EXHIBIT 10.20
TO FORM 8-K
(EVENT DATE: APRIL 14, 2004)
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
April 8, 2004, by and among Pacific CMA, 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 (as defined below),
and Rule 506 promulgated thereunder, the Company desires to issue and sell to
each Purchaser, 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 each Purchaser agrees
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 Certificate of Designation (as defined
herein), and (b) the following terms have the meanings indicated in this Section
1.1:
"Action" shall have the meaning ascribed to such term in Section
3.1(j).
"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 shares of Preferred Stock, ignoring any conversion or
exercise limits set forth therein, and assuming that any previously
unconverted shares of Preferred Stock are held until the third
anniversary of the Closing Date and all dividends are paid in shares of
Common Stock until such third anniversary, subject to the limitation on
the number of shares of Common Stock issuable hereunder set forth in
Section 5(a)(iii) of the Certificate of Designation.
"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. With respect to a Purchaser,
any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such Purchaser
will be deemed to be an Affiliate of such Purchaser.
"Certificate of Designation" means the Certificate of
Designation to be filed prior to the Closing by the Company with the
Secretary of State of Delaware, in the form of Exhibit A attached
hereto.
"Closing" means the closing of the purchase and sale of the
Securities pursuant to Section 2.1.
"Closing Date" means the Trading Day when all of the Transaction
Documents have been executed and delivered by the applicable parties
thereto, and all conditions precedent to (i) each Purchaser's
obligations to pay the Subscription Amount have been satisfied or
waived (ii) and the Company's obligations to deliver the Securities
have been satisfied or waived.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par value no
per share, and any securities into which such common stock shall
hereinafter been reclassified into.
"Common Stock Equivalents" means any securities of the Company or
the Subsidiaries which would entitle the holder thereof to acquire at
any time Common Stock, including without limitation, any debt,
preferred stock, rights, options, warrants or other instrument that is
at any time convertible into or exchangeable for, or otherwise entitles
the holder thereof to receive, Common Stock.
"Company Counsel" means Gusrae, Xxxxxx & Xxxxx, PLLC, 000 Xxxx
Xxxxxx (00xx Xxxxx), Xxx Xxxx, Xxx Xxxx 00000.
"Disclosure Schedules" means the Disclosure Schedules of the
Company delivered concurrently herewith.
"Effective Date" means the date that the Registration Statement is
first declared effective by the Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exempt Issuance" the issuance of (a) shares of Common Stock or
options to employees, officers or directors of the Company pursuant to
any existing stock or option or any stock or option plan duly adopted
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) securities upon the
exercise of or conversion of any securities issued hereunder,
convertible securities, options or warrants issued and outstanding on
the date of this Agreement, provided that such securities have not been
amended since the date of this Agreement to increase the number of such
securities, and (c) securities issued in and/or in connection with any
joint venture, merger, acquisition of stock or assets and/or any
similar transaction, the primary purpose of which is not to raise
funds.
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"FW" means Xxxxxxx Xxxxxxxxx LLP with offices located 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).
"Liens" means a lien, charge, security interest, encumbrance,
right of first refusal, preemptive right or other restriction.
"Losses" means any and all losses, claims, damages, liabilities,
settlement costs and expenses, including without limitation costs of
preparation and reasonable attorneys' fees.
"Market Price" shall mean the average of the 30 VWAPs immediately
prior to the date hereof, but in no event shall the Market Price be
more than $1.60, 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.
"Material Adverse Effect" shall have the meaning assigned to such
term in Section 3.1(b).
"Material Permits" shall have the meaning ascribed to such term in
Section 3.1(m).
"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.
"Preferred Stock" means the up to 6,000 shares of the Company's 6%
Series A Convertible Preferred Stock issued hereunder having the
rights, preferences and privileges set forth in the Certificate of
Designation.
"Principal Market" initially means 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 date hereof, among the Company and each Purchaser,
in the form of Exhibit B.
"Registration Statement" means a registration statement meeting
the requirements set forth in the Registration Rights Agreement and
covering the resale by the Purchasers of the Underlying Shares.
"Required Approvals" shall have the meaning ascribed to such term
in Section 3.1(e).
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"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).
"Securities" means the Preferred Stock, the 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
Certificate of Designations.
"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 and the common stock purchase
warrants issued to Pacific Summit Securities in connection with the
terms and conditions contemplated by this Agreement in excess of 19.9%
of the Company's issued and outstanding Common Stock on the Closing
Date.
"Stated Value" means $1,000 per share of Preferred Stock.
"Subscription Amount" shall mean, as to each Purchaser, the amount
to be paid for the Preferred Stock purchased hereunder as specified
below such Purchaser's name on the signature page of this Agreement, in
United States Dollars.
"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 Certificate of
Designation, the Warrants, the Registration Rights Agreement and any
other documents or agreements executed in connection with the
transactions contemplated hereunder.
"Underlying Shares" means the shares of Common Stock issuable upon
conversion of the Preferred Stock, upon exercise of the Warrants and
issued and issuable in lieu of the cash payment of dividends on the
Preferred Stock.
"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
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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 Pink Sheets LLC (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 (d) in all other cases, the fair market value of a share
of Common Stock as determined by an independent appraiser selected in
good faith by the Purchasers and reasonably acceptable to the Company.
"Warrants" means 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, which warrants shall be exercisable
immediately upon issuance for a term of 7 years
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
ARTICLE II
PURCHASE AND SALE
2.1 Closing. On the Closing Date, each Purchaser shall purchase from
the Company, severally and not jointly with the other Purchasers, and the
Company shall issue and sell to each Purchaser, (a) shares of Preferred Stock
with an aggregate Stated Value equal to such Purchaser's Subscription Amount;
and (b) the Warrants as determined pursuant to Section 2.2(a). The aggregate
number of shares of Preferred Stock issued hereunder shall be up to 6,000. Upon
satisfaction of the conditions set forth in Section 2.2, the Closing shall occur
at the offices of FW or such other location as the parties shall mutually agree.
2.2 Conditions to Closing. The Closing is subject to the satisfaction
or waiver by the party to be benefited thereby of the following conditions:
(a) The Company shall have delivered or caused to be delivered
to each Purchaser the following:
(i) this Agreement duly executed by the Company;
(ii) a certificate evidencing a number of shares of
Preferred Stock equal to such Purchaser's Subscription Amount
divided by the Stated Value, registered in the name of such
Purchaser;
(iii) a Warrant registered in the name of such Purchaser
to purchase up to a number of shares of Common Stock equal to
25% of such Purchaser's Subscription Amount divided by the
Market Price on the date hereof, with an exercise price equal
to $1.76, subject to adjustment therein;
(iv) a Warrant registered in the name of such Purchaser
to purchase up to a number of shares of Common Stock equal to
25% of such Purchaser's Subscription Amount divided by the
Market Price on the date hereof, with an exercise price equal
to $2.00, subject to adjustment therein;
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(v) a legal opinion of Company Counsel, in the form of
Exhibit D attached hereto, addressed to each Purchaser;
(vi) the written voting agreement, in the form of
Exhibit E attached hereto, of all of the officers, directors
and shareholders holding more than 10% of the issued and
outstanding shares of Common Stock on the date hereof,
including, but not limited to, Xxxxxx Xxx and Xxxxxx Services
Corp., to vote all Common Stock owned by each of such
shareholders as of the record date for the annual meeting of
shareholders of the Company in favor of Shareholder Approval
amounting to, in the aggregate, at least 51% of the issued and
outstanding Common Stock; and
(vii) the Registration Rights Agreement duly executed by
the Company.
(b) At the Closing, each Purchaser shall have delivered or
caused to be delivered to the Company the following:
(i) this Agreement duly executed by such Purchaser;
(ii) such Purchaser's Subscription Amount by wire
transfer to the account as specified in writing by the
Company; and
(iii) 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 the Closing Date
and all covenants of the other party shall have been performed if due
prior to such date.
(d) From the date hereof to the 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 the Closing),
and, at any time prior to the 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 any Principal Market, nor shall a banking moratorium have been
declared either by the United States or New York State authorities nor
shall there have occurred any material outbreak or escalation of
hostilities or other national or international calamity of such
magnitude in its effect on, or any material adverse change in, any
financial market which, in each case, in the reasonable judgment of
each Purchaser, makes it impracticable or inadvisable to purchase the
shares of Preferred Stock at the Closing.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth
under the corresponding section of the Disclosure Schedules which Disclosure
Schedules shall be deemed a part hereof, the Company hereby makes the
representations and warranties set forth below to each Purchaser:
(a) Subsidiaries. All of the direct and indirect subsidiaries
of the Company are set forth on Schedule 3.1(a). The Company owns,
directly or indirectly, all of the capital stock or other equity
interests of each Subsidiary free and clear of any 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 to subscribe for or purchase securities.
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 or default 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 conduct 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 have or reasonably be expected to result in (i) a material
adverse effect on the legality, validity or enforceability of any
Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business, prospects or financial condition of the
Company and the Subsidiaries, taken as a whole, or (iii) a material
adverse effect on the Company's ability to perform in any material
respect on a timely basis its obligations under any Transaction
Document (any of (i), (ii) or (iii), a "Material Adverse Effect") and
no Proceeding has been instituted in any such jurisdiction revoking,
limiting or curtailing or seeking to revoke, limit or curtail such
power and authority or qualification.
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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, except (i) as limited
by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited
by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by
applicable law. 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
except where such violation could not, individually or in the
aggregate, constitute a Material Adverse Effect.
(d) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company, the issuance and sale of the
Securities and the consummation by the Company of the other
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) conflict with, or
constitute a default (or an event that with notice or lapse of time or
both would become a default) under, result in the creation of any Lien
upon any of the properties or assets of the Company or any Subsidiary,
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) subject to the Required Approvals, conflict with or 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, or (iv)
conflict with or violate the terms of any agreement by which the
Company or any Subsidiary is bound or to which any property or asset of
the Company or any Subsidiary is bound or affected; except in the case
of each of clauses (ii) and (iii), such as could not have or reasonably
be expected to 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 4.4, (ii) the filing with the
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Commission of the Registration Statement, (iii) the application(s) to
each applicable Principal Market for the listing of the Underlying
Shares for trading thereon in the time and manner required thereby,
(iv) the filing with the Commission of a Form D pursuant to Commission
Regulation D, and (v) applicable Blue Sky filings (collectively, the
"Required Approvals").
(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 nonassessable, 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 Actual Minimum on the date hereof.
(g) Capitalization. The capitalization of the Company is as
described in the Company's most recent periodic report filed with the
Commission. Other than as described in the SEC Reports, the Company has
not issued any capital stock since such filing other than pursuant to
the exercise of employee stock options under the Company's stock option
plans, the issuance of shares of Common Stock to employees pursuant to
the Company's employee stock purchase plan and pursuant to the
conversion or exercise of outstanding Common Stock Equivalents
outstanding. 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. Other than
options issued pursuant to the Company's stock option plans as
described in the SEC Reports, and 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 issue 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. All of the outstanding
shares of capital stock of the Company are validly issued, fully paid
and nonassessable, have been issued in compliance with all federal and
state securities laws, and none of such outstanding shares was issued
in violation of any preemptive rights or similar rights to subscribe
for or purchase securities. Except the Required Approvals, no further
approval or authorization of any stockholder, the Board of Directors of
the Company or others is required for the issuance and sale of the
shares of Preferred Stock. Except as disclosed in the SEC Reports,
there are no stockholders agreements, voting agreements or other
similar agreements with respect to the Company's capital stock to which
the Company is a party or, to the knowledge of the Company, between or
among any of the Company's stockholders.
(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
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materials, including the exhibits thereto, being collectively referred
to herein as the "SEC Reports") 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. 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 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 United States 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 except that unaudited financial
statements may not contain all footnotes required by GAAP, 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 reasonably be
expected to 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, (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
plans. The Company does not have pending before the Commission any
request for confidential treatment of information.
(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, 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. There has not been, and to the
knowledge of the Company, there is not pending or contemplated, any
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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) 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 which could reasonably be expected to result
in a Material Adverse Effect.
(l) 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
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, including without limitation all foreign,
federal, state and local laws applicable to its business except in each
case as could not have a Material Adverse Effect.
(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 Liens for the payment
of federal, state or other taxes, the payment of which is neither
delinquent nor subject to penalties. Any real property and facilities
held under lease by the Company and the Subsidiaries are held by them
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 that are 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
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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 of others.
(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 prudent and customary in the
businesses in which the Company and the Subsidiaries are engaged. 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 that 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 the 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, in each case in excess of $60,000 other
than (i) for payment of salary or consulting fees for services
rendered, (ii) reimbursement for expenses incurred on behalf of the
Company and (iii) for other employee benefits, including stock option
agreements under any stock option plan of the Company.
(r) Xxxxxxxx-Xxxxx; Internal Accounting Controls. The Company
is in material compliance with all provisions of the Xxxxxxxx-Xxxxx Act
of 2002 which are applicable to it as of the Closing Date. 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-15(e) and
15d-15(e)) for the Company and designed such disclosure 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 most recently filed periodic report under the Exchange
Act, 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 the date prior to the filing date of the most recently
filed periodic report under the Exchange Act (such date, the
"Evaluation Date"). The Company presented in its most recently filed
periodic report under the Exchange Act the conclusions of the
12
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, to the Company's
knowledge, in other factors that could significantly affect the
Company's internal controls.
(s) Certain Fees. Except as set forth in Schedule 3.1(s),
attached hereto, 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.
The Purchasers shall have no obligation with respect to any fees or
with respect to any claims made by or on behalf of other Persons for
fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated by this Agreement.
(t) Private Placement. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, and compliance
by Pacific Summit Securities with the requirements of Regulation D of
the Securities Act and Rule 506 promulgated thereunder, no registration
under the Securities Act is required for the offer and sale of the
Securities by the Company to the Purchasers as contemplated hereby. The
issuance and sale of the Securities hereunder does not contravene the
rules and regulations of the Principal Market.
(u) Investment Company. The Company is not, and is not an
Affiliate of, and immediately after receipt of payment for the shares
of Preferred Stock, will not be or be an Affiliate of, an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended. The Company shall conduct its business in a manner so that it
will not become subject to the Investment Company Act.
(v) Registration Rights. No Person has any right to cause the
Company to effect the registration under the Securities Act of any
securities of the Company.
(w) Listing and Maintenance Requirements. The Company's Common
Stock is registered pursuant to Section 12(g) of the Exchange Act, and
the Company has taken no action designed to, or which to its knowledge
is likely to have the effect of, terminating the registration of the
Common Stock under the Exchange Act nor has the Company received any
notification that the Commission is contemplating terminating such
registration. 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 listing or maintenance requirements of such
Principal Market. The Company is, and has no reason to believe that it
will not in the foreseeable future continue to be, in compliance with
all such listing and maintenance requirements.
(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
13
Purchasers as a result of the Purchasers and the Company fulfilling
their obligations or exercising their rights under the Transaction
Documents, including without limitation the Company's issuance of the
Securities and the Purchasers' ownership of the Securities.
(y) Disclosure. Other than the terms of this Agreement, the
Company confirms that, other than transactions contemplated by this
Agreement, neither the Company 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,
non-public information. The Company understands and confirms that the
Purchasers will rely on the foregoing representations and covenants 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.
(z) No Integrated Offering. Neither the Company, nor, to the
best of its knowledge, any of its Affiliates, nor any Person acting on
its or their behalf has, directly or indirectly, made any offers or
sales of any security or solicited any offers to buy any security,
under circumstances that would cause this offering of the Securities to
be integrated with prior offerings by the Company for purposes of the
Securities Act or which could violate any applicable shareholder
approval provisions, including, without limitation, under the rules and
regulations of the Principal Market.
(aa) Solvency/Indebtedness. Based on the financial condition
of the Company as of the Closing Date: (i) the fair saleable market
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 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
14
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 in respect of Indebtedness of others, 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 or similar transactions 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.
(bb) Form S-3 Eligibility. The Company is eligible to register
the resale of its Common Stock by the Purchasers under Form S-3
promulgated under the Securities Act and the Company hereby covenants
and agrees to use its best efforts to maintain its eligibility to use
Form S-3 until the Registration Statement covering the resale of the
shares of Preferred Stock shall have been filed with, and declared
effective by, the Commission.
(cc) 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
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.
(dd) 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 Preferred
Stock 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 Preferred Stock, the Underlying
Shares or the Warrants under the Securities Act or made any "directed
selling efforts" as defined in Rule 902 of Regulation S.
(ee) Foreign Corrupt Practices. Neither the Company, nor to
the knowledge of the Company, any agent or other person acting on
behalf of the Company, has (i) directly or indirectly, used any corrupt
funds for unlawful contributions, gifts, entertainment or other
unlawful expenses related to foreign or domestic political activity,
(ii) made any unlawful payment to foreign or domestic government
officials or employees or to any foreign or domestic political parties
or campaigns from corporate funds, (iii) failed to disclose fully any
15
contribution made by the Company (or made by any person acting on its
behalf of which the Company is aware) which is in violation of law, or
(iv) violated in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended.
(ff) 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.
(gg) Seniority. As of the date of this Agreement, no other
equity of the Company is senior to the Preferred Stock in right of
payment, whether with respect to interest or upon liquidation or
dissolution, or otherwise.
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date 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 full right, corporate or
partnership power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and otherwise to
carry out its obligations thereunder. The execution, delivery and
performance by such Purchaser of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate or
similar action on the part of such Purchaser. Each Transaction Document
to which it is party has 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, except (i) as
limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally, (ii)
as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii)
insofar as indemnification and contribution provisions may be limited
by applicable law.
(b) Investment Intent. Such Purchaser understands that the
Securities are "restricted securities" and have not been registered
under the Securities Act or any applicable state securities law and is
acquiring the Securities as principal for its own account and not with
a view to or for distributing or reselling such Securities or any part
thereof, has no present intention of distributing any of such
Securities and has no arrangement or understanding with any other
persons regarding the distribution of such Securities (this
16
representation and warranty not limiting such Purchaser's right to sell
the Securities pursuant to the Registration Statement or otherwise in
compliance with applicable federal and state securities laws). 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, it will be either: (i) an
"accredited investor" as defined in Rule 501(a)(1), (a)(2), (a)(3),
(a)(7) or (a)(8) under the Securities Act or (ii) a "qualified
institutional buyer" as defined in Rule 144A(a) under the Securities
Act. Such Purchaser is not required to be registered as a 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.
(f) Open Short Position. Each Purchaser, for itself only,
represents and warrants that (i) as of April 8, 2004, neither it, any
of its Affiliates nor any person or entity acting at the direction of
such Purchaser, holds an open short position in the Common Stock, and
(ii) confirms that it acknowledges and understands that it may not
directly cover a short sale made prior to the Effective Date with
shares of Common Stock registered for resale by such Purchaser on the
Registration Statement.
(g) No Advice. Each Purchaser understands that nothing in this
Agreement or any other materials presented to such Purchaser in
connection with the purchase and sale of the Securities constitutes
legal, tax or investment advice. Each Purchaser has consulted such
legal, tax and investment advisors as it, in its sole discretion, has
deemed necessary or appropriate in connection with its purchase of the
Securities. In making an investment decision as to whether to purchase
the Preferred Stock and Warrants offered hereby, each Purchaser has
relied solely upon the SEC Reports and the representation and
warranties of the Company contained herein and has conducted its own
due diligence. Each Purchaser has had the opportunity to ask questions
of, and receive answers from, representatives of the Company concerning
the Company and the officers and all such questions have been asked and
answered by the Company to the satisfaction of the Purchaser.
17
The Company acknowledges and agrees that each Purchaser
does not make or has not made any representations or warranties with
respect to the transactions contemplated hereby other than those specifically
set forth in this Section 3.2.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(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
or Rule 144, to the Company or to an Affiliate of a Purchaser or in
connection with a pledge as contemplated in Section 4.1(b), 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 and 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) Each Purchaser agrees 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 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 with a
registered broker-dealer or grant a security interest in some or all of
the Securities to a financial institution that is an "accredited
investor" as defined in Rule 501(a) under the Securities Act and who
agrees to be bound by the provisions of this Agreement and the
Registration rights Agreement and, if required under the terms of such
arrangement, such Purchaser may transfer pledged or secured Securities
18
to the pledgees or secured parties. Such a pledge or transfer would not
be subject to approval of the Company and no legal opinion of legal
counsel of the pledgee, secured party or pledgor shall be required in
connection therewith. Further, no notice shall be required of such
pledge. 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, if the Securities are
subject to registration pursuant to the Registration Rights Agreement,
the preparation and filing of any required prospectus supplement under
Rule 424(b)(3) under the Securities Act or other applicable provision
of the Securities Act to appropriately amend the list of Selling
Stockholders thereunder.
(c) Certificates evidencing Underlying Shares shall not
contain any legend (including the legend set forth in Section 4.1(b)):
(i) while a registration statement (including the Registration
Statement) covering the resale of such Underlying Shares is effective
under the Securities Act, or (ii) following any sale of such Underlying
Shares pursuant to Rule 144, or (iii) if such Securities 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). If all or any shares of Preferred Stock or any portion of
a 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 (5) Trading Days following the
delivery by a Purchaser to the Company or the Company's transfer agent
of a certificate representing Securities issued with a restrictive
legend (such date, the "Legend Removal Date"), deliver or cause to be
delivered to such Purchaser a certificate representing such Underlying
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 partial liquidated
damages and not as a penalty, for each $2,000 of Underlying Shares
(based on the VWAP 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 five (5) Trading Days after such
damages have begun to accrue) for each Trading Day after the Legend
Removal Date until such certificate is delivered. Nothing herein shall
limit such Purchaser's right to pursue actual damages for the Company's
failure to deliver certificates representing any Securities as required
by the Transaction Documents, and such Purchaser 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.
19
(e) Each Purchaser, severally and not jointly with the other
Purchasers, agrees that the removal of the restrictive legend from
certificates representing Securities as set forth in this Section 4.1
is predicated upon the Company's reliance that the Purchaser will sell
any Securities pursuant to either the registration requirements of the
Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom.
(f) Each Purchaser, severally and not jointly with the other
Purchasers, agrees that the removal of the restrictive legend from
certificates representing Securities as set forth in this Section 4.1
is predicated upon the Company's reliance that the Purchaser will sell
any Securities in accordance with all applicable laws, rules and
regulations and pursuant to either the registration requirements of the
Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom.
4.2 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
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 each Purchaser and make publicly available
in accordance with Rule 144(c) such information as is required for each
Purchaser 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.
4.3 Integration. The Company shall not 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 such that it would require shareholder
approval prior to the closing of such other transaction unless shareholder
approval is obtained before the closing of such subsequent transaction.
4.4 Securities Laws Disclosure; Publicity. The Company shall, by 8:30
a.m. Eastern time on the Trading Day following the date hereof, issue a press
release or file a Current Report on Form 8-K, in each case reasonably acceptable
to each Purchaser disclosing the material terms of the transactions contemplated
hereby. The Company and each Purchaser shall consult with each other in issuing
any press releases with respect to the transactions contemplated hereby, and
neither the Company nor any Purchaser shall issue any such press release or
otherwise make any such public statement without the prior consent of the
Company, with respect to any press release of any Purchaser, or without the
prior consent of each Purchaser, with respect to any press release of the
Company, which consent shall not unreasonably be withheld, except if such
disclosure is required by law, in which case the disclosing party shall promptly
provide the other party with prior notice of such public statement or
communication. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Purchaser, or include the name of any Purchaser in any
20
filing with the Commission or any regulatory agency or Principal Market, without
the prior written consent of such Purchaser, except (i) as required by federal
securities law in connection with the registration statement contemplated by the
Registration Rights Agreement and (ii) 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 permitted under subclause
(i) or (ii).
4.5 Shareholders Rights Plan. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other Person that any Purchaser
is an "Acquiring Person" under any shareholders rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that any Purchaser
could be deemed to trigger the provisions of any such plan or arrangement, by
virtue of receiving Securities under the Transaction Documents or under any
other agreement between the Company and the Purchasers. The Company shall
conduct its business in a manner so that it will not become subject to the
Investment Company Act.
4.6 Non-Public Information. The Company covenants and agrees that
neither it nor any other Person acting on its behalf will 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.
4.7 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 shares of Preferred Stock
remain outstanding. At the Closing, the Company shall deliver to each Purchaser
a completed and executed copy of the Closing Statement, in the form of Annex A,
attached hereto.
4.8 Reimbursement. If any Purchaser becomes involved in any capacity in
any Proceeding by or against any Person who is a stockholder of the Company
(except as a result of sales, pledges, margin sales and similar transactions by
such Purchaser to or with any current stockholder), solely as a result of such
Purchaser's acquisition of the Securities under this Agreement, the Company will
reimburse such Purchaser 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 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 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. Provided such persons have acted in accordance with applicable
laws, rules and regulations and have not breached and/or otherwise violated this
Agreement, 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.
21
4.9 Indemnification of Purchasers. Subject to the provisions of this
Section 4.9, the Company will indemnify and hold the Purchasers and their
directors, officers, shareholders, partners, employees and agents (each, a
"Purchaser 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 Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a
Purchaser, or any of them or their respective Affiliates, by any stockholder of
the Company who is not an Affiliate of such Purchaser, with respect to any of
the transactions contemplated by the Transaction Documents (unless such action
is based upon a breach of such Purchaser's representation, warranties or
covenants under the Transaction Documents or any agreements or understandings
such Purchaser may have with any such stockholder or any violations by the
Purchaser of state or federal securities laws or any conduct by such Purchaser
which constitutes fraud, gross negligence, willful misconduct or malfeasance).
If any action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing. Any Purchaser 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 Purchaser Party except to the extent that (i)
the employment thereof has been specifically authorized by the Company in
writing, (ii) the Company 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 Company and the position of such Purchaser
Party. The Company will not be liable to any Purchaser Party under this
Agreement (i) for any settlement by an Purchaser Party effected without the
Company'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 Purchaser Party's (a) breach of any
of the representations, warranties, covenants or agreements made by the
Purchasers in this Agreement or in the other Transaction Documents; (b) willful
and/or negligent actions; and/or (iii) violations of any applicable law, rule
and/or regulation.
4.10 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 130% 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 Actual Minimum at such time (minus the
number of shares of Common Stock previously issued pursuant to the
22
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 Actual Minimum on the date of such
application, (ii) take all steps 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 each Purchaser evidence of
such listing, and (iv) use reasonable efforts to maintain the listing
of such Common Stock on such Principal Market or another Principal
Market. At the Company's 2004 shareholder meeting, the Company shall
seek Shareholder Approval, with the recommendation of the Company's
Board of Directors that such proposal be approved, and the Company
shall solicit proxies from its shareholders in connection therewith in
the same manner as all other management proposals in such proxy
statement and all management-appointed proxyholders shall vote their
proxies in favor of such proposal.
(d) If, on any date, the Company is listed on a different
Principal Market, then the Company shall take the necessary actions to
list all of the Underlying Shares and Warrant Shares on such Principal
Market as soon as reasonably possible.
4.11 Conversion and Exercise Procedures. The form of Election to
Purchase included in the Warrants and the forms of Conversion Notice included in
the Certificate of Designation set forth the totality of the procedures required
in order to exercise the Warrants or convert the Preferred Stock. No additional
legal opinion or other information or instructions shall be necessary to enable
each Purchaser to exercise their Warrants or convert their Preferred Stock. The
Company shall honor exercises of the Warrants and conversions of the Preferred
Stock and shall deliver Underlying Shares in accordance with the terms,
conditions and time periods set forth in the Transaction Documents. 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 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.
4.12 Equal Treatment of Purchasers. No consideration shall be offered
or paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. For
clarification purposes, this provision constitutes a separate right granted to
each Purchaser by the Company and negotiated separately by each Purchaser, and
is intended to treat for the Company the Purchasers as a class and shall not in
any way be construed as the Purchasers acting in concert or as a group with
respect to the purchase, disposition or voting of Securities or otherwise.
23
4.13 Participation in Future Financing. Until the 6th month anniversary
of the Effective Date, upon any financing by the Company of its Common Stock or
Common Stock Equivalents (a "Subsequent Financing"), each Purchaser shall have
the right to participate in up to 50% of such Subsequent Financing. At least 10
Trading Days prior to the closing of the Subsequent Financing, the Company shall
deliver to each Purchaser a written notice of its intention to effect a
Subsequent Financing ("Pre-Notice"), which Pre-Notice shall ask such Purchaser
if it wants to review the details of such financing (such additional notice, a
"Subsequent Financing Notice"). Upon the request of a Purchaser, and only upon a
request by such Purchaser, for a Subsequent Financing Notice, the Company shall
promptly, but no later than 1 Trading Day after such request, deliver a
Subsequent Financing Notice to such Purchaser. The 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. If by 6:30
p.m. (New York City time) on the 10th Trading Day after all of the Purchasers
have received the Pre-Notice, notifications of the Purchasers of their
willingness to participate in the Subsequent Financing (or to cause their
designees to provide) is, in the aggregate, less than the total amount of the
Subsequent Financing, then 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. If the Company receives no notice from a Purchaser as of such
10th Trading Day, such Purchaser shall be deemed to have notified the Company
that it does not elect to participate. The Company must provide the Purchasers
with a second Subsequent Financing Notice, and the Purchasers will again have
the right of participation set forth above in this Section 4.13, 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. In the event the Company receives responses to Subsequent Financing
Notices from Purchasers seeking to purchase more than the aggregate amount of
the Subsequent Financing, each such Purchaser shall have the right to purchase
their Pro Rata Portion (as defined below) of the Subsequent Financing. "Pro Rata
Portion" is the ratio of (x) the Subscription Amount of a participating
Purchaser and (y) the sum of the aggregate Subscription Amount of all
participating Purchasers. Notwithstanding the foregoing, this Section 4.13 shall
not apply in respect of an Exempt Issuance. For further clarity, the Additional
Investment Option set forth in Section 4.15 shall not constitute a Subsequent
Financing.
4.14 Future Financings. From the date hereof until 60 days after the
Effective Date, other than as contemplated by this Agreement, neither the
Company nor any Subsidiary (with respect to Common Stock Equivalents) shall
issue or sell any Common Stock or Common Stock Equivalents entitling any Person
to acquire shares of Common Stock. Notwithstanding anything herein to the
contrary, the 60 day period set forth in this Section 4.14 shall be extended for
the number of Trading Days during such period in which (i) trading in the Common
Stock is suspended by any Principal Market, or (ii) following the Effective
Date, the Registration Statement is not effective or the prospectus included in
the Registration Statement may not be used by each Purchaser for the resale of
the Underlying Shares. Notwithstanding anything to the contrary herein, this
Section 4.14 shall not apply in respect of an Exempt Issuance. In addition to
the limitations set forth herein, from the date hereof until such time as no
Purchaser holds any of the Securities, the Company shall be prohibited from
effecting or enter into an agreement to effect any Subsequent Financing
involving a "Variable Rate Transaction" (as defined below). The term "Variable
Rate Transaction" shall mean a transaction in which the Company issues or sells
24
(i) any debt or equity securities that are convertible into, exchangeable or
exercisable for, or include the right to receive additional shares of Common
Stock either (A) at a conversion, exercise or exchange rate or other price that
is based upon and/or varies with the trading prices of or quotations for the
shares of Common Stock at any time after the initial issuance of such debt or
equity securities, or (B) with a conversion, exercise or exchange price that is
subject to being reset at some future date after the initial issuance of such
debt or equity security or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Company or the market for
the Common Stock. In addition, unless Shareholder Approval has been obtained and
deemed effective in accordance with Section 4.10(c), the Company shall not make
any issuance whatsoever of Common Stock or Common Stock Equivalents which would
cause any adjustment of the Set Price to the extent the holders of Preferred
Stock would not be permitted, pursuant to Section 5(a)(iii) of the Certificate
of Designations, to convert their respective outstanding Preferred Stock and
Warrants in full.
4.15 Additional Investment Option. From the date hereof until 180 days
after the Effective Date, Crestview Capital Funds LLC ("Crestview") and
Midsummer Investments Ltd. ("Midsummer") may, in their respective determination,
elect to purchase additional Preferred Stock and Warrants for an aggregate
purchase price of up to $2,000,000 as to Crestview and $1,000,000 as to
Midsummer. Any additional investment will be on terms and prices identical those
set forth in the Transaction Documents, mutatis mutandis. In order to effectuate
a purchase and sale of the additional shares of Preferred Stock and Warrants,
the Company and Crestview and/or Midsummer shall enter into the following
agreements: (x) a securities purchase agreement identical to this Agreement,
mutatis mutandis and shall include updated disclosure schedules and (y) a
registration rights agreement identical to the Registration Rights Agreement,
mutatis mutandis and shall include updated disclosure schedules. Any such
additional investment shall close within 10 Trading Days of notice to the
Company by Crestview and/or Midsummer that Crestview and/or Midsummer elects to
exercise its rights hereunder.
4.16 Re-incorporation in Delaware. If the Company re-incorporates in
Delaware (or any other jurisdiction), the Company shall, effective
contemporaneously with any such re-incorporation, take all action necessary to
convert the Securities into absolutely equivalent Securities of the successor
corporation.
ARTICLE V
MISCELLANEOUS
5.1 Fees and Expenses. At the Closing, the Company shall reimburse (a)
Crestview $25,000, of which $15,000 shall be used for its legal fees and
expenses. Except as otherwise set forth in this Agreement, each party shall pay
the fees and expenses of its advisers, counsel, accountants and other experts,
if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement.
The Company shall pay all stamp and other taxes and duties levied in connection
with the sale of the Securities.
5.2 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.
25
5.3 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 on the signature page prior to 5:30 p.m. (New York City time) on a
Trading Day and an electronic confirmation of delivery is received by the
sender, (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, (c) three Trading Days following the date of
mailing, if sent by U.S. nationally recognized overnight courier service, or (d)
upon actual receipt by the party to whom such notice is required to be given.
The 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.
5.4 Amendments; Waivers. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and each Purchaser or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
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.
5.5 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.
5.6 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 each Purchaser. Any Purchaser may assign
any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the "Purchasers".
5.7 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 Section 4.9.
5.8 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, 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 New York, borough of Manhattan 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
26
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 by jury. If
either party shall commence an action or proceeding to enforce any provisions of
the Transaction Documents, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its reasonable attorneys'
fees and other costs and expenses incurred with the investigation, preparation
and prosecution of such action or proceeding.
5.9 Survival. The representations and warranties contained herein shall
survive the Closing and the delivery, exercise and/or conversion of the
Securities, as applicable.
5.10 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.
5.11 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.
5.12 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 the Preferred Stock or
exercise of the Warrant, the Purchaser shall be required to return any shares of
Common Stock subject to such conversion or exercise notice.
5.13 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
5.14 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of each
Purchaser 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.
5.15 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.
5.16 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 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 Crestview. 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.
5.17 Liquidated Damages. The Company's obligations to pay any accrued
but unpaid partial liquidated damages or other amounts owing under the
Transaction Documents is a continuing obligation of the Company and shall not
terminate until all accrued and unpaid partial liquidated damages and other
amounts have been paid notwithstanding the fact that the instrument or security
pursuant to which such partial liquidated damages or other amounts are due and
payable shall have been canceled.
[SIGNATURE PAGE FOLLOWS]
28
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.
PACIFIC CMA, INC. Address for Notice:
-------------------
Pacific CMA, Inc.
Unit D, 11F., Garment Centre
By: /s/ Xxx Xxxx Xx Xxxxxx Xx. 000-000 Xxxxxx Xxxx Xxxx
----------------------
Name: Xxx Xxxx Xx Xxxxxx Cheungshawan, Kin.,
Title: Chairman Hong Kong
E-mail: xxxxxx@xxxxx.xxx
With a copy to (which VM: 011-852-2953-0929
shall not constitute notice): Fax: 000-000-0000-0000
Xxxxxxxx X. Xxxxxxx, Esq.
Gusrae, Xxxxxx & Bruno, PLLC
000 Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
E-mail: xxxxxxxx@xxxxxx.xxx
VM: (000) 000-0000
Fax: (000) 000-0000
29
[PURCHASER SIGNATURE PAGES TO XXX SECURITIES PURCHASE AGREEMENT]
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.
Name of Investing Entity: Crestview Capital Master, L.L.C.
-----------------------------------------------------------------------------------
Signature of Authorized Signatory of Investing Entity: /s/ Xxxxxxx Xxxx
-----------------------------------------------------
Name of Authorized Signatory: Xxxxxxx Xxxx
-------------------------------------------------------------------------------
Title of Authorized Signatory: Managing Member
------------------------------------------------------------------------------
E-mail Address of Authorized Signature: xxxxxxx@xxxxxxxxxxxxx.xxx
---------------------------------------------------------------------
Address for Notice of Investing Entity: 00 Xxxxxx Xxxxx, Xxxxx X, Xxxxxxxxxx, Xxxxxxxx 00000
---------------------------------------------------------
Address for Delivery of Securities for Investing Entity (if not same as above):
Subscription Amount: $2,000,000
Shares of Preferred Stock: 2,000
Warrant Shares: 625,000
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
30
[PURCHASER SIGNATURE PAGES TO XXX SECURITIES PURCHASE AGREEMENT]
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.
Name of Investing Entity: Midsummer Investment, Ltd.
-----------------------------------------------------------------------------------
Signature of Authorized Signatory of Investing Entity: /s/ Xxxxx X. Xxxxxxx
-----------------------------------------------------
Name of Authorized Signatory: Xxxxx X. Xxxxxxx
-------------------------------------------------------------------------------
Title of Authorized Signatory: Managing Director, Midsummer Capital, LLC, acting as
------------------------------------------------------------------
investment manager of Midsummer Investment, Ltd.
E-mail Address of Authorized Signature: xx@xxxxxxxxxxxxxxxx.xxx
---------------------------------------------------------------------
Address for Notice of Investing Entity: 000 Xxxxxxx Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000
---------------------------------------------------------
Address for Delivery of Securities for Investing Entity (if not same as above):
Subscription Amount: $1,000,000
Shares of Preferred Stock:
Warrant Shares:
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
31
ANNEX A
CLOSING STATEMENT
Pursuant to the attached Securities Purchase Agreement, dated as of the date
hereto, the purchasers shall purchase $_____________________ of Preferred Stock
and Warrants from Pacific CMA, Inc., (the "Company"). All funds will be wired to
the Company. All funds will be disbursed in accordance with this Closing
Statement.
Disbursement Date: April ____, 2004
I. PURCHASE PRICE
Gross Proceeds to be Received $
II. DISBURSEMENTS
$
$
$
$
$
Total Amount Disbursed: $
WIRE INSTRUCTIONS:
To: _____________________________________
To: _____________________________________
To: _____________________________________
32
APPROVED: APPROVED:
By: By:
------------------------------------ -------------------------------
Name: Name:
---------------------------------- ------------------------------
Title: Title:
--------------------------------- -----------------------------
33
EXHIBIT E
TO: The Purchasers of Pacific CMA, Inc. Series A Convertible Preferred Stock and
Warrants
To Whom It May Concern:
This letter will confirm my agreement to vote all shares of Pacific
CMA, Inc., a Delaware corporation ("XXX") or any successor corporation voting
stock over which I have voting control in favor of any resolution presented to
the stockholders of XXX to approve the issuance, in the aggregate, more than
19.999% of the number of shares of common stock of XXX outstanding on the date
of closing pursuant to that certain Securities Purchase Agreement, dated April
8, 2004, among XXX and the purchasers signatory thereto (the "Purchase
Agreement") and the other agreements entered into in connection therewith or as
otherwise may be required by the applicable rules and regulations of the
American Stock Exchange (or any successor entity). This agreement is given in
consideration of, and as a condition to enter into such Purchase Agreement and
is not revocable by me.
By: ________________________________
Name of Stockholder:
Percentage Beneficial Ownership:
34
ANNEX B
SELLING STOCKHOLDER QUESTIONNAIRE
Pacific CMA, Inc.
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Ladies and Gentlemen:
I acknowledge that I am one of the selling stockholders in the offering
of shares of common stock issuable upon conversion of shares of Series A
Convertible Preferred Stock and shares of common stock issuable upon exercise of
warrants to purchase shares of common stock, of Pacific CMA, Inc. ("XXX"). I
purchased these shares of preferred stock and warrants in connection with PAM's
private placement, under that certain Securities Purchase Agreement, dated April
__, 2004, by and among XXX and each purchaser identified on the signature pages
thereto, including me. I understand that I will be named as a selling
stockholder in the prospectus that forms a part of the registration statement on
Form S-3 that XXX will file with the Securities and Exchange Commission to
register under the Securities Act of 1933 the shares I expect to sell. XXX will
use the information that I provide in this Questionnaire to ensure the accuracy
of the registration statement and the prospectus.
--------------------------------------------------------------------------------
Please answer every question.
If the answer to any question is
"none" or "not applicable," please so state.
-------------------------------------------------------------------------------
1. Name. Type or print your name exactly as it should appear in the
Registration Statement.
____________________________________________________________________________
2. Contact Information. Provide the address, telephone number and fax number
where you can be reached during business hours.
Address:
-------------------------------------------------------------------
Phone:
---------------------------------------------------------------------
Fax:
-----------------------------------------------------------------------
3. Relationship with XXX. Describe the nature of any position, office or other
material relationship you have had with XXX during the past three years.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
35
4. Organizational Structure. Please indicate or (if applicable) describe how
you are organized.
(a) Are you a natural person? |_| Yes |_| No
(if so, please xxxx the box and skip to Question 5)
(b) Are you a reporting company under the 1934 Act? |_| Yes |_| No
(if so, please xxxx the box and skip to Question 5)
(c) Are you a majority-owned subsidiary of a
reporting company under the 1934 Act?
(if so, please xxxx the box and skip to Question 5) |_| Yes |_| No
(d) Are you a registered investment fund under the
1940 Act? |_| Yes |_| No (if so, please xxxx the
box and skip to Question 5)
If you have answered "no" to all of the foregoing questions, please describe:
(i) the exact legal description of your entity (e.g., corporation, partnership,
limited liability company, etc.); (ii) whether the legal entity so described is
managed by another entity and the exact legal description of such entity (repeat
this step until the last entity described is managed by a person or persons,
each of whom is described in any one of (a) through (d) above), (iii) the names
of each person or persons having voting and investment control over PAM's
securities that the entity owns (e.g., director(s), general partner(s), managing
member(s), etc.).
Legal Description of Entity:
----------------------------------------------------
Name of Entity(ies) Managing Such Entity (if any):
-----------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Name of Entity(ies) Managing such Entity(ies) (if any): -----------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Name(s) of Natural Persons Having Voting or Investment
Control Over the Shares Held by such Entity(ies):
------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
36
5. Ownership of XXX Securities. This question covers your beneficial ownership
of XXX securities. Please consult the Appendix A to this Questionnaire for
information as to the meaning of "beneficial ownership." State the number of
shares of XXX common stock that you beneficially owned as of ________ ___,
2004:
No. of Shares of Stock _____________________________________________________
6. Plan of Distribution. I have reviewed the proposed "Plan of Distribution"
attached to Registration Rights Agreement, dated April __, 2004 by and among
the Company and the purchasers signatory thereto, and agree that the
statements contained therein reflect my intended method(s) of distribution
or, to the extent these statements are inaccurate or incomplete, I have
communicated in writng to one of the parties listed above my signature on
page 6 any changes to the proposed "Plan of Distribution" that are required
to make these statements accurate and complete. |_| (Please check the box if
you have made any changes to Appendix B)
7. Reliance on Responses. I acknowledge and agree that XXX and its counsel,
_____________, shall be entitled to rely on my responses in this
Questionnaire in all matters pertaining to the registration statement and
the sale of any shares of common stock of XXX pursuant to the registration
statement.
Please acknowledge that your answers to the foregoing questions are true and
correct to the best of your information and belief by signing and dating this
Questionnaire where indicated below. Please return the completed questionnaire
via fax to ______________________________ no later than March 22, 2004.
If at any time you discover that your answer to any question was inaccurate, or
if any event occurring after your completion hereof would require a change in
your answer to any questions, please immediately contact ___________________.
Date:
------------------------ --------------------------------------
(Print name of selling stockholder)
By:
-----------------------------------
(Signature)
Name:
---------------------------------
(Print name)
Title:
--------------------------------
37
APPENDIX A
1. Definition of "Beneficial Ownership"
(a) A "Beneficial Owner" of a security includes any person who, directly or
indirectly, through any contract, arrangement, understanding,
relationship or otherwise has or shares:
(1) Voting power which includes the power to vote, or to direct the
voting of, such security; and/or
(2) Investment power which includes the power to dispose, or direct
the disposition of, such security.
Please note that either voting power or investment power, or both, is
sufficient for you to be considered the beneficial owner of shares.
(b) Any person who, directly or indirectly, creates or uses a trust, proxy,
power of attorney, pooling arrangement or any other contract,
arrangement or device with the purpose or effect of divesting such
person of beneficial ownership of a security or preventing the vesting
of such beneficial ownership as part of a plan or scheme to evade the
reporting requirements of the federal securities acts shall be deemed
to be the beneficial owner of such security.
(c) Notwithstanding the provisions of paragraph (a), a person is deemed to
be the "beneficial owner" of a security, if that person has the right
to acquire beneficial ownership of such security within 60 days,
including but not limited to any right to acquire: (A) through the
exercise of any option, warrant or right; (B) through the conversion of
a security; (C) pursuant to the power to revoke a trust, discretionary
account or similar arrangement; or (D) pursuant to the automatic
termination of a trust, discretionary account or similar arrangement;
provided, however, any person who acquires a security or power
specified in paragraphs (A), (B) or (C) above, with the purpose or
effect of changing or influencing the control of the issuer, or in
connection with or as a participant in any transaction having such
purpose or effect, immediately upon such acquisition shall be deemed to
be the beneficial owner of the securities which may be acquired through
the exercise or conversion of such security or power.
38
SCHEDULE 3.1(a)
(Subsidiaries of Pacific CMA, Inc.)
Equity Interest Owned
by Pacific
---------------------
Name of Company Place of Incorporation Directly Indirectly
--------------- ----------------------- -------- -----------
Pacific CMA International LLC Colorado, United States 100%
AGI Logistics (HK) Ltd. Hong Kong 100%
AGI China Ltd. Hong Kong 100%
Shenzhen Careship Transportation Limited
(formerly known as Guangdong Springfield Logistics Services Ltd.) Hong Kong 100%
Xxxxxxx Xxxxxxxxxxxxx Xxxxxxxxxxx Xxx Xxxx, Xxxxxx Xxxxxx 81%
Airgate International Corporation (Chicago) Illinois, United States 81%
39
SCHEDULE 3.1(g)
(Outstanding Options, Warrants)
Option Plan
Pacific CMA, Inc. has a 2000 Stock Plan ("Plan") to issue stock options
and grants pursuant to various agreements with employees, service providers,
business associates. The maximum number of shares of Pacific's common stock
available for the issuance under the Plan is 2,200,000 shares.
Under the Plan, on September 1, 2000, Pacific issued options to
purchase 200,000 shares of the Company's common stock at an exercise price of
$0.098. These options expire on August 31, 2005.
Also under the Plan, Pacific has issued stock grants for 902,550
shares.
Warrants
In or about October 2003, Pacific issued warrants to R. Xxxxx Xxxxxx.
Xx. Xxxxxx'x warrants are exercisable at $0.85 for up to 50,000 shares of common
stock until September 30, 2008.
On or about November 18, 2003, Pacific issued to the persons and
entities identified below the number of common stock purchase warrants stated
opposite their names:
Name Number of Warrants (1)
------------------
1. Max Communications, Inc. 31,056
2. Castle Creek Technology Partners, LLC 77,640
3. Stone Street, Limited Partnership 62,112
4. Gamma Opportunity Capital Partners, LP 31,056
5. Alpha Capital A.G. 31,056
6. Otape Investments, LLC 62,112
7. Bristol Investment Fund, Ltd. 93,168
8. Polaris Partners, LP 46,584
9. Insider Trend Fund, LP 38,820
10. Xxx X. Xxxxxx, Non-GST Exempt Family Trust II 38,820
11. Cornell Capital 31,056
12. Whalehaven Fund, Limited 31,056
13. Greenwich Growth Fund, Limited 31,056
14. Bridges & Pipes, LLC 15,528
--------------
1 One-half of said warrants are exercisable at $1.61 per share with the
remaining one-half of said warrants exercisable at $2.17 per share.
40
In connection with the sales described above, Pacific also issued
warrants to purchase 186,335 shares at an exercise price of $1.93 per share to
Rockwood, Inc. ("Rockwood").
On November 18, 2003, Pacific issued warrants to purchase an aggregate
of 100,000 shares to Xxxxxx Capital LLC ("Xxxxxx"). One-half of the warrants
issued to Xxxxxx are exercisable at $0.80 per share and one-half are exercisable
at $1.20 per share.
On November 18, 2003, Pacific issued warrants to purchase an aggregate
of 200,000 shares to Strategic Growth International, Inc. ("Strategic"). Such
amount subsequently was reduced to 50,000.
All of the Warrants issued to the fourteen (14) investors named above,
Xxxxxxxx, Xxxxxx and Strategic, expire in November 2008.
In or about December 2003, Pacific entered into a Consulting Agreement
with Piedmont Consulting, Inc. ("Piedmont"). The Agreement with Piedmont is
being renegotiated, but as now stated, it may obligate Pacific to issue warrants
to purchase up to 200,000 shares of Common Stock exercisable for five years at a
price of $2.00. Up to 150,000 of said Warrants could be issuable in three (3)
equal increments, if the last sale price of Pacific's Common Stock exceeds
$3.00, $4.00 and $5.00, respectively.
41
SCHEDULE 3.1(s)
(Broker's, Finder's Fees or Commissions)
1. As previously disclosed to the Purchasers, Xxxxxx Capital LLC may be
entitled to compensation.
2. Pacific Summit Securities is to receive a seven (7%) percent commission
and seven (7%) percent warrant coverage.
