SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of December 4,
2000 set forth below (this "Agreement"), is entered into by and between
0XXXXXXXXX.XXX a California corporation, with headquarters located at 000
Xxxxxxxxxx Xxxxxxxxx, Xxxxxx xxx Xxx, XX 00000 (the "Company"), and each entity
named on a signature page hereto (each, a "Buyer") (each agreement with a Buyer
being deemed a separate and independent agreement between the Company and such
Buyer, except that each Buyer acknowledges and consents to the rights granted to
each other Buyer under such agreement and the Transaction Agreements, as defined
below, referred to therein).
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and
delivering this Agreement in accordance with and in reliance upon the exemption
from securities registration afforded, inter alia, by Rule 506 under Regulation
D ("Regulation D") as promulgated by the United States Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933
Act"), and/or Section 4(2) of the 1933 Act; and
WHEREAS, the Buyer wishes to purchase, upon the terms and
subject to the conditions of this Agreement, shares of Series A Convertible
Preferred Stock, having a stated value of $1000 per share, of the Company (the
"Convertible Preferred Stock") which will be convertible into shares of Common
Stock of the Company (the "Common Stock"), upon the terms and subject to the
conditions of such Convertible Preferred Stock, together with the Warrants (as
defined below) exercisable for the purchase of shares of Common Stock, and
subject to acceptance of this Agreement by the Company;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
a. Purchase; Certain Definitions.
(i) The undersigned hereby agrees to purchase at the Purchase
Price from the Company Convertible Preferred Stock having a stated value in the
amount set forth on the Buyer's signature page of this Agreement (the "Preferred
Stock," which term includes the Initial Preferred Stock and the Additional
Preferred Stock, as defined below), out of a total offering of such Convertible
Preferred Stock having a stated value of $6,000,000, and having the terms and
conditions set forth in the Statement of Designations of the Series A
Convertible Preferred Stock of the Company attached hereto as Annex I (the
"Certificate of Designations").
(ii) Subject to the terms and conditions of this Agreement
and the other Transaction Agreements, the Buyer will purchase (x) Convertible
Preferred Stock having a stated value of $1,500,000 multiplied by the Buyer's
Allocable Share (the "Initial Preferred Stock") on the Initial Closing Date (as
defined below), (y) Convertible Preferred Stock having a stated value of
$2,500,000 of the Preferred Stock (the "First Additional Preferred Stock") on
the First Additional Closing Date (as defined below) and (Z) the balance of
Convertible Preferred Stock having a stated value of up to $2,000,000 of the
Preferred Stock ("Second Additional Preferred Stock") on the Second Additional
Closing Date (as defined below) determined as follows: if (a) the Capitalization
Rate of the Company falls below $35,000,000 at any time during the period
between the Effective Date and the Second Additional Closing Date then the
stated value of the Second Additional Preferred Stock to be purchased shall
equal $1,000,000; and (b) the Capitalization Rate of the Company is above
$35,000,000 during the period between the Effective Date and the Second
Additional Closing Date then, at the option of the holder, the stated value of
the Second Additional Preferred Stock to be purchased may be increased up to
$2,000,000.
(iii) The purchase price to be paid by the Buyer shall be
equal to the amount set forth on the Buyer's signature page of this Agreement,
and shall be payable in United States Dollars.
b. Certain Definitions. As used herein, each of the following
terms has the meaning set forth below, unless the context otherwise requires:
(i) "Additional Preferred Stock" means the "First Additional
Preferred Stock" and "Second Additional Preferred Stock".
(ii) "Buyer's Allocable Share" means the fraction of which the
numerator is the stated value of the Buyer's Preferred Stock specified on the
Buyer's signature page of this Agreement and the denominator is the purchase
price.
(iii) "Capitalization Rate" means the product of the closing bid
price of the Common Stock as reported by Bloomberg L.P. ("Closing Bid Price")
and the number of shares of Common Stock outstanding held by non-affiliates.
(iv) "Certificate of Determination" means the Certificate of
Determination of Rights, Preferences, Privileges and Restrictions of Series A
Convertible Preferred Stock or in the event that the issuance of the First
Additional Preferred Stock or Second Additional Preferred Stock requires the
filing of a new series of Preferred Stock pursuant to the provisions hereof,
Certificate of Determination means the Certificate filed for such respective
series, as the case may be.
(v) "Closing Date" means the Initial Closing Date or an
Additional Closing Date, as the case may be.
(vi) "Converted Shares" means the shares of Common Stock
issuable upon conversion of the Preferred Stock.
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(vii) "Effective Date" means the effective date of the
Registration Statement covering the Registrable Securities (as those terms are
defined in the Registration Rights Agreement defined herein).
(viii) "First Additional Closing Date" means the date of the
approval by the shareholders of the Company of the issuance of Common Stock
issuable upon conversion of the Preferred Stock in excess of 19.99% of the
outstanding shares of Common Stock of the Company..
(ix) "Initial Closing Date" means the date of this Agreement
(x) "Issue Date" means respective closing date of each
tranche of Series A Preferred Stock.
(xi) "Latest Audited Date" means June 30, 2000.
(xii) "Principal Market" means the American Stock Exchange,
New York Stock Exchange, Nasdaq National Market or Nasdaq Small Cap Market.
(xiii) "Purchase Price" means the purchase price for the
Initial Preferred Stock or the Additional Preferred Stock, as the case may be.
(xiv) "Second Additional Closing Date" means the later of (i)
45 days after the effectiveness of the first registration statement filed
pursuant to the Registration Rights Agreement or (ii) 30 days after the Issue
Date of the First Additional Closing Date.
(xv) Securities" means the Preferred Stock, the Warrants and
the Common Stock issuable upon conversion of the Preferred Stock or the exercise
of the Warrants.
(xvi) "Shares" means the shares of Common Stock representing
any or all of the Converted Shares and the Warrant Shares.
(xvii) "Warrant Shares" means the shares of Common Stock
issuable upon exercise of the Warrants.
c. Form of Payment; Delivery of Certificates.
(i) The Buyer shall pay the Purchase Price for the
relevant Preferred Stock by delivering immediately available good funds in
United States Dollars to the escrow agent (the "Escrow Agent") identified in the
Joint Escrow Instructions attached hereto as Annex II (the "Joint Escrow
Instructions") on the date prior to the relevant Closing Date.
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(ii) No later than the relevant Closing Date, but in any event
promptly following payment by the Buyer to the Escrow Agent of the relevant
Purchase Price, the Company shall deliver one or more certificates representing
the Preferred Stock and, if relevant to the transactions to be consummated on
that Closing Date, the Warrants to be issued hereunder, each duly executed on
behalf of the Company and issued in the name of the Buyer (collectively, the
"Certificates") to the Escrow Agent. The Buyer will instruct the Escrow Agent to
pay the Purchase Price to the Company on the relevant Closing Date.
(iii) By signing this Agreement, each of the Buyer and the
Company, subject to acceptance by the Escrow Agent, agrees to all of the terms
and conditions of, and becomes a party to, the Joint Escrow Instructions, all of
the provisions of which are incorporated herein by this reference as if set
forth in full.
d. Method of Payment. Payment into escrow of the Purchase
Price shall be made by wire transfer of funds to:
Bank of New York
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
ABA#
For credit to the account of Xxxxxxx & Xxxxxx LLP, Esqs.
Account No.: [To be provided to the Buyer by Xxxxxxx &
Prager LLP]
Re: 0Xxxxxxxxx.Xxx
e. Escrow Property. The Purchase Price delivered to the
Escrow Agent as contemplated by Section 1(d) hereof is referred to as the
"Escrow Funds." The Escrow Funds and the Certificates delivered to the Escrow
Agent as contemplated by Section 1(c) hereof are referred to as the "Escrow
Property."
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees
with, the Company as follows:
a. Without limiting Buyer's right to sell the Common Stock
pursuant to the Registration Statement, the Buyer is purchasing the Preferred
Stock and the Warrants and will be acquiring the Shares for its own account for
investment only and not with a view towards the public sale or distribution
thereof and not with a view to or for sale in connection with any distribution
thereof.
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b. The Buyer is (i) an "accredited investor" as that term is
defined in Rule 501 of the General Rules and Regulations under the 1933 Act by
reason of Rule 501(a)(3), (ii) experienced in making investments of the kind
described in this Agreement and the related documents, (iii) able, by reason of
the business and financial experience of its officers (if an entity) and
professional advisors (who are not affiliated with or compensated in any way by
the Company or any of its affiliates or selling agents), to protect its own
interests in connection with the transactions described in this Agreement, and
the related documents, and (iv) able to afford the entire loss of its investment
in the Securities.
c. All subsequent offers and sales of the Preferred Stock and
the Shares by the Buyer shall be made pursuant to registration of the Shares
under the 1933 Act or pursuant to an exemption from registration.
d. The Buyer understands that the Securities are being offered
and sold to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that the
Company is relying upon the truth and accuracy of, and the Buyer's compliance
with, the representations, warranties, agreements, acknowledgments and
understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire the
Securities.
e. The Buyer and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Preferred Stock and
the offer of the Shares which have been requested by the Buyer, including those
set forth on Annex V hereto. The Buyer and its advisors, if any, have been
afforded the opportunity to ask questions of the Company and have received
complete and satisfactory answers to any such inquiries. Without limiting the
generality of the foregoing, the Buyer has also had the opportunity to obtain
and to review the Company's (1) Annual Report on Form 10-K, as amended, for the
fiscal year ended June 30, 2000 as amended by the Form 10-K(a) dated October 27,
2000, and (2) Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 2000; (collectively, the "Company's SEC Documents").
f. The Buyer understands that its investment in the Securities
involves a high degree of risk.
g. The 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.
h. This Agreement and the other Transaction Agreements to
which the Buyer is a party have been duly and validly authorized, executed and
delivered on behalf of the Buyer and are valid and binding agreements of the
Buyer enforceable in accordance with their respective terms, subject as to
enforceability to general principles of equity and to bankruptcy, insolvency,
moratorium and other similar laws affecting the enforcement of creditors' rights
generally.
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i. If such Buyer is an individual, such Purchaser is a citizen
of the United States and is a resident of the State of New York unless otherwise
indicated on the signature pages to this Agreement. If such Purchaser is an
entity, such Purchaser's principal place of business is in the State of New York
unless otherwise indicated on the signature pages to this Agreement.
j. Immediately following the Closing, such Buyer will not
beneficially own any voting securities of the Company other than the Securities.
k. Such Buyer does not have any agreements, arrangements or
understandings with any other Person (other than with other Purchasers who are
affiliates of such Purchaser) with regard to acquiring, holding, voting or
disposing of the securities of the Company.
l. Buyer acknowledges that the Company is disclosing to Buyer
non-public information ("Information"). Buyer agrees to hold the Information in
confidence and not to release, reproduce, discuss or use the Information without
the Company's express written consent.
m. Buyer agrees that so long as the Company is in compliance in
all material respects with its obligations to the Buyer under the Transaction
Agreements and so long as the Buyer owns any of the Preferred Stock, neither the
Buyer nor any person on behalf of the Buyer shall engage in any open market
"Short Sales" (as hereinafter defined) of the Common Stock during any period in
the which the conversion price is being computed for purposes of any conversion
of Preferred Stock under the Certificate of Determination, other than upon the
exercise of any rights to cause the Company to issue shares of Common Stock to
the Buyer; provided, however, that unless and until the Company has
affirmatively demonstrated by the use of specific evidence that the Buyer is
engaging in such open market Short Sales, the Buyer shall be assumed to be in
compliance with the provisions of this paragraph and the Company shall remain
obligated to fulfill all of its obligations under the Transaction Agreements;
and provided, further, that the Company shall under no circumstances be entitled
to request or demand that the Buyer affirmatively demonstrate that it has not
engaged in any such Short Sales as a condition to the Company's fulfillment of
its obligations under any of the Transaction Agreements and shall not assert the
Buyer's failure to demonstrate such absence of such Short Sales as a defense to
any breach of the Company's obligations under any of the Transaction Agreements.
As used herein, "Short Sales" has the meaning provided in Rule 3b-3 under the
1934 Act. Nothing in this Article shall prohibit or limit a sale, including a
Short Sale, by the Buyer effected on or after the date on which Buyer gives
appropriate notice to the Company entitling the Buyer to receive a number of
shares of Common Stock equal to or greater than the number of shares so sold.
3. COMPANY REPRESENTATIONS, ETC. The Company represents and
warrants to the Buyer as of the date hereof and as of each Closing Date that,
except as otherwise provided in the Company Disclosure Materials attached hereto
as Annex V hereto:
a. Concerning the Preferred Stock and the Shares. The
Preferred Stock has been duly authorized, and when issued and paid for in
accordance with the terms of this Agreement, will be duly and validly issued,
fully paid and non-assessable and will not subject the holder thereof to
6
personal liability solely by reason of acquiring the Preferred Stock hereunder.
There are no preemptive rights of any stockholder of the Company, as such, to
acquire the Preferred Stock, the Warrants or the Shares.
b. Reporting Company Status. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in each jurisdiction
where the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure to
so qualify would not have a material adverse effect on the business, operations,
financial condition or results of operation of the Company and its subsidiaries
taken as a whole. The Company has registered its Common Stock and is obligated
to file reports pursuant to Section 12 of the 1934 Act. The Common Stock is
listed and traded on The American Stock Exchange ("Amex"). The Company has
received no notice, either oral or written, with respect to the continued
eligibility of the Common Stock for such listing, and the Company has maintained
all requirements for the continuation of such listing.
c. Authorized Shares. The authorized capital stock of the
Company consists of (i) 10,000,000shares of Common Stock, no par value per
share, of which approximately 5,304,164 shares have been issued as of the date
hereof and (ii) 5,000,000 shares of Preferred Stock, no par value per share, of
which 7,440 have been authorized as Series A Preferred Stock and none have been
issued as of the date hereof. All issued and outstanding shares of Common Stock
have been duly authorized and validly issued and are fully paid and
nonassessable. Assuming the validity of the agreement of Messrs. Xxxxxxx and
Xxxxxx not to exercise their options exercisable for 600,000 shares of Common
Stock and the Company's agreement set forth herein in paragraph 4j not to issue
any additional options or shares, the Company has sufficient authorized and
unissued shares of Common Stock as may be necessary to effect the issuance of
the shares underlying the Securities to be issued on the Initial Closing Date
based on the closing bid price of a share of Common Stock on the Principal
Market on the day prior to the Initial Closing Date and the Shares underlying
the Securities to be issued on Initial Closing Date will have been duly
authorized and, when issued upon conversion of, or as dividends on, the
Preferred Stock or upon exercise of the Warrants, each in accordance with its
respective terms, will be duly and validly issued, fully paid and non-assessable
and will not subject the holder thereof to personal liability by reason of being
such holder.
d. Securities Purchase Agreement; Registration Rights
Agreement and Stock. This Agreement and the Registration Rights Agreement, the
form of which is attached hereto as Annex IV (the "Registration Rights
Agreement"), and the transactions contemplated thereby, have been duly and
validly authorized by the Company. This Agreement has been duly executed and
delivered by the Company and this Agreement is, and each of the other
Transaction Agreements, when executed and delivered by the Company, will be, a
valid and binding agreement of the Company enforceable in accordance with their
respective terms, subject as to enforceability to general principles of equity
and to bankruptcy, insolvency, moratorium, and other similar laws affecting the
enforcement of creditors' rights generally and that rights to indemnity may be
limited by federal and state securities laws and public policy considerations.
7
e. Non-contravention. The execution and delivery of this
Agreement and the Registration Rights Agreement by the Company, the issuance of
the Securities, and the consummation by the Company of the other transactions
contemplated by this Agreement, the Registration Rights Agreement, and the
Preferred Stock subject to the Company obtaining approval of its shareholders to
increase its authorized capital and the sale of the Preferred Stock in excess of
19.99% of the outstanding Common Stock of the Company, do not and will not
conflict with or result in a breach by the Company of any of the terms or
provisions of, or constitute a default under (i) the articles of incorporation
or by-laws of the Company, each as currently in effect, (ii) any indenture,
mortgage, deed of trust, or other material agreement or instrument to which the
Company is a party or by which it or any of its properties or assets are bound,
excluding the listing agreement for the Common Stock or (iii) to its knowledge,
and assuming compliance with the matters referred to in Section 3(f), any
existing applicable law, rule, or regulation or any applicable decree, judgment,
or order of any court, United States federal or state regulatory body,
administrative agency, or other governmental body having jurisdiction over the
Company or any of its properties or assets, except such conflict, breach or
default which would not have a material adverse effect on the business,
operations, financial condition, or results of operations of the Company and its
subsidiaries, taken as a whole, or on the transactions contemplated herein.
f. Approvals. No authorization, approval or consent of any
court, governmental body, regulatory agency, self-regulatory organization, or
stock exchange or market or the stockholders of the Company is required to be
obtained by the Company for the issuance and sale of the Securities to the Buyer
on the Initial Closing Date as contemplated by this Agreement, except (i) the
filing of the Certificate of Determination in accordance with the law of the
State of California; (ii) the approval of the terms of the transaction
contemplated hereby by Amex and the filing of an additional listing application
with the Amex; (iii) any state or federal Securities or blue sky filings; and
(iv) other filings, notifications and consents that are immaterial to the
consummation of the transactions contemplated hereby.
g. SEC Filings. None of the Company's SEC Documents contained,
at the time they were filed (or in the case of an amended report, as of the date
of the amendment), any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make the
statements made therein in light of the circumstances under which they were
made, not misleading. The Company has since April 1, 1999 timely filed all
requisite forms, reports and exhibits thereto with the SEC (or with or in
permitted extension periods).
h. Absence of Certain Changes. Since the Last Audited Date,
there has been no material adverse change and no material adverse development in
the business, properties, operations, financial condition, or results of
operations of the Company, except as disclosed in the Company's SEC Documents.
Since the Last Audited Date, except as provided in the Company's SEC Documents,
the Company has not (i) incurred or become subject to any material liabilities
(absolute or contingent) except liabilities incurred in the ordinary course of
8
business consistent with past practices; (ii) discharged or satisfied any
material lien or encumbrance or paid any material obligation or liability
(absolute or contingent), other than current liabilities paid in the ordinary
course of business consistent with past practices; (iii) declared or made any
payment or distribution of cash or other property to stockholders with respect
to its capital stock, or purchased or redeemed, or made any agreements to
purchase or redeem, any shares of its capital stock; (iv) sold, assigned or
transferred any other material tangible assets, or canceled any debts or claims,
except in the ordinary course of business consistent with past practices; (v)
suffered any substantial losses or waived any rights of material value, whether
or not in the ordinary course of business, or suffered the loss of any material
amount of existing business; (vi) made any significant changes in employee
compensation, except in the ordinary course of business consistent with past
practices; or (vii) experienced any material problems with labor or management
in connection with the terms and conditions of their employment.
i. Full Disclosure. There is no fact known to the Company
(other than general economic conditions known to the public generally or as
disclosed in the Company's SEC Documents) that has not been disclosed to the
Buyer or its representatives that (i) would reasonably be expected to have a
material adverse effect on the business, operations, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole, or
(ii) would reasonably be expected to materially and adversely affect the ability
of the Company to perform its obligations pursuant to this Agreement or any of
the agreements contemplated hereby (collectively, including the Certificate of
Determination, the "Transaction Agreements").
j. Absence of Litigation. Except as set forth in the Company's
SEC Documents, there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board or body pending or, to the knowledge of the
Company, threatened against or affecting the Company, wherein an unfavorable
decision, ruling or finding would have a material adverse effect on the
properties, business, operations, financial condition, or results of operations
of the Company and its subsidiaries taken as a whole or the transactions
contemplated by any of the Transaction Agreements or which would adversely
affect the validity or enforceability of, or the authority or ability of the
Company to perform its obligations under, any of the Transaction Agreements.
k. Absence of Events of Default. Except as set forth in the
Company's SEC Documents, no Event of Default (or its equivalent term), as
defined in the respective agreement to which the Company is a party, and no
event which, with the giving of notice or the passage of time or both, would
become an Event of Default (or its equivalent term) (as so defined in such
agreement), has occurred and is continuing, which would have a material adverse
effect on the business, operations, financial condition, or results of
operations of the Company and its subsidiaries, taken as a whole.
l. Prior Issues. Except as set forth in the Company's SEC
Documents, during the twelve (12) months preceding the date hereof, the Company
has not issued any convertible securities. As of the date hereof, the
outstanding unconverted principal amount of each convertible security issued by
the Company is as set forth in Annex V hereto.
9
m. No Material Undisclosed Liabilities or Events. The Company
has no liabilities or obligations other than those disclosed in the Company's
SEC Documents or those incurred in the ordinary course of the Company's business
since the Last Audited Date, and which individually or in the aggregate, do not
or would not have a material adverse effect on the properties, business,
operations, financial condition, or results of operations of the Company and its
subsidiaries, taken as a whole. To the Company's knowledge event or
circumstances has occurred or exists with respect to the Company or its
properties, business, operations, financial condition, or results of operations,
which, under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed. Other than the proposal to increase the
Company's authorized capital and to reincorporate in the State of Delaware,
there are no proposals currently under consideration or currently anticipated to
be under consideration by the Board of Directors or the executive officers of
the Company (other than the transactions contemplated by the Transaction
Agreements) which proposal would (x) change the certificate of incorporation or
other charter document or by-laws of the Company, each as currently in effect,
with or without shareholder approval, which change would reduce or otherwise
adversely affect the rights and powers of the shareholders of the Common Stock
or (y) materially or substantially change the business, assets or capital of the
Company, including its interests in subsidiaries.
n. No Default. Except as provided in the Company's SEC
Documents, the Company is not in default in the performance or observance of any
material obligation, agreement, covenant or condition contained in any material
indenture, mortgage, deed of trust or other material instrument or agreement to
which it is a party or by which it or its property is bound.
o. No Integrated Offering. Neither the Company nor any of its
affiliates nor any person acting on its or their behalf has, directly or
indirectly, at any time since November 1, 1999, made any offer or sales of any
security or solicited any offers to buy any security under circumstances that
would eliminate the availability of the exemption from registration under Rule
506 of Regulation D in connection with the offer and sale of the Securities as
contemplated hereby.
p. Dilution. The number of Shares issuable upon conversion of
the Preferred Stock and the exercise of the Warrants may increase substantially
in certain circumstances, including, but not necessarily limited to, the
circumstance wherein the trading price of the Common Stock declines prior to the
conversion of the Preferred Stock. The Company's executive officers and
directors have studied and fully understand the nature of the Securities being
sold hereby and recognize that they have a potential dilutive effect. The board
of directors of the Company has concluded, in its good faith business judgment,
that such issuance is in the best interests of the Company. The Company
specifically acknowledges that its obligation to issue the Shares upon
conversion of the Preferred Stock and upon exercise of the Warrants is binding
upon the Company and enforceable regardless of the dilution such issuance may
have on the ownership interests of other shareholders of the Company, and the
Company will honor, in accordance with the terms of the Certificate of
Determination and California law, every Notice of Conversion (as defined in the
Certificate of Designations) relating to the conversion of the Preferred Stock
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and every Notice of Exercise Form (as contemplated by the Warrants) relating to
the exercise of the Warrants unless the Company is subject to an injunction
(which injunction was not sought by the Company) prohibiting the Company from
doing so.
q. Brokers, Finders. Except for payment of fees to X.X.
Xxxxxxxxxx (the "Placement Agent"), payment of which is the sole responsibility
of the Company, the Company has taken no action which would give rise to any
claim by any person for brokerage commission, finder's fees or similar payments
by Buyer relating to this Agreement or the transactions contemplated hereby.
Buyer shall have no obligation with respect to such fees or with respect to any
claims made by or on behalf of other persons for fees of a type contemplated in
this Section 3(q) that may be due in connection with the transactions
contemplated hereby. The Company shall indemnify and hold harmless each of
Buyer, its employees, officers, directors, agents, and partners, and their
respective affiliates, from and against all claims, losses, damages, costs
(including the costs of preparation and attorney's fees) and expenses suffered
in respect of any such claimed or existing fees, as and when incurred.
r. Amendments, Modification or Waivers. The Company shall pay
all reasonable fees and expenses incurred by the Buyer in connection with any
amendments, modifications or waivers of this Agreement or the Registration
Rights Agreement or incurred in connection with the enforcement of this
Agreement and the Registration Rights Agreement, including, without limitation,
all reasonable attorneys fees and expenses. The Company shall pay all stamp or
other similar taxes and duties levied in connection with issuance of the Shares
pursuant hereto.
s. Material Non-public Information. The Company is not in
possession of, nor has the Company or its agents disclosed or will disclose to
Buyer, any material non-public information that (a) if disclosed, would
reasonably be expected to have a materially adverse effect on the price of the
Common Stock or (b) according to applicable law, rule or regulation, should have
been disclosed publicly by the Company prior to the date hereof but which has
not been so disclosed.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. Transfer Restrictions. The Buyer acknowledges that (1) the
Preferred Stock, and Warrants have not been and are not being registered under
the provisions of the 1933 Act and, except as provided in the Registration
Rights Agreement, the Shares have not been and are not being registered under
the 1933 Act, and may not be transferred unless (A) subsequently registered
thereunder or (B) the Buyer shall have delivered to the Company an opinion of
counsel, reasonably satisfactory in form, scope and substance to the Company, to
the effect that the Securities to be sold or transferred may be sold or
transferred pursuant to an exemption from such registration; (2) any sale of the
Securities made in reliance on Rule 144 promulgated under the 1933 Act may be
made only in accordance with the terms of said Rule and further, if said Rule is
not applicable, any resale of such Securities under circumstances in which the
seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance with
11
some other exemption under the 1933 Act or the rules and regulations of the SEC
thereunder; and (3) neither the Company nor any other person is under any
obligation to register the Securities (other than pursuant to the Registration
Rights Agreement) under the 1933 Act or to comply with the terms and conditions
of any exemption thereunder.
b. Restrictive Legend. The Buyer acknowledges and agrees that
the Preferred Stock and the Warrants, and, until such time as the Common Stock
has been registered under the 1933 Act as contemplated by the Registration
Rights Agreement and sold in accordance with an effective Registration
Statement, certificates and other instruments representing any of the Securities
shall bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of any such Securities):
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED
FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE
ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
c. Registration Rights Agreement. The parties hereto agree to
enter into the Registration Rights Agreement on or before the Initial Closing
Date.
d. Filings. (i) The Company undertakes and agrees to make all
necessary filings in connection with the sale of the Securities to the Buyer
under any United States laws and regulations applicable to the Company, or by
any domestic securities exchange or trading market, and upon request of Buyer to
provide a copy thereof to the Buyer promptly after such filing.
(ii) Subject to the conditions of the immediately following
sentence, the Company undertakes and agrees to take all steps necessary to have
a meeting and vote of the stockholders of the Company no later than the Meeting
Date (as defined below) regarding authorization of the Company's issuance of
shares of Common Stock to the holders of the Preferred Stock and Warrants of
shares of Common Stock which shares are in excess of twenty percent (20%) of the
outstanding shares of Common Stock on the date of this Agreement in accordance
with the Listing Rules of the Principal Market as may be applicable. The term
"Meeting Date" means the date which is the earlier of (x) seventy-five (75) days
after the date on which the Company has issued, after the date of this
Agreement, shares of Common Stock which, in the aggregate equal or exceed ten
percent (10%) of the outstanding shares of Common Stock on the date hereof or
(y) the date on which the Company holds its next regular or special stockholders
meeting. The Company will recommend to the stockholders that such authorization
be granted and will seek proxies from stockholders not attending the meeting
naming a director or officer of the Company as such stockholder's proxy and
directing the proxy to vote, or giving the proxy the authority to vote, in favor
of such authorization. Upon determination that the stockholders have voted in
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favor of such authorization, the Company shall cause its counsel to issue to the
Buyer an opinion (the "Authorization Opinion") that such authorization has been
duly adopted by all necessary corporate action of the Company and that the
Company will be able to issue, without restriction as to the number of such
shares, all shares of Common Stock as may be issuable upon conversion of the
Preferred Stock and without any limits imposed by the Cap Regulations (as
defined in the Certificate of Determination) adopted on or before and in effect
on the date of the Authorization Opinion. The Authorization Opinion shall state
that the Buyer may rely thereon in connection with the transactions contemplated
by this Agreement and the other Transaction Agreements regarding its holdings of
the Debentures.
(iii) In furtherance of the provisions of the immediately
preceding subparagraph (ii) hereof, the Company (a) commits to using its best
efforts to obtain any stockholder authorization contemplated by said
subparagraph (ii), and (b) represents to the Buyer that the Company has obtained
the binding commitment or proxy (each, a "Principal Voter Proxy") of each
Principal Voter (as defined below) that such Principal Voter will vote in favor
of any stockholder authorization contemplated by said subparagraph (ii). A
"Principal Voter" is a person who meets any one or more of the following
criteria: (A) a person who is a director or executive officer of the Company
(each, a "Company Principal") and who, directly or indirectly, holds any shares
of Common Stock of the Company; (B) a spouse of a Company Principal who resides
in the household of the Company Principal (a "Principal's Spouse") and who,
directly or indirectly, holds any shares of Common Stock of the Company, (C) a
parent, sibling or child of a Company Principal who resides in the household of
a Company Principal or of a Principal's Spouse (each, a "Principal's Relative")
and who, directly or indirectly, holds any shares of Common Stock or (D) any
other person or entity, including, without limitation, for profit or non-profit
corporations, partnerships and trusts, whose voting rights regarding Common
Stock of the Company is subject to the direction, control or other influence of
any Company Principal, Principal's Spouse or Principal's Relative. The Company
will deliver such Principal Voter Proxies to the Buyer or the Buyer's designee
on the Initial Closing Date.
e. Reporting Status. So long as the Buyer beneficially owns
more than one percent (1%) of the outstanding Common Stock of the Company, the
Company shall file all reports required to be filed with the SEC pursuant to
Section 13 or 15(d) of the 1934 Act, and the Company shall not terminate its
status as an issuer required to file reports under the 1934 Act even if the 1934
Act or the rules and regulations thereunder would permit such termination. The
Company will take all reasonable action under its control to obtain and to
continue the listing and trading of its Common Stock (including, without
limitation, all Registrable Securities) on The American Stock Exchange or such
other exchange or Nasdaq or the Smallcap National Market and will comply in all
material respects with the Company's reporting, filing and other obligations
under the by-laws or rules of its Principal Market.
f. Use of Proceeds. The Company will use the proceeds from the
sale of the Preferred Stock (excluding amounts paid by the Company for legal
fees, finder's fees and escrow fees in connection with the sale of the Preferred
Stock) for internal working capital purposes as more specifically set forth in
Schedule 4f hereto, and, unless specifically set forth on Schedule 4f, or
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consented to in advance in each instance by the Buyer, the Company shall not,
directly or indirectly, use such proceeds for any loan to or investment in any
other corporation (other than majority owned subsidiaries), partnership
enterprise or other person or for the repayment of any outstanding loan by the
Company to any other party.
g. Certain Agreements. (i) The Company covenants and agrees,
that it will not, without the prior written consent of the Buyer, enter into
(x) any subsequent or further offer or sale of Common Stock or
securities convertible into Common Stock (collectively, "New Common
Stock"), or
(y) any subsequent offer or contract for an equity line or similar
arrangement which contemplates the issuance of New Common Stock
with any non-employee third party (a "New Investor"), which New Common Stock is
(a) freely tradeable or (b) will be registered under the Securities Act, on or
before two hundred and seventy (270) days after the Effective Date.
(ii) The provisions of subparagraph (g)(i) will not apply to (w) an
underwritten public offering of shares of Common Stock or Preferred Stock; (x)
the issuance of securities (other than for cash) in connection with an
acquisition, merger, consolidation, sale of assets, disposition or the exchange
of the capital stock for assets, stock or other joint venture interests; or (y)
the Company's issuance of Shares or Convertible Securities in connection with
the proposed acquisitions set forth on Schedule 4f hereto or (z) issuances of
shares on the exercise or conversion of or in connection with, existing warrants
or options.
h. Available Shares. After the shareholders of the Company
approve an increase to the authorized shares of Common Stock and the Company
files an amendment to its Articles of Incorporation increasing the number of its
authorized shares the Company will thereafter have at all times authorized and
reserved for issuance, free from preemptive rights, shares of Common Stock
sufficient to yield the aggregate of (i) two hundred percent (200%) of the
number of shares of Common Stock issuable at conversion as may be required to
satisfy the conversion rights of the Buyer pursuant to the terms and conditions
of the Certificate of Determination at the then conversion price or to represent
payment of dividends on the Preferred Stock and (ii) the number of shares
issuable upon exercise as may be required to satisfy the exercise rights of the
Buyer pursuant to the terms and conditions of the Warrants.
i. Warrants. (i) The Company agrees to issue to the Buyer on
each Closing Date transferable warrants with a cashless exercise provision (the
"Warrants") for the purchase of 100,000 shares of Common Stock for every
$1,000,000 of the Preferred Stock purchased on such Closing Date. The Warrants
shall bear an exercise price per share equal to 110% of the Closing Price, (as
defined in the Certificate of Determination) (subject to adjustment as provided
in the Warrant). The Warrants will be exercisable commencing six (6) months
after the Initial Closing Date and will expire on the last day of the calendar
month in which the fifth anniversary of the Initial Closing Date. The Warrants
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shall be in the form annexed hereto as Annex VI, together with (x) registration
rights as provided in the Registration Rights Agreement and (y) piggy-back
registration rights after the effectiveness of the Registration Statement
expires, as contemplated by the Registration Rights Agreement.
(ii) The Warrants will provide that commencing nine (9) months after
the Effective Date, if the Closing Bid Price of the Common Stock of the Company,
is equal to two hundred seventy five percent (275%) of the exercise price of the
Warrants for a period of twenty (20) consecutive trading days then the Company
shall have the right to redeem all or any of the then outstanding Warrants held
by the Holder, in cash for an amount equal to $0.10 per Warrant, by giving not
less than thirty (30) days written notice of such redemption to the Holders of
such Warrant.
j. Limitation on Issuance of Shares. If applicable to the
Company, the Company may be limited in the number of shares of Common Stock it
may issue by virtue of (i) the number of authorized shares or (ii) the
applicable rules and regulations of the Principal Market. The Company has agreed
to take all steps necessary regarding shareholder authorization of an increase
in the authorized capital stock of the Company as more fully described in the
Certificate of Determination. In addition, the Company agrees that it will not
issue any additional shares of Common Stock or securities convertible into
Common Stock which would exceed its authorized shares of capital stock.
k. Reimbursement. If (i) the Buyer, other than by reason of
its gross negligence or willful misconduct, becomes involved in any capacity in
any action, proceeding or investigation brought by any shareholder of the
Company, in connection with or as a result of the consummation of the
transactions contemplated by the Transaction Documents, or if the Buyer is
impleaded in any such action, proceeding or investigation by any person, or (ii)
the Buyer, other than by reason of its gross negligence or willful misconduct or
by reason of its trading of the Common Stock in a manner that is illegal under
the federal or state securities laws, becomes involved in any capacity in any
action, proceeding or investigation brought by the SEC against or involving the
Company or in connection with or as a result of the consummation of the
transactions contemplated by the Transaction Documents, or if the Buyer is
impleaded in any such action, proceeding or investigation by any person, then in
any such case, the Company will reimburse the Buyer for its reasonable legal and
other expenses (including the cost of any investigation and preparation)
incurred in connection therewith, as such expenses are incurred. In addition,
other than with respect to any matter in which Buyer is a named party, the
Company will pay to the Buyer reasonable out-of-pocket costs with respect to
assisting in preparation for hearings, trials or pretrial matters, or otherwise
with respect to inquiries, hearing, trials, and other proceedings relating to
the subject matter of this Agreement. The reimbursement obligations of the
Company under this Section 4(k) shall be in addition to any liability which the
Company may otherwise have, shall extend upon the same terms and conditions to
any affiliates of the Buyer that are actually named in such action, proceeding
or investigation, and partners, directors, agents, employees and controlling
persons (if any), as the case may be, of the Buyer and any such affiliate, and
shall be binding upon and inure to the benefit of any successors, assigns, heirs
and personal representatives of the Company, the Buyer and any such affiliate
and any such person.
15
l. Right of First Refusal. (i) The Company may during the
period commencing on the Effective Date and continuing through and including the
date which is one hundred eighty (180) days after the Effective Date offer to
enter into any transaction (a "New Transaction") for the sale of New Common
Stock to a New Investor which would otherwise be prohibited under Section
4(g)(i) hereof, but only if the average closing bid price for the Common Stock
for the twenty (20) trading days ending on the trading immediately before the
New Transaction Notice (as defined below) is at least $5.50 per share (adjusted
for capital transactions occurring after the Initial Closing Date). Before
consummating the New Transaction with a New Investor, the Company shall give
written notice (a "New Transaction Notice") to the Buyer summarizing all of the
terms of such offer (a "New Transaction Offer"). The Buyer shall have the right
(the "Right of First Refusal"), exercisable by written notice given to the
Company by the close of business on the fifth business day after the Buyer's
receipt of the New Transaction Offer (the "Right of First Refusal Expiration
Date"), to participate in all or any part of the New Transaction Offer on the
terms so specified.
(ii) If, and only if, the Buyer does not exercise the Right of
First Refusal in full, the Company may consummate the remaining portion of the
New Transaction with any New Investor on the terms specified in the New
Transaction Offer within thirty (30) days of the Right of First Refusal
Expiration Date.
(iii) If the terms of the New Transaction to be consummated
with such other party differ from the terms specified in the New Transaction
Offer so that the terms are more beneficial in any respect to the New Investor,
the Company shall give the Buyer a New Transaction Offer relating to the terms
of the New Transaction, as so changed, and the Buyer's Right of First Refusal
and the preceding terms of this paragraph (l) shall apply with respect to such
changed terms.
(iv) If there is more than one Buyer signatory to this
Agreement, the preceding provisions of this paragraph (l) shall apply pro rata
among them (based on their relative Buyer's Allocable Shares), except that, to
the extent any such Buyer does not exercise its Right of First Refusal in full
(a "Declining Buyer"), the remaining Buyer or Buyers who or which have exercised
their own Right of First Refusal in full, shall have the right (pro rata among
them based on their relative Buyer's Allocable Shares, if more than one) to
exercise all or a portion of such Declining Buyer's unexercised Right of
Refusal.
(v) In the event the New Transaction is consummated with such
New Investor at any time prior to the expiration of one hundred eighty (180)
days after the Effective Date on terms providing for a sale price equal to or
computed based on, or a determination of a conversion price based on, a lower
percentage of the then current market price (howsoever defined or computed)
provided in the Certificate of Determination for determining the Conversion Rate
(howsoever defined or computed), the terms of any unissued or unconverted
Preferred Stock shall be modified to reduce the relevant Conversion Rate to be
equal to that provided in the New Transaction as so consummated.
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(vi) The provisions of paragraph (4)(l) will not apply to (w)
an underwritten public offering of shares of Common Stock or Preferred Stock;
(x) the issuance of securities (other than for cash) in connection with an
acquisition, merger, consolidation, sale of assets, disposition or the exchange
of the capital stock for assets, stock or other joint venture interests; or (y)
the Company's issuance of Shares or Convertible Securities in connection with
the proposed acquisitions set forth on Schedule 4f hereto or (z) issuances of
shares on the exercise or conversion of or in connection with, existing options
and warrants.
n. Fixed Conversion Price. The parties agree that the "Fixed
Conversion Price" (as such term is used in the Certificate of Determination) for
the First Additional Preferred Stock and Second Additional Preferred Stock shall
mean the Closing Price (as defined in the Certificate of Determination), but in
no event less than $1.50 or greater than $3.00 per share. In the event that the
"Fixed Conversion Price" for any tranche is different than another tranche as
determined in accordance with the foregoing formula or if required by the law of
the state of incorporation of the Company, the Board of Directors of the Company
will establish a new series of preferred stock with the same rights and
preferences as the Series A Preferred Stock except that the Fixed Conversion
Price shall be equal to the amount determined in accordance with this paragraph.
o. Certificate of Determination. In the event of any
inconsistency between the terms of this Agreement or the Certificate of
Determination, the provisions of the Certificate of Determination will control.
p. Determination of Prices. The parties agree that the
determination of any stock prices hereunder or pursuant to the Certificate of
Determination shall be as reported by Bloomberg LP.
5. TRANSFER AGENT INSTRUCTIONS.
a. The Company warrants that, with respect to the Securities,
other than the stop transfer instructions to give effect to Section 4(a) hereof,
it will give its transfer agent no instructions inconsistent with instructions
to issue Common Stock from time to time upon conversion of the Preferred Stock
in such amounts as specified from time to time by the Company to the transfer
agent, bearing the restrictive legend specified in Section 4(b) of this
Agreement prior to registration of the Shares under the 1933 Act, registered in
the name of the Buyer or its nominee and in such denominations to be specified
by the Buyer in connection with each conversion of the Preferred Stock. Except
as so provided, the Shares shall otherwise be freely transferable on the books
and records of the Company as and to the extent provided in this Agreement, the
Registration Rights Agreement, and applicable law. Nothing in this Section shall
affect in any way the Buyer's obligations and agreement to comply with all
applicable securities laws upon resale of the Securities. If the Buyer provides
the Company with an opinion of counsel reasonably satisfactory to the Company
that registration of a resale by the Buyer of any of the Securities in
accordance with clause (1)(B) of Section 4(a) of this Agreement is not required
under the 1933 Act, the Company shall (except as provided in clause (2) of
Section 4(a) of this Agreement) permit the transfer of the Securities and, in
the case of the Converted Shares or the Warrant Shares, as the case may be,
promptly instruct the Company's transfer agent to issue one or more certificates
for Common Stock without legend in such name and in such denominations as
specified by the Buyer.
17
b. Subject to the provisions of this Agreement, the Company
will permit the Buyer to exercise its right to convert the Preferred Stock in
the manner contemplated by the Certificate of Determination.
c. The Company understands that a delay in the issuance of the
Shares of Common Stock beyond the Delivery Date (as defined in the Certificate
of Determination) could result in economic loss to the Buyer. As compensation to
the Buyer for such loss, the Company agrees to pay late payments to the Buyer
for late issuance of Shares upon conversion in accordance with the schedule set
forth in the Certificate of Determination.
d. If, by the relevant Delivery Date, the Company fails for
any reason to deliver the Shares to be issued upon conversion of Preferred Stock
and after such Delivery Date, the holder of the Preferred Stock being converted
will have the right to require the Company to pay to the Converting Holder the
"Buy-In Adjustment Amount" as set forth in the Certificate of Determination.
e. In lieu of delivering physical certificates representing
the Common Stock issuable upon conversion, provided the Company's transfer agent
is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer program, upon request of the Buyer and its compliance with
the provisions contained in this paragraph, so long as the certificates therefor
do not bear a legend and the Buyer thereof is not obligated to return such
certificate for the placement of a legend thereon, the Company shall use its
best efforts to cause its transfer agent to electronically transmit the Common
Stock issuable upon conversion to the Buyer by crediting the account of Buyer's
Prime Broker with DTC through its Deposit Withdrawal Agent Commission system.
f. If, at any time (i) the Company challenges, disputes or
denies the right of a holder of Preferred Stock to effect a conversion of the
Preferred Stock into Common Stock or otherwise dishonors or rejects any
Conversion Notice delivered in accordance with the terms of this Agreement or
the Certificate of Determination or any exercise of any Warrant in accordance
with its terms ("Warrant Exercise"), or (ii) any third party who is not and has
never been an Affiliate of such holder commences any lawsuit or proceeding or
otherwise asserts any claim before any court or public or governmental
authority, which lawsuit, proceeding or claim seeks to challenge, deny, enjoin,
limit, modify, delay or dispute the right of such holder to effect the
conversion of the Preferred Stock into Common Stock, and the Company refuses to
honor any such Conversion Notice or Warrant Exercise, then such holder shall
have the right, by written notice to the Company, to require the Company to
promptly redeem the Preferred Stock for cash at a redemption price equal to the
Cap Redemption Amount of the unconverted Preferred Stock held by such holder;
provided, however, that the Company shall have a period of sixty (60) days
within which to (i) have the lawsuit or proceeding dismissed and honor the
Conversion Notice and/or the Warrant Exercise, or (ii) raise the capital
required to redeem the Cap Redemption Amount, as the case may be. Under any of
the circumstances set forth above, the Company shall be responsible for the
18
payment of all costs and expenses of such holder, including, but not necessarily
limited to, reasonable legal fees and expenses, as and when incurred in
connection with such holder's disputing any such action or pursuing such
holder's rights hereunder (in addition to any other rights such holder may have
hereunder or otherwise).
g. The holder of any Preferred Stock shall be entitled to
exercise its conversion privilege with respect to the Preferred Stock
notwithstanding the commencement of any case under 11 U.S.C.ss.101 et seq. (the
"Bankruptcy Code"). In the event the Company is a debtor under the Bankruptcy
Code, the Company hereby waives, to the fullest extent permitted, any
rights to relief it may have under 11 U.S.C.ss.362 in respect of such holder's
conversion privilege. The Company hereby waives, to the fullest extent
permitted, any rights to relief it may have under 11 U.S.C.ss.362 in respect of
the conversion of the Preferred Stock. The Company agrees, without cost or
expense to such holder, to take or to consent to any and all action necessary to
effectuate relief under 11 U.S.C.ss.362.
h. The Company will authorize its transfer agent to give
information relating to the Company directly to the Buyer or the Buyer's
representatives upon the request of the Buyer or any such representative , to
the extent such information relates to (i) the status of shares of Common Stock
issued or claimed to be issued to the Buyer in connection with a Notice of
Conversion, or (ii) the number of outstanding shares of Common Stock of all
stockholders as of a current or other specified date. The Company will provide
the Buyer with a copy of the authorization so given to the transfer agent.
6. CLOSING.
a. The closing for the First and Second Additional Preferred
Stock shall be conducted upon the same terms and conditions as set forth in
Section 8.
b. Each closing of the purchase and issuance of Preferred
Stock shall occur on the relevant Closing Date at the offices of the Escrow
Agent and shall take place no later than 3:00 P.M., New York time, on such day
or such other time as is mutually agreed upon by the Company and the Buyer.
c. Notwithstanding anything to the contrary contained herein,
the Escrow Agent will be authorized to release the Escrow Funds to the Company
and to others and to release the other Escrow Property on the relevant Closing
Date upon satisfaction of the conditions set forth in Sections 7 and 8 hereof
and as provided in the Joint Escrow Instructions.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL
The Buyer understands that the Company's obligation to sell
the relevant Preferred Stock to the Buyer pursuant to this Agreement on the
relevant Closing Date is conditioned upon:
a. The Buyer's execution and delivery of this Agreement and
the other Transaction Agreements contemplated to be signed by the Buyer;
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b. Delivery by the Buyer to the Escrow Agent of good funds as
payment in full of an amount equal to the Purchase Price for the relevant
Preferred Stock in accordance with this Agreement;
c. The accuracy on such Closing Date of the representations
and warranties of the Buyer contained in this Agreement, each as if made on such
date and the performance by the Buyer on or before such date of all covenants
and agreements of the Buyer required to be performed on or before such date;
d. Except to the extent contemplated by specific provisions of
the Transaction Agreements, there shall not be in effect any law, rule or
regulation prohibiting or restricting the transactions contemplated hereby to an
extent materially greater than contemplated herein, or requiring any consent or
approval which shall not have been obtained; and
e. From and after the date hereof to and including such
Closing Date, the trading of the Common Stock shall not have been suspended by
the SEC or The American Stock Exchange and trading in securities generally on
the NYSE or The American Stock Exchange shall not have been suspended or
limited, nor shall minimum prices been established for securities traded on The
American Stock Exchange, nor shall there be any outbreak or escalation of
hostilities involving the United States or any material adverse change in any
financial market that in either case in the reasonable judgment of the Company
makes it impracticable or inadvisable to sell the Preferred Stock.
8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to
purchase the Preferred Stock on the relevant Closing Date is conditioned upon:
a. The adoption of the Certificate of Determination by all
necessary corporate action of the Company and the filing of all filings
necessary to effectuate the Certificate of Designations as a part of the charter
documents of the Company;
b. The execution and delivery of this Agreement and the
Registration Rights Agreement by the Company;
c. The accuracy in all material respects on such Closing Date
of the representations and warranties of the Company contained in this
Agreement, each as if made on such date (except to the extent it relates to a
particular date), and the performance by the Company on or before such date of
all covenants and agreements of the Company required to be performed on or
before such date;
d. On such Closing Date, the Registration Rights Agreement
shall be in full force and effect and the Company shall not be in default
thereunder;
20
e. On such Closing Date, the Buyer shall have received an
opinion of counsel for the Company, dated such Closing Date, in form, scope and
substance reasonably satisfactory to the Buyer, substantially to the effect set
forth in Annex III attached hereto;
f. Except to the extent contemplated by specific provisions of
the Transaction Agreements, there shall not be in effect any law, rule or
regulation prohibiting or restricting the transactions contemplated hereby to an
extent materially greater than contemplated herein, or requiring any consent or
approval which shall not have been obtained other than the approval of the
Principal Market;
g. From and after the date hereof to and including such
Closing Date, the trading of the Common Stock shall not have been suspended by
the SEC or the The American Stock Exchange and trading in securities generally
on The American Stock Exchange shall not have been suspended or limited, nor
shall minimum prices been established for securities traded on The American
Stock Exchange, nor shall there be any outbreak or escalation of hostilities
involving the United States or any material adverse change in any financial
market that in either case in the reasonable judgment of the Buyer makes it
impracticable or inadvisable to purchase the Preferred Stock; and
h. With respect to an Additional Closing Date,
(i) The Company shall give the Buyer five trading days notice
of the fulfillment of the conditions necessary to close the purchase and sale of
the Additional Preferred Stock (other than the determination of the
Capitalization Rate which will be determined on the respective Closing Date for
the trading days prior to the closing);
(ii) each of the Transaction Agreements shall continue to be
in full force and effect and be applicable, to the extent relevant, to the
Additional Preferred Stock and Warrants (and the Company's issuance of the
Additional Preferred Stock shall constitute the Company's making a
representation and warranty to such effect as of such date);
(iii) the representations and warranties of the Company
contained in Section 3 hereof shall be true and correct in all material respects
(and the Company's issuance of the Additional Preferred Stock shall constitute
the Company's making each such representation and warranty as of such date,
except to the extent a representation or warranty relates to a particular date)
and there shall have been no material adverse change to the business, operations
or financial condition or results of operation of the Company and its
subsidiaries taken as a whole from the Initial Closing Date through and
including the Additional Closing Date (and the continued losses of the Company
consistent with prior years is not deemed to be a material adverse change); (iv)
the Company is in compliance its obligations of the material terms of the
Transaction Agreements;
(v) the Company shall have timely issued all shares issuable
upon conversion of the Preferred Stock or upon exercise of the Warrants prior to
the date of such Additional Closing Date; and
(vi) the Company shall have available and shall reserve for
issuance to Buyer at least two hundred (200%) of the number of Shares which
would be issued on (x) conversion of all unconverted Initial Preferred Stock and
all Additional Preferred Stock and (y) exercise of all unexercised Warrants; and
21
(vii) the Common Stock is listed on one of the following:
Amex, Nasdaq National Market, Nasdaq Smallcap Market or the New York Stock
Exchange and the requisite Shareholder Approval and any other requirements of
the Principal Market as set forth in Section 5(j) of the Certificate of
Determination shall have been received.
i. With respect to the First Additional Closing only, the
Capitalization Rate of the Company is equal to or exceeds $25,000,000 for the
five trading days prior to the Issue Date of such shares.
j. With respect to the Second Additional Closing only, the
Registration Statement shall have been declared effective and continue to be
effective.
9. GOVERNING LAW: MISCELLANEOUS.
a. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws. Each of the parties consents to the jurisdiction
of the federal courts whose districts encompass any part of the City of New York
or the state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on forum non conveniens, to the bringing of any such proceeding in such
jurisdictions. To the extent determined by such court, the Company shall
reimburse the Buyer for any reasonable legal fees and disbursements incurred by
the Buyer in enforcement of or protection of any of its rights under any of the
Transaction Agreements. Each party waives any right it may have to a trial by
jury in respect of any action, suit or proceeding arising out of or relating to
this Agreement.
b. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
c. This Agreement shall inure to the benefit of and be binding
upon the successors and assigns of each of the parties hereto.
d. All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
22
e. A facsimile transmission of this signed Agreement shall be
legal and binding on all parties hereto.
f. This Agreement may be signed in one or more counterparts,
each of which shall be deemed an original.
g. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
h. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
i. This Agreement may be amended only by an instrument in
writing signed by the party to be charged with enforcement thereof.
j. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
10. NOTICES.
All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing and, unless
otherwise specified herein, shall be (a) personally served,(b) deposited in the
mail, registered or certified, return receipt requested, postage prepaid, (c)
delivered by reputable courier service which provides evidence of delivery with
charges prepaid, (d) transmitted by hand delivery, or (e) by facsimile,
addressed as set forth below or to such other address as such party shall have
specified most recently by written notice given in accordance herewith. Any
notice or other communication required or permitted to be given hereunder shall
be deemed effective (i) upon hand delivery or delivery at the address or number
designated below (if delivered on a business day during normal business hours
where such notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal business hours
where such notice is to be received) (ii) on the second business day following
the date of mailing by express courier service or on the fifth business day
after deposited in the mail, in each case, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur or
(iii) if by facsimile, upon confirmation of receipt by the recipient or
confirmation of transmission in another provided in this Section 10. The
addresses for such communications shall be:
If to the Company:
-----------------
0Xxxxxxxxx.xxx
000 Xxxxxxxxxx Xxxxxxxxx
Xxxxxx xxx Xxx
Xxxxxxxxxx 00000
Attention: Xxxxxx Xxxx
Tel No.: (000) 000-0000
Fax No.: (000) 000-0000
23
With a copy (which shall not constitute notice) to:
Xxxxxxxx Mollen & Xxxxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxx Xxxx Xxxxxx, Esq.
Tel No.: (000)-000-0000
Fax No.: (000)- 000-0000
If to Buyer: At the address set forth on the
signature page of this Agreement.
With a copy (which shall not constitute notice) to:
Xxxxxxx & Xxxxxx, LLP
00 Xxxxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxxx, Esq.
Tel No.: (000) 000-0000
Fax No: (000) 000-0000
Either party hereto may from time to time manner
change its address or facsimile number for notices under this Section 10 by
giving at least ten (10) days' prior written notice of such changed address or
facsimile number to the other party hereto. Any notice required or permitted
hereunder shall be given in writing (unless otherwise specified herein).
11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The Company's and the Buyer's representations and warranties
herein shall survive the execution and delivery of this Agreement and the
delivery of the Certificates and the Warrants and the payment of the Purchase
Price and shall inure to the benefit of the Buyer and the Company and their
respective successors and assigns.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK.]
24
IN WITNESS WHEREOF, this Agreement has been duly executed by
the Buyer by one of its officers thereunto duly authorized as of the date set
forth below.
STATED VALUE OF PREFERRED STOCK: $
--------------------------------
PURCHASE PRICE OF PREFERRED STOCK: $
--------------------------------
SIGNATURES FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that it has caused this Securities Purchase
Agreement to be duly executed on its behalf this day , 2000.
________________________________ _________________________________________
Address Printed Name of Subscriber
________________________________
By: __________________________________
Telecopier No. _________________ (Signature of Authorized Person)
_________________________________________
Printed Name and Title
________________________________
Jurisdiction of Incorporation
or Organization
As of the date set forth below, the undersigned hereby accepts this Agreement
and represents that the foregoing statements are true and correct and that it
has caused this Securities Purchase Agreement to be duly executed on its behalf.
0XXXXXXXXX.XXX
By:_____________________________________
Title:__________________________________
Date: ,2000
__________________________________
25
ANNEX I STATEMENT OF DESIGNATIONS
ANNEX II JOINT ESCROW INSTRUCTIONS
ANNEX III OPINION OF COUNSEL
ANNEX IV REGISTRATION RIGHTS AGREEMENT
ANNEX V COMPANY DISCLOSURE MATERIALS
ANNEX VI FORM OF WARRANT
