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EXHIBIT 2.3
SECURITIES PURCHASE AGREEMENT
DATED AS OF
DECEMBER 7, 1998
BY AND BETWEEN
LAHAINA ACQUISITIONS, INC.
AS THE ISSUER,
AND
GCA STRATEGIC INVESTMENT FUND LIMITED
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TABLE OF CONTENTS
ARTICLE I. DEFINITIONS...........................................................................................1
SECTION 1.1 DEFINITIONS.................................................................................1
SECTION 1.2 ACCOUNTING TERMS AND DETERMINATIONS.........................................................9
ARTICLE II. PURCHASE AND SALE OF SECURITIES......................................................................9
SECTION 2.1 PURCHASE AND SALE OF CONVERTIBLE NOTES......................................................9
SECTION 2.2 PURCHASE PRICE.............................................................................10
SECTION 2.3 CLOSING AND MECHANICS OF PAYMENT...........................................................10
ARTICLE III. PAYMENT TERMS OF CONVERTIBLE NOTES.................................................................10
SECTION 3.1 PAYMENT OF PRINCIPAL AND INTEREST; PAYMENT MECHANICS.......................................10
SECTION 3.2 PAYMENT OF INTEREST........................................................................10
SECTION 3.3 VOLUNTARY PREPAYMENT.......................................................................10
SECTION 3.4 MANDATORY PREPAYMENTS......................................................................11
SECTION 3.5 PREPAYMENT PROCEDURES......................................................................11
SECTION 3.6 PAYMENT OF ADDITIONAL AMOUNTS..............................................................12
ARTICLE IV. REPRESENTATIONS AND WARRANTIES......................................................................14
SECTION 4.1 ORGANIZATION AND QUALIFICATION.............................................................14
SECTION 4.2 AUTHORIZATION AND EXECUTION................................................................14
SECTION 4.3 CAPITALIZATION ............................................................................14
SECTION 4.4 GOVERNMENTAL AUTHORIZATION.................................................................15
SECTION 4.5 ISSUANCE OF SHARES.........................................................................15
SECTION 4.6 NO CONFLICTS...............................................................................15
SECTION 4.7 FINANCIAL INFORMATION......................................................................16
SECTION 4.8 LITIGATION.................................................................................16
SECTION 4.9 COMPLIANCE WITH ERISA AND OTHER BENEFIT PLANS..............................................16
SECTION 4.10 ENVIRONMENTAL MATTERS.....................................................................17
SECTION 4.11 TAXES.....................................................................................17
SECTION 4.12 INVESTMENTS, JOINT VENTURES...............................................................17
SECTION 4.13 NOT AN INVESTMENT COMPANY.................................................................17
SECTION 4.14 FULL DISCLOSURE...........................................................................17
SECTION 4.15 NO SOLICITATION; NO INTEGRATION WITH OTHER OFFERINGS......................................18
SECTION 4.16 PERMITS...................................................................................18
SECTION 4.17 LEASES....................................................................................18
SECTION 4.18 ABSENCE OF ANY UNDISCLOSED LIABILITIES OR CAPITAL CALLS...................................18
SECTION 4.19 PUBLIC UTILITY HOLDING COMPANY............................................................18
SECTION 4.20 INTELLECTUAL PROPERTY RIGHTS..............................................................19
SECTION 4.21 INSURANCE.................................................................................19
SECTION 4.22 TITLE TO PROPERTIES.......................................................................19
SECTION 4.23 INTERNAL ACCOUNTING CONTROLS..............................................................19
SECTION 4.24 YEAR 2000 COMPLIANCE......................................................................19
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SECTION 4.25 FOREIGN PRACTICES.........................................................................20
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASER..........................................................20
SECTION 5.1 PURCHASER..................................................................................20
ARTICLE VI. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES......................................................21
SECTION 6.1 CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS TO PURCHASE................................21
SECTION 6.2 CONDITIONS TO THE COMPANY'S OBLIGATIONS....................................................24
ARTICLE VII. AFFIRMATIVE COVENANTS..............................................................................24
SECTION 7.1 INFORMATION................................................................................24
SECTION 7.2 PAYMENT OF OBLIGATIONS.....................................................................25
SECTION 7.3 MAINTENANCE OF PROPERTY; INSURANCE.........................................................25
SECTION 7.4 MAINTENANCE OF EXISTENCE...................................................................25
SECTION 7.5 COMPLIANCE WITH LAWS.......................................................................26
SECTION 7.6 INSPECTION OF PROPERTY, BOOKS AND RECORDS..................................................26
SECTION 7.7 INVESTMENT COMPANY ACT.....................................................................26
SECTION 7.8 USE OF PROCEEDS............................................................................26
SECTION 7.9 COMPLIANCE WITH TERMS AND CONDITIONS OF MATERIAL CONTRACTS.................................26
SECTION 7.10 RESERVED SHARES AND LISTINGS..............................................................26
SECTION 7.11 IRREVOCABLE INSTRUCTIONS..................................................................27
SECTION 7.12 MAINTENANCE OF REPORTING STATUS; SUPPLEMENTAL INFORMATION.................................28
SECTION 7.13 FORM D; BLUE SKY LAWS.....................................................................28
ARTICLE VIII. NEGATIVE COVENANTS................................................................................28
SECTION 8.1 LIMITATIONS ON DEBT OR OTHER LIABILITIES...................................................28
SECTION 8.2 TRANSACTIONS WITH AFFILIATES...............................................................28
SECTION 8.3 MERGER OR CONSOLIDATION....................................................................29
SECTION 8.4 LIMITATION ON ASSET SALES..................................................................29
SECTION 8.5 RESTRICTIONS ON CERTAIN AMENDMENTS.........................................................29
SECTION 8.6 PROHIBITION ON DISCOUNTED EQUITY OFFERINGS; REGISTRATION RIGHTS............................29
SECTION 8.7 LIMITATION ON STOCK REPURCHASES............................................................30
ARTICLE IX. RESTRICTIVE LEGENDS.................................................................................30
SECTION 9.1 RESTRICTIONS ON TRANSFER...................................................................30
SECTION 9.2 RESTRICTIVE LEGENDS........................................................................31
SECTION 9.3 NOTICE OF PROPOSED TRANSFERS...............................................................31
ARTICLE X. ADDITIONAL AGREEMENTS AMONG THE PARTIES..............................................................31
SECTION 10.1 LIQUIDATED DAMAGES........................................................................31
SECTION 10.2 CONVERSION NOTICE.........................................................................32
SECTION 10.3 CONVERSION LIMIT..........................................................................32
SECTION 10.4 REGISTRATION RIGHTS.......................................................................33
SECTION 10.5 RESTRICTION ON ISSUANCE OF SECURITIES.....................................................34
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ARTICLE XI. ADJUSTMENT OF FIXED PRICE...........................................................................34
SECTION 11.1 REORGANIZATION............................................................................34
SECTION 11.2 SHARE REORGANIZATION......................................................................34
SECTION 11.3 RIGHTS OFFERING...........................................................................35
SECTION 11.4 SPECIAL DISTRIBUTION......................................................................36
SECTION 11.5 CAPITAL REORGANIZATION....................................................................37
SECTION 11.6 PURCHASE PRICE ADJUSTMENTS................................................................37
SECTION 11.7 ADJUSTMENT RULES..........................................................................38
SECTION 11.8 CERTIFICATE AS TO ADJUSTMENT..............................................................38
SECTION 11.9 NOTICE TO NOTEHOLDERS.....................................................................38
ARTICLE XII. EVENTS OF DEFAULT..................................................................................39
SECTION 12.1 EVENTS OF DEFAULT.........................................................................39
SECTION 12.2 POWERS AND REMEDIES CUMULATIVE............................................................41
ARTICLE XIII. MISCELLANEOUS.....................................................................................41
SECTION 13.1 NOTICES...................................................................................41
SECTION 13.2 NO WAIVERS; AMENDMENTS....................................................................41
SECTION 13.3 INDEMNIFICATION...........................................................................42
SECTION 13.4 EXPENSES: DOCUMENTARY TAXES..............................................................44
SECTION 13.5 PAYMENT...................................................................................44
SECTION 13.6 SUCCESSORS AND ASSIGNS....................................................................44
SECTION 13.7 BROKERS...................................................................................44
SECTION 13.8 GEORGIA LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL;
APPOINTMENT OF AGENT......................................................................44
SECTION 13.9 ENTIRE AGREEMENT..........................................................................45
SECTION 13.10 SURVIVAL; SEVERABILITY...................................................................45
SECTION 13.12 REPORTING ENTITY FOR THE COMMON STOCK. .................................................45
SECTION 13.13 PUBLICITY................................................................................45
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LIST OF SCHEDULES
Schedule 4.1 Financings
Schedule 4.3 Capitalization
Schedule 4.7 Financial Information
Schedule 4.8 Litigation
Schedule 4.12 Investments, Joint Ventures
Schedule 6.1(q) Beachside Property
Schedule 8.2 Transactions with Affiliates
Schedule 8.3 Merger or Consolidation
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LIST OF EXHIBITS
Exhibit A Form of Convertible Notes
Exhibit B Form of Registration Rights Agreement
Exhibit C Form of Solvency Certificate
Exhibit D Form of Officer's Certificate
Exhibit E Form of Company Counsel's Opinion
Exhibit F Form of Pledge Agreement
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SECURITIES PURCHASE AGREEMENT
AGREEMENT, dated as of December 7, 1998, between Lahaina Acquisitions,
Inc. (the "Company") and GCA Strategic Investment Fund Limited ("Purchaser").
R E C I T A L S:
WHEREAS, the Company desires to sell and issue to Purchaser, and
Purchaser desire to purchase from the Company, $750,000 aggregate principal
amount of the Company's 9% Convertible Notes due January 31, 2001 (the
"Convertible Notes"), with terms and conditions as set forth in the form of
Convertible Note attached hereto as Exhibit A; and
WHEREAS, the Convertible Notes will be convertible into shares of the
Company's common stock, no par value per share (the "Common Stock"); and
WHEREAS, Purchaser will have certain registration rights with respect
to such shares of Common Stock issuable as interest under, and upon conversion
of, the Convertible Notes (collectively, the "Conversion Shares") as set forth
in the Registration Rights Agreement in the form attached hereto as Exhibit B;
and
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I. DEFINITIONS
SECTION 1.1 DEFINITIONS. The following terms, as used herein, have the
following meanings:
"Additional Shares of Common Stock" has the meaning set forth in
Section 11.6.
"Affiliate" means, with respect to any Person (the "Subject Person"),
(i) any other Person (a "Controlling Person") that directly, or indirectly
through one or more intermediaries, Controls the Subject Person or (ii) any
other Person (other than the Subject Person or a Consolidated Subsidiary of the
Subject Person) which is Controlled by or is under common Control with a
Controlling Person.
"Agreement" means this Securities Purchase Agreement, as amended,
supplemented or otherwise modified from time to time in accordance with its
terms.
"Asset Sale" has the meaning set forth in Section 8.4.
"Balance Sheet Date" has the meaning set forth in Section 4.7.
"Beachside" means Beachside Commons I, Inc.
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"Benefit Arrangement" means at any time an employee benefit plan within
the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan
and which is maintained or otherwise contributed to by the Company.
"Benefit Plans" has the meaning set forth in Section 4.9(b).
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized or required by law
to close.
"Capital Reorganization" has the meaning set forth in Section 11.5.
"Change in Control" means (i) after the date of this Agreement, any
person or group of persons (within the meaning of Sections 13 and 14 of the
Exchange Act and the rules and regulations of the Commission relating to such
sections) other than Purchaser shall have acquired beneficial ownership (within
the meaning of Rules 13d-3 and 13d-5 promulgated by the Commission pursuant to
the Exchange Act) of 33 1/3% or more of the outstanding shares of Common Stock
of the Company; (ii) any sale or other disposition (other than by reason of
death or disability) to any Person of more than 50,000 shares of Common Stock of
the Company by any executive officers and/or directors of the Company
(including, but not limited to, Xxxxxxx X. Xxxxx) (iii) individuals constituting
the Board of Directors of the Company on the date hereof (together with any new
Directors whose election by such Board of Directors or whose nomination for
election by the stockholders of the Company was approved by a vote of at least
50.1% of the Directors still in office who are either Directors as of the date
hereof or whose election or nomination for election was previously so approved),
cease for any reason to constitute at least two-thirds of the Board of Directors
of the Company then in office.
"Closing Bid Price" shall mean for any security as of any date, the
lowest closing bid price as reported by Bloomberg, L.P. ("Bloomberg") on the
principal securities exchange or trading market where such security is listed or
traded or, if the foregoing does not apply, the lowest closing bid price of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no lowest trading price is
reported for such security by Bloomberg, then the average of the bid prices of
any market makers for such securities as reported in the "Pink Sheets" by the
National Quotation Bureau, Inc. If the lowest closing bid price cannot be
calculated for such security on such date on any of the foregoing bases, the
lowest closing bid price of such security on such date shall be the fair market
value as mutually determined by Purchaser and the Company for which the
calculation of the closing bid price requires, and in the absence of such mutual
determination, as determined by the Board of Directors of the Company in good
faith.
"Closing Date" means the date on which all of the conditions set forth
in Sections 6.1 and 6.2 shall have been satisfied and Convertible Notes in the
aggregate principal amount of $750,000 are issued by the Company to Purchaser.
"Code" means the Internal Revenue Code of 1986, as amended.
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"Commission" means the Securities and Exchange Commission or any entity
succeeding to all of its material functions.
"Common Stock" means the common stock, no par value per share, of the
Company.
"Company" means Lahaina Acquisitions, Inc., a Colorado corporation, and
its successors.
"Company Corporate Documents" means the certificate of incorporation
and bylaws of the Company.
"Consolidated Net Worth" means at any date the total shareholder's
equity which would appear on a consolidated balance sheet of the Company
prepared as of such date.
"Consolidated Subsidiary" means at any date with respect to any Person
or Subsidiary or other entity, the accounts of which would be consolidated with
those of such Person in its consolidated financial statements if such statements
were prepared as of such date.
"Control" (including, with correlative meanings, the terms
"Controlling," "Controlled by" and under "common Control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of that
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Conversion Date" shall mean the date of delivery (including delivery
via telecopy) of a Notice of Conversion for all or a portion of a Convertible
Note by the holder thereof to the Company as specified in each Convertible Note.
"Conversion Price" has the meaning set forth in the Convertible Notes.
"Conversion Shares" has the meaning set forth in the Recitals.
"Convertible Notes" means the Company's Convertible Notes substantially
in the form set forth as Exhibit A hereto.
"Deadline" has the meaning set forth in Section 10.1.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments
issued by such Person, (iii) all obligations of such Person as lessee which (y)
are capitalized in accordance with GAAP or (z) arise pursuant to sale-leaseback
transactions, (iv) all reimbursement obligations of such Person in respect of
letters of credit or other similar instruments, (v) all Debt of others secured
by a Lien on any asset of such Person, whether or not such Debt is otherwise an
obligation of such Person and (vi) all Debt of others Guaranteed by such Person.
"Default" means any event or condition which constitutes an Event of
Default or which with
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the giving of notice or lapse of time or both would, unless cured or waived,
become an Event of Default.
"Default Fee" has the meaning set forth in Section 10.4.
"Derivative Securities" has the meaning set forth in Section 8.6.
"Discounted Equity Offerings" has the meaning set forth in Section 8.6.
"Directors" means the individuals then serving on the Board of
Directors or similar such management council of the Company.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment, including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the cleanup or other
remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Company and each Subsidiary and all members of
a controlled group of corporation and all trades or businesses (whether or not
incorporated) under common control which, together with the Company or any
Subsidiary, are treated as a single employer under the Code.
"Event of Default" has the meaning set forth in Article XII hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expense Reimbursement Fee" has the meaning set forth in Section 13.4.
"Financing" means a public or private financing consummated (meaning
closing and funding) through the issuance of debt or equity securities (or
securities convertible into or exchangeable for debt or equity securities) of
the Company, other than Permitted Financings.
"Fixed Price(s)" has the meaning set forth in Section 11.1.
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"GAAP" has the meaning set forth in Section 1.2.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing (whether by virtue
of partnership arrangements, by agreement to keep well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain a minimum net
worth, financial ratio or similar requirements, or otherwise) any Debt of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or (ii) entered into for the purpose of assuring in any other manner the
holder of such Debt of the payment thereof or to protect such holder against
loss in respect thereof (in whole or in part); provided that the term Guarantee
shall not include endorsements for collection or deposit in the ordinary course
of business. The term Guarantee used as a verb has a corresponding meaning.
"Guaranty" means a certain Guaranty dated as of the date hereof by and
between Company and Beachside.
"Hazardous Materials" means any hazardous materials, hazardous wastes,
hazardous constituents, hazardous or toxic substances or petroleum products
(including crude oil or any derivative or fraction thereof), defined or
regulated as such in or under any Environmental Laws.
"Intellectual Property" has the meaning set forth in Section 4.20.
"Investment" means any investment in any Person, whether by means of
share purchase, partnership interest, capital contribution, loan, time deposit
or otherwise.
"Lien" means any lien, mechanic's lien, materialmen's lien, lease,
easement, charge, encumbrance, mortgage, conditional sale agreement, title
retention agreement, agreement to sell or convey, option, claim, title
imperfection, encroachment or other survey defect, pledge, restriction, security
interest or other adverse claim, whether arising by contract or under law or
otherwise (including, without limitation, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code or comparable law
of any jurisdiction in respect of any of the foregoing).
"Listing Applications" has the meaning set forth in Section 4.4.
"Majority Holders" means (i) as of the Closing Date, Purchaser and (ii)
at any time thereafter, the holders of more than 50% in aggregate principal
amount of the Convertible Notes outstanding at such time.
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"Market Price" shall mean the Closing Bid Price of the Common Stock
preceding the date of determination.
"Material Plan" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $500,000.
"Maturity Date" shall mean the date of maturity of the Convertible
Notes; specifically, December 31, 2000.
"Maximum Number of Shares" shall mean that percentage that the Company
may issue without shareholder approval under the applicable rules of the
National Market or the applicable OTC Bulletin Board or equivalent entity, of
the then issued and outstanding shares of Common Stock of the Company as of the
applicable date of determination, or such greater number of shares as the
stockholders of the Company may have previously approved.
"Mongoose" means Mongoose Investments, LLC.
"NASD" has the meaning set forth in Section 7.10.
"Nasdaq Market" means the Nasdaq Stock Market's National Market System.
"National Market" means the Nasdaq Market, the Nasdaq Small Cap Market,
the New York Stock Exchange, Inc. or the American Stock Exchange, Inc..
"Net Cash Proceeds" means, with respect to any transaction, the total
amount of cash proceeds received by the Company or any Subsidiary less (i)
reasonable underwriters' fees, brokerage commissions, reasonable professional
fees and other customary out-of-pocket expenses payable in connection with such
transaction, and (ii) in the case of dispositions of assets, (A) actual transfer
taxes (but not income taxes) payable with respect to such dispositions, and (B)
the amount of Debt, if any, secured by a Lien on the asset or assets disposed of
and required to be, and actually repaid by the Company or any Subsidiary in
connection therewith, and any trade payables specifically relating to such asset
or assets sold by the Company or any Subsidiary that are not assumed by the
purchaser of such asset or assets.
"Non-Recourse Financing" means Debt of the Company or any Subsidiary
which, by its terms, bars the lender thereof from any action against the Company
or any Subsidiary, as borrower or guarantor, if the security value of the
project or asset pledged in respect thereof falls below the amount required to
repay such Debt.
"Notice of Conversion" means the form to be delivered by a holder of a
Convertible Note upon conversion of all or a portion thereof to the Company
substantially in the form of Exhibit A to the form of Convertible Note.
"Officer's Certificate" shall mean a certificate executed by the
President, chief executive officer or chief financial officer of the Company in
the form of Exhibit D attached hereto.
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"OTC Bulletin Board" means the over-the-counter bulletin board operated
by the NASD.
"Other Taxes" has the meaning set forth in Section 3.6(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permits" means all domestic and foreign licenses, franchises, grants,
authorizations, permits, easements, variances, exemptions, consents,
certificates, orders and approvals necessary to own, lease and operate the
properties of, and to carry on the business of the Company and the Subsidiaries.
"Permitted Financings" has the meaning set forth in Section 10.5.
"Person" means an individual, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock Company,
government (or any agency or political subdivision thereof) or other entity of
any kind.
"Plan" means at any time an employee pension benefit plan which is
covered by Title IV of ERISA or subject to the minimum funding standards under
the Code and either (i) is maintained, or contributed to, by any member of the
ERISA group for employees of any member of the ERISA group or (ii) has at any
time within the preceding five years been maintained, or contributed to, by any
Person which was at such time a member of the ERISA group for employees of the
Person which was at such time a member of the ERISA Group.
"Pledge Agreement" means the pledge agreement between the Company and
Purchaser dated the date hereof substantially in the form set forth in Exhibit F
attached hereto.
"Pledged Shares" has the meaning set forth in Section 6.1(s).
"Preferred Stock" means the no par value per share Series A preferred
stock of the Company.
"Purchase Price" means the purchase price for the Securities set forth
in Section 2.2 hereof.
"Purchaser" means the entity listed on the signature page hereto and
its successors and assigns, including holders from time to time of the
Convertible Notes.
"Redemption Event" has the meaning set forth in Section 3.4.
"Registrable Securities" has the meaning set forth in Section 10.4(a).
"Registration Default" has the meaning set forth in Section 10.4(e).
"Registration Maintenance Period" has the meaning set forth in Section
10.4(c).
"Registration Statement" has the meaning set forth in Section 10.4(b).
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"Registration Rights Agreement" means the agreement between the Company
and Purchaser dated the date hereof substantially in the form set forth in
Exhibit B attached hereto.
"Required Effectiveness Date" has the meaning set forth in Section
10.4(b).
"Reserved Amount" has the meaning set forth in Section 7.10(a).
"Restricted Payment" means, with respect to any Person, (i) any
dividend or other distribution on any shares of capital stock of such Person
(except dividends payable solely in shares of capital stock of the same or
junior class of such Person and dividends from a wholly-owned direct or indirect
Subsidiary of the Company to its parent corporation), (ii) any payment on
account of the purchase, redemption, retirement or acquisition of (a) any shares
of such Person's capital stock or (b) any option, warrant or other right to
acquire shares of such Person's capital stock or (iii) any loan, or advance or
capital contribution to any Person (a "Stockholder") owning any capital stock of
such Person other than relocation, travel or like advances to officers and
employees in the ordinary course of business, and other than reasonable
compensation as determined by the Board of Directors.
"Rights Offering" has the meaning set forth in Section 11.3.
"Sale Event" has the meaning set forth in Section 3.4.
"SEC Reports" has the meaning set forth in Section 7.1(a).
"Securities" means the Convertible Notes and, as applicable, the
Conversion Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Share Reorganization" has the meaning set forth in Section 11.2.
"Solvency Certificate" shall mean a certificate executed by the
treasurer of the Company as to the solvency of the Company, the adequacy of its
capital and its ability to pay its debts, all after giving effect to the
issuance and sale of the Convertible Notes and the completion of the offering
(including without limitation the payment of any fees or expenses in connection
therewith), which such Solvency Certificate shall be in the form of Exhibit C
attached hereto.
"Special Distribution" has the meaning set forth in Section 11.4.
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which (x) a majority of the capital stock or other ownership
interests having ordinary voting power to elect a majority of the Board of
Directors or other persons performing similar functions are at the time directly
or indirectly owned by such Person or (y) the results of operations, the assets
and the liabilities of which are consolidated with such Person under GAAP. For
purposes of this Agreement, Beachside shall be considered a Subsidiary of the
Company.
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"Subsidiary Corporate Documents" means the certificates of
incorporation and bylaws of each Subsidiary.
"Taxes" has the meaning set forth in Section 3.6.
"Trading Day" shall mean any Business Day in which the OTC Bulletin
Board, National Market or other automated quotation system or exchange on which
the Common Stock is then traded is open for trading for at least four (4) hours.
"Transaction Agreements" means this Agreement, the Convertible Notes,
and the Registration Rights Agreement, the Pledge Agreement, the Guaranty and
the other agreements contemplated by this Agreement.
"Transfer" means any disposition of Securities that would constitute a
sale thereof under the Securities Act.
"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the present value of all benefits under Plan
exceeds (ii) the fair market value of all Plan assets allocable to such benefits
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"Warrant" has the meaning set forth in Section 13.7.
SECTION 1.2 ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared, in accordance with
generally accepted accounting principles as in effect from time to time, applied
on a consistent basis (except for changes concurred in by the Company's
independent public accountants) ("GAAP"). All references to "dollars," "Dollars"
or "$" are to United States dollars unless otherwise indicated.
ARTICLE II. PURCHASE AND SALE OF SECURITIES
SECTION 2.1 PURCHASE AND SALE OF CONVERTIBLE NOTES.
(a) Subject to the terms and conditions set forth herein, the
Company agrees to issue and sell to Purchaser, and Purchaser agrees to purchase
from the Company, Convertible Notes in the aggregate principal amount of
$750,000.00.
(b) Purchaser shall acquire the Convertible Notes on the
Closing Date in an aggregate principal amount of Seven Hundred Fifty Thousand
Dollars ($750,000.00).
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SECTION 2.2 PURCHASE PRICE. The purchase price for the Convertible
Notes shall be 100% of the principal amount thereof. No part of the purchase
price of the Convertible Notes shall be allocated to the Warrant. Therefore, the
aggregate consideration payable by Purchaser to the Company for the Convertible
Notes shall be Seven Hundred Fifty Thousand Dollars ($750,000.00) (the "Purchase
Price").
SECTION 2.3 CLOSING AND MECHANICS OF PAYMENT.
(a) The Purchase Price shall be paid on the Closing Date by
wire transfer of immediately available funds on or before 5:00 p.m. (EST).
(b) The Convertible Notes issued on the Closing Date shall be
dated the date hereof; provided, however, interest shall accrue on the
applicable Convertible Notes only from and after the date of funding thereof.
ARTICLE III. PAYMENT TERMS OF CONVERTIBLE NOTES
SECTION 3.1 PAYMENT OF PRINCIPAL AND INTEREST; PAYMENT MECHANICS. The
Company will pay all amounts due on each Convertible Note by the method and at
the address specified for such purpose by Purchaser in writing, without the
presentation or surrender of any Convertible Note or the making of any notation
thereon, except that upon written request of the Company made concurrently with
or reasonably promptly after payment or prepayment in full of this Convertible
Note, the holder shall surrender the Convertible Note for cancellation,
reasonably promptly after any such request, to the Company at its principal
executive office. Prior to any sale or other disposition of any Convertible
Note, the holder thereof will, at its election, either endorse thereon the
amount of principal paid thereon and the last date to which interest has been
paid thereon or surrender the Convertible Note to the Company in exchange for a
new Convertible Note or Convertible Notes. The Company will afford the benefits
of this Section 3.1 to any direct or indirect transferee of the Convertible Note
purchased under this Agreement and that has made the same agreement relating to
this Convertible Note as Purchaser has in this Section 3.1; provided that such
transferee is an "accredited investor" under Rule 501 of the Securities Act.
SECTION 3.2 PAYMENT OF INTEREST. Interest shall accrue on the
outstanding principal amount of each Convertible Note and shall be payable as
specified therein.
SECTION 3.3 VOLUNTARY PREPAYMENT. For so long as no Event of Default
shall have occurred and is continuing, the Company may, at its option, repay, in
whole or in part, the Convertible Notes, per the formula set forth in Section
5.1 of Exhibit A hereto, thereof following at least five (5) Business Days prior
written notice to Purchaser (the expiration of such five (5) Business Day period
being referred to as the "prepayment date"); provided, however, that if such
date is not a Business Day, the prepayment date shall be the next Business Day
thereafter.
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SECTION 3.4 MANDATORY PREPAYMENTS.
(a) Upon (i) the occurrence of a Change in Control of the
Company, (ii) a transfer of all or substantially all of the assets of
the Company to any Person in a single transaction or series of related
transactions, (iii) a consolidation, merger or amalgamation of the
Company with or into another Person in which the Company is not the
surviving entity (other than a merger which is effected solely to
change the jurisdiction of incorporation of the Company and results in
a reclassification, conversion or exchange of outstanding shares of
Common Stock solely into shares of Common Stock) (each of items (i),
(ii) and (iii) being referred to as a "Sale Event"), or (iv) the
occurrence of a Registration Default which continues uncured for a
period of forty-five (45) days, then, in each case, the Company shall,
upon request of the Majority Holders, redeem the Convertible Notes in
cash for the Formula Price.
(b) Upon the consummation of one or more Financings, the
Company shall use 100% of the Net Cash Proceeds therefrom (unless such
Net Cash Proceeds from each such Financing is less than $250,000) to
redeem the Convertible Notes. The redemption price payable upon any
such redemption shall be the Formula Price.
(c) Upon the issuance of the Maximum Number of Shares and the
failure within 90 days of such issuance to obtain shareholder approval
to issue additional shares of Common Stock (the "Redemption Event"),
the Company shall redeem the outstanding balance of each Convertible
Note for the Formula price as set forth in Section 4.3 the Convertible
Notes.
SECTION 3.5 PREPAYMENT PROCEDURES.
(a) Any permitted prepayment or redemption of the Convertible
Notes pursuant to Sections 3.3 or 3.4 above shall be deemed to be
effective and consummated (for purposes of determining the Formula
Price and the time at which Purchaser shall thereafter not be entitled
to deliver a Notice of Conversion for the Convertible Notes) as
follows:
(i) A prepayment pursuant to Section 3.3, the
"prepayment date" specified therein;
(ii) A redemption pursuant to Section 3.4(a), the
date of consummation of the applicable Sale Event or the
Registration Default;
(iii) A redemption pursuant to Section 3.4(b), three
(3) Business Days following the date of consummation of the
applicable Financing (meaning closing and funding); and
(iv) A redemption pursuant to Section 3.4(c), the
date specified in each Convertible Note.
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(b) On the Maturity Date and on the effective date of a
repayment or redemption of the Convertible Notes as specified in
Section 3.5(a) above, the Company shall deliver by wire transfer of
funds the repayment/redemption price to Purchaser of the Convertible
Notes subject to redemption. Should Purchaser not receive payment of
any amounts due on redemption of its Convertible Notes by reason of the
Company's failure to make payment at the times prescribed above for any
reason, the Company shall pay to the applicable holder on demand (x)
interest on the sums not paid when due at an annual rate equal to the
lesser of (I) the maximum lawful rate and (II) 18% per annum,
compounded at the end of each thirty (30) days, until the applicable
holder is paid in full and (y) all costs of collection, including, but
not limited to, reasonable attorneys' fees and costs, whether or not
suit or other formal proceedings are instituted.
(c) The Company shall select the Convertible Notes to be
redeemed in any redemption in which not all of the Convertible Notes
are to be redeemed so that the ratio of the Convertible Notes of each
holder selected for redemption to the total Convertible Notes owned by
that holder shall be the same as the ratio of all such Convertible
Notes selected for redemption bears to the total of all then
outstanding Convertible Notes. Should any Convertible Notes required to
be redeemed under the terms hereof not be redeemed solely by reason of
limitations imposed by law, the applicable Convertible Notes shall be
redeemed on the earliest possible dates thereafter to the maximum
extent permitted by law.
(d) Any Notice of Conversion delivered by Purchaser (including
delivery via telecopy) to the Company prior to the (x) Maturity Date or
(y) effective date of a voluntary repayment pursuant to Section 3.3 or
a mandatory prepayment pursuant to Section 3.4 as specified in Section
3.5(a) above), shall be honored by the Company and the conversion of
the Convertible Notes shall be deemed effected on the Conversion Date.
In addition, between the effective date of a voluntary prepayment
pursuant to Section 3.3 or a mandatory prepayment pursuant to Section
3.4 as specified in Section 3.5(a) above and the date the Company is
required to deliver the redemption proceeds in full to Purchaser,
Purchaser may deliver a Notice of Conversion to the Company. Such
notice will be (x) of no force or effect if the Company timely pays the
redemption proceeds to Purchaser when due or (y) honored on or as of
the date of the Notice of Conversion if the Company fails to timely pay
the redemption proceeds to Purchaser when due.
SECTION 3.6 PAYMENT OF ADDITIONAL AMOUNTS.
(a) Any and all payments by the Company hereunder or under the
Convertible Notes to Purchaser and each "qualified assignee" thereof
shall be made free and clear of and without deduction or withholding
for any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto (all
such taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes") unless such Taxes
are required by law or the administration thereof to be deducted or
withheld. If the Company shall be required by law or the administration
thereof to deduct or withhold any Taxes from or in respect of any sum
payable under the Convertible Notes (i) the holders of the Convertible
Notes subject to such Taxes shall have the right, but
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not the obligation, for a period of thirty (30) days commencing upon
the day it shall have received written notice from the Company that it
is required to withhold Taxes to transfer all or any portion of the
Convertible Notes to a qualified assignee to the extent such transfer
can be effected in accordance with the other provisions of this
Agreement and applicable law; (ii) the Company shall make such
deductions or withholdings; (iii) the sum payable shall be increased as
may be necessary so that after making all required deductions or
withholdings (including deductions or withholdings applicable to
additional amounts paid under this Section 3.6) Purchaser receives an
amount equal to the sum it would have received if no such deduction or
withholding had been made; and (iv) the Company shall forthwith pay the
full amount deducted or withheld to the relevant taxation or other
authority in accordance with applicable. A "qualified assignee" of a
Purchaser is a Person that is organized under the laws of (I) the
United States or (II) any jurisdiction other than the United States or
any political subdivision thereof and that (y) represents and warrants
to the Company that payments of the Company to such assignee under the
laws in existence on the date of this Agreement would not be subject to
any Taxes and (z) from time to time, as and when requested by the
Company, executes and delivers to the Company and the Internal Revenue
Service forms, and provides the Company with any information necessary
to establish such assignee's continued exemption from Taxes under
applicable law.
(b) The Company shall forthwith pay any present or future
stamp or documentary taxes or any other excise or property taxes,
charges or similar levies (all such taxes, charges and levies
hereinafter referred to as "Other Taxes") which arise from any payment
made under any of the Transaction Agreements or from the execution,
delivery or registration of, or otherwise with respect to, this
Agreement other than Taxes payable solely as a result of the transfer
from Purchaser to a Person of any Security.
(c) The Company shall indemnify Purchaser, or qualified
assignee, for the full amount of Taxes or Other Taxes (including,
without limitation, any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this Section 3.6) paid by
Purchaser, or qualified assignee, and any liability (including
penalties, interest and expenses) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted. Payment under this indemnification shall be made
within 30 days from the date Purchaser or assignee makes written demand
therefor. A certificate as to the amount of such Taxes or Other Taxes
submitted to the Company by Purchaser or assignee shall be conclusive
evidence of the amount due from the Company to such party.
(d) Within 30 days after the date of any payment of Taxes, the
Company will furnish to Purchaser the original or a certified copy of a
receipt evidencing payment thereof.
(e) Purchaser shall provide to the Company a form W-8, stating
that it is a non- U.S. person, together with any additional tax forms
which may be required under the Code, as amended after the date hereof,
to allow interest payments to be made to it without deduction.
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ARTICLE IV. REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to Purchaser, as of the Closing
Date, the following:
SECTION 4.1 ORGANIZATION AND QUALIFICATION. The Company and each
Subsidiary is a corporation (or other legal entity) duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, with full power and authority to own, lease, use and operate its
properties and to carry on its business as and where now owned, leased, used,
operated and conducted. The Company is qualified to conduct business as a
foreign corporation and is in good standing in every jurisdiction in which the
nature of the business conducted by it makes such qualification necessary,
except where such failure would not have a Material Adverse Effect. A "Material
Adverse Effect" means any material adverse effect on the operations, results of
operations, properties, assets or condition (financial or otherwise) of the
Company or the Company and its Subsidiaries, taken as a whole, or on the
transactions contemplated hereby or by the agreements or instruments to be
entered into in connection herewith.
SECTION 4.2 AUTHORIZATION AND EXECUTION.
(a) The Company has all requisite corporate power and
authority to enter into and perform each Transaction Agreement and to
consummate the transactions contemplated hereby and thereby and to
issue the Securities in accordance with the terms hereof and thereof.
(b) The execution, delivery and performance by the Company of
each Transaction Agreement and the issuance by the Company of the
Securities have been duly and validly authorized and no further consent
or authorization of the Company, its Board of Directors or its
shareholders is required.
(c) This Agreement has been duly executed and delivered by the
Company.
(d) This Agreement constitutes, and upon execution and
delivery thereof by the Company, each of the Transaction Agreements
will constitute, a valid and binding agreement of the Company, in each
case enforceable against the Company in accordance with its respective
terms.
SECTION 4.3 CAPITALIZATION . As of the date hereof, the authorized,
issued and outstanding capital stock of the Company is as set forth on Schedule
4.3 hereto and except as set forth on Schedule 4.3 no other shares of capital
stock of the Company will be outstanding as of the Closing Date. All of such
outstanding shares of capital stock are, or upon issuance will be, duly
authorized, validly issued, fully paid and nonassessable. No shares of capital
stock of the Company are subject to preemptive rights or similar rights of the
stockholders of the Company or any liens or encumbrances imposed through the
actions or failure to act of the Company. Other than as set forth on Schedule
4.3 hereto, as of the date hereof, (i) there are no outstanding options,
warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal,
agreements, understandings, claims or other commitments or rights of any
character whatsoever relating to, or securities or rights convertible into
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or exchangeable for any shares of capital stock of the Company or any of its
Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is
or may become bound to issue additional shares of capital stock of the Company
or any of its Subsidiaries, and (ii) there are no agreements or arrangements
under which the Company or any of its Subsidiaries are obligated to register the
sale of any of its or their securities under the Securities Act (except pursuant
to the Registration Rights Agreement) and (iii) there are no anti-dilution or
price adjustment provisions contained in any security issued by the Company (or
in any agreement providing rights to security holders) that will be triggered by
the issuance of the Convertible Notes or Conversion Shares. The Company has
furnished to Purchaser true and correct copies of the Company's Corporate
Documents, and the terms of all securities convertible into or exercisable for
Common Stock and the material rights of the holders thereof in respect thereto.
SECTION 4.4 GOVERNMENTAL AUTHORIZATION. The execution and delivery by
the Company of the Transaction Agreements does not and will not, the issuance
and sale by the Company of the Securities does not and will not, and the
consummation of the transactions contemplated hereby and by the other
Transaction Agreements will not, require any action by or in respect of, or
filing with, any governmental body, agency or governmental official except (a)
such actions or filings that have been undertaken or made prior to the date
hereof and that will be in full force and effect (or as to which all applicable
waiting periods have expired) on and as of the date hereof or which are not
required to be filed on or prior to the Closing Date, (b) such actions or
filings that, if not obtained, would not result in a Material Adverse Effect,
(c) listing applications ("Listing Applications") to be filed with the OTC
Bulletin Board or the National Market relating to the Conversion Shares of
Common Stock issuable upon conversion of the Convertible Notes, and (d) the
filing of a "Form D" as described in Section 7.13 below.
SECTION 4.5 ISSUANCE OF SHARES. Upon conversion in accordance with the
terms of the Convertible Notes, the Conversion Shares shall be duly and validly
issued and outstanding, fully paid and nonassessable, free and clear of any
Taxes, Liens and charges with respect to issuance and shall not be subject to
preemptive rights or similar rights of any other stockholders of the Company.
Assuming the representations and warranties of Purchaser herein are true and
correct in all material respects, each of the Securities will have been issued
in material compliance with all applicable U.S. federal and state securities
laws. The Company understands and acknowledges that, in certain circumstances,
the issuance of Conversion Shares could dilute the ownership interests of other
stockholders of the Company. The Company further acknowledges that its
obligation to issue Conversion Shares upon conversion of the Convertible Notes
is absolute and unconditional regardless of the dilutive effect that such
issuance may have on the ownership interests of other stockholders of the
Company.
SECTION 4.6 NO CONFLICTS. The execution and delivery by the Company of
the Transaction Agreements to which it is a party did not and will not, the
issuance and sale by the Company of the Securities did not and will not and the
consummation of the transactions contemplated hereby and by the other
Transaction Agreements will not, contravene or constitute a default under or
violation of (i) any provision of applicable law or regulation, (ii) the Company
Corporate Documents, (iii) any agreement, judgment, injunction, order, decree or
other instrument binding upon the Company or any Subsidiary or any of their
respective assets, or result in the creation or imposition of any Lien
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on any asset of the Company or any Subsidiary. The Company and each Subsidiary
is in compliance with and conforms to all statutes, laws, ordinances, rules,
regulations, orders, restrictions and all other legal requirements of any
domestic or foreign government or any instrumentality thereof having
jurisdiction over the conduct of its businesses or the ownership of its
properties, except where such failure would not have a Material Adverse Effect.
SECTION 4.7 FINANCIAL INFORMATION. Since June 30, 1998 (the "Balance
Sheet Date"), except as disclosed in Schedule 4.7, there has been (x) no
material adverse change in the assets or liabilities, or in the business or
condition, financial or otherwise, or in the results of operations or prospects,
of the Company and its Subsidiaries, whether as a result of any legislative or
regulatory change, revocation of any license or rights to do business, fire,
explosion, accident, casualty, labor trouble, flood, drought, riot, storm,
condemnation, act of God, public force or otherwise and (y) no material adverse
change in the assets or liabilities, or in the business or condition, financial
or otherwise, or in the results of operations or prospects, of the Company and
its subsidiaries except in the ordinary course of business; and no fact or
condition exists or is contemplated or threatened which might cause such a
change in the future. The audited and unaudited consolidated balance sheets of
the Company and its Subsidiaries for the periods ending September 30, 1997, and
June 30, 1998, respectively, and the related consolidated statements of income,
changes in stockholders' equity and changes in cash flows for the periods then
ended, including the footnotes thereto, except as indicated therein, (i)
complied in all material respects with applicable accounting requirements and
(ii) have been prepared in accordance with GAAP consistently applied throughout
the periods indicated, except that the unaudited financial statements do not
contain notes and may be subject to normal audit adjustments and normal annual
adjustments. Such financial statements fairly present the financial condition of
the Company and its Subsidiaries at the dates indicated and the consolidated
results of their operations and cash flows for the periods then ended and,
except as indicated therein, reflect all claims against and all Debts and
liabilities of the Company and its Subsidiaries, fixed or contingent.
SECTION 4.8 LITIGATION. Except as set forth on Schedule 4.8, there is
no action, suit or proceeding pending or, to the knowledge of the Company,
threatened against the Company or any Subsidiary, before any court or arbitrator
or any governmental body, agency or official in which there is a reasonable
possibility of an adverse decision which could materially adversely affect the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or which challenges the validity of any
Transaction Agreements.
SECTION 4.9 COMPLIANCE WITH ERISA AND OTHER BENEFIT PLANS.
(a) Each member of the ERISA Group has fulfilled its obligations under
the minimum funding standards of ERISA and the Code with respect to each Plan
and is in compliance in all material respects with the presently applicable
provisions of ERISA and the Code with respect to each Plan. No member of the
ERISA Group has (i) sought a waiver of the minimum funding standard under
Section 412 of the Code in respect of any Plan, (ii) failed to make any required
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which as resulted or could result in the imposition of a Lien or the posting of
a bond or other security under ERISA or
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the Code or (iii) incurred any liability under Title IV of ERISA other than a
liability to the PBGC for premiums under Section 4007 of ERISA.
(b) The benefit plans not covered under clause (a) above (including
profit sharing, deferred compensation, stock option, employee stock purchase,
bonus, retirement, health or insurance plans, collectively the "Benefit Plans")
relating to the employees of the Company are duly registered where required by,
and are in good standing in all material respects under, all applicable laws.
All required employer and employee contributions and premiums under the Benefit
Plans to the date hereof have been made, the respective fund or funds
established under the Benefit Plans are funded in accordance with applicable
laws, and no past service funding liabilities exist thereunder.
(c) No Benefit Plans have any unfunded liabilities, either on a "going
concern" or "winding up" basis and determined in accordance with all applicable
laws and actuarial practices and using actuarial assumptions and methods that
are reasonable in the circumstances. No event has occurred and no condition
exists with respect to any Benefit Plans that has resulted or could reasonably
be expected to result in any pension plan having its registration revoked or
wound up (in whole or in part) or refused for the purposes of any applicable
laws or being placed under the administration of any relevant pension benefits
regulatory authority or being required to pay any taxes or penalties (in any
material amounts) under any applicable laws.
SECTION 4.10 ENVIRONMENTAL MATTERS. The costs and liabilities
associated with Environmental Laws (including the cost of compliance therewith)
are unlikely to have a material adverse effect on the business, condition
(financial or otherwise), operations, performance, properties or prospects of
the Company or any Subsidiary. Each of the Company and the Subsidiaries conducts
its businesses in compliance in all material respects with all applicable
Environmental Laws.
SECTION 4.11 TAXES. All United States federal, state, county,
municipality, local or foreign income tax returns and all other material tax
returns (including foreign tax returns) which are required to be filed by or on
behalf of the Company and each Subsidiary have been filed and all material taxes
due pursuant to such returns or pursuant to any assessment received by the
Company and each Subsidiary have been paid except those being disputed in good
faith and for which adequate reserves have been established. The charges,
accruals and reserves on the books of the Company and each Subsidiary in respect
of taxes and other governmental charges have been established in accordance with
GAAP.
SECTION 4.12 INVESTMENTS, JOINT VENTURES. Other than as set forth in
Schedule 4.12, the Company has no Subsidiaries or other direct or indirect
Investment in any Person, and the Company is not a party to any partnership,
management, shareholders' or joint venture or similar agreement.
SECTION 4.13 NOT AN INVESTMENT COMPANY. Neither the Company nor any
Subsidiary is an "Investment Company" within the meaning of Investment Company
Act of 1940, as amended.
SECTION 4.14 FULL DISCLOSURE. The information heretofore furnished by
the Company to Purchaser for purposes of or in connection with this Agreement or
any transaction contemplated hereby does not, and all such information hereafter
furnished by the Company or any Subsidiary to
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Purchaser will not (in each case taken together and on the date as of which such
information is furnished), contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
contained therein, in the light of the circumstances under which they are made,
not misleading.
SECTION 4.15 NO SOLICITATION; NO INTEGRATION WITH OTHER OFFERINGS. No
form of general solicitation or general advertising was used by the Company or,
to the best of its actual knowledge, any other Person acting on behalf of the
Company, in connection with the offer and sale of the Securities. Neither the
Company, nor, to its knowledge, any Person acting on behalf of the Company, has,
either directly or indirectly, sold or offered for sale to any Person (other
than Purchaser) any of the Securities or, within the six months prior to the
date hereof, any other similar security of the Company except as contemplated by
this Agreement, and the Company represents that neither itself nor any Person
authorized to act on its behalf (except that the Company makes no representation
as to Purchaser and their Affiliates) will sell or offer for sale any such
security to, or solicit any offers to buy any such security from, or otherwise
approach or negotiate in respect thereof with, any Person or Persons so as
thereby to cause the issuance or sale of any of the Securities to be in
violation of any of the provisions of Section 5 of the Securities Act. The
issuance of the Securities to Purchaser will not be integrated with any other
issuance of the Company's securities (past, current or future) which requires
stockholder approval under the rules of the OTC Bulletin Board.
SECTION 4.16 PERMITS. (a) Each of the Company and its Subsidiaries has
all material Permits; (b) all such Permits are in full force and effect, and
each of the Company and its Subsidiaries has fulfilled and performed all
material obligations with respect to such Permits; (c) no event has occurred
which allows, or after notice of lapse of time would allow, revocation or
termination by the issuer thereof or which results in any other material
impairment of the rights of the holder of any such Permit; and (d) the Company
has no reason to believe that any governmental body or agency is considering
limiting, suspending or revoking any such Permit.
SECTION 4.17 LEASES. Except for leases to tenants of the real property
of Beachside, neither the Company nor any Subsidiary is a party to any capital
lease obligation with a value greater than $100,000 or to any operating lease
with an aggregate annual rental greater than $100,000 during the life of such
lease.
SECTION 4.18 ABSENCE OF ANY UNDISCLOSED LIABILITIES OR CAPITAL CALLS.
There are no liabilities of the Company or any Subsidiary of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, and there is no existing condition, situation or set of circumstances
which would reasonably be expected to result in such a liability, other than (i)
those liabilities provided for in the financial statements delivered pursuant to
Section 4.7 and referred to on Schedule 4.3 and Schedule 6.1(q) hereof and (ii)
other undisclosed liabilities which, individually or in the aggregate, would not
have a Material Adverse Effect.
SECTION 4.19 PUBLIC UTILITY HOLDING COMPANY. Neither the Company nor
any Subsidiary is, or will be upon issuance and sale of the Securities and the
use of the proceeds described herein, subject to regulation under the Public
Utility Holding Company Act of 1935, as amended, the
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Federal Power Act, the Interstate Commerce Act or to any federal or state
statute or regulation limiting its ability to issue and perform its obligations
under any Transaction Agreement.
SECTION 4.20 INTELLECTUAL PROPERTY RIGHTS. Each of the Company and its
Subsidiaries owns, or is licensed under, and has the rights to use, all material
patents, trademarks, trade names, copyrights, technology, know-how and processes
(collectively, "Intellectual Property") used in, or necessary for the conduct of
its business; no claims have been asserted by any Person to the use of any such
Intellectual Property or challenging or questioning the validity or
effectiveness of any license or agreement related thereto. To the best of
Company's and its Subsidiaries' knowledge, there is no valid basis for any such
claim and the use of such Intellectual Property by the Company and its
Subsidiaries will not infringe upon the rights of any Person.
SECTION 4.21 INSURANCE. The Company and its Subsidiaries maintain, with
financially sound and reputable insurance companies, insurance in at least such
amounts and against such risks such that any uninsured loss would not have a
Material Adverse Effect. All insurance coverages of the Company and its
Subsidiaries are in full force and effect and there are no past due premiums in
respect of any such insurance.
SECTION 4.22 TITLE TO PROPERTIES. The Company and its Subsidiaries have
good and marketable title to all their respective properties reflected on the
financial statements referred to in Section 4.7 and Section 6.1(q), free and
clear of all Liens.
SECTION 4.23 INTERNAL ACCOUNTING CONTROLS. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's Board of Directors, to provide reasonable
assurance that (i) transactions are executed in accordance with managements'
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
SECTION 4.24 YEAR 2000 COMPLIANCE.
(a) COMPUTER AND OTHER SYSTEMS. (i) All software programs and computer
hardware that are owned, leased or licensed by the Company and each Subsidiary,
or used by third parties on behalf of the Company and each Subsidiary ("Computer
Systems"), are designated to be used prior to, during and after the calendar
year 2000 A.D., including leap years; (ii) all other operational systems that
use software or equipment that are owned, leased, or licensed by the Company and
each Subsidiary, or used by third parties on behalf of the Company and each
Subsidiary ("Other Systems"), are designated to be used prior to, during or
after the calendar year 2000 A.D., including leap years; (iii) the Computer
systems and Other Systems will properly operate during each such period without
error or degradation of performance caused by a lack of Year 2000 Capabilities;
and (iv) the Computer Systems and Other Systems will properly operate during
each such period without requiring intervention or modification to Date Data.
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(b) CAPABILITIES OF SUPPLIERS, VENDORS AND LANDLORDS. To the best of
the Company's knowledge after specific inquiry of all of its material suppliers,
vendors and landlords, the Company and each Subsidiary will not suffer a loss
from interruption or cessation of business operations, in whole or in part, as a
result of such suppliers, vendors or landlords failing to provide materials,
labor, supplies or access to leased space for the operation of the Company and
each Subsidiary as a result of such suppliers or vendors not having Year 2000
Capabilities.
(c) CAPABILITIES. For purposes of this Agreement, (x) "Year 2000
Capabilities" means the ability to: (i) manage and manipulate data involving
dates, including single century formulas and multi-century formulas, in a manner
that will not cause an abnormally ending scenario or generate incorrect values
or invalid results involving such dates; (ii) include the indication of proper
century dates in all date-related user interface functions and date fields; and
(iii) operate with proper century dates in date-related software or hardware
interface functions; and (y) "Date Data" means any existing data or input of
date which includes an indication of or reference to date.
SECTION 4.25 FOREIGN PRACTICES. Neither the Company nor any of its
Subsidiaries nor, to the Company's knowledge, any employee or agent of the
Company or any Subsidiary has made any payments of funds of the Company or
Subsidiary, or received or retained any funds, in each case in violation of any
law, rule or regulation.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASER
SECTION 5.1 PURCHASER. Purchaser hereby represents and warrants to the
Company that:
(a) Purchaser is an "accredited investor" within the meaning
of Rule 501(a) under the Securities Act and the Securities to be
acquired by it pursuant to this Agreement are being acquired for its
own account and, as of the date hereof, not with a view toward, or for
sale in connection with, any distribution thereof except in compliance
with applicable United States federal and state securities law;
provided that the disposition of Purchaser's property shall at all
times be and remain within its control;
(b) the execution, delivery and performance of this Agreement
and the purchase of the Securities pursuant thereto are within
Purchaser's corporate or partnership powers, as applicable, and have
been duly and validly authorized by all requisite corporate or
partnership action;
(c) this Agreement has been duly executed and delivered
by Purchaser;
(d) the execution and delivery by Purchaser of the Transaction
Agreements to which it is a party does not, and the consummation of the
transactions contemplated hereby and thereby will not, contravene or
constitute a default under or violation of (i) any provision of
applicable law or regulation, or (ii) any agreement, judgment,
injunction, order, decree or other instrument binding upon Purchaser;
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(e) Purchaser understands that the Securities have not been
registered under the Securities Act and may not be transferred or sold
except as specified in this Agreement or the remaining Transaction
Agreements;
(f) this Agreement constitutes a valid and binding agreement
of Purchaser enforceable in accordance with its terms, subject to (i)
applicable bankruptcy, insolvency or similar laws affecting the
enforceability of creditors rights generally and (ii) equitable
principles of general applicability;
(g) Purchaser has such knowledge and experience in financial
and business matters so as to be capable of evaluating the merits and
risks of its investment in the Securities and Purchaser is capable of
bearing the economic risks of such investment;
(h) Purchaser is knowledgeable, sophisticated and experienced
in business and financial matters; Purchaser has previously invested in
securities similar to the Securities and fully understands the
limitations on transfer described herein; Purchaser has been afforded
access to information about the Company and the financial condition,
results of operations, property, management and prospects of the
Company sufficient to enable it to evaluate its investment in the
Securities; Purchaser has been afforded the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of
the offering of the Securities and the merits and the risks of
investing in the Securities; and Purchaser has been afforded the
opportunity to obtain such additional information which the Company
possesses or can acquire that is necessary to verify the accuracy and
completeness of the information given to Purchaser concerning the
Company. The foregoing does not in any way relieve the Company of its
representations and other undertakings hereunder, and shall not limit
Purchaser's ability to rely thereon;
(i) no part of the source of funds used by Purchaser to
acquire the Securities constitutes assets allocated to any separate
account maintained by Purchaser in which any employee benefit plan (or
its related trust) has any interest; and
(j) Purchaser is a corporation organized under the laws of
Bermuda.
ARTICLE VI. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES
SECTION 6.1 CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS TO
PURCHASE. The obligation of Purchaser hereunder to purchase the Convertible
Notes at the Closing is subject to the satisfaction, on or before the Closing
Date of each of the following conditions, provided that these conditions are for
Purchaser's sole benefit and may be waived by Purchaser at any time in its sole
discretion:
(a) The Company shall have duly executed this Agreement, the
Registration Rights Agreement and the Guaranty, and delivered the same
to Purchaser;
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(b) The Company shall have delivered to Purchaser duly
executed certificates representing the Convertible Notes in accordance
with Section 2.3 hereof;
(c) The Company shall have delivered the Solvency Certificate;
(d) The representations and warranties of the Company
contained in each Transaction Agreement shall be true and correct in
all material respects as of the date when made and as of the Closing
Date as though made at such time (except for representations and
warranties that speak as of a specified date) and the Company shall
have performed, satisfied and complied with all covenants, agreements
and conditions required by such Transaction Agreements to be performed,
satisfied or complied with by it at or prior to the Closing Date.
Purchaser shall have received an Officer's Certificate executed by the
chief executive officer of the Company, dated as of the Closing Date,
to the foregoing effect and as to such other matters as may be
reasonably requested by Purchaser, including but not limited to
certificates with respect to the Company Corporate Documents,
resolutions relating to the transactions contemplated hereby and the
incumbencies of certain officers and Directors of the Company. The form
of such certificate is attached hereto as Exhibit D;
(e) The Company shall have received all governmental, Board of
Directors, shareholders and third party consents and approvals
necessary or desirable in connection with the issuance and sale of the
Securities and the consummation of the transactions contemplated by the
Transaction Agreements;
(f) All applicable waiting periods in respect to the issuance
and sale of the Securities shall have expired without any action having
been taken by any competent authority that could restrain, prevent or
impose any materially adverse conditions thereon or that could seek or
threaten any of the foregoing;
(g) No law or regulation shall have been imposed or enacted
that, in the judgment of Purchaser, could adversely affect the
transactions set forth herein or in the other Transaction Agreements,
and no law or regulation shall have been proposed that in the
reasonable judgment of Purchaser could reasonably have any such effect;
(h) Purchaser shall have received opinions, dated the Closing
Date, of Florida, Colorado and other counsel to the Company, in form
and substance satisfactory to Purchaser;
(i) All fees and expenses due and payable by the Company on or
prior to the Closing Date shall have been paid;
(j) The Company Corporate Documents and the Subsidiary
Corporate Documents, if any, shall be in full force and effect and no
term or condition thereof shall have been amended, waived or otherwise
modified without the prior written consent of Purchaser;
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(k) There shall have occurred no material adverse change in
the business, condition (financial or otherwise), operations,
performance, properties or prospects of the Company or any Subsidiary
since December 31, 1997;
(l) There shall exist no action, suit, investigation,
litigation or proceeding pending or threatened in any court or before
any arbitrator or governmental instrumentality that challenges the
validity of or purports to affect this Agreement or any other
Transaction Agreement, or other transaction contemplated hereby or
thereby or that could reasonably be expected to have a Material Adverse
Effect, or any material adverse effect on the enforceability of the
Transaction Agreements or the Securities or the rights of the holders
of the Securities or Purchaser hereunder;
(m) Purchaser shall have confirmed the receipt of the
Convertible Notes to be issued, duly executed by the Company in the
denominations and registered in the name of Purchaser;
(n) There shall not have occurred any disruption or adverse
change in the financial or capital markets generally, or in the market
for the Common Stock (including but not limited to any suspension or
delisting), which Purchaser reasonably deems material in connection
with the purchase of the Securities;
(o) Immediately before and after the Closing Date, no Default
or Event of Default shall have occurred and be continuing;
(p) Purchaser shall have received all other opinions,
resolutions, certificates, instruments, agreements or other documents
as they shall reasonably request;
(q) The Company or its Subsidiary shall have acquired in a
manner satisfactory to Purchaser the stock of Beachside and Beachside
shall be the owner of the real property described in Schedule 6.1(q)
(the "Beachside Property") subject to only those Liens approved by
Purchaser in its sole discretion; and
(r) Purchaser shall have received a second mortgage and title
insurance commitment on the Beachside Property satisfactory in form and
substance to Purchaser in its sole discretion.
(s) Mongoose shall have (A) pledged as collateral for the
Convertible Notes 750,000 shares of Common Stock represented by
Certificate No. 490 (the "Pledged Shares") to Purchaser pursuant to the
terms of the Pledge Agreement and (B) delivered to Purchaser duly
executed certificates representing the Pledged Shares.
(t) The terms of the Preferred Stock is not in conflict with
the Transaction Agreements.
(u) Purchaser shall have received an appraisal of the
Beachside Property
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satisfactory in form and substance to the Purchaser in its sole
discretion.
(v) Mongoose shall have purchased all shares of Common Stock
owned by Paxford Investments, Ltd. for $300,000.
(w) The Company shall have acquired 100% of the stock of
Beachside from Mongoose in exchange for (i) a demand note of Lahaina in
favor of Mongoose for $682,500 (ii) 1,250,000 shares of Common Stock
and (iii) 1,910,000 shares of Preferred Stock newly issued to Mongoose.
SECTION 6.2 CONDITIONS TO THE COMPANY'S OBLIGATIONS. The obligations of
the Company to issue and sell the Securities to Purchaser pursuant to this
Agreement are subject to the satisfaction, at or prior to any Closing Date, of
the following conditions:
(a) The representations and warranties of Purchaser contained
herein shall be true and correct in all material respects on the
Closing Date and Purchaser shall have performed and complied in all
material respects with all agreements required by this Agreement to be
performed or complied with by Purchaser at or prior to the Closing
Date;
(b) The issue and sale of the Securities by the Company shall
not be prohibited by any applicable law, court order or governmental
regulation;
(c) Receipt by the Company of duly executed counterparts of
this Agreement and the Registration Rights Agreement signed by
Purchaser;
(d) The Company shall have received payment of Purchase Price,
less the Expense Reimbursement Fee.
ARTICLE VII. AFFIRMATIVE COVENANTS
The Company hereby agrees that, from and after the date hereof for so
long as any Convertible Notes remain outstanding and for the benefit of
Purchaser:
SECTION 7.1 INFORMATION. The Company will deliver to each holder of the
Convertible Notes:
(a) promptly upon the filing thereof, copies of (i) all
registration statements (other than the exhibits thereto and any
registration statements on Form S-8 or its equivalent), and (ii) all
reports of Forms 10-K, 10-Q and 8-K (or other equivalents) which the
Company or any Subsidiary has filed with the Commission (collectively,
"SEC Reports");
(b) simultaneously with the delivery of each item referred to
in clause (a) above, a certificate from the chief financial officer of
the Company stating that no Default or Event of Default has occurred
and is continuing, or, if as of the date of such delivery a Default
shall
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have occurred and be continuing, a certificate from the Company setting
forth the details of such Default or Event of Default and the action
which the Company is taking or proposes to take with respect thereto;
(c) within two (2) days after any officer of the Company
obtains knowledge of a Default or Event of Default, or that any Person
has given any notice or taken any action with respect to a claimed
Default hereunder, a certificate of the chief financial officer of the
Company setting forth the details thereof and the action which the
Company is taking or proposed to take with respect thereto;
(d) promptly upon the mailing thereof to the shareholders of
the Company generally, copies of all financial statements, reports and
proxy statements so mailed and any other document generally distributed
to shareholders;
(e) at least two (2) Business Days prior to the consummation
of any Financing or other event requiring a repayment of the
Convertible Notes under Section 3.4, notice thereof together with a
summary of all material terms thereof and copies of all documents and
instruments associated therewith;
(f) notice promptly upon the occurrence of any event by which
the Reserved Amount becomes less than the sum of (i) 1.5 times the
maximum number of Conversion Shares issuable pursuant to the
Transaction Agreements; and
(g) promptly following the commencement thereof, notice and a
description in reasonable detail of any litigation or proceeding to
which the Company or any Subsidiary is a party in which the amount
involved is $250,000 or more and not covered by insurance or in which
injunctive or similar relief is sought.
SECTION 7.2 PAYMENT OF OBLIGATIONS. The Company will, and will cause
each Subsidiary to, pay and discharge, at or before maturity, all their
respective material obligations, including, without limitation, tax liabilities,
except where the same may be contested in good faith by appropriate proceedings
and will maintain, in accordance with GAAP, appropriate reserves for the accrual
of any of the same.
SECTION 7.3 MAINTENANCE OF PROPERTY; INSURANCE. The Company will, and
will cause each Subsidiary to, keep all property useful and necessary in its
business in good working order and condition, ordinary wear and tear excepted.
In addition, the Company and each Subsidiary will maintain insurance in at least
such amounts and against such risks as it has insured against as of the Closing
Date.
SECTION 7.4 MAINTENANCE OF EXISTENCE. The Company will, and will cause
each Subsidiary to, continue to engage in business of the same general type as
now conducted by the Company and such Subsidiaries, and will preserve, renew and
keep in full force and effect its respective corporate existence and their
respective material rights, privileges and franchises necessary or desirable in
the normal conduct of business.
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SECTION 7.5 COMPLIANCE WITH LAWS. The Company will, and will cause each
Subsidiary to, comply, in all material respects, with all federal, state,
municipal, local or foreign applicable laws, ordinances, rules, regulations,
municipal by-laws, codes and requirements of governmental authorities
(including, without limitation, Environmental Laws and ERISA and the rules and
regulations thereunder) except (i) where compliance therewith is contested in
good faith by appropriate proceedings or (ii) where non-compliance therewith
could not reasonably be expected, in the aggregate, to have a material adverse
effect on the business, condition (financial or otherwise), operations,
performance, properties or prospects of the Company or such Subsidiary.
SECTION 7.6 INSPECTION OF PROPERTY, BOOKS AND RECORDS. The Company
will, and will cause each Subsidiary to, keep proper books of record and account
in which full, true and correct entries shall be made of all dealings and
transactions in relation to their respective businesses and activities; and will
permit, during normal business hours, Purchaser' Representative or an affiliate
thereof, as representatives of Purchaser, to visit and inspect any of their
respective properties, upon reasonable prior notice, to examine and make
abstracts from any of their respective books and records and to discuss their
respective affairs, finances and accounts with their respective executive
officers and independent public accountants (and by this provision the Company
authorizes its independent public accountants to disclose and discuss with
Purchaser the affairs, finances and accounts of the Company and its
Subsidiaries), all at such reasonable times.
SECTION 7.7 INVESTMENT COMPANY ACT. The Company will not be or become
an open-end investment trust, unit investment trust or face-amount certificate
company that is or is required to be registered under Section 8 of the
Investment Company Act of 1940, as amended.
SECTION 7.8 USE OF PROCEEDS. The proceeds from the issuance and sale of
the Convertible Notes by the Company shall be used to finance the Company's (i)
acquisition of 100% of the stock of Beachside (together with the issuance of
Common Stock and Preferred Stock of the Company to Mongoose), (ii) payment of
fees, and (iii) working capital. None of the proceeds from the issuance and sale
of the Convertible Notes by the Company pursuant to this Agreement will be used
directly or indirectly for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying any "margin stock" within the meaning of
Regulation G of the Board of Governors of the Federal Reserve System.
SECTION 7.9 COMPLIANCE WITH TERMS AND CONDITIONS OF MATERIAL CONTRACTS.
The Company will, and will cause each Subsidiary to, comply, in all respects,
with all terms and conditions of all material contracts to which it is subject.
SECTION 7.10 RESERVED SHARES AND LISTINGS.
(a) The Company shall at all times have authorized, and reserved for
the purpose of issuance, a sufficient number of shares of Common Stock to
provide for the full conversion of the outstanding Convertible Notes and
issuance of the Conversion Shares (based on the conversion price of the
Convertible Notes in effect from time to time) (the "Reserved Amount"). The
Company shall not reduce the Reserved Amount without the prior written consent
of Purchaser. With respect to all Securities which contain an indeterminate
number of shares of Common Stock issuable in
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connection therewith (such as the Convertible Notes), the Company shall include
in the Reserve Amount, no less than two (2) times the number of shares that is
then actually issuable upon conversion or exercise of such Securities. If at any
time the number of shares of Common Stock authorized and reserved for issuance
is below the number of Conversion Shares issued or issuable upon conversion of
the Convertible Notes, the Company will promptly take all corporate action
necessary to authorize and reserve a sufficient number of shares, including,
without limitation, either (x) calling a special meeting of shareholders to
authorize additional shares, in the case of an insufficient number of authorized
shares or (y) in lieu thereof, consummating the immediate repurchase of the
Convertible Notes contemplated in Section 4.3 of each Convertible Note and
Sections 3.4(c) and 10.3 hereof, respectively.
(b) The Company shall promptly file the Listing Applications and secure
the listing of the Conversion Shares upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and shall maintain, so long as
any other shares of Common Stock shall be so listed, such listing of all
Conversion Shares from time to time issuable upon conversion or exercise of the
Convertible Notes. The Company will maintain the listing and trading of its
Common Stock on the OTC Bulletin Board. The Company will use its commercially
reasonable best efforts to obtain as soon as practicable and maintain the
listing and trading of its Common Stock on a National Market. The Company will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the National Association of Securities
Dealers, Inc. (the "NASD") and such exchanges, as applicable. The Company shall
promptly provide to Purchaser copies of any notices it receives regarding the
continued eligibility of the Common Stock for listing on the OTC Bulletin Board
or any National Market.
SECTION 7.11 IRREVOCABLE INSTRUCTIONS. Upon receipt of a Notice of
Conversion or Notice of Exercise, as applicable, the Company shall immediately
issue irrevocable instructions to its transfer agent to issue certificates,
registered in the name of Purchaser or its nominee, for the Conversion Shares,
in such amounts as specified from time to time by Purchaser to the Company upon
proper conversion of the Convertible Notes or exercise of the Warrants. Upon
conversion of any Convertible Notes in accordance with their terms and/or
exercise of any Warrants in accordance with their terms, the Company will, and
will use its best lawful efforts to cause its transfer agent to, issue one or
more certificates representing shares of Common Stock in such name or names and
in such denominations specified by a Purchaser in a Notice of Conversion or
Notice of Exercise, as the case may be. As long as the Registration Statement
contemplated by the Registration Rights Agreement shall remain effective, the
shares of Common Stock issuable upon conversion of any Convertible Notes shall
be issued to any transferee of such shares from Purchaser without any
restrictive legend upon appropriate evidence of transfer in compliance with the
Securities Act and the rules and regulations of the Commission; provided that
for so long as the Registration Statement is effective, no opinion of counsel
will be required to effect any such transfer. The Company further warrants and
agrees that no instructions other than these instructions have been or will be
given to its transfer agent. Nothing in this Section 7.11 shall affect in any
way a Purchaser's obligation to comply with all securities laws applicable to
Purchaser upon resale of such shares of Common Stock, including any prospectus
delivery requirements.
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SECTION 7.12 MAINTENANCE OF REPORTING STATUS; SUPPLEMENTAL INFORMATION.
So long as any of the Securities are outstanding, the Company shall timely file
all reports required to be filed with the Commission pursuant to the Exchange
Act. The Company shall not terminate its status as an issuer required to file
reports under the Exchange Act, even if the Exchange Act or the rules and
regulations thereunder would permit such termination. If at anytime the Company
is not subject to the requirements of Section 13 or 15(d) of the Exchange Act,
the Company will promptly furnish at its expense, upon request, for the benefit
of the holders from time to time of Securities, and prospective purchasers of
Securities, information satisfying the information requirements of Rule 144
under the Securities Act.
SECTION 7.13 FORM D; BLUE SKY LAWS. The Company agrees to file a "Form
D" with respect to the Securities as required under Regulation D of the
Securities Act and to provide a copy thereof to Purchaser promptly after such
filing. The Company shall, on or before the Closing Date, take such action as
the Company shall reasonably determine is necessary to qualify the Securities
for sale to Purchaser at the Closing pursuant to this Agreement under applicable
securities or "blue sky" laws of the states of the United States (or to obtain
an exemption from such qualification), and shall provide evidence of any such
action so taken to Purchaser on or prior to the Closing Date.
ARTICLE VIII. NEGATIVE COVENANTS
The Company hereby agrees that after the date hereof for so long as any
Convertible Notes remain outstanding and for the benefit of Purchaser:
SECTION 8.1 LIMITATIONS ON DEBT OR OTHER LIABILITIES. Neither the
Company nor any Subsidiary will create, incur, assume or suffer to exist (at any
time after the Closing Date, after giving effect to the application of the
proceeds of the issuance of the Securities) (i) any Debt except (x) Debt
incurred in a Permitted Financing, (y) Debt incurred in connection with
equipment leases to which the Company or its Subsidiaries are a party incurred
in the ordinary course of business; and (z) Debt incurred in connection with
trade accounts payable, imbalances and refunds arising in the ordinary course of
business and (ii) any equity securities (including Derivative Securities) (other
than those securities that are issuable (x) under or pursuant to stock option
plans, warrants or other rights programs that exist as of the date hereof, (z)
in connection with the acquisition (including by merger) of a business or of
assets otherwise permitted under this Agreement), unless the Company complies
with the mandatory prepayment terms of Section 3.4(b) hereof.
SECTION 8.2 TRANSACTIONS WITH AFFILIATES. The Company and each
Subsidiary will not, directly or indirectly, pay any funds to or for the account
of, make any investment (whether by acquisition or stock or indebtedness, by
loan, advance, transfer of property, guarantee or other agreement to pay,
purchase or service, directly or indirectly, and Debt, or otherwise) in, lease,
sell, transfer or otherwise dispose of any assets, tangible or intangible, to,
or participate in, or effect any transaction in connection with any joint
enterprise or other joint arrangement with, any Affiliate, except, (1) pursuant
to those agreements specifically identified on Schedule 8.2 attached hereto
(with a copy of such agreements annexed to such Schedule 8.2) and (2) on terms
to the Company or such Subsidiary no less favorable than terms that could be
obtained by the Company or such Subsidiary
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from a Person that is not an Affiliate of the Company upon negotiation at arms'
length, as determined in good faith by the Board of Directors of the Company;
provided that no determination of the Board of Directors shall be required with
respect to any such transactions entered into in the ordinary course of
business.
SECTION 8.3 MERGER OR CONSOLIDATION. Except for those transactions, if
any, set forth in Schedule 8.3, all of which are contemplated to be consummated
prior to or simultaneously with the transactions contemplated by this Agreement,
the Company will not, in a single transaction or a series of related
transactions (i) consolidate with or merge with or into any other Person, or
(ii) permit any other Person to consolidate with or merge into it, unless the
Company shall be the survivor of such merger or consolidation and (x)
immediately before and immediately after given effect to such transaction
(including any indebtedness incurred or anticipated to be incurred in connection
with the transaction), no Default or Event of Default shall have occurred and be
continuing; and (y) the Company has delivered to Purchaser an Officer's
Certificate stating that such consolidation, merger or transfer complies with
this Agreement, and that all conditions precedent in this Agreement relating to
such transaction have been satisfied.
SECTION 8.4 LIMITATION ON ASSET SALES. Neither the Company nor any
Subsidiary will consummate an Asset Sale of material assets of the Company or
any Subsidiary without the prior written consent of Purchaser, which consent
shall not be unreasonably withheld. As used herein, "Asset Sale" means any sale,
lease, transfer or other disposition (or series of related sales, leases,
transfers or dispositions) or sales of capital stock of a Subsidiary (other than
directors' qualifying shares), property or other assets (each referred to for
the purpose of this definition as a "disposition"), including any disposition by
means of a merger, consolidation or similar transaction other than a disposition
of property or assets at fair market value in the ordinary course of business.
SECTION 8.5 RESTRICTIONS ON CERTAIN AMENDMENTS. Neither the Company nor
any Subsidiary will waive any provision of, amend, or suffer to be amended, any
provision of such entity's existing Debt, any material contract or agreement
previously or hereafter filed by the Company with the Commission as part of its
SEC Reports, any Company Corporate Document or Subsidiary Corporate Document if
such amendment, in the Company's reasonable judgment, would materially adversely
affect Purchaser or the holders of the Securities without the prior written
consent of Purchaser.
SECTION 8.6 PROHIBITION ON DISCOUNTED EQUITY OFFERINGS; REGISTRATION
RIGHTS.
(a) In addition to and not in lieu of the covenant specified
in Section 8.1 above, until such time as all of the Convertible Notes
have been either redeemed or converted into Conversion Shares in full,
the Company agrees that it will not issue any of its equity securities
(or securities convertible into or exchangeable or exercisable for
equity securities (the "Derivative Securities")) on terms that allow a
holder thereof to acquire such equity securities (or Derivative
Securities) at a discount to the Market Price of the Common Stock at
the time of issuance or, in the case of Derivative Securities at a
conversion price based on any formula (other than standard
anti-dilution provisions) based on the Market Price on a date later
than the date of issuance so long as such conversion is not below the
Market Price
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on the date of issuance (each such event, a "Discounted Equity
Offering"). As used herein, "discount" shall include, but not be
limited to, (i) any warrant, right or other security granted or offered
in connection with such issuance which, on the applicable date of
grant, is offered with an exercise or conversion price, as the case may
be, at less than the then current Market Price of the Common Stock or,
if such security has an exercise or conversion price based on any
formula (other than standard anti-dilution provisions) based on the
Market Price on a date later than the date of issuance, then at a price
below the Market Price on such date of exercise or conversion, as the
case may be, or (ii) any commissions, fees or other allowances paid in
connection with such issuances (other than customary underwriter or
placement agent commissions, fees or allowances). For the purposes of
determining the Market Price at which Common Stock is acquired under
this Section, normal underwriting commissions and placement fees
(including underwriters' warrants) shall be excluded.
(b) Until such time as all of the Convertible Notes have been
either redeemed or converted into Conversion Shares in full, the
Company agrees it will not issue any of its equity securities (or
Derivative Securities), unless any shares of Common Stock issued or
issuable in connection therewith are "restricted securities." As used
herein "restricted securities" shall mean securities which may not be
sold by virtue of contractual restrictions imposed by the Company
either pursuant to an exemption from registration under the Securities
Act or pursuant to a registration statement filed by the Company with
the Commission, in each case prior to twelve (12) months following the
date of issuance of such securities.
(c) The restrictions contained in this Section 8.6 shall not
apply to the issuance by the Company of (or the agreement to issue)
Common Stock or Derivative Securities in connection with (i) the
acquisition (including by merger) of a business or of assets otherwise
permitted under this Agreement, or (ii) stock option or other
compensatory plans.
SECTION 8.7 LIMITATION ON STOCK REPURCHASES. Except as otherwise set
forth in the Convertible Notes, the Company shall not, without the written
consent of the Majority Holders, redeem, repurchase or otherwise acquire
(whether for cash or in exchange for property or other securities or otherwise)
any shares of capital stock of the Company or any warrants, rights or options to
purchase or acquire any such shares.
ARTICLE IX. RESTRICTIVE LEGENDS
SECTION 9.1 RESTRICTIONS ON TRANSFER. From and after their respective
dates of issuance, none of the Securities shall be transferable except upon the
conditions specified in this Article IX, which conditions are intended to ensure
compliance with the provisions of the Securities Act in respect of the Transfer
of any of such Securities or any interest therein. Each Purchaser will use its
best efforts to cause any proposed transferee of any Securities held by it to
agree to take and hold such Securities subject to the provisions and upon the
conditions specified in this Article IX.
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SECTION 9.2 RESTRICTIVE LEGENDS.
(a) Each certificate for Securities issued to a Purchaser or to a
subsequent transferee shall (except as contemplated by Section 7.11 and Section
9.1 hereof) include a legend in substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER
HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE CORPORATION
THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO
THE CORPORATION, (B) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT, OR (C) IF REGISTERED UNDER THE SECURITIES ACT.
SECTION 9.3 NOTICE OF PROPOSED TRANSFERS. Prior to any proposed
Transfer of the Securities (other than a Transfer (i) registered or exempt from
registration under the Securities Act, (ii) to an affiliate of a Purchaser which
is an "accredited investor" within the meaning of Rule 501(a) under the
Securities Act, provided that any such transferee shall agree to be bound by the
terms of this Agreement and the Registration Rights Agreement, or (iii) to be
made in reliance on Rule 144 under the Securities Act), the holder thereof shall
give written notice to the Company of such holder's intention to effect such
Transfer, setting forth the manner and circumstances of the proposed Transfer,
which shall be accompanied by (a) an opinion of counsel reasonably acceptable to
the Company, confirming that such transfer does not give rise to a violation of
the Securities Act, (B) representation letters in form and substance reasonably
satisfactory to the Company to ensure compliance with the provisions of the
Securities Act and (C) letters in form and substance reasonably satisfactory to
the Company from each such transferee stating such transferee's agreement to be
bound by the terms of this Agreement and the Registration Rights Agreement. Such
proposed Transfer may be effected only if the Company shall have received such
notice of transfer, opinion of counsel, representation letters and other letters
referred to in the immediately preceding sentence, whereupon the holder of such
Securities shall be entitled to Transfer such Securities in accordance with the
terms of the notice delivered by the holder to the Company.
ARTICLE X. ADDITIONAL AGREEMENTS AMONG THE PARTIES
SECTION 10.1 LIQUIDATED DAMAGES.
(a) The Company shall, and shall use its commercially
reasonable best efforts to cause its transfer agent to, issue and
deliver shares of Common Stock consistent with Section 7.11 hereof
within five (5) Trading Days of delivery of a Notice of Conversion or
Notice of Exercise, as applicable (the "Deadline") to Purchaser (or any
party receiving Securities by transfer from Purchaser) at the address
of Purchaser set forth in the Notice of Conversion or Notice of
Exercise, as the case may be. The Company understands that a delay in
the issuance of such certificates after the Deadline could result in
economic loss to Purchaser.
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(b) Without in any way limiting Purchaser's right to pursue
other remedies, including actual damages and/or equitable relief, the
Company agrees that if delivery of the Conversion Shares is more than
one (1) Business Day after the Deadline (other than a failure due to
the circumstances described in Section 4.3 of the Convertible Notes,
which failure shall be governed by such Section) the Company shall pay
to Purchaser, as liquidated damages and not as a penalty, $500 for each
$100,000 of Convertible Notes then outstanding per day in cash, for
each of the first ten (10) days beyond the Deadline, and $1,000 for
each $100,000 of Convertible Notes then outstanding per day in cash for
each day thereafter that the Company fails to deliver such Common
Stock. Such cash amount shall be paid to Purchaser by the fifth day of
the month following the month in which it has accrued or, at the option
of Purchaser (by written notice to the Company by the first day of the
month following the month in which it has accrued), shall be added to
the principal amount of the Convertible Note (if then outstanding)
payable to Purchaser, in which event interest shall accrue thereon in
accordance with the terms of the Convertible Notes and such additional
principal amount shall be convertible into Common Stock in accordance
with the terms of the Convertible Notes.
SECTION 10.2 CONVERSION NOTICE. The Company agrees that, in addition to
any other remedies which may be available to Purchaser, including, but not
limited to, the remedies available under Section 10.1, in the event the Company
fails for any reason (other than as a result of actions taken by a Purchaser in
breach of this Agreement) to effect delivery to a Purchaser of certificates with
or without restrictive legends as contemplated by Article IX representing the
shares of Common Stock on or prior to the Deadline after conversion of any
Convertible Notes, Purchaser will be entitled, if prior to the delivery of such
certificates, to revoke the Notice of Conversion, as applicable, by delivering a
notice to such effect to the Company whereupon the Company and Purchaser shall
each be restored to their respective positions immediately prior to delivery of
such Notice of Conversion.
SECTION 10.3 CONVERSION LIMIT. Notwithstanding the conversion rights
under the Convertible Notes, unless Purchaser delivers a waiver in accordance
with the immediately following sentence, in no event shall Purchaser be entitled
to convert any portion of the Convertible Notes, in excess of that portion of
the Convertible Notes, as applicable, of which the sum of (i) the number of
shares of Common Stock beneficially owned by Purchaser and its Affiliates (other
than shares of Common Stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the Convertible Note or other Derivative
Securities convertible into or exchangeable for shares of Common Stock which
contain a limitation similar to that set forth in this Section 10.3), and (ii)
the number of shares of Common Stock issuable upon the conversion of the portion
of the Convertible Note with respect to which this determination is being made,
would result in beneficial ownership by Purchaser and its Affiliates of more
than 9.99% of the outstanding shares of Common Stock. For purposes of Section
10.3(i) beneficial ownership shall be determined in accordance with Rule 13d-3
of the Exchange Act and Regulations 13 D-G thereunder, except as otherwise
provided in this Section 10.3. The foregoing limitation shall not apply and
shall be of no further force or effect (i) immediately preceding and upon the
occurrence of any voluntary or mandatory redemption or repayment transaction
described herein or in the Convertible Notes, (ii) immediately preceding and
upon any Sale Event, (iii) on the Maturity Date or (iv) following the occurrence
of any Event
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of Default which is not cured within the greater of the applicable time period
specified in either (A) such written notice of Purchaser or (B) Section 12.1
hereof.
SECTION 10.4 REGISTRATION RIGHTS.
(a) The Company shall grant Purchaser registration rights
covering the Conversion Shares and the Shares issued upon exercise of
the Warrant (the "Registrable Securities") on the terms set forth in
the Registration Rights Agreement and herein.
(b) The Company shall prepare and file on or before December
30, 1998 a registration statement (the "Registration Statement") on
Form S-1 (or such other form as is then available for registration)
covering the resale of the Registrable Securities. The Company shall
use its best efforts to cause the Registration Statement to be declared
effective by the Commission no later than February 12, 1999 following
the filing of the Registration Statement (the "Required Effectiveness
Date"). The Company shall pay all expenses of registration (other than
underwriting fees and discounts, if any, in respect of Registrable
Securities offered and sold under such Registration Statement by
Purchaser).
(c) If the Registration Statement is not declared effective by
the Commission by the Required Effectiveness Date, the Company shall
pay to Purchaser, as liquidated damages and not as a penalty, an amount
equal to 2% of the outstanding principal amount of the Convertible
Notes, prorated, for each 30 day period the Registration Statement is
not declared effective by the Commission, which amount will be
increased to 3% of the outstanding principal amount of the Convertible
Notes in the event that the Registration Statement is not declared
effective by the Commission within 90 days of the Closing Date. In
addition, commencing 120 days following the Closing Date, the
Conversion Price of the Convertible Notes will decrease by 1% for each
30-day period in which the Registration Statement is not declared
effective, up to a maximum discount of 30%. In the event the Company
fails to obtain a valid Registration Statement by the 180th day
following the Closing Date, the Company will redeem the Convertible
Notes as set forth in Section 5 of the Convertible Notes. Additionally,
the Company will grant to Purchaser first priority piggyback
registration rights in the event the Company proposes to effect a
registered offering of Common Stock or warrants or both prior to the
filing of the Registration Statement referenced above.
(d) Any such liquidated damages shall be paid in cash by the
Company to Purchaser by wire transfer in immediately available funds on
the last day of each calendar week following the event requiring its
payment.
(e) If, following the declaration of effectiveness of the
Registration Statement, the Registration Statement (or any prospectus
or supplemental prospectus contained therein) shall cease to be
effective for any reason (including but not limited to the occurrence
of any event that results in any prospectus or supplemental prospectus
containing an untrue statement of a material fact or omitting a
material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
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they were made, not misleading) (a "Registration Default"), the Company
shall immediately take all necessary steps to cause the Registration
Statement to be amended or supplemented so as to cure such Registration
Default. Failure to cure a Registration Default within ten (10)
business days shall result in the Company paying to Purchaser
liquidated damages at the rate of $1,000 per day from the date of such
Registration Default until the Registration Default is cured.
SECTION 10.5 RESTRICTION ON ISSUANCE OF SECURITIES. For a period of
sixty (60) days following the sooner to occur of (i) the effective date of the
Registration Statement or (ii) the date that the Convertible Notes are converted
in full, the Company will not sell, or offer to sell, any securities (including
credit facilities which are convertible into securities which may be issued at a
discount to the then current Market Price) other than borrowings under
conventional credit facilities existing as of the date hereof, stock issued or
credit facilities to be established in connection with acquisitions, employee
and director stock options of the Company, existing rights and warrants of the
Company and securities issued under the Convertible Notes. In addition, the
Company shall not issue any securities in connection with a strategic alliance
entered into by the Company unless such securities are the subject of a one year
statutory or contractual hold period or, if not subject to such a hold period,
unless the Purchaser has fully converted all outstanding Convertible Notes.
Notwithstanding the foregoing, the Company may enter into the following types of
transactions (collectively referred to as "Permitted Financings"): (1)
"permanent financing" transactions, which would include any form of debt or
equity financing (other than an underwritten offering), which is followed by a
reduction of the said financing commitment to zero and payment of all related
fees and expenses; (2) "project financing" which provide for the issuance of
non-recourse debt instruments in connection with the operation of the Company's
business as presently conducted or as proposed to be conducted; and (3) an
underwritten offering of Common Stock, provided that such offering provides for
the registration of the Common Stock to be received by Purchaser as a result of
the conversion of the Convertible Notes held by the Purchaser.
ARTICLE XI. ADJUSTMENT OF FIXED PRICE
SECTION 11.1 REORGANIZATION. The Conversion Price and the dollar amount
set forth in (collectively, the "Fixed Prices") shall be adjusted, as
applicable, as hereafter provided.
SECTION 11.2 SHARE REORGANIZATION. If and whenever the Company
shall:
(i) subdivide the outstanding shares of Common Stock into a
greater number of shares;
(ii) consolidate the outstanding shares of Common Stock into
a smaller number of shares;
(iii) issue Common Stock or securities convertible into or
exchangeable for shares of Common Stock as a stock dividend to all or
substantially all the holders of Common Stock; or
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(iv) make a distribution on the outstanding Common Stock to
all or substantially all the holders of Common Stock payable in Common
Stock or securities convertible into or exchangeable for Common Stock;
any of such events being herein called a "Share Reorganization," then in each
such case the applicable Fixed Price shall be adjusted, effective immediately
after the record date at which the holders of Common Stock are determined for
the purposes of the Share Reorganization or, if no record date is fixed, the
effective date of the Share Reorganization, by multiplying the applicable Fixed
Price in effect on such record or effective date, as the case may be, by a
fraction of which:
(I) the numerator shall be the number of shares of Common
Stock outstanding on such record or effective date (without giving
effect to the transaction); and
(II) the denominator shall be the number of shares of Common
Stock outstanding after giving effect to such Share Reorganization,
including, in the case of a distribution of securities convertible into
or exchangeable for shares of Common Stock, the number of shares of
Common Stock that would have been outstanding if such securities had
been converted into or exchanged for Common Stock on such record or
effective date.
SECTION 11.3 RIGHTS OFFERING. If and whenever the Company shall issue
to all or substantially all the holders of Common Stock, rights, options or
warrants under which such holders are entitled, during a period expiring not
more than 45 days after the record date of such issue, to subscribe for or
purchase Common Stock (or Derivative Securities), at a price per share (or, in
the case of securities convertible into or exchangeable for Common Stock, at an
exchange or conversion price per share at the date of issue of such securities)
of less than 95% of the Market Price of the Common Stock on such record date
(any such event being herein called a "Rights Offering"), then in each such case
the applicable Fixed Price shall be adjusted, effective immediately after the
record date at which holders of Common Stock are determined for the purposes of
the Rights Offering, by multiplying the applicable Fixed Price in effect on such
record date by a fraction of which:
(i) the numerator shall be the sum of:
(I) the number of shares of Common Stock outstanding on such
record date; and
(II) a number obtained by dividing:
(A) either,
(x) the product of the total number of shares of
Common Stock so offered for subscription or purchase and the price at
which such shares are so offered, or
(y) the product of the maximum number of shares of
Common Stock into or for which the convertible or exchangeable
securities so offered for subscription or purchase may be converted or
exchanged and the conversion or exchange price of such securities, or,
as the case may be, by
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(B) the Market Price of the Common Stock on such record
date; and
(ii) the denominator shall be the sum of:
(I) the number of shares of Common Stock outstanding on such
record date; and
(II) the number of shares of Common Stock so offered for
subscription or purchase (or, in the case of Derivative Securities, the
maximum number of shares of Common Stock for or into which the
securities so offered for subscription or purchase may be converted or
exchanged).
To the extent that such rights, options or warrants are not exercised prior to
the expiry time thereof, the applicable Fixed Price shall be readjusted
effective immediately after such expiry time to the applicable Fixed Price which
would then have been in effect upon the number of shares of Common Stock (or
Derivative Securities) actually delivered upon the exercise of such rights,
options or warrants.
SECTION 11.4 SPECIAL DISTRIBUTION. If and whenever the Company shall
issue or distribute to all or substantially all the holders of Common Stock:
(i) shares of the Company of any class, other than Common
Stock;
(ii) rights, options or warrants; or
(iii) any other assets (excluding cash dividends and
equivalent dividends in shares paid in lieu of cash dividends in the
ordinary course);
and if such issuance or distribution does not constitute a Share Reorganization
or a Rights Offering (any such event being herein called a "Special
Distribution"), then in each such case the applicable Fixed Price shall be
adjusted, effective immediately after the record date at which the holders of
Common Stock are determined for purposes of the Special Distribution, by
multiplying the applicable Fixed Price in effect on such record date by a
fraction of which:
(i) the numerator shall be the difference between:
(A) the product of the number of shares of Common Stock
outstanding on such record date and the Market Price of the Common
Stock on such date; and
(B) the fair market value, as determined by the Directors
(whose determination shall be conclusive), to the holders of Common
Stock of the shares, rights, options, warrants, evidences of
indebtedness or other assets issued or distributed in the Special
Distribution (net of any consideration paid therefor by the holders of
Common Stock), and
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(ii) the denominator shall be the product of the number of
shares of Common Stock outstanding on such record date and the Market
Price of the Common Stock on such date.
SECTION 11.5 CAPITAL REORGANIZATION. If and whenever there shall occur:
(i) a reclassification or redesignation of the shares of
Common Stock or any change of the shares of Common Stock into other
shares, other than in a Share Reorganization;
(ii) a consolidation, merger or amalgamation of the Company
with, or into another body corporate; or
(iii) the transfer of all or substantially all of the assets
of the Company to another body corporate;
(any such event being herein called a "Capital Reorganization"), then in each
such case the holder who exercises the right to convert Convertible Notes after
the effective date of such Capital Reorganization shall be entitled to receive
and shall accept, upon the exercise of such right, in lieu of the number of
shares of Common Stock to which such holder was theretofore entitled upon the
exercise of the conversion privilege, the aggregate number of shares or other
securities or property of the Company or of the body corporate resulting from
such Capital Reorganization that such holder would have been entitled to receive
as a result of such Capital Reorganization if, on the effective date thereof,
such holders had been the holder of the number of shares of Common Stock to
which such holder was theretofore entitled upon conversion; provided, however,
that no such Capital Reorganization shall be consummated in effect unless all
necessary steps shall have been taken so that such holders shall thereafter be
entitled to receive such number of shares or other securities of the Company or
of the body corporate resulting from such Capital Reorganization, subject to
adjustment thereafter in accordance with provisions the same, as nearly as may
be possible, as those contained above.
SECTION 11.6 PURCHASE PRICE ADJUSTMENTS. In case at any time and from
time to time the Company shall issue any shares of Common Stock or Derivative
Securities convertible or exercisable for shares of Common Stock (the number of
shares so issued, or issuable upon conversion or exercise of such Derivative
Securities, as applicable, being referred to as "Additional Shares of Common
Stock") for consideration less than the then Market Price at the date of
issuance of such shares of Common Stock or such Derivative Securities, in each
such case the Conversion Price shall, concurrently with such issuance, be
adjusted by multiplying the Conversion Price immediately prior to such event by
a fraction: (i) the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to the issuance of such Additional Shares of
Common Stock plus the number of shares of Common Stock that the aggregate
consideration received by the Company for the total number of such Additional
Shares of Common Stock so issued would purchase at the Market Price and (ii) the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of Additional Shares of Common Stock plus the
number of such Additional Shares of Common Stock so issued or sold.
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SECTION 11.7 ADJUSTMENT RULES. The following rules and procedures shall
be applicable to adjustments made in this Article XI:
(a) no adjustment in the applicable Fixed Price shall be
required unless such adjustment would result in a change of at least 1%
in the applicable Fixed Price then in effect, provided, however, that
any adjustments which, but for the provisions of this clause would
otherwise have been required to be made, shall be carried forward and
taken into account in any subsequent adjustment;
(b) if any event occurs of the type contemplated by the
adjustment provisions of this Article XI but not expressly provided for
by such provisions, the Company will give notice of such event as
provided herein, and the Company's board of directors will make an
appropriate adjustment in the Fixed Price so that the rights of the
holders of the applicable Security shall not be diminished by such
event; and
(c) if a dispute shall at any time arise with respect to any
adjustment of the applicable Fixed Price, such dispute shall be
conclusively determined by the auditors of the Company or, if they are
unable or unwilling to act, by a firm of independent chartered
accountants selected by the Directors and any such determination shall
be binding upon the Company and Purchaser.
SECTION 11.8 CERTIFICATE AS TO ADJUSTMENT. The Company shall from time
to time promptly after the occurrence of any event which requires an adjustment
in the applicable Fixed Price deliver to Purchaser a certificate specifying the
nature of the event requiring the adjustment, the amount of the adjustment
necessitated thereby, the applicable Fixed Price after giving effect to such
adjustment and setting forth, in reasonable detail, the method of calculation
and the facts upon which such calculation is based.
SECTION 11.9 NOTICE TO NOTEHOLDERS. If the Company shall fix a record
date for:
(a) any Share Reorganization (other than the subdivision of
outstanding Common Stock into a greater number of shares or the
consolidation of outstanding Common Stock into a smaller number of
shares),
(b) any Rights Offering,
(c) any Special Distribution,
(d) any Capital Reorganization (other than a reclassification
or redesignation of the Common Stock into other shares),
(e) Sale Event; or
(f) any cash dividend,
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the Company shall, not less than 10 days prior to such record date or, if no
record date is fixed, prior to the effective date of such event, give to
Purchaser notice of the particulars of the proposed event or the extent that
such particulars have been determined at the time of giving the notice.
ARTICLE XII. EVENTS OF DEFAULT
SECTION 12.1 EVENTS OF DEFAULT. If one or more of the following events
(each an "Event of Default") shall have occurred and be continuing:
(a) failure by the Company to pay or repay when due, all or
any part of the principal on any of the Convertible Notes (whether by
virtue of the agreements specified in this Agreement or the Convertible
Notes);
(b) failure by the Company to pay (i) within five (5) Business
Days of the due date thereof any interest on any Convertible Notes or
(ii) within five (5) Business Days following the delivery of notice to
the Company of any fees or any other amount payable (not otherwise
referred to in (a) above or this clause (b)) by the Company under this
Agreement or any other Transaction Agreement;
(c) failure by the Company to timely comply with the
requirements of Section 7.11 or 10.1 hereof, which failure is not cured
within five (5) Business Days of such failure;
(d) failure on the part of the Company to observe or perform
any covenant contained in Section 7.10 or Article VIII of this
Agreement;
(e) failure on the part of the Company to observe or perform
any covenant or agreement contained in any Transaction Agreement (other
than those covered by clauses (a), (b), (c), (d) or (e) above) for 30
days from the date of such occurrence;
(f) the trading in the Common Stock shall have been suspended
by the Commission, OTC Bulletin Board or any National Market (except
for any suspension of trading of limited duration solely to permit
dissemination of material information regarding the Company and except
if, at the time there is any suspension on any National Market, the
Common Stock is then listed and approved for trading on another
National Market within ten (10) Trading Days thereof);
(g) failure of the Company to file the Listing Applications
within twenty (20) Business Days of the Closing Date, which failure is
not cured within five (5) Business Days of such failure;
(h) the Company shall have its Common Stock delisted from the
OTC Bulletin Board or a National Market for at least ten (10)
consecutive Trading Days and is unable to obtain a listing on a
National Market within such ten (10) Trading Days;
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(i) the Registration Statement shall not have been declared
effective by the Commission by the Required Effectiveness Date, or such
effectiveness shall not be maintained for the Registration Maintenance
Period, in each case which results in the Company incurring the Default
Fee for a period in excess of 45 days;
(j) the Company or any Subsidiary has commenced a voluntary
case or other proceeding seeking liquidation, winding-up,
reorganization or other relief with respect to itself or its debts
under any bankruptcy, insolvency, moratorium or other similar law now
or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or has consented to any such relief
or to the appointment of or taking possession by any such official in
an involuntary case or other proceeding commenced against it, or has
made a general assignment for the benefit of creditors, or has failed
generally to pay its debts as they become due, or has taken any
corporate action to authorize any of the foregoing;
(k) an involuntary case or other proceeding has been commenced
against the Company or any Subsidiary seeking liquidation, winding-up,
reorganization or other relief with respect to it or its debts under
any bankruptcy, insolvency, moratorium or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of 60
days, or an order for relief has been entered against the Company or
any Subsidiary under the federal bankruptcy laws as now or hereafter in
effect;
(l) default in any provision (including payment) or any
agreement governing the terms of any Debt of the Company or any
Subsidiary in excess of $1,000,000, which has not been cured within any
applicable period of grace associated therewith;
(m) judgments or orders for the payment of money which in the
aggregate at any one time exceed $1,000,000 and are not covered by
insurance have been rendered against the Company or any Subsidiary by a
court of competent jurisdiction and such judgments or orders shall
continue unsatisfied and unstayed for a period of 60 days; or
(n) any representation, warranty, certification or statement
made by the Company in any Transaction Agreement or which is contained
in any certificate, document or financial or other statement furnished
at any time under or in connection with any Transaction Agreement shall
prove to have been untrue in any material respect when made.
then, and in every such occurrence, Purchaser may, with respect to an Event of
Default specified in paragraphs (a) or (b), and the Majority Holders may, with
respect to any other Event of Default, by notice to the Company, declare the
Convertible Notes to be, and the Convertible Notes shall thereon become
immediately due and payable; provided that in the case of any of the Events of
Default specified in paragraph (k) or (l) above with respect to the Company or
any Subsidiary, then, without any notice to the Company or any other act by
Purchaser, the entire amount of the Convertible Notes shall become immediately
due and payable, provided, further, if any Event of Default has occurred
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and is continuing, and irrespective of whether any Convertible Note has been
declared immediately due and payable hereunder, any Purchaser of Convertible
Notes may proceed to protect and enforce the rights of Purchaser by an action at
law, suit in equity or other appropriate proceeding, whether for the specific
performance of any agreement contained herein or in any Convertible Note, or for
an injunction against a violation of any of the terms hereof or thereof, or in
aid of the exercise of any power granted hereby or thereby or by law or
otherwise, and provided further, in the case of any Event of Default, the amount
declared due and payable on the Convertible Notes shall be the Formula Price
thereof.
SECTION 12.2 POWERS AND REMEDIES CUMULATIVE. No right or remedy herein
conferred upon or reserved to Purchaser is intended to be exclusive of any other
right or remedy, and every right and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right and remedy given
hereunder or now hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy. Every power and remedy given by the Convertible Notes or by law
may be exercised from time to time, and as often as shall be deemed expedient,
by Purchaser.
ARTICLE XIII. MISCELLANEOUS
SECTION 13.1 NOTICES. All notices, demands and other communications to
any party hereunder shall be in writing (including telecopier or similar
writing) and shall be given to such party at its address set forth on the
signature pages hereof, or such other address as such party may hereafter
specify for the purpose to the other parties. Each such notice, demand or other
communication shall be effective (i) if given by telecopy, when such telecopy is
transmitted to the telecopy number specified on the signature page hereof, (ii)
if given by mail, four days after such communication is deposited in the mail
with first class postage prepaid, addressed as aforesaid or (iii) if given by
any other means, when delivered at the address specified in or pursuant to this
Section.
SECTION 13.2 NO WAIVERS; AMENDMENTS.
(a) No failure or delay on the part of any party in exercising
any right, power or remedy hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy.
(b) Any provision of this Agreement may be amended,
supplemented or waived if, but only if, such amendment, supplement or
waiver is in writing and is signed by the Company and the Majority
Holders; provided, that without the consent of each holder of any
Convertible Note affected thereby, an amendment or waiver may not (a)
reduce the aggregate principal amount of Convertible Notes whose
holders must consent to an amendment or waiver, (b) reduce the rate or
extend the time for payment of interest on any Convertible Note, (c)
reduce the principal amount of or extend the stated maturity of any
Convertible
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Note or (d) make any Convertible Note payable in money or property
other than as stated in such Convertible Note. In determining whether
the holders of the requisite principal amount of Convertible Notes have
concurred in any direction, consent, or waiver as provided in any
Transaction Agreement, Convertible Notes which are owned by the Company
or any other obligor on or guarantor of the convertible Notes, or by
any Person Controlling, Controlled by, or under common Control with any
of the foregoing, shall be disregarded and deemed not to be outstanding
for the purpose of any such determination; and provided further that no
such amendment, supplement or waiver which affects the rights of
Purchaser and their affiliates otherwise than solely in their
capacities as holders of Convertible Notes shall be effective with
respect to them without their prior written consent.
SECTION 13.3 INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless
Purchaser, its Affiliates, and each Person, if any, who controls
Purchaser, or any of its Affiliates, within the meaning of the
Securities Act or the Exchange Act (each, a "Controlling Person"), and
the respective partners, agents, employees, officers and Directors of
Purchaser, their Affiliates and any such Controlling Person (each an
"Indemnified Party") and collectively, the "Indemnified Parties"), from
and against any and all losses, claims, damages, liabilities and
expenses (including, without limitation and as incurred, reasonable
costs of investigating, preparing or defending any such claim or
action, whether or not such Indemnified Party is a party thereto,
provided that the Company shall not be obligated to advance such costs
to any Indemnified Party other than Purchaser unless it has received
from such Indemnified Party an undertaking to repay to the Company the
costs so advanced if it should be determined by final judgment of a
court of competent jurisdiction that such Indemnified Party was not
entitled to indemnification hereunder with respect to such costs) which
may be incurred by such Indemnified Party in connection with any
investigative, administrative or judicial proceeding brought or
threatened that relates to or arises out of, or is in connection with
any activities contemplated by any Transaction Agreement or any other
services rendered in connection herewith; provided that the Company
will not be responsible for any claims, liabilities, losses, damages or
expenses that are determined by final judgment of a court of competent
jurisdiction to result from such Indemnified Party's gross negligence,
willful misconduct or bad faith.
(b) If any action shall be brought against an Indemnified
Party with respect to which indemnity may be sought against the Company
under this Agreement, such Indemnified Party shall promptly notify the
Company in writing and the Company, at its option, may, assume the
defense thereof, including the employment of counsel reasonably
satisfactory to such Indemnified Party and payment of all reasonable
fees and expenses. The failure to so notify the Company shall not
affect any obligations the Company may have to such Indemnified Party
under this Agreement or otherwise unless the Company is materially
adversely affected by such failure. Such Indemnified Party shall have
the right to employ separate counsel in such action and participate in
the defense thereof, but the fees and expenses of such counsel shall be
at the expense of such Indemnified Party, unless (i) the Company has
failed to assume the defense and employ counsel or (ii) the named
parties to
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any such action (including any impleaded parties) include such
Indemnified Party and the Company, and such Indemnified Party shall
have been advised by counsel that there may be one or more legal
defenses available to it which are different from or additional to
those available to the Company, in which case, if such Indemnified
Party notifies the Company in writing that it elects to employ separate
counsel at the expense of the Company, the Company shall not have the
right to assume the defense of such action or proceeding on behalf of
such Indemnified Party, provided, however, that the Company shall not,
in connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or
circumstances, be responsible hereunder for the reasonable fees and
expenses of more than one such firm of separate counsel, in addition to
any local counsel, which counsel shall be designated by Purchaser. The
Company shall not be liable for any settlement of any such action
effected without the written consent of the Company (which shall not be
unreasonably withheld) and the Company agrees to indemnify and hold
harmless each Indemnified Party from and against any loss or liability
by reason of settlement of any action effected with the consent of the
Company. In addition, the Company will not, without the prior written
consent of Purchaser, settle or compromise or consent to the entry of
any judgment in or otherwise seek to terminate any pending or
threatened action, claim, suit or proceeding in respect to which
indemnification or contribution may be sought hereunder (whether or not
any Indemnified Party is a party thereto) unless such settlement,
compromise, consent or termination includes an express unconditional
release of Purchaser and the other Indemnified Parties, satisfactory in
form and substance to Purchaser, from all liability arising out of such
action, claim, suit or proceeding.
(c) If for any reason the foregoing indemnity is unavailable
(otherwise than pursuant to the express terms of such indemnity) to an
Indemnified Party or insufficient to hold an Indemnified Party
harmless, then in lieu of indemnifying such Indemnified Party, the
Company shall contribute to the amount paid or payable by such
Indemnified Party as a result of such claims, labilities, losses,
damages, or expenses (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand
and by Purchaser on the other from the transactions contemplated by
this Agreement or (ii) if the allocation provided by clause (i) is not
permitted under applicable law, in such proportion as is appropriate to
reflect not only the relative benefits received by the Company on the
one hand and Purchaser on the other, but also the relative fault of the
Company and Purchaser as well as any other relevant equitable
considerations. Notwithstanding the provisions of this Section 13.3,
the aggregate contribution of all Indemnified Parties shall not exceed
the amount of interest and fees actually received by Purchaser pursuant
to this Agreement. It is hereby further agreed that the relative
benefits to the Company on the one hand and Purchaser on the other with
respect to the transactions contemplated hereby shall be determined by
reference to, among other things, whether any untrue or alleged untrue
statement of material fact or the omission or alleged omission to state
a material fact related to information supplied by the Company or by
Purchaser and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. No Person guilty of fraudulent misrepresentation (within the
meaning of Section
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11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
(d) The indemnification, contribution and expense
reimbursement obligations set forth in this Section 13.3 (i) shall be
in addition to any liability the Company may have to any Indemnified
Party at common law or otherwise; (ii) shall survive the termination of
this Agreement and the other Transaction Agreements and the payment in
full of the Convertible Notes and (iii) shall remain operative and in
full force and effect regardless of any investigation made by or on
behalf of Purchaser or any other Indemnified Party.
SECTION 13.4 EXPENSES: DOCUMENTARY TAXES. The Company agrees to pay to
Purchaser a fee of $15,000.00 (the "Expense Reimbursement Fee") in full
satisfaction of all obligations of the Company to Purchaser and its agents in
connection with the negotiation and preparation of the Transaction Agreements,
relevant due diligence, and fees and disbursements of legal counsel. In
addition, the Company agrees to pay any and all stamp, transfer and other
similar taxes, assessments or charges payable in connection with the execution
and delivery of any Transaction Agreement or the issuance of the Securities to
Purchaser, excluding their assigns.
SECTION 13.5 PAYMENT. The Company agrees that, so long as Purchaser
shall own any Convertible Notes purchased by it from the Company hereunder, the
Company will make payments to Purchaser of all amounts due thereon by wire
transfer by 4:00 P.M. (New York City time).
SECTION 13.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the Company and upon Purchaser and its respective successors and assigns;
provided that the Company shall not assign or otherwise transfer its rights or
obligations under this Agreement to any other Person without the prior written
consent of the Majority Holders. All provisions hereunder purporting to give
rights to Purchaser and its affiliates or to holders of Securities are for the
express benefit of such Persons and their successors and assigns.
SECTION 13.7 BROKERS. Except for a fee payable in the form of
$67,500.00 in cash and a warrant (the "Warrant") for 60,000 shares of the Common
Stock to LKB Financial, LLC, the Company represents and warrants that it has not
employed any broker, finder, financial advisor or investment banker who would be
entitled to any brokerage, finder's or other fee or commission payable by the
Company or Purchaser in connection with the sale of the Securities.
SECTION 13.8 GEORGIA LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY
TRIAL; APPOINTMENT OF AGENT. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF GEORGIA. EACH PARTY HERETO HEREBY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR
THE NORTHERN DISTRICT OF GEORGIA AND OF ANY FEDERAL DISTRICT COURT SITTING IN
ATLANTA, GEORGIA FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY
HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH
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PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
EACH PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN
ANY SUCH PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED
MAIL, POSTAGE PREPAID, TO SUCH PARTY AT ITS ADDRESS SET FORTH HEREIN. NOTHING
HEREIN SHALL AFFECT THE RIGHT OF ANY PARTY TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW. EACH PARTY WAIVES ITS RIGHT TO A TRIAL BY JURY.
SECTION 13.9 ENTIRE AGREEMENT. This Agreement, the Exhibits or
Schedules hereto, which include, but are not limited to the Convertible Note,
the Registration Rights Agreement and the Pledge Agreement, set forth the entire
agreement and understanding of the parties relating to the subject matter hereof
and supersedes all prior and contemporaneous agreements, negotiations and
understandings between the parties, both oral and written relating to the
subject matter hereof. The terms and conditions of all Exhibits and Schedules to
this Agreement are incorporated herein by this reference and shall constitute
part of this Agreement as is fully set forth herein.
SECTION 13.10 SURVIVAL; SEVERABILITY. The representations, warranties,
covenants and agreements of the parties hereto shall survive the Closing
hereunder. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
SECTION 13.11 TITLE AND SUBTITLES. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
SECTION 13.12 REPORTING ENTITY FOR THE COMMON STOCK. The reporting
entity relied upon for the determination of the trading price or trading volume
of the Common Stock on any given Trading Day for the purposes of this Agreement
and all Exhibits shall be Bloomberg, L.P. or any successor thereto. The written
mutual consent of the Purchaser and the Company shall be required to employ any
other reporting entity.
SECTION 13.13 PUBLICITY. The Company and the Purchaser shall consult
with each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and no party
shall issue any such press release or otherwise make any such public statement
without the prior written consent of the other parties, which consent shall not
be unreasonably withheld or delayed, except that no prior consent shall be
required if such disclosure is required by law, in which such case the
disclosing party shall provide the other parties with prior notice of such
public statement. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of Purchaser without the prior written consent of Purchaser,
except to the extent required by law, in which case the Company shall provide
Purchaser with prior written notice of such public disclosure.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers, as of the date first
above written.
LAHAINA ACQUISITIONS, INC.
By: /s/ XXXXXX X. XXXXXX
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Name: XXXXXX X. XXXXXX
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Title: PRESIDENT
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Address: P. O. BOX N8160
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NASSAU
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BAHAMAS
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Fax: 000-000-0000
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Tel.: 000-000-0000
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GCA STRATEGIC INVESTMENT FUND LIMITED
By: /s/ XXXXX X. XXXXXX
---------------------------------
Name: Xxxxx X. Xxxxxx
Title: Director
Address: 000 Xxxxxx Xxxx Xxxxx
Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Fax: 000 000-0000
Tel.: 000 000-0000
Securities Purchase Agreement
