SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT, dated as of June 27, 2000 (this
"Agreement"), among BRITESMILE, INC., a corporation organized and existing
under the laws of Utah (the "Company"), and the purchasers identified in Exhibit
A to this Agreement (each individually a "Purchaser," and collectively the
"Purchasers").
Recitals
A. Subject to the terms and conditions set forth in this Agreement, the
Company desires to issue and sell to the Purchasers, and the Purchasers desire
to purchase an aggregate principal amount of Fifteen Million Eight Hundred
Thirty-three Thousand, Three Hundred Thirty-three Dollars ($15,833,333) of the
Company's 5% Convertible Subordinated Notes, due 2005 (the "Convertible
Notes"), which are convertible into shares of the Company's common stock, par
value $.001 per share (the "Common Stock"). The Convertible Notes shall be in
the form attached to this Agreement as Exhibit B. Exhibit A sets forth the
aggregate principal amount of Convertible Notes to be purchased by each of the
Purchasers. No Purchaser shall be responsible for the obligations of any other
Purchaser.
B. Simultaneously with their purchase of the Convertible Notes, the
Purchasers desire to purchase, and the Company desires to sell and issue,
warrants to purchase Common Stock (the "Warrants"). The number of shares of
Common Stock issuable upon the exercise of the Warrants issued to the Purchasers
shall be equal to the quotient of (A) the product of the aggregate principal
amount of Convertible Notes purchased by each Purchaser multiplied by 0.50,
divided by (B) the Conversion Price on the Issuance Date (as those terms are
defined in the Convertible Notes) and shall be substantially in the form
attached as Exhibit C. The exercise price of the Warrants shall be 140% of the
Market Price (as that term is defined in the Warrants) of Common Stock as of the
Pricing Date (as that term is defined in the Warrants).
C. The Company and the Purchasers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "Securities Act").
D. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as Exhibit D (the "Registration Rights
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Agreement") pursuant to which the Company has agreed to provide certain
registration rights under the Securities Act, and the rules and regulations
promulgated thereunder, and applicable state securities laws.
IN CONSIDERATION of the mutual covenants and agreements set forth herein
and for good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF CONVERTIBLE NOTES
1.1 Purchase and Sale. Subject to the terms and conditions set forth
herein, the Company shall issue and sell to each Purchaser and each Purchaser
severally agrees to purchase the principal amount of Convertible Notes, in
denominations of no lower than $100,000 and integral multiples of $50,000 in
excess thereof, set forth opposite such Purchaser's name on Exhibit A hereto at
the closing described below. No Purchaser shall be responsible for the
obligations of any other Purchaser.
1.2 The Closing.
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(a) Time and Place. The closing (the "Closing") of the purchase and
sale of the Convertible Notes shall take place at the offices of Durham Xxxxx &
Xxxxxxx, P.C. ("DJP"), Broadway Centre, Suite 900, 000 Xxxx Xxxxxxxx, Xxxx Xxxx
Xxxx, Xxxx 00000, at 9:00 a.m. local time, on June 30, 2000 or such later date
as the parties shall agree. The date of the Closing is referred to in this
Agreement as the "Closing Date."
(b) Deliveries. At the Closing, (i) the Company shall deliver to
DJP, as escrow agent for the Company and the Purchasers (the "Escrow Agent") (1)
the Convertible Notes and the Warrants, each registered in the respective names
of the Purchasers, (2) the legal opinion of DJP substantially in the form
attached hereto as Exhibit E, and (3) all other documents, instruments and
writings required to have been delivered at or prior to the Closing by the
Company pursuant to this Agreement; and (ii) the Purchasers shall deliver to the
Escrow Agent (1) a total of Fifteen Million Eight Hundred Thirty-three Thousand,
Three Hundred Thirty-three Dollars ($15,833,333) (the "Purchase Price"), in
United States dollars in immediately available funds by wire transfer to the
account of the Escrow Agent as designated in an Escrow Agreement, which shall be
executed by all the parties hereto and the Escrow Agent, and delivered to the
Escrow Agent on the date of this Agreement, and shall be in the form attached
hereto as Exhibit G, which Purchase Price shall be payable severally by each of
the Purchasers in the amount specified opposite their names on Exhibit A hereto,
and (2) all documents, instruments, and writings required to have been delivered
at or prior to the Closing by the Purchasers pursuant to this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. The
Company hereby makes the following representations and warranties to the
Purchasers:
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(a) Organization and Qualification. The Company is a corporation,
duly organized, validly existing, and in good standing under the laws of the
State of Utah, with the requisite corporate power and authority to own and use
its properties and assets and to carry on its business as currently conducted.
The Company has no subsidiaries other than as set forth in Schedule 2.1(a)
attached hereto (collectively, the "Subsidiaries"). Each of the Subsidiaries is
a corporation, duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, with the full corporate power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. Each of the Company and the Subsidiaries is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified or in good standing, as the case may be, could not, individually or
in the aggregate, (x) adversely affect the legality, validity or enforceability
of this Agreement, the Convertible Notes, the Warrants and the Registration
Rights Agreement (collectively, the "Transaction Documents"), (y) have a
material adverse effect on the results of operations, assets, prospects, or
financial condition of the Company and the Subsidiaries, taken as a whole, or
(z) adversely impair the Company's ability to perform fully on a timely basis
its obligations under the Transaction Documents (collectively or individually,
any of clauses (x) through (z) being referred to in this Agreement as a
"Material Adverse Effect").
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of the Transaction Documents
by the Company and the consummation by it of the transactions contemplated
hereby and thereby, including, without limitation, the issuance of the
Convertible Notes and the Warrants and the reservation for issuance and the
issuance of the Underlying Shares (as defined herein) issuable upon conversion
or exercise thereof, have been duly authorized by the Company's Board of
Directors and no further consent or authorization is required by the Company,
its Board of Directors or its shareholders (except to the extent that
shareholder approval may be required pursuant to the rules of the Nasdaq
National Market for the issuance of a number of Conversion Shares greater than
19.99% of the number of shares of Common Stock outstanding immediately prior to
the Closing Date). The Transaction Documents have been duly executed and
delivered by the Company. Each of the Transaction Documents constitutes the
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.
Neither the Company nor any Subsidiary is in violation of any of the provisions
of its respective articles or certificate of incorporation, bylaws, or other
charter documents.
(c) Capitalization. The authorized, issued, and outstanding capital
stock of the Company is set forth in Schedule 2.1(c). All of such outstanding
shares have been, or upon
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issuance will be, validly issued and are fully paid and nonassessable. No shares
of Common Stock are entitled to preemptive or similar rights, nor is any holder
of the Common Stock entitled to preemptive or similar rights arising out of any
agreement or understanding with the Company by virtue of any of the Transaction
Documents. Except as disclosed in Schedule 2.1(c), and except for the
Convertible Notes and Warrants, (A) no shares of the Company's capital stock are
subject to preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company; (B) there are no outstanding
debt securities issued by the Company; (C) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries; (D) there are no agreements or arrangements
under which the Company or any of its Subsidiaries is obligated to register the
sale of any of their securities under the Securities Act (except the
Registration Rights Agreement); (E) there are no outstanding securities or
instruments of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries; (F) there are no securities or instruments containing anti-
dilution or similar provisions that will be triggered by the issuance of the
Securities as described in this Agreement; and (G) the Company does not have any
stock appreciation rights or "phantom stock" plans or agreements or any similar
plan or agreement. The Company has furnished to each Purchaser true and correct
copies of the Company's Articles of Incorporation, as amended and as in effect
on the date hereof (the "Articles of Incorporation"), and the Company's Bylaws,
as amended and as in effect on the date hereof (the "Bylaws"), and the terms of
all securities convertible into or exercisable or exchangeable for Common Stock
and the material rights of the holders thereof in respect thereto. Except as
specifically disclosed in the SEC Documents (as defined below) or Schedule
2.1(c), no Person (as defined below) (i) to the knowledge of the Company,
beneficially owns (as determined pursuant to Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), or (ii) has
the right to acquire, by agreement with or by obligation binding upon the
Company, beneficial ownership of in excess of five percent (5%) of the Common
Stock. A "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.
(d) Issuance of Convertible Notes and Warrants. The Convertible
Notes and the Warrants are duly authorized, and, when issued and paid for in
accordance with the terms of this Agreement, shall be validly issued, fully paid
and nonassessable, and free from all taxes, liens and charges with respect to
the issuance thereof. The Company, as at the Closing Date, has and at all times
while the Convertible Notes and the Warrants are outstanding will maintain an
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adequate reserve of duly authorized shares of Common Stock to enable it to
comply with its obligations on the conversion or exercise of the Convertible
Notes or the Warrants, as the case may be. The shares of Common Stock that would
be issuable upon conversion in full of the Convertible Notes and the full
exercise of the Warrants (the "Underlying Shares") have been duly authorized and
when issued in accordance with the terms of the Convertible Notes and of the
Warrants, as the case may be, will be validly issued, fully paid and
nonassessable, and free from all taxes, liens and charges with respect to the
issuance thereof, with the holders being entitled to all rights accorded to a
holder of Common Stock. At least 6,500,000 shares of Common Stock (subject to
adjustment pursuant to the Company's covenant set forth in Section 3.15 below)
have been duly authorized and reserved for issuance upon conversion of the
Convertible Notes and upon exercise of the Warrants. The issuance by the Company
of the Securities is exempt from registration under the Securities Act.
(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby on the Closing Date do not and will not (i)
conflict with or violate any provision of its Articles of Incorporation or
bylaws (each as amended through the date hereof), (ii) subject to obtaining the
consents referred to in Section 2.1(f), conflict with, or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its Subsidiaries is a party, or (iii) result in a violation of any law,
rule, regulation, order, judgment, injunction, decree or other restriction of
any court or governmental authority to which the Company or any of its
Subsidiaries is subject (including Federal and state securities laws and
regulations), or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected, except in the case of each of clauses (ii)
and (iii), such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as could not, individually or in the aggregate,
have or result in a Material Adverse Effect. The business of the Company and
its Subsidiaries is not being conducted in violation of any law, ordinance or
regulation of any governmental authority, except for violations which,
individually or in the aggregate, do not have a Material Adverse Effect.
(f) Consents and Approvals. Except as specifically set forth in
Schedule 2.1(f), neither the Company nor any Subsidiary is required to obtain
any consent, waiver, authorization or order of, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other person in connection with the execution,
delivery and performance by the Company of the Transaction Documents other than
(i) the filing by the Company of the registration statement contemplated by the
Registration Rights Agreement with the SEC, (ii) the application by the Company
for the listing of the Underlying Shares with The Nasdaq Stock Market (and with
any other national securities exchange or market on which the Common Stock is
then listed), (iii) the filing by the Company of a Form D with the SEC; (iv) the
filing by the Company of any notification required in connection with the
consummation of the transactions contemplated by the Transaction Documents as
required by any state securities laws,
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and (v) in all other cases, where the failure to obtain such consent, waiver,
authorization or order, or to give or make such notice or filing, could not have
or result in, individually or in the aggregate, a Material Adverse Effect (the
consents, waivers, authorizations, orders, notices and filings referred to
clauses (i) through (iv) above and referred to in Schedule 2.1(f) being referred
to in this Agreement as the "Required Approvals"). Except as disclosed in
Schedule 2.1(f), all consents, authorizations, orders, filings and registrations
which the Company is required to obtain pursuant to the preceding sentence have
been obtained or effected on or prior to the date hereof. The Company and its
Subsidiaries are unaware of any facts or circumstances that might give rise to
any of the foregoing. The Company is not in violation of the listing
requirements of the Nasdaq National Market, including, without limitation, the
requirements set forth in Rule 4310(c)(25)(G)(i) of The Nasdaq Stock Market's
Marketplace Rules, and has no actual knowledge, nor has it received any notice
from the Nasdaq National Market of any facts which would reasonably lead to
delisting or suspension of the Common Stock by the Nasdaq National Market in the
foreseeable future.
(g) Litigation; Proceedings. Except as specifically disclosed in the
Disclosure Materials (as hereinafter defined) or in Schedule 2.1(g), there is no
action, suit, notice of violation, proceeding or investigation pending or, to
the best knowledge of the Company, threatened against or affecting the Company
or any of its Subsidiaries or any of their respective properties before or by
any court, governmental or administrative agency or regulatory authority
(Federal, state, county, local or foreign) which (i) adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Convertible Notes, Warrants, or Underlying Shares (collectively
the "Securities") or (ii) could not, individually or in the aggregate, have or
result in a Material Adverse Effect.
(h) No Default or Violation. Neither the Company nor any Subsidiary
(i) is in default under or in violation of any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or by
which it or any of its properties is bound, (ii) is in violation of any order of
any court, arbitrator or governmental body, or (iii) is in violation of any
statute, rule or regulation of any governmental authority, except as could not
individually or in the aggregate, have or result in, individually or in the
aggregate, Material Adverse Effect.
(i) Private Offering. Neither the Company nor any Person acting on
its behalf has taken or will take any action which might subject the offering,
issuance or sale of the Securities to the registration requirements of Section 5
of the Securities Act.
(j) SEC Documents. The Company has filed all reports required to
be filed by it under the Exchange Act, including pursuant to Section 13(a) or
15(d) thereof, for the three years preceding the date hereof (or such shorter
period as the Company was required by law to file such material) (the foregoing
materials being collectively referred to herein as the "SEC Documents" and,
together with the exhibits and schedules to this Agreement and other documents
and information furnished to the Purchasers by or on behalf of the Company at
any time prior to the Closing, as the "Disclosure Materials") on a timely basis
or has timely filed any
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notification required under Rule 12b-25 under the Exchange Act and has
thereafter filed any such reports within the time period stated in any such
notification under Rule 12b-25. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Securities Act
and the Exchange Act and the rules and regulations of the SEC promulgated
thereunder, and none of the SEC Documents, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. All material
agreements to which the Company is a party or to which the property or assets of
the Company are subject have been filed as exhibits to the SEC Documents to the
extent required. The financial statements of the Company included in the SEC
Documents comply in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved, except as may be otherwise specified in such financial
statements or the notes thereto, and fairly present in all material respects the
financial position of the Company 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 year-end audit adjustments. Since the
date of the financial statements included in the Company's last filed Annual
Report on Form 10-KSB prior to the date of this Agreement, there has been no
event, occurrence or development that has had or that could have or result in a
Material Adverse Effect which has not been specifically disclosed in writing to
the Purchasers by the Company. The Company last filed audited financial
statements with the SEC on July 7, 1999, and has not received any comments from
the SEC in respect thereof. No other information provided by or on behalf of the
Company to the Purchasers which is not included in the SEC Documents contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they are or were made, not misleading. Neither the
Company nor any of its Subsidiaries nor any of their officers, directors,
employees or agents have provided the Purchasers with any material, nonpublic
information.
(k) Employee Relations. Neither the Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened. None of the
Company's or its Subsidiaries' employees is a member of a union and neither the
Company nor any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that their relations
with their employees are good. No executive officer (as defined in Rule 501(f)
of the Securities Act) has notified the Company that such officer intends to
leave the Company or otherwise terminate such officer's employment with the
Company and the Company does not expect to terminate any such officer during the
six months following the date hereof.
(l) Intellectual Property Rights. Except as set forth in Schedule
2.1(l), the Company and its Subsidiaries own or possess adequate rights or
licenses to use all trademarks, trade names, service marks, service xxxx
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, governmental authorizations, trade secrets and rights
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necessary to conduct their respective businesses as now conducted. Except as set
forth on Schedule 2.1(l), none of the trademarks, trade names, service marks,
service xxxx registrations, service names, patents, patent rights, patent
applications, copyrights, inventions, licenses, approvals, government
authorizations, trade secrets or other intellectual property rights
(collectively, the "Intellectual Property") of the Company have expired or
terminated, or are expected to expire or terminate within two years from the
date of this Agreement, except where such expiration or termination would not
result, individually or in the aggregate, in a Material Adverse Effect. Except
as set forth in Schedule 2.1(l), the Company and its Subsidiaries do not have
any knowledge of any infringement by the Company or its Subsidiaries of the
Intellectual Property of others. Except as set forth on Schedule 2.1(l), no
administrative or court action or proceeding has been made or brought against,
or to the Company's knowledge, has been threatened against, the Company or its
Subsidiaries regarding the infringement of the Intellectual Property of others.
The Company and its Subsidiaries have taken reasonable security measures to
protect the secrecy, confidentiality and value of their intellectual properties.
Except as set forth in Schedule 2.1(l), the Company and its Subsidiaries do not
have any knowledge of any infringement by any third party of any of the
Company's or its Subsidiaries' Intellectual Property.
(m) Environmental Laws. The Company and its Subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval where, in each of the three
foregoing cases, the failure to so comply would have, individually or in the
aggregate, a Material Adverse Effect.
(o) Title. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property owned by them and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 2.1(o) or such
as do not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company and any of
its Subsidiaries. Any real property and facilities held under lease by the
Company and any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
(p) Tax Status. The Company and each of its Subsidiaries has made or
filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
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charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and for which the Company has set aside on its books provision reasonably
adequate for the payment of all taxes for periods subsequent to the periods to
which such returns, reports or declarations apply. There are no unpaid taxes in
any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such
claim.
(q) Transactions With Affiliates. Except as set forth on Schedule
2.1(q) and in the Disclosure Materials and other than the grant of stock options
disclosed on Schedule 2.1(c), none of the officers, directors, or employees of
the Company is presently a party to any transaction with the Company or any of
its Subsidiaries (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
(r) Foreign Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor, to the Company's knowledge, any director, officer, agent,
employee or other person acting on behalf of the Company or any of its
Subsidiaries has, in the course of its actions for, or on behalf of, the
Company, used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expenses relating to political activity; made
any direct or indirect unlawful payment to any foreign or domestic government
official or employee from corporate funds; violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or made
any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or employee.
(s) Investment Company. The Company is not, and is not an Affiliate,
as that term is defined in Section 3.10, of an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(t) Certain Fees. Except for fees payable to FleetBoston Xxxxxxxxx
Xxxxxxxx, Inc. as described in Section 5.1 of this Agreement, no fees or
commissions will be payable by the Company to any broker, financial advisor,
finder, investment banker, or bank with respect to the transactions contemplated
by this Agreement.
(u) Solicitation Materials. The Company has not (i) distributed any
offering materials in connection with the offering and sale of the Securities
other than the Disclosure Materials and any amendments and supplements thereto
or (ii) solicited any offer to buy or sell the Securities by means of any form
of general solicitation or advertising.
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(v) Form S-3 Eligibility. The Company is eligible to register
securities for resale with the SEC under Form S-3 promulgated under the
Securities Act.
(w) Listing and Maintenance Requirements Compliance. Other than as
specifically listed in the Disclosure Materials, the Company has not in the two
years preceding the date of this Agreement received written notice from any
stock exchange or market on which the Common Stock is or has been listed (or on
which it has been quoted) to the effect that the Company is not in compliance
with the listing or maintenance requirements of such exchange or market.
(x) Acknowledgment Regarding Purchaser's Purchase of Convertible
Notes. 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 and thereby. The
Company further acknowledges that each Purchaser is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect to
the Transaction Documents and the transactions contemplated hereby and thereby,
and any advice given by any of the Purchasers or any of their respective
representatives or agents in connection with the Transaction Documents and the
transactions contemplated hereby and thereby is merely incidental to such
Purchaser's purchase of the Securities. The Company further represents to each
Purchaser that the Company's decision to enter into the Transaction Documents
has been based solely on the independent evaluation by the Company and its
representatives.
(y) No Integrated Offering. 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 securities or solicited any offers
to buy any securities, under circumstances that would require registration of
the issuance by the Company of any of the Securities under the Securities Act or
cause this offering of the Securities to be integrated with prior offerings by
the Company for purposes of the Securities Act or any applicable stockholder
approval provisions, including, without limitation, under the rules and
regulations of any exchange or automated quotation system on which any of the
securities of the Company are listed or designated, nor will the Company or any
of its Subsidiaries take any action or steps that would require registration of
the issuance by the Company of any of the Securities under the Securities Act or
cause the offering of the Securities to be integrated with other offerings.
(z) Insurance. The Company and each of its Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
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
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as may be necessary to continue its business at a cost that would not have a
Material Adverse Effect, taken as a whole.
(aa) Regulatory Permits. Except for the absence of which would not
result, either individually or in the aggregate, in a Material Adverse Effect,
the Company and its Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses, and neither the
Company nor any such Subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit.
(bb) Internal Accounting Controls. The Company and each of its
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 generally accepted accounting principles 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, and
the Company has not received any indication contrary to clauses (i) through (iv)
above from its auditors or other advisors.
(cc) No Materially Adverse Contracts, Etc. Neither the Company nor
any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
(dd) Application of Takeover Protections. The Company and its board of
directors have taken all necessary action in order to render inapplicable any
control share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar and-takeover provision
under the Company's articles of incorporation or the laws of the state of its
incorporation which is or could become applicable to the Purchasers as a result
of the transactions contemplated by this Agreement, including, without
limitation, the Company's issuance of the Securities and the Purchasers'
ownership of the Securities.
(ee) Rights Agreement. The Company has not adopted a shareholder
rights plan or similar arrangement relating to accumulations of beneficial
ownership of Common Stock or a change in control of the Company and does not
intend to do so.
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(ff) No Other Agreements. The Company has not, directly or
indirectly, made any agreements with any Purchasers relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except
as set forth in the Transaction Documents.
(gg) Absence of Certain Changes. Except as disclosed in Schedule
2.1(gg), since March 31, 2000, there has been no material adverse change and no
material adverse development in the business, properties, assets, operations,
results of operations, financial conditions or prospects of the Company or its
Subsidiaries. The Company has not taken any steps, and does not currently expect
to take any steps, to seek protection pursuant to any bankruptcy law nor does
the Company or any of its Subsidiaries have any knowledge or reason to believe
that its creditors intend to initiate involuntary bankruptcy proceedings or any
actual knowledge of any fact which would reasonably lead a creditor to do so.
Except as disclosed in Schedule 2.1(gg), since April 1, 2000, the Company has
not declared or paid any dividends, sold any assets, individually or in the
aggregate, in excess of $100,000 outside of the ordinary course of business or
had capital expenditures, individually or in the aggregate, in excess of
$100,000.
(hh) Senior Indebtedness. Except as set forth on Schedule 2.1(hh),
the Company has no Senior Indebtedness (as defined in the Convertible Notes).
2.2 Representations and Warranties of the Purchasers. Each Purchaser
severally and not jointly, and only with respect to itself, makes the following
representations and warranties to the Company:
(a) Organization; Authority. Such Purchaser, if an entity, is a
corporation or other entity duly incorporated or organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation or
organization with the requisite corporate or other power and authority to enter
into and to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations thereunder. The purchase
by such Purchaser of the Convertible Notes and the Warrants hereunder has been
duly authorized by all necessary action on the part of such Purchaser. Each of
this Agreement and the Registration Rights Agreement has been duly executed and
delivered by such Purchaser and constitutes the valid and legally binding
obligation of such Purchaser, enforceable against such Purchaser, in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights generally and to general principles of equity.
(b) Investment Intent. Such Purchaser is acquiring the Convertible
Notes and the Warrants, and upon conversion of the Convertible Notes or exercise
of the Warrants, will acquire the Underlying Shares, for its own account for
investment only and not with a view towards, or for resale in connection with,
the public sale or distribution thereof, except pursuant to sales registered or
exempted under the Securities Act; provided, however, that by making the
representations contained in this Section 2(b), such Purchaser does not agree to
hold any of the Securities for any minimum or other specific term and reserves
the right to dispose of the
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Securities at any time in accordance with or to the extent allowed by this
Agreement, the Registration Rights Agreement, and the Securities Act.
(c) Accredited Status. At the time such Purchaser was offered the
Convertible Notes and the Warrants, it was, and at the date hereof, it is, and
at the Closing Date and each of its conversion dates as to the Convertible Notes
or exercise dates as to the Warrants, it will be, an "accredited investor" as
defined in Rule 501(a) under the Securities Act.
(d) Experience of 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.
(e) Ability of Purchaser to Bear Risk of Investment. Such Purchaser
acknowledges that the Securities are speculative investments and may involve a
high degree of risk and 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.
(f) Access to Information. Such Purchaser acknowledges receipt of
the Disclosure Materials and further acknowledges that it has been afforded (i)
the opportunity to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Company concerning the terms and
conditions of the offering of the Convertible Notes and the Warrants, and the
merits and risks of investing in the Convertible Notes and the Warrants; (ii)
access to information about the Company and the Company's financial condition,
results of operations, business, properties, management and prospects sufficient
to enable it to evaluate its investment; and (iii) the opportunity to obtain
such additional information which the Company possesses or can acquire without
unreasonable effort or expense that is necessary to make an informed investment
decision with respect to the investment and to verify the accuracy and
completeness of the information contained in the Disclosure Materials.
(g) Affiliate Status. Except as previously disclosed to the Company,
on the date prior to this Agreement, such Purchaser was not an Affiliate of the
Company.
(h) Reliance. Such Purchaser understands and acknowledges that (i)
the Convertible Notes and the Warrants are being offered and sold to such
Purchaser without registration under the Securities Act in a private placement
that is exempt from the registration provisions of the Securities Act and (ii)
the availability of such exemption, depends in part on, and the Company will
rely upon the accuracy and truthfulness of, the foregoing representations and
the Purchaser hereby consents to such reliance.
(i) Professional Advice. Such Purchaser has sought such accounting,
legal and tax advice as it has considered necessary to make an informed
investment decision with respect to its acquisition of the Securities.
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(j) Transfer or Resale. Such Purchaser understands that except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the Securities Act or any state securities
laws, and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered under the Securities Act and applicable state securities
laws, (B) such Purchaser shall have delivered to the Company an opinion of
counsel, in a generally acceptable form, to the effect that such Securities to
be sold, assigned or transferred may be sold, assigned or transferred pursuant
to an exemption from such registration, (C) such Purchaser provides the Company
with reasonable assurance that such Securities can be sold, assigned or
transferred pursuant to Rule 144 promulgated under the Securities Act (or a
successor rule thereto) ("Rule 144") or (D) transferred in accordance with Rule
144A under the Securities Act (or any successor rule thereto) ("Rule 144A") to a
qualified institutional buyer (as such term is defined in Rule 144A); (ii) any
sale of the Securities made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the person through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the Securities Act) may require compliance with some
other exemption under the Securities Act or the rules and regulations of the SEC
thereunder; and (iii) neither the Company nor any other person is under any
obligation to register such Securities under the Securities Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder. Notwithstanding the foregoing, the Securities may be pledged in
connection with a bona fide margin account or other loan secured by the
Securities.
(k) Legends. Such Purchaser understands that the certificates or
other instruments representing the Notes and the Warrants and, until such time
as the sale of the Underlying Shares has been registered under the Securities
Act as contemplated by the Registration Rights Agreement, the stock certificates
representing the Underlying Shares, except as set forth below, shall bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT
OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO EITHER
RULE 144A UNDER SAID ACT TO A QUALIFIED INSTITUTIONAL BUYER OR RULE 144
UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE
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PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED
BY THE SECURITIES.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if (i) such Securities are registered for sale under the Securities
Act, (ii) in connection with a sale transaction, such holder provides the
Company with an opinion of counsel, in a generally acceptable form to the
Company, to the effect that a public sale, assignment or transfer of such
Securities may be made without registration under the Securities Act, or (iii)
such holder provides the Company with reasonable assurances that the Securities
can be sold pursuant to Rule 144 without any restriction as to the number of
securities acquired as of a particular date that can then be immediately sold.
Such Purchaser acknowledges, covenants and agrees to sell the Securities
represented by a certificate(s) from which the legend has been removed, only
pursuant to (i) a registration statement effective under the Securities Act and
upon compliance with the prospectus delivery requirements of the Securities Act,
or (ii) advice of counsel that such sale is exempt from registration required by
Section 5 of the Securities Act.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Best Efforts. The Company shall use its best efforts to timely satisfy
each of the conditions to be satisfied by it as provided in Article IV of this
Agreement.
3.2 Form D and Blue Sky. The Company agrees to file a Form D with respect
to the Securities as required under Regulation D under the Securities Act within
the time specified in Regulation D and to provide a copy thereof to each
Purchaser promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary to qualify the Securities for, or obtain exemption for the Securities
for, sale to the Purchasers at the Closing pursuant to this Agreement under
applicable state securities laws, and shall provide evidence of any such action
so taken to the Purchasers on or prior to the Closing Date. The Company shall
make all filings and reports relating to the offer and sale of the Securities
required under applicable state securities laws following the Closing Date.
3.3 Reporting Status. Until the earlier of (i) the date which is one year
after the date on which the holders thereof may sell all of the Underlying
Shares without restriction pursuant to Rule 144(k) under the Securities Act (or
successor thereto) and (ii) the date on which (A) the holders thereof shall
have sold all the Underlying Shares and (B) none of the Convertible Notes or the
Warrants is outstanding (the "Reporting Period"), the Company shall file all
reports required to be filed with the SEC pursuant to the Exchange Act, and the
Company shall not terminate its status as an issuer required to file reports
under the Exchange Act even if the Exchange Act or the rules and regulations
thereunder would otherwise permit such termination.
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3.4 Shareholder Information. The Company agrees to send to each Purchaser
during the Reporting Period copies of any notices and other information made
available or given to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the
stockholders. During the Reporting Period, the Company shall include each
Purchaser on the Company's distribution list for press releases and shall
provide each Purchaser with any such press releases in the same manner and at
the same time as others on such distribution list.
3.5 Right of First Refusal. Subject to the exceptions described below,
during the period beginning on the date hereof and ending on, and including, the
date which is twelve (12) months after the Closing Date, neither the Company nor
its Subsidiaries shall negotiate or contract with any party for any equity
financing (including any debt financing with an equity component) or issue any
equity securities of the Company or any Subsidiary or securities convertible
into or exchangeable or exercisable for equity securities of the Company or any
Subsidiary (including debt securities with an equity component) in any form
("Future Offerings"), unless it shall have first delivered to each Purchaser, or
a designee appointed by such Purchaser, a written notice (the "Future Offering
Notice") describing the proposed Future Offering, including the size, material
terms and conditions thereof, and providing each Purchaser an option to purchase
up to its Aggregate Percentage (as defined below) of the securities to be issued
in such Future Offering, as of the date of delivery of the Future Offering
Notice, in the Future Offering on the same terms and conditions set forth in the
Future Offering Notice. The rights granted to the Purchasers in this Section
3.5 are collectively referred to as the "First Right of Refusal." For purposes
of this Section 3.5, "Aggregate Percentage" at any time with respect to any
Purchaser shall mean the percentage obtained by calculating the quotient of (i)
the aggregate principal amount of the Convertible Notes issued to such Purchaser
on the Closing Date by (ii) the aggregate principal amount of the Convertible
Notes issued to all of the Purchasers on the Closing Date. A Purchaser can
exercise its option to participate in a Future Offering by delivering written
notice of its election to participate to the Company within ten (10) Business
Days after receipt of a Future Offering Notice, which notice shall state the
quantity of securities being offered in the Future Offering that such Purchaser
will purchase, up to its Aggregate Percentage, and that number of securities it
is willing to purchase in excess of its Aggregate Percentage. In the event that
one or more Purchasers fail to elect to purchase up to each such Purchaser's
Aggregate Percentage of the Future Offering, then each Purchaser that has
indicated its willingness to purchase a number of securities in such Future
Offering in excess of its Aggregate Percentage shall be entitled to purchase up
to its pro rata portion of the securities in the Future Offering which one or
more of the other Purchasers have not elected to purchase. If the Purchasers
fail to elect to fully participate in the Future Offering within the periods
described in this Section 3.5, the Company shall have sixty (60) calendar days
thereafter to sell the securities of the Future Offering that the Purchasers did
not elect to purchase, upon terms and conditions no more favorable to the
purchasers thereof than specified in the Future Offering Notice. If the Company
has not sold such securities of the Future Offering within such sixty (60) day
period, the Company shall not thereafter issue or sell such securities without
first offering
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such securities to the Purchasers in the manner provided in this Section 3.5.
The First Right of Refusal shall not apply to (i) any loan from a commercial
bank which does not have an equity issuance feature or component, (ii) the
Company's issuances of securities (A) as consideration in a merger or
consolidation, or (B) in connection with any strategic partnership or joint
venture (the primary purpose of which is not to raise equity) with any entity
whose primary business is not investing in or advising other entities, (iii) the
issuance of Common Stock in a firm commitment, underwritten public offering,
(iv) the issuance of securities upon exercise or conversion of the Company's
options, warrants or other convertible securities outstanding as of the date
hereof provided the terms of such securities are not amended after the date
hereof, and (v) the grant of additional options or warrants, or the issuance of
additional securities, under any Company stock option plan, restricted stock
plan or stock purchase plan for the benefit of the Company's employees, officers
or directors for services provided to the Company. The Purchasers shall not be
required to participate in or exercise their right of first refusal with respect
to a particular Future Offering in order to preserve their First Right of
Refusal with respect to later Future Offerings.
3.6 Listing. The Company shall promptly secure the listing of all of the
Registrable Securities (as defined in the Registration Rights Agreement) upon
each national securities exchange and automated quotation system (including the
Nasdaq National Market ("NNM")), if any, upon which shares of Common Stock are
then listed (subject to official notice of issuance) and shall maintain, so long
as any other shares of Common Stock shall be so listed, such listing of all
Registrable Securities from time to time issuable under the terms of the
Transaction Documents. During the Reporting Period, the Company shall maintain
the Common Stock's listing on either the NNM or the New York Stock Exchange
("NYSE"). Neither the Company nor any of its Subsidiaries shall take any action
which may result in the delisting or suspension of the Common Stock on the NNM
or NYSE (other than to switch listings from the NNM to NYSE). The Company shall
promptly, and in no event later than the following Business Day, offer to
provide to the Purchasers copies of any notices it receives from the NNM or NYSE
regarding the continued eligibility of the Common Stock for listing on such
automated quotation system or securities exchange, provided that such notices
shall not contain any material non-public information. The Company shall pay
all fees and expenses in connection with satisfying its obligations under this
Section 3.6.
3.7 Expenses. The Company shall pay after Closing an expense allowance of
up to Twenty-five Thousand Dollars ($25,000), to counsel for the Purchasers,
provided that the Purchasers shall promptly remit an invoice for such amount on
or before the thirtieth (30th) day following the Closing Date. The Purchasers
agree to engage a single firm as counsel to represent them jointly.
3.8 Corporate Existence. So long as any Purchaser beneficially owns any
Convertible Notes or Warrants, the Company shall maintain its corporate
existence and shall not sell all or substantially all of the Company's assets,
except in the event of a merger or consolidation or sale of all or substantially
all of the Company's assets where the surviving or successor entity in such
-17-
transaction (A) assumes the Company's obligations under the Transaction
Documents and (B) is a publicly traded corporation whose common stock is listed
for trading on the NNM or NYSE.
3.9 Trading Restrictions. Each Purchaser agrees that during the ten (10)
trading days immediately preceding the date of this Agreement, it shall not sell
any shares of Common Stock including by way of any "short sales" of the Common
Stock (as defined in Rule 3b-3 of the Exchange Act).
3.10 Integration. The Company shall not and shall use its best efforts to
ensure that no Person controlling, controlled by or under common control with
the Company (an "Affiliate") shall sell, offer for sale or solicit offers to buy
or otherwise negotiate in respect of any security (as defined in Section 2 of
the Securities Act) that would be integrated with the offer or sale of the
Convertible Notes, the Warrants, or the Underlying Shares in a manner that would
require the registration under the Securities Act of the issue or sale of the
Convertible Notes, the Warrants, or the Underlying Shares to the Purchasers.
3.11 Subsequent Registrations. Other than Underlying Shares and other
"Registrable Securities" (as such term is defined in the Registration Rights
Agreement) to be registered in accordance with the Registration Rights Agreement
and except as set forth in Schedule 11 to the Registration Rights Agreement
(which securities may not be registered prior to the time the Registrable
Securities are registered), the Company shall not, for a period of not less than
ninety (90) trading days after the date that the Underlying Shares Registration
Statement relating is declared effective by the SEC, without the prior written
consent of the Purchasers, register for resale any securities of the Company.
Any days that Purchasers are unable (either because the Company has notified the
Purchasers that the Purchasers may not utilize such Underlying Shares
Registration Statement, or because any securities exchange or market has
suspended trading in the Common Stock or because any governmental authority has
suspended the use of such Underlying Shares Registration Statement) to sell
Underlying Shares under the Underlying Shares Registration Statement shall be
added to such ninety (90) trading day period for the purposes of this Section
3.11.
3.12 Transfer Agent Instructions. The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, to issue
certificates, registered in the name of each Purchaser or its nominee(s), for
the Underlying Shares in such amounts as specified from time to time by each
Purchaser to the Company upon conversion of the Convertible Notes or exercise of
the Warrants (in the form attached hereto as Exhibit F, the "Irrevocable
Transfer Agent Instructions"). Prior to the effectiveness of registration of the
Underlying Shares under the Securities Act, all such certificates shall bear the
restrictive legend specified in Section 2.2(k) of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 3.12, and stop transfer instructions to
give effect to Section 2.2(j) hereof (in the case of the Underlying Shares,
prior to registration of the Underlying Shares under the Securities Act) will be
given by the Company to its transfer agent with respect to the Underlying Shares
and that the Underlying Shares shall otherwise be freely transferable on
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the books and records of the Company as and to the extent provided in this
Agreement and the Registration Rights Agreement. Nothing in this Section 3.12
shall affect in any way each Purchaser's obligations under the Securities Act
and agreements set forth in Section 2.2(k) to comply with all applicable
prospectus delivery requirements, if any, upon resale of the Securities. If a
Purchaser provides the Company with an opinion of counsel, in a generally
acceptable form to the Company, to the effect that a public sale, assignment or
transfer of the Securities may be made without registration under the Securities
Act, the Company shall permit the transfer, and, in the case of the Underlying
Shares, promptly instruct its transfer agent to issue one or more certificates
in such name and in such denominations as specified by such Purchaser and
without any restrictive legends. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Purchasers.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Section 3.12 will be inadequate and agrees, in the event
of a breach or threatened breach by the Company of the provisions of this
Section 3.12, that the Purchasers shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.
3.13 Limitation on Senior Indebtedness. Notwithstanding anything to the
contrary herein or any of the instruments or documents executed in connection
with this Agreement, the Company covenants that it will not issue any Senior
Indebtedness, as that term is defined in the Convertible Notes, after the date
of this Agreement and while any of the Convertible Notes are outstanding,
without first obtaining the written consent of the Holders of at least three
fourths (3/4) of the aggregate principal amount of the Convertible Notes then
outstanding; provided, however, that the foregoing written consent limitation
will have no effect after such time as the Company has achieved positive cash
flow from operations of at least Three Million Dollars ($3,000,000) for any
fiscal quarter completed after the date of this Agreement, which determination
shall be made by reference to financial information filed as part of any
Quarterly Report on Form 10-QSB or Annual Report on Form 10-KSB of the Company
filed at any time while the Convertible Notes are outstanding, and further
provided that the Purchasers hereby agree and consent to the issuance by the
Company of up to Three Million Dollars ($3,000,000) of additional convertible
debt financing on terms no more favorable than the Convertible Notes, which
shall be in pari passu with the Convertible Notes, and which may be issued after
the date hereof to any party selected by the Company, including the directors,
officers or existing shareholders of the Company.
3.14 Use of Proceeds. The Company covenants to use all of the proceeds
from the placement of the Securities for working capital purposes and not for
the satisfaction of any portion of Company debt or to redeem or repurchase
Company equity or equity-equivalent securities. Pending application of the
proceeds of this placement in the manner permitted hereby the Company will
invest such proceeds in interest bearing accounts and/or short-term, investment
grade interest bearing securities.
-19-
3.15 Reservation of Shares. The Company shall take all action necessary
to at all times have authorized, and reserved for the purpose of issuance, no
less than 200% of the number of shares of Common Stock needed to provide for the
issuance of the shares of Common Stock upon conversion of all outstanding
Convertible Notes (without regard to any limitations on conversions) and 100% of
the number of shares of Common Stock needed to provide for the issuance of the
shares of Common Stock upon exercise of all outstanding Warrants (without regard
to any limitations on exercises).
3.16 Filing of Current Report on Form 8-K. On or before the second (2nd)
Business Day following the Closing Date, the Company shall file a Current Report
on Form 8-K with the SEC describing the terms of the transactions contemplated
by the Transaction Documents and including as exhibits to such Current Report on
Form 8-K this Agreement, the form of the Convertible Notes, the Registration
Rights Agreement and the form of Warrants.
3.17 Proxy Statement. The Company shall provide each shareholder entitled
to vote at the next meeting of shareholders of the Company, which meeting shall
occur on or before August 31, 2000 (the "Shareholder Meeting Deadline"), a proxy
statement, which has been previously reviewed by the Purchasers and a counsel of
their choice, soliciting each such shareholder's affirmative vote at such annual
shareholder meeting for (i) approval of the Company's issuance of all of the
Securities as described in this Agreement in accordance with applicable law and
the rules and regulations of The Nasdaq Stock Market, Inc.; and (ii) approval
for the increase in the number of authorized shares of Common Stock to
100,000,000 (such affirmative approval in respect of both clauses (i) and (ii)
above being referred to herein collectively as the "Shareholder Approval"), and
the Company shall use its best efforts to solicit its shareholder's approval of
such issuance of the Securities and to cause the Board of Directors of the
Company to recommend to the shareholders that they approve such proposal. If the
Company fails to hold a meeting of its shareholders by the Shareholder Meeting
Deadline, then, as partial relief (which remedy shall not be exclusive of any
other remedies available at law or in equity), the Company shall pay to each
holder of Convertible Notes an amount in cash equal to the product of (i) the
Purchase Price multiplied by (ii) 0.015; multiplied by (iii) the quotient of (x)
the number of days after the Shareholder Meeting Deadline and prior to the date
that a meeting of the Company's shareholders seeking Shareholder Approval is
held, divided by (y) 30. The Company shall make the payments referred to in the
immediately preceding sentence within five (5) days of the earlier of (I) the
holding of the meeting of the Company's shareholders, the failure of which
resulted in the requirement to make such payments, and (II) the last day of each
30-day period beginning on the Shareholder Meeting Deadline. In the event the
Company fails to make, such payments in a timely manner, such payments shall
bear interest at the rate of 1.5% per month (pro rated for partial months) until
paid in full.
3.18 Indemnification. In consideration of each Purchaser's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Purchaser and each other holder of the Securities and
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all of their stockholders, officers, directors, partners, members, employees and
direct or indirect investors and any of the foregoing persons' agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(c) any cause of action, suit or claim brought or made against such Indemnitee
and arising out of or resulting from the execution, delivery, performance or
enforcement of the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (d) any transaction financed or to be
financed in whole or in part, directly or indirectly, with the proceeds of the
issuance of the Securities, or (e) the status of such Purchaser or holder of the
Securities as an investor in the Company. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities which is permissible under applicable law to the
settlement of claims and the Company's rights to assume the defense of claims.
3.19 Transactions With Affiliates. So long as (i) any Convertible Notes
or Warrants are outstanding or (ii) any Purchaser owns Underlying Shares with a
market value of at least $500,000, the Company shall not, and shall cause each
of its Subsidiaries not to, enter into, amend, modify or supplement, or permit
any Subsidiary to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any Subsidiary's
officers, directors, person who were officers or directors at any time during
the previous two years, shareholders who beneficially own 5% or more of the
Common Stock, or affiliates or with any individual related by blood, marriage or
adoption to any such individual or with any entity in which any such entity or
individual owns a 5% or more beneficial interest (each, a "Related Party"),
except for (a) customary employment arrangements and benefit programs on
reasonable terms, (b) any agreement, transaction, commitment or arrangement
which is approved by a majority of the disinterested directors of the Company or
(c) any agreement, transaction, commitment or arrangement on an arms-length
basis on terms no less favorable than terms which would have been obtainable
from a person other than such Related Party. For purposes hereof, any director
who is also an officer of the Company or any Subsidiary of the Company shall not
be a disinterested director with respect to any such agreement, transaction,
commitment or arrangement.
ARTICLE IV
-21-
CONDITIONS
4.1 Conditions Precedent to the Obligation of the Purchasers to Purchase
the Convertible Notes. The obligation of each Purchaser hereunder to purchase
the Convertible Notes and the Warrants from the Company at the Closing is
subject to the satisfaction, at or before the Closing Date, of each of the
following conditions, provided that these conditions are for each Purchaser's
sole benefit and may be waived by such Purchaser at any time in its sole
discretion by providing the Company with prior written notice thereof:
(a) The Company shall have executed each of the Transaction Documents
and delivered the same to such Purchaser.
(b) The Common Stock (i) shall be designated for quotation or listed
on the Nasdaq National Market and (ii) shall not have been suspended by the SEC
or the Nasdaq National Market from trading on the Nasdaq National Market nor
shall suspension by the SEC or the Nasdaq National Market have been threatened
either (A) in writing by the SEC or the Nasdaq National Market or (B) by falling
below the minimum listing maintenance requirements of the Nasdaq National
Market; and the Underlying Shares issuable upon conversion or exercise of the
Notes and the related Warrants, as the case may be, shall be listed upon the
Nasdaq National Market.
(c) The representations and warranties of the Company shall be true
and correct, and the Company shall have performed, satisfied and complied with
the covenants, agreements and conditions required by the Transaction Documents
to be performed, satisfied or complied with by the Company at or prior to the
Closing Date. Such Purchaser shall have received a certificate, executed by the
Chief Executive Officer of the Company, dated as of the Closing Date, to the
foregoing effect and as to such other matters as may be reasonably requested by
such Purchaser.
(d) The Board of Directors of the Company shall have adopted
resolutions consistent with Section 2.1(b) above and in a form reasonably
acceptable to such Purchaser (the "Resolutions").
(e) As of the Closing Date, the Company shall have reserved out of
its authorized and unissued Common Stock, solely for the purpose of effecting
the conversion of the Convertible Notes and the exercise of the Warrants, at
least 6,500,000 shares of Common Stock.
(f) The Irrevocable Transfer Agent Instructions in the form attached
hereto as Exhibit F shall have been delivered to and acknowledged in writing by
the Company's transfer agent.
(g) The Company shall have delivered to such Purchaser a certificate
evidencing the incorporation and good standing of the Company in such entity's
state of
-22-
incorporation or organization issued by the Secretary of State or comparable
officer of such state of incorporation or organization as of a date within ten
(10) days of the Closing Date, or such other date as shall be acceptable to the
Purchasers.
(h) The Company shall have delivered to such Purchaser a certified
copy of the Articles of Incorporation as certified by the Utah Department of
Commerce, Division of Corporations and Commercial Code, as of a date within ten
(10) days of the Closing Date.
(i) The Company shall have delivered to such Purchaser a secretary's
certificate, dated as of the Closing Date, certifying as to (A) the Resolutions,
(B) the Articles of Incorporation and (C) the Bylaws, each as in effect at the
Closing.
(j) The Company shall have made all filings under all applicable
federal and state securities laws necessary to consummate the issuance of the
Securities pursuant to this Agreement in compliance with such laws.
(k) The Company shall have a letter from the Company's transfer agent
certifying the number of shares of Common Stock outstanding as of a date within
five days of the Closing Date, copies of which shall be made available to
Purchasers so requesting.
(1) The Company shall have delivered to the Purchasers such other
documents relating to the transactions contemplated by the Transaction Documents
as the Purchasers or their counsel may reasonably request.
(m) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement or the
Registration Rights Agreement relating to the issuance or conversion of any
portion of the principal amount of the Convertible Notes or exercise of the
Warrants;
(n) Since the date of the financial statements included in the
Company's last filed Quarterly Report on Form 10-QSB or Annual Report on Form
10-KSB, whichever is more recent, last filed prior to the date of this
Agreement, no event which has or can reasonably be expected to have a Material
Adverse Effect which has not specifically been disclosed in the Disclosure
Materials prior to the date of this Agreement shall have occurred, nor shall
there have occurred a material adverse change in the financial condition or
prospects of the Company, which is not disclosed in the Disclosure Materials;
(o) The Company shall have delivered to each Purchaser an opinion of
outside legal counsel to the Company in substantially the form attached hereto
as Exhibit E and dated as of the Closing Date;
-23-
(p) All Required Approvals and consents shall have been obtained;
(q) The Company shall have delivered to such Purchaser or its
designee the Convertible Notes and the Warrants being purchased at Closing,
registered in the name of such Purchaser, each in form satisfactory to the
Purchasers; and
(r) No event resulting in a Material Adverse Effect shall have
occurred between the date of this Agreement and the Closing Date.
ARTICLE V
MISCELLANEOUS
5.1 Placement Fees and Expenses. Except to the extent set forth in
Section 3.7, and except as otherwise may be provided in the Registration Rights
Agreement, each of the parties shall pay its own fees and expenses (including
the fees of any attorneys, accountants, appraisers or others engaged by such
party) in connection with this Agreement and the transactions contemplated
hereby, except that the Company shall pay on the Closing Date out of the
Purchase Price up to six percent (6%) of the total Purchase Price to FleetBoston
Xxxxxxxxx Xxxxxxxx, Inc., as placement agent (the "Placement Agent") and shall
issue to the Placement Agent a warrant (the "Placement Agent Warrant") to
purchase up to that number of shares of Common Stock as shall be equal to ten
percent (10%) of the number of shares of Common Stock underlying the Warrants
issued to the Purchasers. The Placement Agent Warrant, if any, shall have an
exercise period of five years from the Closing Date. Except for the number of
shares of Common Stock issuable upon its exercise, the Placement Agent Warrant
shall be identical to the Warrants and shall be in the form attached to this
Agreement as Exhibit C. The shares of Common Stock issuable upon the exercise
of the Placement Agent Warrant shall be included within the definition of
Registrable Securities under the Registration Rights Agreement, and the
Placement Agent shall be a party to the Registration Rights Agreement. The
Company shall pay all stamp and other taxes and duties levied in connection with
the issuance of the Securities pursuant to this Agreement.
5.2 Entire Agreement. This Agreement, together with the exhibits and
schedules hereto, the Registration Rights Agreement, the Convertible Notes and
the Warrants 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.
5.3 Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 4:30 p.m. (Pacific
time) on a Business Day, (ii) the Business Day after the date of transmission,
if
-24-
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in the Purchase Agreement later than 4:30 p.m.
(Pacific time) on any date and earlier than 11:59 p.m. (Pacific time) on such
date, (iii) the Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) 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 follows:
If to the Company: BRITESMILE, INC.
000 Xxxxx Xxxxx Xxxx
Xxxxxx Xxxxx, Xxxxxxxxxx 00000
Facsimile No.: (000) 000-0000
Attn: Xxxx X. Xxxxx, Chief Financial Officer
With copies to: DURHAM XXXXX & XXXXXXX, P.C.
Broadway Centre, Suite 900
000 Xxxx Xxxxxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Facsimile No.: (000) 000-0000
Attn: Xxxxxxx X. Xxxxx
If to a Purchaser, to it at the address and facsimile number set forth on
Exhibit A, with copies to such Purchaser's representatives as set forth on
Exhibit A, or at such other address and/or facsimile number and/or to the
attention of such other person as the recipient party has specified by written
notice given to each other party five days prior to the effectiveness of such
change.
5.4 Amendments; Waivers. No provision of this Agreement may be
amended other than by an instrument in writing signed by the Company and the
holders of at least two-thirds (2/3) of the principal amount of the Convertible
Notes on the Closing Date, and no provision hereof may be waived other than by
an instrument in writing signed by the party against whom enforcement is sought.
No such amendment shall be effective to the extent that it applies to less than
all of the holders of the Convertible Notes or Warrants then outstanding. 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 also is offered to all of the parties to the
Transaction Documents or holders of Convertible Notes, as the case may be.
5.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
5.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company shall not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the holders of at least two-
thirds (2/3) of the principal amount of the Convertible Notes then
-25-
outstanding. A Purchaser may assign some or all of its rights hereunder without
the consent of the Company; provided, however, that any such assignment shall
not release such Purchaser from its obligations hereunder unless such
obligations are assumed by such assignee and the Company has consented to such
assignment and assumption, which consent shall not be unreasonably withheld.
Notwithstanding anything to the contrary contained in the Transaction Documents,
the Purchasers shall be entitled to pledge the Securities in connection with a
bona fide margin account or other loan secured by the Securities.
5.7 No Third-Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
5.8 Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
the internal laws of the State of New York, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. Each party hereby irrevocably
submits to the non-exclusive jurisdiction of the state and federal courts
sitting in New York City, Borough of Manhattan, State of New York, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, 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 brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. 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 to such
party at the address for such 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. Each party hereby irrevocably
waives any right it may have, and agrees not to request, a jury trial for the
adjudication of any dispute hereunder or in connection herewith or arising out
of this Agreement or any transaction contemplated hereby.
5.9 Survival. The agreements and covenants contained in Article IV
and this Article V shall survive the delivery and conversion of the Convertible
Notes pursuant to this Agreement, and the representations and warranties of the
Company and the Purchasers contained in Article II shall survive until a date
that is two years after the Closing Date. Each Purchaser shall be responsible
only for its own representations, warranties, agreements and covenants
hereunder.
5.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart.
-26-
5.11 Publicity. The Company, the Purchasers and the Placement
Agent shall consult with each other in issuing any press releases or otherwise
making public statements with respect to the transactions contemplated hereby
and neither party shall issue any such press release or otherwise make any such
public statement without the prior written consent of the other, which consent
shall not be unreasonably withheld or delayed, except that no prior consent
shall be required if such disclosure is required by law, in which case the
disclosing party shall provide the other party with prior notice of such public
statement. Notwithstanding the generality of the foregoing, the parties agree
that the Company will issue a press release at or immediately after the Closing,
the contents of which will be filed with the SEC as a current report of the
Company on Form 8-K, the form of which will be agreed to by the parties at or
before the Closing.
5.12 Severability. In case any one or more of the provisions of
this Agreement shall be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provisions of this Agreement shall
not in any way be affected or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
5.13 No Strict Construction. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rule of construction will be applied against any party.
5.14 Termination. In the event that the Closing shall not have
occurred with respect to a Purchaser on or before five (5) Business Days from
the date hereof due to the Company's failure to satisfy the conditions set forth
in Article IV above (and such Purchaser's failure to waive such unsatisfied
condition(s)), such Purchaser shall have the option to terminate this Agreement
with respect to the Company at the close of business on such date without
liability of such Purchaser to the Company.
5.15 Remedies. Each Purchaser and each holder of the Securities shall
have all rights and remedies set forth in the Transaction Documents and all
rights and remedies which such holders have been granted at any time under any
other agreement or contract and all of the rights which such holders have under
any law. Any person having any rights under any provision of this Agreement
shall be entitled to enforce such rights specifically (without posting a bond or
other security), to recover damages by reason of any breach of any provision of
this Agreement and to exercise all other rights granted by law.
5.16 Payment Set Aside. To the extent that the Company makes a
payment or payments to any Purchaser hereunder or pursuant to the Registration
Rights Agreement, the Convertible Notes or the Warrants, or the Purchasers
enforce or exercise their rights hereunder or thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or
-27-
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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOLLOW]
-28-
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized persons as
of the date first indicated above.
Company:
BRITESMILE, INC.
By:/s/ Xxxx X. Xxxxx
____________________________________
Name:
__________________________________
Title: Chief Financial Officer
_________________________________
Purchasers:
LCO INVESTMENTS LIMITED
By: /s/ Xxxxxxx C M Yong
____________________________________
Its: Director
______________________________
/s/ Xxxxxx XxXxxxxx
_______________________________________
XXXXXX XxXXXXXX
PEQUOT PRIVATE EQUITY FUND II, L.P.
BY: PEQUOT CAPITAL MANAGEMENT, INC.
ITS: INVESTMENT MANAGER
By: /s/ Xxxxx X. X'Xxxxx
____________________________________
Xxxxx X. X'Xxxxx, General Counsel
-29-
PEQUOT PARTNERS FUND, L.P.
BY: PEQUOT CAPITAL MANAGEMENT, INC.
ITS: INVESTMENT MANAGER
By: /s/ Xxxxx X. X'Xxxxx
____________________________________
Xxxxx X. X'Xxxxx, General Counsel
PEQUOT INTERNATIONAL FUND, INC.
BY: PEQUOT CAPITAL MANAGEMENT, INC.
ITS: INVESTMENT ADVISOR
By: /s/ Xxxxx X. X'Xxxxx
____________________________________
Xxxxx X. X'Xxxxx, General Counsel
/s/ Xxxx Xxxx
_______________________________________
XXXX XXXX
/s/ Xxxxxx Xxxxxxx, Xx.
_______________________________________
XXXXXX XXXXXXX, XX., D.D.S.
-00-
XXXXX, X.X.
By RBP, LLC
Its General Partner
By: /s/ Xxxx Xxxxxx
____________________________________
Xxxx Xxxxxx
Managing Partner
PACIFIC MEZZANINE FUND
By PACIFIC PRIVATE CAPITAL
By: /s/ Xxxxxx X. Xxxx
____________________________________
Xxxxxx X. Xxxx, Managing Partner
-31-
Index of Exhibits and Schedules
-------------------------------
Exhibits
--------
Exhibit A - List of Purchasers and Amount of Notes Purchased [ATTACHED]
Exhibit B - Form of Convertible Notes [ATTACHED]
Exhibit C - Form of Warrants [ATTACHED]
Exhibit D - Form of Registration Rights Agreement [ATTACHED]
Exhibit E - Form of Legal Opinion of Durham Xxxxx & Xxxxxxx, P.C. [OMITTED]
Exhibit F - Form of Irrevocable Transfer Agent Instructions [OMITTED]
Exhibit G - Form of Escrow Agreement [OMITTED]
Schedules [OMITTED]
---------
Schedule 2.1(a) - Subsidiaries of the Company
Schedule 2.1(c) - Capitalization of the Company
Schedule 2.1(f) - Consents and Approvals
Schedule 2.1(g) - Litigation and Proceedings
Schedule 2.1(l) - Intellectual Property
Schedule 2.1(o) - Liens, Encumbrances and Defects on Real Property Owned by the
Company
Schedule 2.1(q) - Transactions with Affiliates and Related Parties
Schedule 2.1 (gg) - Absence of Certain Changes
Schedule 2.1(hh) - Senior Indebtedness
-32-
Exhibit A
---------
================================================================================
Principal Amount of
Name & Address of Purchaser Recipient of Copies of Convertible
Notices Notes Purchased
================================================================================
LCO Investments Limited $ 4,250,000
Canada Court
Xxxxxx Xxxx, Xx. Xxxxx Xxxx
Xxxxxxxx, Xxxxxxx Xxxxxxx
Fax. ___-___-____
--------------------------------------------------------------------------------
Xxxxxx XxXxxxxx $ 4,166,667
x/x Xxxxxxxx X. Xxxxxx
Blackfin Capital
0000 Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Fax. (000) 000-0000
--------------------------------------------------------------------------------
Pequot Private Equity Xxxxx Xxxxxxxxxx LLP $583,333.33
Fund II, L.P. 1301 Avenue of the Americas $291,666.67
Pequot Partners Fund, L.P. Xxx Xxxx, XX 00000-0000 $291,666.67
Pequot International, Fund, Inc. Fax (000) 000-0000
c/o Pequot Capital Attn. Xxx Xxxx
Management, Inc.
Attn. Xxxxx X. Xxxxx, Chief
Accounting Officer
Xxxxx Xxxxxx, Vice President
000 Xxxxx Xxxx Xxxx
Xxxxxxxx, XX 00000
Fax (000) 000-0000
--------------------------------------------------------------------------------
Xxxxxx Xxxxxxx, Xx., D.D.S. Xxxxxx X. Xxxxx $ 1,500,000
000 Xxxxxxx Xxxxx Xxxxxx Xxxxxxx Xxxxxx &
Xxxxx Xxxxx Xxxxx, Xxxxxxx 00000 Xxxxx, PLLC
Fax. (000) 000-0000 000 Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxx, Xxxxxxxxx 00000
Fax: (000) 000-0000
--------------------------------------------------------------------------------
Xxxx Xxxx $ 1,000,000
c/o BriteSmile, Inc.
000 Xxxxx Xxxxx Xxxx
Xxxxxx Xxxxx, XX 00000
Fax. (000) 000-0000
================================================================================
-33-
--------------------------------------------------------------------------------
CapEx, X.X. Xxxxxxxxxx Xxxxx & Xxxxxx, $ 2,000,000
000 Xxxxxxxxxxx Xx. P.C.
00xx xxxxx Xxxxxx-Xxxxxx Xxxxx,
Xxxxxx, XX 00000 000 Xxxxxxxxxxx Xxxxxx
Xxxx. Xxxx Xxxxxx Xxxxxx, Xxxxxxxx 00000-0000
Fax. (000) 000-0000 Attn. Xxxx Xxxxx
Fax (303) 223-111
--------------------------------------------------------------------------------
Pacific Mezzanine Fund $ 1,500,000
0000 Xxxxxx Xx
Xxxxx 0000
Xxxxxxxxxx, XX 00000
Attn. Xxxxxx Xxxx
Fax. (000) 000-0000
--------------------------------------------------------------------------------
Total $15,583,333.67
================================================================================
-34-
EXHIBIT B
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A FORM REASONABLY SATISFACTORY TO
THE ISSUER, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO EITHER RULE 144A UNDER SAID ACT
TO A QUALIFIED INSTITUTIONAL BUYER OR RULE 144 UNDER SAID ACT. NOTWITHSTANDING
THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN SECURED BY THE SECURITIES.
No. _____________
BriteSmile, Inc.
CONVERTIBLE SUBORDINATED NOTE
June 29, 2000 $____________
FOR VALUE RECEIVED, BRITESMILE, INC., a Utah corporation (the "Company"),
hereby promises to pay to the order of __________________ or registered assigns
("Holder") the principal amount of ___________________ Dollars
($________________), on the Maturity Date (as defined below) and to pay interest
("Interest") on the unpaid principal balance hereof at the rate of five percent
(5.0%) per annum from the date hereof (the "Issuance Date") until the same
becomes due and payable, whether at maturity or upon acceleration or by
conversion or redemption in accordance with the terms hereof or otherwise.
Interest on this Note shall commence accruing on the Issuance Date and shall be
computed on the basis of a 365-day year and actual days elapsed and shall (A) be
payable in cash on the Interest Dates (as defined below) pursuant to Section
2(c)(ii) and (B) be included in the Additional Amount (as defined below) at the
time of optional or mandatory conversion or redemption of the principal to which
such interest relates in accordance with Section 1 hereof. Any amount of
interest on this Note which is not paid when due shall bear interest at the rate
of 18% per annum from the date thereof until the same is paid ("Default
Interest").
1. Payments of Principal and Interest. All payments of principal and
interest on this Note (to the extent such principal is not converted into Common
Stock (as defined below) in accordance with the terms hereof) shall be made in
lawful money of the United States of America by wire transfer of immediately
available funds to such account as the
Holder may from time to time designate by written notice in accordance with the
provisions of this Note. Whenever any amount due by the terms of this Note is
due on any day which is not a Business Day (as defined below), the same shall
instead be due on the next following day which is a Business Day and, in the
case of any interest payment date which is not the date on which this Note is
paid in full, the extension of the due date thereof shall not be taken into
account for purposes of determining the amount of interest due on such date. For
purposes of this Note, "Business Day" shall mean any day other than a Saturday,
Sunday or a day on which commercial banks in the city of New York are authorized
or required by law or executive order to remain closed. Each capitalized term
used herein, and not otherwise defined, shall have the meaning ascribed thereto
in the Securities Purchase Agreement, dated June 27, 2000, pursuant to which
this Note and the Other Notes (as defined below) were originally issued (the
"Securities Purchase Agreement"). This Note and the Other Notes issued by the
Company pursuant to the Securities Purchase Agreement are collectively referred
to in this Note as the "Notes."
2. Conversion of Notes. This Note shall be convertible into shares of the
Company's common stock, par value $0.001 per share (the "Common Stock"), on the
terms and conditions set forth in this Section 2.
(a) Certain Defined Terms. For purposes of this Note, the following
terms shall have the following meanings:
(i) "Additional Amount" means, with respect to any principal
amount of Notes, the sum of (A) accrued and unpaid Interest, if any, on
such principal amount up through and including the date on which the
Additional Amount is calculated, and (B) Default Interest, if any, on the
interest referred to in the immediately preceding clause (A).
(ii) "Approved Stock Plan" means any employee benefit plan which
has been approved by the Board of Directors of the Company, pursuant to
which the Company's securities may be issued to any employee, officer or
director for services provided to the Company.
(iii) "Change of Control" means any of the following: (A) the
consolidation, merger or other business combination of the Company with or
into another Person (other than (I) a consolidation, merger or other
business combination in which holders of the Company's voting power
immediately prior to the transaction continue after the transaction to
hold, directly or indirectly, the voting power of the surviving entity or
entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity
or entities, or (II) pursuant to a migratory merger effected solely for the
purpose of changing the jurisdiction of incorporation of the Company), (B)
the sale or transfer of all or substantially all of the Company's assets,
or (C) a purchase, tender or exchange offer made to and accepted by the
holders of more than the 50% of the outstanding shares of Common Stock.
-2-
(iv) "Closing Bid Price" means, for any security as of any date,
the last closing bid price for such security on the Principal Market (as
defined below) as reported by Bloomberg Financial Markets or its successor
or, if not then in existence or reporting such securities prices, a
comparable reporting service or publication ("Bloomberg"), or if the
Principal Market begins to operate on an extended hours basis, and does not
designate the closing bid price, then the last bid price at 4:00 p.m., New
York City Time, as reported by Bloomberg, or if the foregoing do not apply,
the last closing bid price of such security in the over- the-counter market
on the electronic bulletin board for such security as reported by
Bloomberg, or, if no closing bid price is reported for such security by
Bloomberg, the last closing trade price of such security as reported by
Bloomberg, or, if no last closing trade price is reported for such security
by Bloomberg, the average of the bid prices of any market makers for such
security as reported in the "pink sheets" by the National Quotation Bureau,
Inc. If the Closing Bid Price cannot be calculated for such security on
such date on any of the foregoing bases, the Closing Bid Price of such
security on such date shall be the fair market value as mutually determined
by the Company and the holders of the Notes. If the Company and the holders
of the Notes are unable to agree upon the fair market value of the Common
Stock, then such dispute shall be resolved pursuant to Section 2(d)(iii)
below with the term "Closing Bid Price" being substituted for the term
"Market Price." All such determinations to be appropriately adjusted for
any stock dividend, stock split or other similar transaction during such
period.
(v) "Convertible Securities" means any stock or securities
(other than Options) directly or indirectly convertible into or
exchangeable or exercisable for Common Stock.
(vi) "Conversion Amount" means the sum of (A) the principal
amount of this Note to be converted, redeemed or otherwise with respect to
which this determination is being made and (B) the Additional Amount with
respect to such principal amount.
(vii) "Conversion Price" means (A) as of any Conversion Date (as
defined below) or other date of determination during the period beginning
on the Issuance Date (as defined below) and ending on and including the day
immediately preceding the earlier of (I) the Put Option Payment Date and
(II) the Maturity Date, 120% of the Market Price (as defined below) of the
Common Stock on the Pricing Date, (B) as of any Conversion Date or other
date of determination on or after the Put Option Payment Date, the lower of
(I) the Put Option Conversion Price and (II) 120% of the Market Price of
the Common Stock on the Pricing Date, and (C) as of any Conversion Date or
other date of determination on or after the Maturity Date, the lower of (I)
the Maturity Conversion Price (as defined below) and (II) 120% of the
Market Price of the Common Stock on the Pricing Date. The Conversion Price
as calculated under
-3-
any of the foregoing clauses (A)(I), (A)(II), (B)(I), (B)(II), (C)(I), and
(C)(II) shall be subject to adjustment or substitution as provided in this
Note.
(viii) "Excluded Securities" means up to 1,250,000 shares of
Common Stock issued at a purchase price of not less than $4.00 per share in
connection with any strategic partnership or joint venture (the primary
purpose of which is not to raise equity capital) with any entity whose
primary business is not investing or advising other entities.
(ix) "Maturity Conversion Price" means the product of (A) 95%
multiplied by (B) the arithmetic average of the Weighted Average Price of
the Common Stock on each trading day during the 30 consecutive trading days
immediately preceding the Maturity Date. All such determinations shall be
appropriately adjusted for any stock dividend, stock split or other similar
transaction during such period.
(x) "Maturity Date" means the date which is five (5) years
after the Issuance Date of this Note.
(xi) "Market Price" means, as of any date of determination,
with respect to any security, that price which shall be computed as the
arithmetic average of the Closing Bid Prices for such security during the
ten (10) consecutive trading days immediately preceding such date of
determination. All such determinations shall be appropriately adjusted for
any stock dividend, stock split or other similar transaction during such
period.
(xii) "Options" means any rights, warrants or options to
subscribe for or purchase Common Stock or Convertible Securities.
(xiii) "Other Notes" means the convertible subordinated notes,
other than this Note, issued by the Company pursuant to the Securities
Purchase Agreement.
(xiv) "Person" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization, or a government or any department or agency
thereof.
(xv) "Principal Market" means the Nasdaq National Market, or
if the Common Stock is not traded on the Nasdaq National Market, then the
principal securities exchange or trading market for the Common Stock.
(xvi) "Pricing Date" means June 28, 2000.
(xvii) "Put Option Conversion Price" means as of any Conversion
Date or other date of determination after the Put Option Payment
-4-
Date, the arithmetic average of the three (3) lowest Closing Bid Prices of
the Common Stock during the thirty (30) consecutive trading days
immediately preceding such Conversion Date or other date of determination.
All such determinations shall be appropriately adjusted for any stock
dividend, stock split or other similar transaction during such period.
(xviii) "Registration Rights Agreement" means that certain
Registration Rights Agreement between the Company and the initial holders
of the Notes relating to the filing of a registration statement covering
the resale of the shares of Common Stock issuable upon conversion of the
Notes and exercise of the Warrants.
(xix) "Restricted Securities" means securities that are not
eligible for resale pursuant to Rule 144(k) under the Securities Act (or
any successor provision).
(xx) "Weighted Average Price" means, for any security as of
any date, the dollar volume-weighted average price for such security on the
Principal Market during the period beginning at 9:30 a.m., New York City
time, and ending at 4:00 p.m., New York City time, as reported by Bloomberg
through its "Volume at Price" functions or, if the foregoing does not
apply, the dollar volume-weighted average price of such security in the
over-the-counter market on the electronic bulletin board for such security
as reported by Bloomberg, or, if no dollar volume-weighted average price is
reported for such security by Bloomberg, the average of the highest closing
bid price and the lowest closing ask price of any of the market makers for
such security as reported in the "pink sheets" by the National Quotation
Bureau, Inc. If the Weighted Average Price cannot be calculated for such
security on such date on any of the foregoing bases, the Weighted Average
Price of such security on such date shall be the fair market value as
mutually determined by the Company and the holders of the Notes. If the
Company and the holders of the Notes are unable to agree, upon the fair
market value of the Common Stock, then such dispute shall be resolved
pursuant to Section 2(d)(iii) below with the term "Weighted Average Price"
being substituted for the term "Closing Bid Price."
(b) Holder's Conversion Right; Mandatory Redemption or Conversion.
Subject to the provisions of Section 5, at any time or times on or after the
Issuance Date (as defined above), the holder of this Note shall be entitled to
convert any part of the outstanding and unpaid Conversion Amount of this Note
into fully paid and nonassessable shares of Common Stock in accordance with
Section 5, at the Conversion Rate (as defined below). If any Conversion Amount
of this Note remains outstanding on the Maturity Date, then, pursuant to Section
2(d)(vii), all of such Conversion Amount shall be converted at the Conversion
Rate as of such date in accordance with Section 2(d)(vii) or redeemed by the
Company in accordance with Section 2(d)(vii). The Company shall not issue any
fraction of a share of Common Stock upon any conversion.
-5-
All shares of Common Stock (including fractions thereof) issuable upon
conversion of this Note by the holder shall be aggregated for purposes of
determining whether the conversion would result in the issuance of a fraction of
a share of Common Stock. If, after the aforementioned aggregation, the issuance
would result in the issuance of a fraction of a share of Common Stock, the
Company shall round such fraction of a share of Common Stock up or down to the
nearest whole share.
(c) Conversion.
(i) Conversion Rate. The number of shares of Common Stock
issuable upon conversion of a Conversion Amount of this Note pursuant to
Section 2(b) shall be determined according to the following formula (the
"Conversion Rate"):
Conversion Amount
-----------------
Conversion Price
(ii) Cash Payment of Additional Amount. The Additional Amount
shall be payable on the last day of each March and the last day of each
September during the period beginning on the Issuance Date and ending on,
and including, the Maturity Date (each an "Interest Date"). If an Interest
Date is not a Business Day then the Additional Amount shall be due and
payable on the Business Day immediately following the Interest Date. The
Additional Amount shall be payable in cash. Any accrued and unpaid
Interest which is not paid within five (5) Business Days of such accrued
and unpaid Interest's Interest Date shall bear Default Interest.
(d) Mechanics of Conversion. The conversion of this Note shall be
conducted in the following manner:
(i) Holder's Delivery Requirements. To convert this Note into
shares of Common Stock on any date (the "Conversion Date"), the holder
hereof shall (A) transmit by facsimile (or otherwise deliver), for receipt
on or prior to 4:30 p.m., Pacific Time on such date, a copy of a fully
executed notice of conversion in the form attached hereto as Exhibit A (the
"Conversion Notice") to the Company with a copy thereof to the Company's
designated transfer agent (the "Transfer Agent") and (B) if required by
Section 2(d)(viii), surrender to a common carrier for delivery to the
Company as soon as practicable following such date the original Note being
converted (or an indemnification undertaking with respect to such Note in
the case of its loss, theft or destruction). A holder delivering a
Conversion Notice by facsimile shall use its best efforts to send a copy of
the Conversion Notice by overnight mail to the Company by depositing such
copy of the Conversion Notice with a nationally recognized overnight
delivery service on the Conversion Date; provided, however, that the
failure of any holder to satisfy its obligations under this sentence shall
not affect the
-6-
Conversion Date or the obligations of the Company for any conversion of
this Note. The date of the Company's receipt of such copy of the Conversion
Notice shall be deemed to occur on the Business Day immediately following
the day such holder deposits the copy of the Conversion Notice with a
nationally recognized overnight delivery service (the "Overnight Receipt
Date").
(ii) Company's Response. Upon receipt by the Company of a
facsimile or other copy of a Conversion Notice, the Company (1) shall
immediately send, via facsimile, a confirmation of receipt of such
Conversion Notice to the Transfer Agent, which confirmation shall
constitute an instruction to the Transfer Agent to process such Conversion
Notice in accordance with the terms of this Note, and (2) on or before the
second Business Day following the date of receipt by the Company of such
Conversion Notice (the "Share Delivery Date"), (A) issue and deliver to the
address as specified in the Conversion Notice, a certificate, registered in
the name of the holder or its designee, for the number of shares of Common
Stock to which the holder shall be entitled, or (B) provided the Transfer
Agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer Program, upon the request of the holder,
credit such aggregate number of shares of Common Stock to which the holder
shall be entitled to the holder's or its designee's balance account with
DTC through its Deposit Withdrawal Agent Commission system. Subject to
Section 2(d)(viii), if less than the Conversion Amount of this Note is
submitted for conversion, then the Company shall, as soon as practicable
and in no event later than five Business Days after receipt of the Note
(the "Note Delivery Date") and at its own expense, issue and deliver to the
holder a new Note for the outstanding principal amount not converted.
(iii) Dispute Resolution. In the case of a dispute as to the
determination of the Market Price or the arithmetic calculation of the
Conversion Rate, the Company shall instruct the Transfer Agent to issue to
the holder the number of shares of Common Stock that is not disputed and
shall transmit an explanation of the disputed determinations or arithmetic
calculations to the holder via facsimile within one (1) Business Day of
receipt of such holder's Conversion Notice or other date of determination.
If such holder and the Company are unable to agree upon the determination
of the Market Price or arithmetic calculation of the Conversion Rate within
two (2) Business Days of such disputed determination or arithmetic
calculation being transmitted to the holder, then the Company shall within
one (1) Business Day submit via facsimile (A) the disputed determination of
the Market Price to an independent, reputable investment bank selected by
the Company and approved by the holders of at least two-thirds (2/3) of the
aggregate Conversion Amounts of the Notes then outstanding or (B) the
disputed arithmetic calculation of the Conversion Rate to the Company's
independent, outside accountant. The Company shall cause the investment
bank or the accountant, as the case may be, to perform the determinations
or calculations and notify the Company and the holder of the results no
later than forty-eight (48) hours from
-7-
the time it receives the disputed determinations or calculations. Such
investment bank's or accountant's determination or calculation, as the case
may be, shall be binding upon all parties absent manifest error.
(iv) Record Holder. The person or persons entitled to receive the
shares of Common Stock issuable upon a conversion of this Note shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on the Conversion Date.
(v) Company's Failure to Timely Convert.
(A) Cash Damages. If within three (3) Business Days after
the Company's receipt of the facsimile copy of a Conversion Notice the
Company shall fail to issue a certificate to the holder or credit the
holder's balance account with DTC for the number of shares of Common
Stock to which such holder is entitled upon such holder's conversion
of this Note or, subject to Section 2(d)(viii), the Company shall fail
to issue a new Note representing the principal amount to which such
holder is entitled, if any, pursuant to Section 2(d)(ii), in addition
to all other available remedies which such holder may pursue hereunder
and under the Securities Purchase Agreement, the Company shall pay
additional damages to such holder for each date after the Share
Delivery Date such conversion is not timely effected and/or each date
after the Note Delivery Date such new Note is not delivered in an
amount equal to 0.5% of the product of (I) the sum of the number of
shares of Common Stock not issued to the holder on or prior to the
Share Delivery Date and to which such holder is entitled and, in the
event the Company has failed to deliver a new Note to the holder on or
prior to the Note Delivery Date, the number of shares of Common Stock
issuable upon conversion of the Conversion Amount represented by the
new Note, as of the Note Delivery Date and (II) the Closing Bid Price
of the Common Stock on the Share Delivery Date, in the case of the
failure to deliver Common Stock, or the Note Delivery Date, in the
case of failure to deliver a new Note. If the Company fails to pay the
additional damages set forth in this Section 2(d)(v) within five
Business Days of the date incurred, then the holder entitled to such
payments shall have the right at any time, so long as the Company
continues to fail to make such payments, to require the Company, upon
written notice, to immediately issue, in lieu of such cash damages,
the number of shares of Common Stock equal to the quotient of (X) the
aggregate amount of the damages payments described herein divided by
(Y) the Conversion Price in effect on such Conversion Date as
specified by the holder in the Conversion Notice.
(B) Void Conversion Notice; Adjustment to Conversion Price.
If for any reason the holder has not received all of the shares of
-8-
Common Stock prior to the ninth (9th) Business Day after the Overnight
Receipt Date with respect to a conversion of this Note, then the
holder, upon written notice to the Company, with a copy to the
Transfer Agent, may void its Conversion Notice with respect to, and
retain or have returned, as the case may be, any principal amount of
this Note that has not been converted pursuant to such holder's
Conversion Notice; provided that the voiding of a holder's Conversion
Notice shall not affect the Company's obligations to make any payments
which have accrued prior to the date of such notice pursuant to
Section 2(d)(v)(A) or otherwise. If for any reason the holder has not
received all of the shares of Common Stock prior to the fourteenth
(14th) Business Day after the Overnight Receipt Date with respect to a
conversion of this Note, then the Conversion Price of the principal
amount of this Note with respect to which the Company has not
delivered shares of Common Stock on or prior to such fourteenth (14th)
Business Day shall be adjusted to the lowest Closing Bid Price during
the period beginning on the Conversion Date and ending on the date
such holder voided the Conversion Notice, subject to further
adjustment as provided in this Note. Notwithstanding the foregoing,
no adjustment to the Conversion Price shall be made pursuant to this
Section 2(d)(v)(B) that will increase the Conversion Price.
(C) Redemption. If for any reason the holder has not
received all of the shares of Common Stock prior to the ninth (9th)
Business Day after the Overnight Receipt Date with respect to a
conversion of this Note (a "Conversion Failure"), then the holder,
upon written notice to the Company, may require that the Company
redeem any or all of the Conversion Amount of this Note, including the
Conversion Amount previously submitted for conversion and with respect
to which the Company has not delivered shares of Common Stock, in
accordance with Section 3.
(vi) Pro Rata Conversion. If the Company receives a Conversion
Notice from more than one holder of the Notes for the same Conversion Date
and the Company can convert some, but not all, of the Notes submitted for
conversion, the Company shall convert from each holder electing to have
Notes converted at such time a pro rata amount of such holder's Conversion
Amount submitted for conversion based on the Conversion Amount of the Notes
submitted for conversion on such date by such holder relative to the
Conversion Amount of all Notes submitted for conversion on such date.
(vii) Mandatory Redemption or Conversion at Maturity at Company's
Option. If any Conversion Amount of any Notes remains outstanding on the
Maturity Date, the Company shall have the option either (i) to convert all
of the Conversion Amount of the Notes outstanding on the Maturity Date at
the Conversion Rate as of such date without the holders of such Notes being
required
-9-
to give a Conversion Notice on such Maturity Date (a "Maturity Date
Mandatory Conversion"), or (ii) redeem all of the Conversion Amount on the
Maturity Date for an amount in cash (the "Maturity Date Redemption Price")
equal to the Conversion Amount (a "Maturity Date Mandatory Redemption").
The Company shall be deemed to have elected a Maturity Date Mandatory
Redemption unless it delivers written notice to each holder of Notes at
least thirty-five (35) Business Days prior to the Maturity Date of its
irrevocable election to effect a Maturity Date Mandatory Conversion. If the
Company elects a Maturity Date Mandatory Redemption, then on the Maturity
Date the Company shall pay to each holder of Notes outstanding on the
Maturity Date, by wire transfer of immediately available funds, an amount
equal to the Maturity Date Redemption Price. If the Company elects a
Maturity Date Mandatory Redemption and fails to redeem all of the
Conversion Amount of the Notes outstanding on the Maturity Date by payment
of the Maturity Date Redemption Price, then in addition to any remedy such
holder of Notes may have under this Note, the Securities Purchase Agreement
and the Registration Rights Agreement, (X) the applicable Maturity Date
Redemption Price payable in respect of such unredeemed Conversion Amount
shall bear interest at the rate of 1.5% per month, prorated for partial
months, until paid in full, and (Y) any holder of Notes shall have the
option to require the Company to convert any or all of such holder's
Conversion Amount that the Company elected to redeem under this Section
2(d)(vii) and for which the Maturity Date Redemption Price (together with
any interest thereon ) which has not been paid into shares of Common Stock
equal to the number which results from dividing the Maturity Date
Redemption Price (together with any interest thereon) by the Conversion
Price in effect on the Maturity Date. If the Company has elected a Maturity
Date Mandatory Conversion or has failed to pay the Maturity Date Redemption
Price in a timely manner as described above, then the Maturity Date shall
be extended for any Notes for as long as (A) the conversion of such Notes
would violate the provisions of Section 5, (B) a Triggering Event shall
have occurred and be continuing, or (C) an event shall have occurred and be
continuing which with the passage of time and the failure to cure would
result in a Triggering Event.
(viii) Book-Entry. Notwithstanding anything to the contrary set
forth herein, upon conversion of any portion of this Note in accordance
with the terms hereof, the holder thereof shall not be required to
physically surrender this Note to the Company unless the full Conversion
Amount represented by this Note is being converted. The holder and the
Company shall maintain records showing the Conversion Amount so converted
and the dates of such conversions or shall use such other method,
reasonably satisfactory to the holder and the Company, so as not to require
physical surrender of this Note upon each such conversion. In the event of
any dispute or discrepancy, such records of the Company shall be
controlling and determinative in the absence of manifest error.
Notwithstanding the foregoing, if any portion of this Note is converted,
and in reliance on this Section 2(d)(viii) the holder does not surrender
this Note, the holder may not
-10-
transfer this Note unless the holder first physically surrenders this Note
to the Company, whereupon the Company will forthwith issue and deliver to
the holder a new Note of like tenor, registered as the holder may request,
representing in the aggregate the remaining Conversion Amount represented
by this Note. The holder and any assignee, by acceptance of this Note or a
new Note, acknowledge and agree that, by reason of the provisions of this
paragraph, following conversion of any portion of this Note, the Conversion
Amount (including the principal of this Note) represented by this Note may
be less than the principal amount and the accrued interest set forth on the
face hereof.
(e) Taxes. The Company shall pay any and all taxes that may be payable
with respect to the issuance and delivery of Common Stock upon the conversion of
Notes.
(f) Adjustments to Conversion Price. In addition to any other
adjustments provided herein, the Conversion Price will be subject to adjustment
from time to time as provided in this Section 2(f).
(i) Adjustment of Conversion Price upon Issuance of Common
Stock. If and whenever on or after the date of issuance of the Notes, the
Company issues or sells, or in accordance with this Section 2(f) is deemed
to have issued or sold, any shares of Common Stock (including the issuance
or sale of shares of Common Stock owned or held by or for the account of
the Company, but excluding (A) shares of Common Stock deemed to have been
issued by the Company in connection with an Approved Stock Plan, (B) shares
of Common Stock issued upon conversion of the Notes or exercise of the
Warrants, (C) shares of Common Stock issued upon the conversion or exercise
of any options or warrants issued other than under an Approved Stock Plan
outstanding as of the Issuance Date provided the terms of such securities
are not amended after the Issuance Date, or (D) any Excluded Securities)
for a consideration per share less than a price (the "Applicable Price")
equal to the Conversion Price in effect immediately prior to such time,
then immediately after such issue or sale, the Conversion Price then in
effect shall be reduced to an amount equal to the per share consideration
received by the Company upon such issue or sale. For purposes of
determining the adjusted Conversion Price under this Section 2(f)(i), the
following shall be applicable:
(A) Issuance of Options. If the Company in any manner grants
or sells any Options and the lowest price per share for which one share of
Common Stock is issuable upon the exercise of any such Option or upon
conversion, exchange or exercise of any Convertible Securities issuable
upon exercise of such Option is less than the Applicable Price, then such
share of Common Stock shall be deemed to be outstanding and to have been
issued and sold by the Company at the time of the granting or sale of such
Option for such price per share. For purposes of this Section 2(f)(i)(A),
the "lowest price per
-11-
share for which one share of Common Stock is issuable upon the exercise of
any such Option or upon conversion, exchange or exercise of any Convertible
Securities issuable upon exercise of such Option" shall be equal to the sum
of the lowest amounts of consideration (if any) received or receivable by
the Company with respect to any one share of Common Stock upon granting or
sale of the Option, upon exercise of the Option and upon conversion,
exchange or exercise of any Convertible Security issuable upon exercise of
such Option. No further adjustment of the Conversion Price shall be made
upon the actual issuance of such Common Stock or of such Convertible
Securities upon the exercise of such Options or upon the actual issuance of
such Common Stock upon conversion, exchange or exercise of such Convertible
Securities.
(B) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities and the lowest price per
share for which one share of Common Stock is issuable upon such conversion,
exchange or exercise thereof is less than the Applicable Price, then such
share of Common Stock shall be deemed to be outstanding and to have been
issued and sold by the Company at the time of the issuance of sale of such
Convertible Securities for such price per share. For the purposes of this
Section 2(f)(i)(B), the "lowest price per share for which one share of
Common Stock is issuable upon such conversion, exchange or exercise" shall
be equal to the sum of the lowest amounts of consideration (if any)
received or receivable by the Company with respect to any one share of
Common Stock upon the issuance or sale of the Convertible Security and upon
the conversion, exchange or exercise of such Convertible Security. No
further adjustment of the Conversion Price shall be made upon the actual
issuance of such Common Stock upon conversion, exchange or exercise of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment of the
Conversion Price had been or are to be made pursuant to other provisions of
this Section 2(f)(i), no further adjustment of the Conversion Price shall
be made by reason of such issue or sale.
(C) Change in Option Price or Rate of Conversion. If the
purchase or exercise price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion, exchange or
exercise of any Convertible Securities, or the rate at which any
Convertible Securities are convertible into or exchangeable or exercisable
for Common Stock changes at any time, the Conversion Price in effect at the
time of such change shall be adjusted to the Conversion Price which would
have been in effect at such time had such Options or Convertible Securities
provided for such changed purchase price, additional consideration or
changed conversion rate, as the case may be, at the time initially granted,
issued or sold. For purposes of this Section 2(f)(i)(C), if the terms of
any Option or Convertible Security that was outstanding as of the date of
issuance of the Notes are changed in the manner described in the
immediately preceding sentence, then such Option or Convertible Security
and the Common
-12-
Stock deemed issuable upon exercise, conversion or exchange thereof shall
be deemed to have been issued as of the date of such change. No adjustment
shall be made if such adjustment would result in an increase of the
Conversion Price then in effect.
(D) Calculation of Consideration Received. In case any
Option is issued in connection with the issue or sale of other securities
of the Company, together comprising one integrated transaction in which no
specific consideration is allocated to such Options by the parties thereto,
the Options will be deemed to have been issued for a consideration of
$0.01. If any Common Stock, Options or Convertible Securities are issued or
sold or deemed to have been issued or sold for cash, the consideration
received therefor will be deemed to be the gross amount received by the
Company therefor, less expenses in excess of five percent (5%) of the gross
amount received. If any Common Stock, Options or Convertible Securities are
issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Company will be the fair
value of such consideration, except where such consideration consists of
marketable securities, in which case the amount of consideration received
by the Company will be the arithmetic average of the Closing Bid Prices of
such securities during the ten (10) consecutive trading days ending on the
date of receipt of such securities. If any Common Stock, Options or
Convertible Securities are issued to the owners of the non-surviving entity
in connection with any merger in which the Company is the surviving entity,
the amount of consideration therefor will be deemed to be the fair value of
such portion of the net assets and business of the non-surviving entity as
is attributable to such Common Stock, Options or Convertible Securities, as
the case may be. The fair value of any consideration other than cash or
securities will be determined jointly by the Company and the holders of a
majority of the principal amount of the Notes then outstanding. If such
parties are unable to reach agreement within ten (10) days after the
occurrence of an event requiring valuation (the "Valuation Event"), the
fair value of such consideration will be determined within five (5)
Business Days after the tenth (10th) day following the Valuation Event by
an independent, reputable appraiser agreed to by the Company and the
holders of a majority of the Conversion Amounts of the Notes. The
determination of such appraiser shall be deemed binding upon all parties
absent manifest error and the fees and expenses of such appraiser shall be
bound by the Company.
(E) Record Date. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them (1) to receive a
dividend or other distribution payable in Common Stock, Options or
Convertible Securities, or (2) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date will be deemed to
be the date of the issue or sale of the shares of Common Stock deemed to
have been issued or sold upon the declaration of such dividend or the
making of such other distribution or the date of the granting of such right
of subscription or purchase, as the case may be.
-13-
(ii) Adjustment of Conversion Price Upon Subdivision or
Combination of Common Stock. If the Company at any time subdivides (by any
stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced. If the Company at any time
combines (by combination, reverse stock split or otherwise) one or more
classes of its outstanding shares of Common Stock into a smaller number of
shares, the Conversion Price in effect immediately prior to such
combination will be proportionately increased.
(iii) Holder's Right of Alternative Conversion Price Following
Issuance of Convertible Securities. If the Company in any manner issues or
sells Convertible Securities or Options that are convertible into or
exchangeable or exercisable for Common Stock at a price which varies or may
vary with the market price of the Common Stock, including by way of one or
more reset(s) to a fixed price (each of the formulations for such variable
price being herein referred to as, a "Variable Price"), and such Variable
Price is not calculated using the same formula used to calculate the
Conversion Price in effect immediately prior to the time of such issue or
sale, the Company shall provide written notice thereof via facsimile and
overnight courier to each holder of the Notes (a "Variable Notice") on the
date of issuance of such Convertible Securities or Options. If a holder of
the Notes then outstanding provides written notice to the Company via
facsimile and overnight courier (the "Variable Price Election Notice")
within fifteen (15) Business Days of receiving a Variable Notice that such
holder desires to replace the Conversion Price then in effect with the
Variable Price described in such Variable Notice, then, from and after the
date of the Company's receipt of the Variable Price Election Notice, the
Conversion Price will automatically be replaced with the Variable Price for
the Notes held by such holder. In the event that a holder of Notes delivers
a Conversion Notice after the Company's issuance of Convertible Securities
with a Variable Price but before such holder's receipt of the Company's
Variable Notice, then such holder shall have the option by written notice
to the Company to rescind such Conversion Notice or to have the Conversion
Price be equal to such Variable Price for the conversion effected by such
Conversion Notice.
(iv) Adjustment of the Conversion Price Upon Major Corporate
Event Announcement. In the event (A) the Company makes a public
announcement that it intends to consolidate or merge with or into another
Person or engage in a business combination involving the issuance or
exchange of more than fifty percent (50%) of the Company's outstanding
Common Stock, (B) the Company makes a public announcement that it intends
to sell or transfer all or substantially all of the Company's assets, or
(C) any Person (including the Company) publicly announces a purchase,
tender or exchange offer for more than
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50% of the Company's outstanding Common Stock (the transactions described
in clauses (A), (B) and (C) above are hereinafter referred to as "Major
Corporate Event" and the date of the announcement referred to in clause
(A), (B) or (C) is hereinafter referred to as the "Announcement Date"),
then the Conversion Price shall, effective upon the Announcement Date and
continuing through and including the Adjusted Conversion Price Termination
Date (as defined below), be equal to the Conversion Price which would have
been applicable for a conversion by the holder on the Announcement Date.
From and after the Adjusted Conversion Price Termination Date, the
Conversion Price shall be determined as set forth in Section 2. For
purposes hereof, "Adjusted Conversion Price Termination Date" shall mean,
with respect to any proposed Major Corporate Event for which a public
announcement as contemplated by this Section 2(f)(iv) has been made, the
date upon which the Company or other Person (in the case of clause (C)
above) consummates or publicly announces the termination or abandonment of
the proposed Major Corporate Event which was the subject of the previous
public announcement.
(v) Nine Month Adjustment to Conversion Price. In addition to
any other adjustment to the Conversion Price provided for in this Note, on
that date which shall be the nine month anniversary of the Issuance Date
(the "Adjustment Date"), the Conversion Price shall be subject to a one-
time downward adjustment to One Hundred Two Percent (102%) of the Market
Price on the Adjustment Date, provided that in no event shall the
Conversion Price be subject to a downward adjustment under this Section
2(f)(v) to less than Seventy-five percent (75%) of the Market Price on the
Pricing Date.
(vi) Distribution of Assets. If the Company shall declare or
make any dividend or other distribution of its assets (or rights to acquire
its assets) to holders of Common Stock, by way of return of capital or
otherwise (including, without limitation, any distribution of cash, stock
or other securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement or other similar transaction) (a
"Distribution"), at any time after the issuance of this Note, then, in each
such case the Conversion Price in effect immediately prior to the close of
business on the record date fixed for the determination of holders of
Common Stock entitled to receive the Distribution shall be reduced,
effective as of the close of business on such record date, to a price
determined by multiplying such Conversion Price by a fraction of which (A)
the numerator shall be the Closing Bid Price of the Common Stock on the
trading day immediately preceding such record date minus the value of the
Distribution (as determined in good faith by the Company's Board of
Directors) applicable to one share of Common Stock, and (B) the denominator
shall be the Closing Bid Price of the Common Stock on the trading day
immediately preceding such record date. In the event that a Distribution
will not result in a reduction to the Conversion Price pursuant to the
foregoing sentence of this Section 2(f)(vi), the Conversion Price in effect
immediately prior to the close of business on the record date fixed for the
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determination of holders of Common Stock entitled to receive the
Distribution shall remain in effect.
(vii) Other Events. If any event occurs of the type contemplated
by the provisions of this Section 2(f) but not expressly provided for by
such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity
features), then the Company's Board of Directors will make an appropriate
adjustment in the Conversion Price so as to protect the rights of the
holders of the Notes; provided that no such adjustment will increase the
Conversion Price as otherwise determined pursuant to this Section 2(f).
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(vii) Notices.
(A) Immediately upon any adjustment of the Conversion
Price, the Company will give written notice thereof to each holder of the
Notes setting forth in reasonable detail, and certifying, the calculation
of such adjustment.
(B) The Company will give written notice to each holder of
Notes at least ten (10) Business Days prior to the date on which the
Company closes its books or takes a record (I) with respect to any dividend
or distribution upon the Common Stock, (II) with respect to any pro rata
subscription offer to holders of Common Stock or (III) for determining
rights to vote with respect to any Organic Change (as defined in Section
4(a)), dissolution or liquidation, provided that such information shall be
made known to the public prior to or in conjunction with such notice being
provided to such holder.
(C) The Company will also give written notice to each
holder of Notes at least ten (10) Business Days prior to the date on which
any Organic Change, dissolution or liquidation will take place, provided
that such information shall be made known to the public prior to or in
conjunction with such notice being provided to such holder.
3. Redemption at Option of Holder.
(a) Redemption Option Upon Triggering Event. In addition to all other
rights of the holder contained herein, after a Triggering Event (as defined
below), the holder shall have the right, at the holder's option, to require the
Company to redeem all or a portion of this Note at a price equal to (x) with
respect to a Triggering Event described in clauses (iii) or (vii) of Section
3(b) below, 125% of the Conversion Amount, and (y) with respect to a Triggering
Event described in clauses (i), (ii), (iv), (v) or (vi) of Section 3(b) below,
the greater of (i) 125% of the Conversion Amount and (ii) the product of (A) the
Conversion Rate for the Conversion Amount to be redeemed in effect at such time
as such holder delivers a Notice of Redemption at Option of Holder (as defined
below) and (B) the Closing Bid Price on the trading day immediately preceding
such Triggering Event on which the Principal Market is open for trading or if no
Closing Bid Price is reported by the Principal Market on such trading day, then
the most recently reported Closing Bid Price (the "Redemption Price").
(b) "Triggering Event". A "Triggering Event" shall be deemed to have
occurred at such time as any of the following events:
(i) the failure of the Registration Statement to be declared
effective by the SEC on or prior to the Effectiveness Deadline (as defined
in the Registration Rights Agreement);
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(ii) while the Registration Statement is required to be
maintained effective pursuant to the terms of the Registration Rights
Agreement, the effectiveness of the Registration Statement lapses for any
reason (including, without limitation, the issuance of a stop order) or is
unavailable to the holder for sale of all of such Holder's Registrable
Securities (as defined in the Registration Rights Agreement) in accordance
with the terms of the Registration Rights Agreement, and such lapse or
unavailability continues for a period of fifteen (15) consecutive trading
days or any thirty (30) trading days in a 365-day period (excluding days
during an Allowable Grace Period);
(iii) the suspension from trading or failure of the Common Stock
to be listed on the Nasdaq National Market or The New York Stock Exchange,
Inc. or The American Stock Exchange, Inc. for a period of fifteen (15)
consecutive trading days or for more than an aggregate of thirty (30)
trading days in any 365-day period;
(iv) the Company's or the Transfer Agent's notice to any holder
of Notes, including by way of public announcement, at any time, of its
intention not to comply with a request for conversion of any Notes into
shares of Common Stock that is tendered in accordance with the provisions
of the Notes;
(v) a Conversion Failure (as defined in Section 2(d)(v)(C));
(vi) upon the Company's receipt of a Conversion Notice, the
Company not being obligated to issue the shares of Common Stock issuable
upon such conversion of Notes due to the provisions of Section 11; or
(vii) the Company breaches any representation, warranty, covenant
or other term or condition of the Securities Purchase Agreement, the
Registration Rights Agreement, the Warrants, this Note or any other
agreement, document, certificate or other instrument delivered in
connection with the transactions contemplated thereby and hereby, except to
the extent that such breach would not have a Material Adverse Effect (as
defined in Section 2.1(a) of the Securities Purchase Agreement) and except,
in the case of a breach of a covenant which is curable, only if such breach
continues for a period of at least twenty (20) days.
(c) Mechanics of Redemption at Option of Holder. Within one (1)
Business Day after the occurrence of a Triggering Event, the Company shall
deliver written notice thereof via facsimile and overnight courier (a "Notice of
Triggering Event") to each holder of Notes. At any time after a holder becomes
aware of a Triggering Event, the holder may require the Company to redeem all of
such holder's Notes by delivering written notice thereof via facsimile and
overnight courier ("Notice of Redemption at Option of Holder") to the Company,
which Notice of Redemption at Option of Holder shall indicate (i) the Conversion
Amount of the Notes that the holder is electing to redeem and (ii) the
applicable Redemption Price, as calculated pursuant to
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Section 3(a) above.
(d) Payment of Redemption Price. Upon the Company's receipt of a
Notice(s) of Redemption at Option of Holder from any holder of Notes, the
Company shall deliver the applicable Redemption Price to the holder within five
(5) Business Days after the Company's receipt of a Notice of Redemption at
Option of Holder; provided that the holder's Notes shall have been delivered to
the Company. If more than one holder of Notes submits Notes for redemption and
the Company is unable to redeem all of the Notes submitted for redemption, the
Company shall (i) redeem a pro rata amount from each holder of Notes based on
the Conversion Amount represented by the Notes submitted for redemption by such
holder relative to the aggregate Conversion Amounts of all Notes for redemption
by all holders of Notes, and (ii) in addition to any remedy such holder of Notes
may have under the Notes and the Securities Purchase Agreement, pay to each
holder interest at the rate of 1.5% per month (prorated for partial months) in
respect of the unredeemed Conversion Amounts until paid in full. Interest on
the Notes shall continue to accrue interest until the date the Company pays the
Redemption Price.
(e) Void Redemption. In the event that the Company does not pay the
Redemption Price within the time period set forth in Section 3(d), at any time
thereafter and until the Company pays such unpaid applicable Redemption Price in
full, the holder shall have the option (the "Void Optional Redemption Option")
to, in lieu of redemption, require the Company to promptly return to the holder
the Note that was submitted for redemption by such holder under this Section 3
and for which the applicable Redemption Price (together with any interest
thereon) has not been paid, by sending written notice thereof to the Company via
facsimile (the "Void Optional Redemption Notice"). Upon the Company's receipt
of such Void Optional Redemption Notice, (i) the Notice of Redemption at Option
of Holder shall be null and void with respect to that portion of the Note
subject to the Void Optional Redemption Notice, (ii) the Company shall
immediately return the Note subject to the Void Optional Redemption Notice, and
(iii) the Conversion Price of such portion of the Note shall be adjusted to the
lesser of (A) the Conversion Price as in effect on the date on which the Void
Optional Redemption Notice is delivered to the Company and (B) the lowest
Closing Bid Price during the period beginning on the date on which the Notice of
Redemption at Option of Holder is delivered to the Company and ending on the
date on which the Void Optional Redemption Notice is delivered to the Company.
(f) Disputes; Miscellaneous. In the event of a dispute as to the
determination of the arithmetic calculation of the Redemption Price, such
dispute shall be resolved in the same manner described in Section 2(d)(iii)
above with the term "Redemption Price" being substituted for the term
"Conversion Rate." The holder's delivery of a Void Optional Redemption Notice
and exercise of its rights following such notice shall not affect the Company's
obligations to make any payments which have accrued prior to the date of such
notice. In the event of a redemption pursuant to this Section 3 of less than all
of the Conversion Amount of this Note, the Company shall promptly cause to be
issued and delivered to the holder a new Note representing the
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remaining Conversion Amount which has not been redeemed, if necessary.
4. Other Rights of Holders.
(a) Reorganization, Reclassification, Consolidation, Merger or Sale.
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets to another Person or
other transaction which is effected in such a way that holders of Common Stock
are entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is referred
to herein as "Organic Change." Prior to the consummation of any (i) sale of all
or substantially all of the Company's assets to an acquiring Person or (ii)
other Organic Change following which the Company is not a surviving entity, the
Company will secure from the Person purchasing such assets or the successor
resulting from such Organic Change (in each case, the "Acquiring Entity") a
written agreement (in form and substance reasonably satisfactory to the holders
of the Notes representing at least two thirds (2/3) of the Conversion Amounts of
the Notes then outstanding) that the Acquiring Entity will assume the
obligations represented by this Note (including, without limitation, the right
to convert this Note into the securities or assets issued to the holders of the
Common Stock in connection with such Organic Change). Prior to the consummation
of any other Organic Change, the Company shall make appropriate provision (in
form and substance reasonably satisfactory to the holders of at least two thirds
(2/3) of the Conversion Amounts then outstanding) to insure that each of the
holders of the Notes will thereafter have the right to acquire and receive in
lieu of or in addition to (as the case may be) the shares of Common Stock
immediately theretofore acquirable and receivable upon the conversion of such
holder's Notes such shares of stock, securities or assets that would have been
issued or payable in such Organic Change with respect to or in exchange for the
number of shares of Common Stock which would have been acquirable and receivable
upon the conversion of such holder's Notes as of the date of such Organic Change
(without taking into account any limitations or restrictions on the
convertibility of the Notes).
(b) Optional Redemption Upon Change of Control. In addition to the
rights of the holders under Section 4(a), upon a Change of Control of the
Company, the holder of this Note shall have the right, at the holder's option,
to require the Company to redeem all or a portion of the Conversion Amount
represented by this Note for an amount equal to 125% of the then outstanding
Conversion Amount of this Note ("Change of Control Redemption Price"). No
sooner than fifteen (15) days nor later than ten (10) days prior to the
consummation of a Change of Control, but not prior to the public announcement of
such Change of Control, the Company shall deliver written notice thereof via
facsimile and overnight courier (a "Notice of Change of Control") to the
holders. At any time during the period beginning after receipt of a Notice of
Change of Control (or, in the event a Notice of Change of Control is not
delivered at least ten (10) days prior to a Change of Control, at any time on or
after the date which is ten (10) days prior to a Change of Control) and ending
on the date of such Change of Control, the holders may require the Company to
redeem all or a portion of the Conversion Amount of
-20-
this Note then outstanding by delivering written notice thereof via facsimile
and overnight courier (a "Notice of Redemption Upon Change of Control") to the
Company, which Notice of Redemption Upon Change of Control shall indicate (i)
the Conversion Amount the holder is submitting for redemption, and (ii) the
applicable Change of Control Redemption Price, as calculated pursuant to this
Section 4(b). Upon the Company's receipt of a Notice(s) of Redemption Upon
Change of Control from any holders of Notes, the Company shall promptly, but in
no event later than one (1) Business Day following such receipt, notify the
holder of this Note by facsimile of the Company's receipt of such Notice(s) of
Redemption Upon Change of Control. The Company shall deliver the applicable
Change of Control Redemption Price simultaneous with the consummation of the
Redemption Change of Control; provided that, if required by Section 2(d)(viii),
this Note shall have been so delivered to the Company. Notwithstanding anything
to the contrary in this Note (including without limitation Section 9), payments
provided for in this Section 4(b) shall have priority to payments to the
Company's stockholders in connection with a Change of Control.
(c) Purchase Rights. If at any time the Company grants, issues or
sells any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "Purchase Rights"), then the holders of Notes will be entitled
to acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if such holder had held
the number of shares of Common Stock acquirable upon complete conversion of the
Notes (without taking into account any limitations or restrictions on the
convertibility of the Notes) immediately before the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights.
(d) Forced Delisting. If a redemption voided pursuant to Section 3(e)
was caused by a Triggering Event involving the Company's inability to issue
Conversion Shares because of the Exchange Cap (as defined in Section 11), and if
so directed in one or more Void Optional Redemption Notices by the holders of at
least two-thirds (2/3) of the Conversion Amounts of the Notes then outstanding,
including Conversion Amounts of Notes submitted for redemption pursuant to
Section 3 with respect to which the applicable Redemption Price has not been
paid, the Company shall promptly as practicable delist the Common Stock from the
exchange or automated quotation system on which the Common Stock is traded and
have the Common Stock, at such holders' option, traded on the electronic
bulletin board or the "pink sheets."
(e) Optional Redemption By Holder After Third Anniversary. At any
time from and after the third anniversary of the Issuance Date (the "Put Option
Date"), the holder of this Note shall have the right, but not the obligation, to
elect to cause the Company to redeem all or a portion of this Note (the "Put
Option"). The holder of this Note may exercise the Put Option by providing
written notice to the Company at any time on or after the thirtieth (30th)
Business Day immediately preceding the Put Option Date of
-21-
its election to exercise the Put Option. Within thirty (30) Business Days after
the holder's exercise of the Put Option, but in no event prior to the Put Option
Date (the "Put Option Payment Date"), the Company shall pay the exercising
holder, in cash, an amount equal to the then outstanding Conversion Amount of
the Note as to which the Put Option is being exercised (the "Put Option
Payment"). If any holder exercises the Put Option as to all or any portion of a
Note, and the Company does not pay the Put Option Payment in full on or before
the Put Option Payment Date, (Y) the Put Option Payment shall bear interest at
the rate of 1.5% per month, prorated for partial months, until paid in full, and
(X) if the Put Option Payment is not paid within five (5) business days after
the Put Option Payment Date, the holder who has exercised the Put Option but has
not been paid the Put Option Payment shall have the option to require the
Company to convert the outstanding Conversion Amount of the Notes held by such
holder (including the Note subject to the Put Option).
5. [RESERVED]
6. Redemption at the Company's Election. At any time or times after the
second anniversary of the Issuance Date but before the Maturity Date, the
Company shall have the right, in its sole discretion, to require that some or
all of the then outstanding Conversion Amounts of the outstanding Notes be
redeemed ("Redemption at Company's Election") for cash consideration equal to
(i) in the event that the Company's Election Redemption Date (as defined below)
is prior to the date which is the third anniversary of the Issuance Date, 103%
of the principal amount to be redeemed, plus any Additional Amount with respect
to such principal amount, (ii) in the event that the Company's Election
Redemption Date is on or after the date which is the third anniversary of the
Issuance Date, 102% of the principal amount to be redeemed, plus any Additional
Amount with respect to such principal amount, and (iii) in the event that the
Company's Election Redemption Date is on or after the date which is the fourth
anniversary of the Issuance Date, but before the Maturity Date, 101% of the
principal amount to be redeemed, plus any Additional Amount with respect to such
principal amount (the "Company's Election Redemption Price"); provided that the
Conditions to Redemption at the Company's Election (as set forth below) are
satisfied as of the date of the Notice of Redemption at Company's Election (the
"Redemption at Company's Election Notice Date"). The Company may exercise its
right to Redemption at Company's Election only by providing each holder of Notes
written notice ("Notice of Redemption at Company's Election") at least thirty
(30) but no more than sixty (60) Business Days prior to the date of consummation
of such redemption ("Company's Election Redemption Date"), provided that the
holder of a Note who receives a Notice of Redemption at Company's Election may,
at any time before the Company's Election Redemption Date convert all or any
portion of such Note. If the Company elects to require redemption of some, but
not all, of the Conversion Amount of the Notes then outstanding, the Company
shall require redemption of the pro rata amount from each holder of such Notes
based on the principal amount of Notes purchased by such holder relative to the
aggregate principal amount of all Notes purchased pursuant to the Securities
Purchase Agreement (such amount with respect to the holder being referred to
herein as its "Pro Rata Redemption Amount").
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The Notice of Redemption at Company's Election shall indicate (x) the Conversion
Amount of the Notes the Company has elected to redeem from all holder of Notes,
(y) the Company's Election Redemption Date, and (z) each holder's Pro Rata
Redemption Amount. If the Company has exercised its right of Redemption at
Company's Election and the conditions of this Section 6, including the
Conditions to Redemption at Company's Election, have been satisfied, then each
holder's Pro Rata Redemption Amount which remains outstanding at the Company's
Election Redemption Date shall be redeemed as of the Company's Election
Redemption Date by payment by the Company to each holder of the Notes of the
Company's Election Redemption Price. If required by Section 2(d)(viii), all
holders of the Notes shall thereupon and within two Business Days after the
Company's Election Redemption Date or such earlier date as the Company and each
holder of Notes mutually agree, surrender all Notes being redeemed on such date
to the Company. If the Company fails to pay the full Company's Election
Redemption Price with respect to this Note on the Company's Election Redemption
Date, then the Redemption at Company's Election shall be null and void with
respect to this Note and the holder shall be entitled to all the rights of a
holder of outstanding Notes. "Conditions to Redemption at the Company's
Election" means the following conditions: (i) during the period beginning on the
Issuance Date and ending on and including the Redemption at Company's Election
Notice Date, the Company shall have delivered all shares of Common Stock
issuable upon conversion of the Notes to the holders of the Notes, and all
shares of Common Stock issuable upon exercise of the Warrants issued under the
Securities Purchase Agreement, on a timely basis as set forth in this Note and
in the Warrants; (ii) on each day during the period beginning thirty (30) days
prior to the date of Notice of Redemption at Company's Election and ending on
and including the Company's Election Redemption Date the Registration Statement
shall be effective and available for the sale of at least all of the Registrable
Securities (as defined in the Registration Rights Agreement); (iii) on each day
during the period beginning thirty (30) days prior to the date of Notice of
Redemption at Company's Election and ending on and including the Company's
Election Redemption Date, the Common Stock is designated for quotation on the
Nasdaq National Market or listed on The New York Stock Exchange, is not
suspended from trading and neither delisting nor suspension by such exchange or
market shall have been threatened either (A) in writing by such exchange or
market or (B) by falling below the minimum listing maintenance requirements of
such exchange or market; (iv) during the period beginning on the Issuance Date
and ending on and including the Company's Election Redemption Date, there shall
not have occurred a Triggering Event or an event that with the passage of time
and without being cured would constitute a Triggering Event; (v) during the
period beginning on the Issuance Date and ending on and including the Company's
Election Redemption Date, there shall not have occurred the consummation of a
Change of Control or the public announcement of a pending, proposed or intended
Change of Control which has not been terminated; (vi) on the earlier to occur of
(A) the Shareholder Meeting Deadline (as defined in the Securities Purchase
Agreement) and (B) the date on which the Company holds its first meeting of
shareholders after the Issuance Date, the Company shall have received the
Shareholder Approval (as defined in the Securities Purchase Agreement); and
(vii) the Company otherwise has satisfied its obligations in all material
respects and is not in default in any
-23-
material respect under this Note, the Securities Purchase Agreement, the
Warrants and the Registration Rights Agreement. Notwithstanding the above, but
subject to Section 5, the holder may convert any Conversion Amount (including
Conversion Amounts selected for redemption) into Common Stock pursuant to
Section 2(b) on or prior to the date immediately preceding the Company's
Election Redemption Date. If the Company fails to timely pay any Company's
Election Redemption Price in accordance with this Section 6, then the Company
shall not be permitted to submit another Notice of Redemption at Company's
Election without the prior written consent of the holders of the Notes
representing at least two-thirds (2/3) of the Conversion Amounts of the Notes
then outstanding.
7. Reservation of Shares. The Company shall, so long as any principal
amount of the Note is outstanding, reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Notes, such number of shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all of the Conversion
Amounts of the Notes then outstanding. The initial number of shares of Common
Stock reserved for conversions of the Notes and each increase in the number of
shares so reserved shall be allocated pro rata among the holders of the Notes
based on the principal amount of the Notes held by each holder at the time of
issuance of the Notes or increase in the number of reserved shares, as the case
may be. In the event a holder shall sell or otherwise transfer any of such
holder's Notes, each transferee shall be allocated a pro rata portion of the
number of reserved shares of Common Stock reserved for such transferor. Any
shares of Common Stock reserved and allocated to any holder which ceases to hold
any Notes shall be allocated to the remaining holders of the Notes, pro rata
based on the principal amount of the Notes then held by such holders.
8. Voting Rights. Holders of the Notes shall have no voting rights, except
as required by law, and as expressly provided in this Note.
9. Subordination. The payment of the principal and interest on this Note
shall be subordinated and subject in right of payment to the prior payment in
full of all Senior Indebtedness of the Company, whether outstanding at the date
of this Note or thereafter incurred subject to Section 3.13 of the Securities
Purchase Agreement. No provision of this Section 9 shall prevent the occurrence
of any default under this Note.
(a) Certain Definitions. For purposes of this Note:
(i) "Senior Indebtedness" means, with respect to the Company,
the principal of, interest payable on or in connection with, and all
fees, costs, expenses and other amounts accrued or due on or in
connection with, Indebtedness of the Company, whether outstanding on
the date of this Note or thereafter created, incurred, assumed,
guaranteed or in effect guaranteed by the Company (including all
deferrals, renewals, extensions or refundings of, or amendments,
modifications or supplements
-24-
to, the foregoing), unless in the case of any particular Indebtedness
the instrument creating or evidencing the same or the assumption or
guarantee thereof expressly provides that such Indebtedness shall not
be senior in right of payment to this Note or expressly provides that
such Indebtedness is "PARI PASSU" or "junior" to this Note.
Notwithstanding the foregoing, Senior Indebtedness shall not include
any Indebtedness of the Company to any Subsidiary of the Company a
majority of the voting stock of which is owned, directly or
indirectly, by the Company; provided, however, that the term Senior
Indebtedness shall include Indebtedness to a Subsidiary of the Company
arising by reason of a guaranty by the Company of Indebtedness of such
Subsidiary to a Person that is not a Subsidiary of the Company.
(ii) "Indebtedness" means (a) all indebtedness, obligations and
other liabilities of the Company in connection with commercial credit
obtained from recognized financial institutions, (b) any indebtedness
or other obligations secured by any mortgage, pledge, lien or other
encumbrance existing on property which is owned or held by the
Company, and (c) any and all deferrals, renewals, extensions,
refinancings and refundings of, or amendments, modifications or
supplements to, any indebtedness, obligation or liability of the kind
described in clauses (a) and (b).
10. Restriction on Redemption and Dividends. Until all of the Conversion
Amount of this Note has been converted, redeemed or otherwise satisfied as
provided herein, the Company shall not, directly or indirectly, redeem, or
declare or pay any cash dividend or distribution on, its capital stock without
the prior express written consent of the holders of Notes representing at least
two thirds (2/3) of the Conversion Amounts of the Notes then outstanding, except
for payments on convertible securities of the Company (other than the Other
Notes) outstanding on the Issuance Date pursuant to the terms of such
convertible securities as in effect on the Issuance Date, if any.
11. Limitation on Number of Conversion Shares. The Company shall not be
obligated to issue any shares of Common Stock upon conversion of this Note if
the issuance of such shares of Common Stock would exceed that number of shares
of Common Stock which the Company may issue upon conversion of the Notes (the
"Exchange Cap") without breaching the Company's obligations under the rules or
regulations of the Principal Market, or the market or exchange where the Common
Stock is then traded, except that such limitation shall not apply in the event
that the Company (a) obtains the approval of its stockholders as required by the
applicable rules of the Principal Market, or the market or exchange where the
Common Stock is then traded, (or any successor rule or regulation) for issuances
of Common Stock in excess of such amount or (b) obtains a written opinion from
outside counsel to the Company that such approval is not required, which opinion
shall be reasonably satisfactory to the holders of a majority of the Conversion
Amount of the Notes then outstanding. Until such approval or written opinion is
obtained, no Purchaser (as that term is defined in the Securities
-25-
Purchase Agreement) shall be issued, upon conversion of the Notes, shares of
Common Stock in an amount greater than the product of (i) the Exchange Cap
amount multiplied by (ii) a fraction, the numerator of which is the principal
amount of the Notes issued to such Purchaser pursuant to the Securities Purchase
Agreement and the denominator of which is the aggregate principal amount of all
Notes issued to the Purchasers pursuant to the Securities Purchase Agreement
(the "Cap Allocation Amount"). If any Purchaser shall sell or otherwise transfer
any of such Purchaser's Notes, the transferee shall be allocated a pro rata
portion of such Purchaser's Cap Allocation Amount. If any holder of Notes, shall
convert all of such holder's Notes into a number of shares of Common Stock
which, in the aggregate, is less than such holder's Cap Allocation Amount, then
the difference between such holder's Cap Allocation Amount and the number of
shares of Common Stock actually issued to such holder shall be allocated to the
respective Cap Allocation Amounts of the remaining holders of Notes on a pro
rata basis in proportion to Conversion Amount of Notes then held by each such
holder.
12. Reissuance of Notes. Subject to Section 2(d)(viii) in the event of a
conversion or redemption pursuant to this Note of less than all of the
Conversion Amount represented by this Note, the Company shall promptly cause to
be issued and delivered to the holder, upon tender by the holder of this Note
converted or redeemed, a new note of like tenor representing the remaining
principal amount of this Note which has not been so converted or redeemed.
13. Defaults and Remedies.
(a) Events of Default. An "Event of Default" is: (i) default for
thirty (30) days in payment of interest or Default Interest on this Note on or
after the Maturity Date; (ii) default in payment of the principal amount of this
Note when and as due; (iii) failure by the Company for thirty (30) days after
notice to it to comply with any other material provision of this Note; (iv) any
default under or acceleration prior to maturity of any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any indebtedness for money borrowed of at least $500,000 by the
Company or for money borrowed the repayment of at least $500,000 of which is
guaranteed by the Company, whether such indebtedness or guarantee now exists or
shall be created hereafter, (v) if the Company pursuant to or within the meaning
of any Bankruptcy Law; (A) commences a voluntary case; (B) consents to the entry
of an order for relief against it in an involuntary case; (C) consents to the
appointment of a Custodian of it or for all or substantially all of its
property; (D) makes a general assignment for the benefit of its creditors; or
(E) admits in writing that it is generally unable to pay its debts as the same
become due; or (vi) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that: (1) is for relief against the Company in an
involuntary case; (2) appoints a Custodian of the Company or for all or
substantially all of its property; or (3) orders the liquidation of the Company
or any subsidiary, and the order or decree remains unstayed and in effect for
sixty (60) days. The term "Bankruptcy Law" means Title 11, U.S. Code, or any
similar Federal or state or foreign law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator
-26-
or similar official under any Bankruptcy Law.
(b) Remedies. If an Event of Default occurs and is continuing, the
holder of this Note may declare all of this Note, including any interest and
Default Interest and other amounts due, to be due and payable immediately,
except that in the case of an Event of Default arising from events described in
clauses (iv) and (v) of Section 13(a), this Note shall become due and payable
without further action or notice. Holder may not enforce the provisions of this
Section 13 except as provided in this Section 13. In addition to any remedy such
holder of the Notes may have under this Note and the Securities Purchase
Agreement, such unpaid amount shall bear interest at the rate of 1.5% per month
(prorated for partial months) until paid in full.
14. Vote to Change the Terms of the Note. This Note and any provision
hereof may only be amended by an instrument in writing signed by the Company and
the holder of this Note. The term "Note" and all references thereto, as used
throughout this instrument, shall mean this instrument as originally executed,
or if later amended or supplemented, then as so amended or supplemented.
15. Rule 144A Information Requirement. Within the period prior to the
expiration of the holding period applicable to sales hereof under Rule 144(k)
under the Securities Act (or any successor provision), the Company covenants and
agrees that it shall, during any period in which it is not subject to Section 13
or 15(d) under the Securities Exchange Act of 1934, as amended, make available
to the holder and the holder of any Common Stock issued upon exercise of this
Note which continues to be Restricted Securities in connection with any sale
thereof and any prospective purchaser of this Note from the Holder, the
information required pursuant to Rule 144A(d)(4) under the Securities Act upon
the request of the Holder and it will take such further action as the Holder may
reasonably request, all to the extent required from time to time to enable the
Holder to sell this Note without registration under the Securities Act within
the limitation of the exemption provided by Rule 144A, as Rue 144A may be
amended from time to time. Upon the request of the Holder, the Company will
deliver to the Holder a written statement as to whether it has complied with
such requirements.
16. Lost or Stolen Notes. Upon receipt by the Company of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Note, and, in the case of loss, theft or destruction, of an indemnification
undertaking by the holder to the Company in a customary form and, in the case of
mutilation, upon surrender and cancellation of this Note, the Company shall
execute and deliver new notes of like tenor and date; provided, however, the
Company shall not be obligated to re-issue notes if the holder contemporaneously
requests the Company to convert such remaining principal amount into Common
Stock.
17. Payment of Collection, Enforcement and Other Costs. If: (i) this Note
is placed in the hands of an attorney for collection or enforcement or is
collected or enforced through any legal proceeding; or (ii) an attorney is
retained to represent the
-27-
holder of this Note in any bankruptcy, reorganization, receivership of the
Company or other proceedings affecting Company creditors' rights and involving a
claim under this Note, then the Company shall pay to the holders all attorney's
fees, costs and expenses incurred in connection therewith, in addition to all
other amounts due hereunder.
18. Cancellation. After all principal and accrued interest at any time
owed on this Note has been paid in full, this Note shall automatically be deemed
canceled, shall be surrendered to the Company for cancellation and shall not be
reissued.
19. Note Exchangeable for Different Denominations. This Note is
exchangeable, upon the surrender hereof by the holder at the principal office of
the Company, for a new Note or Notes (in principal amounts of at least $100,000)
containing the same terms and conditions and representing in the aggregate the
principal amount of this Note, and each such new Note will represent such
portion of such principal amount as is designated by the holder at the time of
such surrender. The date the Company initially issues this Note will be deemed
to be the "Issuance Date" hereof regardless of the number of times a new Note
shall be issued.
20. Waiver of Notice. To the extent permitted by law, the Company hereby
waives demand, notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance, default or enforcement of this Note
and the Securities Purchase Agreement.
21. Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Note shall be governed by the internal
laws of the State of New York, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of New York or any other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State of New York. The Company hereby irrevocably submits to the
non-exclusive jurisdiction of the state and federal courts sitting in New York
City, Borough of Manhattan, State of New York, for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein, 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 brought in an inconvenient forum or that the venue of such suit,
action or proceeding is improper. The Company 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 to such party at the address for such
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 Company hereby irrevocably waives any right it may
have, and agrees not to request, a jury trial for the adjudication of any
dispute hereunder or in connection herewith or arising out of this Agreement or
any transaction contemplated hereby.
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22. Remedies, Characterizations, Other Obligations, Breaches and
Injunctive Relief. The remedies provided in this Note shall be cumulative and
in addition to all other remedies available under this Note, at law or in equity
(including a decree of specific performance and/or other injunctive relief), no
remedy contained herein shall be deemed a waiver of compliance with the
provisions giving rise to such remedy and nothing herein shall limit the
holder's right to pursue actual damages for any failure by the Company to comply
with the terms of this Note. Amounts set forth or provided for herein with
respect to payments, conversion and the like (and the computation thereof) shall
be the amounts to be received by the holder thereof and shall not, except as
expressly provided herein, be subject to any other obligation of the Company (or
the performance thereof). The Company acknowledges that a material breach by it
of its obligations hereunder will cause irreparable harm to the holder and that
the remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any such material breach or threatened material
breach, the holder of this Note shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.
23. Specific Shall Not Limit General; Construction. No specific provision
contained in this Note shall limit or modify any more general provision
contained herein. This Note shall be deemed to be jointly drafted by the Company
and the Holder and shall not be construed against any person as the drafter
hereof.
24. Failure or Indulgence Not Waiver. No failure or delay on the part of
this Note in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.
25. Notices. Whenever notice is required to be given under this Note,
unless otherwise provided herein, such notice shall be given in accordance with
Section 5.3 of the Securities Purchase Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS IMMEDIATELY]
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IN WITNESS WHEREOF, the Company has caused this Note to be signed as of the 29th
day of June, 2000.
BRITESMILE, INC.
By:__________________________________________
Its:____________________________________
EXHIBIT A
BRITESMILE, INC.
CONVERSION NOTICE
Reference is made to the 5% Convertible Subordinated Notes due 2005 (the
"Notes") issued by BriteSmile, Inc., a Utah corporation (the "Company"). In
accordance with and pursuant to the Notes, the undersigned hereby elects to
convert the Conversion Amount indicated below into shares of Common Stock, par
value $0.001 per share (the "Common Stock"), of the Company, as of the date
specified below.
Date of Conversion:________________________________________________________
Conversion Amount to be converted:_________________________________________
Please confirm the following information:
Conversion Price:__________________________________________________________
Number of shares of Common Stock to be issued:_____________________________
Is the Variable Price being relied on pursuant to Section 2(f)(iii) of the
Notes? (check one) YES ____ No ____
Please issue the Common Stock into which the Conversion Amount is being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to:__________________________________________________________________
__________________________________________________________________
Facsimile Number:__________________________________________________________
Authorization:_____________________________________________________________
By:_______________________________________________
Title:____________________________________________
Dated:_____________________________________________________________________
Account Number (if electronic book entry transfer):_______________________
Transaction Code Number (if electronic book entry transfer):_______________
ACKNOWLEDGMENT
--------------
The Company hereby acknowledges this Conversion Notice and hereby directs
Continental Stock Transfer & Trust Co. (the "Transfer Agent") to issue the above
indicated number of shares of Common Stock in accordance with the Transfer Agent
Instructions dated June 29, 2000 from the Company and acknowledged and agreed to
by the Transfer Agent.
BRITESMILE, INC.
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
EXHIBIT C
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF
THIS WARRANT MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN
OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD
PURSUANT TO EITHER RULE 144A UNDER SAID ACT TO A QUALIFIED INSTITUTIONAL BUYER
OR RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY
THE SECURITIES. COPIES OF THE AGREEMENT COVERING THE PURCHASE OF THESE
SECURITIES AND RESTRICTING THEIR TRANSFER OR SALE MAY BE OBTAINED AT NO COST BY
WRITTEN REQUEST MADE BY THE HOLDER OF RECORD HEREOF TO THE SECRETARY OF THE
COMPANY AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY.
WARRANT TO PURCHASE COMMON STOCK
of
BriteSmile, Inc.
Warrant No. _____________ Number of Shares:_________
Date of Issuance: June 29, 2000 Void June 29, 2005
THIS CERTIFIES THAT, for value received, __________________________ (the
"Holder") is entitled, subject to the terms set forth below, to purchase from
BriteSmile, Inc., a Utah corporation (the "Company"), ______________ shares
(the "Shares") of the Company's Common Stock, par value $.001 per share (the
"Common Stock"). The warrant exercise price (the "Exercise Price") per share of
Common Stock shall be 140% of the Market Price (as defined below) of the Common
Stock as of June 28, 2000 (the "Pricing Date"). The number of Shares and the
Exercise Price are subject to adjustment as provided below. The term "Warrant"
as used herein shall include this Warrant and any warrants delivered in
substitution or exchange therefor as provided herein. "Market Price" shall
mean, with respect to any security, that price which shall be computed as the
arithmetic average of the Closing Bid Prices for such security during the ten
(10) consecutive trading days immediately preceding such date of determination
as quoted on
the Principal Market or any other exchange or quotation service on which the
security is then listed or traded. This Warrant is issued in connection with
that certain Securities Purchase Agreement dated as of June 27, 2000 (the
"Securities Purchase Agreement"). Capitalized terms used but not specifically
defined in this Warrant shall have the meanings set forth in the Securities
Purchase Agreement. The terms "Closing Bid Price" and "Principal Market" shall
have the meanings set forth in the 5% Convertible Subordinated Notes due 2005
(the "Notes") issued pursuant to the Securities Purchase Agreement.
1. Term of Warrant.
a. Except as otherwise provided herein, this Warrant shall be
exercisable, in whole or in part, during the term commencing on the date hereof
(the "Issuance Date") and ending at 5:00 p.m., Pacific Time, on June 29, 2005,
and shall be void thereafter.
2. Exercise Of Warrants.
a. Cash Exercise; Exercise Procedures. The purchase rights set forth
in this Warrant are exercisable by the Holder, in whole or in part, at any time,
or from time to time commencing on the Issuance Date, prior to the expiration of
the term set forth in Section 1 above, by the tender to the Company at its
principal office of a notice of exercise in the form attached hereto as Exhibit
A (the "Notice of Exercise"), duly completed and executed on behalf of the
Holder and the payment to the Company by certified, cashier's or other check
acceptable to the Company or by wire transfer of immediately available funds to
such account as may be designated by the Company, of the aggregate Exercise
Price of the Shares being purchased (the "Aggregate Exercise Price") or by
notifying the Company that this Warrant is being exercised pursuant to a
Cashless Exercise (as defined below in Section 2(c)). In the event of any
exercise of the rights represented by this Warrant in compliance with this
Section 2(a), the Company shall on the second (2nd) Business Day (the "Share
Delivery Date") following the date of its receipt of the Notice of Exercise and
the Aggregate Exercise Price (or notice of Cashless Exercise) (the "Exercise
Delivery Documents"), (A) provided the Company's transfer agent is participating
in The Depository Trust Company ("DTC") Fast Automated Securities Transfer
Program and provided that the holder is eligible to receive shares through DTC,
credit such aggregate number of shares of Common Stock to which the holder shall
be entitled to the holder's or its designee's balance account with DTC through
its Deposit Withdrawal Agent Commission system or (B) issue and deliver to the
address as specified in the Exercise Delivery Documents, a certificate,
registered in the name of the holder or its designee, for the number of shares
of Common Stock to which the holder shall be entitled. Upon delivery of the
Notice of Exercise and Aggregate Exercise Price referred to in clause (ii)(A)
above or notification to the Company of a Cashless Exercise referred to in
Section 2(e), the holder of this Warrant shall be deemed for all corporate
purposes to have become the holder of record of the Shares with respect to which
this Warrant has been exercised, irrespective of the date of delivery of this
-2-
Warrant as required by clause (iii) above or the certificates evidencing such
Shares. In the case of a dispute as to the determination of the Exercise Price,
the Market Price of a security or the arithmetic calculation of the number of
Shares, the Company shall promptly issue to the holder the number of shares of
Common Stock that is not disputed and shall submit the disputed determinations
or arithmetic calculations to the holder via facsimile within one (1) Business
Day of receipt of the Exercise Delivery Documents. If the holder and the
Company are unable to agree upon the determination of the Exercise Price, the
Market Price or arithmetic calculation of the number of Shares within one (1)
Business Day of such disputed determination or arithmetic calculation being
submitted to the holder, then the Company shall immediately submit via facsimile
(i) the disputed determination of the Exercise Price or the Market Price to an
independent, reputable investment banking firm or (ii) the disputed arithmetic
calculation of the number of Shares to its independent, outside accountant. The
Company shall cause the investment banking firm or the accountant, as the case
may be, to perform the determinations or calculations and notify the Company and
the holder of the results no later than two (2) Business Days from the time it
receives the disputed determinations or calculations. Such investment banking
firm's or accountant's determination or calculation, as the case may be, shall
be deemed conclusive absent manifest error.
b. Failure to Deliver Certificates. If the Company shall fail for
any reason or for no reason to issue to the holder, within three (3) Business
Days of receipt of the Exercise Delivery Documents, a certificate for the number
of shares of Common Stock to which the holder is entitled or to credit the
holder's balance account with DTC for such number of shares of Common Stock to
which the holder is entitled upon the holder's exercise of this Warrant, the
Company shall, in addition to any other remedies under this Warrant or the
Securities Purchase Agreement or otherwise available to such holder, including
any indemnification under Section 3.18 of the Securities Purchase Agreement, pay
as additional damages in cash to such holder on each day after the Share
Delivery Date such exercise is not timely effected in an amount equal to 0.5% of
the product of (I) the sum of the number of shares of Common Stock not issued to
the holder on or prior to the Share Delivery Date and to which such holder is
entitled and (II) the Closing Bid Price of the Common Stock on the Share
Delivery Date.
c. Cashless Exercise. Notwithstanding the payment provisions set
forth in Section 2(a) above, if the Shares to be issued upon exercise of this
Warrant are not registered and available for resale pursuant to a registration
statement in accordance with the Registration Rights Agreement between the
Company and the Holder, dated June 27, 2000, the Holder may elect to receive
Shares equal to the value of this Warrant (or of any portion thereof remaining
unexercised) by surrender of this Warrant at the principal office of the Company
together with the properly endorsed Notice of Exercise and notice of such
election, in which event the Company shall issue to the Holder that number of
Shares computed using the following formula ("Cashless Exercise"):
X = Y(A-B)
--------
A
-3-
Where:
X = the number of Shares to be issued to the Holder;
Y = the number of Shares purchasable under this Warrant or, if only
a portion of the Warrant is being exercised, the portion of the
Warrant being exercised;
A = the Market Price of one share of the Shares (at the date of such
exercise); and
B = the Exercise Price (as adjusted to the date of such
calculation).
d. Exercise at Option of Company. At any time from and after the
second anniversary of the Issuance Date, provided that the Conditions to
Company's Exercise Option (as defined below) are satisfied as of the Company's
Exercise Option Date (as defined below), the Company shall have the right to
elect to have the Holder exercise all or any portion of this Warrant then
unexercised (the "Company's Exercise Option"), provided that the Closing Bid
Price of the Common Stock shall be at least two hundred percent (200%) of an
amount equal to the product of (A) 150% and (B) the Market Price of the Common
Stock on the Pricing Date for at least fifteen (15) out of any twenty (20)
consecutive trading days (each rolling 20-day period referred to hereafter as a.
"Company's Exercise Option Measuring Period"). The Company shall exercise the
Company's Exercise Option, if at all, by providing each holder of Warrants
written notice ("Company's Exercise Election Notice") by facsimile and overnight
courier within two (2) trading days after the last day of any Company's Exercise
Option Measuring Period. The date on which each of such holders of the Warrants
actually receives the Company's Exercise Election Notice is referred to herein
as the "Company's Exercise Election Notice Date." If the Company elects to
require the exercise of some, but not all, of the Warrants then outstanding, the
Company shall require exercise of an amount from each holder of such Warrants
equal to the product of (I) the total number of Warrants which the Company has
elected to exercise multiplied by (II) a fraction, the numerator of which is the
number of Warrants initially purchased by such holder and the denominator of
which is the total number of Warrants purchased on the Date of Issuance (such
fraction with respect to each holder being referred to as its "Allocation
Percentage", and such amount with respect to each holder being referred to
herein as its "Pro Rata Exercise Amount"). In the event that any initial holder
of the Warrants shall sell or otherwise transfer any of such holder's Warrants,
the transferee shall be allocated a pro rata portion of such holder's Allocation
Percentage. The Company's Exercise Election Notice shall indicate (x) the
aggregate number of such Warrants the Company has selected for exercise, (y) the
date selected by the Company for exercise ("Company's Election Exercise Date"),
which date shall be not less than twenty (20) Business Days or more than sixty
(60) Business Days after the Company's Exercise Election Notice Date, and (z)
each holder's Pro Rata Exercise Amount. Subject to the satisfaction of all the
conditions of this Section 2(d) except to the extent restricted by Section 2(g),
on the Company's Election Exercise Date each holder of Warrants selected for
exercise will be deemed to have submitted an Exercise Notice in accordance with
Section 2(a) for a number of Warrants equal to the result of (a) such holder's
Pro Rata Exercise Amount, minus (b) the
-4-
number of such Warrants converted by such holder during the Company's Mandatory
Exercise Period. "Company's Mandatory Exercise Period" means, with respect to
any Company's Exercise Election, the period beginning on and including the
Company's Exercise Election Notice Date and ending on and including the
Company's Election Exercise Date. "Conditions to Company's Exercise Option"
means the following conditions: (i) during the period beginning on the Issuance
Date and ending on and including the Company's Election Exercise Date, the
Company shall have delivered all shares of Common Stock issuable upon conversion
of the Notes to the holders of the Notes, and all shares of Common Stock
issuable upon exercise of the Warrants, on a timely basis as set forth in the
Notes and in this Warrant; (ii) on each day during the period beginning on and
including the date the Registration Statement is declared effective by the SEC
and ending on and including the Company's Election Exercise Date, the
Registration Statement shall be effective and available for the sale of at least
all of the Registrable Securities (as defined in the Registration Rights
Agreement); (iii) on each day during the period beginning on the Issuance Date
and ending on and including the Company's Election Exercise Date, the Common
Stock is designated for quotation on the Nasdaq National Market or listed on The
New York Stock Exchange, is not suspended from trading and neither delisting nor
suspension by such exchange or market shall have been threatened either (A) in
writing by such exchange or market or (B) by falling below the minimum listing
maintenance requirements of such exchange or market; (iv) during the period
beginning on the Issuance Date and ending on and including the Company's
Election Exercise Date, there shall not have occurred a Triggering Event (as
defined in the Notes) or an event that with the passage of time and without
being cured would constitute a Triggering Event; (v) during the period beginning
on the Issuance Date and ending on and including the Company's Exercise Option
Date, there shall not have occurred the consummation of a Change of Control (as
defined in the Notes) or the public announcement of a pending, proposed or
intended Change of Control which has not been terminated; (vi) on the earlier to
occur of (A) the Shareholder Meeting Deadline (as defined in the Securities
Purchase Agreement) and (B) the date on which the Company holds its first
meeting of shareholders after the Issuance Date, the Company shall have received
the Shareholder Approval (as defined in the Securities Purchase Agreement);
(vii) on each trading day during the Company's Mandatory Exercise Period, the
Closing Bid Price of the Common Stock shall be at least two hundred percent
(200%) of an amount equal to the product of (A) 150% and (B) the Market Price of
the Common Stock on the Pricing Date; and (viii) the Company otherwise has
satisfied its obligations in all material respects and is not in default in any
material respect under this Warrant, the Securities Purchase Agreement, the
Notes and the Registration Rights Agreement.
d. Stock Certificates. This Warrant shall be deemed to have been
exercised immediately prior to the close of business on the date of its tender
for exercise as provided above, or in the case of the Company's exercise of the
Company's Exercise Option, on the day prior to the Company's receipt of the
payment specified in the Company's Exercise Notice, and the persons entitled to
receive the Shares issuable upon such exercise shall be treated for all purposes
as the holder of record of such Shares as of the close of business on such date.
As promptly as practicable on or after such date and
-5-
in any event within ten (10) days thereafter, the Company, at its expense, shall
deliver to the person or persons entitled to receive the same a certificate or
certificates for that number of shares issuable upon such exercise. In the event
that this Warrant is exercised in part, the Company shall, at its expense,
execute and deliver a new Warrant with the same terms and conditions for the
number of Shares that remain subject to this Warrant.
e. Taxes. The issuance of the Shares upon the exercise of this
Warrant, and the delivery of certificates or other instruments representing such
Shares, shall be made without charge to the Holder for any tax or other charge
in respect of such issuance. The Company shall not, however, be required to pay
any tax which may be payable in respect of any transfer involved in the issue
and delivery of any certificate in a name other than that of the Holder and the
Company shall not be required to issue or deliver any such certificate unless
and until the person or persons requesting the issue thereof shall have paid to
the Company the amount of such tax or shall have established to the satisfaction
of the Company that such tax has been paid.
3. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of such fractional share to which the Holder would otherwise be
entitled, the Company shall make a cash payment equal to the Exercise Price
multiplied by such fraction.
4. No Rights As Shareholders. This Warrant does not entitle the Holder
to any voting right or other rights as a shareholder of the Company prior to the
exercise of the Holder's rights to purchase the Shares as provided for herein.
5. Transfer of Warrants.
--------------------
a. Warrant Register. The Company shall maintain a register (the
"Warrant Register") containing the names and addresses of the Holder or Holders.
Any Holder of this Warrant or any portion thereof may change its address as
shown on the Warrant Register by written notice to the Company requesting such
change. Any notice or written communication required or permitted to be given to
the Holder may be delivered or given by mail to such Holder as shown on the
Warrant Register and at the address shown on the Warrant Register. Until this
Warrant is transferred on the Warrant Register, the Company may treat the Holder
as shown on the Warrant Register as the absolute owner of this Warrant for all
purposes, notwithstanding any notice to the contrary.
b. Transferability and Non-negotiability of Warrant. This Warrant may
not be transferred or assigned in whole or in part without compliance with all
applicable federal and state securities laws by the transferor and the
transferee (including the delivery of investment representation letters and
legal opinions reasonably satisfactory to the Company, if such are requested by
the Company); provided, however, that this Warrant may be assigned by the Holder
to any person or entity affiliated with or established by the Holder. Subject to
the provisions of this Warrant with respect to
-6-
compliance with the Securities Act of 1933, as amended (the "Securities Act"),
title to this Warrant may be transferred by endorsement (by the Holder executing
the assignment form (the "Assignment Form") attached hereto as Exhibit B) and
delivery in the same manner as a negotiable instrument transferable by
endorsement and delivery.
c. Exchange of Warrant Upon a Transfer. On surrender of this Warrant
for exchange, properly endorsed on the Assignment Form and subject to the
provisions of this Warrant with respect to compliance with the Securities Act
and with the limitations on assignments and transfers contained in this Section
5, the Company, at its expense, shall issue to or on the order of the Holder a
new warrant or warrants with the same terms and conditions, in the name of the
Holder or as the Holder (on payment by the Holder of any applicable transfer
taxes) may direct, for the number of shares issuable upon exercise thereof.
d. Compliance with Securities Laws.
-------------------------------
(i) The Holder of this Warrant, by acceptance hereof,
acknowledges that this Warrant and the Shares to be issued upon exercise hereof
are being acquired solely for the Holder's own account and not as a nominee for
any other party, and for investment, and that the Holder will not offer, sell or
otherwise dispose of this Warrant or any Shares to be issued upon exercise
hereof except under circumstances that will not result in a violation of the
Securities Act or any state securities laws. Upon exercise of this Warrant,
whether by the Holder or by the Company, the Holder shall, if requested by the
Company, confirm in writing, in a form satisfactory to the Company, that the
Shares so purchased are being acquired solely for the Holder's own account and
not as a nominee for any other party, for investment, and not with a view toward
distribution or resale; provided, however, that the Holder shall be able to
transfer such Warrant or Shares (x) as provided in subparagraph (b) above and
(y) in such other transactions as may be effected without registration pursuant
to the Securities Act or qualification pursuant to any relevant state securities
laws and shall confirm such other matters related thereto as may be reasonably
requested by the Company.
(ii) This Warrant and all Shares issued upon exercise hereof or
conversion thereof shall be stamped or imprinted with a legend in substantially
the following form:
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE SECURITIES ISSUABLE
UPON EXERCISE OF THIS WARRANT MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933,
-7-
AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL,
IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT
TO EITHER RULE 144A UNDER SAID ACT TO A QUALIFIED INSTITUTIONAL BUYER OR
RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN
SECURED BY THE SECURITIES. COPIES OF THE AGREEMENT COVERING THE PURCHASE OF
THESE SECURITIES AND RESTRICTING THEIR TRANSFER OR SALE MAY BE OBTAINED AT
NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD HEREOF TO THE
SECRETARY OF THE COMPANY AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY.
6. Representations and Warranties by the Holder. The Holder represents and
warrants to the Company as follows:
a. Investment Intent. Such Holder is acquiring this Warrant, and
upon exercise of this Warrant, will acquire the Shares, for its own account for
investment only and not with a view towards, or for resale in connection with,
the public sale or distribution thereof, except pursuant to sales registered or
exempted under the Securities Act; provided, however, that by making the
representations contained in this Section 6(a), such Holder does not agree to
hold this Warrant or any of the Shares for any minimum or other specific term
and reserves the right to dispose of this Warrant or the Shares at any time in
accordance with or to the extent allowed by this Warrant, the Registration
Rights Agreement, and the Securities Act.
b. Accredited Status. As of the date hereof and as of the date of
any exercise of this Warrant, such Holder is and will be, an "accredited
investor" as defined in Rule 501(a) under the Securities Act.
c. Financial Risk. The Holder has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of the Holder's investment and has the ability to bear the economic risks
of the Holder's investment.
d. Risk of No Registration. The Holder understands that if the
Company's Common Stock ceases to be registered with the Securities and Exchange
Commission pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or if the Company ceases to file the reports
required under the Exchange Act, or if a registration statement covering the
securities under the Securities Act is not in effect when the Holder desires to
resell (i) this Warrant or (ii) the Shares
-8-
issuable upon exercise of this Warrant, the Holder may be required to hold such
securities for an indefinite period. The Holder is aware of the provisions of
Rule 144 promulgated under the Securities Act.
e. Transfer or Resale. Such Holder understands that except as
provided in the Registration Rights Agreement: (i) this Warrant and the Shares
have not been and are not being registered under the Securities Act or any state
securities laws, and may not be offered for sale, sold, assigned or transferred
unless (A) subsequently registered under the Securities Act and applicable state
securities laws, (B) such Holder shall have delivered to the Company an opinion
of counsel, in a generally acceptable form, to the effect that such securities
to be sold, assigned or transferred may be sold, assigned or transferred
pursuant to an exemption from such registration, (C) such Holder provides the
Company with reasonable assurance that such securities can be sold, assigned or
transferred pursuant to Rule 144 promulgated under the Securities Act (or a
successor rule thereto) ("Rule 144") or (D) transferred in accordance with Rule
144A under the Securities Act (or any successor rule thereto) ("Rule 144A") to a
qualified institutional buyer (as such term is defined in Rule 144A); (ii) any
sale of this Warrant or the Shares made in reliance on Rule 144 may be made only
in accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of such securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the Securities Act) may require
compliance with some other exemption under the Securities Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such securities under the Securities
Act or any state securities laws or to comply with the terms and conditions of
any exemption thereunder. Notwithstanding the foregoing, this Warrant and the
Shares may be pledged in connection with a bona fide margin account or other
loan secured by the Securities.
7. Reservation of Stock. The Company covenants that during the term this
Warrant is exercisable, the Company will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of the Shares upon the exercise of this Warrant and, from time to time, will
take all steps necessary to amend its Articles of Incorporation (the "Articles")
to provide sufficient reserves of shares of Common Stock issuable upon exercise
of the Warrant. The Company further covenants that all Shares that may be issued
upon the exercise of rights represented by this Warrant and payment of the
Exercise Price, all as set forth herein, will be free from all taxes, liens and
charges in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously or otherwise specified herein). The Company
agrees that its issuance of this Warrant shall constitute full authority of its
officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the Shares upon the exercise of
this Warrant.
8. Adjustment Rights. The Exercise Price and the number of shares
purchasable hereunder are subject to adjustment from time to time, as follows:
-9-
a. Adjustment of Exercise Price upon Issuance of Common Stock. If
and whenever on or after the date of issuance of this Warrant, the Company
issues or sells, or in accordance with this Section 8(a) is deemed to have
issued or sold, any shares of Common Stock (including the issuance or sale of
shares of Common Stock owned or held by or for the account of the Company, but
excluding but excluding (A) shares of Common Stock deemed to have been issued by
the Company in connection with an Approved Stock Plan, (B) shares of Common
Stock issued upon conversion of the Notes or exercise of the Warrants, (C)
shares of Common Stock issued upon the conversion or exercise of any options or
warrants issued other than under an Approved Stock Plan outstanding as of the
date hereof provided the terms of such securities are not amended after the date
hereof, or (D) up to 1,250,000 shares of Common Stock issued at a purchase price
of not less than $4.00 per share in connection with any strategic partnership or
joint venture (the primary purpose of which is not to raise equity capital) with
any entity whose primary business is not investing or advising other entities)
for a consideration per share less than a price (the "Applicable Price") equal
to the Exercise Price in effect immediately prior to such time, then immediately
after such issue or sale, the Exercise Price then in effect shall be reduced to
an amount equal to the consideration, if any, received by the Company upon such
issue or sale. "Approved Stock Plan" means any employee benefit plan which has
been approved by the Board of Directors of the Company, pursuant to which the
Company's securities may be issued to any employee, officer or director for
services provided to the Company. For purposes of determining the adjusted
Exercise Price under this Section 8(a), the following shall be applicable:
(i) Issuance of Options. If the Company in any manner grants or
sells any Options and the lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon conversion,
exchange or exercise of any Convertible Securities issuable upon exercise of
such Option is less than the Applicable Price, then such share of Common Stock
shall be deemed to be outstanding and to have been issued and sold by the
Company at the time of the granting or sale of such Option for such price per
share. For purposes of this Section 8(a)(i), the "lowest price per share for
which one share of Common Stock is issuable upon the exercise of any such Option
or upon conversion, exchange or exercise of any Convertible Securities issuable
upon exercise of such Option" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to any
one share of Common Stock upon granting or sale of the Option, upon exercise of
the Option and upon conversion, exchange or exercise of any Convertible Security
issuable upon exercise of such Option. No further adjustment of the Exercise
Price shall be made upon the actual issuance of such Common Stock or of such
Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion, exchange or exercise of such
Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities and the lowest price per share
for which one share of Common Stock is issuable upon such conversion, exchange
or exercise thereof is less than the Applicable Price, then such share of Common
Stock shall be
-10-
deemed to be outstanding and to have been issued and sold by the Company at the
time of the issuance of sale of such Convertible Securities for such price per
share. For the purposes of this Section 8(a)(ii), the "1owest price per share
for which one share of Common Stock is issuable upon such conversion, exchange
or exercise" shall be equal to the sum of the lowest amounts of consideration
(if any) received or receivable by the Company with respect to any one share of
Common Stock upon the issuance or sale of the Convertible Security and upon the
conversion, exchange or exercise of such Convertible Security. No further
adjustment of the Exercise Price shall be made upon the actual issuance of such
Common Stock upon conversion, exchange or exercise of such Convertible
Securities, and if any such issue or sale of such Convertible Securities is made
upon exercise of any Options for which adjustment of the Exercise Price had been
or are to be made pursuant to other provisions of this Section 8(a), no further
adjustment of the Exercise Price shall be made by reason of such issue or sale.
(iii) Change in Option Price or Rate of Conversion. If the purchase or
exercise price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion, exchange or exercise of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable or exercisable for Common Stock changes at any time, the
Exercise Price in effect at the time of such change shall be adjusted to the
Exercise Price which would have been in effect at such time had such Options or
Convertible Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold. For purposes of this Section 8(a)(iii), if
the terms of any Option or Convertible Security that was outstanding as of the
date of issuance of the Notes are changed in the manner described in the
immediately preceding sentence, then such Option or Convertible Security and the
Common Stock deemed issuable upon exercise, conversion or exchange thereof shall
be deemed to have been issued as of the date of such change. No adjustment shall
be made if such adjustment would result in an increase of the Exercise Price
then in effect.
(iv) Calculation of Consideration Received. In case any Option is
issued in connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $0.01. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the gross amount received by the Company therefor, less expenses in excess
of five percent (5%) of the gross amount received. If any Common Stock, Options
or Convertible Securities are issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the Company
will be the fair value of such consideration, except where such consideration
consists of marketable securities, in which case the amount of consideration
received by the Company will be the arithmetic average of the closing bid prices
of such securities during the ten (10) consecutive trading days ending on the
date of receipt of such securities. If any Common Stock, Options or Convertible
Securities are issued to the owners of the
11
non-surviving entity in connection with any merger in which the Company is the
surviving entity, the amount of consideration therefor will be deemed to be the
fair value of such portion of the net assets and business of the non-surviving
entity as is attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration other than
cash or securities will be determined jointly by the Company and the holders of
the Warrants. If such parties are unable to reach agreement within ten (10) days
after the occurrence of an event requiring valuation (the "Valuation Event"),
the fair value of such consideration will be determined within five (5) Business
Days after the tenth (10th) day following the Valuation Event by an independent,
reputable appraiser agreed to by the Company and the holders of a majority of
the principal amount of the Notes on or prior to the Issuance Date. The
determination of such appraiser shall be deemed binding upon all parties absent
manifest error and the fees and expenses of such appraiser shall be borne by the
Company.
(v) Record Date. If the Company takes a record of the holders
of Common Stock for the purpose of entitling them (1) to receive a dividend or
other distribution payable in Common Stock, Options or Convertible Securities,
or (2) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
b. Adjustment of Exercise Price Upon Subdivision or Combination of
Common Stock. If the Company at any time subdivides (by any stock split, stock
dividend, recapitalization or otherwise) one or more classes of its outstanding
shares of Common Stock into a greater number of shares, the Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced and
the number of shares of Common Stock obtainable upon exercise of this Warrant
will be proportionately increased. If the Company at any time combines (by
combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination will be proportionately
increased and the number of shares of Common Stock obtainable upon exercise of
this Warrant will be proportionately decreased.
c. Distribution of Assets. If the Company shall declare or make
any dividend or other distribution of its assets (or rights to acquire its
assets) to holders of Common Stock, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement or other similar transaction) (a
"Distribution"), at any time after the issuance of this Warrant, then, in each
such case:
(i) the Exercise Price in effect immediately prior to the
close of business on the record date fixed for the determination of holders of
Common Stock entitled to receive the Distribution shall be reduced, effective as
of the close of business
12
on such record date, to a price determined by multiplying such Exercise Price by
a fraction of which (A) the numerator shall be the Closing Bid Price of the
Common Stock on the trading day immediately preceding such record date minus the
value of the Distribution (as determined in good faith by the Company's Board of
Directors) applicable to one share of Common Stock, and (B) the denominator
shall be the Closing Bid Price of the Common Stock on the trading day
immediately preceding such record date; and
(ii) either (A) the number of Warrant Shares obtainable upon exercise
of this Warrant shall be increased to a number of shares equal to the number of
shares of Common Stock obtainable immediately prior to the close of business on
the record date fixed for the determination of holders of Common Stock entitled
to receive the Distribution multiplied by the reciprocal of the fraction set
forth in the immediately preceding clause (i), or (B) in the event that the
Distribution is of common stock of a company whose common stock is traded on a
national securities exchange or a national automated quotation system, then the
holder of this Warrant shall receive an additional warrant to purchase Common
Stock, the terms of which shall be identical to those of this Warrant, except
that such warrant shall be exercisable into the amount of the assets that would
have been payable to the holder of this Warrant pursuant to the Distribution had
the holder exercised this Warrant immediately prior to such record date and with
an exercise price equal to the amount by which the exercise price of this
Warrant was decreased with respect to the Distribution pursuant to the terms of
the immediately preceding clause (i).
d. Other Events. If any event occurs of the type contemplated by the
provisions of this Section 8 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Exercise Price so
as to protect the rights of the holders of the Warrants; provided that no such
adjustment will increase the Exercise Price as otherwise determined pursuant to
this Section 8.
e. Notices.
(i) Immediately upon any adjustment of the Exercise Price, the
Company will give written notice thereof to the holder of this Warrant setting
forth in reasonable detail, and certifying, the calculation of such adjustment.
(ii) The Company will give written notice to each holder of the
Warrants at least ten (10) Business Days prior to the date on which the Company
closes its books or takes a record (I) with respect to any dividend or
distribution upon the Common Stock, (II) with respect to any pro rata
subscription offer to holders of Common Stock or (III) for determining rights to
vote with respect to any Organic Change (as defined in Section 9(b)),
dissolution or liquidation, provided that such information shall be made known
to the public prior to or in conjunction with such notice being provided to
13
such holder.
(iii) The Company will also give written notice to each holder of
this Warrant at least ten (10) Business Days prior to the date on which any
Organic Change, dissolution or liquidation will take place, provided that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to such holder.
9. Purchase Rights; Reorganization, Reclassification, Consolidation,
Merger or Sale.
a. In addition to any adjustments pursuant to Section 8 above, if at
any time the Company grants, issues or sells any Options, convertible securities
or rights to purchase stock, warrants, securities or other property pro rata to
all of the record holders of any class of Common Stock (the "Purchase Rights"),
then the holder of this Warrant will be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which such
holder could have acquired if such holder had held the number of shares of
Common Stock acquirable upon complete exercise of this Warrant immediately
before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of which the
record holders of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights.
b. Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's assets
to any individual, limited liability company, partnership, joint venture,
corporation, trust, unincorporated organization or government or any department
or agency thereof (each, a "Person") or other transaction which is effected in
such a way that holders of Common Stock are entitled to receive (either directly
or upon subsequent liquidation) stock, securities or assets with respect to or
in exchange for Common Stock is referred to herein as "Organic Change." Prior to
the consummation of any (i) sale of all or substantially all of the Company's
assets to an acquiring Person or (ii) other Organic Change following which the
Company is not a surviving entity, the Company will secure from the Person
purchasing such assets or the successor resulting from such Organic Change (in
each case, the "Acquiring Entity") written acknowledgment (in form and substance
satisfactory to the holders of Warrants representing two thirds (2/3) of the
shares of Common Stock obtainable upon exercise of the Warrants then
outstanding) to deliver to each holder of Warrants in exchange for such
Warrants, a security of the Acquiring Entity evidenced by a written instrument
substantially similar in form and substance to this Warrant and satisfactory to
the holders of the Warrants (including, an adjusted warrant exercise price equal
to the value for the Common Stock reflected by the terms of such consolidation,
merger or sale, and exercisable for a corresponding number of shares of Common
Stock acquirable and receivable upon exercise of the Warrants (without regard to
any limitations on exercises), if the value so reflected is less than the
Exercise Price in effect immediately prior to such consolidation, merger or
sale). Prior to the
14
consummation of any other Organic Change, the Company shall make appropriate
provision (in form and substance reasonably satisfactory to the holders of the
Warrants representing at least two-thirds (2/3) of the shares of Common Stock
obtainable upon exercise of the Warrants then outstanding) to insure that each
of the holders of the Warrants will thereafter have the right to acquire and
receive in lieu of or in addition to (as the case may be) the shares of Common
Stock immediately theretofore acquirable and receivable upon the exercise of
such holder's Warrants (without regard to any limitations on exercises), such
shares of stock, securities or assets that would have been issued or payable in
such Organic Change with respect to or in exchange for the number of shares of
Common Stock which would have been acquirable and receivable upon the exercise
of such holder's Warrant as of the date of such Organic Change (without taking
into account any limitations or restrictions on the exerciseability of this
Warrant).
10. Limitation on Number of Shares. The Company shall not be obligated to
issue any Shares upon exercise of this Warrant if the issuance of such shares of
Common Stock would cause the Company to exceed that number of shares of Common
Stock which the Company may issue upon exercise of this Warrant (the "Exchange
Cap") without breaching the Company's obligations under the rules or regulations
of the Principal Market, except that such limitation shall not apply in the
event that the Company (a) obtains the approval of its stockholders as required
by the Principal Market (or any successor rule or regulation) for issuances of
Common Stock in excess of such amount or (b) obtains a written opinion from
outside counsel to the Company that such approval is not required, which opinion
shall be reasonably satisfactory to the holders of Warrants representing at
least two-thirds (2/3) of the Shares then issuable upon exercise of outstanding
Warrants. Until such approval or written opinion is obtained, the holder of
this Warrant shall not be issued, upon exercise of this Warrant, Shares in an
amount greater than such holder's Cap Allocation Amount (as defined in the
Notes). In the event the Company is prohibited from issuing Warrant Shares as a
result of the operation of this Section 10, the Company shall redeem for cash
those Shares which can not be issued, at a price equal to the difference between
the Closing Bid Price of the Common Stock and the Exercise Price of such Shares
as of the date of the attempted exercise.
11. Miscellaneous.
a. Effective Date. The provisions of this Warrant shall be construed
and shall be given effect in all respects as if it had been executed and
delivered by the Company on the Issuance Date hereof. This Warrant shall be
binding upon any successors or assigns of the Company.
b. Attorneys' Fees. In any litigation, arbitration or court
proceeding between the Company and the Holder relating hereto, the prevailing
party shall be entitled to attorneys' fees and expenses and all costs of
proceedings incurred in enforcing this Warrant.
c. Governing Law. This Warrant shall be governed by and construed
15
for all purposes under and in accordance with the laws of the State of New York,
without regard to conflicts of law principles.
d. Titles and Subtitles. The titles of the paragraphs and
subparagraphs of this Warrant are for convenience and are not to be considered
in construing this Agreement.
e. Notices. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given upon personal delivery or
upon deposit in the United States mail, by registered or certified mail,
addressed (i) to the Holder at the address set forth on the signature page
hereof, and (ii) to the Company at 000 Xxxxx Xxxxx Xxxx, Xxxxxx Xxxxx,
Xxxxxxxxxx 00000, Attn: Xxxx X. Xxxxx, Chief Financial Officer, or at such
other address as any such party may subsequently designate by written notice to
the other party.
f. Survival. The representations, warranties, covenants and
conditions of the respective parties contained herein or made pursuant to this
Warrant shall survive the execution and delivery of this Warrant.
g. Amendments. Any provision of this Warrant may be amended by a
written instrument signed by the Company and by the Holder.
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[SIGNATURE PAGE FOLLOWS IMMEDIATELY]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officers thereunto duly authorized.
BRITESMILE, INC.
By:____________________________________
Its:______________________________
EXHIBIT A
NOTICE OF EXERCISE
(1) The undersigned Holder hereby [check one]:
elects to purchase ________ shares of the Common Stock of BriteSmile,
Inc., pursuant to Section 2(a) of the Warrant dated the ___ day of
June, 2000 (the "Warrant") between BriteSmile, Inc., and the Holder,
and tenders herewith payment of the Exercise Price (as defined in the
Warrant) for such shares in full, together with all applicable
transfer taxes, if any; or
elects to purchase ________ shares of the Common Stock of BriteSmile,
Inc., pursuant to the terms of Section 2(c) of the Warrant dated the
___ day of June, 2000 (the "Warrant") between BriteSmile, Inc., and
the Holder, upon which election, the Holder shall receive a total of
_________ shares of Common Stock and tenders herewith payment of all
applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Common Stock of BriteSmile,
Inc., the undersigned hereby confirms and acknowledges the investment
representations and warranties made in Section 6 of the Warrant, and agrees that
such representations and warranties are true and correct as of the date hereof.
(3) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
Name:__________________________________________
Signature:_____________________________________
(4) Please issue a new Warrant for the unexercised portion of the attached
Warrant in the name of the undersigned or in such other name as is specified
below:
Name:_______________________________ Date:________________________________
Signature:__________________________
-18-
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under this Warrant, with respect to the number of shares of
Common Stock set forth below:
Name of Assignee Address No. of Shares
_________________________ ______________________ _____________
______________________
______________________
and does irrevocably constitute and appoint Xxxx X. Xxxxx to make such transfer
on the books of BriteSmile, Inc., maintained for the purpose, with full power of
substitution in the premises.
The undersigned also represents that, by assignment hereof, the Assignee
acknowledges that this Warrant and the shares of Common Stock to be issued upon
exercise hereof or conversion thereof are being acquired for investment and that
the Assignee will not offer, sell or otherwise dispose of this Warrant or any
shares of Common Stock to be issued upon exercise hereof or conversion thereof
except under circumstances which will not result in a violation of the
Securities Act of 1933, as amended, or any state securities laws. Further, the
Assignee has acknowledged that upon exercise of this Warrant, the Assignee
shall, if requested by the Company, confirm in writing, in a form satisfactory
to the Company, that the shares of Common Stock so purchased are being acquired
for investment and not with a view toward distribution or resale in violation of
the Securities Act of 1933, as amended, or any applicable state securities law.
Dated: ________________________________
Signature of Holder:___________________
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EXHIBIT D
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of June 27,
2000, is made by and among BRITESMILE, INC., a Utah corporation with
headquarters located at 000 Xxxxx Xxxxx Xxxx, Xxxxxx Xxxxx, Xxxxxxxxxx 00000
(the "Company"), the undersigned Purchasers (individually a "Purchaser" and
collectively the "Purchasers"), and FLEETBOSTON XXXXXXXXX XXXXXXXX, INC. with
its principal place of business at 000 Xxxxxxxxxx Xxxxxx, 00xx Xxxxx, Xxx
Xxxxxxxxx, Xxxxxxxxxx 00000 ("Placement Agent").
Recitals
A. In connection with the Securities Purchase Agreement by and among the
parties hereto of even date herewith (the "Purchase Agreement"), the Company has
agreed, upon the terms and subject to the conditions of the Purchase Agreement,
to issue and sell to the Purchasers (i) $15,583,333 aggregate principal amount
of the Company's 5% Convertible Subordinated Notes Due 2005 (the "Notes"), which
will be convertible into shares (as converted, the "Conversion Shares") of the
Company's common stock, par value $0.001 per share (the "Common Stock"), in
accordance with the terms of the Notes and (ii) warrants to purchase shares of
Common Stock (the "Warrants" and, as exercised, the "Warrant Shares").
B. In connection with the closing of the transactions contemplated by the
Purchase Agreement, and as compensation to the Placement Agent, the Company has
agreed to issue a warrant to the Placement Agent (the "Placement Agent Warrant"
and, as exercised, the "Placement Agent Warrant Shares").
C. To induce the Purchasers to execute and deliver the Purchase
Agreement, and the Placement Agent to perform its services in connection with
the Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws.
Agreement
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and each of the
Purchasers hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms shall
have the following meanings:
a. "Investor" means a Purchaser, the Placement Agent and any
transferee or assignee thereof about whom the Purchaser or the Placement Agent
provides notice to the Company in accordance with Section 9 and to whom a
Purchaser or the Placement Agent assigns its rights under this Agreement and who
agrees to become bound by the provisions of this Agreement in accordance with
Section 9 and any transferee or assignee thereof to whom a transferee or
assignee assigns its rights under this Agreement and who agrees to become bound
by the provisions of this Agreement in accordance with Section 9.
b. "Person" means a corporation, a limited liability company, an
association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
c. "Register," "registered," and "registration" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the Securities Act and
pursuant to Rule 415 under the Securities Act or any successor rule providing
for offering securities on a continuous or delayed basis ("Rule 415"), and the
declaration or ordering of effectiveness of such Registration Statement(s) by
the United States Securities and Exchange Commission (the "SEC").
d. "Registrable Securities" means (i) the Conversion Shares issued
or issuable upon conversion of the Notes, (ii) the Warrant Shares issued or
issuable upon exercise of the Warrants, (iii) the Placement Agent Warrant Shares
issued or issuable upon exercise of the Placement Agent Warrant and (iv) any
shares of capital stock issued or issuable with respect to the Conversion
Shares, the Notes, the Warrant Shares, the Placement Agent Warrant Shares, the
Warrants or the Placement Agent Warrant as a result of any stock split, stock
dividend, recapitalization, exchange or similar event or otherwise, without
regard to any limitations on conversions of the Notes or exercises of Warrants.
e. "Registration Statement" means a registration statement or
registration statements of the Company filed under the Securities Act covering
the Registrable Securities.
Capitalized terms used herein and not otherwise defined herein shall have
the respective meanings set forth in the Purchase Agreement and its exhibits,
schedules and attachments.
2. Registration.
a. Mandatory Registration. The Company shall prepare, and, as soon
as practicable, but in no event later than the first Business Day after the date
which is forty-five (45) days after the Closing Date (as defined in the Purchase
Agreement) (the "Filing Deadline") file with the SEC a Registration Statement or
Registration Statements
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(as necessary) on Form S-3 covering the resale of the Registrable Securities as
provided for in this Section 2(a). In the event that Form S-3 is unavailable for
such a registration, the Company shall use such other form as is available for
such a registration, subject to the provisions of Section 2(d). The initial
Registration Statement prepared pursuant hereto shall register for resale at
least that number of shares of Common Stock equal to the sum of (A) (i)
$23,375,000 divided by (ii) the product of (y) 75% and (z) the Market Price (as
defined in the Notes) on the Pricing Date (as defined in the Notes) plus (B)
100% of the number of Warrant Shares issuable upon exercise of the Warrants
(without regard to any limitations on exercise) as of the trading day
immediately preceding the date the Registration Statement is initially filed
with the SEC. The Company shall use its best efforts to cause such Registration
Statement to be declared effective by the SEC as soon as practicable, but in no
event later than the date which is One Hundred Twenty (120) days after the
Closing Date (the "Effectiveness Deadline")
b. Allocation of Registrable Securities. The initial number of
Registrable Securities included in any Registration Statement and each increase
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number of Registrable Securities held by
each Investor at the time the Registration Statement covering such initial
number of Registrable Securities or increase thereof is declared effective by
the SEC. In the event that an Investor sells or otherwise transfers any of such
Investor's Registrable Securities, each transferee shall be allocated a pro rata
portion of the then remaining number of Registrable Securities included in such
Registration Statement for such transferor. Any shares of Common Stock included
in a Registration Statement and which remain allocated to any Person which
ceases to hold any Registrable Securities covered by such Registration Statement
shall be allocated to the remaining Investors, pro rata based on the number of
Registrable Securities then held by such Investors which are covered by such
Registration Statement.
c. Legal Counsel. Subject to Section 5 hereof, the Purchasers
holding at least two thirds (2/3) of the Registrable Securities shall have the
right to select one legal counsel to review and oversee any offering pursuant to
this Section 2 ("Legal Counsel"). The Company shall reasonably cooperate with
Legal Counsel in performing the Company's obligations under this Agreement.
d. Ineligibility for Form S-3. In the event that Form S-3 is not
available for any registration of Registrable Securities hereunder, the Company
shall (i) register the sale of the Registrable Securities on another appropriate
form and (ii) undertake to register the Registrable Securities on Form S-3 as
soon as such form is available, provided that the Company shall maintain the
effectiveness of the Registration Statement then in effect until such time as a
Registration Statement on Form S-3 covering the Registrable Securities has been
declared effective by the SEC.
e. Sufficient Number of Shares Registered. In the event the number
of shares available under a Registration Statement filed pursuant to Section
2(a) is insufficient to cover all of the Registrable Securities required to be
covered by such
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Registration Statement or an Investor's allocated portion of the Registrable
Securities pursuant to Section 2(b), the Company shall amend the Registration
Statement, or file a new Registration Statement (on the short form available
therefor, if applicable), or both, so as to cover at least 200% of the number of
such Registrable Securities as of the trading day immediately preceding the date
of the filing of such amendment or new Registration Statement, in each case, as
soon as practicable, but in any event not later than fifteen (15) days after the
necessity therefor arises. The Company shall use it best efforts to cause such
amendment and/or new Registration Statement to become effective as soon as
practicable following the filing thereof. For purposes of the foregoing
provision, the number of shares available under a Registration Statement shall
be deemed "insufficient to cover all of the Registrable Securities" if at any
time after (i) an adjustment to the Conversion Price (as defined in the Notes)
pursuant to Section 2(f)(i) of the Notes or (ii) an adjustment to the Exercise
Price (as defined in the Warrants) pursuant to Section 8(a) of the Warrants, the
number of Registrable Securities issued or issuable upon conversion of the Notes
and exercise of the Warrants covered by such Registration Statement is greater
than the quotient determined by dividing (i) the number of shares of Common
Stock available for resale under such Registration Statement by (ii) 1.5. The
calculation set forth in the foregoing sentence shall be made without regard to
any limitations on the conversion of the Notes or exercise of the Warrants and
such calculation shall assume that the Notes and the Warrants are then
convertible and exercisable, respectively, into shares of Common Stock at the
then prevailing Conversion Rate (as defined in the Notes) and Exercise Price (as
defined in the Warrants), respectively, if applicable.
f. Effect of Failure to File and Obtain and Maintain Effectiveness of
Registration Statement.
(i) Failure to File and Obtain Effectiveness. If a Registration
Statement covering all the applicable Registrable Securities and required to be
filed by the Company pursuant to this Agreement is not (A) filed with the SEC on
or before the Filing Deadline or (B) declared effective by the SEC on or before
the Effectiveness Deadline, then, as partial relief for the damages to any
holder (which remedy shall not be exclusive of any other remedies available at
law or in equity), the Company shall pay to each holder of the Notes an amount
in cash equal to the product of (i) the aggregate Conversion Amount of Notes
held by such holder of Notes multiplied by (ii) the sum of (A) 0.01, if the
Registration Statement is not filed by the Filing Deadline, plus (B) 0.01, if
the Registration Statement is not declared effective by the Effectiveness
Deadline, plus (C) the product of (I) 0.0005 multiplied by (II) the sum of (x)
the number of days after the Filing Deadline that such Registration Statement is
not filed with the SEC, plus (y) the number of days after the Effectiveness
Deadline that such Registration Statement is not declared effective by the SEC.
(ii) Failure to Maintain Effectiveness. If on any day after a
Registration Statement has been declared effective by the SEC, sales of all the
Registrable Securities required to be included on such Registration Statement
cannot be made pursuant to such Registration Statement for any reason
(including, without
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limitation, because of a failure to keep the Registration Statement effective,
to disclose such information as is necessary for sales to be made (other than
during an Allowable Grace Period (as defined below)) pursuant to such
Registration Statement or to have registered a sufficient number of shares of
Common Stock), then, as partial relief for the damages to any holder (which
remedy shall not be exclusive of any other remedies available at law or in
equity), the Company shall pay to each holder of the Notes an amount in cash
equal to: (A) the product of (i) the aggregate Conversion Amount of Notes held
by such holder of Notes and (ii) the product of (I) 0.01 and (II) the number of
days after effectiveness of a Registration Statement that it has lapsed or is
unavailable (as described above) (other than during an Allowable Grace Period).
(iii) Date of Payment. The payments to which a holder shall be
entitled pursuant to this Section 2(d) are referred to herein as "Registration
Delay Payments." Registration Delay Payments shall be paid on the earlier of
(I) the last day of the calendar month during which such Registration Delay
Payments are incurred and (II) the third business day after the event or failure
giving rise to the Registration Delayed Payments is cured. In the event the
Company fails to make Registration Delay Payments in a timely manner, such
Registration Delay Payments shall bear interest at the rate of 1.5% per month
(prorated for partial months) until paid in full.
3. Related Obligations. At such time as the Company is obligated to file
a Registration Statement with the SEC pursuant to Section 2(a) or 2(e), the
Company will use its best efforts to effect the registration of the Registrable
Securities in accordance with the intended method of disposition thereof and,
pursuant thereto, the Company shall have the following obligations:
a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities (but in no
event later than the Filing Deadline) and use its best efforts to cause such
Registration Statement relating to the Registrable Securities to become
effective as soon as possible after such filing (but in no event later than the
Effectiveness Deadline) and keep such Registration Statement effective pursuant
to Rule 415 at all times until the earlier of (i) the date as of which the
Investors may sell all of the Registrable Securities without restriction
pursuant to Rule 144(k) promulgated under the Securities Act (or successor
thereto) or (ii) the date on which (A) the Investors shall have sold all the
Registrable Securities and (B) none of the Notes or Warrants or the Placement
Agent Warrant is outstanding (the "Registration Period"), which Registration
Statement (including any amendments or supplements thereto and prospectuses
contained therein) shall not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein, or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading. The term "best efforts" as used in the first sentence of
this Section 3(a) shall mean, among other things, that the Company shall submit
to the SEC, within three (3) business days after the Company learns that no
review of a particular Registration Statement will be made by the staff of the
SEC or that the staff has no further comments on the Registration Statement, as
the case may be, a request for
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acceleration of effectiveness of such Registration Statement to a time and date
not later than forty-eight (48) hours after the submission of such request.
b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with such Registration
Statement, which prospectus is to be filed pursuant to Rule 424 promulgated
under the Securities Act, as may be necessary to keep such Registration
Statement effective at all times during the Registration Period, and, during
such period, comply with the provisions of the Securities Act with respect to
the disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement. In the case of amendments and supplements to a Registration
Statement which are required to be filed pursuant to this Agreement (including
pursuant to this Section 3(b)) by reason of the Company filing a report on Form
10-K, Form 10-Q or Form 8-K or any analogous report under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), the Company shall file such
amendments or supplements with the SEC on the same day on which the 1934 Act
report is filed which created the requirement for the Company to amend or
supplement the Registration Statement.
c. The Company shall (a) permit Legal Counsel to review and comment
upon a Registration Statement and all amendments and supplements thereto at
least five (5) Business Days prior to their filing with the SEC and (b) not file
any document in a form to which Legal Counsel reasonably objects, provided that
notwithstanding anything to the contrary in this Agreement, the Company shall
suffer no adverse consequence from any delay in the filing of a Registration
Statement if such delay is caused by any delay in review of or comment on such
Registration Statement by Legal Counsel. The Company shall not submit a request
for acceleration of the effectiveness of a Registration Statement or any
amendment or supplement thereto without the prior approval of Legal Counsel,
which consent shall not be unreasonably withheld. The Company shall promptly
furnish to Legal Counsel, without charge, (i) any correspondence from the SEC or
the staff of the SEC to the Company or its representatives relating to any
Registration Statement, (ii) promptly after the same is prepared and filed with
the SEC, one copy of any Registration Statement and any amendment(s) thereto,
including financial statements and schedules, and all exhibits and (iii) upon
the effectiveness of any Registration Statement, one copy of the prospectus
included in such Registration Statement and all amendments and supplements
thereto. The Company shall reasonably cooperate with Legal Counsel in performing
the Company's obligations pursuant to this Section 3.
d. The Company shall furnish to each Investor whose Registrable
Securities are included in any Registration Statement, without charge, (i)
promptly after the same is prepared and filed with the SEC, at least one copy of
such Registration Statement and any amendment(s) thereto, including financial
statements and schedules,
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and all exhibits, (ii) upon the effectiveness of any Registration Statement, ten
(10) copies of the prospectus included in such Registration Statement and all
amendments and supplements thereto (or such other number of copies as such
Investor may reasonably request) and (iii) such other documents, including
copies of any preliminary or final prospectus, as such Investor may reasonably
request from time to time in order to facilitate the disposition of the
Registrable Securities owned by such Investor.
e. The Company shall use reasonable efforts to (i) register and
qualify the Registrable Securities covered by a Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as Legal Counsel or any Investor reasonably requests, (ii) prepare and
file in those jurisdictions such amendments (including post- effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof during the Registration Period,
(iii) take such other actions as may be necessary to maintain such registrations
and qualifications in effect at all times during the Registration Period, and
(iv) take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(e), (y) subject itself
to general taxation in any such jurisdiction, or (z) file a general consent to
service of process in any such jurisdiction. The Company shall promptly notify
Legal Counsel and each Investor who holds Registrable Securities of the receipt
by the Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for sale
under the securities or "blue sky" laws of any jurisdiction in the United States
or its receipt of actual notice of the initiation or threat of any proceeding
for such purpose.
f. As promptly as practicable after becoming aware of such event or
development, the Company shall notify Legal Counsel and each Investor in writing
of the happening of any event as a result of which the prospectus included in a
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading (provided that such notice shall not
contain any material, nonpublic information), and promptly prepare a supplement
or amendment to such Registration Statement to correct such untrue statement or
omission, and deliver ten (10) copies of such supplement or amendment to Legal
Counsel and each Investor (or such other number of copies as Legal Counsel or
such Investor may reasonably request). The Company shall also promptly notify
Legal Counsel and each Investor in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and when a
Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to Legal Counsel and each
Investor by facsimile on the same day of such effectiveness and by overnight
mail), (ii) of any request by the SEC for amendments or supplements to a
Registration Statement or related prospectus or related information, and (iii)
of the Company's reasonable determination that a post-effective
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amendment to a Registration Statement would be appropriate.
g. The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of a Registration Statement,
or the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction and, if such an order or suspension is issued, to
obtain the withdrawal of such order or suspension at the earliest possible
moment and to notify Legal Counsel and each Investor who holds Registrable
Securities being sold of the issuance of such order and the resolution thereof
or its receipt of actual notice of the initiation or threat of any proceeding
for such purpose.
h. At the reasonable request of any Purchaser, the Company shall
furnish to such Purchaser, on the date of the effectiveness of the Registration
Statement and thereafter from time to time upon any change or addition
(including by way of incorporation by reference) to the financial statements or
financial information included in the Registration Statement (i) a letter, dated
such date, from the Company's independent certified public accountants in form
and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to
such Purchaser and the Company, and (ii) an opinion, dated as of such date, of
counsel representing the Company for purposes of such Registration Statement, in
form, scope and substance as is customarily given in an underwritten public
offering, addressed to such Purchaser.
i. The Company shall make available for inspection by (i) any
Investor, (ii) Legal Counsel and (iii) accountants or other agents retained by
the Investors (collectively, the "Inspectors") all pertinent financial and other
records, and pertinent corporate documents and properties of the Company
(collectively, the "Records"), as shall be reasonably deemed necessary by each
Inspector, and cause the Company's officers, directors and employees to supply
all information which any Inspector may reasonably request; provided, however,
that each Inspector shall hold in strict confidence and shall not make any
disclosure (except to an Investor) or use of any Record or other information
which the Company determines in good faith to be confidential, and of which
determination the Inspectors are so notified, unless (a) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in any
Registration Statement or is otherwise required under the Securities Act, (b)
the release of such Records is ordered pursuant to a final, non-appealable
subpoena or order from a court or government body of competent jurisdiction, or
(c) the information in such Records has been made generally available to the
public other than by disclosure in violation of this or any other agreement of
which the Inspector has knowledge. Each Investor agrees that it shall, upon
learning that disclosure of such Records is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to the Company and allow the Company, at its expense, to undertake
appropriate action to seek to prevent disclosure of, or to seek to obtain a
protective order for, the Records deemed confidential.
j. The Company shall hold in confidence and not make any
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disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to seek to prevent disclosure of, or to
seek to obtain a protective order for, such information.
k. The Company shall use its best efforts either to (i) cause all
the Registrable Securities covered by a Registration Statement to be listed on
each securities exchange on which securities of the same class or series issued
by the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii) secure
designation and quotation of all the Registrable Securities covered by the
Registration Statement on the Nasdaq National Market, The American Stock
Exchange, Inc., or The New York Stock Exchange, Inc., or (iii) if, despite the
Company's best efforts to satisfy the preceding clause (i) or (ii), the Company
is unsuccessful in satisfying the preceding clause (i) or (ii), to secure the
inclusion for quotation on The Nasdaq SmallCap Market for such Registrable
Securities and, without limiting the generality of the foregoing, to arrange for
at least two market makers to register with the National Association of
Securities Dealers, Inc. (the "NASD") as such with respect to such Registrable
Securities. The Company shall pay all fees and expenses in connection with
satisfying its obligation under this Section 3(k).
l. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, to
facilitate the timely preparation and delivery of certificates (not bearing any
restrictive legend, provided that the Investors shall have provided reasonably
sufficient representations to the Company that they have satisfied any
prospectus delivery requirement applicable under the Securities Act or under
applicable state securities laws) representing the Registrable Securities to be
offered pursuant to a Registration Statement and enable such certificates to be
in such denominations or amounts, as the case may be, as the Investors may
reasonably request and registered in such names as the Investors may request.
m. The Company shall provide a transfer agent and registrar of all
such Registrable Securities not later than the effective date of such
Registration Statement.
n. If requested by an Investor, the Company shall (i) immediately
incorporate in a prospectus supplement or post-effective amendment such
information as
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an Investor requests to be included therein relating to the sale and
distribution of Registrable Securities, including, without limitation,
information with respect to the number of Registrable Securities being offered
or sold, the purchase price being paid therefor and any other terms of the
offering of the Registrable Securities; (ii) make all required filings of such
prospectus supplement or post-effective amendment as soon as notified of the
matters to be incorporated in such prospectus supplement or post-effective
amendment; and (iii) supplement or make amendments to any Registration Statement
if requested by an Investor of such Registrable Securities.
o. The Company shall use its best efforts to cause the Registrable
Securities covered by the applicable Registration Statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary to consummate the disposition of such Registrable Securities.
p. The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the Securities Act) covering a twelve-
month period beginning not later than the first day of the Company's fiscal
quarter next following the effective date of the Registration Statement.
q. The Company shall otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC in connection with any
registration hereunder.
r. Within two (2) business days after a Registration Statement which
includes the Registrable Securities is ordered effective by the SEC, the Company
shall deliver, and shall cause legal counsel for the Company to deliver, to the
transfer agent for such Registrable Securities (with copies to the Investors
whose Registrable Securities are included in such Registration Statement)
confirmation that such Registration Statement has been declared effective by the
SEC in the form attached hereto as Exhibit A.
s. The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by the Investors of Registrable Securities
pursuant to a Registration Statement.
t. Notwithstanding anything to the contrary in this Agreement, at
any time after the applicable Registration Statement has been declared effective
by the SEC, the Company may delay the disclosure of material non-public
information concerning the Company the disclosure of which at the time is not,
in the good faith opinion of the Board of Directors of the Company, in the best
interest of the Company and, in the opinion of counsel to the Company, otherwise
required (a "Grace Period"); provided, that the Company shall promptly (i)
notify the Investors in writing of the existence of material non-public
information giving rise to a Grace Period (provided that in each notice the
Company will not disclose the content of such material non- public information
to the
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Investors) and the date on which the Grace Period will begin, and (ii) notify
the Investors in writing of the date on which the Grace Period ends; and,
provided further, that no Grace Period shall exceed 15 consecutive days and
during any consecutive 365 day period, such Grace Periods shall not exceed an
aggregate of 30 days and the first day of any Grace Period must be at least two
trading days after the last day of any prior Grace Period (an "Allowable Grace
Period"). For purposes of determining the length of a Grace Period above, the
Grace Period shall begin on and include the date the holders receive the notice
referred to in clause (i) and shall end on and include the later of the date the
holders receive the notice referred to in clause (ii) and the date referred to
in such notice. The provisions of Section 3(f) hereof shall not be applicable
during the period of any Allowable Grace Period. Upon expiration of the Grace
Period, the Company shall again be bound by the first sentence of Section 3(f)
with respect to the information giving rise thereto unless such material non-
public information is no longer applicable.
4. Obligations Of The Investors.
----------------------------
a. At least seven (7) days prior to the first anticipated filing
date of a Registration Statement, the Company shall notify each Investor in
writing of the information the Company requires from each such Investor if such
Investor elects to have any of such Investor's Registrable Securities included
in such Registration Statement. It shall be a condition precedent to the
obligations of the Company to complete the registration pursuant to this
Agreement with respect to the Registrable Securities of a particular Investor
that such Investor shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be reasonably
required to effect the registration of such Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request.
b. Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of any Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from such Registration Statement.
c. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(g) or
the first sentence of 3(f), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to any Registration Statement(s)
covering such Registrable Securities until such Investor's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 3(g) or the
first sentence of 3(f) or receipt of notice that no supplement or amendment is
required. Notwithstanding anything to the contrary, the Company shall cause its
transfer agent to deliver unlegended shares of Common Stock to a transferee of
an Investor in accordance with the terms of the Purchase Agreement in connection
with any sale of Registrable Securities with respect to which an Investor has
-11-
entered into a contract for sale prior to the Investor's receipt of a notice
from the Company of the happening of any event of the kind described in Section
3(f) or the first sentence of 3(h) and for which the Investor has not yet
settled.
5. Expenses Of Registration. All reasonable expenses, other than
underwriting discounts and brokerage commissions, incurred in connection with
registrations, filings or qualifications pursuant to Sections 2 and 3,
including, without limitation, all registration, listing and qualifications
fees, printers, legal and accounting fees shall be paid by the Company. In
addition, the Company shall reimburse the Investors for the reasonable fees and
disbursements of Legal Counsel in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3 of this Agreement (other than
Section 3(h)) which amount combined with expenses incurred by the Purchasers
pursuant to Section 3.7 of the Purchase Agreement shall not exceed $50,000.
6. Indemnification. In the event any Registrable Securities are included
in a Registration Statement under this Agreement:
a. Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement and without limitation as to
time, indemnify and hold harmless each Investor, the officers, directors,
partners, members, agents (including any underwriters retained by such Investor
in connection with the offer and sale of Registrable Securities), each Person
who controls any such Investor (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) and the officers, directors,
agents and employees of each such controlling Person, to the fullest extent
permitted by applicable law, from and against any and all losses, claims,
damages, liabilities, costs (including, without limitation, costs of preparation
and attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising
out of or relating to any untrue or alleged untrue statement of a material fact
contained in a Registration Statement, any Prospectus or any form of prospectus
or in any amendment or supplement thereto or in any preliminary prospectus, or
arising out of or relating to any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
(in the case of any Prospectus or form of prospectus or supplement thereto, in
light of the circumstances under which they were made) not misleading, except to
the extent, but only to the extent, that such untrue statements or omissions are
based solely upon information regarding such Investor furnished in writing to
the Company by or on behalf of such Investor expressly for use therein, which
information was reasonably relied on by the Company for use therein or to the
extent that such information relates to such Investor or such Investor's
proposed method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Investor expressly for use in the
Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto.
b. Indemnification by Investors. In connection with any Registration
Statement in which an Investor is identified as a selling shareholder, each such
Investor shall, severally and not jointly, indemnify and hold harmless the
Company, the directors,
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officers, agents and employees, each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the directors, officers, agents or employees of such controlling Persons, to
the fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of or based solely upon any untrue
statement of a material fact or alleged untrue statement of material fact
contained in the Registration Statement, any Prospectus, or any form of
prospectus, or arising solely out of or based solely upon any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading to the extent, but only to the
extent, that such untrue statement or omission is contained in any information
so furnished in writing by such Investor to the Company specifically for
inclusion in the Registration Statement or such Prospectus and that such
information was reasonably relied upon by the Company for use in the
Registration Statement, such Prospectus or such form of prospectus or to the
extent that such information relates to such Investor or such Investor's
proposed method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Investor expressly for use in the
Registration Statement, such Prospectus or such form of Prospectus.
Notwithstanding anything to the contrary in this Agreement, in no event shall
the liability of any selling Investor hereunder be greater in amount than the
dollar amount of the net proceeds received by such Investor upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
c. Conduct of Indemnification Proceedings.
--------------------------------------
(i) If any Proceeding shall be brought or asserted against any Person
entitled to indemnity hereunder (an "Indemnified Party"), such Indemnified Party
promptly shall notify the Person from whom indemnity is sought (the
"Indemnifying Party") in writing, and the Indemnifying Party shall assume the
defense thereof, including the employment of counsel reasonably satisfactory to
the Indemnified Party and the payment of all fees and expenses incurred in
connection with defense thereof; provided, that the failure of any Indemnified
Party to give such notice shall not relieve the Indemnifying Party of its
obligations or liabilities pursuant to this Agreement, except (and only) to the
extent that it shall be finally determined by a court of competent jurisdiction
(which determination is not subject to appeal or further review) that such
failure shall have proximately and materially adversely prejudiced the
Indemnifying Party.
(ii) An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed to
pay such fees and expenses; or (2) the Indemnifying Party shall have failed
promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3)
the named parties to any such Proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party, and
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such Indemnified Party shall have been advised by counsel that a conflict of
interest is likely to exist if the same counsel were to represent such
Indemnified Party and the Indemnifying Party (in which case, if such Indemnified
Party notifies the Indemnifying Party in writing that it elects to employ
separate counsel at the expense of the Indemnifying Party, the Indemnifying
Party shall not have the right to assume the defense thereof and such counsel
shall be at the expense of the Indemnifying Party). The Indemnifying Party shall
not be liable for any settlement of any such Proceeding effected without its
written consent, which consent shall not be unreasonably withheld. No
Indemnifying Party shall, without the prior written consent of the Indemnified
Party, effect any settlement of any pending Proceeding in respect of which any
Indemnified Party is a party, unless such settlement includes an unconditional
release of such Indemnified Party from all liability on claims that are the
subject matter of such Proceeding.
(iii) All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within ten (10) Business Days after written notice thereof to the
Indemnifying Party (regardless of whether it is ultimately determined that an
Indemnified Party is not entitled to indemnification hereunder; provided, that
the Indemnifying Party may require such Indemnified Party to undertake to
reimburse all such fees and expenses to the extent it is finally judicially
determined that such Indemnified Party is not entitled to indemnification
hereunder).
(iv) The Indemnified Party shall notify the Indemnifying Party
promptly of any Proceeding of which the Indemnified Party shall have been
notified in writing in connection with the transactions contemplated by this
Agreement and as to which the Indemnified Party believes it may be entitled to
indemnification hereunder. The failure of the Indemnified Party to so notify
the Indemnifying Party of such a Proceeding shall not impair or affect the
Indemnified Party's rights to indemnification hereunder except and only to the
extent that such failure is shown to be the proximate cause of additional Loss.
d. Contribution. If a claim for indemnification under Section 6(a)
or 6(b) is unavailable to an Indemnified Party because of a failure or refusal
of a governmental authority to enforce such indemnification in accordance with
its terms (by reason of public policy or otherwise), then each Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such Losses, in
such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party and Indemnified Party in connection with the actions,
statements or omissions that resulted in such Losses as well as any other
relevant equitable considerations. The relative fault of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material fact,
has been taken or made by, or relates to
-14-
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 6(c), any attorneys' or other fees or
expenses incurred by such party in connection with any Proceeding to the extent
such party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms. The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 6(d) were determined by
pro rata allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 6(d), the Purchaser
shall not be required to contribute, in the aggregate, any amount in excess of
the amount by which the proceeds actually received by the Purchaser from the
sale of the Registrable Securities subject to the Proceeding exceeds the amount
of any damages that the Purchaser has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Per-son
who was not guilty of such fraudulent misrepresentation.
e. Cumulative. The indemnity and contribution agreements contained
in this Section are in addition to any liability that the Indemnifying Parties
may have to the Indemnified Parties.
7. Reports Under The 1934 Act. With a view to making available to the
Investors the benefits of Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to:
a. make and keep public information available, as those terms are
understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the 1934 Act so
long as the Company remains subject to such requirements (it being understood
that nothing herein shall limit the Company's obligations under Section 3.3 of
the Purchase Agreement) and the filing of such reports and other documents is
required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of the 1934 Act or,
if applicable, that there is publicly available the information concerning the
Company described in Rule 144(C)(2), (ii) unless available on the XXXXX system,
a copy of the most recent annual or quarterly
-15-
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the investors to sell such securities pursuant to Rule 144 without
registration.
9. Assignment Of Registration Rights. The rights under this Agreement
shall be automatically assignable by the Investors to any transferee of all or
any portion of Registrable Securities if: (i) the Investor agrees in writing
with the transferee or assignee to assign such rights, and a copy of such
agreement is furnished to the Company within a reasonable time after such
assignment; (ii) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (a) the name and address of such
transferee or assignee, and (b) the securities with respect to which such
registration rights are being transferred or assigned; (iii) immediately
following such transfer or assignment the further disposition of such securities
by the transferee or assignee is restricted under the Securities Act and
applicable state securities laws; (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein; and (v) such transfer shall have been made in
accordance with the applicable requirements of the Purchase Agreement.
10. Amendment Of Registration Rights. Provisions of this Agreement may be
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Investors who then hold two-thirds (2/3) of
the Registrable Securities. Any amendment or waiver effected in accordance with
this Section 10 shall be binding upon each Investor and the Company. No such
amendment shall be effective to the extent that it applies to less than all of
the holders of the Registrable Securities. 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 this Agreement unless the same consideration also is offered
to all of the parties to this Agreement.
11. No Inconsistent Agreements. Except as and to the extent specifically
set forth in Schedule 11 attached hereto, the Company has not, as of the date
hereof, nor shall the Company, on or after the date of this Agreement, enter
into any agreement with respect to its securities that is inconsistent with the
rights granted to the Investors in this Agreement or otherwise conflicts with
the provisions hereof. Except and to the extent specifically set forth on
Schedule 11 attached hereto, neither the Company nor any of its subsidiaries has
previously entered into any agreement, which is still in effect, granting any
registration rights with respect to any of its securities to any Person.
12. Miscellaneous.
-------------
a. A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more Persons with respect to the same Registrable
Securities, the Company shall act upon the
-16-
basis of instructions, notice or election received from the registered owner of
such Registrable Securities.
b. Any notices, consents, waivers or other communications required
or permitted to be given under the terms of this Agreement must be in writing
and will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one business day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company:
BRITESMILE, INC.
000 Xxxxx Xxxxx Xxxx
Xxxxxx Xxxxx, Xxxxxxxxxx 00000
Facsimile No.: (000) 000-0000
Attn: Xxxx X. Xxxxx, Chief Financial Officer
With copies to:
DURHAM XXXXX & XXXXXXX, P.C.
Broadway Centre, Suite 900
000 Xxxx Xxxxxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Facsimile No.: (000) 000-0000
Attn: Xxxxxxx X. Xxxxx
If to a Purchaser, to it at the address and facsimile number set forth below
adjacent to their names on Exhibit A hereto, with copies to such Purchaser's
representatives as set forth on Exhibit A, or at such other address and/or
facsimile number and/or to the attention of such other person as the recipient
party has specified by written notice given to each other party five days prior
to the effectiveness of such change. Written confirmation of receipt (A) given
by the recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a nationally recognized overnight
delivery service shall be rebuttable evidence of personal service, receipt by
facsimile or receipt from a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
-17-
d. All questions concerning the construction, validity, enforcement
and interpretation of this Agreement shall be governed by the internal laws of
the State of New York, without giving effect to any choice of law or conflict of
law provision or rule (whether of the State of New York or any other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State of New York. Each party hereby irrevocably submits to the
non-exclusive jurisdiction of the state and federal courts sitting in New York
City, Borough of Manhattan, State of New York, for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein, 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 brought in an inconvenient forum or that the venue of such suit,
action or proceeding is improper. 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 to such party at the address for such
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. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION
OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
e. This Agreement, the Purchase Agreement, the Warrants, the Notes
and the Placement Agent Warrant are the entire agreement among the parties
hereto with respect to the subject matter hereof and thereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein and therein. This Agreement, the Purchase Agreement, the
Warrants, the Placement Agent Warrant and the Notes supersede all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement shall
inure to the benefit of and be binding upon the permitted successors and assigns
of each of the parties hereto.
g. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in identical counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party
-18-
hereto by facsimile transmission of a copy of this Agreement bearing the
signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. All consents and other determinations to be made by the Investors
pursuant to this Agreement shall be made, unless otherwise specified in this
Agreement, by Investors holding a majority of the Registrable Securities,
determined as if all of the Notes and the Warrants then outstanding have been
converted into or exercised for Registrable Securities without regard to any
limitation on conversions of the Notes or exercises of the Warrants.
k. 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: PLACEMENT AGENT:
BRITESMILE, INC. FLEETBOSTON XXXXXXXXX
XXXXXXXX
By: __________________________________ By: ________________________________
Name: ____________________________ Name: __________________________
Title: ___________________________ Title: _________________________
Purchasers:
LCO INVESTMENTS LIMITED
By: __________________________________
Its: _____________________________
--------------------------------------
XXXXXX XxXXXXXX
PEQUOT PRIVATE EQUITY FUND II, L.P.
BY: PEQUOT CAPITAL MANAGEMENT, INC.
ITS: INVESTMENT MANAGER
By: __________________________________
Xxxxx X. X'Xxxxx, General Counsel
[page intentionally left blank]
PEQUOT PARTNERS FUND, L.P.
BY: PEQUOT CAPITAL MANAGEMENT, INC.
ITS: INVESTMENT MANAGER
By: ________________________________________
Xxxxx X. X'Xxxxx, General Counsel
PEQUOT INTERNATIONAL FUND, INC.
BY: PEQUOT CAPITAL MANAGEMENT, INC.
ITS: INVESTMENT ADVISOR
By: ________________________________________
Xxxxx X. X'Xxxxx, General Counsel
-----------------------------------
XXXX XXXX
-----------------------------------
XXXXXX XXXXXXX, XX., D.D.S.
CAPEX, L.P.
By RBP, LLC
Its General Partner
By: ____________________________
Xxxx Xxxxxx
Managing Partner
PACIFIC MEZZANINE FUND
By PACIFIC PRIVATE CAPITAL
By: ____________________________________
Xxxxxx X. Xxxx, Managing Partner
Schedule 11
Other Registration Rights
-------------------------
REGISTRATION RIGHTS AGREEMENTS
1. Registration Rights Agreement dated as of January 18, 2000 between the
Company and the Pequot Capital investment funds (incorporated by
reference to the Company's Current Report on Form 8-K dated January 18,
2000).
2. Amendment No. 1 dated February 1, 2000 to Registration Rights Agreement
dated as of June 3, 1999 between the Company and Quota Rabbico II, Ltd.,
Xxxxx X. Xxxxxxxxxxxx and Argonaut Partnership, L.P., and between the
Company and Xxxxxx XxXxxxxx.
3. Registration Rights Agreement dated as of June 3, 1999 between the
Company and certain non-management purchasers in the June 1999 Private
Placement (incorporated by reference to the Company's Current Report on
Form 8-K dated June 4, 1999).
4. Amended and Restated Registration Rights Agreement dated as of June 3,
1999 between the Company and certain management purchasers (incorporated
by reference to the Company's Current Report on Form 8-K as filed June 4,
1999).
5. Amendment dated 12-7-98 to Registration Rights Agreement dated May 4,
1998 between the Company and LCO Investments Limited (incorporated by
reference to the Company's Current Report on Form 8-K filed December 22,
1998).
6. Registration Rights Agreement dated as of May 4, 1998 between the Company
and LCO Investments Limited (incorporated by reference to the Company's
Annual Report on Form 10-KSB for the fiscal year ended March 31, 1998).
7. Registration Rights Agreement dated May 8, 1997 among the Company, LCO
Investments Limited, and Xxxxxxx X. Xxxxxxxx (incorporated by reference
to the Company's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1997).
8. Registration Rights Agreement dated April 1, 1996 between the Company,
LCO Investments Limited, Xxxxxxx X. Xxxxxxxx, and Pinnacle Fund, L.P.
(incorporated by reference to the Current Report on Form 8-K of the
Company dated April 1, 1996).
