SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "AGREEMENT") is dated as of
July 12, 2005 among Able Energy, Inc., a Delaware corporation (the "COMPANY"),
and each purchaser identified on the signature pages hereto (each, including its
successors and assigns, a "PURCHASER" and collectively the "PURCHASERS").
WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
"SECURITIES ACT") and Rule 506 promulgated thereunder, the Company desires to
issue and sell to 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 agree
as follows:
ARTICLE I.
DEFINITIONS
1.1 DEFINITIONS. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Debentures (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).
"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.
"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) the Purchasers' obligations to pay the
Subscription Amount and (ii) 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 $0.001
per share, and any other class of securities into which such securities may
hereafter have been reclassified or changed 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
exercisable or exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock.
"COMPANY COUNSEL" means Xxxxxx Xxxxx Xxxx & Xxxxxx, LLP.
"CONVERSION PRICE" shall have the meaning ascribed to such term in the
Debentures.
"DEBENTURES" means, the Variable Rate Convertible Debentures due,
subject to the terms therein, 2 years from their date of issuance issued by the
Company to the Purchasers hereunder, in the form of EXHIBIT A.
"DISCLOSURE SCHEDULES" shall have the meaning ascribed to such term in
Section 3.1.
"EFFECTIVE DATE" means the date that the initial Registration Statement
filed by the Company pursuant to the Registration Rights Agreement is first
declared effective by the Commission.
"EVALUATION DATE" shall have the meaning ascribed to such term in
Section 3.1(r).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"EXEMPT ISSUANCE" means the issuance of (a) shares of Common Stock or
options to employees, officers or directors of the Company pursuant to 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 or exchange of or conversion of any Securities issued hereunder and/or
securities exercisable or exchangeable for or convertible into shares of Common
Stock 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 or to decrease the exercise, exchange or
conversion price of any such securities, (c) securities issued pursuant to
acquisitions or strategic transactions, provided any such issuance shall only be
to a Person which is, itself or through its subsidiaries, an operating company
in a business synergistic with the business of the Company and in which the
Company receives benefits in addition to the investment of funds, but shall not
include a transaction in which the Company is issuing securities primarily for
the purpose of raising capital or
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to an entity whose primary business is investing in securities, (d) securities
issued to fuel suppliers of the Company provided such issuances do not exceed
$500,000 of Common Stock or Common Stock Equivalents in any 12 month period, (e)
the one-time issuance of $3,000,000 of Common Stock to Trans Montaigne pursuant
to convertible indebtedness outstanding on the date hereof for a conversion
price of $3 per share and (f) securities issued to the purchasers party to that
certain Securities Purchase Agreement, dated May 26, 2005, by and among All
American Plazas, Inc. and such purchasers (g) up to 14.5 million shares of
Common Stock (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) issued to the shareholders of All
American Plazas, Inc. in connection with the acquisition of All American Plazas,
Inc. by the Company
"FORCE MAJEURE" shall mean any unusual event arising from causes
reasonably beyond the control of the Company that could not be reasonably
anticipated that causes a delay in or prevents the performance of any obligation
under this Agreement or the Transaction Documents, including but not limited to:
acts of God; fire; war; terrorism; insurrection; civil disturbance; explosion;
adverse weather conditions that could not be reasonably anticipated; unusual
delay in transportation; strikes or other labor disputes; restraint by court
order or order of public authority but not including delays solely caused by any
action of, or failure to act by, the Commission or the Company's transfer agent.
"FW" means Xxxxxxx Xxxxxxxxx LLP with offices at 000 Xxxxxxxxx Xxxxxx,
Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000-0000.
"GAAP" shall have the meaning ascribed to such term in Section 3.1(h).
"INDEBTEDNESS" shall have the meaning ascribed to such term in Section
3.1(aa).
"INTELLECTUAL PROPERTY RIGHTS" shall have the meaning ascribed to such
term in Section 3.1(o).
"LEGEND REMOVAL DATE" shall have the meaning ascribed to such term in
Section 4.1(c).
"LIENS" means a lien, charge, security interest, encumbrance, right of
first refusal, preemptive right or other restriction.
"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).
"MAXIMUM RATE" shall have the meaning ascribed to such term in Section
5.17.
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"PARTICIPATION MAXIMUM" shall have the meaning ascribed to such term in
Section 4.13.
"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.
"PRE-NOTICE" shall have the meaning ascribed to such term in Section
4.13.
"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.
"PURCHASER PARTY" shall have the meaning ascribed to such term in
Section 4.11.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement,
dated the date hereof, among the Company and the Purchasers, in the form of
EXHIBIT B attached hereto.
"REGISTRATION STATEMENT" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering the
resale of the Underlying Shares by each Purchaser as provided for in the
Registration Rights Agreement.
"REQUIRED APPROVALS" shall have the meaning ascribed to such term in
Section 3.1(e).
"REQUIRED MINIMUM" means, as of any date, the maximum aggregate number
of shares of Common Stock then issued or potentially issuable in the future
pursuant to the Transaction Documents, including any Underlying Shares issuable
upon exercise or conversion in full of all Warrants and Debentures (including
Underlying Shares issuable as payment of interest), ignoring any conversion or
exercise limits set forth therein, and assuming that the Conversion Price is at
all times on and after the date of determination 75% of the then Conversion
Price on the Trading Day immediately prior to the date of determination.
"RULE 144" means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"SEC REPORTS" shall have the meaning ascribed to such term in Section
3.1(h).
"SECURITIES" means the Debentures, the Warrants, the Warrant Shares and
the Underlying Shares.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
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"SHAREHOLDER APPROVAL" means such approval as may be required by the
applicable rules and regulations of the Nasdaq SmallCap 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 in excess of 19.99% of the issued and outstanding Common Stock on the
Closing Date.
"SHORT SALES" shall include all "short sales" as defined in Rule 200 of
Regulation SHO under the Exchange Act.
"SUBSCRIPTION AMOUNT" means, as to each Purchaser, the aggregate amount
to be paid for Debentures and Warrants purchased hereunder as specified below
such Purchaser's name on the signature page of this Agreement and next to the
heading "Subscription Amount", in United States Dollars and in immediately
available funds.
"SUBSEQUENT FINANCING" shall have the meaning ascribed to such term in
Section 4.13.
"SUBSEQUENT FINANCING NOTICE" shall have the meaning ascribed to such
term in Section 4.13.
"SUBSIDIARY" means any subsidiary of the Company as set forth on
SCHEDULE 3.1(A).
"TRADING DAY" means a day on which the Common Stock is traded on a
Trading Market.
"TRADING MARKET" means the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the Nasdaq
SmallCap Market, the American Stock Exchange, the New York Stock Exchange or the
Nasdaq National Market.
"TRANSACTION DOCUMENTS" means this Agreement, the Debentures, the
Warrants, the Registration Rights Agreement and any other documents or
agreements executed in connection with the transactions contemplated hereunder.
"UNDERLYING SHARES" means the shares of Common Stock issued and issuable
upon conversion of the Debentures and upon exercise of the Warrants and issued
and issuable in lieu of the cash payment of interest on the Debentures in
accordance with the terms of the Debentures.
"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 Trading Market, the daily volume weighted average price of the Common Stock
for such date (or the nearest preceding date) on the Trading 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
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listed or quoted on a Trading Market and if prices for the Common Stock are then
quoted on the OTC Bulletin Board, the volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the OTC Bulletin
Board; (c) if the Common Stock is not then listed or quoted on the OTC Bulletin
Board and if prices for the Common Stock are then reported in the "Pink Sheets"
published by the 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 (c) 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 collectively the Common Stock purchase warrants, in the
form of EXHIBIT C delivered to the Purchasers at the Closing in accordance with
Section 2.2(a) hereof, which Warrants shall be exercisable immediately and have
a term of exercise equal to 5 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, upon the terms and subject to the
conditions set forth herein, concurrent with the execution and delivery of this
Agreement by the parties hereto, the Company agrees to sell, and each Purchaser
agrees to purchase in the aggregate, severally and not jointly, up to $2,500,000
principal amount of the Debentures. Each Purchaser shall deliver to the Company
via wire transfer or a certified check immediately available funds equal to
their Subscription Amount and the Company shall deliver to each Purchaser their
respective Debenture and Warrants as determined pursuant to Section 2.2(a) and
the other items set forth in Section 2.2 issuable at the Closing. Upon
satisfaction of the conditions set forth in Sections 2.2 and 2.3, the Closing
shall occur at the offices of FW, or such other location as the parties shall
mutually agree.
2.2 DELIVERIES.
a) On the Closing Date, the Company shall deliver or cause
to be delivered to each Purchaser the following:
(i) this Agreement duly executed by the Company;
(ii) a Debenture with a principal amount equal to
such Purchaser's Subscription Amount, 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 50% of such Purchaser's
Subscription Amount divided by the Conversion
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Price, with an exercise price equal to $7.15,
subject to adjustment therein;
(iv) the Registration Rights Agreement duly executed
by the Company;
(v) 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 to
vote all Common Stock owned by each of such
officers, directors and 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 50% of the issued and
outstanding Common Stock; and
(vi) a legal opinion of Company Counsel, in the form
of EXHIBIT D attached hereto.
b) On the Closing Date, each Purchaser shall deliver or
cause 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.
2.3 CLOSING CONDITIONS.
a) The obligations of the Company hereunder in connection
with the Closing are subject to the following conditions
being met:
(i) the accuracy in all material respects when made
and on the Closing Date of the representations
and warranties of the Purchasers contained
herein;
(ii) all obligations, covenants and agreements of the
Purchasers required to be performed at or prior
to the Closing Date shall have been performed;
and
(iii) the delivery by the Purchasers of the items set
forth in Section 2.2(b) of this Agreement.
b) The respective obligations of the Purchasers hereunder
in connection with the Closing are subject to the
following conditions being met:
(i) the accuracy in all material respects on the
Closing Date of the
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representations and warranties of the Company
contained herein;
(ii) all obligations, covenants and agreements of the
Company required to be performed at or prior to
the Closing Date shall have been performed;
(iii) the delivery by the Company of the items set
forth in Section 2.2(a) of this Agreement;
(iv) there shall have been no Material Adverse Effect
with respect to the Company since the date
hereof; and
(v) 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 Trading
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
Debentures at the Closing.
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 delivered to
the Purchasers concurrently herewith (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.
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(b) ORGANIZATION AND QUALIFICATION. The Company and each of
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 condition (financial or otherwise) 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.
(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 and thereunder. The
execution and delivery of each of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated
thereby have been duly authorized by all necessary action on the part of
the Company and no further action is required by the Company, its board
of directors or its stockholders in connection therewith other than in
connection with the Required Approvals. Each Transaction Document has
been (or upon delivery will have been) duly executed by the Company and,
when delivered in accordance with the terms hereof and thereof, will
constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms except (i) as limited
by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors'
rights generally and (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other
equitable remedies.
(d) NO CONFLICTS. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the
Company of the other transactions contemplated hereby and 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
9
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; 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. The Company is not
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) filings required
pursuant to Section 4.6, (ii) the filing with the Commission of the
Registration Statement, (iii) the notice and/or application(s) to each
applicable Trading Market for the issuance and sale of the Debentures
and Warrants and the listing of the Underlying Shares for trading
thereon in the time and manner required thereby, (iv) the filing of Form
D with the Commission and such filings as are required to be made under
applicable state securities laws and (vi) Shareholder Approval
(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 imposed by the
Company other than restrictions on transfer provided for in the
Transaction Documents. The Underlying Shares, when issued in accordance
with the terms of the Transaction Documents, will be validly issued,
fully paid and nonassessable, free and clear of all Liens imposed by the
Company. The Company has reserved from its duly authorized capital stock
a number of shares of Common Stock for issuance of the Underlying Shares
at least equal to the Required Minimum on the date hereof.
(g) CAPITALIZATION. The capitalization of the Company is as
set forth on SCHEDULE 3.1(G). The Company has not issued any capital
stock since its most recently filed periodic report under the Exchange
Act, 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. No Person has any right of first refusal, preemptive right,
right of participation, or any similar right to participate in the
transactions contemplated by the Transaction Documents. Except as a
result of the purchase and sale of the Securities, there are no
outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities,
rights or obligations convertible into or exercisable or exchangeable
for, or giving any Person any right to subscribe for or acquire, any
shares of Common Stock, or contracts, commitments,
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understandings or arrangements by which the Company or any Subsidiary is
or may become bound to issue additional shares of Common Stock or Common
Stock Equivalents. The issuance and sale of the Securities will not
obligate the Company to issue shares of Common Stock or other securities
to any Person (other than the Purchasers) and will not result in a right
of any holder of Company securities to adjust the exercise, conversion,
exchange or reset price under such securities. 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. 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 Securities. 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, schedules, forms, statements and other documents required
to be filed by it under the Securities Act and the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was
required by law to file such material) (the foregoing materials,
including the exhibits thereto and documents incorporated by reference
therein, 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 the 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
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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 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.
12
(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 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 necessary or material for
use in connection with their respective businesses as described in the
SEC Reports and which the failure to so have could have a Material
Adverse Effect (collectively, the "INTELLECTUAL PROPERTY RIGHTS").
Neither the Company nor any Subsidiary has received a written notice
that the Intellectual Property Rights used by the Company or any
Subsidiary violates or infringes upon the rights of any Person. To the
knowledge of the Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of
any of the Intellectual Property Rights 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,
including, but not limited to, directors and officers insurance coverage
at least equal to the aggregate Subscription Amount. To the best
knowledge of the Company, 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,
13
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 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 knowledge of the Company, in other factors
that could significantly affect the Company's internal controls.
(s) CERTAIN FEES. No brokerage or finder's fees or
commissions are or will be payable by the Company to any broker,
financial advisor or consultant, finder, placement agent, investment
banker, bank or other Person with respect to the transactions
contemplated by the Transaction Documents. 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 the Transaction Documents.
14
(t) PRIVATE PLACEMENT. Assuming the accuracy of the
Purchasers representations and warranties set forth in Section 3.2, 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 Trading Market.
(u) INVESTMENT COMPANY. The Company is not, and is not an
Affiliate of, and immediately after receipt of payment for the
Securities, 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. Other than each of the Purchasers,
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 Trading 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
Trading 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 Purchasers as a
result of the Purchasers and the Company fulfilling their obligations or
exercising their rights under the Transaction Documents, including
without limitation as a result of the Company's issuance of the
Securities and the Purchasers' ownership of the Securities.
(y) DISCLOSURE. The Company confirms that neither it nor any
other Person acting on its behalf has provided any of the Purchasers or
their agents or counsel with any information that constitutes or might
constitute material, nonpublic information. The Company understands and
confirms that the Purchasers will rely on the foregoing representations
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
Disclosure 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
15
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. Assuming the accuracy of the
Purchasers' representations and warranties set forth in Section 3.2,
neither the Company, nor 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 any applicable shareholder approval provisions,
including, without limitation, under the rules and regulations of any
Trading Market on which any of the securities of the Company are listed
or designated.
(aa) SOLVENCY. Based on the financial condition of the
Company as of the Closing Date after giving effect to the receipt by the
Company of the proceeds from the sale of the Securities hereunder, (i)
the Company's fair saleable value of its 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
liabilities for borrowed money or amounts owed in excess of $250,000
(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
16
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 the Underlying Shares for resale by the Purchaser
on Form S-3 promulgated under the Securities Act.
(cc) TAX STATUS. Except for matters that would not,
individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect, the Company and each Subsidiary has
filed all necessary federal, state and foreign income and franchise tax
returns and has paid or accrued all taxes shown as due thereon, and the
Company has no knowledge of a tax deficiency which has been asserted or
threatened against the Company or any Subsidiary.
(dd) NO GENERAL SOLICITATION. Neither the Company nor any
person acting on behalf of the Company has offered or sold any of the
Securities by any form of general solicitation or general advertising.
The Company has offered the Securities for sale only to the Purchasers
and certain other "accredited investors" within the meaning of Rule 501
under the Securities Act.
(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 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 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) ACCOUNTANTS. The Company's accountants are set forth on
SCHEDULE 3.1(FF) of the Disclosure Schedule. To the knowledge of the
Company, such accountants, who the Company expects will express their
opinion with respect to the financial statements to be included in the
Company's Annual Report on Form 10-K for the year ended July 30, 2005
are a registered public accounting firm as required by the Securities
Act.
(gg) SENIORITY. As of the Closing Date, no indebtedness or
other equity of the Company is senior to the Debentures in right of
payment, whether with respect to interest or upon liquidation or
dissolution, or otherwise, other than indebtedness secured by purchase
money security interests or mortgages (which is senior only as to
underlying assets covered thereby) and capital lease obligations (which
is senior only as to the property covered thereby).
(hh) NO DISAGREEMENTS WITH ACCOUNTANTS AND LAWYERS. There are
no disagreements of any kind presently existing, or reasonably
anticipated by the Company
17
to arise, between the accountants and lawyers formerly or presently
employed by the Company and the Company is current with respect to any
fees owed to its accountants and lawyers.
(ii) ACKNOWLEDGMENT REGARDING PURCHASERS' PURCHASE OF
SECURITIES. The Company acknowledges and agrees that each of the
Purchasers is acting solely in the capacity of an arm's length purchaser
with respect to the Transaction Documents 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 advice given by any Purchaser or any of
their respective representatives or agents in connection with this
Agreement and the transactions contemplated hereby 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 transactions contemplated hereby by the Company and its
representatives.
(jj) ACKNOWLEDGEMENT REGARDING PURCHASERS' TRADING ACTIVITY.
Anything in this Agreement or elsewhere herein to the contrary
notwithstanding (except for Section 4.16 hereof), it is understood and
agreed by the Company (i) that none of the Purchasers have been asked to
agree, nor has any Purchaser agreed, to desist from purchasing or
selling, long and/or short, securities of the Company, or "derivative"
securities based on securities issued by the Company or to hold the
Securities for any specified term; (ii) that past or future open market
or other transactions by any Purchaser, including Short Sales, and
specifically including, without limitation, Short Sales or "derivative"
transactions, before or after the closing of this or future private
placement transactions, may negatively impact the market price of the
Company's publicly-traded securities; (iii) that any Purchaser, and
counter parties in "derivative" transactions to which any such Purchaser
is a party, directly or indirectly, presently may have a "short"
position in the Common Stock, and (iv) that each Purchaser shall not be
deemed to have any affiliation with or control over any arm's length
counter-party in any "derivative" transaction. The Company further
understands and acknowledges that (a) one or more Purchasers may engage
in hedging activities at various times during the period that the
Securities are outstanding, including, without limitation, during the
periods that the value of the Underlying Shares deliverable with respect
to Securities are being determined and (b) such hedging activities (if
any) could reduce the value of the existing stockholders' equity
interests in the Company at and after the time that the hedging
activities are being conducted. The Company acknowledges that such
aforementioned hedging activities do not constitute a breach of any of
the Transaction Documents.
(kk) MANIPULATION OF PRICE. The Company has not, and to its
knowledge no one acting on its behalf has, (i) taken, directly or
indirectly, any action designed to cause or to result in the
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of any of the Securities, (ii)
sold, bid for, purchased, or, paid any compensation for soliciting
purchases of, any of the Securities (other than for the placement
agent's placement of the Securities), or (iii) paid or agreed
18
to pay to any person any compensation for soliciting another to purchase
any other securities of the Company.
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 hereunder and 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 a 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) OWN ACCOUNT. 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 in violation of the Securities Act or any applicable state
securities law, has no present intention of distributing any of such
Securities in violation of the Securities Act or any applicable state
securities law and has no arrangement or understanding with any other
persons regarding the distribution of such Securities (this
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) in
violation of the Securities Act or any applicable state securities law.
Such Purchaser is acquiring the Securities hereunder in the ordinary
course of its business. Such Purchaser does not have any agreement or
understanding, directly or indirectly, with any Person to distribute any
of the Securities.
(c) PURCHASER STATUS. At the time such Purchaser was offered
the Securities, it was, and at the date hereof it is, and on each date
on which it exercises any Warrants or converts any Debentures it will be
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.
19
(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. Each Purchaser represents
that, if it deems legal representation necessary, it has retained its
own legal counsel separate and apart from any other Purchaser.
(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) SHORT SALES AND CONFIDENTIALITY PRIOR TO THE DATE
HEREOF. Other than the transaction contemplated hereunder, such
Purchaser has not directly or indirectly, nor has any Person acting on
behalf of or pursuant to any understanding with such Purchaser, executed
any disposition, including Short Sales (but not including the location
and/or reservation of borrowable shares of Common Stock), in the
securities of the Company during the period commencing from the time
that such Purchaser first received a term sheet from the Company or any
other Person setting forth the material terms of the transactions
contemplated hereunder until the date hereof ("DISCUSSION TIME").
Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio managers
manage separate portions of such Purchaser's assets and the portfolio
managers have no direct knowledge of the investment decisions made by
the portfolio managers managing other portions of such Purchaser's
assets, the representation set forth above shall only apply with respect
to the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this
Agreement. Other than to other Persons party to this Agreement, such
Purchaser has maintained the confidentiality of all disclosures made to
it in connection with this transaction (including the existence and
terms of this transaction).
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
20
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 shall
be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred Securities
under the Securities Act. As a condition of transfer, any such
transferee shall agree in writing to be bound by the terms of this
Agreement and shall have the rights of a Purchaser under this Agreement
and the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is
required by this Section 4.1(b), of a legend on any of the Securities in
the following form:
[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
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
21
Act or other applicable provision of the Securities Act to appropriately
amend the list of Selling Stockholders thereunder.
(c) Certificates evidencing the Underlying Shares shall not
contain any legend (including the legend set forth in Section 4.1(b)
hereof): (i) while a registration statement (including the Registration
Statement) covering the resale of such security is effective under the
Securities Act, or (ii) following any sale of such Underlying Shares
pursuant to Rule 144, or (iii) if such Underlying Shares are eligible
for sale under Rule 144(k), or (iv) if such legend is not required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the
Commission). The Company shall cause its counsel to issue a legal
opinion to the Company's transfer agent promptly after the Effective
Date if required by the Company's transfer agent to effect the removal
of the legend hereunder. If all or any portion of a Debenture or Warrant
is converted or exercised (as applicable) at a time when there is an
effective registration statement to cover the resale of the Underlying
Shares, or if such Underlying Shares may be sold under Rule 144(k) or if
such legend is not otherwise required under applicable requirements of
the Securities Act (including judicial interpretations thereof) then
such Underlying Shares shall be issued free of all legends. The Company
agrees that following the Effective Date or at such time as such legend
is no longer required under this Section 4.1(c), it will, no later than
three Trading Days following the delivery by a Purchaser to the Company
or the Company's transfer agent of a certificate representing Underlying
Shares, as applicable, issued with a restrictive legend (such third
Trading Day, the "LEGEND REMOVAL DATE"), deliver or cause to be
delivered to such Purchaser a certificate representing such shares that
is free from all restrictive and other legends. The Company may not make
any notation on its records or give instructions to any transfer agent
of the Company that enlarge the restrictions on transfer set forth in
this Section. Certificates for Securities subject to legend removal
hereunder shall be transmitted by the transfer agent of the Company to
the Purchasers by crediting the account of the Purchaser's prime broker
with the Depository Trust Company System.
(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 $1,000 of Underlying
Shares (based on the VWAP of the Common Stock on the date such
Securities are submitted to the Company's transfer agent) delivered for
removal of the restrictive legend and subject to Section 4.1(c), $10 per
Trading Day (increasing to $20 per Trading Day 10 Trading Days after
such damages have begun to accrue) for each Trading Day after the second
Trading Day following the Legend Removal Date until such certificate is
delivered without a legend. 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.
Notwithstanding anything herein to the contrary, as to any delays in
performance caused solely and directly by a Force Majeure, the Trading
Days during which such delay is occurring shall be tolled hereunder with
respect to liquidated damages, provided that the
22
Company has used, and continues to use, best efforts to perform its
obligations notwithstanding such Force Majeure.
(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.
4.2 ACKNOWLEDGMENT OF DILUTION. The Company acknowledges that the
issuance of the Securities may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that its obligations under the Transaction
Documents, including without limitation its obligation to issue the Underlying
Shares pursuant to the Transaction Documents, are unconditional and absolute and
not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim the Company may have
against any Purchaser and regardless of the dilutive effect that such issuance
may have on the ownership of the other stockholders of the Company.
4.3 FURNISHING OF INFORMATION. As long as any Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. As long as any Purchaser owns Securities, if the Company is not
required to file reports pursuant to the Exchange Act, it will prepare and
furnish to the Purchasers and make publicly available in accordance with Rule
144(c) such information as is required for the Purchasers to sell the Securities
under Rule 144. The Company further covenants that it will take such further
action as any holder of Securities may reasonably request, all to the extent
required from time to time to enable such Person to sell such Securities without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144.
4.4 INTEGRATION. The Company shall not 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 Trading Market.
4.5 CONVERSION AND EXERCISE PROCEDURES. The form of Notice of
Exercise included in the Warrants and the form of Notice of Conversion included
in the Debentures set forth the totality of the procedures required of the
Purchasers in order to exercise the Warrants or convert the Debentures. No
additional legal opinion or other information or instructions shall be required
of the Purchasers to exercise their Warrants or convert their Debentures. The
Company shall honor exercises of the Warrants and conversions of the Debentures
and shall deliver Underlying Shares in accordance with the terms, conditions and
time periods set forth in the Transaction Documents.
23
4.6 SECURITIES LAWS DISCLOSURE; PUBLICITY. The Company shall, by
5:00 p.m. Eastern time on the second Trading Day following the Closing Date,
issue a Current Report on Form 8-K, reasonably acceptable to each Purchaser
disclosing the material terms of the transactions contemplated hereby, and shall
attach the Transaction Documents thereto. The Company and each Purchaser shall
consult with each other in issuing any other 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 filing with the Commission or any regulatory agency
or Trading 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 Trading Market regulations, in
which case the Company shall provide the Purchasers with prior notice of such
disclosure permitted under subclause (i) or (ii).
4.7 SHAREHOLDER 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 shareholder 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.
4.8 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.
4.9 USE OF PROCEEDS. Except as set forth on SCHEDULE 4.9 attached
hereto, 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 in the
ordinary course of the Company's business and prior practices), to redeem any
Common Stock or Common Stock Equivalents or to settle any outstanding
litigation.
4.10 [INTENTIONALLY DELETED]
4.11 INDEMNIFICATION OF PURCHASERS. Subject to the provisions of this
Section 4.11, the Company will indemnify and hold the Purchasers and their
directors, officers, shareholders, members, partners, employees and agents
(each, a "PURCHASER PARTY") harmless from any and all losses, liabilities,
obligations, claims, contingencies, damages, costs and expenses, including all
24
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 representations,
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 a 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
breach of any of the representations, warranties, covenants or agreements made
by the Purchasers in this Agreement or in the other Transaction Documents.
Notwithstanding anything herein to the contrary, without limiting any
Purchaser's other remedies at law or equity, such Purchaser's right to receive
indemnification hereunder shall be limited to it Subscription Amount paid at the
Closing.
4.12 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 the
Required Minimum on such date, then the Board of Directors of the
Company shall use commercially reasonable efforts to amend the Company's
certificate or articles of incorporation to increase the number of
authorized but unissued shares of Common Stock to at least the Required
Minimum at such time, as soon as possible and in any event not later
than the 75th day after such date.
(c) The Company shall, if applicable: (i) in the time and
manner required by the Trading Market, prepare and file with such
Trading Market an additional shares listing application covering a
number of shares of Common Stock at least equal to the Required
25
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
Trading Market as soon as possible thereafter, (iii) provide to the
Purchasers evidence of such listing, and (iv) maintain the listing of
such Common Stock on any date at least equal to the Required Minimum on
such date on such Trading Market or another Trading Market. In addition,
the Company shall hold a special meeting of shareholders (which may also
be at the annual meeting of shareholders) on or before August 15, 2005
for the purpose of obtaining 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. If the
Company does not obtain Shareholder Approval at the first meeting, the
Company shall call a meeting every four months thereafter to seek
Shareholder Approval until the earlier of the date Shareholder Approval
is obtained or the Debentures are no longer outstanding.
4.13 PARTICIPATION IN FUTURE FINANCING.
(a) From the date hereof until the date that is the one year
anniversary of the Effective Date, upon any financing by the Company or
any of its Subsidiaries of Common Stock or Common Stock Equivalents (a
"SUBSEQUENT FINANCING"), each Purchaser shall have the right to
participate in up to an amount of the Subsequent Financing equal to 50%
of the Subsequent Financing (the "PARTICIPATION MAXIMUM").
(b) At least 5 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.
(c) Any Purchaser desiring to participate in such Subsequent
Financing must provide written notice to the Company by not later than
5:30 p.m. (New York City time) on the 5th Trading Day after all of the
Purchasers have received the Pre-Notice that the Purchaser is willing to
participate in the Subsequent Financing, the amount of the Purchaser's
participation, and that the Purchaser has such funds ready, willing, and
available for investment on the terms set forth in the Subsequent
Financing Notice. If the Company receives no notice from a Purchaser as
of such 5th Trading Day, such Purchaser shall be deemed to have notified
the Company that it does not elect to participate.
26
(d) If by 5:30 p.m. (New York City time) on the 5th Trading
Day after all of the Purchasers have received the Pre-Notice,
notifications by the Purchasers of their willingness to participate in
the Subsequent Financing (or to cause their designees to participate)
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.
(e) If by 5:30 p.m. (New York City time) on the 5th Trading
Day after all of the Purchasers have received the Pre-Notice, the
Company receives responses to a Subsequent Financing Notice from
Purchasers seeking to purchase more than the aggregate amount of the
Participation Maximum, each such Purchaser shall have the right to
purchase the greater of (a) their Pro Rata Portion (as defined below) of
the Participation Maximum and (b) the difference between the
Participation Maximum and the aggregate amount of participation by all
other Purchasers. "PRO RATA PORTION" is the ratio of (x) the
Subscription Amount of Securities purchased on the Closing Date by a
Purchaser participating under this Section 4.13 and (y) the sum of the
aggregate Subscription Amounts of Securities purchased on the Closing
Date by all Purchasers participating under this Section 4.13.
(f) 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.
(g) Notwithstanding the foregoing, this Section 4.13 shall
not apply in respect of an Exempt Issuance.
4.14 SUBSEQUENT EQUITY SALES.
(a) From the date hereof until 60 days after the Effective
Date, neither the Company nor any Subsidiary shall issue shares of
Common Stock or Common Stock Equivalents; provided, however, 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 Trading 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 the
Purchasers for the resale of the Underlying Shares.
(b) From the date hereof until such time as no Purchaser
holds any of the Securities, the Company shall be prohibited from
effecting or entering into an agreement to effect any Subsequent
Financing involving a "Variable Rate Transaction". The term "VARIABLE
RATE TRANSACTION" shall mean a transaction in which the Company issues
or sells (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
27
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 or (ii) enters into any
agreement, including, but not limited to, an equity line of credit,
whereby the Company may sell securities at a future determined price.
(c) Unless Shareholder Approval has been obtained and deemed
effective, the Company shall not make any issuance whatsoever of Common
Stock or Common Stock Equivalents below the then Exercise Price (as
defined in the Warrants). Any Purchaser shall be entitled to obtain
injunctive relief against the Company to preclude any such issuance,
which remedy shall be in addition to any right to collect damages.
(d) Notwithstanding the foregoing, this Section 4.14 shall
not apply in respect of an Exempt Issuance, except that no Variable Rate
Transaction shall be an Exempt Issuance.
4.15 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. Further, the
Company shall not make any payment of principal or interest on the Debentures in
amounts which are disproportionate to the respective principal amounts
outstanding on the Debentures at any applicable time. 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 for
the Company to treat 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.
4.16 SHORT SALES AND CONFIDENTIALITY AFTER THE DATE HEREOF. Each
Purchaser severally and not jointly with the other Purchasers covenants that
neither it nor any affiliates acting on its behalf or pursuant to any
understanding with it will execute any Short Sales during the period after the
Discussion Time and ending at the time that the transactions contemplated by
this Agreement are first publicly announced as described in Section 4.6. Each
Purchaser, severally and not jointly with the other Purchasers, covenants that
until such time as the transactions contemplated by this Agreement are publicly
disclosed by the Company as described in Section 4.6, such Purchaser will
maintain, the confidentiality of all disclosures made to it in connection with
this transaction (including the existence and terms of this transaction). Each
Purchaser understands and acknowledges, severally and not jointly with any other
Purchaser, that the Commission currently takes the position that coverage of
short sales of shares of the Common Stock "against the box" prior to the
Effective Date of the Registration Statement with the Securities is a violation
of Section 5 of the Securities Act, as set forth in Item 65, Section 5 under
Section A, of the Manual of Publicly Available Telephone Interpretations, dated
July 1997, compiled by the Office of Chief Counsel, Division of Corporation
Finance. Notwithstanding the foregoing, no Purchaser makes any representation,
warranty or covenant hereby that it will not
28
engage in Short Sales in the securities of the Company after the time that the
transactions contemplated by this Agreement are first publicly announced as
described in Section 4.6. Notwithstanding the foregoing, in the case of a
Purchaser that is a multi-managed investment vehicle whereby separate portfolio
managers manage separate portions of such Purchaser's assets and the portfolio
managers have no direct knowledge of the investment decisions made by the
portfolio managers managing other portions of such Purchaser's assets, the
covenant set forth above shall only apply with respect to the portion of assets
managed by the portfolio manager that made the investment decision to purchase
the Securities covered by this Agreement.
4.17 ADDITIONAL INVESTMENT.
(a) From the date hereof until 18 months after the Effective
Date, each Purchaser may, in its sole determination, elect to purchase,
severally and not jointly with the other Purchasers, in the ratio of
such Purchaser's original Subscription Amount to the original aggregate
Subscription Amount of all Purchasers, additional debentures for an
aggregate purchase price of up to $15,000,000 and warrants to acquire
shares of Common Stock (such securities, the "GREENSHOE SECURITIES" and
such right to receive the Greenshoe Securities pursuant to this Section
4.17, the "PURCHASER GREENSHOE RIGHTS").
(b) The Company shall have the right to put the Greenshoe
Securities ("COMPANY GREENSHOE RIGHTS" and collectively with the
Purchaser Greenshoe Rights, the "GREENSHOE RIGHTS") to each Purchaser as
follows and subject to the following terms and conditions (please refer
to ANNEX A for the actual conversion prices and exercise prices of the
securities underlying the Greenshoe Rights):
(i) commencing on the 90th calendar day following
the Effective Date through and including the 179th calendar day
following the Effective Date ("FIRST GREENSHOE PERIOD"), if each
of the VWAPs for any 20 consecutive Trading Day period during
the First Greenshoe Period exceeds $7.80, 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, within 1 Trading
Day of the end of any such period meeting such pricing
requirement, by delivery of written notice to each Purchaser
("FIRST COMPANY GREENSHOE NOTICE"), the Company shall have the
right to require each Purchaser to purchase up, in the aggregate
during the First Greenshoe Period, their Pro Rata Share (as
defined below) of up to $5 million of the Greenshoe Securities
having a conversion price of $6.50, 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. "PRO RATA SHARE",
as used under this Section 4.17(b)(i), shall be the ratio of
such Purchaser's Subscription Amount on the Closing Date to the
aggregate Subscription Amounts of all Purchasers on the Closing
Date; provided that a Purchaser's Pro Rata Share of the
Greenshoe Securities required to be purchased shall be reduced
by an amount equal to any Greenshoe Securities purchased by such
Purchaser prior to the date of the First Company Greenshoe
Notice;
29
(ii) commencing on the 180th calendar day following
the Effective Date through and including the 269th calendar day
following the Effective Date ("SECOND GREENSHOE PERIOD"), if
each of the VWAPs for any 20 consecutive Trading Day period
during the Second Greenshoe Period exceeds $9, 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,
within 1 Trading Day of the end of any such period meeting such
pricing requirements by delivery of written notice to each
Purchaser ("SECOND COMPANY GREENSHOE NOTICE"), the Company shall
have the right to require each Purchaser to purchase up to, in
the aggregate during the Second Greenshoe Period, their Pro Rata
Share (as defined below) of up to $5 million of the Greenshoe
Securities having a conversion price of $7.50, 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.
"PRO RATA SHARE", as used under this Section 4.17(b)(ii), shall
be the ratio of such Purchaser's Subscription Amount on the
Closing Date to the aggregate Subscription Amounts of all
Purchasers on the Closing Date; provided that a Purchaser's Pro
Rata Share of the Greenshoe Securities required to be purchased
shall be reduced by an amount equal to any Greenshoe Securities
purchased by such Purchaser prior to the date of the Second
Company Greenshoe Notice in excess of such Purchaser's
Unadjusted Pro Rata Share of $5 million. "UNADJUSTED PRO RATA
SHARE" is the ratio of such Purchaser's Subscription Amount on
the Closing Date to the aggregate Subscription Amounts of all
Purchasers on the Closing Date; and
(iii) commencing on the 270th calendar day following
the Effective Date through and including the 360th calendar day
following the Effective Date ("THIRD GREENSHOE PERIOD" and
collectively with the First Greenshoe Period and the Second
Greenshoe Period, the "COMPANY GREENSHOE PERIODS"), if each of
the VWAPs for any 20 consecutive Trading Day period during the
Third Greenshoe Period exceeds $10.20, 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, within 1 Trading
Day of the end of any such period meeting such pricing
requirements by delivery of written notice to each Purchaser
("THIRD COMPANY GREENSHOE Notice"), the Company shall have the
right to require each Purchaser to purchase up to, in the
aggregate during the Third Greenshoe Period, their Pro Rata
Share (as defined below) of up to $5 million of the Greenshoe
Securities having a conversion price equal to 80% of the average
of the 20 VWAPs immediately prior to the date of exercise. "PRO
RATA SHARE", as used under this Section 4.17(b)(iii), shall be
the ratio of such Purchaser's Subscription Amount on the Closing
Date to the aggregate Subscription Amounts of all Purchasers on
the Closing Date; provided that a Purchaser's Pro Rata Share of
the Greenshoe Securities required to be purchased shall be
reduced by an amount equal to any Greenshoe Securities purchased
by such Purchaser prior to the date of the Second Company
Greenshoe Notice in excess of such Purchaser's Unadjusted Pro
Rata Share of $10 million.
30
(c) Any Greenshoe Right exercised by a Purchaser or the
Company shall close within 10 Trading Days of a duly delivered exercise
notice by the exercising party. Any additional investment in the
Greenshoe Securities shall be on terms identical to those set forth in
the Transaction Documents, MUTATIS MUTANDIS, other than those terms,
conditions and prices specifically set forth on ANNEX A attached hereto.
In order to effectuate a purchase and sale of the Greenshoe Securities,
the Company and the Purchasers 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. Notwithstanding anything herein to the
contrary, the Company shall not have the right to exercise a Company
Greenshoe Right, and Purchasers shall not be obligated to purchase such
securities issuable pursuant to the Company Greenshoe Right, if (i) a
Material Adverse Effect has occurred during the period from the Closing
Date to the closing date of such exercise, (ii) if from the commencement
of the applicable Greenshoe Period until the closing of the purchase and
sale of the applicable Greenshoe Securities, the Equity Conditions (as
defined in the Debentures) are not satisfied as to the Debentures and
Warrants issuable under this Agreement or (iii) unless no registration
statement is then required pursuant to the terms of the transaction
documents entered into pursuant to prior exercised Greenshoe Rights, if
there is not an effective registration statement under the Securities
Act pursuant to which the Purchasers are permitted to utilize the
prospectus thereunder to resell all of the shares issuable pursuant to
any previously issued Greenshoe Securities (and the Company believes, in
good faith, that such effectiveness will continue uninterrupted for the
foreseeable future). The Company shall exercise the Company Greenshoe
Right to all Purchasers at the same time based on their applicable Pro
Rata Share, as adjusted hereunder.
ARTICLE V.
MISCELLANEOUS
5.1 TERMINATION. This Agreement may be terminated by any Purchaser,
as to such Purchaser's obligations hereunder only and without any effect
whatsoever on the obligations between the Company and the other Purchasers, by
written notice to the other parties, if the Closing has not been consummated on
or before July 8, 2005; PROVIDED, HOWEVER, that no such termination will affect
the right of any party to xxx for any breach by the other party (or parties).
5.2 FEES AND EXPENSES. At the Closing, the Company has agreed to
reimburse Lilac Ventures Master Fund Ltd. ("LILAC") for $20,000, for its actual,
reasonable, out-of-pocket legal fees and expenses. Accordingly, in lieu of the
foregoing payments, the aggregate amount that Lilac is to pay for the Debentures
and Additional Investment Rights at the Closing shall be reduced by $20,000 in
lieu thereof. Except as expressly set forth in the Transaction Documents to the
contrary, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company
31
shall pay all transfer agent fees, stamp taxes and other taxes and duties levied
in connection with the delivery of any Securities.
5.3 ENTIRE AGREEMENT. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.4 NOTICES. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (a) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto prior to 5:30
p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the
date of transmission, if such notice or communication is delivered via facsimile
at the facsimile number set forth on the signature pages attached hereto 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) the 2nd Trading Day 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 address
for such notices and communications shall be as set forth on the signature pages
attached hereto.
5.5 AMENDMENTS; WAIVERS. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by the Company and each 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.
5.6 HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
5.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of 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".
5.8 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of,
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nor may any provision hereof be enforced by, any other Person, except as
otherwise set forth in Section 4.11.
5.9 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 agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York. 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 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 attorneys' fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such action or
proceeding.
5.10 SURVIVAL. The representations and warranties contained herein
shall survive the Closing and the delivery, exercise and/or conversion of the
Securities, as applicable for the applicable statue of limitations; PROVIDED,
HOWEVER, where no such statute of limitation applies, the representations and
warranties shall not survive beyond the third month after no Debentures are
outstanding.
5.11 EXECUTION. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
5.12 SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties
33
will attempt to agree upon a valid and enforceable provision that is a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.
5.13 RESCISSION AND WITHDRAWAL RIGHT. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights; PROVIDED,
HOWEVER, in the case of a rescission of a conversion of a Debenture or exercise
of a Warrant, the Purchaser shall be required to return any shares of Common
Stock subject to any such rescinded conversion or exercise notice.
5.14 REPLACEMENT OF SECURITIES. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
5.15 REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
5.16 PAYMENT SET ASIDE. To the extent that the Company makes a
payment or payments to any Purchaser pursuant to any Transaction Document or a
Purchaser enforces or exercises its rights thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
5.17 USURY. To the extent it may lawfully do so, the Company hereby
agrees not to insist upon or plead or in any manner whatsoever claim, and will
resist any and all efforts to be compelled to take the benefit or advantage of,
usury laws wherever enacted, now or at any time hereafter in force, in
connection with any claim, action or proceeding that may be brought by any
34
Purchaser in order to enforce any right or remedy under any Transaction
Document. Notwithstanding any provision to the contrary contained in any
Transaction Document, it is expressly agreed and provided that the total
liability of the Company under the Transaction Documents for payments in the
nature of interest shall not exceed the maximum lawful rate authorized under
applicable law (the "MAXIMUM RATE"), and, without limiting the foregoing, in no
event shall any rate of interest or default interest, or both of them, when
aggregated with any other sums in the nature of interest that the Company may be
obligated to pay under the Transaction Documents exceed such Maximum Rate. It is
agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or
any official governmental action subsequent to the date hereof, the new maximum
contract rate of interest allowed by law will be the Maximum Rate applicable to
the Transaction Documents from the effective date forward, unless such
application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any
Purchaser with respect to indebtedness evidenced by the Transaction Documents,
such excess shall be applied by such Purchaser to the unpaid principal balance
of any such indebtedness or be refunded to the Company, the manner of handling
such excess to be at such Purchaser's election.
5.18 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. 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 Lilac. The Company has elected to provide all Purchasers
with the same terms and Transaction Documents for the convenience of the Company
and not because it was required or requested to do so by the Purchasers.
5.19 LIQUIDATED DAMAGES. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all 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.
5.20 CONSTRUCTION. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the
35
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of the Transaction Documents or any amendments hereto.
(SIGNATURE PAGES FOLLOW)
36
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.
ABLE ENERGY, INC. Address for Notice:
-------------------
By:_________________________________
Name:
Title:
With a copy to (which shall not constitute notice):
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
37
[PURCHASER SIGNATURE PAGES TO ABLE 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 Purchaser: _____________________________________________________________
SIGNATURE OF AUTHORIZED SIGNATORY OF PURCHASER: ________________________________
Name of Authorized Signatory: __________________________________________________
Title of Authorized Signatory: _________________________________________________
Email Address of Purchaser:_____________________________________________________
Address for Notice of Purchaser:
Address for Delivery of Securities for Purchaser (if not same as above):
Subscription Amount:
Warrant Shares:
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
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ANNEX A
CLOSING STATEMENT
Pursuant to the attached Securities Purchase Agreement, dated as of the date
hereto, the purchasers shall purchase up to $2,500,000 of Debentures and
Warrants from Able Energy, Inc., a Delaware corporation (the "Company"). All
funds will be wired into a trust account maintained by Xxxxxx Xxxxx Xxxx &
Xxxxxx, LLP, counsel to the Company at the following wire instructions:
BANK: XX Xxxxxx Chase
000 Xxxxxxx Xxxxxxxxxx Xxxx
Xxxxxx. XX 00000-0000
Attn: Xxxxxxxxx Xxxxxxx
ACC'T NO: 000-00-000 (Escrow)
ABA NO: 000000000
F/B/O: Xxxxxx Xxxxx Xxxx & Xxxxxx, LLP
000 Xxxxx Xxxxxx - 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
All funds will be disbursed in accordance with this Closing Statement.
DISBURSEMENT DATE: July ___, 2005
________________________________________________________________________________
I. PURCHASE PRICE
GROSS PROCEEDS TO BE RECEIVED IN TRUST $
II. DISBURSEMENTS
$
$
$
$
$
TOTAL AMOUNT DISBURSED: $
WIRE INSTRUCTIONS:
To: _____________________________________
39
ANNEX A
The transaction documents entered into and issued pursuant to Section
4.17 shall be modified from the Transaction Documents as follows (all fixed
prices are 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):
The debenture:
Section 4(b) shall be amended and replaced as follows:
CONVERSION PRICE. The conversion price in effect on any
Conversion Date shall be equal to [$6.50 AS TO PURCHASER'S FIRST
PRO-RATA SHARE OF $5 MILLION OF DEBENTURES PURCHASED PURSUANT TO SECTION
4.18, $7.50 AS TO PURCHASER'S SECOND PRO-RATA SHARE OF $5 MILLION OF
DEBENTURES PURCHASED PURSUANT TO SECTION 4.17 AND 80% OF THE AVERAGE OF
THE 20 VWAPS IMMEDIATELY PRIOR TO THE EXERCISE OF THE APPLICABLE
GREENSHOE RIGHTS AS TO PURCHASER'S THIRD PRO-RATA SHARE OF $5 MILLION OF
DEBENTURES PURCHASED PURSUANT TO SECTION 4.17] (subject to adjustment
herein)(the "CONVERSION PRICE").
The warrant:
Section 2(b) shall be amended as follows:
EXERCISE PRICE. The exercise price of the Common Stock under this
Warrant shall be $[110% OF THE APPLICABLE CONVERSION PRICE OF THE DEBENTURES BE
ISSUED IN CONNECTION WITH THIS WARRANT], subject to adjustment hereunder (the
"EXERCISE PRICE")
The registration rights agreement shall be amended as follows:
"EFFECTIVENESS DATE" means, with respect to the initial
Registration Statement required to be filed hereunder, 90 days from the
date hereof, and with respect to any additional Registration Statements
which may be required pursuant to Section 3(c), the 60th calendar day
following the date on which the Company first knows, or reasonably
should have known, that such additional Registration Statement is
required hereunder; PROVIDED, HOWEVER, in the event the Company is
notified by the Commission that one of
40
the above Registration Statements will not be reviewed or is no longer
subject to further review and comments, the Effectiveness Date as to
such Registration Statement shall be the fifth Trading Day following the
date on which the Company is so notified if such date precedes the dates
required above.
"FILING DATE" means, with respect to the initial Registration
Statement required hereunder, 30 days from the date hereof and, with
respect to any additional Registration Statements which may be required
pursuant to Section 3(c), the 15th day following the date on which the
Company first knows, or reasonably should have known that such
additional Registration Statement is required hereunder.
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