Exhibit 10.4
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CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
BETWEEN
HY-TECH TECHNOLOGY GROUP, INC.
AND
THE PURCHASER(S) LISTED ON
SCHEDULE 1 HERETO
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APRIL 28, 2003
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TABLE OF CONTENTS
ARTICLE I CERTAIN DEFINITIONS...........................................................................1
1.1 CERTAIN DEFINITIONS.............................................................................1
ARTICLE II PURCHASE AND SALE OF DEBENTURE................................................................6
2.1 PURCHASE AND SALE; PURCHASE PRICE...............................................................6
2.2 REGISTRATION STATEMENT; EXECUTION AND DELIVERY OF DOCUMENTS.....................................6
2.3 THE CLOSING.....................................................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES...............................................................9
3.1 REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY.......................................9
3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER................................................12
ARTICLE IV OTHER AGREEMENTS OF THE PARTIES..............................................................13
4.1 MANNER OF OFFERING.............................................................................13
4.2 FURNISHING OF INFORMATION......................................................................13
4.3 NOTICE OF CERTAIN EVENTS.......................................................................13
4.4 COPIES AND USE OF DISCLOSURE DOCUMENTS.........................................................14
4.5 MODIFICATION TO DISCLOSURE DOCUMENTS...........................................................14
4.6 INTEGRATION....................................................................................14
4.7 FURNISHING OF RULE 144(C) MATERIALS............................................................14
4.8 SOLICITATION MATERIALS.........................................................................14
4.9 Initial Warrant Conversion and Exercise Procedures ............................................14
4.10 PROHIBITION ON CERTAIN ACTIONS.................................................................15
4.11 LISTING OF COMMON STOCK........................................................................15
4.12 ESCROW.........................................................................................15
4.13 CONVERSION AND EXERCISE PROCEDURES; MAINTENANCE OF ESCROW SHARES...............................15
4.14 ATTORNEY-IN-FACT...............................................................................16
4.15 INDEMNIFICATION................................................................................16
4.16 EXCLUSIVITY....................................................................................18
4.17 BLUE SKY QUALIFICATION.........................................................................18
4.18 PURCHASER'S OWNERSHIP OF COMMON STOCK..........................................................18
4.19 PURCHASER'S RIGHTS IF TRADING IN COMMON STOCK IS SUSPENDED.....................................19
4.20 NO VIOLATION OF APPLICABLE LAW.................................................................20
4.21 REDEMPTION RESTRICTIONS........................................................................20
4.22 NO OTHER REGISTRATION RIGHTS...................................................................20
4.23 MERGER OR CONSOLIDATION........................................................................21
4.24 REGISTRATION OF ESCROW SHARES..................................................................21
4.25 LIQUIDATED DAMAGES.............................................................................21
4.26 SELLING RESTRICTIONS; SHORT SALES..............................................................22
4.27 FEES...........................................................................................22
4.28 ADDITIONAL FEES................................................................................22
ARTICLE V TERMINATION..................................................................................22
5.1 TERMINATION BY THE COMPANY OR THE PURCHASER....................................................22
5.2. REMEDIES.......................................................................................23
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ARTICLE VI LEGAL FEES AND DEFAULT INTEREST RATE.........................................................24
ARTICLE VII MISCELLANEOUS................................................................................24
7.1 FEES AND EXPENSES..............................................................................24
7.2 ENTIRE AGREEMENT; AMENDMENTS...................................................................24
7.3 NOTICES........................................................................................25
7.4 AMENDMENTS; WAIVERS............................................................................25
7.5 HEADINGS.......................................................................................26
7.6 SUCCESSORS AND ASSIGNS.........................................................................26
7.7 NO THIRD PARTY BENEFICIARIES...................................................................26
7.8 GOVERNING LAW; VENUE; SERVICE OF PROCESS.......................................................26
7.9 SURVIVAL.......................................................................................26
7.10 COUNTERPART SIGNATURES.........................................................................26
7.11 PUBLICITY......................................................................................26
7.12 SEVERABILITY...................................................................................27
7.13 LIMITATION OF REMEDIES.........................................................................27
7.14 OMNIBUS PROVISION..............................................................................27
LIST OF SCHEDULES:
Schedule 1 Purchaser(s)
Schedule 3.1(a) Subsidiaries
Schedule 3.1(c) Capitalization and Registration Rights
Schedule 3.1(d) Equity and Equity Equivalent Securities
Schedule 3.1(e) Conflicts
Schedule 3.1(f) Consents and Approvals
Schedule 3.1(g) Litigation and Claims
Schedule 3.1(h) Defaults and Violations
Schedule 5.1 Form 8-K Disclosure Obligations
LIST OF EXHIBITS:
Exhibit A Convertible Debenture
Exhibit B Warrant
Exhibit C Registration Rights Agreement
Exhibit D Conversion And Exercise Procedures
Exhibit E Escrow Agreement
Exhibit F Power of Attorney
Exhibit G Legal Opinion
Exhibit H Initial Warrant
Exhibit I Initial Escrow Agreement
Exhibit J Initial Registration Rights Agreement
Exhibit K Initial Power of Attorney
Exhibit L Initial Opinion
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THIS CONVERTIBLE DEBENTURE PURCHASE AGREEMENT (this "AGREEMENT"), is
made and entered into as of April 28, 2003, between Hy-Tech Technology Group,
Inc., a corporation organized and existing under the laws of the State of
Delaware (the "COMPANY"), and the purchaser(s) listed on SCHEDULE 1 hereto (the
"PURCHASER").
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchaser and the
Purchaser desires to acquire from the Company the Company's $750,000, 1%
Convertible Debenture, due April 27, 2008, at the price of Seven Hundred and
Fifty Thousand Dollars ($750,000) (the "DEBENTURE CONSIDERATION") in the form of
EXHIBIT A annexed hereto and made a part hereof (the "Debentures").
IN CONSIDERATION of the mutual covenants contained in this Agreement,
the Company and each Purchaser agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.1 CERTAIN DEFINITIONS. As used in this Agreement, and unless the
context requires a different meaning, the following terms have the meanings
indicated:
"AFFILIATE" means, with respect to any Person, any Person that,
directly or indirectly, controls, is controlled by or is under common control
with such Person. For the purposes of this definition, "CONTROL" (including,
with correlative meanings, the terms "CONTROLLED BY" and "UNDER COMMON CONTROL
WITH") shall mean the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities or by contract or otherwise.
"AGREEMENT" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"ATTORNEY-IN-FACT" shall have the meaning set forth in SECTION
2.2(B)(V) hereof.
"BUSINESS DAY" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the State of
New York are authorized or required by law or other government actions to close.
"CLOSING" shall have the meaning set forth in SECTION 2.3(A).
"CLOSING DATE" shall have the meaning set forth in SECTION 2.3(A).
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means shares now or hereafter authorized of the class of
common stock, par value $.001 per share, of the Company and stock of any other
class into which such shares may hereafter have been reclassified or changed.
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"COMPANY" shall have the meaning set forth in the introductory
paragraph.
"CONTROL PERSON" shall have the meaning set forth in SECTION 4.15(A)
hereof.
"CONVERSION DATE" shall have the meaning set forth in the Debentures.
"DEBENTURES" shall have the meaning set forth in the recital.
"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.
"DISCLOSURE DOCUMENTS" means (a) the Schedules required to be to
furnished to the Purchaser by or on behalf of the Company pursuant to SECTION
3.1 hereof and (b) all reports required to be and as filed by the Company with
the Commission under the Exchange Act during the two (2) year period prior to
the date hereof.
"EFFECTIVE DATE" shall mean the date on which the Registration
Statement shall have been declared effective by the Commission, which shall in
no event be later than August 28, 2003.
"ESCROW AGENT" means Xxxxxx Xxxxxxxxxx & Xxxxxxxx, LLP, or its
successors or assigns, 000 Xxxxx Xxxxxx, 0xx Xxxxx, Xxx Xxxx, XX 00000; Tel:
000-000-0000; Fax: 000-000-0000.
"ESCROW AGREEMENT" shall have the meaning set forth in SECTION 4.12
hereof.
"ESCROW SHARES" means the certificates representing Seven and a Half
(7,500,000) shares of duly issued Common Stock, in the share denominations set
forth in Schedule 1 hereof, registered in the name of the Purchaser and/or its
assigns to be held in escrow pursuant to this Agreement and the Escrow
Agreement; Two and a Half Million (2,500,000) of such shares to be held in
escrow with respect to the Warrant Shares and the remainder for the Underlying
Shares.
"EVENT OF DEFAULT" shall have the meaning set forth in SECTION 5.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXECUTION DATE" means the date of this Agreement first written above.
"FILING DATE" shall have the meaning set forth in SECTION 2.2(A)
hereof.
"FULL CONVERSION SHARES" shall have the meaning set forth in SECTION
4.13 hereof.
"INDEMNIFIED PARTY" shall have the meaning set forth in SECTION 4.15(B)
hereof.
"INDEMNIFYING PARTY" shall have the meaning set forth in SECTION
4.15(B) hereof.
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"INITIAL ESCROW AGREEMENT" shall mean the agreement, dated the dated
hereof, among the parties and the Escrow Agent, a copy of which is annexed as
EXHIBIT I hereto.
"INITIAL OPINION" shall mean the opinion of Hand & Hand, a professional
corporation, special securities counsel to the Company, a copy of which is
annexed as EXHIBIT L hereto.
"INITIAL POWER OF ATTORNEY" shall mean the power of attorney, dated the
date hereof, a copy of which is annexed as EXHIBIT K hereto.
"INITIAL REGISTRATION RIGHTS AGREEMENT" shall mean the agreement, dated
the date hereof, between the Purchaser and the Company, a copy of which is
annexed as EXHIBIT J hereto, setting forth the obligation of the Company with
respect to registration of the Initial Warrant Shares.
"INITIAL WARRANT" means the common stock purchase warrant issued to the
Purchaser and/or its assigns, in the form of EXHIBIT H annexed hereto, pursuant
to which the Purchaser and/or its assigns shall have the right to acquire Two
and a Half Million (2,500,000) shares of Common Stock at $.01 per share pursuant
to SECTION 2.2(D) hereof.
"INITIAL WARRANT ESCROW SHARES" means the certificates representing the
number of shares of duly issued Initial Warrant Shares set forth in SCHEDULE 1,
registered in the name of the Purchaser and/or its assigns to be held in escrow
pursuant to this Agreement and the Initial Escrow Agreement.
"INITIAL WARRANT SHARES" means the shares of Common Stock for which the
Initial Warrant may be exercised in accordance with the terms hereof and of the
Initial Warrant.
"KGL" means Xxxxxx Gottbetter & Xxxxxxxx, LLP, or its successors or
assigns.
"LIMITATION ON CONVERSION" shall have the meaning set forth in SECTION
4.18 hereof.
"LOSSES" shall have the meaning set forth in SECTION 4.15(A) hereof.
"MATERIAL" shall mean having a financial consequence in excess of
$100,000.
"MATERIAL ADVERSE EFFECT" shall have the meaning set forth in SECTION
3.1(A).
"NASD" means the National Association of Securities Dealers, Inc.
"NASDAQ" shall mean the Nasdaq Stock Market, Inc.(R)
"NON-XXXXX FILINGS" shall have the meaning set forth in SECTION 4.2
hereof.
"NOTICE OF CONVERSION" shall have the meaning set forth in EXHIBIT D
annexed hereto.
"NOTICE OF EXERCISE" shall have the meaning set forth in EXHIBIT D
annexed hereto.
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"ORIGINAL ISSUANCE DATE," shall have the meaning set forth in the
Debentures.
"OTCBB" shall mean the NASD over-the counter Bulletin Board(R).
"PER DEBENTURE CONSIDERATION" shall have the meaning set forth in the
recital.
"PER SHARE MARKET VALUE" of the Common Stock means on any particular
date (a) the last sale price of shares of Common Stock on such date or, if no
such sale takes place on such date, the last sale price on the most recent prior
date, in each case as officially reported on the principal national securities
exchange on which the Common Stock is then listed or admitted to trading, or (b)
if the Common Stock is not then listed or admitted to trading on any national
securities exchange, the closing bid price per share as reported by Nasdaq, or
(c) if the Common Stock is not then listed or admitted to trading on the Nasdaq,
the closing bid price per share of the Common Stock on such date as reported on
the OTCBB or if there is no such price on such date, then the last bid price on
the date nearest preceding such date, or (d) if the Common Stock is not quoted
on the OTCBB, the closing bid price for a share of Common Stock on such date in
the over-the-counter market as reported by the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions of
reporting prices) or if there is no such price on such date, then the last bid
price on the date nearest preceding such date, or (e) if the Common Stock is no
longer publicly traded, the fair market value of a share of Common Stock as
determined by an Appraiser (as defined in SECTION 4(C)(IV) of the Debentures)
selected in good faith by the holders of a majority of the Debentures
outstanding, determined by dollar amount; PROVIDED, HOWEVER, that the Company,
after receipt of the determination by such Appraiser, shall have the right to
select an additional Appraiser, in which case, the fair market value shall be
equal to the average of the determinations by each such Appraiser.
"PERSON" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"POWER OF ATTORNEY" means the power of attorney in the form of EXHIBIT
F annexed hereto.
"PROCEEDING" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"PURCHASE PRICE" shall have the meaning set forth in SECTION 2.1.
"PURCHASER" shall mean HEM Mutual Assurance Fund Limited and all of its
officers, directors, principal shareholders and other Affiliates.
"REGISTRATION RIGHTS AGREEMENT" means the agreement to be entered into
on the Execution Date, in the form of EXHIBIT C annexed hereto, setting forth
the obligation of the Company with respect to registration of the Escrow Shares.
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"REGISTRATION STATEMENT" shall have the meaning set forth in SECTION
2.2(A) hereof.
"REQUIRED APPROVALS" shall have the meaning set forth in SECTION
3.1(F).
"SECURITIES" means the Debentures, the Warrant, the Underlying Shares,
the Warrant Shares, the Escrow Shares, the Initial Warrant, the Initial Warrant
Shares and the Initial Warrant Escrow Shares.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHORT SALE" shall have the meaning set forth in SECTION 4.26 hereof.
"SUBSIDIARIES" shall have the meaning set forth in SECTION 3.1(A).
"TRADING DAY" means (a) a day on which the Common Stock is quoted on
Nasdaq, the OTCBB or the principal stock exchange on which the Common Stock has
been listed, or (b) if the Common Stock is not quoted on Nasdaq, the OTCBB or
any stock exchange, a day on which the Common Stock is quoted in the
over-the-counter market, as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices).
"TRANSACTION DOCUMENTS" means this Agreement and all exhibits and
schedules hereto and all other documents, instruments and writings required
pursuant to this Agreement.
"UNDERLYING SHARES" means the shares of Common Stock into which the
Debentures are convertible in accordance with the terms hereof and the
Debentures.
"WARRANT" means the common stock purchase warrant(s) issued to the
Purchaser and/or its assigns, in the form of EXHIBIT B annexed hereto, pursuant
to which the Purchaser and/or its assigns shall have the right to acquire Two
and a Half Million (2,500,000) shares of Common Stock at $.01 per share.
"WARRANT SHARES" means the shares of Common Stock for which the Warrant
may be exercised in accordance with the terms hereof and of the Warrant.
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ARTICLE II
PURCHASE AND SALE OF CONVERTIBLE DEBENTURES
2.1 PURCHASE AND SALE; PURCHASE PRICE. Subject to the terms and
conditions set forth herein, the Company shall issue and sell and the Purchaser
shall purchase an aggregate principal amount of Seven Hundred and Fifty Thousand
Dollars ($750,000) (the "PURCHASE PRICE") of the Debentures, the Warrant and the
Initial Warrant. The Debentures shall have the respective rights, preferences
and privileges as set forth in the form of Debenture annexed as EXHIBIT A
hereto.
2.2 REGISTRATION STATEMENT; EXECUTION AND DELIVERY OF DOCUMENTS.
(a) Within forty-five (45) calendar days after the Execution Date (the
"FILING DATE"), the Company shall, in accordance with the terms hereof and the
Registration Rights Agreement, file a duly completed registration statement on
the appropriate form with the Commission to register the resale of the Escrow
Shares under the Securities Act (the "REGISTRATION STATEMENT").
(b) Simultaneously with the execution and delivery of this Agreement,
(i) the parties shall execute and deliver the (A) Registration
Rights Agreement, (B) Escrow Agreement, (C) Initial Registration Rights
Agreement, and (D) Initial Escrow Agreement;
(ii) the Company shall deliver to the Purchaser (A) the legal
opinions of special securities counsel to the Company substantially in
the form of EXHIBIT G and EXHIBIT L annexed hereto, each addressed to
the Purchaser and dated the date hereof; and (B) an original and duly
executed Initial Warrant registered in the name of the Purchaser and/or
its assigns to purchase the number of shares of the Common Stock as set
forth in SCHEDULE 1 hereto. The Initial Warrant shall have the terms
and conditions set forth in the Warrant annexed as EXHIBIT B hereto.
(iii) the Company shall execute and deliver to the Escrow
Agent originals of the (A) Warrant, (B) Power of Attorney, and (C)
Initial Power of Attorney;
(iv) the Company shall deliver to the Escrow Agent original
(A) duly issued Debentures and (B) duly issued stock certificates
representing the Escrow Shares and the Initial Warrant Escrow Shares,
each registered in the name of the Purchaser in the amounts set forth
in SCHEDULE 1 hereto;
(v) the Company shall execute and deliver to the Purchaser a
certificate, dated the date hereof and signed by the Secretary of the
Company, certifying (A) that attached thereto are true, correct and
complete copies of (1) the Company's articles or certificate of
incorporation, as amended to the date thereof, (2) the Company's
by-laws, as amended to the date thereof, (3) resolutions duly adopted
by the Board of Directors of the Company authorizing the execution and
delivery of this Agreement, the issuance and sale of the Debentures,
the Initial Warrant, the Warrant, the Underlying Shares, the Initial
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Warrant Shares and the Warrant Shares, and the appointment, pursuant to
SECTION 4.14 hereof, of the attorney-in-fact pursuant to the Power of
Attorney annexed as EXHIBIT F and EXHIBIT K hereto (the
"ATTORNEY-IN-FACT"), and (4) a certificate of good standing from the
Secretary of State of Delaware (B) the incumbency of the officer
executing this Agreement; and (C) a certificate of the Company's
President, dated the date hereof, certifying that the representations
and warranties of the Company contained in Article III hereof are true
and correct in all material respects as of the date hereof;
(vi) the Company shall execute and deliver to the Purchaser a
certificate of its President certifying that attached thereto is a copy
of resolutions duly adopted by the Board of Directors of the Company
authorizing the Company to execute and deliver the Transaction
Documents and to enter into the transactions contemplated thereby; and
(vii) the Purchaser shall deliver to the Escrow Agent the
Purchase Price.
(c) If this Agreement is terminated pursuant to SECTION 5.1
hereof, then, within two (2) Business Days from the date of termination, either
the Company or the Purchaser shall notify the Escrow Agent in writing of same,
and
(i) the Escrow Agent shall, within two (2) Business Days of
its receipt of such notice,
(A) return the Purchase Price to the Purchaser; and
(B) return the Debentures, the Warrant and the
certificates representing the Escrow Shares to the Company.
(d) The Initial Warrant shall have the terms and conditions
and be in the form of the Initial Warrant annexed as EXHIBIT H hereto. The
Purchaser shall have (a) piggyback registration rights with respect to the
Initial Warrant Shares pursuant to the terms of this Agreement, the Initial
Warrant and the Initial Registration Rights Agreement and (b) demand
registration rights with respect to the Initial Warrant Shares pursuant to the
terms of this Agreement, the Initial Warrant and the Registration Rights
Agreement.
2.3 THE CLOSING.
(a) The closing of the purchase and sale of the Debentures (the
"CLOSING") shall take place no later than five (5) Business Days after the
Effective Date of the Registration Statement (the "CLOSING DATE") at the offices
of Xxxxxx Xxxxxxxxxx & Xxxxxxxx, LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, XX 00000
unless the Purchaser agrees in writing in advance to an extension, which writing
shall set forth the new Closing Date.
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(b) At the Closing,
(i) the Escrow Agent shall deliver to the Purchaser the
following:
(A) original and duly issued Debentures registered in the name
of the Purchaser in the amount set forth in SCHEDULE 1 hereto; and
(B) an original and duly executed Warrant registered in the
name of the Purchaser and/or its assigns to purchase the number of
shares of the Common Stock as set forth in SCHEDULE 1 hereto. The
Warrant shall have the terms and conditions set forth in the Warrant
annexed as EXHIBIT B hereto;
(ii) the Company shall deliver to the Purchaser the following:
(A) a legal opinion of special securities counsel to the
Company, substantially in the form annexed as EXHIBIT G hereto,
addressed to the Purchaser and dated the Closing Date;
(B) a certificate, dated the Closing Date and signed by the
Secretary of the Company, certifying that attached thereto are true,
correct and complete copies of (1) the Company's articles or
certificate of incorporation, as amended to the date thereof, (2) the
Company's by-laws, as amended to the date thereof, and (3) a
certificate of good standing from the Secretary of State of Delaware;
(C) a certificate of the Company's President, dated the
Closing Date, certifying that the representations and warranties of the
Company contained in Article III hereof are true and correct in all
material respects on the Closing Date; and
(D) all other documents, instruments and writings required to
have been delivered by the Company at or prior to the Closing pursuant
to this Agreement.
(c) Upon receipt by the Purchaser of those items set forth in SECTIONS
2.3(B)(I) AND (II) above, the Escrow Agent shall deliver the following to the
Company:
(i) the Purchase Price by wire transfer of immediately
available funds pursuant to written wire transfer instructions
delivered by the Company to the Escrow Agent at least five (5) Business
Days prior to the Closing Date;
(ii) all documents, instruments, and writings required to have
been delivered or necessary at or prior to Closing by the Purchaser
pursuant to this Agreement.
(d) The Escrow Agent shall retain and hold the Escrow Shares, all of
which shall be held in accordance with the terms of this Agreement, the Warrant
and the Escrow Agreement.
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(e) The Escrow Agent shall retain and hold the Initial Escrow
Shares, all of which shall be held in accordance with the terms of this
Agreement, the Initial Warrant and the Initial Escrow Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company hereby makes the following representations and warranties to the
Purchaser, all of which shall survive the Closing:
(a) ORGANIZATION AND QUALIFICATION. The Company is a corporation, duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, with the requisite corporate power and authority to own and use its
properties and assets and to carry on its business as currently conducted. The
Company has no subsidiaries other than as set forth on SCHEDULE 3.1(A) attached
hereto (collectively, the "SUBSIDIARIES"). Each of the Subsidiaries is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, with the full corporate power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. Each of the Company and the Subsidiaries is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified or in good standing, as the case may be, would not, individually or
in the aggregate, have a material adverse effect on the results of operations,
assets, prospects, or financial condition of the Company and the Subsidiaries,
taken as a whole (a "MATERIAL ADVERSE EFFECT").
(b) AUTHORIZATION, ENFORCEMENT. The Company has the requisite corporate
power and authority to enter into and to consummate the transactions
contemplated hereby and by each other Transaction Document and to otherwise to
carry out its obligations hereunder and thereunder. The execution and delivery
of this Agreement and each of the other Transaction Documents by the Company and
the consummation by it of the transactions contemplated hereby and thereby has
been duly authorized by all necessary action on the part of the Company. Each of
this Agreement and each of the other Transaction Documents has been or will be
duly executed by the Company and when delivered in accordance with the terms
hereof or thereof will constitute the valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
(c) CAPITALIZATION. The authorized, issued and outstanding capital
stock of the Company is set forth on SCHEDULE 3.1(C). Except as disclosed in
SCHEDULE 3.1(C), or in the Company's SEC filings , no Debentures have been
issued as of the date hereof. No shares of Common Stock are entitled to
preemptive or similar rights, nor is any holder of the Common Stock entitled to
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preemptive or similar rights arising out of any agreement or understanding with
the Company by virtue of this Agreement. Except as disclosed in SCHEDULE 3.1(C),
or in the Company's SEC filings, there are no outstanding options, warrants,
script, rights to subscribe to, registration rights, calls or commitments of any
character whatsoever relating to, or, except as a result of the purchase and
sale of the Debentures hereunder, securities, rights or obligations convertible
into or exchangeable for, or giving any person any right to subscribe for or
acquire, any shares of Common Stock, or contracts, commitments, understandings,
or arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock. Neither the Company nor any Subsidiary
is in violation of any of the provisions of its respective Certificate of
Incorporation, bylaws or other charter documents.
(d) ISSUANCE OF SECURITIES. The Debentures, the Warrant and the Escrow
Shares have been duly and validly authorized for issuance, offer and sale
pursuant to this Agreement and, when issued and delivered as provided hereunder
against payment in accordance with the terms hereof, shall be valid and binding
obligations of the Company enforceable in accordance with their respective
terms. The Initial Warrant and the Initial Warrant Escrow Shares have been duly
and validly authorized for issuance, offer and sale pursuant to this Agreement
and constitute the valid and binding obligations of the Company enforceable in
accordance with their respective terms. The Company has and at all times while
the Debentures and the Warrant are outstanding has and will continue to maintain
an adequate reserve of shares of Common Stock to enable it to perform its
obligations under this Agreement, the Debentures and the Warrant. When issued in
accordance with the terms hereof, the Debentures, the Warrant, the Initial
Warrant, the Underlying Shares, the Warrant Shares, Initial Warrant Shares, the
Escrow Shares, and the Initial Escrow Shares will be duly authorized, validly
issued, fully paid and non-assessable. Except as set forth in SCHEDULE 3.1(D)
hereto, there is no equity or equity equivalent security outstanding that is
substantially similar to the Debentures, including any security having a
floating conversion price substantially similar to the Debentures; PROVIDED,
HOWEVER, that nothing contained in this SECTION 3.1(D) shall be deemed to permit
any equity or equity equivalent security of the Company to provide for a
floating conversion price, or any equity lines of credit, other than any
security issued or that may be issued to the Purchaser or any of its respective
Affiliates or assigns.
(e) NO CONFLICTS. Except as specifically set forth in SCHEDULE 3.1(E),
the execution, delivery and performance of this Agreement and the other
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby do not and will not (i) conflict
with or violate any provision of its Certificate of Incorporation or bylaws
(each as amended through the date hereof) or (ii) be subject to obtaining any of
the consents referred to in Section 3.1(f), conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of any
court or governmental authority to which the Company or its Subsidiaries is
subject (including, but not limited to, those of other countries and the federal
and state securities laws and regulations), or by which any property or asset of
the Company or its Subsidiaries is bound or affected, except in the case of
clause (ii), such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the aggregate,
10
have a Material Adverse Effect. The business of the Company and its Subsidiaries
is not being conducted in violation of any law, ordinance or regulation of any
governmental authority.
(f) CONSENTS AND APPROVALS. Except as specifically set forth in
SCHEDULE 3.1(F), neither the Company nor any Subsidiary is required to obtain
any consent, waiver, authorization or order of, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of this Agreement and each of the other
Transaction Documents, except for any required blue sky filings and the filing
of the Registration Statement relating to the Escrow Shares contemplated by the
Registration Rights Agreement with the Commission, which shall be filed in the
time period set forth in SECTION 2.2(A) (together with the consents, waivers,
authorizations, orders, notices and filings referred to in SCHEDULE 3.1(F), the
"REQUIRED APPROVALS").
(g) LITIGATION; PROCEEDINGS. Except as specifically disclosed in
SCHEDULE 3.1(G), there is no action, suit, notice of violation, proceeding or
investigation pending or, to the best knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries or any of their
respective properties before or by any court, governmental or administrative
agency or regulatory authority (federal, state, county, local or foreign) which
(i) relates to or challenges the legality, validity or enforceability of any of
the Transaction Documents, the Debentures, the Underlying Shares or the Warrant
Shares, (ii) could, individually or in the aggregate, have a Material Adverse
Effect or (iii) could, individually or in the aggregate, materially impair the
ability of the Company to perform fully on a timely basis its obligations under
the Transaction Documents.
(h) NO DEFAULT OR VIOLATION. Except as set forth in SCHEDULE 3.1(H)
hereto, neither the Company nor any Subsidiary (i) is in default under or in
violation of any indenture, loan or credit agreement or any other agreement or
instrument to which it is a party or by which it or any of its properties is
bound, except such conflicts or defaults as do not have a Material Adverse
Effect, (ii) is in violation of any order of any court, arbitrator or
governmental body, except for such violations as do not have a Material Adverse
Effect, or (iii) is in violation of any statute, rule or regulation of any
governmental authority which could (individually or in the aggregate) (x)
adversely affect the legality, validity or enforceability of this Agreement, (y)
have a Material Adverse Effect or (z) adversely impair the Company's ability or
obligation to perform fully on a timely basis its obligations under this
Agreement.
(i) CERTAIN FEES. No fees or commission will be payable by the Company
to any investment banker, broker, placement agent or bank with respect to the
consummation of the transactions contemplated hereby except as provided in
SECTION 4.27 hereof.
(j) DISCLOSURE DOCUMENTS. The Disclosure Documents are accurate in all
material respects and do not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
11
(k) REPORTING COMPANY. The Company's Common Stock is registered under
the Exchange Act, the Company is subject to the reporting requirements of
Section 13 or Section 15(d) of the Exchange Act, and the Company is current in
its reporting requirements.
The Purchaser acknowledges and agrees that the Company makes no representation
or warranty with respect to the transactions contemplated hereby other than
those specifically set forth in SECTION 3.1 hereof.
3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
hereby represents and warrants to the Company as follows:
(a) ORGANIZATION; AUTHORITY. The Purchaser is a limited liability
company duly incorporated or organized, validly existing and in good standing
under the laws of the jurisdiction of its formation with the requisite power and
authority to enter into and to consummate the transactions contemplated hereby
and by the other Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The acquisition of the Debentures and the
Warrant to be purchased by the Purchaser hereunder has been duly authorized by
all necessary action on the part of the Purchaser. This Agreement has been duly
executed and delivered by the Purchaser and constitutes the valid and legally
binding obligation of the Purchaser, enforceable against it in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to,
or affecting generally the enforcement of, creditors rights and remedies or by
other general principles of equity.
(b) INVESTMENT INTENT. The Purchaser is acquiring the Debentures and
the Warrant to be purchased by it hereunder, and will acquire the Underlying
Shares and the Warrant Shares relating to such Debentures and the Warrant for
its own account for investment purposes only and not with a view to or for
distributing or reselling such Debentures or Underlying Shares or Warrant or
Warrant Shares or any part thereof or interest therein, without prejudice,
however, to such Purchaser's right, subject to the provisions of this Agreement
and the Registration Rights Agreement, at all times to sell or otherwise dispose
of all or any part of such Debentures or Underlying Shares or Warrant or Warrant
Shares in compliance with applicable federal and state securities laws.
(c) PURCHASER STATUS. At the time the Purchaser was offered the
Debentures to be acquired by it hereunder, it was and at the date hereof, it is
an "accredited investor" as defined in Rule 501(a) under the Securities Act.
(d) EXPERIENCE OF PURCHASER. The Purchaser, either alone or together
with its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of an investment in the securities to be acquired by it hereunder, and has
so evaluated the merits and risks of such investment.
(e) ABILITY OF PURCHASER TO BEAR RISK OF INVESTMENT. The Purchaser is
able to bear the economic risk of an investment in the securities to be acquired
by it hereunder and, at the present time, is able to afford a complete loss of
such investment.
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(f) PROHIBITED TRANSACTIONS. The securities to be acquired by the
Purchaser hereunder are not being acquired, directly or indirectly, with the
assets of any "employee benefit plan," within the meaning of Section 3(3) of the
Employment Retirement Income Security Act of 1974, as amended.
(g) ACCESS TO INFORMATION. The Purchaser acknowledges receipt of the
Disclosure Documents and further acknowledges that it has been afforded (i) 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 securities offered hereunder and the merits and risks of investing in
such securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment in such securities;
and (iii) the opportunity to obtain such additional information which the
Company possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the investment
and to verify the accuracy and completeness of the information contained in the
Disclosure Documents.
(h) RELIANCE. The Purchaser understands and acknowledges that (i) the
Debentures and the Warrant being offered and sold to it hereunder are being
offered and sold without registration under the Securities Act in a private
placement that is exempt from the registration provisions of the Securities Act
under Section 4(2) of the Securities Act and (ii) the availability of such
exemption depends in part on, and that the Company will rely upon the accuracy
and truthfulness of, the foregoing representations and such Purchaser hereby
consents to such reliance.
The Company acknowledges and agrees that the Purchaser makes no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this SECTION 3.2.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
4.1 MANNER OF OFFERING. The Securities are being issued pursuant to
Rule 506 of Regulation D of the Securities Act. The Securities will bear
restrictions on transfer, and will carry a restrictive legend with respect to
the exemption from registration under the Securities Act. The transfer and
resale of the Securities may be made only pursuant to registration under the
Securities Act or an exemption from such registration.
4.2 FURNISHING OF INFORMATION. As long as the Purchaser owns any
Securities, the Company will furnish to the Purchaser, promptly after they have
been prepared, its annual report and other reports and filings required by
Section 13(a) or 15(d) of the Exchange Act that are not available on XXXXX (the
"NON-XXXXX Filings").
4.3 NOTICE OF CERTAIN EVENTS. The Company shall, on a continuing basis,
(i) advise the Purchaser promptly after obtaining knowledge of, and, if
requested by the Purchaser, confirm such advice in writing, of (A) the issuance
by any state securities commission of any stop order suspending the
qualification or exemption from qualification of the Securities, for offering or
sale in any jurisdiction, or the initiation of any proceeding for such purpose
13
by any state securities commission or other regulatory authority, or (B) any
event that makes any statement of a material fact made in the Disclosure
Documents untrue or that requires the making of any additions to or changes in
the Disclosure Documents in order to make the statements therein, in the light
of the circumstances under which they are made, not misleading, (ii) use its
best efforts to prevent the issuance of any stop order or order suspending the
qualification or exemption from qualification of the Securities under any state
securities or Blue Sky laws, and (iii) if at any time any state securities
commission or other regulatory authority shall issue an order suspending the
qualification or exemption from qualification of the Securities under any such
laws, and use its best efforts to obtain the withdrawal or lifting of such order
at the earliest possible time.
4.4 COPIES AND USE OF DISCLOSURE DOCUMENTS. The Company shall furnish
the Purchaser, without charge, as many copies of the Non-Xxxxx Filings and any
amendments or supplements thereto as the Purchaser may reasonably request. The
Company consents to the use of the Registration Statement and the Disclosure
Documents and any amendments and supplements to any of them by the Purchaser in
connection with resales of the Securities.
4.5 MODIFICATION TO DISCLOSURE DOCUMENTS. If any event shall occur as a
result of which, in the reasonable judgment of the Company or the Purchaser, it
becomes necessary or advisable to amend or supplement any of the Disclosure
Documents in order to make the statements therein, in the light of the
circumstances at the time such Disclosure Document(s) were delivered to the
Purchaser, not misleading, or if it becomes necessary to amend or supplement any
of the Disclosure Documents to comply with applicable law, the Company shall
promptly prepare an appropriate amendment or supplement to each such Document in
form and substance reasonably satisfactory to both the Purchaser and Company so
that (i) as so amended or supplemented, each such Document will not include an
untrue statement of material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances existing
at the time it is delivered to the Purchaser, not misleading and (ii) the
Disclosure Documents will comply with applicable law.
4.6 INTEGRATION. The Company shall not and shall use its best efforts
to ensure that no Affiliate shall sell, offer for sale or solicit offers to buy
or otherwise negotiate in respect of any security (as defined in Section 2 of
the Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Purchaser.
4.7 FURNISHING OF RULE 144(C) MATERIALS. The Company shall, for so long
as any of the Securities remains outstanding and during any period in which the
Company is not subject to Section 13 or 15(d) of the Exchange Act, make
available to any registered holder of the Securities in connection with any sale
thereof and any prospective purchaser of such Securities from such Person, such
information in accordance with Rule 144(c) promulgated under the Securities Act
as is required to sell the Securities under Rule 144 promulgated under the
Securities Act.
4.8 SOLICITATION MATERIALS. The Company shall not (i) distribute any
offering materials in connection with the offering and sale of the Debentures,
Warrant, Initial Warrant, Underlying Shares, Initial Warrant Shares or Warrant
14
Shares other than the Disclosure Documents and any amendments and supplements
thereto prepared in compliance herewith or (ii) solicit any offer to buy or sell
the Debentures, Warrant, Initial Warrant, Underlying Shares, Initial Warrant
Shares or Warrant Shares by means of any form of general solicitation or
advertising.
4.9 INITIAL WARRANT CONVERSION AND EXERCISE PROCEDURES. Appendix II to
the Initial Warrant attached hereto and made a part hereof sets forth the
procedures with respect to the exercise of the Initial Warrant, including the
forms of Notice of Exercise to be provided upon exercise, instructions as to the
procedures for exercise and such other information and instructions as may be
reasonably necessary to enable the Purchaser or its permitted transferee(s) to
exercise the right of exercise smoothly and expeditiously.
4.10 PROHIBITION ON CERTAIN ACTIONS. From the date hereof through the
Closing Date, the Company shall not and shall cause the Subsidiaries not to,
without the prior written consent of the Purchaser, (i) amend its certificate or
articles of incorporation, by-laws or other charter documents so as to adversely
affect any rights of the Purchaser; (ii) split, combine or reclassify its
outstanding capital stock; (iii) declare, authorize, set aside or pay any
dividend or other distribution with respect to the Common Stock; (iv) redeem,
repurchase or offer to repurchase or otherwise acquire shares of its Common
Stock; or (v) enter into any agreement with respect to any of the foregoing.
4.11 LISTING OF COMMON STOCK. The Company shall (a) use its best
efforts to maintain the listing of its Common Stock on the OTCBB or such other
exchange on which the Common Stock is then listed until expiration of each of
the periods during which the Debentures may be converted or the Warrant or
Initial Warrant may be exercised and (b) shall provide to the Purchaser, upon
request, evidence of such listing.
4.12 ESCROW. The Company and the Purchaser agree to execute and
deliver, simultaneously with the execution and delivery of this Agreement, the
escrow agreement attached hereto and made part hereof as EXHIBIT E (the "ESCROW
AGREEMENT") and the Initial Escrow Agreement attached hereto and made part
hereof as EXHIBIT I.
4.13 CONVERSION AND EXERCISE PROCEDURES; MAINTENANCE OF ESCROW SHARES.
EXHIBIT D attached hereto and made a part hereof sets forth the procedures with
respect to the conversion of the Debentures and the exercise of the Warrant,
including the forms of Notice of Conversion and Notice of Exercise to be
provided upon conversion or exercise, instructions as to the procedures for
conversion or exercise and such other information and instructions as may be
reasonably necessary to enable the Purchaser or its permitted transferee(s) to
exercise the right of conversion or exercise smoothly and expeditiously. The
Company agrees that, at any time the conversion price of the Debentures is such
that the number of Escrow Shares with respect to the Debentures is less than
200% of the number of shares of Common Stock that would be needed to satisfy
full conversion of all of the Debentures given the then current conversion price
(the "FULL CONVERSION SHARES"), upon ten (10) Business Days written notice of
such circumstance to the Company by the Purchasers and/or Escrow Agent, the
Company shall issue additional share certificates in the names of each of the
Purchasers in denominations of 10,000 shares, and deliver same to the Escrow
Agent, such that the new number of Escrow Shares with respect to the Debentures
is equal to 200% of the Full Conversion Shares.
15
4.14 ATTORNEY-IN-FACT. To effectuate the terms and provisions of this
Agreement, the Debentures, the Escrow Agreement, and the Warrant, the Company
hereby agrees to give a power of attorney as is evidenced by EXHIBIT F and
EXHIBIT K annexed hereto. All acts done under such power of attorney are hereby
ratified and approved and neither the Attorney-in-Fact nor any designee or agent
thereof shall be liable for any acts of commission or omission, for any error of
judgment or for any mistake of fact or law, as long as the Attorney-in-Fact is
operating within the scope of the power of attorney and this Agreement and its
exhibits. The power of attorney, being coupled with an interest, shall be
irrevocable while any of the Debentures remain unconverted, any of the Warrant
or Initial Warrant remains unexercised or any portion of this Agreement, the
Initial Escrow Agreement or the Escrow Agreement remains unsatisfied. In
addition, the Company shall give the Attorney-in-Fact resolutions executed by
the Board of Directors of the Company which authorize transfers of the
Debentures, the Initial Warrant and the Warrants and future issuances of the
Underlying Shares for the Debentures, the Warrant Shares for the Warrant, and
the Initial Warrant Shares for the Initial Warrant and which resolutions state
that they are irrevocable while any of the Debentures remain unconverted, any of
the Warrant or Initial Warrant remains unexercised or any portion of this
Agreement or the Escrow Agreement or Initial Escrow Agreement remains
unsatisfied.
4.15 INDEMNIFICATION.
(a) Indemnification
(i) The Company shall, notwithstanding termination of this
Agreement and without limitation as to time, indemnify and hold
harmless the Purchaser and its officers, directors, agents, employees
and affiliates, each Person who controls the Purchaser (within the
meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) (each such Person, a "CONTROL PERSON") and the officers,
directors, agents, employees and affiliates of each such Control
Person, to the fullest extent permitted by applicable law, from and
against any and all losses, claims, damages, liabilities, costs
(including, without limitation, costs of preparation and attorneys'
fees) and expenses (collectively, "LOSSES"), as incurred, arising out
of, or relating to, a breach or breaches of any representation,
warranty, covenant or agreement by the Company under this Agreement or
any other Transaction Document.
(ii) The Purchaser, severally and not jointly, shall
notwithstanding termination of this Agreement and without limitation as
to time, indemnify and hold harmless the Company, its officers,
directors, agents and employees, each Control Person and the officers,
directors, agents and employees of each Control Person, to the fullest
extent permitted by application law, from and against any and all
Losses, as incurred, arising out of, or relating to, a breach or
breaches of any representation, warranty, covenant or agreement by the
Purchaser under this Agreement or the other Transaction Documents.
(b) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an
"INDEMNIFIED PARTY"), such Indemnified Party promptly shall notify the Person
from whom indemnity is sought (the "INDEMNIFYING PARTY") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
16
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel in
any such Proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
Parties unless: (1) the Indemnifying Party has agreed to pay such fees and
expenses; or (2) the Indemnifying Party shall have failed promptly to assume the
defense of such Proceeding and to employ counsel reasonably satisfactory to such
Indemnified Party in any such Proceeding; or (3) the named parties to any such
Proceeding (including any impeded parties) include both such Indemnified Party
and the Indemnifying Party, and such Indemnified Party shall have been advised
by counsel that a conflict of interest is likely to exist if the same counsel
were to represent such Indemnified Party and the Indemnifying Party (in which
case, if such Indemnified Party notifies the Indemnifying Party in writing that
it elects to employ separate counsel at the expense of the Indemnifying Party,
the Indemnifying Party shall not have the right to assume the defense of the
claim against the Indemnified Party but will retain the right to control the
overall Proceedings out of which the claim arose and such counsel employed by
the Indemnified Party shall be at the expense of the Indemnifying Party). The
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be unreasonably
withheld. No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any pending Proceeding in respect of
which any Indemnified Party is a party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability on claims
that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party to which the Indemnified
Party is entitled hereunder (including reasonable fees and expenses to the
extent incurred in connection with investigating or preparing to defend such
Proceeding in a manner not inconsistent with this Section) shall be paid to the
Indemnified Party, as incurred, within ten (10) Business Days of written notice
thereof to the Indemnifying Party.
No right of indemnification under this SECTION 4.15 shall be available
as to a particular Indemnified Party if there is a non-appealable final judicial
determination that such Losses arise solely out of the negligence or bad faith
of such Indemnified Party in performing the obligations of such Indemnified
Party under this Agreement or a breach by such Indemnified Party of its
obligations under this Agreement.
(c) CONTRIBUTION. If a claim for indemnification under this SECTION
4.15(A) is unavailable to an Indemnified Party or is insufficient to hold such
Indemnified Party harmless for any Losses in respect of which this SECTION 4.15
would apply by its terms (other than by reason of exceptions provided in this
SECTION 4.15(C)), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses in such proportion as is
17
appropriate to reflect the relative benefits received by the Indemnifying Party
on the one hand and the Indemnified Party on the other and the relative fault of
the Indemnifying Party and Indemnified Party in connection with the actions or
omissions that resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party and Indemnified
Party shall be determined by reference to, among other things, whether there was
a judicial determination that such Losses arise in part out of the negligence or
bad faith of the Indemnified Party in performing the obligations of such
Indemnified Party under this Agreement or the Indemnified Party's breach of its
obligations under this Agreement. The amount paid or payable by a party as a
result of any Losses shall be deemed to include any attorneys' or other fees or
expenses incurred by such party in connection with any Proceeding to the extent
such party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party.
(d) NON-EXCLUSIVITY. The indemnity and contribution agreements
contained in this Section are in addition to any obligation or liability that
the Indemnifying Parties may have to the Indemnified Parties.
4.16 EXCLUSIVITY. During the five (5) year period commencing on the
Original Issuance Date (as defined in the Debentures), the Company and its
Affiliates shall not offer or issue any convertible security or instrument or
any equity line of credit, other than to the Purchaser or any of its Affiliates.
4.17 BLUE SKY QUALIFICATION. In accordance with the Registration Rights
Agreement, the Company shall qualify the Underlying Shares and the Warrant
Shares under the securities or Blue Sky laws of such jurisdictions as the
Purchaser may reasonably request and shall continue such qualification at all
times through the second anniversary of the Closing Date; PROVIDED, HOWEVER,
that neither the Company nor its Subsidiaries shall be required in connection
therewith to qualify as a foreign corporation where they are not now so
qualified or to take any action that would subject the Company to general
service of process in any such jurisdiction where it is not then so subject or
subject the Company to any material tax in any such jurisdiction where it is not
then so subject.
4.18 PURCHASER'S OWNERSHIP OF COMMON STOCK. In addition to and not in
lieu of the limitations on conversion set forth in the Debentures, the Warrant
and the Initial Warrant, the conversion rights and exercise rights of the
Purchaser set forth in the Debentures, the Warrant and the Initial Warrant shall
be limited, solely to the extent required, from time to time, such that, unless
the Purchaser gives written notice 75 days in advance to the Company of the
Purchaser's intention to exceed the Limitation on Conversion as defined herein,
with respect to all or a specified amount of the Debentures and the
corresponding number of the Underlying Shares, in no instance shall the
Purchaser (singularly, together with Persons who in the determination of the
Purchaser, together with the Purchaser, constitute a group as defined in Rule
13d-5 of the Exchange Act) be entitled to convert the Debentures, the Warrant
and the Initial Warrant to the extent such conversion or exercise, as the case
may be, would result in the Purchaser beneficially owning more than five percent
(5%) of the outstanding shares of Common Stock of the Company. For these
purposes, beneficial ownership shall be defined and calculated in accordance
with Rule 13d-3, promulgated under the Exchange Act (the foregoing being herein
referred to as the "LIMITATION ON CONVERSION"); PROVIDED, HOWEVER, that the
18
Limitation on Conversion shall not apply to any forced or automatic conversion
pursuant to this Agreement or the Debentures; and PROVIDED, FURTHER that if the
Purchaser shall have declared an Event of Default and, if a cure period is
provided, the Company shall not have properly and fully cured such Event of
Default within any such cure period, the provisions of this Section 4.18 shall
be null and void from and after such date. The Company shall, promptly upon its
receipt of a Notice of Conversion tendered by the Purchaser (or its sole
designee) for the Debentures, as applicable, and upon its receipt of a Notice of
Exercise under the terms of the Warrant or the Initial Warrant, notify the
Purchaser by telephone and by facsimile of the number of Underlying Shares,
Warrant Shares and Initial Warrant Shares, as the case may be, which would be
issuable to the Purchaser (or its sole designee, as the case may be) if the
conversion requested in such Notice of Conversion or exercise requested in such
Notice of Exercise were effected in full and the number of shares of Common
Stock outstanding giving full effect to such conversion or exercise, as the case
may be, whereupon, in accordance with the Debentures and notwithstanding
anything to the contrary set forth in the Warrant or the Initial Warrant, the
Purchaser may within one (1) Business Day of its receipt of the Company notice
required by this Section 4.18 by facsimile revoke such conversion or exercise to
the extent (in whole or in part) that the Purchaser determines that such
conversion or exercise would result in the ownership by the Purchaser of shares
of Common Stock in excess of the Limitation on Conversion.
4.19 PURCHASER'S RIGHTS IF TRADING IN COMMON STOCK IS SUSPENDED. In the
event that at any time after the Closing and during the period when the
Registration Statement is to remain effective under the Securities Act in
accordance with the Registration Rights Agreement, trading in the shares of the
Common Stock is suspended (and not reinstated within ten (10) Trading Days) on
such stock exchange or market upon which the Common Stock is then listed for
trading (other than as a result of the suspension of trading in securities on
such market generally or temporary suspensions pending the release of material
information), or the Common Stock is delisted from the OTCBB (and not reinstated
within ten (10) Trading Days), then, at the option of the Purchaser exercisable
by giving written notice to the Company, the Company shall redeem, as
applicable, all of the Debentures, Warrant, Initial Warrant, Underlying Shares,
Initial Warrant Shares and Warrant Shares owned by the Purchaser at an aggregate
purchase price equal to the sum of:
(i) the product of (1) the average Per Share Market Value for the five
(5) Trading Days immediately preceding (a) the day of such notice, (b) the date
of payment in full of the repurchase price calculated under this SECTION 4.19,
or (c) the day when the Common Stock was suspended, delisted or deleted from
trading, whichever is greater, multiplied by (2) the aggregate number of
Underlying Shares, Initial Warrant Shares and Warrant Shares owned by the
Purchaser;
(ii) the greater of (A) the outstanding principal amount and accrued
and unpaid interest on the Debentures owned by the Purchaser and (B) the product
of (1) the average Per Share Market Value for the five (5) Trading Days
immediately preceding (a) the day of such notice, (b) the date of payment in
full of the repurchase price calculated under this SECTION 4.19, or (c) the day
when the Common Stock was suspended, delisted or deleted from trading, whichever
is greater, multiplied by (2) the aggregate number of Underlying Shares issuable
upon the conversion of the outstanding Debentures owned by the Purchaser;
19
(iii) the product of (A) the difference, but not below zero, between
(1) the average Per Share Market Value for the five (5) Trading Days immediately
preceding (a) the day of such notice, (b) the date of payment in full of the
repurchase price calculated under this SECTION 4.19, or (c) the day when the
Common Stock was suspended, delisted or deleted from trading, whichever is
greater, and (2) the then-current exercise price of the Warrant, multiplied by
(B) the aggregate number of Warrant Shares issuable upon exercise of the Warrant
owned by the Purchaser;
(iv) the product of (A) the difference, but not below zero, between (1)
the average Per Share Market Value for the five (5) Trading Days immediately
preceding (a) the day of such notice, (b) the date of payment in full of the
repurchase price calculated under this SECTION 4.19, or (c) the day when the
Common Stock was suspended, delisted or deleted from trading, whichever is
great, and (2) the then-current exercise price of the Initial Warrant,
multiplied by (B) the aggregate number of Initial Warrant Shares issuable upon
exercise of the Initial Warrant owned by the Purchaser; and
(v) interest on such amounts set forth in (i) - (iv) above accruing
from the seventh (7th) day after such notice until the repurchase price under
this Section 4.19 is paid in full, at the rate of fifteen percent (15%) per
annum.
4.20 NO VIOLATION OF APPLICABLE LAW. Notwithstanding any provision of
this Agreement to the contrary, if the redemption of the Debentures, the
Warrant, the Initial Warrant, the Underlying Shares, the Initial Warrant Shares
or the Warrant Shares otherwise required under this Agreement, the Debentures,
the Warrant, the Initial Warrant, the Initial Registration Rights Agreement or
the Registration Rights Agreement would be prohibited by the relevant provisions
of Delaware law, such redemption shall be effected as soon as it is permitted
under such law; PROVIDED, HOWEVER, that interest payable by the Company with
respect to any such redemption shall accrue in accordance with Section 4.19.
4.21 REDEMPTION RESTRICTIONS. Notwithstanding any provision of this
Agreement to the contrary, if any redemption of the Debentures, the Warrant, the
Initial Warrant, Underlying Shares, the Initial Warrant Shares or the Warrant
Shares otherwise required under this Agreement, the Debentures, the Warrant, the
Initial Warrant, the Registration Rights Agreement, or the Initial Registration
Rights Agreement would be prohibited in the absence of consent from any lender
to the Company or any of the Subsidiaries, or by the holders of any class of
securities of the Company, the Company shall use its best efforts to obtain such
consent as promptly as practicable after any such redemption is required.
Interest payable by the Company with respect to any such redemption shall accrue
in accordance with Section 4.19 until such consent is obtained. Nothing
contained in this Section 4.21 shall be construed as a waiver by the Purchaser
of any rights they may have by virtue of any breach of any representation or
warranty of the Company herein as to the absence of any requirement to obtain
any such consent.
4.22 NO OTHER REGISTRATION RIGHTS. During the period commencing on the
date hereof and ending on the Closing Date, the Company shall not file any
registration statement that provides for the registration of shares of Common
Stock to be sold by securityholders of the Company, other than the Purchaser
and/or its respective Affiliates or assigns, without the prior written consent
of the Purchaser or its assigns, provided, however, that the limitation on the
right to file registration statements contained in this Section 4.22 shall not
20
apply to registration statements relating solely to (i) employee benefit plans,
notwithstanding the inclusion of a resale prospectus for securities received
under any such employee benefit plan, or (ii) business combinations not
otherwise prohibited by the terms of this Agreement or the other Transaction
Documents.
4.23 MERGER OR CONSOLIDATION. Until the earlier of (a) the full
conversion of the Debentures and (b) the Maturity Date (as that term is defined
in the Debentures) of the Debentures, the Company and each Subsidiary 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) either (A) the Company shall be
the survivor of such merger or consolidation or (B) the surviving Person shall
expressly assume by supplemental agreement all of the obligations of the Company
under the Debentures, the Initial Warrant, the Warrant and this Agreement; (x)
immediately before and immediately after giving effect to such transactions
(including any indebtedness incurred or anticipated to be incurred in connection
with the transactions), no Event of Default shall have occurred and be
continuing; (y) if the Company is not the surviving entity, such surviving
entity's common shares will be listed on either The New York Stock Exchange,
American Stock Exchange, Nasdaq National Market or Nasdaq SmallCap Market, or
the OTCBB on or prior to the closing of such transaction(s) and (z) the Company
shall have delivered to Purchaser an officers* certificate and opinion of
counsel, each stating that such consolidation, merger or transfer complies with
this Agreement, that the surviving Person agrees to be bound thereby and that
all conditions precedent in this Agreement relating to such transaction(s) have
been satisfied.
4.24 REGISTRATION OF ESCROW SHARES. Pursuant to the terms of the
Registration Rights Agreement and Initial Registration Rights Agreement between
the Company and the Purchaser, the Company shall cause the Escrow Shares to be
registered under the Securities Act, and so long as any of the Debentures remain
unconverted or any of the Warrant or Initial Warrant remain unexercised, the
Company agrees to keep such registration current with the Commission and with
such states of the United States as any of the holders of the Debentures, the
Initial Warrant or the Warrant shall reasonably request in writing. All costs
and expenses of registration shall be borne by the Company. Notwithstanding
anything contained herein to the contrary, the Company shall take all necessary
steps to register the Initial Warrant Shares under the Securities Act if this
Agreement is terminated pursuant to SECTION 5.1
4.25 LIQUIDATED DAMAGES. The Company understands and agrees that an
Event of Default as contained in this Agreement and/or any other Transaction
Document will result in substantial economic loss to the Purchaser, which loss
will be extremely difficult to calculate with precision. Therefore, if, for any
reason, the Company fails to cure any Event of Default within the time, if any,
given to cure such Event of Default, as compensation and liquidated damages for
such default, and NOT as a penalty, the Company agrees to pay the Purchaser an
amount obtained by multiplying the Purchase Price times two (2). The Company
shall, upon demand, pay the Purchaser such liquidated damages by wire transfer
of immediately available funds to an account designated by the Purchaser.
Nothing herein shall limit the right of the Purchaser to pursue actual damages
(less the amount of any liquidated damages received pursuant to the foregoing)
for the Company*s failure to cure an Event of Default, consistent with the terms
of this Agreement. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS
AGREEMENT, THE COMPANY'S OBLIGATIONS UNDER THIS SECTION SHALL SURVIVE ANY
TERMINATION OF THIS AGREEMENT.
21
4.26 SHORT SALES. The Purchaser agrees that it will not enter into any
Short Sales (as hereinafter defined) until the earlier to occur of the date that
the Purchaser no longer owns the Debentures and the Maturity Date. For purpose
hereof, a "SHORT SALE" shall mean a sale of Common Stock by the Purchaser that
is marked as a short sale and that is made at a time when there is no equivalent
offsetting long position in the Common Stock by the Purchaser. For the purposes
of determining whether there is an equivalent offsetting long position in the
Common Stock held by the Purchaser, shares of Common Stock issuable upon
conversion of the Debentures or exercise of the Warrant or the Initial Warrant
shall be deemed to be held long by the Purchaser with respect to the Underlying
Shares and/or Warrant Shares for which a Notice of Conversion or Notice of
Exercise, as appropriate, is delivered within two (2) Trading Days following the
Trading Day that such short sale is entered into.
4.27 FEES. The Company will pay the following fees and expenses in
connection with the transactions contemplated hereby and, except with respect to
the escrow agent fee, regardless of whether the transactions contemplated under
this Agreement are closed or otherwise completed: (a) to KGL (i) $25,000 for
document preparation fees; and (ii) all reasonable disbursements and expenses
incurred by KGL in connection therewith and (b) $5,000 to the Escrow Agent for
the escrow agent fee. All fees and expenses will be paid at Closing and the
Escrow Agent shall deduct such fees and expenses directly from escrow.
4.28 ADDITIONAL FEES. If the Company or any of its Affiliates enters
into any future financing with any prospective purchaser introduced by the
Purchaser within a period of two (2) years from the date hereof, the Company
agrees to pay to the Purchaser simultaneously with the closing of such financing
an amount equal to four percent (4%) of the aggregate amount of the portion of
such financing purchased by or for the account of such Person.
ARTICLE V
TERMINATION
5.1 TERMINATION BY THE COMPANY OR THE PURCHASER. This Agreement shall
be terminated as follows upon the occurrence of any of the following events
(each an "EVENT OF DEFAULT"):
(a) Automatically terminated prior to Closing if:
(i) there shall be in effect any statute, rule, law or
regulation, including an amendment to Regulation D or an interpretive
release promulgated or issued thereunder, that prohibits the
consummation of the Closing or if the consummation of the Closing would
violate any non-appealable final judgment, order, decree, ruling or
injunction of any court of or governmental authority having competent
jurisdiction;
(ii) the Closing shall not have occurred within five (5) days
after the Effective Date of the Registration Statement;
22
(iii) the Company's Common Stock is not registered under
Section 12 of the Exchange Act;
(iv) the Company is not current in its reporting obligations
under Section 13 or 15(d) of the Exchange Act;
(v) an event not previously disclosed by Company to Purchaser
occurs prior to the Closing requiring the Company to report such event
to the SEC on Form 8-K and not otherwise set forth in SCHEDULE 5.1,
provided, however, such event shall only include the following items
under Form 8-K: Item 1; Item 2 to the extent that any event is reported
under Item 2 that involves a change in the nature of the Company's
business; Item 3; or Item 4 (provided further, that as to Item 4, only
if the event requires disclosure under Item 304 (a)(1)(iv) under
Regulation S-B);
(vi) trading in the Common Stock has been suspended, delisted,
or otherwise ceased by the Commission or the NASD or other exchange or
the Nasdaq (whether the National Market or otherwise), except for any
suspension of trading of limited duration solely to permit
dissemination of material information regarding the Company, and not
reinstated within twenty (20) Trading Days; or
(vii) the transfer agent for the Common Stock fails to deliver
certificates for the shares of Common Stock as required by and by the
date set forth in Section 2.2 hereof.
(b) Prior to Closing by the Purchaser, by giving written
notice of such termination to the Company, if the Company has materially
breached any representation, warranty, covenant or agreement contained in this
Agreement or the other Transaction Documents and such breach is not cured within
five (5) Business Days following receipt by the Company of notice of such
breach.
(c) Prior to Closing by the Company, by giving written notice
of such termination to the Purchaser, if the Purchaser has materially breached
any representation, warranty, covenant or agreement contained in this Agreement
or the other Transaction Documents and such breach is not cured within five (5)
Business Days following receipt by the Purchaser of notice of such breach.
5.2 REMEDIES. Notwithstanding anything else contained herein to the
contrary, if an Event of Default has occurred pursuant to Section 5.1, and only
with respect to Section 5.1(b) has not been cured within the cure period
provided for therein, if any, the defaulting party shall be deemed in default
hereof and the non-defaulting party shall be entitled to pursue all available
rights without further notice. The defaulting party shall pay all attorney's
fees and costs incurred in enforcing this Agreement and the other Transaction
Documents. In addition, all unpaid amounts shall accrue interest at a rate of
fifteen percent (15%) per annum.
23
ARTICLE VI
LEGAL FEES AND DEFAULT INTEREST RATE
In the event any party hereto commences legal action to enforce its
rights under this Agreement or any other Transaction Document, the
non-prevailing party shall pay all reasonable costs and expenses (including but
not limited to reasonable attorney's fees, accountant's fees, appraiser's fees
and investigative fees) incurred in enforcing such rights. In the event of an
uncured Event of Default by any party hereunder, interest shall accrue on all
unpaid amounts due the aggrieved party at the rate of fifteen percent (15%) per
annum, compounded annually.
ARTICLE VII
MISCELLANEOUS
7.1 FEES AND EXPENSES. Except as set forth in this Agreement, each
party shall pay the fees and expenses of its advisers, counsel, accountants and
other experts, if any, and all other expenses incurred by such party incident to
the negotiation, preparation, execution, delivery and performance of this
Agreement. The Company shall pay the fees of the Escrow Agent and all stamp and
other taxes and duties levied in connection with the issuance of the Securities.
The Purchaser shall be responsible for any taxes payable by the Purchaser that
may arise as a result of the investment hereunder or the transactions
contemplated by this Agreement or any other Transaction Document. Whether or not
the transactions contemplated hereby and thereby are consummated or this
Agreement is terminated, the Company shall pay (i) all costs, expenses, fees and
all taxes incident to and in connection with: (A) the preparation, printing and
distribution of the Registration Statement and all amendments and supplements
thereto (including, without limitation, financial statements and exhibits), and
all preliminary and final Blue Sky memoranda and all other agreements,
memoranda, correspondence and other documents prepared and delivered in
connection herewith, (B) the issuance and delivery of the Securities, (C) the
exemption from registration of the Securities for offer and sale to the
Purchaser under the securities or Blue Sky laws of the applicable jurisdiction,
(D) furnishing such copies of the Registration Statement, the preliminary and
final prospectuses and all amendments and supplements thereto, as may reasonably
be requested for use in connection with resales of the Securities, and (E) the
preparation of certificates for the Securities (including, without limitation,
printing and engraving thereof), (ii) all fees and expenses of counsel and
accountants of the Company and (iii) all expenses and fees of listing on
securities exchanges, if any.
7.2 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, together with all of
the Exhibits and Schedules annexed hereto, and any other Transaction Document
contains the entire understanding of the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, oral or
written, with respect to such matters. This Agreement shall be deemed to have
been drafted and negotiated by both parties hereto and no presumptions as to
interpretation, construction or enforceability shall be made by or against
either party in such regard.
24
7.3 NOTICES. Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be deemed to have been duly
given upon facsimile transmission (with written transmission confirmation
report) at the number designated below (if delivered on a Business Day during
normal business hours where such notice is to be received), or the first
Business Day following such delivery (if delivered other than on a Business Day
during normal business hours where such notice is to be received) whichever
shall first occur. The addresses for such communications shall be:
If to the Company: Hy-Tech Technology Group, Inc.
0000 Xxx Xxxxx Xxxxx
Xxxx Xxxxx, Xxxxxxx 00000
Attn: Xxxx X. XxXxxx, CEO
Tel: (000) 000-0000
Fax: (000) 000-0000
With copies to: Xxxxxx Xxxxxxxxxx & Xxxxxxxx, LLP, or
its successors or assigns
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000-0000
Attn: Xxxx X. Xxxxxxxxxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
If to the Purchaser: See SCHEDULE 1 attached hereto
With copies to: Xxxxxx Xxxxxxxxxx & Xxxxxxxx, LLP, or
its successors or assigns
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000-0000
Attn: Xxxx X. Xxxxxxxxxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
If to Escrow Agent: Xxxxxx Xxxxxxxxxx & Xxxxxxxx, LLP, or
its successors or assigns
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000-0000
Attn: Xxxx X. Xxxxxxxxxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
or such other address as may be designated hereafter by notice given pursuant to
the terms of this Section 7.3.
7.4 AMENDMENTS; WAIVERS. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by both the Company and the Purchaser, or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
25
be deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter.
7.5 HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
7.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
permitted assigns. The assignment by a party of this Agreement or any rights
hereunder shall not affect the obligations of such party under this Agreement.
7.7 NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
7.8 GOVERNING LAW; VENUE; SERVICE OF PROCESS. The parties hereto
acknowledge that the transactions contemplated by this Agreement and the
exhibits hereto bear a reasonable relation to the State of New York. The parties
hereto agree that the internal laws of the State of New York shall govern this
Agreement and the exhibits hereto, including, but not limited to, all issues
related to usury. Any action to enforce the terms of this Agreement or any of
its exhibits shall be brought exclusively in the state and/or federal courts
situate in the County and State of New York. Service of process in any action by
Purchaser to enforce the terms of this Agreement may be made by serving a copy
of the summons and complaint, in addition to any other relevant documents, by
commercial overnight courier to the Company at its principal address set forth
in this Agreement.
7.9 SURVIVAL. The representations and warranties of the Company and the
Purchaser contained in Article III and the agreements and covenants of the
parties contained in Article IV and this Article VII shall survive the Closing
(or any earlier termination of this Agreement).
7.10 COUNTERPART SIGNATURES. This Agreement may be executed in two or
more counterparts, all of which when taken together shall be considered one and
the same agreement and shall become effective when counterparts have been signed
by each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
7.11 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 neither party shall issue
any such press release or otherwise make any such public statement without the
prior written consent of the other, which consent shall not be unreasonably
withheld or delayed, unless counsel for the disclosing party deems such public
statement to be required by applicable federal and/or state securities laws.
Except as otherwise required by applicable law or regulation, the Company will
not disclose to any third party the names of the Purchaser.
26
7.12 SEVERABILITY. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affected or impaired thereby and the parties will attempt to agree
upon a valid and enforceable provision which shall be a reasonable substitute
therefor, and upon so agreeing, shall incorporate such substitute provision in
this Agreement.
7.13 LIMITATION OF REMEDIES. With respect to claims by the Company or
any person acting by or through the Company for remedies at law or at equity
relating to or arising out of a breach of this Agreement, liability, if any,
shall, in no event, include loss of profits or incidental, indirect, exemplary,
punitive, special or consequential damages of any kind.
7.14 OMNIBUS PROVISION. Anything contained herein or in the other
Transaction Documents notwithstanding, in the event that the Common Stock ceases
to be listed for trading on the OTCBB, then any reference thereto in this
Agreement or the other Transaction Documents shall be deemed to be a reference
to (a) the principal national securities exchange on which the Common Stock is
then listed or admitted to trading, or (b) if the Common Stock is not then
listed or admitted to trading on any national securities exchange, Nasdaq, or
(c) if the Common Stock is not then listed or admitted to trading on Nasdaq,
then the over-the-counter market reported by the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions of
reporting prices).
[ SIGNATURE PAGE FOLLOWS ]
27
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first indicated above.
Company:
HY-TECH TECHNOLOGY GROUP, INC.
By:
---------------------------------------
Name: Xxxx X. XxXxxx
Title: CEO
Purchaser:
HEM MUTUAL ASSURANCE FUND LIMITED
By:
---------------------------------------
Name: Xxxxxx Xxxxxxxx
Title: Director
28
Schedule 1
PURCHASER(S)
------------------------------------------- ----------------- ------------ -------------- ---------------------
No. of No. of Warrant No. of Initial
Name and Address of Purchaser Purchase Price Debentures Shares Warrant Shares
------------------------------------------- ----------------- ------------ -------------- ---------------------
HEM Mutual Assurance Fund Limited $750,000.00 750 2,500,000 2,500,000
x/x Xxxxxxxx & Xx.
00 Xxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxx X0X0XX
------------------------------------------- ----------------- ------------ -------------- ---------------------
SHARE DENOMINATIONS
7 x 500,000 3,500,000
20 x 250,000 5,000,000
200 x 10,000 2,000,000
100 x 15,000 1,500,000
20 x25,000 500,000
29
Schedule 3.1(a)
SUBSIDIARIES
Hy-Tech Computer Systems, Inc., a Florida corporation.
30
Schedule 3.1(c)
CAPITALIZATION AND REGISTRATION RIGHTS
AUTHORIZED CAPITALIZATION
Common Stock, $.001 par value - 50,000,000 shares
OUTSTANDING CAPITALIZATION
Common Stock - 37,916,390 shares outstanding as at April 21, 2003
OBLIGATIONS TO ISSUE SECURITIES
A. $1,000,000 CONVERTIBLE DEBENTURE. 10,000,000 common shares issuable
into escrow for conversion on $1,000,000, 1% Convertible Debenture to
be issued to HEM Mutual Assurance LLC.
B. 8% CONVERTIBLE NOTE PAYABLE. On June 21, 2002, the Company received
proceeds of $700,000 for issuance of a convertible note ("Note")
payable to a third party investor. Pursuant to the terms of the Notes,
the principal is due and payable on October 9, 2002 together with
interest calculated at the rate of 8% per annum. The Note also contains
a conversion feature that provides the holder with "conversion units"
equivalent to approximately 350,000 shares of the Company's preferred
stock at $2.00 per share plus a warrant to purchase up to 210,000
shares of the Company's common stock at $2.50 per share should the
Company receive future financing of not less than $5,000,000. The
parties to the Note are negotiating a settlement that would entitle the
third party investor to 2,000,000 shares of Hy-Tech Technology Group,
Inc.'s common stock in exchange for the notes cancellation.
C. COLLATERAL LOAN AGREEMENT AND PROMISSORY NOTE. A Collateral Loan
Agreement and Promissory Note was entered into between the Company and
a third party lender ("Lender") pursuant to which the Lender is to
provide the Company with a loan in the amount of Five Million United
States dollars ($5,000,000) ("the Loan Proceeds"). To secure the
obligations under the Loan, the Company agreed to grant the Lender a
security interest in 13,888,889 shares of its common stock. As of April
4, 2003, the Lender has not yet funded the Company with the Loan
Proceeds.
31
Schedule 3.1(d)
EQUITY AND EQUITY EQUIVALENT SECURITIES
1. $1,000,000 CONVERTIBLE DEBENTURE. 10,000,000 common shares issuable
into escrow for conversion on $1,000,000, 1% Convertible Debenture to
be issued to HEM Mutual Assurance LLC.
2. 8% CONVERTIBLE NOTE PAYABLE. On June 21, 2002, the Company received
proceeds of $700,000 for issuance of a convertible note ("Note")
payable to a third party investor. Pursuant to the terms of the Notes,
the principal is due and payable on October 9, 2002 together with
interest calculated at the rate of 8% per annum. The Note also contains
a conversion feature that provides the holder with "conversion units"
equivalent to approximately 350,000 shares of the Company's preferred
stock at $2.00 per share plus a warrant to purchase up to 210,000
shares of the Company's common stock at $2.50 per share should the
Company receive future financing of not less than $5,000,000. The
parties to the Note are negotiating a settlement that would entitle the
third party investor to 2,000,000 shares of Hy-Tech Technology Group,
Inc.'s common stock in exchange for the notes cancellation.
3. COLLATERAL LOAN AGREEMENT AND PROMISSORY NOTE. A Collateral Loan
Agreement and Promissory Note was entered into between the Company and
a third party lender ("Lender") pursuant to which the Lender is to
provide the Company with a loan in the amount of Five Million United
States dollars ($5,000,000) ("the Loan Proceeds"). To secure the
obligations under the Loan, the Company agreed to grant the Lender a
security interest in 13,888,889 shares of its common stock. As of April
4, 2003, the Lender has not yet funded the Company with the Loan
Proceeds.
32
Schedule 3.1(e)
CONFLICTS
Hy-Tech Computer Systems, Inc. is in default of a provision of the SunTrust loan
covenants restricting mergers and acquisitions.
33
Schedule 3.1(f)
CONSENTS AND APPROVALS
None
34
Schedule 3.1(g)
LITIGATION AND CLAIMS
SunTrust Bank has filed a lawsuit in the circuit court of the twentieth judicial
circuit in and for Xxx County, Florida, civil division. This lawsuit is against
Hy-Tech Computer Systems, Inc., a Florida Corporation, f/k/a Datasys USA,
Incorporated, Xxxxx X. Xxxxxxx, an individual, Xxxxxx X. Xxxxxxxx, Xx., an
individual, and Xxxx X. XxXxxx, an individual. The lawsuit arises from three
promissory notes held by SunTrust. SunTrust is asking for $3,677,603.74 plus
interest accrued since November 6, 2002. Hy-Tech is also in default of a
provision of the SunTrust loan covenants restricting mergers and acquisitions.
It is anticipated that SunTrust will add this default to their lawsuit.
The Company owes $72,000 to Delaware's Secretary of State in connection with its
2002 Delaware Franchise Tax.
35
Schedule 3.1(h)
DEFAULTS AND VIOLATIONS
Hy-Tech Computer Systems, Inc. is in default of a provision of the SunTrust loan
covenants restricting mergers and acquisitions.
The Company owes $72,000 to Delaware's Secretary of State in connection with its
2002 Delaware Franchise Tax.
36
Schedule 5.1
FORM 8-K DISCLOSURE OBLIGATIONS
None
37
