EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
DATED AS OF
FEBRUARY 14, 2003
BY AND BETWEEN
SMARTSERV ONLINE, INC.
AS THE ISSUER,
AND
GLOBAL CAPITAL FUNDING GROUP, L.P.
TABLE OF CONTENTS
DEFINITIONS 1
DEFINITIONS 1
ACCOUNTING TERMS AND DETERMINATIONS 9
PURCHASE AND SALE OF SECURITIES 9
PURCHASE AND SALE OF CONVERTIBLE NOTE 9
PURCHASE PRICE 10
CLOSING AND MECHANICS OF PAYMENT 10
PAYMENT TERMS OF CONVERTIBLE NOTE 10
PAYMENT OF PRINCIPAL AND INTEREST; PAYMENT MECHANICS 10
PAYMENT OF INTEREST 10
VOLUNTARY REDEMPTION 10
MANDATORY REDEMPTION 11
PREPAYMENT/REDEMPTION PROCEDURES 11
REPRESENTATIONS AND WARRANTIES 13
ORGANIZATION AND QUALIFICATION 13
AUTHORIZATION AND EXECUTION 13
CAPITALIZATION 13
GOVERNMENTAL AUTHORIZATION 14
ISSUANCE OF SHARES 14
NO CONFLICTS 14
FINANCIAL INFORMATION 15
LITIGATION 15
COMPLIANCE WITH ERISA AND OTHER BENEFIT PLANS 15
ENVIRONMENTAL MATTERS 16
TAXES 16
INVESTMENTS, JOINT VENTURES 16
NOT AN INVESTMENT COMPANY 17
FULL DISCLOSURE 17
NO SOLICITATION; NO INTEGRATION WITH OTHER OFFERINGS 17
PERMITS 17
LEASES 17
ABSENCE OF ANY UNDISCLOSED LIABILITIES OR CAPITAL CALLS 18
PUBLIC UTILITY HOLDING COMPANY 18
INTELLECTUAL PROPERTY RIGHTS 18
INSURANCE 18
TITLE TO REAL PROPERTIES 18
INTERNAL ACCOUNTING CONTROLS 18
FOREIGN PRACTICES 19
REPRESENTATIONS AND WARRANTIES OF PURCHASER 19
PURCHASER 19
CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES 20
CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS TO PURCHASE 20
CONDITIONS TO THE COMPANY'S OBLIGATIONS 22
AFFIRMATIVE COVENANTS 22
INFORMATION 23
PAYMENT OF OBLIGATIONS 23
MAINTENANCE OF PROPERTY; INSURANCE 24
MAINTENANCE OF EXISTENCE 24
COMPLIANCE WITH LAWS 24
INSPECTION OF PROPERTY, BOOKS AND RECORDS 24
INVESTMENT COMPANY ACT 25
i
USE OF PROCEEDS 25
COMPLIANCE WITH TERMS AND CONDITIONS OF MATERIAL CONTRACTS 25
RESERVED SHARES AND LISTINGS 25
TRANSFER AGENT INSTRUCTIONS 25
MAINTENANCE OF REPORTING STATUS; SUPPLEMENTAL INFORMATION 26
FORM D; BLUE SKY LAWS 26
NEGATIVE COVENANTS 26
LIMITATIONS ON DEBT OR OTHER LIABILITIES 27
TRANSACTIONS WITH AFFILIATES 27
MERGER OR CONSOLIDATION 27
LIMITATION ON ASSET SALES 27
RESTRICTIONS ON CERTAIN AMENDMENTS 27
RESTRICTIONS ON ISSUANCES OF SECURITIES 28
LIMITATION ON STOCK REPURCHASES 29
NO SHORT SALES 29
RESTRICTIVE LEGENDS 29
RESTRICTIONS ON TRANSFER 29
LEGENDS. 29
NOTICE OF PROPOSED TRANSFERS 29
ADDITIONAL AGREEMENTS AMONG THE PARTIES 30
LIQUIDATED DAMAGES 30
CONVERSION NOTICE 30
CONVERSION LIMIT 31
REGISTRATION RIGHTS 31
ADJUSTMENT OF FIXED PRICE 33
REORGANIZATION 33
SHARE REORGANIZATION 33
RIGHTS OFFERING 34
SPECIAL DISTRIBUTION 35
CAPITAL REORGANIZATION 35
PURCHASE PRICE ADJUSTMENTS 36
ADJUSTMENT RULES 36
CERTIFICATE AS TO ADJUSTMENT 37
NOTICE TO HOLDERS 37
EVENTS OF DEFAULT 38
EVENTS OF DEFAULT. 38
POWERS AND REMEDIES CUMULATIVE 40
MISCELLANEOUS 40
NOTICES 40
NO WAIVERS; AMENDMENTS 40
INDEMNIFICATION 41
EXPENSES: DOCUMENTARY TAXES 43
PAYMENT 43
SUCCESSORS AND ASSIGNS 43
BROKERS 43
DELAWARE LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL;
APPOINTMENT OF AGENT 43
ENTIRE AGREEMENT 44
SURVIVAL; SEVERABILITY. 44
TITLE AND SUBTITLES 44
REPORTING ENTITY FOR THE COMMON STOCK. 44
PUBLICITY. 44
ii
LIST OF SCHEDULES
Schedule 2.2 Allocation of Purchase Price
Schedule 4.3 Capitalization Schedule 4.7
Financial Information
Schedule 4.12 Investments, Joint Ventures
Schedule 4.15 No Solicitation; No Integration with Other Offerings
Schedule 7.8 Use of Proceeds
Schedule 8.2 Transactions with Affiliates
LIST OF EXHIBITS
Exhibit A Form of Convertible Note
Exhibit B Form of Registration Rights Agreement
Exhibit C Form of Solvency Certificate
Exhibit D Form of Officer's Certificate
Exhibit E Form of Common Stock Purchase Warrant
Exhibit F Form of Security Agreement
SECURITIES PURCHASE AGREEMENT
AGREEMENT, dated as of February 14, 2003, between SmartServ Online, Inc.
(the " Company") and Global Capital Funding Group, L.P. ("Purchaser").
R E C I T A L S:
WHEREAS, the Company desires to sell and issue to Purchaser, and Purchaser
desires to purchase from the Company a $1,000,000 principal amount 10%
Convertible Note due February 14, 2004 (the "Convertible Note") in accordance
with the terms and conditions as set forth in the form of Convertible Debenture
attached hereto as Exhibit A;
WHEREAS, the Convertible Note will be convertible into shares of the
Company's common stock, $0.01 par value per share (the " Common Stock");
WHEREAS, in order to induce the Purchaser to enter into the transactions
described in this Agreement, the Company desires to issue to the Purchaser a
warrant to purchase 200,000 shares of Common Stock upon the Closing (as defined
herein) on the terms and conditions described in the form of the common stock
purchase warrant attached hereto as Exhibit E (the "Warrants");
WHEREAS, Purchaser will have certain registration rights with respect to
such shares of Common Stock issuable as interest under, and upon conversion of,
the Convertible Note (the "Note Shares") and upon exercise of the Warrants (the
"Warrant Shares," the Note Shares and the Warrant Shares being collectively
referred to herein as the " Conversion Shares") as set forth in the Registration
Rights Agreement in the form attached hereto as Exhibit B; and
WHEREAS, the Convertible Note is secured by certain of the Company's assets
pursuant to a Security Agreement in the form attached hereto as Exhibit F;
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 1. DEFINITIONS
ARTICLE 1.1 DEFINITIONS . The following terms, as used herein, have the
following meanings:
"Additional Shares of Common Stock" has the meaning set forth in Section
11.6.
"Affiliate" means, with respect to any Person (the " Subject Person"), (i)
any other Person (a " Controlling Person") that directly, or indirectly through
one or more intermediaries, Controls the Subject Person or (ii) any other Person
(other than the Subject Person or a Consolidated Subsidiary of the Subject
Person) which is Controlled by or is under common Control with a Controlling
Person.
"Agreement" means this Securities Purchase Agreement, as amended,
supplemented or otherwise modified from time to time in accordance with its
terms.
"Asset Sale" has the meaning set forth in Section 8.4.
"Balance Sheet Date" has the meaning set forth in Section 4.7.
"Benefit Arrangement" means at any time an employee benefit plan within the
meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and
which is maintained or otherwise contributed to by the Company.
"Benefit Plans" has the meaning set forth in Section 4.9(b).
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized or required by law
to close.
"Capital Reorganization" has the meaning set forth in Section 11.5.
"Change in Control" means (i) after the date of this Agreement, any person
or group of persons (within the meaning of Sections 13 and 14 of the Exchange
Act and the rules and regulations of the Commission relating to such sections)
other than Purchaser shall have acquired beneficial ownership (within the
meaning of Rules 13d-3 and 13d-5 promulgated by the Commission pursuant to the
Exchange Act) of 331/3% or more of the outstanding shares of Common Stock of the
Company without the prior written consent of Purchaser; (ii) any sale or other
disposition (other than by reason of death or disability) to any Person of more
than 75,000 shares of Common Stock of the Company by any executive officers
and/or employee directors of the Company without the prior written consent of
Purchaser; (iii) individuals constituting the Board of Directors of the Company
on the date hereof (together with any new Directors whose election by such Board
of Directors or whose nomination for election by the stockholders of the Company
was approved by a vote of at least 50.1% of the Directors still in office who
are either Directors as of the date hereof or whose election or nomination for
election was previously so approved), cease for any reason to constitute at
least two-thirds of the Board of Directors of the Company then in office.
"Closing Bid Price" shall mean for any security as of any date, the 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 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 closing bid 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 closing bid price cannot be calculated for such security on
such date on any of the foregoing bases, the 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 the Convertible Note is
issued by the Company to Purchaser.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission or any entity
succeeding to all of its material functions.
"Common Stock" means common stock, $0.01 par value per share, of the
Company.
"Company" means SmartServ Online, Inc., a Delaware 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 the Convertible Note.
"Conversion Price" has the meaning set forth in the Convertible Note.
"Conversion Shares" has the meaning set forth in the Recitals.
"Convertible Note" means the Company's 10% Convertible Note substantially
in the form set forth as Exhibit A hereto.
"Deadline" has the meaning set forth in Section 10.1.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, Note, notes, or other similar instruments issued by
such Person, (iii) all obligations of such Person as lessee which (y) are
capitalized in accordance with GAAP or (z) arise pursuant to sale-leaseback
transactions, (iv) all reimbursement obligations of such Person in respect of
letters of credit or other similar instruments, (v) all Debt of others secured
by a Lien on any asset of such Person, whether or not such Debt is otherwise an
obligation of such Person and (vi) all Debt of others Guaranteed by such Person.
"Default" means any event or condition which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"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.
"Financing" means a public or private financing consummated (meaning closing and
funding) through the issuance of debt or equity securities (or securities
convertible into or exchangeable for debt or equity securities) of the Company,
other than Permitted Financings.
"Fixed Price(s)" has the meaning set forth in Section 11.1.
"GAAP" has the meaning set forth in Section 1.2.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing (whether by virtue of
partnership arrangements, by agreement to keep well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain a minimum net worth,
financial ratio or similar requirements, or otherwise) any Debt of any other
Person and, without limiting the generality of the foregoing, any obligation,
direct or indirect, contingent or otherwise, of such Person (i) to purchase or
pay (or advance or supply funds for the purchase or payment of) such Debt or
(ii) entered into for the purpose of assuring in any other manner the holder of
such Debt of the payment thereof or to protect such holder against loss in
respect thereof (in whole or in part); provided that the term Guarantee shall
not include endorsements for collection or deposit in the ordinary course of
business. The term Guarantee used as a verb has a corresponding meaning.
"Hazardous Materials" means any hazardous materials, hazardous wastes,
hazardous constituents, hazardous or toxic substances or petroleum products
(including crude oil or any derivative or fraction thereof), defined or
regulated as such in or under any Environmental Laws.
"Intellectual Property" has the meaning set forth in Section 4.20.
"Investment" means any investment in any Person, whether by means of share
purchase, partnership interest, capital contribution, loan, time deposit or
otherwise.
"Lien" means any lien, mechanic's lien, materialmen's lien, lease,
easement, charge, encumbrance, mortgage, conditional sale agreement, title
retention agreement, agreement to sell or convey, option, claim, title
imperfection, encroachment or other survey defect, pledge, restriction, security
interest or other adverse claim, whether arising by contract or under law or
otherwise (including, without limitation, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code or comparable law
of any jurisdiction in respect of any of the foregoing).
"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 10% Convertible Note outstanding at such time.
"Market Price" shall mean the Closing Bid Price of the Common Stock
preceding the date of determination.
"Maturity Date" shall mean the date of maturity of the Convertible Note.
"Maximum Number of Shares" shall mean that percentage that the Company may
issue without shareholder approval under the applicable rules of a National
Market 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.
"NASD" has the meaning set forth in Section 7.10.
"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.
"Notice of Conversion" means the form to be delivered by a holder of the
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.
"Notice of Exercise" means the form to be delivered by a holder of a
Warrant upon exercise of all or a portion thereof to the Company substantially
in the form of Exhibit A to the Warrant.
"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.
"OTC Bulletin Board" means the over-the-counter bulletin board operated by
the NASD.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permits" means all domestic and foreign licenses, franchises, grants,
authorizations, permits, easements, variances, exemptions, consents,
certificates, orders and approvals necessary to own, lease and operate the
properties of, and to carry on the business of the Company and the Subsidiaries.
"Permitted Financings" has the meaning set forth in Section 8.6. "Person"
means an individual, corporation, partnership, trust, incorporated or
unincorporated association, joint venture, joint stock Company, government (or
any agency or political subdivision thereof) or other entity of any kind.
"Plan" means at any time an employee pension benefit plan which is covered
by Title IV of ERISA or subject to the minimum funding standards under the Code
and either (i) is maintained, or contributed to, by any member of the ERISA
group for employees of any member of the ERISA group or (ii) has at any time
within the preceding five years been maintained, or contributed to, by any
Person which was at such time a member of the ERISA group for employees of the
Person which was at such time a member of the ERISA Group.
"Purchase Price" means the purchase price for the Securities set forth in
Section 2.2 hereof.
"Purchaser" means the entity listed on the signature page hereto and its
successors and assigns, including holders from time to time of the Convertible
Note.
"Recourse Financing" means Debt of the Company or any Subsidiary which, by
its terms, does not bar the lender thereof from action against the Company or
any Subsidiary, as borrower or guarantor, if the security value of the project
or asset pledged in respect thereof falls below the amount required to repay
such Debt.
"Redemption Event" has the meaning set forth in Section 3.4.
"Registrable Securities" has the meaning set forth in Section 10.4(a).
"Registration Default" has the meaning set forth in Section 10.4(e).
"Registration Statement" has the meaning set forth in Section 10.4(b).
"Registration Rights Agreement" means the agreement between the Company and
Purchaser dated the date hereof substantially in the form set forth in Exhibit B
attached hereto.
"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 Note, the Warrants and, as applicable,
the Conversion Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement" has the meaning set forth in the recitals.
"Share Reorganization" has the meaning set forth in Section 11.2.
"Solvency Certificate" shall mean a certificate executed by the chief
financial officer or 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 Note 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.
"Subsidiary Corporate Documents" means the certificates of incorporation
and bylaws of each Subsidiary.
"Trading Day" shall mean any Business Day in which the National Market or
other automated quotation system or exchange on which the Common Stock is then
traded is open for trading for at least four (4) hours.
"Transaction Agreements" means this Agreement, the Convertible Note, the
Warrants, the Registration Rights Agreement, the Security Agreement and the
other agreements contemplated by this Agreement. "Transfer" means any
disposition of Securities that would constitute a sale thereof under the
Securities Act.
"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the present value of all benefits under Plan
exceeds (ii) the fair market value of all Plan assets allocable to such benefits
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"Warrant" means the Common Stock Purchase Warrant substantially in the form
set forth in Exhibit E hereto.
ARTICLE 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 2. PURCHASE AND SALE OF SECURITIES
ARTICLE 2.1 PURCHASE AND SALE OF CONVERTIBLE NOTE .
(a) Subject to the terms and conditions set forth herein, the Company
agrees to issue and sell to Purchaser, and Purchaser agrees to purchase from the
Company, the Convertible Note.
(b) Purchaser shall acquire the Convertible Note on the Closing Date
in an aggregate principal amount of One Million Dollars ($1,000,000.00).
(c) In connection with the Purchaser's agreement to purchase the
Convertible Note specified in this Article II, the Company shall issue and
deliver to the Purchaser on the Closing Date a Warrant to purchase an aggregate
of 200,000 shares of Common Stock.
ARTICLE 2.2 PURCHASE PRICE . The purchase price (the " Purchase Price") for the
Convertible Note and the Warrants on the Closing Date shall be $1,000,000.00 and
shall be allocated as set forth in Schedule 2.2.
ARTICLE 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.
(b) The Convertible Note and Warrants issued on the Closing Date shall
be dated the date hereof.
ARTICLE 3. PAYMENT TERMS OF CONVERTIBLE NOTE
ARTICLE 3.1 PAYMENT OF PRINCIPAL AND INTEREST; PAYMENT MECHANICS . The Company
will pay all amounts due on the Convertible Note by the method and at the
address specified for such purpose by Purchaser in writing, without the
presentation or surrender of the 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 the 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 Note. 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.
ARTICLE 3.2 PAYMENT OF INTEREST . Interest shall accrue on the outstanding
principal amount of the Convertible Note as of the date of issuance and shall be
payable as specified therein.
ARTICLE 3.3 VOLUNTARY REDEMPTION . For so long as no Event of Default shall have
occurred or is continuing, the Company may, at its option, repay, in whole or in
part, the Convertible Note, as set forth in Section 3 of Exhibit A hereto,
following at least seven (7) Business Days prior written notice to Purchaser
(the day of expiration of such seven (7) Business Day period being referred to
as the "redemption date"); provided, however, that if such date is not a
Business Day, the prepayment date shall be the next Business Day thereafter.
ARTICLE 3.4 MANDATORY REDEMPTION .
(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, or (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"), then, in each case, the Company
shall, upon request of the Majority Holders, redeem the Convertible Note and
Warrant. The redemption price payable upon any such redemption shall be the
redemption price in Section 3 of the Convertible Note (the "Prepayment Price")
and Section 14 of the Warrant, respectively; provided, however, in the event the
Convertible Note is in default at the time of the consummation of any event set
forth in Section 3.4(a), the redemption price shall be the price set forth in
Section 5 of the Convertible Note (such price along with the Warrant Redemption
Price set forth in Section 14 of the Warrant, a "Formula Price").
(b) Intentionally Omitted.
(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 the Convertible Note and Warrant for the
applicable Note and Warrant Formula Price.
ARTICLE 3.5 PREPAYMENT/REDEMPTION PROCEDURES .
(a) Any redemption of the Convertible Note and Warrant, as applicable
pursuant to Sections 3.3 or 3.4 above shall be deemed to be effective and
consummated (for purposes of determining the redemption price, the Formula Price
and the time at which Purchaser shall thereafter not be entitled to deliver a
Notice of Conversion for the Convertible Note) as follows:
(i) A voluntary redemption pursuant to Section 3.3, seven days
following date of the Notice of Redemption delivered by the Company to
Purchaser;
(ii) A mandatory redemption pursuant to Section 3.4(a), the date
of consummation of the applicable Sale Event; and
(iii) A redemption pursuant to Section 3.4(c), the date specified
in the Convertible Note.
(b) On the Maturity Date and on the effective date of a redemption of
the Convertible Note and Warrants as specified in Section 3.5(a) above, the
Company shall deliver by wire transfer of funds the redemption price to
Purchaser of the Convertible Note and Warrants subject to redemption. Should
Purchaser not receive payment of any amounts due on redemption of its
Convertible Note and Warrants 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 12%, until the applicable holder is paid in full and (y)
all costs of collection, including, but not limited to, reasonable attorneys'
fees and costs, whether or not suit or other formal proceedings are instituted.
(c) The Company shall select the Convertible Note and Warrants to be
redeemed in any redemption in which not all of the Convertible Note and Warrants
are to be redeemed so that the ratio of the Convertible Note and Warrants of
each holder selected for redemption to the total Convertible Note and Warrants
owned by that holder shall be the same as the ratio of all such Convertible Note
and Warrants selected for redemption bears to the total of all then outstanding
Convertible Note and Warrants. Should any Convertible Note and Warrants required
to be redeemed under the terms hereof not be redeemed solely by reason of
limitations imposed by law, the applicable Convertible Note and Warrants 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 redemption pursuant to Section 3.3 or a mandatory
redemption pursuant to Section 3.4 as specified in Section 3.5(a) above), shall
be honored by the Company and the conversion of the Convertible Note shall be
deemed effected on the Conversion Date. In addition, between the effective date
of a voluntary redemption pursuant to Section 3.3 or a mandatory redemption
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.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to Purchaser, as of the Closing
Date, the following:
ARTICLE 4.1 ORGANIZATION AND QUALIFICATION . The Company and each Subsidiary
other than SmartServ GmbH and SmartServ European Services GmbH 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.
ARTICLE 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.
ARTICLE 4.3 CAPITALIZATION . As of the date hereof, the authorized, issued and
outstanding capital stock of the Company is as set forth on Schedule 4.3 hereto
and except as set forth on Schedule 4.3 no other shares of capital stock of the
Company will be outstanding as of the Closing Date. All of such outstanding
shares of capital stock are, or upon issuance will be, duly authorized, validly
issued, fully paid and nonassessable. No shares of capital stock of the Company
are subject to preemptive rights or similar rights of the stockholders of the
Company or any liens or encumbrances imposed through the actions or failure to
act of the Company.
Other than as set forth on Schedule 4.3 hereto, as of the date hereof, (i) there
are no outstanding options, warrants, scrip, rights to subscribe for, puts,
calls, rights of first refusal, agreements, understandings, claims or other
commitments or rights of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for any shares of capital stock of the
Company or any of its Subsidiaries, or arrangements by which the Company or any
of its Subsidiaries is or may become bound to issue additional shares of capital
stock of the Company or any of its Subsidiaries, and (ii) there are no
agreements or arrangements under which the Company or any of its Subsidiaries
are obligated to register the sale of any of its or their securities under the
Securities Act (except pursuant to the Registration Rights Agreement) and (iii)
there are no anti-dilution or price adjustment provisions contained in any
security issued by the Company (or in any agreement providing rights to security
holders) that will be triggered by the issuance of the Convertible Note or
Conversion Shares. The Company has furnished to Purchaser true and correct
copies of the Company's Corporate Documents, and the terms of all securities
convertible into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto.
ARTICLE 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,
and (c) the filing of a "Form D" as described in Section 7.13 below.
ARTICLE 4.5 ISSUANCE OF SHARES . Upon conversion in accordance with the terms of
the Convertible Note and exercise of the Warrants, 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.
ARTICLE 4.6 NO CONFLICTS . The execution and delivery by the Company of the
Transaction Agreements to which it is a party did not and will not, the issuance
and sale by the Company of the Securities did not and will not and the
consummation of the transactions contemplated hereby and by the other
Transaction Agreements will not, contravene or constitute a default under or
violation of (i) any provision of applicable law or regulation, (ii) the Company
Corporate Documents, (iii) any agreement, judgment, injunction, order, decree or
other instrument binding upon the Company or any Subsidiary or any of their
respective assets, or result in the creation or imposition of any Lien on any
asset of the Company or any Subsidiary. The Company and each
Subsidiary is in compliance with and conforms to all statutes, laws, ordinances,
rules, regulations, orders, restrictions and all other legal requirements of any
domestic or foreign government or any instrumentality thereof having
jurisdiction over the conduct of its businesses or the ownership of its
properties, except where such failure would not have a Material Adverse Effect.
ARTICLE 4.7 FINANCIAL INFORMATION . Since September 30, 2002 (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 December 31, 2001 and
September 30, 2002, 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.
ARTICLE 4.8 LITIGATION . Except as set forth in the Company's quarterly report
on Form 10_QSB for the period ended September 30, 2002, 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 likelihood
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.
ARTICLE 4.9 COMPLIANCE WITH ERISA AND OTHER BENEFIT PLANS .
(a) Each member of the ERISA Group has fulfilled its obligations under
the minimum funding standards of ERISA and the Code with respect to each Plan
and is in compliance in all material respects with the presently applicable
provisions of ERISA and the Code with respect to each Plan. No member of the
ERISA Group has (i) sought a waiver of the minimum funding standard under
Section 412 of the Code in respect of any Plan, (ii) failed to
make any required contribution or payment to any Plan or Multiemployer Plan or
in respect of any Benefit Arrangement, or made any amendment to any Plan or
Benefit Arrangement, which as resulted or could result in the imposition of a
Lien or the posting of a bond or other security under ERISA or the Code or (iii)
incurred any liability under Title IV of ERISA other than a liability to the
PBGC for premiums under Section 4007 of ERISA.
(b) The benefit plans not covered under clause (a) above (including
profit sharing, deferred compensation, stock option, employee stock purchase,
bonus, retirement, health or insurance plans, collectively the " Benefit Plans")
relating to the employees of the Company are duly registered where required by,
and are in good standing in all material respects under, all applicable laws.
All required employer and employee contributions and premiums under the Benefit
Plans to the date hereof have been made, the respective fund or funds
established under the Benefit Plans are funded in accordance with applicable
laws, and no past service funding liabilities exist thereunder.
(c) No Benefit Plans have any unfunded liabilities, either on a "going
concern" or "winding up" basis and determined in accordance with all applicable
laws and actuarial practices and using actuarial assumptions and methods that
are reasonable in the circumstances. No event has occurred and no condition
exists with respect to any Benefit Plans that has resulted or could reasonably
be expected to result in any pension plan having its registration revoked or
wound up (in whole or in part) or refused for the purposes of any applicable
laws or being placed under the administration of any relevant pension benefits
regulatory authority or being required to pay any taxes or penalties (in any
material amounts) under any applicable laws.
ARTICLE 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.
ARTICLE 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.
ARTICLE 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.
ARTICLE 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.
ARTICLE 4.14 FULL DISCLOSURE . The information heretofore furnished by the
Company to Purchaser for purposes of or in connection with this Agreement or any
transaction contemplated hereby does not, and all such information hereafter
furnished by the Company or any Subsidiary to Purchaser will not (in each case
taken together and on the date as of which such information is furnished),
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein, in the light of the
circumstances under which they are made, not misleading.
ARTICLE 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. Except at set forth on
Schedule 4.15, 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 Nasdaq Small
Cap Market.
ARTICLE 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.
ARTICLE 4.17 LEASES . Except for the lease relating to the Company's
headquarters located in Stamford, Connecticut, 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.
ARTICLE 4.18 ABSENCE OF ANY UNDISCLOSED LIABILITIES OR CAPITAL CALLS . There are
no liabilities of the Company or any Subsidiary of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, and there
is no existing condition, situation or set of circumstances which would
reasonably be expected to result in such a liability, other than (i) those
liabilities provided for in the financial statements delivered pursuant to
Section 4.7 and (ii) other undisclosed liabilities which, individually or in the
aggregate, would not have a Material Adverse Effect.
ARTICLE 4.19 PUBLIC UTILITY HOLDING COMPANY . Neither the Company nor any
Subsidiary is, or will be upon issuance and sale of the Securities and the use
of the proceeds described herein, subject to regulation under the Public Utility
Holding Company Act of 1935, as amended, the Federal Power Act, the Interstate
Commerce Act or to any federal or state statute or regulation limiting its
ability to issue and perform its obligations under any Transaction Agreement.
ARTICLE 4.20 INTELLECTUAL PROPERTY RIGHTS . Each of the Company and its
Subsidiaries owns, licenses or 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.
ARTICLE 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.
ARTICLE 4.22 TITLE TO REAL PROPERTIES . The Company and its Subsidiaries have
good and marketable title to all their respective real properties free and clear
of all Liens.
ARTICLE 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.
ARTICLE 4.24 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 5. REPRESENTATIONS AND WARRANTIES OF PURCHASER
ARTICLE 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;
(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 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; and
(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.
ARTICLE 6. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES
ARTICLE 6.1 CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS TO PURCHASE . The
obligation of Purchaser hereunder to purchase the Convertible Note at the
Closing is subject to the satisfaction, on or before the Closing Date, of each
of the following conditions, provided that these conditions are for Purchaser's
sole benefit and may be waived by Purchaser at any time in its sole discretion:
(a) The Company shall have duly executed this Agreement, the
Convertible Note, the Warrant, the Registration Rights Agreement, Escrow
Agreement and the Security Agreement and delivered the same to Purchaser;
(b) The Company shall have delivered to Purchaser duly executed
certificates representing the Convertible Note and Warrants 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 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 an opinion, dated the Closing Date,
of counsel to the Company, in form and substance satisfactory to Purchaser;
(i) All fees and expenses in connection with the transaction
contemplated by this Agreement that are 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;
(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 the Balance Sheet
Date;
(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 is reasonably likely to have a Material
Adverse Effect (other than as set forth in the Company's quarterly report on
Form 10-QSB for the period ended September 30, 2002, 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) 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;
(n) Immediately before and on the Closing Date, no Default or Event of
Default shall have occurred and be continuing;
(o) Purchaser shall have received all other opinions, resolutions,
certificates, instruments, agreements or other documents as they shall
reasonably request;
(p) The Company shall have delivered to Purchaser the Use of Proceeds
Schedule 7.8.
(q) The Company shall have delivered to Purchaser a letter stating the
amount owed to Hewlett Packard as of the Closing Date as well as wiring
instructions or a contact person at Hewlett Packard relating to such pay-off.
ARTICLE 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 the 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.
ARTICLE 7. AFFIRMATIVE COVENANTS
The Company hereby agrees that, from and after the date hereof for so
long as any Convertible Note remain outstanding and for the benefit of
Purchaser:
ARTICLE 7.1 INFORMATION . The Company will deliver to each holder of the
Convertible Note:
(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
certifying the accuracy of the financial statements contained in the Company's
reports on Forms 10-K and 10-Q (or other equivalents) and 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 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 Business (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 Note under
Section 3.4, notice thereof together with a summary of all material terms
thereof and copies of all documents and instruments associated therewith to the
extent such documents are available;
(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 $200,000 or
more and not covered by insurance or in which injunctive or similar relief is
sought.
ARTICLE 7.2 PAYMENT OF OBLIGATIONS . The Company covenants and agrees to cause
the outstanding indebtedness to Hewlett Packard to be paid with proceeds from
the Closing Date of
the transaction contemplated by this Agreement within ten Business Days
following the Closing and cause to be filed within 15 Business Days following
the Closing Date, a UCC-3 Termination Statement as filed with the appropriate
State agency, releasing the collateral securing the indebtedness to Hewlett
Packard. In addition, 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.
ARTICLE 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.
ARTICLE 7.4 MAINTENANCE OF EXISTENCE . The Company will, and will cause each
operationally active Subsidiary to, continue to engage in business of the same
general type as now conducted by the Company and such operationally active
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.
ARTICLE 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.
ARTICLE 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, and representatives of the Small Business
Administration to visit and inspect any of their respective properties, upon
reasonable prior notice, to examine and make abstracts from any of their
respective books and records and to discuss their respective affairs, finances
and accounts with their respective executive officers and independent public
accountants (and by this provision the Company authorizes its independent public
accountants to disclose and discuss with Purchaser the affairs, finances and
accounts of the Company and its Subsidiaries in the presence of a representative
of the Company; provided,
however, that such discussions will not result in any unreasonable expense to
the Company, without Company consent), all at such reasonable times.
ARTICLE 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.
ARTICLE 7.8 USE OF PROCEEDS . The proceeds from the issuance and sale of the
Convertible Note by the Company shall be used in accordance with Schedule 7.8
attached hereto. None of the proceeds from the issuance and sale of the
Convertible Note by the Company pursuant to this Agreement will be used directly
or indirectly for the purpose, whether immediate, incidental or ultimate, of
purchasing or carrying any "margin stock" within the meaning of Regulation G of
the Board of Governors of the Federal Reserve System.
ARTICLE 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.
ARTICLE 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 Note and exercise
of the Warrants and issuance of the Conversion Shares (based on the conversion
price of the Convertible Note in effect from time to time and the exercise price
of the Warrants, respectively) (the "Reserved Amount"). The Company shall not
reduce the Reserved Amount without the prior written consent of Purchaser. If at
any time the number of shares of Common Stock authorized and reserved for
issuance is below the number of Conversion Shares issued or issuable upon
conversion of the Convertible Note and exercise of the Warrants, the Company
will promptly take all corporate action necessary to authorize and reserve a
sufficient number of shares, including, without limitation, either (x) calling a
special meeting of shareholders to authorize additional shares, in the case of
an insufficient number of authorized shares or (y) in lieu thereof, consummating
the immediate repurchase of the Convertible Note and the Warrants contemplated
in Section 3.4(c) hereof.
(b) The Company will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the Nasdaq
Small Cap Market or the National Association of Securities Dealers, Inc. (the
"NASD"), 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 Nasdaq Small Cap Market or any National Market.
ARTICLE 7.11 TRANSFER AGENT INSTRUCTIONS . Upon receipt of a Notice of
Conversion or Notice of Exercise, as applicable, the Company shall immediately
direct the Company's transfer agent to issue certificates, registered in the
name of Purchaser or its nominee, for the
Conversion Shares, in such amounts as specified from time to time by Purchaser
to the Company upon proper conversion of the Convertible Note or exercise of the
Warrants. Upon conversion of the Convertible Note in accordance with its 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 the
Convertible Note or exercise of the Warrants 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.
ARTICLE 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.
ARTICLE 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 8. NEGATIVE COVENANTS
The Company and Purchaser hereby agree (as applicable) that after the
date hereof for so long as the Convertible Note remains outstanding and for the
benefit of Purchaser and the Company, as applicable;
ARTICLE 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) 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.
ARTICLE 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 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.
ARTICLE 8.3 MERGER OR CONSOLIDATION . The Company will not, in a single
transaction or a series of related transactions (i) consolidate with or merge
with or into any other Person, or (ii) permit any other Person to consolidate
with or merge into it, unless the Company shall be the survivor of such merger
or consolidation and (x) immediately before and immediately after given effect
to such transaction (including any indebtedness incurred or anticipated to be
incurred in connection with the transaction), no Default or Event of Default
shall have occurred and be continuing; and (y) the Company has delivered to
Purchaser an Officer's Certificate stating that such consolidation, merger or
transfer complies with this Agreement, and that all conditions precedent in this
Agreement relating to such transaction have been satisfied.
ARTICLE 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.
ARTICLE 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.
ARTICLE 8.6 RESTRICTIONS ON ISSUANCES OF SECURITIES .
(a) In addition to and not in lieu of the covenant specified in
Section 8.1 above:
(1) Beginning on the Closing Date and continuing until sooner of (i)
180 days following the date on which the Registration Statement becomes
effective and (ii) the date on which the Convertible Note is repaid in full
(the "Restrictive Period"), the Company agrees that it will not, without
the prior written consent of Purchaser, 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
price less than $1.40 per share (each such event, a "Discounted Equity
Offering") other than (i) borrowings under conventional credit facilities
existing as of the date hereof, (ii) stock issued or credit facilities to
be established in connection with acquisitions, (iii) equity securities or
Derivative Securities in connection with employee and director stock option
and stock purchase plans and outstanding rights and warrants of the
Company, (iv) a privately-placed equity offering of up to 2,300,000 shares
of Common Stock (to include a warrant to purchase up to 924,000 shares of
Common Stock) at a per share offering price of not less than $1.10 per
share; (v) a privately-placed equity offering of Common Stock equal in
value of up to $2,000,000 to Motorola at a per share offering price of not
less than $1.10 per share; and (vi) securities issued under the Convertible
Note or Warrant. 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 redemption of the Convertible Note and payment of
all related fees and expenses; (2) "project financing" which provide for
the issuance of recourse debt instruments in connection with the operation
of the Company's business as presently conducted or as proposed to be
conducted; (3) an underwritten offering of Common Stock, provided that such
offering provides for the registration of the Conversion Shares if the
Registration Statement has not been declared effective; and (4) other
financing transactions specifically consented to in writing by the
Purchaser.
(2) The 180-day restrictive period set forth in paragraph (1) of this
Section 8.6(a) shall be increased by one day for each day a Registration
Default has occurred and not been cured by the Company.
(b) Until such time as all of the Convertible Note 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), except for
Securities describe in Subclauses (iii), (iv), (v) and (vi) of Section 8.6(a)(1)
above, unless any shares of Common Stock issued or issuable in connection
therewith are "restricted securities." As used herein "restricted securities"
shall mean securities which may not be sold prior to twelve (12) months
following the date of issuance of such securities by virtue of contractual
restrictions imposed by the Company or otherwise.
ARTICLE 8.7 LIMITATION ON STOCK REPURCHASES . Except as otherwise set forth in
the Convertible Note and the Warrants, the Company shall not, without the
written consent of the Majority Holders, redeem, repurchase or otherwise acquire
(whether for cash or in exchange for property or other securities or otherwise)
any shares of capital stock of the Company or any warrants, rights or options to
purchase or acquire any such shares.
ARTICLE 8.8 NO SHORT SALES . Purchaser and its Affiliates each agree that it
will not, directly or indirectly, engage in any securities transactions to
"short" the Company's Common Stock prior to any conversion of the Convertible
Note.
ARTICLE 9. RESTRICTIVE LEGENDS
ARTICLE 9.1 RESTRICTIONS ON TRANSFER . From and after their respective dates of
issuance, none of the Securities shall be transferable except upon the
conditions specified in this Article IX, which conditions are intended to ensure
compliance with the provisions of the Securities Act in respect of the Transfer
of any of such Securities or any interest therein. Purchaser will use its best
efforts to cause any proposed transferee of any Securities held by it to agree
to take and hold such Securities subject to the provisions and upon the
conditions specified in this Article IX.
ARTICLE 9.2 LEGENDS. The Conversion Shares, upon resale by the Purchaser
pursuant to the Registration Statement, shall be freely tradeable and
unrestricted, unless sold to an affiliate of the Company.
ARTICLE 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 10. ADDITIONAL AGREEMENTS AMONG THE PARTIES
ARTICLE 10.1 LIQUIDATED DAMAGES .
(a) The Company shall cause its transfer agent to, issue and deliver
shares of Common Stock consistent with Section 7.11 hereof within three (3) New
York Stock Exchange 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.
(b) Without in any way limiting Purchaser's right to pursue other
remedies, including actual damages and/or equitable relief, the Company agrees
that if delivery of the Conversion Shares is more than one (1) Business Day
after the Deadline (other than a failure due to the circumstances described in
Section 4.3 of the Convertible Note, 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 $200,000 of Convertible Note then outstanding per day in
cash, for each of the first ten (10) days beyond the Deadline, and $1,000 for
each $200,000 of Convertible Note then outstanding per day in cash for each day
thereafter that the Company fails to deliver such Common Stock. Such cash amount
shall be paid to Purchaser upon demand, or at the option of Purchaser (by
written notice to the Company by the first day of the week following the week in
which it has accrued), shall be added to the principal amount of the Convertible
Note (if then outstanding) payable to Purchaser, in which event interest shall
accrue thereon in accordance with the terms of the Convertible Note and such
additional principal amount shall be convertible into Common Stock in accordance
with the terms of the Convertible Note.
ARTICLE 10.2 CONVERSION NOTICE . The Company agrees that, in addition to any
other remedies which may be available to Purchaser, including, but not limited
to, the remedies available under Section 10.1, in the event the Company fails
for any reason (other than as a result
of actions taken by a Purchaser in breach of this Agreement) to effect delivery
to a Purchaser of certificates with or without restrictive legends as
contemplated by Article IX representing the shares of Common Stock on or prior
to the Deadline after conversion of any Convertible Note or exercise of the
Warrants, Purchaser will be entitled, if prior to the delivery of such
certificates, to revoke the Notice of Conversion or Notice of Exercise, 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 or Notice of
Exercise, as the case may be.
ARTICLE 10.3 CONVERSION LIMIT . Notwithstanding the conversion rights under the
Convertible Note, 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 Note, in excess of that portion of the
Convertible Note, as applicable, of which the sum of (i) the number of shares of
Common Stock beneficially owned by Purchaser and its Affiliates (other than
shares of Common Stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the Convertible Note or other Derivative
Securities convertible into or exchangeable for shares of Common Stock which
contain a limitation similar to that set forth in this Section 10.3), and (ii)
the number of shares of Common Stock issuable upon the conversion of the portion
of the Convertible Note with respect to which this determination is being made,
would result in beneficial ownership by Purchaser and its Affiliates of more
than 4.99% of the outstanding shares of Common Stock. For purposes of Section
10.3(i) beneficial ownership shall be determined in accordance with Rule 13d-3
of the Exchange Act and Regulations 13 D-G thereunder, except as otherwise
provided in this Section 10.3. The foregoing limitation shall not apply and
shall be of no further force or effect (i) immediately preceding and upon the
occurrence of any voluntary or mandatory redemption or repayment transaction
described herein or in the Convertible Note, (ii) immediately preceding and upon
any Sale Event, (iii) on the Maturity Date or (iv) following the occurrence of
any Event of Default which is not cured for a period of ten (10) calendar days.
ARTICLE 10.4 REGISTRATION RIGHTS .
(a) The Company shall grant Purchaser registration rights covering the
Conversion Shares (the "Registrable Securities") on the terms set forth in the
Registration Rights Agreement and herein.
(b) The Company shall prepare and file within sixty (60) days
following the Closing Date (the "Filing Date") a registration statement or
amendment thereto (the "Registration Statement") covering the resale of the
Registrable Securities; provided, however, in the event the Company files a
registration statement on Form S-3 following the Closing Date and before the
Filing Date, the Company agrees to include the Registrable Securities in such
registration statement. The Company shall use its reasonable best efforts to
cause the Registration Statement to be declared effective by the Commission on
the earlier of (i) 120 days of the Closing Date, (ii) ten days following the
receipt of a "No Review" Letter from the Commission or (iii) the first day
following the day
the Commission determines the Registration Statement eligible to be declared
effective (the "Required Effectiveness Date"). The Company shall pay all
expenses of registration (other than underwriting fees and discounts, if any, in
respect of Registrable Securities offered and sold under each registration
statement by Purchaser).
(c) If the Registration Statement is not filed by the Filing Date, the
Company shall pay to Purchaser, as liquidated damages and not as a penalty, an
amount equal to two percent (2%) of the principal amount of Convertible Note
outstanding for each 30-day period (prorated) until the Registration Statement
is filed with the Commission. If the Registration Statement is not declared
effective by the Commission by the Required Effectiveness Date, the Conversion
Price (as defined in the Convertible Note) shall be shall be reduced by ten
percent (10%) for each 30-day period the Registration Statement is not declared
effective by the Commission through the 360th day following the Closing Date. In
the event the Company fails to obtain a valid registration statement by the
360th day following the Closing Date, the Purchaser may require the Company to
redeem the Convertible Note and the Warrants as set forth in Section 5 of the
Convertible Note and Section 13 of the Warrants, respectively.
(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. (a)
(e) If, following the declaration of effectiveness of the Registration
Statement, such Registration Statement (or any prospectus or supplemental
prospectus contained therein) shall cease to be effective for any reason
(including, but not limited to the occurrence of any event that results in any
prospectus or supplemental prospectus containing an untrue statement of a
material fact or omitting a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading), the Company fails to file required
amendments to the Registration Statement in order to allow the Purchaser to
exercise its rights to receive unrestricted, unlegended, freely tradeable shares
of Common Stock, or if for any reason there are insufficient shares of Common
Stock registered under the then current Registration Statement to effect full
conversion of the Convertible Note or exercise of the Warrants (each, 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
the Registration Default. Failure to cure a Registration Default within ten (10)
Business Days shall result in the Company paying to Purchaser liquidated damages
at the rate of one percent (1%) of the outstanding principal amount of
Convertible Note for each 30-day period (prorated) the Registration Default
remains uncured.
(f) In the event that there is an insufficient number of authorized,
issuable, unlegended and freely tradeable shares of Common Stock registered
under the Registration Statement filed by the Company to fully convert the
Convertible Note and exercise all Warrants held by Purchaser and sell such
shares issued thereon, then the Company shall immediately file an amendment to
the then current registration statement
to register a sufficient number of such shares to convert said Convertible Note
and Warrants. The failure of the Company to register a sufficient number of such
shares to fully convert said Convertible Note and exercise such Warrants shall
be a Registration Default under Section 10.4(e) above from the date of the
Notice of Conversion to the date of the earlier of (i) the redemption of the
outstanding balance of the Convertible Note and exercise of all such Warrants or
(ii) full conversion of the Convertible Note and exercise of all such Warrants
ARTICLE 11. ADJUSTMENT OF FIXED PRICE
ARTICLE 11.1 REORGANIZATION . The Conversion Price and the exercise price of the
Warrants (collectively, the "Fixed Prices") shall be adjusted, as applicable, as
hereafter provided.
ARTICLE 11.2 SHARE REORGANIZATION . If and whenever the Company shall:
(i) subdivide the outstanding shares of Common Stock into a greater
number of shares;
(ii) consolidate the outstanding shares of Common Stock into a smaller
number of shares;
(iii) issue Common Stock or securities convertible into or
exchangeable for shares of Common Stock as a stock dividend to all or
substantially all the holders of Common Stock; or
(iv) make a distribution on the outstanding Common Stock to all or
substantially all the holders of Common Stock payable in Common Stock or
securities convertible into or exchangeable for Common Stock;
any of such events being herein called a "Share Reorganization," then in each
such case the applicable Fixed Price shall be adjusted, effective immediately
after the record date at which the holders of Common Stock are determined for
the purposes of the Share Reorganization or, if no record date is fixed, the
effective date of the Share Reorganization, by multiplying the applicable Fixed
Price in effect on such record or effective date, as the case may be, by a
fraction of which:
(I) the numerator shall be the number of shares of Common
Stock outstanding on such record or effective date (without giving
effect to the transaction); and
(II) the denominator shall be the number of shares of Common
Stock outstanding after giving effect to such Share Reorganization,
including, in the case of a distribution of securities convertible into
or exchangeable for shares of Common Stock, the number of shares of
Common Stock that would have been outstanding if such securities had
been converted into or exchanged for Common Stock on such record or
effective date.
ARTICLE 11.3 RIGHTS OFFERING . If and whenever the Company shall issue to all or
substantially all the holders of Common Stock, rights, options or warrants under
which such holders are entitled, during a period expiring not more than 45 days
after the record date of such issue, to subscribe for or purchase Common Stock
(or Derivative Securities), at a price per share (or, in the case of securities
convertible into or exchangeable for Common Stock, at an exchange or conversion
price per share at the date of issue of such securities) of less than 95% of the
Market Price of the Common Stock on such record date (any such event being
herein called a "Rights Offering"), then in each such case the applicable Fixed
Price shall be adjusted, effective immediately after the record date at which
holders of Common Stock are determined for the purposes of the Rights Offering,
by multiplying the applicable Fixed Price in effect on such record date by a
fraction of which:
(i) the numerator shall be the sum of:
(I) the number of shares of Common Stock outstanding on such
record date; and
(II) a number obtained by dividing:
(A) either,
(x) the product of the total number of shares of Common
Stock so offered for subscription or purchase and the price at
which such shares are so offered, or
(y) the product of the maximum number of shares of Common
Stock into or for which the convertible or exchangeable
securities so offered for subscription or purchase may be
converted or exchanged and the conversion or exchange price of
such securities, or, as the case may be, by
(B) the Market Price of the Common Stock on such record date; and
(ii) the denominator shall be the sum of:
(I) the number of shares of Common Stock outstanding on such
record date; and
(II) the number of shares of Common Stock so offered for
subscription or purchase (or, in the case of Derivative Securities,
the maximum number of shares of Common Stock for or into which the
securities so offered for subscription or purchase may be converted or
exchanged).
To the extent that such rights, options or warrants are not exercised prior to
the expiry time thereof, the applicable Fixed Price shall be readjusted
effective immediately after such expiry time to the applicable Fixed Price which
would then have been in effect upon the number of
shares of Common Stock (or Derivative Securities) actually delivered upon the
exercise of such rights, options or warrants.
ARTICLE 11.4 SPECIAL DISTRIBUTION . If and whenever the Company shall issue or
distribute to all or substantially all the holders of Common Stock:
(i) shares of the Company of any class, other than Common Stock;
(ii) rights, options or warrants; or
(iii) any other assets (excluding cash dividends and equivalent
dividends in shares paid in lieu of cash dividends in the ordinary course);
and if such issuance or distribution does not constitute a Share Reorganization
or a Rights Offering (any such event being herein called a "Special
Distribution"), then in each such case the applicable Fixed Price shall be
adjusted, effective immediately after the record date at which the holders of
Common Stock are determined for purposes of the Special Distribution, by
multiplying the applicable Fixed Price in effect on such record date by a
fraction of which:
(I) the numerator shall be the difference between:
(A) the product of the number of shares of Common Stock
outstanding on such record date and the Market Price of the Common
Stock on such date; and
(B) the fair market value, as determined by the Directors (whose
determination shall be conclusive), to the holders of Common Stock of
the shares, rights, options, warrants, evidences of indebtedness or
other assets issued or distributed in the Special Distribution (net of
any consideration paid therefor by the holders of Common Stock), and
(II) the denominator shall be the product of the number of shares
of Common Stock outstanding on such record date and the Market Price
of the Common Stock on such date.
ARTICLE 12.5 CAPITAL REORGANIZATION . If and whenever there shall occur:
(i) a reclassification or redesignation of the shares of Common Stock
or any change of the shares of Common Stock into other shares, other than
in a Share Reorganization;
(ii) a consolidation, merger or amalgamation of the Company with, or
into another body corporate; or
(iii) the transfer of all or substantially all of the assets of the
Company to another body corporate;
(any such event being herein called a "Capital Reorganization"), then in each
such case the holder who exercises the right to convert Convertible Note after
the effective date of such Capital Reorganization shall be entitled to receive
and shall accept, upon the exercise of such right, in lieu of the number of
shares of Common Stock to which such holder was theretofore entitled upon the
exercise of the conversion privilege, the aggregate number of shares or other
securities or property of the Company or of the body corporate resulting from
such Capital Reorganization that such holder would have been entitled to receive
as a result of such Capital Reorganization if, on the effective date thereof,
such holders had been the holder of the number of shares of Common Stock to
which such holder was theretofore entitled upon conversion; provided, however,
that no such Capital Reorganization shall be consummated in effect unless all
necessary steps shall have been taken so that such holders shall thereafter be
entitled to receive such number of shares or other securities of the Company or
of the body corporate resulting from such Capital Reorganization, subject to
adjustment thereafter in accordance with provisions the same, as nearly as may
be possible, as those contained above.
ARTICLE 12.6 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.
ARTICLE 12.7 ADJUSTMENT RULES . The following rules and procedures shall be
applicable to adjustments made in this Article XI:
(a) no adjustment shall be made upon the occurrence or consummation,
as applicable, of any of the transaction described in Section 8.6(a)(i)-(vi)
during the Restrictive Period;
(b) 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;
(c) 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
(d) 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.
ARTICLE 12.8 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.
ARTICLE 12.9 NOTICE TO HOLDERS . If the Company shall fix a record date for:
(a) any Share Reorganization (other than the subdivision of
outstanding Common Stock into a greater number of shares or the consolidation of
outstanding Common Stock into a smaller number of shares),
(b) any Rights Offering,
(c) any Special Distribution,
(d) any Capital Reorganization (other than a reclassification or
redesignation of the Common Stock into other shares),
(e) Sale Event; or
(f) any cash dividend,
the Company shall, not less than 10 days prior to such record date or, if no
record date is fixed, prior to the effective date of such event, give to
Purchaser notice of the particulars of the proposed event or the extent that
such particulars have been determined at the time of giving the notice.
ARTICLE 13. EVENTS OF DEFAULT
ARTICLE 13.5 EVENTS OF DEFAULT. If one or more of the following events (each an
"Event of Default") shall have occurred and be continuing:
(a) failure by the Company to pay or repay when due, all or any part
of the principal on any of the Convertible Note (whether by virtue of the
agreements specified in this Agreement or the Convertible Note);
(b) failure by the Company to pay (i) within five (5) Business Days of
the due date thereof any interest on any Convertible Note or (ii) within five
(5) Business Days following the delivery of notice to the Company of any fees or
any other amount payable (not otherwise referred to in (a) above or this clause
(b)) by the Company under this Agreement or any other Transaction Agreement;
(c) reserved;
(d) failure on the part of the Company to observe or perform any
covenant contained in Article VIII of this Agreement;
(e) failure on the part of the Company to observe or perform any
covenant or agreement contained in any Transaction Agreement (other than those
covered by clauses (a), (b), (c), or (d) above) for 30 days from the date of
such occurrence;
(f) the trading in the Common Stock shall have been suspended by the
Commission, Nasdaq Small Cap Market 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) reserved;
(h) the Company shall have its Common Stock delisted from the Nasdaq
Small Cap Market 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;
(i) the effectiveness of the Registration Statement shall not be
maintained, which results in the Company incurring liquidated damages or a
default fee for a period in excess of 30 days;
(j) the Company or any operationally active 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 Note to be, and the Convertible Note shall thereon become
immediately due and payable; provided that in the case of any of the Events of
Default specified in paragraph (j) or (k) above with respect to the Company or
any Subsidiary, then, without any notice to the Company or any other act by
Purchaser, the entire amount of the Convertible Note shall become immediately
due and payable, provided, further, if any Event of Default has occurred and is
continuing, and irrespective of whether any Convertible
Note has been declared immediately due and payable hereunder, any Purchaser of
Convertible Note may proceed to protect and enforce the rights of Purchaser by
an action at law, suit in equity or other appropriate proceeding, whether for
the specific performance of any agreement contained herein or in any Convertible
Note, or for an injunction against a violation of any of the terms hereof or
thereof, or in aid of the exercise of any power granted hereby or thereby or by
law or otherwise, and provided further, in the case of any Event of Default, the
amount declared due and payable on the Convertible Note shall be the Formula
Price.
ARTICLE 13.6 POWERS AND REMEDIES CUMULATIVE . No right or remedy herein
conferred upon or reserved to Purchaser is intended to be exclusive of any other
right or remedy, and every right and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right and remedy given
hereunder or now hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy. Every power and remedy given by the Convertible Note or by law
may be exercised from time to time, and as often as shall be deemed expedient,
by Purchaser.
ARTICLE 14. MISCELLANEOUS
ARTICLE 14.5 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.
ARTICLE 14.6 NO WAIVERS; AMENDMENTS .
(a) No failure or delay on the part of any party in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy.
(b) Any provision of this Agreement may be amended, supplemented or
waived if, but only if, such amendment, supplement or waiver is in writing and
is signed by the Company and the Majority Holders; provided, that without the
consent of each holder of any Convertible Note affected thereby, an amendment or
waiver may not (a) reduce the aggregate principal amount of Convertible Note
whose holders must consent to an amendment or waiver, (b) reduce the rate or
extend the time for payment of interest on any Convertible Note, (c) reduce the
principal amount of or extend the stated maturity
of any Convertible Note or (d) make any Convertible Note payable in money or
property other than as stated in such Convertible Note. In determining whether
the holders of the requisite principal amount of Convertible Note have concurred
in any direction, consent, or waiver as provided in any Transaction Agreement,
Convertible Note which are owned by the Company or any other obligor on or
guarantor of the Convertible Note, or by any Person Controlling, Controlled by,
or under common Control with any of the foregoing, shall be disregarded and
deemed not to be outstanding for the purpose of any such determination; and
provided further that no such amendment, supplement or waiver which affects the
rights of Purchaser and their affiliates otherwise than solely in their
capacities as holders of Convertible Note shall be effective with respect to
them without their prior written consent.
ARTICLE 14.7 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 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,
liabilities, losses, damages, or expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and by Purchaser on the other from the transactions contemplated by this
Agreement or (ii) if the allocation provided by clause (i) is not permitted
under applicable law, in such proportion as is appropriate to reflect not only
the relative benefits received by the Company on the one hand and Purchaser on
the other, but also the relative fault of the Company and Purchaser as well as
any other relevant equitable considerations. Notwithstanding the provisions of
this Section 13.3, the aggregate contribution of all Indemnified Parties shall
not exceed the amount of interest and fees actually received by Purchaser
pursuant to this Agreement. It is hereby further agreed that the relative
benefits to the Company on the one hand and Purchaser on the other with respect
to the transactions contemplated hereby shall be determined by reference to,
among other
things, whether any untrue or alleged untrue statement of material fact or the
omission or alleged omission to state a material fact related to information
supplied by the Company or by Purchaser and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. No Person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
(d) The indemnification, contribution and expense reimbursement
obligations set forth in this Section 13.3 (i) shall be in addition to any
liability the Company may have to any Indemnified Party at common law or
otherwise; (ii) shall survive the termination of this Agreement and the other
Transaction Agreements and the payment in full of the Convertible Note and (iii)
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of Purchaser or any other Indemnified Party.
ARTICLE 14.8 EXPENSES: DOCUMENTARY TAXES . The Company and Purchaser each agree
to pay its own fees and expenses incurred by it in connection with the issuance
of the Convertible Note and Warrants. The Company agrees to pay any and all
stamp, transfer and other similar taxes, assessments or charges payable in
connection with the issuance of the Securities to Purchaser, excluding their
assigns.
ARTICLE 14.9 PAYMENT . The Company agrees that, so long as Purchaser shall own
any Convertible Note purchased by it from the Company hereunder, the Company
will make payments to Purchaser of all amounts due thereon by wire transfer by
4:00 P.M. (E.S.T.).
ARTICLE 14.10 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.
ARTICLE 14.11 BROKERS . Except for Alpine Capital Partners, 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.
ARTICLE 14.12 DELAWARE 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 DELAWARE. EACH PARTY HERETO HEREBY SUBMITS
TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR DELAWARE
AND OF ANY FEDERAL DISTRICT COURT SITTING IN DELAWARE FOR PURPOSES OF ALL LEGAL
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING
OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT
ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM. EACH PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS IN ANY SUCH PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR
CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH PARTY AT ITS ADDRESS SET FORTH HEREIN.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY PARTY TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW. EACH PARTY WAIVES ITS RIGHT TO A TRIAL BY JURY.
ARTICLE 14.13 ENTIRE AGREEMENT . This Agreement, the Exhibits or Schedules
hereto, which include, but are not limited to the Convertible Note, the Warrant
and the Registration Rights Agreement, set forth the entire agreement and
understanding of the parties relating to the subject matter hereof and
supersedes all prior and contemporaneous agreements, negotiations and
understandings between the parties, both oral and written relating to the
subject matter hereof. The terms and conditions of all Exhibits and Schedules to
this Agreement are incorporated herein by this reference and shall constitute
part of this Agreement as is fully set forth herein.
ARTICLE 14.14 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.
ARTICLE 14.15 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.
ARTICLE 14.16 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.
ARTICLE 14.17 PUBLICITY. The Company and the Purchaser shall consult with each
other in issuing any press releases or otherwise making public statements with
respect to the transactions contemplated hereby and no party shall issue any
such press release or otherwise make any such public statement without the prior
written consent of the other parties, which
consent shall not be unreasonably withheld or delayed, except that no prior
consent shall be required if such disclosure is required by law, in which such
case the disclosing party shall provide the other parties with prior notice of
such public statement. Notwithstanding the foregoing, the Company shall not
publicly disclose the name of Purchaser without the prior written consent of
Purchaser, except to the extent required by law, in which case the Company shall
provide Purchaser with prior written notice of such public disclosure.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers, as of the date first
above written.
SMARTSERV ONLINE, INC.
By: /s/ Xxxxxx X. Xxxxxx
-----------------------------
Name: Xxxxxx X. Xxxxxx
Title: Senior Vice President and
Chief Financial Officer
Address: SmartServ Online, Inc.
Metro Center
Xxx Xxxxxxx Xxxxx
Xxxxxxxx, XX 00000
Fax: 000-000-0000
Telephone: 000-000-0000
GLOBAL CAPITAL FUNDING GROUP, L.P.
By its General Partner, Global Capital
Management Services, Inc.
By: /s/ Xxxxx X. Xxxxxx
-----------------------------
Name: Xxxxx X. Xxxxxx
Title: President
Address: 000 Xxxxxx Xxxx Xxxxx
Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Fax: 000-000-0000
Tel.: 000-000-0000
SCHEDULE 2.2
ALLOCATION OF PURCHASE PRICE
1. $1,000,000 Principal Amount 10% Convertible Note for a purchase price equal
to $______________.
2. Warrant to purchase 200,000 shares of Common Stock of the Company for a
purchase price equal to $___________.
