EXHIBIT 10.1
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ELECTROGLAS, INC.,
as the Company
and
BUYERS,
as defined herein
SECURITIES PURCHASE AGREEMENT
Dated as of June 19, 2002
5.25% Convertible Subordinated Notes due 2007
and Warrants to Purchase Common Stock
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SECTION 1. Purchase and Sale of Notes and Warrants....................... 2
SECTION 2. Buyer's Representations and Warranties........................ 2
SECTION 3. Representations and Warranties of the Company................. 7
SECTION 4. Covenants.....................................................13
SECTION 5. Transfer Agent Instructions...................................17
SECTION 6. Conditions to the Company's Obligation to Close...............18
SECTION 7. Conditions to Each Buyer's Obligation to Purchase.............18
SECTION 8. Indemnification...............................................20
SECTION 9. Miscellaneous.................................................21
SCHEDULES
Schedule 3(a).......................Subsidiaries
Schedule 3(e).......................Conflicts
Schedule 3(p).......................Transactions with Affiliates
Schedule A..........................Company Wire Instructions
EXHIBITS
Exhibit A...........................Schedule of Buyers
Exhibit B...........................Form of Note
Exhibit C...........................Form of Warrant
Exhibit D...........................Schedule of Fees
Exhibit E...........................Form of Registration Rights Agreement
Exhibit F...........................Form of Irrevocable Transfer Agent Instructions
Exhibit G...........................Form of Company Counsel Opinion
Exhibit H...........................Form of Indenture
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of
June 19, 2002, by and among Electroglas, Inc., a Delaware corporation (the
"Company"), and the Buyers listed on the Schedule of Buyers attached hereto as
Exhibit A (individually, a "Buyer" and, collectively, the "Buyers").
THE PARTIES TO THIS AGREEMENT enter into this Agreement on the basis
of the following facts, intentions and understandings:
A. In accordance with the terms and conditions of this Agreement,
the Company has agreed to issue and sell, and the Buyers have agreed to purchase
in the aggregate, (i) Thirty-Five Million Five Hundred Thousand United States
Dollars ($35,500,000) principal amount of the Company's 5.25% Convertible
Subordinated Notes due 2007 (such Convertible Subordinated Notes, substantially
in the form attached hereto as Exhibit B, as the same may be amended, modified
or supplemented from time to time in accordance with the terms thereof, the
"Notes"), which shall be convertible into shares of the common stock, $0.01 par
value per share (the "Common Stock"), of the Company (as converted, the
"Conversion Shares"), and (ii) Warrants (such Warrants, substantially in the
form attached hereto as Exhibit C, as the same may be amended, modified or
supplemented from time to time in accordance with the terms thereof, the "Buyer
Warrants") to purchase 649,612 shares of Common Stock (as exercised,
collectively, the "Buyer Warrant Shares"). The Notes are being issued pursuant
to an Indenture, dated as of June 21, 2002 (the "Indenture") by and between the
Company and The Bank of New York, as trustee (the "Trustee"), substantially in
the form attached hereto as Exhibit H.
B. To induce Xxxxxxxxx Xxxxxxxx, Inc. ("Xxxxxxxxx") to act as
exclusive placement agent with respect to the offering of the Notes and the
Buyer Warrants (the "Offering"), the Company has agreed (i) to issue Warrants
(such Warrants, substantially in the form attached hereto as Exhibit C, as the
same may be amended, modified or supplemented from time to time in accordance
with the terms thereof, the "Xxxxxxxxx Warrant" and, together with the Buyer
Warrants, the "Warrants") to purchase the number of shares of Common Stock set
forth on the Schedule of Fees (the "Schedule of Fees") attached hereto as
Exhibit D (as exercised, collectively, the "Xxxxxxxxx Warrant Shares", and
together with the Buyer Warrant Shares, the "Warrant Shares").
C. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement substantially in the form attached hereto as Exhibit E (as the same
may be amended, modified or supplemented from time to time in accordance with
the terms thereof, the "Registration Rights Agreement") pursuant to which the
Company has agreed to provide the Buyers and Xxxxxxxxx with the benefit of
certain registration rights under the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder (the "Securities Act") and
applicable state securities laws, on the terms and subject to the conditions set
forth therein.
NOW THEREFORE, in consideration of the promises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
of the Buyers hereby agree as follows:
SECTION 1. PURCHASE AND SALE OF NOTES AND WARRANTS.
(a) Purchase of Notes and Warrants. Subject to the satisfaction (or
waiver) of the conditions set forth in Sections 6 and 7 of this Agreement, the
Company shall issue and sell to each Buyer, and each Buyer severally and not
jointly agrees to purchase from the Company, the respective principal amount of
Notes, together with the related Warrants, set forth opposite such Buyer's name
on the Schedule of Buyers attached hereto as Exhibit A (the "Closing"). The
Company shall issue to each Buyer One Thousand United States Dollars ($1,000)
principal amount of the Notes and Warrants to purchase approximately 18.2989
Warrant Shares for each One Thousand United States Dollars ($1,000) tendered by
each such Buyer.
(b) The Closing. The date and time of the Closing (the "Closing Date")
shall be 10:00 a.m., San Francisco time, on June 21, 2002, subject to the
satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 of this
Agreement. The Closing shall occur on the Closing Date at the offices of
Xxxxxxxx & Xxxxxxxx LLP, 755 Page Mill Road, Palo Alto, California.
(c) Form of Payment. On the Closing Date, (i) each Buyer shall pay the
Company for the Notes and the related Warrants to be issued and sold to such
Buyer on the Closing Date, by wire transfer of immediately available funds in
accordance with the Company's written wire instructions attached hereto on
Schedule A, (ii) the Company shall reimburse each Buyer for its reasonable
expenses to the extent required by Section 4(i) of this Agreement, and (iii) the
Company shall issue to each Buyer properly authenticated Notes (in the
denominations as such Buyer shall reasonably request) representing the principal
amount of Notes which such Buyer is then purchasing hereunder, along with
Warrants representing the related number of Warrant Shares, duly executed on
behalf of the Company and registered in the name of such Buyer.
SECTION 2. BUYER'S REPRESENTATIONS AND WARRANTIES. Each Buyer represents
and warrants to the Company with respect to only itself that as of the date
hereof:
(a) Investment Purpose. Such Buyer is acquiring the Notes and the Warrants
for its own account for investment only and not with a view towards, or for
resale in connection with, the public sale or distribution thereof, except
pursuant to sales registered or exempted from registration under the Securities
Act; provided, however, that by making the representations herein, such Buyer
does not agree to hold any of the Notes, the Conversion Shares, the Warrants and
the Warrants Shares (collectively, the "Securities") for any minimum or other
specific term and reserves the right to dispose of the Securities at any time;
provided, further, that such disposition shall be in accordance with or pursuant
to a registration statement or an exemption under the Securities Act.
(b) Accredited Investor Status. Such Buyer is an "accredited investor" as
that term is defined in Rule 501(a) of Regulation D under the Securities Act as
of the date of this Agreement and was not organized for the specific purpose of
acquiring the Securities.
(c) Reliance on Exemptions. Such Buyer understands that the Securities are
being offered and sold to it in reliance on specific exemptions from the
registration requirements of the United States federal and state securities laws
and that the Company is relying upon the truth and
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accuracy of, and such Buyer's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of such Buyer set forth herein
and in the applicable Note or Warrant in order to determine the availability of
such exemptions and the eligibility of such Buyer to acquire the Securities.
(d) Information. Such Buyer believes it (i) has been furnished with or
believes it has had full access to all of the information that it considers
necessary or appropriate for deciding whether to purchase the Securities, (ii)
has had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Securities, (iii) can
bear the economic risk of a total loss of its investment in the Notes and the
Warrants and (iv) has such knowledge and experience in business and financial
matters so as to enable it to understand the risks of and form an investment
decision with respect to its investment in the Securities. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall limit, modify, amend or
affect the Company's representations and warranties contained in this Agreement
and the Buyer's right to rely thereon.
(e) No Governmental Review. Such Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
(f) Transfer or Resale. Such Buyer understands that, except as provided in
the Registration Rights Agreement, the Securities have not been registered under
the Securities Act or any state securities laws, and may not be offered for
sale, sold, assigned or transferred without registration under the Securities
Act or an exemption therefrom and that, in the absence of an effective
registration statement under the Securities Act, such Securities may only be
sold under certain circumstances as set forth in the Securities Act. In that
connection, such Buyer is aware of Rule 144 under the Securities Act and the
restrictions imposed thereby.
(g) Legends.
(1) Such Buyer understands that, until two (2) years after the original
issuance date of the Notes and the Warrants, any certificate evidencing such
Note and any certificate evidencing such Warrant (and all securities issued in
exchange therefor or in substitution thereof, other than Common Stock, if any,
issued upon conversion thereof (in the case of a Note) or upon exercise thereof
(in the case of a Warrant), which shall bear the legend set forth in Section
2(g)(2) of this Agreement, if applicable) shall bear a legend in substantially
the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR
SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OR
APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION THEREFROM. THE SECURITIES
MAY
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BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN
SECURED BY THE SECURITIES.
The Company shall place the following legend on any Warrant or Note, as
appropriate, held by or transferred to an "affiliate" (as defined in Rule 501(b)
of Regulation D under the Securities Act) of the Company:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE HELD BY A PERSON WHO
MAY BE DEEMED TO BE AN AFFILIATE OF THE ISSUER FOR PURPOSES OF RULE 144
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND MAY BE SOLD ONLY IN COMPLIANCE WITH RULE 144, PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A
VALID EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT.
The legends set forth above shall be removed and the Company shall issue a
new Note or Warrant, as appropriate, of like tenor and aggregate principal
amount or number of shares, as appropriate, and which shall not bear the
restrictive legends required by this Section 2(g)(1), (i) if such Notes or
Warrants, as appropriate, are registered for resale under the Securities Act and
are transferred or sold pursuant to such registration, (ii) if, in connection
with a sale transaction, such holder provides the Company with an opinion of
counsel reasonably acceptable to the Company to the effect that a public sale,
assignment or transfer of the Notes or Warrants, as appropriate, may be made
without registration under the Securities Act, or (iii) upon expiration of the
two-year period under Rule 144(k) of the Securities Act (or any successor rule)
if the holder of the Securities has not been an "affiliate" (as defined in Rule
501(b) of Regulation D under the Securities Act) during the preceding three (3)
months. The Company shall not require such opinion of counsel for the sale of
Securities in accordance with Rule 144 of the Securities Act, provided the
Seller provides such representations that the Company shall reasonably request
confirming compliance with the requirements of Rule 144.
(2) Such Buyer understands that any stock certificate representing
Conversion Shares or Warrant Shares shall bear a legend in substantially the
following form (unless (i) such Conversion Shares or Warrant Shares have been
transferred or sold pursuant to an effective registration statement, (ii) such
Conversion Shares or Warrant Shares, as appropriate, have been transferred or
sold pursuant to the exemption from registration provided by Rule 144 under the
Securities Act, (iii) such Conversion Shares or Warrants Shares, as appropriate,
may be transferred pursuant to Rule 144(k) under the Securities Act, or (iv)
unless otherwise agreed by the Company in writing with written notice to the
transfer agent):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR
SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OR
APPLICABLE STATE
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SECURITIES LAWS OR AN EXEMPTION THEREFROM. THE SECURITIES MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY THE
SECURITIES.
The Company shall instruct the transfer agent to place the following
legend on any certificate evidencing shares of Common Stock held by or
transferred to an "affiliate" (as defined in Rule 501(b) of Regulation D under
the Securities Act) of the Company:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE HELD BY A PERSON WHO
MAY BE DEEMED TO BE AN AFFILIATE OF THE ISSUER FOR PURPOSES OF RULE 144
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND MAY BE SOLD ONLY IN COMPLIANCE WITH RULE 144, PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A
VALID EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT.
The legends set forth above shall be removed and the Company shall
issue the relevant Securities without such legends to the holder of the
Securities upon which it is stamped, (i) if such Securities are registered for
resale under the Securities Act and are transferred or sold pursuant to such
registration, (ii) if, in connection with a sale transaction, such holder
provides the Company with an opinion of counsel reasonably acceptable to the
Company to the effect that a public sale, assignment or transfer of the
Securities may be made without registration under the Securities Act, or (iii)
upon expiration of the two-year period under Rule 144(k) of the Securities Act
(or any successor rule) if the holder of the Securities has not been an
"affiliate" (as defined in Rule 501(b) of Regulation D under the Securities Act)
during the preceding three (3) months. The Company shall not require such
opinion of counsel for the sale of Securities in accordance with Rule 144 of the
Securities Act, provided the Seller provides such representations that the
Company shall reasonably request confirming compliance with the requirements of
Rule 144.
(3) Such Buyer understands that, in the event Rule 144(k) as promulgated
under the Securities Act (or any successor rule) is amended to change the
two-year or three-month periods under Rule 144(k) (or the corresponding periods
under any successor rule), (i) each reference in Sections 2(g)(1) and 2(g)(2) of
this Agreement to "two (2) years" or the "two-year period" and to "three (3)
months" shall be deemed for all purposes of this Agreement to be references to
such changed period or periods, and (ii) all corresponding references in the
Notes and Warrants shall be deemed for all purposes to be references to the
changed period or periods, provided that such changes shall not become effective
if they are otherwise prohibited by, or would otherwise cause a violation of,
the then-applicable federal securities laws.
(h) Authorization; Enforcement; Validity. This Agreement and the
Registration Rights Agreement have been duly and validly authorized, executed
and delivered on behalf of such Buyer and are valid and binding agreements of
such Buyer enforceable against such Buyer in accordance with their terms,
subject as to enforceability to general principles of equity and to applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation and other
similar laws relating to, or affecting generally, the enforcement of applicable
creditors' rights and remedies.
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(i) Residency. Such Buyer is a resident of that country or state specified
in its address on the Schedule of Buyers attached hereto as Exhibit A.
(j) No Conflicts. The execution and performance of this Agreement and the
Registration Rights Agreement do not conflict with any agreement to which such
Buyer is a party or is bound thereby, any court order or judgment addressed to
such Buyer, or the constituent documents of such Buyer.
(k) Conversion/Exercise Limitation. Each Buyer hereby agrees that in no
event will it convert any of the Notes or exercise any of the Warrants in excess
of the number of such Notes or Warrants, upon the conversion of which (x) the
number of shares of Common Stock beneficially owned by such Buyer (other than
the shares which would otherwise be deemed beneficially owned except for being
subject to a limitation on conversion or exercise analogous to the limitation
contained in this Section 2(k)) plus (y) the number of shares of Common Stock
issuable upon the conversion of such Notes and the exercise of such Warrants,
would be equal to or exceed 9.99% of the number of shares of Common Stock then
issued and outstanding, it being the intent of the Company and the Buyers that
no Buyer be deemed at any time to have the power to vote or dispose of greater
than 9.99% of the number of shares of Common Stock issued and outstanding. As
used herein, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
To the extent that the limitation contained in this Section 2(k) applies (and
without limiting any rights the Company may otherwise have), the Company may
rely on the Buyer's determination of whether the Notes are convertible and
whether the Warrants are exercisable pursuant to the terms hereof, the Company
having no obligation whatsoever to verify or confirm the accuracy of such
determination, and the submission of the Conversion Notice (as that term is
defined in the Note) or the Exercise Notice (as that term is defined in the
Warrant) by the Buyer shall be deemed to be the Buyer's representation that the
Notes or the Warrants specified therein are convertible or exercisable pursuant
to the terms hereof. This Section 2(k) may be amended by all of the holders of
the Notes and Warrants then outstanding only with the consent of the holders of
a majority of the shares of Common Stock then outstanding. Nothing contained
herein shall be deemed to restrict the right of a Buyer to convert the Notes or
exercise the Warrants at such time as the conversion or exercise thereof will
not violate the provisions of this Section 2(k). Notwithstanding anything to the
contrary, this Section 2(k) shall not apply to a Buyer who has elected to opt
out of the representation contained herein by indicating so in the signature
page.
(l) Additional Acknowledgement. Each Buyer acknowledges that it has
independently evaluated the merits of the transactions contemplated by this
Agreement, the Indenture, the Notes, the Registration Rights Agreement and the
Warrants, that it has independently determined to enter into the transactions
contemplated hereby and thereby, that it is not relying on any advice from or
evaluation by any other Buyer, and that it is not acting in concert with any
other Buyer in purchasing the Securities offered hereunder. The Buyers and, to
its knowledge, the Company agree that the Buyers have not taken any actions that
would make such Buyers to be deemed as members of a "group" for purposes of
Section 13(d) of the Exchange Act.
The Buyer's representations and warranties made in this Section 2 are made
solely for the purpose of permitting the Company to make a determination that
the offer and sale of the Notes and Warrants pursuant to this Agreement complies
with applicable U.S. federal and state
6
securities laws and not for any other purpose. Accordingly, the Company shall
not rely on such representations and warranties for any other purpose.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to Xxxxxxxxx and each of the Buyers that as of the date
hereof subject to such exceptions as set forth in a Disclosure Schedule:
(a) Organization and Qualification. The Company and its "Subsidiaries"
(which, for purposes of this Agreement, means any entity in which the Company,
directly or indirectly, owns a majority of the capital stock or other equity or
similar interests) are corporations, partnerships or limited liability companies
duly organized and validly existing in good standing under the laws of the
jurisdiction in which they are incorporated or organized, and have the requisite
corporate, limited liability company or partnership power and authorization to
own their properties and to carry on their business as now being conducted.
Copies of the Company's Certificate of Incorporation and Bylaws, and all
amendments thereto, have been filed as exhibits to the Company's SEC Documents
(as defined in Section 3(f) of this Agreement), are in full effect and have not
been modified. Each of the Company and its Subsidiaries is duly qualified as a
foreign corporation, partnership or limited liability company to do business and
is in good standing in every jurisdiction in which its ownership of property or
the nature of the business conducted and proposed to be conducted by it makes
such qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not have a Material Adverse Effect. As
used in this Agreement, "Material Adverse Effect" means any material adverse
effect on the business, properties, assets, operations, prospects, results of
operations or financial condition of the Company and its Subsidiaries, taken as
a whole, or on the transactions contemplated hereby or by the agreements and
instruments to be entered into in connection herewith, or on the authority or
ability of the Company to perform its obligations under the Transaction
Documents (as defined below). A complete list of Subsidiaries is set forth on
Schedule 3(a).
(b) Authorization; Enforcement; Validity. The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Indenture, the Notes, the Warrants, the Registration Rights
Agreement, the Irrevocable Transfer Agent Instructions (as defined in Section 5
of this Agreement) and each of the other agreements entered into by the parties
hereto in connection with the transactions contemplated by this Agreement
(collectively, the "Transaction Documents"), and to issue the Securities in
accordance with the terms hereof and thereof. The execution and delivery of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby, including, without limitation, the
issuance and repayment of the Notes, the reservation for issuance and the
issuance of the Conversion Shares issuable upon conversion thereof, the issuance
of the Warrants and the reservation for issuance and the issuance of the Warrant
Shares issuable upon exercise of the Warrants, have been duly authorized by the
Company's Board of Directors and no further consent or authorization is required
of the Company's Board of Directors or stockholders. The Transaction Documents
have been duly executed and delivered by the Company. The Transaction Documents
constitute the valid and binding obligations of the Company enforceable against
the Company in accordance with their terms, except as such enforceability may be
limited by general principles of equity or applicable
7
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors' rights and
remedies.
(c) Capitalization. Except for any shares issuable upon exercise of
options issued pursuant to employee benefit plans disclosed in the Company's SEC
Documents, the capitalization of the Company is as described in the Company's
SEC Documents. All of the Company's outstanding shares have been, or upon
issuance will be, validly issued and are fully paid and nonassessable. The
Company's Common Stock is registered pursuant to Section 12(g) of the Exchange
Act and is listed for trading on the Principal Market (as defined in Section
4(f) of this Agreement). Except as set forth in this Agreement, the Indenture,
the Registration Rights Agreement and as set forth in the SEC Documents, (i) no
shares of the Company's capital stock are subject to preemptive rights or any
other similar rights or any liens or encumbrances; (ii) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries (other than any such options, warrants,
scrip, rights, calls, commitments, securities, understandings and arrangement
outstanding under plans disclosed in the SEC Documents); (iii) except for
certain credit facilities of the Company's Japanese subsidiary with a total
borrowing capacity of approximately $2.9 million, there are no outstanding debt
securities, notes, credit agreements, credit facilities or other agreements,
documents or instruments evidencing indebtedness of the Company or any of its
Subsidiaries or by which the Company or any of its Subsidiaries is or may become
bound; (iv) there are no amounts outstanding under, and there will be no amounts
due upon termination of, any credit agreement or credit facility; (v) there are
no financing statements securing obligations in any amounts greater than Fifty
Thousand United States Dollars ($50,000), singly, or Two Hundred Fifty Thousand
United States Dollars ($250,000) in the aggregate, filed in connection with the
Company or any of its Subsidiaries; (vi) 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 securities under the Securities Act; (vii) there are no
outstanding securities or instruments of the Company or any of its Subsidiaries
which contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to redeem a security of the Company or any
of its Subsidiaries; (viii) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities as described in this Agreement; (ix) the Company does not have
any stock appreciation rights or "phantom" stock plans or agreements or any
similar plan or agreement; (x) to the Company's knowledge, (A) no current or
former officer or director who individually owns one percent (1%) or more of the
Company's outstanding capital stock or (B) other beneficial owner of five
percent (5%) or more of the Company's outstanding capital stock, has pledged
shares of the Company's capital stock in connection with a margin account or
other loan secured by such capital stock; and (xi) the Company and its
Subsidiaries have no liabilities or obligations required to be disclosed in the
SEC Documents but not so disclosed in the SEC Documents, other than those
incurred in the ordinary course of the Company's or its Subsidiaries' respective
8
businesses and which, individually or in the aggregate, do not or would not have
a Material Adverse Effect on the Company and its Subsidiaries taken as a whole.
(d) Issuance of Securities. The Securities are duly authorized and, upon
issuance in accordance with the terms of the applicable Transaction Documents,
shall be (i) validly issued, fully paid and non-assessable and (ii) free from
all taxes, liens and charges with respect to the issuance thereof, other than
any liens or encumbrances created by or imposed by the Buyers, and shall not be
subject to preemptive rights or other similar rights of stockholders of the
Company. As of the Closing, at least 3,464,598 shares of Common Stock (subject
to adjustment pursuant to the Company's covenant set forth in Section 4(e) of
this Agreement) will have been duly authorized and reserved for issuance upon
conversion of the Notes and exercise of the Warrants. Upon conversion or
issuance in accordance with the terms of the Notes or upon exercise or issuance
in accordance with the terms of the Warrants, as applicable, the Conversion
Shares and the Warrant Shares, as the case may be, will be validly issued, fully
paid and non-assessable and free from all taxes, liens and charges with respect
to the issue thereof, other than any liens or encumbrances created by or imposed
by the Buyers, with the holders being entitled to all rights accorded to a
holder of Common Stock. Subject to the accuracy of the representations and
warranties of each of the Buyers in this Agreement, the issuance by the Company
of the Securities is exempt from registration under the Securities Act and
applicable state securities laws.
(e) No Conflicts. Except as disclosed in Schedule 3(e), the execution,
delivery and performance of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the reservation for issuance and issuance of the
Conversion Shares and the Warrant Shares) will not (i) result in a violation of
the Certificate of Incorporation or the Bylaws; (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party, except
for such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the aggregate,
have a Material Adverse Effect; or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and the rules and regulations of the Principal Market
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. Neither
the Company nor any of its Subsidiaries is in violation of any material term of
or in default under its Certificate of Incorporation, Bylaws or their
organizational charter or bylaws, respectively. Neither the Company nor any of
its Subsidiaries is in material violation of any term of or in material default
under any contract, agreement, mortgage, indebtedness, indenture or instrument
attached as an exhibit to the Company's SEC Documents pursuant to Item
601(b)(10) of Regulation S-K, or any judgment, decree or order or any statute,
rule or regulation applicable to the Company or its Subsidiaries. The business
of the Company and its Subsidiaries is not being conducted in violation of any
law, ordinance or regulation of any governmental entity, except where such
violations would not result, either individually or in the aggregate, in a
Material Adverse Effect. Except as specifically contemplated by this Agreement,
as required under the Securities Act or as required by Blue Sky filings (but
only to the extent that such filings may be made after the Closing), the Company
is not required to obtain any consent,
9
authorization or order of, or make any filing or registration with, any court or
governmental agency or any regulatory or self-regulatory agency in order for it
to execute, deliver or perform any of its obligations under or contemplated by
the Transaction Documents. Except as disclosed in Schedule 3(e) of this
Agreement, 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 and copies of such consents,
authorizations, orders, filings and registrations have been delivered to the
Buyers. The Company is not in violation of the listing requirements of the
Principal Market, and has no actual knowledge of any facts which would
reasonably lead to delisting or suspension of the Common Stock by the Principal
Market in the foreseeable future. The Company and its Subsidiaries are currently
unaware of any facts or circumstances which might give rise to any of the
foregoing events set forth in this paragraph.
(f) SEC Documents; Financial Statements. Since January 1, 2000, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the Securities and Exchange Commission (the
"Commission") pursuant to the reporting requirements of the Exchange Act, and
the rules and regulations promulgated thereunder (all of the foregoing filed
prior to or on the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents incorporated by reference therein
being hereinafter referred to as the "SEC Documents"). As of the date of filing
of such SEC Documents, each such SEC Document, as it may have been subsequently
amended by filings made by the Company with the Commission prior to the date
hereof, complied in all material respects with the requirements of the Exchange
Act and the rules and regulations of the Commission promulgated thereunder
applicable to such SEC Document. None of the SEC Documents, as of the date filed
and as they may have been subsequently amended by filings made by the Company
with the Commission prior to the date hereof, contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. 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 published rules and regulations of the Commission
with respect thereto. Such financial statements have been prepared in accordance
with generally accepted accounting principles, consistently applied in the
United States, 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 exclude footnotes or may
be condensed or summary statements), correspond to the books and records of the
Company and fairly present in all material respects the financial position of
the Company and its Subsidiaries as of the dates thereof and the results of
operations and cash flows for the periods then ended. No other written
information provided by or on behalf of the Company to the Buyers which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 2(d) of this Agreement, contains any untrue statement of
a material fact or omits to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they are
or were made, not misleading. The Company satisfies the requirements for use of
Form S-3 for registration of the resale of Registrable Securities (as that term
is defined in the Registration Rights Agreement) and does not have any knowledge
or reason to believe that it does not satisfy such requirements or have any
knowledge of any fact which would reasonably result in its not satisfying such
requirements. The Company is not required to file and will not be required to
file any agreement, note, lease, mortgage, deed or
10
other instrument entered into prior to the date hereof and to which the Company
is a party or by which the Company is bound which has not been previously filed
as an exhibit to its reports filed with the Commission under the Exchange Act.
Except for the issuance of the Notes and the Warrants contemplated by this
Agreement, no event, liability, development or circumstance has occurred or
exists, or is currently contemplated to occur, with respect to the Company or
its Subsidiaries or their respective business, properties, prospects, operations
or financial condition, that would be required to be disclosed by the Company
under applicable securities laws and which has not been publicly disclosed. The
Company has no reason to believe that its independent auditors will withhold
their consent to the inclusion of their audit opinion concerning the Company's
financial statements which shall be included in the Registration Statement (as
such term is defined in the Registration Rights Agreement).
(g) Absence of Litigation. Except as disclosed in the section titled
"Legal Proceedings" in the Company's Annual Report on Form 10-K for the period
ended December 31, 2001, there is no action, suit, 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 in writing against the Company or any of
its Subsidiaries or any of the Company's or the Subsidiaries' officers or
directors in their capacities as such.
(h) 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 stockholder approval provisions, including,
without limitation, under the rules and regulations of any exchange or automated
quotation system on which any of the securities of the Company are listed or
designated, nor will the Company or any of its Subsidiaries take any action or
steps that would cause the offering of the Securities to be integrated with
other offerings.
(i) Intellectual Property Rights. The Company and its Subsidiaries own,
possess, license or can acquire or make use of on reasonable terms, adequate
rights or licenses to use all trademarks, trade names, trade dress, service
marks, service xxxx registrations, service names, patents, patent rights,
copyrights, inventions, technology licenses, approvals, governmental
authorizations, trade secrets, and other intellectual property rights
(collectively, "Intellectual Property") necessary to conduct their respective
businesses as now conducted and as currently contemplated to be conducted by
them as described in the SEC Documents, except where the failure to currently
own or possess would not have a Material Adverse Effect. The Company and its
Subsidiaries do not have any knowledge of any infringement by the Company or its
Subsidiaries of Intellectual Property rights of others, or of any development of
similar or identical trade secrets or technical information by others. There is
no claim, action or proceeding being made by the Company or its Subsidiaries
regarding the Intellectual Property rights of the Company or its Subsidiaries or
to the Company's knowledge, brought or currently threatened against the Company
or its Subsidiaries regarding the Intellectual Property rights of or the use of
any Intellectual Property by the Company or its Subsidiaries of any third party
that, if the subject of an unfavorable decision, ruling or finding, would have a
Material Adverse Effect.
11
(j) 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 are commensurate with similarly situated companies
engaged in similar businesses as the Company and its Subsidiaries.
(k) Regulatory Permits. The Company and its Subsidiaries possess all
material certificates, authorizations and permits issued by the appropriate
federal, state, local or foreign regulatory authorities necessary to conduct
their respective businesses as currently conducted (the "Permits"), and neither
the Company nor any of its Subsidiaries has received any written notice of
proceedings relating to the revocation or modification of any such Permit.
(l) Tax Status. The Company and each of its Subsidiaries (i) has made or
filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject, (ii) has paid
all taxes and other governmental assessments and charges due with respect to the
periods covered by such returns, reports and declarations, except those being
contested in good faith and for which the Company has made appropriate reserves
on its books, and (iii) has paid or 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 (referred to in clause (i) above)
apply; except where the failure to so file or pay would not have a Material
Adverse Effect. There are no unpaid taxes that are individually or in the
aggregate material in 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.
(m) 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 Certificate of Incorporation, the laws of the
state of its incorporation or the laws of any other state which is or could
become applicable to the Buyers as a result of the transactions contemplated by
this Agreement, including, without limitation, the Company's issuance of the
Securities and the Buyers' ownership of the Securities.
(n) Foreign Corrupt Practices. Neither the Company nor any of its
Subsidiaries, nor, to the Company's knowledge, any director, officer, agent,
employee or other person acting on behalf of the Company or any Subsidiary has,
in the course of his actions for, or on behalf of, the Company or any Subsidiary
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 United States Foreign Corrupt Practices Act of 1977, as amended, or made any
bribe, rebate, payoff, influence payment, kickback or other unlawful payment to
any foreign or domestic government official or employee.
(o) Confidential Offering Memorandum. None of the information supplied or
to be supplied by the Company for inclusion or incorporation by reference in the
Confidential Private Placement Memorandum dated as of June 19, 2002 (the
"Confidential Private Placement Memorandum") in connection with the Offering
contains any untrue statement of a material fact or omits 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 are made, not misleading. If, at
12
any time prior to the Closing Date, any event with respect to the Company shall
occur which is required to be described in the Confidential Private Placement
Memorandum, such event shall be so described, and an appropriate amendment or
supplement shall be prepared by the Company. Upon the filing of the Current
Report on Form 8-K pursuant to Section 4(g)(1) hereof, the Confidential Private
Placement Memorandum shall contain no material non-public information.
(p) Transactions With Affiliates. Except as set forth on Schedule 3(p),
and other than the grant of stock options granted pursuant to the Company's
employee benefit plans, 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 in connection with the provision of 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 such officer, director or employee or, to the knowledge of the
Company, any corporation, partnership, trust or other entity in which any such
officer, director, or employee has a substantial interest or is an officer,
director, trustee or partner, such that the transaction would be required to be
disclosed pursuant to Item 404 of Regulation S-K promulgated under the
Securities Act.
(q) Brokers and Finders. Except for fees payable to Xxxxxxxxx as placement
agent, no brokers, finders or financial advisory fees or commissions will be
payable by the Company with respect to the transactions contemplated by this
Agreement.
(r) Absence of Certain Changes. Except as disclosed in the SEC Documents
available on the XXXXX system, since December 31, 2001, there has been no change
or development that has had or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect.
(s) No Material Non-Public Information. Except for the issuance of the
Securities and the transactions contemplated by this Agreement (which such
information shall be fully disclosed in the Current Report on Form 8-K filed
pursuant to Section 4(g)(1) hereof), the Company has not provided the Buyers
with material non-public information.
SECTION 4. COVENANTS.
(a) Obligations. Each party shall timely satisfy each of the conditions to
be satisfied by it as provided in Sections 6 and 7 of this Agreement.
(b) Form D and Blue Sky. The Company agrees to file timely a Form D with
the Commission 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 in order to obtain an exemption for, or to
qualify the Securities for, sale to the Buyers at the Closing 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 Buyers on or prior to the
Closing Date. The Company shall make all timely filings and reports relating to
the offer and sale of the Securities required under applicable securities or
"Blue Sky" laws of the states of the United States following the Closing Date.
13
(c) Reporting Status. With a view to making available to the Investors (as
that term is defined in the Registration Rights Agreement) the benefits of Rule
144 promulgated under the Securities Act or any similar rule or regulation of
the Commission that may at any time permit the Investors to sell securities of
the Company to the public without registration ("Rule 144"), the Company shall:
(i) make and keep public information available, as those terms are understood
and defined in Rule 144; (2) file with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act; and (3) furnish to each Investor, so long as such Investor
owns Registrable Securities (the "Reporting Period"), promptly upon request, (A)
a written statement by the Company, if true, that it has complied with the
applicable reporting requirements of Rule 144, the Securities Act and the
Exchange Act, (B) a copy of the most recent annual or quarterly report of the
Company and copies of such other reports and documents so filed by the Company,
(C) the information required by Rule 144A(d)(4) (or any successor rule) under
the Securities Act, and (D) such other information as may be reasonably
requested to permit the Investors to sell such securities pursuant to Rule 144
without registration.
(d) Use of Proceeds. The Company intends to use the net proceeds from the
sale of the Notes and the Warrants for working capital and general corporate
purposes.
(e) Reservation of Shares. The Company shall take all actions necessary to
at all times have authorized, and reserved for the purpose of issuance, no less
than one hundred five percent (105%) of the number of shares of Common Stock
(the "Reservation Amount") needed to provide for the issuance of the Conversion
Shares upon conversion of all of the Notes and the Warrant Shares upon exercise
of all of the Warrants without regard to any limitations on conversions or
exercise.
(f) Listing. The Company shall promptly use its best efforts to secure the
listing of all of the Conversion Shares and Warrant Shares upon each national
securities exchange and automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance) and, shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all Conversion Shares and Warrant Shares from time to time issuable
under the terms of the Transaction Documents. So long as any Securities are
outstanding, the Company shall maintain the Common Stock's authorization for
quotation or listing on The New York Stock Exchange, Inc. (the "NYSE"), the
American Stock Exchange, Inc. ("AMEX") or The Nasdaq National Market or SmallCap
Market ("NASDAQ") (as applicable, the "Principal Market"). The Company shall pay
all fees and expenses in connection with satisfying its obligations under this
Section 4(f).
(g) Filing of Form 8-K. The Company shall use reasonable efforts to file
(1) a Current Report on Form 8-K with the Commission including as an exhibit to
such Current Report on Form 8-K the press release announcing the signing of this
Agreement as soon as practicable after the issuance of such press release, and
(2) a Current Report on Form 8-K with the Commission within twenty-four (24)
hours after the public announcement of the transactions contemplated hereby and,
in any event, within three (3) Business Days following such public announcement,
describing the terms of the transactions contemplated by the Transaction
Documents and including as exhibits to such Current Report on Form 8-K (i) this
Agreement and the Disclosure Schedules, (ii) the form of Note, (iii) the form of
Warrant, (iv) the Registration Rights
14
Agreement and (v) the form of Indenture, each in the form required by the
Exchange Act; provided, however, that the signature pages and all references to
the names of the Buyers shall be redacted from the Transaction Documents filed
as exhibits to such Current Report on Form 8-K and in any press release filed in
connection with the transactions contemplated hereby. "Business Day" means any
day other than Saturday, Sunday or other day on which commercial banks in the
City of New York are required by law to remain closed.
(h) Proxy Statement. In the event that Stockholder Approval is required
pursuant to the rules of the Principal Market for the issuance of a number of
Conversion Shares and Warrant Shares greater in the aggregate than 19.99% of the
number of shares of Common Stock outstanding immediately prior to the Closing
Date (the "19.99% Rule"), the Company shall provide each stockholder entitled to
vote at the next meeting of stockholders of the Company, which meeting shall
occur on or before ninety (90) days from the date of such determination (the
"Stockholders Meeting Deadline"), a proxy statement, which has been previously
reviewed by Xxxxxxxxx, the Buyers and a counsel of their choice, soliciting each
such stockholder's affirmative vote at such stockholder meeting for approval of
the Company's issuance of all of the Securities as described in the Transaction
Documents in accordance with applicable law and the rules and regulations of the
Principal Market (such affirmative approval being referred to herein as the
"Stockholder Approval"), and the Company shall solicit its stockholders'
approval of such issuance of the Securities and to cause the Board of Directors
of the Company to recommend to the stockholders that they approve such proposal.
(i) Expenses. Subject to Section 9(o) of this Agreement, at the Closing,
the Company shall reimburse the Buyers for the Buyers' reasonable out-of-pocket
expenses incurred in connection with the consummation of the transactions
contemplated by this Agreement, up to a maximum of $15,000.00, which amount
shall be paid by the Company to the Buyers concurrently with the Company's
receipt of the Purchase Price at the Closing and shall be allocated pro rata
among the Buyers based on the respective principal amount of Notes set forth
opposite such Buyer's name on the Schedule of Buyers attached hereto as Exhibit
A.
(j) Additional Securities. For so long as any Buyer beneficially owns any
Securities, the Company will not issue any Notes or Warrants other than to the
Buyers as contemplated hereby and the Company shall not issue any other
securities that would cause a breach or default under the Notes.
(k) Tax Matters. For United States Federal income tax purposes, the
Company and each Buyer agree (i) to treat the Notes as indebtedness, (ii) that
$2,840,000 of the aggregate purchase price for the securities issued by the
Company to the Buyers hereunder (assuming the sale of $35,500,000 of Securities)
is attributable to the purchase of the Warrants, and (iii) to treat the Notes as
having been issued for an aggregate purchase price of $32,660,000 (assuming the
sale of $35,500,000 of Securities), such that the aggregate original issue
discount that will accrue over the term of One Thousand Dollars ($1,000)
principal amount of the Notes is $80. If the Company shall be required to
withhold or deduct any tax or other governmental charge from any payment made
hereunder or under any Note to any Buyer, then, subject to the last sentence of
this Section 4(k), the Company shall pay to such Buyer such additional amounts
as are necessary such that such Buyer actually receives the amount such Buyer
would have received if no such withholding or deduction had been required. If
any Buyer is organized under the laws of a
15
jurisdiction other than the United States, any State thereof or the District of
Columbia (a "Non-United States Buyer"), such Buyer shall deliver to the Company
either (a) two (2) copies of either United States Internal Revenue Service Form
W-8BEN or Form W-8ECI, or (b) in the case of a Non-United States Buyer claiming
exemption from United States Federal withholding tax under Section 871(h) or
881(c) of the Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder (the "Code") with respect to payments of
"portfolio interest", a certificate in form and substance reasonably acceptable
to the Company representing that such Non-United States Buyer is not a bank for
purposes of Section 881(c) of the Code, is not a ten percent (10%) shareholder
(within the meaning of Section 871(h)(3)(B) of the Code) of the Company and is
not a controlled foreign corporation related to the Company (within the meaning
of Section 864(d)(4) of the Code), together with Internal Revenue Service Form
W-8 or W-9, as applicable, in all cases such forms and other documents being
properly completed and duly executed by such Non-United States Buyer claiming
complete exemption from United States Federal withholding tax on payments of
interest by the Company (or accruals of original issue discount) under the
Notes. In addition, each Buyer that is not otherwise exempt from "back-up
withholding" shall deliver to the Company properly completed and duly executed
Internal Revenue Service Form W-8 or W-9 indicating that such Buyer is subject
to "back-up withholding" for United States Federal income tax purposes. The
forms and other documents required to be delivered pursuant to the two preceding
sentences shall be delivered within ten (10) days after the Closing Date. The
Company shall not be required to pay any additional amounts (x) to any
Non-United States Buyer in respect of United States Federal withholding tax or
(y) to any Buyer in respect of United States Federal "back-up withholding" tax
to the extent that the obligation to pay such additional amounts would not have
arisen but for a failure by such Non-United States Buyer or Buyer, as the case
may be, to comply with the provisions of this Section 4(k).
(l) Violation of Laws. The business of the Company and its Subsidiaries
shall not be conducted in violation of any law, ordinance or regulation of any
governmental entity, except where such violations would not result, either
individually or in the aggregate, in a Material Adverse Effect.
(m) Limits on Additional Issuances. The Company shall not, in any manner,
until the later of (i) 240 days after the Closing or (ii) the date on which the
Registration Statement required to be filed pursuant to Section 2(a) of the
Registration Rights Agreement is declared effective by the Commission, issue or
sell any rights, warrants or options to subscribe for or purchase Common Stock
or any security directly or indirectly convertible into or exchangeable or
exercisable for Common Stock (the "Equity Limitation"). The Equity Limitation
shall not apply (i) to the issuance of Conversion Shares or Warrant Shares, as
the case may be, pursuant to the Notes or the Warrants, (ii) to the issuance of
securities pursuant to the conversion or exchange of convertible or exchangeable
securities or the exercise of warrants or options, in each case outstanding on
the date hereof, (iii) if Xxxxxxxxx and holders representing a majority of the
outstanding principal amount of the Notes give their prior written consent to
such issuance or sale, (iv) if the issuance is pursuant to employee benefits
plans approved by the Company's Board of Directors, (iv) to the filing of a
Registration Statement on Form S-8, (v) if the securities are issued for
consideration other than cash in connection with a bona fide business
acquisition by the Company whether by merger, consolidation, purchase of assets,
sale or exchange of stock or otherwise; or (vi) if the issuance is in connection
with a (A) commercial banking arrangement,
16
(B) equipment financing, (C) sponsored research, (D) collaboration, (E)
technology licensing, (F) development agreements or (G) other strategic
partnership; provided, however, that with respect to (C) through (G) hereof, the
primary purpose of such transaction is not to raise equity capital.
(n) CUSIP Numbers. The Company in issuing the Securities shall use "CUSIP"
numbers (if then generally in use), and shall use such "CUSIP" numbers in
notices to holders as a convenience to holders thereof; provided that any such
notice may state that no representation is made as to the correctness of such
numbers either as printed on the Securities or as contained in any notice to
such holders and that reliance may be placed only on other identification
numbers printed on such Securities, and any such Company action referenced in
such notice (including, without limitation, redemption or automatic conversion
of Notes) shall not be affected by any defect in or omission of such numbers.
(o) Intentionally omitted.
SECTION 5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue
irrevocable instructions to its transfer agents, and any subsequent transfer
agent, to issue certificates or credit shares to the applicable balance accounts
at the Company's designated registrar (the "Registrar"), registered in the name
of Xxxxxxxxx and each Buyer or their respective nominee(s), for the Conversion
Shares and Warrant Shares in such amounts as specified from time to time by
Xxxxxxxxx or a Buyer to the Company upon conversion of the Notes or exercise of
the Warrants, as applicable and in accordance with their respective terms (the
"Irrevocable Transfer Agent Instructions"), substantially in the form attached
hereto as Exhibit F. Prior to transfer or sale pursuant to a registration
statement or Rule 144 under the Securities Act of the Conversion Shares and the
Warrant Shares, all such certificates shall bear the restrictive legend
specified in Section 2(g) of this Agreement. The Company represents and warrants
that no instruction inconsistent with the Irrevocable Transfer Agent
Instructions referred to in this Section 5 will be given by the Company to its
transfer agent and that the Securities shall be freely transferable on the books
and records of the Company as and to the extent provided in this Agreement, the
Notes, the Warrants and the Registration Rights Agreement. If a Buyer provides
the Company with an opinion of counsel, in form reasonably acceptable to the
Company, to the effect that a public sale, assignment or transfer of the
Securities has been made without registration under the Securities Act or that
the Securities can be sold pursuant to Rule 144(k) without any restriction as to
the number of securities acquired as of a particular date that can then be
immediately sold, or provides such representations that the Company shall
reasonably request confirming compliance with the requirements of Rule 144, the
Company shall permit the transfer, and, in the case of the Conversion Shares and
the Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates, or credit shares to one or more balance accounts at the Registrar,
in such name and in such denominations as specified by such Buyer and without
any restrictive legend. 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 Section 5 will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 5, that the
Buyers shall be entitled, in addition to all other available remedies, to an
order and/or injunction restraining any
17
breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.
SECTION 6. CONDITIONS TO THE COMPANY'S OBLIGATION TO CLOSE. The obligation
of the Company to issue and sell the Notes and the Warrants to each respective
Buyer at the Closing is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions, provided that these conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion by providing such Buyer with prior written notice thereof:
(a) Transaction Documents. Such Buyer shall have executed each of the
Transaction Documents to which it is a party and delivered the same to the
Company.
(b) Payment of Purchase Price. Such Buyer shall have delivered to the
Company the purchase price for the Notes and the Warrants being purchased by
such Buyer at the Closing, by wire transfer of immediately available funds
pursuant to the wire instructions attached hereto as Schedule A.
(c) Representations and Warranties; Covenants. The representations and
warranties of such Buyer shall be true, correct and complete in all material
respects (except to the extent that any of such representations and warranties
is already qualified as to materiality in Section 2 above, in which case such
representations and warranties shall be true, correct and complete without
further qualification) as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date (which shall be true, correct and complete as of such
date)), and such Buyer shall have performed, satisfied and complied with in all
material respects the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by such Buyer
at or prior to the Closing Date.
(d) Investor Questionnaires. Such Buyer shall have completed an investor
questionnaire and the Company shall be reasonably satisfied with such Buyer's
declaration in the investor questionnaire of its status as an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D under the
Securities Act.
SECTION 7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The
obligation of each Buyer hereunder to purchase the Notes and the Warrants from
the Company at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that these
conditions are for each Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion by providing the Company with prior written
notice thereof:
(a) Transaction Documents. The Company shall have executed each of the
Transaction Documents and delivered the same to such Buyer. The Trustee shall
have executed and delivered the Indenture to the Company.
(b) No Delisting of Common Stock. The Common Stock (i) shall be designated
for quotation or listed on the Principal Market and (ii) shall not have been
suspended by the Commission or the Principal Market from trading on the
Principal Market nor shall suspension
18
by the Commission or the Principal Market have been threatened either (A) in
writing by the Commission or the Principal Market or (B) by falling below the
minimum listing maintenance requirements of the Principal Market.
(c) Representations and Warranties; Covenants. The representations and
warranties of the Company shall be true, correct and complete in all material
respects (except to the extent that any of such representations and warranties
is already qualified as to materiality in Section 3 of this Agreement, in which
case such representations and warranties shall be true, correct and complete
without further qualification) as of the date when made and as of the Closing
Date as though made at that time (except for representations and warranties that
speak as of a specific date (which shall be true, correct and complete as of
such date)) and the Company shall have performed, satisfied and complied with in
all material respects the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by the Company
at or prior to the Closing Date. Such Buyer shall have received a certificate,
executed by the Chief Executive Officer of the Company, dated as of the Closing
Date, to the foregoing effect.
(d) Opinion of Counsel. The Company shall have delivered to such Buyer the
opinion of Xxxxxxxx & Xxxxxxxx LLP, dated as of the Closing Date, in the form of
Exhibit G attached hereto.
(e) Delivery of Notes and Warrants. The Company shall have executed and
delivered to such Buyer the Notes and the Warrants (in such denominations as
such Buyer shall reasonably request) for the Notes and the Warrants being
purchased by such Buyer at the Closing.
(f) Reservation of Common Stock. As of the Closing Date, the Company shall
have reserved out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Notes and the exercise of the
Warrants, the number of shares of Common Stock equal to the Reservation Amount
(as defined in Section 4(e) of this Agreement).
(g) Irrevocable Transfer Agent Instructions. The Company shall have
delivered the Irrevocable Transfer Agent Instructions, in the form of Exhibit F
attached hereto, to the Company's transfer agent.
(h) Good Standing Certificates. The Company shall have delivered to
Xxxxxxxxx (i) a certificate evidencing the incorporation and good standing of
the Company in Delaware issued by the Secretary of State of Delaware as of a
recent date; and (ii) a certificate of good standing (or appropriate
counterpart) from the appropriate governmental authority in each domestic
jurisdictions in which Subsidiaries are incorporated or organized as of a recent
date.
(i) Secretary's Certificate. The Company shall have delivered to such
Buyer a secretary's certificate, dated as of the Closing Date, certifying as to
(i) adoption of the form of resolutions of the Board of Directors of the Company
consistent with Section 3(b) of this Agreement and in a form reasonably
acceptable to such Buyer, (ii) the Certificate of Incorporation and (iii) the
Bylaws, each as in effect at the Closing.
(j) Filings; Authorizations. The Company shall have made all filings under
all applicable federal and state securities laws necessary to consummate the
issuance of the Securities pursuant to this Agreement in compliance with such
laws, and shall have obtained all authorizations,
19
approvals and permits necessary to consummate the transactions contemplated by
the Transaction Documents and such authorizations, approvals and permits shall
be effective as of the Closing Date.
(k) No Injunctions. No temporary restraining order, preliminary or
permanent injunction or other order or decree, and no other legal restraint or
prohibition shall exist which prevents or arguably prevents the consummation of
the transactions contemplated by the Transaction Documents, nor shall any
proceeding have been commenced or threatened with respect to the foregoing.
(l) No Material Adverse Effect. Between the time of execution of this
Agreement and the Closing Date, (i) no Material Adverse Effect shall occur or
become known (whether or not arising in the ordinary course of business) and
(ii) no transaction which is material and unfavorable to the Company shall have
been entered into by the Company.
(m) Payment of Fees. The Company shall have satisfied its obligations
under Section 9(p) of this Agreement.
(n) Minimum Offering. The Company shall have confirmed in writing to the
Buyers that it will be issuing at least an aggregate of $20,000,000 principal
amount of Notes and Warrants to the Buyers on the Closing Date.
SECTION 8. INDEMNIFICATION.
(a) Indemnification by the Company. In consideration of each Buyer's
execution and delivery of the Transaction Documents and acquiring the Securities
thereunder and Xxxxxxxxx'x agreement to act as exclusive placement agent and in
addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless
Xxxxxxxxx and each Buyer and each other holder of the Securities and all of
their shareholders, partners, members, officers, directors, employees and direct
or indirect investors and any of the foregoing persons' agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (collectively, "Claims"), incurred
by any Indemnitee as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents, (b) any breach of any covenant, agreement
or obligation of the Company contained in the Transaction Documents, (c) any
cause of action, suit or claim brought or made against such Indemnitee and
arising out of or resulting from (i) the execution, delivery, performance or
enforcement of the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (ii) any transaction financed or to be
financed in whole or in part, directly or indirectly, with the proceeds of the
issuance of the Securities or (iii) the status of such Buyer or holder of the
Securities as an investor in the Company. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the
20
Indemnified Liabilities which is permissible under applicable law. Subject to
Section 8(b) of this Agreement, the Company shall reimburse the Indemnitees,
promptly as such expenses are incurred and are due and payable, for any legal
fees or other reasonable expenses incurred by them in connection with the
investigating or defending any such Claim.
(b) Procedures for Indemnification. Promptly after an Indemnitee has
knowledge of any Claim as to which such Indemnitee reasonably believes indemnity
may be sought or promptly after such Indemnitee receives notice of the
commencement of any action or proceeding (including any governmental action or
proceeding) involving a Claim, such Indemnitee shall, if a Claim in respect
thereof is to be made against the Company under this Section 8, deliver to the
Company a written notice of such Claim, and the Company shall have the right to
participate in, and, to the extent the Company so desires, to assume control of
the defense thereof with counsel mutually satisfactory to the Company and the
Indemnitee; provided, however, that an Indemnitee shall have the right to retain
its own counsel if, in the reasonable opinion of counsel retained by the
Company, the representation by such counsel of the Indemnitee and the Company
would be inappropriate due to actual or potential differing interests between
such Indemnitee and the Company; provided, further, that the Company shall not
be responsible for the reasonable fees and expense of more than one (1) separate
legal counsel for such Indemnitee. In the case of an Indemnitee, the legal
counsel referred to in the immediately preceding sentence shall be selected by
the Investors holding at least a majority in interest of the Securities to which
the Claim relates. The Indemnitee shall cooperate fully with the Company in
connection with any negotiation or defense of any such action or Claim by the
Company and shall furnish to the Company all information reasonably available to
the Indemnitee which relates to such action or Claim. The Company shall keep the
Indemnitee fully apprised at all times as to the status of the defense or any
settlement negotiations with respect thereto. The Company shall not be liable
for any settlement of any Claim effected without its prior written consent;
provided, however, that the Company shall not unreasonably withhold, delay or
condition its consent. The Company shall not, without the prior written consent
of the Indemnitee, consent to entry of any judgment or enter into any settlement
or other compromise which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnitee of a full release from
all liability in respect to such Claim and action and proceeding. After
indemnification as provided for under this Agreement, the rights of the Company
shall be subrogated to all rights of the Indemnitee with respect to all third
parties, firms or corporations relating to the matter for which indemnification
has been made. The failure to deliver written notice to the Company as provided
in this Agreement shall not relieve the Company of any liability to the
Indemnitee under this Section 8, except to the extent that the Company is
materially prejudiced in its ability to defend such action.
(c) Survival of Indemnification Obligations. The obligations of the
Company under this Section 8 shall survive the transfer of the Securities by the
Indemnitees.
SECTION 9. MISCELLANEOUS.
(a) Governing Law; Jurisdiction; Waiver of Jury Trial. All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdictions) that would
21
cause the application of the laws of any jurisdictions other than the State of
New York. Each party hereby irrevocably submits to the non-exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.
(b) Counterparts. This Agreement may be executed in identical
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a party,
may be delivered to the other parties hereto by facsimile transmission of a copy
of this Agreement bearing the signature of the party so delivering this
Agreement.
(c) Headings. The headings of this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(d) Entire Agreement. This Agreement, the Registration Rights Agreement,
the Notes and the Warrants and the documents referenced herein and therein
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. This Agreement, the Registration Rights Agreement, the Notes and the
Warrants supersede all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof and thereof.
(e) Consents. All consents and other determinations required to be made by
Investors pursuant to this Agreement shall be made, unless otherwise specified
in this Agreement, by Investors holding at least a majority of the Conversion
Shares and Warrant Shares, determined as if all of the Notes held by Buyers then
outstanding have been converted into Conversion Shares and all Warrants then
outstanding have been exercised for Warrant Shares without regard to any
limitations on conversion of the Notes or on the exercise of the Warrants.
(f) Waivers. No provision of this Agreement may be amended or waived other
than by an instrument in writing signed by the Company and Investors holding at
least a majority of the
22
Conversion Shares and Warrant Shares, determined as if all of the Notes held by
Buyers then outstanding have been converted into Conversion Shares and all
Warrants then outstanding have been exercised for Warrant Shares without regard
to any limitations on the conversion of the Notes or on the exercise of the
Warrants. No such amendment shall be effective to the extent that it applies to
less than all of the holders of the Notes then outstanding. No consideration
shall be offered or paid to any person to amend or consent to a waiver or
modification of any provision of any of the Transaction Documents unless the
same consideration also is offered to all of the parties to the Transaction
Documents or holders of the Conversion Shares, as the case may be.
(g) Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile; or (iii) one
(1) Business Day after deposit with a nationally recognized overnight delivery
service, in each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:
If to the Company:
Electroglas, Inc.
0000 Xxxxxx Xxxxx Xxxxxx Xxxx
Xxx Xxxx, Xxxxxxxxxx 00000-00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxx Xxxxxxx
with a copy to:
Xxxxxxxx & Xxxxxxxx LLP
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxx Xxxxxxx, Esq.
If to Xxxxxxxxx Xxxxxxxx:
Xxxxxxxxx Xxxxxxxx, Inc.
000 Xxxxxxxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Mr. Xxxxx Xxxxxxxx
Xx. Xxxx Xxxxxxx
Xx. Xxxxx Xxxxxxxxx
23
with a copy to:
Xxxxxx, Xxxx & Xxxxxxxx LLP
0000 Xxxxxxxxxxx Xxxxxx XX
Xxxxxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxx Xxxx, Esq.
If to Legal Counsel:
Xxxxxx, Xxxx & Xxxxxxxx LLP
0000 Xxxxxxxxxxx Xxxxxx XX
Xxxxxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxx Xxxx, Esq.
If to a Buyer, to its address and facsimile number set forth on the
Schedule of Buyers attached hereto as Exhibit A, with copies to such
Buyer's representatives as set forth on the Schedule of Buyers, or at such
other address and/or facsimile number and/or to the attention of such
other person as the recipient party has specified by written notice given
to each other party five (5) days prior to the effectiveness of such
change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the
time, date, recipient facsimile number and an image of the first page of
such transmission, or (C) provided by a courier or overnight courier
service shall be rebuttal evidence of personal service, receipt by
facsimile or receipt from a nationally recognized overnight delivery
service in accordance with clause (i), (ii) or (iii) above, respectively.
(h) 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.
(i) 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.
(j) 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 other than Xxxxxxxxx.
(k) 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
24
of the remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
(l) Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Securities. The Company shall not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the holders of at least a majority of the outstanding principal
amount of the Notes including by merger or consolidation, except pursuant to a
Change of Control (as defined in the Notes) with respect to which the Company is
in compliance with the terms of the Notes. A Buyer may assign some or all of its
rights and obligations hereunder without the consent of the Company; provided,
however, that the transferee has agreed in writing to be bound by the applicable
provisions of this Agreement and provided, further, that such assignment shall
be in connection with a transfer of all or a portion of the Notes and Warrants
held by such Buyer and subject to the terms and conditions of the Warrants and
Notes, as applicable.
(m) Survival. Unless this Agreement is terminated under Section 9(o) of
this Agreement, the representations and warranties of the Company and the Buyers
contained in Sections 2 and 3 of this Agreement, and the indemnification
provisions set forth in Section 8 of this Agreement, the agreements and
covenants set forth in Sections 4, 5 and 9 of this Agreement shall survive until
such time as no Notes, Conversion Shares, Warrants or Warrant Shares remain
outstanding. Each Buyer shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.
(n) Publicity. The Company and Xxxxxxxxx shall have the right to approve
before issuance any press releases or any other public statements with respect
to the transactions contemplated by the Transaction Documents; provided,
however, that neither the Company nor Xxxxxxxxx shall have the right to issue a
press release referring to a Buyer or its affiliates without such Buyer's prior
written consent. Xxxxxxxxx has the right to describe its services to the Company
in connection with the Offering and to reproduce the Company's name and logo in
Xxxxxxxxx'x advertisements, marketing materials and equity research reports, if
any, in the form previously approved by the Company and subject to the prior
approval of the Company, which shall not be unreasonably withheld, such
additional uses as Xxxxxxxxx may from time to time request.
(o) Termination. In the event that the Closing shall not have occurred
with respect to a Buyer on or before five (5) Business Days from the date hereof
due to the Company's or such Buyer's failure to satisfy the conditions set forth
in Sections 6 and 7 of this Agreement (and the nonbreaching party's failure to
waive such unsatisfied conditions), the nonbreaching party shall have the option
to terminate this Agreement with respect to such breaching party at the close of
business on such date without liability of any party to any other party, and the
Company or Xxxxxxxxx, as the case may be, shall return any and all funds paid
hereunder to the applicable Buyer no later than the close of business on the
Business Day following such termination; provided, however, that if this
Agreement is terminated pursuant to this Section 9(o), the Company shall remain
obligated to reimburse any nonbreaching Buyer for the expenses described in
Section 4(i) of this Agreement.
25
(p) Placement Agent. The Company acknowledges that it has engaged
Xxxxxxxxx Xxxxxxxx, Inc. as placement agent in connection with the sale of the
Notes and the Warrants and that the compensation of such agent is as set forth
on the Schedule of Fees attached hereto as Exhibit D. The Company shall be
responsible for the payment of any placement agent's fees, financial advisory
fees, or brokers' commissions (other than for persons engaged by any Buyer or
its investment advisor) relating to or arising out of the transactions
contemplated hereby. The Company shall pay, and hold each Buyer harmless
against, any liability, loss or expense (including, without limitation,
attorney's fees and out-of-pocket expenses) arising in connection with any such
claim.
(q) Remedies. Each Buyer and each holder of the Securities shall have all
rights and remedies set forth in the Transaction Documents and all rights and
remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any
law. Any person having any rights under any provision of this Agreement shall be
entitled to enforce such rights to recover damages by reason of any breach of
any provision of this Agreement and to exercise all other rights granted by law.
Furthermore, the Company recognizes that in the event that it fails to perform,
observe, or discharge any or all of its obligations under this Agreement, any
remedy at law may prove to be inadequate relief to the Buyers. The Company
therefore agrees that the Buyers shall be entitled to seek temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages and without posting a bond or other security.
(r) Payment Set Aside. To the extent that the Company makes a payment or
payments to any Buyer hereunder or pursuant to any of the other Transaction
Documents, or the Buyers enforce or exercise their rights hereunder or
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.
26
IN WITNESS WHEREOF, the parties have caused this Securities Purchase
Agreement to be duly executed as of the date first written above.
"COMPANY"
ELECTROGLAS, INC.
By:
-------------------------------
ACKNOWLEDGED AND AGREED:
"XXXXXXXXX"
XXXXXXXXX XXXXXXXX, INC.
By:
----------------------------------
Its:
-----------------------------
[Signatures of Buyers on Following Page]
[SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]
"BUYER"
---------------------------------------------
(print full legal name of Buyer)
By:
-----------------------------------------
(signature of authorized representative)
Name:
---------------------------------------
Its:
----------------------------------------
EXHIBIT A
SCHEDULE OF BUYERS
EXHIBIT B
FORM OF NOTE
EXHIBIT C
FORM OF WARRANT
EXHIBIT D
SCHEDULE OF FEES
omitted
EXHIBIT E
FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT F
FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
June __, 2002
Via Federal Express
EquiServe Trust Company, N.A.
000 Xxxxxx Xxxxxx
Mail Stop 45-02-62
Canton, MA 92021
Attn: Xxxx Xxxxxx
Re: Reservation of Shares of Common Stock Pursuant to Sale by
Electroglas, Inc. of up to $35,500,000 in Aggregate Principal
Amount of 5.25% Convertible Subordinated Notes due 2007 and
Warrants to Purchase up to 649,612 Shares of Common Stock
Ladies and Gentlemen:
Electroglas, Inc., a Delaware corporation (the "Company"), has
agreed (i) to sell to the buyers listed on Schedule A hereto (the "Buyers"), on
the date hereof, Thirty-Five Million Five Hundred Thousand United States Dollars
($35,500,000) in aggregate principal amount of 5.25% Convertible Subordinated
Notes due 2007 (the "Notes"), convertible into shares of the common stock, $0.01
par value per share (the "Common Stock") of the Company, and warrants (the
"Warrants") to purchase 649,612 shares of Common Stock, pursuant to that certain
Securities Purchase Agreement dated as of June 19, 2002, by and among the
Company and each Buyer (the "Securities Purchase Agreement"), and (ii) to issue
to Xxxxxxxxx Warrants to purchase the number of shares of Common Stock set forth
in the Schedule of Fees attached as Exhibit D to the Securities Purchase
Agreement. Capitalized terms used herein without definition have the meanings
assigned to them in the Securities Purchase Agreement.
You are hereby instructed to:
Establish as of the date of this letter a reserve of 3,637,828
shares of Common Stock for issuance to holders of Notes upon conversion of their
Notes (the "Conversion Share Reserve"). The Conversion Share Reserve shall be
adjusted to appropriately reflect the effect of any stock split, reverse stock
split, stock dividend (including any dividend or distribution of securities
convertible into Common Stock), reorganization, recapitalization,
reclassification, exchange or other like change with respect to Common Stock
occurring on or after the date hereof.
Establish as of the date of this letter a reserve of 750,302 shares
of Common Stock for issuance to holders of Warrants upon exercise of their
Warrants (the "Warrant Share Reserve"). The Warrant Share Reserve shall be
adjusted to appropriately reflect the effect of any stock split, reverse stock
split, stock dividend (including any dividend or distribution of securities
convertible into Common Stock), reorganization, recapitalization,
reclassification, exchange or other like change with respect to Common Stock
occurring on or after the date hereof.
A registration statement on Form S-3 to register the Common Stock
issuable out of the Conversion Share Reserve and the Warrant Share Reserve (the
"Registration Statement") will be filed with the Securities and Exchange
Commission (the "Commission") on or before July 21, 2002. We will forward to you
copies of the filing promptly after it is declared or deemed effective by the
Commission.
Until the Registration Statement is declared effective by the
Commission, the certificates evidencing the shares of Common Stock issued out of
the Conversion Share Reserve or the Warrant Share Reserve will bear the
restrictive legend set forth below:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR
SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OR
APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION THEREFROM. THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN
SECURED BY THE SECURITIES.
Until the Registration Statement is declared effective by the
Commission, certificates evidencing shares of Common Stock held by or
transferred to an "affiliate" (as defined in Rule 501(b) of Regulation D under
the Securities Act) of the Company will bear the restrictive legend set forth
below:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE HELD BY A PERSON WHO
MAY BE DEEMED TO BE AN AFFILIATE OF THE ISSUER FOR PURPOSES OF RULE 144
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND MAY BE SOLD ONLY IN COMPLIANCE WITH RULE 144,
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR PURSUANT TO A VALID EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT.
So long as you have previously received (i) an opinion of the
Company's outside counsel (which the Company shall direct be delivered to you by
such outside counsel upon the effectiveness of the Registration Statement
covering the resales of the Common Stock) stating that a Registration Statement
covering the resales of the Common Stock has been declared effective by the
Commission under the Securities Act (the "Opinion"), (ii) a certification from
the clearing broker for the Buyers as to compliance with the prospectus delivery
requirements and as to the fact that the sale of the Common Stock was made in
compliance with the Plan of Distribution set forth in the Registration Statement
(the "Broker Certification"), (iii) a copy of the Registration Statement and
(iv) confirmation from the Company that sales are permitted under the
Registration Statement at that time, the certificates representing the Common
Stock sold pursuant to the Registration Statement shall not bear any legend
restricting transfer of the Common Stock thereby and should not be subject to
any stop-transfer restriction.
We enclose the following additional documents:
1. A copy of the Securities Purchase Agreement; and
2. A capitalization table listing the Buyers and Xxxxxxxxx and
their respective beneficial ownership interests in the shares
of Common Stock.
Please be advised that the Buyers have relied upon this instruction
letter as an inducement to enter into the Securities Purchase Agreement and,
accordingly, each of the Buyers is a third party beneficiary to these
instructions.
Please sign in the space provided below to evidence your acceptance
and acknowledgment of your responsibilities under this letter. Please call me at
(000) 000-0000 if you require any further information. Thank you for your
assistance.
Very truly yours,
----------------------------------------
Its:
------------------------------------
Acknowledged and Agreed:
EQUISERVE TRUST COMPANY, N.A.
By:
---------------------------------------
Its:
cc: Xx. Xxxxx X. Xxxxxxxxx (w/o encl.)
Enclosures
EXHIBIT G
FORM OF COMPANY COUNSEL OPINION
The Company has been duly incorporated and is validly existing in good
standing under the laws of the State of Delaware, with all requisite corporate
power and authority to own, lease and operate its properties and assets, to
conduct its business as described in the Confidential Private Placement
Memorandum, and to enter into and perform its obligations under the Transaction
Documents.
The domestic Subsidiaries have each been duly incorporated and are validly
existing in good standing under the laws of their respective jurisdictions of
incorporation, with all requisite corporate power and authority to own, lease
and operate its properties and assets, to conduct their businesses as described
in the Confidential Private Placement Memorandum.
The execution, delivery and performance of the Transaction Documents have
been duly authorized by all necessary corporate action on the part of the
Company and the Transaction Documents have been duly executed and delivered by
the Company.
The Transaction Documents constitute the legally valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms.
The execution and delivery by the Company of the Transaction Documents do
not, and the Company performance of its obligations under the Transaction
Documents will not, (i) violate the Company's Certificate of Incorporation or
By-Laws, (ii) violate, breach or result in a default under, any existing
obligation of or restrictions on the Company under any other agreement listed in
an exhibit to the Company's most recent annual report on Form 10-K, (iii) breach
or otherwise violate any existing obligation of or restriction on the Company
under any order, judgment or decree of any state or federal court or
governmental authority binding on the Company, and known to us, or (iv) to our
knowledge, violate any current Delaware or New York federal statute, rule or
regulation that we have recognized as applicable to the Company or to
transactions of the type contemplated by the Transaction Documents.
The Notes have been duly authorized by all necessary corporate action on
the part of the Company and, upon payment for and delivery of the Notes in
accordance with the Securities Purchase Agreement, to our knowledge will be made
and issued free of preemptive or similar rights.
The Warrants have been duly authorized by all necessary corporate action
on the part of the Company and, upon payment for and delivery of the Warrants in
accordance with the Securities Purchase Agreement, the Warrants will be validly
issued, fully paid, and nonassessable and to our knowledge, free of preemptive
or similar rights.
The Conversion Shares have been duly authorized and reserved for issuance
upon conversion of the Notes by all necessary corporate action on the part of
the Company and, upon conversion of the Notes and delivery of the Conversion
Shares in accordance with the Notes, the
Conversion Shares will be validly issued, fully paid and nonassessable and to
our knowledge, free of preemptive or similar rights.
The Warrant Shares have been duly authorized and reserved for issuance
upon exercise of the Warrants by all necessary corporate action on the part of
the Company and, upon payment of the exercise price upon exercise of the
Warrants and delivery of the Warrant Shares in accordance with the Warrants, the
Warrant Shares will be validly issued, fully paid, and nonassessable and to our
knowledge, free of preemptive or similar rights.
No order, consent, permit or approval of any Delaware, New York or federal
governmental authority that we have recognized as applicable and material to the
Company or to the transactions of the type contemplated by the Transaction
Documents is required on the part of the Company for the execution and delivery
of, and performance of its obligations under, the Transaction Documents except
as may be required under applicable state and federal securities laws and
regulations applicable to the offer and sale of the Securities and by federal
and state securities laws with respect to the Company's obligations under the
Registration Rights Agreement.
Assuming the accuracy of your representations in Section 2 of the
Securities Purchase Agreement and the representations made by Xxxxxxxxx in the
Placement Agent Certificate, no registration under the Securities Act and no
qualification of the Indenture under the Trust Indenture Act, is required for
the purchase and sale of the Notes and the Warrants, or the issuance of Common
Stock issuable upon conversion or exercise thereof, or the issuance to Xxxxxxxxx
of the Xxxxxxxxx Warrants, or the issuance of Common Stock issuable upon
conversion thereof, in the manner contemplated by the Securities Purchase
Agreement and the Confidential Private Placement Memorandum.
The documents incorporated by reference in the Confidential Private
Placement Memorandum, on the respective dates they were filed, appeared on their
face to comply in all material respects with the requirements as to form for
reports on Form 10-K, Form 10-Q and Form 8-K, as the case may be, under the
Exchange Act, except that we express no opinion concerning the financial
statements and other financial information contained or incorporated by
reference therein.
Based solely upon representations received from the Company, we do not
know of any contract or other document of a character required to be filed as an
SEC Document which is not filed as required.
In the course of acting as counsel for the Company in connection with the
preparation by the Company of the Confidential Private Placement Memorandum, we
have participated in conferences with officers and representatives of the
Company and the independent accountants of the Company, at which conferences we
have made inquiries of such officers, representatives and others and discussed
the contents of the Confidential Private Placement Memorandum. Although we are
not passing upon and do not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Confidential Private
Placement Memorandum, based on such participation, inquiries and discussions, no
facts have come to our attention that would lead us to believe that the
Confidential Private Placement Memorandum
(except that we express no view with respect to the financial statements,
including the notes thereto, and schedules or other financial data included
therein) as of the date thereof contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
EXHIBIT H
FORM OF INDENTURE
SCHEDULE 3(a)
SUBSIDIARIES
Electroglas International, Inc.
EGsoft, Inc.
EGsoft Holdings Corporation
Electroglas Foreign Sales Corporation
Electroglas Kabushiki Kaishi
Electroglas GmbH
Electroglas Private Limited
SCHEDULE 3(e)
CONFLICTS
The Company entered into a Lease Agreement dated as of March 31, 1997 (as
subsequently amended, the "Lease"), which was amended and supplemented by a
Construction Funding Agreement (First Amendment to Lease Agreement) dated July
1, 1998, and Modification Agreement (Second Amendment to Lease) dated February
8, 2000, and Modification Agreement (Third Amendment to Lease Agreement and
Other Operative Documents) (the "Third Lease Amendment") which covered, among
other things, the lease of its headquarters location in San Jose, California.
Pursuant to Schedule 2 of the Third Lease Amendment, the Company is required to
maintain certain affirmative financial covenants, including:
(i) a Maximum Ratio of Liabilities to Tangible Net Worth (as defined
therein) of not more than 0.70 to 1.00; and
(ii) a Minimum Tangible Net Worth (as defined therein), at the end of any
fiscal quarter of the Company, equal to the sum of at least (a) $155,347,000;
plus (b) seventy-five percent (75%) of the Company's net income (computed
without deduction for net losses in any fiscal quarter) earned in each fiscal
quarter of the Company after June 30, 2001; plus (c) one hundred percent (100%)
net proceeds of sales of stock in the Company after June 30, 2001; less (d)
non-cash charges relating to acquisitions after June 30, 2001 that do not exceed
an aggregate, cumulative amount of fifteen percent (15%) of the Company's
Consolidated Tangible Net Worth (as that term is defined therein) at the end of
such fiscal quarter.
Assuming the sale of Thirty-Five Million Five Hundred Thousand United
States Dollars ($35,500,000) principal amount of the Company's Notes and based
on the Company's current expected operating results, the Company believes it
will violate covenant (i) above at the Closing and will be in violation of
covenant (ii) above at the end of its fiscal quarter ended June 30, 2002.
Assuming the sale of Thirty-Five Million Five Hundred United States Dollars
($35,500,000) principal amount of the Company's Notes and based on the Company's
current expected operating results, the Company believes it will violate
covenant (i) above at the Closing and will be in violation of covenant (ii)
above at the end of its fiscal quarter ended June 30, 2002. For additional
information, see "Risk Factors" in the Final Confidential Private Placement
Memorandum.
SCHEDULE 3(p)
TRANSACTIONS WITH AFFILIATES
None.
SCHEDULE A
COMPANY WIRE INSTRUCTIONS
omitted
