EXHIBIT 2.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "AGREEMENT") is dated as of
March 31, 2003, among SVI Solutions, Inc., a Delaware corporation (the
"COMPANY"), and the purchasers identified on the signature pages hereto (each,
including its successors and assigns, a "PURCHASER" and collectively the
"PURCHASERS").
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the "SECURITIES ACT") and Rule 506 promulgated thereunder, the Company desires
to issue and sell to the Purchasers, and each Purchaser, severally and not
jointly, desires to purchase from the Company, securities of the Company as more
fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchasers agree
as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Debenture (as defined herein), and (b) the
following terms have the meanings indicated in this Section 1.1:
"ACTUAL MINIMUM" means, as of any date, the maximum aggregate
number of shares of Common Stock then issued or potentially issuable in
the future pursuant to the Transaction Documents, including any
Underlying Shares issuable upon exercise or conversion in full of all
Warrants and Debentures, ignoring any conversion or exercise limits set
forth therein, and assuming (i) any previously unconverted Debentures
from the First Closing are held until the 26th month anniversary of
their date of issuance and (ii) assuming the Second Closing occurs, any
previously unconverted Debentures from the Second Closing are held
until the 30th month anniversary the First Closing, or, if earlier,
until maturity, and all interest thereon is paid in shares of Common
Stock.
"AFFILIATE" means any Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is
under common control with a Person, as such terms are used in and
construed under Rule 144 under the Securities Act.
"CAPITAL SHARES" means the Common Stock and any shares of any
other class of common stock whether now or hereafter authorized, having
the right to participate in the distribution of earnings and assets of
the Company.
"CAPITAL SHARES EQUIVALENTS" means any securities, rights or
obligations that are convertible into or exchangeable for or give any
right to subscribe for or purchase, directly or indirectly, any Capital
Shares of the Company or any warrants, options or other rights to
subscribe for or purchase, directly or indirectly, Capital Shares or
any such convertible or exchangeable securities.
"CLOSING" means the closing of the purchase and sale of the
Securities pursuant to SECTION 2.1.
"CLOSING PRICE" means the average of the 10 VWAPs immediately
prior to the date in question.
"CLOSINGS" means, collectively, the First Closing and the
Second Closing.
"CLOSING DATES" means the dates of the First Closing and
Second Closing.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock of the Company, par
value $0.0001 per share, and any securities into which such common
stock shall hereinafter have been reclassified into.
"COMPANY COUNSEL" means Solomon, Ward, Seidenwurm & Xxxxx,
LLP.
"DEBENTURE" means, the 9% Convertible Debenture due, with
respect to each Debenture issued in the First Closing, 26 months from
its date of issuance, and with respect to each Debenture issued in the
Second Closing, 30 months from the date of the First Closing, unless
otherwise set forth therein, issued by the Company to the Purchasers
hereunder, in the form of EXHIBIT A.
"DISCLOSURE SCHEDULES" shall have the meaning ascribed to such
term in Section 3.1 hereof.
"EFFECTIVE DATE" means the date a Registration Statement is
first declared effective by the Commission.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FIRST CLOSING" means the closing of the sale of the
Securities pursuant to Section 2.1(a) hereof.
"FIRST CLOSING DATE" means the date of the First Closing,
which shall occur concurrently with the retirement by the Company of
all its outstanding obligations to Union Bank of California, N.A. or
such other time and date as may be agreed to in writing by the Company
and each Purchaser.
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"FW" means Xxxxxxx Xxxxxxxxx LLP with offices at 000 Xxxxxxxxx
Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000-0000.
"GAAP" shall have the meaning ascribed to such term in Section
3.1(h) hereof.
"LIENS" shall have the meaning ascribed to such term in
Section 3.1(a) hereof.
"LOSSES" means any and all losses, claims, damages,
liabilities, settlement costs and expenses, including without
limitation costs of preparation and reasonable attorneys' fees.
"MATERIAL ADVERSE EFFECT" shall have the meaning assigned to
such term in Section 3.1(b) hereof.
"MILESTONE DATE" means the first Trading Day immediately
following a period of 15 consecutive Trading Days during which the VWAP
for each such Trading Date is at least $1.75 (as appropriately adjusted
for any stock splits, stock dividends, stock combinations and other
similar transactions of the Common Stock that occur after the date of
this Agreement).
"PERSON" means an individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
"PRINCIPAL MARKET" means initially the American Stock Exchange
and shall also include the New York Stock Exchange, the NASDAQ
Small-Cap Market or the NASDAQ National Market, whichever is at the
time the principal trading exchange or market for the Common Stock,
based upon share volume.
"PROCEEDING" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated the Closing Date, among the Company and the
Purchasers, in the form of EXHIBIT B.
"REQUIRED APPROVALS" shall have the meaning ascribed to such
term in Section 3.1(e) hereof.
"REQUIRED MINIMUM" means, as of any date, the maximum
aggregate number of shares of Common Stock then issued or potentially
issuable in the future pursuant to the Transaction Documents, including
any Underlying Shares issuable upon exercise or conversion in full of
all Warrants and Debentures, ignoring any conversion or exercise limits
set forth therein, and assuming that (a) (i) any previously unconverted
Debenture from the First Closing is held until the 26th month
anniversary of its date of issuance and (ii) any previously unconverted
Debenture from the Second Closing held until the 30th month anniversary
of the First Closing, or, if earlier, until maturity, and all interest
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is paid in shares of Common Stock and (b) the VWAP at all times on and
after the date of determination equals 50% of the actual VWAP on the
Trading Day immediately prior to the date of determination.
"RULE 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time
to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same effect as such Rule.
"SEC REPORTS" shall have the meaning ascribed to such term in
Section 3.1(h) hereof.
"SECOND CLOSING" shall mean the closing of the sale of the
Securities pursuant to Section 2.1(b) hereof.
"SECOND CLOSING DATE" shall mean the date of the Second
Closing, which shall occur within 5 Trading Days of the Milestone Date.
"SECURITIES" means the Debentures, Warrants and the Underlying
Shares.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SET PRICE" shall have the meaning ascribed to such term in
the Debentures.
"SHAREHOLDER APPROVAL" shall have the meaning ascribed to such
term in Section 4(a)(ii)(B) of the Debenture.
"SUBSCRIPTION AMOUNT" means, (i) as to each Purchaser and the
First Closing, the amount set forth below such Purchaser's signature
block on the signature pages hereto and next to the heading "First
Closing Subscription" in United States dollars and in immediately
available funds, and (ii) as to each Purchaser and the Second Closing,
the amount set forth below such Purchaser's signature block on the
signature pages hereto and next to the heading "Second Closing
Subscription" in United States dollars and in immediately available
funds.
"SUBSIDIARY" means any subsidiary of the Company that is
required to be listed in SCHEDULE 3.1(A).
"TRADING DAY" means any day during which the Principal Market
shall be open for business.
"TRANSACTION DOCUMENTS" means this Agreement, the Debentures,
the Warrants, the Registration Rights Agreement and any other documents
or agreements executed in connection with the transactions contemplated
hereunder.
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"UNDERLYING SHARES" means the shares of Common Stock issuable
upon conversion of the Debentures and upon exercise of the Warrants and
issued and issuable in lieu of the cash payment of interest on the
Debentures.
"UNDERLYING SHARES REGISTRATION STATEMENT" OR "REGISTRATION
STATEMENT" means a registration statement meeting the requirements set
forth in the Registration Rights Agreement and covering the resale of
the Underlying Shares by each Purchaser as provided for in the
Registration Rights Agreement.
"VWAP" means, for any date, the price determined by the first
of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Principal Market, the daily volume weighted
average price of the Common Stock for such date (or the nearest
preceding date) on the Principal Market on which the Common Stock is
then listed or quoted as reported by Bloomberg Financial L.P. (based on
a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time);
(b) if the Common Stock is not then listed or quoted on a Principal
Market and if prices for the Common Stock are then quoted on the OTC
Bulletin Board, the volume weighted average price of the Common Stock
for such date (or the nearest preceding date) on the OTC Bulletin
Board; (c) if the Common Stock is not then listed or quoted on the OTC
Bulletin Board and if prices for the Common Stock are then reported in
the "Pink Sheets" published by the National Quotation Bureau
Incorporated (or a similar organization or agency succeeding to its
functions of reporting prices), the average of the most recent bid and
ask price per share of the Common Stock so reported; or (d) in all
other cases, the fair market value of a share of Common Stock as
determined by a nationally recognized-independent appraiser selected in
good faith by Purchasers holding a majority of the principal amount of
Debentures then outstanding.
"WARRANTS" means collectively the Common Stock purchase
warrants, in the form of EXHIBIT C delivered to the Purchasers at the
Closing in accordance with Section 2.2 hereof.
ARTICLE II
PURCHASE AND SALE
2.1 Upon the terms and subject to the conditions set forth herein, the
Company agrees to sell, and each Purchaser agrees to purchase, severally and not
jointly, the Debentures as set forth next to the respective Purchaser's name on
the signature pages hereto for an aggregate purchase price of up to
$5,500,000.00 ("PURCHASE PRICE") in two Closings as follows:
(a) FIRST CLOSING. On the First Closing Date, each Purchaser
shall purchase, severally and not jointly, the principal amount of
Debentures equal to each Purchaser's Subscription Amount, amounting in
the aggregate to $3,500,000 principal amount of Debentures and the
Company shall sell each such principal amount of Debentures to each
such Purchaser.
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(b) SECOND CLOSING. On the Second Closing Date, each Purchaser
shall purchase, severally and not jointly, the principal amount of
Debentures equal to each Purchaser's Subscription Amount as to the
Second Closing, amounting in the aggregate to $2,000,000 principal
amount of Debentures and the Company shall sell each such principal
amount of Debentures to each such Purchaser.
(c) EACH CLOSING. Each Closing shall take place at the offices
of FW or at such other location as the parties may agree.
2.2 CLOSING CONDITIONS. Upon satisfaction or waiver by the party sought
to be benefited thereby of the conditions set forth in this Section 2.2, each
Closing shall occur.
(a) At or prior to each Closing (unless otherwise specified
below), the Company shall deliver or cause to be delivered to each
Purchaser the following:
(i) a Debenture with a principal amount equal to such
Purchaser's Subscription Amount as to such Closing, registered
in the name of such Purchaser;
(ii) a Warrant to purchase up to a number of shares
of Common Stock equal to 40% of such Purchaser's Subscription
Amount divided by the Closing Price as to the Debentures
purchased by such Purchaser at such Closing with a term of 5
years and an exercise price per Warrant Share equal to 115% of
the Closing Price on such Closing Date, subject to adjustment
therein;
(iii) as to the First Closing only, a legal opinion
of Company Counsel, in the form of EXHIBIT D attached hereto,
addressed to the Purchasers;
(iv) as to the First Closing only, written consents
of a majority of the voting shareholders of the Company
approving Shareholder Approval;
(v) as to the First Closing only, the Registration
Rights Agreement duly executed by the Company;
(vi) as to the First Closing only, instructions to
the Purchasers to wire transfer $2,800,000 of the proceeds
raised hereunder to Union Bank of California, N.A. in
satisfaction of the Company's obligations under that certain
Discounted Loan Payoff Agreement, dated March 31, 2003, by and
among Union Bank of California, SVI Solutions, Inc., SVI
Retail, Inc., Sabica Ventures, Inc. and SVI Training Products,
Inc. (the "PAYOFF AGREEMENT") and copies of the Payoff
Agreement duly executed by all the parties thereto; and
(vii) as to the First Closing only, lock-up
agreements from each of Softline Limited and Xxxxxx Xxxx &
Associates in form and substance reasonably acceptable to each
Purchaser.
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(b) At or prior to each Closing, each Purchaser shall deliver
or cause to be delivered to the Company the following:
(i) such Purchaser's Subscription Amount as to such
Closing by wire transfer to the instructions set forth on
ANNEX 1 attached hereto;
(ii) as to the First Closing only, the Registration
Rights Agreement duly executed by such Purchaser.
(c) All representations and warranties of the other party
contained herein shall remain true and correct as of such Closing Date
and all covenants of the other party shall have been performed;
(d) There shall have been no Material Adverse Effect (as
defined in Section 3.1(b) hereof) with respect to the Company since the
date hereof;
(e) As to the Second Closing only:
(i) the Milestone Date shall have occurred within 365
days of the First Closing Date and the Company shall have
provided any representations and documents reasonably required
by any Purchaser evidencing that the Milestone Date has
occurred;
(ii) the Second Closing shall have occurred with 5
Trading Days of the Milestone Date;
(iii) there is a sufficient number of authorized but
unissued and otherwise unreserved shares of Common Stock for
an issuance of all of the Underlying Shares relating to the
Debentures and Warrants issued at the First Closing and Second
Closing;
(iv) the Company shall have obtained Shareholder
Approval;
(v) no Event of Default nor any event that with the
passage of time would constitute an Event of Default shall
have occurred and is continuing with respect to the
outstanding Debentures;
(vi) the Registration Statement relating to the
Securities issued at the First Closing shall have been
declared effective and shall be effective on the Second
Closing Date; and
(vii) no public announcement of a pending or proposed
Change of Control Transaction or Fundamental Transaction (as
such terms are defined in the Debenture) has occurred that has
not been consummated.
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(f) From the date hereof to each such Closing Date, trading in
the Common Stock shall not have been suspended by the Commission
(except for any suspension of trading of limited duration agreed to by
the Company, which suspension shall be terminated prior to such
Closing), and, at any time prior to such Closing Date, trading in
securities generally as reported by Bloomberg Financial Markets shall
not have been suspended or limited, or minimum prices shall not have
been established on securities whose trades are reported by such
service, or on the Principal Market, nor shall a banking moratorium
have been declared either by the United States or New York State
authorities.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth
in the disclosure schedules delivered to the Purchasers concurrently herewith
(the "DISCLOSURE SCHEDULES") which Disclosure Schedules shall be deemed a part
hereof, or, other than with respect to Sections 3.1(g), 3.1(u), 3.1(v), 3.1(w),
3.1(z) and 3.1(dd), except as set forth in the SEC Reports, the Company hereby
makes the representations and warranties set forth below to the Purchasers.
(a) SUBSIDIARIES. The Company has no direct or indirect
subsidiaries. The Company owns, directly or indirectly, all of the
capital stock or other equity interests of each Subsidiary free and
clear of any lien, charge, security interest, encumbrance, right of
first refusal or other restriction (collectively, "LIENS"), and all the
issued and outstanding shares of capital stock of each Subsidiary are
validly issued and are fully paid, non-assessable and free of
preemptive and similar rights. If the Company has no subsidiaries, then
references in the Transaction Documents to the Subsidiaries will be
disregarded.
(b) ORGANIZATION AND QUALIFICATION. Each of the Company and
the Subsidiaries is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with
the requisite power and authority to own and use its properties and
assets and to carry on its business as currently conducted. Neither the
Company nor any Subsidiary is in violation of any of the provisions of
its respective certificate or articles of incorporation, bylaws or
other organizational or charter documents. Each of the Company and the
Subsidiaries is duly qualified to do business and is in good standing
as a foreign corporation or other entity in each jurisdiction in which
the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or
in good standing, as the case may be, could not, individually or in the
aggregate: (i) adversely affect the legality, validity or
enforceability of any Transaction Document, (ii) have or result in or
be reasonably likely to have or result in a material adverse effect on
the results of operations, assets, prospects, business or condition
(financial or otherwise) of the Company and the Subsidiaries, taken as
a whole, or (iii) adversely impair the Company's ability to perform
fully on a timely basis its obligations under any of the Transaction
Documents (any of (i), (ii) or (iii), a "MATERIAL ADVERSE Effect").
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(c) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations hereunder or thereunder. The
execution and delivery of each of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated
hereby or thereby have been duly authorized by all necessary action on
the part of the Company and no further consent or action is required by
the Company other than Required Approvals. Each of the Transaction
Documents has been (or upon delivery will be) duly executed by the
Company and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies
generally and general principles of equity. Neither the Company nor any
Subsidiary is in violation of any of the provisions of its respective
certificate or articles of incorporation, by-laws or other
organizational or charter documents.
(d) NO CONFLICTS. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated thereby do not and will not:
(i) conflict with or violate any provision of the Company's or any
Subsidiary's certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) subject to obtaining the
Required Approvals, conflict with, or constitute a default (or an event
that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or
both) of, any agreement, credit facility, debt or other instrument
(evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound
or affected, or (iii) result, in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of
any court or governmental authority to which the Company or a
Subsidiary is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or a
Subsidiary is bound or affected; except in the case of each of clauses
(ii) and (iii), such as could not, individually or in the aggregate,
have or result in a Material Adverse Effect.
(e) FILINGS, CONSENTS AND APPROVALS. Neither the Company nor
any Subsidiary is required to obtain any consent, waiver, authorization
or order of, give any notice to, or make any filing or registration
with, any court or other federal, state, local or other governmental
authority or other Person in connection with the execution, delivery
and performance by the Company of the Transaction Documents, other than
(i) the filings required under SECTION 4.8, (ii) the filing with the
Commission of the Underlying Shares Registration Statement, (iii) the
notice and/or application(s) to each applicable Principal Market for
the issuance and sale of the Debentures and Warrants and the listing of
the Underlying Shares for trading thereon in the time and manner
required thereby, and (iv) the filing of Form D with the Commission and
applicable Blue Sky filings (collectively, the "REQUIRED APPROVALS").
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(f) ISSUANCE OF THE SECURITIES. The Securities are duly
authorized and, when issued and paid for in accordance with the
applicable Transaction Documents, will be duly and validly issued,
fully paid and non-assessable, free and clear of all Liens. The Company
has reserved from its duly authorized capital stock a number of shares
of Common Stock for issuance of the Underlying Shares at least equal to
the Required Minimum on the date hereof. The Company has not, and to
the knowledge of the Company, no Affiliate of the Company has sold,
offered for sale or solicited offers to buy or otherwise negotiate in
respect of any security (as defined in Section 2 of the Securities Act)
that would be integrated with the offer or sale of the Securities in a
manner that would require the registration under the Securities Act of
the sale of the Securities to the Purchasers, or that would be
integrated with the offer or sale of the Securities for purposes of the
rules and regulations of any Principal Market.
(g) CAPITALIZATION. The number of shares and type of all
authorized, issued and outstanding capital stock of the Company is set
forth in the Disclosure Schedules attached hereto. No securities of the
Company are entitled to preemptive or similar rights, and no Person has
any right of first refusal, preemptive right, right of participation,
or any similar right to participate in the transactions contemplated by
the Transaction Documents. Except as a result of the purchase and sale
of the Securities, there are no outstanding options, warrants, script
rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities, rights or obligations
convertible into or 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. The issuance and sale of the Securities will not
obligate the Company to issue shares of Common Stock or other
securities to any Person (other than the Purchasers) and will not
result in a right of any holder of Company securities to adjust the
exercise, conversion, exchange or reset price under such securities.
(h) SEC REPORTS; FINANCIAL STATEMENTS. The Company has filed
all reports required to be filed by it under the Securities Act and the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for
the two years preceding the date hereof (or such shorter period as the
Company was required by law to file such material) (the foregoing
materials being collectively referred to herein as the "SEC REPORTS"
and, together with the Schedules to this Agreement, the "DISCLOSURE
MATERIALS") on a timely basis or has received a valid extension of such
time of filing and has filed any such SEC Reports prior to the
expiration of any such extension. The Company has identified and made
available to the Purchasers a copy of all SEC Reports filed within the
10 days preceding the date hereof. As of their respective dates, the
SEC Reports complied in all material respects with the requirements of
the Securities Act and the Exchange Act and the rules and regulations
of the Commission promulgated thereunder, and none of the SEC Reports,
when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Reports comply in all
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material respects with applicable accounting requirements and the rules
and regulations of the Commission with respect thereto as in effect at
the time of filing. Such financial statements have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved ("GAAP"), except as may be
otherwise specified in such financial statements or the notes thereto,
and fairly present in all material respects the financial position of
the Company and its consolidated subsidiaries as of and for the dates
thereof and the results of operations and cash flows for the periods
then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.
(i) MATERIAL CHANGES. Since the date of the latest audited
financial statements included within the SEC Reports, except as
specifically disclosed in the SEC Reports: (i) there has been no event,
occurrence or development that has had or that could result in a
Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) trade payables and
accrued expenses incurred in the ordinary course of business consistent
with past practice and (B) liabilities not required to be reflected in
the Company's financial statements pursuant to GAAP or required to be
disclosed in filings made with the Commission, (iii) the Company has
not altered its method of accounting or the identity of its auditors,
(iv) the Company has not declared or made any dividend or distribution
of cash or other property to its stockholders or purchased, redeemed or
made any agreements to purchase or redeem any shares of its capital
stock, and (v) the Company has not issued any equity securities to any
officer, director or Affiliate, except pursuant to existing Company
stock option or similar plans.
(j) LITIGATION. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of
the Company, threatened against or affecting the Company, any
Subsidiary or any of their respective properties before or by any
court, arbitrator, governmental or administrative agency or regulatory
authority (federal, state, county, local or foreign) (collectively, an
"ACTION") which: (i) adversely affects or challenges the legality,
validity or enforceability of any of the Transaction Documents or the
Securities or (ii) could, if there were an unfavorable decision,
individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect. Neither the Company nor any
Subsidiary, nor any director or officer thereof, is or has been the
subject of any Action involving a claim of violation of or liability
under federal or state securities laws or a claim of breach of
fiduciary duty. The Company does not have pending before the Commission
any request for confidential treatment of information. There has not
been, and to the knowledge of the Company, there is not pending or
contemplated, any investigation by the Commission involving the Company
or any current or former director or officer of the Company. The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.
(k) COMPLIANCE. Neither the Company nor any Subsidiary: (i) is
in default under or in violation of (and no event has occurred that has
not been waived that, with notice or lapse of time or both, would
result in a default by the Company or any Subsidiary under), nor has
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the Company or any Subsidiary received notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or
credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound (whether or not
such default or violation has been waived), (ii) is in violation of any
order of any court, arbitrator or governmental body, or (iii) is or has
been in violation of any statute, rule or regulation of any
governmental authority, except in each case as could not, individually
or in the aggregate, have or result in a Material Adverse Effect.
(l) LABOR RELATIONS. No material labor dispute exists or, to
the knowledge of the Company, is imminent with respect to any of the
employees of the Company.
(m) REGULATORY PERMITS. The Company and the Subsidiaries
possess all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities
necessary to conduct their respective businesses as described in the
SEC Reports, except where the failure to possess such permits could
not, individually or in the aggregate, have or reasonably be expected
to result in a Material Adverse Effect ("MATERIAL PERMITS"), and
neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material
Permit.
(n) TITLE TO ASSETS. The Company and the Subsidiaries have
good and marketable title in fee simple to all real property owned by
them that is material to the business of the Company and the
Subsidiaries and good and marketable title in all personal property
owned by them that is material to the business of the Company and the
Subsidiaries, in each case free and clear of all Liens, except for
Liens as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such
property by the Company and the Subsidiaries. And to the Company's
knowledge, any real property and facilities held under lease by the
Company and the Subsidiaries are held under valid, subsisting and
enforceable leases of which the Company and the Subsidiaries are in
compliance.
(o) PATENTS AND TRADEMARKS. The Company and the Subsidiaries
have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names,
copyrights, licenses and other similar rights necessary or material for
use in connection with their respective businesses as described in the
SEC Reports and which the failure to so have could have a Material
Adverse Effect (collectively, the "INTELLECTUAL PROPERTY RIGHTS").
Neither the Company nor any Subsidiary has received a written notice
that the Intellectual Property Rights used by the Company or any
Subsidiary violates or infringes upon the rights of any Person. To the
knowledge of the Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of
any of the Intellectual Property Rights.
(p) INSURANCE. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are reasonably prudent and customary in
the businesses in which the Company and the Subsidiaries are engaged. A
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list of the Company's insurance contracts and policies are set forth on
the Disclosure Schedules. To the best of Company's knowledge, such
insurance contracts and policies are accurate and complete. Neither the
Company nor any Subsidiary has any reason to believe it will not be
able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business without a significant increase in
cost.
(q) TRANSACTIONS WITH AFFILIATES AND EMPLOYEES. Except as set
forth in SEC Reports, none of the officers or directors of the Company
and, to the knowledge of the Company, none of the employees of the
Company is presently a party to any transaction with the Company or any
Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental
of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or
any such employee has a substantial interest or is an officer,
director, trustee or partner.
(r) INTERNAL ACCOUNTING CONTROLS. The Company and the
Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only
in accordance with management's general or specific authorization, and
(iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences. The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the Company and designed such disclosures controls and
procedures to ensure that material information relating to the Company,
including its subsidiaries, is made known to the certifying officers by
others within those entities, particularly during the period in which
the Company's Form 10-K or 10-Q, as the case may be, is being prepared.
The Company's certifying officers have evaluated the effectiveness of
the Company's controls and procedures as of a date within 90 days prior
to the filing date of the Form 10-Q for the quarter ended September 30,
2002 (such date, the "EVALUATION DATE"). The Company presented in the
Form 10-Q for the quarter ended September 30, 2002 the conclusions of
the certifying officers about the effectiveness of the disclosure
controls and procedures based on their evaluations as of the Evaluation
Date. Since the Evaluation Date, there have been no significant changes
in the Company's internal controls (as such term is defined in Item
307(b) of Regulation S-K under the Exchange Act) or, the Company's
knowledge, in other factors that could significantly affect the
Company's internal controls.
(s) SOLVENCY/INDEBTEDNESS. Based on the financial condition of
the Company as of each Closing Date: (i) the fair saleable value of the
Company's assets exceeds the amount that will be required to be paid on
or in respect of the Company's existing debts and other liabilities
(including known contingent liabilities) as they mature; (ii) the
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Company's assets do not constitute unreasonably small capital to carry
on its business for the current fiscal year as now conducted and as
proposed to be conducted including its capital needs taking into
account the particular capital requirements of the business conducted
by the Company, and projected capital requirements and capital
availability thereof; and (iii) the current cash flow of the Company,
together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated
uses of the cash, would be sufficient to pay all amounts on or in
respect of its debt when such amounts are required to be paid. The
Company does not intend to incur debts beyond its ability to pay such
debts as they mature (taking into account the timing and amounts of
cash to be payable on or in respect of its debt). The Company has no
knowledge of any facts or circumstances which lead it to believe that
it will file for reorganization or liquidation under the bankruptcy or
reorganization laws of any jurisdiction within one year from the
Closing Date. The SEC Reports set forth as of the dates thereof all
outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has commitments.
For the purposes of this Agreement, "INDEBTEDNESS" shall mean (a) any
liabilities for borrowed money or amounts owed in excess of $50,000
(other than trade accounts payable incurred in the ordinary course of
business), (b) all guaranties, endorsements and other contingent
obligations, whether or not the same are or should be reflected in the
Company's balance sheet or the notes thereto, except guaranties by
endorsement of negotiable instruments for deposit or collection in the
ordinary course of business, and (c) the present value of any lease
payments in excess of $50,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any
Subsidiary is in default with respect to any Indebtedness.
(t) CERTAIN FEES. No brokerage or finder's fees or commissions
are or will be payable by the Company to any broker, financial advisor
or consultant, finder, placement agent, investment banker, bank or
other Person with respect to the transactions contemplated by this
Agreement other than Century Capital, and the Company has not taken any
action that would cause any Purchaser to be liable for any such fees or
commissions. The Company agrees that the Purchasers shall have no
obligation with respect to any fees or with respect to any claims made
by or on behalf of any Person for fees of the type contemplated by this
Section with the transactions contemplated by this Agreement.
(u) PRIVATE PLACEMENT. Assuming the accuracy of the
representations and warranties of the Purchasers set forth in Sections
3.2(b)-(f), the offer, issuance and sale of the Securities to the
Purchasers as contemplated hereby are exempt from the registration
requirements of the Securities Act. The issuance and sale of the
Securities hereunder does not contravene the rules and regulations of
the Principal Market and no shareholder approval is required for the
Company to fulfill its obligations under the Transaction Documents.
(v) LISTING AND MAINTENANCE REQUIREMENTS. The Company has not,
in the 12 months preceding the date hereof, received notice from any
Principal Market on which the Common Stock is or has been listed or
quoted to the effect that the Company is not in compliance with the
14
listing or maintenance requirements of such Principal Market. The
Company is, and has no reason to believe it will not in the foreseeable
future continue to be, in compliance with all such listing and
maintenance requirements.
(w) REGISTRATION RIGHTS. The Company has not granted or agreed
to grant to any Person any rights (including "piggy-back" registration
rights) to have any securities of the Company registered with the
Commission or any other governmental authority that have not been
satisfied.
(x) APPLICATION OF TAKEOVER PROTECTIONS. The Company and its
Board of Directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Company's
Certificate of Incorporation (or similar charter documents) or the laws
of its state of incorporation that is or could become applicable to the
Purchasers as a result of the Purchasers and the Company fulfilling
their obligations or exercising their rights under the Transaction
Documents, including without limitation as a result of the Company's
issuance of the Securities and the Purchasers' ownership of the
Securities.
(y) SENIORITY. As of the Closing Date, no indebtedness of the
Company is senior to the Debentures in right of payment, whether with
respect to interest or upon liquidation or dissolution, or otherwise,
other than indebtedness secured by purchase money security interests
(which is senior only as to underlying assets covered thereby) and
capital lease obligations (which is senior only as to the property
covered thereby).
(z) DISCLOSURE. The Company confirms that neither it nor any
other Person acting on its behalf has provided any of the Purchasers or
their agents or counsel with any information that constitutes or might
constitute material, nonpublic information. The Company understands and
confirms that the Purchasers will rely on the foregoing representations
in effecting transactions in securities of the Company. All disclosure
provided to the Purchasers regarding the Company, its business and the
transactions contemplated hereby, including the Schedules to this
Agreement, furnished by or on behalf of the Company with respect to the
representations and warranties made herein are true and correct with
respect to such representations and warranties 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. The Company
acknowledges and agrees that no Purchaser makes or has made any
representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section
3.2 hereof.
(aa) TAX STATUS. The Company and each of its Subsidiaries has
made or filed all federal, state and foreign income and all other tax
returns, reports and declarations required by any jurisdiction to which
it is subject (unless and only to the extent that the Company and each
of its Subsidiaries has set aside on its books provisions reasonably
adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are
15
material in amount, shown or determined to be due on such returns,
reports and declarations, except those being contested in good faith
and has set aside on its books provisions reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which
such returns, reports or declarations apply. There are no unpaid taxes
in any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any
such claim. The Company has not executed a waiver with respect to the
statute of limitations relating to the assessment or collection of any
foreign, federal, statue or local tax. None of the Company's tax
returns is presently being audited by any taxing authority.
(bb) ACKNOWLEDGMENT REGARDING PURCHASERS' PURCHASE OF
SECURITIES. The Company acknowledges and agrees that the Purchasers are
acting solely in the capacity of arm's length purchasers with respect
to this Agreement and the transactions contemplated hereby. The Company
further acknowledges that no Purchaser is acting as a financial advisor
or fiduciary of the Company (or in any similar capacity) with respect
to this Agreement and the transactions contemplated hereby and any
statement made by any Purchaser or any of their respective
representatives or agents in connection with this Agreement and the
transactions contemplated hereby is not advice or a recommendation and
is merely incidental to the Purchasers' purchase of the Securities. The
Company further represents to each Purchaser that the Company's
decision to enter into this Agreement has been based solely on the
independent evaluation of the Company and its representatives.
(cc) NO GENERAL SOLICITATION OR ADVERTISING IN REGARD TO THIS
TRANSACTION. Neither the Company nor, to the knowledge of the Company,
any of its directors or officers (i) has conducted or will conduct any
general solicitation (as that term is used in Rule 502(c) of Regulation
D) or general advertising with respect to the sale of the Debentures or
the Warrants, or (ii) made any offers or sales of any security or
solicited any offers to buy any security under any circumstances that
would require registration of the Debentures, the Underlying Shares or
the Warrants under the Securities Act or made any "directed selling
efforts" as defined in Rule 902 of Regulation S.
(dd) NO DISAGREEMENTS WITH ACCOUNTANTS AND LAWYERS. There are
no disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise, between the accountants and
lawyers formerly or presently employed by the Company and the Company
is current with respect to any fees owed to its accountants and
lawyers.
3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants to the
Company as follows:
(a) ORGANIZATION; AUTHORITY. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or
partnership power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and otherwise to
16
carry out its obligations thereunder. The purchase by such Purchaser of
the Securities hereunder has been duly authorized by all necessary
action on the part of such Purchaser. Each of this Agreement and the
Registration Rights Agreement have been duly executed by such
Purchaser, and when delivered by such Purchaser in accordance with the
terms hereof, will constitute the valid and legally binding obligation
of such Purchaser, enforceable against it in accordance with its terms.
(b) INVESTMENT INTENT. Such Purchaser is acquiring the
Securities as principal for its own account for investment purposes
only and not with a view to or for distributing or reselling such
Securities or any part thereof, without prejudice, however, to such
Purchaser's right, subject to the provisions of this Agreement, at all
times to sell or otherwise dispose of all or any part of such
Securities pursuant to an effective registration statement under the
Securities Act or under an exemption from such registration and in
compliance with applicable federal and state securities laws. Nothing
contained herein shall be deemed a representation or warranty by such
Purchaser to hold Securities for any period of time. Such Purchaser is
acquiring the Securities hereunder in the ordinary course of its
business. Such Purchaser does not have any agreement or understanding,
directly or indirectly, with any Person to distribute any of the
Securities.
(c) PURCHASER STATUS. At the time such Purchaser was offered
the Securities, it was, and at the date hereof it is, and on each date
on which it exercises any Warrants or converts any Debentures it will
be, an "accredited investor" as defined in Rule 501(a) under the
Securities Act. Such Purchaser has not been formed solely for the
purpose of acquiring the Securities. Such Purchaser is not a registered
broker-dealer under Section 15 of the Exchange Act.
(d) EXPERIENCE OF SUCH PURCHASER. Such Purchaser, either alone
or together with its representatives, has such knowledge,
sophistication and experience in business and financial matters so as
to be capable of evaluating the merits and risks of the prospective
investment in the Securities, and has so evaluated the merits and risks
of such investment. Such Purchaser is able to bear the economic risk of
an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.
(e) GENERAL SOLICITATION. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
4.1 TRANSFER RESTRICTIONS.
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(a) The Securities may only be disposed of in compliance with
state and federal securities laws. In connection with any transfer of
Securities other than pursuant to an effective registration statement,
to the Company or to an Affiliate of a Purchaser, the Company may
require the transferor thereof to provide to the Company an opinion of
counsel selected by the transferor and reasonably acceptable to the
Company, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not
require registration of such transferred Securities under the
Securities Act. As a condition of transfer, any such transferee shall
agree in writing to be bound by the terms of this Agreement and shall
have the rights of a Purchaser under this Agreement and the
Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is
required by this SECTION 4.1(B), of the following legend on any
certificate evidencing Securities:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF
COUNSEL TO THE TRANSFEROR REASONABLY ACCEPTABLE TO THE COMPANY TO SUCH
EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF
THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that a Purchaser may from
time to time pledge pursuant to a bona fide margin agreement or grant a
security interest in some or all of the Securities and, if required
under the terms of such arrangement, such Purchaser may transfer
pledged or secured Securities to the pledgees or secured parties, so
long as any such grant, pledge or transfer does not individually or in
the aggregate violate the Securities Act or any rule or regulation
promulgated thereunder. If required by the Company's transfer agent in
order to effect a pledge, the Company shall cause its counsel, at no
cost to the Purchasers, to issue an opinion of counsel to the Company's
transfer agent. At the appropriate Purchaser's expense, the Company
will execute and deliver such reasonable documentation as a pledgee or
secured party of Securities may reasonably request in connection with a
pledge or transfer of the Securities, including the preparation and
filing of any required prospectus supplement under Rule 424(b)(3) of
the Securities Act or other applicable provision of the Securities Act
to appropriately amend the list of Selling Stockholders thereunder.
18
(c) Certificates evidencing Underlying Shares shall not
contain any legend (including the legend set forth in Section 4.1(b)
hereof): (i) while a registration statement (including the Underlying
Shares Registration Statement) covering the resale of such security is
effective under the Securities Act, or (ii) following any sale of such
Underlying Shares pursuant to Rule 144, or (iii) if such Underlying
Shares are eligible for sale under Rule 144(k), or (iv) if such legend
is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the
staff of the Commission); PROVIDED, HOWEVER, in connection with the
issuance of the Underlying Shares, each Purchaser, severally and not
jointly with the other Purchasers, hereby agrees to adhere to and abide
by all prospectus delivery requirements under the Securities Act and
Commission Regulations. If all or any portion of a Debenture or Warrant
is converted or exercised (as applicable) at a time when there is an
effective registration statement to cover the resale of the Underlying
Shares, or if such Underlying Shares may be sold under Rule 144(k) or
if such legend is not otherwise required under applicable requirements
of the Securities Act (including judicial interpretations thereof) then
such Underlying Shares shall be issued free of all legends. The Company
agrees that following the Effective Date or at such time as such legend
is no longer required under this Section 4.1(c), it will, no later than
five Trading Days following the delivery by a Purchaser to the Company
or the Company's transfer agent of a certificate representing
Underlying Securities issued with a restrictive legend, deliver or
cause to be delivered to such Purchaser a certificate representing such
shares that is free from all restrictive and other legends. The Company
may not make any notation on its records or give instructions to any
transfer agent of the Company that enlarge the restrictions on transfer
set forth in this Section.
(d) In addition to such Purchaser's other available remedies,
the Company shall pay to a Purchaser, in cash, as liquidated damages
and not as a penalty, for each $1,000 of Underlying Shares (based on
the VWAP of the Common Stock on the date such Securities are submitted
to the Company's transfer agent) delivered for removal of the
restrictive legend and subject to this Section 4.1(c), $10 per Trading
Day (increasing to $20 per Trading Day 3 Trading Days after such
damages have begun to accrue) for each Trading Day after such fifth
Trading Day until such certificate is delivered without a legend.
4.2 ACKNOWLEDGMENT OF DILUTION. The Company acknowledges that the
issuance of the Securities may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that its obligations under the Transaction
Documents, including without limitation its obligation to issue the Underlying
Shares pursuant to the Transaction Documents, are unconditional and absolute and
not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim the Company may have
against any Purchaser and regardless of the dilutive effect that such issuance
may have on the ownership of the other stockholders of the Company.
4.3 FURNISHING OF INFORMATION. As long as any Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
19
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. Upon the request of any Purchaser, the Company shall deliver to
such Purchaser a written certification of a duly authorized officer as to
whether it has complied with the preceding sentence. As long as any Purchaser
owns Securities, if the Company is not required to file reports pursuant to such
laws, it will prepare and furnish to the Purchasers and make publicly available
in accordance with Rule 144(c) such information as is required for the
Purchasers to sell the Securities under Rule 144. The Company further covenants
that it will take such further action as any holder of Securities may reasonably
request, all to the extent required from time to time to enable such Person to
sell such Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144.
4.4 INTEGRATION. The Company shall not, and shall use its best efforts
to ensure that no Affiliate of the Company shall, sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers, or
that would be integrated with the offer or sale of the Securities for purposes
of the rules and regulations of any Principal Market.
4.5 RESERVATION AND LISTING OF SECURITIES.
(a) The Company shall maintain a reserve from its duly
authorized shares of Common Stock for issuance pursuant to the
Transaction Documents in such amount as may be required to fulfill its
obligations in full under the Transaction Documents.
(b) If, on any date, the number of authorized but unissued
(and otherwise unreserved) shares of Common Stock is less than 200% of
(i) the Actual Minimum on such date, minus (ii) the number of shares of
Common Stock previously issued pursuant to the Transaction Documents,
then the Board of Directors of the Company shall use commercially
reasonable efforts to amend the Company's certificate or articles of
incorporation to increase the number of authorized but unissued shares
of Common Stock to at least the Required Minimum at such time (minus
the number of shares of Common Stock previously issued pursuant to the
Transaction Documents), as soon as possible and in any event not later
than the 75th day after such date; provided that the Company will not
be required at any time to authorize a number of shares of Common Stock
greater than the maximum remaining number of shares of Common Stock
that could possibly be issued after such time pursuant to the
Transaction Documents.
(c) The Company shall: (i) in the time and manner required by
the Principal Market, prepare and file with such Principal Market an
additional shares listing application covering a number of shares of
Common Stock at least equal to the Required Minimum on the date of such
application, (ii) take all steps reasonably necessary to cause such
shares of Common Stock to be approved for listing on the Principal
Market as soon as possible thereafter, (iii) provide to the Purchasers
evidence of such listing, and (iv) use its commercially reasonably best
efforts to maintain the listing of such Common Stock on such Principal
Market or another Principal Market. In addition, within 30 days of the
First Closing Date, the Company shall have filed an information
20
statement with the Commission relating to the Shareholder Approval and
shall use reasonable best efforts to cause the Shareholder Approval to
be deemed effective as promptly as possible thereafter.
4.6 CONVERSION AND EXERCISE PROCEDURES. The form of Election to
Purchase included in the Warrants and the form of Conversion Notice included in
the Debentures set forth the totality of the procedures required of the
Purchasers in order to exercise the Warrants or convert the Debentures. No
additional legal opinion or other information or instructions shall be required
of the Purchasers to exercise their Warrants or convert their Debentures. The
Company shall honor exercises of the Warrants and conversions of the Debentures
and shall deliver Underlying Shares in accordance with the terms, conditions and
time periods set forth in the Transaction Documents.
4.7 FUTURE FINANCINGS. From the date hereof until 90 days after the
Effective Date of the initial Registration Statement relating to the Securities
issued at the First Closing and, if applicable, from the Second Closing Date
until 60 days after the Effective Date of the initial Registration Statement
relating to the Securities issued at the Second Closing, neither the Company nor
any Subsidiary shall issue or sell any Capital Shares or Capital Shares
Equivalents. Notwithstanding anything herein to the contrary, the 90 day period
set forth in this Section 4.7 shall be extended for the number of Trading Days
during such period in which (y) trading in the Common Stock is suspended by any
Principal Market, or (z) following the Effective Date, the Registration
Statement is not effective or the prospectus included in the Registration
Statement may not be used by the Purchasers for the resale of the Underlying
Shares. Notwithstanding anything to the contrary herein, this Section 4.7 shall
not apply to the following (a) the granting or issuance of shares of Common
Stock or options to employees, officers and directors of the Company pursuant to
any stock option plan or employee incentive plan or agreement duly adopted or
approved by a majority of the non-employee members of the Board of Directors of
the Company or a majority of the members of a committee of non-employee
directors established for such purpose, (b) the exercise of a Debenture or any
other security issued by the Company in connection with the offer and sale of
this Company's securities pursuant to this Agreement, or (c) the exercise of or
conversion of any convertible securities, options or warrants issued and
outstanding on the date hereof, provided that such securities have not been
amended since the date hereof, or (d) the issuance of any securities in
connection with acquisitions, strategic investments or strategic partnering
arrangements, the primary purpose of which is not to raise capital, or (e) a
one-time issuance to Xxxxxx Xxxxx on or prior to the fifth Trading Day after the
date hereof of convertible debentures with a principal amount equal to $500,000
and a conversion price equal to the greater of the Set Price and the average of
the 5 VWAPs immediately prior to such issuance, otherwise in the form of the
Debentures, or (f) prior to the Effective Date of the initial Registration
Statement relating to the Securities issued at the First Closing, a one-time
issuance of up to $2,000,000 of Capital Shares or Capital Shares Equivalents,
provided such securities have an effective price per share of Common Stock of at
least $1.75, subject to adjustment for reverse and forward stock splits, stock
dividends, stock combinations and other similar transactions of the Common Stock
that occur after the date of this Agreement and provided the effective price of
such security is not adjustable thereafter, other than for stock splits, stock
dividends, stock combinations and the like. In addition, unless Shareholder
Approval has been obtained and deemed effective in accordance with Section
21
4.5(c), the Company shall not make any issuance whatsoever of Capital Shares or
Capital Shares Equivalents which would cause any adjustment of the Set Price
(other than pursuant to Section 4(c)(ii) of the Debentures) to the extent the
holders of Debentures would not be permitted, pursuant to Section 4(a)(ii)(B) of
the Debenture, to convert their respective outstanding Debentures and exercise
the Warrants in full.
4.8 SECURITIES LAWS DISCLOSURE; PUBLICITY. The Company shall, by 8:30
a.m. Eastern time on the Trading Day following the date of this Agreement, issue
a press release or file a Current Report on Form 8-K reasonably acceptable to
each Purchaser disclosing all material terms of the transactions contemplated
hereby. The Company and the Purchasers shall consult with each other in issuing
any press releases with respect to the transactions contemplated hereby.
Notwithstanding the foregoing, other than in any registration statement filed
pursuant to the Registration Rights Agreement and filings related thereto, the
Company shall not publicly disclose the name of any Purchaser, or include the
name of any Purchaser in any filing with the Commission or any regulatory agency
or Principal Market, without the prior written consent of such Purchaser, except
to the extent such disclosure is required by law or Principal Market
regulations, in which case the Company shall provide the Purchasers with prior
notice of such disclosure.
4.9 NON-PUBLIC INFORMATION. The Company covenants and agrees that it
will not and will instruct any other Person acting on its behalf to not provide
any Purchaser or its agents or counsel with any information that the Company
believes constitutes material non-public information, unless prior thereto such
Purchaser shall have executed a written agreement regarding the confidentiality
and use of such information. The Company understands and confirms that each
Purchaser shall be relying on the foregoing representations in effecting
transactions in securities of the Company.
4.10 USE OF PROCEEDS. The Company shall use the net proceeds from the
sale of the Securities hereunder for working capital purposes and not for the
satisfaction of any portion of the Company's debt (other than payment of trade
payables, capital lease obligations, and accrued expenses in the ordinary course
of the Company's business and prior practices), to redeem any Company equity or
equity-equivalent securities or to settle any outstanding litigation. Prior to
the receipt of Shareholder Approval, the Company shall not declare or pay any
cash dividend on its shares of Common Stock while any Debentures remains
outstanding.
4.11 REIMBURSEMENT. If any Purchaser becomes involved in any capacity
in any Proceeding by or against any Person who is a stockholder of the Company,
solely as a result of such Purchaser's acquisition of the Securities under this
Agreement and without causation by any other activity, obligation, condition or
liability on the part of, or pertaining to such Purchaser and not to the
purchase of Securities pursuant to this Agreement, the Company will reimburse
such Purchaser, to the extent such reimbursement is not provided for in Section
4.12, for its reasonable legal and other expenses (including the cost of any
investigation, preparation and travel in connection therewith) incurred in
connection therewith, as such expenses are incurred. The reimbursement
obligations (and limitations thereon) of the Company under this paragraph shall
be in addition to any liability which the Company may otherwise have, shall
extend upon the same terms and conditions to any Affiliates of the Purchasers
who are actually named in such action, proceeding or investigation, and
22
partners, directors, agents, employees and controlling persons (if any), as the
case may be, of the Purchasers and any such Affiliate, and shall be binding upon
and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company solely as a result of acquiring the Securities under
this Agreement except to the extent any covenant or warranty owing to the
Company is breached.
4.12 INDEMNIFICATION OF PURCHASERS. Subject to the provisions of this
Section 4.12, each party (the "INDEMNIFYING PARTY") will indemnify and hold the
other parties and their directors, officers, shareholders, partners, employees
and agents (each, an "INDEMNIFIED PARTY") harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and reasonable
attorneys' fees and costs of investigation that any such Indemnified Party may
suffer or incur as a result of or relating to any breach of any of the
representations, warranties, covenants or agreements made by the Indemnifying
Party in this Agreement or in the other Transaction Documents. If any action
shall be brought against any Indemnified Party in respect of which indemnity may
be sought pursuant to this Agreement, such Indemnified Party shall promptly
notify the Indemnifying Party in writing, and the Indemnifying Party shall have
the right to assume the defense thereof with counsel of its own choosing. Any
Indemnified Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Party except to the extent
that (i) the employment thereof has been specifically authorized by the
Indemnifying Party in writing, (ii) the Indemnifying Party has failed after a
reasonable period of time to assume such defense and to employ counsel or (iii)
in such action there is, in the reasonable opinion of such separate counsel, a
material conflict on any material issue between the position of the Indemnifying
Party and the position of such Indemnified Party. The Indemnifying Party will
not be liable to any Indemnified Party under this Agreement (i) for any
settlement by an Indemnified Party effected without the Indemnifying Party's
prior written consent, which shall not be unreasonably withheld or delayed; or
(ii) to the extent, but only to the extent that a loss, claim, damage or
liability is attributable to any Indemnified Party's breach of any of the
representations, warranties, covenants or agreements made by the Purchasers in
this Agreement or in the other Transaction Documents. In no event shall the
liability of any Purchaser hereunder be greater in amount than the dollar amount
of the net proceeds received by such Purchaser upon the sale of the Securities;
provided that this provision shall not limit the Company's rights and remedies
under any other provision pursuant to this Agreement, including but not limited
to, the Company's rights under Section 5.15.
4.13 SHAREHOLDERS RIGHTS PLAN. In the event that a shareholders rights
plan is adopted by the Company, no claim will be made or enforced by the Company
or any other Person that any Purchaser is an "Acquiring Person" under the plan
or in any way could be deemed to trigger the provisions of such plan by virtue
of receiving Securities under the Transaction Documents.
23
4.14. PARTICIPATION IN FUTURE FINANCING. From the date hereof until
such time as a Purchaser no longer holds at least 5% of the Debentures initially
purchased hereunder at the First Closing, the Company shall not effect a
financing of its Capital Shares or Capital Shares Equivalents (a "SUBSEQUENT
FINANCING") unless (i) the Company delivers to each of such Purchasers a written
notice at least 5 Trading Days prior to the closing of such Subsequent Financing
(the "SUBSEQUENT FINANCING NOTICE") of its intention to effect such Subsequent
Financing, which Subsequent Financing Notice shall describe in reasonable detail
the proposed terms of such Subsequent Financing, the amount of proceeds intended
to be raised thereunder, the Person with whom such Subsequent Financing is
proposed to be effected, and attached to which shall be a term sheet or similar
document relating thereto and (ii) such Purchaser shall not have notified the
Company by 6:30 p.m. (New York City time) on the fifth (5th) Trading Day after
its receipt of the Subsequent Financing Notice of its willingness to provide (or
to cause its designee to provide), subject to completion of mutually acceptable
documentation, all or part of such financing to the Company on the same terms
set forth in the Subsequent Financing Notice. If one or more Purchasers shall
fail to so notify the Company of their willingness to participate in the
Subsequent Financing, the Company may effect the remaining portion of such
Subsequent Financing on the terms and to the Persons set forth in the Subsequent
Financing Notice; provided that the Company must provide the Purchasers with a
second Subsequent Financing Notice, and the Purchasers will again have the right
of first refusal set forth above in this Section 4.14, if the Subsequent
Financing subject to the initial Subsequent Financing Notice is not consummated
for any reason on the terms set forth in such Subsequent Financing Notice within
60 Trading Days after the date of the initial Subsequent Financing Notice with
the Person identified in the Subsequent Financing Notice. In the event the
Company receives responses to Subsequent Financing Notices from Purchasers
seeking to purchase more than the financing sought by the Company in the
Subsequent Financing such Purchasers shall have the right to purchase their Pro
Rata Portion (as defined below) of the Capital Shares or Capital Shares
Equivalents to be issued in such Subsequent Financing. "PRO RATA PORTION" is the
ratio of (x) the principal amount of Debentures purchased by a Purchaser and (y)
the sum of the aggregate principal amount of Debentures issued hereunder. If any
Purchaser no longer holds any Debentures, then the Pro Rata Portions shall be
re-allocated among the remaining Purchasers. Notwithstanding anything to the
contrary herein, this Section 4.7 shall not apply to the following (a) the
granting or issuance of shares of Common Stock or options to employees,
officers, consultants and directors of the Company pursuant to any stock option
plan or incentive plan or agreement or arrangement duly adopted or approved by a
majority of the non-employee members of the Board of Directors of the Company or
a majority of the members of a committee of non-employee directors established
for such purpose, provided the primary purpose of such plan, agreement or
arrangement is not to raise capital, (b) the exercise of a Debenture or any
other security issued by the Company in connection with the offer and sale of
this Company's securities pursuant to this Agreement, or (c) the exercise of or
conversion of any convertible securities, options or warrants issued and
outstanding on the date hereof, provided that such securities have not been
amended since the date hereof, or (d) the issuance of any securities in
connection with acquisitions, strategic investments or strategic partnering
arrangements, the primary purpose of which is not to raise capital.
24
4.15 LIMITATIONS ON SHORT SALES. Each Purchaser agrees, severally and
not jointly, that it will not enter into any Short Sales (as hereinafter
defined) from the period commencing on the First Closing Date and ending on the
date that all of the Debentures have been converted and all of the Warrants have
been exercised. For purposes of this Section 3.2(h), a "SHORT SALE" by any
Purchaser shall mean a sale of Common Stock by such Purchaser that is marked as
a short sale and that is made at a time when there is no equivalent offsetting
long position in Common Stock held by such Purchaser. For purposes of
determining whether there is an equivalent offsetting long position in Common
Stock held by a Purchasers, in addition to shares of Common Stock held by such
Purchaser, Underlying Shares that have not yet been converted pursuant to such
Purchaser's Debenture and that have not yet been issued upon exercise of such
Purchaser's Warrant shall be deemed to be held long by such Purchaser.
ARTICLE V
MISCELLANEOUS
5.1 TERMINATION. This Agreement may be terminated by any Purchaser, by
written notice to the other parties, if the First Closing has not been
consummated on or before April 4, 2003; provided that no such termination will
affect the right of any party to xxx for any breach by the other party (or
parties).
5.2 FEES AND EXPENSES. The Company has agreed to reimburse $35,000 to
Midsummer Capital, LLC ("MIDSUMMER") (of which $15,000 has been received) as
reimbursement for its legal, administrative and due diligence fees and expenses
incurred to prepare and negotiate the Transaction Documents. On the First
Closing Date, the Company shall wire $20,000 to Midsummer as payment of the
remaining portion of the $35,000 referenced above. Except as expressly set forth
in the Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all transfer agent fees, stamp taxes and other taxes and duties levied
in connection with the issuance of any Securities.
5.3 ENTIRE AGREEMENT. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.4 NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Section prior to 5:30 p.m. (New York City time) on a Trading
Day, (b) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a Trading Day or later than 5:30 p.m. (New
York City time) on any Trading Day, or (c) the Trading Day following the date of
mailing, if sent by U.S. nationally recognized overnight courier service. The
25
addresses for such notices and communications are those set forth on the
signature pages hereof, or such other address as may be designated in writing
hereafter, in the same manner, by such Person.
5.5 AMENDMENTS; WAIVERS. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and each of the Purchasers or, in the case of a waiver, by the
party against whom enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right.
5.6 CONSTRUCTION. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
5.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers. Any Purchaser may assign
its rights under this Agreement and the Registration Rights Agreement to any
Person to whom such Purchaser assigns or transfers any Securities.
5.8 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Sections 4.12.
5.9 GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by and construed and enforced in accordance with the
internal laws of the State of California, without regard to the principles of
conflicts of law thereof. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of San Diego,
California for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the Transaction Documents),
and hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is improper or inconvenient
venue for such proceeding. Each party hereby irrevocably waives personal service
of process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. The parties hereby waive all rights to a trial
26
by jury. If either party shall commence an action or proceeding to enforce any
provisions of this Agreement, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.
5.10 SURVIVAL. The representations and warranties contained herein
shall survive the earlier of (a) 18 months after the Second Closing Date if the
Second Closing occurs, (b) 18 months after the First Closing Date if the Second
Closing does not occur, and (c) the date on which the Debentures and Warrants
are no longer outstanding. The agreements and covenants of the Company contained
herein shall survive, as to a Purchaser and unless otherwise set forth in the
Transaction Documents, until such Purchaser no longer holds any Securities.
5.11 EXECUTION. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
5.12 SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.13 RESCISSION AND WITHDRAWAL RIGHT. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights, provided,
however, in the case of a rescission of a conversion of a Debenture or exercise
of a Warrant, the Purchaser shall be required to return any shares of Common
Stock subject to any such conversion or exercise notice.
5.14 REPLACEMENT OF SECURITIES. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
27
5.15 REMEDIES. Notwithstanding any provision to the contrary in Section
4.12, in addition to being entitled to exercise all rights provided herein or
granted by law, including recovery of damages, each of the Purchasers and the
Company will be entitled to specific performance under the Transaction
Documents. The parties agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of obligations
described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation the defense that a remedy at law
would be adequate. Without limiting the generality of the foregoing, the Company
expressly agrees that its breach of the next-to-last last sentence of Section
4.7 would cause each Purchaser irreparable harm, and consents to the granting of
injunctive relief by any court having jurisdiction to preclude any such issuance
of securities.
5.16 PAYMENT SET ASIDE. To the extent that the Company makes a payment
or payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
5.17 USURY. To the extent it may lawfully do so, the Company hereby
agrees not to insist upon or plead or in any manner whatsoever claim, and will
resist any and all efforts to be compelled to take the benefit or advantage of,
usury laws wherever enacted, now or at any time hereafter in force, in
connection with any claim, action or proceeding that may be brought by any
Purchaser in order to enforce any right or remedy under any Transaction
Document. Notwithstanding any provision to the contrary contained in any
Transaction Document, it is expressly agreed and provided that the total
liability of the Company under the Transaction Documents for payments in the
nature of interest shall not exceed the maximum lawful rate authorized under
applicable law (the "MAXIMUM RATE"), and, without limiting the foregoing, in no
event shall any rate of interest or default interest, or both of them, when
aggregated with any other sums in the nature of interest that the Company may be
obligated to pay under the Transaction Documents exceed such Maximum Rate. It is
agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or
any official governmental action subsequent to the date hereof, the new maximum
contract rate of interest allowed by law will be the Maximum Rate applicable to
the Transaction Documents from the effective date forward, unless such
application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any
Purchaser with respect to indebtedness evidenced by the Transaction Documents,
such excess shall be applied by such Purchaser to the unpaid principal balance
of any such indebtedness or be refunded to the Company, the manner of handling
such excess to be at such Purchaser's election.
28
5.18 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. Each Purchaser was introduced to the Company by Century Capital, which
has acted solely as agent for the Company and not for any Purchaser. Each
Purchaser has been represented by its own separate legal counsel in their review
and negotiation of the Transaction Documents. For reasons of administrative
convenience only, Purchasers and their respective counsel have chosen to
communicate with the Company through FW. FW does not represent all of the
Purchasers but only Midsummer. The Company has elected to provide all Purchasers
with the same terms and Transaction Documents for the convenience of the Company
and not because it was required or requested to do so by the Purchasers.
5.19 LIQUIDATED DAMAGES. The Company's obligations to pay any
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
liquidated damages and other amounts have been paid notwithstanding the fact
that the instrument or security pursuant to which such liquidated damages or
other amounts are due and payable shall have been canceled.
***********************
29
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
SVI SOLUTIONS, INC.
By: /s/ XXXXX X. XXXXXXXXX
--------------------------
Name: Xxxxx X. Xxxxxxxxx
Title: Chief Executive Officer
ADDRESS FOR NOTICE:
-------------------
0000 Xxxxxx Xxx
Xxxxxxxx, XX 00000
Attn: Xxxxx Xxxxxxxxx
Tel: (000) 000-0000
Fax: (000)000-0000
With a copy to: Xxxxxxx Xxxx Seidenwurm & Xxxxx LLP
Attn: Xxxxxx X. Xxxxx
000 X Xxxxxx, Xxxxx 0000
Xxx Xxxxx, XX 00000
Tel: (000)000-0000
Fax: (000)000-0000
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
30
PURCHASERS SIGNATURE PAGE
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
MIDSUMMER INVESTMENT, LTD. ADDRESS FOR NOTICE:
By: MIDSUMMER CAPITAL, LLC, -------------------
As investment advisor X/x Xxxxxxxxx Xxxxxxx, XXX
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
By:/s/ XXXXX XXXXXXX Xxx Xxxx, Xxx Xxxx 00000
--------------------------------- Tel: (000) 000-0000
Xxxxx Xxxxxxx, Managing Director Fax: (000) 000-0000
Attn: Xxxxx Xxxxxxx
First Closing Subscription: $1,400,000
Second Closing Subscription: $800,000
WITH A COPY TO:
---------------
Xxxxxxx Xxxxxxxxx LLP
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxx X. Xxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
31
PURCHASERS SIGNATURE PAGE (CONT. . . )
OMICRON MASTER TRUST ADDRESS FOR NOTICE:
By: Omicron Capital L.P., as subadvisor -------------------
By: Omicron Capital Inc., its general partner c/o Omicron Capital L.P.
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
By: /s/ XXXXX XXXXXXXXX Attn: Xxxxx Xxxx
------------------------------------- Fax: (000) 000-0000
Xxxxx Xxxxxxxxx, President
First Closing Subscription: $1,500,000
Second Closing Subscription: $857,143
32
PURCHASERS SIGNATURE PAGE (CONT. . . )
ISLANDIA, L.P. ADDRESS FOR NOTICE:
By: Xxxx Xxxx, Inc., its general partner -------------------
X/x Xxxx Xxxx, Xxx.
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
By: /s/ XXXXX XXXXXX Xxx Xxxx, Xxx Xxxx 00000
------------------------------------- Tel: (000) 000-0000
Name: Xxxxx Xxxxxx Fax: (000) 000-0000
Title: Attn: Fund Manager
First Closing Subscription: $600,000
Second Closing Subscription: $342,857
33
ANNEX A
Company Wire Instructions
34
EXHIBIT A
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
Date of Issuance: ____________ , 200__
$_______________
9% CONVERTIBLE DEBENTURE
DUE ____________ __, 200__
THIS DEBENTURE is one of a series of duly authorized and issued
Debentures of SVI Solutions, Inc., a Delaware corporation, having a principal
place of business at 0000 Xxxxxx Xxx, Xxxxxxxx, XX 00000 (the "Company"),
designated as its 9% Convertible Debenture, due, with respect to the aggregate
principal amount of $3,500,000 issued at the First Closing, _________ __, 2005,
and with respect to the aggregate principal amount of $2,000,000 if issued at
the Second Closing due 30 months from the First Closing Date (the "DEBENTURES").
FOR VALUE RECEIVED, the Company promises to pay to ____________________
or its registered assigns (the "HOLDER"), the principal sum of $_______________
on _____ __, 200__ or such earlier date as the Debentures are required or
permitted to be repaid as provided hereunder (the "MATURITY DATE") and to pay
interest to the Holder on the aggregate unconverted and then outstanding
principal amount of this Debenture at the rate of 9% per annum, payable
quarterly on March 1, June 1, September 1 and December 1, beginning on the first
such date after the Original Issue Date and on each Conversion Date (as to that
principal amount then being converted), on each Monthly Redemption Date (as to
that principal amount then being redeemed) and on the Maturity Date (except
that, if any such date is not a Business Day, then such payment shall be due on
the next succeeding Business Day) (each such date, an "INTEREST PAYMENT DATE"),
in cash or shares of Common Stock at the Interest Conversion Rate, or a
combination thereof; PROVIDED, HOWEVER, payment in shares of Common Stock may
only occur if: (i) there is an effective Underlying Shares Registration
Statement pursuant to which the Holder is permitted to utilize the prospectus
thereunder to resell all of the shares of Common Stock to be issued in lieu of
cash (and the Company believes, in good faith, that such effectiveness will
continue uninterrupted for the foreseeable future), (ii) the Common Stock is
listed for trading on a Principal Market (and the Company believes, in good
faith, that trading of the Common Stock on a Principal Market will continue
uninterrupted for the foreseeable future), (iii) there is a sufficient number of
authorized but unissued and otherwise unreserved shares of Common Stock for the
issuance of all of the shares issuable pursuant to the Transaction Documents,
including the shares to be issued for interest in lieu of cash and (iv) such
issuance would be permitted to the extent it would not violate the limitations
set forth in clauses (A) or (B) of Section 4(a)(ii). Subject to the terms and
conditions herein, the decision whether to pay interest hereunder in shares of
Common Stock or cash shall be at the discretion of the Company. Not less than 20
Trading Days prior to each Interest Payment Date, the Company shall provide the
Holder with written notice of its election to pay interest hereunder either in
cash or shares of Common Stock (the Company may indicate in such notice that the
election contained in such notice shall continue for later periods until
revised). Subject to the aforementioned conditions, failure to timely provide
such written notice shall be deemed an election by the Company to pay the
interest on such Interest Payment Date in cash. Interest shall be calculated on
the basis of a 360-day year and shall accrue daily commencing on the Original
Issue Date until payment in full of the principal sum, together with all accrued
and unpaid interest and other amounts which may become due hereunder, has been
made. Payment of interest in shares of Common Stock shall otherwise occur
pursuant to Section 4(b) and for purposes of the payment of interest in shares
only, the Interest Payment Date shall be deemed the Conversion Date. Interest
shall cease to accrue with respect to any principal amount converted, provided
that the Company in fact delivers the Underlying Shares within the time period
required by Section 4(b)(i). Interest hereunder will be paid to the Person in
whose name this Debenture is registered on the records of the Company regarding
registration and transfers of Debentures (the "DEBENTURE REGISTER"). Except as
otherwise provided herein, if at anytime the Company pays interest partially in
cash and partially in shares of Common Stock, then such payment shall be
distributed ratably among the Holders based upon the principal amount of
Debentures held by each Holder. All overdue accrued and unpaid interest to be
paid hereunder shall entail a late fee at the rate of 12% per annum (or such
lower maximum amount of interest permitted to be charged under applicable law)
("LATE FEE") which will accrue daily, from the date such interest is due
hereunder through and including the date of payment. EXCEPT AS SET FORTH IN
SECTION 5(A) OF THIS DEBENTURE, THE COMPANY MAY NOT PREPAY ANY PORTION OF THE
PRINCIPAL AMOUNT ON THIS DEBENTURE WITHOUT THE PRIOR WRITTEN CONSENT OF THE
HOLDER.
This Debenture is subject to the following additional provisions:
SECTION 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same. No service charge will be made
for such registration of transfer or exchange.
2
SECTION 2. This Debenture has been issued subject to certain investment
representations of the original Holder set forth in the Purchase Agreement and
may be transferred or exchanged only in compliance with the Purchase Agreement
and applicable federal and state securities laws and regulations. The Holder
hereof, by acceptance of this Debenture, agrees to be bound by the covenants
made by the original Holder contained in the Purchase Agreement. Prior to due
presentment to the Company for transfer of this Debenture, the Company and any
agent of the Company may treat the Person in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture is overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
SECTION 3. EVENTS OF DEFAULT.
(a) "EVENT OF DEFAULT", wherever used herein, means any one of
the following events (whatever the reason and whether it shall be
voluntary or involuntary or effected by operation of law or pursuant to
any judgment, decree or order of any court, or any order, rule or
regulation of any administrative or governmental body):
(i) any default in the payment of the principal of,
interest on or liquidated damages in respect of, any
Debentures, free of any claim of subordination, as and when
the same shall become due and payable (whether on a Conversion
Date or the Maturity Date or by acceleration or otherwise)
which default is not cured, if possible to cure, within 3 days
of notice of such default sent by the Holder;
(ii) the Company shall fail to observe or perform any
other covenant, agreement or warranty contained in, or
otherwise commit any breach of any of the Transaction
Documents (other than a breach by the Company of its
obligations to deliver shares of Common Stock to the Holder
upon conversion or interest payment which breach is addressed
in clause (x) below) which is not cured, if possible to cure,
within 5 days of notice of such default sent by the Holder
(except with respect to breaches pursuant to Sections 4.1, 4.8
and 4.9 of the Purchase Agreement and Section 3(a) of the
Warrant);
(iii) the Company or any of its subsidiaries shall
commence, or there shall be commenced against the Company or
any such subsidiary a case under any applicable bankruptcy or
insolvency laws as now or hereafter in effect or any successor
thereto, or the Company commences any other proceeding under
any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law
of any jurisdiction whether now or hereafter in effect
relating to the Company or any subsidiary thereof or there is
commenced against the Company or any subsidiary thereof any
such bankruptcy, insolvency or other proceeding which remains
3
undismissed for a period of 60 days; or the Company or any
subsidiary thereof is adjudicated insolvent or bankrupt; or
any order of relief or other order approving any such case or
proceeding is entered; or the Company or any subsidiary
thereof suffers any appointment of any custodian or the like
for it or any substantial part of its property which continues
undischarged or unstayed for a period of 60 days; or the
Company or any subsidiary thereof makes a general assignment
for the benefit of creditors; or the Company shall fail to
pay, or shall state that it is unable to pay, or shall be
unable to pay, its debts generally as they become due; or the
Company or any subsidiary thereof shall call a meeting of its
creditors with a view to arranging a composition, adjustment
or restructuring of its debts; or the Company or any
subsidiary thereof shall by any act or failure to act
expressly indicate its consent to, approval of or acquiescence
in any of the foregoing; or any corporate or other action is
taken by the Company or any subsidiary thereof for the purpose
of effecting any of the foregoing;
(iv) the Company shall default in any of its
obligations under any other Debenture or any mortgage, credit
agreement or other facility, indenture agreement, factoring
agreement or other instrument under which there may be issued,
or by which there may be secured or evidenced any indebtedness
for borrowed money or money due under any long term leasing or
factoring arrangement of the Company in an amount exceeding
$150,000, whether such indebtedness now exists or shall
hereafter be created and such default shall result in such
indebtedness becoming or being declared due and payable prior
to the date on which it would otherwise become due and
payable;
(v) the Common Stock shall not be eligible for
quotation on or quoted for trading on the Nasdaq SmallCap
Market, New York Stock Exchange, American Stock Exchange or
the Nasdaq National Market (each, a "PRINCIPAL MARKET") and
shall not again be eligible for and quoted or listed for
trading thereon within five Trading Days;
(vi) the Company shall be a party to any Change of
Control Transaction , shall agree to sell or dispose of all or
in excess of 45% of its assets in one or more transactions
(whether or not such sale would constitute a Change of Control
Transaction) or shall redeem or repurchase more than a de
minimis number of its outstanding shares of Common Stock or
other equity securities of the Company (other than redemptions
of Underlying Shares);
(vii) an Underlying Shares Registration Statement
shall not have been declared effective by the Commission on or
prior to the 180th calendar day after the Original Issue Date;
4
(viii) if, during the Effectiveness Period (as
defined in the Registration Rights Agreement), the
effectiveness of the Underlying Shares Registration Statement
lapses for any reason or the Holder shall not be permitted to
resell Registrable Securities (as defined in the Registration
Rights Agreement) under the Underlying Shares Registration
Statement, in either case, for more than 10 consecutive
Trading Days or 20 non-consecutive Trading Days during any 12
month period;
(ix) an Event (as defined in the Registration Rights
Agreement) shall not have been cured to the reasonable
satisfaction of the Holder prior to the expiration of thirty
days from the Event Date (as defined in the Registration
Rights Agreement) relating thereto (other than an Event
resulting from a failure of an Underlying Shares Registration
Statement to be declared effective by the Commission on or
prior to the Effectiveness Date (as defined in the
Registration Rights Agreement), which shall be covered by
Section 3(a)(vii));
(x) the Company shall fail for any reason to deliver
certificates to a Holder prior to the fifth Trading Day after
a Conversion Date pursuant to and in accordance with Section
4(b) or the Company shall provide notice to the Holder,
including by way of public announcement, at any time, of its
intention not to comply with requests for conversions of any
Debentures in accordance with the terms hereof; or
(xi) the Company shall fail for any reason to deliver
the payment in cash pursuant to a Buy-In (as defined herein)
within five days after notice thereof is delivered hereunder.
(b) If any Event of Default occurs and is continuing, the full
principal amount of this Debenture, together with interest and other
amounts owing in respect thereof, to the date of acceleration shall
become at the Holder's election, immediately due and payable in cash.
The aggregate amount payable upon an Event of Default shall be equal to
the Mandatory Prepayment Amount. Interest shall continue to accrue on
the Mandatory Prepayment Amount hereunder from the 5th day after such
amount is due (being the date of an Event of Default) through the date
of prepayment in full thereof in an amount equal to the Late Fee, to
accrue daily from the date such payment is due hereunder through and
including the date of payment. All Debentures for which the full
prepayment price hereunder shall have been paid in accordance herewith
shall promptly be surrendered to or as directed by the Company. The
Holder need not provide and the Company hereby waives any presentment,
demand, protest or other notice of any kind, and the Holder may
immediately and without expiration of any grace period enforce any and
all of its rights and remedies hereunder and all other remedies
available to it under applicable law. Such declaration may be rescinded
and annulled by Holder at any time prior to payment hereunder and the
Holder shall have all rights as a Debenture holder until such time, if
any, as the full payment under this Section shall have been received by
it. No such rescission or annulment shall affect any subsequent Event
of Default or impair any right consequent thereon.
5
SECTION 4. CONVERSION.
(a) (i) At any time after the Closing Date, this Debenture
shall be convertible into shares of Common Stock at the option
of the Holder, in whole or in part at any time and from time
to time (subject to the limitations on conversion set forth in
Section 4(a)(ii) hereof). The Holder shall effect conversions
by delivering to the Company the form of conversion notice
attached hereto as ANNEX A (a "CONVERSION NOTICE"), specifying
therein the principal amount of Debentures to be converted and
the date on which such conversion is to be effected (a
"CONVERSION DATE") and shall contain a completed schedule in
the form of SCHEDULE 1 to the Conversion Notice (as amended on
each Conversion Date, the "CONVERSION SCHEDULE") reflecting
the remaining principal amount of this Debenture and all
accrued and unpaid interest thereon subsequent to the
conversion at issue. If no Conversion Date is specified in a
Conversion Notice, the Conversion Date shall be the date that
such Conversion Notice is provided hereunder. To effect
conversions hereunder, the Holder shall not be required to
physically surrender Debentures to the Company unless the
entire principal amount of this Debenture has been so
converted. Conversions hereunder shall have the effect of
lowering the outstanding principal amount of this Debenture
plus all accrued and unpaid interest thereon in an amount
equal to the applicable conversion, which shall be evidenced
by entries set forth in the Conversion Schedule. The Holder
and the Company shall maintain records showing the principal
amount converted and the date of such conversions. The Company
shall deliver any objection to the figures represented in the
Conversion Schedules within 1 Business Day of receipt of such
notice. In the event of any dispute or discrepancy, the
records of the Holder shall be controlling and determinative
in the absence of manifest error. The Holder and any assignee,
by acceptance of this Debenture, acknowledge and agree that,
by reason of the provisions of this paragraph, following
conversion of a portion of this Debenture, the unpaid and
unconverted principal amount of this Debenture may be less
than the amount stated on the face hereof.
(ii) CERTAIN CONVERSION RESTRICTIONS.
(A) A Holder may not convert Debentures or
receive shares of Common Stock as payment of interest
hereunder to the extent such conversion or receipt of
such interest payment would result in the Holder,
together with its Affiliates, beneficially owning (as
determined in accordance with Section 13(d) of the
Exchange Act and the rules promulgated thereunder) in
excess of 4.999% of the then issued and outstanding
shares of Common Stock, including shares issuable
upon conversion of, and payment of interest on, the
Debentures held by such Holder after application of
this Section. The Holder shall be entitled to rely on
the Company's public filing with respect to the
6
number of shares of Common Stock which are then
issued and outstanding, and the Holder may inquire of
the Company's Chief Financial Officer to obtain a
more current number, which shall be provided within 2
Business Days of written request therefor. To ensure
compliance with this restriction, the Holder will be
deemed to represent to the Company each time it
delivers a Conversion Notice that such Conversion
Notice has not violated the restrictions set forth in
this paragraph. If the Holder has delivered a
Conversion Notice for a principal amount of
Debentures that, without regard to any other shares
that the Holder or its Affiliates may beneficially
own, would result in the issuance in excess of the
permitted amount hereunder, the Company shall notify
the Holder of this fact and shall honor the
conversion for the maximum principal amount permitted
to be converted on such Conversion Date in accordance
with the periods described in Section 4(b) and, at
the option of the Holder, either retain any principal
amount tendered for conversion in excess of the
permitted amount hereunder for future conversions or
return such excess principal amount to the Holder. In
the event of a merger or consolidation of the Company
with or into another Person, this paragraph shall not
apply with respect to a determination of the number
of shares of common stock issuable upon conversion in
full of the Debentures if such determination is
necessary to establish the Securities or other assets
which the holder of Common Stock shall be entitled to
receive upon the effectiveness of such merger or
consolidation. The provisions of this Section
4(a)(ii)(A) may be waived by the Holder at the
election of the Holder upon not less than 61 days'
prior notice to the Company, and the provisions of
this Section 4(a)(ii)(A) shall continue to apply
until such 61st day (or such later date, as
determined by the Holder, as may be specified in such
notice of waiver). No conversion of this Debenture in
violation of this Section 4(a)(ii)(A) but otherwise
in accordance with this Debenture shall affect the
status of the Underlying Shares as validly issued,
fully-paid and nonassessable.
(B) If the Company has not obtained
Shareholder Approval (as defined below), if required
by the applicable rules and regulations of the
Principal Market (or any successor entity), then the
Company may not issue upon conversion of the
Debentures, in the aggregate, in excess of (i)
19.999% of the number of shares of Common Stock
outstanding on the Trading Day immediately preceding
the Original Issue Date, (ii) less any shares of
Common Stock issued as payment of interest or to be
issued upon exercise of the Warrants issued to
Holders of the Debentures on the Original Issue Date
pursuant to the Purchase Agreement (such number of
shares, the "ISSUABLE MAXIMUM"). Each Holder shall be
entitled to a portion of the Issuable Maximum equal
to the quotient obtained by dividing (x) the
aggregate principal amount of the Debenture(s) issued
and sold to such Holder on the Original Issue Date by
7
(y) the aggregate principal amount of all Debentures
issued and sold by the Company on the Original Issue
Date. If any Holder shall no longer hold Debentures,
then such Holder's remaining portion of the Issuable
Maximum shall be allocated pro-rata among the
remaining Holders. If on any Conversion Date: (A) the
applicable Set Price then in effect is such that the
shares issuable under this Debenture on any
Conversion Date together with the aggregate number of
shares of Common Stock that would then be issuable
upon conversion in full of all then outstanding
Debentures would exceed the Issuable Maximum, and (B)
the Company shall not have obtained Shareholder
Approval, then the Company shall issue to the Holder
requesting a conversion a number of shares of Common
Stock equal to such Holder's pro-rata portion (which
shall be calculated pursuant to the terms hereof) of
the Issuable Maximum and, with respect to the
remainder of the aggregate principal amount of the
Debentures (including any accrued interest) then held
by such Holder for which a conversion in accordance
with the applicable conversion price would result in
an issuance of shares of Common Stock in excess of
such Holder's pro-rata portion (which shall be
calculated pursuant to the terms hereof) of the
Issuable Maximum (the "EXCESS PRINCIPAL"), the
Company shall be prohibited from converting such
Excess Principal, and shall notify the Holder of the
reason therefor. This Debenture shall thereafter be
unconvertible until and unless Shareholder Approval
is subsequently obtained or is otherwise not
required, but this Debenture shall otherwise remain
in full force and effect. The Company and the Holder
understand and agree that shares of Common Stock
issued to and then held by the Holder as a result of
conversions of Debentures shall not be entitled to
cast votes on any resolution to obtain Shareholder
Approval pursuant hereto. For clarity, the failure of
the Company to actually obtain Shareholder Approval
shall not be a breach of covenant or Event of Default
under Section 3 of this Debenture, provided, that any
issuance of securities which results in an adjustment
to the Set Price (other than pursuant to Section
4(c)(ii)) without the Company having previously
sought and voted on Shareholder Approval as set forth
in the Purchase Agreement shall be a breach of
covenant in the Purchase Agreement and an Event of
Default under Section 3(a)(ii).
(iii) UNDERLYING SHARES ISSUABLE UPON CONVERSION AND
PURSUANT TO INTEREST.
(A) CONVERSION OF PRINCIPAL AMOUNT. The
number of shares of Common Stock issuable upon a
conversion shall be determined by the quotient
obtained by dividing (x) the outstanding principal
amount of this Debenture to be converted and (y) the
Set Price, and
8
(B) PAYMENT OF INTEREST IN UNDERLYING
SHARES. The number of shares of Common Stock issuable
upon payment of interest under this Debenture shall
be the number determined by (x) the product of (I)
the outstanding principal amount of this Debenture to
be converted and (II) the product of (aa) the
quotient obtained by dividing 9% by 360 and (bb) the
number of days for which such principal amount was
outstanding, divided by (y) the applicable Interest
Conversion Rate, PROVIDED, that if the Company shall
have elected to pay the interest due on an Interest
Payment Date in cash pursuant to the terms hereof,
this subsection (B) shall not be used in the
calculation of the number of shares of Common Stock
issuable upon a conversion hereunder.
(C) Notwithstanding anything to the contrary
contained herein, if on any Conversion Date:
(1) the number of shares of Common
Stock at the time authorized, unissued and
unreserved for all purposes, or held as
treasury stock, is insufficient to honor
such conversion;
(2) the Common Stock shall fail to
be listed or quoted for trading on a
Principal Market; or
(3) the Company has failed to timely
satisfy its conversion obligations
hereunder.
and, with respect to such delivery, no prior
demand has been made by the Holder pursuant to
Section 4(b)(ii) or Section 4(b)(iii), then, at the
option of the Holder, the Company, in lieu of
delivering shares of Common Stock pursuant to this
Section 4, shall deliver, within five Trading Days of
each applicable Conversion Date, an amount in cash
equal to the product of the number of shares of
Common Stock otherwise deliverable to the Holder in
connection with such Conversion Date and the highest
VWAP during the period commencing on the Conversion
Date and ending on the Trading Day prior to the date
such payment is made.
(b) (i) Not later than five Trading Days after any Conversion
Date, the Company will deliver to the Holder (A) a certificate
or certificates for the Shares of Common Stock which shall be
free of restrictive legends and trading restrictions (other
than those required by the Purchase Agreement) representing
the number of shares of Common Stock being acquired upon the
conversion of Debentures and (B) a bank check in the amount of
accrued and unpaid interest (if the Company has timely elected
or is required to pay accrued interest in cash). The Company
shall, upon request of the Holder, if available and if allowed
9
under applicable securities laws, use its best efforts to
deliver any certificate or certificates required to be
delivered by the Company under this Section electronically
through the Depository Trust Corporation or another
established clearing corporation performing similar functions.
If in the case of any Conversion Notice such certificate or
certificates are not delivered to or as directed by the
applicable Holder by the fifth Trading Day after a Conversion
Date, the Holder shall be entitled by written notice to the
Company at any time on or before its receipt of such
certificate or certificates thereafter, to rescind such
conversion, in which event the Company shall immediately
return the certificates representing the principal amount of
Debentures tendered for conversion.
(ii) If the Company fails for any reason to deliver to the
Holder such certificate or certificates pursuant to Section
4(b)(i) by the fifth Trading Day after the Conversion Date,
and, with respect to such delivery, no prior demand has been
made by the Holder pursuant to Section 4(a)(iii)(C) or Section
4(b)(iii) the Company shall pay to such Holder, in cash, as
liquidated damages and not as a penalty, for each $5,000 of
principal amount being converted, $50 per Trading Day
(increasing to $100 per Trading Day after 3 Trading Days and
increasing to $200 per Trading Day 6 Trading Days after such
damages begin to accrue) for each Trading Day after such fifth
Trading Day until such certificates are delivered. Nothing
herein shall limit a Holder's right to pursue actual damages
or declare an Event of Default pursuant to Section 3 herein
for the Company's failure to deliver certificates representing
shares of Common Stock upon conversion within the period
specified herein and such Holder shall have the right to
pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific
performance and/or injunctive relief. The exercise of any such
rights shall not prohibit the Holders from seeking to enforce
damages pursuant to any other Section hereof or under
applicable law.
(iii) In addition to any other rights available to the Holder,
if the Company fails for any reason to deliver to the Holder
such certificate or certificates pursuant to Section 4(b)(i)
by the fifth Trading Day after the Conversion Date, and with
respect to such delivery, no prior demand has been made by the
Holder pursuant to Section 4(a)(iii)(C) or Section 4(b)(ii),
if after such fifth Trading Day the Holder is required by its
brokerage firm to purchase (in an open market transaction or
otherwise) Common Stock to deliver in satisfaction of a sale
by such Holder of the Underlying Shares which the Holder
anticipated receiving upon such conversion (a "BUY-IN"), then
the Company shall (A) pay in cash to the Holder (in addition
to any remedies available to or elected by the Holder) the
amount by which (x) the Holder's total purchase price
(including brokerage commissions, if any) for the Common Stock
10
so purchased exceeds (y) the product of (1) the aggregate
number of shares of Common Stock that such Holder anticipated
receiving from the conversion at issue multiplied by (2) the
actual sale price of the Common Stock at the time of the sale
(including brokerage commissions, if any) giving rise to such
purchase obligation and (B) at the option of the Holder,
either reissue Debentures in principal amount equal to the
principal amount of the attempted conversion or deliver to the
Holder the number of shares of Common Stock that would have
been issued had the Company timely complied with its delivery
requirements under Section 4(b)(i). For example, if the Holder
purchases Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted
conversion of Debentures with respect to which the actual sale
price of the Underlying Shares at the time of the sale
(including brokerage commissions, if any) giving rise to such
purchase obligation was a total of $10,000 under clause (A) of
the immediately preceding sentence, the Company shall be
required to pay the Holder $1,000. The Holder shall provide
the Company written notice indicating the amounts payable to
the Holder in respect of the Buy-In. Notwithstanding anything
contained herein to the contrary, if a Holder requires the
Company to make payment in respect of a Buy-In for the failure
to timely deliver certificates hereunder and the Company
timely pays in full such payment, the Company shall not be
required to pay such Holder liquidated damages under Section
4(b)(ii) in respect of the certificates resulting in such
Buy-In.
(iv) Notwithstanding anything herein to the contrary, if after
the Effective Date the VWAP for any 15 consecutive Trading
Days exceeds then Set Price by more than 200%, the Company
may, within 2 Trading Days of any such period, deliver a
notice to the Holder (a "FORCED CONVERSION NOTICE" and the
date such notice is received by the Holder, the "FORCED
CONVERSION NOTICE Date") to cause the Holder to immediately
convert all or part (and if part, pro-rata in proportion to
each Holders initial purchase of the Debentures) of the then
outstanding principal amount of Debentures pursuant to Section
4(a)(i). The Company may only effect a Forced Conversion
Notice if each of the following shall be true: (i) the Company
shall have duly honored all conversions occurring by virtue of
one or more Conversion Notices prior to the Forced Conversion
Date, (ii) there is an effective Underlying Shares
Registration Statement pursuant to which the Holder is
permitted to utilize the prospectus thereunder to resell all
of the Underlying Shares issued to the Holder and all of the
Underlying Shares as are issuable to the Holder upon
conversion in full of this Debenture subject to the Forced
Conversion Notice (and the Company believes, in good faith,
that such effectiveness will continue uninterrupted for the
foreseeable future), (iii) the Common Stock is listed for
trading on a Principal Market (and the Company believes, in
good faith, that trading of the Common Stock on a Principal
Market will continue uninterrupted for the foreseeable
future), (iv) all liquidated damages and other amounts owing
in respect of the Debentures and Underlying Shares shall have
been paid or will, concurrently with the issuance of the
Underlying Shares, be paid in cash; (v) there is a sufficient
number of authorized but unissued and otherwise unreserved
shares of Common Stock for the issuance of all the Underlying
Shares as are issuable to the Holder upon conversion in full
of the Debentures subject to the Forced Conversion Notice;
11
(vi) no Event of Default nor any event that with the passage
of time would constitute an Event of Default has occurred and
is continuing; (vii) such issuance would be permitted in full
without violating the limitations set forth in clauses (A) or
(B) of Section 4(a)(ii) and (viii) no public announcement of a
pending or proposed Change of Control Transaction or
Fundamental Transaction has occurred that has not been
consummated.
(c) (i) The conversion price in effect on any Conversion Date
shall be equal to $____(1) (subject to adjustment herein)(the
"SET PRICE").
(ii) If the Company, at any time while the Debentures are
outstanding: (A) shall pay a stock dividend or otherwise make
a distribution or distributions on shares of its Common Stock
or any other equity or equity equivalent securities payable in
shares of Common Stock (which, for avoidance of doubt, shall
not include any shares of Common Stock issued by the Company
pursuant to this Debenture, including interest thereon), (B)
subdivide outstanding shares of Common Stock into a larger
number of shares, (C) combine (including by way of reverse
stock split) outstanding shares of Common Stock into a smaller
number of shares, or (D) issue by reclassification of shares
of the Common Stock any shares of capital stock of the
Company, then the Set Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding before
such event and of which the denominator shall be the number of
shares of Common Stock outstanding after such event. Any
adjustment made pursuant to this Section shall become
effective immediately after the record date for the
determination of stockholders entitled to receive such
dividend or distribution and shall become effective
immediately after the effective date in the case of a
subdivision, combination or re-classification.
(iii) If the Company, at any time while Debentures are
outstanding, shall issue rights, options or warrants to all
holders of Common Stock (and not to Holders) entitling them to
subscribe for or purchase shares of Common Stock or Common
Stock Equivalents at a price per share less than the VWAP at
the record date mentioned below, then the Set Price shall be
adjusted by multiplying the Set Price in effect immediately
prior to such record date by a fraction, of which the
denominator shall be the number of shares of the Common Stock
(excluding treasury shares, if any) outstanding on the date of
issuance of such rights or warrants plus the number of
additional shares of Common Stock offered for subscription or
purchase, and of which the numerator shall be the number of
shares of the Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such rights or warrants
plus the number of shares which the aggregate offering price
of the total number of shares so offered would purchase at the
VWAP on the record date. Such adjustment shall be made
whenever such rights, options or warrants are issued, and
shall become effective immediately after the record date for
the determination of stockholders entitled to receive such
rights, options or warrants.
--------
(1) 115% of the Closing Price on the applicable Closing Date.
12
(iv) If the Company or any subsidiary thereof, as applicable,
at any time while Debentures are outstanding, shall offer,
sell, grant any option to purchase or offer, sell or grant any
right to reprice its securities, or otherwise dispose of or
issue (or announce any offer, sale, grant or any option to
purchase or other disposition) any Common Stock or any equity
or equity equivalent securities (including any equity, debt or
other instrument that is at any time over the life thereof
convertible into or exchangeable for Common Stock)
(collectively, "COMMON STOCK EQUIVALENTS") entitling any
Person to acquire shares of Common Stock, at an effective
price per share less than 87% of the then Set Price ("DILUTIVE
ISSUANCE"), as adjusted hereunder (if the holder of the Common
Stock or Common Stock Equivalent so issued shall at any time,
whether by operation of purchase price adjustments, reset
provisions, floating conversion, exercise or exchange prices
or otherwise, or due to warrants, options or rights per share
which is issued in connection with such issuance, be entitled
to receive shares of Common Stock at an effective price per
share which is less than the Set Price, such issuance shall be
deemed to have occurred for less than the Set Price), then the
Set Price shall be reduced to equal 115% of the effective
conversion, exchange or purchase price for such Common Stock
or Common Stock Equivalents (including any reset provisions
thereof) at issue. Such adjustment shall be made whenever such
Common Stock or Common Stock Equivalents are issued. The
Company shall notify the Holder in writing, no later than the
Business Day following the issuance of any Common Stock or
Common Stock Equivalent subject to this section, indicating
therein the applicable issuance price, or of applicable reset
price, exchange price, conversion price and other pricing
terms.
(v) If the Company, at any time while Debentures are
outstanding, shall distribute to all holders of Common Stock
(and not to Holders) evidences of its indebtedness or assets
or rights or warrants to subscribe for or purchase any
security, then in each such case the Set Price shall be
determined by multiplying such price in effect immediately
prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the VWAP determined
as of the record date mentioned above, and of which the
numerator shall be such VWAP on such record date less the then
fair market value at such record date of the portion of such
assets or evidence of indebtedness so distributed applicable
to one outstanding share of the Common Stock as determined by
the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the
Holders of the portion of assets or evidences of indebtedness
so distributed or such subscription rights applicable to one
share of Common Stock. Such adjustment shall be made whenever
any such distribution is made and shall become effective
immediately after the record date mentioned above.
13
(vi) [RESERVED]
(vii) All calculations under this Section 4 shall be made to
the nearest cent or the nearest 1/100th of a share, as the
case may be. For purposes of this Section 4, the number of
shares of Common Stock deemed to be outstanding as of a given
date shall be the sum of the number of shares of Common Stock
(excluding treasury shares, if any) outstanding.
(viii) The Company agrees that it is prohibited from taking
any actions specified in Sections 4(c)(iii)-(v) which would
result in any adjustment to the Set Price prior to submitting
the transactions contemplated by the Purchase Agreement to a
vote for Shareholder Approval. Whenever the Set Price is
adjusted pursuant to any of Section 4(c)(ii) - (v), the
Company shall promptly mail to each Holder a notice setting
forth the Set Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment.
(ix) If (A) the Company shall declare a dividend (or any other
distribution) on the Common Stock; (B) the Company shall
declare a special nonrecurring cash dividend on or a
redemption of the Common Stock; (C) the Company shall
authorize the granting to all holders of the Common Stock
rights or warrants to subscribe for or purchase any shares of
capital stock of any class or of any rights; (D) the approval
of any stockholders of the Company shall be required in
connection with any reclassification of the Common Stock, any
consolidation or merger to which the Company is a party, any
sale or transfer of all or substantially all of the assets of
the Company, of any compulsory share exchange whereby the
Common Stock is converted into other securities, cash or
property; (E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the
affairs of the Company; then, in each case, the Company shall
cause to be filed at each office or agency maintained for the
purpose of conversion of the Debentures, and shall cause to be
mailed to the Holders at their last addresses as they shall
appear upon the stock books of the Company, at least 20
calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which
a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record
is not to be taken, the date as of which the holders of the
Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is
expected to become effective or close, and the date as of
which it is expected that holders of the Common Stock of
record shall be entitled to exchange their shares of the
Common Stock for securities, cash or other property
14
deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; PROVIDED, that the failure
to mail such notice or any defect therein or in the mailing
thereof shall not affect the validity of the corporate action
required to be specified in such notice. Holders are entitled
to convert Debentures during the 20-day period commencing the
date of such notice to the effective date of the event
triggering such notice.
(x) If, at any time while this Debenture is outstanding, (A)
the Company effects any merger or consolidation of the Company
with or into another Person, (B) the Company effects any sale
of all or substantially all of its assets in one or a series
of related transactions, (C) any tender offer or exchange
offer (whether by the Company or another Person) is completed
pursuant to which holders of Common Stock are permitted to
tender or exchange their shares for other securities, cash or
property, or (D) the Company effects any reclassification of
the Common Stock or any compulsory share exchange pursuant to
which the Common Stock is effectively converted into or
exchanged for other securities, cash or property (in any such
case, a "FUNDAMENTAL TRANSACTION"), then upon any subsequent
conversion of this Debenture, the Holder shall have the right
to receive, for each Underlying Share that would have been
issuable upon such conversion absent such Fundamental
Transaction, the same kind and amount of securities, cash or
property as it would have been entitled to receive upon the
occurrence of such Fundamental Transaction if it had been,
immediately prior to such Fundamental Transaction, the holder
of one share of Common Stock (the "ALTERNATE CONSIDERATION").
For purposes of any such conversion, the determination of the
Set Price shall be appropriately adjusted to apply to such
Alternate Consideration based on the amount of Alternate
Consideration issuable in respect of one share of Common Stock
in such Fundamental Transaction, and the Company shall
apportion the Set Price among the Alternate Consideration in a
reasonable manner reflecting the relative value of any
different components of the Alternate Consideration. If
holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as
to the Alternate Consideration it receives upon any conversion
of this Debenture following such Fundamental Transaction. To
the extent necessary to effectuate the foregoing provisions,
any successor to the Company or surviving entity in such
Fundamental Transaction shall issue to the Holder a new
Debenture consistent with the foregoing provisions and
evidencing the Holder's right to convert such Debenture into
Alternate Consideration. The terms of any agreement pursuant
to which a Fundamental Transaction is effected shall include
terms requiring any such successor or surviving entity to
comply with the provisions of this paragraph (c) and insuring
that this Debenture (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous
to a Fundamental Transaction. If any Fundamental Transaction
constitutes or results in a Change of Control Transaction,
then at the request of the Holder delivered before the 90th
15
day after such Fundamental Transaction, the Company (or any
such successor or surviving entity) will purchase the
Debenture from the Holder for a purchase price, payable in
cash within five Trading Days after such request (or, if
later, on the effective date of the Fundamental Transaction),
equal to the 100% of the remaining unconverted principal
amount of this Debenture on the date of such request, plus all
accrued and unpaid interest thereon, plus all other accrued
and unpaid amounts due hereunder.
(xi) Notwithstanding the foregoing, no adjustment will be made
under this paragraph (c) in respect of (A) the granting or
issuance of shares of capital stock or of options to
employees, officers, directors and consultants of the Company
pursuant to any stock option plan agreement or arrangement
duly adopted or approved by a majority of the non-employee
members of the Board of Directors of the Company or a majority
of the members of a committee of non-employee directors
established for such purpose, (B) upon the exercise of this
Debenture or any other Debenture of this series or of any
other series or security issued by the Company in connection
with the offer and sale of this Company's securities pursuant
to the Purchase Agreement, or (C) upon the exercise of or
conversion of any Convertible Securities, options or warrants
issued and outstanding on the Original Issue Date, provided
such securities have not been amended since the date of the
Purchase Agreement, or (D) issuance of securities in
connection with acquisitions, strategic investments, or
strategic partnering arrangements, the primary purpose of
which is not to raise capital.
(d) The Company covenants that it will at all times reserve
and keep available out of its authorized and unissued shares of Common
Stock solely for the purpose of issuance upon conversion of the
Debentures and payment of interest on the Debentures, each as herein
provided, free from preemptive rights or any other actual contingent
purchase rights of persons other than the Holders, not less than such
number of shares of the Common Stock as shall (subject to any
additional requirements of the Company as to reservation of such shares
set forth in the Purchase Agreement) be issuable (taking into account
the adjustments and restrictions of Section 4(b)) upon the conversion
of the outstanding principal amount of the Debentures and payment of
interest hereunder. The Company covenants that all shares of Common
Stock that shall be so issuable shall, upon issue, be duly and validly
authorized, issued and fully paid, nonassessable and, if the Underlying
Shares Registration Statement has been declared effective under the
Securities Act, registered for public sale in accordance with such
Underlying Shares Registration Statement.
(e) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares
of the Common Stock, but may if otherwise permitted, make a cash
payment in respect of any final fraction of a share based on the VWAP
at such time. If the Company elects not, or is unable, to make such a
cash payment, the Holder shall be entitled to receive, in lieu of the
final fraction of a share, one whole share of Common Stock.
16
(f) The issuance of certificates for shares of the Common
Stock on conversion of the Debentures shall be made without charge to
the Holders thereof for any documentary stamp or similar taxes that may
be payable in respect of the issue or delivery of such certificate,
provided that the Company shall not be required to pay any tax that may
be payable in respect of any transfer involved in the issuance and
delivery of any such certificate upon conversion in a name other than
that of the Holder of such Debentures so converted and the Company
shall not be required to issue or deliver such certificates unless or
until the person or persons requesting the issuance thereof shall have
paid to the Company the amount of such tax or shall have established to
the satisfaction of the Company that such tax has been paid.
(g) Any and all notices or other communications or deliveries
to be provided by the Holders hereunder, including, without limitation,
any Conversion Notice, shall be in writing and delivered personally, by
facsimile, sent by a nationally recognized overnight courier service or
sent by certified or registered mail, postage prepaid, addressed to the
Company, at the address set forth above, FACSIMILE NUMBER ___________,
ATTN: ____________ or such other address or facsimile number as the
Company may specify for such purposes by notice to the Holders
delivered in accordance with this Section. Any and all notices or other
communications or deliveries to be provided by the Company hereunder
shall be in writing and delivered personally, by facsimile, sent by a
nationally recognized overnight courier service or sent by certified or
registered mail, postage prepaid, addressed to each Holder at the
facsimile telephone number or address of such Holder appearing on the
books of the Company, or if no such facsimile telephone number or
address appears, at the principal place of business of the Holder. Any
notice or other communication or deliveries hereunder shall be deemed
given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 5:30 p.m.
(New York City time), (ii) the date after the date of transmission, if
such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section later than 5:30
p.m. (New York City time) on any date and earlier than 11:59 p.m. (New
York City time) on such date, (iii) four days after deposit in the
United States mail, (iv) the Business Day following the date of
mailing, if sent by nationally recognized overnight courier service, or
(v) upon actual receipt by the party to whom such notice is required to
be given.
SECTION 5. REDEMPTION.
(a) OPTIONAL REDEMPTION. Subject to the provisions of this
Section 5, the Company may, at any time, deliver a notice to the
Holders (an "OPTIONAL REDEMPTION NOTICE" and the date such notice is
deemed delivered hereunder, the "OPTIONAL REDEMPTION NOTICE DATE") of
17
its irrevocable election to redeem all, but not less than all, of the
then outstanding Debentures, for an amount, in cash, equal to the
Optional Redemption Amount on the 30th Trading Day following the
Optional Redemption Notice Date (such date, the "OPTIONAL REDEMPTION
DATE" and such redemption, the "OPTIONAL REDEMPTION"). The Optional
Redemption Amount is due in full on the Optional Redemption Date. The
Company may only effect an Optional Redemption if from the Optional
Redemption Notice Date through to the Optional Redemption Date, each of
the following shall be true: (i) the Company shall have duly honored
all conversions and redemptions scheduled to occur or occurring by
virtue of one or more Conversion Notices prior to the Optional
Redemption Date, (ii) there is an effective Underlying Shares
Registration Statement pursuant to which the Holders are permitted to
utilize the prospectus thereunder to resell all of the Underlying
Shares issued to the Holders and all of the Underlying Shares as are
issuable to the Holders upon conversion in full of the Debentures
subject to the Optional Redemption (and the Company believes, in good
faith, that such effectiveness will continue uninterrupted for the
foreseeable future), (iii) the Common Stock is listed for trading on
the Principal Market (and the Company believes, in good faith, that
trading of the Common Stock on the Principal Market will continue
uninterrupted for the foreseeable future), (iv) all liquidated damages
and other amounts owing in respect of the Debentures shall have been
paid or will, concurrently with the issuance of the Underlying Shares,
be paid in cash; (v) there is a sufficient number of authorized but
unissued and otherwise unreserved shares of Common Stock for the
issuance of all the Underlying Shares as are issuable to the Holder
upon conversion in full of the Debentures subject to the Optional
Redemption; (vi) no Event of Default has occurred and is continuing;
(vii) an issuance of all of the Underlying Share upon conversion
hereunder would be permitted in full without violating the limitations
set forth in Section 4(a)(ii)(A) or (B); and (viii) no public
announcement of a pending or proposed Fundamental Transaction or
acquisition transaction has occurred that has not been consummated. If
any of the foregoing conditions shall cease to be satisfied at any time
during the required period, then the Holder may elect to nullify the
Optional Redemption Notice in which case the Option Redemption Notice
shall be null and void, ab initio. The Holders may convert, pursuant to
Section 4(a)(i) hereof, any shares of Debentures subject to an Optional
Redemption at any time prior to the date that the Optional Redemption
Amount and all amounts owing thereon are due and paid in full. The
Company covenants and agrees that it will honor all Conversion Notices
tendered from the time of delivery of the Optional Redemption Notice
through the date all amounts owing thereon are due and paid in full.
(b) MONTHLY REDEMPTION. On each Monthly Redemption Date, the
Company shall redeem each Holder's Pro Rata Portion of the Monthly
Redemption Amount plus accrued but unpaid interest, the sum of all
liquidated damages and any other amounts then owing to such Holder in
respect of the Debenture. For purposes of this subsection 5(b) only,
"PRO RATA PORTION" is the ration of (x) the principal amount of this
Debenture on the Original Issue Date and (y) the sum of the aggregate
original principal amounts of the Debentures issued to all Holders on
the First Closing, increasing on the Second Closing Date to include the
18
aggregate original principal amounts of the Debentures issued at the
Second Closing, if such Closing occurs. If any Holder shall no longer
holds Debentures, then the Pro Rata Portion shall be recalculated to
exclude such Holder's principal amount from clause (y) above. Monthly
Redemption Amount shall be allocated pro-rata among the remaining
Holders. The Monthly Redemption Amount due on each Monthly Redemption
Date shall, except as provided in this Section, be paid in cash. As to
any Monthly Redemption and upon 20 Trading Days' prior written
irrevocable notice, in lieu of a cash redemption payment the Company
may elect to pay 100% of a Monthly Redemption in Underlying Shares
based on a conversion price equal to the lesser of (i) 90% of the
average of the 20 VWAPs immediately prior to the applicable Monthly
Redemption Date (subject to adjustment for any stock dividend, stock
split, stock combination or other similar event affecting the Common
Stock during such 20 Trading Day period) and (ii) the Set Price (the
"MONTHLY CONVERSION PRICE"); PROVIDED, HOWEVER, that the Company may
not pay the Monthly Redemption Amount in Underlying Shares unless, on
the Monthly Redemption Date and during the 20 Trading Day period
immediately prior thereto, (i) there is an effective Registration
Statement pursuant to which the Holder is permitted to utilize the
prospectus thereunder to resell all of the Underlying Shares issued to
the Holder and all of the Underlying Shares as are issuable to the
Holder upon conversion in full of the Debenture subject to such Monthly
Redemption (and the Company believes, in good faith, that such
effectiveness will continue uninterrupted for the foreseeable future),
(ii) the Common Stock is listed for trading on a Principal Market (and
the Company believes, in good faith, that trading of the Common Stock
on the Principal Market will continue uninterrupted for the foreseeable
future), (iii) on or prior to the 20th Trading Day prior to such
Monthly Redemption Date, the Company irrevocably notifies the Holder
that it will issue Underlying Shares in lieu of cash; (iv) all
liquidated damages and other amounts owing in respect of the Debenture
shall have been paid or will, concurrently with the issuance of the
Underlying Shares, be paid in cash; (v) there is a sufficient number of
authorized but unissued and otherwise unreserved shares of Common Stock
for such issuance; (vi) such issuance would be permitted in full
without violating the limitations set forth in Section 4(a)(ii)(A) or
(B); (vii) no Event of Default nor any event that with the passage of
time would constitute an Event of Default has occurred and is
continuing; and (viii) no public announcement of a pending or proposed
Change of Control Transaction or Fundamental Transaction has occurred
that has not been consummated. The Holders may convert, pursuant to
Section 4(a)(i), any principal amount of the Debenture subject to a
Monthly Redemption at any time prior to the date that the Monthly
Redemption Amount and all amounts owing thereon are due and paid in
full. The Company covenants and agrees that it will honor all
Conversion Notices tendered up until such amounts are paid in full.
(c) REDEMPTION PROCEDURE. The payment of cash and/or issuance
of Common Stock, as the case may be, pursuant to a Monthly Redemption
shall be made on the Monthly Redemption Date and the payment of cash
pursuant to an Optional Redemption shall be made on the Optional
Redemption Date. If any portion of the cash payment for a Monthly
Redemption or Optional Redemption shall not be paid by the Company by
the respective due date, interest shall accrue thereon at the rate of
19
18% per annum (or the maximum rate permitted by applicable law,
whichever is less) until the payment of the Monthly Redemption Amount
or Optional Redemption Amount, as applicable, plus all amounts owing
thereon is paid in full. In addition, if any portion of the Monthly
Redemption Amount or Optional Redemption Amount, as applicable, remains
unpaid after such date, the Holders subject to such redemption may
elect, by written notice to the Company given at any time thereafter,
to invalidate AB INITIO such redemption, notwithstanding anything
herein contained to the contrary. Notwithstanding anything to the
contrary in this Section 6, the Company's determination to redeem in
cash or shares of Common Stock shall be applied ratably among the
Holders based upon the principal amount of Debentures initially
purchased by each Holder, adjusted upward ratably in the event all of
the shares of Debentures of any Holder are no longer outstanding.
SECTION 6. DEFINITIONS. For the purposes hereof, in addition to the
terms defined elsewhere in this Debenture: (a) capitalized terms not otherwise
defined herein have the meanings given to such terms in the Purchase Agreement,
and (b) the following terms shall have the following meanings:
"BUSINESS DAY" means any day except Saturday, Sunday and any
day which shall be a federal legal holiday in the United States or a
day on which banking institutions in the State of New York are
authorized or required by law or other government action to close.
"CHANGE OF CONTROL TRANSACTION" means the occurrence after the
date hereof of any of (i) an acquisition after the date hereof by an
individual or legal entity or "group" (as described in Rule 13d-5(b)(1)
promulgated under the Exchange Act) of effective control (whether
through legal or beneficial ownership of capital stock of the Company,
by contract or otherwise) of in excess of 45% of the voting securities
of the Company, or (ii) a replacement at one time or within a one year
period of more than one-half of the members of the Company's board of
directors which is not approved by a majority of those individuals who
are members of the board of directors on the date hereof (or by those
individuals who are serving as members of the board of directors on any
date whose nomination to the board of directors was approved by a
majority of the members of the board of directors who are members on
the date hereof), or (iii) the execution by the Company of an agreement
to which the Company is a party or by which it is bound, providing for
any of the events set forth above in (i) or (ii).
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock, $0.0001 par value per
share, of the Company and stock of any other class into which such
shares may hereafter have been reclassified or changed.
20
"CONVERSION DATE" shall have the meaning set forth in Section
4(a)(i) hereof.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"INTEREST CONVERSION RATE" means 90% of the lesser of (i) the
average of the 20 VWAPs immediately prior to the applicable Interest
Payment Date or (ii) the average of the 20 VWAPs immediately prior to
the date the applicable interest payment shares are issued and
delivered if after the Interest Payment Date.
"LATE FEES" shall have the meaning set forth in the second
paragraph to this Debenture.
"MANDATORY PREPAYMENT AMOUNT" for any Debentures shall equal
the sum of (i) the greater of: (A) 120% of the principal amount of
Debentures to be prepaid, plus all accrued and unpaid interest thereon,
plus all other accrued and unpaid amounts due hereunder, or (B) the
principal amount of Debentures to be prepaid, plus all accrued and
unpaid interest thereon, plus all other accrued and unpaid amounts due
hereunder, divided by the Set Price on (x) the date the Mandatory
Prepayment Amount is demanded or otherwise due or (y) the date the
Mandatory Prepayment Amount is paid in full, whichever is less,
multiplied by the VWAP on (x) the date the Mandatory Prepayment Amount
is demanded or otherwise due or (y) the date the Mandatory Prepayment
Amount is paid in full, whichever is greater, and (ii) all other
amounts, costs, expenses and liquidated damages due in respect of such
Debentures.
"MONTHLY CONVERSION PRICE" shall have the meaning set forth in
Section 5(a) hereof.
"MONTHLY REDEMPTION" shall mean the redemption of the
Debenture pursuant to Section 5(a) hereof.
"MONTHLY REDEMPTION AMOUNT" shall mean, as to a Monthly
Redemption, $218,750 in the aggregate among all Holders; except that,
if the Second Closing occurs, such amount shall increase to $300,000 in
the aggregate among all Holders commencing on the later of (a) February
1, 2004 and (b) the 1st Monthly Redemption Date following the 5th month
anniversary of the Second Closing.
"MONTHLY REDEMPTION DATE" means the 1st of each month,
commencing on February 1, 2004 and ending upon the full redemption of
this Debenture.
"OPTIONAL REDEMPTION AMOUNT" shall mean the sum of (i) 110% of
the principal amount of the Debenture then outstanding, (ii) accrued
but unpaid interest and (iii) all liquidated damages and other amounts
due in respect of the Debentures.
"OPTIONAL REDEMPTION DATE" shall have the meaning set forth in
Section 5(a).
21
"ORIGINAL ISSUE DATE" shall mean the date of the first
issuance of the Debentures regardless of the number of transfers of any
Debenture and regardless of the number of instruments which may be
issued to evidence such Debenture.
"PERSON" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"PURCHASE AGREEMENT" means the Securities Purchase Agreement,
dated as of the Original Issue Date, to which the Company and the
original Holder are parties, as amended, modified or supplemented from
time to time in accordance with its terms.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of the Original Issue Date, to which the Company
and the original Holder are parties, as amended, modified or
supplemented from time to time in accordance with its terms.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"SET PRICE" shall have the meaning set forth in Section
4(c)(i).
"SHAREHOLDER APPROVAL" means such approval as may be required
by the applicable rules and regulations of the Principal Market (or any
successor entity) from the shareholders of the Company with respect to
the transactions contemplated by the Transaction Documents, including
the issuance of all of the Underlying Shares and shares of Common Stock
issuable upon exercise of the Warrants.
"TRADING DAY" means (a) a day on which the shares of Common
Stock are traded on the Principal Market on which the shares of Common
Stock are then listed or quoted, or (b) if the shares of Common Stock
are not quoted on a Principal Market, a day on which the shares of
Common Stock are 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); PROVIDED, that
in the event that the shares of Common Stock are not listed or quoted
as set forth in (a), (b) and (c) hereof, then Trading Day shall mean a
Business Day.
"TRANSACTION DOCUMENTS" shall have the meaning set forth in
the Purchase Agreement.
"UNDERLYING SHARES" means the shares of Common Stock issuable
upon conversion of Debentures or as payment of interest in accordance
with the terms hereof.
22
"UNDERLYING SHARES REGISTRATION STATEMENT" means a
registration statement meeting the requirements set forth in the
Registration Rights Agreement, covering among other things the resale
of the Underlying Shares and naming the Holder as a "selling
stockholder" thereunder.
"VWAP" means, for any date, the price determined by the first
of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Principal Market or the OTC Bulletin Board, the
daily volume weighted average price of the Common Stock for such date
(or the nearest preceding date) on the Principal Market (or OTC
Bulletin Board) on which the Common Stock is then listed or quoted as
reported by Bloomberg Financial L.P. (based on a Trading Day from 9:30
a.m. ET to 4:02 p.m. Eastern Time) using the VAP function; (b) if the
Common Stock is not then listed or quoted on a Principal Market or the
OTC Bulletin Board and if prices for the Common Stock are then reported
in the "pink sheets" published by the National Quotation Bureau
Incorporated (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share of
the Common Stock so reported; or (c) in all other cases, the fair
market value of a share of Common Stock as determined by a nationally
recognized independent appraiser selected in good faith by Purchasers
holding a majority of the outstanding principal amount of Debentures.
SECTION 7. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, interest and liquidated damages (if
any) on, this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture is a direct debt obligation of the
Company. This Debenture ranks PARI PASSU with all other Debentures now or
hereafter issued under the terms set forth herein. As long as there are
Debentures outstanding, the Company shall not and shall cause it subsidiaries
not to, without the consent of the Holders, (a) amend its certificate of
incorporation, bylaws or other charter documents so as to adversely affect any
rights of the Holders; (b) repay, repurchase or offer to repay, repurchase or
otherwise acquire shares of its Common Stock or other equity securities other
than as to the Underlying Shares to the extent permitted or required under the
Transaction Documents; (c) enter into any agreement with respect to any of the
foregoing; or (d) issue any variable priced equity securities or variable priced
equity linked securities.
SECTION 8. If this Debenture shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed Debenture, a new Debenture for the
principal amount of this Debenture so mutilated, lost, stolen or destroyed but
only upon receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
23
SECTION 9. The Company will not and will not permit any of its
subsidiaries to, directly or indirectly, enter into, create, incur, assume or
suffer to exist any indebtedness of any kind, on or with respect to any of its
property or assets now owned or hereafter acquired or any interest therein or
any income or profits therefrom that is senior in any respect to the Company's
obligations under the Debentures.
SECTION 10. All questions concerning the construction, validity,
enforcement and interpretation of this Debenture shall be governed by and
construed and enforced in accordance with the internal laws of the State of
California, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by any of the
Transaction Documents (whether brought against a party hereto or its respective
affiliates, directors, officers, shareholders, employees or agents) shall be
commenced in the state and federal courts sitting in the City of San Diego,
California (the "CALIFORNIA COURTS"). Each party hereto hereby irrevocably
submits to the exclusive jurisdiction of the California Courts for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, or such
California Courts are improper or inconvenient venue for such proceeding. Each
party hereby irrevocably waives personal service of process and consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
Debenture and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
Each party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Debenture or the transactions contemplated
hereby. If either party shall commence an action or proceeding to enforce any
provisions of this Debenture, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.
SECTION 11. Any waiver by the Company or the Holder of a breach of any
provision of this Debenture shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Debenture. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Debenture on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Debenture. Any waiver
must be in writing.
SECTION 12. If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder violates
24
applicable laws governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum permitted rate of interest.
The Company covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law or other law which
would prohibit or forgive the Company from paying all or any portion of the
principal of or interest on the Debentures as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Company (to the extent
it may lawfully do so) hereby expressly waives all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impeded the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no such law has
been enacted.
SECTION 13. Whenever any payment or other obligation hereunder shall be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day.
*********************
25
IN WITNESS WHEREOF, the Company has caused this Convertible Debenture
to be duly executed by a duly authorized officer as of the date first above
indicated.
SVI SOLUTIONS, INC.
By:_____________________________________
Name:
Title:
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal and, if specified, interest
under the 9% Convertible Debenture of SVI Solutions, Inc., (the "Company") due
on ________ __, 200__, into shares of common stock, $0.0001 par value per share
(the "Common Stock"), of the Company according to the conditions hereof, as of
the date written below. If shares are to be issued in the name of a person other
than the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Company in accordance therewith. No fee will be
charged to the holder for any conversion, except for such transfer taxes, if
any.
By the delivery of this Notice of Conversion the undersigned represents and
warrants to the Company that its ownership of the Company's Common Stock does
not exceed the amounts determined in accordance with Section 13(d) of the
Exchange Act, specified under Section 4 of this Debenture.
The undersigned agrees to comply with the prospectus delivery requirements under
the applicable securities laws in connection with any transfer of the aforesaid
shares of Common Stock.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Debentures to be Converted
Payment of Interest in Common Stock |_| Yes |_| No
If yes, $ _______ of Interest Accrued on
Account of Conversion at Issue
Number of shares of Common Stock to be Issued:
Applicable Conversion Price:
Signature:
Name:
Address:
SCHEDULE 1
CONVERSION SCHEDULE
9% Convertible Debentures due on _______ ___, 200__, in the aggregate principal
amount of $____________ issued by SVI Solutions, Inc. This Conversion Schedule
reflects conversions made under Section 4 of the above referenced Debenture.
Dated:
=============================== ========================= ======================= ==============================
Aggregate Principal
Amount Remaining
Date of Conversion Subsequent to
(or for first entry, Conversion
Original Issue Date) Amount of Conversion (or original Company Attest
Principal Amount)
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
=============================== ========================= ======================= ==============================
EXHIBIT C
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES
STOCK PURCHASE WARRANT
To Purchase __________ Shares of Common Stock of
SVI SOLUTIONS, INC.
THIS STOCK PURCHASE WARRANT CERTIFIES that, for value received,
_____________ (the "Holder"), is entitled, upon the terms and subject to the
limitations on exercise and the conditions hereinafter set forth, at any time on
or after _________ __, 200__ (the "INITIAL EXERCISE DATE") and on or prior to
the close of business on the fifth anniversary of the Initial Exercise Date (the
"TERMINATION DATE") but not thereafter, to subscribe for and purchase from SVI
Solutions, Inc., a corporation incorporated in the State of Delaware (the
"COMPANY"), up to ____________ shares (the "WARRANT SHARES") of Common Stock,
par value $0.0001 per share, of the Company (the "COMMON STOCK"). The purchase
price of one share of Common Stock (the "EXERCISE PRICE") under this Warrant
shall be $____(1), subject to adjustment hereunder. The Exercise Price and the
number of Warrant Shares for which the Warrant is exercisable shall be subject
to adjustment as provided herein. CAPITALIZED TERMS USED AND NOT OTHERWISE
DEFINED HEREIN SHALL HAVE THE MEANINGS SET FORTH IN THAT CERTAIN SECURITIES
PURCHASE AGREEMENT (THE "PURCHASE AGREEMENT"), DATED MARCH __, 2003, BETWEEN THE
COMPANY AND THE INVESTORS SIGNATORY THERETO.
----------
(1) 115% of the Closing Price on the applicable Closing Date.
1
1. TITLE TO WARRANT. Prior to the Termination Date and subject to
compliance with applicable laws and Section 7 of this Warrant, this Warrant and
all rights hereunder are transferable, in whole or in part to an Affiliate of
the Holder, at the office or agency of the Company by the Holder in person or by
duly authorized attorney, upon surrender of this Warrant together with the
Assignment Form annexed hereto properly endorsed. The transferee shall sign an
investment letter in form and substance reasonably satisfactory to the Company.
The Holder hereof, by acceptance of this Warrant, agrees to be bound by the
covenants made by the original Holder contained in the Purchase Agreement.
2. AUTHORIZATION OF SHARES. The Company covenants that all Warrant
Shares which may be issued upon the exercise of the purchase rights represented
by this Warrant will, upon exercise of the purchase rights represented by this
Warrant, be duly authorized, validly issued, fully paid and nonassessable and
free from all taxes, liens and charges in respect of the issue thereof (other
than taxes in respect of any transfer occurring contemporaneously with such
issue).
3. EXERCISE OF WARRANT.
(a) Except as provided in Section 4 herein, exercise of the
purchase rights represented by this Warrant may be made at any time or
times on or after the Initial Exercise Date and on or before the
Termination Date by the surrender of this Warrant and the Notice of
Exercise Form annexed hereto duly executed, at the office of the
Company (or such other office or agency of the Company as it may
designate by notice in writing to the registered Holder at the address
of such Holder appearing on the books of the Company) and upon payment
of the Exercise Price of the shares thereby purchased by wire transfer
or cashier's check drawn on a United States bank or by means of a
cashless exercise pursuant to Section 3(d), the Holder shall be
entitled to receive a certificate for the number of Warrant Shares so
purchased. Certificates for shares purchased hereunder shall be
delivered to the Holder within five (3) Trading Days after the date on
which this Warrant shall have been exercised as aforesaid. This Warrant
shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and Holder or any
other person so designated to be named therein shall be deemed to have
become a holder of record of such shares for all purposes, as of the
date the Warrant has been exercised by payment to the Company of the
Exercise Price and all taxes required to be paid by the Holder, if any,
pursuant to Section 5 prior to the issuance of such shares, have been
paid. If the Company fails to deliver to the Holder a certificate or
certificates representing the Warrant Shares pursuant to this Section
3(a) by the fifth Trading Day after the date of exercise, then the
Holder will have the right to rescind such exercise. In addition to any
other rights available to the Holder, if the Company fails to deliver
to the Holder a certificate or certificates representing the Warrant
Shares pursuant to an exercise by the fifth Trading Day after the date
of exercise, and if after such fifth Trading Day the Holder is required
by its broker to purchase (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by the
Holder of the Warrant Shares which the Holder anticipated receiving
upon such exercise (a "BUY-IN"), then the Company shall (1) pay in cash
2
to the Holder the amount by which (x) the Holder's total purchase price
(including brokerage commissions, if any) for the shares of Common
Stock so purchased exceeds (y) the amount obtained by multiplying (A)
the number of Warrant Shares that the Company was required to deliver
to the Holder in connection with the exercise at issue times (B) the
price at which the sell order giving rise to such purchase obligation
was executed, and (2) at the option of the Holder, either reinstate the
portion of the Warrant and equivalent number of Warrant Shares for
which such exercise was not honored or deliver to the Holder the number
of shares of Common Stock that would have been issued had the Company
timely complied with its exercise and delivery obligations hereunder.
For example, if the Holder purchases Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an
attempted exercise of shares of Common Stock with an aggregate sale
price giving rise to such purchase obligation of $10,000, under clause
(1) of the immediately preceding sentence the Company shall be required
to pay the Holder $1,000. The Holder shall provide the Company written
notice indicating the amounts payable to the Holder in respect of the
Buy-In, together with applicable confirmations and other evidence
reasonably requested by the Company. Nothing herein shall limit a
Holder's right to pursue any other remedies available to it hereunder,
at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief with respect to the Company's
failure to timely deliver certificates representing shares of Common
Stock upon exercise of the Warrant as required pursuant to the terms
hereof.
(b) If this Warrant shall have been exercised in part, the
Company shall, at the time of delivery of the certificate or
certificates representing Warrant Shares, deliver to Holder a new
Warrant evidencing the rights of Holder to purchase the unpurchased
Warrant Shares called for by this Warrant, which new Warrant shall in
all other respects be identical with this Warrant.
(c) Notwithstanding anything herein to the contrary, in no
event shall the Holder be permitted to exercise this Warrant for
Warrant Shares to the extent that (i) the number of shares of Common
Stock beneficially owned by such Holder, together with any affiliate
thereof (other than Warrant Shares issuable upon exercise of this
Warrant) plus (ii) the number of Warrant Shares issuable upon exercise
of this Warrant, would be equal to or exceed 4.9999% of the number of
shares of Common Stock then issued and outstanding, including shares
issuable upon exercise of this Warrant held by such Holder after
application of this Section 3(c). As used herein, beneficial ownership
shall be determined in accordance with Section 13(d) of the Exchange
Act and the rules promulgated thereunder. To the extent that the
limitation contained in this Section 3(c) applies, the determination of
whether this Warrant is exercisable (in relation to other securities
owned by the Holder) and of which a portion of this Warrant is
exercisable shall be in the sole discretion of such Holder, and the
submission of a Notice of Exercise shall be deemed to be such Holder's
determination of whether this Warrant is exercisable (in relation to
other securities owned by such Holder) and of which portion of this
Warrant is exercisable, in each case subject to such aggregate
percentage limitation, and the Company shall have no obligation to
verify or confirm the accuracy of such determination. Nothing contained
herein shall be deemed to restrict the right of a Holder to exercise
this Warrant into Warrant Shares at such time as such exercise will not
violate the provisions of this Section 3(c). The provisions of this
Section 3(c) may be waived by the Holder upon, at the election of the
3
Holder, not less than 61 days' prior notice to the Company, and the
provisions of this Section 3(c) shall continue to apply until such 61st
day (or such later date, as determined by the Holder, as may be
specified in such notice of waiver). No exercise of this Warrant in
violation of this Section 3(c) but otherwise in accordance with this
Warrant shall affect the status of the Warrant Shares as validly
issued, fully-paid and nonassessable.
(d) If at any time after one year from the date of issuance of
this Warrant there is no effective Registration Statement registering
the resale of the Warrant Shares by the Holder, this Warrant may also
be exercised at such time by means of a "cashless exercise" in which
the Holder shall be entitled to receive a certificate for the number of
Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)]
by (A), where:
(A) = the VWAP on the Trading Day preceding the date of
such election;
(B) = the Exercise Price of the Warrants, as adjusted; and
(X) = the number of Warrant Shares issuable upon exercise
of the Warrants in accordance with the terms of this
Warrant.
(e) Subject to the provisions of this Section 3, if after the
Effective Date the VWAP for twenty consecutive Trading Days (the
"MEASUREMENT PRICE") exceeds 300% of the then Exercise Price (subject
to adjustment herein) (the "THRESHOLD PRICE"), then the Company may, on
one occasion and within two Trading Days of such period, call for
cancellation of all or any portion of this Warrant for which a Notice
of Exercise has not yet been delivered (such right, a "CALL"). To
exercise this right, the Company must deliver to the Holder an
irrevocable written notice (a "CALL NOTICE"), indicating therein the
portion of unexercised portion of this Warrant to which such notice
applies. If the conditions set forth below for such Call are satisfied
from the period from the date of the Call Notice through and including
the Call Date (as defined below), then any portion of this Warrant
subject to such Call Notice for which a Notice of Exercise shall not
have been received from and after the date of the Call Notice will be
cancelled at 6:30 p.m. (New York City time) on the tenth Trading Day
after the date the Call Notice is received by the Holder (such date,
the "CALL DATE"). Any unexercised portion of this Warrant to which the
Call Notice does not pertain will be unaffected by such Call Notice. In
furtherance thereof, the Company covenants and agrees that it will
honor all Notices of Exercise with respect to Warrant Shares subject to
a Call Notice that are tendered from the time of delivery of the Call
Notice through 6:30 p.m. (New York City time) on the Call Date. The
parties agree that any Notice of Exercise delivered following a Call
Notice shall first reduce to zero the number of Warrant Shares subject
to such Call Notice prior to reducing the remaining Warrant Shares
available for purchase under this Warrant. For example, if (x) this
Warrant then permits the Holder to acquire 100 Warrant Shares, (y) a
Call Notice pertains to 75 Warrant Shares, and (z) prior to 6:30 p.m.
(New York City time) on the Call Date the Holder tenders a Notice of
Exercise in respect of 50 Warrant Shares, then (1) on the Call Date the
right under this Warrant to acquire 25 Warrant Shares will be
automatically cancelled, (2) the Company, in the time and manner
required under this Warrant, will have issued and delivered to the
4
Holder 50 Warrant Shares in respect of the exercises following receipt
of the Call Notice, and (3) the Holder may, until the Termination Date,
exercise this Warrant for 25 Warrant Shares (subject to adjustment as
herein provided and subject to subsequent Call Notices). Subject again
to the provisions of this Section 10, the Company may deliver
subsequent Call Notices for any portion of this Warrant for which the
Holder shall not have delivered a Notice of Exercise. Notwithstanding
anything to the contrary set forth in this Warrant, the Company may not
deliver a Call Notice or require the cancellation of this Warrant (and
any Call Notice will be void), unless, from the beginning of the 20
consecutive Trading Days used to determine whether the Common Stock has
achieved the Threshold Price through the Call Date, (i) the Measurement
Price equals or exceeds the Threshold Price, (ii) the Company shall
have honored in accordance with the terms of this Warrant all Notices
of Exercise delivered by 6:30 p.m. (New York City time) on the Call
Date, (iii) the Registration Statement shall be effective as to all
Warrant Shares and the prospectus thereunder available for use by the
Holder for the resale all such Warrant Shares and (iv) the Common Stock
shall be listed or quoted for trading on the Principal Market.
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise be entitled
to purchase upon such exercise, the Company shall pay a cash adjustment in
respect of such final fraction in an amount equal to such fraction multiplied by
the Exercise Price.
5. CHARGES, TAXES AND EXPENSES. Issuance of certificates for Warrant
Shares shall be made without charge to the Holder for any issue or transfer tax
or other incidental expense in respect of the issuance of such certificate, all
of which taxes and expenses shall be paid by the Company, and such certificates
shall be issued in the name of the Holder or in such name or names as may be
directed by the Holder; PROVIDED, HOWEVER, that in the event certificates for
Warrant Shares are to be issued in a name other than the name of the Holder,
this Warrant when surrendered for exercise shall be accompanied by the
Assignment Form attached hereto duly executed by the Holder; and the Company may
require, as a condition thereto, the payment of a sum sufficient to reimburse it
for any transfer tax incidental thereto.
6. CLOSING OF BOOKS. The Company will not close its stockholder books
or records in any manner which prevents the timely exercise of this Warrant,
pursuant to the terms hereof.
7. TRANSFER, DIVISION AND COMBINATION.
(a) Subject to compliance with any applicable securities laws
and the conditions set forth in Sections 1 and 7(f) hereof and to the
provisions of Section 4.1 of the Purchase Agreement, this Warrant and
all rights hereunder are transferable, in whole or in part, upon
surrender of this Warrant at the principal office of the Company,
together with a written assignment of this Warrant substantially in the
form attached hereto duly executed by the Holder or its agent or
attorney and funds sufficient to pay any transfer taxes payable upon
the making of such transfer. Upon such surrender and, if required, such
payment, the Company shall execute and deliver a new Warrant or
5
Warrants in the name of the assignee or assignees and in the
denomination or denominations specified in such instrument of
assignment, and shall issue to the assignor a new Warrant evidencing
the portion of this Warrant not so assigned, and this Warrant shall
promptly be cancelled. A Warrant, if properly assigned, may be
exercised by a new holder for the purchase of Warrant Shares without
having a new Warrant issued.
(b) This Warrant may be divided or combined with other
Warrants upon presentation hereof at the aforesaid office of the
Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued, signed by the
Holder or its agent or attorney. Subject to compliance with Section
7(a), as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or
combined in accordance with such notice.
(c) The Company shall prepare, issue and deliver at its own
expense (other than transfer taxes) the new Warrant or Warrants under
this Section 7.
(d) The Company agrees to maintain, at its aforesaid office,
books for the registration and the registration of transfer of the
Warrants.
(e) If, at the time of the surrender of this Warrant in
connection with any transfer of this Warrant, the transfer of this
Warrant shall not be registered pursuant to an effective registration
statement under the Securities Act and under applicable state
securities or blue sky laws, the Company may require, as a condition of
allowing such transfer (i) that the Holder or transferee of this
Warrant, as the case may be, furnish to the Company a written opinion
of counsel (which opinion shall be in form, substance and scope
customary for opinions of counsel in comparable transactions) to the
effect that such transfer may be made without registration under the
Securities Act and under applicable state securities or blue sky laws,
(ii) that the holder or transferee execute and deliver to the Company
an investment letter in form and substance acceptable to the Company
and (iii) that the transferee be an "accredited investor" as defined in
Rule 501(a) promulgated under the Securities Act.
8. NO RIGHTS AS SHAREHOLDER UNTIL EXERCISE. This Warrant does not
entitle the Holder to any voting rights or other rights as a shareholder of the
Company prior to the exercise hereof. Upon the surrender of this Warrant and the
payment of the aggregate Exercise Price (or by means of a cashless exercise),
the Warrant Shares so purchased shall be and be deemed to be issued to such
Holder as the record owner of such shares as of the close of business on the
later of the date of such surrender or payment.
9. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. The Company
covenants that upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant or any stock
certificate relating to the Warrant Shares, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it (which, in
the case of the Warrant, shall not include the posting of any bond), and upon
surrender and cancellation of such Warrant or stock certificate, if mutilated,
the Company will make and deliver a new Warrant or stock certificate of like
tenor and dated as of such cancellation, in lieu of such Warrant or stock
certificate.
6
10. SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a Saturday,
Sunday or legal holiday.
11. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.
(a) STOCK SPLITS, ETC. The number and kind of securities
purchasable upon the exercise of this Warrant and the Exercise Price
shall be subject to adjustment from time to time upon the happening of
any of the following. In case the Company shall (i) pay a dividend in
shares of Common Stock or make a distribution in shares of Common Stock
to holders of its outstanding Common Stock, (ii) subdivide its
outstanding shares of Common Stock into a greater number of shares,
(iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock, or (iv) issue any shares of its
capital stock in a reclassification of the Common Stock, then the
number of Warrant Shares purchasable upon exercise of this Warrant
immediately prior thereto shall be adjusted so that the Holder shall be
entitled to receive the kind and number of Warrant Shares or other
securities of the Company which it would have owned or have been
entitled to receive had such Warrant been exercised in advance thereof.
Upon each such adjustment of the kind and number of Warrant Shares or
other securities of the Company which are purchasable hereunder, the
Holder shall thereafter be entitled to purchase the number of Warrant
Shares or other securities resulting from such adjustment at an
Exercise Price per Warrant Share or other security obtained by
multiplying the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Shares purchasable pursuant hereto
immediately prior to such adjustment and dividing by the number of
Warrant Shares or other securities of the Company resulting from such
adjustment. An adjustment made pursuant to this paragraph shall become
effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
(b) ANTI-DILUTION PROVISIONS. During the Exercise Period, the
Exercise Price and the number of Warrant Shares issuable hereunder and
for which this Warrant is then exercisable pursuant to Section 1 hereof
shall be subject to adjustment from time to time as provided in this
Section 11(b). In the event that any adjustment of the Exercise Price
as required herein results in a fraction of a cent, such Exercise Price
shall be rounded up or down to the nearest cent.
(i) ADJUSTMENT OF EXERCISE PRICE. Except as set forth
in Section 11(b)(ii)(E), if and whenever the Company issues or
sells, or in accordance with Section 11(b) hereof is deemed to
have issued or sold, any shares of Common Stock for an
effective consideration per share of less than the then
Exercise Price or for no consideration (such lower price, the
"BASE SHARE PRICE" and such issuances collectively, a
"DILUTIVE ISSUANCE"), then, the Exercise Price shall be
reduced to equal the Base Share Price, PROVIDED, that for
purposes hereof, all shares of Common Stock that are issuable
upon conversion, exercise or exchange of Capital Share
7
Equivalents shall be deemed outstanding immediately after the
issuance of such Common Stock. Such adjustment shall be made
whenever such shares of Common Stock or Capital Share
Equivalents are issued.
(ii) EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS. For
purposes of determining the adjusted Exercise Price under
Section 11(b) hereof, the following will be applicable:
(A) ISSUANCE OF RIGHTS OR OPTIONS.
If the Company in any manner issues or grants any
warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to
purchase Common Stock or other securities
exercisable, convertible into or exchangeable for
Common Stock ("CONVERTIBLE Securities") (such
warrants, rights and options to purchase Common Stock
or Convertible Securities are hereinafter referred to
as "OPTIONS") and the effective price per share for
which Common Stock is issuable upon the exercise of
such Options is less than the Exercise Price ("BELOW
BASE PRICE OPTIONS"), then the maximum total number
of shares of Common Stock issuable upon the exercise
of all such Below Base Price Options (assuming full
exercise, conversion or exchange of Convertible
Securities, if applicable) will, as of the date of
the issuance or grant of such Below Base Price
Options, be deemed to be outstanding and to have been
issued and sold by the Company for such price per
share and the maximum consideration payable to the
Company upon such exercise (assuming full exercise,
conversion or exchange of Convertible Securities, if
applicable) will be deemed to have been received by
the Company. For purposes of the preceding sentence,
the "effective price per share for which Common Stock
is issuable upon the exercise of such Below Base
Price Options" is determined by dividing (i) the
total amount, if any, received or receivable by the
Company as consideration for the issuance or granting
of all such Below Base Price Options, plus the
minimum aggregate amount of additional consideration,
if any, payable to the Company upon the exercise of
all such Below Base Price Options, plus, in the case
of Convertible Securities issuable upon the exercise
of such Below Base Price Options, the minimum
aggregate amount of additional consideration payable
upon the exercise, conversion or exchange thereof at
the time such Convertible Securities first become
exercisable, convertible or exchangeable, by (ii) the
maximum total number of shares of Common Stock
issuable upon the exercise of all such Below Base
Price Options (assuming full conversion of
Convertible Securities, if applicable). No further
adjustment to the Exercise Price will be made upon
the actual issuance of such Common Stock upon the
exercise of such Below Base Price Options or upon the
exercise, conversion or exchange of Convertible
Securities issuable upon exercise of such Below Base
Price Options.
8
(B) ISSUANCE OF CONVERTIBLE
SECURITIES. If the Company in any manner issues or
sells any Convertible Securities, whether or not
immediately convertible (other than where the same
are issuable upon the exercise of Options) and the
effective price per share for which Common Stock is
issuable upon such exercise, conversion or exchange
is less than the Exercise Price, then the maximum
total number of shares of Common Stock issuable upon
the exercise, conversion or exchange of all such
Convertible Securities will, as of the date of the
issuance of such Convertible Securities, be deemed to
be outstanding and to have been issued and sold by
the Company for such price per share and the maximum
consideration payable to the Company upon such
exercise (assuming full exercise, conversion or
exchange of Convertible Securities, if applicable)
will be deemed to have been received by the Company.
For the purposes of the preceding sentence, the
"effective price per share for which Common Stock is
issuable upon such exercise, conversion or exchange"
is determined by dividing (i) the total amount, if
any, received or receivable by the Company as
consideration for the issuance or sale of all such
Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable
to the Company upon the exercise, conversion or
exchange thereof at the time such Convertible
Securities first become exercisable, convertible or
exchangeable, by (ii) the maximum total number of
shares of Common Stock issuable upon the exercise,
conversion or exchange of all such Convertible
Securities. No further adjustment to the Exercise
Price will be made upon the actual issuance of such
Common Stock upon exercise, conversion or exchange of
such Convertible Securities.
(C) CHANGE IN OPTION PRICE OR
CONVERSION RATE. If there is a change at any time in
(i) the amount of additional consideration payable to
the Company upon the exercise of any Options; (ii)
the amount of additional consideration, if any,
payable to the Company upon the exercise, conversion
or exchange of any Convertible Securities; or (iii)
the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock (in
each such case, other than under or by reason of
provisions designed to protect against dilution), the
Exercise Price in effect at the time of such change
will be readjusted to the Exercise Price which would
have been in effect at such time had such Options or
Convertible Securities still outstanding provided for
such changed additional consideration or changed
conversion rate, as the case may be, at the time
initially granted, issued or sold.
(D) CALCULATION OF CONSIDERATION
RECEIVED. If any Common Stock, Options or Convertible
Securities are issued, granted or sold for cash, the
consideration received therefor for purposes of this
Warrant will be the amount received by the Company
therefor, before deduction of reasonable commissions,
underwriting discounts or allowances or other
9
reasonable expenses paid or incurred by the Company
in connection with such issuance, grant or sale. In
case any Common Stock, Options or Convertible
Securities are issued or sold for a consideration
part or all of which shall be other than cash, the
amount of the consideration other than cash received
by the Company will be the fair market value of such
consideration, except where such consideration
consists of securities, in which case the amount of
consideration received by the Company will be the
fair market value (average of the closing bid and ask
price, if traded on any market) thereof as of the
date of receipt. In case any Common Stock, Options or
Convertible Securities are issued in connection with
any merger or consolidation in which the Company is
the surviving corporation, the amount of
consideration therefor will be deemed to be the fair
market value of such portion of the net assets and
business of the non-surviving corporation as is
attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair
market value of any consideration other than cash or
securities will be determined in good faith by the
Board of Directors of the Company, or if the Holder
reasonably objects to such valuation, by an
investment banker or other appropriate expert of
national reputation selected by the Company and
reasonably acceptable to the holder hereof, with the
costs of such appraisal to be borne by the Company.
(E) EXCEPTIONS TO ADJUSTMENT OF
EXERCISE PRICE. Notwithstanding the foregoing, no
adjustment will be made under this Section 11(b) in
respect of (1) the granting or issuance of shares of
capital stock or of options to employees,
consultants, officers and directors of the Company
pursuant to any stock option plan, agreement or
arrangement duly adopted or approved by a majority of
the non-employee members of the Board of Directors of
the Company or a majority of the members of a
committee of non-employee directors established for
such purpose, (2) upon the exercise of the Debentures
or any Debentures of this series or of any other
series or security issued by the Company in
connection with the offer and sale of this Company's
securities pursuant to the Purchase Agreement, or (3)
upon the exercise of or conversion of any convertible
securities, options or warrants issued and
outstanding on the Original Issue Date, provided that
the securities have not been amended since the date
of the Purchase Agreement, or (4) issuance of
securities in connection with acquisitions, strategic
investments, or strategic partnering arrangements,
the primary purpose of which is not to raise capital.
(iii) MINIMUM ADJUSTMENT OF EXERCISE PRICE. No
adjustment of the Exercise Price shall be made in an amount of
less than 1% of the Exercise Price in effect at the time such
adjustment is otherwise required to be made, but any such
lesser adjustment shall be carried forward and shall be made
at the time and together with the next subsequent adjustment
which, together with any adjustments so carried forward, shall
amount to not less than 1% of such Exercise Price.
10
12. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR
DISPOSITION OF ASSETS. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of all or substantially all its property,
assets or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("OTHER
PROPERTY"), are to be received by or distributed to the holders of Common Stock
of the Company, then the Holder shall have the right thereafter to receive, at
the option of the Holder, (a) upon exercise of this Warrant, the number of
shares of Common Stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and Other Property receivable upon
or as a result of such reorganization, reclassification, merger, consolidation
or disposition of assets by a Holder of the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to such event, or (b) cash
equal to the value of this Warrant as determined in accordance with the
Black-Sholes option pricing formula. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of Warrant Shares
for which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 12. For purposes of
this Section 12, "common stock of the successor or acquiring corporation" shall
include stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions of
this Section 12 shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.
13. VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may at any time
during the term of this Warrant reduce the then current Exercise Price to any
amount and for any period of time deemed appropriate by the Board of Directors
of the Company.
14. NOTICE OF ADJUSTMENT. Whenever the number of Warrant Shares or
number or kind of securities or other property purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall give notice thereof to the Holder, which notice shall state the number of
Warrant Shares (and other securities or property) purchasable upon the exercise
of this Warrant and the Exercise Price of such Warrant Shares (and other
securities or property) after such adjustment, setting forth a brief statement
of the facts requiring such adjustment and setting forth the computation by
which such adjustment was made.
11
15. NOTICE OF CORPORATE ACTION. If at any time:
(a) the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or
other distribution, or any right to subscribe for or purchase any
evidences of its indebtedness, any shares of stock of any class or any
other securities or property, or to receive any other right, or
(b) there shall be any capital reorganization of the Company,
any reclassification or recapitalization of the capital stock of the
Company or any consolidation or merger of the Company with, or any
sale, transfer or other disposition of all or substantially all the
property, assets or business of the Company to, another corporation or,
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least 20 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, liquidation or winding up, and (ii)
in the case of any such reorganization, reclassification, merger, consolidation,
sale, transfer, disposition, dissolution, liquidation or winding up, at least 20
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause also shall specify (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their Warrant Shares for securities or other property
deliverable upon such disposition, dissolution, liquidation or winding up. Each
such written notice shall be sufficiently given if addressed to Holder at the
last address of Holder appearing on the books of the Company and delivered in
accordance with Section 17(d).
16. AUTHORIZED SHARES. The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the Warrant
Shares upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the Principal Market
upon which the Common Stock may be listed.
12
Except and to the extent as waived or consented to by the
Holder, the Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights of Holder
as set forth in this Warrant against impairment. Without limiting the generality
of the foregoing, the Company will (a) not increase the par value of any Warrant
Shares above the amount payable therefor upon such exercise immediately prior to
such increase in par value, (b) take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable Warrant Shares upon the exercise of this Warrant, and (c) use
commercially reasonable efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment
in the number of Warrant Shares for which this Warrant is exercisable or in the
Exercise Price, the Company shall obtain all such authorizations or exemptions
thereof, or consents thereto, as may be necessary from any public regulatory
body or bodies having jurisdiction thereof.
17. MISCELLANEOUS.
(a) JURISDICTION. This Warrant shall constitute a contract
under the laws of California, without regard to its conflict of law,
principles or rules.
(b) RESTRICTIONS. The Holder acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered,
will have restrictions upon resale imposed by state and federal
securities laws.
(c) NONWAIVER AND EXPENSES. No course of dealing or any delay
or failure to exercise any right hereunder on the part of Holder shall
operate as a waiver of such right or otherwise prejudice Holder's
rights, powers or remedies, notwithstanding all rights hereunder
terminate on the Termination Date. If the Company willfully and
knowingly fails to comply with any provision of this Warrant, which
results in any material damages to the Holder, the Company shall pay to
Holder such amounts as shall be sufficient to cover any costs and
expenses including, but not limited to, reasonable attorneys' fees,
including those of appellate proceedings, incurred by Holder in
collecting any amounts due pursuant hereto or in otherwise enforcing
any of its rights, powers or remedies hereunder.
(d) NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the Holder by the Company shall
be delivered in accordance with the notice provisions of the Purchase
Agreement.
(e) LIMITATION OF LIABILITY. No provision hereof, in the
absence of any affirmative action by Holder to exercise this Warrant or
purchase Warrant Shares, and no enumeration herein of the rights or
13
privileges of Holder, shall give rise to any liability of Holder for
the purchase price of any Common Stock or as a stockholder of the
Company, whether such liability is asserted by the Company or by
creditors of the Company.
(f) REMEDIES. Holder, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will
be entitled to specific performance of its rights under this Warrant.
The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the
provisions of this Warrant and hereby agrees to waive the defense in
any action for specific performance that a remedy at law would be
adequate.
(g) SUCCESSORS AND ASSIGNS. Subject to applicable securities
laws, this Warrant and the rights and obligations evidenced hereby
shall inure to the benefit of and be binding upon the successors of the
Company and the successors and permitted assigns of Holder. The
provisions of this Warrant are intended to be for the benefit of all
Holders from time to time of this Warrant and shall be enforceable by
any such Holder or holder of Warrant Shares.
(h) AMENDMENT. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and
the Holder.
(i) SEVERABILITY. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Warrant shall
be prohibited by or invalid under applicable law, such provision shall
be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining
provisions of this Warrant.
(j) HEADINGS. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed
a part of this Warrant.
********************
14
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: March __, 2003
SVI SOLUTIONS, INC.
By:_________________________________
Name:
Title:
15
NOTICE OF EXERCISE
To: SVI Solutions, Inc.
(1) The undersigned hereby elects to purchase ________ Warrant Shares
of SVI Solutions, Inc. pursuant to the terms of the attached Warrant (only if
exercised in full), and tenders herewith payment of the exercise price in full,
together with all applicable transfer taxes, if any.
(2) Payment shall take the form of (check applicable box):
[ ] in lawful money of the United States; or
[ ] the cancellation of such number of Warrant Shares as is
necessary, in accordance with the formula set forth in
subsection 3(d), to exercise this Warrant with respect to the
maximum number of Warrant Shares purchasable pursuant to the
cashless exercise procedure set forth in subsection 3(d).
(3) Please issue a certificate or certificates representing said
Warrant Shares in the name of the undersigned or in such other name as is
specified below:
________________________________________
The Warrant Shares shall be delivered to the following:
________________________________________
________________________________________
________________________________________
(4) ACCREDITED INVESTOR. The undersigned is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act of 1933, as
amended.
[PURCHASER]
By: ______________________________
Name:
Title:
Dated: ___________________________
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ______________, _______
Holder's Signature:___________________________________
Holder's Address: ___________________________________
___________________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
