EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "AGREEMENT") is dated as of
December 16, 2003, among Composite Technology Corporation, a Nevada corporation
(the "COMPANY"), and the purchasers identified on the signature pages hereto
(each a "PURCHASER" and collectively the "PURCHASERS"); and
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act (as defined below),
and Rule 506 promulgated thereunder, the Company desires to issue and sell to
the Purchasers, and each Purchaser, severally and not jointly, desires to
purchase from the Company in the aggregate, up to $3,000,000 of the Common Stock
and certain Warrants on the Closing Date.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:
ARTICLE I.
DEFINITIONS
1.1 DEFINITIONS. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms have the
meanings indicated in this Section 1.1:
"ACTION" shall have the meaning ascribed to such term in
Section 3.1(j).
"AFFILIATE" means any Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is
under common control with a Person as such terms are used in and
construed under Rule 144. With respect to a Purchaser, any investment
fund or managed account that is managed on a discretionary basis by the
same investment manager as such Purchaser will be deemed to be an
Affiliate of such Purchaser.
"CLOSING" means the closing of the purchase and sale of the
Common Stock and the Warrants pursuant to Section 2.1.
"CLOSING DATE" means the date of the Closing, which shall be
the date hereof.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock of the Company, $0.001
par value per share, and any securities into which such common stock
may hereafter be reclassified.
"COMMON STOCK EQUIVALENTS" means any securities of the Company
or the Subsidiaries which would entitle the holder thereof to acquire
at any time Common Stock, including without limitation, any debt,
preferred stock, rights, options, warrants or other instrument that is
at any time convertible into or exchangeable for, or otherwise entitles
the holder thereof to receive, Common Stock.
"COMPANY COUNSEL" means Xxxxxxxxxx & Xxxxx LLP, with offices
at 00000 Xxxxxxxx Xxxx., Xxxxx 000, Xxx Xxxxxxx, Xxxxxxxxxx 00000.
"DISCLOSURE SCHEDULES" means the Disclosure Schedules attached
hereto.
"EFFECTIVE DATE" means the date that the Registration
Statement is first declared effective by the Commission.
"ESCROW AGENT" shall have the meaning set forth in the Escrow
Agreement.
"ESCROW AGREEMENT" shall mean the Escrow Agreement in
substantially the form of EXHIBIT B hereto executed and delivered
contemporaneously with this Agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FILING DATE" means, with respect to the Registration
Statement required to be filed hereunder, the 60th calendar day
following the date of this Agreement.
"FW" means Xxxxxxx Xxxxxxxxx LLP with offices located at 000
Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000-0000.
"INTELLECTUAL PROPERTY RIGHTS" shall have the meaning ascribed
to such term in Section 3.1(o).
"LIENS" means a lien, charge, security interest, encumbrance,
right of first refusal, preemptive right or other restriction.
"MATERIAL ADVERSE EFFECT" shall have the meaning ascribed to
such term in Section 3.1(b).
"MATERIAL PERMITS" shall have the meaning ascribed to such
term in Section 3.1(m).
"PER SHARE PURCHASE PRICE" equals $1.25 subject to adjustment
for reverse and forward stock splits, stock dividends, stock
combinations and other similar transactions of the Common Stock that
occur after the date of this Agreement.
"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.
"REGISTRATION STATEMENT" means a registration statement
meeting the requirements set forth in the Registration Rights Agreement
and covering the resale by the Purchasers of the Shares and the Warrant
Shares.
2
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of the date of this Agreement, among the Company
and each Purchaser, in the form of EXHIBIT A hereto.
"REQUIRED APPROVALS" shall have the meaning ascribed to such
term in Section 3.1(e).
"RULE 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time
to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same effect as such Rule.
"SEC REPORTS" shall have the meaning ascribed to such term in
Section 3.1(h).
"SECURITIES" means the Shares, the Warrants and the Warrant
Shares.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means the shares of Common Stock issued or issuable
to each Purchaser pursuant to this Agreement.
"SUBSCRIPTION AMOUNT" means, as to each Purchaser, the amounts
set forth below such Purchaser's signature block on the signature page
hereto, in United States dollars and in immediately available funds.
"SUBSIDIARY" shall mean the subsidiaries of the Company, if
any, set forth on Schedule 3.1(a).
"TRADING DAY" means (i) a day on which the Common Stock is
traded on a Trading Market, or (ii) if the Common Stock is not listed
on a Trading Market, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its
functions of reporting prices); provided, that in the event that the
Common Stock is not listed or quoted as set forth in (i) and (ii)
hereof, then Trading Day shall mean a Business Day.
"TRADING MARKET" means the following markets or exchanges on
which the Common Stock is listed or quoted for trading on the date in
question: the OTC Bulletin Board, the American Stock Exchange, the New
York Stock Exchange, the Nasdaq National Market or the Nasdaq SmallCap
Market.
"TRANSACTION DOCUMENTS" means this Agreement, the Escrow
Agreement, the Warrants and the Registration Rights Agreement and any
other documents or agreements executed in connection with the
transactions contemplated hereunder.
3
"VWAP" means, for any date, the price determined by the first
of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the daily volume weighted average
price of the Common Stock for such date (or the nearest preceding date)
on the primary Trading Market on which the Common Stock is then listed
or quoted as reported by Bloomberg Financial L.P. (based on a Trading
Day from 9:30 a.m. ET to 4:02 p.m. Eastern Time) using the VAP
function; (b) if the Common Stock is not then listed or quoted on an
Trading Market and if prices for the Common Stock are then reported in
the "Pink Sheets" published by the National Quotation Bureau
Incorporated (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share of
the Common Stock so reported; or (c) in all other cases, the fair
market value of a share of Common Stock as determined by a nationally
recognized-independent appraiser selected in good faith by Purchasers
holding a majority of the principal amount of Shares then outstanding.
"WARRANTS" means the Common Stock Purchase Warrants, in the
form of EXHIBIT C, issuable to the Purchasers at the Closing, which
warrants shall be exercisable immediately upon issuance for a term of 5
years and have an exercise price equal to $2.04.
"WARRANT SHARES" means the shares of Common Stock issuable
upon exercise of the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 CLOSING. At the Closing, each Purchaser shall purchase from the
Company, and the Company shall issue and sell to each Purchaser, (a) a number of
Shares equal to such Purchaser's Subscription Amount divided by the Per Share
Purchase Price and (b) the Warrants as determined pursuant to Section
2.2(a)(iii). Upon satisfaction of the conditions set forth in Section 2.2, the
Closing shall occur at the offices of the Escrow Agent, or such other location
as the parties shall mutually agree.
2.2 CLOSING CONDITIONS.
(a) At the Closing the Company shall deliver or cause to be
delivered to the Escrow Agent with respect to each Purchaser the
following:
(i) this Agreement duly executed by the Company;
(ii) a certificate evidencing a number of Shares
equal to such Purchaser's Subscription Amount divided by the
Per Share Purchase Price, registered in the name of such
Purchaser;
(iii) a Warrant, registered in the name of such
Purchaser, pursuant to which such Purchaser shall have the
right to acquire up to the number of shares of Common Stock
equal to 50% of the Shares to be issued to such Purchaser at
the Closing;
(iv) the Registration Rights Agreement duly executed
by the Company;
4
(v) the Escrow Agreement duly executed by the
Company; and
(vi) a legal opinion of Company Counsel, in the form
of EXHIBIT D attached hereto.
(b) At the Closing each Purchaser shall deliver or cause to be
delivered to the Escrow Agent the following:
(i) this Agreement duly executed by such Purchaser;
(ii) such Purchaser's Subscription Amount by wire
transfer to the account of the Escrow Agent;
(iii) the Escrow Agreement duly executed by such
Purchaser; and
(iv) the Registration Rights Agreement duly executed
by such Purchaser.
(c) All representations and warranties of the other party
contained herein shall remain true and correct as of the Closing Date.
(d) As of the Closing Date, there shall have been no Material
Adverse Effect with respect to the Company since the date hereof.
(e) From the date hereof to the Closing Date, trading in the
Common Stock shall not have been suspended by the Commission (except
for any suspension of trading of limited duration agreed to by the
Company, which suspension shall be terminated prior to the Closing),
and, at any time prior to the Closing Date, trading in securities
generally as reported by Bloomberg Financial Markets shall not have
been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by such service, or
on any Trading Market, nor shall a banking moratorium have been
declared either by the United States or New York State authorities nor
shall there have occurred any material outbreak or escalation of
hostilities or other national or international calamity of such
magnitude in its effect on, or any material adverse change in, any
financial market which, in each case, in the reasonable judgment of
each Purchaser, makes it impracticable or inadvisable to purchase the
Shares at the such Closing.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth
under the corresponding section of the Disclosure Schedules delivered
concurrently herewith and/or in the SEC Reports, the Company hereby makes the
following representations and warranties as of the date hereof and as of the
Closing Date to each Purchaser:
5
(a) SUBSIDIARIES. All of the subsidiaries of the Company are
set forth on Schedule 3.1(a). The Company owns, directly or indirectly,
all of the capital stock or other equity interests of each Subsidiary
free and clear of any Liens, and all the issued and outstanding shares
of capital stock of each Subsidiary are validly issued and are fully
paid, non-assessable and free of preemptive and similar rights. If the
Company has no subsidiaries, then references in the Transaction
Documents to the Subsidiaries will be disregarded.
(b) ORGANIZATION AND QUALIFICATION. Each of the Company and
the Subsidiaries is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with
the requisite power and authority to own and use its properties and
assets and to carry on its business as currently conducted. Neither the
Company nor any Subsidiary is in violation of any of the provisions of
its respective certificate or articles of incorporation, bylaws or
other organizational or charter documents. Each of the Company and the
Subsidiaries is duly qualified to conduct business and is in good
standing as a foreign corporation or other entity in each jurisdiction
in which the nature of the business conducted or property owned by it
makes such qualification necessary, except where the failure to be so
qualified or in good standing, as the case may be, could not have or
reasonably be expected to result in (i) a material adverse effect on
the legality, validity or enforceability of any Transaction Document,
(ii) a material adverse effect on the results of operations, assets,
business or financial condition of the Company and the Subsidiaries,
taken as a whole, or (iii) a material adverse effect on the Company's
ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii),
a "MATERIAL ADVERSE EFFECT").
(c) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations thereunder. The execution and
delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been
duly authorized by all necessary action on the part of the Company and
no further action is required by the Company in connection therewith
other than in connection with the Required Approvals. Each Transaction
Document has been (or upon delivery will have been) duly executed by
the Company and, when delivered in accordance with the terms hereof,
will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms except (i)
as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement
of creditors' rights generally and (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other
equitable remedies.
(d) NO CONFLICTS. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated thereby do not and will not
(i) conflict with or violate any provision of the Company's or any
Subsidiary's certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt
or other instrument (evidencing a Company or Subsidiary debt or
6
otherwise) or other understanding to which the Company or any
Subsidiary is a party or by which any property or asset of the Company
or any Subsidiary is bound or affected, or (iii) subject to the
Required Approvals, result in a violation of any law, rule, regulation,
order, judgment, injunction, decree or other restriction of any court
or governmental authority to which the Company or a Subsidiary is
subject (including federal and state securities laws and regulations),
or by which any property or asset of the Company or a Subsidiary is
bound or affected; except in the case of each of clauses (ii) and
(iii), such as would not have or reasonably be expected to result in a
Material Adverse Effect.
(e) FILINGS, CONSENTS AND APPROVALS. The Company is not
required to obtain any consent, waiver, authorization or order of, give
any notice to, or make any filing or registration with, any court or
other federal, state, local or other governmental authority or other
Person in connection with the execution, delivery and performance by
the Company of the Transaction Documents, other than (i) filings
required pursuant to Section 4.4 of this Agreement, (ii) the filing
with the Commission of the Registration Statement, (iii) the notice
and/or application(s) to each applicable Trading Market for the listing
of the Shares and Warrant Shares for trading thereon in the time and
manner required thereby, and (iv) the filing of Form D with the
Commission and such filings as are required to be made under applicable
state securities laws.
(f) ISSUANCE OF THE SECURITIES. The Securities are duly
authorized and, when issued and paid for in accordance with the
Transaction Documents, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens. The Company has reserved
from its duly authorized capital stock the maximum number of shares of
Common Stock issuable pursuant to this Agreement and the Warrants.
(g) CAPITALIZATION. The capitalization of the Company is as
described in the Company's most recent periodic report filed with the
Commission. The Company has not issued any capital stock since such
filing other than pursuant to the exercise of employee and key
consultant stock options under the Company's stock option plans, the
issuance of shares of Common Stock to employees and key consultants
pursuant to the Company's employee stock purchase plan and pursuant to
the conversion or exercise of outstanding Common Stock Equivalents. No
Person has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents. Except as a result of the
purchase and sale of the Securities, there are no outstanding options,
warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common
Stock, or securities or rights convertible or exchangeable into shares
of Common Stock. The issue and sale of the Securities will not obligate
the Company to issue shares of Common Stock or other securities to any
Person (other than the Purchasers) and will not result in a right of
any holder of Company securities to adjust the exercise, conversion,
exchange or reset price under such securities.
7
(h) SEC REPORTS; FINANCIAL STATEMENTS. The Company has filed
all reports required to be filed by it under the Securities Act and the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for
the two years preceding the date hereof (or such shorter period as the
Company was required by law to file such material) (the foregoing
materials, including the exhibits thereto, being collectively referred
to herein as the "SEC REPORTS") on a timely basis or has received a
valid extension of such time of filing and has filed any such SEC
Reports prior to the expiration of any such extension. As of their
respective dates, the SEC Reports complied in all material respects
with the requirements of the Securities Act and the Exchange Act and
the rules and regulations of the Commission promulgated thereunder, and
none of the SEC Reports, when filed, contained any untrue statement of
a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
The financial statements of the Company included in the SEC Reports
comply in all material respects with applicable accounting requirements
and the rules and regulations of the Commission with respect thereto as
in effect at the time of filing. Such financial statements have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved ("GAAP"),
except as may be otherwise specified in such financial statements or
the notes thereto and except that unaudited financial statements may
not contain all footnotes required by GAAP, and fairly present in all
material respects the financial position of the Company and its
consolidated subsidiaries as of and for the dates thereof and the
results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.
(i) MATERIAL CHANGES. Since June 30, 2003 except as disclosed
in the SEC Reports, (i) there has been no event, occurrence or
development that has had or that could reasonably be expected to result
in a Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) trade payables and
accrued expenses incurred in the ordinary course of business consistent
with past practice and (B) liabilities not required to be reflected in
the Company's financial statements pursuant to GAAP or required to be
disclosed in filings made with the Commission, (iii) the Company has
not altered its method of accounting, (iv) the Company has not declared
or made any dividend or distribution of cash or other property to its
stockholders or purchased, redeemed or made any agreements to purchase
or redeem any shares of its capital stock and (v) the Company has not
issued any equity securities to any officer, director or Affiliate,
except pursuant to existing Company stock option plans. The Company
does not have pending before the Commission any request for
confidential treatment of information.
(j) LITIGATION. Except as disclosed in the SEC Reports, there
is no action, suit, inquiry, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company, threatened
against or affecting the Company, any Subsidiary or any of their
respective properties before or by any court, arbitrator, governmental
or administrative agency or regulatory authority (federal, state,
county, local or foreign) (collectively, an "Action") which (i)
adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the Securities or
(ii) could, if there were an unfavorable decision, have or reasonably
be expected to result in a Material Adverse Effect. Neither the Company
nor any Subsidiary, nor any director or officer thereof, is or has been
8
the subject of any Action involving a claim of violation of or
liability under federal or state securities laws or a claim of breach
of fiduciary duty. There has not been, and to the knowledge of the
Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or
officer of the Company. The Commission has not issued any stop order or
other order suspending the effectiveness of any registration statement
filed by the Company or any Subsidiary under the Exchange Act or the
Securities Act.
(k) LABOR RELATIONS. No material labor dispute exists or, to
the knowledge of the Company, is imminent with respect to any of the
employees of the Company which could reasonably be expected to result
in a Material Adverse Effect.
(l) COMPLIANCE. Except as disclosed in the SEC Reports,
neither the Company nor any Subsidiary (i) is in default under or in
violation of (and no event has occurred that has not been waived that,
with notice or lapse of time or both, would result in a default by the
Company or any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of
its properties is bound (whether or not such default or violation has
been waived), (ii) is in violation of any order of any court,
arbitrator or governmental body, or (iii) is or has been in violation
of any statute, rule or regulation of any governmental authority,
including without limitation all foreign, federal, state and local laws
applicable to its business except in each case as could not have a
Material Adverse Effect.
(m) REGULATORY PERMITS. The Company and the Subsidiaries
possess all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities
necessary to conduct their respective businesses as described in the
SEC Reports, except where the failure to possess such permits would not
have or reasonably be expected to result in a Material Adverse Effect
("MATERIAL PERMITS"), and neither the Company nor any Subsidiary has
received any notice of proceedings relating to the revocation or
modification of any Material Permit.
(n) TITLE TO ASSETS. The Company and the Subsidiaries have
good and marketable title in fee simple to all real property owned by
them that is material to the business of the Company and the
Subsidiaries and good and marketable title in all personal property
owned by them that is material to the business of the Company and the
Subsidiaries, in each case free and clear of all Liens, except for
Liens as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such
property by the Company and the Subsidiaries and Liens for the payment
of federal, state or other taxes, the payment of which is neither
delinquent nor subject to penalties. Any real property and facilities
held under lease by the Company and the Subsidiaries are held by them
under valid, subsisting and enforceable leases of which the Company and
the Subsidiaries are in compliance.
9
(o) PATENTS AND TRADEMARKS. To the knowledge of the Company
and each Subsidiary, and except as set forth in the SEC Reports, the
Company and the Subsidiaries have, or have rights to use, all patents,
patent applications, trademarks, trademark applications, service marks,
trade names, copyrights, licenses and other similar rights that are
necessary or material for use in connection with their respective
businesses as described in the SEC Reports and which the failure to so
have could have or reasonably be expected to result in a Material
Adverse Effect (collectively, the "INTELLECTUAL PROPERTY RIGHTS").
Neither the Company nor any Subsidiary has received a written notice
that the Intellectual Property Rights used by the Company or any
Subsidiary violates or infringes upon the rights of any Person. To the
knowledge of the Company, all such Intellectual Property Rights are
enforceable.
(p) INSURANCE. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the
businesses in which the Company and the Subsidiaries are engaged.
Neither the Company nor any Subsidiary has any reason to believe that
it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business without a
significant increase in cost.
(q) TRANSACTIONS WITH AFFILIATES AND EMPLOYEES. Except as set
forth in the SEC Reports, none of the officers or directors of the
Company and, to the knowledge of the Company, none of the employees of
the Company is presently a party to any transaction with the Company or
any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental
of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or
any such employee has a substantial interest or is an officer,
director, trustee or partner, in each case in excess of $60,000 other
than (i) for payment of salary or consulting fees for services
rendered, (ii) reimbursement for expenses incurred on behalf of the
Company and (iii) for other employee benefits, including stock option
agreements under any stock option plan of the Company.
(r) XXXXXXXX-XXXXX; INTERNAL ACCOUNTING CONTROLS. The Company
is in material compliance with all provisions of the Xxxxxxxx-Xxxxx Act
of 2002 which are applicable to it as of the Closing Date. The Company
and each of its subsidiaries maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with GAAP and
to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management's general or specific authorization,
and (iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences. The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Company and designed such disclosure controls and
procedures to ensure that material information relating to the Company,
10
including its subsidiaries, is made known to the certifying officers by
others within those entities, particularly during the period in which
the Company's Form 10-K or 10-QSB, as the case may be, is being
prepared. The Company's certifying officers have evaluated the
effectiveness of the Company's controls and procedures as of end of the
filing period prior to the filing date of the Form 10-QSB for the
quarter ended June 30, 2003 (such date, the "EVALUATION DATE"). The
Company presented in its most recently filed Form 10-KSB or Form 10-QSB
the conclusions of the certifying officers about the effectiveness of
the disclosure controls and procedures based on their evaluations as of
the Evaluation Date. Since the Evaluation Date, there have been no
significant changes in the Company's internal controls (as such term is
defined in Item 307(b) of Regulation S-K under the Exchange Act) or, to
the Company's knowledge, in other factors that could significantly
affect the Company's internal controls.
(s) CERTAIN FEES. No brokerage or finder's fees or commissions
are or will be payable by the Company to any broker, financial advisor
or consultant, finder, placement agent, investment banker, bank or
other Person with respect to the transactions contemplated by this
Agreement. The Purchasers shall have no obligation with respect to any
fees or with respect to any claims made by or on behalf of other
Persons for fees of a type contemplated in this Section that may be due
in connection with the transactions contemplated by this Agreement.
(t) PRIVATE PLACEMENT. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, no
registration under the Securities Act is required for the offer and
sale of the Securities by the Company to the Purchasers as contemplated
hereby. The issuance and sale of the Securities hereunder does not
contravene the rules and regulations of the Trading Market.
(u) INVESTMENT COMPANY. The Company is not, and is not an
Affiliate of, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(v) REGISTRATION RIGHTS. Except as set forth on the disclosure
schedule to the Registration Rights Agreement, no Person has any right
to cause the Company to effect the registration under the Securities
Act of any securities of the Company.
(w) LISTING AND MAINTENANCE REQUIREMENTS. The Company has not,
in the 12 months preceding the date hereof, received notice from any
Trading Market on which the Common Stock is or has been listed or
quoted to the effect that the Company is not in compliance with the
listing or maintenance requirements of such Trading Market. The Company
is, and has no reason to believe that it will not in the foreseeable
future continue to be, in compliance with all such listing and
maintenance requirements.
(x) APPLICATION OF TAKEOVER PROTECTIONS. The Company and its
Board of Directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Company's
Certificate of Incorporation (or similar charter documents) or the laws
of its state of incorporation that is or could become applicable to the
Purchasers as a result of the Purchasers and the Company fulfilling
their obligations or exercising their rights under the Transaction
Documents, including without limitation the Company's issuance of the
Securities and the Purchasers' ownership of the Securities.
11
(y) DISCLOSURE. The Company confirms that, neither the Company
nor any other Person acting on its behalf has provided any of the
Purchasers or their agents or counsel with any information that
constitutes or might constitute material, non-public information. The
Company understands and confirms that the Purchasers will rely on the
foregoing representations and covenants in effecting transactions in
securities of the Company. All disclosure provided to the Purchasers
regarding the Company, its business and the transactions contemplated
hereby, including the Disclosure Schedules to this Agreement, furnished
by or on behalf of the Company are true and correct and do not contain
any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading.
(z) 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 security or
solicited any offers to buy any security, under circumstances that
would cause this offering of the Securities to be integrated with prior
offerings by the Company for purposes of the Securities Act or any
applicable shareholder approval provisions, including, without
limitation, under the rules and regulations of any exchange or
automated quotation system on which any of the securities of the
Company are listed or designated.
(aa) SOLVENCY. Based on the financial condition of the Company
as of the Closing Date, (i) the Company's fair saleable value of its
assets exceeds the amount that will be required to be paid on or in
respect of the Company's existing debts and other liabilities
(including known contingent liabilities) as they mature; (ii) the
Company's assets do not constitute unreasonably small capital to carry
on its business for the current fiscal year as now conducted and as
proposed to be conducted including its capital needs taking into
account the particular capital requirements of the business conducted
by the Company, and projected capital requirements and capital
availability thereof; and (iii) the current cash flow of the Company,
together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated
uses of the cash, would be sufficient to pay all amounts on or in
respect of its debt when such amounts are required to be paid. The
Company does not intend to incur debts beyond its ability to pay such
debts as they mature (taking into account the timing and amounts of
cash to be payable on or in respect of its debt).
(bb) FORM S-3 ELIGIBILITY. The Company is eligible to register
the resale of its Common Stock by the Purchasers under Form S-3
promulgated under the Securities Act.
3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:
12
(a) ORGANIZATION; AUTHORITY. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or
partnership power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and otherwise to
carry out its obligations thereunder. The execution, delivery and
performance by such Purchaser of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate action
on the part of such Purchaser. Each Transaction Document to which it is
party has been duly executed by such Purchaser, and when delivered by
such Purchaser in accordance with the terms hereof, will constitute the
valid and legally binding obligation of such Purchaser, enforceable
against it in accordance with its terms except (i) as limited by
general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited
by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by
applicable law.
(b) INVESTMENT INTENT. Such Purchaser understands that the
Securities are "restricted securities" and have not been registered
under the Securities Act or any applicable state securities law and is
acquiring the Securities as principal for its own account for
investment purposes only and not with a view to or for distributing or
reselling such Securities or any part thereof, has no present intention
of distributing any of such Securities and has no arrangement or
understanding with any other persons regarding the distribution of such
Securities (this representation and warranty not limiting such
Purchaser's right to sell the Securities pursuant to the Registration
Statement or otherwise in compliance with applicable federal and state
securities laws). Such Purchaser is acquiring the Securities hereunder
in the ordinary course of its business. Such Purchaser does not have
any agreement or understanding, directly or indirectly, with any Person
to distribute any of the Securities.
(c) PURCHASER STATUS. At the time such Purchaser was offered
the Securities, it was, and at the date hereof it is an "accredited
investor" as defined in Rule 501(a) under the Securities Act. Such
Purchaser is not required to be registered as a broker-dealer under
Section 15 of the Exchange Act.
(d) EXPERIENCE OF SUCH PURCHASER. Such Purchaser, either alone
or together with its representatives, has such knowledge,
sophistication and experience in business and financial matters so as
to be capable of evaluating the merits and risks of the prospective
investment in the Securities, and has so evaluated the merits and risks
of such investment. Such Purchaser is able to bear the economic risk of
an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.
(e) GENERAL SOLICITATION. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.
13
(f) REGISTRATION REQUIRED. Such Purchaser hereby covenants
with the Company not to make any sale of the Shares and Warrant Shares
without complying with the provisions hereof and of the Registration
Rights Agreement, and without effectively causing the prospectus
delivery requirement under the Securities Act to be satisfied (unless
such Purchaser is selling such Shares and Warrant Shares in a
transaction not subject to the prospectus delivery requirement), and
such Purchaser acknowledges that the certificates evidencing the Shares
and Warrant Shares will be imprinted with a legend that prohibits their
transfer except in accordance therewith.
(g) NO TAX OR LEGAL ADVICE. Such Purchaser understands that
nothing in this Agreement, any other Transaction Document or any other
materials presented to such Purchaser in connection with the purchase
and sale of the Securities constitutes legal, tax or investment advice.
Such Purchaser has consulted such legal, tax and investment advisors as
it, in its sole discretion, has deemed necessary or appropriate in
connection with its purchase of Securities.
(h) DISCLOSURE OF INFORMATION. Such Purchaser believes it has
received all the information it considers necessary or appropriate for
deciding whether to purchase the Shares and Warrants. Such Purchaser
further represents that it has had an opportunity to ask questions and
receive answers from the Company regarding the terms and conditions of
the offering of the Shares and Warrants and the business, properties,
prospects and financial condition of the Company. Such Purchaser has
reviewed the Company's Annual Report on Form 10K-SB for the fiscal year
ended December 31, 2002 (the "10K-SB"), including, without limitation,
all of the Risk Factors set forth therein (the "Risk Factors"). Each
such Purchaser understands and accepts all of the Risk Factors in
connection with such Purchaser's investment in the Securities. In
addition, each Purchaser has reviewed and is aware of the information
set forth in all SEC Reports filed with the SEC since the filing of the
10K-SB. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 3 of this
Agreement or the right of the Purchasers to rely thereon.
The Company acknowledges and agrees that each Purchaser does not make
or has not made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in this
Section 3.2.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 TRANSFER RESTRICTIONS.
(a) The Securities may only be disposed of in compliance with
state and federal securities laws. In connection with any transfer of
Securities other than pursuant to an effective registration statement,
to the Company, to an Affiliate of a Purchaser or in connection with a
pledge as contemplated in Section 4.1(b), the Company may require the
transferor thereof to provide to the Company an opinion of counsel
selected by the transferor, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that
14
such transfer does not require registration of such transferred
Securities under the Securities Act. As a condition of transfer, any
such transferee shall agree in writing to be bound by the terms of this
Agreement and shall have the rights of a Purchaser under this Agreement
and the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is
required by this Section 4.1(b), of a legend on any of the Securities
in the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE
REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A
REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL
INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN
RULE 501(a) UNDER THE SECURITIES ACT.
The Company acknowledges and agrees that a Purchaser may from
time to time pledge pursuant to a bona fide margin agreement with a
registered broker-dealer or grant a security interest in some or all of
the Securities to a financial institution that is an "accredited
investor" as defined in Rule 501(a) under the Securities Act and, if
required under the terms of such arrangement, such Purchaser may
transfer pledged or secured Securities to the pledgees or secured
parties. Such a pledge or transfer would not be subject to approval of
the Company and no legal opinion of legal counsel of the pledgee,
secured party or pledgor shall be required in connection therewith.
Further, no notice shall be required of such pledge. At the appropriate
Purchaser's expense, the Company will execute and deliver such
reasonable documentation as a pledgee or secured party of Securities
may reasonably request in connection with a pledge or transfer of the
Securities, including, if the Securities are subject to registration
pursuant to the Registration Rights Agreement, the preparation and
filing of any required prospectus supplement under Rule 424(b)(3) under
the Securities Act or other applicable provision of the Securities Act
to appropriately amend the list of Selling Stockholders thereunder.
(c) Certificates evidencing the Shares and Warrant Shares
shall not contain any legend (including the legend set forth in Section
4.1(b)), (i) while a registration statement (including the Registration
Statement) covering the resale of such security is effective under the
Securities Act, or (ii) following any sale of such Shares or Warrant
Shares pursuant to Rule 144, or (iii) if such Shares or Warrant Shares
are eligible for sale under Rule 144(k), or (iv) if such legend is not
15
required under applicable requirements of the Securities Act (including
judicial interpretations and pronouncements issued by the Staff of the
Commission). The Company shall cause its counsel to issue a legal
opinion to the Company's transfer agent promptly after the Effective
Date if required by the Company's transfer agent to effect the removal
of the legend hereunder. If all or any portion of a Warrant is
exercised at a time when there is an effective registration statement
to cover the resale of the Warrant Shares, such Warrant Shares shall be
issued free of all legends. The Company agrees that following the
Effective Date or at such time as such legend is no longer required
under this Section 4.1(c), it will, no later than five Trading Days
following the delivery by a Purchaser to the Company's transfer agent
of a certificate representing Shares or Warrant Shares, as the case may
be, issued with a restrictive legend (such date, the "LEGEND REMOVAL
DATE"), deliver or cause to be delivered to such Purchaser a
certificate representing such Securities that is free from all
restrictive and other legends. The Company may not make any notation on
its records or give instructions to any transfer agent of the Company
that enlarge the restrictions on transfer set forth in this Section.
(d) In addition to such Purchaser's other available remedies,
the Company shall pay to a Purchaser, in cash, as liquidated damages
and not as a penalty, for each $1,000 of Shares or Warrant Shares
(based on the VWAP of the Common Stock on the date such Securities are
submitted to the Company's transfer agent) subject to Section 4.1(c),
$10 per Trading Day (increasing to $20 per Trading Day five (5) Trading
Days after such damages have begun to accrue) for each Trading Day
after such third Trading Day after the Legend Removal Date until such
certificate is delivered; PROVIDED, HOWEVER, that such liquidated
damages shall be tolled for 3 Trading Days in the event the
certificates, when sent from the transfer agent to such Purchaser, are
lost in the mail or sent to the wrong address through no fault of the
Company. Nothing herein shall limit such Purchaser's right to pursue
actual damages for the Company's failure to deliver certificates
representing any Securities as required by the Transaction Documents,
and such Purchaser shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief.
(e) Each Purchaser, severally and not jointly with the other
Purchasers, agrees that the removal of the restrictive legend from
certificates representing Securities as set forth in this Section 4.1
is predicated upon the Company's reliance that the Purchaser will sell
any Securities pursuant to either the registration requirements of the
Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom.
4.2 FURNISHING OF INFORMATION. As long as any Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. As long as any Purchaser owns Securities, if the Company is not
required to file reports pursuant to such laws, it will prepare and furnish to
the Purchasers and make publicly available in accordance with Rule 144(c) such
16
information as is required for the Purchasers to sell the Securities under Rule
144. The Company further covenants that it will take such further action as any
holder of Securities may reasonably request, all to the extent required from
time to time to enable such Person to sell such Securities without registration
under the Securities Act within the limitation of the exemptions provided by
Rule 144.
4.3 INTEGRATION. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market such that it would require shareholder
approval prior to the closing of such other transaction unless shareholder
approval is obtained before the closing of such subsequent transaction.
4.4 SECURITIES LAWS DISCLOSURE; PUBLICITY. The Company shall, by 8:30
a.m. Eastern time on the Trading Day following the Closing Date, issue a press
release or file a Current Report on Form 8-K, in each case reasonably acceptable
to each Purchaser disclosing the transactions contemplated hereby. The Company
and each Purchaser shall consult with each other in issuing any press releases
with respect to the transactions contemplated hereby, and neither the Company
nor any Purchaser shall issue any such press release or otherwise make any such
public statement without the prior consent of the Company, with respect to any
press release of any Purchaser, or without the prior consent of each Purchaser,
with respect to any press release of the Company, which consent shall not
unreasonably be withheld, except if such disclosure is required by law, in which
case the disclosing party shall promptly provide the other party with prior
notice of such public statement or communication. Notwithstanding the foregoing,
the Company shall not publicly disclose the name of any Purchaser, or include
the name of any Purchaser in any filing with the Commission or any regulatory
agency or Trading Market, without the prior written consent of such Purchaser,
except (i) as required by federal securities law in connection with the
registration statement contemplated by the Registration Rights Agreement and
(ii) to the extent such disclosure is required by law or Trading Market
regulations, in which case the Company shall provide the Purchasers with prior
notice of such disclosure permitted under subclause (i) or (ii). Any consent
required herein is deemed to have been given if notice of disclosure or
publicity is given to a party and such party does not deliver an objection
within 5 days.
4.5 SHAREHOLDERS RIGHTS PLAN. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other Person that any Purchaser
is an "Acquiring Person" under any shareholders rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that any Purchaser
could be deemed to trigger the provisions of any such plan or arrangement, by
virtue of receiving Securities under the Transaction Documents or under any
other agreement between the Company and the Purchasers.
4.6 NON-PUBLIC INFORMATION. The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide any Purchaser
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such Purchaser
shall have executed a written agreement regarding the confidentiality and use of
such information. The Company understands and confirms that each Purchaser shall
be relying on the foregoing representations in effecting transactions in
securities of the Company.
17
4.7 USE OF PROCEEDS. Except as set forth on Schedule 4.7 attached
hereto, the Company shall use the net proceeds from the sale of the Securities
hereunder for working capital purposes and not for the satisfaction of any
portion of the Company's debt (other than payment of trade payables in the
ordinary course of the Company's business and prior practices), to redeem any
Company equity or equity-equivalent securities or to settle any outstanding
litigation.
4.8 INDEMNIFICATION. Each party to this Agreement ("INDEMNIFYING
PARTY") will indemnify and hold the other parties and their directors, officers,
shareholders, partners, employees and agents (each, an "INDEMNIFIED PARTY")
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys' fees and costs of
investigation that any such Indemnified Party may suffer or incur as a result of
or relating to any misrepresentation, breach or inaccuracy, of any of the
representations, warranties, covenants or agreements made by the Indemnifying
Party in this Agreement or in the other Transaction Documents. If any action
shall be brought against any Indemnified Party in respect of which indemnity may
be sought pursuant to this Agreement, such Indemnified Party shall promptly
notify the Indemnifying Party in writing, and the Indemnifying Party shall have
the right to assume the defense thereof with counsel of its own choosing. Any
Indemnified Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Party except to the extent
that the employment thereof has been specifically authorized by the Indemnifying
Party in writing, the Indemnifying Party has failed after a reasonable period of
time to assume such defense and to employ counsel or in such action there is, in
the reasonable opinion of such separate counsel, a material conflict on any
material issue between the position of the Indemnifying Party and the position
of such Indemnified Party. The Indemnifying Party will not be liable to any
Indemnified Party under this Section 4.8 for any settlement by an Indemnified
Party effected without the Indemnifying Party's prior written consent, which
shall not be unreasonably withheld or delayed; or to the extent, but only to the
extent that a loss, claim, damage or liability is attributable to any
Indemnified Party's breach of any of the representations, warranties, covenants
or agreements made by the Purchasers in this Agreement or in the other
Transaction Documents. In no event shall the liability of any Purchaser be
greater in amount than the dollar amount of the net proceeds received by such
Purchaser upon the sale of the Shares and Warrant Shares and in no event shall
the liability of the Company be greater in amount than the dollar amount of the
net proceeds received by the Company from the Sale of the Shares and Warrant
Shares to the Purchasers.
4.9 RESERVATION OF COMMON STOCK. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, a sufficient number of shares of Common Stock
for the purpose of enabling the Company to issue Shares pursuant to this
Agreement and Warrant Shares pursuant to any exercise of the Warrants.
4.10 LISTING OF COMMON STOCK. The Company agrees, if the Company
applies to have the Common Stock traded on any Trading Market, it will include
in such application all of the Shares and Warrant Shares, and will take such
other action as is necessary to cause the Shares and Warrant Shares to be listed
on such Trading Market as promptly as possible. The Company will take all action
18
reasonably necessary to continue the listing and trading of its Common Stock on
a Trading Market and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Trading Market.
4.11 RIGHT OF FIRST OFFER ON FUTURE FINANCING. From the date hereof
until 12 months after the date of this agreement, the Company shall offer to the
Purchasers, prior to any other party, the opportunity to participate in a
financing involving the sale of its Common Stock or Common Stock Equivalents (a
"SUBSEQUENT FINANCING") by delivering to each of the Purchasers a written notice
of such Subsequent Financing (the "SUBSEQUENT FINANCING NOTICE"), which
Subsequent Financing Notice shall describe in reasonable detail the proposed
terms of such Subsequent Financing, the amount of proceeds intended to be raised
thereunder, and attached to which shall be a term sheet or similar document
relating thereto. Each such Purchaser shall then have until 6:30 p.m. (New York
City time) on the fifth (5th) Trading Day after its receipt of the Subsequent
Financing Notice of its willingness to participate (or to cause its designee to
participate), subject to completion of mutually acceptable documentation, all or
part of such financing to the Company on the same terms set forth in the
Subsequent Financing Notice. If one or more Purchasers shall fail to so notify
the Company of their willingness to participate in the Subsequent Financing, the
Company may effect the remaining portion of such Subsequent Financing on the
terms set forth in the Subsequent Financing Notice; provided that the Company
must provide the Purchasers with a second Subsequent Financing Notice, and the
Purchasers will again have the right of first offer set forth above in this
Section 4.11, if the Subsequent Financing subject to the initial Subsequent
Financing Notice is not consummated for any reason on the terms set forth in
such Subsequent Financing Notice within 60 Trading Days after the date of the
initial Subsequent Financing Notice. In the event the Company receives responses
to Subsequent Financing Notices from Purchasers seeking to purchase more than
the financing sought by the Company in the Subsequent Financing such Purchasers
shall have the right to purchase their Pro Rata Portion (as defined below) of
the Common Stock or Common Stock Equivalents to be issued in such Subsequent
Financing. "PRO RATA PORTION" is the ratio of (x) such Purchaser's Subscription
Amount and (y) the aggregate sum of all of the Subscription Amounts.
Notwithstanding anything to the contrary herein, this Section 4.11 shall not
apply to the following (a) the granting of options to employees, officers,
directors or key consultants of the Company pursuant to any stock option plan,
or (b) the exercise of any security issued by the Company in connection with the
offer and sale of this Company's securities pursuant to this Agreement, or (c)
the exercise of or conversion of any convertible securities, options or warrants
issued and outstanding on the date hereof, provided such securities have not
been amended since the date hereof, or (d) acquisitions, strategic investments
or call and/or put options issued in connection with the sale of securities of a
Subsidiary, the primary purpose of which is not to raise capital for the
Company, or (e) any public secondary offerings, except for any offering pursuant
to Rule 415 under the Securities Act, or (f) any issuance of the Company's
securities to any lender of the Company or its Subsidiaries in connection with a
settlement of, or waiver of a default under, debt (provided such debt is not,
and never has been, a Common Stock Equivalent) or (g) issuance of the Company's
securities to non-affiliates for non-cash transactions or similar issuances.
19
4.12 SUBSEQUENT EQUITY SALES. From the date hereof until after the
Effective Date (the "RESTRICTED PERIOD"), neither the Company nor any Subsidiary
shall issue shares of Common Stock or Common Stock Equivalents. Notwithstanding
anything to the contrary herein, this Section 4.12 shall not apply to the
following: (a) the granting of options to employees, officers, directors or key
consultants of the Company pursuant to any stock option plan, or (b) the
exercise of any security issued by the Company in connection with the offer and
sale of this Company's securities pursuant to this Agreement, or (c) the
exercise of or conversion of any convertible securities, options or warrants
issued and outstanding on the date hereof, provided such securities have not
been amended since the date hereof, or (d) acquisitions, strategic investments
or call and/or put options issued in connection with the sale of securities of a
Subsidiary, the primary purpose of which is not to raise capital of the Company,
or (f) any issuance of the Company's securities to any lender of the Company or
its Subsidiaries in connection with a settlement of, or waiver of a default
under, debt (provided such debt is not, and never has been, a Common Stock
Equivalent) or (g) issuance of the Company's securities to non-affiliates for
non-cash transactions or similar issuances.
ARTICLE V.
MISCELLANEOUS
5.1 FEES AND EXPENSES. Except as otherwise set forth in this Agreement,
each party shall pay the fees and expenses of its advisers, counsel, accountants
and other experts, if any, and all other expenses incurred by such party
incident to the negotiation, preparation, execution, delivery and performance of
this Agreement. The Company shall pay all stamp and other taxes and duties
levied in connection with the sale of the Securities.
5.2 ENTIRE AGREEMENT. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.3 NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile or e-mail at the
facsimile number or e-mail address set forth on the signature pages attached
hereto prior to 6:30 p.m. (New York City time) on a Trading Day, (b) the next
Trading Day after the date of transmission, if such notice or communication is
delivered via facsimile or e-mail at the facsimile number or e-mail address set
forth on the signature pages attached hereto on a day that is not a Trading Day
or later than 6:30 p.m. (New York City time) on any Trading Day, (c) the second
Trading Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service, or (d) upon actual receipt by the party to whom such
notice is required to be given. The address for such notices and communications
shall be as set forth on the signature pages attached hereto.
5.4 AMENDMENTS; WAIVERS. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and each Purchaser or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.
20
5.5 CONSTRUCTION. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
5.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser. Any Purchaser may assign
any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the "Purchasers".
5.7 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.8.
5.8 GOVERNING LAW. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
New York for the adjudication of any dispute hereunder or in connection herewith
or with any transaction contemplated hereby or discussed herein (including with
respect to the enforcement of any of the Transaction Documents), and hereby
irrevocably waives, and agrees not to assert in any suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of any such
court, that such suit, action or proceeding is improper. Each party hereto
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by delivering a copy thereof
via overnight delivery (with evidence of delivery) to such party at the address
in effect for notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. Each party hereto (including its
affiliates, agents, officers, directors and employees) hereby irrevocably
waives, to the fullest extent permitted by applicable law, any and all right to
trial by jury in any legal proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby. If either party shall
commence an action or proceeding to enforce any provisions of a Transaction
Document, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its attorneys fees and other costs and
expenses incurred with the investigation, preparation and prosecution of such
action or proceeding.
21
5.9 SURVIVAL. The representations, warranties, agreements and covenants
contained herein shall survive the Closing and delivery of the Shares and
Warrant Shares.
5.10 EXECUTION. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
5.11 SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.12 REPLACEMENT OF SECURITIES. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
5.13 REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
5.14 PAYMENT SET ASIDE. To the extent that the Company makes a payment
or payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
22
5.15 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation, the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. Each Purchaser was introduced to the Company by HPC Capital Management,
which has acted solely as agent for the Company and not for any Purchaser. Each
Purchaser has been represented by its own separate legal counsel in their review
and negotiation of the Transaction Documents. For reasons of administrative
convenience only, Purchasers and their respective counsel have chosen to
communicate with the Company through FW. FW does not represent all of the
Purchasers but only HPC Capital Management. The Company has elected to provide
all Purchasers with the same terms and Transaction Documents for the convenience
of the Company and not because it was required or requested to do so by the
Purchasers.
(SIGNATURE PAGE FOLLOWS)
23
IN WITNESS WHEREOF, the parties hereto have caused this
Securities Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
COMPOSITE TECHNOLOGY CORPORATION ADDRESS FOR NOTICE:
-------------------
By:__________________________________________
Name:
Title:
With a copy to (which shall not constitute notice):
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR PURCHASERS FOLLOW]
24
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement - CPTC to be duly executed by their respective authorized
signatories as of the date first indicated above.
ADDRESS FOR NOTICE:
-------------------
By:
By: ____________________________________
Name:
Title:
Subscription Amount: $
Shares:
Warrant Shares:
WITH A COPY TO:
--------------
[SIGNATURE PAGE CONTINUED]
25
EXHIBIT A
---------
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "AGREEMENT") is made and
entered into as of December 16, 2003, by and among Composite Technology
Corporation, a Nevada corporation (the "COMPANY"), and the purchasers signatory
hereto (each such purchaser, a "PURCHASER" and collectively, the "Purchasers").
This Agreement is made pursuant to the Securities Purchase Agreement,
dated as of the date hereof among the Company and the Purchasers (the "PURCHASE
AGREEMENT").
The Company and the Purchasers hereby agree as follows:
1. DEFINITIONS. Capitalized terms used and not otherwise defined herein
that are defined in the Purchase Agreement shall have the meanings given such
terms in the Purchase Agreement. As used in this Agreement, the following terms
shall have the following meanings:
"EFFECTIVENESS DATE" means, with respect to the initial
Registration Statement required to be filed hereunder, the earlier of
(a) the 120th calendar day following the date of the Purchase
Agreement, and (b) the fifth Trading Day following the date on which
the Company is notified by the Commission that the Registration
Statement will not be reviewed or is no longer subject to further
review and comments.
"EFFECTIVENESS PERIOD" shall have the meaning set forth in
Section 2(a).
"FILING DATE" means, with respect to the Registration
Statement required to be filed hereunder, the 60th calendar day
following the date of the Purchase Agreement.
"HOLDER" or "HOLDERS" means the holder or holders, as the case
may be, from time to time of Registrable Securities.
"INDEMNIFIED PARTY" shall have the meaning set forth in
Section 5(c).
"INDEMNIFYING PARTY" shall have the meaning set forth in
Section 5(c).
"LOSSES" shall have the meaning set forth in Section 5(a).
"PROCEEDING" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"PROSPECTUS" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes
any information previously omitted from a prospectus filed as part of
an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by
26
any prospectus supplement, with respect to the terms of the offering of
any portion of the Registrable Securities covered by the Registration
Statement, and all other amendments and supplements to the Prospectus,
including post-effective amendments, and all material incorporated by
reference or deemed to be incorporated by reference in such Prospectus.
"REGISTRABLE SECURITIES" means all of the Shares and the
Warrant Shares, together with any shares of Common Stock issued or
issuable upon any stock split, dividend or other distribution,
recapitalization or similar event with respect to the foregoing.
"REGISTRATION STATEMENT" means the registration statements
required to be filed hereunder, including (in each case) the
Prospectus, amendments and supplements to the registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits
thereto, and all material incorporated by reference or deemed to be
incorporated by reference in the registration statement.
"RULE 415" means Rule 415 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time
to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same effect as such Rule.
"RULE 424" means Rule 424 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time
to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same effect as such Rule.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"WARRANT SHARES" shall have the meaning set forth in the
Purchase Agreement.
2. REGISTRATION.
(a) On or prior to the Filing Date, the Company shall prepare
and file with the Commission the Registration Statement covering the
resale of all of the Registrable Securities for an offering to be made
on a continuous basis pursuant to Rule 415. The Registration Statement
required hereunder shall be on Form S-3 (except if the Company is not
then eligible to register for resale the Registrable Securities on Form
S-3, in which case the Registration shall be on another appropriate
form in accordance herewith). The Registration Statement required
hereunder shall contain (except if otherwise directed by the Holders)
substantially the "Plan of Distribution" attached hereto as Annex A.
Subject to the terms of this Agreement, the Company shall use its
commercially reasonable efforts to cause the Registration Statement to
be declared effective under the Securities Act as promptly as possible
after the filing thereof, but in any event not later than the
Effectiveness Date, and shall use its commercially reasonable efforts
to keep the Registration Statement continuously effective under the
Securities Act until the date when all Registrable Securities covered
by the Registration Statement have been sold or may be sold without
volume restrictions pursuant to Rule 144(k) as determined by the
counsel to the Company pursuant to a written opinion letter to such
effect, addressed and acceptable to the Company's transfer agent and
the affected Holders (the "Effectiveness Period").
27
(b) If: (i) a Registration Statement is not filed on or prior
to the Filing Date (if the Company files a Registration Statement
without affording the Holder the opportunity to review and comment on
the same as required by Section 3(a), the Company shall not be deemed
to have satisfied this clause (i)), or (ii) the Company fails to file
with the Commission a request for acceleration in accordance with Rule
461 promulgated under the Securities Act, within five Trading Days of
the date that the Company is notified (orally or in writing, whichever
is earlier) by the Commission that a Registration Statement will not be
"reviewed," or not subject to further review, or (iii) prior to the
date when such Registration Statement is first declared effective by
the Commission, the Company fails to file a pre-effective amendment and
otherwise respond in writing to comments made by the Commission in
respect of such Registration Statement within 10 Trading Days after the
receipt of comments by or notice from the Commission that such
amendment is required in order for a Registration Statement to be
declared effective, or (iv) a Registration Statement filed or required
to be filed hereunder is not declared effective by the Commission on or
before the Effectiveness Date, or (v) after a Registration Statement is
first declared effective by the Commission, it ceases for any reason to
remain continuously effective as to all Registrable Securities for
which it is required to be effective, or the Holders are not permitted
to utilize the Prospectus therein to resell such Registrable
Securities, for in any such cases 10 consecutive Trading Days or in any
individual case an aggregate of 20 Trading Days during any 12 month
period (which need not be consecutive Trading Days)(any such failure or
breach being referred to as an "Event," and for purposes of clause (i)
or (iv) the date on which such Event occurs, or for purposes of clause
(ii) the date on which such five Trading Day period is exceeded, or for
purposes of clause (iii) the date which such 10 Trading Day period is
exceeded, or for purposes of clause (v) the date on which such 10 or 20
Trading Day period, as applicable, is exceeded being referred to as
"Event Date"), then in addition to any other rights the Holders may
have hereunder or under applicable law: (x) on each such Event Date the
Company shall pay to each Holder an amount in cash, as liquidated
damages and not as a penalty, equal to 1.5% of the aggregate purchase
price paid by such Holder pursuant to the Purchase Agreement for any
Registrable Securities then held by such Holder; and (y) on each
monthly anniversary of each such Event Date (if the applicable Event
shall not have been cured by such date) until the applicable Event is
cured, the Company shall pay to each Holder an amount in cash, as
liquidated damages and not as a penalty, equal to 1.5% of the aggregate
purchase price paid by such Holder pursuant to the Purchase Agreement
for any Registrable Securities then held by such Holder. If the Company
fails to pay any liquidated damages pursuant to this Section in full
within seven days after the date payable, the Company will pay interest
thereon at a rate of 15% per annum (or such lesser maximum amount that
is permitted to be paid by applicable law) to the Holder, accruing
daily from the date such liquidated damages are due until such amounts,
plus all such interest thereon, are paid in full. The liquidated
damages pursuant to the terms hereof shall apply on a daily pro-rata
basis for any portion of a month prior to the cure of an Event.
3. REGISTRATION PROCEDURES
In connection with the Company's registration obligations
hereunder, the Company shall:
28
(a) Not less than five Trading Days prior to the filing of the
Registration Statement or any related Prospectus or any amendment or
supplement thereto, the Company shall, (i) furnish to the Holders
copies of all such documents proposed to be filed (including documents
incorporated or deemed incorporated by reference to the extent
requested by such Person) which documents will be subject to the review
of such Holders, and (ii) cause its officers and directors, counsel and
independent certified public accountants to respond to such inquiries
as shall be necessary, in the reasonable opinion of respective counsel
to conduct a reasonable investigation within the meaning of the
Securities Act. The Company shall not file the Registration Statement
or any such Prospectus or any amendments or supplements thereto to
which the Holders of a majority of the Registrable Securities shall
reasonably object in good faith, provided that the Company is notified
of such objection in writing no later than 5 Trading Days after the
Holders have been so furnished copies of such documents; provided that
if the Holders so object, the liquidated damages in Section 2(b) shall
be tolled for an additional 10 Trading Days. A Holder shall be deemed
to have consented to any such filing if such Holder fails to object
within 5 Trading Days of receiving a copy of such filing.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement and
the Prospectus used in connection therewith as may be necessary to keep
the Registration Statement continuously effective as to the applicable
Registrable Securities for the Effectiveness Period and prepare and
file with the Commission such additional Registration Statement in
order to register for resale under the Securities Act all of the
Registrable Securities; (ii) cause the related Prospectus to be amended
or supplemented by any required Prospectus supplement, and as so
supplemented or amended to be filed pursuant to Rule 424; (iii) respond
as promptly as reasonably possible to any comments received from the
Commission with respect to the Registration Statement or any amendment
thereto and, as promptly as reasonably possible, upon request, provide
the Holders true and complete copies of all correspondence from and to
the Commission relating to the Registration Statement; and (iv) comply
in all material respects with the provisions of the Securities Act and
the Exchange Act with respect to the disposition of all Registrable
Securities covered by the Registration Statement during the applicable
period in accordance with the intended methods of disposition by the
Holders thereof set forth in the Registration Statement as so amended
or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold as
promptly as reasonably possible and (if requested by any such Person)
confirm such notice in writing promptly following the day (i)(A) when a
Prospectus or any Prospectus supplement or post-effective amendment to
the Registration Statement is proposed to be filed; (B) when the
Commission notifies the Company whether there will be a "review" of the
Registration Statement and whenever the Commission comments in writing
on the Registration Statement (the Company shall upon request provide
true and complete copies thereof and all written responses thereto to
each of the Holders); and (C) with respect to the Registration
Statement or any post-effective amendment, when the same has become
effective; (ii) of any request by the Commission or any other Federal
or state governmental authority during the period of effectiveness of
the Registration Statement for amendments or supplements to the
Registration Statement or Prospectus or for additional information;
(iii) of the issuance by the Commission or any other federal or state
governmental authority of any stop order suspending the effectiveness
29
of the Registration Statement covering any or all of the Registrable
Securities or the initiation of any Proceedings for that purpose; (iv)
of the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of any
of the Registrable Securities for sale in any jurisdiction, or the
initiation or threatening of any Proceeding for such purpose; and (v)
of the occurrence of any event or passage of time that makes the
financial statements included in the Registration Statement ineligible
for inclusion therein or any statement made in the Registration
Statement or Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or
that requires any revisions to the Registration Statement, Prospectus
or other documents so that, in the case of the Registration Statement
or the Prospectus, as the case may be, it will not contain any untrue
statement of a material fact or omit to state any 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.
(d) Use commercially reasonable efforts to avoid the issuance
of, or, if issued, obtain the withdrawal of (i) any order suspending
the effectiveness of the Registration Statement, or (ii) any suspension
of the qualification (or exemption from qualification) of any of the
Registrable Securities for sale in any jurisdiction, at the earliest
practicable moment.
(e) Furnish to each Holder, without charge, at least one
conformed copy of the Registration Statement and each amendment
thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference to the
extent requested by such Person, and all exhibits to the extent
requested by such Person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents
with the Commission.
(f) Promptly deliver to each Holder, without charge, as many
copies of the Prospectus or Prospectuses (including each form of
prospectus) and each amendment or supplement thereto as such Persons
may reasonably request in connection with resales by the Holder of
Registrable Securities. Subject to the terms of this Agreement, the
Company hereby consents to the use of such Prospectus and each
amendment or supplement thereto by each of the selling Holders in
connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto,
except after the giving on any notice pursuant to Section 3(c).
(g) Prior to any resale of Registrable Securities by a Holder,
use its commercially reasonable efforts to register or qualify or
cooperate with the selling Holders in connection with the registration
or qualification (or exemption from the Registration or qualification)
of such Registrable Securities for the resale by the Holder under the
securities or Blue Sky laws of such jurisdictions within the United
States as any Holder reasonably requests in writing, to keep each the
Registration or qualification (or exemption therefrom) effective during
the Effectiveness Period and to do any and all other acts or things
reasonably necessary to enable the disposition in such jurisdictions of
the Registrable Securities covered by the Registration Statement;
30
provided, that the Company shall not be required to qualify generally
to do business in any jurisdiction where it is not then so qualified,
subject the Company to any material tax in any such jurisdiction where
it is not then so subject or file a general consent to service of
process in any such jurisdiction.
(h) If requested by the Holders, cooperate with the Holders to
facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be delivered to a transferee
pursuant to the Registration Statement, which certificates shall be
free, to the extent permitted by the Purchase Agreement, of all
restrictive legends, and to enable such Registrable Securities to be in
such denominations and registered in such names as any such Holders may
request.
(i) Upon the occurrence of any event contemplated by Section
3(c)(v), as promptly as reasonably possible, prepare a supplement or
amendment, including a post-effective amendment, to the Registration
Statement or a supplement to the related Prospectus or any document
incorporated or deemed to be incorporated therein by reference, and
file any other required document so that, as thereafter delivered,
neither the Registration Statement nor such Prospectus will contain an
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 under which they were made, not
misleading.
(j) Comply with all applicable rules and regulations of the
Commission.
(k) The Company may require each Holder to furnish to the
Company a certified statement as to the number of shares of Common
Stock beneficially owned by such Holder and, if required by the
Commission, the person thereof that has voting and dispositive control
over the Shares. During any periods that the Company is unable to meet
its obligations hereunder with respect to the registration of the
Registrable Securities solely because any Holder fails to furnish such
information within three Trading Days of the Company's request, any
liquidated damages that are accruing at such time shall be tolled and
any Event that may otherwise occur solely because of such delay shall
be suspended, until such information is delivered to the Company.
4. REGISTRATION EXPENSES. All fees and expenses incident to the
performance of or compliance with this Agreement by the Company shall be borne
by the Company whether or not any Registrable Securities are sold pursuant to
the Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with the Trading Market on which the Common Stock is then
listed for trading, and (B) in compliance with applicable state securities or
Blue Sky laws), (ii) printing expenses (including, without limitation, expenses
of printing certificates for Registrable Securities and of printing prospectuses
if the printing of prospectuses is reasonably requested by the holders of a
majority of the Registrable Securities included in the Registration Statement),
(iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of
31
counsel for the Company, (v) Securities Act liability insurance, if the Company
so desires such insurance, and (vi) fees and expenses of all other Persons
retained by the Company in connection with the consummation of the transactions
contemplated by this Agreement. In addition, the Company shall be responsible
for all of its internal expenses incurred in connection with the consummation of
the transactions contemplated by this Agreement (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder. In no event shall the Company be
responsible for any broker or similar commissions or, except to the extent
provided for in the Transaction Documents, any legal fees or other costs of the
Holders.
5. INDEMNIFICATION
(a) INDEMNIFICATION BY THE COMPANY. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold
harmless each Holder, the officers, directors, agents and employees of
each of them, each Person who controls any such Holder (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, reasonable 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 the 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 (1) such untrue statements or
omissions or alleged untrue statements or omissions are based upon
information regarding such Holder furnished in writing to the Company
by such Holder for use therein, or to the extent that such information
relates to such Holder or such Holder's proposed method of distribution
of Registrable Securities and was reviewed and expressly approved in
writing by such Holder for use in the Registration Statement, such
Prospectus or such form of Prospectus or in any amendment or supplement
thereto (it being understood that the Holder has approved Annex A
hereto for this purpose) or (2) in the case of an occurrence of an
event of the type specified in Section 3(c)(ii)-(v), the use by such
Holder of an outdated or defective Prospectus after the Company has
notified such Holder in writing that the Prospectus is outdated or
defective and prior to the receipt by such Holder of the Advice
contemplated in Section 6(d). The Company shall notify the Holders
promptly of the institution, threat or assertion of any Proceeding of
which the Company is aware in connection with the transactions
contemplated by this Agreement.
(b) INDEMNIFICATION BY HOLDERS. Each Holder shall, severally
and not jointly, indemnify and hold harmless the Company, its
directors, 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 incurred, to the
32
extent arising out of or based upon: (x) such Holder's failure to
comply with the prospectus delivery requirements of the Securities Act
or (y) any untrue or alleged untrue statement of a material fact
contained in any 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 not misleading (i) 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 Holder
to the Company for inclusion in the Registration Statement or such
Prospectus or (ii) to the extent that (1) such untrue statements or
omissions are based upon information regarding such Holder furnished in
writing to the Company by such Holder for use therein, or to the extent
that such information relates to such Holder or such Holder's proposed
method of distribution of Registrable Securities and was reviewed and
approved in writing by such Holder for use in the Registration
Statement (it being understood that the Holder has approved Annex A
hereto for this purpose), such Prospectus or such form of Prospectus or
in any amendment or supplement thereto or (2) in the case of an
occurrence of an event of the type specified in Section 3(c)(ii)-(v),
the use by such Holder of an outdated or defective Prospectus after the
Company has notified such Holder in writing that the Prospectus is
outdated or defective and prior to the receipt by such Holder of the
Advice contemplated in Section 6(d). In no event shall the liability of
any selling Holder hereunder be greater in amount than the dollar
amount of the net proceeds received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity
hereunder (an "Indemnified Party"), such Indemnified Party shall
promptly notify the Person from whom indemnity is sought (the
"Indemnifying Party") in writing, and the Indemnifying Party shall have
the right to 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 prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Party or Parties unless: (1) the
Indemnifying Party has agreed in writing to pay such fees and expenses;
(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 such Indemnified Party shall have been advised by counsel
that a conflict of interest is likely to exist if the same counsel were
33
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 the reasonable fees and expenses of
one separate 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.
Subject to the terms of this Agreement, all reasonable 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 Trading Days of written notice thereof to the Indemnifying
Party; PROVIDED, that the Indemnified Party shall promptly reimburse
the Indemnifying Party for that portion of such fees and expenses
applicable to such actions for which such Indemnified Party is not
entitled to indemnification hereunder, determined based upon the
relative faults of the parties.
(d) CONTRIBUTION. If a claim for indemnification under Section
5(a) or 5(b) is unavailable to an Indemnified Party (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 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 this Agreement, any reasonable attorneys' or
other reasonable 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 5(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 5(d), no Holder shall be required to contribute, in the
aggregate, any amount in excess of the amount by which the proceeds
actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages
that such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission,
except in the case of fraud by such Holder.
34
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.
6. MISCELLANEOUS
(a) REMEDIES. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder
or the Company, as the case may be, in addition to being entitled to
exercise all rights granted by law and under this Agreement, including
recovery of damages, will be entitled to specific performance of its
rights under this Agreement. The Company and each Holder agree that
monetary damages would not provide adequate compensation for any losses
incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action
for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(b) NO PIGGYBACK ON REGISTRATIONS. Except as set forth on
Schedule 6(b) attached hereto, neither the Company nor any of its
security holders (other than the Holders in such capacity pursuant
hereto) may include securities of the Company in the Registration
Statement other than the Registrable Securities. Except as set forth in
the SEC Reports, no Person has any right to cause the Company to effect
the registration under the Securities Act of any securities of the
Company. The Company shall not file any other registration statement
until after the Effective Date.
(c) COMPLIANCE. Each Holder covenants and agrees that it will
comply with the prospectus delivery requirements of the Securities Act
as applicable to it in connection with sales of Registrable Securities
pursuant to the Registration Statement.
(d) DISCONTINUED DISPOSITION. Each Holder agrees by its
acquisition of such Registrable Securities that, upon receipt of a
notice from the Company of the occurrence of any event of the kind
described in Section 3(c), such Holder will forthwith discontinue
disposition of such Registrable Securities under the Registration
Statement until such Holder's receipt of the copies of the supplemented
Prospectus and/or amended Registration Statement or until it is advised
in writing (the "Advice") by the Company that the use of the applicable
Prospectus may be resumed, and, in either case, has received copies of
any additional or supplemental filings that are incorporated or deemed
to be incorporated by reference in such Prospectus or Registration
Statement. The Company may provide appropriate stop orders to enforce
the provisions of this paragraph; provided, however, any such
suspensions shall be subject to liquidated damages pursuant to Section
2(b).
(e) PIGGY-BACK REGISTRATIONS. If at any time during the
Effectiveness Period there is not an effective Registration Statement
covering all of the Registrable Securities and the Company shall
determine to prepare and file with the Commission a registration
statement relating to an offering for its own account or the account of
35
others under the Securities Act of any of its equity securities, other
than on Form S-4 or Form S-8 (each as promulgated under the Securities
Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or
business or equity securities issuable in connection with the stock
option or other employee benefit plans, then the Company shall send to
each Holder a written notice of such determination and, if within
fifteen days after the date of such notice, any such Holder shall so
request in writing, the Company shall include in such registration
statement all or any part of such Registrable Securities such Holder
requests to be registered, subject to customary underwriter cutbacks
applicable to all holders of registration rights; provided, that, the
Company shall not be required to register any Registrable Securities
pursuant to this Section 6(e) that are eligible for resale pursuant to
Rule 144(k) promulgated under the Securities Act or that are the
subject of a then effective Registration Statement
(f) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified
or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the same shall be in writing
and signed by the Company and each Holder of the then outstanding
Registrable Securities. Notwithstanding the foregoing, a waiver or
consent to depart from the provisions hereof with respect to a matter
that relates exclusively to the rights of certain Holders and that does
not directly or indirectly affect the rights of other Holders may be
given by Holders of all of the Registrable Securities to which such
waiver or consent relates; provided, however, that the provisions of
this sentence may not be amended, modified, or supplemented except in
accordance with the provisions of the immediately preceding sentence.
(g) NOTICES. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be made
in accordance with the provisions of the Purchase Agreement.
(h) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of
each of the parties and shall inure to the benefit of each Holder. Each
Holder may assign their respective rights hereunder in the manner and
to the Persons as permitted under the Purchase Agreement.
(i) EXECUTION AND COUNTERPARTS. This Agreement may be executed
in any number of counterparts, each of which when so executed shall be
deemed to be an original and, all of which taken together shall
constitute one and the same Agreement. In the event that any signature
is delivered by facsimile transmission, such signature shall create a
valid binding obligation of the party executing (or on whose behalf
such signature is executed) the same with the same force and effect as
if such facsimile signature were the original thereof.
(j) GOVERNING LAW. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be
determined with the provisions of the Purchase Agreement.
36
(k) CUMULATIVE REMEDIES. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(l) SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set
forth herein shall remain in full force and effect and shall in no way
be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is
hereby stipulated and declared to be the intention of the parties that
they would have executed the remaining terms, provisions, covenants and
restrictions without including any of such that may be hereafter
declared invalid, illegal, void or unenforceable.
(m) HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect
the meaning hereof.
(n) INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS.
The obligations of each Purchaser hereunder are several and not joint
with the obligations of any other Purchaser hereunder, and no Purchaser
shall be responsible in any way for the performance of the obligations
of any other Purchaser hereunder. Nothing contained herein or in any
other agreement or document delivered at any closing, and no action
taken by any Purchaser pursuant hereto or thereto, shall be deemed to
constitute the Purchasers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert with respect to such
obligations or the transactions contemplated by this Agreement. Each
Purchaser shall be entitled to protect and enforce its rights,
including without limitation the rights arising out of this Agreement,
and it shall not be necessary for any other Purchaser to be joined as
an additional party in any proceeding for such purpose.
*************************
37
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
COMPOSITE TECHNOLOGY CORPORATION
By: ________________________________
Name:
Title:
[SIGNATURE PAGE OF HOLDERS FOLLOWS]
38
[SIGNATURE PAGE OF HOLDERS TO CPTC RRA]
By:
By: _____________________________________
Name:
Title:
[SIGNATURE PAGE OF HOLDERS FOLLOWS]
39
ANNEX A
PLAN OF DISTRIBUTION
--------------------
The Selling Stockholders (the "SELLING STOCKHOLDERS") of the common
stock ("COMMON STOCK") of Composite Technology Corporation (the "COMPANY") and
any of their pledgees, assignees and successors-in-interest may, from time to
time, sell any or all of their shares of Common Stock on any stock exchange,
market or trading facility on which the shares are traded or in private
transactions. These sales may be at fixed or negotiated prices. The Selling
Stockholders may use any one or more of the following methods when selling
shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o settlement of short sales;
o broker-dealers may agree with the Selling Stockholders to sell
a specified number of such shares at a stipulated price per
share;
o a combination of any such methods of sale;
o through the writing or settlement of options or other hedging
transactions, whether through an options exchange or
otherwise; or
o any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), if available, rather
than under this prospectus.
Broker-dealers engaged by the Selling Stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the Selling Stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The Selling Stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
40
In connection with the sale of our common stock or interests therein,
the Selling Stockholders may enter into hedging transactions with broker-dealers
or other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume. The Selling
Stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The Selling
Stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).
The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. The Selling Stockholders have
informed the Company that it does not have any agreement or understanding,
directly or indirectly, with any person to distribute the Common Stock.
The Company is required to pay certain fees and expenses incurred by
the Company incident to the registration of the shares. The Company has agreed
to indemnify the Selling Stockholders against certain losses, claims, damages
and liabilities, including liabilities under the Securities Act.
41
EXHIBIT B
---------
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "AGREEMENT") is made as of December 16, 2003, by and
among Composite Technology Corporation, a corporation incorporated under the
laws of Nevada (the "COMPANY"), the purchasers signatory hereto (each a
"PURCHASER" and together the "PURCHASERS"), and Xxxxxxx Xxxxxxxxx LLP, with an
address at 000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000-0000 (the "ESCROW
AGENT"). Capitalized terms used but not defined herein shall have the meanings
set forth in the Securities Purchase Agreement referred to in the first recital.
W I T N E S S E T H:
WHEREAS, the Purchasers will be purchasing from the Company, in the aggregate,
up to $3,000,000, in the aggregate, of the Common Stock and Warrants on the
Closing Date as set forth in the Securities Purchase Agreement (the "PURCHASE
AGREEMENT") dated the date hereof between the Purchasers and the Company, which
securities will be issued under the terms contained herein and in the Purchase
Agreement; and
WHEREAS, it is intended that the purchase of the securities be consummated in
accordance with the requirements set forth in Regulation D promulgated under the
Securities Act of 1933, as amended; and
WHEREAS, the Company and the Purchasers have requested that the Escrow Agent
hold the Subscription Amounts in escrow until the Escrow Agent has received the
Release Notice in the form attached hereto from the Company and each Purchaser;
NOW, THEREFORE, in consideration of the covenants and mutual promises contained
herein and other good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE 1
TERMS OF THE ESCROW
1.1 The parties hereby agree to establish an escrow account with the
Escrow Agent whereby the Escrow Agent shall hold the funds for the purchase of
up to $3,000,000, in the aggregate, of Common Stock and Warrants as contemplated
by the Purchase Agreement.
1.2 Upon the Escrow Agent's receipt of the aggregate Subscription
Amounts for the Closing into its master escrow account, together with executed
counterparts of this Agreement, the Purchase Agreement and the Registration
Rights Agreement, it shall telephonically advise the Company, or the Company's
designated attorney or agent, of the amount of funds it has received into its
master escrow account.
42
1.3 Wire transfers to the Escrow Agent shall be made as follows:
STERLING NATIONAL BANK
000 0XX XXXXXX
XXX XXXX, XX 00000
Account Name: Xxxxxxx Xxxxxxxxx LLP
ABA ROUTING NO: 000000000
ACCT NO: 0000000000
Remark: CPTC/[FUND NAME]
1.4 The Company, promptly following being advised by the Escrow Agent
that the Escrow Agent has received the Subscription Amounts for the Closing
along with facsimile copies of counterpart signature pages of the Purchase
Agreement, Registration Rights Agreement and this Agreement from each Purchaser,
shall deliver to the Escrow Agent the certificates representing the certificates
evidencing the Securities to be issued to each Purchaser at the Closing together
with:
the Company's executed counterpart of the Purchase Agreement;
the Company's executed counterpart of the Registration Rights
Agreement;
the executed opinion of Company Counsel, in the form of
EXHIBIT D to the Purchase Agreement; and
the Company's original executed counterpart of this Escrow
Agreement.
1.5 In the event that the foregoing items are not in the Escrow Agent's
possession within five (5) Trading Days of the Escrow Agent notifying the
Company that the Escrow Agent has custody of the Subscription Amount for the
Closing, then each Purchaser shall have the right to demand the return of their
portion of the Subscription Amount.
1.6 Once the Escrow Agent receives a Release Notice in the form
attached hereto as EXHIBIT X executed by the Company and each Purchaser, it
shall (a) wire 93% of the aggregate Subscription Amounts to the Company's
account listed in Section 1.7 below, net of $10,000 per the instructions of HPC
Capital Management, and (b) wire the remaining 7% of the aggregate Subscription
Amounts per the written instructions of HPC Capital Management.
1.7 Wire transfers to the Company shall be made pursuant to written
instructions from the Company provided to the Escrow Agent on the Closing Date.
1.8 Once the funds (as set forth above) have been sent per the
Company's instructions, the Escrow Agent shall then arrange to have the Shares,
the Purchase Agreement, the Registration Rights Agreement, the Warrants, the
Escrow Agreement and the opinion of counsel delivered to the appropriate
parties.
43
ARTICLE II
MISCELLANEOUS
2.1 NO WAIVER OR ANY BREACH OF ANY COVENANT OR PROVISION HEREIN
CONTAINED SHALL BE DEEMED A waiver of any preceding or succeeding breach
thereof, or of any other covenant or provision herein contained. No extension of
time for performance of any obligation or act shall be deemed an extension of
the time for performance of any other obligation or act.
2.2 All notices or other communications required or permitted hereunder
shall be in writing, and shall be sent as set forth in the Purchase Agreement.
2.3 This Escrow Agreement shall be binding upon and shall inure to the
benefit of the permitted successors and permitted assigns of the parties hereto.
2.4 This Escrow Agreement is the final expression of, and contains the
entire agreement between, the parties with respect to the subject matter hereof
and supersedes all prior understandings with respect thereto. This Escrow
Agreement may not be modified, changed, supplemented or terminated, nor may any
obligations hereunder be waived, except by written instrument signed by the
parties to be charged or by its agent duly authorized in writing or as otherwise
expressly permitted herein.
2.5 Whenever required by the context of this Escrow Agreement, the
singular shall include the plural and masculine shall include the feminine. This
Escrow Agreement shall not be construed as if it had been prepared by one of the
parties, but rather as if all parties had prepared the same. Unless otherwise
indicated, all references to Articles are to this Escrow Agreement.
2.6 The parties hereto expressly agree that this Escrow Agreement shall
be governed by, interpreted under and construed and enforced in accordance with
the laws of the State of New York. Any action to enforce, arising out of, or
relating in any way to, any provisions of this Escrow Agreement shall only be
brought in a state or Federal court sitting in New York City.
2.7 The Escrow Agent's duties hereunder may be altered, amended,
modified or revoked only by a writing signed by the Company, each Purchaser and
the Escrow Agent.
2.8 The Escrow Agent shall be obligated only for the performance of
such duties as are specifically set forth herein and may rely and shall be
protected in relying or refraining from acting on any instrument reasonably
believed by the Escrow Agent to be genuine and to have been signed or presented
by the proper party or parties. The Escrow Agent shall not be personally liable
for any act the Escrow Agent may do or omit to do hereunder as the Escrow Agent
while acting in good faith and in the absence of gross negligence, fraud and
willful misconduct, and any act done or omitted by the Escrow Agent pursuant to
the advice of the Escrow Agent's attorneys-at-law shall be conclusive evidence
of such good faith, in the absence of gross negligence, fraud and willful
misconduct.
2.9 The Escrow Agent is hereby expressly authorized to disregard any
and all warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
44
or decree, the Escrow Agent shall not be liable to any of the parties hereto or
to any other person, firm or corporation by reason of such decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
2.10 The Escrow Agent shall not be liable in any respect on account of
the identity, authorization or rights of the parties executing or delivering or
purporting to execute or deliver the Purchase Agreement or any documents or
papers deposited or called for thereunder in the absence of gross negligence,
fraud and willful misconduct.
2.11 The Escrow Agent shall be entitled to employ such legal counsel
and other experts as the Escrow Agent may deem necessary properly to advise the
Escrow Agent in connection with the Escrow Agent's duties hereunder, may rely
upon the advice of such counsel, and may pay such counsel reasonable
compensation; provided that the costs of such compensation shall be borne by the
Escrow Agent. The Escrow Agent has acted as legal counsel for HPC Capital
Management ("HPC"), and may continue to act as legal counsel for HPC from time
to time, notwithstanding its duties as the Escrow Agent hereunder. The Company
and the other Investors consent to the Escrow Agent in such capacity as legal
counsel for HPC and waives any claim that such representation represents a
conflict of interest on the part of the Escrow Agent. The Company understands
that HPC and the Escrow Agent are relying explicitly on the foregoing provision
in entering into this Escrow Agreement.
2.12 The Escrow Agent's responsibilities as escrow agent hereunder
shall terminate if the Escrow Agent shall resign by giving written notice to the
Company and the Purchasers. In the event of any such resignation, the Purchasers
and the Company shall appoint a successor Escrow Agent and the Escrow Agent
shall deliver to such successor Escrow Agent any escrow funds and other
documents held by the Escrow Agent.
2.13 If the Escrow Agent reasonably requires other or further
instruments in connection with this Escrow Agreement or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
2.14 It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the documents
or the escrow funds held by the Escrow Agent hereunder, the Escrow Agent is
authorized and directed in the Escrow Agent's sole discretion (1) to retain in
the Escrow Agent's possession without liability to anyone all or any part of
said documents or the escrow funds until such disputes shall have been settled
either by mutual written agreement of the parties concerned by a final order,
decree or judgment or a court of competent jurisdiction after the time for
appeal has expired and no appeal has been perfected, but the Escrow Agent shall
be under no duty whatsoever to institute or defend any such proceedings or (2)
to deliver the escrow funds and any other property and documents held by the
Escrow Agent hereunder to a state or Federal court having competent subject
matter jurisdiction and located in the City of New York in accordance with the
applicable procedure therefore
45
2.15 The Company and each Purchaser agree jointly and severally to
indemnify and hold harmless the Escrow Agent and its partners, employees, agents
and representatives from any and all claims, liabilities, costs or expenses in
any way arising from or relating to the duties or performance of the Escrow
Agent hereunder or the transactions contemplated hereby or by the Purchase
Agreement other than any such claim, liability, cost or expense to the extent
the same shall have been determined by final, unappealable judgment of a court
of competent jurisdiction to have resulted from the gross negligence, fraud or
willful misconduct of the Escrow Agent.
************************
46
IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement as of
date first written above.
COMPOSITE TECHNOLOGY CORPORATION
By:______________________________________
Name:
Title:
ESCROW AGENT:
XXXXXXX XXXXXXXXX LLP
By:______________________________________
Name:
Title:
[SIGNATURE PAGE OF HOLDERS FOLLOWS]
47
[SIGNATURE PAGE OF HOLDERS TO CPTC ESCROW]
By: _____________________________________
Name:
Title:
[SIGNATURE PAGE OF HOLDERS FOLLOWS]
48
EXHIBIT C
---------
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
REASONABLY ACCEPTABLE TO THE COMPANY TO SUCH EFFECT, THE SUBSTANCE OF WHICH
SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR
OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS
DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT.
COMMON STOCK PURCHASE WARRANT
To Purchase __________ Shares of Common Stock of
COMPOSITE TECHNOLOGY CORPORATION
THIS COMMON STOCK PURCHASE WARRANT (the "WARRANT") CERTIFIES that, for
value received, _____________ (the "HOLDER"), is entitled, upon the terms and
subject to the limitations on exercise and the conditions hereinafter set forth,
at any time on or after December 16, 2003 (the "INITIAL EXERCISE DATE") and on
or prior to the close of business on the fifth anniversary of the Initial
Exercise Date (the "TERMINATION DATE") but not thereafter, to subscribe for and
purchase from Composite Technology Corporation, a corporation incorporated in
the State of Nevada (the "COMPANY"), up to ____________ shares (the "WARRANT
SHARES") of Common Stock, par value $0.001 per share, of the Company (the
"COMMON STOCK"). The purchase price of one share of Common Stock (the "EXERCISE
PRICE") under this Warrant shall be $2.04 subject to adjustment hereunder. The
Exercise Price and the number of Warrant Shares for which the Warrant is
exercisable shall be subject to adjustment as provided herein. Capitalized terms
used and not otherwise defined herein shall have the meanings set forth in that
certain Securities Purchase Agreement (the "PURCHASE AGREEMENT"), dated December
16, 2003, among the Company and the purchasers signatory thereto.
49
1. Title TO WARRANT. Prior to the Termination Date and subject
to compliance with applicable laws and Section 7 of this Warrant, this Warrant
and all rights hereunder are transferable, in whole or in part, at the office or
agency of the Company by the Holder in person or by duly authorized attorney,
upon surrender of this Warrant together with the Assignment Form annexed hereto
properly endorsed. The transferee shall sign an investment letter in form and
substance reasonably satisfactory to the Company.
2. AUTHORIZATION OF SHARES. The Company covenants that all
Warrant Shares which may be issued upon the exercise of the purchase rights
represented by this Warrant will, upon exercise of the purchase rights
represented by this Warrant, be duly authorized, validly issued, fully paid and
nonassessable and free from all taxes, liens and charges in respect of the issue
thereof (other than taxes in respect of any transfer occurring contemporaneously
with such issue).
3. EXERCISE OF WARRANT.
(a) Exercise of the purchase rights represented by
this Warrant may be made at any time or times on or after the Initial
Exercise Date and on or before the Termination Date by delivery to the
Company of a duly executed facsimile copy of the Notice of Exercise
Form annexed hereto (or such other office or agency of the Company as
it may designate by notice in writing to the registered Holder at the
address of such Holder appearing on the books of the Company);
PROVIDED, HOWEVER, within 5 Trading Days of the date said Notice of
Exercise is delivered to the Company, the Holder shall have surrendered
this Warrant to the Company and the Company shall have received payment
of the aggregate Exercise Price of the shares thereby purchased by wire
transfer or cashier's check drawn on a United States bank. Certificates
for shares purchased hereunder shall be delivered to the Holder within
the earlier of (i) 5 Trading Days after the date on which the Notice of
Exercise shall have been delivered by facsimile copy or (ii) 3 Trading
Days from the delivery to the Company of the Notice of Exercise Form by
facsimile copy, surrender of this Warrant and payment of the aggregate
Exercise Price as set forth above ("WARRANT SHARE DELIVERY DATE");
PROVIDED, HOWEVER, in the event the Warrant is not surrendered or the
aggregate Exercise Price is not received by the Company within 5
Trading Days after the date on which the Notice of Exercise shall be
delivered by facsimile copy, the Warrant Share Delivery Date shall be
extended to the extent such 5 Trading Day period is exceeded. This
Warrant shall be deemed to have been exercised on the later of the date
the Notice of Exercise is delivered to the Company by facsimile copy
and the date the Exercise Price is received by the Company. The Warrant
Shares shall be deemed to have been issued, and Holder or any other
person so designated to be named therein shall be deemed to have become
a holder of record of such shares for all purposes, as of the date the
Warrant has been exercised by payment to the Company of the Exercise
Price and all taxes required to be paid by the Holder, if any, pursuant
to Section 5 prior to the issuance of such shares, have been paid. If
the Company fails to deliver to the Holder a certificate or
certificates representing the Warrant Shares pursuant to this Section
3(a) by the third Trading Day following the Warrant Share Delivery
50
Date, then the Holder will have the right to rescind such exercise. In
addition to any other rights available to the Holder, if the Company
fails to deliver to the Holder a certificate or certificates
representing the Warrant Shares pursuant to an exercise by the third
Trading Day after the Warrant Share Delivery Date, and if after such
day the Holder is required by its broker to purchase (in an open market
transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the Warrant Shares which the
Holder anticipated receiving upon such exercise (a "Buy-In"), then the
Company shall (1) pay in cash to the Holder the amount by which (x) the
Holder's total purchase price (including brokerage commissions, if any)
for the shares of Common Stock so purchased exceeds (y) the amount
obtained by multiplying (A) the number of Warrant Shares that the
Company was required to deliver to the Holder in connection with the
exercise at issue times (B) the price at which the sell order giving
rise to such purchase obligation was executed, and (2) at the option of
the Holder, either reinstate the portion of the Warrant and equivalent
number of Warrant Shares for which such exercise was not honored or
deliver to the Holder the number of shares of Common Stock that would
have been issued had the Company timely complied with its exercise and
delivery obligations hereunder. For example, if the Holder purchases
Common Stock having a total purchase price of $11,000 to cover a Buy-In
with respect to an attempted exercise of shares of Common Stock with an
aggregate sale price giving rise to such purchase obligation of
$10,000, under clause (1) of the immediately preceding sentence the
Company shall be required to pay the Holder $1,000. The Holder shall
provide the Company written notice indicating the amounts payable to
the Holder in respect of the Buy-In, together with applicable
confirmations and other evidence reasonably requested by the Company.
Nothing herein shall limit a Holder's right to pursue any other
remedies available to it hereunder, at law or in equity including,
without limitation, a decree of specific performance and/or injunctive
relief with respect to the Company's failure to timely deliver
certificates representing shares of Common Stock upon exercise of the
Warrant as required pursuant to the terms hereof.
(b) If this Warrant shall have been exercised in
part, the Company shall, at the time of delivery of the certificate or
certificates representing Warrant Shares, deliver to Holder a new
Warrant evidencing the rights of Holder to purchase the unpurchased
Warrant Shares called for by this Warrant, which new Warrant shall in
all other respects be identical with this Warrant.
(c) The Company shall not effect any exercise of this
Warrant, and the Holder shall not have the right to exercise any
portion of this Warrant, pursuant to Section 3(a) or otherwise, to the
extent that after giving effect to such issuance after exercise, the
Holder (together with the Holder's affiliates), as set forth on the
applicable Notice of Exercise, would beneficially own in excess of
4.99% of the number of shares of the Common Stock outstanding
immediately after giving effect to such issuance. For purposes of the
foregoing sentence, the number of shares of Common Stock beneficially
owned by the Holder and its affiliates shall include the number of
shares of Common Stock issuable upon exercise of this Warrant with
respect to which the determination of such sentence is being made, but
shall exclude the number of shares of Common Stock which would be
issuable upon (A) exercise of the remaining, nonexercised portion of
this Warrant beneficially owned by the Holder or any of its affiliates
51
and (B) exercise or conversion of the unexercised or nonconverted
portion of any other securities of the Company (including, without
limitation, any other Warrants) subject to a limitation on conversion
or exercise analogous to the limitation contained herein beneficially
owned by the Holder or any of its affiliates. Except as set forth in
the preceding sentence, for purposes of this Section 3(c), beneficial
ownership shall be calculated in accordance with Section 13(d) of the
Exchange Act. To the extent that the limitation contained in this
Section 3(c) applies, the determination of whether this Warrant is
exercisable (in relation to other securities owned by the Holder) and
of which a portion of this Warrant is exercisable shall be in the sole
discretion of such Holder, and the submission of a Notice of Exercise
shall be deemed to be such Holder's determination of whether this
Warrant is exercisable (in relation to other securities owned by such
Holder) and of which portion of this Warrant is exercisable, in each
case subject to such aggregate percentage limitation, and the Company
shall have no obligation to verify or confirm the accuracy of such
determination. For purposes of this Section 3(c), in determining the
number of outstanding shares of Common Stock, the Holder may rely on
the number of outstanding shares of Common Stock as reflected in (x)
the Company's most recent Form 10-Q or Form 10-K, as the case may be,
(y) a more recent public announcement by the Company or (z) any other
notice by the Company or the Company's Transfer Agent setting forth the
number of shares of Common Stock outstanding. Upon the written or oral
request of the Holder, the Company shall within two Trading Days
confirm orally and in writing to the Holder the number of shares of
Common Stock then outstanding. In any case, the number of outstanding
shares of Common Stock shall be determined after giving effect to the
conversion or exercise of securities of the Company, including this
Warrant, by the Holder or its affiliates since the date as of which
such number of outstanding shares of Common Stock was reported. The
provisions of this Section 3(c) may be waived by the Holder upon, at
the election of the Holder, not less than 61 days' prior notice to the
Company, and the provisions of this Section 3(c) shall continue to
apply until such 61st day (or such later date, as determined by the
Holder, as may be specified in such notice of waiver).
(d) If at any time after one year from the date of
issuance of this Warrant there is no effective Registration Statement
registering the resale of the Warrant Shares by the Holder, this
Warrant may also be exercised at such time by means of a "cashless
exercise" in which the Holder shall be entitled to receive a
certificate for the number of Warrant Shares equal to the quotient
obtained by dividing [(A-B) (X)] by (A), where:
(A) = the Closing Price on the Trading Day immediately
preceding the date of such election;
(B) = the Exercise Price of the Warrants, as adjusted; and
(X) = the number of Warrant Shares issuable upon exercise of
the Warrants in accordance with the terms of this
Warrant.
52
(e) Subject to the provisions of this Section 3, if
the Closing Price for each of any twenty consecutive Trading Days after
the Effective Date (the "MEASUREMENT PRICE") exceeds 200% of the then
Exercise Price (the "THRESHOLD PRICE"), then the Company may, within
two Trading Days of such period, call for cancellation of all or any
portion of this Warrant for which a Notice of Exercise has not yet been
delivered (such right, a "CALL"). To exercise this right, the Company
must deliver to the Holder an irrevocable notice (a "CALL NOTICE")
indicating therein the portion of unexercised portion of this Warrant
to which such notice applies. If the conditions set forth below for
such Call are satisfied from the period from the date of the Call
Notice through and including the Call Date (as defined below), then any
portion of this Warrant subject to such Call Notice for which a Notice
of Exercise and, within 3 Trading Days after the Call Date, payment of
the aggregate Exercise Price of the shares thereby purchased by wire
transfer or cashier's check drawn on a United States bank shall not
have been received by the Company from and after the date of the Call
Notice will be cancelled at 6:30 p.m. (New York City time) on the 60th
Trading Day after the date the Call Notice is received by the Holder
(such date, the "CALL DATE"). Any unexercised portion of this Warrant
to which the Call Notice does not pertain will be unaffected by such
Call Notice. In furtherance thereof, the Company covenants and agrees
that it will honor all Notices of Exercise with respect to Warrant
Shares subject to a Call Notice that are tendered from the time of
delivery of the Call Notice through 6:30 p.m. (New York City time) on
the Call Date. The parties agree that any Notice of Exercise delivered
following a Call Notice shall first reduce to zero the number of
Warrant Shares subject to such Call Notice prior to reducing the
remaining Warrant Shares available for purchase under this Warrant. For
example, if (x) this Warrant then permits the Holder to acquire 100
Warrant Shares, (y) a Call Notice pertains to 75 Warrant Shares, and
(z) prior to 6:30 p.m. (New York City time) on the Call Date the Holder
tenders a Notice of Exercise in respect of 50 Warrant Shares, then (1)
on the Call Date the right under this Warrant to acquire 25 Warrant
Shares will be automatically cancelled, (2) the Company, in the time
and manner required under this Warrant, will have issued and delivered
to the Holder 50 Warrant Shares in respect of the exercises following
receipt of the Call Notice, and (3) the Holder may, until the
Termination Date, exercise this Warrant for 25 Warrant Shares (subject
to adjustment as herein provided and subject to subsequent Call
Notices). Subject again to the provisions of this Section 3, the
Company may deliver subsequent Call Notices for any portion of this
Warrant for which the Holder shall not have delivered a Notice of
Exercise. Notwithstanding anything to the contrary set forth in this
Warrant, the Company may not deliver a Call Notice or require the
cancellation of this Warrant (and any Call Notice will be void),
unless, from the beginning of the 20 consecutive Trading Days used to
determine whether the Common Stock has achieved the Threshold Price
through the Call Date, (i) the Company shall have honored in accordance
with the terms of this Warrant all Notices of Exercise delivered by
6:30 p.m. (New York City time) on the Call Date, (ii) the Registration
Statement shall be effective as to all Warrant Shares and the
prospectus thereunder available for use by the Holder for the resale
all such Warrant Shares and (iii) the Common Stock shall be listed or
quoted for trading on the Trading Market. The Company's right to Call
the Warrant shall be exercised ratably among the Purchasers based on
each Purchaser's initial purchase of Shares pursuant to the Purchase
Agreement.
53
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or
scrip representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise be entitled
to purchase upon such exercise, the Company shall pay a cash adjustment in
respect of such final fraction in an amount equal to such fraction multiplied by
the Exercise Price.
5. CHARGES, TAXES AND EXPENSES. Issuance of certificates for
Warrant Shares shall be made without charge to the Holder for any issue or
transfer tax or other incidental expense in respect of the issuance of such
certificate, all of which taxes and expenses shall be paid by the Company, and
such certificates shall be issued in the name of the Holder or in such name or
names as may be directed by the Holder; PROVIDED, HOWEVER, that in the event
certificates for Warrant Shares are to be issued in a name other than the name
of the Holder, this Warrant when surrendered for exercise shall be accompanied
by the Assignment Form attached hereto duly executed by the Holder; and the
Company may require, as a condition thereto, the payment of a sum sufficient to
reimburse it for any transfer tax incidental thereto.
6. CLOSING OF BOOKS. The Company will not close its
stockholder books or records in any manner which prevents the timely exercise of
this Warrant, pursuant to the terms hereof.
7. TRANSFER, DIVISION AND COMBINATION.
(a) Subject to compliance with any applicable
securities laws and the conditions set forth in Sections 1 and 7(e)
hereof and to the provisions of Section 4.1 of the Purchase Agreement,
this Warrant and all rights hereunder are transferable, in whole or in
part, upon surrender of this Warrant at the principal office of the
Company, together with a written assignment of this Warrant
substantially in the form attached hereto duly executed by the Holder
or its agent or attorney and funds sufficient to pay any transfer taxes
payable upon the making of such transfer. Upon such surrender and, if
required, such payment, the Company shall execute and deliver a new
Warrant or Warrants in the name of the assignee or assignees and in the
denomination or denominations specified in such instrument of
assignment, and shall issue to the assignor a new Warrant evidencing
the portion of this Warrant not so assigned, and this Warrant shall
promptly be cancelled. A Warrant, if properly assigned, may be
exercised by a new holder for the purchase of Warrant Shares without
having a new Warrant issued.
(b) This Warrant may be divided or combined with
other Warrants upon presentation hereof at the aforesaid office of the
Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued, signed by the
Holder or its agent or attorney. Subject to compliance with Section
7(a), as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or
combined in accordance with such notice.
(c) The Company shall prepare, issue and deliver at
its own expense (other than transfer taxes) the new Warrant or Warrants
under this Section 7.
(d) The Company agrees to maintain, at its aforesaid
office, books for the registration and the registration of transfer of
the Warrants.
54
(e) If, at the time of the surrender of this Warrant
in connection with any transfer of this Warrant, the transfer of this
Warrant shall not be registered pursuant to an effective registration
statement under the Securities Act and under applicable state
securities or blue sky laws, the Company may require, as a condition of
allowing such transfer (i) that the Holder or transferee of this
Warrant, as the case may be, furnish to the Company a written opinion
of counsel (which opinion shall be in form, substance and scope
customary for opinions of counsel in comparable transactions and
reasonably acceptable to the Company) to the effect that such transfer
may be made without registration under the Securities Act and under
applicable state securities or blue sky laws, (ii) that the holder or
transferee execute and deliver to the Company an investment letter in
form and substance acceptable to the Company and (iii) that the
transferee be an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act.
8. NO RIGHTS AS SHAREHOLDER UNTIL EXERCISE. This Warrant does
not entitle the Holder to any voting rights or other rights as a shareholder of
the Company prior to the exercise hereof. Upon the surrender of this Warrant and
the payment of the aggregate Exercise Price (or by means of a cashless
exercise), the Warrant Shares so purchased shall be and be deemed to be issued
to such Holder as the record owner of such shares as of the close of business on
the later of the date of such surrender or payment.
9. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. The
Company covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant
or any stock certificate relating to the Warrant Shares, and in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it
(which, in the case of the Warrant, shall not include the posting of any bond),
and upon surrender and cancellation of such Warrant or stock certificate, if
mutilated, the Company will make and deliver a new Warrant or stock certificate
of like tenor and dated as of such cancellation, in lieu of such Warrant or
stock certificate.
10. SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or
appointed day for the taking of any action or the expiration of any right
required or granted herein shall be a Saturday, Sunday or a legal holiday, then
such action may be taken or such right may be exercised on the next succeeding
day not a Saturday, Sunday or legal holiday.
11. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF WARRANT
SHARES;
(a) STOCK SPLITS, ETC. The number and kind of
securities purchasable upon the exercise of this Warrant and the Exercise
Price shall be subject to adjustment from time to time upon the happening of any
of the following. In case the Company shall (i) pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock to holders of its
outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock
into a greater number of shares, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock, or (iv) issue any shares
of its capital stock in a reclassification of the Common Stock, then the number
of Warrant Shares purchasable upon exercise of this Warrant immediately prior
thereto shall be adjusted so that the Holder shall be entitled to receive the
kind and number of Warrant Shares or other securities of the Company which it
would have owned or have been entitled to receive had such Warrant been
55
exercised in advance thereof. Upon each such adjustment of the kind and number
of Warrant Shares or other securities of the Company which are purchasable
hereunder, the Holder shall thereafter be entitled to purchase the number of
Warrant Shares or other securities resulting from such adjustment at an Exercise
Price per Warrant Share or other security obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of Warrant
Shares purchasable pursuant hereto immediately prior to such adjustment and
dividing by the number of Warrant Shares or other securities of the Company
resulting from such adjustment. An adjustment made pursuant to this paragraph
shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
(b) WARRANT DEFAULT REDUCTION. If (i) the Company
does not file a Registration Statement on or before the Filing Date or (ii)
prior to the date when the initial Registration Statement is first declared
effective by the Commission, the Company fails to file a pre-effective amendment
and otherwise respond in writing to comments made by the Commission in respect
of such Registration Statement within 15 Trading Days after the receipt of
comments by or notice from the Commission that such amendment is required in
order for a Registration Statement to be declared effective, then, immediately
and automatically and upon no further action of the Company or the Holder, the
Exercise Price shall be reduced to $0.50, subject to adjustment for reverse and
forward stock splits, stock dividends, stock combinations and other similar
transactions of the Common Stock that occur after the date of the Purchase
Agreement. Notwithstanding anything herein to the contrary, if applicable, the
time requirements above shall be tolled for an equal number of days as is set
forth in the tolling provisions in Sections 3(a) and 3(k) of the Registration
Rights Agreement.
12. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR
DISPOSITION OF ASSETS. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of its property, assets or business to
another corporation and, pursuant to the terms of such reorganization,
reclassification, merger, consolidation or disposition of assets, shares of
common stock of the successor or acquiring corporation, or any cash, shares of
stock or other securities or property of any nature whatsoever (including
warrants or other subscription or purchase rights) in addition to or in lieu of
common stock of the successor or acquiring corporation ("OTHER PROPERTY"), are
to be received by or distributed to the holders of Common Stock of the Company,
then the Holder shall have the right thereafter to receive, at the option of the
Holder, (a) upon exercise of this Warrant, the number of shares of Common Stock
of the successor or acquiring corporation or of the Company, if it is the
surviving corporation, and Other Property receivable upon or as a result of such
reorganization, reclassification, merger, consolidation or disposition of assets
by a Holder of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such event or (b) cash equal to the value of
this Warrant as determined in accordance with the Black Scholes option pricing
formula. In case of any such reorganization, reclassification, merger,
consolidation or disposition of assets, the successor or acquiring corporation
(if other than the Company) shall expressly assume the due and punctual
56
observance and performance of each and every covenant and condition of this
Warrant to be performed and observed by the Company and all the obligations and
liabilities hereunder, subject to such modifications as may be deemed
appropriate (as determined in good faith by resolution of the Board of Directors
of the Company) in order to provide for adjustments of Warrant Shares for which
this Warrant is exercisable which shall be as nearly equivalent as practicable
to the adjustments provided for in this Section 12. For purposes of this Section
12, "common stock of the successor or acquiring corporation" shall include stock
of such corporation of any class which is not preferred as to dividends or
assets over any other class of stock of such corporation and which is not
subject to redemption and shall also include any evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable
for any such stock, either immediately or upon the arrival of a specified date
or the happening of a specified event and any warrants or other rights to
subscribe for or purchase any such stock. The foregoing provisions of this
Section 12 shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.
13. VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may at
any time during the term of this Warrant reduce the then current Exercise Price
to any amount and for any period of time deemed appropriate by the Board of
Directors of the Company.
14. NOTICE OF ADJUSTMENT. Whenever the number of Warrant
Shares or number or kind of securities or other property purchasable upon the
exercise of this Warrant or the Exercise Price is adjusted, as herein provided,
the Company shall give notice thereof to the Holder, which notice shall state
the number of Warrant Shares (and other securities or property) purchasable upon
the exercise of this Warrant and the Exercise Price of such Warrant Shares (and
other securities or property) after such adjustment, setting forth a brief
statement of the facts requiring such adjustment and setting forth the
computation by which such adjustment was made.
15. NOTICE OF CORPORATE ACTION. If at any time:
(a) the Company shall take a record of the holders of
its Common Stock for the purpose of entitling them to receive a
dividend or other distribution, or any right to subscribe for or
purchase any evidences of its indebtedness, any shares of stock of any
class or any other securities or property, or to receive any other
right, or
(b) there shall be any capital reorganization of the
Company, any reclassification or recapitalization of the capital stock
of the Company or any consolidation or merger of the Company with, or
any sale, transfer or other disposition of all or substantially all the
property, assets or business of the Company to, another corporation or,
(c) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least 10 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, liquidation or winding up, and (ii)
in the case of any such reorganization, reclassification, merger, consolidation,
sale, transfer, disposition, dissolution, liquidation or winding up, at least 10
57
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause also shall specify (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their Warrant Shares for securities or other property
deliverable upon such disposition, dissolution, liquidation or winding up. Each
such written notice shall be sufficiently given if addressed to Holder at the
last address of Holder appearing on the books of the Company and delivered in
accordance with Section 17(d).
16. AUTHORIZED SHARES. The Company covenants that during the
period the Warrant is outstanding, it will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of the Warrant Shares upon the exercise of any purchase rights under this
Warrant. The Company further covenants that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates for
the Warrant Shares upon the exercise of the purchase rights under this Warrant.
The Company will take all such reasonable action as may be necessary to assure
that such Warrant Shares may be issued as provided herein without violation of
any applicable law or regulation, or of any requirements of the Trading Market
upon which the Common Stock may be listed.
Except and to the extent as waived or consented to by the
Holder, the Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights of Holder
as set forth in this Warrant against impairment. Without limiting the generality
of the foregoing, the Company will (a) not increase the par value of any Warrant
Shares above the amount payable therefor upon such exercise immediately prior to
such increase in par value, (b) take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable Warrant Shares upon the exercise of this Warrant, and (c) use
commercially reasonable efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment
in the number of Warrant Shares for which this Warrant is exercisable or in the
Exercise Price, the Company shall obtain all such authorizations or exemptions
thereof, or consents thereto, as may be necessary from any public regulatory
body or bodies having jurisdiction thereof.
58
17. MISCELLANEOUS.
(a) JURISDICTION. All questions concerning the
construction, validity, enforcement and interpretation of this Warrant
shall be determined in accordance with the provisions of the Purchase
Agreement.
(b) RESTRICTIONS. The Holder acknowledges that the
Warrant Shares acquired upon the exercise of this Warrant, if not
registered, will have restrictions upon resale imposed by state and
federal securities laws.
(c) NONWAIVER AND EXPENSES. No course of dealing or
any delay or failure to exercise any right hereunder on the part of
Holder shall operate as a waiver of such right or otherwise prejudice
Holder's rights, powers or remedies, notwithstanding all rights
hereunder terminate on the Termination Date. If the Company willfully
and knowingly fails to comply with any provision of this Warrant, which
results in any material damages to the Holder, the Company shall pay to
Holder such amounts as shall be sufficient to cover any costs and
expenses including, but not limited to, reasonable attorneys' fees,
including those of appellate proceedings, incurred by Holder in
collecting any amounts due pursuant hereto or in otherwise enforcing
any of its rights, powers or remedies hereunder.
(d) NOTICES. Any notice, request or other document
required or permitted to be given or delivered to the Holder by the
Company shall be delivered in accordance with the notice provisions of
the Purchase Agreement.
(e) LIMITATION OF LIABILITY. No provision hereof, in
the absence of any affirmative action by Holder to exercise this
Warrant or purchase Warrant Shares, and no enumeration herein of the
rights or privileges of Holder, shall give rise to any liability of
Holder for the purchase price of any Common Stock or as a stockholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
(f) REMEDIES. The Holder, in addition to being
entitled to exercise all rights granted by law, including recovery of
damages, will be entitled to specific performance of its rights under
this Warrant. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it
of the provisions of this Warrant and hereby agrees to waive the
defense in any action for specific performance that a remedy at law
would be adequate.
(g) SUCCESSORS AND ASSIGNS. Subject to applicable
securities laws, this Warrant and the rights and obligations evidenced
hereby shall inure to the benefit of and be binding upon the successors
of the Company and the successors and permitted assigns of Holder. The
provisions of this Warrant are intended to be for the benefit of all
Holders from time to time of this Warrant and shall be enforceable by
any such Holder or holder of Warrant Shares.
(h) AMENDMENT. This Warrant may be modified or
amended or the provisions hereof waived with the written consent of the
Company and the Holder.
59
(i) SEVERABILITY. Wherever possible, each provision
of this Warrant shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this Warrant
shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provisions or the remaining
provisions of this Warrant.
(j) HEADINGS. The headings used in this Warrant are
for the convenience of reference only and shall not, for any purpose,
be deemed a part of this Warrant.
********************
60
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officer thereunto duly authorized.
Dated: December 16, 2003
COMPOSITE TECHNOLOGY CORPORATION
By: ________________________________
Name:
Title:
61
NOTICE OF EXERCISE
To: Composite Technology Corporation
(1) The undersigned hereby elects to purchase ________ Warrant
Shares of Composite Technology Corporation pursuant to the terms of the attached
Warrant (only if exercised in full), and tenders herewith payment of the
exercise price in full, together with all applicable transfer taxes, if any.
(2) Payment shall take the form of (check applicable box):
[ ] in lawful money of the United States; or
[ ] the cancellation of such number of Warrant Shares
as is necessary, in accordance with the formula set
forth in subsection 3(d), to exercise this Warrant
with respect to the maximum number of Warrant Shares
purchasable pursuant to the cashless exercise
procedure set forth in subsection 3(d).
(3) Please issue a certificate or certificates representing
said Warrant Shares in the name of the undersigned or in such other name as is
specified below:
-------------------------------
The Warrant Shares shall be delivered to the following:
-------------------------------
-------------------------------
-------------------------------
(4) ACCREDITED INVESTOR. The undersigned is an "accredited
investor" as defined in Regulation D promulgated under the Securities Act of
1933, as amended.
[PURCHASER]
By: ______________________________
Name:
Title:
Dated: ________________________
62
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________.
________________________________________________________
Dated: ______________, _______
Holder's Signature: _____________________________
Holder's Address: _____________________________
_____________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
63
