Exhibit 4.1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT dated as of December 20, 2004 (this
"AGREEMENT"), by and among Summus, Inc. (USA), a Florida corporation (the
"COMPANY"), and each of the purchasers set forth on the signature pages hereto
(the "BUYERS");
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 under Regulation D ("REGULATION D") as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 ACT");
B. The Company has authorized the issuance to the Buyers of (i) 12%
senior notes of the Company in the form attached hereto as EXHIBIT "A," in the
aggregate principal amount of One Million, Four Hundred Twenty-Five Thousand
Dollars ($1,425,000), which notes are convertible into shares of common stock
$.001 par value per share of the Company (the "COMMON STOCK"), upon the terms
and subject to the limitations and conditions set forth in such notes
(collectively, together with any note(s) issued in replacement thereof or as a
dividend thereon or otherwise with respect thereto in accordance with the terms
thereof, the "NOTES") and (ii) warrants, in the form attached hereto as EXHIBIT
"B" to purchase an aggregate of 2,794,118 shares of Common Stock (the
"WARRANTS");
C. The Buyers desire to purchase and the Company desires to issue and
sell, upon the terms and conditions set forth in this Agreement, the Notes and
Warrants for an aggregate purchase price of One Million, Four Hundred
Twenty-Five Thousand Dollars ($1,425,000);
D. Each Buyer wishes to purchase upon the terms and conditions stated
in this Agreement, such principal amount of Notes and number of Warrants as is
set forth immediately below its name on the signature pages hereto; and
E. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
in the form attached hereto as EXHIBIT "C" (the "REGISTRATION RIGHTS
AGREEMENT"), pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and each of the Buyers (severally and not
jointly) hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF NOTES AND WARRANTS
SECTION 1.1 PURCHASE OF NOTES AND WARRANTS. The Company shall issue and
sell to each Buyer and each Buyer severally agrees to purchase from the Company
such principal
amount of Notes and number of Warrants for the aggregate purchase price (the
"PURCHASE PRICE") as is set forth immediately below such Buyer's name on the
signature pages hereto. The aggregate principal amount of Notes to be issued at
the Closing (as defined below) is One Million, Four Hundred Twenty-Five Thousand
Dollars ($1,425,000) and the aggregate number of Warrants to be issued at the
Closing is 2,794,118, for an aggregate purchase price of One Million, Four
Hundred Twenty-Five Thousand Dollars ($1,425,000).
SECTION 1.2 FORM OF PAYMENT. On the Closing Date (as defined below),
(i) each Buyer shall pay the Purchase Price for the Notes and the Warrants to be
issued and sold to it at the Closing (as defined below) by wire transfer of
immediately available funds to the Company in accordance with the Company's
written wiring instructions, against delivery of the Notes in the principal
amount equal to the Purchase Price and the number of Warrants as is set forth
immediately below such Buyer's name on the signature pages hereto, and (ii) the
Company shall deliver such Notes and Warrants duly executed on behalf of the
Company, to the Buyer, against delivery of such Purchase Price.
SECTION 1.3 CLOSING DATE. Subject to the satisfaction (or waiver) of
the conditions thereto set forth in Article V below, the date and time of the
issuance and sale of the Notes and the Warrants pursuant to this Agreement (the
"CLOSING DATE") shall be 12:00 noon, Eastern Standard Time on December 20, 2004,
or such other mutually agreed upon time. The closing of the transactions
contemplated by this Agreement (the "CLOSING") shall occur on the Closing Date
at the offices of Xxxxxxx Xxxxx Xxxxxxx & Xxxxxxxxx, LLP, 0000 Xxxxxx Xxxxxx,
Xxxxxxxxxxxx, XX 00000, or at such other location as may be agreed to be the
parties.
ARTICLE II
BUYER'S REPRESENTATIONS AND WARRANTIES
Each Buyer severally (and not jointly) represents and warrants to the
Company solely as to such Buyer that:
SECTION 2.1 INVESTMENT PURPOSE. As of the date hereof, the Buyer is
purchasing the Notes and the shares of Common Stock issuable upon conversion
thereof (the "CONVERSION SHARES") and the Warrants and the shares of Common
Stock issuable upon exercise thereof (the "WARRANT SHARES" and, collectively
with the Notes, the Warrants and the Conversion Shares, the "SECURITIES") for
its own account and not with a present view towards the public sale or
distribution thereof, except pursuant to sales registered or exempted from
registration under the 1933 Act; PROVIDED, HOWEVER, that by making the
representations herein, the Buyer does not agree to hold any of the Securities
for any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.
SECTION 2.2 ACCREDITED INVESTOR STATUS. The Buyer is an "accredited
investor," as that term is defined in Rule 501(a) of Regulation D.
SECTION 2.3 RELIANCE ON EXEMPTIONS. The Buyer understands that the
Securities are being offered and sold to it in reliance upon specific exemptions
from the registration
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requirements of United States federal and state securities laws and that the
Company is relying upon the truth and accuracy of, and the Buyer's compliance
with, the representations, warranties, agreements, acknowledgments and
understandings of the Buyer as set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire the
Securities.
SECTION 2.4 INFORMATION. The Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities,
which have been requested by the Buyer or its advisors. The Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company and have received what the Buyer believes to be satisfactory answers to
any such inquiries. Neither such inquiries nor any other due diligence
investigation conducted by Buyer or any of its advisors or representatives shall
modify, amend or affect Buyer's right to rely on the Company's representations
and warranties contained in Article III below. The Buyer understands that its
investment in the Securities involves a significant degree of risk.
SECTION 2.5 GOVERNMENTAL REVIEW. The Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.
SECTION 2.6 TRANSFER OR RESALE. The Buyer understands that (i) except
as provided in the Registration Rights Agreement, the Securities have not been
and are not being registered under the 1933 Act or any applicable state
securities laws and may not be transferred unless (a) subsequently included in
an effective registration statement thereunder, (b) the Buyer shall have
delivered to the Company an opinion of counsel (which opinion shall be
reasonably acceptable to the Company) to the effect that the Securities to be
sold or transferred may be sold or transferred pursuant to an exemption from
such registration, (c) sold or transferred to an "affiliate" (as defined in Rule
144 promulgated under the 1933 Act (or a successor rule) ("RULE 144")) or (d)
sold pursuant to Rule 144; (ii) any sale of such Securities made in reliance on
Rule 144 may be made only in accordance with the terms of said Rule and further,
if said Rule is not applicable, any resale of such Securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the 0000 Xxx) may
require compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder (in each case, other than pursuant to the Registration
Rights Agreement). Notwithstanding the foregoing or anything else contained
herein to the contrary, the Securities may be pledged as collateral in
connection with a BONA FIDE margin account or other lending arrangement.
SECTION 2.7 LEGENDS. The Buyer understands that the Notes and the
Warrants, and until such time as the Conversion Shares and Warrant Shares have
been registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the Conversion Shares and Warrant Shares, may bear a restrictive
legend in substantially the following form (and a stop-transfer order may be
placed against transfer of the certificates for such Securities):
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The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The securities
have been acquired for investment and may not be sold, transferred or
assigned in the absence of an effective registration statement for the
securities under said Act or an opinion of counsel in form, substance
and scope reasonably acceptable to the Company that registration is not
required under said Act or unless sold pursuant to Rule 144 under said
Act.
The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws, (a)
such Security is registered for sale under an effective registration statement
filed under the 1933 Act, or (b) such holder provides the Company with an
opinion of counsel in form, substance and scope reasonably acceptable to the
Company, to the effect that a public sale or transfer of such Security may be
made without registration under the 1933 Act and such sale or transfer is
effected, or (c) such holder provides the Company with reasonable assurances
that such Security can be sold pursuant to Rule 144 under the 1933 Act (or a
successor rule thereto) without any restriction as to the number of Securities
acquired as of a particular date that can then be immediately sold. The Buyer
agrees to sell all Securities, including those represented by a certificate(s)
from which the legend has been removed, in compliance with applicable prospectus
delivery requirements, if any.
SECTION 2.8 AUTHORIZATION; ENFORCEMENT. This Agreement and the
Registration Rights Agreement have been duly and validly authorized, executed
and delivered on behalf of the Buyer and are valid and binding agreements of the
Buyer enforceable in accordance with their terms.
SECTION 2.9 RESIDENCY. The Buyer has provided to the Company the name
of the jurisdiction of its residence.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each Buyer that:
SECTION 3.1 ORGANIZATION AND QUALIFICATION. The Company and each of its
Subsidiaries (as defined below), if any, is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated, with full power and authority (corporate and other) to
own, lease, use and operate its properties and to carry on its business as and
where now owned, leased, used, operated and conducted. SCHEDULE 3.1 sets forth a
list of all of the Subsidiaries of the Company and the jurisdiction in which
each is incorporated. The Company and each of its Subsidiaries is duly qualified
as a foreign corporation to do business and is in good standing in every
jurisdiction in which its ownership or use of property or the nature of the
business conducted by it makes such qualification necessary except where the
failure to be so qualified or in good standing would not have a Material Adverse
Effect. "MATERIAL ADVERSE EFFECT" shall mean any material adverse effect on (i)
the
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Purchased Shares, (ii) the assets, liabilities, business, properties,
operations, financial condition or results of operations of the Company and its
Subsidiaries (as defined below), if any, taken as a whole, (iii) the
transactions contemplated hereby or by the agreements or instruments to be
entered into in connection herewith or (iv) the authority or the ability of the
Company to perform its obligations under this Agreement. "SUBSIDIARIES" means
any corporation or other organization, whether incorporated or unincorporated,
in which the Company owns, directly or indirectly, any equity or other ownership
interest and which would be a "Significant Subsidiary" of the Company as defined
under Rule 1-02(w) of Regulation S-X promulgated under the 1933 Act.
SECTION 3.2 AUTHORIZATION; ENFORCEMENT. (i) The Company has all
requisite corporate power and authority to enter into and perform this
Agreement, the Registration Rights Agreement, the Notes and the Warrants and to
consummate the transactions contemplated hereby and thereby and to issue the
Securities, in accordance with the terms hereof and thereof, (ii) the execution
and delivery of this Agreement, the Registration Rights Agreement, the Notes and
the Warrants by the Company and the consummation by it of the transactions
contemplated hereby and thereby (including without limitation, the issuance and
reservation for issuance of the Conversion Shares and Warrant Shares) have been
duly authorized by the Company's Board of Directors and no further consent or
authorization of the Company, its Board of Directors or its stockholders is
required, (iii) this Agreement, the Registration Rights Agreement, the Notes and
the Warrants have been duly executed and delivered by the Company, and (iv) this
Agreement, the Registration Rights Agreement, the Notes and the Warrants
constitute a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer, liquidation or similar laws relating to, or affecting
generally, the enforcement of creditor's rights and remedies or by other
equitable principles of general application from time to time in effect.
SECTION 3.3 CAPITALIZATION. As of the date hereof, the authorized
capital stock of the Company consists of (i) 185,000,000 shares of Common Stock,
of which 104,147,494 shares of Common Stock are issued and outstanding,
15,000,000 shares of Common Stock are reserved for issuance pursuant to the
Company's stock option plans, 5,357,250 shares of Common Stock are reserved for
issuance pursuant to securities exercisable for, or convertible into or
exchangeable for, shares of Common Stock, 169,031 shares of Common Stock are
reserved for issuance upon conversion of Series A Convertible Preferred Stock
and 10,875,000 shares are reserved for issuance upon conversion of Series D
Convertible Preferred Stock, and 11,921,570 shares have been reserved for
issuance pursuant to this Agreement (including the Conversion Shares and the
Warrant Shares issuable upon conversion or exercise of or otherwise pursuant to
the Notes or the Warrants), subject to increase in the event that additional
Notes and Warrants are sold pursuant to Section 4.15 hereof; (ii) 14,000 shares
of preferred stock, par value $.001 per share, of which 2,407 shares of Series A
Convertible Preferred Stock and 2,175 shares of Series D Convertible Preferred
Stock, respectively, are issued and outstanding. All of such outstanding shares
of capital stock are, or upon issuance will be, duly authorized, validly issued,
fully paid and non-assessable. No shares of capital stock of the Company are
subject to preemptive rights or any other similar rights of the stockholders of
the Company or any liens or encumbrances imposed through the actions or failure
to act of the Company. Except as disclosed in SCHEDULE 3.3, as of the effective
date of this Agreement, (i) there are no outstanding options, warrants, scrip,
rights
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to subscribe for, puts, calls, rights of first refusal, agreements,
understandings, claims or other commitments or rights of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
for any shares of capital stock of the Company or any of its Subsidiaries, or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
Subsidiaries, (ii) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
its or their securities under the 1933 Act and (iii) there are no anti-dilution
or price adjustment provisions contained in any security issued by the Company
(or in any agreement providing rights to security holders) that will be
triggered by the issuance of the Securities. The Company has furnished to the
Buyer true and correct copies of the Company's Certificate of Incorporation as
in effect on the date hereof (the "CERTIFICATE OF INCORPORATION"), the Company's
By-laws as in effect on the date hereof (the "BYLAWS"), and the terms of all
securities convertible into or exercisable for Common Stock of the Company and
the material rights of the holders thereof in respect thereto. The Company shall
provide the Buyer with a written update of this representation signed by the
Company's Chief Executive Officer or Chief Financial Officer on behalf of the
Company on the Closing Date.
SECTION 3.4 ISSUANCE OF SHARES. The Conversion Shares and Warrant
Shares are duly authorized and, upon issuance in accordance with the terms of
this Agreement (including the issuance of the Conversion Shares upon conversion
of the Notes and the Warrant Shares upon exercise of the Warrants in accordance
with their respective terms) will be validly issued, fully paid and
non-assessable, and free from all taxes, liens and charges with respect to the
issue thereof and shall not be subject to preemptive rights or other similar
rights of stockholders of the Company. The term Conversion Shares and Warrant
Shares includes the shares of Common Stock issuable upon conversion of the Notes
or exercise of the Warrants, including without limitation, such additional
shares, if any, as are issuable as a result of the events described in Articles
II.D.3 and II.E of the Notes and Section 2(c) of the Registration Rights
Agreement.
SECTION 3.5 ACKNOWLEDGMENT OF DILUTION. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock upon the
issuance of the Securities. The Company's directors and executive officers have
studied and fully understand the nature of the securities being sold hereunder.
The Company further acknowledges that its obligation to issue the Securities in
accordance with this Agreement is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company. Taking the foregoing into account, the Company's
Board of Directors has determined, in its good faith business judgment, that the
issuance of the Conversion Shares and the Warrant Shares hereunder and the
consummation of the transactions contemplated hereby and thereby are in the best
interest of the Company and its stockholders.
SECTION 3.6 NO CONFLICTS. The execution, delivery and performance of
this Agreement, the Registration Rights Agreement, the Notes and the Warrants by
the Company and the consummation by the Company of the transactions contemplated
hereby (including, without limitation, the issuance and reservation for
issuance, as applicable, of the Notes, the Conversion Shares, Warrants and
Warrant Shares) will not (i) conflict with or result in a violation of any
provision of the Certificate of Incorporation or Bylaws or (ii) violate or
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which with notice or lapse of
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time or both could become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture, patent, patent license or instrument to which the Company or any of
its Subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and regulations of any self-regulatory organizations to
which the Company or its securities are subject) applicable to the Company or
any of its Subsidiaries or by which any property or asset of the Company or any
of its Subsidiaries is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect). Neither
the Company nor any of its Subsidiaries is in violation of its Certificate of
Incorporation, By-laws or other organizational documents and neither the Company
nor any of its Subsidiaries is in default (and no event has occurred which with
notice or lapse of time or both could put the Company or any of its Subsidiaries
in default) under, and neither the Company nor any of its Subsidiaries has taken
any action or failed to take any action that would give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party or by which any property or assets of the Company or any of its
Subsidiaries is bound or affected, except for possible defaults as would not,
individually or in the aggregate, have a Material Adverse Effect. The businesses
of the Company and its Subsidiaries, if any, are not being conducted, and shall
not be conducted so long as a Buyer owns any of the Securities, in violation of
any law, ordinance or regulation of any governmental entity the violation of
which would reasonably be expected to have a Material Adverse Effect.
SECTION 3.7 NO CONSENTS. Except as specifically contemplated by this
Agreement and as required under the 1933 Act and any applicable state securities
laws, the Company is not required to obtain any consent, authorization or order
of, or make any filing or registration with, any court, governmental agency,
regulatory agency, self regulatory organization or stock market or any third
party in order for it to execute, deliver or perform any of its obligations
under this Agreement in accordance with the terms hereof or thereof or to issue
and sell the Securities in accordance with the terms hereof. Except as disclosed
in SCHEDULE 3.7, all consents, authorizations, orders, filings and registrations
which the Company is required to obtain pursuant to the preceding sentence have
been obtained or effected on or prior to the date hereof. The Company is not in
violation of the listing requirements of the Over-the-Counter Bulletin Board
Market (the "PRINCIPAL EXCHANGE") and the Company is not aware of any event or
condition that could reasonably be expected to cause the Common Stock to be
delisted by the Principal Exchange in the foreseeable future. The Company and
its Subsidiaries are unaware of any facts or circumstances which might give rise
to any of the foregoing.
SECTION 3.8 SEC DOCUMENTS; FINANCIAL STATEMENTS. The Company has timely
filed all reports, schedules, forms, statements and other documents required to
be filed by it with the SEC pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")(all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents (other than exhibits to
such documents) incorporated by reference therein, being hereinafter referred to
as the "SEC DOCUMENTS"). The Company has delivered or made available to the each
of the Buyers true and complete copies of the SEC Documents. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act and the rules and
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regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
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. None of the statements made in any such SEC Documents is, or has
been, required to be amended or updated under applicable law (except for such
statements as have been amended or updated in subsequent filings prior to the
date hereof). As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with United States generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as may
be otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the consolidated financial position of the Company and
its consolidated Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments).
Except as set forth in the financial statements of the Company included in the
SEC Documents, the Company has no liabilities, contingent or otherwise, other
than (i) liabilities incurred in the ordinary course of business subsequent to
December 31, 2003 and (ii) obligations under contracts and commitments incurred
in the ordinary course of business and not required under generally accepted
accounting principles to be reflected in such financial statements, which,
individually or in the aggregate, are not material to the financial condition or
operating results of the Company.
SECTION 3.9 ABSENCE OF CERTAIN CHANGES. Since December 31, 2003, there
has been no material adverse change and no material adverse development in the
assets, liabilities, business, properties, operations, financial condition or
results of operations of the Company or any of its Subsidiaries (other than
changes or developments which have been disclosed in the SEC Documents filed
since such date).
SECTION 3.10 ABSENCE OF LITIGATION. There is no action, suit, claim,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company or any of its Subsidiaries, or their officers or directors
in their capacity as such, that could have a Material Adverse Effect. SCHEDULE
3.10 contains a complete list and summary description of any pending or
threatened proceeding against or affecting the Company or any of its
Subsidiaries which could, either individually or in the aggregate, have a
Material Adverse Effect. The Company and its Subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing.
SECTION 3.11 PATENTS, COPYRIGHTS, ETC. The Company and each of its
Subsidiaries owns or possesses the requisite licenses or rights to use all
patents, patent applications, patent rights, inventions, know-how, trade
secrets, trademarks, trademark applications, service marks, service names, trade
names and copyrights ("INTELLECTUAL PROPERTY") necessary to enable it to conduct
its business as now operated (and, except as set forth in SCHEDULE 3.11 hereof,
to the best of the Company's knowledge, as presently contemplated to be operated
in the future); there
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is no claim or action by any person pertaining to, or proceeding pending, or to
the Company's knowledge threatened, which challenges the right of the Company or
of a Subsidiary with respect to any Intellectual Property necessary to enable it
to conduct its business as now operated (and, except as set forth in SCHEDULE
3.11 hereof, to the best of the Company's knowledge, as presently contemplated
to be operated in the future); to the best of the Company's knowledge, the
Company's or its Subsidiaries' current and intended products, services and
processes do not infringe on any Intellectual Property or other rights held by
any person; and the Company is unaware of any facts or circumstances which might
give rise to any of the foregoing. The Company and each of its Subsidiaries have
taken reasonable security measures to protect the secrecy, confidentiality and
value of their Intellectual Property.
SECTION 3.12 NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Company
nor any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
SECTION 3.13 TAX STATUS. Except as set forth on SCHEDULE 3.13, the
Company and each of its Subsidiaries has made or filed all federal, state and
foreign income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim. The Company has not executed a waiver with respect to
the statute of limitations relating to the assessment or collection of any
foreign, federal, state or local tax. Except as set forth on SCHEDULE 3.13, none
of the Company's tax returns is presently being audited by any taxing authority.
SECTION 3.14 CERTAIN TRANSACTIONS. Except as set forth on SCHEDULE 3.14
and as otherwise disclosed in the SEC Documents and except for arm's length
transactions pursuant to which the Company or any of its Subsidiaries makes
payments in the ordinary course of business upon terms no less favorable than
the Company or any of its Subsidiaries could obtain from third parties and other
than the grant of stock options disclosed on SCHEDULE 3.3, none of the officers,
directors, or employees of the Company is presently a party to any transaction
with the Company or any of its Subsidiaries (other than for services as
employees, officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the
Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
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SECTION 3.15 DISCLOSURE. All information relating to or concerning the
Company or any of its Subsidiaries set forth in this Agreement and provided to
the Buyers in connection with the transactions contemplated hereby, is true and
correct in all material respects and the Company has not omitted to state any
material fact necessary in order to make the statements made herein or therein,
in light of the circumstances under which they were made, not misleading (other
than any information the Buyer has refused to accept). No event or circumstance
has occurred or exists, nor is the Company in possession of any information,
with respect to the Company or any of its Subsidiaries or its or their business,
properties, prospects, operations or financial conditions, which has not been
publicly announced or disclosed but under applicable law, rule or regulation,
requires public disclosure or announcement by the Company (assuming for this
purpose that the Company's reports filed under the Exchange Act are being
incorporated into an effective registration statement filed by the Company under
the 1933 Act).
SECTION 3.16 ACKNOWLEDGMENT REGARDING BUYER'S PURCHASE OF SECURITIES.
The Company acknowledges and agrees that the Buyers are acting solely in the
capacity of an arm's length purchaser with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that the
Buyers are not acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to this Agreement and the transactions
contemplated hereby and that any statement made by the Buyers or any of their
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is not advice or a recommendation and is merely incidental
to the Buyers' purchase of the Securities and has not been relied upon by the
Company, its officers or directors in any way. The Company further represents to
the Buyers that the Company's decision to enter into this Agreement has been
based solely on the independent evaluation of the Company and its
representatives.
SECTION 3.17 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 in any security or solicited any offers to
buy any security under circumstances that would require registration under the
1933 Act of the issuance of the Securities to the Buyers. The issuance of the
Securities to the Buyers will not be integrated with any other issuance of the
Company's securities (past, current or future) for purposes of any stockholder
approval provisions (under the rules of the Principal Exchange or otherwise)
applicable to the Company or its securities.
SECTION 3.18 NO BROKERS. The Company has taken no action which would
give rise to any claim by any person for brokerage commissions, finder's fees or
similar payments relating to this Agreement or the transactions contemplated
hereby.
SECTION 3.19 PERMITS; COMPLIANCE. The Company and each of its
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted (collectively, the "COMPANY
PERMITS") except in such instances where the failure to possess such Company
Permits would not, either individually or in the aggregate, have a Material
Adverse Effect, and there is no action pending or, to the knowledge of the
Company, threatened regarding suspension or cancellation of any of the Company
Permits,
10
the suspension or cancellation of which would not, either individually or in the
aggregate, have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is in conflict with, or in default or violation of, any of the
Company Permits, except for any such conflicts, defaults or violations which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect. Since December 31, 2003, neither the Company nor any of
its Subsidiaries has received any notification with respect to possible
conflicts, defaults or violations of applicable laws, except for notices
relating to possible conflicts, defaults or violations, which conflicts,
defaults or violations would not have a Material Adverse Effect.
SECTION 3.20 ENVIRONMENTAL MATTERS.
(a) Except as set forth in SCHEDULE 3.20, there are, to the
Company's knowledge, with respect to the Company or any of its Subsidiaries or
any predecessor of the Company, no past or present violations of Environmental
Laws (as defined below), releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents, or contractual
obligations which may give rise to any common law environmental liability or any
liability under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 or similar federal, state, local or foreign laws and
neither the Company nor any of its Subsidiaries has received any notice with
respect to any of the foregoing, nor is any action pending or, to the Company's
knowledge, threatened in connection with any of the foregoing. The term
"ENVIRONMENTAL LAWS" means all federal, state, local or foreign laws relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata), including, without limitation, laws relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants contaminants, or toxic
or hazardous substances or wastes (collectively, "HAZARDOUS MATERIALS") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.
(b) Other than those that are or were stored, used or disposed
of in compliance with applicable law, no Hazardous Materials are contained on or
about any real property currently owned, leased or used by the Company or any of
its Subsidiaries, and no Hazardous Materials were released on or about any real
property previously owned, leased or used by the Company or any of its
Subsidiaries during the period the property was owned, leased or used by the
Company or any of its Subsidiaries, except in the normal course of the Company's
or any of its Subsidiaries' business.
(c) There are no underground storage tanks on or under any
real property owned, leased or used by the Company or any of its Subsidiaries
that are not in compliance with applicable law.
SECTION 3.21 TITLE TO PROPERTY. The Company and its Subsidiaries have
good and marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them which is material to the
business of the Company and its Subsidiaries, in each case free and clear of all
liens, encumbrances and defects except such as are described in SCHEDULE 3.21 or
such as would not have a Material Adverse Effect. Any real property and
facilities held under lease by the Company and its Subsidiaries are held by them
under valid,
11
subsisting and enforceable leases with such exceptions as would not have a
Material Adverse Effect.
SECTION 3.22 INSURANCE. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has 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 at a cost that
would not have a Material Adverse Effect.
SECTION 3.23 INTERNAL ACCOUNTING CONTROLS. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
SECTION 3.24 FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of
its Subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any Subsidiary has, in the course of his
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977; or made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government
official or employee.
SECTION 3.25 SOLVENCY. The Company (both before and after giving effect
to the transactions contemplated by this Agreement) is solvent (I.E., its assets
have a fair market value in excess of the amount required to pay its probable
liabilities on its existing debts as they become absolute and matured).
SECTION 3.26 NO INVESTMENT COMPANY. The Company is not, and upon the
issuance and sale of the Securities as contemplated by this Agreement will not
be, an "investment company" required to be registered under the Investment
Company Act of 1940 (an "INVESTMENT COMPANY"). The Company is not controlled by
an Investment Company.
SECTION 3.27 XXXXXXXX-XXXXX ACT. The Company is in compliance in all
material respects with all applicable effective provisions of the Xxxxxxxx-Xxxxx
Act and is actively taking steps to ensure that it will be in compliance with
other applicable provisions of the Xxxxxxxx-Xxxxx Act upon the effectiveness of
such provisions. There has been no failure on the part of the Company or any of
the Company's directors or officers, in their capacities as such, to comply
12
with any provision of the Xxxxxxxx-Xxxxx Act of 2002 and the rules and
regulations promulgated in connection therewith, including Section 402 related
to loans.
SECTION 3.28 DISCLOSURE CONTROLS. The Company has established and
maintains disclosure controls and procedures (as such term is defined in Rule
13a-15 under the Exchange Act) which (i) are designed to ensure that material
information relating to the Company is made known to the Company's principal
executive officer and its principal financial officer by others within those
entities, particularly during the periods in which the periodic reports required
under the Exchange Act are being prepared, and (ii) are effective in all
material respects to perform the functions for which they were established.
SECTION 3.29 OFF-BALANCE SHEET TRANSACTIONS. Except as described in the
Prospectus, there are no material off-balance sheet transactions (as defined in
Regulation S-K Item 303(a)(4)(ii)), arrangements, obligations (including
contingent obligations), or any other relationships with unconsolidated entities
or other persons, that may have a material current or future effect on the
Company's financial condition, changes in financial condition, results of
operations, liquidity, capital expenditures, capital resources, or significant
components of revenues or expenses.
SECTION 3.30 AUDIT COMMITTEE. Except as set forth on SCHEDULE 3.30, the
Company's board of directors has validly appointed an audit committee whose
composition satisfies the requirements of Rule 4350(d)(2) of the Rules of the
National Association of Securities Dealers, Inc. (the "NASD RULES") and the
board of directors or the audit committee has adopted a charter that satisfies
the requirements of Rule 4350(d)(1) of the NASD Rules.
SECTION 3.31 MONEY LAUNDERING AND RELATED LAWS.
(a) The operations of the Company and its subsidiaries are and
have been conducted at all times in compliance with applicable financial record
keeping and reporting requirements of the Currency and Foreign Transactions
Reporting Act of 1970, as amended, the money laundering statutes of all
jurisdictions, the rules and regulations thereunder and any related or similar
rules, regulations or guidelines, issued, administered or enforced by any
governmental agency (collectively, the "MONEY LAUNDERING LAWS") and no action,
suit or proceeding by or before any court or governmental agency, authority or
body or any arbitrator involving the Company or any of it subsidiaries with
respect to the Money Laundering Laws is pending, or to the best knowledge of the
Company, threatened.
(b) Neither the Company nor any of its subsidiaries nor, to
the knowledge of the Company, any director, officer, agent, employee or
affiliate of the Company or any of its subsidiaries is currently subject to any
U.S. sanctions administered by the Office of Foreign Assets Control of the U.S.
Treasury Department ("OFAC"); and the Company will not directly or indirectly
use the proceeds of the offering, or lend, contribute or otherwise make
available such proceeds to any subsidiary, joint venture partner or other person
or entity, for the purpose of financing the activities of any person currently
subject to any U.S. sanctions administered by OFAC.
13
ARTICLE IV
COVENANTS
SECTION 4.1 BEST EFFORTS. The parties shall use their best efforts to
satisfy timely each of the conditions described in Article V of this Agreement.
SECTION 4.2 FORM D; BLUE SKY LAWS. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Purchased Shares for sale to the Buyer
pursuant to this Agreement under applicable securities or "blue sky" laws of the
states of the United States (or to obtain an exemption from such qualification),
and shall provide evidence of any such action so taken to the Buyer on or prior
to the Closing Date.
SECTION 4.3 REPORTING STATUS; FORM S-3 ELIGIBILITY. The Company's
Common Stock is registered under Section 12(g) of the Exchange Act. So long as
the Buyer beneficially owns any of the Securities, the Company shall timely file
all reports required to be filed with the SEC pursuant to the Exchange Act, and
the Company shall not terminate its status as an issuer required to file reports
under the Exchange Act even if the Exchange Act or the rules and regulations
thereunder would permit such termination. Upon obtaining listing or quotation of
the Common Stock on a national securities exchange or automated quotation
system, the Company will take all necessary action to meet the "registrant
eligibility" requirements set forth in the general instructions to Form S-3
applicable to both "primary" and "resale" registrations on Form S-3.
SECTION 4.4 DISCLOSURE OF TRANSACTION. As soon as practicable after the
Closing under this Agreement, but in no event later than 9:30 a.m. on the
Trading Day following the Closing under this Agreement, the Company shall (i)
file with the SEC a Current Report on Form 8-K describing the material terms of
the transactions contemplated hereby (and attaching as exhibits thereto this
Agreement), which Form 8-K shall be subject to prior review and reasonable
comment by Rock Hill Investment Management, L.P. ("ROCK HILL").
SECTION 4.5 EXPENSES. The Company shall reimburse Rock Hill for all
expenses incurred by it in connection with the negotiation, preparation,
execution, delivery and performance of this Agreement and the other agreements
to be executed in connection herewith, including the Registration Rights
Agreement, including, without limitation, attorneys' and consultants' fees and
expenses and travel expenses. The Company's obligation to reimburse Rock Hill's
expenses under this Section 4.5 shall be limited to Fifteen Thousand Dollars
($15,000).
SECTION 4.6 FINANCIAL INFORMATION. The Company agrees to send the
following reports to the Buyer until the Buyer transfers, assigns, or sells all
of the Securities: (i) within one (1) day after release, copies of all press
releases issued by the Company or any of its Subsidiaries; and (ii)
contemporaneously with the making available or giving to the stockholders of the
Company, copies of any notices or other information the Company makes available
or gives to such stockholders.
14
SECTION 4.7 RESERVATION OF SHARES. On and after the Closing Date, the
Company shall at all times have authorized, and reserved for the purpose of
issuance (including being free of any preemptive rights), a sufficient number of
shares of Common Stock to provide for the full conversion of the Notes (based on
the lesser of the Market Price in effect from time to time and the Fixed Price
in effect from time to time (each as defined in the Note)) and issuance of the
Conversion Shares in connection therewith and the full exercise of the Warrants
(based on the Exercise Price (as defined in the Warrants) of the Warrants in
effect from time to time) and the issuance of the Warrant Shares in connection
therewith. The Company shall not reduce the number of shares reserved for
issuance upon conversion or exercise of or otherwise pursuant to the Notes and
the Warrants without the consent of the Buyer. The Company shall use its best
efforts at all times to maintain the number of shares of Common Stock so
reserved for issuance at no less than two (2) times the number that is then
actually issuable upon conversion of the Notes and exercise of the Warrants. If
at any time the number of shares of Common Stock authorized and reserved for
issuance is below the number of Conversion Shares and Warrant Shares to be
issued upon conversion of or otherwise pursuant to the Notes and exercise of or
otherwise pursuant to Notes and Warrants, the Company will promptly take all
corporate action necessary to authorize and reserve a sufficient number of
shares, including, without limitation, calling a special meeting of stockholders
to authorize additional shares to meet the Company's obligations under this
Section 4.7, in the case of an insufficient number of authorized shares, and
using its best efforts to obtain stockholder approval of an increase in such
authorized number of shares.
SECTION 4.8 LISTING. The Company shall promptly secure the listing of
the Conversion Shares and Warrant Shares upon the Principal Exchange and each
other national securities exchange or automated quotation system, if any, upon
which shares of Common Stock are then listed (subject to official notice of
issuance) and, so long as any of the Buyers owns any of the Securities, shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all Conversion Shares and Warrant Shares issuable pursuant to this
Agreement and the Warrants. The Company will obtain and, so long as the Buyer
owns any of the Securities, maintain the listing and trading of its Common Stock
on a Principal Exchange, and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of such
Principal Exchange and any other exchanges or automated quotation systems on
which the Common Stock is then listed. The Company shall promptly provide to the
Buyer copies of any notices it receives from the Principal Exchange and any
other exchanges or automated quotation systems on which the Common Stock is then
listed regarding the continued eligibility of the Common Stock for listing on
such exchanges and quotation systems.
SECTION 4.9 NO INTEGRATION. The Company shall not make any offers or
sales of any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder under the
1933 Act or cause the offering of Securities to be integrated with any other
offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities.
SECTION 4.10 USE OF PROCEEDS. The Company shall use the proceeds from
the sale of the Notes and the Warrants in the manner set forth in SCHEDULE 4.10
attached hereto and made a part hereof and shall not, directly or indirectly,
use such proceeds for any loan to or investment in any
15
other corporation, partnership, enterprise or other person (except in connection
with its currently existing direct or indirect Subsidiaries).
SECTION 4.11 DISCLOSURE OF MATERIAL INFORMATION. In the event that the
Company comes into possession of any material non-public information, the
Company shall make full and complete public disclosure in accordance with all
applicable securities laws (including all common law formulations thereof).
SECTION 4.12 ADDITIONAL EQUITY CAPITAL; RIGHT OF FIRST REFUSAL. Subject
to the exceptions described below, the Company will not conduct any equity or
equity-linked financing (including debt financing with an equity component)
("FUTURE OFFERINGS") during the period beginning on the Closing Date and ending
on twelve (12) months from the Closing Date, unless it shall have first
delivered to Rock Hill, at least fifteen (15) business days prior to the closing
of such Future Offering, written notice describing the proposed Future Offering,
including the terms and conditions thereof and proposed definitive documentation
to be entered into in connection therewith, and providing Rock Hill an option
during the ten (10) day period following delivery of such notice to purchase up
to the greater of (x) one-third (1/3) and (y) One Million Dollars ($1,000,000)
of the securities being offered in the Future Offering on the same terms as
contemplated by such Future Offering (the limitations referred to in this
sentence are collectively referred to as the "CAPITAL RAISING LIMITATIONS");
PROVIDED that Rock Hill may exchange all or any portion of the Notes held by
Rock Hill as consideration for its participation in such Future Offering. In the
event the terms and conditions of a proposed Future Offering are amended in any
respect after delivery of the notice to Rock Hill concerning the proposed Future
Offering, the Company shall deliver a new notice to Rock Hill describing the
amended terms and conditions of the proposed Future Offering and Rock Hill
thereafter shall have an option during the ten (10) day period following
delivery of such new notice to purchase its pro rata share of the securities
being offered on the same terms as contemplated by such proposed Future
Offering, as amended. The foregoing sentence shall apply to successive
amendments to the terms and conditions of any proposed Future Offering and to
multiple Future Offerings. The Capital Raising Limitations shall not apply to
(i) any transaction involving issuances of securities in a firm commitment
underwritten public offering (excluding a continuous offering pursuant to Rule
415 under the 0000 Xxx) or (ii) issuances of securities as consideration for a
merger, consolidation or sale of assets, or in connection with any strategic
partnership or joint venture (the primary purpose of which is not to raise
equity capital), or in connection with the disposition or acquisition of a
business, product or license by the Company. The Capital Raising Limitations
also shall not apply to the issuance of securities upon exercise or conversion
of the Company's options, warrants or other convertible securities outstanding
as of the date hereof or to the grant of additional options or warrants, or the
issuance of additional securities, under any existing Company stock option or
restricted stock plan approved by a majority of the Company's disinterested
directors.
SECTION 4.13 CORPORATE EXISTENCE. So long as a Buyer beneficially owns
any Notes or Warrants, the Company shall maintain its corporate existence and
shall not sell all or substantially all of the Company's assets, except in the
event of a merger or consolidation or sale of all or substantially all of the
Company's assets, where the surviving or successor entity in such transaction
(i) assumes the Company's obligations hereunder and under the agreements and
instruments entered into in connection herewith and (ii) is a publicly traded
corporation whose Common Stock is listed for trading on the OTCBB, Nasdaq,
Nasdaq SmallCap, NYSE or AMEX.
16
SECTION 4.14 NO INTEGRATION. The Company shall not make any offers or
sales of any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder under the
1933 Act or cause the offering of Securities to be integrated with any other
offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities.
SECTION 4.15 ADDITIONAL INVESTMENT. Notwithstanding anything in this
Agreement to the contrary, the Company shall have the right, for a period of
thirty (30) days from the date hereof, to issue up to Five Hundred Thousand
Dollars ($500,000) of Notes and Warrants on the same terms and conditions set
forth in this Agreement and the other documents executed in connection herewith,
provided that such securities shall be issued only to those investors listed on
SCHEDULE B hereto and such investors shall become parties to this Agreement and
the other Transaction Documents (as defined in Section 7.14(a)).
ARTICLE V
CONDITIONS TO CLOSING
SECTION 5.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO
ISSUE AND SELL NOTES AND THE Warrants. The obligation hereunder of the Company
to issue and sell Notes and Warrants to a Buyer is subject to the satisfaction,
at or prior to the Closing Date, of each of the conditions set forth below
provided that these conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion:
(a) AGREEMENTS. The applicable Buyer shall have executed this
Agreement and the Registration Rights Agreement, and delivered the same to the
Company.
(b) PURCHASE PRICE. The applicable Buyer shall have delivered
the Purchase Price in accordance with Section 1(b) above.
(c) ACCURACY OF THE BUYER'S REPRESENTATION AND WARRANTIES. The
representations and warranties of the applicable Buyer shall be true and correct
in all material respects as of the date when made and as of the Closing Date as
though made at each such time (except for representations and warranties
specifically made as of a particular date which shall be true and correct in all
material respects as of the date when made).
(d) PERFORMANCE BY THE BUYER. The applicable Buyer shall have
performed, satisfied and complied in all respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by applicable the Buyer at or prior to the Closing Date.
SECTION 5.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE BUYER TO
PURCHASE NOTES AND WARRANTS. The obligation of a Buyer to purchase the Notes and
Warrants hereunder is subject to the satisfaction, from the date of the
execution of this Agreement to the Closing Date, of each of the following
conditions provided that these conditions are for such Buyer's sole benefit and
may be waived (in whole or in part as to any portion of its obligation to
purchase the Securities hereunder) by such Buyer at any time in its sole
discretion:
17
(a) AGREEMENTS. The Company shall have executed this Agreement
and the Registration Rights Agreement, and delivered the same to the Buyer.
(b) SECURITIES. The Company shall have delivered to such Buyer
duly executed certificates (in such denominations as the Buyer shall request)
representing the Notes and Warrants in accordance with Section 1(b) above.
(c) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company shall be true and correct in
all material respects as of the date when made and as of the Closing Date as
though made at such time (except for representations and warranties specifically
made as of a particular date which shall be true and correct in all material
respects as of the date when made). The Buyer shall have received a certificate
or certificates, executed by the chief executive officer of the Company, dated
as of the Closing Date, to the foregoing effect and as to such other matters as
may be reasonably requested by such Buyer, including, but not limited to,
certificates with respect to the Company's Certificate of Incorporation, By-laws
and Board of Directors' resolutions relating to the transactions contemplated
hereby.
(d) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to such date.
(e) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over the
matters contemplated hereby that prohibits or directly and adversely affects any
of the transactions contemplated by this Agreement, and no proceeding shall have
been commenced that may have the effect of prohibiting or adversely affecting
any of the transactions contemplated by this Agreement.
(f) MATERIAL ADVERSE CHANGES. Since the date hereof, no event
that had or is reasonably likely to have a Material Adverse Effect shall have
occurred.
(g) NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON STOCK.
The trading of the Common Stock shall not have been suspended by the SEC, the
Principal Exchange or the National Association of Securities Dealers, Inc. and
the Common Stock shall have been approved for listing or quotation on and shall
not have been delisted from the Principal Exchange.
(h) MARKET DOWNTURN. None of the principal market indexes
(such as the Dow Xxxxx Industrial Average and the Nasdaq Composite Index) shall
be down more that 3% from their close on the date of execution of this
Agreement.
(i) NO FORCE MAJEURE. No event that occurs by causes beyond
the reasonable control of any of the parties, including an act of God, acts of
public enemies, revolts, acts of any civil or military authority (for national
emergency or acts of a third party), disorderly conduct, rebellions,
revolutions, civil insurrections, acts of terrorism, strikes or other
disruptions of
18
industry, shortage of labor or of materials, fires, floods or other natural
phenomena, explosions, structural flaws, break of cables, vandalism, and other
events of force majeure recognized by applicable law (collectively, "FORCE
MAJEURE") shall occur during the Pricing Period.
(j) DEFAULT. No Event of Default (as defined in the Notes)
shall have occurred under the Notes.
(k) IRREVOCABLE TRANSFER AGENT INSTRUCTIONS. The Irrevocable
Transfer Agent Instructions (as defined in Article VI) in form and substance
satisfactory to a majority-in-interest of the Buyers, shall have been delivered
to and acknowledged in writing by the Company's Transfer Agent.
(l) OTCBB LISTING. The Conversion Shares and Warrant Shares
shall have been authorized for quotation on the OTCBB and trading in the Common
Stock on the OTCBB shall not have been suspended by the SEC or the OTCBB.
(m) LEGAL OPINION. The Buyer shall have received an opinion of
the Company's counsel, dated as of the Closing Date, in form, scope and
substance reasonably satisfactory to the Buyer and in substantially the same
form as EXHIBIT "D" attached hereto.
ARTICLE VI
TRANSFER AGENT INSTRUCTIONS
The Company shall issue irrevocable instructions to its transfer agent
to issue certificates registered in the name of each Buyer or its nominee, for
the Conversion Shares and Warrant Shares in such amounts as specified from time
to time by each Buyer to the Company upon conversion of the Notes or exercise of
the Warrants in accordance with the terms thereof (the "IRREVOCABLE TRANSFER
AGENT INSTRUCTIONS"). Prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act, all such certificates shall bear the restrictive
legend specified in Section 2.7 of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Article VI and stop transfer instructions to give effect to Section 2.6
hereof (in the case of the Conversion Shares and Warrant Shares, prior to
registration of the Conversion Shares and Warrant Shares under the 1933 Act),
will be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Registration Rights Agreement.
Nothing in this Section shall affect in any way the Buyer's obligations and
agreement set forth in Section 2.7 hereof to comply with all applicable
prospectus delivery requirements, if any, upon resale of the Securities. If a
Buyer provides the Company with an opinion of counsel, reasonably satisfactory
to the Company in form, substance and scope, that registration of a resale by
such Buyer of any of the Securities is not required under the 1933 Act, the
Company shall permit the transfer, and, in the case of the Conversion Shares and
Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by such Buyer.
The Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Buyers, by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Article VI will be
inadequate and agrees, in the event of a breach or
19
threatened breach by the Company of the provisions of this Section, that the
Buyers shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate transfer, without the
necessity of showing economic loss and without any bond or other security being
required.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
agreements made and to be performed in the State of Delaware (without regard to
principles of conflict of laws). Both parties irrevocably consent to the
exclusive jurisdiction of the United States federal courts and the state courts
located in Delaware with respect to any suit or proceeding based on or arising
under this Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby and irrevocably agree that all
claims in respect of such suit or proceeding may be determined in such courts.
Both parties irrevocably waive the defense of an inconvenient forum to the
maintenance of such suit or proceeding. Both parties further agree that service
of process upon a party mailed by first class mail shall be deemed in every
respect effective service of process upon the party in any such suit or
proceeding. Nothing herein shall affect either party's right to serve process in
any other manner permitted by law. Both parties agree that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
SECTION 7.2 NOTICES. Any notices required or permitted to be given
under the terms of this Agreement shall be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile and shall be effective
five days after being placed in the mail, if mailed by regular United States
mail, or upon receipt, if delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile, in each case addressed
to a party. The addresses for such communications shall be:
20
If to the Company:
Summus, Inc. (USA)
000 Xxxxxxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx Xxxxxxxx 00000
Attention: Xxxx X. Ban, Chief Executive Officer
Telephone: 000-000-0000
Facsimile: 000-000-0000
With copy to:
Summus, Inc. (USA)
000 Xxxxxxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx Xxxxxxxx 00000
Attention: Xxxxxx X. Xxxxx, CFO and General Counsel
Telephone: 000-000-0000
Facsimile: 000-000-0000
If to any of the Buyers:
At the name and address set forth on
SCHEDULE A hereto, with a copy to counsel to
such Buyer as set forth on SCHEDULE A
hereto.
Each party shall provide notice to the other party of any change in
address.
SECTION 7.3 COUNTERPARTS; SIGNATURES BY FACSIMILE. This Agreement may
be executed in one or more counterparts, all of which 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. This Agreement, once
executed by a party, may be delivered to the other party hereto by facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.
SECTION 7.4 HEADINGS. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
SECTION 7.5 SEVERABILITY. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
SECTION 7.6 ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the
Exhibits hereto contain the entire agreement and understanding of the parties
with respect to the matters covered herein and therein and supersede all prior
and contemporaneous agreements, negotiations and understandings between the
parties, both oral and written relating to the subject matter hereof. The terms
and conditions of all Exhibits to this Agreement are incorporated herein by this
reference and shall constitute part of this Agreement as if fully set forth
herein. No provision of this Agreement may be waived or amended other than by an
instrument in writing signed by the holders of a majority of the outstanding
principal amount of the Notes (or
21
if such Notes are no longer outstanding, the holder of a majority of the then
outstanding Warrants).
SECTION 7.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
Neither the Company nor the Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, subject to Section 3, the Buyer may assign its
rights hereunder to any of its "affiliates," as that term is defined under the
Exchange Act, without the consent of the Company.
SECTION 7.8 THIRD PARTY BENEFICIARIES. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
SECTION 7.9 SURVIVAL. The representations and warranties of the Company
and the agreements and covenants set forth herein shall survive the Closing and
the Closing Date hereunder notwithstanding any due diligence investigation
conducted by or on behalf of the Buyer.
SECTION 7.10 PUBLICITY. The Company and Rock Hill shall have the right
to review a reasonable period of time before issuance of any press releases,
filings with the SEC, NASD or any stock exchange or interdealer quotation
system, or any other public statements with respect to the transactions
contemplated hereby; PROVIDED, HOWEVER, that the Company shall be entitled,
without the prior approval of Rock Hill, to make any press release or public
filings with respect to such transactions as is required by applicable law and
regulations (although Rock Hill shall be consulted by the Company in connection
with any such press release or public filing prior to its release or public
filing and shall be provided with a copy thereof and be given an opportunity to
comment thereon). In addition, the Company agrees that it will not disclose, and
will not include in any public filing or other announcement, the name of any
Buyer, unless expressly agreed to in writing by such Buyer or unless and until
such disclosure is, in the reasonable opinion of counsel to the Company,
required by law or applicable regulation, and then only to the extent of such
requirement.
SECTION 7.11 FURTHER ASSURANCES. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
SECTION 7.12 NO STRICT CONSTRUCTION. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.
SECTION 7.13 REMEDIES. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Buyer by vitiating
the intent and purpose of the transactions contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Agreement will be inadequate and agrees,
22
in the event of a breach or threatened breach by the Company of the provisions
of this Agreement (including the failure to deliver unlegended, freely tradable
Purchased Shares on the Closing Date), that the Buyer shall be entitled, in
addition to all other available remedies in law or in equity, to an injunction
or injunctions to prevent or cure any breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions of this
Agreement, without the necessity of showing economic loss and without any bond
or other security being required.
SECTION 7.14 INDEPENDENT NATURE OF BUYERS.
(a) The Company acknowledges that the obligations of the
Buyers under this Agreement, the Registration Rights Agreement, the Warrants and
any other document entered into in connection with this Agreement, the Warrants
and the transactions contemplated hereby and thereby (the "TRANSACTION
DOCUMENTS") are several and not joint, and no Buyer shall be responsible in any
way for the performance of the obligations of any other Buyer under the
Transaction Documents. The decision of each of the Buyers to purchase Securities
pursuant to this Agreement has been made by each Buyer independently of any
other Buyer and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company or of the Subsidiaries which may have made or given by
any other Buyer or by any agent or employee of any other Buyer and, as between
the Buyers, no Buyer or any of its agents or employees shall have any liability
to any other Buyer relating to or arising from any such information, materials,
statements or opinions. The Company further acknowledges that nothing contained
in the Transaction Documents, and no action taken by the Buyers pursuant hereto
or thereto, shall be deemed to constitute the Buyers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Buyers are in any way acting in concert or as a group with
respect to such obligations or the transactions contemplated hereby. Each of the
Buyers 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 Buyer to
be joined as an additional party in any proceeding for such purpose.
(b) The Buyers have been represented by their own respective
separate legal counsel in their review and negotiation of the Transaction
Documents. For reasons of administrative convenience only, at the request of the
Company, the Buyers and their respective counsel have chosen to communicate with
the Company through Xxxxxxx Xxxxx Xxxxxxx & Xxxxxxxxx, LLP, counsel to one of
the Buyers. Such counsel does not represent any of the other Buyers and each
other Buyer has retained its own legal counsel in connection with the
negotiation and review of the Transaction Documents. Also for reasons of
administrative convenience only, the Company has elected to provide the Buyers
with the Transaction Documents for the convenience of the Company and not
because it was required or requested to do so by the Buyers. The Company
acknowledges that such procedure with respect to the Transaction Documents in no
way creates a presumption that the Buyers are in any way acting in concert or as
a group with respect to the Transaction Documents or the transactions
contemplated hereby or thereby.
23
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by the undersigned, thereunto duly authorized, as of the date first set
forth above.
SUMMUS, INC. (USA)
By:
--------------------------
Xxxx X. Ban
Chief Executive Officer
INVESTORS:
