company
an opinion of counsel selected by the transferor, the form and substance of
which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration under the Securities Act.
Notwithstanding the foregoing, the Company hereby consents to and agrees to
register on the books of the Company and with its transfer agent, without any
such legal opinion, any transfer of Securities by a Purchaser to an Affiliate of
such Purchaser, provided that the transferee certifies to the Company that it is
an "accredited investor" as defined in Rule 501(a) under the Securities Act.
(b) Each Purchaser agrees to the imprinting, so long as is
required by this Section 4.1(b), of the following legend on any certificate
evidencing Securities:
NEITHER THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES
ARE [EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS. NOTWITHSTANDING THE FOREGOING, THESE
SECURITIES [AND THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION]] OF THESE
SECURITIES]
19
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES, PROVIDED THAT ANY EXERCISE OF
ANY RIGHTS BY ANY SECURED PARTY SHALL COMPLY WITH THESE LEGEND REQUIREMENTS.
Certificates evidencing Securities shall not be required to contain such
legend or any other legend (i) while a Registration Statement covering the
resale of such Securities is effective under the Securities Act, or (ii)
following any sale of such Securities pursuant to Rule 144, or (iii) if such
Securities are eligible for sale under Rule 144(k), or (iv) if such legend is
not required under applicable requirements of the Securities Act (including
judicial interpretations and pronouncements issued by the Staff of the
Commission). The Company shall cause its counsel to issue the legal opinion
included in the Transfer Agent Instructions to the Transfer Agent on the
Effective Date. Following the Effective Date or at such earlier time as a legend
is no longer required for certain Securities, the Company will, no later than
three Trading Days following the delivery by a Purchaser to the Company or the
Company's transfer agent of a legended certificate representing such Securities,
deliver or cause to be delivered to such Purchaser a certificate representing
such Securities that is free from all restrictive and other legends. The Company
may not make any notation on its records or give instructions to any transfer
agent of the Company that enlarge the restrictions on transfer set forth in this
Section. For so long as any Purchaser owns Securities, the Company will not
effect or publicly announce its intention to effect any exchange,
recapitalization or other transaction that effectively requires or rewards
physical delivery of certificates evidencing the Common Stock.
(c) The Company acknowledges and agrees that a Purchaser may from
time to time pledge or grant a security interest in some or all of the
Securities in connection with a bona fide margin agreement or other loan or
financing arrangement secured by the Securities and, if required under the terms
of such agreement, loan or arrangement, such Purchaser may transfer pledged or
secured Securities to the pledgees or secured parties. Such a pledge or transfer
would not be subject to approval of the Company and no legal opinion of the
pledgee, secured party or pledgor shall be required in connection therewith.
Further, no notice shall be required of such pledge. At the appropriate
Purchaser's expense, the Company will execute and deliver such reasonable
documentation as a pledgee or secured party of Securities may reasonably request
in connection with a pledge or transfer of the Securities, including the
preparation and filing of any required prospectus supplement under Rule
424(b)(3) of the Securities Act or other applicable provision of the Securities
Act to appropriately amend the list of Selling Stockholders thereunder.
(d) In addition to any other rights available to a Purchaser, if
the Company fails to deliver to such Purchaser a certificate representing Common
Stock by the third Trading Day after the date on which delivery of such
certificate is required by any Transaction Document, and if after such third
Trading Day such Purchaser purchases (in an open market transaction or
otherwise) shares of to deliver in satisfaction of a sale by such
Purchaser of the shares that the Purchaser anticipated receiving from the
Company (a "BUY-IN"), then, in the Purchaser's sole discretion, the Company
shall, within three Trading Days after such Purchaser's request either (i) pay
cash to such Purchaser in an amount equal to such Purchaser's total purchase
price (including brokerage commissions, if any) for the shares of Common Stock
20
so purchased (the "BUY-IN PRICE"), at which point the Company's obligation to
deliver such certificate (and to issue such Common Stock) shall terminate, or
(ii) promptly honor its obligation to deliver to such Purchaser a certificate or
certificates representing such Common Stock and pay cash to such Purchaser in an
amount equal to the excess (if any) of the Buy-In Price over the product of (A)
such number of shares of Common Stock, times (B) the Closing Price on the date
of the event giving rise to the Company's obligation to deliver such
certificate.
4.2 Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Securities will result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that its obligations under the Transaction
Documents, including, without limitation, its obligation to issue the Securities
pursuant to the Transaction Documents, are unconditional and absolute and not
subject to any right of set off, counterclaim, delay or reduction, regardless of
the effect of any such dilution or any claim that the Company may have against
any Purchaser. Notwithstanding anything to the contrary in the immediately
preceding sentence, this Section 4.2 shall not be deemed to be a waiver of any
right of set off, counterclaim, delay or reduction.
4.3 Furnishing of Information. As long as any Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act. Upon the request
of any such Purchaser, the Company shall deliver to such Purchaser a written
certification of a duly authorized officer as to whether it has complied with
the preceding sentence. As long as any Purchaser owns Securities, if the Company
is not required to file reports pursuant to such laws, it will prepare and
furnish to the Purchasers and make publicly available in accordance with
paragraph (c) of Rule 144 such information as is required for the Purchasers to
sell the Securities under Rule 144. The Company further covenants that it will
take such further action as any Purchaser may reasonably request to the extent
required from time to time to enable such Purchaser to sell such Securities
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144.
4.4 Integration. The Company shall not, and shall use its best efforts
to ensure that no Affiliate of the Company shall, sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers, or
that would be integrated with the offer or sale of the Securities for purposes
of the rules and regulations of any Trading Market.
4.5 Reservation and Listing of Securities.
(a) The Company shall maintain a reserve from its duly authorized
shares of Common Stock for issuance pursuant to the Transaction Documents in
such amount as may be required to fulfill its obligations in full under the
Transaction Documents.
21
(b) If, on any date, the number of authorized but unissued (and
otherwise unreserved) shares of Common Stock (the "REMAINING AUTHORIZED SHARES")
is less than 125% of (i) the Actual Minimum on such date, minus (ii) the number
of shares of Common Stock previously issued pursuant to the Transaction
Documents, then the Board of Directors of the Company shall use its best efforts
to amend the Company's certificate or articles of incorporation to increase the
number of authorized but unissued shares of Common Stock to at least the
Required Minimum at such time (minus the number of shares of Common Stock
previously issued pursuant to the Transaction Documents), as soon as possible
and in any event not later than the 60th day after such date; provided that the
Company will not be required at any time to authorize a number of shares of
Common Stock greater than the maximum remaining number of shares of Common Stock
that could possibly be issued after such time pursuant to the Transaction
Documents.
(c) If, at the time any Purchaser requests an exercise or
conversion of any Securities, the Actual Minimum minus the number of shares of
Common Stock previously issued pursuant to the Transaction Documents exceeds the
Remaining Authorized Shares, then the Company shall issue to the Purchaser
requesting such exercise or conversion a number of Underlying Shares not
exceeding such Purchaser's pro-rata portion of the Remaining Authorized Shares
(based on such Purchaser's share of the aggregate purchase price paid hereunder
and considering any Underlying Shares previously issued to such Purchaser), and
the remainder of the Underlying Shares issuable in connection with such exercise
or conversion (if any) shall constitute "EXCESS SHARES" pursuant to Section
4.5(g) below.
(d) The Company shall (i) in the time and manner required by each
Trading Market, prepare and file with such Trading Market an additional shares
listing application covering a number of shares of Common Stock at least equal
to the greater of (A) the Required Minimum on the Closing Date and (B) the
Required Minimum on the date of such application, (ii) take all steps necessary
to cause such shares of Common Stock to be approved for listing on each Trading
Market as soon as possible thereafter, (iii) provide to the Purchasers evidence
of such listing, and (iv) maintain the listing of such Common Stock on each such
Trading Market or another Eligible Market.
(e) If, on any date, the number of shares of Common Stock
previously listed on a Trading Market is less than 125% of the Actual Minimum on
such date, then the Company shall take the necessary actions to list on such
Trading Market, as soon as reasonably possible, a number of shares of Common
Stock at least equal to the Required Minimum on such date; provided that the
Company will not be required at any time to list a number of shares of Common
Stock greater than the maximum number of shares of Common Stock that could
possibly be issued pursuant to the Transaction Documents.
(f) The maximum number of shares of Common Stock that the Company
may issue pursuant to the Transaction Documents at an effective purchase price
less than the Closing Price on the Trading Day immediately preceding the Closing
Date equals 6,986,734 shares (the "ISSUABLE MAXIMUM"), unless the Company
obtains shareholder approval in accordance with the rules and regulations of
such Trading Market. If, at the time any Purchaser requests an exercise or
conversion of any Securities or the Company wishes to issue shares of Common
Stock in satisfaction of any obligation to any Purchaser, the Actual Minimum
(excluding any
22
shares issued or issuable at an effective purchase price in excess of the
Closing Price on the Trading Day immediately preceding the Closing Date) exceeds
the Issuable Maximum (and if the Company has not previously obtained the
required shareholder approval), then the Company shall issue to the Purchaser
requesting such exercise or conversion a number of Underlying Shares of Common
Stock not exceeding such Purchaser's pro-rata portion of the Issuable Maximum
(based on such Purchaser's share of the aggregate purchase price paid hereunder
and considering any Underlying Shares previously issued to such Purchaser), and
the remainder of the Underlying Shares issuable in connection with such exercise
or conversion (if any) shall constitute "EXCESS SHARES" pursuant to Section
4.5(g) below.
(g) Any Purchaser whose receipt of Excess Shares upon exercise
or conversion of Securities is restricted based on the number of Remaining
Authorized Shares or the Issuable Maximum shall have the option, by notice to
the Company, to require the Company to either: (i) use its best efforts to
obtain the required shareholder approval necessary to permit the issuance of
such Excess Shares as soon as is possible, but in any event not later than the
60th day after such notice, or (ii) within five Trading Days after such notice,
pay cash to such Purchaser, as liquidated damages and not as a penalty, in an
amount equal to the number of Excess Shares multiplied by the average Closing
Price over the five Trading Days immediately prior to the date of such notice
or, if greater, the five Trading Days immediately prior to the date of payment
(the "CASH AMOUNT"), and the Company shall have no further obligation to issue
any of such Excess Shares. No shares of Common Stock that were issued pursuant
to the Transaction Documents may be entitled to vote to approve the issuance of
such Excess Shares. If the exercising or converting Purchaser elects the first
option under the first sentence of this Section 4.5(g) and the Company fails to
obtain the required shareholder approval on or prior to the 60th day after such
notice, then within three Trading Days after such 60th day, the Company shall
pay the Cash Amount to such Purchaser, as liquidated damages and not as penalty.
4.6 Conversion and Exercise Procedures. The form of Exercise Notice
included in the Warrants and the Unit Warrants, respectively, and the form of
Conversion Notice included in the Amendment to State Series set forth the
totality of the procedures required in order to exercise the Warrants and the
Unit Warrants, or convert the shares of Series A Preferred Stock under the
Transaction Documents. No additional legal opinion or other information or
instructions shall be necessary to enable the Purchasers to exercise their
Warrants and Unit Warrants, or convert their shares of any Series A Preferred
Stock. The Company shall honor exercises of the Warrants and Unit Warrants, and
conversions of the shares of Series A Preferred Stock and shall deliver
Underlying Shares in accordance with the terms, conditions and time periods set
forth in the Transaction Documents.
4.7 Subsequent Placements.
(a) From the date hereof until 30 Trading Days following the
Effective Date (the "BLOCKOUT PERIOD"), the Company will not, directly or
indirectly, offer, sell, grant any option to purchase, or otherwise dispose of
(or announce any offer, sale, grant or any option to purchase or other
disposition of) any of its or the Subsidiaries' equity or equity equivalent
securities, including without limitation any debt, preferred stock or other
instrument or security that is, at any time during its life and under any
circumstances, convertible into or exchangeable or exercisable for Common Equity
or Common Stock
23
Equivalents (any such offer, sale, grant, disposition or announcement being
referred to as a "SUBSEQUENT PLACEMENT"), except as described in clause (D) of
the definition of "Excluded Stock"
(b) The Blockout Period set forth in the preceding paragraph
(a) shall be extended for the number of Trading Days during such period in which
(i) trading in the Common Stock is suspended by any Trading Market, (ii) the
Registration Statement is not effective, or (iii) the prospectus included in the
Registration Statement may not be used by the Purchasers for the resale of
Registrable Securities thereunder.
(c) From the end Blockout Period and for so long as a
Purchaser holds any of the Shares, the Company will not, directly or indirectly,
effect any Subsequent Placement unless the Company shall have first complied
with this Section 4.7(c).
(i) The Company shall deliver to each Purchaser a
written notice (the "OFFER") of any proposed or intended issuance or
sale or exchange of the securities being offered (the "OFFERED
SECURITIES") in a Subsequent Placement, which Offer shall (w) identify
and describe the Offered Securities, (x) describe the price and other
terms upon which they are to be issued, sold or exchanged, and the
number or amount of the Offered Securities to be issued, sold or
exchanged, (y) identify the Persons or entities to which or with which
the Offered Securities are to be offered, issued, sold or exchanged and
(z) offer to issue and sell to or exchange with each Purchaser (A) a
pro rata portion of fifty percent (50%) of the Offered Securities,
based on such Purchaser's pro rata portion of the aggregate purchase
price paid by the Purchasers for all of the Shares purchased hereunder
(the "BASIC AMOUNT"), and (B) with respect to each Purchaser that
elects to purchase its Basic Amount, any additional portion of the
Offered Securities attributable to the Basic Amounts of other
Purchasers as such Purchaser shall indicate it will purchase or acquire
should the other Purchasers subscribe for less than their Basic Amounts
(the "UNDERSUBSCRIPTION AMOUNT").
(ii) To accept an Offer, in whole or in part, a
Purchaser must deliver a written notice to the Company prior to the end
of the tenth Trading Day from the delivery of the Offer, setting forth
the portion of the Purchaser's Basic Amount that such Purchaser elects
to purchase and, if such Purchaser shall elect to purchase all of its
Basic Amount, the Undersubscription Amount, if any, that such Purchaser
elects to purchase (in either case, the "NOTICE OF ACCEPTANCE"). If the
Basic Amounts subscribed for by all Purchasers are less than the total
of all of the Basic Amounts, then each Purchaser who has set forth an
Undersubscription Amount in its Notice of Acceptance shall be entitled
to purchase, in addition to the Basic Amounts subscribed for, the
Undersubscription Amount it has subscribed for; provided, however, that
if the Undersubscription Amounts subscribed for exceed the difference
between the total of all the Basic Amounts and the Basic Amounts
subscribed for (the "AVAILABLE UNDERSUBSCRIPTION AMOUNT"), each
Purchaser who has subscribed for any Undersubscription Amount shall be
entitled to purchase on that portion of the Available Undersubscription
Amount as the Basic Amount of such Purchaser bears to the total Basic
Amounts of all Purchasers that have subscribed for Undersubscription
Amounts, subject to rounding by the Board of Directors to the extent
its deems reasonably necessary.
24
(iii) The Company shall have thirty (30) days from
the expiration of the period set forth in Section 4.7(c)(ii) above to
issue, sell or exchange all or any part of such Offered Securities as
to which a Notice of Acceptance has not been given by the Purchasers
(the "REFUSED SECURITIES"), but only to the offerees described in the
Offer and only upon terms and conditions (including, without
limitation, unit prices and interest rates) that are not more favorable
to the acquiring Person or Persons or less favorable to the Company
than those set forth in the Offer.
(iv) In the event the Company shall propose to sell
less than all the Refused Securities (any such sale to be in the manner
and on the terms specified in Section 4.7(c)(iii) above), then each
Purchaser may, at its sole option and in its sole discretion, reduce
the number or amount of the Offered Securities specified in its Notice
of Acceptance to an amount that shall be not less than the number or
amount of the Offered Securities that the Purchaser elected to purchase
pursuant to Section 4.7(c)(ii) above multiplied by a fraction, (i) the
numerator of which shall be the number or amount of Offered Securities
the Company actually proposes to issue, sell or exchange (including
Offered Securities to be issued or sold to Purchasers pursuant to
Section 4.7(c)(ii) above prior to such reduction) and (ii) the
denominator of which shall be the original amount of the Offered
Securities. In the event that any Purchaser so elects to reduce the
number or amount of Offered Securities specified in its Notice of
Acceptance, the Company may not issue, sell or exchange more than the
reduced number or amount of the Offered Securities unless and until
such securities have again been offered to the Purchasers in accordance
with Section 4.7(c)(i) above.
(v) Upon the closing of the issuance, sale or
exchange of all or less than all of the Refused Securities, the
Purchasers shall acquire from the Company, and the Company shall issue
to the Purchasers, the number or amount of Offered Securities specified
in the Notices of Acceptance, as reduced pursuant to Section 4.7(c)(iv)
above if the Purchasers have so elected, upon the terms and conditions
specified in the Offer. The purchase by the Purchasers of any Offered
Securities is subject in all cases to the preparation, execution and
delivery by the Company and the Purchasers of a purchase agreement
relating to such Offered Securities reasonably satisfactory in form and
substance to the Purchasers and their respective counsel.
(vi) Any Offered Securities not acquired by the
Purchasers or other Persons in accordance with Section 4.7(c)(iii)
above may not be issued, sold or exchanged until they are again offered
to the Purchasers under the procedures specified in this Agreement.
(d) Notwithstanding anything to the contrary in this Section
4.7, no Purchaser shall have the right pursuant to this Section 4.7 to purchase
in excess of the lesser of 10% or $25 million of Offered Securities in any
single firm commitment underwritten public offering by the Company. In addition,
the restrictions contained in paragraph (c) of this Section shall not apply to
Excluded Stock
4.8 Securities Laws Disclosure; Publicity. The Company shall, on or
before 8:30 a.m., New York City Time on the first Business Day immediately
following the date of this
25
Agreement issue a press release acceptable to the Purchasers disclosing all
material terms of the transactions contemplated hereby. On the Closing Date, the
Company shall file a Current Report on Form 8-K describing the terms of the
transactions contemplated by the Transaction Documents in the form required by
the Exchange Act, and attaching the material Transaction Documents as exhibits
to such Form 8-K (including all attachments, the "8-K FILING"). As of the date
of this Agreement, none of the Company, any of its Subsidiaries or any of its or
their respective officers, directors, employees or agents, have delivered or
disclosed to any Purchaser any material nonpublic information regarding the
Company or any of its Subsidiaries that is not disclosed in the 8-K Filing. The
Company shall not, and shall cause each of its Subsidiaries and its and each of
their respective officers, directors, employees and agents, not to, provide any
Purchaser with any material nonpublic information regarding the Company or any
of its Subsidiaries from and after the filing of the 8-K Filing with the SEC
without the express written consent of such Purchaser. In the event of a breach
of the foregoing covenant by the Company, any of its Subsidiaries, or any of its
or their respective officers, directors, employees and agents, in addition to
any other remedy provided herein or in the Transaction Documents, a Purchaser
shall have the right to make a public disclosure, in the form of a press
release, public advertisement or otherwise, of such material nonpublic
information without the prior approval by the Company, its Subsidiaries, or any
of its or their respective officers, directors, employees or agents; provided
that prior to making any such public disclosure, such Purchaser shall (i) give
written notice to the Company of such breach and (ii) give the Company two (2)
Business Days from the date of such notice to make a public disclosure of such
material nonpublic information. No Purchaser shall have any liability to the
Company, its Subsidiaries, or any of its or their respective officers,
directors, employees, stockholders or agents for any such disclosure. Subject to
the foregoing, neither the Company nor any Purchaser shall issue any press
releases or any other public statements with respect to the transactions
contemplated hereby; provided, however, that the Company shall be entitled,
without the prior approval of any Purchaser, to make any press release or other
public disclosure with respect to such transactions (i) in substantial
conformity with the 8-K Filing and contemporaneously therewith and (ii) as is
required by applicable law and regulations (provided that in the case of clause
(i) the Purchasers shall be consulted by the Company in connection with any such
press release or other public disclosure prior to its release). Notwithstanding
the foregoing, the Company shall not publicly disclose the name of any
Purchaser, or include the name of any Purchaser in any filing with the
Commission or any regulatory agency or Trading Market, without the prior written
consent of such Purchaser, except to the extent such disclosure (but not any
disclosure as to the controlling Persons thereof) is required by law or Trading
Market regulations, in which case the Company shall provide the Purchasers with
prior notice of such disclosure.
4.9 Use of Proceeds. The Company shall use the net proceeds from the
sale of the Securities hereunder for working capital purposes and acquisitions
and not for the satisfaction of any portion of the Company's debt (other than
payment of trade payables and accrued expenses in the ordinary course of the
Company's business and prior practices), to redeem or otherwise repurchase any
Company equity or equity-equivalent securities or to settle any outstanding
litigation.
4.10 Reimbursement. If any Purchaser or any of its Affiliates or any
officer, director, partner, controlling person, employee or agent of a Purchaser
or any of its Affiliates (a
26
"RELATED PERSON") becomes involved in any capacity in any Proceeding brought by
or against any Person in connection with or as a result of the transactions
contemplated by the Transaction Documents, the Company will indemnify and hold
harmless such Purchaser or Related Person for its reasonable legal and other
expenses (including the costs of any investigation, preparation and travel) and
for any Losses incurred in connection therewith, as such expenses or Losses are
incurred. In addition, the Company shall indemnify and hold harmless each
Purchaser and Related Person from and against any and all Losses, as incurred,
arising out of or relating to any breach by the Company of any of the
representations, warranties or covenants made by the Company in this Agreement
or any other Transaction Document, or any allegation by a third party that, if
true, would constitute such a breach. The conduct of any Proceedings for which
indemnification is available under this paragraph shall be governed by Section
5(c) of the Registration Rights Agreements. The indemnification obligations of
the Company under this paragraph shall be in addition to any liability that the
Company may otherwise have and shall be binding upon and inure to the benefit of
any successors, assigns, heirs and personal representatives of the Purchasers
and any such Related Persons. The Company also agrees that neither the
Purchasers nor any Related Persons shall have any liability to the Company or
any Person asserting claims on behalf of or in right of the Company in
connection with or as a result of the transactions contemplated by the
Transaction Documents, except to the extent that any losses, claims, damages,
liabilities or expenses incurred by the Company result from the gross negligence
or willful misconduct of the applicable Purchaser or Related Person in
connection with such transactions. If the Company or any Purchaser breaches its
respective obligations under any Transaction Document, then, in addition to any
other liabilities the Company or the Purchaser, as the case may be, may have
under any Transaction Document or applicable law, the breaching party shall pay
or reimburse the non-breaching party on demand for all costs of collection and
enforcement (including reasonable attorneys fees and expenses). Without limiting
the generality of the foregoing, the Company specifically agrees to reimburse
the Purchasers on demand for all costs of enforcing the indemnification
obligations in this paragraph; provided that at the request of the Company the
Purchasers shall deliver reasonable documentation of such costs.
4.11 Default Rate. If the Company fails to make any cash payment
required by any Transaction Document in full when due, then the Company shall
pay interest thereon at a rate of 15% per annum (or such lesser maximum rate
that is permitted to be paid under applicable law) from the date such payment
was due until such amount, plus all such interest thereon, is paid in full.
4.12 Rights of Shareholders. Each time the Company delivers a notice or
other communication to holders of the Common Equity it will contemporaneously
deliver a copy of such notice or communication to the Purchasers. The Company
acknowledges and agrees that, for so long as a Purchaser holds any Securities
(whether or not such Purchaser holds shares of Common Stock), (a) the officers
and directors of the Company will owe the same duties (fiduciary and otherwise)
to such Purchaser as are owed to a holder of Common Equity and (b) such
Purchaser will be entitled to all rights and remedies with respect to such
duties as are available to a holder of Common Equity under the corporate law of
the Company's jurisdiction of incorporation.
27
4.13 Shareholders Rights Plan. No claim will be made or enforced by the
Company or any other Person that any Purchaser is an "Acquiring Person" under
any shareholders rights plan or similar plan or arrangement in effect or
hereafter adopted by the Company, or that any Purchaser could be deemed to
trigger the provisions of any such plan or arrangement, by virtue of receiving
Underlying Shares under the Transaction Documents or under any other agreement
between the Company and the Purchasers.
4.14 Indebtedness.
(a) So long as the Shares are outstanding, the Company shall
not, and the Company shall not permit any of its Subsidiaries to, directly or
indirectly, incur or guarantee, assume or suffer to exist any Debt, other than
(i) Capital Leases incurred in the ordinary course of business and not exceeding
$3,000,000 in aggregate, (ii) Permitted Subordinated Debt and (iii) the Existing
Credit Facility; provided, that in no event shall the aggregate amount of Debt
outstanding or available (including under the Existing Credit Facility) exceed
$40,000,000.
(b) So long as the Shares are outstanding, the Company shall
not, and the Company shall not permit any of its Subsidiaries to, directly or
indirectly, allow or suffer to exist any Lien other than Liens incurred in the
ordinary course of business of the Company not to exceed $3,000,000 in the
aggregate and liens granted pursuant to the Existing Credit Facility.
(c) The Company shall not, and the Company shall not permit
any of its Subsidiaries to, directly or indirectly, redeem, defease, repurchase,
repay or make any payments in respect of, by the payment of cash or cash
equivalents (in whole or in part, whether by way of open market purchases,
tender offers, private transactions or otherwise), all or any portion of any
Permitted Subordinated Debt, whether by way of payment in respect of principal
of (or premium, if any) or interest on, such Debt if at the time such payment is
due or is otherwise made or, after giving effect to such payment, an event
constituting, or that with the passage of time and without being cured would
constitute, a Triggering Event has occurred and is continuing.
4.15 Subordination.
(a) Notwithstanding anything to the contrary contained in this
Agreement or any other Transaction Document, the Company agrees that all Debt
(other than (i) Capital Leases incurred in the ordinary course of business and
not exceeding $3,000,000 in aggregate and (ii) up to an aggregate of $30,000,000
of Debt under the Existing Credit Facility) of the Company is subordinate in
right of payment to the prior payment in full of all payments entitled to a
holder of the Shares, whether with respect to dividends or upon liquidation,
redemption, dissolution or otherwise. Obligations of the Company to the holders
of Series A Preferred Stock are subordinate in right of payment to the Existing
Credit Facility as provided in the Subordination Agreement dated July 12, 2004
by and among the Company, the Purchasers and Regions Bank. The Company hereby
represents and warrants to, and agrees with, each of the Purchasers that (i) it
is not currently in default, and no event or condition exists which could be
deemed to be or could result in a default, under the Existing Credit Facility,
(ii) the terms of the Existing Credit Facility do not prohibit the payment of
dividends, redemption proceeds or other amounts payable to the holders of Series
A Preferred Stock pursuant to the Amendment to State Series and (iii) the
Company shall not, without the prior written consent of each of the Purchasers,
agree to amend
28
the terms of the Existing Credit Facility to prohibit the payment of dividends,
redemption proceeds or other amounts payable to the holders of Series A
Preferred Stock pursuant to the Amendment to State Series.
(b) Company agrees that it shall not issue any Permitted
Subordinated Debt unless the holders of such Permitted Subordinated Debt agree
that (i) upon any payment or distribution of assets of the Company upon any
dissolution, winding up, liquidation, arrangement, reorganization, adjustment,
protection, relief or composition of the Company or its debts, whether voluntary
or involuntary, in any bankruptcy, insolvency, arrangement, reorganization,
receivership, relief or other similar case or proceeding under any federal or
state bankruptcy or similar law or upon an assignment for the benefit of
creditors or any other marshalling of the assets and liabilities of the Company,
in each case whether total or partial (each, a "Distribution Event"), the
Purchasers will first be paid, in full in cash, all amounts due or to become due
on or in respect of the Securities before such holder of Permitted Subordinated
Debt is entitled to receive any payment on the Debt (in cash or otherwise) owed
to them by the Company, (ii) if, notwithstanding the foregoing, such holder of
Permitted Subordinated Debt receives any payment or distribution of assets of
the Company of any kind or character in connection with any such Distribution
Event before each Purchaser is paid in full in cash, then each such payment or
distribution will be held in trust and paid over or delivered forthwith by such
holder of Permitted Subordinated Debt to an agent to be named by the Purchasers,
for application to the payment of any amounts remaining unpaid to the
Purchasers, and (iii) such holder of Permitted Subordinated Debt shall not
declare or join in any declaration of any of the Debt to be due and payable or
otherwise take or cause to be taken any action against the Company, any of its
Subsidiaries or any of their respective assets (including commencing any legal
or equitable action or filing or joining in the filing of any insolvency
petition) until the Purchasers will first be paid, in full in cash, all amounts
due or to become due on or in respect of the Securities. Upon any payment or
distribution referred to in this Section 4.15(b), the Company shall be entitled
to rely upon any order or decree of a court of competent jurisdiction in which
such Distribution Event proceedings are pending; provided, however, that such
order or decree expressly gives effect to the provisions of this Section 4.15.
4.16 No Impairment. At all times after the date hereof, the Company
will not take or permit any action, or cause or permit any Subsidiary to take or
permit any action that materially impairs or adversely affects the rights of the
Purchasers under this Agreement or the Holders (as defined in the Amendment to
State Series) of Series A Preferred Stock under the Amendment to State Series.
4.17 Certain Trading Limitations. For so long as a Purchaser holds
Shares, such Purchaser shall not sell or make any short sale of Common Stock at
a time when such Purchaser has no equivalent offsetting long position in Common
Stock. For purposes of determining whether a Purchaser has an equivalent
offsetting long position in the Common Stock, all Common Stock held by such
Purchaser, all shares of Common Stock issuable upon conversion of all Shares or
upon exercise in full of any warrant for Common Stock then held by such
Purchaser (assuming that such securities were then fully convertible or
exercisable, notwithstanding any provisions to the contrary, and giving effect
to any conversion or exercise price adjustments scheduled to take effect in the
future), and all shares of Common Stock
29
issuable upon exercise of any call option, right to acquire, directly or
indirectly, shares of Common Stock or "call equivalent position" (as defined in
Rule 16a-1(b) under the Exchange Act) held by such Purchaser (assuming that such
call position or right was then fully convertible or exercisable,
notwithstanding any provisions to the contrary, and giving effect to any
conversion or exercise price adjustments scheduled to take effect in the future)
shall be deemed to be held long by such Purchaser.
4.18 Transfer Agent Instructions. The Company agrees with, and further
covenants to, each Purchaser, that it shall not (i) amend, alter, change, revoke
or otherwise modify the Transfer Agent Instructions in any manner or (ii)
deliver or give instructions or directions to the Company's transfer agent that
conflict in any manner with the Transfer Agent Instructions, in each case
without the prior written consent of each Purchaser.
ARTICLE V
CONDITIONS
5.1 Conditions Precedent to the Obligations of the Purchasers. The
obligation of each Purchaser to acquire the Initial Units and the Unit Warrants
at the Closing is subject to the satisfaction or waiver by such Purchaser, at or
before the Closing, of each of the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company contained herein shall be true and correct as of the
date when made and as of the Closing as though made on and as of such date;
(b) Performance. The Company and each other Purchaser shall
have performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by it at or prior to the Closing;
(c) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction that prohibits the consummation of any of the transactions
contemplated by the Transaction Documents;
(d) No Suspensions of Trading in Common Stock; Listing. The
Common Stock (i) shall be designated for quotation or listed on the Trading
Market and (ii) shall not have been suspended by the Commission or the Trading
Market from trading on the Trading Market nor shall suspension by the Commission
or the Trading Market have been threatened either (A) in writing by the
Commission or the Trading Market or (B) by falling below the minimum listing
maintenance requirements of the Trading Market; and
(e) Adverse Changes. Since the date of execution of this
Agreement, no event or series of events shall have occurred that reasonably
could be expected to have or result in a Material Adverse Effect.
30
5.2 Conditions Precedent to the Obligations of the Company. The
obligation of the Company to sell the Initial Units and the Unit Warrants at the
Closing is subject to the satisfaction or waiver by the Company, at or before
the Closing, of each of the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Purchasers contained herein shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made on and as of such date;
(b) Performance. The Purchasers shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by the Transaction Documents to be performed, satisfied
or complied with by the Purchasers at or prior to the Closing; and
(c) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction that prohibits the consummation of any of the transactions
contemplated by the Transaction Documents.
ARTICLE VI
MISCELLANEOUS
6.1 Termination. This Agreement may be terminated by the Purchaser, by
written notice to the Company, if the Closing has not been consummated within
three business days of the date hereof; provided that no such termination will
affect the right of any party to xxx for any breach by the other party (or
parties).
6.2 Fees and Expenses. At the Closing, the Company shall pay to
Mainfield Enterprises, Inc., an aggregate of $75,000 for their legal fees and
expenses incurred in connection with the preparation and negotiation of the
Transaction Documents, of which amount $25,000 has been previously paid by the
Company to Proskauer Rose LLP. In lieu of the foregoing payments, Mainfield
Enterprises, Inc. may retain the amount of such payments instead of delivering
such amounts to the Company at the Closing. Except as expressly set forth in the
Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all transfer agent fees, stamp taxes and other taxes and duties levied
in connection with the issuance of any Securities.
6.3 Entire Agreement. The Transaction Documents, together with the
Exhibits and Schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules. At or
after the Closing, and without further consideration, the Company or
Purchaser(s) will execute and deliver to the other such further documents as may
be
31
reasonably requested in order to give practical effect to the intention of the
parties under the Transaction Documents. Notwithstanding anything to the
contrary herein, Securities may be assigned to any Person in connection with a
bona fide margin account or other loan or financing arrangement secured by such
Securities.
6.4 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Section prior to 6:30 p.m. (New York City time) on a Trading
Day, (ii) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Agreement later than 6:30 p.m. (New York City time) on any date and earlier
than 11:59 p.m. (New York City time) on such date, (iii) the Trading Day
following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given. The addresses for such notices and communications are
those set forth on the signature pages hereof, or such other address as may be
designated in writing hereafter, in the same manner, by such Person.
6.5 Amendments; Waivers. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and each of the Purchasers or, in the case of a waiver, by the
party against whom enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right.
6.6 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
6.7 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers. Subject to applicable
securities laws, any Purchaser may assign its rights under this Agreement and
the Registration Rights Agreement to any Person to whom such Purchaser assigns
or transfers any Securities in accordance with Section 4.1.
6.8 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except that each Related Person is an intended third party
beneficiary of Section 4.10 and may enforce the provisions of such Section
directly against the Company.
6.9 Governing Law; Venue; Waiver Of Jury Trail. ALL QUESTIONS
CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND
32
INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EACH PARTY HEREBY
IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL
COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN, FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY
TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO
THE ENFORCEMENT OF ANY OF THE TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY
WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM
THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT
SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY HEREBY IRREVOCABLY
WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY
SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR
CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY
AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT
SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE
THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT
TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. THE COMPANY AND EACH PURCHASER
HEREBY WAIVE ALL RIGHTS TO A TRIAL BY JURY.
6.10 Survival. The representations, warranties, agreements and
covenants contained herein shall survive the Closing and the delivery,
conversion and/or exercise of the Securities, as applicable.
6.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
6.12 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
6.13 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time
33
to time upon written notice to the Company, any relevant notice, demand or
election in whole or in part without prejudice to its future actions and rights.
6.14 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
6.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
6.16 Payment Set Aside. To the extent that the Company makes a payment
or payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
6.17 Usury. To the extent it may lawfully do so, the Company hereby
agrees not to insist upon or plead or in any manner whatsoever claim, and will
resist any and all efforts to be compelled to take the benefit or advantage of,
usury laws wherever enacted, now or at any time hereafter in force, in
connection with any claim, action or proceeding that may be brought by any
Purchaser in order to enforce any right or remedy under any Transaction
Document. Notwithstanding any provision to the contrary contained in any
Transaction Document, it is expressly agreed and provided that the total
liability of the Company under the Transaction Documents for payments in the
nature of interest shall not exceed the maximum lawful rate authorized under
applicable law (the "MAXIMUM RATE"), and, without limiting the foregoing, in no
event shall any rate of interest or default interest, or both of them, when
aggregated with any other sums in the nature of interest that the Company may be
obligated to pay under the Transaction Documents exceed such Maximum Rate. It is
agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or
any official governmental action subsequent to the date hereof, the new maximum
contract rate of interest allowed by law will be the Maximum Rate of interest
applicable to the Transaction Documents from the effective date forward, unless
such application
34
is precluded by applicable law. If under any circumstances whatsoever, interest
in excess of the Maximum Rate is paid by the Company to any Purchaser with
respect to indebtedness evidenced by the Transaction Documents, such excess
shall be applied by such Purchaser to the unpaid principal balance of any such
indebtedness or be refunded to the Company, the manner of handling such excess
to be at such Purchaser's election.
6.18 Independent Nature of Purchasers. The obligations of each
Purchaser under any Transaction Document are several and not joint with the
obligations of any other Purchaser, and no Purchaser shall be responsible in any
way for the performance of the obligations of any other Purchaser under any
Transaction Document. The decision of each Purchaser to purchase the Initial
Units and the Unit Warrants pursuant to this Agreement has been made by such
Purchaser independently of any other Purchaser and independently of any
information, materials, statements or opinions as to the business, affairs,
operations, assets, properties, liabilities, results of operations, condition
(financial or otherwise) or prospects of the Company or of the Subsidiary which
may have been made or given by any other Purchaser or by any agent or employee
of any other Purchaser, and no Purchaser or any of its agents or employees shall
have any liability to any other Purchaser (or any other person) relating to or
arising from any such information, materials, statements or opinions. Nothing
contained herein or in any Transaction Document, and no action taken by any
Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by the
Transaction Document. Each Purchaser acknowledges that no other Purchaser has
acted as agent for such Purchaser in connection with making its investment
hereunder and that no other Purchaser will be acting as agent of such Purchaser
in connection with monitoring its investment hereunder. Each Purchaser shall be
entitled to independently protect and enforce its rights, including without
limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.
6.19 Adjustments in Share Numbers and Prices. In the event of any stock
split, subdivision, dividend or distribution payable in shares of Common Stock
(or other securities or rights convertible into, or entitling the holder thereof
to receive directly or indirectly shares of Common Stock), combination or other
similar recapitalization or event occurring after the date hereof, each
reference in any Transaction Document to a number of shares or a price per share
shall be amended to appropriately account for such event.
35
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
CITIZENS, INC.
By: /s/ Xxxx X. Xxxxxx
-----------------------
Name: Xxxx X. Xxxxxx
Title: President
Address for Notice:
000 Xxxx Xxxxxxxx Xxxx
Xxxxxx, Xxxxx 00000-0000
Facsimile No.: 000-000-0000
Attn: Xxxx X. Xxxxxx, President
With a copy to:
Xxxxx & Xxxxxx, P.C.
World Trade Center
0000 Xxxxxxxx, 00xx Xxxxx
Xxxxxx, Xxxxxxxx 00000
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
Attn: Xxxx X. Xxxxxxx, Esq.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASERS FOLLOWS]
36
MAINFIELD ENTERPRISES, INC.
By: /s/ Avi Vigder
-----------------------
Name: Avi Vigder
Title: Authorized Signatory
Address for Notice:
Mainfield Enterprises, Inc.
c/o Sage Enterprises Growth, Inc.
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
Attn: Mor Sagi
With a copy to
Proskauer Rose LLP
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
Attn: Xxxx X. Xxxxxxx, Esq.
37
PORTSIDE GROWTH AND OPPORTUNITY FUND
By: /s/ Xxxx Xxxxx
-----------------------
Name: Xxxx Xxxxx
Title: Authorized Signatory
Address for Notice:
Portside Growth and Opportunity Fund
c/o Ramius Capital Group, LLC
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
Attn: Xxxxx Xxxxxxx
38
SMITHFIELD FIDUCIARY LLC
By: /s/ Xxxx X. Chill
----------------------
Name: Xxxx X. Chill
Title: Authorized Signatory
Address for Notice:
Smithfield Fiduciary LLC
c/o Highbridge Capital Management, LLC
0 Xxxx 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxx X. Xxxxxx/Xxxx X. Chill
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
39
STEELHEAD INVESTMENTS LTD.
By: HBK Investments L.P.
Title: Investment Advisor
By: /s/ Xxxxx X. Xxxxx
-------------------------------
Name: Xxxxx X. Xxxxx
Title: Authorized Signatory
Address for Notice:
c/o HBK Investments L.P.
000 Xxxxxxxx Xxxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000
Facsimile No.: 000-000-0000
Telephone No.: 000-000-0000
Attn: General Counsel
40
TABLE OF CONTENTS
Page Number
-----------
ARTICLE I DEFINITIONS............................................................................................ 1
1.1 Definitions.......................................................................................... 1
ARTICLE II PURCHASE AND SALE..................................................................................... 9
2.1 Sale and Issuance of the Initial Units and the Unit Warrants at Closing.............................. 9
2.2 Closing.............................................................................................. 9
2.3 Closing Deliveries................................................................................... 10
2.4 Additional Capital Contributions..................................................................... 11
ARTICLE III REPRESENTATIONS AND WARRANTIES....................................................................... 11
3.1 Representations and Warranties of the Company........................................................ 11
3.2 Representations and Warranties of the Purchasers..................................................... 18
ARTICLE IV OTHER AGREEMENTS OF THE PARTIES....................................................................... 19
4.1 Transfer Restrictions................................................................................ 19
4.2 Acknowledgment of Dilution........................................................................... 21
4.3 Furnishing of Information............................................................................ 21
4.4 Integration.......................................................................................... 21
4.5 Reservation and Listing of Securities................................................................ 21
4.6 Conversion and Exercise Procedures................................................................... 23
4.7 Subsequent Placements................................................................................ 23
4.8 Securities Laws Disclosure; Publicity................................................................ 25
4.9 Use of Proceeds...................................................................................... 26
4.10 Reimbursement........................................................................................ 26
4.11 Default Rate......................................................................................... 27
4.12 Rights of Shareholders............................................................................... 27
4.13 Shareholders Rights Plan............................................................................. 28
4.14 Indebtedness......................................................................................... 28
4.15 Subordination........................................................................................ 28
4.16 No Impairment........................................................................................ 29
4.17 Certain Trading Limitations.......................................................................... 29
4.18 Transfer Agent Instructions.......................................................................... 30
ARTICLE V CONDITIONS............................................................................................. 30
5.1 Conditions Precedent to the Obligations of the Purchasers............................................ 30
5.2 Conditions Precedent to the Obligations of the Company............................................... 31
ARTICLE VI MISCELLANEOUS......................................................................................... 31
6.1 Termination.......................................................................................... 31
6.2 Fees and Expenses.................................................................................... 31
6.3 Entire Agreement..................................................................................... 31
6.4 Notices.............................................................................................. 32
6.5 Amendments; Waivers.................................................................................. 32
6.6 Construction......................................................................................... 32
6.7 Successors and Assigns............................................................................... 32
6.8 No Third-Party Beneficiaries......................................................................... 32
6.9 Governing Law; Venue; Waiver Of Jury Trail........................................................... 32
6.10 Survival............................................................................................. 33
6.11 Execution............................................................................................ 33
6.12 Severability......................................................................................... 33
6.13 Rescission and Withdrawal Right...................................................................... 33
6.14 Replacement of Securities............................................................................ 34
6.15 Remedies............................................................................................. 34
6.16 Payment Set Aside.................................................................................... 34
6.17 Usury................................................................................................ 34
6.18 Independent Nature of Purchasers..................................................................... 35
6.19 Adjustments in Share Numbers and Prices.............................................................. 35
EXHIBITS:
A Form of Amendment to State Series
B Registration Rights Agreement
C Form of Warrant
D Transfer Agent Instructions
E Opinion of Company Counsel
F Form of Unit Warrant
G Form of Subordination Agreement
SCHEDULES:
3.1(a) Subsidiaries
3.1(g) Capitalization
3.1(j) Absence of Litigation
3.1(w) Registration Rights
3.1(y) Indebtedness
SCHEDULE A
ADDITIONAL
INITIAL UNITS - UNITS -
SHARES OF SERIES ADDITIONAL UNITS - ADDITIONAL
A-1 PREFERRED INITIAL UNITS - SHARES OF SERIES A-2 WARRANT
PURCHASER STOCK WARRANT SHARES PREFERRED STOCK SHARES PURCHASE PRICE
--------- ----- -------------- --------------- ------ --------------
Mainfield 6,250 118,698 1,250 Stated Value of A-2 $3,125,000
Enterprises, Inc. DIVIDED by A-2
Converion Price
MULTIPLIED by 27.5%
Steelhead 6,250 118,698 1,250 Stated Value of A-2 $ 3,125,000
Investments Ltd. DIVIDED by A-2
Converion Price
MULTIPLIED by 27.5%
Portside Growth 6,250 118,698 1,250 Stated Value of A-2 $ 3,125,000
and Opportunity DIVIDED by A-2
Converion Price
MULTIPLIED by 27.5%
Smithfield 6,250 118,698 1,250 Stated Value of A-2 $ 3,125,000
Fiduciary LLC DIVIDED by A-2
Converion Price
MULTIPLIED by 27.5%
------ ------- ----- -----------
TOTAL 25,000 474,792 5,000 $12,500,000
------ ------- ----- -----------
