EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
AGREEMENT, dated as of May 24, 2002, between Metropolitan Health
Networks, Inc. (the "Company") and GCA Strategic Investment Fund Limited
("Purchaser").
RECITALS:
WHEREAS, the Company desires to sell and issue to Purchaser, and
Purchaser desires to purchase from the Company $1,580,000 principal amount of
the Company's 6% Convertible Debentures due May 24, 2004 (the "Convertible
Debentures") in accordance with the terms and conditions as set forth in the
form of Convertible Debenture attached hereto as Exhibit A;
WHEREAS, the Convertible Debentures will be convertible into shares of
the Company's common stock, $.001 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 an aggregate of 150,000 warrants to purchase 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"); and
WHEREAS, Purchaser will have certain registration rights with respect
to such shares of Common Stock issuable as interest under, and upon conversion
of, the Convertible Debentures (the "Debenture Shares") and upon exercise of the
Warrants (the "Warrant Shares," the Debenture Shares and the Warrant Shares
being collectively referred to herein as the "Conversion Shares") as set forth
in the Registration Rights Agreement in the form attached hereto as Exhibit B;
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 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 and Palm Beach, Florida 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 or by a merger as permitted by this Agreement
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 40% or more
of the outstanding shares of Common Stock of the Company without the prior
written consent of Purchaser and (ii) any sale or other disposition (other than
by reason of death or disability) to any Person by any executive officer and/or
employee director of the Company of more than 10% of the Common Shares
beneficially owned by such officer or director in a 12-month period, without the
prior written consent of Purchaser.
"Closing Bid Price" shall mean for any security as of any date, the
lowest closing bid price as reported by Bloomberg, L.P. ("Bloomberg") on the
principal securities exchange or trading market where such security is listed or
traded or, if the foregoing does not apply, the lowest closing bid price of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no lowest trading price is
reported for such security by Bloomberg, then the average of the bid prices of
any market makers for such securities as reported in the "Pink Sheets" by the
National Quotation Bureau, Inc. If the lowest closing bid price cannot be
calculated for such security on such date on any of the foregoing bases, the
lowest closing bid price of such security on such date shall be the fair market
value as mutually determined by Purchaser and the Company for which the
calculation of the closing bid price requires, and in the absence of such mutual
determination, as determined by the Board of Directors of the Company in good
faith.
"Closing Date" means the date on which all of the conditions set forth
in Sections 6.1 and 6.2 shall have been satisfied and Convertible Debentures in
the aggregate principal amount of $1,580,000 are issued by the Company to
Purchaser.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission or any entity
succeeding to all of its material functions.
"Common Stock" means common stock, $.001 par value per share, of the
Company.
"Company" means Metropolitan Health Networks, Inc., a Florida
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 or by contract.
"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
Debenture by the holder thereof to the Company as specified in each Convertible
Debenture; provided that if a notice is delivered after 4:00 p.m., the
Conversion Date shall be on the next business day.
"Conversion Price" has the meaning set forth in the Convertible
Debentures.
"Conversion Shares" has the meaning set forth in the Recitals.
"Convertible Debentures" means the Company's 6% Convertible Debentures
substantially in the form set forth as Exhibit A hereto.
"Deadline" has the meaning set forth in Section 10.1.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments
issued by such Person, (iii) all obligations of such Person as lessee which (y)
are capitalized in accordance with GAAP or (z) arise pursuant to sale-leaseback
transactions, (iv) all reimbursement obligations of such Person in respect of
letters of credit, (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
(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 6% Convertible Debentures dated May 24, 2002 outstanding at such
time.
"Market Price" shall mean the Closing Bid Price of the Common Stock on
the date immediately preceding the date on which a determination of Market Price
is required to be made in accordance with any section of this Agreement or any
other Transaction Agreement.
"Material Plan" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $500,000.
"Maturity Date" shall mean the date of maturity of the Convertible
Debentures.
"NASD" has the meaning set forth in Section 7.10.
"Nasdaq Market" means the Nasdaq Stock Market's National Market System.
"National Market" means the Nasdaq Market, the Nasdaq Small Cap Market,
the New York Stock Exchange, Inc. or the American Stock Exchange, Inc.
"Net Cash Proceeds" means, with respect to any transaction, the total
amount of cash proceeds received by the Company or any Subsidiary less (i)
reasonable underwriters' fees, brokerage commissions, reasonable professional
fees and other customary out-of-pocket expenses payable in connection with such
transaction, and (ii) in the case of dispositions of assets, (A) actual transfer
taxes (but not income taxes) payable with respect to such dispositions, and (B)
the amount of Debt, if any, secured by a Lien on the asset or assets disposed of
and required to be, and actually repaid by the Company or any Subsidiary in
connection therewith, and any trade payables specifically relating to such asset
or assets sold by the Company or any Subsidiary that are not assumed by the
purchaser of such asset or assets.
"Notice of Conversion" means the form to be delivered by a holder of a
Convertible Debenture upon conversion of all or a portion thereof to the Company
substantially in the form of Exhibit A to the form of Convertible Debenture.
"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.
"Other Taxes" has the meaning set forth in Section 3.6(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permits" means all domestic and foreign licenses, franchises, grants,
authorizations, permits, easements, variances, exemptions, consents,
certificates, orders and approvals necessary to own, lease and operate the
properties of, and to carry on the business of the Company and the Subsidiaries.
"Permitted Financings" has the meaning set forth in Section 8.6(a).
"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 Debentures.
"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 on the Company's Preferred Stock outstanding as of the
date of this Agreement, dividends payable solely in shares of capital stock of
the same or junior class of such Person, dividends payable in connection with
any Permitted Financing or securities issued pursuant to Section 8.6(a)(iv) and
(v) 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, or other than reasonable compensation as determined by the
Board of Directors or except such loans or advances outstanding on the date
hereof.
"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 Debentures, 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 Debentures 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.
"Taxes" has the meaning set forth in Section 3.6.
"Trading Day" shall mean any Business Day in which the OTC Bulletin
Board, National Market or other automated quotation system or exchange on which
the Common Stock is then traded is open for trading for at least four (4) hours.
"Transaction Agreements" means this Agreement, the Convertible
Debenture, the Warrants, the Registration Rights Agreement, and the other
agreements contemplated by this Agreement.
"Transaction Fee" has the meaning set forth in Section 13.4.
"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") and Regulation S-X promulgated under
the Securities Act ("Regulation S-X"). 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 DEBENTURES.
(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 Debenture.
(b) Purchaser shall acquire the Convertible Debenture on the Closing Date
in an aggregate principal amount of One Million Five Hundred and Eighty Thousand
Dollars ($1,580,000.00).
(c) In connection with the Purchaser's agreement to purchase the
Convertible Debentures specified in this Article II, the Company shall issue and
deliver to the Purchaser on the Closing Date Warrants to purchase an aggregate
of 150,000 shares of Common Stock.
ARTICLE 2.2 PURCHASE PRICE. The purchase price (the "Purchase Price") for
the Convertible Debenture and the Warrants on the Closing Date shall be
$1,501,000.00 or 95% of the principal amount of the Convertible Debenture.
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 Debentures and Warrants issued on the Closing Date
shall be dated the date thereof.
ARTICLE 3. PAYMENT TERMS OF CONVERTIBLE DEBENTURES
ARTICLE 3.1 PAYMENT OF PRINCIPAL AND INTEREST; PAYMENT MECHANICS. The
Company will pay all amounts due on each Convertible Debenture by the method and
at the address specified for such purpose by Purchaser in writing, without the
presentation or surrender of any Convertible Debenture 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 Debenture, the holder shall surrender the Convertible Debenture
for cancellation, reasonably promptly after any such request, to the Company at
its principal executive office. Prior to any sale or other disposition of any
Convertible Debenture, which transfer will not occur without the prior written
consent of the Company, 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 Debenture to the Company in
exchange for a new Convertible Debenture or Convertible Debentures. The Company
will afford the benefits of this Section 3.1 to any direct or indirect
transferee of the Convertible Debenture purchased under this Agreement and that
has made the same agreement relating to this Convertible Debenture as Purchaser
has in this Section 3.1; provided that such transferee is an "accredited
investor" under Rule 501 of the Securities Act and that such transfer has been
made in compliance with applicable securities laws.
ARTICLE 3.2 PAYMENT OF INTEREST. Interest shall accrue on the outstanding
principal amount of each Convertible Debenture as of the date of issuance and
shall be payable as specified therein.
ARTICLE 3.3 VOLUNTARY PREPAYMENT. For so long as no Event of Default shall
have occurred and is continuing, the Company may, at its option, repay, in whole
or in part, the Convertible Debentures, per the formula set forth in Section 5
of Exhibit A hereto, thereof following at least five (5) Business Days prior
written notice to Purchaser (the expiration of such five (5) Business Day period
being referred to as the "prepayment date"); provided, however, that if such
date is not a Business Day, the prepayment date shall be the next Business Day
thereafter.
ARTICLE 3.4 MANDATORY PREPAYMENTS.
(a) Upon (i) the occurrence of a Change in Control of the Company,
(ii) a transfer of all or substantially all of the assets of the
Company to any Person in a single transaction or series of related
transactions or (iii) a merger in which the surviving entity is not a
reporting company under the Exchange Act or which does not have its
Common Stock listed on a National Exchange, the OTC Bulletin Board or a
similar exchange, (each of items (i) through (iii) being referred to as
a "Sale Event"), then, in each case, the Company shall, upon request of
the Majority Holders, redeem the Convertible Debentures, subject to the
provisions of Section 5 of the Convertible Debentures. The redemption
price payable upon any such redemption shall be the Redemption Price in
Section 5 of the Convertible Debentures (referred to herein as the
"Formula Price").
(b) At the option of Purchaser, upon the consummation of one or
more Financings (other than financings permitted under Section 8.1(z)
and Section 8.6(a)(v) and (vi), the Company shall use 25% of the Net
Cash Proceeds therefrom (unless such Net Cash Proceeds from each such
Financing is less than $1,000,000) to redeem the Convertible
Debentures.
ARTICLE 3.5 PREPAYMENT PROCEDURES.
(a) Any permitted prepayment or redemption of the Convertible
Debentures pursuant to Sections 3.3 or 3.4 above shall be deemed to be
effective and consummated (for purposes of determining the Prepayment
Price, the Formula Price and the time at which Purchaser shall
thereafter not be entitled to deliver a Notice of Conversion for the
Convertible Debentures) as follows:
(i) A prepayment pursuant to Section 3.3, the "prepayment
date" specified therein;
(ii) A redemption pursuant to Section 3.4(a), the date of
consummation of the applicable Sale Event; and
(iii) A redemption pursuant to Section 3.4(b), the date of
consummation of the applicable Financing (meaning closing and
funding).
(b) On the Maturity Date and on the effective date of a prepayment
or redemption of the Convertible Debentures as specified in Section
3.5(a) above, the Company shall deliver by wire transfer of funds the
prepayment/redemption price to Purchaser of the Convertible Debentures
subject to redemption. Should Purchaser not receive payment of any
amounts due on redemption of its Convertible Debentures 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
14%, 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 Debentures to be
redeemed in any redemption in which not all of the Convertible
Debentures are to be redeemed so that the ratio of the Convertible
Debentures of each holder selected for redemption to the total
Convertible Debentures owned by that holder shall be the same as the
ratio of all such Convertible Debentures selected for redemption bears
to the total of all then outstanding Convertible Debentures. Should any
Convertible Debentures required to be redeemed under the terms hereof
not be redeemed solely by reason of limitations imposed by law, the
applicable Convertible Debentures 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 prepayment pursuant to Section 3.3 or
a mandatory repayment 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 Debentures shall be deemed effected on the Conversion
Date. In addition, between the effective date of a voluntary prepayment
pursuant to Section 3.3 or a mandatory repayment 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. However,
such Notice of Conversion 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 3.6 PAYMENT OF ADDITIONAL AMOUNTS.
(a) Any and all payments by the Company hereunder or under the
Convertible Debentures to Purchaser and each "qualified assignee"
thereof shall be made free and clear of and without deduction or
withholding for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect
thereto (all such taxes, levies, imposts, deductions, charges,
withholdings and liabilities being hereinafter referred to as "Taxes")
unless such Taxes are required by law or the administration thereof to
be deducted or withheld. If the Company shall be required by law or the
administration thereof to deduct or withhold any Taxes from or in
respect of any sum payable under the Convertible Debentures (i) the
holders of the Convertible Debentures subject to such Taxes shall have
the right, but not the obligation, for a period of thirty (30) days
commencing upon the day it shall have received written notice from the
Company that it is required to withhold Taxes to transfer all or any
portion of the Convertible Debentures to a qualified assignee to the
extent such transfer can be effected in accordance with the other
provisions of this Agreement and applicable law; (ii) the Company shall
make such deductions or withholdings; (iii) the sum payable shall be
increased as may be necessary so that after making all required
deductions or withholdings (including deductions or withholdings
applicable to additional amounts paid under this Section 3.6) Purchaser
receives an amount equal to the sum it would have received if no such
deduction or withholding had been made; and (iv) the Company shall
forthwith pay the full amount deducted or withheld to the relevant
taxation or other authority in accordance with applicable law;
provided, however the Company shall not be required to pay any taxes
owed by Purchaser or any qualified assignee resulting from (x) the
payment of interest on the Convertible Debentures by the Company or (y)
any gain recognized from the transfer of the Convertible Debentures by
the Purchaser or any qualified assignee. A "qualified assignee" of a
Purchaser is a Person that is organized under the laws of (i) the
United States or (ii) any jurisdiction other than the United States or
any political subdivision thereof and that (y) represents and warrants
to the Company that payments of the Company to such assignee under the
laws in existence on the date of this Agreement would not be subject to
any Taxes and (z) from time to time, as and when requested by the
Company, executes and delivers to the Company and the Internal Revenue
Service forms, and provides the Company with any information necessary
to establish such assignee's continued exemption from Taxes under
applicable law.
(b) The Company shall forthwith pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or
similar levies applicable under the tax laws of the United States (all
such taxes, charges and levies hereinafter referred to as "Other
Taxes") which arise from any payment made under any of the Transaction
Agreements or from the execution, delivery or registration of, or
otherwise with respect to, this Agreement other than Taxes payable
solely as a result of the transfer from Purchaser to a Person of any
Security.
(c) The Company shall indemnify Purchaser, or qualified assignee,
for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed by any jurisdiction on
amounts payable under this Section 3.6) paid by Purchaser, or qualified
assignee, and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto, whether or not
such Taxes or Other Taxes were correctly or legally asserted. Payment
under this indemnification shall be made within 30 days from the date
Purchaser or assignee makes written demand therefor. A certificate as
to the amount of such Taxes or Other Taxes submitted to the Company by
Purchaser or assignee shall be conclusive evidence of the amount due
from the Company to such party.
(d) Within 30 days after the date of any payment of Taxes, the
Company will furnish to Purchaser the original or a certified copy of a
receipt evidencing payment thereof.
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 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 financial condition 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 subject to (i) applicable
bankruptcy, insolvency or similar laws affecting the enforceability of
creditor's rights generally and (ii) equitable principles of general
applicability.
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 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 Debentures 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,
(c) the filing of a "Form D" as described in Section 7.13 below, (d) the filing
of one or more registration statements covering the Securities and such
registration statement being declared effective and (e) compliance with
applicable state securities laws provisions.
ARTICLE 4.5 ISSUANCE OF SHARES. Upon conversion in accordance with the
terms of the Convertible Debentures 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 other than applicable
securities law encumbrances and charges with respect to issuance and shall not
be subject to preemptive 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. Subject to the provisions of this Agreement and the
Transaction Agreements, the Company further acknowledges that its obligation to
issue Conversion Shares upon conversion of the Convertible Debentures and
exercise of the Warrants is absolute and unconditional regardless of the
dilutive effect that such issuance may have on 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 material agreement, judgment, injunction, order,
decree or other material 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 December 31, 2001 (the "Balance
Sheet Date"), except as disclosed in Schedule 4.7, or in the Company's filings
with the SEC 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 March 31, 2002, respectively, and the related
consolidated statements of income, changes in stockholders' equity and changes
in cash flows for the periods then ended, including the footnotes thereto,
except as indicated therein, (i) complied in all material respects with
applicable accounting requirements and (ii) have been prepared in accordance
with GAAP consistently applied throughout the periods indicated, except that the
unaudited financial statements do not contain notes and may be subject to normal
audit adjustments and normal annual adjustments. Such financial statements
fairly present the financial condition of the Company and its Subsidiaries at
the dates indicated and the consolidated results of their operations and cash
flows for the periods then ended and, except as indicated therein, reflect all
claims against and all Debts and liabilities of the Company and its
Subsidiaries, fixed or contingent except those claims against and all Debts and
liabilities of the Company which would not have a Material Adverse Effect.
ARTICLE 4.8 LITIGATION. Except as set forth on Schedule 4.8, there is no
action, suit or proceeding pending or, to the knowledge of the Company,
threatened against the Company or
any Subsidiary, before any court or arbitrator or any governmental body, agency
or official in which there is a reasonable possibility of an adverse decision
which could materially adversely affect the business, financial condition,
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, financial condition,
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. Except as set forth in Schedule 4.11, 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 and Regulation S-X.
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. The issuance
of the Securities to Purchaser will not be integrated with any other issuance of
the Company's securities (past, current or future) which requires stockholder
approval under the rules of the OTC Bulletin Board.
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) to its knowledge, 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) to its
knowledge, 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. Neither the Company nor any Subsidiary is a party to
any capital lease obligation with a value greater than $250,000 or to any
operating lease with an aggregate annual rental greater than $250,000 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, or is licensed under, and has the rights to use, all material
patents, trademarks, trade names, copyrights, technology, know-how and processes
(collectively, "Intellectual Property") used in, or necessary for the conduct of
its business; no claims have been asserted by any Person to the use of any such
Intellectual Property or challenging or questioning the validity or
effectiveness of any license or agreement related thereto. To the best of
Company's and its Subsidiaries' knowledge, there is no valid basis for any such
claim and the use of such Intellectual Property by the Company and its
Subsidiaries will not knowingly 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 PROPERTIES. Except as set forth in Schedule 4.11, the
Company and its Subsidiaries have good and marketable title to all their
respective properties individually valued in excess of $250,000 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 and (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity with GAAP
and to maintain asset accountability.
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;
(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;
and no further consent or authorization by the Purchaser, or its
partners is required;
(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;
(i) no part of the source of funds used by Purchaser to acquire
the Securities constitutes assets allocated to any separate account
maintained by Purchaser in which any employee benefit plan (or its
related trust) has any interest; and
(j) purchaser is a Bermuda corporation.
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 Debenture 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 Debenture, the Warrant, the Registration Rights Agreement
and the Escrow Agreement and delivered the same to Purchaser;
(b) The Company shall have delivered to Purchaser duly executed
certificates representing the Convertible Debentures 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 and
directors of the Company. The form of such certificate is attached
hereto as Exhibit D;
(e) Except as set forth in Section 4.4 of this Agreement, 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) Purchaser shall have received an opinion, dated the Closing
Date, of counsel to the Company, in form and substance reasonably
satisfactory to Purchaser;
(h) All fees and expenses due and payable by the Company as set
forth in this Agreement prior to the Closing Date shall have been paid;
provided that, all fees and expenses due and payable on the Closing
Date shall be subtracted from the payment of the Purchase Price;
(i) The Company Corporate Documents and the Subsidiary Corporate
Documents, if any, shall be in full force and effect and no term or
condition thereof shall
have been amended, waived or otherwise modified without the prior
written consent of Purchaser;
(j) Purchaser shall have confirmed the receipt of the Convertible
Debenture and the Warrants to be issued, duly executed by the Company
and registered in the name of Purchaser;
(k) 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;
(l) Immediately before and on the Closing Date, no Default or
Event of Default shall have occurred and be continuing;
(m) Company shall have delivered to Purchaser the Use of Proceeds
Schedule 7.8;
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, the Escrow Agreement, and the Registration Rights Agreement
signed by Purchaser;
(d) The Company shall have received payment of Purchase Price,
less the Transaction Fee.
ARTICLE 7. AFFIRMATIVE COVENANTS
The Company hereby agrees that, from and after the date hereof for so
long as at least 15% of principal amount of Convertible Debentures purchased by
Purchaser remain outstanding and for the benefit of Purchaser:
ARTICLE 7.1 INFORMATION. The Company will deliver or make available to
each holder of the Convertible Debentures:
(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 (2) business days after any executive 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
Debentures under Section 3.4, notice thereof together with a summary of
all material terms thereof and copies of all documents and instruments
associated therewith;
(f) notice promptly upon the occurrence of any event by which the
Reserved Amount becomes less than the sum of (i) 1.5 times the maximum
number of Conversion Shares issuable pursuant to the Transaction
Agreements; and
(g) promptly following the commencement thereof, notice and a
description in reasonable detail of any litigation or proceeding to
which the Company or any Subsidiary is a party in which the amount
involved is $250,000 or more and not covered by insurance or in which
injunctive or similar relief is sought.
ARTICLE 7.2 PAYMENT OF OBLIGATIONS. The Company will, and will cause each
Subsidiary to, pay and discharge, at or before maturity, all their respective
material obligations, including, without limitation, tax liabilities, except
where the same may be contested in good faith by appropriate proceedings and
will maintain, in accordance with GAAP, appropriate reserves for the accrual of
any of the same.
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 use its
commercially reasonable efforts, and will cause each Subsidiary to, continue to
engage in business of the same general type as now conducted by the Company and
such Subsidiaries, and will preserve, renew and keep in full force and effect
its respective corporate existence and their respective material rights,
privileges and franchises necessary or desirable in the normal conduct of
business, provided the Company may merge as provided in Section 8.3 hereof.
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 Company or such Subsidiary.
ARTICLE 7.6 INSPECTION OF PROPERTY, BOOKS AND RECORDS. The Company will,
and will cause each Subsidiary to, keep books of record and account in which
true and correct entries shall be made of all dealings and transactions in
relation to their respective businesses and activities; and will permit, during
normal business hours, Purchaser' Representative or an affiliate thereof, as
representatives of Purchaser, to visit and inspect any of their respective
properties, upon reasonable prior notice, to examine and make abstracts from any
of their respective books and records and to discuss their respective affairs,
finances and accounts with their respective executive officers and independent
public accountants (and by this provision the Company authorizes its independent
public accountants to disclose and discuss with Purchaser the affairs, finances
and accounts of the Company and its Subsidiaries in the presence of a
representative of the Company; provided, however, that such discussions will not
result in any unreasonable expense to the Company, without Company consent), all
at such reasonable times.
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 Debentures 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 Debentures 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 use its reasonable best
efforts to, comply, in all respects, with all terms and conditions of all
material contracts to which it is subject; provided it may in its sole judgment,
terminate or otherwise cancel such contract in compliance with the terms of such
contract.
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 Debentures and exercise
of the Warrants and issuance of the Conversion Shares (based on the conversion
price of the Convertible Debentures 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.
With respect to all Securities which contain an indeterminate number of shares
of Common Stock issuable in connection therewith (such as the Convertible
Debentures), the Company shall include in the Reserve Amount, no less than one
and one-half (1 1/2) times the number of shares that is then actually issuable
upon conversion or exercise of such Securities. If at any time the number of
shares of Common Stock authorized and reserved for issuance is below the number
of Conversion Shares issued or issuable upon conversion of the Convertible
Debentures 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 Debentures and the Warrants contemplated in
Section 3.4(c) hereof.
(b) The Company will maintain the listing and trading of its Common Stock
on the OTC Bulletin Board or a similar exchange. The Company will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the National Association of Securities Dealers, Inc. (the
"NASD") and such exchanges, as applicable. The Company shall promptly provide to
Purchaser copies of any notices it receives regarding the continued eligibility
of the Common Stock for listing on the OTC Bulletin Board or any National
Market.
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 Debentures or exercise of the Warrants. Upon conversion of
any Convertible Debentures in accordance with their terms and/or exercise of any
Warrants in accordance with their terms, the Company will, and will use its best
lawful efforts to cause its transfer agent to, issue one or more certificates
representing shares of Common Stock in such name or names and in such
denominations specified by a Purchaser in a Notice of Conversion or Notice of
Exercise, as the case may be. As long as the Registration Statement contemplated
by the Registration Rights Agreement shall remain effective, the shares of
Common Stock issuable upon conversion of any Convertible Debentures 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, subject in all cases to the ability of the Company to
merge as provided in Section 8.3.
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. Purchaser is a resident of
Bermuda.
ARTICLE 8. NEGATIVE COVENANTS
The Company hereby agrees that after the date hereof for so long as at
least 15% of the principal amount of the Convertible Debentures purchased by
Purchaser remain outstanding and for the benefit of Purchaser:
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), without the prior written consent of
Purchaser, any Debt except (w) Debt incurred in a Permitted Financing or as
otherwise contemplated in Section 8.6(a), (x) Debt incurred in connection with
equipment leases to which the Company or its Subsidiaries are a party incurred
in the ordinary course of business; (y) Debt incurred in connection with trade
accounts payable, imbalances and refunds arising in the ordinary course of
business; and (z) a conventional bank debt facility (not having any equity
features) which facility will not have outstanding drawn amounts greater than
30% of stockholders' equity on any date which this negative covenant is in
effect.
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) or (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. Without the prior written consent of
Purchaser, which consent will not be unreasonably withheld, 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 (w) the directors representing
two-thirds of the Board of Directors immediately prior to such transaction
continue to be directors of the surviving company immediately thereafter, (x)
the individuals set forth in Schedule 8.3 shall have executed employment
agreements requiring them to maintain positions as executive officers with the
surviving entity for a period of two years following the transaction, (y)
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 (z) 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. Notwithstanding the foregoing, the Company
may not consummate a merger or consolidation wherein the surviving company in
such transaction (i) is not a reporting company under the Exchange Act or (ii)
maintain listing of its Common Stock on a National Market, the OTC Bulletin
Board or a similar exchange, without the prior written consent of Purchaser.
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) From the Closing Date and continuing until 180 days following
the date on which the Registration Statement becomes effective or until
75% of the principal amount of the Convertible Debentures held by
Purchaser are converted or redeemed, whichever is later to occur, 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 discount
to the Market Price of the Common Stock at the time of issuance or, in
the case of Derivative Securities, at a conversion price based on any
formula (other than standard anti-dilution provisions) based on the
Market Price on a date later than the date of issuance which is below
the Market Price on the date of issuance (each such event, a
"Discounted Equity Offering") other than (i) borrowings under
conventional credit facilities existing as of the date hereof, (ii)
stock issued or credit facilities to be established in connection with
acquisitions, (iii) equity securities or Derivative Securities in
connection with stock option and stock purchase plans, (iv) securities
issued under the Convertible Debenture or Warrants, (v) up to
$5,000,000 of the Company's securities on terms no more favorable than
those set forth in this Agreement and (vi) up to $7,000,000 additional
principal amount of the Company's 6% Convertible Debentures on the
terms set forth in this Agreement and exclusively raised by Reedland
Capital Partners acting as investment banker to the Company; provided,
however, if Reedland is unable to secure such financing within 60 days
of the Closing Date, the Company will be permitted to secure up to an
aggregate of $7,000,000 on terms no more favorable than those set forth
in this Agreement, in addition to any of the financings permitted in
this Section 8.6. In addition, the Company shall not issue any equity
securities in connection with a strategic alliance entered into by the
Company unless such securities are the subject of a one year statutory
or contractual hold period or, if not subject to such a hold period,
unless the Purchaser has fully converted all outstanding Convertible
Debentures and exercised all Warrants. As used herein, "discount" shall
include, but not be limited to, (i) any warrant, right or other
security granted or offered in connection with such issuance which, on
the applicable date of grant, is offered with an exercise or conversion
price, as the case may be, at less than the then current Market Price
of the Common Stock or, if such security has an exercise or conversion
price based on any formula (other than standard anti-dilution
provisions) based on the Market Price on a date later than the date of
issuance, then at a price below the Market Price on such date of
exercise or conversion, as the case may be, or (ii) any commissions,
fees or other allowances paid in connection with such issuances (other
than customary underwriter or placement agent commissions, fees or
allowances). For the purposes of determining the Market Price at which
Common Stock is acquired under this Section, normal underwriting
commissions and placement fees (including underwriters' warrants) shall
be excluded. Notwithstanding the foregoing, the Company may enter into
the following types of transactions (collectively referred to as
"Permitted Financings"): (1)"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; (2) 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 (3)
other financing transactions specifically consented to in writing by
the Purchaser. The
180-day restrictive period set forth in this paragraph (a) of this
Section 8.6 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 Debentures have been
either redeemed or converted into Conversion Shares in full, the
Company agrees it will not issue any of its equity securities or
Derivative Securities, unless any shares of Common Stock issued or
issuable in connection therewith are "restricted securities" (other
than securities issued pursuant to Section 8.6(a)(v) and (vi),
Permitted Financings, or securities issued in connection with any
merger permitted by this Agreement, provided that any shares of the
Company Common Stock issued to the officers, directors and greater than
5% shareholders in connection with such merger shall be restricted). 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.
(c) Notwithstanding the foregoing, the restrictions contained in
this Section 8.6 shall not apply to the issuance by the Company of (or
the agreement to issue) Common Stock or securities convertible into
Common Stock in connection with (i) the acquisition of a business or of
assets otherwise permitted under this Agreement, or (ii) Company or
Subsidiary stock option or other compensatory or employee benefit plans
and up to an aggregate of 500,000 additional shares of Common Stock (or
Derivative Securities convertible into such number of shares of Common
Stock) issued to consultants at or above Market Price on the day of
issuance; or (iii) any common stock to be issued upon exercise or
conversion of any options, warrants or other securities outstanding on
the date hereof.
ARTICLE 8.7 LIMITATION ON STOCK REPURCHASES. Except as otherwise set forth
in the Convertible Debentures 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 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 Convertible Debentures and Warrants shall bear
restrictive legends in accordance with applicable securities laws. The
Conversion Shares, upon resale by the Purchaser pursuant to the Registration
Statement, shall be freely tradeable and unrestricted.
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 Debentures,
which failure shall be governed by such Section) the Company shall pay
to Purchaser, as liquidated damages and not as a penalty, $500 for each
$100,000 of Convertible Debentures then outstanding per day in cash,
for each of the first ten (10) days beyond the Deadline, and $1,000 for
each $100,000 of Convertible Debentures 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 Debenture (if
then outstanding) payable to Purchaser, in which event interest shall
accrue thereon in accordance with the terms of the Convertible
Debentures and such additional principal amount shall be convertible
into Common Stock in accordance with the terms of the Convertible
Debentures.
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 Debentures 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 Debentures, 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 Debentures, in excess of that portion
of the Convertible Debentures, 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 Debenture 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 Debenture 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
Debentures, (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. The Registration Statement shall not
include any securities issued by the Company pursuant to Section 8.6(v)
and (vi). The Company shall use its best efforts to cause the
Registration Statement to be declared effective by the Commission on
the earlier of (i) 120 days following 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 one percent (1%) of the principal amount of
Convertible Debentures outstanding for each day 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 Company shall pay to Purchaser, as liquidated
damages and not as a penalty, an amount equal to 2% of the outstanding
principal amount of the Convertible Debentures, prorated, for each
30-day period the Registration period is not declared effective by the
Commission. The liquidated damages will increase to 3% of the
outstanding principal amount of the Convertible Debentures in the event
the Registration Statement is not declared effective by the 90th day
following the Filing Date. In the event the Registration Statement is
not declared effective by the 120th day following the Filing Date,
Purchaser shall have the right to require the Company to redeem the
Convertible Debentures and Warrants.
(d) Any such liquidated damages shall be paid in cash by the
Company to Purchaser by wire transfer in immediately available funds on
the last day of each calendar week following the event requiring its
payment.
(e) If, following the declaration of effectiveness of the
Registration Statement the Registration Statement (or any prospectus or
supplemental prospectus contained therein) shall cease to be effective
for any reason, other than as provided in the Registration Rights
Agreement, (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
such shares of Common Stock registered under the then current
Registration Statement to effect full conversion of the Convertible
Debentures 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 $1,000 for each day 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 Debentures 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 Debentures and Warrants. The failure of the Company to
register a sufficient number of such shares to fully convert said
Convertible Debentures 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 Debentures and exercise of all
such Warrants or (ii) full conversion of the Convertible Debentures and
exercise of all such Warrants.
(g) Additionally, the Company will grant to Purchaser first
priority piggyback registration rights in the event the Company
proposes to effect a registered offering of Common Stock or warrants or
both prior to the filing of the Registration Statement referenced
above.
ARTICLE 11. ADJUSTMENT OF FIXED PRICE
ARTICLE 11.1 REORGANIZATION. The Conversion Price (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 as of the 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 as of the 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 as of 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 as of 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 Debentures
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 which is (i) less than the then current Conversion
Price or (ii) less than 85% of the current Market Price as of the date of
issuance of such shares of Common Stock or such Derivative Securities (other
than the issuance of Common Stock or Derivative Securities in connection with
the financings set forth in Section 8.6(a)(v) and (vi) of this Agreement), 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 in the applicable Fixed Price shall be required
unless such adjustment would result in a change of at least 1% in the
applicable Fixed Price then in effect, provided, however, that any
adjustments which, but for the provisions of this clause would
otherwise have been required to be made, shall be carried forward and
taken into account in any subsequent adjustment;
(b) if any event occurs of the type contemplated by the adjustment
provisions of this Article XI but not expressly provided for by such
provisions, the Company will give notice of such event as provided
herein, and the Company's board of directors will make an appropriate
adjustment in the Fixed Price so that the rights of the holders of the
applicable Security shall not be diminished by such event; and
(c) if a dispute shall at any time arise with respect to any
adjustment of the applicable Fixed Price, such dispute shall be
conclusively determined by the auditors of the Company or, if they are
unable or unwilling to act, by a firm of independent public 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 Debentures (whether by
virtue of the agreements specified in this Agreement or the Convertible
Debentures);
(b) failure by the Company to pay (i) within five (5) Business
Days of the due date thereof any interest on any Convertible Debentures
or (ii) within five (5) Business Days following the delivery of notice
to the Company of any fees or any other amount payable (not otherwise
referred to in (a) above or this clause (b)) by the Company under this
Agreement or any other Transaction Agreement;
(c) failure by the Company to timely comply with the requirements
of Section 7.11 or 10.1 hereof, which failure is not cured within five
(5) Business Days of such failure;
(d) failure on the part of the Company to observe or perform any
covenant contained in Article VIII of this Agreement after the receipt
of written notice by the Purchaser of such default and failure of the
Company to cure such default within 5 days of such notice;
(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) after the
receipt of written notice by the Purchaser of such default and the
failure of the Company to cure such default within 30 days of its
initial occurrence.
(f) the trading in the Common Stock shall have been suspended by
the Commission, OTC Bulletin Board or any National Market (except for
any suspension of trading of limited duration solely to permit
dissemination of material information regarding the Company and except
if, at the time there is any suspension on any National Market, the
Common Stock is then listed and approved for trading on another
National Market within ten (10) Trading Days thereof);
(g) failure of the Company to file the required Listing
Applications, if any, within twenty (20) Business Days of the Closing
Date, which failure is not cured within five (5) Business Days of such
failure;
(h) the Company shall have its Common Stock delisted from the OTC
Bulletin Board or a National Market for at least ten (10) consecutive
Trading Days and is unable to obtain a listing on a National Market
within such ten (10) Trading Days;
(i) the effectiveness of the Registration Statement shall not be
maintained for the Registration Maintenance Period (as defined in the
Registration Rights Agreement), which results in the Company incurring
the liquidated damages or a default fee for a period in excess of 30
days;
(j) the Company or any Subsidiary has commenced a voluntary case
or other proceeding seeking liquidation, winding-up, reorganization or
other relief with respect to itself or its debts under any bankruptcy,
insolvency, moratorium or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of
its property, or has consented to any such relief or to the appointment
of or taking possession by any such official in an involuntary case or
other proceeding commenced against it, or has made a general assignment
for the benefit of creditors, or has failed generally to pay any of its
material 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 $500,000, 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 which has not been cured, by notice to the
Company, declare the Convertible Debentures to be, and the Convertible
Debentures 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
Debentures shall become immediately due and payable, provided, further, if any
Event of Default has occurred and is continuing, and irrespective of whether any
Convertible Debenture has been declared immediately due and payable hereunder,
any Purchaser of Convertible Debentures 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 Debenture, 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 Debentures shall be the Formula Price. In addition to the foregoing,
Purchaser shall have the right to convert the Convertible Debenture upon an
Event of Default for the Conversion Price set forth in Section 4.2(A) thereof.
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 Debentures 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
Debenture affected thereby, an amendment or waiver may not (a) reduce
the aggregate principal amount of Convertible Debentures whose holders
must consent to an amendment or waiver, (b) reduce the rate or extend
the time for payment of interest on any Convertible Debenture, (c)
reduce the principal amount of or extend the stated maturity of any
Convertible Debenture or (d) make any Convertible Debenture payable in
money or property other than as stated in such Convertible Debenture.
In determining whether the holders of the requisite principal amount of
Convertible Debentures have concurred in any direction, consent, or
waiver as provided in any Transaction Agreement, Convertible Debentures
which are owned by the Company or any other obligor on or guarantor of
the convertible Debentures, 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 Debentures 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; 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 Debentures 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 agrees to pay to
Global Capital Advisors, LLC, the investment advisor to Purchaser, on the
Closing Date, a fee of $15,000.00 (the "Transaction Fee") in full satisfaction
of all obligations of the Company to
Purchaser and its agents in connection with the negotiation and preparation of
the Transaction Agreements, relevant due diligence, and fees and disbursements
of legal counsel. In addition, the Company agrees to pay any and all stamp,
transfer and other similar taxes, assessments or charges payable in connection
with the execution and delivery of any Transaction Agreement or the issuance of
the Securities to Purchaser, excluding their assigns.
ARTICLE 14.9 PAYMENT. The Company agrees that, so long as Purchaser shall
own any Convertible Debentures 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 as set forth on Schedule 13.7, 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 FLORIDA 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 FLORIDA. EACH PARTY HERETO HEREBY SUBMITS
TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF FLORIDA AND OF ANY FEDERAL DISTRICT COURT SITTING IN PALM
BEACH COUNTY, FLORIDA 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 Debenture, the
Warrant, the Registration Rights Agreement and the Security Agreement, set forth
the entire agreement and understanding of the parties relating to the subject
matter hereof and supercedes 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.
METROPOLITAN HEALTH NETWORKS, INC.
By:
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Name:
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Title:
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Address: Metropolitan Health Networks, Inc.
000 Xxxxxxxxxx Xxxxxx
Xxxx Xxxx Xxxxx, XX 00000
Fax:
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Telephone:
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GCA STRATEGIC INVESTMENT FUND LIMITED
By:
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Name: Xxxxx X. Xxxxxx
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Title: Director
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Address: c\o Prime Management
Mechanics Xxxxxxxx
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Xxxxxxxx, Xxxxxxx XX00
Fax: 000-000-0000
Tel.: 000-000-0000
Securities Purchase Agreement
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS.................................................................1
SECTION 1.1 DEFINITIONS......................................................1
SECTION 1.2 ACCOUNTING TERMS AND DETERMINATIONS..............................9
ARTICLE II. PURCHASE AND SALE OF SECURITIES............................................9
SECTION 2.1 PURCHASE AND SALE OF CONVERTIBLE DEBENTURES......................9
SECTION 2.2 PURCHASE PRICE..................................................10
SECTION 2.3 CLOSING AND MECHANICS OF PAYMENT................................10
ARTICLE III. PAYMENT TERMS OF CONVERTIBLE DEBENTURES..................................10
SECTION 3.1 PAYMENT OF PRINCIPAL AND INTEREST; PAYMENT MECHANICS............10
SECTION 3.2 PAYMENT OF INTEREST.............................................10
SECTION 3.3 VOLUNTARY PREPAYMENT............................................10
SECTION 3.4 MANDATORY PREPAYMENTS...........................................11
SECTION 3.5 PREPAYMENT PROCEDURES...........................................11
SECTION 3.6 PAYMENT OF ADDITIONAL AMOUNTS...................................12
ARTICLE IV. REPRESENTATIONS AND WARRANTIES............................................13
SECTION 4.1 ORGANIZATION AND QUALIFICATION..................................14
SECTION 4.2 AUTHORIZATION AND EXECUTION.....................................14
SECTION 4.3 CAPITALIZATION .................................................14
SECTION 4.4 GOVERNMENTAL AUTHORIZATION......................................15
SECTION 4.5 ISSUANCE OF SHARES..............................................15
SECTION 4.6 NO CONFLICTS....................................................16
SECTION 4.7 FINANCIAL INFORMATION...........................................16
SECTION 4.8 LITIGATION......................................................16
SECTION 4.9 COMPLIANCE WITH ERISA AND OTHER BENEFIT PLANS...................17
SECTION 4.10 ENVIRONMENTAL MATTERS...........................................17
SECTION 4.11 TAXES...........................................................17
SECTION 4.12 INVESTMENTS, JOINT VENTURES.....................................18
SECTION 4.13 NOT AN INVESTMENT COMPANY.......................................18
SECTION 4.14 FULL DISCLOSURE.................................................18
SECTION 4.15 NO SOLICITATION; NO INTEGRATION WITH OTHER OFFERINGS............18
SECTION 4.16 PERMITS.........................................................18
SECTION 4.17 LEASES..........................................................18
SECTION 4.18 ABSENCE OF ANY UNDISCLOSED LIABILITIES OR CAPITAL CALLS.........18
SECTION 4.19 PUBLIC UTILITY HOLDING COMPANY..................................19
SECTION 4.20 INTELLECTUAL PROPERTY RIGHTS....................................19
SECTION 4.21 INSURANCE.......................................................19
SECTION 4.22 TITLE TO PROPERTIES.............................................19
SECTION 4.23 INTERNAL ACCOUNTING CONTROLS....................................19
SECTION 4.24 FOREIGN PRACTICES...............................................19
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASER................................19
SECTION 5.1 PURCHASER.......................................................20
ARTICLE VI. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES............................21
SECTION 6.1 CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS TO PURCHASE.....21
SECTION 6.2 CONDITIONS TO THE COMPANY'S OBLIGATIONS.........................22
ARTICLE VII. AFFIRMATIVE COVENANTS....................................................23
SECTION 7.1 INFORMATION.....................................................23
SECTION 7.2 PAYMENT OF OBLIGATIONS..........................................24
SECTION 7.3 MAINTENANCE OF PROPERTY; INSURANCE..............................24
SECTION 7.4 MAINTENANCE OF EXISTENCE........................................24
SECTION 7.5 COMPLIANCE WITH LAWS............................................24
SECTION 7.6 INSPECTION OF PROPERTY, BOOKS AND RECORDS.......................25
SECTION 7.7 INVESTMENT COMPANY ACT..........................................25
SECTION 7.8 USE OF PROCEEDS.................................................25
SECTION 7.9 COMPLIANCE WITH TERMS AND CONDITIONS OF MATERIAL CONTRACTS......25
SECTION 7.10 RESERVED SHARES AND LISTINGS....................................25
SECTION 7.11 TRANSFER AGENT INSTRUCTIONS.....................................26
SECTION 7.12 MAINTENANCE OF REPORTING STATUS; SUPPLEMENTAL INFORMATION.......26
SECTION 7.13 FORM D; BLUE SKY LAWS...........................................27
ARTICLE VIII. NEGATIVE COVENANTS......................................................27
SECTION 8.1 LIMITATIONS ON DEBT OR OTHER LIABILITIES........................27
SECTION 8.2 TRANSACTIONS WITH AFFILIATES....................................27
SECTION 8.3 MERGER OR CONSOLIDATION.........................................28
SECTION 8.4 LIMITATION ON ASSET SALES.......................................28
SECTION 8.5 RESTRICTIONS ON CERTAIN AMENDMENTS..............................28
SECTION 8.6 RESTRICTIONS ON ISSUANCES OF SECURITIES.........................29
SECTION 8.7 LIMITATION ON STOCK REPURCHASES.................................30
ARTICLE IX. RESTRICTIVE LEGENDS.......................................................30
SECTION 9.1 RESTRICTIONS ON TRANSFER........................................30
SECTION 9.2 LEGENDS.........................................................31
SECTION 9.3 NOTICE OF PROPOSED TRANSFERS....................................31
ARTICLE X. ADDITIONAL AGREEMENTS AMONG THE PARTIES....................................31
SECTION 10.1 LIQUIDATED DAMAGES..............................................31
SECTION 10.2 CONVERSION NOTICE...............................................32
SECTION 10.3 CONVERSION LIMIT................................................32
SECTION 10.4 REGISTRATION RIGHTS.............................................33
ARTICLE XI. ADJUSTMENT OF FIXED PRICE.................................................34
SECTION 11.1 REORGANIZATION..................................................34
SECTION 11.2 SHARE REORGANIZATION............................................34
SECTION 11.3 RIGHTS OFFERING.................................................35
SECTION 11.4 SPECIAL DISTRIBUTION............................................36
SECTION 11.5 CAPITAL REORGANIZATION..........................................37
SECTION 11.6 PURCHASE PRICE ADJUSTMENTS......................................37
SECTION 11.7 ADJUSTMENT RULES................................................38
SECTION 11.8 CERTIFICATE AS TO ADJUSTMENT....................................38
SECTION 11.9 NOTICE TO HOLDERS...............................................39
ARTICLE XII. EVENTS OF DEFAULT........................................................39
SECTION 12.1 EVENTS OF DEFAULT...............................................39
SECTION 12.2 POWERS AND REMEDIES CUMULATIVE..................................41
ARTICLE XIII. MISCELLANEOUS...........................................................42
SECTION 13.1 NOTICES.........................................................42
SECTION 13.2 NO WAIVERS; AMENDMENTS..........................................42
SECTION 13.3 INDEMNIFICATION.................................................43
SECTION 13.4 EXPENSES: DOCUMENTARY TAXES....................................45
SECTION 13.5 PAYMENT.........................................................45
SECTION 13.6 SUCCESSORS AND ASSIGNS..........................................45
SECTION 13.7 BROKERS.........................................................45
SECTION 13.8 FLORIDA LAW; SUBMISSION TO JURISDICTION; WAIVER OF
JURY TRIAL; APPOINTMENT OF AGENT................................45
SECTION 13.9 ENTIRE AGREEMENT................................................46
SECTION 13.10 SURVIVAL; SEVERABILITY..........................................46
SECTION 13.11 TITLE AND SUBTITLES.............................................46
SECTION 13.12 REPORTING ENTITY FOR THE COMMON STOCK...........................46
SECTION 13.13 PUBLICITY.......................................................46
LIST OF SCHEDULES
Schedule 4.3 Capitalization
Schedule 4.7 Financial Information
Schedule 4.8 Litigation
Schedule 4.11 Taxes
Schedule 4.12 Investments, Joint Ventures
Schedule 4.15 No Solicitation; No Integration with Other Offerings
Schedule 4.22 Title to Properties
Schedule 7.8 Use of Proceeds
Schedule 8.2 Transactions with Affiliates
Schedule 8.3 Merger or Consolidation
Schedule 13.7 Brokers
LIST OF EXHIBITS
Exhibit A Form of Convertible Debentures
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
SECURITIES PURCHASE AGREEMENT
DATED AS OF
MAY 24, 2002
BY AND BETWEEN
METROPOLITAN HEALTH NETWORKS, INC.
AS THE ISSUER,
AND
GCA STRATEGIC INVESTMENT FUND LIMITED
SCHEDULE 8.3
MERGER OR CONSOLIDATION
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